Guinea - Boke Infrastructure Project

R E S T R I C T E D FILE COPY Report No. P-47Q This report was prepared for use within the Bank and its affiliated organizations. They do not accept responsibility for its accuracy or completeness. The report may not be published nor may it be quoted as representing their views. INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT REPORT AND RECOMMENDATION OF THE PRESIDENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED ENGINEERING LOAN TO THE REPUBLIC OF GUINEA FOR THE BOKE INFRASTRUCTURE PROJECT March 14, 1966  REPORT AND R3ECONMENDATION OF THE PRESIDENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED ENGETEERING LOAN TO TIE REPUBLIC OF GUINEA FOR THE BOKE INFRASTRUCTURE PROJECT 1. I submit the following report and recommendation on a proposed loan in an amount in various currencies equivalent to US$1.7 million to the Republic of Guinea to finance the foreign exchange cost of the field surveys and detailed engineering of the railroad, port and town- site to be built by the Government of Guinea in connection with the exploitation of a bauxite deposit in the Bok6 region. PART I - HISTORICAL 2. Guinea became a member of the Bank on September 28, 1963. Guinea has also applied for IDA membership but the necessary formalities are not yet completed. A report on the Economy of Guinea (AF-!lc) was dis- tributed to the Executive Directors (R66-35) on March 14, 1966. 3. In October 1963, the Government of Guinea entered into an agree- ment with HALCO (Mining) Inc., an affiliate of Harvey Aluminum (Incorpor- ated) of Torrance, California, concerning the exploitation of a large bauxite deposit in the region of Bok6 in Northwest Guinea. Compagnie des Bauxites de Guinee (CBG), a corporation jointly owned by the Government of Guinea and HALCO, was set up to exploit the deposit, which is believed to be one of the richest in the world. While CBG would own and be responsible for setting up the mining facilities and HALCO has undertaken to make arrangements to provide the necessary funds, mainly by way of advances, it was agreed that the Bok6 infrastructure, namely, a railway, port and townsite, made necessary by the project would be constructed and owined by the Government of Guinea. Construction and operation of the infrastructure would be the responsibility, in the first instance, of an autonomous agency of the Republic of Guinea, the Office d'Am6nage- ment de Boke. L. Since the middle of 1965, discussions have been taking place between Harvey and a number of other aluminum companies in North America and Europe with regard to the participation of these companies in the exploitation of the Bok6 deposits either through the taking of some form of equity or through making arrangements for long-term sales contracts. 5. As described in paragraph 3 of the report TO-506b (attached),in 1961 the Government of Guinea terminated the concession it has previously granted to the Compagnie des Bauxites du Midi, alleging failure by that Company to meet its obligations under that concession. In 1965, a claim for compensation was filed by Bauxites du Midi, but the Bank has been informed that further action on the claim has been suspended in view of the negotiations presently being conducted on purchase of bauxite from Boke. Under the circumstances, I think the Bank should not regard this claim as a barrier to proceeding with the proposed engineering loan, although it will, of course, continue to follow the matter and will reassess this situation at such time as a proposal to make a construction  - 2- loan is ready for consideration. 6. In June 1964, the Government of Guinea approached the Bank with a view to securing financing for the foreign exchange cost of the Boke infrastructure. The Bank made a preliminary review of the whole project, including the mining aspects, and reached the tentative conclusion that the project, subject to certain conditions, could have a decisive impact on the development and balance of payments of Guinea and could be suitable for Bank financing. A Bank mission visited Guinea in April 1965. After a review of the available engineering studies, it became clear that addition- al engineering work is needed before a project for the construction of the infrastructure could be appraised by the Bank. A tentative estimate for the construction of this infrastructure is about $50 million, of which $40 million in foreign exchange. 7. The Government of Guinea has requested that the foreign exchange cost of the necessary additional engineering work be financed through an engineering loan from the Bank. The detailed arrangements for the studies required and the conditions of the proposed loan were subject of negotiations which took place in Washington in January and February 1966 with the Ambassador of the Republic of Guinea. 8. The proposed loan would be the first operation by the Bank in Guinea, as well as the first loan made by the Bank for purely engineering purposes. PART II - DESCRIPTION OF THE PROPOSED LOAlN Borrower: The Republic of Guinea Amount: The equivalent in various currencies of $1.7 million. Purpose: To finance the foreign exchange cost of the engineering services required for the design of, and the preparation of contract documents for the construction of, the railroad, port and townsite to be built by the Government of Guinea in connection with the exploitation of a bauxite deposit in the Bok6 region. Amortization: By semi-annual payments beginning March 15, 1969 and ending MIarch 15, 1976. Interest Rate: 6% per annum. Commitment Charge: 3/8 of 1% per annum. Term: 10 years.  - 3 - PART III - PURPOSE 9. The purpose of the proposed engineering loan is to provide Guinea with detailed engineering designs for the Bok6 infrastructure and with estimates of construction costs accurate enough to enable the Bank to make an appraisal for a possible loan to construct the infra- structure. The engineering project for the railroad, port and tolwnsite would cover: i. Field surveys for the railroad, port and townsite; ii. Final engineering design for the construction project and preparation of contract documents, specifications and construction drawJings for the railroad, port and townsite; iii. Preparation of a final engineering estimate of construc- tion cost and of a detailed time schedule for the construction; iv. Prequalifications of contractors. 10. The Project will be undertaken by the Office d'Am6nagement de Bok6, an autonomous agency of the Republic of Guinea. To carry out the detailed engineering, the Office will retain the Belgian firm TRACTIONEL wihich has already done the preliminary engineering for the project. Since the Office and the Government of Guinea do not have sufficient technic- ally qualified personnel available, the Office will retain other consult- ants as technical advisers to help administer the Project and review the engineering work by TRACTIONEL. 11. About nine months will elapse before the engineering work would be sufficiently advanced for an appraisal to be made of the construction project. It is hoped that during this interval solutions can be found to a number of outstanding issues concerning the construction project. Of particular inportance is the question of obtaining assurances on a suffi- cient volume of bauxite sales at adequate prices to provide an acceptable economic justification for the project and to ensure its financial viability. 12. The total cost of the engineering project is estimated at $1.9 million, of which $1.7 million is foreign currency to be financed under the engineering loan. The proposed loan would have a duration of 10 years, including 3 years of grace. It would subsequently be incorporated into the construction loan if such a loan, were to be -made. The Goverrnment of Guineais negotiating with US AID for a loan covering the local currency partof the engineering work.  - 4 - PART IV - LEGAL INSTRUN=TS AND AUT-HORITY 13. The Draft Loan Agreement between the Republic of Guinea and the Bank and the Report of the Committee provided for in Article III, Section 4(iii) of the Articles of Agreement are being distributed to the Executive Directors separately. Generally speaking, the Draft Loan Agreement follows the pattern of the usual Bank loan agreements except that the provisions relating to Bonds and premium on prepayment have been deleted. 14. Particular attention is drawn to the following provisions: (a) Section 3.02 setting forth the conditions under which the Office shall carry out the Project. (b) Section 4.02 which enables the Bank to suspend disburse- ments under the loan and, in certain circumstances, to premature the loan if the Borrower, the Office or CEG fail to comply with the agreements or arrangements made to carry out the Project. PART V - COMPLIAMCE WITH ARTICLES OF AGREEMENT 15. I am satisfied that the proposed loan wiould comply with the Articles of Agreement of the Bank. PART VI - RECO%IENDATION, 16. I recommend that the Executive Directors adopt the following resolution: RESOLUTION NO. Approval of Loan to the Republic of Guinea (Boke Engineering Project) in the amount of US$1, 700,000. RESOLVED: That the Bank shall grant a loan to the Republic of Guinea in an amount in various currencies equivalent to one million seven hundred thousand United States dollars (US$1,700,000) to mature on and prior to March 15, 1976, to bear interest at the rate of six per cent (6%) per annum, and to be upon such other terms and conditions as shall be substantially in accordance with the terms and conditions set forth in the form of Loan Agreement (Boke Engineering Project) betwreen the Republic of Guinea and the Bank, wrhich has been presented to this meeting. George D. WIoods Washington,D.C. President March 14, 1966