Bolivia - Mining Credit Projects

Document of The World Bank FOR OFFICIAL USE ONLY Report No. 5655 PROJECT PERFORMANCE AUDIT REPORT BOLIVIA - BANCO INDUSTRIAL S.A. (BISA) s (CREDIT 455-BO AND LOAN 1290-BO) May 17, 1985 Operations Evaluation Department 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. ABBREVIATIONS AND ACRONYMS BAMIN - Banco Kinero de Bolivia BISA - Banco Industrial S.A. COMIBOL - Corporacioa Minera de Bolivia DEG - Deutsche Entwicklungs-Gesellschaft DFC - Development Finance Company ERR - Economic rate of return FRR - Financial rate of return GDP - Gross domestic product GOB - Government of Bolivia IDB - Inter-American Development Bank IFC - International Finance Corporation MT - Metric Ton PCR - Project Completion Report PPAM - Project Performance Audit Memorandum PPAR - Project Performance Audit Report SAR - Staff Appraisal Report USAID - United States Agency for International Development EXCHANGE RATES Name of Currency (Abbreviation): Pesos Bolivianos ($b) Exchange Rate: from October 27, 1972 US$1.00 = $b 20.00 from November 30, 1979 US$1.00 = $b 24.51 from March 22, 1982 US$1.00 = $b 43.18 from November 6, 1982 US$1.00 = $b 196.00 from November 17, 1983 US$1.00 = $b 500.00 from April 12, 1984 US$1.00 = $b 2,000.00 from August 16, 1984 (US$1.00 = Sb 2,000.00 for -essential areas- (US$1.00 = $b 5,000.00 for -complementary areas- from November 20, 1984 US$1.00 = $b 9,000.00 from February 9, 1985 US$1.00 = $b 50,000.00 FISCAL YEAR January 1 - December 31 FOR OFFICIAL USE ONLY PROJECT PERFORMANCE AUDIT REPORT BOLIVIA - BANCO INDUSTRIAL S.A. (BISA) (CREDIT 455-Bo and LOAN 1290-BO) TABLE OF CONTENTS Page No. Preface ........................................................... . Basic Data Sheet ....................................................i Highlights ....................................................... iv PROJECT PERFORMANCE AUDIT MENDRANDUM I. BACKGROUND ............................... 1 II. PROJECT OBJECTIVES AND DESIGN ........ ........ 3 Credit 455-Bo-............................... .. 3 Loan 1290-B0.................. ............. 3 III. PROJECT AND SECTORAL POLICY ISSUES...................... 4 Composite Amortization Schedules...... ........ .....4....4 Mining Code....................................... 6 Mining Tax Regime...................... 6 IV. UTILIZATION OF BANK GROUP FUNDS .. ...... 7 Credit 455-BO........................................... 7 Loan 1290-Bo............. . ...... ...... ... ............ 9 V. INSTITUTIONAL DEVELOPMENTS..........o...... .. ... 10 Organization, Management and Staff...o.................. 10 Project Appraisal and Supervision........-o.............. 11 Resource Mobilization....... ..o......... o. ............ . 12 VI. OPERATIONAL AND FINANCIAL PERFORMANCE................... 13 VII. IMPACT OF BANK GROUP'S ASSOCIATION WITH BISA ............ 14 VIII. CONCLUSIONS .......................... - ... 15 Attachments: 1. Merchandise Exports ............................... 17 2. Breakdown of Subprojects Financed Under Loan 1290-BO..........- ................. 18 3. Subprojects Financed Under Loan 1290-B......... ... 19 4. Rates of Return of Subprojects Financed Under Loan 1290-BO............. ..........20 E This doument has a resuicted disbution and may be used by rdpients only in de performan of their official duties. Its contents may not otherwise be disclosed without World Bank authorization. TABLE OF CONTENTS (cont'd) Page No. 5. Impact of Subprojects Financed Under Loan 1290-BO.................... ........... 21 6. Financial Performance of Companies Financed Under Loan 1290-BO..... ................. 22 7. Operations, 1973-1984....................... ... . 23 8. Balance Sheets, 1981-1984........... ........... 24 9. Income Statements, 1981-1984................. ......... 25 10. Portfolio Analysis as of December 31, 1983........... .. .... 26 11. Comments Received from the Borrower.. ...... ........ 27 PROJECT COMPLETION REPORT I. Introduction ...................... . .......... 29 II. Background ...................... ........................ 31 III. The Projects ...................................... 32 IV. BISA's Operations . ................. . . ....... ... 37 V. Subprojects ........................................... ... 40 VI. Conclusions ............................................ 43 Annexes: 1. Projected and Actual Operations, 1973-1980 ............... 45 2. Projected and Actual Income Statements, 1973-1980 ........ 46 3. Projected and Actual Balance Sheets, 1973-1980 ........... 47 4. Breakdown of Subprojects Financed under Credit 455-BO .... 48 5. Breakdown of Subprojects Financed under Loan 1290-BO ..... 49 6. Subprojects Financed under Credit 455-BO ........ ... 50 7. Subprojects Financed under Loan 1290-DO ....... 51 8. Companies Financed under Credit 455-O ......... 52 9. Impact of Subprojects Financed under Loan 1290-BO ........ 53 10. Financial Performance of Companies Financed under Credit 455-O............ ............... . 54 11. Sample of Companies Financed under Loan 1290-BO ......... 55 - i - PROJECT PERFORMANCE AUDIT REPORT BOLIVIA - BANCO INDUSTRIAL S.A. (BISA) (CREDIT 455-BO and LOAN 1290-B0) PREFACE This is a performance audit under Credit 455-BO and Loan 1290-BO to the Government of Bolivia in the amounts of US$6.2 million and US$10.0 million respectively. The Governwent made US$5.0 million of the Credit and the entire Loan available to Banco Industrial S.A. (BISA) for on-lending to medium mines and industrial enterprises. It retained US$1.2 million of the Credit to help finance a national survey of small mines and a technical assistance program; these components will be discussed in a separate audit. The Credit was approved in January 1974 and the final disbursement of the BISA component was made in May 1979, eleven months behind schedule. The Loan was approved in June 1976 and the final disbursement was made in January 1983, two years behind schedule. The Project Performance Audit Report consists of the Project Per- formance Audit Memorandum (PPAM) prepared by the Operations Evaluation Department (OED) and the Project Completion Report (PCR) prepared by the Latin America and the Caribbean Regional Office of the Bank. The PPAM is based on the attached PCR, the Staff Appraisal and the President's Reports, the Credit and Loan documents, sector and economic reports, the summaries of the Board discussions, study of the project files, and discussions with Bank staff. An OED mission visited Bolivia in July 1984 and discussed the effec- tiveness of the Bank's assistance with BISA, Government officials, the National Association of Medium Miners and a sample of BISA's clients. Their kind cooperation and valuable assistance in the preparation of this report is gratefully acknowledged. The PCR very ably describes the experience with the two projects, providing an analysis of BISA's institutional development, operational and financial performance and the use of the Bank Group's funds. The PPAM examines the design of the projects, elaborates on particular aspects of the utilization of the Bank's funds and the institutional development of BISA, dwells on certain project and sectoral policy issues, and draws lessons from the project experience. Comments received from the Borrower have been taken into account in finalizing the report and are attached as Attachment 11. - ii - PROJECT PERFORMANCE AUDIT REPORT BASIC DATA SHEET BOLIVIA - BANCO INDUSTRIAL S.A. (CREDIT 455-B0) (Amounts in US$ millions) CREDIT STATUS /a As of 02/28/85 Original Disbursed Cancelled Repaid Ontatanding Credit 455-B0 6.20 6.20 0.00 0.06 6.14 CUMULATIVE CREDIT DISBURSEMENTS /a FY74 FY75 FY76 FY77 FY78 FY79 (i) Planned 0.1 2.1 4.2 6.2 6.2 6.2 (ii) Actual 0 0.7 2.8 3.5 5.3 6.2 (iii) (ii) as Z of (i) 0 33.3 66.7 56.5 85.5 100.0 OTHER PROJECT DATA /b Original Actual Board Approval 01/15/74 Credit Agreement - 01/18/74 Effectiveness 04/18/74 06/18/74 Final Subproject Submission 06/30/76 06/30/79 Credit Closing 06/30/78 05/14/79 Borrower Republic of Bolivia Executing Agency Banco Industrial S.A. MISSION DATA /b No. of No. of Date of Month, Year Weeks Persons Manweeks Report Identification 06/72 2 2 4 06/28/72 Preappraisal 12/72 1.5 2 3 01/03/73 Preappraisal 02/73 1.5 3 4.5 03/02/73 Appraisal 06/73 3 4 12 12/28/73 Supervision I 03/74 1.5 3 4.5 04/18/74 Supervision II 07/74 0.5 1 0.5 09/05/74 Supervision III 11/74 2.5 2 5 11/22/74 Supervision IV 08/75 1 2 2 09/19/75 Supervision V 12/75 4 6 24 /C Supervision VI 08/76 0.5 1 0.5 08712/76 Completion 04/81 2 1 2 06/26/81 /a Including technical assistance component of US$1.2 million not involving BISA. /b BISA component only. 7- Appraisal of follow-on project. - iii - PROJECT PERFORMANCE AUDIT REPORT BASIC DATA SHEET BOLIVIA - BANCO INDUSTRIAL S.A. (LOAN 1290-BO) (Amounts in US$ millions) LOAN STATUS As of 02/28/85 Original Disbursed Cancelled Repaid Outstanding Loan 1290-BO 10.00 9.88 0.12 2.16 7.72 CUMULATIVE LOAN DISBURSEMENTS FY77 FY78 FY79 FY80 FY81 FY82 FY83 (i) Planned 0.3 2.9 7.4 9.8 10.0 10.0 10.0 (ii) Actual 0 0 1.9 5.6 7.0 9.2 9.9 (iii) (ii) as Z of (i) 0 0 25.7 57.1 70.0 92.0 99.0 OTHER PROJECT DATA Original Actual Board Approval 06/22/76 Loan Agreement - 10/15/76 Effectiveness 01/13/77 04/14/77 Final Subproject Submission 12/31/78 12/31/81 Loan Closing 12/31/80 12/31/82 Borrower Republic of Bolivia Executing Agency Banco Industrial S.A. MISSION DATA No. of No. of Date of Month, Year Weeks Persons Manweeks Report Appraisal 12/75 4 6 24 06/04/76 Supervision I 12/76 1 1 1 02/25/77 Supervision 11 11/77 1 1 1 12/09/77 Supervision III 05/78 1 1 1 06/06/78 Supervision IV 11/78 0.3 2 0.6 12/19/78 Supervision V 03/79 1 1 1 04/16/79 Supervision VI 03/80 1 1 1 04/25/80 Completion 04/81 2 1 2 06/26/81 FOLLOW-ON PROJECT A proposed project involving a loan of US$20 million divided equally between Banco Industrial S.A. and Banco Minero de Bolivia was appraised in 1981 but has been delayed pending agreement between the Republic of Bolivia and the International Monetary Fund. - iv - PROJECT PERFORMANCE AUDIT REPORT BOLIVIA - BANCO INDUSTRIAL S.A. (BISA) (CREDIT 455-BO and LOAN 129D-BO) HIGHLIGHTS Banco Industrial S.A. (BISA) was a well established, though small and conservative, private development bank at the time of the first project (supported by the Credit), with the prime objective of providing term financ- ing to the industrial sector. Largely as a result of the Credit, it expanded its operations to include providing finance to the important mining sector. This it has successfully accomplished (paras. 6, 35, 47; PCR, paras. 5, 11). The objectives of the projects supported by the Credit and the Loan were to provide term financing for medium-size private mines and, under the Loan, industrial enterprises and to help strengthen BISA, in particular by building up its capability to appraise and supervise mining projects. An additional objective under the Loan was to help develop the embryonic Bolivian capital market by supporting BISA's efforts to mobilize domestic resources through bond issues. These objectives, with the exception of deve- loping the capital market, were successfully attained (paras. 9, 13, 50; PCR, paras. 8, 33). The 39 subprojects assisted under the two projects, with two excep- tions, appear to be viable, though currently suffering from the poor economic environment in Bolivia. They were sectorally and gaographically well distri- buted, and made important contributions to employment. The investments were completed with limited time or cost overruns (paras. 20-34; PCR, paras. 26-31). In retrospect, it seems clear that the Loan was made prematurely. When it was submitted to the Executive Directors there was evidence that the depressed international market for minerals was resulting in a slow down in demand for financing from BISA. Also, the Credit was only 63Z committed. In the event, the first subproject under the Loan was authorized a year and a half after Board approval and the deadline for submitting subprojects had to be extended by three years (paras. 12, 27; PCR, para. 33). The repayment by BISA to the Government of both the Loan and the Credit, and by the Government to the Bank of the Loan, was intended to be by way of composite amortization schedules reflecting the amortization of indi- vidual subloans so as to reduce BISA's foreign exchange exposure to a mini- mum. This common feature of DFC lending was overlooked by the Bank Group, BISA and the Government until, in the case of the Credit, 1981 when the appraisal team for the third operation involving BISA reviewed the situa- tion- In spite of having been recognized at that time in respect of the - v - Credit, it remained overlooked in the case of the Loan until 1984. As a result, BISA was unnecessarily exposed to a foreign exchange risk (paras. 14-16; PCR, para. 3). The project experience is instructive in a number of ways. It sug- gests that: (a) the timing of follow-on projects should depend on a realistic assessment as to when an intermediary will need the additional resources; (b) quality and continuity of management is an important element in instituting and maintaining sound operating policies and in fostering the growth of an institution; (c) in introducing novel elements in a project's design, such as issue of securities, due recognition should be made of the propitiousness of conditions to ensure success; and (d) in supervising projects the Bank Group should be alert to deviations, whether intentional or not, from agreed loan or credit conditions and covenants. Finally, it is unfortunate, though per- haps understandable given the economic and political environment, that the Bank was unable to achieve significant policy reforms in important areas affecting the mining sector, notably taxation, because of their adverse impact on the financial performance of mining enterprises, including Bank supported subprojects. - 1 - PROJECT PERFORMANCE AUDIT MEMORANDUM BOLIVIA - BANCO INDUSTRIAL S.A. (BISA) (CREDIT 455-BO and LOAN 1290-BO) I. BACKGROUND 1. Bolivia is one of the poorest countries in Latin America with a per car'ta GNP of US$570. Mining has traditionally exerted a dominant, although declining, influence on the economy, accounting for some 47% of exports in 1982 (see Attachment 1). Mining taxes are also a significant source of reve- nue for the Central Government. Reflecting its capital intensity, mining directly employs only about 5% of the labor force. However, it is an impor- tant source of secondary and tertiary employment, supporting between 15% and 20% of total employment. 2. Bolivian mines fall naturally into three size categories. All large mines are owned and managed by the Government-owned Corporacion Minera de Bolivia (COMIBOL), established in 1952 when the three major private mining companies were nationalized. COMIBOL is the dominant entity in Bolivia's mining sector, providing over half of the mineral exports and mining taxes. However, COMIBOL is beset by serious problems resulting from overcentraliza- tion, difficult labor relations, high costs and low efficiency.1 3. Medium mines are defined as those having a minimum share capital of US$100,000 equivalent, a certain minimum production depending on the mineral, an adequate technical and management organization, and membership in the National Association of Medium Miners. Currently there are 24 such compan- ies, all privately owned. They are the most efficient producers, responsible in 1982 for 73% of the Bolivian production of antimony, 48% of tungsten, 42% of zinc, 32% of lead, 23% ol tin and 14% of platinum, while employing less than 9% of the mining labor force. 4. Small mines are essentially all of the rest and vary in size from family enterprises to companies comparable in output and employment to smaller medium mines. There are about 5,000 such mines, though only about half are in operation, the actual number at any one time depending on inter- national mineral prices. Most are rather primitive with poor management and little capital. While employing about half of the mining labor force, small mines prcvide only about 15% of mining exports. 5. The Bank Group became involved in Bolivia's mining sector in 1971 when a mining and metallurgical sector mission visited the country. Its 1972 report set out investment priorities which provided the basis for the Bank 1/ The Borrower notes that the exhaustion of its main deposits is another factor affecting COMIBOL's situation (Attachment 11). - 2 - Group's mining sector lending program. The first mining project was support- ed by Credit 455-BO in the amount of US$6.2 million and was approved in 1974. Of this, US$5.0 million was made available to Banco Industrial S.A. (BISA) for on-lending to medium mines, with the remaining US$1.2 million uti- lized by the Government to help finance a national survey of small mines and a technical assistance program. Only the BISA component (hereinafter referr- ed to as the Credit) is covered in this audit. Two additional mining proj- ects were approved in 1976. One was supported by Loan 1290-BO in the amount of US$10.0 million which was again made available to BISA for on-lending to both medium mines and industrial projects; it is also covered in the present PPAR (and referred to as the Loan). The other was a small mining development project which utilized a Government-owned financial intermediary (Banco Minero de Bolivia - BAMIN) and included a technical assistance component which continued the national survey of small mines and the technical assis- tance program begun under the Credit. The experience with it, and the other components of the Credit, will be reviewed in a separate PPAR. In 1979 another IDA Credit was approved to assist the National Mineral Exploration Fund. A fifth project was appraised in 1981 involving lines of credit to BISA and BAMIN for on-lending to medium and small miners. Its processing has been delayed due to the economic difficulties Bolivia is currently facing. 6. BISA was established in 1963 as a private development bank with the prime objective of providing term financing to the industrial sector. Prior to the Credit its shareholders were six private Bolivian banks, some 130 pri- vate Bolivian manufacturing companies and individuals, and four foreign shareholders (three banks and ADELA Investment Company, a multinational development finance company for Latin America). In order to take part in the project supported by the Credit, BISA's By-Laws were amended to allow it to lend to the private mining sector and 16 medium mining companies became shareholders. 7. The industrial sector served by BISA is small, contributing between 13% and 14% to GDP and employing 9-10% of the total labor force. It is largely composed of artisan shops and small firms with less than ten employees and is characterized by low productivity. Most industrial activity is based on the processing of locally produced agricultural and mineral raw materials, though larger firms have a high import dependence. 8. The Bolivian economy has been deteriorating in recent years, with GDP in constant prices falling since 1980. Inflation in 1983, as measured by the consumer price index, was over 275% compared to almost 125% in 1982; during the first three months of 1984 it was about 190Z- Though the country enjoyed political stability during the early 1970s, coinciding with an oil, gas and commodity boom which provided the country with a significant infusion of resources, since 1978 rhere have been a succession of different governments and periods of labor unrest. These have had a negative effect on investment in general and on BISA's prospects in particular. - 3 - II. PROJECT OBJECTIVES AND DESIGN Credit 455-BO 9. The specific objectives of the BISA component of the Credit on which this audit focuses were to (a) provide term financing for the develop- ment and/or expansion of medium-size private mines and (b) help strengthen BISA, in particular by building up its capability to appraise and supervise mining projects (SAR, 1973, para. 1.04; PCR, para. 8). The mining and metallurgical sector review (para. 5) identified four main constraints to mining development: (a) lack of credit for medium and small mines; (b) need for policy reform to make the investment climate more amendable to private investment; (c) lack of a well defined and sustained exploration program; and (d) weaknesses in the public agencies serving the mining sector. The project was designed as an initial step by the Bank Group to help Bolivia overcome these problems. 10. In preparing the first project much thought was given to the question of which intermediary should be chosen. Several candidates were considered, including the possibility of establishing a new institution. In the end it was decided to support BISA in its efforts to expand its activi- ties, both sectorally and geographically. At the time it was a soundly managed institution, principally financing manufacturing industries in the La Paz area but operating with a small equity base. In order to maintain a prudent debt/equity ratio, BISA agreed to increase its paid-in share capital (PCR, para. 2). It also agreed, because it had no experience in mining finance, to strengthen its appraisal cipacity by hiring a mining engineer and an additional financial analyst (PCR., para. 11). 11. The Credit was made available to the Government which on-lent the component to BISA at the then interest rate on Bank loans, 7-1/4% p.a. BISA in turn on-lent the proceeds to medium miners at 11-1/4% p.a., receiving a spread of 4% which was considered appropriate given the additional costs and risks involved with BISA's entering the mining finance field. The sub- borrowers bore the foreign exchange risk. Other features were typical of credits to development finance companies (DFCs), including an amortization schedule from BISA to the Government which was to be the aggregate of the individual subloan amortization schedules. Loan 1290-BO 12. The appraisal mission for the second project involving BTSA took place when the Credit was only 32% committed, though BISA's pipeline at the time suggested that the remainder of the Credit would be committed in the relatively near future. Six months later, when the project was submitted to the Executive Directors, it was fairly clear that the depressed international market for minerals was resulting in a slowdown in demand for financing from BISA (internal memorandum, June 28, 1976; SAR, 1976, paras. 1.15, 4.30); at that time the Credit was only 63% committed. Nevertheless, the Bank expected the Credit to be fully committed before the end of 1976 (SAR, 1976, para. 4.30; PCR, para. 9). In the event, final commitment of the Credit took place only in March 19792/ and utilization of the Loan required three years more than was originally anticipated, suggesting that the timing of the Loan was premature (PCR, para. 33). 13. The project supported by the Loan was essentially a continuation of the earlier one. The objectives of the Loan were broader and aimed to (a) provide term financing for private mining and industrial enterprises, including small-scale industrial firms,3/ (b) contribute to the further development of BISA, and (c) help develop the Bolivian capital market by supporting BISA's efforts to mobilize domestic resources through bond issues (SAR, 1976, para. 6.01; PCR, para. 8). The Loan was made available to finance industrial as well as mining projects, though 70% was expected to be utilized for mining subprojects in view, inter alia, of funds available to BISA from the Inter-American Development Bank (IDB) that were restricted to industrial subprojects. Ten percent of the Loan was expected to be used for subloans to small enterprises (SAR, 1976, paras. 4.30, 4.33, 5.05; PCR, para. 27). The Loan was made to the Government and on-lent to BISA. The Government assumed the foreign exchange risk between the U.S. dollar and other foreign currencies disbursed by the Bank, while BISA passed the exchange risk between the U.S. dollar and the Bolivian peso on to the subborrowers. Otherwise, the Loan was on-lent by the Government to BISA on the same terms and conditions as the Bank Loan to the Government. III. PROJECT AND SECTORAL POLICY ISSUES Composite Amortization Schedules 14. The necessity to prepare a com osite amortization schedule for the Credit, a common feature of DFC lending, & was overlooked by the Bank Group, BISA and Government (PCR, para. 3). Instead, two months after the Credit documents were signed the Government and BISA, without IDA approval, agreed upon an amortization schedule which included ten years of grace and otherwise bore no resemblance to what the composite schedule was likely to be. The composite amortization schedule would normally be prepared around the final 2/ The Credit was 96% committed in February 1977, but recommitment of a subsequent cancellation required another two years. 3/ Defined as firms having equity of no more than US$50,000 equivalent and employing not more than 50 people. BISA's loans to these enterprises are for up to US$30,000 equivalent (SAR, 1976, para. 4.16). 4/ This approach is especially used when the subborrower bears the foreign exchange risk as it minimizes the DFC's foreign exchange exposure after it is repaid. - 5 - date f or subproject submission by BISA to the Bank Group (originally June 30, 1976), at which time all of the subloan amortization schedules would be known. The pro forma amortization schedule in the Subsidiary Loan Agreement provided for BISA's repayments to the Government to commence in September 1976, anticipating that it would be replaced prior to that date by the composite schedule. In the event, the submission deadline was extended six times to June 30, 1979. In the meantime BISA made no repayments to the Government as it was still in the grace period of the revised amortization schedule agreed upon with the Government. 15. This state of affairs was only discovered by the Bank Group in 1981 when the third operation involving BISA was appraised. Following discussions between the Bank Group and BISA, an amortization schedule reflecting the several underlying subloan amortization schedules was finally prepared. BISA, however, never arranged with the Government for the Subsidiary Loan agreement between them to be amended, perhaps because of the several changes in Government during this period. Instead, in August 1983 it requested that the original pro forma amortization schedule contained in the Subsidiary Loan Agreement be accepted as the actual one. As that schedule had anticipated repayments by BISA to the Government to commence in 1976, the amount now due was US$3.3 million equivalent, which BISA wished to repay to the Government in September 1983. This rather unusual request reflected the unsettled state of the foreign exchange market in Bolivia as well as BISA's desire to reduce its foreign exchange exposure (which, of course, was the intention of providing for a composite amortization schedule in the first place). The Bank Group agreed to this request. However, in July 1984, following a mission to BISA, the Bank Group requested BISA to prepare another composite amortization schedule, reflecting payments already made to the Government under the pro forma schedule and payments scheduled to be received from subborrowers in the future, in a further attempt to shield BISA from the foreign exhange risk. A decision is pending.5! 16. Similarly, the terms and conditions for the Loan included the requirement that the amortization of the Loan would conform to the aggregate of the amortization of individual subloans, and that this arrangement would be reflected in the Subsidiary Loan Agreement between the Government and BISA. Though this requirement was the same as under the Credit (excepting the repayment by the Government to the Bank Group), it was overlooked by all concerned until the July 1984 OED mission, in spite of having been belatedly recognized in respect of the Credit in 1981.6/ Instead, BISA repaid the 5/ The Government has indicated that it is following this matter up (para. C, Attachment 11). 6/ The files indicate that the Controller's Department had sent the Government a form letter on May 22, 1979, offering to try to tailor the currency composition of repayments on DFC loans which have a flexible amortization schedule, and had followed this up with a telex to Govern- ment on December 26, 1979, asking for revisions in the pro forma amorti- zation schedule as the first payment date under that schedule was March 1, 1980. The files contain no indication of a Government response or further Bank action on the matter. - 6 - Government, and the Government the Bank, in accordance with the pro forma amortization schedule. A July 1984 telex to BISA requesting it to prepare a composite amortization schedule for the Credit (see para. 15) also requested a composite amortization schedule for the Loan. A reply is awaited. 7/ Mining Code 17. Despite significant progrees made by the Government in improving the climate for private investment prior to the granting of the Credit, there still were problem areas including a deficient mining code and an inequitable mining tax regime. A new mining code had been under review for over a year and was expected to be promulgated in six months (SAR, 1973, paras. 2.11, 2.16). The SAR, however, did not discuss in any detail the deficiencies in the mining code, nor did the 1972 Mining and Metallurgical Sector Report. In the end, the new mining code was never promulgated, even though the Credit Agreement (Section 3.04) provided that it would be by June 30, 1974. Towards the end of 1974 the Government formed a commission composed of representa- tives of all mining subsectors and others to review the code. This coincided with the appointment of a new Minister of Mining. This commission decided that no changes were needed in the code. 18. In fact, as noted in the SAR for the Loan (para. 1.16), there were basically only two changes that were - and are still - considered desirable. One relates to the fee required to obtain a "pertenencia" or a holding of land on which one has exclusive rights to exploit all minerals. This fee is unrealistically low with the result that miners obtain very large pertenencias- while exploiting only small areas. This practice prevents the full exploitation of Bolivia's mineral potential. The other desirable change relates to COMIBOL's ability to add an additional five kilometer -fiscal reserve around its already large "pertenencias-, thus further limiting private exploitation of mineral deposits. These two changes could be effected through regulations without the necessity of revising the entire mining code. This was realized by the Bank Group and the Credit Agreement section regarding a new code was not pursued, though efforts were made to have these changes effected. Mining Tax Regime 19. With regard to the inequitable mining tax regime, the SAR for the Credit (para. 2.7) noted that the Government had expressed interest in a study of its impact on the mining sector, including recommendations for improvements. This study was carried out under the technical assistance component of the Credit, but its basic recommendation of introducing an actual profit tax has not yet been implemented. To a large extent this is due to the absence of standardized accounting for mining enterprises and the weakness of the Ministry of Finance staff which would monitor and enforce the 7/ See footnote 5, para. 15. - 7 - system.8/ At the time the Credit was approved, mining taxes were imposed on gross sales revenue irrespective of production costs. Since 1980 a presumptive mining cost for each mineral has been introduced, indexed to the movement of the minimum price of tin set by the International Tin Council in London. As this does not reflect mining costs in Bolivia, the new system is rightly objected to by the private sector. The iiank plans to press for the adoption of a more realistic tax formula in the proposed fifth mining project (para. 5). IV. UTILIZATION OF BANK GROUP FUNDS Credit 455-BO 20. The first subproject under the Credit was authorized more than a year after Board approval of the project. Part of this delay resulted from the necessity for BISA to recruit a mining engineer and a financial analyst to appraise mining subprojects and then to establish appraisal procedures for these subprojects (para. 10). Further delays were caused by insufficient project preparation by the prospective borrowers and by the necessity, iven BISA's rather small exposure limit to a single project or borrower,_/ to arrange joint financing. By the time of the original subproject submission deadline, two and a half years after Board approval of the project, 63% of the Credit had been authorized for seven subprojects. After two six-month extensions, ten subprojects had been authorized but two had been cancelled, leaving some US$735,000, or 15%, of the Credit unutilized. It then required four additional six-month extensions to commit this sum to a final subproject. 21. As the PCR notes (para. 21), this delay in committing the Credit was not initially due to a lack of overall demand for mining credit from BISA, which in fact exceeded projections during the period 1975-1977. Instead, it was due to a smaller than expected demand for fixed asset financing, which the Credit was designed to cover. The larger than expected demand for permanent working capital was met by BISA from commercial bank lines of credit and its own resources. Following this period, political uncertainties -ith frequent changes in government and labor unrest, coupled with weaknesses in international mineral prices, led to a marked reduction in mining investment. 22. Of the nine subprojects financed under the Credit, one, a zinc mine and the only new project financed (the rest were expansions or modernizations of existing mines), has experienced serious problems. The U.S. promoter of 8/ The Borrower feels that changes were not implemented for fear of a reduction in Treasury reviews (para. D, Attachment 11). 9/ Set at that time at 35% of its equity, or about US$550,000 equivalent. - 8 - this project was not prepared to invest sufficient funds to establish more than three years of proven reserves, with one result being that BISA's loan, following its standard practice, was only for a three-year term. This led to serious cash flow problems. In addition, the ore composition proved more complex than expected. When it became clear that the company was in serious trouble with little prospect of meeting its debt obligations, BISA agreed to convert its loan into equity; this investment is being fully reserved against. The company currently is still in operation and meeting its costs, and there are some prospects of its eventually becoming profitable. 23. Six of the other eight mining companies are currently making profits before taxes, though three show an after-tax loss due to the Bolivian tax regime (see para. 19). Two subloans have been repaid and the other six recently rescheduled, in two cases to assist the subborrowers with cash flow problems and in the other four cases at BISA's request. This request stemmed from the "de-dollarization" of the Bolivian economy which ran from November 1982 to August 1983. During this period BISA and other institutions could collect repayments (and make loans) only in pesos and, as there was much uncertainty as to what exchange rate the Central Bank would apply to these repayments, BISA either rescheduled its loans or refused to accept peso repayments in order to avoid the foreign exchange risk exposure. 24. Actual project costs were very close to those estimated by BISA at the time of its appraisal for all subprojects except the r LC mine, which experienced a cost overrun of 16%. On the other hand, the zinc mine subproject was completed six months ahead of schedule. One subproject experienced a six-month time overrun, while the others were either completed on time or had time overruns of three months or less. 25. BISA calculated the FRR and ERR for each subproject as part of its appraisal. These ranged from 16% to 50% and from 52% to 100% respectively and were satisfactory. While the ERR for some of the earlier subprojects might have been overestimated due to the shadow price used for foreign exchange, the projects were clearly economically justified. The high returns are due to the fact that all but one project were expansions or modernizations. The sizeable difference between the economic and financial rates of return is due to the very substantial taxes mining companies pay. BISA recalculated the rates of return for only three of these subprojects on completion; the results indicate that the projects have proven to be economically justified. The foreign exchange earnings and contribution to exports bear this out (see PCR, Annex 8).10/ 26. While data are not available for the zinc mine, the other eight subprojects created 2,150 new jobs at an average investment cost per job of US$3,340 equivalent. This is substantially better than expected at appraisal 10/ The more recent figures are quite similar to those presented in PCR, Annex 8, except for actual jobs created, and are therefore not reproduced. Employment creation is discussed in para. 26. - 9 - when only some 200-300 additional jobs were forecast to be created, and at an investment cost of between US$25,700 and US$38,500 equivalent. The maximum cost per job created was US$7,080 equivalent, the minimum US$1,460 equivalent, and the median US$3,760 equivalent. In addition, the investments financed under the Credit led in many instances to improved health, safety and living conditions for the workers. Loan 1290-BO 27. The first subproject under the Loan was authorized a year and a half after Board approval of the project, the delay being caused in large measure by the sharp downturn in mining activity in Bolivia that begun in 1976 (PCR, para. 9) and which also affected the commitment of the Credit. Subsequent commitment of the Loan was adversely affected by the political/economic difficulties that beset Bolivia (para. 8; PCR, para. 21). By the time of the original deadline for subproject submission, two and a half years after Board approval, only four subprojects utilizing 20% of the Loan had been authorized. This deadline was subsequently extended four times to December 31, 1981, by which time 30 subprojects had been authorized (another four had been cancelled after authorization) and all but US$123,000 of the Loan had been committed; this amount was subsequently cancelled. 28. Though 70% of the Loan was expected to be used in financing mining subprojects (para. 13), due to the depressed international market for minerals mining investment demand in Bolivia dropped off significantly and in the end only five mining subprojects, accounting for 40% of the Loan, were financed. The possibility of this happening was anticipated in the SAR (para. 4.30). Small enterprises were expected to utilize up to 10% of the Loan proceeds but in fact accounted for only around 1% due to the poor investment climate and, more importantly, the high liquidity of the commercial banks which were to identify subprojects for BISA to finance (PCR, para. 16). This part of the project was considered a pilot operation (SAR, 1976, para. 6.03). 29. The subprojects that were financed were sectorally well diversified (see Attachment 2). Two-thirds by number and amount were concentrated in the department of La Paz, reflecting the geographic distribution of Bolivia's manufacturing sector (and the fact that many mining companies maintain their head offices in La Paz). The other third, however, were distributed over five of eight other departments, indicating some success on BISA's part in expanding its activities geographically. Twenty-six subprojects were for expansions of existing businesses. 30. Attachment 3 contains data on expected and actual completion times and investments costs for the 30 subprojects. The average time overrun was slightly over five months. Seventeen subprojects were completed on time or with an overrun of three months or less and another five were completed within six months of the expected date. Only four experienced serious (a year or more) time overruns. The average cost overrun was about 7%. One-third of the subprojects were completed with no cost overruns or at a - 10 - lower cost than expected. Another third experienced cost overruns of less than 10%. Only four subprojects had cost overruns exceeding 25%, the largest being 87%. 31. Attachment 4 presents the FRR and ERR of the subprojects as estimated at the time of appraisal. BISA normally does not calculate these rates of return for subprojects involving less than US$50,000 equivalent of its funds, which accounts for some of the missing figures. Financial and economic rates of return for the 20 subprojects where the calculations were made ranged from 15% to 58% and from 20% to 80% respectively and were satisfactory. BISA does not systematically recalculate these rates of return after completion of the subprojects; the calculations it has made, however, suggest that the subprojects remained economically viable (PCR, para. 31). 32. Attachment 5 provides data on employment and on exports and foreign exchange earnings or savings attributable to each subproject. All five min- ing companies, as would be expected, made significant contributions in these areas, as did two food product companies. A textile plant, a drug manufac- turer and a plastics product manufacturer provided the savings in foreign exchange. Twenty-five subprojects led to an increase in employment (data arenot available for one subproject and another is closed), with some 1,140 new jobs being created. The average investment cost of these new jobs was US$55,990 equivalent per job. The minimum cost per job created was US$4,400 equivalent, the maximum US$177,750 equivalent, and the median US$34,000 equi- valent. As was anticipated at appraisal, the smaller enterprises created jobs at the lowest costs. 33. Only one subproject is considered by BISA to be a failure, a hotel in La Paz which was closed due to lack of tourist trade and its inability to increase its rates while being forced to pay black market prices for much of its supplies. It is part of a chain and its debt to BISA is being serviced. Attachment 6 presents financial performance data on the remaining subprojects except for some of the smaller enterprises for which data are not available. Half of these are operating at a loss, reflecting the harsh economic climate currently prevailing in Bolivia. Twelve subprojects are current with their repayment of BISA's loans, while another five are in arrears up to three months. Nine subloans, however, are in arrears over one year. BISA has rescheduled twelve loans, in seven cases at its own request (see para. 23) and in five to assist its borrowers with a cash flow problem. 34. While the current financial position of many of the subprojects is perhaps precarious, this is more a reflection of the current economic situa- tion of the country than of their inherent viability. Once the economy sta- bilizes it is reasonable to expect that many subprojects now in trouble will be able to become profitable. V. INSTITUTIONAL DEVELOPMENTS Organization. Management and Staff 35. BISA was a soundly managed institution, although small and conser- vative, at the time of the Credit. To a large extent as a result of the - 11 - Credit, it expanded its operations to include providing finance to the impor- tant mining sector. This it has successfully done, recruiting the necessary technical staff and establishing appropriate procedures (PCR, para. 11). 36. Throughout the commitment period of both the Credit and the Loan BISA was managed by the same General Manager. This fact, and the small staff turnover, helps to explain how the institution was able to carry on as suc- cessfully as it did given the economic and political turmoil in Bolivia since the late 1970s. Though the PCR suggests (para. 19) that BISA might have been more aggressive in offering other financial services and in promoting new investments, given the prevailing investment climate, the make-up of its shareholders and the composition of its financial resources, it is difficult to envisage exactly what new activities it might have successfully under- taken. 37. At the time of the Credit, all of BISA's small staff (ten profes- sionals) were located in La Paz except one representative in Santa Cruz serv- ing the agro-industrial western region. Two and a half years later, when the Loan was granted, the professional staff had grown to 19, the representative office in Santa Cruz had become a full-fledged branch office and a represen- tative office had been opened in Tarija to cover the southern provinces. Currently there are 24 professional staff located in the Head Office in La Paz, three in the branch office in Santa Cruz and a representative in Cochabamba. Though the Tarija representative office is currently closed, there are plans to reopen it, eicher in Tarija or Sucre, when business prospects so warrant (PCR, para. 18). There are also plans to open a branch office in La Paz that is more accessible to artisans and small-scale enterprises than the Head Office. 38. At the end of 1983 there was a significant change in BISA's owner- ship. The ADELA Investment Company, which then held 20% of BISA's share capital, sold its holdings to six local banks and industrial companies which were already shareholders. This led to a change in the balance of ownership which in turn led to changes in senior management. A new General Manager was installed in December 1983 and is taking a more aggressive approach to BISA's activities (e.g., the proposed branch office in La Paz referred to in para. 37). Project Appraisal and Supervision 39. BISA's appraisals are of a good quality, covering adequately all important aspects. Further improvements, however, could be made in its proj- ect supervision work. This activity is generally carried out only by the engineers on its staff, though economists provide some assistance with finan- cial aspects. While this approach no doubt reflects the general staff con- straints faced by BISA, additional emphasis on the financial position of clients could be beneficial in forewarning of future difficulties. It would also allow the calculation of the FRR and ERR after completion of the proj- ect. - 12 - Resource Mobilization 40. BISA has relied throughout its existence essentially on foreign resources from official development agencies as well as its equity. One objective of the project supported by the Loan was to encourage BISA to strengthen its equity base and to tap the local market through a bond issue. In the period following the granting of the Credit, BISA's operations expanded rapidly, exceeding the forecasts made during the appraisal for the Credit (PCR, para. 20). As a result, its equity base again needed expan- sion. As part of the project supported by the Loan, IFC agreed to make an equity investment in BISA, to be matched on a two-to-one basis from other sources, foreign and domestic (SAR, 1976, para. 5.09; PCR, para. 4). 41. The difficulty in raising local resources to lend in combination wirh rhe foreign resources it had raised from official development agencies had limited BISA's flexibility in financing projects. While it had been able to borrow pesos from the U.S. Agency for International Development (USAID) during the 1960s, its only more recent sources of long-term local currency funds were a rediscount facility with the Central Bank (using USAID funds) and part of an IDB loan. Other than equity subscriptions, BISA had not tapped the local market for long-term resources. In an innovative effort to expand BISA's resource mobilization efforts as well as to begin to develop the almost non-existent domestic capital market, BISA agreed to undertake a study to determine the feasibility of establishing a program for the local sale of debt securities of at least one-year's term. BISA also agreed to use its best efforts to sell the equivalent of US$2 million of such securities by the end of 1978 (i.e., within a year and a half of Bank approval of the Loan) (SAR, 1976, paras. 4.28-4.29; Project Agreement, Section 2.09; PCR, para. 17). Though BISA did carry out a study of the feasibility of selling bonds locally, events have prevented it from actually offering such an issue (PCR, para. 17). Under the present circumstances in Bolivia, it is doubtful if a local bond issue could be floated successfully in the near future. 42. BISA has been involved in two other efforts to help develop the local capital market. In the late 1970s BISA participated in an effort, led by the Confederation of Private Businessmen, to establish an over-the-counter market for stocks and bonds. The Bolivian Stock Exchange formally came into existence in early 1979 but no trading has ever taken place. In part this is due to the lack of financial instruments that could be traded, though the economic and political situation has also hardly been conducive to fostering the level of confidence needed for a successful venture of this type. 43. In 1983, following discussions with IFC and a U.S. commercial bank, BISA hired a consultant to study the feasibility of establishing a financial leasing company in Bolivia. His report was presented at the end of 1983 and forwarded to IFC. BISA has had discussions with the Government about pursuing this project but the Government has not yet reacted to the idea. Again, the present conditions in the country are probably not appropriate for establishing a new financial institution. - 13 - VI. OPERATIONAL AND FINANCIAL PERFORMANCE 44. BISA's operations from 1973 through the first five months of 1984 are summarized in Attachment 7. The PCR (paras. 20-21) discusses BISA's operations through 1980. Operations hit a low point in 1983, reflecting the conditions in the country and BISA's lack of resources. They have picked up considerably in 1984, however, in large measure due to the more dynamic new management, and in real terms, as indicated in the table below, may be run- ning ahead of previous years (the April 1984 devaluation will affect these results). Consumer Price Index Approvals in Year Approvals (1975=100) 1975 Prices ($b millions) ($b millions) 1973 40.5 56.9 71.2 1974 145.3 92.6 156.9 1975 215.9 100.0 215.9 1976 260.0 104.5 248.8 1977 328.0 113.0 290.3 1978 234.0 124.7 187.7 1979 160.0 149.3 107.2 1980 220.0 219.8 100.1 1981 245.0 290.4 84.4 1982 1,577.4 649.4 242.9 1983 89.0 2,439.0 3.6 Jan.-May 1984 9,165.8 7,008.6 /a 130.7 1984 annualized 21,997.9 - 313.7 /a First quarter of 1984. 45. BISA's financial results in recent years have been severely dis- torted by the devaluations that have taken place and the regulations issued by the Central Bank detailing how financial institutions are to account for the effects. While BISA must revalue both assets and liabilities, the Central Bank must approve the revaluation of assets, which takes time in the case of non-monetary assets (in BISA's casc, essentially only its office building). Thus the December 31, 1983, Balance Sheet (see Attachment 8) reflects in the Fixed Asset account only the two devaluations that took place in 1982.11/ The 1983 devaluation is estimated to have added some $b3,225 million to the Balance Sheet value of Fixed Assets, which would be offset in Net Worth and bring the indicated debt/equity ratio of 10.8 to 1 down to 11/ As most of BISA's liabilities and loan portfolio are in US dollars, revaluation of these accounts is fairly straightforwrd and the year-end 1983 Balance Sheet reflects the 1983 devaluation. - 14 - below the maximum allowed in the Loan Agreement of 6 to 1. The exact results, however, depend upon how the Central Bank decides that gains and losses are to be treated.12/ A6. BISA's arrears position at the end of 1983 is indicated in Attachment 10. Some 15% of the total lcAn portfolio was affected by arrears, with 9% of the portfolio in arrears. Arrears over six months totalled 7% and affected 8% of the portfolio. Provisions for loan losses amounted to 5.5% of the portfolio on the same date. It should be noted that some of the arrears are actually payments that BISA has temporarily refused to acceet because of the foreign exchange risk (see para. 23). Less than 3% of th! portfolio is under legal action for default. In addition, BISA has foliawed a conserva- tive approach to security requirements and therefore feels that any losses will be covered. The arrears situation appears to be well under control. VII. IMPACT OF THE BANK GROUP'S ASSOCIATION WITH BISA 47. The Bank Group has had a significant and generally welcomed impact on BISA. The Credit was instrumental in having BISA expand its activities to include mining projects, which it has successfully done. In part because of iank Group urging, BISA has enlarged its capital base and spread its activi- ties more broadly over the country. It has also attempted, albeit so far unsuccessfully, to develop the embryonic local capital market and to raise local resources. 48. The Bank Group was also instrumental in helping BISA to improve its appraisal and supervision procedures. Comments made by the Bank Group on appraisal reports sent to it for approval (PCR, para. 32) were considered helpful, as were suggestions and observations made by Bank Group missions. Participation by BISA staff members in EDI courses was also helpful, especi- ally in improving the calculation of the ERR. 49. One area t4here BISA would have appreciated a more active role by the Bank Group was on its Board of Directors. When IFC became a shareholder, it also took a seat on BISA's Board. Fcr the first year or so its represen- tative attended most Board meetings, but after that attendance fell to per- haps once a year. As IFC's representative and alternate typically have been 12/ The Central Bank has issued instructions with regard to the treatment of the first 1982 devaluation: gains or losses are to be taken into the income Statement (see Attachment 9) in four equal annual installments beginning in 1982. However, for the second 1982 and the 1983 devaluation (and the first 198A devaluation) the Central Bank has only indicated that, for the time being, gains and losses are to be accounted for separately in the Balance Sheet and not reflected in the Income Statement. These are currently being included in Other Assets and Other Liabilities in the Balance Sheet and totalled Sbl60.2 million and Sb205.4 million respectively on December 31, 1983. - 15 - staff members from Headquarters, this infrequent participation is understand- able. However, it does raise the question of whether IFC should accept a Board seat in an institution when it can reasonably anticipate only limited participation in meetings. Appointing a local resident as IFC's alternate is a possible solution; other foreign shareholders of BISA have done this. -VIII. CONCLUSIONS 50. The decisions to support the medium-size mines in Bolivia and to utilize BISA as the intermediary in doing so were correct and of benefit to the economy of Bolivia. Though the utilization of the Credit was delayed, the basic objectives of the BISA component of the project it supported were met. Expanding the target subborrowers under the Loan to include industrial enter- prises was also correct in view of the then depressed international mineral market and the needs of the private industrial sector. Including small-scale enterprises among the target group as a pilot operation to provide the Bank Group with information and experience for a possible later larger involvement was an innovative feature, though in the end not very successful. The effort to have BISA issue bonds on the local market was also innovative but probably too optimistic given the rudimentary state of the capital market in Bolivia. In spite of BISA's inability to issue these bonds and to reach small entre- preneurs, and the delay in utilizing the Loan, on oalance this project can also be considered a success (paras. 21, 28, 41). 51. The subprojects assisted under the two projects, with two excep- tions, appear to be viable, though currently suffering from the poor economic environment in Bolivia. They were sectorally and geographically well distri- buted, and made important contributions to employment. The investments were completed with limited time or cost overruns (paras. 20-34). 52. The projects were instrumental in improving further BISA's systems and procedures. These are now generally quite satisfactory, though there is room for further improvement in BISA's supervision work, especially in following more closely the financial position of clients and in systemati- cally recalculating the FRR and ERR upon project completion (paras. 39, 48). BISA has demonstrated its ability to maintain its independence, developmental orientation and financial strength in spite of the economic and political difficulties that have affected Bolivia since the late 1970s. However, its future operations and successes are clearly tied to improvements in the investment climate, which unfortunately appears to currently be suffering further deterioration. 53. In retrospect, it seems clear that the Loan was made prematurely and should have been delayed six months or a year (paras. 12, 27). While there is an understandable desire to ensure that a DFC client and its borrowers do not suffer from a shortage of resources because of a delay on the part of the Bank Group in processing a follow-on project, in this case it would appear that, in spite of signals that the Loan was not immediately - 16 - needed, internal Bank pressures dictated its timing. As a result, BISA had to pay US$75,000 more in commitment feesl3/ than it would have had to had the Loan been made a year later; avoiding this charge would have increased its 1977 profit before tax by about 10%. Because the Loan was made when it was, the case for continually extending the subproject submission deadline under the Credit appears weak and the remaining 15% might have been cancelled (para. 20). 54. The project experience is instructive in a number of ways. It suggests that: (a) the timing of follow-on projects should depend on a realistic assessment as to when an intermediary will need the additional resources; (b) quality and continuity of management is an important element in instituting and maintaining sound operating policies and in fostering the growth of an institution; (c) in introducing novel elements in a project's design, such as issue of securities, due recognition should be made of the propitiousness of conditions to ensure success; and (d) in supervising proj- ects the Bank Group should be alert to deviations, whether intentional or not, from agreed loan or credit conditions and covenants. Finally, it is unfortunate, though perhaps understandable given the economic and political environment, that the Bank was unable to achieve significant policy reforms in important areas affecting the mining sector, notably taxation, because of their adverse impact on the financial performance of mining enterprises, including Bank supported subprojects. 13/ In all BISA paid some US$287,000 in commitment fees on the Loan. "17 - Attachment 1 PROJECT PERFORMANCE AUDIT MEMORANDUM BOLIVIA - BANCO INDUSTRIAL S.A. (BISA) (Credit 455-BO and Loan 1290-BO) Merchandise Exports (CIF) (Millions of Current US$) Agricultural and Year Minerals Hydrocarbons Other Products Total Amt. % Ant. % Amt. Z Amt. 1970 204.9 89.6 13.2 5.7 10.7 4.7 228.8 1971 173.3 80.2 23.9 11.1 18.8 8.7 216.0 1972 174.1 72.4 41.6 17.3 24.7 10.3 240.4 1973 225.9 66.8 67.0 19.8 45.4 13.4 338.3 1974 387.3 59.5 193.1 29.7 70.1 10.8 650.5 1975 314.2 58.6 158.9 29.6 63.0 11.8 536.1 1976 393.5 60.6 167.5 25.8 88.6 13.6 649.6 1977 491.4 68.3 134.8 18.7 93.1 13.0 719.3 1978 515.0 71.1 122.1 16.9 86.6 12.0 723.7 1979 591.7 68.9 149.7 17.4 118.0 13.7 859.4 1980 641.2 61.9 245.1 23.7 149.6 14.4 1,035.9 1981 556.0 55.9 346.5 34.8 92.8 9.3 995.3 1982 419.3 46.7 398.4 44.4 80.4 8.9 898.1 Source: Bolivia: Structural Constraints and Development Projects, (World Bank Report No. 4190-BO), January 12, 1983, and Central Bank of Bolivia. 18 Attachment 2 PROJECT PERFORMANCE AUDIT MEMORANDUM BOLIVIA - BANCO INDUSTRIAL S.A. (BISA) (Credit 455-BO and Loan 1290-BO) Breakdown of Subprojects Financed Under Loar. 1290-BO (in US$) Number Amount % I. By Size of Subloan Up to US$50,000 7 139,117 2 US$50,001 - US$250,000 12 1,692,024 17 US$250,001 - US$500,000 7 2,770,762 28 US$500,001 and above 4 5,275,000 53 Total 30 9,876,903 100 II. By Subsector Mining 5 3,951,750 40 Food Products 5 2,335,284 24 Textiles 6 1,364,846 14 Beverages 3 751,374 7 Chemical Products 2 595,000 6 Metal Products 2 398,280 4 Tourism 2 Z87,797 3 Plastic Products 1 110,000 1 Wood Products 4 82,572 1 Total 30 9,876,903 100 III. By Geograp.tc Location /a La Paz 19 6,672,054 68 Oruro 3 2,495,762 25 Santa Cruz 3 510,269 5 Sucre 1 99,964 1 Cochabamba 3 72,480 1 Tarija 1 26,374 - Total 30 9,876,903 100 IV. By Type of Enterprise Existing 26 7,931,189 80 New 4 1,945,714 20 Total 30 9,876,903 100 /a By Department. 一，,- 一屆－ , - 20 - Attachment 4 PROJECT PERFORMANCE AUDIT MEMORANDUM BOLIVIA - BANCO INDUSTRIAL S.A. ('BISA) (Credit 455-BO and Loan 1290-BO) Rates of Return of Subprojects Financed Under Loan 1290-BO. (Calculated at Appraisal) Subproject Financial Economic Number Rate of Return Rate of Return Molino Andino S.R.L. A-1 18.4 40.1 Ferrari Ghezzi y Cia. A-2 29.0 56.4 Arando Ind. Comercial A-3 22.0 42.0 Manufacturas de Algodon A-4 15.3 30.0 International Mining Co. A-5 37.0 80.4 Fca. Hilados La Cima A-6 15.0 20.1 Cerveceria Boliviana Nal. A-8 25.7 31.2 Drogueria Inti A-9 17.6 24.0 Imco A-10 37.9 64.6 ESTALSA A-10 58.2 63.8 AVICAYA A-10 45.4 50.7 Fca. Cintas DAYZI B-1 27.7 54.1 Hostal Colonial B-2 21.9 38.0 Emp. Minera. Pabon B-3 26.2 50.9 Liquid Carbonic B-4 21.0 30.5 PLASMAR S.A. B-6 29.0 66.4 Bolivar Palace Hotel B-7 15.0 22.1 BESLONTEX B-8 n.a. n-a- RETEX B-9 51.0 64.7 AMOBLART B-10 n.a. n-a- Fca. Nal. Cons. DILLMANN B-12 21.3 74.5 Barraca Yacuma B-13 n.a. n-a- CALMECA B-14 n.a. n-a- Cerveceria Bol. Nal. B-15 31.6 36.6 Empresa Minera KELLGUANI B-16 33.5 76.1 EBEMAP B-17 n.a. n.a. San Francisco de Surutu B-18 n-a- n.a. Gasser y Cia. La Belgica B-20 n-ao n.a. MASA B-21 21.6 21.9 Bodegas y Vinedos La Cabana B-22 n.a. n.a. Molinera del Oriente MODELO B-23 noa. n.a. Empresa Minera Tiwanacu B-24 n.a. n.a. - 21 - Attohemnt 5 PRWnC2 Pgu0aCREM au=I Ma~n NDLIuIm - mAu0 InD5åam, 8.1. (Ia) (Credit 455-0 and Lam 1290-30) Imat of 9ubprojeots Pin-=~oe Under Lama 1290-0 fa Pigmd Aneta Contribatimo Contrtbaton of ret garnage of Iet saving of CoNe at of Project Projeat to Groec Preign EZhaaG of kreign otl Projeot to Export. CD8='000) TEzh,nge Capacity Euber Completion Emuloymant (58000) (U.s'o00) Utili~m- of le of Coan~y (8. '000 Projeated ktal Projeated Ataal Projeoted kAal Projeated antal tion (M Shifte tian An~in B.A.L. 1-1 161.548.0 92 81 - - - - - - 40 3 Ferrar bohemel y Ca. A-2 191.957.2 12 9 - ---f i Arada Id. Comeral 1-3 25.456.5 25 11 - -( 1 Kasamotura de lgodon 5.A. A-4 144.919.7 55 55 - - - - - - 30f 1.5 International ziniag CO. A-5 389.710.0 163 172 7.037.9 8,338.2 5.771.7 7.429.2 - - 91 3 Pom. Iladoe La CIMA A-6 45.913.4 134 128 - - - - 459 207 60 3 Cerveoer±a Bolvaa monal -4 718,565.3 275 291 - - - - - - 83 3 Dragaerta IMTI s.1. A-9 814.014.8 22 17 - - - - 562 (e) 54 3 INCO-ES2LIL-ATICA1 1-10 26.939.583.4/d 76 70 2,369.8 2,175.48 (9) ( - - 78 3 Poa. de Cintma DAIZI I-1 12.963.9 15 20 - - - - - - 95 1 Hamtal Cma Kler 3-2 5.112.8 9 12 - - - - - - 70 C) laprea inera Patan 3-3 32,436.6 18 21 700.1 180.Oo 576.4 149.4 - - 60 3 Llquid Carboao 3-4 38,469.3 (*) () - - - - - - () 1 PLAIBAR 5.1. B-6 34,463.7 5 6 - - - - 395 153 64 3 Elivar Palace Rotel E-7 (Closed) BERLAE=E 8-8 2,855.0 2 2 - - - - - - 68 1 REZE 3-9 1,642.5 8 5 - - - - - - 90 1 AmDELArW -10 807.5 4 4 - - - - - - 70 1 raa. Conserve. DLLIIS 3-12 1.046,790.9&f 65 61 (*) <*3 () (*) () <* 52 1 Barraam y Naetr.n T&Cm 8-13 () 5 4 - - - - - - 90 1 CALNECA 8-14 667.5 7 5 - - - - - - 80 1 Cerveerla Bolivanm MIoonal 3-15 718.565.3 9 6 - - - - - - 100 3 eprea Unra rellal 3-16 26.024.0 88 94 2.330.5 1,333.4 1.349.4 772.1/* - - 92L* 3 liBlAP 8-17 782.5 - - - - - - - - 75 1 a Francico de gurutu I-1S () - - - - - - - - () () Gameer y Cia. lad. La Belgica B-20 1.028,513.0 - - 9.858.8 () 8,960.1 () - - 80 3 Nanfaaturas de Algodon 8.A. 3-21 144.919.7 11 8 - - - - - - 35 3 Bodegma y Tinmdom La Cabm~z 3-22 15.053. 6 4 - - - 75 1 folne del Oriente EDDELO t-23 1.216.918.2 9 7 - - - - . - 85 3 laprema Minera ?ivesann 3-24 596,322.4 62 50 3.555.03 3.198.10 2.196.01 <9 - - 79 3 ( Not Available. F The fiuree are for fimoal year 1979 ~nleme otherime lndoated. 1981. 1982. 1983. e timated Correapond to the projeot, and not the whole plant. - 22- Attacbaent 6 PRJE PEMnCE AUDIr SnENDn BOLIVIA - ECO IND5T5IAL B.A. (SA) (Credit 455-30 med lom 1290-90) Fne~i01 Performance of Coamanaie Fe£~ened Under Loamn 1290-80 Net Profit Tot Profit monthe Sub- (Laa) Ater Tax Total Debt Overdue Projact Grone Sales After Tax Net orth - % af to Net North eaf Rayuent Nana af Compaer ~ber ($b.000) (S. 000) (S. 000) set Vorth Ratio 05/31/84 Performneance 011530 Anian S.R.L. A-? 1,639.827 Ib 237.090 447.995 52.9 % 2.70 Cood Ferrarl Ghesi Ltda. A-2 4.535.800 7é 313.756 1,641.464 19.1 % 2.69 Coad krando Ind. y Cowercial A-3 29.121 7é (1.521) 36.043 ( 4.2 %) 1.04 0-3 Cood anfecturmr de AlgOdan S.. A-4 I 329.505 7 (270.716) 3.163.264 < 8.6 %) 0.82 coad/teach. Intarnatioral Mining Co. A-5 6.215.260 7é (2.568.140) 13.735.730 (18.7 %) 0.91 GoGt/Rach. Yem. H-lados y Tej. La C±aa A-6 170,245 7; 909 33.374 2.7 % 4.02 3-6 coat/leach. C*:~Gris Bolivn zacio A-8 7.361,429 Tr (397.584) 6.347.386 ( 6.3 %) 1.85 24+ Bad/lemch. Drogeria !ITI S.A. A-9 1.954.212 T 124.286 694.154 17.9 %) 2.94 6-12 Fair Ic-STALSA-AVICAYA 1-10 10,937.680 T. (2.728.984) 37.596.437 ( 0.7 %) 0.46 Go~t/Reach. Fea. de Cinta DATZI D-1 31.957 T; 561 19.901 - 2.8 %) 1.44 0-3 Cood/Reach. Hotal Cana Kier B-2 14,690 7é 26.690 (13.079) -.- U.a. 12-24 Bad Emprena Kinera Pebon B-3 392.353 7-c (64.84) 289.203 (22.4 %) 2.99 2 at/Reach. Liquid Zarbonic de Bolivia B-4 333.197 7- 2.345 258.559 0.9 5 1.14 Coad LSr -? . B-6 582.2347 (12.628) 1.223.851 ( :.0 5) 0.54 Cood Boliver Palace Hotel B-7 C I 0 a * d BEWLDTE 3-8 n.a. n.a a.. n.a. n.a. 24. Bad !ETE- Ltda. B-9 5.221 Ib 13 1.814 0.7 5 2.38 6-12 Fair AMDLART *-o n.a. ¯ n.a n.. n.a. n.a. 24- Bad Fca. C2nervan DILLAEN B-12 127.078 Ib (3.377) 493.855 (0.7 5) 2.09 24- Bad/Reach. Barreaa y Naeatraa YACURA B-13 u.a. ~&n.a. a. n.G. n.a. 0-3 Cood CALECA B-14 n.a. n.a. n.a. na.4 n.a. 0-3 Cood Cer~eeria Boltvina acional B-15 7.361.429 le (397,584) 6.347.386 6.3 5) 1.85 24- Sat/leaCh. E=p. inera Kelluani 3-16 6.906 -/ (453) 76.746 ( 0.6 5) 0.73 3-6 cod/leach. ~EEAP B-17 1.449 7; 130 500 (26.0 %) 0.83 Good San Francifco de Surutu 3-13 n.a. n.a. u.a. n.&. n.a. 24- Sad Ganser ; Ci. B-20 972.250 /b (251.218) 689,537 (36.4 5) 1.39 12-24 Sad Hanufacturas de Algodon S.A. B-21 1.329.505 7 (270.716) 3.163.264 ( 8.6 5) 0.82 Cood/Reach. Bodegas y Tinedos La Cabana B-22 22.88s 7a 596 9.037 6.6 5 3-34 0-3 Coad Kolinera del Oriente B-23 1.501.809 7e 35.415 1.335.948 2.4 5 0.45 Cood Emprena Ninern Tivanacu B-2A 612,986 7c 12,609 .62.507 7.8 5 5.39 Good/ each. 7e 1981 7b 1952 S1983 - 23 - Attachment 7 PROJECT PERFORMANCE AUDIT MEMORANDUM BOLIVIA - BANCO INDUSTRIAL S.A. (BISA) (Credit 455-B0 and Loan 1290-30) Qperations, 1973-1984 ($b millions) Number of Loans Approvals Commitments Disbursements 1973 62 40.5 36.4 31.0 1974 76 1:*5.3 130.0 113.2 1975 103 215.9 185.1 121.6 1976 104 269.0 254.0 250.0 1977 67 328.0 278.0 244.0 1978 48 234.0 240.0 268.0 1979/a 104 160.0 212.0 236.0 1980/b 121 220.0 200.0 187.5 1981/b 68 245.0 208.0 83.5 1982/c 38 1,577.4 1,103.3 738.4 1983/d 4 89.0 89.0 161.8 January-kay 1984/e 26 9,165.8 11,324.8 468.3 /a Coverted from BISA's figures (which are in US$) at US$1 $b20, although the peso was devaluated (to US$1 = $b25) in mid-November, 1979. /b Coverted at US$1 - $b25. /c Coverted at an average exchange rate of US$1 - $b129.55. /d Coverted at US$1 - $b200. /e Coverted at US$1 = $b500 up to April 12, 1984. Coverted at US$1 = $b2,000 after April 12, 1984. - 24 - Attachment 8 PROJECT PERFORMANCE AUDIT MEMORAIDUM BOLIVIA - BANCO INDUSTRIAL S.A. (BISA) (Credit 455-O and Loan 1290-O) Balance Sheets, 1981-1984 (Sb millions) --- December 31, ---- May 31. 1951 1982 1983 1984 ASSETS Cash and bank balances 124.7 649.3 1.552.5 3,658.7 Miscellaneous receivables 56.7 473.6 920.2 965.3 Total Current Assets 181.3 1,122.9 2,472.7 4,624.0 Loan portfolio 655.8 4.393.8 8,847.0 34,785.6 Investment portfolio 23.7 170.9 1,551.0 6,939.0 Gross loan and investment portfolio 679.5 4,564.7 10,398.0 41,724.6 Less provisions 32.6 181.7 502.2 502.0 Net loan and investment portfolio 646.9 4,383.0 9,895.8 41,222.6 Fixed and other assets (net) (inc. devaluation reserve) 87.6 1,201.7 914.6 47,599.3 TOTAL ASSETS 915.9 6,707.6 13,283.1 93,445.9 LIABILITIES AND NET WORTH Accounts payable and other current liabilities 52.1 332.3 718.0 1,543.5 Term borrowings 697.9 4.993.3 10,921.8 43.454.0 (of which: current portion) (38.2) (621.4) (1,184.3) (3.260.7) Other liabilities (inc. devaluation reserve) 4.4 383.2 474.6 46,862.0 Total Liabilities 754.4 5,708.8 12,114.4 91,859.5 Share capital 128.9 880.5 875.5** 1,120.1 Legal reserve 7.7 19.6 46.5 46.5 Other reserves and retained earning 24.9 98.1 245.8 419.8 Total get Worth 161.5 998.6 1 ,168.7 1,586.4 TOTAL LIABILITIES AND EQUITY 915.9 6,707.6 13,283.1 93,445.9 Letter of credit 13.6 14.8 502.4 4,545.4 Guarantees 40.1 65.5 63.4 883.d TOTAL CONTINGENT LIABILITIES 53.7 80.3 565.8 5,426.8 RATIOS Current ratio (excl. current portion of loans and borrowings) 3.5:1 3.4:1 3.4:1 3.3:1 Debt/equity ratio (contractual def.) 5.0:1 5.8:1 10.8:1 61.3:1 Provisions for loans and investments as % of total loan and investment portfolio 4.8 4.0 4.8 1.2 Annual increases in total assets (() 7.1 600.1 104.0 614.0 ) Including contingent liabilities. (n) Part of the revaluation of fixed assets was reversed. - 25 - Attachment 9 PROJECT PERFORMANCE AUDIT MEMORANDUM BOLIVIA - BANCO INDUSTRIAL S.A. (HISA) (Credit 455-BO and Loan 1290-BO) Income Statements, 1981-1984 (Sb millions) First Five 1981 1982 1983 months 1984 INCOME Interest 95.3 445.8 1,154.2 550.7 Commissions 6.9 45.1 35.9 137.0 Other income 18.0 234.4 353.3 145.0 TOTAL INCOME 120.2 725.3 1,543-4 832.7 EXPENSES Financial expenses 64.5 315.3 673.6 64.2 Salaries and other personnel expenses 10.5 18.2 46.2 37.2 Contribution 5.0 4.5 27.4 5.8 Establishment expenses 10.7 91.9 52.5 217.8 Depreciation 3.2 30.4 31.8 15.8 Provisions and write-offs 3.1 143.6 386.1 58.3 Other expenses - 1.9 10.5 18.0 TOTAL EXPENSES 97.0 605.8 1r228.1 417.1 PROFIT BEFORE TAXES 23.2 119.5 315.3 415.6 Provision for taxes 2.9 3.2 15.1 20.7 Contribution to Employees' Fund 12.0 31.5 41.5 NET PROFIT 20.3 104.3 268.7 353.4 APPROPRIATIONS Legal reserve 1.3 10.4 27.0 - Cash dividend - - - Stock dividend 12.7 61.6 241.7 - Others 6.3 32.3 - - RATIOS Administrative expenses as % of average total assets/a 2.8 3.0 1.2 - Interest income as % of average loan portfolio 14.8 17.7 17.4 - Financial expenses as % of average borrowing 9.3 11.1 8.5 - Profit before taxes as % of average total assets/a 2.5 3.1 3.1 - Net profit as % of average equity 13.4 18.0 24.8 - /8 Including contingent liabilities. - 26 - Attacimet 10 PRO r PERFo~uuCE ØUDIT RNO~ADU OLIA - Baaco InITfhAL S.4. (DLU) (Crdit 455-D ad Lo» 1290-Ufl Partfolio Analysi. ar fDecember 31, 153 (Amunta inl 38 fillioneJ ?otal Amont Outaning Priocipsl Ovsrdos Interest Omerde Saber af Local Foegn a ef Total Local ereg6 i r Total laCst Poreign Ia Car Total ottatd«n Currec Crey c=~ ø ~ in Cur~ Curro~c Total Lot.e tn grace prip. 16 - 1.544.2 1.544.2 17.5 - 4S4.8 664. Lotus betg repa d promptly 116 759.7 5.189.1 5.94.a 67.2 36.9 208.8 245.7 L.oanu in arrears: 1-3 south. 7 - 414.0 414.0 4.7 - 120.1 120.1 1.4 - 2.1 2.1 4-6 sothn 5 - 240.4 240.4 2.7 - 54.5 54.5 0.6 - 2.1 2.1 7-12 sonth. 3 - 69.6 69.6 0.8 - 25.4 25.4 0.3 - 28.9 28.9 13-24 =onthe & - 47.9 47.9 0.5 - 34.0 34.0 04 - 1.3 1.3 ovar 24 soth.n 47 4>1.6 130.5 582.1 6.6 451.6 107.4 o9 23.8 75.5 9. Subtotal - srrars 66 451.6 002.4 1.354.0 15.3 451 .6 341-4 793-0 9.0 23.8 09.9 1 ".7 TOrALs 19e 1.211.3 7.635.7 6.847.0 100.0 451.6 341.4 793.0 9.0 60.7 783.5 644.2 - 27 - Attachment 11 E-896/85 March 6, 1985 Spanish (Bolivia) OED OTS:cc COMMENTS FROM THE BORROWER Translation of cable dated March 4, 1985 from Emilio Arce, Director. External Financing, Ministry of Finance, La Paz, Bolivia Mr. Yukinori Watanabe Director, Operations Evaluation Department World Bank, Washington, D.C. Quote Telex No. 042/85 Subject: Project Performance Audit Report on Credit 455-BO and Loan 1290-BO (BISA) We would inform you that the above-mentioned report has been found satisfactory; our comments are as follows: Acronyms and para.11 A. It would be desirable to add an explanation of DFC (Loans) under PPAM moified. Acronyms. Reflected B. Background I, paragraph 2. The exhausting of its main deposits in footnoL 1, should be added as another factor affecting Comibol's situation. para 2. C. We have taken note of the comments in III, paragraph 14, 15 and 16, which are most helpful to us. As a result of them we are asking BISA to update the subsidiary agreement, while a review will also be made of performance of clauses in loan substitution agreements regarding performance of financial obligations vis-A-vis the Republic. Reflected D. III, paragraph 19. We consider that the change in taxation concept in footnote 8, in the mining sector was not implemented for fear of a very probable para. 19. reduction in Treasury revenues and not, as stated, because of among other things a lack of Finance Ministry staff for monitoring purposes. Standardization of accounting systems would not be difficult in medium-scale mining, but it would be in small-scale mining. - 28 - Attachment 11 Page 2 E. In general, we believe that the policy reforms included as prerequisites for a particular loan would be more successful in structural adjustment loans. F. As a result of the report sent by you, we are convinced of the importance of ex-post evaluations of loans and are accordingly suggesting that a unit be set up for the purpose. Regards, Emilio Arce Director, External Financing Ministry of Finance - 29 - PROJECT COMPLETION REPORT BOLIVIA - BANCO INDUSTRIAL S.A. (BISA) (Credit 455-BO and Loan 1290-BO) I. INTRODUCTION 1. General. Banco Industrial S.A. (BISA) has so far received, through the Government of Bolivia (OB), one major credit component and one loan from the Bank Group: 1 US$5 million for medium mining projects as part of IDA Credit 455-BO in 1974, and the US$10 million Loan 1290-BO for medium industrial and mining enterprises in 1976. 2/ The Credit also included various technical assistance components for the mining sector, which will be reviewed in a future completion report together with the Bank's Small Mining Development Project (Loan 1331-BO). The present report discusses the Bank Group's experience with BISA under the Credit and the Loan during the seven-year period from 1974 through March 1981. 2. The Credit. The legal agreements for the Credit were signed on January 18, 1974. The final date for Credit effectiveness was originally April 18, 1974; this was extended once to June 18, 1974, primarily to give BISA more time to fulfill the requirement in Section 7.01(d) of the Credit Agreement, whereunder BISA should obtain additional subscriptions to its share capital of $blO million, all of which was expected to come from the medium mining sector. The BISA subscription agreements related the payments of capital by the subscribers to the level of their tin exports. It was therefore necessary for IDA to satisfy itself that tin exports would be sufficiently high to generate the required funds for BISA. Following the receipt of satisfactory tin export projections, IDA declared the Credit effective on June 18, 1974. 3/ The original closing date was June 30, 1978, 1/ In addition, IFC is a shareholder in BISA, and BISA also participates in Loan 1489-BO, the first Urban Development Project for Bolivia. 2/ In this report, for the sake of brevity, "Loan" refers to Loan 1290-B0, and "Credit" to Credit 455-BO. 3/ The Credit Agreement (Section 7.01(d)) stipulated that BISA would obtain additional subscriptions to its share capital of $b5 million by December 31, 1974 and another $b5 million by December 31, 1975. From 1973 to 1975, BISA's share capital increased from $b18.9 million to $b31.6 million. However, the Association had expected (based on an undertaking from the Medium Miners Association) that all of the $b1O million would come from the medium mining industry, and this did not happen. In fact, as of December 31, 1975, this group accounted for a paid-in capital of only $b4.6 million. - 30 - but this has been postponed several times, and is now June 30, 1981. However, the US$5 million BISA component has been fully disbursed (para 9). 3. The Subsidiary Loan Agreement, which was signed by the Government (GOB) and BISA on January 18, 1974, established an initial amortization schedule from BISA to GOB consisting of 30 semi-annual installments commencing September 15, 1976 and terminating March 15, 1991. The agreement stipulated (Section 2.07) that this schedule would be subject to amendment from time to time by agreement between BISA and IDA as reasonably required to conform in relevant part substantially to the aggregate of the amortization schedules applicable to the subloans, and to schedules of repayment on account of investments. The Credit Agreement (Section 3.02) and Project Agreement (Section 2.05) established that neither GOB nor BISA would in any way, without Lhe agreement of IDA, "assign, amend, abrogate or waive" any part of the Subsidiary Loan Agreement. Nevertheless, in March 1974, GOB and BISA signed a complementary agreement, whereby the repayment schedule to GOB was set at 20 years, including ten years of grace, and with repayments of principal thus commencing in January 1984. The approval of IDA was not sought for this new schedule, which does not conform to the aggregate of the subloan repayment schedules. The Bank's appraisal report for Loan 1290-B0 listed the terms of the revised amortization schedule (Table 4-13), but the Bank only became aware that this was an unauthorized change from the original subloan agreement, during the appraisal of the Fourth Mining Credit project. It has now been determined that BISA never sought the Bank's approval of this amendment, nor does there seem to be any special justification for this arrangement. Accordingly, the Bank will make it a condition for negotiations of the proposed Fourth Mining Credit Project 1/ that BISA and GOB agree on a new schedule that will conform substantially to the aggregate of the amortization schedules applicable to the subloans (with first payment by September 15, 1981). Repay- ments that were due before mid-1981 will be made over the next few years accordinZ to an agreed schedule, taking into account BISA's projected cash flow position. No serious difficulties are expected on this account. 4. The Loan. The Loan was made to GOB, to be onlent to BISA in US dollars, as GOB took the cross-currency exchange risk. It was signed on October 15, 1976, with an original final date of effectiveness of January 13, 1977. One special condition of this effectiveness was that IFC should make its first payment to BISA under its share subscription agreement. This, again, was conditional on payment pari passu by other BISA shareholders of at least double that amount, which was delayed. Accordingly, the final date of effectiveness was postponed twice, and the Loan was finally made effective on April 14, 1977. The original closing date was December 31, 1980, but this has been postponed to December 31, 1981, and a further postponement is likely (para 9). 1/ A loan, tentatively of US$25 million, for onlending to the small and mtedium mining sectors through BISA and BAMIN (Banco Minero de Bolivia) with US$12.5 million each. This loan was appraised by a mission that visited Bolivia in March!April 1981. - 31 - II. BACKGROUND General 5. Following an initiative of the National Chamber of Industries and USAID, BISA was established in 1963 as a private development bank, primarily to provide term financing for.the private industrial sector. In connection with BISA's participation in the Credit, this objective was broadened to include the financing of the private mining sector, and a number of medium mining companies took shares in BISA at that time. BISA grew fairly slowly during its first ten years of operations; thus, in the period 1970-1972, it approved an average of 50 loans for $b22.4 million (US$1.12 million equivalent) per year. At the time of the Credit, BISA was a sound and rather conservative institution with a good financial position. Environment 6. During most of the seventies, Bolivia had political stability. However, since 1978 there have been five consecutive governments, as well as several periods of political and labor unrest, which affected negatively the investment climate and the demand for BISA funds. Bolivia's GDP grew by about 6% p.a. in real terms in the period 1972-1976; this growth was associated with the stable political situation at that time and with a general improvement in economic management. However, in 1977 this growth rate fell to 4.8%, as a result of a significant drop in petroleum output and a sluggish performance of the agricultural sector. In 1978 and 1979, the growth rate declined further to 3.3% and 2.1%, respectively, a decline connecteti with the political changes and uncertainties at that time. 7. The mining sector (including the large public sector) stagnated over the period of the Credit and the Loan, although there were considerable annual fluctuations for some minerals. Thus, in 1980 the ertimated production levels (by volume) were below the levels achieved in 1975 for tin, lead, and copper, and above the 1975 level for silver, antimony, tungsten, and zinc. In particular, for tin (which accounts for about 65% of mineral exports by value), the production was 31,900 metric tons (MT) in 1975, 33,700 MT in 1977, and an estimated 26,300 MT in 1980. The stagnation in the mi-ng sector affected both the public and private sectors, and was due, inter alia, to the high-cost structure of the Bolivian mining industry, rising cests of imported inputs, a problematic mining taxation system, 1/ lack of exploration, and the political uncertainties. As a result, the sector's share of GDP fell from an average of 13% during 1965-75 to 6.4% in 1979, in spite of reasonably good, but widely fluctuating international prices for several of Bolivia'i minerals. 1/ Bolivian mining taxes are based on imputed production costs, which again are based on an index of tin prices established by the International Tin Council. These prices are not related to actual production costs in Bolivia. As a condition for the proposed mining credit project GOP will be asked to adopt a mining tax formula satisfactory to the Bank, based on a rational index of mining costs. - 32 - Thus, for tin the average annual price fell to US$3.11/lb. in 1975 (following a price boom in 1973-74), but then increased again regularly to US$7.60/lb. in 1980. Recently the prices have again dropped, and are at present below US$7.00/lb., or at about the 1979 level. Other products, such as antimony and zinc, suffered from unfavorable prices during much of the period 1974-1980. III. THE PROJECTS Main Objectives 8. The main objectives of the BISA component of the Credit were (a) to assure a flow of investments to the medium mining sector, and thereby help the sector to become more competitive, and (b) to strengthen BISA as an institution. Under the Loan, the main objectives were (a) to continue the investment flow to the mining sector, as well as to provide financing for the industrial sector in Bolivia, (b) to continue the institution-building efforts regarding BISA, and (c) to strengthen the embryonic capital market in Bolivia through an appropriate term debt instrument planned to be issued by BISA. These objectives were not fully met. However, the Credit was largely instru- mental in BISA's decision to extend its activities to the mining sector, thereby for the first time making term capital available to this sector. Also, all of the Credit component, and a substantial portion of the Loan, have been committed and disbursed, though with a substantial delay from the original estimates, for projects with relatively satisfactory financial and economic rates of return. BISA also improved considerably the quality of its operations over this period, although it did not issue any bonds, as had been expected. Due to the preparatory work done at the insistence of the Bank, BISA is expected to make a first bond issue shortly. Credit and Loan Utilization 9. As discussed in paras 20 and 21, BISA's level of activity fell in the case of mining after 1976 and in case of industry after 1977; a decline that also affected BISA's utilization of the Credit and the Loan. The decline of BISA's lending for mining was especially sharp, while at the same time BISA financed a considerable portion of its mining operations from other sources. As a result, the final date for submission of subprojects under the Credit was postponed four times from June 30, 1976 to June 30, 1979; the last two extensions being due to the time required by BISA to commit subprojects to replace others that had previously been authorized by IDA, but subsequently cancelled. The full US$5 million were authorized by March 23, 1979. Due to the delay in subloan authorizations, the closing date, originally June 30, 1978, was postponed twice to June 30, 1980, by which time the full US$5 million had been disbursed. 1/ The sharp downturn in mining activity that began in 1976 was not anticipated by the appraisal mission for the Loan. It prepared the Loan when about 62% of BISA's share of the Credit was 1/ The last disbursement under the BISA component was made on May 14, 1979. However, the closing date for the Credit was extended a third time, to June 30, 1981, on account of a small undisbursed technical assistance component for the mining sector. - 33 - committed by IDA. The Bank expected the remainder of the Credit to be authorized before the end of 1976; this did not materialize and the Credit and the Loan overlapped for several years, with the Loan being largely used for industrial operations. The utilization of the Loan went consid- erably slower than expected; thus, the final subproject authorization date, originally December 31, 1978, has so far been extended three times to December 31, 1980, and the Bank has indicated its willingness to extend this date once more to December 31, 1981, by which time the Loan should be fully committed. This extension will take place once COB formally gives its agreement, which is expected shortly. As of April 30, 1981, the Bank had authorized 26 sub- projects (net of cancellations) for US$7.9 million, while US$2.1 million remained unauthorized. The closing date has so far been extended once, from December 31, 1980 to December 31, 1981, and will probably have to be extended once more, to permit full disbursements inclusive of amounts not yet authorized. As of April 30, 1981, cumulative disbursements were US$6.6 million. Institutional Aspects 10. General. During appraisal and negotiations for the two projects, a number of issues were discussed with BISA in order to strengthen it as an institution. In general, these issues were satisfactorily resolved, as discussed in paras 11-18. As a result, BISA was able to cope satisfactorily with a large increase in its operations over the level prior to the Credit. . (By amount, BISA's approvals in 1977 were almost eight times the level of 1972.) The Bank's work in this regard, together with the dialogue with BISA in the context of the Bank's follow-up work and subproject reviews, has . helped to improve the quality of BISA as an institution, and which is now satisfactory in all major aspects. 11. Mining Projects (discussed in connection with the Credit). Mining was a new activity for BISA at the time of the Credit; accordingly, it was required to strengthen its staff in this area (to appraise and supervise mining projects) as a condition of Credit effectiveness. Through its increasing experience in this field, :j well as the dialogue in connection with the subproject reviews, BISA's capacity in this area improved steadily, and is now satisfactory. 12. Project Supervision (Credit). At the time of the Credit, it was found that BISA's follow-up work needed improvement, both as regards quality and number of visits. Since that time, BISA has paid more attention to its supervision work, which is now satisfactory, as is also indicated by its low arrears (para 25). 13. Operational Policies (Credit and Loan). Originally, under USAID loan conditions, BISA had a very generous limit on its exposure in individual companies. I/ Accordingly, under the Credit, and with USAID agreement, BISA agreed to an exposure limit equal to 35% of its equity; this limit was reduced further, to 25%, in the Policy Statement prepared in the context of the Loan. 2/ 1/ According to its by-laws, BISA's maximum exposure in any one company was equal to 20Z of the sum of its paid-in capital and loans from foreign sources. As a result, the exposure limit was estimated (as of end 1973) at $b2C million, compared to a total equity of about $bl5.3 million. 2/ This statement established that the exposure limit would be reduced from 35% of equity to 25% once BISA's equity exceeded $b90 million, which it did in 1977. - 34 - The present limit (US$1.4 million) is reasonable when compared to BISA's equity base, but it clearly restricts BISA's ability to finance large subprojects. The Policy Statement prepared at the time of the Loan was a comprehensive document that served as a good guide for BISA's operations. At that time, the Bank also reached an understanding with BISA that it would employ more flexible security coverage requirements than the rather conservative conditions it had used until then. At present, BISA accepts a coverage (assessed value of security in relation to loan amount) as low as 1.2:1, depending on the nature of the subproject and the quality of the sponsors. For mining projects, BISA also accepts verified mineral reserves as partial collateral. 14. Share Capital (Credit and Loan). At the time of the Credit, BISA's equity base was inadequate to support the projected increase in its operations. Accordingly, at that time BISA obtained additional share capital (in part from the medium mining sector) as a condition of Credit effectiveness. A further increase was achieved at the time of the Loan, including a substantial amount from IFC and (later) from DEC 1/. At present, including bonus shares IFC holds 101,035 shares in BISA with a nominal value of $blO.1 million (US$404,000 equivalent), 2/ corresponding to 12.8% of total share capital. (The book value of these shares is 1.79 times par value, while there is no regular market quotation for BISA's shares). IFC is thereby the second largest single shareholder in BISA, and it is also represented on BISA's Board. The two institutions have so far cooperated in the cofinancing of one industrial project in Bolivia, and other projects are under consideration. BISA has also acted as a contact point for IFC missions to the country. 15. Provisions (Credit and Loan). At the time of the Credit, BISA's provisions for portfolio losses were 1.7% of gross portfolio. The Association considered it desirable for BISA to strengthen the provisions, in view of its entering the mining sector, and reached a general understanding with BISA to that effect. However, BISA did not increase its provisions to the extent expected by IDA; thus, at the time of the Loan, BISA's provisions for doubtful loans were only equal to 1.4% of gross loan portfolio. 3/ Accordingly, BISA's management then undertook to increase this provision annually, so as to reach 3% by 1980. As a result, the percentage grew gradually to 3.5% as of December 31, 1980 (in spite of a temporary decline in 1979), which is fully adequate for BISA (para 25). 4/ 1/ Deutsche Entwicklungsgesellschaft. 2/ IFC's original shareholding in BISA was 100,000 common shares of par value $b1OO, bought at $b1lO per share for a total amount of US$550,000 ($bil million at the then exchange rate of US$1 = $b20). 3/ In addition, there was a specific provision against BISA's doubtful equity investments. 4/ BISA has also increased its provisions for doubtful investments to 40% of total investment portfolio as of December 31, 1980. - 35 - 16. Small Scale Industries (Loan). BISA has been providing credit to small industrial enterprises I/ almost since its inception. Until recently, a considerable portion of this lending was made through commercial banks. Under this arrangement, the banks identify, process, relend, and guarantee the loans, for which they receive a guarantee fee from the subborrowers, normally of 3% p.a. At the time of the Loan, BISA undertook to improve its procedures for this lending in order to ensure that appraisal standards were applied more evenly and subproject implementation supervised more closely. BISA was to insist with respect to each subproject that the commercial banks provide a summary statement containing information on the subproject and their evaluation of the entrepreneur, the enterprise, and the subproject, and it would also require brief annual summary reports from the banks on outstanding subprojects. As a result of this understanding, BISA's information on commercial bank subprojects did improve, but the requirements were not fully met in all cases. However, BISA has received very few applications for this type of lending over the past few years, due to the fairly poor investment climate and, in particu- lar, the high degree of liquidity on the part of the banks. At the time of appraisal, it was expected that BISA might utilize up to 10% of the Loan for its lending to small scale enterprises, but this did then not happen due to the decline in commercial bank interest. Instead, BISA has been participating in the Bank's Urban Development Project for Bolivia (Loan 1489-BO), providing a substantial number of loans to small scale industrialists and artisans in the La Paz area, and it is also developing two small industrial estates under this project. 17. Bonds (Loan). While BISA has been successful in raising foreign resources, especially from official development institutions, its local resource mobilization has so far been limited to the raising of share capital (in addition to fairly minor borrowings from special funds administered by the Central Bank). To improve this situation, during negotiations for the Loan BISA agreed to undertake a study for the purpose of designing a program for the sale of securities with a maturity of at least one year 2/, and to use its best efforts to carry out a program through which it would have at least USS2 million worth of securities outstanding by December 31, 1978. 3/ The study was completed after certain delays, but so far BISA has not issued any bonds. This was due to several factors, including delays on the part ot the Central Bank to give the necessary approvals, and a lack of strong interest on the part of BISA as a result of its comfortable resource position over the period in question. Also, BISA has been uncertain about the market situation for this type of paper in view of Bolivia's political/economic difficulties I/ Normally defined as firms having equity of not more than USS50,000 and employing not more than 50 people. 2/ BISA, not being a commercial bank, cannot accept deposits or issue securities with a maturity of less than one year. 3/ As an incentive for this resource mobilization, the Bank agreed to expand the contractual o:1 debt/equity limit to allow an additional 1:1 ratio with respect to the resources mobilized domestically through the issue of debt securities. - 36 - since 1978. However, in spite of these problems, there would probably have been room for at least a small pilot issue. BISA is now pursuing this matter, with a view to issue dollar-denominated bonds 1/ for US$1 million within the next few months, with a tentative interest rate of 17% p.a. BISA will on-lend these resources primarily for permanent working capital at 20%. In view of the delays that have already taken place regarding this matter, the completion of the bond issue has been made a condition of negotiations of the proposed mining credit project. 18. Strategy Statement (Loan). During Loan negotiations, the Bank and BISA agreed on a Strategy Statement, covering the first years of the Loan. 2/ In addition to questions discussed in paras 11-17, this statement also covered the following aspects: (a) Branch Offices. According to the statement, BISA would set up three field offices, in Santa Cruz, Tarija, and Cochabamba, respec- tively, with a view to serving the regions of the country (outside of La Paz) more effectively. However, progress on this issue has not been fully satisfactory. At the moment, BISA has one branch office (in Santa Cruz) and one representative office (in Cochabamba). The expansion of its regional representation has been limited by cost considerations (regional offices are expensive, and BISA's administrative expenses are already high), and some personnel problems (its previous (part-time) resident representative in Tarija left for other business). Nevertheless, BISA now plans to expand this year its regional representation by increasing the staff at its Santa Cruz office, upgrade the Cochabamba office to a full branch office, and reestablish its representative office in Tarija; (b) Automotive Program. The Andean group had assigned to Bolivia the manufacture of trucks with a gross weight of 4,500 to 9,500 kilos. The statement established that BISA was permitted by GOB to finance projects for the manufacture of parts and components for this industry. No such financing was done, however, since this industry did not materialize; (c) Lines of Credit. According to the statement, BISA planned to obtain new lines of credit from foreign commercial banks in order to meet the (permanent) working capital requirements of the produc- tive sectors. This was done to some extent, when international. interest rates were lower than today, although BISA still does not make many loans solely for permanent working capital; (d) Financial Intermediary. As per the statement, BISA has assisted its clients in obtaining resources from other lending agencies. In this regard, BISA and IFC have cooperated in one industrial project in Bolivia, and others are under discussion. 1/ It would be necessary to denominate the bonds in US$ in view of the widespread use in Bolivia of dollar denominated - or guaranteed - debt instruments. 2/ The Statement does not give any specific time period. - 37 - 19. BISA's Role. BISA as a typical DFC is providing term loans and guarantees for industrial and mining enterprises in Bolivia, and it also opens letters of credit for its clients. This is a very narrow field of activity, especially in a small country like Bolivia, with substantial variations from year to year in the demand for BISA's type of services. It might have been possible for BISA to expand its operations to some extent into areas related to industry and mining, such as issuance of certificates of deposits, working capital financing, export-import financing, equipment leasing, etc., thereby improving its resource mobilization and profitability, while reducing its dependence on one type of activity (term lending) financed largely from a few external sources. In view of the decline in activity over the past few years, it would have been advantageous for BISA to have been more aggressive in opening regional offices (as it had planned but failed to do), and trying to promote new investments. It also would have profited from having other lines of activity in addition to its term lending, and such activities would not have been competing with BISA's regular lending operations. However, any modifications in this regard would have taken considerable time to implement in view of the restrictions imposed on BISA in its legal charter, in its Policy Statement, and also in view of the fact that the commercial banks, which are important BISA shareholders, might not welcome any competition from BISA in their traditional areas of activity. IV. BISA'S OPERATIONS Loan Operations 20. Annex 1 shows BISA's projected and actual loan operations, 1973-1980. Its level of activity grew rapidly from 1973 to 1977, reaching an amount of net approvals in the latter year of $b328 million. (During the whole of this period, there has been only a very short time lag between approvals and commitments). This growth was considerably larger than what had been projected under the Credit, and also higher (for 1976 and 1977) than estimated at the time of the Loan. It was a result of the good investment climate in Bolivia at that time, which reflected the stable political climate and improved economic manage- ment. In addition, BISA's somewhat less conservative loan requirements helped increase operations, and a considerable portion of BISA's lending was for mining, which it began financing only in 1974. 21. However, in 1978, BISA's loan approvals fell considerably, and this decline continued in 1979. As a result, in the latter year BISA's net approvals of $b160 million were only 49% of the le e1 of two years earlier. There was an improvement from 1979 to 1980, measured in pesos, but mostly on account of the devaluation that took place in November 1979. 11 Measured in US$, the approvals increased by only 10%, from US$8 million to US$8.8 million. The decline in approvals after 1977, which was reflected in disbursements with a fairly short time lag, was primarily a result of Bolivia's politicalleconomic difficulties (including the unfavorable cost developments 1/ From US$1 = $b20 to US$1 = $b25. - 38 - for the mining sector), which discouraged businessmen from making significant new investments. (To some extent, there was also a lessening of investment opportunities for industrial import substitution, in view of the relatively high investments in the mid seventies and Bolivia's open economy.) However, it is likely that BISA could have moderated the decline in the level of activity through a more aggressive attitude and expanded promotional efforts, although there would have been clear risks connected with such a policy. In particular, the caution in the business community resulted in a substantial decline for mining approvals, from a peak of US$5.1 million in 1976 to a low of US$1.3 million in 1980. 1 However, for the period 1975-1977, BISA's approvals for mining amounted to US$10.8 million (26% of total approvals), compared to the US$8.1 million projected at the time of the Credit. Thus, the delays in the utiliza- tion of the Credit were due not so much to declining demand for credit as to the fact that BISA utilized substantial amounts from other sources, primarily to finance the needs of medium miners for permanent working capital, for which BISA generally has been using commercial bank lines of credit and its own rec4urces. (In addition the figures include a few guarantees which are not shown separately in BISA's statistics.) As a result of the overall decline in operations, by 1980 BISA's actual approvals were less than 60% of the projected level for that year; the utilization of the Loan went therefore much slower than originally r_xpected. This illustrates the dramatic effect that changes in the political/ economic environment can have on DFC operations. Equity Investments 22. There is not much demand for equity capital in Bolivia, due to the closely held nature of most companies. In any case, for liquidity reasons BISA would not be able to undertake equity investments of any significance, since these would be difficult to dispose of in view of the absence of a stock market. 2/ For these reasons, BISA has not been active in equity investments over the period in question, except that in 1979, it capitalized as equity, as part of a major rescue operation, its outstanding loan in a mining company that had gone bankrupt, but which now shows reasonable prospects of recovery. Financial Performance 23. Tables 2 and 3 show BISA's projected and actual financial statements, 1973-1980. As a result of the rapid growth in operations through 1977, BISA's profit before taxes grew rapidly, from $bl million in 1973 to $b16.3 million in 1977, or from 0.9% to 3.6% of average total assets. This was generally better than projected at the time of the Credit. However, after 1977 BISA's 1/ To some extent, this sharp decline after 1976 was probably also due to the fact that there had been a certain pent-up demand for long-term mining finance, which BISA satisfied in its first years of operations in this sector. 2/ BISA has been involved with other interested parties in some efforts to establish a stock exchaTige in Bolivia. - 39 - relative profitability declined with the fall in operations. Its administrative expenses had been as high as 4% of average total assets (1974), but fell to 3% by 1977. This percentage continued to drop in 1978 and 1979, but then jumped again to 3% in 1980, against the 1.4% optimistically projected at the time of the loan. Some of the increase in relative administrative expenses in 1980 was due to the increased costs of operating BISA's new office building. As this building is being gradually sold off, floor by floor (except for the floors occupied by BISA), the administrative expenses should fall somewhat in relative terms. Also, BISA has to maintain a minimum of professional quality personnel. Although its personnel expenses are reasonable for Bolivia, the overall administrative expenses are high relative to total assets during periods of low level operations. The institution can therefore now accomodate a substantial increase in activity without significant staff increases, and this would help BISA reduce its high relative administrative expenses. 24. BISA's debt-equity ratio I1 has remained below the 6:1 contractual definition, except for a short period in 1976 pending its latest share increase. However, the ratio again reached 6.0:1 in 1979 (after the devalua- tion of the peso), and would have exceeded the limit in 1980, but for the slowdown in operations combined with a substantial increase in net worth due to extraordinary income plus tax concessions on account of BISA's office building. 2/ If these items were excluded, BISA's profit before tax in 1980 would have been about 1.7% of average total assets, and its net profit after tax would have corresponded to only 7.8% of average equity, in spite of an interest spread in that year of more than 6%. Thus, even in the absence of any cash dividend payments BISA would not be in a position to generate suffi- cient funds from its normal operations to off-set the effect of even a moderate inflation on its equity. In the longer run, BISA should be able to reduce its relative administrative expenses somewhat through a higher level of operations, and also to increase its debt-equity ratio to about 8:1. 3/ BISA has paid interest to GOB at the rate of 7.25% p.a. under the Credit, and 8.85% p.a. under the Loan, while its relending rate has increased from an original 11.25% p.a. at the time of the Credit, to 12% at the time of the Loan, and further to 16% p.a. at present. As a result, BISA has obtained a spread on its subloans from those resources of between 3.15% and 7.15%. However, even the high latter spread, which is a result of recent interest rate increases, is not excessive, especially in view of the present depressed activity level and the resulting modest profit margin. I/ Including all debts and contingent liabilities. 2/ Due to the construction of this office building, BISA is exempted almost completely from regular income tax until such time as the total amount so exempted reaches US$1.5 million. The exempted amount, as well as BISA's net earnings (after other statutory deeuctions) are transferred to a building reserve, which will be capitalized in the form of bonus shares in due course. In the meantime BISA cannot pay any dividends to its shareholders. Due to the tax concession, BISA's investment in its office building (an investment that cannot be repeated under present GOB rules) has had a very positive impact on the equity base. 3/ The Bank is prepared to increase the contractual debt-equity limit to 8:1, provided that BISA first makes satisfactory arrangements for its bond issue. - 40 - Arrears Position 25. The debt service performance of BISA's clients has generally been very good, although its arrears have recently increased somewhat, largely as a result of the political/economic difficulties in the country, although there are also some examples of willful defaults. As of December 31, 1980, the amount of principal in arrears was $b31.8 million, or 4.9% of the total loan portfolio, while the total loan portfolio affected by arrears was $b53.7 million (8.3%). At the same time, BISA's provisions for doubtful loans amounted to $b22.2 million. This is fully satisfactory, since most of its loans in arrears are likely to be paid and in any event are well secured. V. SUBPROJECTS Subprojects Financed under the Credit and the Loan 26. The subprojects financed under the Credit and the Loan can be broken down as follows: Number of Amount Credit Projects (US$ 000) % "A" - above free limit 9 5,000 100 Loan "A" - above free limit 8 5,650 71 "B" - below free limit 20 2,347 29 28 7,997 100 Only nine subprojects were financed under the Credit, all above the free limit (no limit for the first three subprojects, 1/ and then US$250,000). This was a substantially lower number than the 25 subprojects expected at the time of appraisal. The difference was due to rapidly increasing invest- ment costs, plus the fact that many subprojects in BISA's pipeline at the time of appraisal did not materialize. Under the Loan, the free limit has been US$600,000 for mining, and US$300,000 for industrial projects (US$30,000 2/ for the first two), the lower limit for the latter being due to the expected smaller size for industrial subprojects, and to the fact that the Loan represented the second operation for the Bank Group with mining, but the first for industrial subprojects. 27. Annex 4 shows that six of the subprojects under the Credit were for tin mining, two for antimony, and one for zinc. These subprojects were mostly for expansion (five subprojects) or modernization (three), with only 1/ The smallest subproject was for US$245,000. 2/ BISA's internal limit on loans to small industrial enterprises. - 41 - one subloan of US$750,000 for a newly organized enterprise, a zinc mine that later became a problem project for BISA. The average size of these subloans was US$556,000, compared to US$286,000 for the 28 industrial and mining sub- projects so far authorized (net of cancellations) under the Loan. Annex 5 shows that the latter subloans are well diversified by subsectors, the largest (by amount) being food products (four subloans for US$2.16 million), mining (four for US$2.16 million), and textiles (six for US$1.36 million). The mining sector accounts for 27% of the subprojects authorized so far by amount, whereas at the time of appraisal, it was expected, based on the existing pipeline of subprojects, that the sector would account for 70% of total approvals (para 21). 1I However, it is likely that most of the uncommitted balance will be used for mining projects. This changing subsector composition in a general loan is a normal thing in DFC operations, and was in this case primarily due to the depressed investment climate in the mining sector, caused to a substantial extent by political circumstances. By region, 21 of the subprojects are located in the department of La Paz, evidence of the concentra- tion of Bolivia's manufacturing sector (and also of BISA's staff) in this region. By purpose, 25 of the subprojects were for existing enterprises, and only three (accounting for 23% of the subloans by amount) for new enterprises, one each in food processing, tourism, and mining. This heavy concentration on existing enterprises reflects primarily the difficult investment climate during most of the period of the Loan, as well as BISA's fairly conservative attitude. 28. Annexes 6 and 7 give some data for the subprojects financed under the Credit and the Loan. The subprojects were in general completed on schedule; only nine out of the 36 subprojects 2/ shown in these two tables were completed with a delay of six months or more. (For four subprojects under the Loan, information is not yet available). For those 31 subprojects for which information is available, the total estimated (at the time of appraisal) project cost was US$70.5 million, and actual cost, US$74.9 million, an aggregate cost overrun of only 6.2%. BISA's pa:ticipation in these subprojects (from Bank/IDA and other sources) was generally about 50Z, but higher for some smaller subprojects, and substantially lower for a few large subprojects, due to BISA's fairly low exposure limit (para 13). 29. Annexes 8 and 9 present some statistics on the companies financed under the Credit, and the impact of the subprojects financed under the Loan. There are no reliable figures available for the employment impact of the subprojects financed under the Credit; in view of the fact that mining is capital intensive and that most of the subprojects were for existing enterprises, the number of jobs created has probably been moderate. As expected, all the mining companies have contributed significantly to gross foreign exchange earnings, and they also show substantial net earnings of foreign exchange. However, for most of these units, the actual impact in this regard differs considerably from what 1/ However, the appraisal report also pointed out that "a continuation of the presently depressed conditions of the mineral market could also result in lower loan commitments for mining," and that overall, most of BISA's loans would continue to be made to the industrial sector. 2/ The tables exclude one small (US$35,000) subproject under the Loan, which was made through, and with the guarantee of, an intermediary bank. - 42 - was projected by BISA at the time of appraisal; this is explained primarily by variations in the international prices of Bolivia's major minerals. The estimated employment creation under the Loan has been moderate; thus 21 subprojects under the Loan have created a total of 929 jobs, with an average total investment cost per job of US$58,600. This cost would have been reduced to about US$42,000 in the absence of one large investment project of which BISA financed a relatively small portion. This still high cost per job is due to the fact that most of the subprojects were for the expansion and modernization of existing facilities. The capacity utilization for the subprojects financed under the two operations is generally high, with many companies working three shifts. 30. Annex 10 presents some data for the financial performance of the companies financed under the Credit. They show generally a good repayment performance, in spite of low pre-tax profitability. Due to the problem of mining taxation in Bolivia (para 7), six of the nine companies showed losses after tax, based on 1979-data. In view of the fact that most of the subprojects financed under the Loan were completed recently, or are still under implementation, Annex 11 shows only a small sample of companies financed under this Loan. 1/ All of these companies have a good repayment performance, although two of the six companies had after-tax losses (one of which is expected to show a profit for 1980), and four companies had moderate profits. 31. BISA has calculated the ex-post rate of returns for six subprojects, three (out of nine) from the Credit and three from the Loan, the low number from the latter because only a few subprojects have been fully completed, as discussed above. The six subprojects show a financial rate of return of between 10.4% and 45.1%, and an economic rate of return of between 27.7% and 62.6%, with an arithmetic average for the economic rate of return of 37.6%, which is good. The high capacity utilization for most companies, as well as the fairly close relation between projected and actual construction costs, also indicate that BISA's subprojects have a generally good rate of return. However, for the mining subprojects (three of the above six), the rates of return could decline significantly if the future mineral prices should turn out to be lower than projected for the purpose of these calculations. Subproject Reviews 32. Under IDA's reviews of the "A"-subprojects, some of the common weaknesses noted in BISA's early appraisal reports were: (a) unsystematic presentation; (b) incomplete financial analysis and defective rate of return calculations; (c) incomplete market analysis; and (d) lack of list of goods to be financed and no discussion of the procurement decision. Through the continuous subproject dialogue with BISA, there was considerable improvement in appraisal quality. As a result, most subproject appraisals submitted under the Loan were of acceptable quality, although the Bank did raise questions regarding, in particular, the market analysis and the assumptions used for the economic rate of return calculations. BISA's appraisal reports are now generally of good quality, although under the proposed mining credit loan, the Bank will seek to improve the discussion of the procurement decisions. 1/ Also, at the time of the mission, only data for 1979 were available. - 43 - VI. CONCLUSIONS 33. The utilization of the Credit and the Loan was affected significantly by sharp variations in the investment climate caused primarily by a changing political situation in Bolivia, combined with special problems of mineral price fluctuations for the important mining sector, although a more aggressive attitude on the part of BISA could, probably, have he:ped the situation. The utilization of the Credit was also affected by the fact that BISA financed a substantial portion of its loans for mining from other sources. It would have been difficult to predict some of these fluctuations in advance, but this uncertainty should, in view of this experience, be considered in determining the nature and amount of future IDF operations in Bolivia. Since any upturns in economic performance or investment climate may be of short duration, projected operations and financial statements should be based on only moderately optimistic assumptions, and the Bank should ensure that the funds under the existing loan are near to being fully authorized before a new loan is extended. In spite of the delays in Credit and Loan utilization, many of their objectives were met to a substantial extenL. In particular, the Credit was largely instrumental in BISA's decision to extend its activities to the mining sector, thereby for the first time making term capital available to this sector. The Loan supported the very significant growth in BISA's expansion of its activities that was taking place at the time of appraisal (although it subsequently declined), and permitted the Bank to continue its close dialogue with BISA. 34. BISA was a competent institution already in 1974. Since that time, and with the assistance of and continous contact and dialogue with the Bank, the quality of its operations has improved further, and is now satisfactory in all important aspects. In view of its competence and central position in industrial finance in Bolivia, BISA has proven to be a good channel of Bank funds for industrial (and mining) investments. It has also become less conservative than in the past in its lending criteria, although it could probably have expanded its operations somewhat through a more aggressive attitude toward project lending and increased promotional efforts over the past few years, especially for new projects, and also broadened its geographical base. However, the scope for a more liberal lending policy would in any case nave been restricted by the limitations set by its equity base, and by the risks that such a policy would have entailed, and which are particularly important for the only private development finance institution in the country. BISA's difficulties in expanding its equity base at a sufficiently rapid pace to off-set inflation under present inflationary conditions are typical for most DFCs; it would probably have been able to maintain a somewhat higher level of activity if its scope of activity had not been limited basically to term lending. Overall, over the period of the Credit and the Loan, BISA has increased its operations very substantially 1/, in spite of the decline after the peak year of 1977, when BISA's approvals were as high as US$16.4 million. At the same time, it has operated prudently in the face of economic and political uncertainties, although this probably 1/ Its net approvals in 1980 (US$8.8 million) were almost eight times as large (in nominal terms) as the average level of 1970-72 (US$1.12 million). - 44~- has been at the cost of being somewhat less promotional than it could have been. During future operations, the Bank should ensure that BISA follows up on its previous intentions regarding local resource mobilization and geographical expansion of its activities, within the limits set by the socio-economic situation of the country and BISA's cost structure. At the same time, it would be desirable that a larger number of new projects would be financed. BOLIVIA BANCO INDUSTRIAL S.A. Projected and Actual Operations, 1973-1980 ($b million) Projected-Credit 455-BO z ProJected-Loan 1290-B0 Actual2/ Commit- Disburse- Commit- Disburse- Commit- Disburse- Approvals ments ments Approvals ments ments Approvals meants ments 1973 40.0 37.9 38.4 40.5 36.4 31.0 1974 59.0 56.2 49.8 145.3 130.0 113.2 1975 93.4 86.7 75.8 215.9 185.1 121.6 1976 108.2 105.2 99.0 248.3 243.2 185.1 260.0 254.0 250.0 1977 123.6 120.5 115.7 280.6 267.6 268.8 328.0 278.0 244.0 1978 314.2 300.7 300.8 234.0 240.0 268.0 1979.1/ 348.8 334.5 321.3 160.0 212.0 236.0 1980 383.6 369.7 355.8 220.0 200.0 187.5 1/ Including equity investments of (by approval.) $bO.1 million in 1973, increasing to $bl.3 million in 1977. 2/ Including guarantees of about US$1-2 million per annum. 3/ The actual figures have been converted from BISA's figures (which are in US$) at US$1 - $b20, although the peso was devalued (to US$1 - $b25) in mid November of 1979. - 46- SMK: IllDWT2RAL 8.A. Preeted and Ac -1 Ina Stamtnta, 1973-1980 (0b 1LUIamR) 7nolectd 1! Actual 1973 1974 1973 1976 1977 1978 1979 1910 1973 1974 1973 1976 1977 1978 1979 190 C~.-6.10e 0.7 1.1 1.5 11.2 12.1 13.2 14.4 15.9 1.1 2.2 7.6 10.0 10.7 7.4 7.6 1.4 Other incom$f _04 4 _,LI 1.4 1.6 .1a9 2.0 2.2 0.6 20 _1.2 2.4 1.8 6.1 3. .8 10TL IEIS 10 0 1 17.3 36 5 54.4 76.6 9 0 23.7 &0.6 57 9 76.1 gd.5 122.6 n.e.nci expanaea 3.5 4.5 6.2 11.0 20.0 31.3 42.8 54.5 3.6 4.1 7.3 13.9 25.3 35.7 34.1 67.9 s fferies and other personnel expenaem 7.0 2.8 3.1 5.0 5.5 6.5 7.4 8.1 2.1 3.5 4.3 ) 4.3 4.5 6.4 8.6 CnrfIb.tioa 0.2 0.2 0.3 0.3 0.4 0.5 0.6 0.7 0.2 0.1 0.3 ) . 4.8 5.6 4.2 3.7 etablahment expensm 0.9 1.5 1.7 3.1 8.4 3.7 4.1 4.5 1.2 1.9 2.8 3.7 4.2 4.4. 6.1 12.7 OeprecLation 0.1 0.1 0.1 0.5 0.4 0.4 0.5 0.6 0.1 0.2 0.2 ) 2.4 3.0 7.4 8.5 9.1 rovsionu and vråte-offs 0.7 1.1 1.8 L.3 7.4 7.9 9.0 9.6 1.2 1.1 0.9 > Other w~penes 0.B _0_ _1.0 1,1 12 1.3 1.4 1.5 06 06 11 1TAL EPE_2 111 142 1 383 51. i ..6lå 6 7 8 11.3 169 41.6 57.6 79.3 103.8 .j_fl=g - -- - - ----- -- - - ~rnFT DEilE TAES 1.8 2,0 _3.1 144 16.1 2.0 31. 0 32 -1.0 3.2 6 9 11.6 16.3 -1 -92 18.8 Provision for tazut_f 0.5 0.3 0.8 4.8 7.3 9.3 11.8 12.4 0.2 0.4 2.3 3.4 4.7 5.4 (6..6) 0.6 cntrin.tion to OaMPlyeEac nd 0.1 0.2 _02 11 _1.7 _2.2 27 2.9 -a 0 1 _0. -_ _- - - - ET PMI 1 3 .1 5 71 1 6 20,2 7 7 4.0 8.1 11.4 13.0 139 18.2 APPRTTOM5 Laga e~rw 0.1 0.2 0.2 1.1 1.7 2.2 2.7 2.9 0.1 0.1 0.6 0.8 - 1.2 1.2 1.4 Cch dtvidend 0.7 0.8 1.3 - 3.1 5.6 7.8 9.4 - - 1.7 - 3.3 - - - Stock div~dend - - - - 1.3 5.7 6.0 7.9 - 2.2 0.3 4.9 3.3 - - - othere 0.4 0.3 0.6 4.1 1.0 - - - 0.6 0.6 1.4 2.4 5.0 11.8 12.7 1.8 . MATI5 AdeIntatrattve -~enas a of verag total aaeme al 1) 2.5 3.1 2.7 2.6 2.0 1.7 1.5 1.r6 3.1 4.0 3.5 3.4 3.0 2.4 2.2 3.0 l.teraat lao EI t oy avrag. l-s portfollo <2) 9.0 9.5 9.5 9.7 10.4 11.0 11.3 11.4 9.2 10.0 9.6 11.2 12.1 12.4 12.1 16.2 FnmnttIal Tf epee s 1 of flers. borr~wn (M 4.0 4.1 4.3 5.7 6.7 7.1 7.5 7.9 4.4 4.3 5.4 7.2 7.8 C.2 9.2 10.0 ProfIt befor tas ab % of average total asr. 51 1-5 1.4 1.6 3.6 3.4 3.9 3.8 3.7 0.9 2.3 3.3 3.7 3.6 -.1 1.2 2.1 met profic fl 1 of sverage equity (M)o/ 9.6 7.1 7.7 12.1 0.9 15.9 13.8 16.2 4.5 11.2 12.2 18.3 13.5 L2.5 12.0 13.8 1 Fro, the appraisla reports for Credit 433-10 (1973-75) and To- 1290-90 (1976-80). 2 eerally. maoet all of BIsa. Interest Incomm has caoe fro. it, iemn portfolio. but in recent mara * it ha. aLao ben obtalning aubstantial Intereat Incoe o ahort term aaeeta. especially In 1980. hs such Lutme - ad to 3b13.2 millIon, ar 13 of total InteSt tuCM. The uctual figr.. tmlude the follouing extrordleary iten: 1977: Mb0.6 mllion and 1978: 5b4.0 silla (both on accomt of -ehan== gai~.)..and 1980: 55.2 millom (profit on .ale of property). 4f Sica 1979. 8IA ba a~ed * 902 am holidey ~mtof It w offl« bm Mh-almo Gec~utfr dhe tex wi - a 1979. a1 Including contigemt liabiltIaes. st Including Intrest on deposit. Thx. it~ ham Inereased subtantially ln recent yar a e rewnlt, the actual percentagee overstate BISA's Inco on los a. 7hus. in 1979 and 1980. BMse Inter t ncamt la loDu . as % of a nrg loa portfolig wes 11.9% and 14.17. rapeettvely. it Incloding coweagons. 1 The actual figur.. ln recent yoera hav been affected slgnificantly by the extreordiary items (footnote 2) and concemetonel tas treeatet (3). In the abenc. .f the.. itcm. 5ZeS not inta.- In 1980 vould have been about 72 of average equity. ANCO INDUSTRIAL 8.A. Prolected and Actual Balance Sheets, 1973-1980 ($b million) 19r3jec76 ed 1 91cta 1973 1974 1915 1976 1977 1978 1979 1980 1973 1974 1975 1976 1977 1978 1979 1980 ---Credit 455-0-- -- lan 1290-80 - Cash and bank balances 5.5 11.9 11,4 7.3 12.8 8.0 13.0 11.4 14.0 3.3 6.7 19.6 32.5 28.9 35.0 129.4V Hiscellaneous receivables _, -Ads -Aa 15.2 23-5 .1J- 23.0 2,0 6 j4 6 LJ 9.,Z 17.i_ 2 _L5 ._UA. 34 1 Total current assets 9.2 16.7 17.7 22.5 36.3 31.5 38.0 38.0 18.0 10.4 20.5 36.7 49.7 54.2 68.6 163.5 Loan portfolio 108.9 135.9 184.6 307.8 476.9 637.4 782,8 919.2 86.9 122.8 186.5 315.0 437.1 574.0 670.1 634.9 Investment portfolio j.1 . J .2 ..j.j 6.8 -. -.4 . I. I _2 .2.. ..11.s.1 .294 .53 Gross Loan and investment portfolio 112.0 140.0 190.1 311.0 481.8 644.2 791.3 930.3 89.4 123.3 189.2 322.5 446.3 5851 699,6 660.2 Less proviaions _.3 _a 1 10.5 6.16 1.1 2.06 0 30.3 _ 18 2 8.5 L J §12 23 6 _jL_2 Net loan and investment portfolio 109.7 136.4 184.9 300.5 465.7 623.1 765.5 900.0 88.2 123.5 186.5 314.0 437.2 566.9 676.0 628.0 Pixed and other assets (net) 2.6 . 4 5.0 _22 9 .4 02.AL9 TOTAL ASSE]S U2J 1U U a M W W W8.6 7 0 3 1 876.4 LIABILITIES AND NIT WORTH Accounts payable and other current liabilities 4.1 3.2 2.2 45.0 42.7 42.0 41.4 43.9 1.4 3.5 8.3 22.1 26.1 17.1 28.7 36.0 Term borrowings 95.9 124.9 163.2 223.1 375.9 510.6 633.9 745.0 85.1 105.0 162.9 260.0 368.0 502.8 668.4 692.1 (of which: current portion) (8.9) (12.6) (13.9) (11.3) (12.4) (38.7) (68.9) (95.6) (9.5) (23.4) (35.5) (31.5) (45.7) (80.3) (125.1) (96.4) Other liabilities 62 _.. _4 6 _7.3 1 18 .9 22.4 1.2 1 0 _ _4 1 6 2 1 _21 10 Total Liabilities Mi .J 1I20 275.4 430.1 56 3 694 61OL.3 87.7 1J2Ag 1IU IP 293a 522.0 73 IgL 3 . 1 Share capital 12.9 18.3 28.7 47.1 62,6 69.7 86.3 99.4 18.9 23.7 31.6 37.9 76.5 80.7 87.4 87.7 Legal reserve 0,9 1.t 1.3 2.9 4,6 6.8 9.5 12.4 0.9 1.0 1.8 2.6 2.6 3.8 3.0 6.4 Other reserves 1 .9 .3 0 2 _10%7 1 2.5 19 * .j. .9_W 4 s 9, 4 j9 23.7 30 , 47.1 Total Net Worth 15.3 21.3 33.0 52.6 _.9 92.3 116 3 12. 2L. 2. _IL J _& g0 JJA-l 106.1 AUJ II J TOTAL LIABLITIES AND EQUITY 121.5 155.8 205.0 328.0 508.0 U 0 U M " 20 U 86 "L_ MA Ltters of credit 4.0 5.8 9.2 24.1 26.8 30.0 33.5 37.0 .3.4 13.7 17.1 6.7 0.3 6.7 3.8 13.8 Cuarancees 3. 1. 5J 0 l1 32.1 .§9 4 _.4. 0.a 11.4 28.3 1.2 31.7 20. 7 26.5 15.4 TOTAL CONTINGENT LIABILITIES -1366 2 J _ 2a RATIOS Current ratio (excl. current portion of loans and borrowings) lj);} 5,2:1 8.011 0.5:1 0.9it 0.6:1 0.9:1 0.9:1 12.9t1 3.01 2.5s1 1.711 1.9:1 3.2:1 2.4:1 4.5.1 Debtlequity ratio (contractual dat.) 7.44t 6.7:1 5.6:t 6.2:1 6.3i1 6.9:1 6.6:1 6.7:1 4.4st 4.9s1 5.7i1 6.4si 4.3:1 3.1:1 6.0:1 5.4:1 Provisions for loans and investments as % of total loan and investment portfolio (5) 2,1 2,4 2.7 3.4 3.3 3.3 3.3 3.3 1.3 1.4 1.4 2.6 2.5 3.1 3.4 4.9 Annual increase in total assets)/ (I ) 10.7 28.4 33,1 46.7 48.8 28.2 21.7 16.1 2.8 43.7 58.1 44.9 41.8 24.8 30.3 5.7 *L/ From the appraisal reports for Credit 455-50 (1973-75) and Loan 1290-80 (1976-80). I/ This smouat is esceptionally large due to considerable repayments received towards the and of the year, plus a disbursement of about US$1 million received from 10, but not yet disbursed to the subborrovers. / Including contingent liabilities. - 48 - BOLIVIA ANNEX 4 BANCO INDUSTRIAL S.A. Breakdown of Subprojects Financed under Credit 455-BO (in US$) No. Amount I. By Size of Subloan Up to US$250,000 1 245,000 5 US$250,001 to US$350,000 2 605,000 12 US$350,001 to US$700,000 3 1,594,700 32 US$700,001 and above 3 2,555,300 51 Total 9 5.000,000 100 II. By Type of Mining Activity Tin 6 3,495,000 70 Antimony 2 755,000 15 Zinc 1 750,000 15 Total 9 5,000,000 100 1/ III. By Geographic Location - La Paz 5 2,759,700 55 Potosi 4 2.240,300 45 Total 9 5,000,000 100 IV. By Nature of Projects New 1 750,000 15 Expansion 5 3,009,300 60 Modernization 3 1,240,700 25 Total 9 5,000,000 100 1/ By Department. - 49 - ANNEX 5 BOLIVIA BANCO INDUSTRIAL S.A. Breakdown of SubproJects Financed under Loan 1290-BO01 (in US$) No. Amount - I. By Size of Subloan Up to US$16,500 4 50,480 1 US$16,501 - US$82,500 4 180,300 2 US$82,501 - US$250,000 10 1,516,000 19 US$250,001 and above 10 6,250,000 78 Total 28 -7,996,780 100 - - II. By Subsector Food Products 4 2,160,000 27 Beverages 2 725,000 9 Textiles 6 1,364,900 17 Wood Products 3 104,600 1 Chemical Products 3 610,000 8 Plastic Products 1 110,000 1 Hetal Products 3 411,280 5 Tourism 2 355,000 5 Mining 4 2,156,000 27 Total 28 7,996,780 100 III. By Geographic Location 2/ La Paz 21 7,022,580 88 Cochabamba 2 124,200 2 Santa Cruz 2 335,000 4 Oruro 1 400,000 5 Sucre 2 115,000 1 Total = 28 7,996,780 100 IV. By True .of Enterprise New Enterprises 3 1,850,000 23 Existing Enterprises 25 6,146,780 77 Total 28 7,996280 100 1/ Subprojects authorized by IBRD through April 30, 1981. f/ By Department. AJCO INDMSTRIAL S.A. Subprolects Finansed under Credit 455-So (USI thousand) Sub* Total BISA Type of project Total Project Contribution Total Project Total 2ISA Total IBRD Name of Company1/ Project Le toulL umber (p) Wa) Cost at Appraisal at Aporateal3/ Coyts"gual Contribution-Actualtf _Contribution-Aer"'Al Foraian Lpcal Total Foppigg Local Total ForLign Loeal Total foregpn local Total Farpgln Local Totgl Ampress Kinere Barrosquira (Tin) Expansion La Pas A-I 12/75 12/75 370.0 226.5 596.5 20.0 - 20.0 370.0 215.9 585.9 20.0 - 20.0 245.0 * 245.0 Soc. Taenica Armonia , (Tin) Epanaon la PZ A-3 12/76 12/76 350.0 280.7 630.7 * 78.1 78.1 350.0 278.0 628.0 - 28.0 28.0 350.0 . 350.0 Expresa Kinera Hodern- Unificada (Antimony) ination Potosi A-4 12/76 12/76 529.7 430.6 960.3 50.0 50.0 329.7 4306 960.3 - 50.0 50.0 500.0 - 500.0 Empress Moers EUp. and Aberos (Antimony) Modern. Potosi A-6 5/77 6/77 255.0 227.0 482.0 - 50.0 50.0 235.0 227.0 482.0 - 50.0 50.0 255.0 - 255.0 Cabello Blanco S.A. (Zinc) NeW Potoc' A-7 6/77 12/76 6,047.0 4,493.0 10,540.0 - 50.0 50.0 7,040.6 5,209.0 12,249.8 * 50.0 50.0 750.0 * 750.0 Impresa Hiner& Modern- Atore& (Tin) isation La Pa A*8 4/77 6/77 616.5 218.3 534.8 21.8 67.0 88.8 618.0 217.3 635.3 12.0 67.0 69.0 485.7 - 485.7 res& Mineara Fabon (Tin) Expansion La Fas A-9 9/77 12/77 609.0 474.0 .1,083.0 * 88.0 88.0 609.0 477.0 1,086.0 * 91.0 91.0 609.0 - 609.0 Fabuloa Mines Co. (Tin) Expansion la Pas A-10 12/77 12/77 1,071.0 561.0 1,632,t 129.0 129.0 1,071.0 561.0 1,632.0 129.0 129.0 1,070.0 * 1,070.0 Compaa inera del Sur (Tin) ExpansLon Potoesi A-ll 6/79 12/79 775.0 210.0 965.0 * 775.0 210.0 985.0 39.7 . 39.7 735.3 * 735.3 (s) Expested Date of Completion at Appratest. (a) Actual Date of Completion. In parenthees, major mining product. by department. In addition to the IDA subloan. A N n INBTAL S.A. subroldeta fånanced under Laan 1290-.0/ (U§$ houand) Sub. Total B19A indnatrial Typ§ of project Total Project Contrlbutlon Total Project Total RIrA Total U88D Hage of Cofpany ativity ProjOct Location2/ Number () (xa) Cost at AppraIat at Apratsa3l 3 otAAtual Contribution-Actest 3/ Contribution-Atual Forslan Lcal Total Foralag 1ocal Total por@an Lta1 Total Foratgn 12 cal Total Perai01 -JUal Total båtno Andlo 8,M.L. ood Prod. Nav La Pat A-1 10/78 1/79 6,277 2.163 8.440 150 • 150 4,860 ],000 7,860 150 150 2.350 1,350 Uarrar Chegej Ltda. Pood Prod. Mdarn- Oruro A-2 12/78 8/79 474 126 600 474 126 600 • 400 • 400 Imötion Arado Industytal y Cartal mctal Prod. txpanston la Ps A-3 7/79 7/80 877 247 1.074 560 560 82 247 1.074 170 170 390 390 Manufacturas da Algodon gap. 8.4. Teatilfm Madern. La Pan A-4 6/•• 6/79 680 139 s19 • • 60 129 819 625 625 International minin Co. inng Epancion la Pas A-s 3/80 6/80 4,507 3,909 8,216 • • 4.801 4,482 9,283 • 1,500 1,500 raa. mind*& y T43. tA CIA Tatila apanaton La pas A-6 1/80 7/B0 761 347 1,108 • 70 70 842 415 1,258 - 70 70 400 - 400 Cervearåa Bollviana mactonal 5.A. Drinka Expanalon La Paa A-8 12/B0 12/80 22,965 3,323 26,290 1,30 • 1,300 24,239 3.512 27,771 1,300 1,300 300 300 Droturia INI 8,A. PaMataa.utieal Rzpanalon la Paa A-9 1/l 3/81 945 117 1.062 204 • 204 aa. o,a. n.a. 204 • 204 485 485 raa. de Citaa hLTB Ttile Ixpmnaton La vas 3-1 1/79 1/79 214 36 250 • • 214 36 250 - • 140 140 Motal Casa ilar Tourism Nav sucre 8-2 7/179 12/60 93 62 115 - • 95 120 215 50 • 50 100 • 100 opress inera Fabon Mintn Efpangton La Paa 8-3 12/79 7/80 199 159 358 • • • 230 176 406 : 156 • 156 .iquid Carbonie Chemietl Prod. Expancion La Paa 8-4 12/79 12/79 147 83 230 - • 14? 3 182 • • • 110 • i0 PIAKM .A. Plamtle Epansion La Pas 8.6 10/79 6/80 453 42 495 200 • 200 498 46 544 200 200 10 • 1103 bolivar Palcae bata Tourin Expansloft La Pa 8-7 1/80 4/80 566 654 1,220 500 00 592 700 1,292 500 500 255 155 atel1 Textila Expano n La Paa D-8 10/79 12/80 60 - 60 • • 68 • 68 • 68 68 METM Ltda. Textila EMpalon La pta 8-9 12/79 11/79 - 46 46 18 18 22 22 • 18 18 • 21 21 A0@1ART Vood Pred. Expansion Cbba. 1-10 4/60 11/B0 • 33 35 16 16 • 30 30 • 16 16 • 14 14 02618 Chilal Prod. epancion gucre 8.11 10/79 11/79 15 • 15 • - - 15 • 15 • • 15 • 13 Pea. Conservas DILUff Pood Prod. Expanson Chb. 8-12 1/80 * 943 1,071 2,014 190 550 1,340 n.. o.a. n.a. 790 530 1,340 110 110 arraca y Nastramå Tagm Nood Prod. Expanton La Paa 3-13 4/B0 9 • 131 131 • 45 45 n.a. n.. a. na. oa o.a. • 55 55 Calmaa Natal Prod, Expanaon Cbba. 8-14 7/80 11/80 • 16 16 5 5 • 27 27 - 5 5 • 8 8 Cervecerla BOltviam Naatonal 8.A. rifks Expansion La Paa 8-15 6/80 6/80 517 108 625 350 350 575 $17 792 350 350 225 225 hepesa Nnara Kelluant Kinta& äU la az t-16 6/80 7/B0 1,664 439 2,103 225 75 300 1,710 468 2,178 225 75 300 200 • 200 EemA mon Natal Pröd. Expansion la Paa 8-17 8/80 2/81 13 b 21 • • 13 8 21 • 13 8 21 Companita Riare dal Bur mining ERpansion Potot 8-19 6/81 * 1,509 291 1,800 140 140 n.a, a.. n,. 140 140 300 - 300 Ganer & Cia. lnd. La mlea Pood Prod. Epansion a. Ctr 8.20 12/80 12/80 457 196 653 - - - 481 231 71i - - 300 • 500 Hanufacturad de Algode .A. Textil@ EXpasion La Paa 3.21 4/81 t 131 , 29 160 na. na. n.a. •110 • 10 (a) Enpetad ftam of CofplattIon, (ni Actual Data of CMPatton. subprojecte *utboried by 188 throa> April 30, 1981. TU aIat eluas mae *maul obfprojatt (0-95, uvarradere 8ao 7ran=iuco da Sru) Oith va sadd through, and with tha gVarnat** of, h ajtat;r 8y daprmet. ry ba a 1 ddition to the 1BID subloao. m Not available. BOLIVIA BANCO INDUSTRIAL SA. Companies Financed under Credit 455-B0 1/ Fixed Assets Lintribution of Company of Company at Contribution Company to Gross Net Earnings of Actual Capacity Number Subproject Project of Mine Exports Foreign Exchange Utilisation of Namd of Company Number Completion to Employment (US$'000) (IIS$000) () Shifts ($b '000) Prolected 2/ Actual Projected Actual Proiected Actual 3/ Empress Minera Barrosquira A-1 13,696.0 - 259 2,477 3,295 2,230 2,965 95 3 Soc. Tecnica Armonia A-3 19,416.1 - 167 2,575 1,030 1,738 880 45 3 Bapress Miners Unificada A-4 183,795.1 - - 13,540 29,450 11,509 25,030 95 3 Empress Miners Abaroa A-6 23,597.3 - 128 1,460 884 912 618 55 3 Caballo Blanco S.A. A-7 136,360.0 - - 22,200 5,600 12,500 n.a. n.a. n.a. Empress Miners Atoroma A-8 50,573.4 - - 3,323 3,454 2,573 2,187 100 3 Empress Miner& Pabon A-9 25,108.4 - 250 2,143 1,606 1,820 1,205 70 3 Fabulosa Mines Co. A-10 56,312.0 - 552 7,014 10,110 1,987 4,802 97 3 Compania Miners del Sur A-11 341,814.4 - 625 23,769 31,029 20,440 26,060 85 3 I/ Figures are from fiscal year 1979. 2 Not estimated. / Estimated. BQLIVI BANCO INDUSTRIAL S.A. Impact of Subprolects Financed under Loan 1290-BO/ Fixed Assets Contribution of of Company at Contribution of Project to Grose Net Earnings of Net Savings of Actual Number Subproject Project Project to Exports Foreign Exchange Foreign exchange Capacity of Name of Company Number Completion Employment (US$1b00 (USS1000) - (US$'000) Utilihation Shifts (Ob '000) Prolected Actual Proiected Actual Projected Actual Prolected Actual () Molino Andino S. .. L. A-1 161,548.0 92 81 - - - - - * 40 3 Ferrari Chezzi y Cia A-2 191,957.2 12 9 - - * * * 22 3/ 1 Arando Ind. y Comercial A-3 25,456.5 25 11 - - - - - - (I) Manufactures do Algodo'n S.A. A-4 144,919.7 55 55 - - - - - 303/ 2 International Mining Co. A-5 389,710.0 163 172 7,037.9 8,338.2 5,771.7 7,429.2 - - 91 3 Fea. de 1i1. LA CIMA A-6 45,913.4 134 128 - - - - 459 207 60 3 Cervacer(a Boliviana Nal. A-8 718,565.3 275 291 * * - * * * 83 3 Droguerfa INTI S.A. A-9 (*) 22 (*) - - - - 562 - 50 1 Fas. Cintas DAYSI B-1 12,963.9 18 20 - * * - * - 95 3 Hostal Caa Miter B B-2 5,112.8 9 12 - - - - - - 70 (*) Empresa Minera Pabon 8-3 32,436.6 is 21 700.1 180.01/ 576.4 149.4 - - 60 3 Liquid Carbonic 8-4 38,469.3 (*) (*) - - - - - - (I) PLASMAR S.A. B-6 34,463.7 5 6 - - - * 395 193 64 3 1 Bolfrar Palace Hotel B-7 45,546.6 18 12 - - * - - - 35 (*) " BESLONITEX B-8 2,855.0 2 2 - - - * * - 68 1 RETEX B-9 1,642.5 8 5 - - - - - 90 1 AMOBIART B-10 807.5 4 4 - * * - * - 70 1 OXIBIX B-11 1,150.0 1 1 * - - - * - 90 1 Fe. do Conserves DILLMANN B-12 (*) 65 (*) (*) (*) (M) (*) (M) (M) Barraca y Naest. YACUMA 8-13 () 5 (*) - - - - - - CALMECA B-14 647.5 7 5 - - - - - - 80 1 Cervoceria Boliviana Nat. B-15 718,565.3 () (C) - - - t o 100 3 Empresa Minera Kellguani 8-16 26,024.0,2/ 88 94 2,330.5 1,333.41/ 1,349.4 772.11/ * - 922/ 3 EBEMAP B-17 782.5 - - - - - - - - 75 - Compane Miners del Sur B-19 (*) 12 (*) 9,087.0 (*) 71394.7 () - - () Casser y Cia. Ind. La Belgica B-20 1,028,513.01/ - - 9,858.8 () 8,960.1 () - - 80 3 Manufactures da Algodon S.A. B-21 (M) - - M- - - - . (C) () (*) Not Available 1/ Excluding projects not yet completed. The figures are for fiscal year 1979. The list excludes one subproject (1-18, "Asserradero San Francisco do Surutu") which was uade through, and with the guarantee of, an intermediary bank, 2 Easiated. 3 Corresponds to the projects, and not the whole plant. BOLIVIA BANCO INDUSTRIAL S.A. Financial Performance of Companies Financed under Credit 455-B0 1/ Sub- Gross Nut Profit (Lose) Net Profit (Loss) Net Profit Project Sales Before Tax After Tax Net Worth After Tax as X Long-Teram Repayment Number (US$000) (US$000) (US$000) (US$000) of Net Worth jf Debt/Equity Performance Empress Minera Barrosquira A-1 3,323 842 (49) 785 - 1:6:1 Good Soc. Tdcnica Armonfa A-3 1,030 132 (140) 255 - 1:5:1 Fair Empress Miners I Unificada A-4 29,452 531 531 14,718 3.6% 0:4:1 Good L Empress inera Abaros A-6 884 (30) (133) 392 - 0:3:1 Good Caballo Blanco S.A. A-7 5,600 (1,090) n.d. 1,080 n.d. n.d. Bad Empress Miners Atoroma A-0 3,454 (191) (1,449) (236) - - Fair Empress Miners Pab6n A-9 1,625 289 (165) 585 - 2:0:1 Good Fabulosa Mines Co. A-10 10,110 3,098 (156) 4,190 - 1:0:1 Good Compaftia Miners del Sur A-11 31,029 6,510 1,883 7,928 23.7% 1:4:1 Good 1/ Figures refer to fiscal year 1979. 2/ No percentage calculated where not profit was negative. / BISA's loan to this company has been converted into equity, and a substantial provision for possible losses has been made. However, BISA now believes there is reasonable hope that actual losses will be low. BOLIVIA BANCO INDUSTRIAL S.A. Sample of Companies Financed under Loan 1290-BO1/. Sub- Net Profit (Loss) Net Profit Long-Term Name of Company Project Gross Sales After Tax Net Worth After Tax as % Deb%t/Equity Repayment Number ($b00O) ($b000) ($bOOO) of Net Worth Ratio Performance Molino Andino S. R. L. A-1 197,474 (4,811) 61,978 - 1.64 Good Ferrari Chezzi Ltda. A-2 237,217 6,232 99,898 6.2% 2.27 Good Arando Industrial y Commercial A-3 15,846 717 9,578 7.5% 1.73 Good UI Manufacturaes de Algoddn S. A. A-4 202,121 681 106.433 0.6% 0.7 Good Fca. do Cintas y Trenz. DAYZI B-1 18,842 307 18,080 1.7% 0.3 Good Liquid Carbonic B-4 34,186 (784) 18,768 - 0.5 wood 1/ Figures for Fiscal Year 1979. At that time, most subprojects financed under Loan 1290-B0 were not yet in operation.