world bank document · is do_cment ba a restico dbution ad may be ued by recipiets ony im the...

Document of

The World Bank

IFO OMCIAL USE ONLY

Report No. 5712

PROJECT COMPLETION REPORT

BOLIVIA - SMALL SCALE MINING DEVELOPMENT PROJECT(LOAN 1331-BO)

June 17, 1985

Industrial Development and Finance Division ILatin America and the Caribbean Projects DepartmentI is do_cment ba a restico dbutIon ad may be ued by recipiets ony im the pezfoumaee of

tdeir oEfficd dutes lu mtas may nu otherwise be dscosed without Word Bank authoriaion.

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CURRENCY EOUIVALENTS

Date Sb per US$1.

11/76 - 10/72 20.0011/79 24_5102/05/82 43.1811/05/82 196.0011/17/83 500.0004/12/84 2,000.0008/24/84 2,000_00(for essential imports)

5.000.00(for all other foreigntransactions)

weighted average in 1982: 128-20weighted average in 1983: 221.34

ACRONYMS

BAMIN Banco Minero de BoliviaBISA Banco Industrial S-A.BCB Banco Central de BoliviaCOMIBOL Corporacion Minera de BoliviaDEG Deutsche EntwicklungsgesellschaftENAF Empresa Nacional de FundicionesERR Economic Rate of ReturnFNEM Fondo Nacional de Exploracion MineraGEOBOL Servicio Geologico de BoliviaGOB Government of BoliviaTDB Inter American Development BankITC International Tin CouncilHMM Ministry of Mines and MetallurgyNAMM National Association of Medium MiningUNDP United Nations Development ProgrammeUSAID United States Agency for International Development

FOR OMCIAL USE ONLY

PROJECT COHPLKfON REPORT

BDLVIA - SMAIL SCALE INN DEVELOPIET PROJECr

(LOAN 1331-DO)

TALE OF CONTENTS

Page No.

Preface ............... IRasic Data Sheet ............... ......................... . iiHighlights . ... ..............._._. _____ iv

I. INTRODUCrION ................ 1B arkground ............... IEconomic and Sectoral Environment .............................. 1

II. PROJECr DESCRIPTI0 AND O_ECfIVES ................................_ 2

III. TIPLEMENTATION OF THE CREDIT COMPONENT _ . _ 4Project IW pl menttation ...................... _4Subprojects Financed Under the Loan ............................ 5Impact and Current Status of Subprojects ....................... 6

TV. INST-IUTW SAL PERFORMANCE AND DEVELOPMENT . . 6Ceneral .. 6Resource Mobilization and Operations........... ........ 7Management, Staffing and Orgxnization........... ........... 8Systems and Procedures. qFinancial Performnee . .10Loan Portfolio .. 11

V. THE TECHNICAL ASSISTANCE COMPONENTS .............................. 12

wI. CONCLwSIONS LESSONS LEARNED AND RECOMMENDATIONS .13

ANNEXES

Annex I Financial DataTable 1 Actual and Projected Balanee Sheet .16Table 2 Actual and Projected Profit and Loss Statement 17Table 3 Finaneial Ratios .18

Annex 2 Lending Operatons .19Annex 3 Portfolio Performance

Table 1 Loan Portfolio, Arrears and Provisions ............ 20Table 2 Principal affected by arrears ....... 21Table 3 1983 Arrears by Agencies and Funding Sources. 22

Annex 4 Subproject DataTable la Subprojects financed under Loan (above freelimit) 2 .23Table lb Subprojects financed under Loan (below freelimit) 24 .24Table 2 Breakdown of subprojects by size, investmentcost. etc ....... 25

Annex 5 Description of three mining subsector categories ........... 26Anmex 6 Technical Assistance Component of Credit 455-BO and

Loan 1331-BO ............................................... 28Anmex 7 Consultant report on selected snbproject visits ............ 36

ATTACHMENT Borrower's Comaents .38

This document has an reswtred distnibution and may be used by reipients only in the performance OfL their oficia dutus. Its contents may not otherwise be disodbsed without World Bank authorization

PROJECT COMPEETION REPORT

BOLIVIA - SMALL SCALE MINING DEVELOPHENT PROJECT

(LOAN 1331-BO)

PREFACE

The following is a Project Completion Revort on Loan 1331-DO. Thisloan of US$12.0 million was approved in September 1976, signed in October1976 and disbursed by December 1982.

The Bank's Latin America and the Caribbean Projects Department hasprepared this report on the basis of information gathered during a mission toBolivia in July 1984. The report presents a factual review of the financialinstitution involved, its institutional development over time (including itscurrent status), and its utilization of the loan proceeds. Comments receivedfrom the Borrower have been reflected in the report_

This project has not been audited by the Operation EvaluationDepartment.

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PROJECr COMPLETION REPORT

BOLIVIA - SMALL SCALE 4ININC DEVELOPMENT PROJECT

(LOAN 1331-BO)

BASIC DATA SHEET

Key Project Data

Appraisal ActualItem Expectation (USS millions)

Loan Amount USS12.0 million 12.0Disbursed 11.8Cancelled 0.2Repaid to 3/31/84 3.3Outstanding to 3/31184 - 8.7Financial Performance Improving StationaryInstitutional Performance Significantly improving Insignificantly

improving

Other Project Data

Item Original Plan Revisions Actual

First mention in files - 01/03/75Government's Application - - 04121/75Negotiations 08/00/76 - 08/00/76Board Approval 09117/76 - 09117/76Loan Agreement 10/15/76 - 10/15/76Effectiveness 07/15/77 - 07/15/77Completion of Commitments 12/31/79 - 12/31/81Loan Closing 12/31/80 - 12/31/82Borrower GOBExecuting Agency BAMIN, GEOBOL,

FoJMFiscal Year of Borrower ,Jan.1-Dec.31

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Mission Data

No.of No. ofItem Date Weeks Persons Nanweeks Date of Report

Preparation 03/75 2.0 1 2.0 04/18175 &05/16/75

Preappraisal 08/75 3.0 2 6.0 09/19/75Appraisal 12/75 1.2 7 8.4 09/01176Postappraisal 02/76 1.0 3 3.0 UnknownPrenegotiation 08/76 1.0 1 1.0 08/11/76Total 20.4

Supervision 121n6 1.5 1 1.5 12/23/76Supervision 03177 1.0 1 1.0 04/15/77Supervision 07/77 1.5 1 1.5 08/19/77Supervision 05078 1.0 1 1.0 06/22/78Supervision 11/78 1.6 2 3.2 12/19/78Supervision 06/P9 1.5 1 1.5 07/19/79Supervision 11179 1.3 1 1.3 12/05/79Supervision 04/80 1.0 1 1.0 04/16/180Supervision 08/81 1.3 1 1.3 09/09/81Supervision 10/82 0.5 1 0.5 10/26/82Supervision 04183 0.4 2 0.8 08/30/83Completion 07/84 1.7 4 6.8 09/28/84

Total 21.4

FOLLOW-ON PROJECT

A proposed project involving a loan of US$20 million divided equally betweenBanco Industrial S.A. and Banco Minero de Bolivia was appraised in 1981 buthas been delayed pending agreement between the Republic of Bolivia and theInternational Monetary Fund.

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BOLIVIA - SMALL SCALE MINING DFVELOPMENT PROJECT

(LOAN 1331-BO)

RIGRlLIGRTS

1. This project, the Bank's third mining operation In Bolivia,assisted the development of small scale mining by: (a) financing to thenational mining bank, Banco Winero (BAMIN), for the preparation, developmentand exploitation of specific small mining subprojects through subloans(including technical assistance to improve institutional development,especially management control and project appraisal capability);(b) assistance to the National Geological Service (GEOBOL) in continuing asurvey and preinvestment studies of small mines (which bad started as part ofan earlier Bank credit) and in strengthening GEOBOL's mineral analysiscapacity; and (c) technical assistance to the Ministry of Mines and'Metallurgy (MM) for policy plaaning and a cadastral survey (including thetechnical assistance component of a previous Bank mining operation, Credit455-RU, the finance component of which had been evaluated earlier) (para2.02).

2. The overall impact of BAMIN's subloans, which accounted for themajor portion of the Rank loan, has been satisfactory. The majority ofsubborrowers utilized the loan resources efficiently to modernize and/orexpand their mining operations (para 3.10). However, because of a lack ofproper advice, technical assistance and followup, many small gold miningoperations utilized inadeouate processing and concentrating technology, whichresulted in poor recovery levels and, thus, in substantial losses of goldreserves to the Government of Bolivia. These subprojects, located in theremote Tipuani area, absorbed about 30Z of all subloans amounts (para 3.13).

3. While the results at the subborrower level have met the project'sgeneral objectives, one important obiective has not been achieved: BAMIN'sdevelopment into a more modern, efficient banking organization for Bolivia'smining sector. BAMIN's overall performance has been weak throughout theproject cycle. High management turnover, insufficently qualified staff andpolitical factors have hindered its operational capabilities. Itssupervision activities and technical assistance to borrowers continue to beinadequate (para 4.15). In addition, BAMIN's financial performance has beenpoor: because of several devaluations and unsatisfactory loan collection,its equity has been eroded substantially (paras. 4.21 - 4.25). As a resultof these combined factors, BAMIN's resource mobilization capability has notbeen developed, limiting its ability to carry on efficiently and to expandits lending operations (para 4.08). However on the positive side, there havebeen slight improvements in RAMIN's organizational structure, externalauditing, accounting Procedures and technical appraisal capability eventhough the originally expected standards were not reached.

4. The technical assistance component of the loan was a continuationof the technical asssitance (TA) under a previous wining credit to Bolivia.In their entirety, these components were multifaceted and resulted in amixture of failures and successes. While a good portion of TA under Credit455-30 was satisfactorily implemented, the TA components under Loan 1331-Bobad a more complex conception. Few tangible results were achieved, chieflybecause of unclear project designs, implementation responsibilities havingbeen too widely spread and designed targets having been too long-termoriented. Additionally, and despite considerable Bank supervision, projectimplementation was influenced by a lack of political continuity and overallinstitutional weaknesses (paras. 5.01 - 5.05).


BOLIVIA - SMALL SCALE MINING DEVELOPMENT PROJECT

(LOAN 1331-RO)

I. INTRODUCTION

Background

1.01 This project completion report reviews Loan 1331-BO, which providedfinancing to assist the development of small scale mining in Bolivia andtechnical assistance (TA) to several institutions involved in the miningsector. The report also includes a review of the TA components of Credit455-BO.

1.02 Bank Group involvement in Bolivia's mining sector goes back to1972, at which time the investment priorities, as set out in the Mining andMetallurgical Sector Report (PI-14), provided a basis for a Bank lendingprogram. A first USS6.2 million IDA Credit (455-RO), which was made in 1974,and which is fully disbursed, helped the Government in mining policy andadministrative areas and assisted in financing medium mining enterprisesthrough the private Banco Industrial S.A. (BISA). A followup sectoralmission, which visited Bolivia in early 1976, continued and updated thefindings of the previous sector report. During the same year, two miningcredit loans were made: a USS10.0 million loan (1290-BO) through BISA tofinance medium mines and also industry; and the loan under review (1331-BC)of US$12 million to provide supervised credit to small mining enterprisesthrough the Bolivian Mining Bank (BAMIN), and to finance technical assistanceand equipment for the Ministrv of Kines and Metallurgy (NMW) and the BolivianGeological Service (GEOBOL). In 1979, another IDA Credit (940-BO) for USS7.5million was made to assist the National Mineral Exploration Fund (FNEM), inreducing the financial risk of exploration and mining developmentactivities. The loan under review for small mining was thus an integral partof a continuous assistance program for Bolivia's mining sector initiated inthe 1970s.

Economic and Sectoral Environment

1.03 Mining is one of the most important sectors in Boliviat s economybecause of its significant contribution to the country's exports and to thefiscal revenues of the Government. In 1992, mineral exnorts, excludinghydrocarbons, were US$324 million, or 43.4% of total exports, and miningtaxes amounted to 15% of the total fiscal revenues of the CentralGovernment. The sector's share in GDP is rather low, 5.7% in 1982-partlydue to the inclusion of metallurgical activities %ithin the industrialsector-and it has been falling in recent years as a result of depressedmining conditions.

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1.04 The sector's contribution to the economy normally varies with thefluctuations of international metal prices. Over the past few years,however, depletion of ore reserves in the existing mines, lack of developmentof new reserves and discriminatory taxation -coupled with the slower growthin industrial countries and Bolivia's overall economic instability-haveresulted in an actual decline of production of major minerals and reduced therelative sector contribution even when prices were favorable. As aconsequence of the problems in the sector, investment has been grosslyinadequate for the appropriate development of existing mines and for newexploration, while mining profits, instead of being reinvested, often havebeen channeled to other sectors.

1.05 Mining producers in Bolivia are classified in the following threemain categories:l / (a) Corporacion Minera de Bolivia (COMIBOL), operating14 large a..d medium-sized state-owned mining complexes; (b) about 24privately owned medium mining companies; and (c) between 2,000 and 4,000small mines operated either privately or by cooperative arrangements.COHIBOL's mining operations contribute to about 65Z of total mineralproduction and 35% of sectoral employment; the medium mines are respons'blefor 25-30% of the national mineral output and 9% of employment, while thesmall mines contribute to 10-15% of national production and 56% ofemployment.

II. PROJECT DESCRIPTION AND OBJECTIVES

2.01 Bank lending for Bolivia's mining has been oriented toward mediumand small mines with economic Potential and toward the building of financialinstitutions which could provide supervised credit and technical assistance.The main goal of the Rank program for the small mining sector was a gradualtransformation of small mining units with development potential intoefficient mining enterprises. The specific objective of the loan underreview was the development of preselected small mining operations through theprovision of supervised credit with complementary technical assistance. Inorder to ensure availability of development credit and technical assistanceto small miners, and to induce improved sectoral policies, the project aimedat:(a) financing and strengthening BAMIN, the selected credit intermediary;(b) upgrading the technical capabilities of GEOBOL; and (c) providingassistance to MMM in sectoral planning, including a cadastral survey.

2.02 Specifically, the project originally consisted of finanzing theforeign exchange costs of three complementary components:

(a) A credit program of US$9,000,000 equivalent to assist RAMINin financing feasibility studies and subloans for thepreparation, development and exploitation of small miningprojects;

(b) Assistance to GEOROL of US$1,900,0OO to:

1/ For a more detailed description of these three categories, see Annex 5.

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(i) continue the survey of small mines throtgh financing ofrelated equipment needs and foreign experts, and tostrengthen GEOBOL's capability for preparingprefeasibility studies of mining projects and forproviding comprehensive technical assistance to BAMIN'scredit beneficiaries; and

(ii) strengthen its mineral analysis capacity.

(c) A technical assistance program of US$1,100,000 composed of:

(i) expert assistance to improve the planning capability ofM4;

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

(iii) consulting services for BAMIN to improve its projectappraisal and supervision capability and its managementcontrol system, including accounting.

2.03 The initial allocation of loan funds was slightly changed when, inearly/mid-1981, it became apparent that, due to several constraints anddifficulties faced in the implementation of the technical assistancecomponents,2 / it was unlikely that the amounts initially allocated for thetwo TA components would be utilized fully. Consequently, taking also intoaccount the speedup of new subloan approvals by BAMIN at that time, the Bankdecided to agree,3/ upon the borrower's request, to reallocate US$1 millionfrom the technical assistance components to the credit component.

The original allocation and the amended allocation of loan fundswere as follows:

Original Amended(USS)

Part A - Credit Component 9,000,000 10,000,000Part B - GEOBOL 1,900,000 1,275,000Part C - Technical Assistance 1,100,000 725,000

Total 12,000,000 12,000,000

2/ Section V provides a detailed assessment of the implementation of thetechnical assistance component.

3/ Bank's letter of 7/24/1981.

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ITI. TMPLEMENTATION OF THE CREDIT COMPONENT

Proiect Implementation

3.01 The loan Faced several initial problems which delayed startupconsiderably. The loan did not become effective until ten months after Boardapproval, on July 1', 1977. The delay was mainly due to personnel changes inthe Ministry of Mines and Metallurgy (4MM). In particular, there were delaysin signing the subsidiary loan agreement (Section 6.01(b)), arranging for theGovernment's payment of the first capital iustallment to RAMIN (Section6.01(c)), and in the selection of consultants for BAMIN's TechnicalDepartment (Section 6.01(h)), the responsibility of which rested with MMM.The closing date had been set originally for December 31, 1980, but had to beextended twice: initiallv to December 31, 1981, / and finally to December31, 1982.5/

3.02 The initially established disbursement percentages (100% of thecost of imports, 60% o goods purchased locally and 35Z of constructioncosts) were intended to result in the Bank financing, on average, 70% of thetotal project costs (the estimated foreign exchange component of miningprojects) and about 80Z of BAMIN subloans. This arrangement was based on theexpectation that BAMIN would finance fewer but larger projects. Since theaverage size of subp.cjects actually financed turned out to be smaller,direct imports were appropriate only in a few cases while, in most cases,imported goods were purchased locally. Thus, the existing loan disbursementprocedures resulted in the Rank financing about 50% of RAMIN's loans, insteadof 80%, as originally intended. Therefore, the Bank revised the disbursementpercentage, increasing it to 80% of RAMIN subloans across the board withoutdifferentiating between local and foreign Purchases (Bank's letter of5/16/1980).

3.03 The first suoproject was approved in November 1978, more than oneyear after effectiveness. Thereafter, loan utilization improved gradually,and, by December 1981, two years after the original closing date forsubproject submission (12/31/79), all funds were committed. Disbursementslagged, partly because of lack of bridge financing, and also because of theunfamiliarity of BAMIN and its small mining clients with Bank standardrequirements for disbursements and subproject appraisals.

3.04 As late as 1979, the pipeline of BAMIN subprojects was still veryweak becauoe the demand for investment credit from small miners had beenreduced becauss of political unrest and uncertainty. Consequently, few loanrequests had been received, and less than USS2 million had been committed bythe end of 1979. By that time, Bank expectations of the loan being fullycommitted by the en.d of 1981-as was then envisaged--were so low that asupervision mission tentatively recommended a partial reallocation of USS3million from the crelit component of the loan to BISA. However, as a result

4/ Bank's letter of September 15, 1980.5/ Bank's telex of Jecember 28, 1981.

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of intensified promotional efforts and BAMIN's special emphasis on goldmining operations, the project pipeline firmed up and commitments in thefirst half of 1980 increased considerably (by about US$4 million), making itthen appear feasible that BAMIN could commit the entire amount of the creditcomponent by the end of 1981. Consequently, the tentative previousrecommendation to reallocate funds from this component was dropped.

3.05 Subsequently, and reversing the previous trend, an increase ratherthan a decrease in demand for BAMIN's subloan funds became apparent. On July24, 1981, the Bank approved a reallocation of US$1 million from the technicalassistance components to the credit component, based upon the difficultiesfaced in carrying out the technical assistance component for MM and GEOBOL(nara. 5.03 and Annex 6), and taking into account the continuous improvementin BAMIN's subproject pipeline. New subloans continued to be approved byBAMIN throughout 1981, and, by the end of that year, the full amount of thecredit component has been committed.

Subprojects Financed Under the Loan

3.06 A total of 40 subloans to private, domestically owned miningestablishments were financed under the credit component, with a total cost ofabout USS13 million, of which the Bank subloans financed US$9.9 million.Twenty subprojects were small (below US$100,000), and subloans for themtotaled US$1.11 million (112 of the total loan). The other subprojects,medium-sized, absorbed USS8.74 million of the Bank subloans (89% of thetotal) and included four which amounted to US$1 million or more.

3.07 Of the total 40 subloans, 28 (or 70% of the total number) were forfinancing new enterprises, while 12 (30x) financed expansions andmodernization of existing mining operations.

3.08 Fifteen subprojects were for tin mining (amounting to 57.1% of thetotal approved subloan amo-unt), 16 for gold (29.5Z of total subloan amount),and the remaining for tungsten, limestone and lead/silver. It should benoted that BAMIN s orientation toward gold mining was not envisaged duringloan preparation. While this change of focus was instrumental in helping tocommit and disburse one third of the loan, it also caught RAMIN off guardwith regard to the policy implications which arose within this area of mining(para. 3.13).

3.09 A complete list of the subprojects financed is presented inAnnex 4, Tables la and lb. A detailed breakdown of subprojects by enterpriseownership, investment cost, and type of subproject is included in Annex 4,Table 2.

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Impact and Current Status of Subprojects

3.10 Based upon a sample of on-site visits to subprojects6/ (privateand cooperative organizations, i cluding small and medium mines producingdifferent minerals), it appeared that most investments financed under theproject were sound and have been carried out successfully. The subborrowershave achieved their basic objectives of modernizing and/or expanding miningactivities and strengthening their overall operations. 7 /

3.11 A few subprojects, however, have faced difficulties such asunforeseen technical problems and implementation lagging behind schedule.This delaying factor has caused higher than anticipated costs and lower thanexpected returns. While these problems are being gradually worked outbetween BAMIN and the borrowers, the subprojects are nonetheless expected toremain basically viable.

3.12 Although. many of the difficulties could not have been foreseen atthe time of the various subproject appraisals, some of them could have beenavoided by a more thorough subproject appraisal on the part of BANIN. Itshould be noted that several of the smaller operations involved were able tosurvive only because they were bought by medium mining companies.

3.13 In addition, most of the gold mining subprojects which operate inthe form of cooperatives with up to 100 partners, utilize Inadecuateprocessing and concentrating technologies, resulting in a high level oflosses (estimated by different sources as amounting to 40-502 of therecoverable mineral amount). BAMIN had not, at the subproject appraisalstage, provided the necessary technical advice for the selection of adequatetechnology, nor has it at a later stage, provided technical assistance toremedy the problem. Since BAMIN is, by law, the only collecting agency forthe gold mining proceeds in Bolivia, a much stronger interest in improvedrecovery ratios should have been expected, which would have resulted in asubstantial increase of gold reserves to the Government.

IV. INSTITUTIONAL PERFORMANCE AND DEVELOPMENT

General

4.01 BAMIN was established in 1936, as an autonomous public institution,to promote mining development in Bolivia. As an agency of MMM, it performstwo major functions: provision of credit and marketing of minerals, bothoriented to the small mining sector. Prior to the loan, BAMIN had a historyof inefficient operations and, in the past, its operations had often beeninfluenced bv political considerations, resulting in the deterioration ofits loan portfolio and its decapitalization.

6/ Twelve subprojects were visited, comprising 30% of the total numberof subborrowers, and 80X of the total subloan amounts.

7/ A separate consultant report includes an assessment of a sample ofsubprojects.

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4.02 In late 1972, the Government decided to rehabilitate BAMIN andasked the Bank for assistance. Over the following three years, the Bankmaintained close contact with RAMIN's management and, as part of the projectpreparation, provided it with technical and administrative advice. As aresult, several steps were taken to strengthen RAMIN's financial position andorganization. However, in spite of substantial improvements since 1973,further financial and administrative adjustments were needed before BAMINcould be able to establish itself as a financially sound and efficientdevelopment credit institution. It was therefore agreed, for projectpurposes, that BAMIN could start serving in a limited role as a channel forBank funds, mainly because, with some technical assistance, BAMIN wasexpected to gradually develop satisfactory appraisal standard for miningsubprojects (Annex 6, para. 24). Considering the unique role of BAMIN in thesmall mining sector and the Government's determination to strengthen BAMIN'sdevelopment banking function within the framework of the mining developmentpolicies, the institution-building program was a key aspect of the project.

4.03 Following the Bank's involvement in the small mining sector throughthis loan, BAMIN's performance began to improve slightly. Banking andmineral warehousing functions were separated, long-term investment loans wereadded to working capital and mediuw-term equipment financing, and externalaudit and better appraisal standards were introduced.

4.04 However, in spite of some progress, the institution remainedundercapitalized, the loan portfolio continued to be poor, and the bankingfunction remained underdeveloped while BAMIN's management concentrated mainlyon buying and selling minerals through the trading department. At present,BAMIN still needs to make substantial improvements, particularly in reducingits loan arrears (para. 4.27), and in upgrading its financial planning andcontrols (para.4.17); significant efforts toward institution-buildingcontinue to be required.

Resources Mobilization and Operations

4.05 As a result of Loan 1331-RO, BAMIN was able to provide term lendingto the mining sector, in addition to working capital loans. Transactionswith medium-scale mining establishments have consequently increased. Thetotal lending orogram today includes loans for working capital, productionequipment and mining development, each with different terms and conditions.

4.06 During the period 1977-1981, BAMIN made about 2,700 loans forb$ 715 million. Most of these loans were small, about 46% were in amountsbelow $b 50,000 and only 5.2% exceeded $b 1.0 million. About 25% of theloans were for working capital, 69% for production equipment loans, and 6%for development project loans. About 90% of all loans were made to the smallmining subsector, including cooperatives, accounting for 92% of the totalloan amount; the remaining 8% was absorbed by 270 loans to medium miners. Acomparison within the five-year period shows that the lending pattern andvolume changed considerably, once the Bank-financed subprojects were underway, toward larger subloans with greater emphasis on investment financing.

4.07 As of August 31, 1984, BAMIN had about US$5 million equivalent ofuncommitted resources from credits of Poland and the USSR available for newdevelopment projects, to be utilized exclusively for the purchase ofmachinery and equipment from these countries. In addition, RAMIN, togetherwith other participating financial intermediaries, has access to a US$35million IDB line of credit (rediscounted through the Central Bank) availablefor fixed asset and working capital financing in the mining sector.

4.08 BAMIN's inability to mobilize additional resources stems from:(a) its poor loan recovery practices; (b) the overall deterioration ofcountry economic conditions, which limits the possibility of raising loansfrom foreign commercial banks; (c) BAMIN's own low standing vis-a-visdomestic financial institutions combined with a general lack of domestic termfunding; and (d) statutory limitations which do not allow BAMIN to take termdeposits from its credit and trade departments' clients.

4.09 These constraints are seriously limiting RAMIN's capability tocarry on a continuous-much less increased-lending program, and its creditdepartment has been practically inactive ever since Bank funds werecommitted.

Management, Staffing and Organization

4.10 A reorganization process was started in 1972, upon the Rank'srecommendation, to separate the commercial activities from the bankingoperations, and BAMIN was divided into two operational units, the Trading andthe Credit Departments, with capital resources being separated. In 1981, athird operational unit was created the Finance and AdministrationDepartment, which provides accounting and administrative services to theother two departments.

4.11 As of December 1983, BAMIN employed a total staff of 523 (includingbranches and field offices), of which only 31 were professionals. The CreditDepartment has only four engineers and three economists at present. Two ofthe economists handle the financial and economic snalysis of largersubprojects, whereas small subprojects are reviewed solely by engineers whohave some background in financial analysis.

4.12 The Drofessional staff in La Paz has increased its technicalcapacity, and its performance has been slowly but steadily improving over theperiod of the loan. However, the department's capability to adequately carryout the appraisal and supervision work involved in the loan operations hasbeen constrained by the limited number of professionals, as well as a strongunion inside BAMIN which continues to resist any outside appointments, makingit very difficult to hire new qualified staff and to manage recruitment on aprofessional basis.

4.13 Management turnover has been verv high (BAMIN has had five generalmanagers over the past three years), with a negative impact on staff moraleana on the continuity of personnel and administrative policies.

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4.14 In summary, there have been some improvements in BAMIN'sstaffing and organizational structure, but major difficiencies still persist,and the strengthening of staffing (both quantitative and qualitative) andmanagerial capability as well as managerial continuity continue to berequired.

Systems and Procedures

4.15 Appraisal and Supervision. Considering that hardly any appraisalwork existed before, the quality of BAMIN's subproject appraisals hasgradually improved over the period of the loan. However, some appraisals arestill not fully satisfactory, sometimes failing to address relevant technicalor financial-economic issues specifically. SuDervision is being carried outthrough a special division in the Credit Department. Because of inadequatestaffing and budget resources, supervision activities are seriouslyconstrained. Only four vehicles and five staff were available in the centralLa Paz office for coordinating and partly carrying out field supervision.This existing situation is not compatible with the large loan portfolio underimplementation, and it has resulted in cases in which some borrowers have notbeen visited for more than a year, even though additional supervision staffis available in the field offices.

4.16 Procurement and Disbursement. BAMIN's procurement and disbursementprocedures have been satisfactory.'/ BAMIN requires its clients to obtainquotations from at least three suppliers. Loan funds are disbursed byissuing a check directly to the local supplier or by arranging for directpayment abroad for equipment imported by its clients.

4.17 Financial Reporting. As required under the loan, separatefinancial statements for BAMIN's Credit and Commercial Departments have beenprepared annually. However, such statements have basically been preparedto mechanically fulfill a loan condition, rather than to create a neededoperational management tool which could have provided an independentassessment and control of costs, operations, funding and profits/losses.This type of reporting was especially recommended because the profitablewarehousing operations9/ are included in the Credit Department and itsprofits offset the continuous losses incurred by lending operations. Withconstant changes in managerial positions, several incumbent finance managersindicated to supervision missions that they were unaware of a separation offinancial statements, and such information had to be prepared retroactively(by assigning costs and revenues to the pertinent operations after theoverall statements had been prepared).

4.18 Auditing. BAMIN's operations have been subject to externalauditing only since 1975. Different auditors have been contracted every yearbecause of a regulation which requires the auditing contract to be awarded to

8j Apart from tIne fact that the former manager of finance has been indictedof wrong doing. The court case is still pending.

9/ Retail sales of inputs for small mines, such as explosives, smallequipment, etc.

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the lowest bidder. It would have been such more beneficial to both auditorand BANIN if there had been more continuity in the annual auditors'assessments and recommendations.

4.19 Loan Administration and Controls. BANIN does not have in place asuitable system to monitor loans. Its recording and followup of overdueloans, and the related loan recovery procedures, are inadequate. Informationon loan arrears has been incomplete and not up-to-date, and a clear arrearsposition has usually not been available to management.

4.20 Only now, following continuous recommendations from several Banksupervision missions, has BAMIN's management finally agreed to carry out aspecial portfolio audit at a cost of US$91,050, financed under the loan.Once completed, this special audit could provide the basis for a correctiveaction program.

Financial Performance

4.21 Financial and Operational Status. The following assessment isrestricted to BAMIN's Credit Department, which is financially independentfrom the Trading Department, and which was responsible for channeling theloan proceeds.

4.22 Total assets of rhe Credit Department exDanded significantly, indollar terms, between 1977 and 1983, having increased by 3.4 times inrelation to 1977. This increase was due to an expansion of total outstandingloans (which augmented 2.3 times) and, more important, to an even largerincrease in the value of inventories carried by the warehouse operation(which increased 3.9 times). The loan increases were funded mainly by theBank loan, credits from Poland and the USSR for the purchase of machinery andequipment, and increases in resources provided by or through the CentralBank.

4.23 The debt/equity ratio varied between 3.1:1 and 3.6:1 in the period1977-1981, well below the 4:1 limit agreed to under the loan. Equityincreased by 38Z to USS8 million at the end of 1981. In 1982, however,due to dedollarization- policies implemented by the Government, BAMIN'sCredit Department suffered heavy currency devaluation losses (to becapitalized over a four-year period), which had a substantial negative impactupon equity, which was reduced to USS1.7 million. BAMIN as a whole, however,has not incurred losses, since its consolidated balance sheet also reflectedexchange gains of the Trading Department derived from the increased valuationof its inventories due to exchange rate changes. New loan regulations,effective since early 1983, provide that all of BAMIN's loans will bedenominated in foreign currency or have a maintenance of value clause. Thus,RAMIN's Credit Department will not be exposed further to any significantforeign exchange risk in its operations since funds are lent out either inthe same currency in which they were obtained or are lent out under amaintenance of value clause.

- 11 -

4.24 At the same time that the Credit Department's equity suffered suchnegative impact, total liahilities increased significantly from US$24.0million on December 31, 1981 to US58.4 million on December 31, 1982 and toUS$89.9 million on December 31, 1983. This increase was mainly caused by anexpansion of the use of foreign loans (IBRD, Russian and Polish credits, IDB)and by a substantial increase in liabilities and provisions related to thewarehouse operations (for replenishment of inventories, unrealized sales andprofits and foreign exchange variations). As a consequence, and directlylinked to the eauity erosion as stated previously, the debt/equity ratioincreased to an extremely high level of 35:1 in 1982 and even further to 78:1in 1983.Currently, there are no indications that the Government will increaseequity funds to strengthen RAMIN's eroded capital structure.

4.25 Profitability. The Lending Operations Division of the CreditDepartment had losses every year throughout the lifetime of the loan, exceptin 1980. Rowever, these losses were more than offset by profits from thewarehouse operation, which is, for accounting purposes, also included in theCredit Department. Therefore, for the Credit Department as a whole, theoverall net profits over equity were very low, but still positive during theperiod 1977-1979 (1.2%, 3.0% and 0.7%), and increased in subsequent years(34.5% in 1980, 5.8Z in 1981, 13.4% in 1982 and 24.0% in 1983).

Loan Portfolio

4.26 Administrative costs followed an inconsistent pattern,alternatively increasing and decreasing as a percentage of average totalassets (having varied between 1.6% and 6.1% of average total assets).Over the 1978-1983 period, the level of arrears was very high. Principalaffected by arrears varied between 24% and 40% of total loans. Between 1978and 1981, the affected total principal increased by 56% from US$5.1 millionto US$8.0 million. In 1982, however, it decreased to USS6.1 million,increasing again to US$7.9 million in 1983. As of December 31, 1983, 40% ofBAMIN's loan portfolio was affected by arrears (RAHIN defines a loan as inarrears once a borrower is overdue on three repayments). The breakdown ofarrears by credit lines indicates that, if it were not for the Bank loan with25% in arrears, the overall ratio of arrears would have been higher than 40%since the loan arrears of various other credit lines average about 52%. Onlythe forthcoming detailed portfolio review will provide a more realisticassessment of the actual status of the many loans ia arrears since BAMINitself was unable to undertake suclh a review. A detailed breakdown of loanarrears is shown in Annex 3.

4.27 The high levels of arrears have been due to (a) recurrent problemsin the mining subsectors (e.g., high operational cost, low recovery ratiosand low international price levels for tin); (b) specific problems in someenterprises (e.g., low demand and low historical vrices for some minerals,transport difficulties and labor problems), and (c) poor collection andinadequate loan supervision by BAMIN. In addition, collection is hindered bydelays in the judicial system in processing court cases and by politicalpressure from strong mining unions.

- 12 -

4.28 BAMIN has never made a detailed analysis of its loan portfolio, andit is not possible to state with accuracy the number of bad loans, nor whatshould be the proper level of provisions for doubtful accounts. In addition,the rescheduling of several loans over the past two to three years hasfurther prevented a clear assessment of the arrears position. Aftercontinuous recommendations from the Bank, BAMIN has hired independentauditors to carry out an internal portfolio review, which is to include ananalysis of all overdue loans, outstanding loan amounts affected by arrears,and an analysis of arrears by credit line, branch office, and age. Findingsof this review will serve as a basis for determining the adequacy ofprovisions for doubtful loans, the extent of loans to be written off andother corrective actions.

V. THE TECHNICAL ASSISTANCE COMPONENTS

Introduction I0/

5.01 Even though formally divided into two projects, the TA of loan1331-BO was a natural continuation of the TA under Credit 455-BO; the twoare, therefore, for practical purposes, evaluated as one single operation.

5.02 The overall objective of both TA components was to assist Boliviain the development of the small-scale mining sector and to improve theefficiency of several public mining institutions, such as MMM, GEOBOL andBAMIN, through the implementation of seven main TA components: (a) thesurvey of small mines, (b) the strengthening of MMK, (c) a sector tax systemstudy, (d) a mineral resources exploration fund study, (e) a review of theMining Code, (f) the cadastral survey, and (g) the strengthening of BAMIN.

5.03 These TA components were implemented only partially and resulted ina mixture of failures and successes. A good portion of the TA under Credit455-BO was implemented satisfactorily and resulted in some successes, whereasthe more complex TA components under Loan 1331-BO proved to be a failure.They had too many overly ambitious objectives. Responsibilities forimplementation were only loosely defined and assigned to different agenciesunder the overall coordination of MMM. The project had a successfulstart but suffered from lack of political support and continuous changes inexecuting personnel. Poor coordination resulted in seriousmisunderstandings, overlapping of functions, and disputes among theinstitutions.

5.04 Since IDA Credit 455-RO was negotiated, a total of 12 individualshave held the office of Minister of Mining and Metallurgy, averaging morethan one change per year.

5.05 Some TA components, such as the sector tax study, the survey ofsmall mines, and the study which led to the creation of the NationalExploration Fund, have had a significant impact in planning the strategy for

10/ For a full description of the TA components, refer to Annex 6.

- 13 -

future development of the sector. Other technical assistance componentswere only partially implemented. MMM and GEOBOL's original plans to hireabout 20 consultants for strengthening their capabilities were considerablyreduced in number and scope, thus limiting the success of these components.The commitment to review and promulgate a new Mining Code was not fulfilled.

VI. CONCLUSIONS, LESSONS LEARNED AND RECOMMENDATIONS

Conclusions

6.01 The overall impact of the loan has been positive as far assubproject financing is involved. Most subprojects utilized the loanresources well and were able to modernize and/or expand their operations.Regarding specific subloans in the gold mining sector, the lack of technicalassistance caused most gold mining cooperatives to utilize inadequateprocessing and concentrating technologies, resulting in poor recovery andhigh mineral losses. In addition, inadequate pricing policies andinsufficient funding from the Central Bank during certain periods seriouslylimited BAMIN's ability to purchase the gold production from the miners,which resulted in increased sales through unofficial channels. Thissituation, combined with the high level of mineral losses, had a significantnegative impact in limiting the potential benefits to the economy, in termsof lower recorded outputs and lower additions to the gold reserves held bythe Central Rank.

6.02 The project has not achieved one other of its major objectives:BAMIN's institutional development. There have been a few improvements inBAMIN's organizational structure, appraisal capability and accountingprocedures, but BAMIN has not been able to evolve into a more modern,efficient banking organization. Its overall performance has been weak. Highmanagement turnover led to inconsistent policies and poor staff morale. Itstill has insufficient qualified staff and lacks physical resources such asadequate central office snace and vehicles. BAMIN's supervision activitiescontinue to be uncoordinated, and it has not provided adequate technicalassistance to its borrowers (e.g., to improve gold recovery and minimizelosses). BAMIN's financial performance has been poor. Because of foreignexchange losses and poor collection practices, its ecuity has erodedsubstantially. In addition, its arrears position has worsened. Financialcontrols are inadequate, loan administration remains deficient and monitoringand followup action on arrears have not been carried out on a systematicbasis. Also, the envisaged separation of trading and lending operations 'anot been fully achieved at the operational level. Finally, BAMIN's resourcemobilization capability has not been developed, limiting its ability tocarry on efficiently and to expand its lending operations. Bank supervisionmissions have repeatedly raised and discussed BAMIN's deficiencies withGovernment officials and BAMIN's management. However, there has been littlecorrective action, and relevant policies and/or procedures have not beenchanged or improved.

- 14 -

Lessons Learned

6.03 The project goal of gradually transforming small mining units withdevelopment potential into efficient mining enterprises was, in retrospect,too ambitious a task. The specific objective of developing some 20preselected small mining operations through the provision of supervisedcredit with complementary technical assistance proved to be too inflexible.Because of loan effectiveness delays, none of the preselected mines actuallyreceived Bank funds. Also, the separation of subproject preparation (throughGEOBOL) from actual financing and supervision (through BAMIN) was noteffective because of the lack of coordination between the two entities.

6.04 As a result of the above-stated shortcomings, a change in focusbecame inevitable. Fifty percent of the loan proceeds, finally went torather healthy medium mining entities, which were normally clients of theprivate Ranco Industrial, S.A. (RISA). The timing of the loan was such thatBISA had committed all of its Bank funds while RAMIN still had a large partof the Bank loan uncommitted. The miners and BAMIN reluctantly agreed toaccept each other, which substantially helped to commit the loan. Setting astrict limit to subproject size might have prevented this substantial change.

6.05 Regarding institutional development, the expectation that RAMTNcould be transformed into a sound mining bank relied heavily upon theprovision of technical assistance to that institution. However, neitherform of assistance--a long-term consultant contract and a short-term revisionof procedures contract-had any lasting effect, mostly because of the manypersonnel changes throughout the time of the loan in MMM, and in BANINitself. Ten different ministers and seven general managers could not providethe continuity necessary to implement the changes that were suggested.Tn additon to the fact that no member of RAMIN's higher management had everhad professional banking experience, the strong unions inside BAMIN, whichforbid any outside appointments above a certain level inhibited any majorchange of professional attitude. If this situation had been foreseen morerealistically, stronger loan conditions might have been established, allowingfor loan suspension. Otherwise, it should have been made clear thatexpectations of change were very limited and that the project would beconsidered satisfactory as long as funds were channeled effectively to thesmall mining sector. This alternative, however, would not have beenacceptable because aid to the small mining sector in Bolivia involveseffective supervision, provision of technical assistance and an overalladequate sector framework as well as the effective channeling of funds.

6.06 Whenever TA components complemeLLt a project, it is essential tocoordinate the various activities involved. In the case under review, itwould probably have been best to center the responsibility for coordinationwithin the institution to which the major share of funds was allocated. Ifministers change ten times, however, within the course of a project, acontinuation of coordination cannot reasonably be expected.

- 15 -

Recommendations

6.07 Considering the weak financial and organizational situation ofBAMIN, future loans to the mining sector should preferably also include otherqualified financial intermediaries, such as BISA, as has been envisaged in apreliminary appraisal report for a potential Fourth Mining Credit Project.In addition to diminishing the risk factor, this approach would provide theparticipating institutions with an opportunity to compete with each other.The competitive aspect would potentially result in a more effective handlingof loan applications by the participating banks and in better arrangementsfor meeting the borrowers' financial and technical assistance needs.

6.08 In order for BAMIN to be included in future lending operations, itscapital structure would have to be strengthened substantially by a Governmentequity contribution. A revaluation of its assets would have to berecommended, and additional institutional strengthening would be required.

6.09 Within the Credit Department, separate costs and income allocationfor the warehousing and lending operations should be enforced more strictly.A more adequate accounting system and improved financial controls should beestablished to permit an accurate, independent assessment for propermanagement action related to the covmercial and lending operations.

PROJWc CO(PLUTION REPORT

BOLIVIA - S_RLZ SCALE HHINIOG DEVRWPEnT PROJECT

(LOAN 1331-30)

latence Shet 1971-190300O Ibl

1977 1978 1979 1960 1961 1911 2963ProJected Actual Projected Actual Projectsd Actual Actual ProJechd Actual ProJewted Actual Projected Actual

Assets

CaN and banh. 13,330 15,376 16,054 4,923 16,852 71510 17,570 10,324 10,262 11,000 73,09 11,000 117,000Loaen outstanding current 101,350 110,376 50,770 94,019 63,600 105,362 72,998 161,225 147,982 161,471 1,064,04 1461,N 2.*77663tllsm llneus rcleIvabes Il.100 55,793 11,300 33,921 11,400 33,070 135,492 123,575 107,909 129.904 997,62 ff,268 3,031,63lnentory 60,468 1138944 76,836 111,744 91,652 138,647 157,647 143,153 178,520 239,933 1 904 1K 310,099 4,819,436

Total Current Asset 206,248 331,493 154,960 244,609 183,704 324,649 483,707 436,277 444,701 342,310 4,060,01 363,202 11,305394

Loans Outstading Ingtl 112,271 198,102 192,106 176,093 233,692 195,675 152,909 433,973 274,824 407,479 2.014,079'/ V7,229 3,064,232Flxed I other eoats 0804 14,036 7,822 107,265 7,601 38,335 134,239 130,677 65,963 2471719 1,626,491 152,401 3 ,71 St0

TOTAL ASSE1S 328,362 343,633 334,680 527,967 426,997 3786,67 770,855 1,002,927 765,510 1,197,308 7,700,621 1,113,632 20,140,64._~~~~ . . .. . . . . . . . , _ ._ * ...... ...... .. .__ w .. .... . . - - _ .... .._ ..... . ..... _ __ _

t. IalIItles

Accounts payable A othercurrent ilbdllittle 19,000 3,938 20,000 6,062 20,500 6,653 131,905 213,531 11,614 143,110 6,766 144,660 111,313 1

Short-tsr debtb 64,269 2M,M9 ,649 3,040 4,119 4,030 19,4235 116,562 6,904 144,370 118,792 163,196 271,741Total Crretnt Lit ilItla 65,269 29,497 20,849 9,102 24,679 t0,663 1511,330 330,113 20,16 N7261,40 177 1,0 30,066 357,054

Waedluo- and Long-ttre eobt

USAID 26,339 31,639 76,910 30,179 3, 481 32,434 30,839 271,47 29,253 25,988 161,012 24,417 39, 7391BRD 185000 86,000 1,7l5 133,400 6,680 47,956 123,825 79,849 423,246 813,135 33, m3 3,909,019Ruslesn A Polish Credits 52,424 72,486 43,004 77,305 44,854 93.656 111,350 190,88H 10,307 139,144 796,676 98,139 1,378,142Others 171,76 - 106,392 - 107,367 73,330 29,17 65,360 17,507 429,533 3,636 1,346,071

Total medlum & long-term Oebtbi 97163 216,886 1537i94 212,626 225 2S 242,193 263,693 431,433 2441,79 607,887 2,291,336 463,797 7,022,996

Oiher LIaliltlee lIncludingProvlsionsl 31,563 119,226 39,711 101,192 42,119 160,661 168,944 62,326 322,915 92,604 S,103.286 94,733 12,4717043

Equlty

Pald-In Capital 64,000 113,061 100,000 113041 100,000 113,062 134,360 164,630 1468,6 203,132 148,668 223,775 148.668Retained earnings 4 revenus 22,675 4,961 28,414 3,43 34,464 6,132 32,324 24,403 48,610 4,403 67,131 3,439 1053083Exlhenge-rete dIfforeone 36,926 -. :-

Total Equity 106,645 118,022 126,414 116,511 134.464 160,120 16ii11 289,053 IY7 278 209,537 216,491 229,214 233,T11

TOTAL LIABILITIES I EQUITY 3285,62 343,633 354,688 321,967 426,997 5716,67 770,135 1,002,927 7535,10 1,197,08 7 7,700,621 1,115,632 20,140,646.. fl * . *5. ** .. . . S. . * . . _ . _ _.. _*_

.1 Now bulIding for Potosl agency.bP Includs currant porlen of adlue and long-tru debt.

LCPII9/84


BOLIVIA - SMALL SCALE MININO DEVEDOPIENT PROJeCT

(LOAN 1331-BO)

Banco Hinera (UA)fN) Credit De2ewt.ant

PROPIT AND LOSS STATD0ITS - 197611983

(000 $b)

1976 1977 1978 1979 IN)KIcL IEXIt D WmIC l PNM1AL WmFtD CL m p CIL R IC II I

Ai W14I BrAc

Sale of *tarals 2D.973 - 17,332 - 31.,16 - 37.70 - 78.196 64.976 101.870 1M.a116 127.6.99 1 1956M..A. cost Of OXh Gold) (14.671) - - 2.25 5.09 p 8.9 8430 0211(

Profit twor warehouse 6.3 792 9. (2 5 9W

84 LUDC l}ATIQI6

Intwit inm 7.884 29.991 9.002 30.130 28.420 28. V7 44.042 31.150 61.837 p6.473 99n.13 653.1Pi 117.435 1.369.173 145U032 (Of qodiht pa&ity 1iteru) - --1.055 - 3.610 8.570 5.736 6,632 26.3% 3.588 133,269 2.4 %IOANd Ordu Ity inte457 215 2.706 1.050 5.6Z0 1.14) 5.214 873 5.69% 9.423 15,342 16.309 12.230 ' 11.297M&mLL41- bs_ 1.257 - B14 - 3.61E - 3.018 - 526 5,252 IB 6,Z 91 5.072 39bTIw f* Iowa..) 3 _ - 55 - _ - 263 - - 32I09 12Ul 1.019 (4.7L 59' 8 Ise

ro~~a1 1no~~ I~tu LmvllzU ~~~73~~ ~ I2.~~Ya 31.1W ~ ~ Wi 1M ___ ___2 40qIII1.59

Irntret 450 17.478 3.672 16.795 2.,9 12.135 13.397 13.260 18.521 20.201 39.931 97.149 75.402 158,492 9.529CitW 1lwira1 amp - - - - 92 - 1.721 - 1.637 s.s23 30 7.m3 30 B.M4 IsalarlSo 7.809 11,7L O 9.921 12.600 12.166 13.6W 26,825 14.700 38.364 41.663 40.995 104.596 45.163 MASL 54g91Othwg shnLstw.tive .3puu 4.68 2.750 2.309 3.179 28.579 3.524 5.20D 3.96A 2.219 8.104 14.358 15.617 14 954 941.552 mToW IDPw ;i 12.W 31. _ VW57 [ 13K 2.3 5-9 =.I 31.i5i 64 W3*, N M

Profit (tn 1aud1*s hDpciatti ond WPra1s l (3.191) (1.1722) (3.00) (1.394) (4.253) 8e 9,095 2.099 47.,94 14,614 25.582 49.23W (1.027) 185U.O (7,406)

DWwAtttan WIt&-doa (1.948) 1,696 356 1.551 576 2.121 19.182 4.121 16.031 19.751 16.521 94.912 16.521 448.160 16,521

Witt (no 7NW ABEzDw nldt k r 1 .L. (.4 (.356) 2,2 SU.03 (10.057) (2 2 3.563. (55137 10.61 (45.679) 7 ) 1 2.92

ThIAl 3woIIt (MO) 1.201I 4.01 Liu4 6,115 ___ Li 4.. -I 6* 30.35 457 __


BOLIVIA - SHALL SCALE MINING DEVELOPMENT PROJECT

CLOAN 1331-BO)Banco Hinero (BAHIN) Credit Deoartment

Projected and Actual FIliaTt-l Ratio. 1977 - 1983

1977 1978 1979 1980 1961 1962 163Prolt. Actual Projt. Actual Projt. Actual Projt. Actual Priot. Atl Prl it. tual Froitei

L.T. Debt/Equity Ratio 1.3 3.4 1.5 3.4 2.0 2.5 - 3.1 2.6 3.0 3.3 38.5 2.5 95.2

Total Debt/Equity Ratio 2.1 3.6 1.8 3.5 2.2 2.6 - 3.1 4.3 3.1 4.7 34.6 3.9 78.3

Current Ratio 2.4 11.4 5.3 27.2 7.5 30.6 - 3.2 1.3 21.7 2.9 31.8 1.8 3.9

Debt Service Coverage Ratio 9.3 1.9 7.9 2.9 7.1 28,0 - 9.6 9.6 20.1 8.3 9.0 14.8 6.6

Profit Before Taxes an 2 ofAverage Total Assets 5.73 1.15 5.77 2.95 5.78 0.65 - 34.45 12.90 5.79 2.10 13.40 2.37 23.98

Profit After Taxes as 2 ofAverage Equity 5.73 1.15 5.77 2.95 5.78 0.65 - 34.45 12.90 5.79 2.10 13.40 2.37 23.98

Financlal Expenses as % ofAverage Total Asset. 5.1 0.6 3.4 0.46 0.31 2.6 - .2.6 5.18 3.27 6.29 1.36 8.38 0.83

Administrative 6 GeneralEspenxed an X of Avg.Total Assets 4.8 2.24 4.85 7.7 4.37 5.5 - 5.3 5.5 6.3 5.0 1.56 6.68 6.06

Income from Loan Portfolioeas 2 of Avg. Loan Portfolio 18.9 4.2 17.6 17.6 14.8 22.8 - 19.8 40.9 35.5 17.4 11.5 24.3 16.1

August 14, 1984

9 I , .


BOLIVIA - SMALL JCALE MIINING DEVELOPIIENT PROJECT

(LOAN 133 1-BO)Banco Minero (BAMIN) Credit Department

LENDING OPERATIONS - 1977/1983

amount amountYear no. of loans ($b) (USS)

1977 499 114.907.780,89 5.632.734l36

1978 0ao 86.349.168,23 4.232.802j36

1979 503 60.244.363,81 2.457.950,38

1980 608 157.755.131,77 6.436.357,89

1981 563 190,335.226,6o 7.765.615,12

1982 214 355.355.242,22 2.771.881,76

1983 362 2.061.262.248,5o 4.122.524,5a

PROJ8CT COHPLETION REPORT

BOLIVIA - SMALL SCALE MINING DEVELOPHENT PROJECT

(LOAN 1331-lO

Banco Minero (BAMIN) Credit Department

LOAN PORTFOLIO: ARREARS AND PROVISIONS - 1977/1982

CREDIT LINE 1 7 7 t 137 * t 37 t 59O0 9 11 1 I62 9

MWII 23.531.5".13 7 1*[email protected] 7 26060.0*1. 67 33.93.302.35 9 n.0.".U 6 s 4.U0. aVIA 42.3.5f593,7I 13 46.207.000 is 65.36.1l 5,l 13 *.715.168.13 17 139361230,U 17 566 S* SU Is

FRil 33.6.006,60 11 63.727.00 is 117.57.683,65 1 45 SAS44.6"11 I AI6"A.671 too I 266.567.111 7MA 7*.109"40 15 s 55.3.O0 13 63.326.9146,3 I5 65s.65.n, 21 I0I.66.6l6.1 20 7164L0M U

as 40.4100.W09 Is * 1I.338. we12.653.0*.,00 12.3S6.716.16 3 7.3.0.67 I 37.gS.WS I

A1WIIC 61.719.102,0. 19 * 61.730.700 21 71.963. 353.16 20 61.736.683.67 15 50.67.73. 4 10 311. .0 9In" 54.273.65,54 17 * St.546.000 17 P.565.995.So0 Is [email protected], 9 35.643.160.34 7 211.214.006 6

*IIF 5.261.274 .6 2 60.755.54.6t7 lS 132.476.709 17 26 I.266.83606M 36NIN. Fl. 1143 2.791,87 6 173.09.W 6

32J.673.24675 100 tooo l.n..o 140 3o 6.16V .262.95 100 610.740.1@6,65 In 5l3.76.274 S 1 GO 32.n12.oo 1N

Current ,240142.703 l 133.1110.00000 652 22.15.5 3 6 3.l0.3l3OO 74 314.33.916 *3 1.67.6n.00 G

In Arrears 35.5)0.575 12 162.000 352 t1S766.4 362 96.579.70.00 262 187 n3.6 7 I.12 .0 A0 3sTOTAL 323.6".2 10 100 3W.f.W0 too 36.1I6.26) I" 410.70.104 100 S0.766.275 100 3.602.51tNs of

Provision forloan losses 20.761.333 27.10.000 65.I"."7 3.p0.311 60.9500 50J.2637NET PORTFOLIO 0L.911.951 270.91.000 301.035.14 I.AnU 622.1066.5 3S.01.U 5

Provisions/Total 6.4% 3,12 13Ai% 22n0t 16.12 1360e

Provisions/Arrears 52SIX 26.@ 2 .U x t3.25 X UX

00~~~~ ~~ . .. ._

" bt1_^ .~~~9



(LOAN 1331-BO)

Banco Ninero (DAHIN) Credit DePartment

PRINCIPAL AFFECTED BY ARREARS - 1977/1983

(000 Sb)

1977 1978 1979 1980 1981 1982 1983

beginning of fiscal year 39.530 104.142 117.588 101.011 195.577 1.203.591

end of fiscal year 39.530 104.142 117.588 101.011 195.577 1.203.591 3.970.979

(000 US$)

beginning of fiscal year - 1.938 5.105 4.798 4.121 7.979 6.141

end of fiscal year 1.938 5.105 4.798 4.121 7.979 6.141 7.942

NW

- 22 - Anz 3

PROJT CPLE=O0 REPORT Table 3

BOLIVIA - SALL SCALE DR;IN DEVELWAEVT PROJECT

(LQUi 133L-BO)

Banco HIfaro AMA) Credit Dpardift

LO pORTfoO: ARREAS BY AGIES - 1983

JGENCIES CU2RRT Z IN ARREAtS z TOZAL(Sb) (Sb)

LA PAZiiiro- 3.014.425.63 68 1.410.0W.7 32 4.424.675.90

Usaid 39-59.230.00 69 - 174.957.46B.14 30 574.55.69.14Aluca_s 320 .89.630.00 45 385.455.315.00 55 706.304.9.00low 177.214.210.00 38 2S.403.815.00 62 472.6.0-.0ORefIUto. 607.402.545.08 93 42.1.m.o0 07 650.01.705.USod1o 107.064.590.00 100 - - 107.064.590.00Atlant c 8ant 74.159.620.0 09 753.004.870.00 91 827.244.490.00Sir? 993.497.970S00 62 609.129.505.0O 38 1.602.617.47S.60

2.68Z.S71.Z0.71 5C4 2.262.042.383.41 46 4.944.g13.604.1z0Om0

1~- g910.072,82 40 1.366.995.79 -60 2.277.06B.61Usaid 334.028.980.00 57 250.042.310.00 43 584.071.290.00Almcees 23J.474.305.00 41 348.040.813.65 59 5S5.515.118.65lawe - -- 77.670.100.00 100 77.670.100.00Birf 1.62S.294.855.00 92 124.30D.60.00 08 1.653.602.S5.O00Refincto. - . - 5.300.865.00 100 5.300.865.00

2.101.70S.21Z.SZ J7Z 806.725.744.44 28 2.90.435.957,MPOOI

w - . - 378.675,26 100 378.675.26fluid 19.823.915.00 10 187.176.412.50 90 207.000.327.50AlmaCER z7.724.850.00 25 83.376.415.00 75 111.1O1.265.ODlow - - - 1.781.470.00 100 1.7E1.470.00Sirf 77.674.020.00 88 10.751.51000 12 88S432530.00

325.222.785.-C 31 283.471.462.76 69 408.694.267.76IUPIZAiiWJn - - - 7S.121.544.69 100 75.121.5S4.59Uslid 12.560.660.a0 13 82.503.307.88 8 95.063.97.18Aivacenes 19.282.515.00 21 72.581.720.00 79 91.864.235.00

lodef - - -- 979.610,00 100 979.610,0031.843.175.00 12 231.186.182.57 88 z63.Mq9.51.S

;anir. - - - 1U.362.56 100 11.362.56tsaid 4.445.610.00 47 5.005.755.00 53 9.451.365.00Almcmms 8.040.405 00 51 7J749.770.00 49 15.790.17500

U.486.515.00 49 12.7Z.8U.56 51 25.252.902.56

UB Ii- - . - 494.858.73 100 494.858.73Usid 2.453.645.00 18 11.365.920.00 82 13.819.565.00Alvacenes 21.500.000.00 42 30.293.290.00 58 51g793.290.00Ipie? - - - 6.495.040.00 100 6 495.040.00

23.953 650 33 48.M4.10.7.3 67 iZ.60553.53TIPUAIBsin- - . . - 2.3D6.355.46 100 2.306.356.46

Ufld 26.918.820.00 97 844.405.00 03 27.763.225.00Alieenes 159.592.600.W 66 B0.966.980.00 34 z40.56 9 .S5O.OOSirf Snl.47fl0.%r 67 2 4?_mc. "n-m 3? M.485.260.0MIn. Finanzas 195.62.Z.W 00. 1950682.SZ5000

883.663.90 oO 73 .132.960.4S 27 1.209.796.245.861.749.013.53 6s 3.970.977.749.93 35 9.93z.71z.763.96

$mmin 3.924.49C.45 05 81.1!O942.76 95 85.014.541.21Usaid 799.829.860.00 53 711.895.578.52 47 1.511.725.438.52A1ncunes 79_...64.305.00 44 1.008.464.303.65 56 1.802.928.60S.65lnW 17.284.210.00 32 382.330.035.00 68 559.614.245.00Nefincto. 607.402.545.08 93 47.912.025.00 07 655.314.570.08Sudmeo 107.064.590.000 0 0 - . - -- 107.064.590.00Atlantic Bank 74.159.620.00 09 753. 04.870.00 91 827.244.490.0rBirf 3.101.936.885.00 76 916.200.895.00 24 4.018.137.780.00Min. Fina1zas 195.682500.00 1OD 195-682xL00.00

5.861.749.013.53 60 3D970.9717749.93 40 9.832_7!Z6763.46

a/ With breakdown per agency into various funding sources.



(LOAN 1331-BO)


List of Subprolectu Financed Under the Loan i

Subproject Loan Approved IBRD Loan BAMIN Loan Type of Ownership LocationNo, Sub-Borrow'er T1RA) (U1SS). (11SS) Mineral Proiect --------- 6-4o

Al Pr6digo 855.394,oo 204.315,20 71.078,80 SN Expansl6n Privado La Paz

A2 La Reyno 335.270,oo 193.346,86 67.054,oo Sn Oruro

A3 Mortha 2.653.000,oc 2.122.400,oc 530.600,oc Sn Nuevo " Oruro

Au URKO 180.000,oo 124.481,28 36.O000,oo Sn Exponsi6n La Paz

A5 Canzhla 1.000,000,oo 653.051,59 -,- Sn Nuevo Oruro

A6 Coop.Piscint 134,870,oo 147.896,oo 36.974,oo Au Nueva " La Paz

A7 EnsueRo 134.700,oo 107.760,oo 26.940,oo W03 Exponvi6n Lo Paz

A8 Son Cosme 155.308,oo 102.558,68 31.061,60 Au Expor.si6n " La Paz

A9 Coop.Rosario Colifornia 164.526,oo 131.620,8C 32.905,20 Au Nuevo La Poz

AII tu ;r.inor (cancelled) =.=. C,_ _.. -.-

All Gr6n Poder 2Hnos. 412.659,oo 318.576,44 82.531,80 Au Nueo,n La Paz

A12 Cocp. Cotoca 180.000,oc 144.000,oo 36.000,oc. Au Nuevo La Paz

A13 Espoaola 1.00C.ooc,oo E00.000,oo 200.00C,oo Pb-Ag Nueva Potosi

A14 Kumuroao 1.888.255,oo 1.510.604,oc 377.651,oo Sn Potosi

A15 Coop.Soccso 500.0CO,oo 337.69,62 100.000,oo Au n La Paz

A16 Cocp.19 de Moyo 434.000,oo 294.317,39 06.800,oo Au La Pce

A17 Gr6n Poder 1 513.823,oo 411.058,40 102.764,60 Au La Poazx

A18 Cocp.F6tima Dos 480.000,oo 314.145,94 96.000,oo Au n La Paz

A19 Coop.Colmarco 367.000,oo 296.681,72 73.400,oo CaCo3 Expor.ul6n Privado La Paz

A20 Coop.San Jose Unutuluni 304.000,oo 201.778,21 102.221,79 Au Nuevo La Pa z

A21 Tiwonacu 307.400,oc 245.920,oo 61.480,oo Sn Expansi6n n Oruro g

SubtotaL 11.461.361,86 0.742.202,13 2.351.462,79 - -

Above free ==limit of US$100000equivalent.

_/ Above free limit of USSlOO,000 equivalent.



(LOAN 1331-BO)

Banco Hinero (BAHIN) Credit Department

List of Suboroiseta Financgd Under the Loan (Continatia;L b

Subproject Loan Approved IBRD Loan DAMIN Loan Type of Ownehip LocationNo, Sub-Borrower (US$) (US$) (US$) Mineral- Project

B1 Coop.Unificada Seis 50.OOC,oo 38.398,58 11.601,42 Au Nuovo Privado La Paz

82 Negro Poboll6n 42.983,oo 34.386,40 0.596,60 Sn - Oruro

83 Austria 43.419,oo 34.735,20 8.683,80 WC3 La Foz

84 Roncoles 22.058,85 17.647,00 4.411.77 a La Paz

B5 Dioblo 6.000,oo 4.000,no 1.200,oo

86 Son Alberto 150.000,oo C2.011,23 30.000,oo Sn La Faz

B7 Coop.16 do Cctubre 88.751,oo 64.477,21 6.944,79 Sn a La Paz

B8 Coop.chime 60.000,oo 48.000,oo 12.000,oc Au ' La Paz

B9 Copocabono 40.000,oc 32.000,oo 8.000,oo Pb/A

810 Ambo Mining 116.683,oc 93.346,40 23.337,oo W03 ExAansi6n La Paz

811 Coop.Soyauoni 150.873,oo 120.698,64 30.174,36 Au Nudva ' La Paz

B12 Coop.Untficodo Soes 68.606,oo 54.556,29 13.639,71 Au ' La Paz

B13 Mcrmcs 154.369,oo 110.963,73 12.931,47 Sn Nuevo Oruro

B14 OrlanCini 120.OOC,oo 25.700,oc -.- Sn Nuovo a Oruro

215 Coap.Chi mG 153.606,oo 99,684,96 30.721,20 Au Nuevo a La Paz

B16 Son Sobastian -.- -.-

B17 Carlos y Vlctoria 28.770,oo 23.016,oo 5.754,oo Sn Exponsi6n ' Potosi

B13 Forrecc 100.0Co,oo 80.000,oo 20.OCO,oo - ' PotosL

B19 Solterito -,- -.-

B20 Martha 48.000,oo 22.536,08 96.600,oo Sn Exponsi6n ' Oruro

B21 Nolly 50.000,oo 40,0C0,oo 10.00G,oo Au a La Paz

B22 Lot Mbchcs 100.000,o o 80.000,oo 20.000,oo Sn ' Oruro

Subtotal 1.594,582,85 1.106.958,50 354.606,12

Total l32Q&2aZ1 2ai2a1§Q,lQ iAzg2Q§a2;

b/ Below free limit US$100,000.

Annex 4-25 - Table 2


BOLIVIA - SHALL SCALE MINING DEVELOPMENT PROJECT

(LOAN 1331-BO)


Subprojects Breakdown by Size, Investment Cost,Type of Investment, Ownership

No. of IBRD Loans Z of % ofSub-Sectoral Distribution Subprojects (US$) Total No. Total Amount

Small Mines 24 6.825.580,53 60 69Cooperatives 16 3.023.580,10 40 31

Distribution by Investment Cost

Less than US$50.000,oo 11 321.220,14 28 3US$50.000,oo - 150.000,oo 15 1.544.055,07 38 16US$150.000.oo - 500.000,oo 10 2.897.879,78 25 29Greater than US$500.000,oo 4 5.086.055,59 10 52

Type of Subproject

New Investment 28 8.355.827,61 70 85Expansion 12 1.493.333,02 30 15

Ownership

Private 40 9.849.160,63 100 100

a

-26-

Annex 5page 1 of 2



(LOAN 1331-RO)

Public (Large) Mining

1. All large mines are owned and managed by COMIBOL Rowever, COMIBOLis beset by serious problems resulting from excessive taxation, overcentra-lization, difficult labor relations, high costs and low efficiency. Over theyears, under pressure from the central government and organized labor,substantial amounts have been spent on social welfare, while essentialoperational and maintenance expenditures have been neglected. Only recentlyhave there been some new investments in mine development and ore processing,the latter resulting in increased recovery rates and higher concentrationdespite a declining metal content of ores. In general, COMIBOL's operatingcosts exceed those of the private medium mines. The government is seekinglong-term solution to COMIBOL's problems, involving unpopular politicaldecisions, and has requested technical and financial assistance from theBank. As a preliminary step, MNDP has financed a diagnostic study of COMIBOLfor which the Bank was the executing agency. However, COMIROL's managementhas not yet agreed upon an action program to carry out the study'srecowmendations.

Medium Mining 1,. This subsector consists of some 24 privatecompanies, some with foreign interest participation. They represent the mostefficient segment of the sector, and are responsible for about 80% of theBolivian production (volume) of antimony, 50% of tungsten and 40% of zinc,while their production share of tin and lead exceeds 20%.

1/ The main legal requisites for a private mining company to be classifiedas a medium mining operation are the following: ti) the company shouldhave a minimum level of production, which in the case of tin is 5,500fine kilos of tin in concentrates per month; (ii) it should have apaid-in capital of at leest USS100,000; (iii) it sbould have a minimum ofone mining engineer and one accountant on a full-time basis; and (iv) itshould be registered with the Association of Medium Miners. However, inthe absence of strict enforcement, classification as a medium minerdepends more on the individual mine owner's choice. There are perceivedadvantages in being classified as a medium-miaer, such as better accessto credit and possibility of being able to export directly, instead ofbeing forced to sell to ENAF or to BAMIN. However, some tax advantagesand less exacting accounting requireaents encourage the marginal cases tocontinue as small miners.

- 27 -

Annex 5Page 2 of 2

Small Mining. A small mining Inventory conducted by GEOBOL underIDA Credit 455-BO identified 5,240 mining properties of which about 2,000 to4,000 are in operation; the actual number depending on the level ofinternational metal prices. About two-thirds of small operating mines areproducing tin and the subsector is responsible for about 10-15% of miningproduction. Small mining operations vary in size from one family andDart-time activities to enterprises comparable in output andt employment tosmaller m-edium mines. Some small miners are organized in cooperatives, oftenworking under marginal conditions.

In general, small mines L)perations utilize primitive technology,have low productivity and carry out little or no exploration. Businessrecords, if any, are poor. Normally, only the richest and most easilyaccessible portions of deposits are exploited, often in a way which makes thelater use of more advanced techniques more difficult or impossible. Themajor deficiencies of small mines are low level of technology, poormanagement, and little or no capital. The problem is compounded becausesmall mines are widely dispersed over Bolivia's geographically difficultterrain and because they mostlv produce tin, for which demand has not beenstrong and prices low, and complex minerals which are costly to recover.Income levels, health and safety standards in small mines are usually verylow. Some small mines can be developed and become financially viable once asignificant injection of financial resources and technical assistance isprovided. Development of such potentially efficient units calls forsustained assistance in exploration, mine planning and development,investment financing, and in improved processing of ore to minimize loss ofmineral values. However, many small mines are too small or have too poor orereserves to justify additional investment and will either disappear, bemerged into larger units or continue as subsistence family units.

-28-

Annex 6page 1 of 8



(LOAN 1331-BO)

Technical Assistance Components

A. Introduction

1. Thia is the Project Completion Report (PCR) on the technicalassistance components of the following two projects: (i) the Mining CreditProject for which IDA Credit 455-BO in the amount of USS6.2 million wasapproved in January 15, 1974; and (ii) the Small-Scale Mining nevelopmentProject for which Bank Loan 1331-BC in the amount of USS12.0 million wasapproved in September 21, 1976. Even though formally divided into twoprojects, the technical assistance of Loan 1331-BO was a naturalcontinuation of the technical assistance of Credit 455-10; therefore, theyare evaluated for practical purposes as one single operation.

2. Closing Aates of Credit 455-B0 and Loan 1331-BO were June 30,1981 and December 31, 1982 respectively. On July 1984, IND staff visitedBolivia and had discussions with officials of the Ministry of Mines andMetallurgy (MMM), the Bolivia Mining Rank (BAMIN), the Geological Survey(GEOBOL) and other entities involved in the implementation of the TAcomponents. The report reflects the findings of this mission, which alsoIncluded a consultant, Mr. A. de Urioste, as well as the review of projectfiles and related documents.

3. The overall objective-was to assist Bolivia in the development ofthe small mining sector and improve efficiency of Public mininginstitutibns such as the MMM, GEOBOL, and PAMIN, through the implementationof seven main T.A. components: Ci) the survey of small mines, (ii) thestrengthening of the MMM, (iii) a sector tax system study, (iv) a mineralresources exploration fund study, (v) review of the Mining Code, (vi) thecadastral survey, and (vii) the strengthening of BAMIN.

4. These TA components were implemented only Partially and resultedin a mixture of failures and successes. A good portion of the TA underCredit 455-BO was satisfactorily implemented and resulted in some successeswhereas the TA components under Loan 1331-BC, having had a more complexconcept proved to be a failure. They consisted of too many overlyambitious objectives. Responsibilities for implementation were onlyloosely defined and assigned to particular agencies under the overallcoordination of the MMK. The project had a successful start but sufferedfrom lack of support, and continuous changes in executive personnel. Poorcoordination resulted in serious misunderstandings, overlapping offunctions, and disputes even among the institutions.

- 29 -

Annex 6Page 2of t8

5. Since IDA credit 455-BO was negotiated, a total of twelveindividuals have held the office of Minister of Mining and Metallurgy, anaverage of more than one per year.

6. Some T.k. components such as the sector tax study, the survey ofsmall sines, and the study which led to the creation of the NationalExploration Pund, have had a significant impact in planning the strategyfor future development of the sector. Other technical assistancecomponents again were only partially implemented. NMM and GEOB0L'soriginal plans to hire about 20 consultants for strengthening of theircapabilities, were considerably reduced in number and scope, thus limitingthe success of these components. The commitment to review and promulgate anew Mining Code was not fulfilled.

B. Tsrgets and Goals

The following were the specific main targets and goals:

Credit 455-Bo

(i) In GEOBOL: the implementation by the Republic of Bolivia,through GEOBOL, of a survey of small minesl' designed to take aninventory of all small-scale mining operations in the country, toselect the mines with best potential for further development, toprovide technical and exploration assistance to mine owners. andto determine optimal location for regional concentration plants.

(ii) In the Ministry of Mines and Metallurgy: the implementation bythe Republic of Bolivia, through the MM of the following:the streng-t of the NMM's planning, documentation, andsupervision functions including the review of existing marketingpolicies, a study of the mineral sector's tax system, a study ofthe feasibility of establishing a mineral resources explorationfund in Bolivia, and a review of the Mining Code.

Loan 1331-BO

(U) In GEOBOL: continuation of the survey of small mines, andstrengthening of GEOBOL's capability to prepare pre-feasibilitystudies of small-scale mining projects.

(il) In the Ministry of Mines and Metallurgy: continuation ofthe strengthening of the 1MM, and a cadastral survey of themining concession areas in the country.

(iii) In the Bolivia Mining Bank: assistance to BAMIN, strengtheningits project appraisal and supervision capability and improvingits management control systems.

1/ Snsll mines are defined by law as those mines with a production of lessthan 5,500 kilos of tin per month.

- 30 -

Annex 6Pagep 3 of 3

C. Project Cost and Disbursements

7. A total of US$4.2 mllion was originally allocated for technicalassistance; US$1.2 million under Credit 455-30 and US$3.0 million underLoan 1331-BO. The distribution of funds between GEOBOL and MNE was asfollows:

Original Allocation of Funds(US$ million)

Credit LoanTechnical Assistance to: 455-BO 1331-BO Total

GEOBOL 0.850 1.900 2.750EMU and BAMIN 0.350 1.100 1.450

Total 1.200 3.000 4.200

8. At closing dates, total disbursements of Credit 455-BO and Loan1331-BO were as follows:

Actual Disbursements(US$ million)

Credit Loan455-B0 1331-BO Total

GEOBOL 0.850 1.275 2.125NMI 0.350 0.725 1.075

Total 1.200 2.000 3.200

There was no cancellation of funds that could be used for technicalassistance, but US$1.0 million of unused funds by GEOBOL and MMM weretransferred to BAMIN for lending.

D. Project Implementation and Results

9. Survey of Small Mines by GEOBOL. Early in the implementation ofthis T.A. component under Credit 455-BO, the scope was found overambitiousand the necessity for more specific and realistic goals was recognized. Tovisit around 12,000-15,000 mines and mineral outcrops in a three-to-fouryears period, to write a report for each visit, and to prepareprefeasibility studies of the most promising mines was an unrealistictarget. Awareness of these facts, together with delays encountered in theprocurement of equipment and materials, problems in the contracting ofconsultants, and changes in GEOBOL's personnel led to a new set ofobjectives which were incorporated in the scope of the technical assistanceprogram under Loan 1331-BO.

31 Annex6

Page 6 of 8

10. The work advanced by CEOBOL under credit 455--o wms regarded bythe Bark's appraisal mission of Loan 1331-D0 as a virtually completed firstphase of the survey. An operating unit bad been established within GEODOL,the necessary manpower was organized, most of the equipment was inoper-'ion and a number of orefeasibility studies had been completed.

11. Once the vroject continued under loan 1331-B0, the lack ofcoordination between GEOBOL and 13A)I became the nost serious constraintfor implementation 2 /. BANIN which was to finance the projects uroposed byGEOBOL, claimed they were poorlv prepared and the prefeasibility studiestoo academic, mainly because of GEOBOLXs initial limited experience 3 f. Inaddition, CFOBOL was not able to generate enough projects to keep fAHMD'slending rhytht 4 /. In mid 1980 the Government decided that GEOPOL shouldlimit its activity to the basic survey of mines and that BA2IY shouldfinance the preparation of the prefeasibilitv studies done by the minersand assist in the financing of successful prolects. As a consequence,GEOROL transferred to BAMIW, for relending, USS625,000 of the uncommittedbalance of funds originally allocated to the survey of small mines. BRANIconsiderably reduced the scope of the studies and used the funds to financeequipment and development works for projects which were bankable, coverlnga whole range of mining companies in the small mining sector. However, inspite of the difficulties, there was some positive outcome of thiscomponent, since it enabled GEOBOL to acquire experience and to train someprofessionals in formulation and appraisal of mining projects 3/.

12. Another original objective of the survey was to determine theoptimal location of regional concentrators. This objective was abandoneddue to the lack of institutional capability to administer such a program.

13. Four consultants to assist in the areas of economic geology, mineorganization and administration, geophysics, and drilling operations werenever contracted. After long negotiations with a consulting firm apreliminary agreement was reached at the working level. However, finalapproval bv Government had been continuously delayed, because of thegovernment's concern about the cost and because GEOROL was receivingassistance of two experts provided, at no coat, under a West GermanGovernment technical assistance program. Because of the extensive delay,the consultant decided to withdraw the vroposal 5 /. The unused funds(USS375,noo) were then transferred to BAMIN for general lending purposes.

2/ This is also reflected in the comments received fron the Rorrower(Comment 1, Attachment).

3/ As also indicated in Borrower's comment 4 (Attachnent).

4/ GEOBOL attributes the delay in preparing feasibility studies tofactors bevond its control (Borrower's Cowment 2, Attachment) and tothe fact that mining enterprises were not in a Position to finance thehigh cost of private consultants to carry out surh studies. (Borrower'sComment 6, Attachment).

5/ This is referred to in Borrower's Cominent 3 (Attachment), which howeverdoes not provide the background.

- 32 -Annex 6ViFe 75 of a

14. At the time of the PCR mission, GEOBOL had completed a generalsurvey of more than 5,000 mines in the Oruro, Potosi and La Paz regions.Full survey reports on 600 mines with economic potential have beencompleted and are accessible to 1MM, interested private entrepreneurs aswell as to financial institutions such as BAHIN and the NationalExploration Fund.

Strengthening of the MMM

15. The technical assistance to the MMM consisted of threesub-programs:

- to establish a documentation center and to institute a systemfor miniug sector data gathering and control;

- to strengthen the Ministry's existing project evaluation andplanning unit; and

- to review the existing marketing policies.16. The Documentation Center at the MM4 was implemented andsuccessfully started to provide the services for which it was created.Lack of support, budgetary limitations, and frequent changes in personnelhave resulted in that, at present, the Center has very little to offer; thesophisticated equipment financed by the project is rarely used, thedocuments received are not orderly filed, the information available isgenerally outdated, subscriptions to technical magazines have, in practice,been suspended. Important documents such as the Tax Studies and the recentRehabilitation Plan of COKIBOL were found missing at the time of the PCRmission.

17. The strengthening of the MM1's project evaluatio.- and planningcapability, under Credit 455-BO, was supposed to be 'mplemented bycontracting six foreign consultants to assist MM in the following areas:planning, project preparation, administration, financial analysis,marketing, and statistics. The program was postponed and reconsideredlater in Loan 1331-BO; the consultants were not contracted. Under Loan1331-BO, the MMM hired the consultants for strengthening planningcapability; however, severe criticisms were made regarding -aeeffectiveness of the training provided and the contract was cancelled. Atpresent, there are no signs of the training left and the lack of expertisein planning and other areas is evident. Consultants for other areas werenever contracted.

Minerals Sector Tax System Study

18. This study was aimed to determine:

- The extent of inequities in the existing system;- The relative tax burden carried by the mining sector vis-a-vis

other sectors in Bolivia, and vis-a-vis mining in othercountries;

- The practicality of instituting alternative systems; if deemedrequired; and

- A program for implementing changes in the system.

- 33 -

Annex 6Page 6 of 8

19. In general terms this component was implemented without majorchanges and is considered a successful one. The study represents animportant contribution to a better understanding of the dining industry.It has created an awareness Y moug policy makers about the Importance ofmining taxation, bas presented and taught an excellent methodology tohandle tax problems and provided the basis for gradual changes in the taxsystem. Already some changes, such as the introduction of production costsIn the calculation of the presumed cost-6/ have been introduced; however,lack of standard accounting systems mainly in the small mnting sector andserious Administrative limitations is hampering the implementation of otherrecommendations made, such as the indexation of the presumed cost and agradual change to a tax system based on net income.

Mnleral Resources Exploration Fund Study

20. The first feasibility study for the impl~nentation of anexploration fund, contracted with a foreign consultant, was found to be farbelow the intended scope of work and therefore, of no use forimplementation. The Minifstry had to contract, at its own expense, a localconsultant to conduct a new study. This second study was completed earlyin 1977 and led to the creation of the National Fund for Xining Exploration(FUND). To support the operation of the FUND, an IDA credit (940-B0) inthe amount of US$7.5 million was approved in June 1979.

Review of the Mining Code

21. The Government did not fulfill its commitment to review andpromulgate a new Mining Code which was a contractual condition under IDA -Credit 455-30. It appears that high officials of the MMK. at the time ofthe credit negotiations, had the intention to review the code and suggestedthe contractual conditions to be included in the legal documents; later on,the MMI, after consultation with interested parties within the public andprivate mining sector, found that a review of the code was not necessaryand decided not to change it. The existing Mining Code has somebureaucratic and administrative weaknesses but in essence is a good one andrequires no major review.

The Cadastral Survey

22. The survey was aimed at compiling an official register of allmining concessions in the country thus providing an important tool forpolicy making and, in particular, for the introduction of a new taxsystem. A well staffed technical unit was established in the MMH andsuccessfully initiated the program, but poor supervision by MMK, lack ofadequate budget contributions, strong opposition from mine owners andirregularities in the administration of the cadastral unit, led to theindefinite postponement of the program in 1982. Information was obtainedthat several pieces of equipment and instruments were lost or stolen fromthe unit. The survey so far completed only about 5Z of the original targetin an area which proved to be of little value for the mining industry.

6/ Bolivian tax on mineral production is based on the royalties paid onthe difference between the metal price and the -presumed cost- set bythe Government.

- 34 -Annex 6Page 7 of 8

23. On the positive side, a good number of surveyors have beentrained which, under new favorable circumstances, could lead to thecontinuation of this program.

Strengthening of BAMTN

24. The principal objective of this T.A. component was to hbap theTechnical Office of BAMIN in appraising and supervising sub-loans formining development. The improvement of BAMIN's managerial control systemwas also considered. In 1977 a foreign consultant in mineral economics washired under this program. Lack of receptiveness prevented the consultantfrom effectively communicating and motivating the local team and hisservices were cancelled.

25. An international management consulting company performed anextensive study of BAMIN's operations and made several recomuendations forimprovements. In practice, none of the recommendations have beenimplemented. Similar to the turnover of Ministers in ME, BAMIN had onaverage, one new General Manager per year.

E. Government Participation

26. The MHM was charged with the overall responsibility of theproject, had to assure coordination among the participting agencies,oversee the progress of the individual project components, administer thetechnical assistance contracts for its planning office, and carry out thecadastral survey.

- -. n~t the time of appraisal and during the initial steps of proj-_timplementation, the country was in the middle of an exceptional period ofpolitical stability and the Ministry was staffed with a highly motivatedteam of professionals who were agressively pursuing the development of theproject. Later on, significant political changes and the departure ofhighly motivated staff hampered successful project implementation. Failureof the Government to provide the necessary funds such as those required tocomplete GEOBOL's laboratory and workshops, and implement the cadastralsurvey, can also be considered as reasons for the unsuccessful terminationof the various programs.

F. Bank's Role

28. Main Bank contribution has been Ln the conception of thetechnical assistance to the sector which was badly needed to assist Boliviain the understanding of the mining industry, in particular, the small andmedium mines subsector.

29. On the negative side, the Bank failed to recognize the limitationsof institutions such as GEOBOL which, due to the nature of its activitiesis oriented mainly to the prospecting of new ore deposits and to thepreparation of technical, geological studies. It is not prepared however,to make full prefeasibility studies as it was expected to do.

- 35 -

Annex 6Page 8 of 8

G. Lessons Learned

30. Most important lessons learned about project design andimplemuentation can be summarized as follows:

- Project design was not clearly defined nor widely discussed withthe borrower during the initial steps of preparation.Responsibilities among implementation agencies were not clearlydetermined resulting in complex coordination schemes forsupervision.

- Poor implementation or cancellation of some of the T.A. comnonentscould have been avoided by concentration on short-term, clearlydesigned targets within an overall medium- to long-term strategy.

- The design of the assistance through foreign consultants, financedby loan funds, did not take into consideration the limitedcapacity and lack of receptiveness of some local entities and theability of the consultants to transfer their experience in anenvironment with limited facilities constant political changes,and strong resistance to foreigners7/. In this respect,short-term consultants to assist in very specific tasks have shownpositive results while long stays to assist in long-term goals ofstaff improvement and planning, have not worked out as expected.

- The fact that GEOROL failed to produce the pre-feasibilitystudies as required and that BAMTN, with a more straight forwarda-pproach, was able to disburse and finance mining projects,indicate that the original conception was probably too academic.

- Finally, despite the fact that the Bank put considerable humanresources into supervision, poor coordination by MMM, lack ofpolitical and managerial continuity and institutional weaknesses,made it difficult to implement the agreements reached duringproject implementation.

ALeonIK25a;PCRBolivia

7/ GEOBOL's view, however, is that, it. its case, foreign technicalassistaiwce was used whenever consultants were available. (Borrower'sCc nent 5, Attachment).

- 36 -Annex 7page 1 of 2


BOLrVIA - SMALL SCALE WINING DEVELOPMENT PROJECT

(LOAN 1331-BO) and (CREDIT 455-BO)

Selected Subproject Visits

Visit to Martha Project

This open pit project shows an impressive display of modern earth moving andore processing equipment. Rowever, it is still loosing money. Rock hardnessproved to be higher than expected, so, the huge dragline is unable to scoopsufficient ore to the washing plant. In addition, there are problems with aninadequate supply of water.

Although BAMIN's technical staff seemed to overplay the soundness of thisproject, it was clear from our visit that the company is behind schedule andthat the break-even point is still a way ahead. In order to solve theseproblems, two Caterpillars are being put to help loosen the rock and atailings pond is still under construction to serve the purpose of recyclingwater.

There is no doubt that these problems will eventually be solved; the companyis one of the most experienced medium mining companies in Bolivia and itsfinancial voundness will back its obligations with BAMIN. Rowever, this is apoint in case, raising the question regarding BAMIN's ability to evaluatethese type of projects. It should be remembered that the credit was given toMartha, when it was still in the hands of a small miner. Comsur bought 50Zof the shares, after financing had been secured and it had to put in asubstantial amount of its own funds in order to implement the project. Fo,the question arises, what would have happened if Coasur had not entered intothis proiect?

From my enjovable experience working with your mission in evaluating theoutcome of Projects 455-RO and 1331-BO, I reached the conclusion that BAMINdisplayed a lot of pragmatism in departing from the original small miningproject oriented philosophy of its loan program, but in doing so, it alsoentered into substantial risks.

3. Visit to Cia. Minera Tianacu Ltda.

This company is one of the most aggressive mining company in the country atpresent and is dynamically pursuing expansion into new ventures. Itsprogressive spirit is also demonstrated by its willingness to test newtechnologies in the mineral processing field.

Here again, BAldIN's loan was a sound investment and was oriented more to thetype of client than to the tvpe of project.

- 37 -Annex 7page 2 of 2

4. Visit to CAMBIA

I can say very little about this company and this project. The time spent inthe mine premises was too short to get better acquainted with the peopleinvolved in this operation. At a first glance, however, it was possible torecognized, in contrast with Hartha next door, a highly labor intensiveoperation and, therefore, a richer tin deposit. I understand that thiscompany is doing very well and that again here, BAMIN may have taken a sounddecision.

5. Conclusions

I would dare the impression that all companies visited were solid creditsubjects and that BANIN lent them money mainly because of theircredituorthiness, and not necessaril7 because of the project's own merits.From the documents that you gave me to study I perceived that BAMIN'stechnical and financial appraisal of the prolects was rather weak.

This type of practive may be vractical, provided the sub3ect is very sound,reliable, and offering a good proportion of collateral. However, it can be avery risky practice with lesser credit sublects. It is interesting to notethat in any case, it is a large departure from the original target of theloan program, that was to -help improve the small mining industry.- Or maybe, it would be better to say that such original target was not realistic, ifit had to become an end in itself, departing from sound banking practices.

- 38- ATTACHlT

page 1 of 2

3 =orrr'shave be reflected BORROWEI'S COKETSin parza. 10, 11, 13,and 30 of Annex 6 oftde PCRt.'

t-1106,15 1ay 2, I" 18pns (Bolivi)

03D JCS:o

Seryilo Geol6gico de Bolivia - GlOBOL

M No. 077/85

.r Yukinori watanabe la Paz, April 16, 1985Diretor, OaDWorld Bank

Dear Sir:

I vrite to acknowledge receipt of your letter of February 15. and toexpras" our partial concurrnce with the Project Completion Report (Credit1331-40). -Nevrtheless, a few points require some clarificatioc, and I attachthe pertinent cauMmts. insofar an GEOBOL is concerned, for consideration in-our final report.

Yours truly,

/1/ Raul CarrascoExecutive Director of CEOBOL

ATTACHMETpage 2 of 2

-39-

1. The PCI metions "disputes' betwee GEONOL and 1M.Para. 11,Annex 6 and W mould point out that disputes as *uch did not arise; there vas afootnote 2 certain lack of coordination and understanding. but ths was overcome

satisfactorily.

2. The feasibility studies carried out by GEODOL were approved by the WorldPara. 11, Bank since they conformed to international standards, and the delays wereAnnex 6 and due to factors beyond our control.footnote 4

3. The failure to hire consultants was due to the fact that the selectedPara. 13, consulting fim backed out after proposals had been invited.Anx.6 suitablemodifiWi At the start of the project CEBOOL was required only to carry out basic

Para.11 studies. Later, however, It was assigned the responsibility ofAnx. 6 and performing prefeasibility and, subsequently, feasibility studies, andfootnote 3 while at the start it did not bave the necessary experienc, it now has

-ltidisciplinary teams of professionals providing it with the expertiseto formulate an4 appraise mining projects, as demonstrated by ecutionof the Kumurana Project.

5. The Report mentions the 'limited capacity and lack of receptiveness ofPara. 30, the local entities," a remarks in GEOBOL's case at least, that is totallyAnnex 6 andinconsistent vith reality, since the foreign technical assistancefootnote 7, received by GEOBOL was used extensively whenever consultants were

available to transmit their experience.

6. GEOBOL produced 24 prefeasibility studies. The delay was at thePara. 11 feasibility stage, originally to have been executed by privateAnnex 6 andcosultants. This did not come about because of the high cost assignedfootnote 4 to this stage by the private consultants, a cost that the mining

enterprises were not in a position to finance, and the absence of a lineof preinvestment finacing.

As a positive outcome of the project, it has generated a wide range ofexperiences and lessons, which have in turn enabled GEOBOL to trainprofessionals in the formulation and appraisal of mining projects.

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