Report No. 1236b-BO FL COPYAppraisal of a Small Mining FILCOPYDevelopment Project BoliviaSeptember 1, 1976

Regional Projects DepartmentLatin America and Caribbean Regional Office

FOR OFFICIAL USE ONLY

Document of the Worid Bank

This document has a restricted distribution and may be used by recipientsonly in the performance of their official duties. lts contents may nototherwise be disciosed without Worid Bank authorization.

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Currency Equivalents

All currency amounts are quoted in PesosBolivianos ($b) and US Dollars (US$)

$b 1.00 = US$0.050$b 20.00 = US$1.00

Abbreviations and Acronyms

BAMIN - Banco Minero de BoliviaBISA - Banco Industrial S.A.COMIBOL - Corporacion Minera BolivianaCONEPLAN - Ministerio de Coordinacion y Planeamiento EconómicoEMUSA - Empresa Minera Unificada, S.A.ERR - Economic Rate of ReturnGEOBOL - Geological Survey of BoliviaHIID - Harvard Institute of International DevelopmentMMM - Mínistry of Mines and MetallurgySERMIN - Servicio Minero de Bolivia

FISCAL YEAR

January 1 to December 31

FOR OFFICIAL USE ONLY

BOLIVIA

APPRAISAL OF A SMALL MINING DEVELOPMENT PROJECT

TABLE OF CONTENTS

Page No.

SUMMARY AND CONCLUSION ................... ....- 1....... iii

I. INTRODUCTION ......................................... 1

II. THE MINING SECTOR .......... ........................ 1

A. The Bank Group's Participation in the Sector .... 1B. Contribution to the Economy ................. .... 2C. Sectoral Structure ................... ........ .. 2D. Development Constraints and Prospects ........... 5E. Policy Reforms ...... .......................... 5F. Financing of Mining . ...................... 6

III. THE PROJECT .......................................... 9

A. General ....... ........................ 9Objectives and Composition ............... 9Cost Estimates ................................ 10Sources of Financing ........... .. ............. 10Project Execution ............ .. ............... 11

B. Small Mining Credit Program ........ .. ........... 11General Features ............. .. ............... 11Financial Interm_aiary: BAMIN ........ ........ 13

C. Assistance to GEOBOL ..... ......... .............. 16Objectives and Past Performance ....... ........ 16Proposed Project .......................... 18Program Costs . . ...... ...... 19

D. Technical Assistance Program ........ .. .......... 20Planning Assistance ........... .. .............. 20Cadastral Survey ............. .. ............... 22Technical Assistance to BAMIN ........ ......... 23

IV. PROPOSED LOAN ........................................ 24

A. General Description ............................. 24Amount and Terms .............................. 24

This report is based on findings of an appraisal mission, composed ofMessrs. J.Z. Mirski, and N. Santiago of LAC Projects Dept., DFC, which visitedBolivia in November-December 1976. The mission was assisted by Messrs. P.Knotter of LAC Projects Dept. DFC; R. Kanchuger and J. Richter of LAC ProgramsDept.; and R. McDowell and R. Rodger of the Industrial Projects Dept.

This document has a restricted distribution and may be used by recipients only in the performanceof their official duties. Its contents may not otherwise be disclosed without IFC authorization.

TABLE OF CONTENTS (Continued)

Page No.

Procurement .................................... 24Disbursements ................. ................. 25

B. Benefits and Risks ............................... 25

V. AGREEMENTS REACHED AND RECOMMENDATIONS ................ 27

LIST OF ANNEXES

1. Principal Minerals Produced by Small Mines

2. GEOBOL's Prefeasibility Studies

3. Banco Minero de Bolivia (BAMIN)

Table 1: Analysis of Loans MadeTable 2: Past and Projected Balance SheetTable 3: Past and Projected Profit and Loss StatementsTable 4: Projected Sources and UIses of Funds.Table 5: Total of Loans: Current, in Arrears, and RescheduledTable 6: Summnary of Loans Written Off

Table 8: Projected Disbursements of the Credit Department

4. Policy Statement of BAIIN

5. GEOBOL: Organization Diagram of the Office of the Inventory ofSmall Mines

6. (a) Assistance to GEOBOL (foreign content)

(b) Assistance to GEOBOL (local content)

7. Planning Assistance to MDMI: Cost Estimates

8. Cadastral Survey: Cost Estimates

9. BAMIN: Technical Assistance. Cost Estimates

10. Estimated Schedule of Disbursements

MAP

BOLIVIA

APPRAISAL OF A SMALL MINING DEVELOPMENT PROJECT

SUMMARY AND CONCLUSION

i. This report appraises a project for the development of the smallmining sector in Bolivia, consisting of a supervised credit program, surveyof small mines and technical assistance to participating institutions. Itsoverall cost is estimated at US$18.2 i,illion equivalent. The proposed Bankloan of US$12.0 million,Yo the Government would cover the project's estimatedforeign exchange costs.- It ís the third Bank Group financing for the miningsector but the first one for small mining. Of the total loan amount, US$9.0million would be relent to the Banco Minero de Bolivia (BAMIN) for financingmining subprojects; US$1.9 million would be used for equipment and technicalassistance to the Bolivian Geological Service (GEOBOL) to continue the surveyof small mines, including preinvestment studies, and provide technical assist-ance to small miners; and US$1.1 million would be used for technical assistanceto the Ministry of Mines and Metallurgy (MMM) in policy planning and cadastralsurvey and to BAMIN in project evaluation and supervision. To finance the proj-ect's local costs, BAMIN and its loan benefíciaries would provide, in equalparts, an equivalent of about US$4.0 million, and the Government would contrí-bute the remaining US$2.1 million.

ii. Mining has traditionally exerted a dominant influence on theBolivian economy; it accounts for 75% of merchandise exports and 15% of thegovernment revenue. Being capital intensive, the mining sector employs only3% of the labor force, but several hundred thousand Bolivians depend on it fortheir livelihood. Mining operations in Bolivia are carried out in both thepublic and the private sector, the latter consisting of medium and small mining.About 58% of mining exports come from the state-owned Bolivian MiningCorporation (COMIBOL), which is beset by serious problems requiring difficultpolitical decisions. Medium mining, comprising 31 members of the Associationof Medium Miners, is the most efficient segment of the sector and accountsfor 22% of mining exports. The rest of the private sector is called smallmining. It consists of about 2,000 operating units, varying in size fromfamily operations to companies the size of medium mining enterprises. Somesmall mines are organízed in cooperatives.

iii. Small mines are rather primitive, have low productivity, and carryout little exploration, mainly because their owners have no access to creditand technical know-how. The entire production of small mining accounts foronly 20% of mining exports, but the subsector provides 50% of mining employ-ment. Many owners of small mines live at the bare subsistence level. Healthand safety standards in small mines are usually very low. Small miningpresents economic as well as social and political problems, whose solutionwould require sustained assistance. All past efforts to inject capital andad hoc technical assistance have failed.

1/ Plus US$100,000 which is available from the balance of IDA creditNo. 455-BO.

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iv. Recent developments in the mining sector have been disappointing.Even apart from temporary adverse effects of deteriorating market conditionsfor major minerals since 1975, the sector's contribution to GDP has been de-clining for some time, reflecting the existence of deep-seated structuralproblems. These include inadequate exploration, undercapitalization and in-sufficient maintenance of the existing mines, specially small ones, and anexcessive dependence on tin mining. Past political instability, adverseminíng policies, and a virtual lack of long-term credit have discouragedmining investment and have been responsible for the current situation.

v. The Government is determined to resolve some of the sectoral prob-lems by initiating better planning and new policies aimed at more equitablemining taxes, establishing a central fund to finance mining exploration, andopening public lands for joint exploitation by public and private interests.Because of its economic and social importance, small mining is naturally amajor concern of the Government. The proposed loan would assist the Govern-ment's mining policy by strengthening the economic evaluation and planningcapacity of MMM and its agencies. It would specifically assist small miningby financing technical assistance and coveríng foreign exchange costs ofBAMIN's subprojects, which could not be prepared or financed at this timewíthout Bank participation.

vi. Established in 1936 as an autonomous public institution to promotemíning development in Bolivia, BAMIN performs two major functions - provisionof credit and marketing of minerals - both traditionally oriented towards thesmall mining sector. It has a history of inefficient operations. In thepast, its operations have often been influenced by political considerations,resulting in a gradual deterioration of BAMIN's loan portfolio and its decapi-talization. Most of BAMIN's portfolio is made up of small mining loans ofless than US$50,000 each, mostly for short-term working capital. It includessome loans to medium miners, made mostly from special foreign funds. A sub-stantial amount of outstanding loans, mostly derived from past advances ondeliveries of minerals and now included in the Trading Department's portfolio,are uncollectible and should be written off or are overdue and would requirelegal action. However, despite the attitude of many small miners who seem toconsider BAMIN as a welfare institution, collection of recently made loans hasbeen reasonably good, resulting in a modest return of about 2.2% on the CreditDepartment's equity in 1975.after taxes and sizeable provisions for portfoliolosses.vii. In preparation for the proposed loan, the Government has strength-ened its membership on BAMIN's Board of Directors to reduce the past influenceof private mining interests; agreed to divide BAMIN's assets and liabilitiesamong the Credit and Trading Departments, each of which would have separateequity resources; and offered to contribute US$2.0 million additional capitaland to convert a $b 60 million loan from the Central Bank loan into BAMIN'sequity. These government actions, together with BAMIN's adoption of a satis-factory credit policy, upgrading of its technical office, and contractingexternal auditors and hiring consultants to strengthen the management controlsystem should result in a much stronger organization and financial position ofBAMIN. Although BAMIN cannot as yet be considered for a direct Bank loan, it can

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serve as a channel for Bank funds, mainly because, with some technical assist-ance. it is expected to appraise and supervise mining projects satisfactorily.

viii. BAMIN would receive the loan funds from the Government in U$ dollarsat the current interest charged by the Bank (presently 8.9% p.a.), and relendthem to small mliners, also in US dollars, at an interest rate of not less than12% p.a. (now the maximum legal rate on foreign official funds). The Govern-ment would assume the cross currency risk between US dollars and the curren-cies disbursed by tite Bank, at a fee of 1/4% p.a. to be paid by subloanbeneficiarles. With other fees and charges, the effective borrowing ratev7ould be about 13% p.a. Subloans would be normally for 8 to 13 years, includ-ing a grace period not to exceed 3 years. BAMIN would repay the borrowedamount on the basis of the composite of amortization schedules applicable tosubloans.

ix. As a result of the proposed loan and the recently increased lendingrates on BAMIN½s peso funds, return on the Credit Department's equlty shouldrise to about 4% by 1979, within satisfactory debt/equity and current ratiosand an acceptable debt-service coverage. The aggregate economie rate ofreLurn on BAMIN's subprojects would be about 20%, which is satisfactory butiower than tlhe 40% return expected on subloans to medium miners financed underIDA Credit No. 455-DO and again under a Bank loan approved in June, 1976. Thedifference thsse returns is due to costly initial installations and equip-ment which are niecessary in small mines, while medium mining projects arernostly for expansion and modernization.

X. Wlile the benefits from the survey of small mines and the technicalassistance program are not suscep-Ible to quantitative measurement, theyWGic.Ui d be realized in the form of improved efficiency, increased technicalcompetence, better sectoral planning and improved performance.

xi. The project is considered suitable for a loan of US$12.0 millionto Bolivia to be repaid within 15 years., including up to 3 years of grace, onthe basis of the aggregate of: (a) the level principal payment schedule forthie UIS$3.0 millaon non-credit portion, and (b) the composite of subloans'repayment schedules of BAMIN.

1. INTRODUCTION

1.01 The Government of Bolivia, through its Ministry of Mines andMetallurgy (MMM), has asked the Bank for a loan to help finance a projectfor the development of small mining, which would include a credit program,continued survey of small mines, and technical assistance. The proposedloan would be the third Bank Group financing of the mining sector in Bolivia,which began with the US$6.2 million IDA Credit No. 455-BO, of 1974, 1/ andconsisted of three components, namely: a US$5.0 million credit for BancoIndustrial, S.A. (BISA) to help finance the expansion and modernization ofmedium-sized mines; US$850,000 for a survey of small mines; and US$350,000for technical assistance to MMM. All components are being successfullyimplemented. BISA's portion is expected to be fully committed this year. Asecond operation, complementary to the proposed loan, was approved last June.It consists of a US$10 million Bank loan to assist BISA's financing of privatemining and industrial enterprises and of an IFC equity investment of up toUS$550,000 to strengthen BISA's capital base.

1.02 The IDA Credit has made a substantial contribution to the Bolivianmining sector and the economy as a whole. The impact of BISA's mining sub-loans is reviewed in Staff Project Report No. 1132a-BO dated June 4, 1976.The importance of the small mining survey carried out under the IDA Credit isdiscussed in paras. 3.27 and 3.28, and experience with the technical assist-ance component of the Credit, in para. 3.38.

1.03 Work on the project began in 1972. Considerable effort and timewas required to make appropriate institutional arrangements to assure aneffective credit program and the necessary technical assistance for smallmines. The preliminary survey of smiall mines, financed under the IDA Credit,was a crucial step in the project's preparation.

1.04 Following several project preparation missions in 1974-75, the projectwas appraised in November/December 1975 by a mission composed of Messrs. J. Z.Mirski, and N. Santiago, and assisted by Messrs. R. Kanchuger, P. Knotter, R.McDowell, J. Richter, and R. Rodger, all of the Bank.

II. THE MINING SECTOR

A. The Bank Group's Participation in the Sector

2.01 The Bank Group has been active in Bolivia's mining sector since theearly 1970s. The Mining and Metallurgical Sector Report No. PI-14 of 1972made recommendations regarding the Government's mining development policies

1/ Report No. 276a-BO

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and institutions and its stated investment priorities. The technical assis-tance component of IDA Credit No. 455-BO helped the Government ínitiate re-forms in crucial mining policy and administrative areas such as exploration,foreign investment, taxation and credit. A follow-up mining sector missionvisited Bolivia in early 1976. Its report, which is under preparation, willfocus on development prospects of the sector in light of major policy issues,including taxation, investment and marketing, and the Government's forth-coming 1976-80 development plan. The proposed project, aimed at the smallmining sector development, is an integral part of Bank Group financial andtechnical assistance to Bolivia's mining sector.

B. Contribution to the Economy

2.02 Mining is one of the most important economic activities and theprincipal export sector of the Bolivian economy. Its share in GDP, 13% during1968-75, is second only to agriculture. Over the same period, the sectoraccounted for 75% of merchandise exports and provided 15% of Central Govern-ment revenues. Among a wide range of minerals produced, tin is still themost important. Bolivia is the second largest producer of tin in the world.

2.03 Mining in Bolivia is expensive due to a combination of factors, in-cluding low level of technology, high cost of transport, and inadequate tax-ation. Almost the entire mining output is exported, mainly in the form ofconcentrates. Except for bismuth and about one third of the tin and antimonyproduction, minerals are not refined in Bolivia, and foreign refining fees andtransport costs reduce Bolivian earnings from mineral exports by about 20%.At the same time, import requirements are very high, approaching 80% of fixedinvestments and 70% of the overall investment costs of mining projects.

2.04 Due to generally capital-intensive production methods, the numberof persons employed in mining is rather low, some 70,000, equivalent to about3% of the labor force. Despite this, the mining sector exerts a significantinfluence on Bolivia's economy and political environment. Mining workers arewell organized and, in the large- and medium-sized mines, have succeeded inattaining high wages by Bolivian standards and generous social benefits.Despite these improvements, however, working and living conditions affectingthe miners' well-being, particularly in small mines, are primitive and stillfar below the standards of more advanced nations.

C. Sectoral Structure

2.05 Mining enterprises in Bolivia fall into three basic categories, whichare listed below together with their relative contributions to sectoral ex-ports, employment and fiscal revenue.

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Subsector Shares in Mining Exports, Employment and Taxes, 1965-75(Percent)

Mining Mining MiningExports Employment Taxes

Large Mining (COMIBOL) 58 40 57Medium Mining 22 10 28Small Mining 20 50 15

2.06 Public (large) mining. The dominant entity is the state-owned miningcorporation, COMIBOL, which owns and manages 14 large nationalized mines andaccounts for over one half of mining exports and taxes, and over one third ofmining employment. COIIIBOL is beset, however, by serious problems. Inflexi-bility in decision making, resulting from over-centralization and extremelydifficult labor relations, has led to inefficient use of labor, with only about35% of the labor force actually employed underground, as against over 60% inthe medium mines. Under pressure from the Central Government and organizedlabor substantial amounts have been spent on social welfare programs, whileessential operational and maintenance expenditures have been neglected. Onlyver.y recently has there been some new investment in mine development and oreprocessing; the latter has resulted in increased recovery ratios and higherconcentration, des.ite a declining metal content of ores. Nevertheless,COMIBOL's onerational costs continue to exceed those of medium mines. A long-term solution to COMIBOL's problems would involve difficult political decisions.

2.07 Medium mining. This subsector consists of 31 private firms. 1/ Inorder to be regarded as a medium mining enterprise, a company has to have:(a) a minimum share capital of US'100,000 equivalent; (b) a minimum monthlyproduction of 5.5 fine tons of tin or wolfram, or 20 tons of antimony or zinc,or 15 tons of copper or lead; (c) adequate technical and managerial organi-zation; and (d) membership in the National Association of Medium Miners. 2/There is no upper size limit for private mining companies. Medium miningfirms represent the most efficient segment of the sector. They are respon-sible for 70% of the Bolivian production of antimony and 50% of tungsten -minerals with strong markets - their output having grown at an average rate of7.1% between 1960 and 1970. They also provide relatively good working andliving conditions for their workers.

2.08 Small mining. According to a recently completed inventory of thesmall mining subsector, there are 5,240 mining properties; their distributionaccording to principal minerals produced is shown in Annex 1. Of these, onlysome 2,000 to 3,000 mines are operating at any one time, the actual numberdepending on conditions of the international metal markets. Small miningoperations vary in size from one-family and part-time activities to enterprises

1/ As of May 15, 1976.

2/ Supreme Decree No. 5674 of December 30, 1960.

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comparable ín output and employment to smaller medium mines. Some of the smallmines are organized in cooperatives, often working under marginal condítions.The entire production of the small mines, mostly sold to Banco Minero deBolivia (BAMIN), accounted for about 20% of mining exports and 15% of miningtaxes between 1965 and 1975. On the other hand, small mines provide about50% of mining employment, and livelihood for about 150,000 persons.

2.09 In general, small mines operations are rather primitive, have lowproductivity and carry out little or no exploration. Business records, ifany, are thin and there is vírtually no explorational or operational planning.Normally, only the richest and most easily accessible portions of depositsare exploited, often in a way which makes the later use of more advancedtechniques more difficult or impossible. The major deficiencies of smallmines are ]ow level of technology, poor management, and little or no capital.The problem ís compounded because small mines are widely dispersed overBolivia's geographically difficult terrain and because they mostly producetin (41%), for which demand has not been strong, and complex minerals (25%),which are costly to recover. Many owners of small mines live at the baresubsistence level, often substantially below the living conditions of theworkers in COMIBOL's mines. Health and safety standards in small mines areusually very low.

2.10 Small mnining presents economic as well as social and politicalproblems. While some small mines can become financially viable once asignificant injection of capital resources and technical assistance is pro-vided, many others are too small or have too poor ore reserves to justifyadditional investment and are likely to disappear or be merged into largerunits.

2.11 Past efforts to inject capital and ad hoc technical assistancehave achieved little more than to emphasize the existing problemis of thesmall mining sector. Their solution would require sustained assistanceín exploration, mine planning and development, investment financing forpotentially efficient units, and in improved processing (beneficiation) ofore, to ninimize loss of mineral values.

2.12 The Bank's lending program for Bolivia has been designed to helpthe Government's efforts in these specific areas. Exploration assistancewas initiated under IDA Credit No. 455-BO and would be continued under theproposed loan. Since credit to small miners can only be effective if it issupported by substantial technical assistance in the planning and implemen-tation of mine development, the latter would be obligatory under BAMIN'ssupervised lending program.

2.13 The extent of beneficiation applied by most small mines to upgradethe extracted ore is very limited. Usually, crushing by boulders and cobbing(hand-picking) are the typical concentration methods used and only someoccasional crude washing and gravity separation systems are constructed withwhatever materials available. The net return to the miner under these condí-tions is usually small. Thus, concentration plants would likely be an inherent

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part of many subprojects to be considered for the development financingof BAMIN. In addition, the Governnent has been considering the establishmentof regional plants which would provide facilities to concentrate or upgrademineral ore produced by small miners. Some preinvestment studies have beenprepared but they would have to be updated and improved to be suitable forfinancing.

D. Development Constraints and Prospects

2.14 After relatively fast expansion during the mid-1960s, mining pro-duction in Bolivia has been growing at less than 2% per year, and the sector'scontribution to the growth of GDP amounted to only 5% during 1968-74. Atpresent, mining is just recovering from a serious down-turn in 1975, caused bydepressed world metal markets. Following the price boom in late 1973-74,prices of basic metals declined by 13% in 1975; demand for tin, antimony, andcopper was particularly weak. In an attempt to support prices, the Inter-national Tin Council established export quotas which reduced exportable volumesto about 75% of their 1974 level. As a result, mining value-added in Boliviacontracted in 1975 by 5%, net exports of minerals fell by 23% from their 1974peak to an estimated value of US$233 million, and Governnent revenues frommining were reducea by 20% to just over $b 2 billion. On the other hand,operating _oSts continued to rise, forcing a number of small mines to close.

2.15 More important than the temporary weakness of the mineral market isthe poor performance of the mining sector over the last decade, reflecting deep-seated structural problems. Investment has been grossly inadequate for thedevelopment of the existing mines ind for new exploration. Scarcity ofterm credit and recurring periods of investment uncertainty have deterredprivate investment, encouraging the use of mining profits in other sectors.As a result, known mineral deposits have been seriously depleted. Partly dueto undercapitalization, health and safety standards in many mines are verylow. Government policies, including an antiquated system of mining taxationbased on gross production value, and the unrealistically low prices set onrminíng rights ("patentes") have also contributed to worsening the situation.

E. Policy Reforms

2.16 The Government has recognized the need for thorough policy reformsrecommended by the Bank's sectoral mission (para. 2.01), in order to makeprivate mining in Bolivia more viable. A new mining tax legislation beingconsidered by the Government 1/ proposes a changeover from the presentproduction tax to a tax on business pro¡-t, at least for larger firms with

1/ Based on a study by the Harvard Institute for International Development(HIID) financed under IDA Credit No. 455-BO.

adequate accounts. The proposed tax would largely remove the obstacles tooutput and investment growth inherent in the present system, and put miningtaxes on a more equal footing with the rest of the economy. The Governmentplans to issue a new mining law by the end of 1976; establish, with foreignfinancial assistance, a mineral exploration fund 1/ to provide capital forexploration activities; open up government-held iands to exploration, domesticas well as foreign, in partnership with state entities; extend fiscal incen-tives to investment in ore extraction and processing with the intention ofattracting foreign funds and know-how; intensify training programs for miningworkers; and increase public investment in smelting, refining, and in support-ing infrastructure for mining. Also, the desirability and methods of diversi-fying mining production to move away from excessive concentration on tin arebeing studied. Small mining is a major concern for the Government since itrepresents not only economic but also social and political problems. TheGovernment has made substantial efforts to rehabilitate BAMIN both finan-cially and administratively, (para. 3.14) and MDM has been active in coordi-nating preparation of this project.

2.17 DNany of the prospects for Bolivía's mining sector depend on futureinternational metal markets, about which Bolivia can do little, and on in-creased efficiency of operations, to which sound mining policies can signifi-cantly contribute. The Government's proposed polic.y changes would help toremove the major obstacles to mining development and to increase the miningsector' s contribution to public revenues, foreign exchange earnings, andeconomic growth. The implementation of these policies would requirestrengthening of government institutions, and improvement of the managementand administration of both public and private enterprises. The proposedproject is directed toward these objectives, with special emphasis on smallmining. The role of tin in Bolivian mining and possible diversificationmeasures are an object of the ongoing economic policy díalogue with theGovernment.

F. Financing of Mining

2.18 Availability of credit. Bolivia's banking system, which consists ofthe Central Bank, commercial and several specialized banks, is still at anearly stage of development. Nevertheless, rising incomes, greater politicalstabiiity, and more consistent government policies in recent years havesparked accelerated financial development, resulting in the formation ofsome new banks and fínancial companies. This development has been rein-forced by the increase in the share of total credit going to the private

1/ Based on a feasibility study by the US Geological Survey, also financedunder the IDA Credit. Bank participation in the financing of an explora-tion fund would only be considered after consultation with the ExecutiveDirectors.

sector as rising public revenues due to higher oil prices have reduced theneed for government deficit financing. However, although commercial banks'resources and their total volume of lending have increased, their averagelending term has fallen to less than one year following the full commitmentof concessionary funds which had been available from foreign assistancegrants and loans. The result is that term financing for investment andpermanent working capital, including private mining, is highly inadequate.During 1972-75 only about 9% of the total credit went to mining and overone half of this was used for holding mineral stocks. Because term creditis scarce, in the absence of a capital market, even the largest of themediurm mining companies have difficulties in raising domestic funds forlong-term investment, and roll-over of short-term loans from commercial bankshas been a general practice. BISA, through access to the IDA Credit, hasbecome a major domestic source of medium- and long-term financing for privatemining, but thus far has reached only a modest number of medium-size projects.The recently approved Bank loan and IFC equity investment should provideBISA with additional funds for expansion of the existing mines and develop-ment of new mining projects, and thus alleviate the scarcity of term creditin the medium mining subsector.

2.19 MIost small miners have very limited resources, a tight cash flow,and usually insuff½ibent collateral to qualify for loans from commercialbanks. 1/ "-^ce they cannot invest and remain poor. BAMIN has traditionallybeen the main source of finance for small mining. However, due to itslimited resources and predominantly marketing orientation, BAMIN's creditoperations with small mines consist mainly of cash advances for future mineraldeliveries and short-term loans for tools and materials bought from BA1I'Wswarehouses. The proposed project through its focus on development ofspecific mining projects, is expected to improve the traditional pattern ofBAMIN's credit activities and provide access to term financing for a numberof small mining enterprises.

2.20 Interest rates. Real interest rates in Bolivia have generallyremained positive since the 1959 stabilization program. Between 1959 and1972, the rate of increase in the La Paz Consumers Price Index 2/ stayed with-in the range of -1% to 11.5% p.a., and averaged 5.9% p.a. Nominal interestrates exceeded this average. A spurt of inflation following the 68% pesodevaluation in 1972 made real interest rates highly negative during most of1973-74 and raised the average rate of inflation in 1970-75 to 20.6% p.a.In 1975 real interest rates again turned positive as inflation dropped to7.5% p.a. Since mid-1975 it has declined further. In the long run, inflationin Bolivia should not exceed the 7% p.a. expected in the industrial countrieswith which it trades. 3/

1/ Banks are not allowed to accept mining properties as loan collateral.

2/ The only avallable price index.

3/ Staff estimates, April, 1976.

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2.21 In order to mobilize domestic funds for productive uses, interestrates on savings deposits in commercial banks were raised from 9% to 10% in1974 and, at the same time, the Central Bank started to guarantee the dollarvalue of the savings deposits of individuals. In August 1975, the dollarguarantee was extended to time deposits, whose interest rates were raised to10-1/4% for 90-day deposits and up to 11-3/4% for 360-day deposits. 1/ Com-mercial banks pay up to 9% per annum on US dollar time deposits. CentralBank regulations permit commercial banks to charge nominal interest of up to15% per annum on loans made from their own resources. Because of taxes,commissions and prepayment of the ínterest normally required by banks, theeffective rate to the borrower may exceed 23% on "productive" 2/ peso loans,and 33% on personal and commercial loans, usually of short-term maturity.

2.22 In comparison to commercial banks, the cost of term loans made bydevelopment institutions, such as BAMIN, is much lower. The maximum lendingrate on development banks' own resources was 13% per annum until early 1976,when the rate was raised to 15% per annum to conform to the maximum nominalrate of commercial banks. The need for a rate increase had been discussedwith the Central Bank during project preparation. However, despite thepresent nominal equality in peso lending rates between commercial bankcredit and development bank loans, there is still a sizeable difference intheir comparative effective cost. There are no taxes or employees' benefitfeo on development loans. Thus, including a closing fee, the effective costof these loans, which may now reach 16% p.a., is still below the effectiveinterest rates of commercial banks. However, some development institutions,e.g., BISA, lend their own funds in US dollars, making their clients responsi-ble for the exchange risk.

2.23 Developrment funds from international organizations may not be re-lent at more than 12% per annum. Subloans are usually denominated in USdollars and, after lending fees and commissions, their cost to the borroweris about 13%ó per annum. Under the proposed loan, this cost would includethe Bank commitment fee and the Central Bank charge for the cross currencyrisk (para. 4.03).

1/ Corporate savers receive the same interest rates but without dollarguarantee.

2/ Commercial banks are required to lend a portion of their resources forproductive purposes, which only exclude consumption credit and loans tofinance purely commercial transactions.

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III. THE PROJECT

A. General

Objectives and Composition

3.01 The main goal of the Bank program for the small mining sector inBolivia is a gradual transformation of small mining units with developmentpotential into efficient mining enterprises. The specific objective of theproposed project is the development of some 20 preselected small miningoperations through provlsion of supervised credit with obligatory technicalassistance. In order to assure availability of development credit and tech-.nical assistance to small miners, and to induce improved sectoral policies,the project aims at strengthening BAMIN, the selected credit intermediary;upgrading the technical capabilities of GEOBOL; and providing continuingassistance to NMDI in sectoral planning, including cadastral survey.

3.02 The proposed project consists of financing the foreign exchangecosts of three separate but complementary components, namely:

(a) A credit program to assist BAMIN in financing feasibilitydadies and subloans for the preparation, development andexploitation of small mining projects, preselected on thebasis of GEOBOL's prefeaslbllity studies;

(b) Assistance to GEOBOL:

(i) to continue the survey of small mines through financingequipment and foreign experts, and to strengthen its capabilityin the preparation of prefeasibility studies of mining projectsand provision of comprehensive technical assistance to BAMIN'scredit beneficiaries;

(ii) to strengthen its mineral analysis capacity; and

(c) A technical assistance program composed of:

(i) expert assistance to improve the planning capabilityof MMM;

(ii) equipment and expert assistance to carry out a cadastralsurvey of MMM; and

(lii) consulting services and irnpleTents for BAMIN to improveits project appraisal and supervision capability, and itsmanagement control system, including accounting.

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Cost Estimates

3.03 The total cost of the project is estimated at about US$18.2 mil-lion equivalent, of which about US$12.0 million would be in foreign exchange.Estimated costs of the major project components are shown below:

Project Costs and Sources of Financing(in US$ millions or equivalent)

Total ForeignLocal Costs Foreign Project Exchange

Project Component Government BAMIN Miners Total Cost Costs Component(IBRD) (%)

Small Mining Credit - 2.00 2.00 4.00 9.00 13.00 69Assistance to GEOBOL 1.57 - - 1.57 1.87 /1 3.43 55

Technical Assistance 0.48 0.09 - 0.57 1.13 1.70 65Planning Office (MMfl) 0.12 - - 0.12 0.37 /2 0.49 /2 75

Cadastral Survey (MMM) 0.36 - - 0.36 0.48 0.84 57

BAMIN - 0.09 - 0.09 0.28 0.37 75

Total Costs 2.05 2.09 2.00 6.14 12.00 18.13 /2 66

% of Project Costs 11.3% 11.5% 11.0% 33.8% 66.2% 100.0%

/1 Includes technical assistance./2 Reduced by US$100,000, which is available from the uncommitted balance

of the existing IDA Credit 455-BO.

The amount of direct investment required by the credit program is based ona tentative pipeline of subprojects resulting from GEOBOL's preliminary inves-tigations. While some of these subprojects may be withdrawn or discontinuedbefore they reach the investment stage, it is expected that they will bereplaced by other subprojects, as GEOBOL's staff would gradually be gainingexperLence and improving its efficiency. Similarly, while some changes in theinvestment costs of individual subprojects are likely to occur after furtherpreinvestment studies, these changes should not affect the present estimatesof overall costs to any considerable extent. The cost of other project com-ponencs are based on the estimated prices of the necessary equipnent andservices, which are considered to be reasonable and should not change sub-stantially during the procurement period.

Sources of Financing

3.04 Except for the proposed loan of US$12.0 million, no other externalfinancing of the project is enjisaged. The Bank loan would cover the esti-mated foreign exchange component representing about 66% of the total projectcosts, 1/ after the utilization of the uncommitted balance under the technical

1/ This closely corresponds to the estimated foreígn exchange component ofinvestment in the Bolivian miniíng sector (para. 2.03).

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assistance portion of IDA Credit No. 455-BO. Local costs of the projectswould be shared among MMM, BAMIN and the credit beneficiaries. The necessarybudgetary allocation to GEOBOL to continue the 1976-77 program of the smallmining survey was approved in January, 1976 and is now in effect. Duringnegotiations the Government confirmed its intention to finance thls programbeyond 1977. Finally, the local lnvestment costs of subprojects would becovered by project beneficiaries (at least 10%) and by BAMIN's own resources,which would be adequately increased through an additional governnent contri-bution to BAMIN's paid-in capital (para. 3.25).

Project Execution

3.05 MJIM would have overall project responsibility. It would assurecoordination among the participating agencies, oversee the progress of theindividual project components, administer the technical assistance contractsfor its planning office, and carry out the cadastral survey. GEOBOL, throughits small mining survey unit, would be directly responsible for preselectingpotential mining subprojects, carrying out prefeasibillty studies, assistingBAMIN in the administration of feasibility studies, and helping the benefici-aries of BAMIN's subloans in project execution and administration of theirenterprises, either directly or through arrangements with other institutionsor consultants. BAMIN would be in charge of the mining credit component ofthe proposed loan, and would be responsible for the appraisal, financing andsupervisi,n of subloans for mining development; it would also administer andevaluate feasibility studies.

3.06 In view of the project's complex nature and the need for substantialtechnical assistance, project implementation would call for a large manpowerinput, including frequent field vLsits, both of the Bank's regional and centralprojects staff and of a consultant to be retained by the Bank. The lattershould, on the Bank's behalf, assure close coordination and supervision of theproject for up to six months per year, over a two-year period.

B. Small Mining Credit Program

General Features

3.07 Subloans. BAMIN can provide term financing for up to 15 years.However, no subloan is expected to be made for more than 13 years including areasonable grace period not to exceed 3 years. Thus, assuming a two yearcommitment period, the 15 year maturity of the proposed Bank loan would besufficient. The maximum amount of individual subproject financing would belimited to 25% of the Credit Departeen`'s equity; this limitation is includedin BAMIN's Policy Statement (Annex 4) which was confirmed during negotiations.BAMIN would relend Bank funds in US dollars, at an interest rate of not lessthan 12% p.a. (now the maxiinum legal rate on foreign official funds), plus acommitment fee (at least 1% p.a. on the undisbursed balance), a one-timecommission of 1/4% for the employees' fund and a closing fee of 1/4%, and afee of 1/4% p.a. to the Government to cover the cross currency risk betweenthe US dollar and the currencies disbursed by the Bank (para. 4.03).

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3.08 The above fees and charges would raise the effective cost of BAMINsubloans to about 13% p.a. Since BAMIN would obtain Bank funds at the currentBank interest rate (now 8.9% p.a.), it would have an interest spread of 3.1%(plus a 1/4% closing fee). This would not cover administrative costs of theCredit Department, which are about 4% of the projected total assets. It isacceptable only because BAMIN's overall gross financial margin exceeds 4% dueto concessionary financing obtained in the past (Annex 3, para. 30). Thefeasibility of Increasing BAMIN's relending rate and/or closing fees and re-reducing its administrative costs was examinned during negotiations and wouldbe followed up closely during supervision.

3.09 _ubprojects. The credit program has been designed to serve smallminers who have economie and administrative potential for growth, but whowould need, in addition to credit, substantial help in the preparation andexecution of their projects. Thus, technical assistance by GEOBOL or,although unlikely, by another qualified party, would be an obligatory corol-lary to BAMIN subloans. Some larger operations of the small mining subsectorwould be encouraged to form joint ventures and¡or look for other or additionalsources of funds, such as BISA, consortium-type financing, or foreign partners.The participation in the credit program would be limited to subprojectspreselected on the basis of GEOBOL's prefeasibility studies. Every applicantfor BAMIN's credit would also be required to submit a feasibility study,prepared by a qualified consultant who would be a¿ceptable to a technicalcommittee of BAMIN in which MMM and GEOBOL would participate.

3.10 A tentative list of GEOBOL's prefeasibility studies, most of whichare expected to result in BAMIN's subloans, are presented in Annex 2. Itincludes 20 prefeasibility studies which have been or would be completed bymid-1978, and which should be financed over a two-year jeriod starting in thefirst half of 1977. Most of these projects are in a pieliminary stage andonly 4 prefeasibiiity studies were completed by July 1976. However, the fitstfeasibility studies should be ready by the time of loin effectiveness. Thepreliminary investment figure for this tentative project list is US$14.7million. This includes one large mine which, due to BAMIN's exposure limita-tion could be only partially financed under the project. Accountiig for theabove, and considering likely adjustments to the present estimates as a resultof further studies, the amount of US$9.0 million should be sufficient to coverabout 70% of the investment costs of the mines expected to participate inthe project, which corresponds quite closely to the foreign exchange compo-nent of míning investment in Bolivia.

3.11 Although BAMIN would finance only small mining projects theiraverage investment cost would be about US$600,000, which is only slightlylower than the average investment cost of medium mining projects financed byBISA. This is explained by the fact that small mining subprojects would needbasic investment in studiej, mine installations and equipment, which arecostly, and which are not required in the case of most BISA subprojects whichare generally for expansion and modernization of existing mines.

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3.12 Since BAMIN has no experience in project appraisal it would berequired initially to submit all its subloan proposals for Bank approval.It is expected, however, that, after the Bank's review of the first fivesub-projects, BAMIN would have gained sufficient experience to permit settingof a free limit of about US$350,000. This amount should assure Bank reviewof a representative sample of subprojects totalling about 50% of the creditportion of the loan.

Financial Intermediary: BAMIN 1/

3.13 General. BAMIN was established in 1936 as an autonomous publicinstitution, to promote mining development in Bolivia. As an agency of MMM,it performs two major functions: provision of credit and marketing ofminerals, both oriented to the small mining sector. BAMIN has a history ofinefficient operations and, in the past, its operations have often beeninfluenced by political considerations. This resulted in deteriorationof BAMIN's loan portfolio and its decapitalization.

3.14 In late 1972 the Government decided to rehabilitate BAMIN andasked the Bank for assistance. Over the last 3 years the Bank has maintainedclose contact with r "MIN's management and, as part of the project preparation,has provided it with technical and administrative advice. As a result,several steps were taken to strengthen BAMIN's financial position and organi-zation. However, in spite of substantial improvements since 1973, furtherfinancial and administrative adjustments are needed before BAMIN can estab-lish itself as a financially sound and efficient development credit insti-tution. In the meantime, it can serve as channel for Bank funds mainlybecause, with some technical assisLance, it can be expected to undertakesatisfactory appraisal of mining subprojects. Considering the unique role ofBAMIN in the small mining sector and the Government's determination to streng-then BAIIN's development banking function within the framework of the miningdevelopment policies, the institution-building program is a key aspect of theproposed project.

3.15 Management and staff. Although BAMIN is fully government-owned,its nine-man Board of Directors includes the Minister of Mines and Metallurgy,as its president, three private and four public members, and a representativeof the union of BAMIN's employees. In the past, the private sector directors,representing mining interests, have exerted excessive influence in the Board'sdecisions. This has prompted a proposal to revise BAMIN's statutes to increaseto five the number of public sector directors and to nine the total member-ship of the Board, which is satisfactory to the Bank. The present generalmanager of BAMIN has been in charge since January 1975; he has the necessaryprofessional background and administratFive experience. The quality of BAMIN'sprofessional staff, which totals 36 (15 of worom work for the Credit Department),

1/ For a detalled description and analysis of BAMIN, see Annex 3.

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needs upgrading. The general manager is fully aware of the situation andwould make every effort to assure that the staff participate in professionalcourses both in Bolivia and abroad. The proposed loan should substantiallyimprove the quality of BAMIN's staff (paras. 3.47 and 3.48).

3.16 Organization. As part of its rehabilitation program, BAMIN has beendivided into two functional units, the Trading and Credit Departments, withseparate operational accounting. These measures have not been sufficient topermit adequate financial control over these two related but distínct opera-tions and to transform BAMIN into a strong development bank. The concept of aseparate marketing institution was raised during project preparation, but theBolivian authorities considered this proposal to be premature; its resolutiondepends on the Government's marketing policies which are presently underreview. However, an understanding was reached to separate the existing assetsand llabilities between BAMIN's two operations departments, and to providethem with separate, non-transferable resources, including conversion of a $b 60million loan from the Central Bank into equity of the Credit Department. 11These measures have been approved by BAMIN's directors and agreed to by theGovernment. In addition, the Government agreed during negotiations: toguarantee that the operating results and liabilities of the Trading DepartmentWould not, in any way, affect the Credit Department, and vice versa; to submitthe first satisfactory separate financial statements as a condition to loaneffectiveness; and to arrange for an external audit, satisfactory to the Bank,of the separated departnents as of December 31, 1976.

3.17 Since the proposed project is mainly concerned with BAlIN's lendingoperations, the following analysis focuses on the Credit Department. However,the appraisal of BAMIN's trading activities, described in Annex 3, identifieda need for a revision of BAIIN's charges for mineral warehouse operations ofthe Trading Department. These were discússed during negotiations and wouldbe reviewed as a part of a management control system's contract (para 3.48).

3.18 Credit Department. This department would be responsible forchannelling and adminístering the proceeds of the Bank loan. The departmenthas recently been reorganized with the resulting upgrading of its technicaloffice. Its present technical staff of 5 engineers and 1 analyst has t-henecessary technical background but lacks adequate experience in the appraisaland supervision of development projects. Hiring of an additional experiencedanalyst, capable of carrying out financial and economic evaluation of sub-projects, would be a condition to loan effectiveness; the staff would then besufficient to handle the initial phase of project implementation. To assistBAMIN in setting up satisfactory project appraisal techniques and follow upprocedures, and to train its technical staff, two consultants would be fi-nanced under the technical assistance component of the proposed loan (para.3.47). The existing procurement and disbursement procedures of the CreditDepartment are satisfactory.

1/ See Annex 3, para 4.

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3.19 Policy Statement. In preparation for the proposed Bank loan, BAMINhas drafted a statement of financial and operational policies, laying downcriteria for its lending activities and, in particular, for financing ofsmall mining development projects. The Policy Statement, which was reviewedwith BAMIN's management and confirmed during negotiations, is consideredsatisfactory (Annex 4). Among other provisions, it includes a debt/equityratio of 4:1, an exposure limitation to any single client not to exceed 25% ofthe Credit Department's equity, and a provision to ensure health and safetystandards in the small mining projects. As a condition for loan effectiveness,BAMsIN is to submit internal loan regulations which would be revised in accord-ance with the adopted Poiicy Statement.

3.20 Past operations and results. Pursuant to its traditional orienta-tion, most of the loans outstanding at the end of 1975 were made to small mines,mostly for short-term working capital, for less than US$50,000 each. Althoughabout 3% of the loans representing about 60% of the amount outstanding wereloans to medium miners, most of them result from special foreign credit linesdesigned, among other things, to relieve the burden of increased mineral in-ventories resulting from depressed market prices.

3.21 The financial position of the Credit Department is somewhat distortedby its financing, aoart from regular loans, of sales of mining equipment underRussian and Polish credits, and mining materials and supplies from its ware-houses. Rcwever, the estimated debt/equity ratio of 4.0:1 1/ and currentratio of 1.5:1, both for 1975, are acceptable.

3.22 BAMIN is not exposed to any significant foreign exchange risk sinceit relends all funds received from abroad in foreign currencies. To the extentthat BAMIN's own funds are lent ir pesos, a devaluation could increase itsdebt/equity ratio and reduce its current ratio, as well as the real value ofits equity. During negotiations, the Government agreed to commit itself tooffset any decline in the real value of the Credit Department's equity resuLt-ing from devaluation.

3.23 Despite the attitude of many small miners who seem to consider BAMINas a welfare institution, the Credit Department has had a reasonable record ofloan collections. It has also shown a modest return on equity which wasestimated at 2.2% for 1975. While lower than the 2.5% return on equity in1973, this is actually an improvement since BAMIN had to pay corporate in-come tax for the first time out of 1975 earnings. Considerable provisionsfor portfolio losses were also made out of 1975 earnings.

3.24 Considering that most of BAMIN's long overdue questionable loansbelong to the Trading Department, the quality of the Credit Department'sportfolio is relatively good. Arrears over 3 months amount to about 10% of

1/ Including US$3.0 million quasi-equity loan from the Central Bank, recentlyconverted into equity of the Credit Department (para 3.16).

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the loan portfoiio, which is satisfactory in the light of BAMIN's past opera-tions. However, measures to reduce arrears were discussed during negotia-tions and would be followed up during loan supervision. Rescheduling andwrite-offs are insignificant in the total amount and occur mostly in cases ofvery small miners who probably do not have viable operations. Followingrecommendation of BAMIN's external auditors, accepted by the Bank, provisionsfor bad debts were increased from $b 9.3 to $b 15.6 million by the end of1975, which is a positive step towards creditworthiness of the Credit Depart-ment. Prior to the effectiveness of the proposed loan, BAMIN would contracta consultant to set up the proper management control system which would includeaccounting (para. 3.48).

3.25 Resource position. BAMIN has no uncommitted resources. Two medium-term loans totalling US$6.0 million 1/ which BAMIN has recently received fromforeign comnercial banks are virtually committeed mainly for working capitalfinancing and would be drawn down rapidly. As counterpart financing to theproposed loan, the Government would contribute US$2.0 million to BAMIN'scapital over the 1976-78 period, to be utilized exclusively by the CreditDepartment. Payment of the first installment in the amount of US$200,000equivalent would be a condition for loan effectiveness. Subsequent paymentof US$1.0 million would be made in 1977, and US$800,000 in 1978,each by therespective anniversary date of the first payment. This would be satisfactoryto support BMIIN's lending program under the proposed loan.

3.26 Financial prospects. As a result of the proposed loan, BAMIN'sannual Loan disbursements should triple between 1975 and 1978 when they wouldreach $b 130 million; they should continue at least at this level in 1979and thereafter. This increase in lending should be achieved within the debt/equity ratio of 4:1 and a satisfactory current ratio. Return on equity ísprojected to rise above 4% for the 1976-79 period, which is satisfactorysince BAMIN does not have to pay out dividends. This slould be achievedwith an acceptable debt/service coverage projected to be at least 1.5:1 overthe period 1976-79. 2/

C. Assistance to GEOBOL

Objectives and Past Performance

3.27 The general objective of the survey of small mining, set up by GEOBOLunder IDA Credit No. 455-BO, 3/ was to improve the knowledge of Bolivia's

1/ Not reflected in the projections.

21 For further data, see Annex 3: paras. 36-40 and Tables 1 through 4.

3/ For a detailed description of GEOBOL and the survey of small mines,see Report No. 276a-BO dated December 28, 1973.

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small mining sector and develop means by which small miners with promisingproperties may obtain access to technical and financial assistance. Theinitial task was to establish an inventory of small mines and to preparetechnical briefs on each of them based on avallable documentation and fieldexamínation. Selected high potential projects were then to be studied by thesurvey and prefeasibility reports prepared on them. In the case of viableprojects, this was to lead to full feasibility studies, which would be requiredfor BAMIN's development financing. In addition to being a prerequisite forthe proposed credit program, the information collected by the survey providesImportant sectoral data for regional concentrators (para. 2.13) and thepotential exploration fund project (para. 2.16).

3.28 The work program set up for the first phase of the survey has beenvirtually completed. Thus far, the survey has been successful in that anoperating unit charged with this new task has been established within GEOBOL(Annex 5), the necessary manpower and equipment have been assembled and areoperating, and the first four prefeasibility studies have been prepared, whichare acceptable to the Bank. The fact that this has been brought about bylocal professionals who are showlng a great deal of initiative is encouraging,as is the improvlng quality of the reports. However, there have been seriousslippages in the execution of the survey, which can be attributed to thefollowing causes:

(a) Overambltious scope of the task. The original plan foresawan integrated program for data collection, project identifica-tion and preparation, and technical and financial assistance.It also envisaged significant strengthening of GEOBOL. Whileachievements on all ther- fronts have been possible, specifictasks were not always sufficiently defined or coordinated. Underthe second phase of the survey to be financed under the proposedloan, these problems would be confronted and dealt with, using thehelp of outside consultants.

(b) Problems of logistics. Procurement of equipment proved to bevastly more complicated than conceived under the originalschedule. Assembling vehicles, personnel and equipment andorganiz¡ng them into viable field units took much more timethan originally estimated. This, together with the latearrival of drilling equipment (delayed by more than twelvemonths), was responsible for much of the slippage.

(c) Non-utilization of foreign experts. In the early months ofthe program it was expected that GEOBOL would obtain freetechnical assistance from either Australian, Canadian, orGerman programs. This led to he decision to use IDA funds,intended for foreign experts, to cover the cost of equipment

1/ For a detailed description of GEOBOL and the survey of smali mines, seeReport No. 276a-BO dated December 28, 1973.

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affected by substantial price increases. In the end, none ofthe free technical assistance materialized and GEOBOL had towork without outside help. Many start-up difficulties can beattributed to the lack of adequate expertise.

(d) Changes in senior personnel. Replacement of the general managerof GEOBOL and of the director of the survey unit substantiallydelayed the preparation of prefeasibility reports, although theunit's field work continued collectíng data without delay.

3.29 Viewed in this perspective, the results achieved are acceptable andthe standard of studies being produced is continually improving. However,due to the complexity and interrelation of various tasks, the need and urgencyfor close coordination and supervision are quite apparent. It is in thiscontext that the assistance of the foreign experts included in the loan pro-posal (para. 3.35) and a continuous follow-up by Bank staff (para 3.06)become very important to the success of the survey of small mines program.

Proposed Project

3.30 Inventory of small mines. GEOBOL's inventory unit will continue todevelop technical briefs on small mining properties in an effort to recordbasic data, and to lead to a decision as to what particular future action isappropriate in each case. Ultimately, most of the small mines actually inoperation would be documented in this manner and this file would form thebasic source of technical data on the sector. The major effort of the programwould be focused on the ongoing task of prefeasibility study preparation.

3.31 Technical assistance. Within the new program an effort would bemade to channel technical assistance to small miners in accordance with theoriginal and ongoing objectives of the program. Generaliy there would betwo types of assistance to small miners, namely:

(a) the resolution of key geological or metallurgical questionswhich, when resolved, could lead to a decision to undertakea prefeasibility study; 1/ and

(b) technical assistance to the recipients of BAMIN's subloansin the preparation and implementation of their projects andimprovements in their existing operations and practices. Thelatter would also include arrangements for training in modernand efficient work methods, bookkeeping, financial planningand other matters as appropriate.

3.32 Ilineral laboratory. The existing mineral laboratory of GEOBOL,which is about 12 years old, has been a bottleneck in the preparation of

1/ There will be no charge to the miner for this type of technicalassistance.

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prefeasibility studies. In order to reduce delays in the future and to speedup, as planned, the preparation of prefeasibility studies, it would be neces-sary to virtually replace the existing laboratory. Once newly equipped, thelaboratory would also facilitate other GEOBOL functions, including itsnational and regional mineral exploration programs.

3.33 Safety and health. The underdeveloped nature of the Bolivianmining industry has produced serious problems in this regard In general, andin the small mining sector in particular. Through the technical assistanceprogram and Bank supervision, provision would be made in the various stagesof studying and financing of subprojects to confront the serious issues ofoccupational safety and disease. Feasibility studies for subprojects wouldbe expected to contain specific recommendations on these matters.

Program costs 1/

3.34 The new program calls for procurement of machinery and equipmentincluding, notably, four additional diamond drilling machines (2 for surfaceand 2 for underground work), two air compressors and two percussion drills.Other items include vehicles, equipment for field parties, laboratory andtesting equipment, and various operating and office supplies (Annex 6(a)).It also in 1ides 72 man-months of foreign expert assistance in various aspectsof field and headquarters work, preparation of prefeasibility studies, andprovision of technical assistance to small mining projects. The estimatedcost of the assistance to GEOBOL and its financing are summarized below:

Dreign Cost Local Cost Total Cost(IBRD) (GEOBOL)

------ (in US$'000 or equivalent) --

Foreign consultants 238.0 - 238.0Local supporting personnel - 635.8 635.8Equipment and machinery 1,424.9 254.6 1,679.5Cost of operations (inclu.rent, leases and construction) - 488.0 488.0Material and supplies - 179.2 179.2Charges and contingencies 193.6 14.1 207.7

1,856.5 1,571.7 3,428.2

3.35 These estimates are based on a work program and a detailed equip-ment list and can therefore be considered representative. The equipmentitems are destined for field crews and office work. 2/ Sufficient allowancehas been made for equipment and spare pa,ts to ensure 3-4 years of continued

1/ For detailed cost estimates see Annex 6.

2/ For procurement procedures see para 4.06.

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survey work. During negotiations the Government confirmed its intention toprovide sufficient local funds to assure the execution and continuous opera-tions of this project component.

3.36 The Bank loan would cover all foreign exchange costs of directlyimported equipment and consulting services, plus 60% of locally procuredequipment, materials and supplies, and field expenses attributable to foreignadvisors. It would also pay for the equivalent of 35% of the cost of civilworks, which percentage represents the estimated foreign-currency component ofsuch works. The local currency expenditures of about US$1.6 million equivalentwould be covered by GEOBOL's budget. To assure a continuous flow of prefeasi-bility studies the loan would also provide for up to US$250,000 of refinancingto GEOBOL (para. 4.07).

3.37 With four prefeasibility studies virtually completed and two pro-grammed for each quarter (or 8 per year), GEOBOL should have produced 20-21studies by mid-1978 (Annex 2). Since BAMIN would go ahead with flnancing offeasibility studies from its own funds, there should be a continuous supply ofnew mining projects for BAMIN financing beginning at the end of 1976. Allfunds for the procurement of goods and services for the survey program shouldbe committed by the end of 1977 and disbursed by mid-1979. As a condition forloan effectiveness, GEOBOL would prepare detailed tasks, satisfactory to theBank, for consultants to be used at various stages of the project execution.

D. Technical Assistance Program 1/

Planning Assistance

3.38 The assistance to fl M is a continuation of the program financedunder IDA Credit 455-BO, which intended to: (a) estab`sh a documentationcenter, including data gathering and control system; (b) review the miningtax system; and (c) carry out a feasibility study of a mining explorationfund. The experience with the past program has, on the whole, been satis-factory. The tax study contract has resulted in a comprehensive report 2/which gives clear alternatives for policy decisions. The exploration fundstudy, on the other hand, left room for substantial improvement; it is beingfurther reviewed by the consultant and by the staff of MMM. Finally, adocumentation center was established in MúM wíh the help of foreign experts.The center has a mining library and should be able to store information whichflows into MIM, using microfilm equipment. As the assistance to IM1M in pollcyplanning--originally included in the IDA Credlt--proved to be premature toproduce useful results, this component of the assistance program is to beimplemented under the presert pruject.

1/ Technical assistance to GEOBOL is included in Part C of the project.

2/ See footnote 1/ to para. 2.16 on page 5.

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3.39 The purpose of the planning assistance would be to raise awarenessamong decision makers of the need for rational ínvestment decísíons and pro-vide training in project evaluation techniques. The first objective is to beachieved through seminars and conferences with senior officials of MMM and itsagencies, including GEOBOL and BAMIN, and through involvement in the analysisand solution of actual decision arrays. Training in project evaluationtechniques would be made available through specialized courses and reviewsof specific cases in conjunction with the consultants.

3.40 The work is to be done under a contract with HIID, which has alreadybeen accepted by MMM and is satísfactory to the Bank. This is the same groupwhich prepared the tax study. The total cost of this comprehensive planningassistance would be about US$594,000, including experts, equipment, and foreigntraining of local personnel. The financial plan is as follows:

Foreign Cost Local Cost Total Cost(IBRD) (MMM)

------(in US$'000 or equivalent)--------

Foreign Consultants (5.5 man-years) 306.4 - 306.4Local Personnel - 88.6 88.6Training (foreign and local) 81.0 15.0 96.0Equipment and Office Material 30.6 10.0 40.6Contingency 53.2 9.1 62.3

471.2 122.7 593.9

Less: Uncommitted balance ofIDA Credit 455-BO(approximate) 100.0 _ 100.0

To be financed 371.2 122.7 493.9

3.41 Detalled cost estimates are provided in Annex 7. Project comple-tion would require at least three years. The loan funds would be committedby FY78 and disbursed by FY80. In view of the long implementation period,an assurance by the Government as to the availability of local funds wasobtained during loan negotiations.

3.42 The HIID contract was signed by MMM on May 12, 1976. It providesfor 5.5 man-years of consultants' assistance at an average cost of US$55,000per man-year, including travel. The uncommitted balance of the technicalassistance conponent of IDA Credit No. 455-BO of about US$100,000 would beused for partial financing of that contract. In view of some delay in theproject preparation, the proposed loan ¿1'ould provide for reimbursements toMMM for foreign costs not to exceed US$50,000, which might have to be paidprior to the signing of the loan (para. 4.07).

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Cadastral Survey

3.43 The mining cadastral project, aímed at compiling an officialregíster of mining concession areas, is of great importance to the surveyand development of small mines. The present knowledge of mining concessionsis very limited and out of date. The most recent cadastre was compiled Inthe early 1950s and covered no more than 4% of the national territory. Theobjective will be to delineate areas where concessions have been granted andto establish areas free of valid concession claims. Resolution of boundaryconflicts, which effectively inhibit operations in some areas, will then bepossible as well as the stimulation of new exploration. The cadastral surveywill also provide the necessary basis for the implementation of a new miningdevelopment law, currently in preparation. A technical unit within MMM wouldbe responsible for the survey; it is to be established and set in operationwith foreign technical assistance. On-the-job training and certain specializedequipment imports would form the balance of the project.

3.44 The project would involve both field and office work. The formerwould consist of compilation and updating of a general survey of miningdistricts, survey, sampling, mapping and plotting of the tríangulation grid,and the determination of survey marker locations. The processing of thesedata and the verifícation of the existing cadastre would be done in theoffice, enabling rational planning of exploration and exploitation concessions.

3.45 The first phase of the survey has been designed for execution withina 2-year period. Its costs and the proposed sources of financing are summa-rized below; a detailed budget is shown In Annex 8.

Foreign Cost Local Cost Total Cost(IBRD) (MMM) /1

------- (in US$'000 or equivalent)-------

Experts and Managers 72.0 46.8 118.8Field Work - 300.0 3Q0-0Equipment /2 400.0 - 400.0Training and Others 3.9 11.5 15J .4

Total 475.9 358.3 834.2

57.0% 43.0% 100%

/1 To be financed under regular MMM budget./2 For procurement procedure, see para. 4.04.

3.46 The proposed loat would finance the foreign costs of equipment andconsulting services (18 man/months at US$4,000 per month) in gathering andprocessing cadastral data and in training of the local staff. The latter

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would include a computer terminal which would work for one or both of thecomputers installed in La Paz. The computer-processed information on themining cadastre would permit the establishment of a nation-wide data bank.The foreign consultants would be selected by the time of the loan effective-ness.

Technical Assistance to BAMIN

3.47 The principal objective of this assistance is to help the TechnicalOffice of BAMIN in appraising and supervising subloans for mining developmentand to train its professional staff. Two foreign advisors would be expectedto develop appropriate guidelines, train the professional staff in the metho-dology and techniques of project appraisal, and work with them on the actualproblems encountered in loan applícations and supervision. BAMIN would selectboth advisors, to be satisfactory to the Bank, prior to loan effectiveness.They would be contracted concurrently for at least one year and be expected tospend 2-4 weeks working with Bank staff prior to taking up their residentassignments in La Paz.

3.48 In addition to the above BAMIN would also contract outside special-ists to improve its management control system including accounting (para. 3.24).A satisfactory consulting contract, which would include training of BAMIN'sstaff, will be condition to loan effectiveness.

3.49 The estimated cost of technical assistance to BAIIN and íts proposedsources of financing are summarized below:

Foreign Cost Local Cost Total Cost(IBRD) (BAMIN)

-------(in US$'000 or equivalent)-------

Experts and Counterparts(including travel andexpenses) 266.2 82.o 348.2

Other 3.8 4.0 17.8

280.0 86.0 366.0

77% 23% 100%

3.50 Detailed cost estlmates are shown in Annex 9. Local currency costsof the counterpart staff, materials and supplies would be absorbed by BAMIN;avaiLabilíty of these funds was confirmed during loan negotíatlons. Theloan component used for technical assistance to BAMIN would be repaid by theGoverriment.

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IV. PROPOSED LOAN

A. General Description

Amount and Terms

4.01 The proposed loan of US$12.0 million would be extended to theGovernemnt of Bolivia at the Bank's prevailing interest rate (now 8.9% p.a.)and commitment fee on the undisbursed balance (now 3/4 of 1% p.a.) for aperiod of 15 years, including up to 3 years of principal grace.

4.02 The loan components for the survey of small mines (US$1.9 million)and for technical assistance (US$1.1 million) to be administered by GEOBOLand MM1, respectively, would be repaid on the level principal payment basis.The credit portion of US$9.0 million would be onlent to BAMIN, to be repaidon the basis of the composite of the amortization schedules applicable tosubloans. Since subloans would be normally repayable in 8 to 13 years, nosubloan would exceed the maturity of the Bank loan, allowing for a two-yearcomnitment period. Thus the total loan of US$12.0 million would be repaid bythe Government on the basis of the aggregate of the above two amortizationmethods.

4.03 BAIIN would repay the Government in US dollars equivalent. Thecross currency exchange risk between the dollar and the currencies actuallydisbursed by the Bank would be assumed by the Government at a fee of 1/4%p.a., to be passed on to BAMIN's subborrowers.

Procurement

4.04 The loan proceeds would be used to finance the foreign exchangecosts of imported and domestically procured equipment, materials and services,including the foreign exchange component of construction contracts. Foreignequipment suppliers are fairly well represented in Bolivia. The mining equip-ment and machinery to be financed under the credit program would be importeddirectly or purchased off-the-shelf from local dealers. Procurement items,which would form part of the feasibility study for each subproject, would bepurchased on the basis of several quotations, in accordance with standardpractice for DFC projects. BAMIN would satisfy itself that equipment andmachinery to be financed under subloans are suitable for the investment proj-ects and are reasonably priced, by ensuring that its clients have canvassedthe main sources of supply and are purchasing from the most advantageoussource.

4.05 In many cases small miners would need heavy or specialized equipment,e.g., for earth moving or drilling, for a limited time only. Instead of buyingit, they should be able to lease or to enter into specific work service

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contracts. No such services are presently available in Bolivia and the estab-lishment of private equipment and service leasing enterprises has been activelypromoted during project preparation. At least one firm, 1/ an affiliate of adiversified medium mining company, would be prepared to provide equipment andwork contract services to small miners when the demand appeared. Also, atleast one financial institution is prepared to finance equipment leasing andis considering entering the leasing business directly. These equipment orservice leasing contracts would be eligible for financing under the proposedloan.

4.06 Equipment for the GEOBOL survey of small mines and for technícalassistance items for BAMIN and MMM--mostly valued below US$50,000--would beprocured on the basis of international shopping. Procurement of diamonddrills and accessories, which are priced at about US$100,000 each, wouldfollow international bidding procedure, wíth the provision of a back-upservice being of prime consideration in bid evaluation.

4.07 To assure continuity of the survey of small mines and speed upthe preparation of preinvestment studies for potential recipients of BA2IN'scredit, GEOBOL may need to order additional equipment and make some paymentsin foreign exchange before signing of the loan. Such expenditures should notexceed US$250,000. They would be reimbursable under the loan, as long as thepurchased items are included In the procurement list acceptable to the Bank.Similarly, some retroactive disbursements not to exceed US$50,000 might benecessary to cover the foreign exchange cost of the MMM planning assistancecontract with HIID.

Disbursements

4.08 Although the Government of Bolívia would be the borrower, disburse-ments would be made directly to the institution responsible for the execution,of the respective portion of the loan under advice to the Central Bank.With respect to individual subprojects, loan funds would be disbursed for thefull foreign exchange (c.i.f.) expenditures of direct imports whenever it canbe established; 60% of the total expenditures for imported machinery andequipment purchased locally; and 35% of the total expenditures for civilworks, both percentages representing the estimated foreign exchange compo-nent. Standard documentation would be submitted with all withdrawal appli-cations. Pursuant to para 4.07, retroactive financing up to US$300,000 isanticipated. The loan should be committed by mid-1979 and disbursed bymid-1980, as shown in Annex 10.

B. Benefits and Risks

4.09 The proposed loan would directly contribute to the development ofthe mining sector. It would help develop viable mining enterprises, transform

1/ Servicio Minero (SERMIN), an affiliate of Empresa Minera Unificada, S.A.(EMUSA).

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BAMIN into a more effective development lending institution, increase thetechnical capability of GEOBOL, and improve MMM's sectoral planning. It wouldalso complement BISA's financing of medium miners, thus filling a major gap inthe financing of private mining.

4.10 Based on a preliminary review of potential subprojects to befinanced under the loan, the aggregate economic rate of return (ERR) of thecredit component of the loan is expected to be about 20%. This rate issatisfactory, although much lower than the ERR for medium mining subprojectsfinanced by BISA under IDA Credit 455-BO, which was about 40%. The differ-ence is due to major initial costs of mining installations and equipment,which, in the case of most BISA subprojects made for expansion and moderniza-tion of existing mines, had been incurred previously.

4.11 Projections indicate a possible additional contribution of aboutUS$110 million during 1976-85 from the small mining investments to net foreignexchange earnings. This amount, for the same reasons as the ERR above, issomewhat lower than the expected earnings of medium miners under BISA finan-cing. Over the same period, subprojects should contribute about US$35 millionto government revenues. The employment effect of the project would not behigh since the expected increase in mineral production would likely be achievedby introduction of machinery and more capital-intensive production methods.However, income of the workers employed in the participating mines shouldimprove due to both improved productivity of labor and the increased exposureof the small mines to labor organizations and governnent supervision.

4.12 The health and safety standards in the participating mines and intile workers' quarters at the mine sites should also improve, both as a resultof measures to be recomnended by the feasibility studies and included inJ3AMIN's subprojects, and, indirectly, as a consequence of the transfornmationof primitive mining activities into larger efficient operations.

4.13 Benefits from the survey of small mines and the technical assistanceprcgram would be realized rmainly in the form of improved efficiency, increasedtechnical competence and the acquisition of a better knowledge of the sector.As a result of the project, GEOBOL's staff would gain experience in prefeasib-i!ity studies, and be better prepared to provide technical assistance to smallminers. ln this way, the necessary conditions would be set up for transform-ing a growing number of potentially viable small mines into efficient enter-prises. THNI's development-oriented staff would acquire project evaluatiLonand planning skllls that should result in more rational mining policies and,eventually, in improved sectoral performance.

4.14 Indirectly, feasibility studies required under the project shouldresult in upgrading of domestic consulting services. Also, the expectedestablishinent of equipment leasing and service enterprises to serve smallminers would help to develop this specialized and risky business in Bolivia,which is expected to extend to other types of productive activities.

- 27 -

4.15 The proposed project is the first Bank Group operation in the smallmining sector, where past efforts to inject capital and technlcal assistancehave failed. Thus, although the project has been carefully prepared, thedifficult socio-political environnent of the proposed operation could índuceunforeseen problerms which could adversely affect the project execution. Also,due to the novelty and complexity of the project and the substantial amountof technical assistance required by several institutions and the ultimatebeneficiaries, there may be some unforeseen delays in the initial period ofthe loan implementation, which, to some extent, have been reflected in thedisbursement schedule (Annex 10).

V. AGREEMENTS REACHED AND RECOlMENDATIONS

A. Agreements Reached

5.01 During loan negotiations the Government agreed to the on-lendingterms for the proposed loan to BAMIN and the assumption of the exchange riskbetween the US dollpr and the currencies disbursed by the Bank (para. 4.02and 4.03). It also conflrmed the avallability of sufficient local funds toassure the execution and continuous operations of the project componentassigned to GEOBOL, and the completion of the technical assistance program toMMI1 (para. 3.04). With respect to BAMIN's Credit Departnent, the Governmentagreed to protect it against any adverse results of the Trading Departnent'sactivities (para. 3.16); to offset any change in debt-to-equity ratio of theCredit Department resulting from a devaluation (para. 3.22); and to contributeto the Department's paid-in capital an equivalent of US$2.0 million in 3 satis-factory installments (para. 3.25). At the same time BAMIN agreed to: theon-lending terms and conditions of the credit component of the proposed loan(para. 3.07); an effective separation of trading and credit operations and anexternal audit of separated accounts starting December 31, 1976 (para. 3.16);and the adoption of a revised Policy Statement reviewed during negotiations(para. 3.19 and Annex 4).

5.02 The Government also confirmed its plans to issue in 1976 a mininglaw that would include revised taxation (para. 2.16). In addition, BAMINindicated it would review its relending charges (including the interestrate on lending with its own funds) and administrative costs (para. 3.08 andpara. 18 of Annex 3); intensify its general staff training prograni (para.3.15); examine its fees for mineral storage services (para. 3.17) and payclose attention to reducing its arrears (para. 3.24).

5.03 Following negotiations, BAIIN prescnted satisfactory evidence ofthe Government's conversion into equity of the $b 60 million loan from theCentral Bank (para. 3.16); submitted the revised statutes (para. 3.15); andconfirmed the revised Policy Statement (para. 3.19 and Annex 4).

- 28 -

5.04 The following would be conditions for effectiveness of the loan:

(a) The Governennt would:

(1) make the first payment to BAMIN's capital of not lessthan US$200,000 or its equivalent (para. 3.25);

(Ii) assure preparation by GEOBOL of detalled tasks foroutside consultants (para. 3.37);

(Iii) assure selection of satisfactory consultants for thecadastral survey (para. 3.46).

(b) BAMIN would:

(1) submit, in form and content satisfactory to the Bank,the latest balance sheet and profit and loss statementseparately for the Credit Department and the TradingDepartment (para. 3.16);

(ii) hire a qualified project analyst (para. 3.18);

(ii) submit satisfactory internal loan regulations, revisedpursuant to the policy statement (para. 3.19);

(iv) contract a consultant to set up a proper managementcontrol system, includlng internal accounting(para. 3.24);

(v) select satisfactory advisors/consultants (para. 3.50).

B. Recommendation

5.05 With the indicated assurances, the proposed project constitutes asuitable basis for a Bank loan of US$12.0 million, for a term of 15 years,including up to 3 years grace, as outlined in Chapter IV.

ANT-EX 1

BOLIVIA

APPRAISAL OF A SMALL MINING DEVELOPMENT PROJECT

PRINCIPAL MINERALS PRODUCED BY SMALL MINES

A. Single (majority) metal mines Number of Mines

Tin Sn (oxide) 2,141Zinc Zn 33Antimony Sb 752Copper Cu 519Bismuth Bi 45Tungsten W03 418

Total Single Metal Mines 3,908

B. Complex

Tin (sulphite) 97Zinc 49Antiiiony 55Copper 217Bismuth 24Tungsten 17Lead/Silver (Pb/Ag) 873

Total Complex Mines 1,332

Total Identified Mines 5,240

LCPDFJuly, 1976

ANNEX 2

BOLIVIA

APPRAISAL OF A SMALL MINING DEVELOPMENT PROJECT

SCHEDULE OF GEOBOLIS PREFEASIBILITY STUDIES(1975 through June 1978)

Completion TotalMine Type Mineral Date Investment

(US$ I000)

1. Tuntoco A Zn 1-76 2,200

2. Victoria B Sn 1-76 250

3. Chicote Grande A Wo3 6-76 1,000

4 . Kumarana B Sn 6-76 1,000

5. Porvenir A Sn 6-76 1,500

6. Mina San Florencio A Sn 12-76 1,500

7. Mina Santa Maria B Sn 1-77 300

8 . Mina Negro Pabellon B Sn 2-77 300

9 . Mina Excelsior B Sn 3-77 800

10. Mina La Reyna B Sn h-77 400

U . Mina Morados A Zn,Pb 4-77 1,000

12 . Mína Monte Blanco B Sn 5-77 300

13 . Mina Socorro B Sn 7-77 350

14 . Mina Santiago B Sb 7-77 45o

5 . Mina San Pedro B Sn 10-77 450

6 . Mina Santa Rosa B Sn 10-77 500

2 . Mina Orquestaca B Sn 1-78 600

-11 . Mina Calacalani B Wo3,Sb 1-78 300

19 . Mina Dos Amigos B Wo3 4-78 500

a). Mina La Joya A Ag,Au,Cu 4-78 1,000

Total Investment US$14,700(prelíminary estimates)

LCPDFJuly, 1976

ANNEX 3Page 1

BOLIVIA

APPRAISAL OF A SMALL MINING DEVELOPMENT PROJECT

BANCO MINERO DE BOLIVIA (BAMIN)

A. Organization, Policies and Procedures

1. Establishment and early history. BAMIN was established on July 24,1936, as an autonomous public institution, to promote mining development inBolivia. Originally, it had some private shareholders but at present it iswholly owned by the Government. BAMIN is subject to the banking law andthus to regulation by the Central Bank and control by the Superintendencyof Banks. Its central office is in La Paz and its six branches are locatedin Cochabamba, Oruro, Potosi, Tipuani, Tupiza and Uyuni.

2. BAMIN has two related though independent major functions. As abank, it is to finance the development of mining and metallurgical industries;it is also an official mineral marketing agency which buys, stores and exportsmineral concentrates produced by private mines. Although not limited underthe law or by its statutes, BAMIN's credit activities have traditionally beenoriented towards the small mining subsector, but medium mining firms havealso benefited from some financing, usually from special lines of credit.Regarding íts trading function, BAMIN has an exclusive right to buy theentire mineral output of all small miners, except when it specificallyagrees to outside transactions. On occasions, it also buys minerals frommedium miners but, as a rule, larger enterprises can sell better by contract-

ing directly, or through agents, with foreign importers of minerals. BAMIN'srionopolistic position with respect to small mining has been both supported and

criticized, depending on circumstances, by the small miners' associatíons.At present, BAMIN's market position is being reviewed by the Government inconnection with the revision of BAMIN statutes.

3. BAMIN has a history of inefficient operations. In the past, itsloans have been motivated more by political and social considerations thanby financial and economic feasibility. As a result, BAMIN has been decapi-talized over the years and its lending operations have been largely reducedto short-term credit for working capital and some medium-term financing ofequipment. Until recently, BAMIN's management has concentrated its attentionon the marketing side and allowed the banking function to deteriorate. Loanswere expected to be repaid from sales of minerals and, if prices were low,loan arrears were rising. On December 31, 1971, more than 74% of BAMIN's loanportfolio was in arrears.

4. Reorganization scheme. In late 1972, the Government initiatedBAMIN's rehabilitation. Under the Decree Law No. 80 of October 27, 1972,BAMIN was divided into two operational units, namely, the Trading Department

ANNEX 3Page 2

and the Credit Department, which would be responsible for mineral marketlngand credit activities, respectively. This was followed by the partial separa-tion of the accounts of these two departments. In an effort to recapitalizeBAMIN, the Government arranged, in March 1973, for a special 10-year loan fromthe Central Bank of $b 60 million (US$3.0 míllion). Of the total loan amount,$b 35 million has been earmarked for mining credit, and $b 25 million forreplenishing the inventories of mining tools and supplies which BAMIN sells tosmall miners. The Governrient assumed both amortization and interest paymentson this loan, but BAMIN had a contingent liability in case the Governmentfailed to make appropriate payments. FollowinR loan negotiations the Govern-ment released BAMIN from this contingent llability and converted the loan atits original amount into the Credit Department's equity. Also, as part ofits reorganization scheme, BAMIN undertook to revise its statutes. The newstatutes, whose draft had been reviewed by the Bank and found generallysatisfactory, were submitted to the Bank following negotiations of the pro-posed loan.

5. During loan preparation, BAMIN has made strong efforts to completeseparation of its Credit Department from the Tradíng Department by dividingfixed assets and resources of BAMIN and assigning personnel to each depart-ment. The latter goal has been achieved and the final departmentalizationof balance sheets would be a condition to loan effectíveness.

6. Board of Directors. The revised statutes of BAMIN provide foran increase in the number of directors representing the Government fromthree to five, which was prompted by the excessive past influence of privatermining interests in the Board's decisions. The new Board of Directorsconsists of a president--the position assigned to the .Iinister of Minesand Metallurgy--and eight members, with seven alternates, appointed by thePresident of the Republic. In addition to BAMIN's president, the Govern-ment has four directors representing MIM, the Ministry of Finance, theMinistry of Coordination and Economic Planning (CONEPLAN), and COMIBOL.The private sector also has three directors designated by the NationalChamber of Mines, Mining Cooperatives and the Association of Medium Miners.The ninth member of the Board represents the union of BAMIN's employees.

7. Management and staff. The general manager of BAMIN is appointedby the President of the Republic upon recommendation of the Board of Directors.Since January 1975 this function has been performed by Dr. Hugo Uriona, whohas the necessary professional background and administrative experience. Therevised statutes of BAMIN provide for two administrative committees presidedover by the general manager. The existing Executive Committee would continueto deal with administrative and personnel matters and also decide on thepurchases of mining tools and supplies for resale to small miners. The newLoan Committee would consider and approve loan proposals within the limitsprovided in BAMIN's Regulations of Mining Loans.

ANNEX 3Page 3

8. As of mid-1975, BAMIN employed a total staff of 534 (includingbranches), but had only 36 professionals, of whom 15 worked for the CreditDepartment. Some 250 persons, classified as lower clerks and unskilledworkers, were employed in BAMIN's warehouses. In general, BAMIN's personnelshould be upgraded and the proportion of professional staff should be in-creased. The general manager is fully aware of the situation and wouldmake every effort to assure that the staff participate in professional coursesboth in Bolivia and abroad. At present, BAMIN is planning to organize aninternal accounting course for its lower level professionals.

9. Credit Department. This department would be directly responsiblefor small mining development projects to be financed under the proposed loan.It is headed by Mr. Victor Chambi Perez, Credit Manager, who has been asso-ciated with mining financing and BAMIN for many years, and who, in the absenceof Dr. Uriona, acts as general manager. In preparation for the Bank loan,the Credit Department has been reorganized and now consists of two operationaloffices and a loan administration unit.

10. Of key importance to the project is the Technical Office, which isresponsible for the appraisal, preparation and supervision of both equipmentcredit and developiment subloans. The office is headed by a senior engineerwho was hired recently and whose formal qualiflcations are adequate. Theprofessional staff in La Paz -- consisting of 5 engineers, a financialanalyst and a financial economist (still to be hired) -- has the necessarytechnical background and should be sufficient to handle the initial phaseof project implementation. However, additional training would be needed inthe methodology and techniques of project appraisal and supervision. For thispurpose, a technical assistance component is included in the proposed loan.Aside from the operations in La Paz, the director of the Technical Office isresponsible for the technical supervision of six regional engineers located InOruro, Potosi and Tupiza, who provide advice and assistance to regionaldirectors of BAMIN as well as its clients. The regional engineers wouldassist in, but would not be directly responsible for, the preparation andsupervision of development projects.

11. The Office of Supplies (Almacenes) is responsible for buying andstoring mining tools and supplies, as well as selling them to small minersfor cash or on short-term credit. Because of this specialized and rathercommercial type of business, it is questionable whether the office shouldremain as a part of the Credit Department. While for the time being noalternative solution is proposed, further review should be undertakenduring the project implementation stage.

12. In addition to these two operational units, the Credit Departmentincludes an Office of Loan Controls, which is responsible for processing ofsmall working capital loans and for administrative control over lending activi-ties in BAMIN's headquarters and six regional offices.

ANNEX 3Page 4

Trading Department

13. The Trading Department was formally established under the Decree LawNo. 80 of October 27, 1972. It conducts its activities pursuant to internalRegulations for Marketing of Minerals and Metals, adopted by BAMIN's Board ofDirectors on June 13, 1973. It buys mineral concentrates delivered to BAMINwarehouses located near the central office or each of the branch offices.It may also store minerals for up to 30 days for the miners, without storagecharges. The buylng price is established on the basis of the average marketquotations of the preceding week, less BAMIN's handling charges and sellingcosts. Current prices paid by BAMIN for typical minerals, according to theirmetal content, are posted in all BAMIN banking offices. Normally, BAIIIN pays,upon delivery, 50% of the estimated value of the mineral and the balance uponcompletion of the laboratory test of the metal content, which takes up to 10days. In many cases, the quantities of minerals delivered by small miners arebelow the minimum selling lot and have to be stored until commercial lots ofcomparable concentrates are accumulated. For this special service, BAMINcharges a flat 2% fee based on the estimated 3-month storing period at anannual interest rate of 8%. This fee, which has remained unchanged since thelate 1960s, is below BAMIN's actual cost. Changes in the fee to reflectBAMIN's costs were discussed during negotiations and would be examined as apart of a management control system contract (para. 33).

14. Minerals are sold either directly to foreign smelters, like most tinand copper, or through foreign trading companies. BAMIN's selling contractsare either of the fixed-price type or are tied to international, normallyLondon, market prices. The metal content of ore concentrates is firstlydetermined by BAMIN's laboratories at the time of purchase and again by foreignpurchasers upon delivery of the concentrates. Because of BAMIN's primitivemixing methods and inaccurate chemical analysis, there are frequent differencesbetween BAMIN's and its clients' results. At times, these differences havebeen substantial, have led to contractual frictions and occasionally contri-buted to BAMIN's operating losses.

15. The Trading Department operates primarily with a line of creditfrom the Central Bank, which amounted to $b 282 million at the end of 1975.After the separation of resources, the Department's equity would consistof the paid-in capital of $b 25 million, reinvested profit and legal andspecial reserves, which together would exceed $b 70 million.

B. Lending Operations

16. Policies and regulations. Although not legally prohibited, BAMINdoes not make equity investments. Its lending activities are conducted inaccordance with the statutas of April 23, 1963, which were amended in 1964and 1965, and its internal Regulation for Mining Loans of 1973. In 1976,in preparation for the Bank financing, BAMIN revised its statutes andadopted a policy for credit operations, laying down criteria for its lendingactivities and, in particular, for financing of small mining development

ANNEX 3Page 5

projects. The latter includes, among other things, the debt/equity ratio andthe exposure limit of the Credit Department to any particular client (Annex4). BAMIN's internal loan regulations, revised to reflect the policy statementand satisfactory to the Bank, would be a condition for loan effectiveness.

17. Types of loans. BAMIN makes 3 types of loans, namely:

(a) working capital loans for up to 18 months, not exceeding$b 150,000 (US$7,500) each, which includes credit sales ofmining tools and supplies from BAMIN's warehouses;

(b) production loans for financing equipment for up to 5 yearsof maturity; and

(c) mining development loans, presently granted for up to 8years. The revised regulations would extend this periodto 15 years.

Under the present regulations, loans up to US$4,000 equivalent may be approvedby a branch manager, up to US$6,000 equivalent by the Credit Manager, and upto US$20,000 equivrlent by the Executive Committee (to be changed to LoanCommittee)¡ larger loans must be submitted to the Board of Directors. Theselimits are very low but they reflect the present nature of BbMIN's financing.They would be likely increased in the revised regulations and provide, among otherthings, that each production or development subloan of over US$20,000 equiva-lent would be evaluated by the Technical Office and considered by the LoanCommittee, and, in case of a positive conclusion, it would be presented to theBoard of Directors for approval. As part of its revision of the loan regula-tions, BAMIN would prepare separate operational guidelines for each type ofsubloans.

18. Terms and conditions of subloans. BAMIN charges the highest legalinterest rate, which at present is 12% p.a., on funds derived from foreignlong-term borrowings and relent in dollars (including roll-overs). It hasbeen lending its own funds at 13% p.a. but since the Central Bank's resolutionof January 8, 1976 it may now charge 15% p.a. 1/ In addition, BAMIN charges aone-time fee of 1/4 of 1% for the Employees' Fund and a one-time handlingcommission of 1/4 of 1%. On overdue balances, borrowers have to pay a penaltyinterest of 3% p.a. Under the present Bank interest rate of 8.9%, BMITN wouldhave a 3.1% spread (plus a closing fee of 1/4%), which is quite narrow forBAMIN's type of operations and does not cover overall administrative costsof the Credit Department. This interest differential could be accepted onlybecause other financial expenses of BAMIN are lower,.and its gross spread ishigher (para. 30). BAMIN would also be -xpected to pay the Bank commitment fee(presently 3/4 of1%) on its portion of the Bank Loan, and in turn would have tocharge its mining clients a fee of 1% or more on undisbursed subloan balances. In

1/ During negotiations BAMIN agreed to review the interest rate on lendingits own funds with a view to raise it to 15% p.a.

ANNEX 3Page 6

addition, the subborrowers would be expected to pay the Central Bank's chargeof about 1/4 of 1% p.a. for its assuming the risk of exchange fluctuationsbetween the US dollar and other currencies disbursed by the Bank. The overallcost of BAMIN's development subloans to beneficiaries would be about 13% p.a.,in US dollars.

19. BAMIN's subloans over $b 80,000 are usually guaranteed by realestate, and/or chattel mortgage, or by an insurance company. Under the Bankproject, the value of mineral reserves, determined according to the USGeological Survey's standard and computed by BAMIN's Technical Office, wouldalso be accepted as a partial security for subloans.

20. Project evaluations and supervision. BAMIN has not had much experi-ence in project appraisal. Over 80% of all its loans are for working capital,and its appraisals of equipment and project loans are not rigorous, the primaryweight being given to collateral offered. While this reflects the prevalenceof short-term operations, it is also the result of insufficient project data,particularly regarding mineral reserves, and the fact that financial state-ments have not been required for lending to the small mining sector. Asa result of the proposed project, each applicant for BAMIN's financing ofmining development would be required to present a feasibility study, preparedby a qualified party and acceptable to BAMIN's Technical Office. In additionto technical and economic data, this study would include the financial positionof the applicant enterprise, the projected results of its project, includingat least its financial rate of return, as well as the value of available mineralreserves. Also, it would be expected to have recommendations regarding thenature and extent of the assistance to be provided to the miner by GEOBOL oranother qualified party. There is no doubt that the quality of project evalua-tion by BAMIN would have to be substantially improved. To assist BAMIN insetting up satisfactory project appralsal techniques and procedures and totrain its technical staff, a portion of the Bank loan would be earmarked tofinance two experts for at least 12 months.

21. According to BAMIN's loan regulations, all projects should beinspected by the central Technical Office personnel to check the proper use ofBAMIN's funds. In practice, this end-use check is done only in the case ofmore important loans. It is quite clear that the present supervision activi-ties of BAMIN are not adequate for development projects. In 1974, a total of28 construction sites were visited and only 5 in the first nine months of 1975.The Technical Office of BAMIN would be expected to develop satisfactory super-vision guidelines and a timetable for site visits to follow up on the develop-ment of all its subprojects, irrespective of the source of financing. Consul-tants financed under the loan would assist BAMIN in this matter.

22. Procurement and disbursement. BAMIN's procurement procedures, whichgenerally provide for bid solicitation and in some cases for public bidding,are adequate. However, recently, BAMIN has not had much opportunity to applythem, since it financed in most cases Russian or Polish equipment availableunder bilateral credit terms. For the development projects, BAMIN wouldrequire its clients to obtain, whenever appropriate, quotations from at leastthree suppliers.

ANNEX 3Page 7

23. BAMIN disburses for the cost of locally purchased equipment bypaying directly to the supplier or by checks made to the order of thiesupplier, with a note indicating the client's name and specific procurementitems. Regarding direct imports, BAMIN would follow the Bank's practicesand assist its borrowers whenever necessary.

24. Past operations. In 1975, BAMIN made 736 loans in the amount of$b 184.6 million, an inerease of 253% in the amount, and 81% in the number ofloans made in 1974. This sharp increase in the loan amount reflects mainly aspecial credit, obtained from a German commercial bank in 1975, primarily formedium miners to finance increased inventory of minerals (mainly tin andantimony) whose market prices were depressed. The rise in the number of loanswas primar ly due to an increase in the number of credit sales of mining toolsand materials from BAMIN warehouses made possible by the 1973 loan of $b 60million from the Central Bank and by the gradual utilization of $b 57 millionof Russian and Polish credits to finance machinery purchases. Over a 4-yearperiod, from the end of 1972 through 1975, BAMIN made a total of 1,487 loansfor $b 271 million (Table 1), showing a steady increase in the number of loansand the total amount of loans made. About 85% of the loans made in the 4-yearperiod were in the amounts below $b 100,000, and only 42 loans exceeded $b 1.0niillion (US$50,00C' each. About 83% of the loans were for working capital,and only 91 were made in excess of 5 years for investment. While 97% of allloans were made to the small mining subsector, they accounted for only 41%of the loan amount; the remaining 59% were absorbed by 39 larger loans madeto medium miners. Except for a gradually increasing amount of outstandingloans, no permanent change in the lendíng pattern of BAMIIN and types of itsloans is expected until Bank-firanced subprojects are under way.

C. Financial Structure and Results

23. Background. Although BAMIN's trading and credit operations werebotb reviewed during appraisal, the following financial analysis is restrictedto the Credit Department, which would be made financially independent of theTradlng Department. The two departments would maintain separate financialaccotnts and would be restricted in the transfer of resources between them-selves. The Government would also guarantee that operating results andliabilities of the Trading Department would not in any way affect the CreditDepartnent, and vice-versa.

26. The principal problem confronting the financial analysis of BAMIN'sCredit Department is the lack of rellable data regarding its operations.MHanagement information systems appear to be among the priority areas forimprovement. Wlile headquarters appears to be obtaining information re-garding operations and results, it is 'tl a considerable time lag in certaincases, and not in a form whlch would allow ready analysis of operationalresults. A second problem is the fact that the Credit Department is notconcerned solely with providing credit, but also includes activities such assales of equipment and mining supplies. This reduces the usefulness offinancial ratios for comparative purposes. Mindful of the above constraints,the analysis that follows is limíted and is only indicative of BAMIN's overallfinancial position and prospects.

ANNEX 3Page 8

27. Financial structure. Total assets of the Credit Department ex-panded by more than 50% per year from 1973 to 1975 due to the special creditline from a German commercial bank, Russian and Polish credits for the pur-chase of machinery and equipment, and the increase in resources provided bythe Central Bank which permitted further expansion in assets (Table 2).Following loan negotiations the Government submltted satisfactory evidenceof the conversion of the $b 60 million Central Bank loan into equity of theCredit Department. Thus, defining this loan as equity, the Credit Departmentwould have a debt/equity ratio, estimated at 4.0:1 at year-end 1975, whichis at the limit proposed under the project.

z8. It has not been possible to calculate current ratio of the CreditDepartment prior to 1975, but an estimate of the year-end 1975 current ratiosilOS a satisfactory 1.5:1. This is not surprising in view of the nature ofniost of BAMIN's borrowings, whose terms exceed BAMIN's average lending term.

1,19. BAMIN is not exposed to any significant foreign exchange risk inits operations since funds are lent out in the same currency In which theyare obtained. To the extent that BAMIN's own funds are lent out in pesos,a devaluation could, however, increase its debt/equity ratio and reduce itscurrenít ratio as well as the real value of its equity. Although devaluationis unlikely at the present time, the Government agreed during negotiations tooffset any chlange in the Credit Department's debt-to-equity ratio resultingfronm a devaluation.

P Profitabllity. The results of the Credit Department operations:.e past have been rather uneven due to the attitude of small miners who

dered BAMIN as an instrument of social welfare. In spite of this atti-'i 01¿ -,owever, with the rise in mineral prices in 197! the Credit Depart-i.lcSt has had reasonable loan collection experience and managed to obtain,r oKlest return on equity of about 2.5% in 1973, 2.7 in 1974 and 2.2% in1975 (Tables 3 and 4). While still low, the return for 1975 is satisfactorysince it is after taxes which BAMIN did not have to pay until 1975, and aftersizeable provisions for portfolio losses. Slightly higher returns are pro-jected for the future (para. 39). BAMIN's administrative costs are about4% of the average total assets (Table 3) but this ratio is distorted by tlieWarehousing operations (almacenes) which are expensive and comprise abouthalf of the assets.

31. Portfolio guality and reserves. It is not possible to state withaccuracy tlie quality of BAMIN's portfolio. At the end of August, 1975,BAiTIN's records showjed loans in arrears with principal amount outstandingof 20% of total portfolio (Table 5). The external auditor's field auditshowed that about 30% of the Credit Department portfolio was in arrearsas of thie same date. Management explained this discrepancy as being dueto the lag in the transriíttal of information from branch offices to head-quarters, which further confirms the weakness of BAMIN's management controlsystem. Most of the arrears recorded, however, were for less than threeFionths, and appear to be due to low mineral prices rather than to a deter-loration in BAMIN's collection efforts. The total amount of loans in

ANNEX 3Page 9

arrears for more than three months as of the end of August 1975 was about10%, according to BAMIN's records. Even including the unreported arrearsuncovered by the auditors, the arrears rate is not excessive consideringBAMIN's history and past operations. However, measures to reduce arrearswere discussed during negotiations and would be followed up as a part of loansupervision. Reschedulings from 1974 onwards have been relatively insignif-icant. Also, whíle many loans have been written off, the average amount hasbeen small, about $b 8,000 as compared to BAMIN's average loan size of about$b 140,000 (Table 6). Thus, write-offs have not significantly affectedBAMIN's operations from 1974 onwards; in 1975 (8 months) they amounted only toabout 0.6% of total portfolio on an annual basis. The small size of write-offs shows that it is the very small miners, who probably do not have viableoperations to begin with, who do not pay their debts except when they selltheir minerals to BAMIN.

32. During its preliminary audit in August 1975 BAMIN's externalauditors recommended an increase in the provisions for losses from $b 9.3million to $b 15.6 million. The analysis was based not on a loan-by-loanreview but rather on the less satisfactory aging of BAMIN's arrears. Asof year-end 1975, the provisions have, in fact, been increased to $b 15.6million. While it is still not possible to determine the adequacy of thisreserve, wtiieh now amounts to about 15% of BAMIN's portfolio, 1/ this isdefinitely a positive step towards establishing the Credit Department'screditworthiness.

33. External audit. BAMIN's operations were not subject to externalauditing prior to 1975. As part Z its preparation for the proposed project,BAMIN hired Arthur Young and Co. as its external auditor. As expected,the audit report for 1975 did not have an opinion, due principally to someof BAbMIN's accounting practices and its weak control system which complicatesthe external auditing funetion. A satisfactory consulting contract to settlp a proper management control system, which should lead not only to betterinternal accounting but also to improved external reporting, would be requiredas a condition to loan effectiveness. The foreign exchange costs to set upsuch a system would be financed under the loan.

Resource Position and Reguirements

34. As of the end of August 1975, BAMIN had practically no uncommittedresources available for development projects. It had some undisbursed resourcesremaining from the Russian and Polish credits, amounting to about US$1.0 million,but these are to be utilized exclusively for the purc1ase of machinery andequipment from these countries (Table 7). It was also able to secure a US$6.5million loan from the Deutsch-Sudamerikanisc'e Bank as of year-end 1975,but this has to be utilized for the financing of the mineral stock of themedium miners. BAMIN has recently obtained two medium-term foreign loans

1/ Excluding the subloans made with the Deutsch-Sudamerikanische Bankloan made in December, 1975.

ANNEX 3Page 10

totaling US$6.0 million, to be used mainly for working capital financing.Neither of the loans is expected to be utilized for the proposed projectsince both loans will probably be drawn down rapidly.

35. In order for BAMIN to have the required counterpart financing underthe proposed loan, the Government has agreed to provide a US$2 million equitycontribution to the Credit Department which would be earmarked speclficallyfor Bank-financed projects. This contribution will be spread over a three-year period, namely; US$200,000 in 1976, US$1.0 million in 1977 and US$800,000in 1978. The amount and the schedule are satisfactory to support the projecteddisbursements under the proposed loan (Annex 10).

Projected Operations, Financial Structure and Results

36. Projected operations. BAMIN's loan disbursements are projectedfirst to decline and then to increase from $b 43 million in 1976 1/ to about$b 130 million by 1978 and 1979, which would already Include the proposedBank loan. With the full utilization of the proposed loan, the Credit Depart-ment's disbursements would decline to about the original 1976 level by 1981.In practice, though, if the proposed project is successful, the Bank or someother institution would probably provide BAMIN with additional resourcesfor project lending which should result in at least the maintenance of the$b 130 million disbursement level.

37. No increase is expected in operations relating to the sale ofmachinery and supplies. This activity should then become less importantfor the Credit Department over the forecast period, which could contributeto the process of transformation of the Credit Department into a "pure"lending institution.

38. Financial structure. The projections show the Credit Department'sdebt/equity ratio declining from 4.0:1 at year-end 1975 to 3.3:1 by year-end1976 1/ due to the partial repayment of the DSB loan (Table 7). The debt/equityratio of the Credit Department is not expected to exceed 4:1 over the fore-cast period (1976-1979). The Credit Department would also have satifiactoryliquidity over the same period.

39. Profitability. Net income is projected to increase to a more satis-factory level from 1977 onwards, because of the projected increase in interestreceived as a percentage of average portfolio due to the increase in BAMIN'slending rate for foreign official funds from 10% and 12%, and for own fundsfrom 13% to 15% (Table 8). Income from the sale of irachinery and supplies isprojected to remain at the 1975 level. Return on equity is projected to riseto above 4% for the 1976-1979 period, which should contribute to the strengthen-ing of BAMIN's capital base.

40. Debt-service coverage, which is projected to remain at an acceptable1.5:1 by 1977, increases to 3.9:1 by 1979 (Table 4).

1/ Excluding two recent foreign loans (para. 34).

BOLIVIA

SMALL MINING DEVELOPMENT PROJECTBanco Minero - Credit Department

Analysis of Loans Made from 1972 to 1975(in thousands of Bolivian Pesos)

1972 1973 1974 1975 TotalNo. Amount Z No. Amount Z No. Amount Z. No. Amount % No. Amount %

1. By Amount

0.- - 50.0 182 2,825 37 209 2,579 8 257 8,091 14 423 10,335 6 1,071 23,830 950.1 - 100.0 13 952 13 20 1,491 5 35 3,000 5 134 10,000 6 202 15,442 6

100.1 - 500.0 13 2,452 32 13 3,027 10 29 8,636 16 62 15,203 9 117 29,318 11500.1 - 1,000.0 - - - 3 2,676 9 37 9,259 17 15 11,275 6 55 23,210 9

1,000.1 - 3,000.0 2 1,329 18 3 5,828 19 6 8,418 15 26 129,607 73 42 179,244 66 13,000.1 and over - - - 26 1596607 5043 189.432 33

210 7,558 100 250 31,231 100 367 55,837 100 660 176,420 100 1,487 271,044 1002. By Use

Working Cap!yaI -/ 160 3,257 43 226 7,200 23 296 12,591 23 548 25,867 15 1,230 48,915 18Production -3 / 45 3,962 52 22 23,201 74 68 40,746 73 101 147,511 84 236 215,420 79Development - 5 339 5 2 830 3 3 2,499 4 11 3,041 2 21 6,709 2

210 7,558 100 250. 31,231 100 367 55,837 100 660 176,420 100 1,487 271,044 1003. By Type of Borrower-

4/Small Mining 210 7,558 100 247 13,301 42 354 31,122 56 637 58,110 33 1,448 109,990 41

Medium Mining - - - 3 18,030 58 13 24,715 44 23 118,310 67 39 161,055 59

210 7,558 100 250 31,231 100 367 55,837 100 660 176,420 100 1,487 271,044 1004. ny Financing Source ----

Bamin 111 2,115 28 211 6,346 20 294 17,385 31 346 16,734 9 962 42,580 16USAID 99 5,443 72 34 6,793 22 29 9,401 17 46 9,792 6 208 31,429 12DSB - - - - - - - - - 175 125,560 71 175 125,560 46Equipment Credit from theCentral RnAIk ani - - - 5 18091 58 44 29,050 51 9Rtussian Sources 93 24,334 14 142 71,476 26

210 7,558 100 250 31,231 100 367 55,837 100 660 176,420 100 1,487 271,044 100

1/ Loans with maximum term of 18 months.2/ Loans with maximum term of 5 years.3/ Loans with niaximum terin of 8 years.4/ Includes cooperatives. 25/ Estimate.

LCPDF Lo

August, 1976

BOLIVIA ANNEX 3SMALL MINING DEVELOPMENT PROJECT Table 2Banco Minero-Credit Department

Past and Projected Balance Sheets as of December 31(in thousands of Bolivian Pesos)

Past Proj ected

ASSETS 1973= 1974-y 1975 1976 1977 1978 1979Cash and banks 5,185 8,872 15,114 14,061 15,330 16,054 16,852Loans outstanding - current - - 29,471 98,330 101,350 50,770 63,600Miscellaneous receivables 137 7,942 10,975 11,000 11,100 11,300 11,400

Total Current Assets 55,560 123,391 127,780 78,124 91,852

Materials, machinery and equipment 43,316 61,561 99,602 85,623 80,463 76,836 71,838Loans outstanding (net of current portion) 69,570 95,905 205,100 149,726 130,276 211,606 278,706Provision for bad debts (7,563) (10,879) (15,595) (16,870) (18,000) (19,500) (23,000)Fixed and other assets 36,481-/ 43,554-/ 8,485 8,264 8,043 7,822 7,601

Total Assets 147.126 206,937 53,151 4] 4 328.562 35488 426,997

LIABILITIES AND EQUITY

Accounts payable and other current liabilities 21,2235I 40,172)1 17,870 18,500 19,000 20,000 20,500Short-ternn debt 1/ _ - 18,191 66,609 66,289 8,849 4,179

Total Current Liabilities 36,061 85,109 85,289 28,84 24,679Medium- ar:d Long-Term Debt

USAID 32,811 31,975 31,197 29,768 28,339 26,910 25,481Russían and Polish Credits - - 57,224 57,284 52,424 45,004 44,854Deutsch Sud. Bank - - 120,000 60,000 1 - -Warld Bank - - -- 18,000 86,000 155,400Other sources 239 37 5,240 - - - -

Total Meduiun- and Long-Term Deb2/ 33,050 32,012 213,661 147,05 98,763 157,914 225,735

Provisions 4 424 11 733, 5,457 8,084 9,365 10,711 12,119Other Liabilities 53,524i 64,820-1 27,674 28,000 28,500 29,000 30,000

MU II1Y

Cerntral Bank Loan (quasi-equity) 35,000 58,200 55,560 - - - -Pald-in Capital - - - 64,000 84,000 100,000 100,000Retúined earnings - - 14,738 17,889 22,645 8,414 34,464

Total Equity 35,000 58,200 70,298 81,889 106,645 128,414 134,464

Total Liabilities and Equity 147,126 206,937 353,151 350,134 328,562 354,888 426,97

RATIOS

Current ratio n.a. n.a. 1.5 1.4 1.5 2.7 3.7Lebt/equity 6/ 3.2 2.6 4.0 3.3 2.1 1.8 2.2Increase in portfolio (%) n.a. 37.9 144.6 5.7 (6.6) 13.3 30,5Increase in assets (%) n.a. 40.7 70.7 (0.9) (6.2) 8.0 20.3Provision for bad debts/total portfolio (%) 10.9 11.3 6.6 6.8 7.8 7.4 6.7

1/ Includes current portion of medium- and long-term debt.2/ Excluding current portion from 1975 amounts.3/ Balance sheets prepared by BAMIN do not segregate current assets/liabilities.4/ Includes acccunts awaiting settlement from BAMIN's branch offices.5/ May include some non-current itemns.6/ Excluding $b 120 million five-year foreign banks' loans and an additional $b 25 million capital allocations,

both received in mid-1976. Allowíng for these changes the debt/equity ratio would be approximately 3.6 in1976; 2.6 in 1977; 2.0 in 1978; and 2.1 in 1979.

LCPDFAugust 1976

BOLIVIASMALL MINING DEVELOPMENT PRC)JECT

Banco Minero - Credit Department

Past and Projected Profit and Loss Statements(in thousands of Bolivian Pesos)

Past Projected 4/1973 1974 1975 1976 1977 1978 1979

Income

Interest recelved 4,446 10,607 10,697 29,991 30,130 28,307 33,150Commissions 1,167 754 1,517 215 1,050 1,140 873Gross profit from sale of supplies 1,023 6,298 8,372 7,469 9,160 9,450 9,800Extraordinary income 397 846 96 - - - -

Total Income 7,033 18,505 20,682 37,675 40,340 38,897 43,823

Expenses

Financial expenses 823 945 807 17,478 16,795 12,135 13,260Gross spread 6,210 17,560 19,875 20,197 23,545 26,762 30,563

Salaríes and social benefits 4,724 8,345 10,812 11,700 12,600 13,600 14,700Office expenses and subsidies 619 3,692 1,867 2,300 2,500 2,800 3,100Depreciation 2 9 58 221 221 221 221 221ProvisLons fqr losses - 4,220 5,000 1,275 1,130 1,500 3,500Write--offs 3 _ - - 200 300 400 400

Total Non-financial Expenses 5,352 16,315 17,950 15,696 16,751 18,521 21,921Profit Before Taxes 858 1,245 1,975 4,501 6,794 8,241 8,642

Income tax (20%) - - 395 900 1,359 1,648 1,728Contribution to employees' fund (10%) - - 198 450 679 824 864

Net Profit 858 1,245 1,382 3,151 4,756 5,769 6,050

Ratíos

Financial income/average portfolio (%) 8.1 -/ 13.7 10.8 12.5 13.0 11.9 11.31/ cFinancial expenses/average borrowings (%) 2.5 - 2.9 1.0 7.8 8.9 7.3 6.7 1 Gross financial margin (%) 5.6 10.8 9.8 4.7 4.1 4.6 4.6 xNet income/average equity (%) 2.5 2.7 2.2 4.1 5.0 4.9 4.6 . wAdminístrative costs/average

total assets (%) 3.6 6.8 4.5 4.0 4.4 4.8 4.6

1/ As % of year-end 1973 amount.2/ Includes provisions for losses on loans and inventory obsolescence.3/ Included under provisions for losses from 1973 to 1975.

4/ Excludes US$6.0 million foreien loans received in 1976.

LCPDFAuieust. 1976

ANNEX 3Table 4

BOLIVIASMALL MINING DEVELOPMENT PROJECT

Banco Minero - Credit Department

Projected Sources and Uses of Funds for Periods Ending December 31(in thousands of Bolivian pesos)

Projected 2/1976 1977 1978 1979

Sources

Net income 3,151 4,756 5,769 6,050Non-cash expenses 1,496 1,351 1,721 3,721

Cash Generated by Operations 4,647 6,107 7,490 9,771

Government equitycontributions 4,000 20,000 16,000 -

Loan recoveries 29,471 98,330 101,350 50,770Drawdown of borrowings

- World Bank - 18,000 68,000 72,000- Central Bank

(quasi-equity) 4,440 - - -

- OthersDecrease in ínventory 13,979 5,160 3,627 4,998Accounts payable and

other líabílitíes 3,582 2,281 2,846 2,908

Total Sources 60,119 149,878 199,313 140,447

Uses

Loan disbursements 42,956 81,900 132,100 130,700Repayment of borrowings 18,191 66,609 66,289 8,849Increase in receivables 25 100 200 100

Total Uses 61,172 148,609 198,589 139,649

Cash at beginning of period 15,114 14,061 15,330 16,054Change in cash (1,053) 1,269 724 798Cash at end of períod 14.061 15,330 16,054 1.6,852

Ratlos

Debt-service coverage -/ 1.5 1.5 1.6 3.9

1/ On principal and interest payments, assuming a 30% tax rate.2/ Excluding two foreign loans totalling US$6.0 million received in mid-1976.

LCPDFAugust, 1976

ANNE( 3Table 5

BOLIVIA

WI;.LL IrIN DEVEIOPME;IT PROJECT

Banco l;nero - Credit Department

Total af' Loans C_ rent, in Arreara and Rescheduled as o£ Aust 31, 1975

(in thousands of Bolivíian Pesos)

Muffber ofLos Amoun t

Cu.-rent 382 83,888 78.0

A9reae,-s

0 - 3 n.onhic 111 12,427 11.5

3 - 6 iionths 20 465 0.4

6 - 12 Sianftls 28 2,155 2.0

I2 - 24 ionnthn 29 1,34° 1.2

l:orc th!-n nLont1i 190 g ,92 4.óTotal ín arrears over 3 mo. 207 d,884 8.3

Toval in Arrears 378 21,311 19.8

Rescheduled 27 2,402 2.2

TO':AL 787 107,601 100.0

LCPDFJune, 1976.

ANNEK 3Table 6

BOIJVEIA

S!IJL MIRINIiG DSVELOPIPENJT PRIOJECT

Banco i'nero - Credit Department

Sumr of LoanB Wri-tten Off

(in thousands of Bolivian Pesos)

1973 1974 1975 (8 mont1hs)

IJo. o£ No . of No. ofLoans Aount Loans Amount Loans Anount

a Paz 33 931.9 9 68.3 41 330.5

Potori 11 71.8 5 72.8 3 13.8

Oruro 4 23.9 - -- 23 27.3

Tupiza 1 0.2 3 19.0 1 21e0

Cochaboan'ba 7 15.3 1 5.1 2 27.4

111 1 0)03.1 13 165.2 70 419.5

Tot,al nu=nber--;-" lof lls iritten-off 199

Total 2oun1 of loLns anitte.n-of 1,627.8

jrverare size of loan t8riten-cff 3.2

LCP3DFJune, 1976

BOLIVIA

SMALL MINING DEVELOPMENT ̀ ROJECT

Banco Minero - Credit Department

3/Borrowings as of August 31, 1975 -

(in thousands of US$)Term-Date

Original Portion Undisbursed Portion Amount Interest Of Final Revolving Use;ource Date Amount Disbursed Amount Repaid Outstanding Rate Installment Purpose Possible

entral Bank 2/9/73 1,750 1,750 ---- --- 2/ 1,750 4.5% ---- Medium mines - minedevelopment yes

Central Bank 2/9/73 1,250 1,250 ---- ---2/ 1,250 4.5% ---- SmaIl mines - purchaseof supplies yes

Machinoexport -Russian 7/19/72 3,000 2,700 300 741 2,400 3% 3/30/86 Machinery & equipment no

Techmachexport -Russian 2/27/72 1,000 472 528 160 312 3% 3/30/86 Machinery & equipment no

Energomachexport -Russian 12/27/72 1,000 886 114 241 645 3% 3/30/86' Machinery & equipment no

Kopex - Polish 4/28/72 280 197 83 183 144 5% 9/19/78 Machinery & equipment no

USAID - American 5/2/66 4,300 992 --- 1/ ---- 992 1% (lst10 yrs.) 2/2/07 Mine development yes

2 1/2% (next 20 yrs.)

USAID - American 5/2/66 840 840 ---- 62 778 4% 3/30/83 Mine development yes

1/ Undisbursed amount has been cancelled.

2/ Qaasi-equity; being repaid by the Government.

3/ Subsequent to the date a loan was contracted in 1975 with DSB of Germany for a US$6.0 million at 1 3/4%

above LIBOR to finance the mineral stock of medium mines with the final installment (repayment) due 11/6/79.Also, in mid-1976 BAMIN received two 5-year loans from foreign commercial banks mainly for working capitalfinancing,

¡

ANNEX 3Table 8

BOLIVIA

SMALL MINING DEVELOPMENT PROJECT

Banco Minero - Credit Department

Projected Disbursements

(fm millions of Bolivian pesos)

2/Projected

1976 1977 1978 1979

A. Peso Funds

BAMIN 1/ 18.8 36.6 36.0 30.0

USAID 3.0 3.0 3.0 3.0

Central Bank 8.5 8.5 8.5 8.5

Sub-total 30.3 48.1 47.5 41.5

B. Foreign Currency Funds

USAID 3.6 3.9 4.7 5.3

Russian/Polish Credits 9.1 11.9 11.9 11.9

. IBRD - 18.0 68.0 72.0

Sub-total 12.7 33.8 84.6 89.2

TOTAL 43.0 81.9 132.1 130.7

1/ Includes the Governnent equity contribution of $b 40 million.

2/ Excludes US$6.0 million foreign loans and $b 25 million of additionalcapital allocation, both received in mid-1976.

LCPDFAugust, 1976

ANNEX 4Page 1

BOLIVIA

APPRAISAL OF A SMALL MINING DEVELOPMENT PROJECT

DECLARATION ON POLICY REGARDING CREDIT OPERATIONS

(Ap.proved by the Board of Directors ofBanco Minero de Bolivia on )

The purpose of this declaration is to set forth the aims andpolicies of the Banco Minero de Bolivia, hereinafter referred to as "theBank" and to complement the general principles laid down in the Statutesapproved by the Board on and published by Decree-Law No.

_________ _ of_ of

T. Aims and Operating Criterion

1. The Bank will cooperate in the economic and social development ofBolivia by providing technical and financial assistance for the developmentand proper management of the mining activities in the private sector, in orderimprove productivity and ensure rational exploitation and utilization ofnonrenewable resources, with the exception of petrochemicals. The Bank willgive due consideration to the general plans and priorities of the centralGovernment for promoting the growth of the country's mining sector.

2. Although the Bank's main field of activity will be the promotionand financing of the production and marketing of minerals, it will alsobe permitted to finance the necessary infrastructure, including storagefacilities and regional concentration plants for improving the contentof the minerals. The Bank shall refrain from owning such infrastructure,except for the storage and other facilities required for the marketing ofminerals.

3. The Bank will place emphasis on cooperating with small miningenterprises and mining cooperatives through supervised credit. This willnot exclude the financing of projects of mining ínstitutions or privatemedium-size enterprises in order to implement the Bank's main purpose.

4. For the time being, the Bank will refrain from investing capitalin any enterprise and will operate mainly in the following fields:

(a) Extending of short-term (up to 18 months), medium-term (upto 5 years) and lorg-term (normally up to 10 years but inexceptional cases up to 15 years) loans to finance and, inspecial circumstances, to refinance capital goods and services,feasibility studies, and also tools and materials from its ware-houses and working capital for mining production.

ANNEX 4Page 2

(b) Guaranteeing payments for capital goods.

(c) Granting advances against products sold or to be soldand deposited in the Bank's stores.

(d) Providing its clients, either directly or through arrangementswith other institutions, technical assistance in the financingand management of their projects.

5. The Bank will provide medium and long-term loans for investmentin projects appraised and approved by it that show adequate financial andeconomic returns on the incremental investment, plus the capacity to repaysuch loans. It will make short-term loans for operating capital, prefer-ably in conjunction with investment financing, or separately on thebasis of an acceptable mining production plan. The Bank will cooperatewith qualified small mining enterprises in the financing of feasibilitystudies for development projects.

6. The Bank will pay particular attention to the overall trend ofmining development and to the cooperative form of ownership and to thisend will coordina_e or cooperate with special organizations and miningresearch institutes and with other financial institutions, for the promotionof advanced technology systems to increase productivity and ensure rationalutilization of mineral resources.

II. General Principles Governing Loans

7. The Bank will make financial decisions solely on the basis of aninvestment criterion, and will provide financial assistance only to thoseclients whose projects are financially sound, technically feasible, econo-mically justified and compatible with the national priorities for miningdevelopment.

8. The financial comnitments in whatever form, including loans andguarantees, which the Bank may make to a particular client will not normallyexceed any of the following percentages:

(a) 90% of the cost of the project or program;

(b) 25% of the Credit Department's equity (paid-in capitaland uncommitted reserves).

9. All the loans financed will be fully guaranteed. Mineral reserves,verified by the Bank, would be acceptchle as collateral.

10. The Bank will promote joint operations in conjunction with otherinstitutions, either local, foreign or international, for the financing ofprojects whose requiremenls exceed the Bank's capacity.

ANNEX 4Page 3

11. The Bank will not assume management responsibility in the enter-prise it assists. Under exceptional circumstances and only if the Boardso resolves, such action may be required to protect its financial interests.The Bank will seek to divest itself of management and direct control as soonas appropriate.

12. The terms of the loans and guarantees furnished by the Bank willbe consistent with the life of the assets financed or guaranteed and withrealistic cash flow projections for the project.

13. The Bank will permit refinancing of the loans due only whenspecial circumstances so warrant and only following a specific resolutionof *he Board to such effect.

14. The Bank will ensure that in addition to its financing, adequateresources are available to cover all the costs including current expendituresfor com.pleting the project.

15. The Bank will require its borrowers to provide and maintain adequatesecurities, to maintain records and to keep accounts in accordance with properand accepted accounting practices and to furnish any information on theiroperations and accounts which the Bank may consider desirable. The Bank willensure its right to inspect the projects and other operations and accounts ofthe enterprise. Commercial information furnished by applicants or clientswill be held confidential.

16 In order to ensure adequate health and safety standards of itsminíng projects and to improve general working and living conditions of miningworkers, the Bank will include appropriate provisions in its loan agreementsand, subsequently, assure their compliance.

III. Financial Policy

17. The Bank's financial policy will be designed to enable it to meetits obligations on schedule at all times and to obtaín the profit marginneeded, as a ininimum, to cover its operating costs, build up adequate reservesand maintain the value of its capital.

18. The rate of interest, commission and other charges will be determinedby the Board, from tíme to time, to ensure proper implementation of the estab-lished financial policy. If the interest rate and other charges regulated bythe Government do not ensure an adequate income, the Bank will request theGovernrment to make up the deficit.

19. The Bank will write off uncollectible debts, establish adequateprovisions to cover estimated losses and build up contingency reserves to alevel consistent with establíshed financial practices. Its net annual profit,after deduction of reserves required by law and the contribution to the BankEmployees' Fund, will be applied first to such provisions and reserves forcontingencies and the balance to establish other reserves and to inerease thecapital.

ANNEX 4Page 4

20. The Bank will maintain a satisfactory balance between maturitiesof its own obligations and those of the loans and guarantees extended.

21. Within its statutory limits on overall indebtedness, the Bank shallrefrain from incurring debts In excess of four times the amount of the CreditDepartment equity (share capital and unimpaired reserves). Debts shall beconsidered to include guarantees and bills of exchange to the extent they aredrawn-down and outstanding.

22. The Bank shall not assume exchange risks on its borrowings whichare repayable in foreign currencies; it will pass such risks on to itsclients or adopt other measures to cover them.

23. The Bank will maintain proper accounting records to reflect itsoperations in accordance with sound and generally accepted practices. Itwíll engage independent and qualified public accountants to audit itsbooks and certify the accounts at least once a year.

24. The Bank may undertake the management of special funds receivedfrom the Government, but only on the condition that, in the Board's opinion,such activity will not impair the Bank's financial and administrative abilityto attain its main objective of promoting, developing and financing produc-tiv7e mining activities. Such funds will be accepted and managed by the Bankfor the Government's account at an appropriate commission.

IV. Organization and Personnel

25. The Bank will strive to develop and maintain a solid and well-balanced organization, management and technical staff capable of appraisingtnc? financíng proposals put before it, assisting it3 clients in the formula-tion and execution of their projects and supervise the loans. Special andcontinuing efforts will be made to adjust the internal working methods andto train personnel at all levels to adapt them to the growing task of theBank in the mining sector.

26. The Bank's personnel will be hired and promoted solely on thebasis of their ability and pertinemt professional knowledge.

V. Revision of Policy

27. Any proposal to revise this declaration on the Bank's financial andoperating policy shall be considered by the Board only after each of itsmembers has been given sufficient opportunity to study and comment on theproposal. The affirmative vote of at least two-thirds of the Board membersentitled to vote will be required for approval of any proposed revision.

BOT lIVIA

i4PPFLSAI, CF A SMNLL IMIWrIG DFVEMOP`T1 PROJECT

j-G,OLI,: OROr.NTZATviO?N DIAGRAM - OFFICE OF TEE INVE1MIORY OF SMATLL MIES

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BOLIVIA

SMALL MINzING DEVELOPXENT PROJECT

Assistance to GEOBOLForeign Content (US$ '000)

1976 1977Item Total Item Total Total

1.0 Survey of Small mines

1.1 ExpertsTechnical (12 months) 20 20Organizational (12 months) 20 20Passages & Varicus 10

50 40 901. 1.2 Machinery & Equiplment

Diamong Drills: surface (2) 400undérground (2) (

Compressors (2) 40Percusasion Drills (2) 160Workshop Equipment 80Jackleg Drills (6) 10.oPiping and Tubing 10Hose 9Vehicles 5Geophysical Equipment 15 36.8Camping Equipment 25 5Office Equipment 30Drawing Equipment 5Spares & Tools 20Tubes & Couplings 10 10Radio Spares 10

1.3 Other 858.8 71.8 930.6Price Variation 60 20Other Purchases 13.2 13.2

73.2 33.2 lo6.4

2.0 Technical Assistance Unit

2.1 Experts,,ploitation (12 months) 20 20Industrial (12 months) 20 20Epenses 10

50 40 90

2.2 Machinery & EquipmentTechrnical Equipment 30 10Vehií les 40 40Camping Equipment 20Radio Equipment 15 10Security Equipment 7' 112 60 172

2.3 Other (includingP-ice Variation) 30 10 l0

3.0 Mineral Laboratory

3.1 ExpertsChemical Analysis (6 months) 12.0Instrumental Analvsis (6 mas) 12.0Other according to needs

(12 man-months) 24.0Expenses 10.0

58 58

3.2 Machinery and EquipmentFor Crushing and sample prep. 12.5 23.4Small Equipment for Crushing 4.7 21.5Industrial Equipment 29.0 62.5Small Equipment for Analysis 12.1 41.2Glass Material 16.5 24.2Reactives 14.0 21.4Office Equinment - 38.3Clothings 0.5 0.5

89.3 233.0 322.3

3.3 Other (including pricevariatíons) 23.9 23.3 47.2

TOTALS 1,287.2 569.3 1,856.5

LCPDFSeptember 1976

A1NIiX 6 b)

BOLIVIA

SMALL MININTG DEVELOPMENT PROJECT

Assistance to GEOBOLLocal Content (Pesos '000)

1/ 1/1976 1977 TOTAL

1.C Personnel Services 5,108 7,fing 12,71íTechnical & Administrative (incl.Social Provisions) ___

2.0 Other Services 3,376 6,384 9,760Operating CostsConstruction and Rent

3.0 MIaterials and Supplies 416 2,168 3,584Office and General __ _ -21835

4.0 £ouprcnt & Ntachinery 314 4,778 5,092

5,0 Otjher 124 158 282Cont.inogencies S Price Changes

Totals 10,338 21,096 31,434

(US$1,571.7equivalent)

1/ Tentative allocation.

LCPDFAugust, 1976

ANNEX 7

BOLIVIA

APPRAISAL OF A SMALL MINING DEVELOPMENT PROJECT

PLANNING ASSISTANCE TO MMM - COST ESTIMATES(in US$

IBRD MMM TOTAL

I. PERSONNEL

Program Director (3 years) - 18,000 18,000Planning Assistant (3 years) - 14, 4 00 14,400Planning Assistant (3 years) - 14,400 14,400Planning Engineer (3 years) - 14,400 14,400Economist (3 years) - 14,400 li,400Expert (short-term) (12 months) 60,000 - 60,000

(uS$5,o0o per month)Experts (residents) (,5 years) 236,000 - 236,000

(US$4,0o0 per month)Secretary (3 years) - 9,000 9,000

Sub-Total 296,000 84,600 380,600

II. TRAVELING EXPENSES

Expert fares 10,435 - 1o,435Internal travel.ing expenses - 4,000 4,000

Sub-Total 10,435 4,000 14,435

III. TRAINING PROGRAMS OUTSIDE THE COUNTRE

5 Project Economists (one year) 30,000 - 30,0003 Mining Engineers (one year) 18,000 - 18,0002 Geological Engineers (one year) 12,000 - 12,0001 Metallurgical Engineer (one year) 6-000 _ 6,oo

Sub-Total 66,000 - 66

IV. TRAINING PROGRAMS IN BOLIVIA

Training program in Bolivia - 15,000 15,000Equipment for the progran 15,000 - 15,000

Sub-Total 15,000 15,000 30,000

V. OFFICE EQUIPMENT AND MATERIALS

Materials and supplies 15,000 5,000 20,000(cables, telephones, books, etc.)Purniture - 5,000 5,0002 Jeeps 15,000 - ií5,oooEquipment 600 - 600

Sub-Total 30,600 10,000 4o,600

TOTAL 418,035 113,600 531,635

Contingency -51,215-1 0,088 62.3n3

GRAND TOTAL (Program for 47l.250 122,688 593,9383 years)

1! Increased by US$19,775 to match the final contract cost with HIID.

LCPDFAugust, 1976

ANNEX 8

BOLIVIA

APPRAISAL OF A SMALL MINING DEVELOPMENT PROJECT

CADASTRAL SURVEY: COST ESTIMATES(in US$)

IBRD MMM TOTAL

1. ADMINISTRATION

Director 14,400 14,400Mining Engineer 12,000 12,000System Engineer - 13,200 13,200System Expert (6 months) 24,000 - 24,000Cadastral Experts (2) (6 months) 48,ooo - 48,000Secretary - 7,200 7,200

Sub-Total 72,000 46,800 118,800

2. TASK FORCE

Chief Engineer (12 months) - 9,600 9,600Topographers(2) (12 months) - 14,400 14,400Workmen (4) (8 months) - 6,400 6,400Chauffeurs (2) (12 months) - 7,200 7,200Draftsmen (2) (4 months) 6,400 6,400

For 5 Task Forces 220,000 220,000Traveling expenses and others -8,000 80,000

Sub-Total 300,000 300,000

3. TRAINING

System Engineers (8 months 2,400 2,400

Sub-Total 2,400 2,400

4. EQjIPMENT

Instruments 200,000 - 200,000Computing Terminal 150,000 _ 150,000Plotter 50,000 - 50,000

Sub-Total 400,000 - 4oo,000

5. OTHERS

Furniture - 3,000 3,000Materials and Supplies 1,500 500 2,000Vehicles and Maintenance - 8,0oo 8,000

Sub-Total 1,500 11,500 13,000

GRAND TOTAL (2-year program) 475,900 358,300 834 200

LCPDFJune, 1976

ANNEX 9

BOLIVIA

APPRAISAL OF A SMALL KMNING DEVELOPMENT PROJECT

BAMIN: TECHNICAL ASSISTANCE - COST ESTIMATES

Local Foreiígn Total.

].. Project Ev-lation (12 raan rmonths) - 72,000 72,00,02. 1Proje ct 0úaivation (12 rian ronths) -h,000 h,48,VOO3. Management Control System 96,000 96,0004. (2 full-time employees -24 man-months) -

4. Occasional specialists (4 man-months) - 16,000 16,000

Sub-Total 232,000 232,000

-Program Director 12,000 - 12,000'4iJriing Ei-iineei' .10,000 - 10,000

Economist (2) 19,000 -1 19,OOOAccountants (5) 40,000 _ 40,000

- Sub-Total- -- D,-uu S,O0

OTHER

Experts Travel andLivin2 Expenses 1,000 34_2OO 35,200

Materíals 500 500 1,000Vehicles 500 - . 500Equipment (Calculators, etc.) 3,000 9,300 12,300i,Iiscellaneous (including coiitingencies) - 4,000 4,000

Sub-Total 5,000 48,000 53,000

TOTAL 86,000 280,000 366,000

LCPDF.June, 1976

ANIE 10

BOLIVIA

SMALL !ttNING DEVEOPMN1N PROJECT

Estimated Schedale of Disbursemnts for the Proposed Loan

IBRD Fiscal Year and End of OuarterMINI' Technipal Assistanoe Cumulative

BA / GEOBOL Plajá( Caiatza BAIN Total Total

(in lTS$ 000' or equivalent)FT 1977

March 31, 1977 - 0.30 - - 0.13 0.43June 30, 1977 0.10 0.30 _ 0.10 0.05 0.98

Sub-Total 0.10 o.60 _ 0.10 0.18. 0.98

FY 1978

September 30, 1977 0.25 0.40 - 0.20 0.05 1.88December 31, 1977 o.55 0.40 0.08 - 0.05 2.96March 31, 1978 0.70 0.30 - 0.18 - 4.14June 30, 1978 0.19 0.08 - - 5.31

Sub-Total 2.4o 1.29 0.16 0.38 0.10 4.33

FY 1979

September 30, 1978 0.90 - - - - 6.21December 31, 1978 0.90 - 0.08 - - 7.19March 31, 1979 0.90 - - - - 8.09June 30, 1979 0.90 - 0.08 - - 9.07

Sub-Total 3.60 - 0.16 _ - 3.76

PF 1980

September 30, 1979 0.90 - 0.03 - - 10.00December 31, 1979 0.90 - - - - 10.90March 31, 1980 0.70 - -- - 11.60June 30, 1980 0.40 - 12.00

Sub-Total 2.90 - 0,03 _ _ 2.93

TOTAL =2.00 =1.8=i2 =°=aQ3- Q.4=8 0.^,8 12.00

I' Adjusted from projected Balance Sheet to reflect delays in loan approval./ Excludes the initial US$100,000 to be paid under IDA Credit 455-Bo.

LCPDFJune 1976

IBRD 1016OR

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