Post on 14-Apr-2018
transcript
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Financing the Mozal Project
Presented By:
Vijay Krishna
Praful Anchaliya
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Country Profile
Gained its freedom from Portugese
in 1974 after a civil war broke out
between the Frelimo & Renamo
The two sides signed a peace accord in 1992
Post this, the Mozambican Govt. made constant efforts to improve themacroeconomic situation & encourages the private sector investment.
The GDP and FDI were increasing & the inflation decreased. But still,Mozambique remained a poor underdeveloped country
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Investment opportunity
Pros
GDP growth
0.5% - growth rate (1980-91)
6.5% - growth rate (1992-96)
Risk rating from 7.6 14.0
Power tariff
Labor cost
Cons
Legal & approvalsystem
Openness to trade
Pessimistic approachof potential investor
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Challenges faced
No existing infrastructure
Unskilled labor
Logistical challenges
Health issues
Expectations of world standards was unlikely consideringthe above issues
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About Mozal
It began as consortium of three entities naming Eskom,Alusaf & Mozambican Govt.
To built Aluminum smelter due to potential availability ofhydroelectric power
The project worth was estimated at around US$ 1.4
billion
Its a low cost smelter
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Essentials for the project
Alumina They hedged the alumina for 25 yearsfrom Billitons, Australia
Electricity Supply of electricity was alsocontracted for 25 years from Eskom &Mozambican Govt.
Labor & Misc
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Who is involved?
It was a joint venture between Genecor & IDC
Genecor became the worlds fourth largest producer of aluminum afteracquiring Billiton from Royal-Dutch shell in 1994
Alusaf(Subsidiary of Genecor) and the Industrial developmentcorporation of South Africa each owned a share of 25%
IDC-Government owned development bank in SA. There goal was to
promote entrepreneurship and financing private sector enterprises
In 1996-They constructed a 1.8 billion Hillside smelter
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Who is involved & what ishappens next?
It would appear along the Maputo corridor, a majortrading route between Johannesburg & Maputo
Estimated time: 34 months+6 months to reach fullcapacity
The average capital cost for any smelter was $4850per ton but the Mozal Project had an overall capitalcost of$4750 per ton
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Financing
Sources of Fund Amount (inmillions)
Percentage
Cash during start-up 35 2.56%
Subordinate debt 150 10.98%
Equity 500 36.63%Senior debt 680 49.81%
Total 1365 100%
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Future of Project
Currency denomination: US dollar
Sponsors are potential buyers
The plant was targeted for an industrial free zoneexempting it from paying tax
Chase-Manhattan corp-trustee responsible forcollecting sale proceeds, paying debt holders,remitting operating expenses & paying dividends
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Average production cost $1510 per ton(Excluding depreciation &financing charges) but Mozal projected breakeven price $1493 per
ton(Including depreciation & financing charges) in the 4th year andfurther declining to $1070 in the 11th year
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Profitability
Selling price of the metal is higher than the Mozalcost
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About IFC
A member of World bank group founded in the year 1956and owned by 172 member countries
Invests in private sector for social cause like reducingpoverty, increasing the living standards etc.
Provides multilateral source of debt and equity forprivate sector projects
The loans provided by IFC arent backed by thesovereign funds
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They mainly concentrate on the green fieldprojects
Financial ROR-projects IRR was based on theconstant price projections considering interest &tax
For the appraisal of Mozal took a tenure of threemonths (Jan March, 1997)
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Anticipated Outcomes
Increase in:
GDP by $157 million (9% compared to 6.4%)
Exports by $430 million
Net foreign exchange by $161 million
It would generate 5000 construction jobs
Provide critical infrastructure and investment along withMaputo corridor
Assess environmental and social impact
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Recommendations
IFC should immediately seize the opportunitypresented in the financing of Mozal.
Investment in the project on the part of the IFCwould generate valuable social, financial, andeconomic benefits
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Recommendations
The use of the South African power supply, theobtaining of alumina from Australia, thetechnology from France, and the holding of salesproceeds in a foreign bank account provide an
excellent structure that will alleviate sovereign,expropriation, and operating risks.
The Mozal Project has qualified sponsors: at $78billion and a conglomerate such as MitsubishiCorporation has signed in as a strong candidatewith infinitesimal chance of default.
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Updated status
Overall Project status: Delayed from due date
Scheduled: Considering prior status it is now likely to
be delayed
Budget: Budget allocation has been done adequately
Project Risk: There has been a fluctuation from thestatus of being No risk to some risk as there aredelays in infrastructure of 4 unitsw
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Thank You