Doment of

The World Bank

FOR OMCAuL USE ONLY

Repqt Nwo. P-4139-MAU

REPORT AND RECOMMENDATION

OF THE

PRESIDENT OF THE

INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT

TO THE

EXECUTIVE DIRECTORS

ON A

PROPOSED LOAN

IN AN AMOUNT EQUIVALENT TO US$20.0 MILLION

TO THE

SOCIETE NATIONALE INDUSTRIELLE ET MINIERE

(SNIM)

WITH THE GUARANTEE OF

THE ISLAMIC REPUBLIC OF MAURITANIA

FOR A

REHABILITATION PROJECT

November 12, 1985

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CURRENCY EQUIVALENTS

Currency Unit Ouguiya (UM)UK 67 = US$1.00UK 1,000 = US$14.93UK 1 million = US$14,930

WEIGHTS AND MEASURES

I meter (m) = 3.281 feet (ft)I cubic meter (m3) = 33.315 cubic feet (ft3)1 kilometer (km) = 0.62 miles1 kilogram (kg) = 2.205 po':nds (lb)I metric ton (tonne, t) = 1,000 kg or 2,205 lb

ABBREVIATIONS AND ACRONYMS

AFESD - Arab Fund for Economic and Social DevelopmentBRCK - Bureau de Recherches Gfologiques et MinieresBRPM - Bureau de Recherches et de Participations Mini5resCCCE - Caisse Centrale de Cooperation EconomiqueEIB - European Investment BankKFECIC - Kuwait Foreign Trading, Contracting and Investment CompanyMIFERMA - Mines de Fer de MauritanieOECF - Overseas Economic Cooperation Fund of JapanSAFA - Societe Arabe du Fer et de l'AcierSNIM - Societe Nationale Industrielle et MinigreSOCOMINE - Societ,e de Cooperation Miniare et IndustrielleSOFRESID - Societe Frangaise d'Etudes de la Siderurgie

MAURITANIAN FISCAL YEAR

January 1 - Decembe. 31

FOR OMCIAL USE ONLY

MAURITANIA

SKIM REHABILITATION PROJECT

LOAN AND PROJECT SUHMARY

Borrower: Societe Nationale Industrielle et Miniare (SNLM).

Amount: US$20.0 million.

Terms: Repayable in 15 years, including 3 years of grace, atthe Bank standard variable interest rate plus aguarantee fee to the Government of 10 percent of thevariable interest rate.

Project Objectives SKIM's increasing production costs and debt service,and Description: both due to the now completed Guelbs Project, require

tight financial management in the coming years. TheProject's main objective is to secure the medium-termfinancial and economic viability of SKIM, one of themost valuable assets to the Mauritanian economy. TheProject would consoLidate and further advance theongoing action program for managerial and technicalimprovements and would in particular:

(i) help SNIM continue to improve its management andreduce its production costs; and

(ii) assist with the necessary financialrestructuring of SNIM by transforming part ofits short-term debt/overdraft into long-termdebt.

The Project consists of: (i) measures by SKIH aimedat improvements and cost reductions in management,operations, procurement and investments, persconnel,overhead costs and cash management; and (ii) purchaseof equipment and supplies, and provision of trainingand technical assistance necessary for theimplementation of these measures.

Project Risks: The Project faces major financial, but alsomanagerial, coumercial and technical risks. Soundproject preparation, conservative assumptions for thefinancial projections and the fact that SNIM hasalready successfully started its rehabilitationprogram, limit the risks to an acceptable level.

IThis documcnt has a rsicied distfibution and m;2y be used by reapients only in the peqorT&v!ce of |their officia duties. Its contents may not otherwise be disdosed without World Bankt autborizaXon

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Estimated Cost (net of taxes): Local Foreign Total(US$ million)

Replacement of Equipment 2.5 25.7 28.2Major Overhaul and Improvement of Equipment 13.3 30.9 44.2Tools and Control Equipment - 4.6 4.6Training and Technical Assistance - 8.5 8.5

Base Cost (Mid-1985 Prices) 15.8 69.7 85.5

Physical Contingencies 0.2 1.3 1.5Price Contingencies 0.8 4.4 5.2

Total Project Cost 16.8 75.4 92.2

Financing Plan:Local Foreign Total

C(US$ miliion)External

IBRD - 20.0 20.0Kuwait/Arab Funds - 18.2 18.2Abu Dhabi Fund _ 5.8 5.8Saudi Fund - 5.7 5.7OECF - 3.1 3.1CCCE - 3.0 3.0

InternalSNIM 16.8 19.6 36.4

Total 16.8 75.4 92.2

Estimated Disbursements of IBID Loan:

Bank FY 1986 1987 1988-((US$ m1lion)

Annual 3.0 7.0 10.0Cumulative 3.0 10.0 20.0

Economic Rate of Return: 25 percent

Staff Appraisal Report: Report No. 5819-MAU, dated November 12, 1985

IBRD No. 19048IBRD No. 19049

REPORT AND RECOMMENDATION OF THE PRESIDENT OF THEINTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT

TO THE EXECUTIVE DIRECTORS ON A PROPOSED LOANTO SOCIETE NATIONALE INDUSTRELLE ET MINIERE (SNLM)

FOR A REHABILITATION PROJECT

1. I submit the following report and recommendation on a proposedloan to Societe Nationale Industrielle et Miniere (SNIM) for US$20.0million to help finance a Rehabilitation Project for the Company. The loanwill be made available to SNIK at the Bank standard variable interest rate,plus a guarantee fee of 10 percent thereof payable to the Government, andis repayable in 15 years, including 3 years of grace. Additional financinghas been made available by Kuwait/Arab Funds (US$18.2 million), Abu DhabiFund (US$5.8 million), Saudi Fund (US$5.7 million), Overseas EconomicCooperation Fund of Japan (OECF) (US$3.1 million) and Caisse Centrale deCooperation Economique (CCCE) (US$3.0 million).

PART I - THE ECONOMY

2. A report entitled Islamic Republic of Mauritania - CountryEconomic Memorandum (5537-MAD), dated July 10, 1985, has been distributedto the Executive Directors. Updated country data are given in Annex I.

The Land and its People

3. Mauritania bears many of the characteristics of the 'LeastDeveloped Countries' in terms of its physical and human resources, despitea level of per capita income (US$450 in 1984) somewhat higher than theceiling for lowest income countries. Three-quarters of the country isdesert or semi-desert, the principal economic activity being livestockherding. Crop farming is generally limited to the sub-Saharan zone in thesouth, where rainfall is nonetheless sparse and irregular. Pockets ofmodern economic activity are found in the mining complex of Zouerate, thefishing center of Nouadhibou and the administrative capital of Nouakchott.These centers are geographically separated from the agricultural zones, andthere is little economic interaction between them and the rural sector.

4. The tbree centers of modern economic activity account for a majorshare of the country's overall output, while livestock and crop farming,which support about two-thirds of the population, account on average forabout 20 percent of total output. The mass of the population (total 1.7million) suffers from an extremely low standard of living, as reflected inkey social indicators: life expectancy at birth is estimated at 46 years,infant mortality is 136 per 1,000, only one in every three children ofschool-age attends primary school, and about 18 percent of the populationis literate in either of the two official languages, Arabic and French.

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Past Economic Performance

5. Led by increases in iron ore production, Mauritania's GDPsustained an average annual growth rate of 8 percent during the 1960s. Theeconomy experienced a sharp deceleration in growth in the mid-1970s,however, and a period of marked financial instability in the latter part ofthe decade. Principal factors were reduced world demand for iron ore, onwhich the country had been dependent for 70-80 percent of its exportearnings, and the effects of severe and repeated drought on output in therural sector. These factors were compounded by prolonged military conflictin the Western Sahara and a poorly conceived investment policy. Theinvestment program was stepped up in the mid-1970s to rates approaching 40percent of GDP with the support of heavy inflows of foreign assistance,particularly from OPEC sources and commercial lenders. These resourceswere used principally to finance the nationalization of the mining sector,ambitious projects in transport infrastructure and a few large industrialventures which were to prove unviable.

6. In 1978 the Government undertook a stabilization program whichcalled for the rescheduling of more than US$200 million In debt serviceobligations, tight controls over the Government expenditures and areinforced tax effort. Increased iron ore and fish exports and higher cropand livestock production enabled the economy to pull out of the stagnationwhich had characterized it since 1977; real GDP growth over the 1979-1981period averaged 4.1 percent per annum.

7. The iWroved performance of the economy could not be sustained,however,- in the face of a depressed world market for iron ore and therecurrence of severe drought. Iron ore production fell by more than 20percent in 1982/83 to a level only 65 percent of that registered 10 yearsearlier. With rainfall only about 30 percent of normal levels in the1983/84 and 1984/85 seasons, the livestock herd suffered major losses, andcereals production met less than 10 percent of total demand; aggregateoutput of the economy increased by only 1.4 percent p.a. from 1982 to1984. In the absence of sustained growth, per capita average income in1985 is essentially unchanged in real terms from that of a decade ago.

8. The public finance situation deteriorated substantially duringthe 1982-84 period. The Government's consolidated fiscal deficit rose fromUK 1.7 billion (4.6 percent of GDP) in 1981 to a peak of UM 4.8 billion(11.2 percent of GDP) in 1983, before falling to UK 3.6 billion (7.8percent of GDP) In 1984. A 9 percent increase in the size of the civilservice in 1982/83 and high debt service payments contributed to thedeficits. The deficits were financed out of Central Bank advances to theTreasury and through an accumulation of external and domestic paymentarrears, estimated at about UM 5.5 billion by the end of 1984.

9. In the external sector, the growth of exports has been modestwhile imports have been high, mainly because of capital imports associatedwith major public investments. In 1983-84 the current account deficit

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was close to US$230 million on average, or more than 30 percent of GDP, asthe investment ratio averaged 35 percent of GDP. Financing came mainlyfrom external loans from Governments and multilateral institutions onconcessional terms.

10. Despite the high degree of concessionality, annual debt serviceobligations are well beyond Mauritania's payment capacity. Arrears on debtservice have increased from US$23 million at the end of 1981 to anestimated US$103 million as of end 1984. Total scheduled payments onexisting debt imply a debt service averaging US$180 million over the1986-1988 period without taking into account new borrowing after December31, 1984.

The Recovery Program and the Current Outlook

11. Mauritania's balance of payments and budgetary situation thusremains extremely weak, requiring continuing adjustment measures over themedium term and heavy support from abroad in the form of financial andtechnical assistance and food aid. The gradual depreciation of the ouguiyaduring 1984 was one of a series of recovery measures required to reduceexternal and domestic imbalances to sustainable levels and maximize themodest prospects for the economy in the medium-term. Further reformmeasures in the areas of exchange rate and price policy, fiscaladministration, the public enterprise sector, the banking system and thepublic investment program are being pursued in the context of an Economicand Financial Recovery Program, that the Hauritanian authorities approvedin early September 1985, and will present at a Consultative Group meetingchaired by the Bank on November 26 and 27, 1985. Already in March 1985,the Government reached agreement with the IMF on a proposed Stand-Byarrangement for SDR 12 million. In accordance with that agreement, itundertook in February 1985 a further 19 percent effective devaluation ofthe ouguiya in domestic currency terms, as well as increases in cerealsprices at both producer and consumer levels ranging from 12-50 percent.The Government also raised all interest rates by 2 percent to levels whichare positive in real terms and took measures to restrict credit expansion.The IMF Stand-By arrangement is noaw being implemented, while negotiationswith Arab and Western bilateral :reditors to fill the projected 1985financing gap of about US$200 million (including arrears) are progressingsatisfactorily.

12. Successful implementation of the Government's Economic andFinancial Recovery Program, which includes priority macroeconomic andsectoral policy measures and a sound public investment program, should besupported by the international community because of its critical importanceto the medium-term outlook for the economy. With disciplined economicmanagement and well-conceived measures to exploit Mauritania's limitedresources, modest but sustained growth in output is possible. Althoughinternational iron ore markets are not expected to recover significantlythrough the 1980s, it is possible for SNIM to continue to improve the costeffectiveness of its operations. SNIM's rehabilitation is an essentialpart of the Government's Recovery Program. Rural sector production shouldrecover moderately from the drought-iuduced lows of 1984. In the livestocksector, some time will be needed to reconstruct the herd following the

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heavy mortality and accelerated offtake over the past two years. In themedium-term, irrigation development will increasingly contribute to foodsupplies, even though cereals production will remain highly vulnerable tothe effects of drought. In the fisheries sector, now a major source offoreign exchange and budgetary revenue, growth could remain strong foranother 3-4 years, but should then level off if resources are not to beover-exploited. Under favorable assumptions, overall growth of the economythrough the remainder of the 1980s could average 3 percent annually, aboutthe projected rate of population growth.

PART II - BANK GROUP OPERATIONS IN MAURITANIA

13. To date, che Bank Group has had 22 operations in N4auritania for atotal of US$242.5 million. Of these, two are Bank loans for miningoperations (US$66 million to MIFERMA in 1960, and US$60 million to SNIM in1979 for the Guelbs Iron Ore Project). The other 20 are IDA creditstotalling US$116.5 million. Of the IDA operations, five have been in thetransport sector, seven in the rural sector, two for education, two fortechnical assistance to economic planning and one for technical assistanceto the Rural Sector, and there have been separate projects for urban andrural development, Public Enterprise Rehabilitation, Artisan and IndustrialDevelopment and petroleum exploration. In 1985, the IFC has financed afood oil refinery. The Bank Group's presence in Mauritania was fairlysubstantial in the early 1970s, and in 1970-72 it was the third largestdonor providing about 18 percent of Mauritania's external capitalassistance. Since then, external financial assistance to Mauritania fromother sources has increased rapidly and at present, the Bank Group's sharein Mauritania's external capital assistance amounts to about 8.0 percent.

i4. Until the mid-1970s, Bank Group strategy for Mauritania focussedon financing traditional projects mainly in agriculture, transport andeducation. This assistance has since been broadened to address theinstitutional weaknesses in country economic management, investmentplanning and project implementation. In 1978, the Association assisted theGovernment in designing a financial and economic rehabilitation program forwhich the first Technical Assistance Project (FY77) provided theexpertise. Assistance for the formulation of macroeconomic policy, amedium- and long-term development strategy, and investment programs isbeing continued under a Second Technical Assistance Project (FY82), whichis also helping to develop a pipeline of feasible investment projects. Theobjective of this assistance is to institute a much more thorough analysisof investments than in the past, especially to avoid large, capitalintensive projects with low productivity and unsatisfactory rates ofreturn. Priority will now be given to projects involving therehabilitation and maintenance of existing infrastructure, and only tothose new investments that promise a high rate of return.

15. After a comprehensive review of public sector enterprisesfinanced under the first Technical Assistance project, assistance was alsoprovided to the Interministerial Committee for the Rehabilitation of Public

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Enterprises in the course of preparing a medium-term rehabilitation programfor the public enterprise sector. This program includes measures toincrease the efficiency of existing enterprises through selectiverehabilitation, privatization and liquidation, and outlines rehabilitationprograms for several of these enterprises, including pricing policies,personnel adjustments, streamlining of management and appropriatemaintenance of equipment. In support of this program, a Public EnterpriseTechnical Assistance and Rehabilitation Project was approved by the Boardof Executive Directors in FY85.

16. In order to address Mauritania's severe balance of paymentsproblems, tight fiscal situation and inability to service its public debt,the Association, in close cooperation with the IMF, helped the Governmentfinalize a Recovery Program (1985-86) to be presented to a ConsultativeGroup meeting scheduled on November 26 and 27, 1985. To back-up theseefforts, our country and economic sector work, concerning particularly thebanking, fisheries, education, energy and urban development sectors, hasbeen intensified. To support the program more directly, a policy basedoperation is envisaged for FY87 which will aim at improving economicmnagement and the utilization of domestic resource potential.

17. Professional training and technical assistance will remain anessential ingredient of IDA assistance to overcome the acute shortages oftrained local staff at all levels, a major difficulty in projectimplementation. Through project aid and technical assistance, efforts havebeen made to strengthen farmers' training and vocational training for themodern industrial sector, as well as to broaden access to primaryeducation. Nonetheless, pupils completing secondary and vocational schoolswith satisfactory results remain scarce; this partially explains the lowproductivity of employees in the modern sector.

18. Assistance to the education sector is being provided under theSecond Education Project (FY82) which aims at expanding access to primaryeducation, improving vocational training in the modern industrial andcommercial sectors, and training of lower secondary school teachers toreplace a substantial number of foreign technical assistants. TheC-overnment recently requested that the Association assist its EducationReform Committee in reviewing key sectoral issues, defining long-termobjectives, formulating policies, preparing an investment program toincrease the efficiency of education and training, and reducing recurrentcosts because of the already large share of education (30%) in the nationalbudget.

19. Assistance to agriculture will continue since this sector isstill considered Mauritania's principal source of long-term growth, despiteits weak base and extreme vulnerability to drought, and the high cost ofinvestment which is due to difficult physical conditions, limited transportinfrastructure, and the high level of technical assistance needed. Throughthe Second Technical Assistance to the Rural Sector Project (FY83), ruralinstitutions are being strengthened and incentives for efficiency developed

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by addressing such fundamental issues as input and product pricing,subsidies and land tenure. A Small Scale Irrigation project (FY85)continues IDA's assistance to the irrigation program by financing theestablishment of 75 command areas of 20-25 ha each. The participation ofbeneficiaries in construction, maintenance and operation is beingemphasized to minimize investment costs. A Second Livestock project,scheduled to be presented to the Board of Executive Directors during FY86,would improve livestock production, strengthen services and-based onexperience in Niger and Mali-establish pastoral cooperatives on a trialbasis and allocate grazing rights to identifiable land areas.

20. In the energy sector, our assistance consists of supporting theGovernment's search for oil through the Petroleum Exploration Project(FY82), and carrying out an energy assessment in order to recommendstrategies and policies for improving energy demand management, developingindigenous energy resources, strengthening institutions, and identifyingareas for follow-up technical assistance that could form the basis for afuture operation.

21. The Association is also helping Mauritania to develop an overallstrategy for the urban sector. Urbanization has accelerated dramaticallyin recent years, but appropriate measures to ad5 ust to this developmenthave not been taken. Sector work is being carried out to gather detailedknowledge of urban requirements, and to examine wider urban policy issuesin the overall context of Mauritania's development prospects. This sectorwork may lead to the design of an urban project at a later stage.

22. To assist in Mauritania's efforts to diversify employment andsources of in-come, financing was provided through the MauritaaianDevelopment Bank (Credit 888-MAU) to encourage private enterprise and topromote artisanal carpet-weaving activities. A Second IndustrialDevelopment project (Credit 1572-MAU) approved by the Board in FY85 iscontinuing support for these objectives by financing studies to developappropriate policies for improving subsector performance and to assess thepossibilities for further expansion of the manufacturing sector.

23. The Recovery Program for 1985-86 has identifted fisheries andbanking as two priority sectors where well-defined actions are urgentlyrequired to help the economy recover from its past record of low growth.To assist the government in defining meaningful strategies in these two keysectors, the Bank has financed two studies which will provide thegovernment and the donor community with a sound basis for defining basicstudies and other policy actions. A first set of actions should be carriedout in 1986. As the best source of growth in the short-term, the strategyobjective in the fisheries sector will be to capture a larger share of thebenefits currently reaped by foreign trawlers or contractors operating inMauritanidn waters. Once this sector strategy is in place, a fisheriesproject would be considered.

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24. The banking sector is composed of six banks, four of which arefully controlled by the Central Bank. The sector has been suffering from asteady decline in its profitability (despite a continuous expansion oflending), obvious illiquidity, a tight cash position and risks that are outof proportion to the banks' potential, The capital and net worth of thebanks have been progressively eroded )because of accumulated deficits andbad debts, which are reaching the point where the future of the banks isjeopardized. The study, cofinanced with the Arab Monetary Fund, willprovide an objective analysis of the means and actions required to restorethe banks' financial viability, improve their management and change theirsystem of credit control. The implementation of the rehabilitation programfor the banking sector is obviously crucial for the promotion of allproductive sectors. The Bank will consider providing some assistance forthis rehabilitation program as part of the policy-based operation envisagedfor FY87.

PART III - THE MINING SECTOR

Role of Mining Sector in the Economy

25. Despite the recent development of the fisheries sector, miningcontinues to be the most important sector of the Mauritanian economy. Themining sector consists almost exclusively of the exploitation of iron ore,which dates back to 1963 when Mines de Fer de Nauritanie (MIFERNA), thepredecessor of SNIM, commenced operations. Production capacity is about11.5 million tonnes per year. The most recent investment was the GuelbsProject that started production in March 1985. The operations are locatedinland at Zouerate, about 650 km east northeast of Nouadhibou, the port ofshipment, which is connected with Zouerate by a company-owned railway.

26. Iron ore mining by SNIM has been a mainstay of the Mauritanianeconomy, and its development has been the chief determinant of thecountry's economic growth. While still a very important sector in theMauritanian economy, the mining sector's direct contribution to GDP hasfallen from 13.9 percent in 1975 to 9.2 percent in 1983, partly due todeclining iron ore output and partly to growth in other sectors, inparticular the fisheries sector which increased its contribution to GDP atmarket prices from 3.6 percent in 1975 to 7.7 percent in 1983. Also,Government Services and Transport and Communications have grown relative toother sectors in the same period. However, in addition to its directcontribution to GDP, iron ore mining has some indirect impact on GDP

- through value-added in the industrial, construction and services sectors.

27. Iron ore is still a very important source of foreign exchange,although its share in Mauritania's total merchandise exports fell from 86percent in 1975 to 42 percent in 1983, basically due to the emergence ofearnings from the export of fish and fish products. SNIM contributes topublic revenues directly through the payment of a 10 percent tax on all

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iron ore sales and indirectly through the tax payments of its approximately6,100 employees. The sales tax alone amounted in 1984 to an estimated 8percent of total public revenues.

Resource Base

28. Iron Ore. Iron ore is being mined from several small mines inthe Kedia mountains near Zouerate, where high grade ore (iron content62-64 percent Fe) occurs which can be exploited and exported without priorbeneficiation. In view of declining ore reserves at KCedia, the GuelbsProject has been prepared as a high priority since the mid-1970s. Theproject provides in its first phase for a partial replacement (6 milliontonnes per year) of Kedia ore through the mining and beneficiation of lowgrade ore (38 percent Fe). The new mine, the beneficiation plant (whichupgrades the ore to a marketable product of 64 percent Fe content) and someadditional infrastructure were commissioned in 1984 and are now in theinitial start-up phase. Presently, the remaining high grade ore reservesof Kedia are estimated to be in the order of 30 million tonnes. With anestimated average future extraction of three million tonnes per year, thiswould allow the parallel operation of Kedia and Guelbs until themid-1990s. The reserves of low grade Guelbs ore (about 2.3 tonnes areneeded to yield 1 tonne of product) were originally estimated at about 450million tonnes. 1/ However, at present iron ore prices, only about 50-60percent would be economically recoverable. This would allow operation ofthe existing Guelbs facilities for about 20 years, but would be aninsufficient base for the previously planned phase 2 expansion of Guelbs.

29. Other Minerals. Other than iron ore, only copper and gypsum havebeen mined in Mauritania. The Akjoujt copper deposit, located about 200 kmnortheast of Nouakchott, was mined by Societe des Mines de Mauritanie(SOMIMA) from 1971 to 1978 21, which became a subsidiary of SNIM duringthe last three years of this period. Due to continuous high losses, theoperations were shut down in 1978. The market and prices furtherdeteriorated, and the outlook for a successful reopening is bleak. A higharsenic content of the ore would add to the marketing difficulties. Gypsumfrom an area north of Nouakchott has been mined since 1973 by SNIN. In1983, this operation was separated from SNIM. The output is small (17,000tonnes per year) and entirely sold to the Rufisque cement plAnt in Senegalin return for a rebate on cement sold to Mauritania. Other minerals, whichare not mined but have been reported existing in Mauritania includephosphate, rare earth and gold. About 90 million tonnes of raw phosphaterock have been explored near the Senegal river, some 300 km from the sea.The market situation, relatively low reserves and the lack of transportinfrastructure preclude an economical exploitation at present. Similarly,market considerations, remote desert locations and poor geologicalindications presently do not suggest any possibility of economicalexploitation of rare earth or gold.

1J Including 100 million tonnes from the nearby Guelb Oum Arwagen.2/ IFC partic'.pated in the establishment with share and loan capital in an

amount of approximately US$20.0 milion, but has since sold all shares.

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The Borrower: Societe Nationale IndustrieLle et Miniere (SN3DM)

30. Ownership, Organization and Management. Since thenationalization of MIFERMA in 1974, the mines have been operated by SOIM,established as a State company in 1972. In 1978, SKIM was made astate-controlled, limited liability corporation (Societe d'Economie Mixte aNajorite d'Etat), permitting private and foreign ownership. SIND's sharecapital is currently held by the Mauritanian government (70.9 percent), theKuwait Foreign Trading Contracting and Investment Company (9.6 percent),the Arab Mining Company (7.6 percent), the Iraq Fund for ExternalDevelopment (6.2 percent), le Bureau de Recherches et de ParticipationsKiniares du Maroc (3.1 percent), la Banque Islamique de DWveloppement (2.4percent) and Mauritanian individuals (0.2 percent).

31. Apart from the iron ore mining operation (SNIM Fer), SNIMincludes a few minor ventures: (i) SNIM Explosifs, a small explosivesfactory, now being made redundant by the introduction of modern explosivemixing trucks in the mines; (ii) SNIM Acier, a small steel plant producingsteel bars used in construction mainly for the local market; and (iii)SNIM Paris, the marketing branch located in Paris. The operation of SINKAcier has so far made cash losses. SNIM has sold off two-thirds of itsshares in this company and the steel mill is nor legally, financially andadministratively separated from SNIM.

32. Starting in late 1984, SNIN's management structure was modifiedfrom a flat structure (22 departmental managers reporting directly to thegeneral manager) to a pyramid shaped structure (10 managers reporting tothe general msanager, each with three to seven divisional managers reportingto them). In early 1985, the previous technical manager was promoted tothe position of general manager. His background and experience arevaluable for implementing management, production and cost improvements. Areview of the management and organizational structure by consultantsCCEGOS/METCHEK), whose terms of reference were reviewed by the Bank, wascompleted in September 1985 and confirmed the appzopriateness of SHIM's newoverall organizational structure.

33. From 1979 to 1984, SINM's work-force has increased by about 17percent, from 5,165 to 6,059. This high growth in the work-force is amajor reason for the company's present financial difficulties and will beaddressed in the proposed Rehabilitation Project (para. 54). On the otherhand, SINM has reduced the number of expatriates from about 400 toapproximately 100.

34. Operations. SINM's headquarters are located at Nouadhibou, theport of ore shipments. The mines are managed from Zouerate and the portand railway are managed from Nouadhibou. For its operations, SHNM alsomaintains a small office in Nouakchott for liaison with the Government anda small purchase office in Las Palmas. Although the labor force is largecompared to efficient iron ore operations elsewhere, SHNM's operations arereasonably efficient, and equipment maintenance is, in general,appropriate.

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35. The Kedia mining operations are spread over six small pits,equipped with older 4m3 -electric rope shovels and trucks, mainly in the 60tonnes-class. There are two crushing and train loading stations, one atRouessa and one at Tazadit, each having a capacity of about 5 milliontonnes per year. The mobile mining equipment, as well as the fixedinstallations, need continuous planned maintenance and overhaul forefficient operation. Central workshops along with other services such aspower/water supply and warehousing, are located in Zouerate. The town nowhas about 50,000 inhabitants of which about 2,500 are employed by SNIM.Although major services for the town, such as schools, hospitals, fooddistribution and airport operation have, to a large extent, beentransferred to Government agencies or private enterprises, SNOM is stillresponsible for power and water supply, as well as for major roadmaintenance. By the end of 1986, SNIM will decide on further cost savingmeasures in this area.

36. The railway connects Zonerate, over a distance of about 650 km,with the port at Nouadhibou. Although SNIM has regularly maintained therailway track, some of its sections are now so heavily worn, thatreplacement has become critical to sustain present production rates. Someof the locomotives are worn out and need either new engines or completereplacements. The port equipment consisting of ore tipping, crushing,screening, stockpiling and shiploading facilities is basically in goodoperating condition; only the shiploader requires overhaul in the nearfuture to secure high availability.

37. The Guelbs Project. This project was implemented to replace theproduction of iron ore from the depleting reserves of the Kedia mine. Itconsists of a new mine at Guelb (mountain) El Rhein, about 30 km north ofZouerate, a beneficiation plant of 6 million tonnes per year capacity andsome extension of the existing railway and port. Financing from 12lenders, including the Bank, was secured in 1978 and first contracts wereissued in 1979. After initial delays caused by late effectiveness of theloans and procurement inefficiencies, construction was completed by end1984 at a cost of US$350.0 million, about 20 percent lower than estimatedat appraisal, mainly due to the lower than expected inflation and thehighly competitive bid prices obtained. The first beneficiated ore wasshipped in March 1985. Apart from the initial delays and the stillremaining task of bringing the output of the beneficiation plant to fullcapacity, the project was implemented satisfactorily from a technical,financial and managerial point of view.

38. The mine is equipped with modern, large equipment. Thebeneficiation plant is the key component of the project. Due to lack ofwater, a completely dry semi-autogenous grinding process followed by drymagnetic separation was selected. Provisions have been made for a possiblelater addition of production lines. A new 60 KW diesel power station hasalso been added.

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39. The output for 1985 is estimated at about 1.0-1.5 milliontonnes. SNIM plans to increase the production over the next two years to4.5 million tonnes per year (75 percent of capacity) and accordinglydecrease the production from Kedia. Although all major operatingparameters have been verified to range within design limits, SNIMexperienced some technical problems, in particular with the control of dustfrom the totally dry process. The plant designer (SOCOMINE), the Frenchsteel company (SOLMER), the French steel industry's consulting branch(SOFRESID) and equipment suppliers all provided technical assistance forthe start-up. Based on the experience gained during the first six monthsof operation, SNIM has prepared a detailed plan for improvements and hascreated a task force to solve technical problems. These measures areconsidered appropriate.

40. Past Production and Sales Performance and Recent FinancialPosition. In 1984, SNDM produced and sold 9.5 million tonnes, whichenabled it to reverse a trend of declining production and sales from 11.7million tonnes in 1974 to 7.4 million tonnes in 1983. The recent increasewas primarily due to increased sales to Italy, Belgium and the UK, whereSNIM's share of imports increased from 1982 to 1984 by 5 percent, 4percent, and 2 percent, respectively (para. 47).

41. Over the last five years SNIM has been able to keep itsproduction cost constant at a level of about US$15/tonne. A reduction ofabout 20 percent was achieved in 1984, mainly due to the higher productionrate and the ougulya devaluation. While production costs have beensufficiently low to prevent major cash deficits in the past, SNIM has,however, not been in a position to accumulate the funds needed forself-financing of the originally planned second phase of the GuelbsProject.

42. Despite the balanced cash flow in the past and the productioncost improvements of 1984, SNID is in a difficult financial situation.Internal cash generation of US$35.0 million plus external financing in theamount of US$47.5 million (total US$82.5 millioln) was insufficient to coverpayment of royalties (US$13.8 million), debt service (US$6.5 million) andcapital expenditure (US$71.9 million, including change in workingcLpital). Consequently, SWIM's bank overdrafts increased to US$15.1million. The curreat ratio 3/, still above 1.0 in 1982 and 1983, droppedto 0.9 in 1984.

43. Repayment of the Guelbs debt has started in 1984 and debtprincipal payments have increased from US$6.5 million in 1984 to US$19.1million in 1985. This, together with the outlook for production cost atthe Guelbs plant (para. 44) and SNIM's 1984 financial results, clearlyindicates that costs must be cut to increase internal cash generation ifthe increasing cash requirements are to be met. SNIM, together with Bankmissions, has identified areas where sufficient cost reductions in theshort- and medium-tenm can be achieved.

3/ Current assets/current liabilities.

-12-

44. SNIM's Medium- and Long-Term Outlook. Starting in 1985, SNIMwill over the medium-term operate its traditional Kedia operations and thenew Guelbs plant in parallel. Ore sales are expected to amount to 9 to 10million tonnes per year, of which the Guelbs plant, after the initialstart-up period, would produce up to 6 million tonnes per year; theremainder of 3 to 4 million tonnes per year being produced as high gradeand siliceous ore by the Kedia,mines. Due to the low ore grade and theresulting high mining volume aita beneficiation costs, ore produced from theGuelbs would cost about US$4.2/tonne more than from Kedia. This means anincrease of SNIM's overall cash production cost by about 20 percent oncethe Guelbs plant is in full operation. In addition, SNIM will, during thisperiod, have to service the Guelbs debt.

45. After depletion of the Kedia mines, estimated to occur around1995, SNIM's production and sales volume would decrease. Depending on theamount of siliceous ore SNIM could produce and sell at that time fromGuelbs, the drop in production may be in the order of 20 percent, so thatthe long-term production rate may be about 7-8 million tonnes per year.Operation of the existing Guelbs facilities may be financially possible atthat rate, since SNIM then would have paid back most of the Guelbs debt.However, the operation at the reduced production level would requirefurther drastic adjustment of overhead cost beyond the cost cuttingmeasures of the proposed Project.

The Iron Ore Market

46. The international iron ore market is the major determinant ofSNIN's financial viability and of the value of SNIM to the Mauritanianeconomy. The uncertainty of this market is consequently the major sourceof financial risk for SNIM and for the proposed Project. An estimated 98percent of iron ore goes to steel industry blast furnaces to produce pigiron for steel making. Consequently, the iron ore market is intimatelylinked to the steel market. The steel market has contracted substantiallyduring the last 15 years, and steel consumption and production is expectedto grow by a modest 15 percent over the next 10 years, almost exclusivelyin developing countries. It follows that growth in iron ore requirementswill come from steel mills in developing countries, whereas demandprojections for the seaborne iron ore of industrialized countries (themarket SNIM is catering to) indicate poor market prospects. Given thepresently substantial excess in world iron ore production capacity and thefact that the two major producers, Brazil and Australia, are profitable atcurrent prices, iron ore prices in real terms are likely not to increaseover the medium- to long-term. A slow and gradual decline of prices from1984 to 1995 amounting to a total of 7 percent in real terms is projected.

47. SNIM's major markets in 1984 were Italy (accounting for 31percent of sales), France (23 percent), Belgium (23 percent), the UnitedKingdom (11 percent) and Germany (6 percent). SNIM's recent exportperformance has been acceptable. Even at a time when European iron oremarkets were particularly depressed, SNIM has consistently captured about 7

-13-.

percent of the European seaborne iron ore market. However, SNIM exportsare concentrated in three countries (France, UK and Italy) where itsmarket share reaches 15 percent. SNIM has traditionaliy little marketpenetration in Germany which is the major European market for imported ironore. This leaves SNIM in a somewhat unfavorable market positiou as itssales are concentrated in the European markets with low expectations forfuture growth. On the other hand, SNIM's share of the total Europeanmarket is relatively small at 7 percent, and its Guelbs sales are toreplace existing Kedia sales. Also, European steel mills may wishto retain supply capabilities in West Africa to avoid concentrating theirsupply sources in Brazil and Australia. To the extent reserves are beingdepleted in Liberia and prospects are not favorable for new iron oreprojects In Africa to add substantial new capacity, SNIM should be able tomaintain its sales level in the European iron ore market. SNOM sales todeveloping countries are mainly to countries around the Mediterranean(Tunisia, Turkey and Yugoslavia). These sales have been and are expectedto stay small. For the faster growing Asian developing countries, SNIM'sgeographical position is unfavorable.

PART IV - THE PROJECT

Background and the Bank's Role

48. The proposed Proiect was identified in connection withsupervision of the Guelbs Project. Since 1981, Bank staff have projected aserious future cash deficit, if SNIM would not take remedial actions. In1984, SNIM took the first steps to improve its financial situation,declared its intention to complete a full rehabilitation program, andrequested the Bank's and other donors' assistance in the financing of sucha program. The Guelbs colenders agreed to it. Whereas most lenders couldmake available unused portions of their Guelbs loans (due to lower thanestimated project cost) or reschedule their loan repayments, the Bankconsidered a new loan, provided agreement could be reached on details ofthe future rehabilitation program.

49. The Rehabilitation Project is in line with the Bank's lendingstrategy for Mauritania and the West African region, aiming at creatingeconomies which do not depend on continued external financial assistance.SNIM is a major asset of the Mauritanian economy which has a considerablepositive macroeconomic impact, and its technical and financial viability iscrucial. The scope for improvements exists and SNIM and the Governmenthave started taking actions. The Bank's support helps focus on priorityactions and implementing them in a timely manner; moreover, it is alsowelcomed by the colenders, who recognize the benefit of the Bank'sleadership in this connection.

50. The Project was appraised in April 1985. Negotiations took placein Washington from October 16 to 18, 1985. The Mauritanian delegation washeaded by Mr. Mohamed Lemine Ould Deidah. The main features of the Project

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are outlined in the Loan and Project Summary at the beginning of thisreport. A Supplementary Project Data Sheet (Annex III) and Maps Nos. IBRD19048 and 19049 are attached. A Staff Appraisal Report (No. 5819-HAU,dated November 12, 1985) is being distributed separately to the ExecutiveDirectors.

Project Objectives and Description

51. Generally adverse market conditions and SNIM's market positionunderscore the importance of SNIM's strong and sustained efforts to remaina source of economic benefits to the Mauritanian economy, in addition tostaying a financially viable operation. As part of the supervision of theGuelbs Project, the Bank assisted SNIM in preparing a rehabilitationprogram which it began implementing in 1984. The Project consists of theactions in support of this rehabilitation program, which covers the period1984-1988. About US$36.7 million will have been expended by end 1985, ofwhich US$27.9 million are being financed by SNIM and US$8.8 million by theGuelbs colenders. The proposed Loan of US$20.0 million, together withadditional funds from SNTM's internal cash generation (US$7.7 million) andthe colenders (US$27.8 million) will finance the project components to beimplemented from January 1986 to mid-1988.

52. The Bank's financial involvement will consolidate and furtheradvance the ongoing action program for managerial and technicalimprovements and will in particular:

(i) help SNIM continue to improve its management and reduce itsproduction costs; and

(ii) assist with the necessary financial restructuring of SNIM bytransforming part of its short-term debt/overdrafts intolong-term debt.

53. The rehabilitation program, as prepared by SNIM, consists of aseries of measures by SNIN aimed at improvements and cost reductions in theareas of management, operations, procurement and investments, personnel,overhead cost and cash management. The Project includes the purchase ofcritical equipment, as well as training and technical assistance necessaryfor the implementation of the rehabilitation program.

54. The Rehabilitation Program. The program consists of thefollowing actions:

- Management and Organization. SNIM has taken actions to simplifyand improve the company's structure (para. 32). A few minoradditional improvements were suggested by consultants(CEGOS/METCHEK) and will be implemented by SNIM as part of therehabilitation program. As from 1986, a detailed five-yearproduction and investment plan will be prepared and updatedannually. New systems for cost accounting, reporting and budget

;

-15-

control will also be introduced in 1986. The Bank reviewedSNIM's new operational efficiency and budget review proceduresand found them satisfactory. Furthermore, in order to monitorand ensure the appropriate implementation of measures concerningfinancial management and capital structure, assurances wereobtained that the five-year production/investment plan bereviewed annually and a copy submitted to the Bank for approval.

Operations. The operations and maintenance improvements extendto mining activities, port and railway, and to the control ofspare parts. Planned overhauls of fixed installations andequipment, close control of the utilization of critical equipmentand the elimination of old and redundant equipment will beparticularly emphasized during the years 1986 and 1987. SNIM haspresented a satisfactory program for equipment overhauls in thosetwo years. SNIM also made satisfactory arrangements forcontrolling the start-up of the Guelbs plant during the remainderof 1985 and during 1986 (para. 39). Definition of targets for1987/88 is a condition of continued disbursement (para. 63).Technical assistance for railway maintenance has started. About20 man-months of foreign technical assistance for spare partsmanagement, financed by the Bank, will be obtained in 1986.

Procurement and Investments. The procurement process will bemade more efficient by consolidation of procurement andpurchasing departments, the increase of technical staff and bygreater recourse to international competition. Theseimprovements started in 1984 and will be mostly completed in1986. Investments will be closely controlled and restricted tothe absolute minimum. Agreement has been reached that SWDM willnot invest more than US$5.5 million per year without approval ofthe Bank. Agreement was also reached that SNIM will maintain acurreat ratio of no less than 1.1 until one year after projectcompletion and of no less than 1.3 thereafter.

Personnel. SNDM has provided the Bank with an acceptable planfor reduction of personnel and overtime. Achievement of thesetargets is a condition for continued disbursement (para. 63).SNIM will also prepare a five-year policy for salaries, whichwill help to achieve cost reductions, along with targets for1987/88, and agree with the Bank on this policy before June 30,1987.

Overhead Cost. SNIM has started to reduce costs in areas such asits offices abroad and in Nouadhibou, non-iron ore and researchactivities, transport and general training. A study will becarried out in 1986 for further reductions, and SNIM's definitionof 1987/88 targets, acceptable to the Bank, is a condition forcontinued disbursement (para. 63).

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- Cash Management. The day to day management of cash will beimproved so as to reduce the short-term debt. At the end of1984, SNIM had almost fully utilized its available bankoverdrafts (about US$15.0 million). Presently, SNIM is slowlyreducing the overdrafts. Further reductions by at least US$5.0million from the December 31, 1985 level (expected to be aboutUS$10 million) are a condition of continued disbursement (para.63).

55. Project Components to be Financed. SNIM's internal cashgeneration, funds from colenders and the proposed Bank loan will financethe purchase of necessary equipment for the following purposes:

- Replacement of Equipment. Some heavily worn railway tracksections, locomotives and locomotive engines will be replaced toensure adequate transport capacity, in accordance with theprevious recommendations of a consultant. Worn and obsoletemining equipment will also be replaced. The capacity of theelectric line between the Guelbs site and the mining town ofZonerate will be increased, so that the town can benefit fromcheaper electricity.

- Major Overhauls and Improvement of Equiyment Major fixedinstallations at Zouerate and Nouadhibou will be overhauled toeliminate production bottlenecks. All needed mobile miningequipment will be brought into good mechanical condition for highperformance. Special emphasis will be on the availability ofcritical supplies needed for efficient operation, such as tiresfor mining trucks, conveyor belts and wearing parts.

- Tools and Control Equipment. Sufficient and Improved tools andinstrumentation will be provided for wXorkshops and for majorfield equipment to Improve efficiency and control. Also, forbetter control and planning, more use of computers wlll be made.

- Training and Technical Assistance. SNIK will continue to employabout 24 key expatriates, who are training Mauritanians in theareas of operations, maintenance and supervision. Courses todevelop supervisory skills will be offered by a consultant.Consultants services will also be obtained for the implementation,of a new management information system, mine planning ard mineoperations, railway maintenance, spare parts management andstart-up of the Guelbs plant. An estimated total of 1,735mn-months are involved, of which 1,150 man-months (66 percent)are provided by expatriates presently employed by SNIM. About730 man-months will have been provided by end 1985, of which 78percent are being financed by SNIM and 22 percent by thecolenders. The remaining services are already contracted withthe exception of 40 man-months for: (i) assistance in spareparts management to provide SNIM with key expert advice on how to

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maintain and further improve good standards for this importantfunction; and (ii) courses for managers and supervisors, toimprove their managerial skills. The assistance in both theseareas will be financed by the Bank under the proposed Project.

Implementation Arrangements and Schedule

56. All activities will be nonitored by the company's controller, anexperienced engineer directly reporting to the General Manager, who duringthe last two years has been increasingly involved in the design andimplementation of SNIM's cost saving measures. Orders for the execution ofthe diffarent project components will be given by the General Managerthrough the line management to the executing units. Procurement will bebandled by SNIM's procurement/purchasing department which has sufficientexperience to carry out efficiently the procurement tasks required underthe Project.

57. Implementation of the rehabilitation program, of which theProject forms a part, started in 1984. Completion of the program isexpected by mid-1988. Actions concerning Guelbs start-up, as well asreduction of personnel and overtime will be handled in two distinctphases. An evaluation of the results of the first phase and definition ofplans and targets for the second phase, expected before July 1, 1987, willprecede the implementation of the second phase.

Project Cost and Financing Plan

58. The estimated total project cost in mid-1985 prices (net of taxesbut including contingencies) is estimated at US$92.2 million, of whichUS$75.4 million is in foreign exchange. Total base costs net ofcontingencies amount to US$85.5 million. Costs were estimated based onSMI1's experience in procuring similar goods and services over the past fewyears. Actual expenditures were taken for components already started in1984 and 1985. Physical contlngencies of 3 percent were added forexpenditures in 1986 and 1987. Price contingencies were based on anassumed inflation of 7.0 percent in 1986 and 1987, and 7.5 percent in 1988.

59. All local project costs (US$16.8 million) plus US$19.6 millionforeign costs are financed by SNIt from its own internal cash generation.The remaining US$55.8 million foreign exchange costs will be financed bySNIM's previous lenders for the Guelbs Project, including the Bank.Whereas the Kuwait/Arab/Saudi/Abu Dhabi Funds and OECF have made availableunused portions of their Guelbs loans under the same favorable terms, theCCCE has made a new loan of US$3.0 million equivalent with an interest rateof 5 percent and repayable over 15 years, after a 5 year grace period. TheBank proposes also to provide a new loan in the amount of US$20.0 millionto be made to SWIM at the standard IBRD variable interest rate plus a 10percent guarantee fee to the Government for a 15-year term, including a3 -year grace period, and a commitment fee of 0.75 percent.

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60. All loans will be included in the existing trust and set-asideagreements for the Guelbs project, whereby all proceeds from the sale ofiron ore are allocated as a matter of priority to debt service payments andset aside tbrough monthly transfers to a London trust account from whichlenders are paid. The agreements also provide for setting aside on amonthly basis the foreign exchange SNIM needs for its day-to-dayoperations. The remainder, consisting basically of SNIM's labor cost androyalties to the Government, is transferred to the Central Bank ofMauritania for the credit of SNIM.

Procurement and Disbursement

61. All goods and services will be procured in accordance with Bankguidelines, except for specific items financed by colenders which would beprocured under their own procedures.

62. Out of the US?18.0 million allocated under the proposed Bank loanfor the purchase of goods and equipment, about US$10.4 million will be usedfor the direct purchase of spare parts and sub-assemblies from themanufacturers of equipment and some specialized operating supplies. Giventhe proprietary nature of most of this equipment, the small size of thecontracts (none is expected to exceed US$300,000 equivalent) and the needto utilize genuine spare parts, this method is considered the mostefficient and appropriate. However, the aggregate amount of sole sourceprocurement shall not exceed an aggregate of US$10.5 million. The balanceof the Bank loan will be used to purchase tools, instrumentation, tires formining trucks, conveyor belts and wearing parts for mining andbeneficiation equipment. Such goods are either purchased in small lots,are only available from a limited number of suppliers (e.g. tools andinstrumentation), or require long testing periods before an adequatetechnical evaluation can he completed in order to select the mosteconomical product for a specific application (tires, wearing parts). SNIMhas purchased such goods from well-known international manufacturingfirms. Therefore, the most appropriate procurement procedure is limitedinternational bidding (LIB) fo all packages not exceeding US$300,000 orequivalent, on the basis of at least four bids being invited from at leastthree countries. Although not foreseen at this time, should largerpackages be tendered during project implementation, they would be procuredby international competitive bidding (ICB) under Bank guidelines. For allcontracts not exceeding US$50,000 or equivalent, international shoppingwill be applied by inviting price quotations from at least 3 suppliers.Due to the large number of equipment items from various suppliers andSNIM's prudent policy to avoid stocking large quantities of spare parts andmaterials, the number of packages to be procured will be large (presentlyestimated at about 150). SNIM handles such procurement efficiently as partof its daily operations. Purchase orders for sole source equipment will beissued without delay as required by the materials management system. Also,the bidding procedure for LIB-procured packages, such as for tires,conveyor belts and wearing parts, will be initiated in a timely mannerthrough the materials management system. Bank staff has reviewed with SNIK

'V

-19-

procedures and documents for sole source and LIB-procurement and foundSNIM's procedures appropriate. There will be a prior review of allprocurement documents (bidding documents, bid evaluations and contracts)for the first ten procurement packages (excluding international shopping)and all packages exceeding US$500,000.

Procurement Arrangements(US$ million)

Project Element Procurement MethodSole Total

LIB Source Other Cost

Replacement of Equip-nat 24.6 3.3 - 27.9

Sub-Assemblies, Spare Parts andOperating Supplies 10.1 23.3 - 33.4

(6.3) (10.4) (-) (16.7)

Tools and Instrumentation 5.1 - _ 5.1(1.3) (-) (-) (1.3)

Training and Technical Assistance - - 9.0 9.0C-) (-) (2.0) (2.0)

SNIN Labor 1- 6.8 16.8

Total 39.8 26.6 25.8 92.2(7.6) (10.4) (2.0) (20.0)

Note: Figures in parentheses are the amounts to be financed by theBank.

63. Disbursements of the Bank loan will be made on the basis of 100percent of foreign expenditures for goods and 100 percent of totalexpenditures for technical assistance and training. A special account willbe established at a foreign bank out of which SNK wll pay most purchasesof goods and services. The total loan will be disbursed over a period of2.5 years. The schedule differs from the normal country and industryprofiles by the even distribution of disbursements. This is explained bythe on-going status of the project and the recurrent nature of investments

-20-

and expenditures. Due to SNIM's familiarity with similar procurement andits desire to reduce bank overdrafts, no delays in disbursements areexpected. Disbursement against all categories will be divided into twoequal tranches of US$10.0 million each. The first tranche coversdisbursements until about June 30, 1987. The second tranche will bereleased only after certain actions have taken place, namely:

SNDE shall have:

(i) submitted to the Bank: (a) audited financial statements for1986, which will help assess the progress made under the firsttranche and define furthar steps; and (b) the Company's long-term policy for salary levels and structure;

(ii) achieved: (a) a production from the Guelbs plant of not lessthan 1.0 million tonnes over three consecutive months; (b) the1986 targets on the reduction of personnel and overtime; and (c)lowered its bank overdrafts from the December 31, 1985 level byat least US$ 5.0 million (para. 54); and

(iii) prepared plans and targets, acceptable to the Bank, to beImplemented and achieved over the 12 mDnths following release oftranche 2, for: (a) production rate and technical assistance forthe Guelbs plant; and (b) further cost reductions.

the Government shall have:

(i) completed a study of the public finance aspects of the royaltieson SNIM's ore sales; and

(ii) agreea with the Bank on the implementation of the recommendationsof this study.

Financial Analysis of SNIM

64. Financial projections for SNDM prepared in current US dollars arebased on (i) a production/sales volume of 9.5 million tonnes per year; (ii)operating costs taking into account the cost reduction achieved in 1984 andprojected additional cost reductions; (iii) an expected reduction of theiron ore price by 1990 by 7 percent in real terms from its 1984 level; and(iv) variations In the UM/US dollar exchange rate that compensates for thedifferential between Mauritanian price developments and world pricedevelopments as measured by the Manufacturing Unit Value index. Operatingcosts were developed on the basis of SNrM's present cost structure andcorrected to allow for expected personnel and material cost reductions as aresult of the proposed Rehabilitation Project measures.

65. The Rehabilitation Project is expected to bring about a reductionof: (i) non-labor operating costs, mainly consisting of materials, of 3.8

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percent in real terms for each of the years 1986 and 1987 with no furtherdecreases thereafter; and (ii) labor costs by about 3.5 percent per year inreal terms (total labor cost in current terms is projected to increase byonly half the rate of inflation). In the period 1985-1990, the projectedsavings in labor costs amounts to US$23.0 million and in other operatingcosts to US$26.2 million. With these savings, SNIM's cumulative operatingincome in the period 1985-1990 is projected at US$138.0 million. SNIM paysa royalty to the Mauritanian Government amounting to 10 percent of iron oresales. The royalty payments correspond to about 40 percent of the internalcash generation. The level of royalty is high compared to that paId bySNIM's competitors. Assurances were obtained that the Government undertakea study of the public finance aspects of the royalties. Terms of referencefor the study together with a proposed implementation schedule has beensubmitted to the Bank. Agreement on implementation of the study'srecommendations is a condition of release of the second tranche of theloan.

66. SNIM's financial performance is highly sensitive to variations iniron ore prices, sales volume, and cost savings. With total sales in theperiod 1985-90 forecast at about US$1.2 billion, a US$0.1/t reduction inthe assumed price of iron ore throughout that period would increase the netfinancing need by about US$5 million for that period. Without theRehabilitation Project, production and sales volume would likely be lowerby at least 10 percent, given the technical and managerial effortsenvisaged under the Project, and the result would be a net financing needfor the 1985-90 period of US$100 million (or 75 percent of projectedroyalty payments during that period).

67. The sensitivity analysis shows that any adverse deviation fromthe base case can seriously curtail SNIM's availability of funds. Sincethe trust and set-aside agreements ensure that foreign debtors andsuppliers are paid their dues (para. 60), any cash shortfall will reducethe funds available for the payment of local inputs, i.e. labor, and forthe royalty to the Government. The labor force is large by internationalstandards and wages and salaries are high by Mauritanian standards;similarly, the level of royalty is high compared to that paid by SNIM'scompetitors. Consequently, a cash shortfall can potentially be cushionedby reductions in royalty payments and further cuts in labor cost.

Project Benefits and Risks

68. Benefits. SNIM is a valuable asset to Mauritania in its capacityas an essential source of foreign exchange earnings for the Mauritanianeconomy. Strengthening of SNIM's ability to generate foreign exchange isessential to assist the Government's investment effort in non-miningactivities, and to support its strategy of diversification of its economicstructure. Through efforts to enhance SNIM's international competitive-ness, the Project's principal benefit is to preserve SNIM as a financiallyviable enterprise contributing positively to the Mauritanian economy. Theeconomic rate of return of the Project is 25 percent, and the financialrate of return is 21 percent. The economic rate of return is most

-22-

sensitive to the basic assumption made concerning the cost saving effectsof the Project. The economic rate of return is reduced to 15 percent (i)if cost savings are 57 percent below the appraisal value, (li) if projectcost is 40 percent higher than appraisal value, or (iii) if iron ore pricesare 26 percent below the appraisal base case. The economic rate of returnof the Guelbs Project, given actual project cost, current forecasts of ironore prices and updated estimates of production costs, is 2 percent; theeconomic rate of return of the Guelbs Project, combined with theRehabilitation Project, is 5 percent. Net Incremental foreign exchangebenefits of the Project average US$8 million per year in constant 1985terms over the next ten years; SNIM's overall net foreign exchange earningsaverage US$57 million in constant 1985 terms over the same period.

69. Risks. The major sources of the substantial financial riskfacing the Project are: (i) adverse changes in iron ore prices; and (ii)possible failure to Implement appropriately and in a timely fashion thecost savings and financial measures of the Project. A conservative ironore price forecast based on a thorough market analysis was used, reducingthe risk of lower than estimated iron ore prices. As to the achievement oithe expected effects of the Project, the training and technical assistancecomponents, as well as the close monitoring of the implementation of theRehabilitation Program including frequent progress reporting, reduce therisk of delayed and deficient implementation. It is the exact purpose ofthe Project to limit SNIM's financial risk. In view of the importance ofSNIM to the economy, the Government will have to take all necessary stepsto ensure the viability of the Company. As a last resort, therefore, anycash shortfalls can potentially be cushioned by further cuts in labor costsor royalty payments (para. 67).

70. To a lesser degree, the Project also faces managerial, commercialand technical risks, which have been minimized through extensive projectpreparation and the fact that SNIM has already successfully started itsrehabilitation program.

PART V - RECONMENDATION

71. I am satisfied that the proposed Loan would comply with theArticles of Agreement of the Bank and recomnd that the ExecutiveDirectors approve the proposed loan.

A.W. ClausenPresident

AttachmentsNovember 12, 1985Washington, D.C.

-23- ANNEX 1r A * L C 34 Page 1 of 6

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TOTAL .. .1.0 23.9 45.9M .. .. 5.0 57.7 63.0

RuRmL .. . 20.7 28.6

POPOLATIOE PU PffSICCIAM 4080. 18050.0 16350.0 11731.7 331.0POP. Mr NUNS P0 590.0 /a 4530.0 2050.0 2_5.8 1845.0PM. PM oiIAL 3Z

TOA 4830.0 2920.0 2610.0 Ic f 981.1 621.8URBAN 700.0 1310.0 2e 36 545.0Rom 5270.0 I.f 5430.0 3710.0 3 4271.9 2511.3

A*IXSSZS Pm SIXTAL M . .. 27.2 25.7

AN S= OFr HOSMD

AVERA3 M.2 0r FZSO0WMTOMA

123* .. .. . ..

RORAL .. .. _.

*V33u 3D. or PRsnoUSIoUITOML .. ..03.4 .. .....

UIUAL .. .. . ..

PDE?G OF D;n.zsuuSLI.TTL .. .. . ..

551 .. .. ....asL. . ....

. -~ ~ ~ RPT

-24- AM= IT A S L 3 Page 2 of 6

URITAI - SOCIAL IOICATOS DATA iNSEWSITXAMIA %BVEENCEZ GROUPS (uICITm AVERAGE) a

MOST (mm usd8? 8STKW) ARECTlb NMIDDL INDS NDOL imciu

1960& 1970'-J EStIRAJ AFRICA S. OV SMIAR M. AuCA 6K M AT

ADJUST EDROUJENT RAXIOSPRI1ARTi TOTAL 3.0 14.0 33.0 Id 95.7 89.3

WISL 13.0 20.0 43.0 7r 100.0 103.7FILE 3.0 6.0 23.0 Id 83.2 7b.2

SECONDAR: TOTAL 0.4 2.0 10.0 Id 17.3 42.YMALZ 1.0 *.0 16.0 7- 25.0 50.9wAZ 0.0 .. .o 7i 14. 34.6

vOcAToiL Jz (o e SECoNDAdZ) .. 12.5 4.5 /d 5.9 10.0

VPIXL-TEACIU RATIOIRLEARE 20.0 24.0 41.0 Id 41.1 29.7SUCMMXI 17.0 24.0 25.0 7j 25.5 1sJ

PASSICT CAR/TaOSAND MP 0.4 3.3 .. 20.6 17.1DDO IECXIVERS/TOIIWSAID POP 12.2 44.3 119.1 107.8 175.9

TV lEo-ErSITROIUSAID OPF .. .. .. 2O.S 51.21.EUVAPERt ("DAtI GENMRAL

DITESI ") CnRQJLATIP TNOUSIIAD 01ULATO .. 2.3 h .. 13.4 37.2

CzA AAL ATTEwDArAnATA .. .. 0.3 Ie 0.4 2.4

TOTAL LABO1K F1OR MoS) 303.0 366.0 482.0lIoo (PERCENT) 3.S 4.1 4.4 36.2 11.0AIOCLTUEE C(ECENT) 91.0 38.0 e 9.0 /d .4.5 42.6DINuSIf (PECEr) 3.0 4.0 .0c id 18.3 27.9

'ARTIXATIX RATE (PRCUENT)iOTAL 30.9 29.3 29.6 36.8 2b.2

NiAL 59.3 57.8 56.9 47.1 46.213361 2.3 2.. 2.6 27.2 5.S

EUONOMIC DEPIRDE RATIO 1.5 1.6 1.6 1.3 1.3

-wm mcumsnuPVEWIL OF PRiATE INCOW

slGOES su or uousuuomo .

RIdERS 20Z OF U.IIUEOTJ . .

LOWEST 202 OF HUOSENIOLDS ..

WERST AM OF nUsEoo D

LEVE (00 MRE CAPITA)ir .. .. .. 590.7 226.3

2N IRU S .. .. 110.0 . 273.3 131.0

-SILI WZATE PFrNST! ISCOWELEVE (US$ FIR CAPITA)

iLDM .. .. 40.0 545.6 43..3RURAL .. .. .. 201.1 32b.0

ESTDMMIED POP. KIWI ABSOLUTE3loESeT IRol LVl (2)

ulN .. .. . 9. 2.

USMAL .. . .0 .. 2J.0

UT AVAILARMUT APILICAEA

M . T 0 2

/a ThM secp avawaa far easch fadleatat are populatLoo-uelhted autcmtLe smsa. Coveagee of cwamEcA..annag the Iadieatona dqpmenia n swailabIllty at data and In eat uelfom.

lb 5.1*. ochawlee noted. 'Data faw 1960" refer to any year between 1959 and 1961; "Data for 1970" betunes. 969 ed 1971; an data far "Kee Recet Estimate" between 1981 and 1933.

/c 1977; d 1980l I. 1962: If Cawernen hoapital eytablsenta; cr 1973; lb 1972.

Juim, 1985

-25- ~~~~~~ANNEX 1-25- AN-Page 3 of 6

DWNITIOPM OF SOCAL INDIWATOSNoS Altbhugh Sed1am ame dawn trom snn cmneuiy jtpd he mo afthmozand rlabl it siod aim be noedwi tha may not be ntemuau lycmpaable bcme of the lae of _andird ddelit and comafte ud by dierst comaun in ceing the dax. The data ar nonheless uefl todScritue rer omagnitude.1 In and dchuscmri celtailnjo dfert be-wam cunziLeThe rene aegroups -(I) t e couy Wr of t subecoulyand )* es group with somewhat highe me the thecotary

u ofitc aubjec cotry (_ep for 'Hlg lmnu Oil Honwe pomp whe Middle lacme Norh Arnca ad MiddleEme sabde becus orsronemocochwaiSide) In the aWbemop dais th enin - popuaim weightd awitmetic nuata for el idcor nd shawe only uwhen ajontyof the Couiurh ina gro hm data for tht idlot Sine the covage ofcoun among the iadiaodend - the availaility ordata and is not udrnilncaeo mum be earcmd i elg asema oron idiator to snoUts luea aveag ae only seul In coanpaing c v fe doe inditr ata tte amongthe coasuy and aba Fpoup

AREA (thousd sq.km.) mfrdeir h B Rat (pkn mmot)-Nublitroffive births in tbc year

Tea-ToWl surfae area mpsing land ars and i-land waters per thousand of mid-year population; 1960,1970. and 1983 data.1960. 1970 and 1983 data. Crud Deh {r ae(perAatmauO-Numberordatths in tbe year

ArZreWS L--'- of agricultural ae used temporarily or prthousad of mid-year population; 1960.1970. and 1983 data.pennaneady for cops. paurs market and kitchen arden or to Grew Repeduia Rao-Average number of dautghtesa womanlie raIOW, 1960. 1970 and 1932 data. wii bear in her normal reproductive period ir s e

prst age-pecific fertit ter ulby five-year avrge endingCNP PER CAPFEA (WS)-N per capita estimate at cinent in 1960.1970. and 1983.market paces calculated by same conversion method as World ~ f -e.l tes-nulsutDea* Auaw (193143 basis)k 1933 data.FM&Ao Amoak-nulnm

Xtbs(19B1Z83b ylzdt°si°n mSb Worbberoracporsebirtliactrol devi= uneraupicceifoatonal

EECY CONSUM ON PER CAPIA-Annual apparent f Jy p i prmgrum.consumption of commerc primary enerV (cal and lipit, FMt ?hw f-46Wn (pett h Eepe numa)-The pecn-petrolm natual gS ad hydra-. nudecr and geotmal ec- tge murnd women of child-bearing ag who ar pacng ortricity) in kiogrm of oil equivalt per capita: 1960, 190. and whose husbands ae practicing any fom ocontraeption. Women198 data. of child-bearing age ar generay women ad 15-49. althougb for

some countries contracepive usae is measured for other wePOPLAION AND VITAL STATISFICS groupL

ad lBpdatria, Mid-Yew (themu)-As ofJuly 1; 1960. 1970. FOOD AND NUTl MONand 1933 data.

Lu&xrof Feed P.dw do. Per Capita (1969-71 -' 1N-lrsdex of perUr5_ hpuls. (pea wc w tetudl-Ratio of urban to total capit anntual production of al food commoditis Productionpopulation.dilrent definio ofurban ars may affect compar- zdudes animal feed and seed for asgrcultur Food commoditiesabiity of data amog countries; 1960, 1970. and 1983 data include imary commodities (e.g. srcne intad of sugar)_puIAtimh*C*m which are edible and contain nutrinots (e.g. coffe and tea aePopstah yewr 200-Tbe projction of population for 2000. exdudedk they compnse cereals, root crops. pubs oil seedsmade for eah economy sprately. Stig with formaution on ve ls, frits nuts, sugara and sugar bee livodc. adtotal populio by age and sex, fertility rae mortaliy rate and livestock products Aweat pouctio ofeac country is basedIntemnIon migration in the bae year 1980. these paruaeters on national avea producer price weights; 1961-65. 1970, andwere projected at five-year interval on the basis of gealized 1982 data.asumption until the population became stationary. Air CGp_a Sup qfCaoes g G fpwc afre ommer)-Couput-S mad ypopuluiim-Is o-e in which age- and sex-specific mar- ed from calorie equivalent of ne food supplies avaible in countrytality res bavenotchnd overa log period wileagpecific per capita per day. Available supplies comprise domestic produc-eartity rat have simultaneously nmaied at replaement kvel tion. imports less ecports and changes in stock Net supplies

(net reproduction rate- 1). In such a populaion, the birth rate is exdude animal feed, seeds for use in agriculture, quantities used inconstant and equl to the deat rate the age structure is also food procesing. and losses in distribution. Requrements wereconst, and the growth raft is z'. The stationary popuation estimated by FAO based on physiological needs for normal activitysiw was estmated on the basis of the projected ebaracteistis of and health considering environmenal temperature body weights.the popultion in the yr 2000. and the rate of dedine of fertility age and sex distribution ofpopulatio and allowing 10 prcent forrte to repacement leve- waste at household level; 1961. 1970 an 1992 data.ftpedls Mo Asm-Is the tenency for population growth to ft CIpS Subly of w' (ms per dayl-Pwtein content ofcon-inu bqond the time that rplment-led fertity has been per capita net supply offood perday. Net supply offoodisdefinedadieved; that is. even after the net reproduction rate has reached as above. Requirements for all countries cstablished by USDAunity. The momentum ofa population in the year t is mesured as provide for minimum aLowances of 60 grams of total protein pera ratio of the ultiate stationary population to the population in day and 20 grams of anima and puls protein. of which 10 gransthe year t. given the assumption that ferility remains at replace- should be animal proteu These standards are lower tha those ofment level from year s onwad, 1935 data. 7S grams of total protein and 23 grams of animal protei as an

-S _ D_sjg average for the world. proposed by FAO in the Third World FoodPer sqhu -Mid-year population per square kilometer (100 hc- Supplr. 1961. 1970 and 1982 data.tares) of tota ar; 1960. 1970, and 1983 dat. Ahr Cpita hetn Suppl Frem Aaleud-Parotein supplyhr sgqA gfaarceavi Lad-Computed as above for agricultural ofroo ddeived from animals and pulsesin grans per day, 196165.land only, 1960,1970. and 1982 data. 1970 and 1977 data.Pedse Age Statue (pfcait)-Children (0-14 years). work- CMdd (aes 1-4) Deat RA ftrperh.tds-Number ofdaths ofing ae (15.64 year). ad retred (65 yes and over) as prcentage children aged 1-4 years per thousand children in the same ageof mid-year populaion; 1960. 1970, and 1933 data. group in a pven year. For most developing countries data derived

puta Gth RAte (peeau growth rates of from life tables 1960. 1970 and 1933 data.total mid-yer popultion for 1950-f0. 1960-70. and 1970-83. IE rHPepdsim Gwh Rate (Annul growth rates Lif E_rpecsmu a Sri (jreesI-Number uf years a newbornof urban popultion for 195-60, 1960-70, and 1970-83 data. infant would live if prevailing patterns of mortality for all people

-26- ANNEX IPage 4 of 6

at the nne of of its birth wrc to sat the same tmroughout its lirc PuP&-teror Ratio - priwary. ad seundar Total students en-1960. 1970 nd 1983 data. roldW in priny and secondary kwls divided by numbes of

_ A r y (prt__J-Num tr of infants who die achebr in thi owrsponding levds.before reahing ow ypr of ae per thoud five births in a inyer. 160. 1970 and 1983 dta. CONSUmpolNAe t Sd* Wow (p .,m )- "NC Wo, ml C, -pJs r __9thmi p a' vbm-Panconger cam wm-

oWe-Number of people (totaL wa ad a un with reasonable pri motor cas mg ss fta eight peooss excdudes ambul-awm to oae watr aoply (inldes tuted surfe watr or sumcs. bhoss and milita y vehices.unteaW but _ twaer w ucs as that from protcted l i R1wLIS (p m dtho pepah5m)-Al types of reiversboul*.sprngs md itnay wdl) as peetaogs of ttheir pc- kfr rdio d to ml public per thnd or populstion:tive populations. In an un are a pubic rounain or tandpost excludes ian- d civas jD countries and in yca whatlocatd ot more thn 200me fnkm a hou way be c mimi of radio sets ws in effect; data for reacnt yenrs may

being witbin raable wm of that houe In rural not be compaable sinc most cuntries abolsh icesing.reasonableast ouYX ld imy tha the houwife or members of thehousehad do not have to spend a disproportiona par of te day TVAw d.(pefl-4U5mlpepdETdI lVivr5sforbroadcain rth the r d to geral pubbc per thousnd populati clude nlosed TVAcecrto Excras D_psld (p tw !f.,het.-4ml- , s, rece.ivrsi countries and in years wbh registration of TV ss wasmd rima-Number of peoplk (total, urban. and nural) served by inexncret disposal as pacentages of ter resctivc populations. AGw Cfrmfai (' IkonsmipapumuriwJ-Shows the aver-Exc dispowl may include the colection and disposal vith or age cculation of 'daiy seneral mterest newspaper.' defined as awitbout urant, of human exra and waste-water by water- peiodbc pubicion devoted pmarily to ecording general ews.borne systms or dth use of pit pfivies and similr insutlations. It is considered to be daily ifit appean at last four nimes a week.Apdir per P*ys.-lPopulauon divided by number of prac- Gm A_ni Ateadawe per Cira per )--Based on thetising physicians qualfied from a medical school at univCrsity vj. number of tickets sold during the year. induding admission toft Wren per Nhag P ma-Population divided by number or drive-in anenas and mobile units.

pracidng male nd fdae graduate nurses, assiStant nurseFpracta nurses and nursing auxiaries. LABOR FORCE

_ a cr limpid I f. w. ml pus' p'- ion JAbr J i nir activ peso in-(tol rb ad ru) dividd by their r ive number of duding armed forcs and unempkoyed but excluding housewie.;(totspwbahmd ruralb dedaby thErrespectwnandpmbeialiraord students. etc.. coverng population of al ages. Ddinitons inhospita beds availablemi publi and pmmiat. generl vaiosconrisarsotcmprbl,190 17 ad193daahospitals and hilation cnters. Hosital abr establishments vaious anunes am not c k 1960,1970 nd 19S3 datapemnenty staffed by at kemst one physkic Esablishments prov- mAk (jifpva)-Femmak labor fore as p tage of toal bboriding pincipaly custodil care ae not icludedL Rurl hospitals. foiw-bowc.v ielude balth and mediclnts not pemanently saffed Agrki-ue (pjmint-Labor forn in broung. forestry. huingby a pbysician (but by a medical assistnt, nurs, midwn etc.) wnd fishig as p _nta of ttal labor foc. 1960. 1970 and 1980wbich odlr ia-pdint awomnmodation and providc a limed rng data.ofmedial facili lAirry (perceue-Labor force in mining. construction. manu-AbIdi ler p sIYasd d-Toatl number of admissions to or facturing and elericity. water and gas as pcntage of total labordisdhes from hospitals divided by the number of beds. force; 1960. 1970 and 1980 data.

P*rcsdm Roe (pffe)-EoeaI, mule nlrmele-PcpationHOUSEi]G or activity rates are computed as totaL male: and female labor forceApoW She of AHweAld (pawsr jw &mxxdWIO-W, whm, as pecentages of totaL ale and female population of a agesml,uwl-A household consists of a group of individuals wbho share mpectivel- 1960. 1970. and 1983 data. Tbese are based on ILO'slvig quarters and their main meals. A boarder or lodger may or paticipation rates rfecting age- strcture ofthe population, andmay not be induded in the bousehold for sttstil purposes. long tine trend. A few cstimates are from national soucesAvrAlexber of Personas per Reoo rn tal, whe. -l vera!- Ecmic Dipexhuwy Rado-Ratio of population under 15. andAverage number of pesons per room in a urban. and nual 65 and over. to the working age popubtion (those aged 15-64).occunied conventional dwdllns rsectivey. Dwdlings exdudenon-pmaent sttures and unoid parts. INCOME DSTRIBUTIONPffasqe ofDwE wh Ebw**yt-avr4 mba. -dwal- Pffeinqe of Te0 Ddassik humw (Oath in eh md kimdi-Convetonal dweinpgwithetricty invingqurtersas percen- Accruing to pnile groups of households ranked by tol house-tag of totaL urban. and rural dwelings espetively hold income.

EDUCATION POVERTY TARGET GROUPS fA#mE A ps, The fogowing estmates are very approximatc mwasures of povertyft1aory adbel - torsa. mak ml e-s totaL mate and k lvels, and should be intcrpreted with considerable caution.femaie enrollment of aD ags at the primary lcvd as pctaes of EAr,dAhs.he Poverty lacim ew d ((1Sf per espiaJ-ortamreset- pmary ool-ag popations While many countri and w,d-Absolute poverty income lvd is that income levdconsider prinary chool age to be 6-1I years, others do not. The bdow which a minimal nutritionally adequate diet plus essentialdifferns in country practices in the ags and dwation of school non-food requirements is not affordable.are reflected in the ratios givn. For some countries with universal ed Reke Prory hwme Lewd (Sf per cWwaI-wiaaeducation gross enrolment may exed 100 percent sine some ml rmaW-Rural relative -poverty income kid is one-third ofpupis amr below or above the country's standard primary-school averag per capita personal incomc of the country. Urban kvel isage. derived from the rural lvel with adjustment for higher cost ofSccvdory scihool - reod. nJ mdfmale-nComputed as above: ving in urban asecrday education rquires at least four years of approved pri- Eisred Pepatiu Beuw Ahsdwe P,ruy lucw LAwd (per-mary aon; provids gencraL votonal or teacher tning ca nt)-arhan md *ral- Pncent or population (urban and ruralinsuctions for pupils usualy of 12 to 17 years or ag correspond- who ae -absolute poor.'enoe omes ae gerally ecluded.Vocation ral Earoie (pe rcmr of mec ry)-Vocational institu- Comparative Analysis and Data Divisionlions indude tecmicaL industriaL or other programs which operate Economic Analysis and Projections Departmentindepdently or as departments of secondary insitutions. June 1985

-27- ANNE IPa2e 5 of 6

-X -

mms AUIAL D0l~ 13 19L aii* NAZ 60 ft" isci.u r

035 Ittn. % 197-1 (A.) 1D796 191

0?art bat PrcE. 664 10.0 .5 3.0 4.2Croe Daetic _taWe.t 1U2.2 23.7 S2.1 21.6 12.7

* GRoin latlem 5a2 -743 -10.9Curet A4nut Ualc -1*.2 27.5Kaporta DI G.d.. 15S 31.0 49.3 t-.2 24.8 t1.0

lpraof Cd, HIIS inl.? 7.6 2.6 US.2 19

a f. Urn .- IS0 PUCIP2 D3 196

Vale Adde ao to_c V.A. .r VobrISSltl.. % Thaumaid

Aicltot 197.0 30J 6.6 64 64 .1IUUUtI 162.3 NJ S42.9 9 4,269. 311.2Seia eadUnalocated 260.4 40.7 126.5 27 2.026.S 10.7

Sotal/Avrg 639.7 100.0 476 100.0 1,4.9 100.0

0 m_mi m F

0I lKi. Iecet or 0196'. 1961. 196013 CA..)

C ?ri acit10,296 22.3 16.6Cur.. Exefitu -10,46 22.7 24.2Curreut 1Salne -117 .3 7.4Capital Expenditur -72 LI 15.6

01eal Jaic -692 1.9 23.1

EXtarul Aaeitm ( tet) 5J3# 11l 23.2

1631K. c3Emr ueD PRS~

196 1962 93 161

(3111k. 00 Outt atdin etdleio)

I_ne mad QIIU-OW 9,430 9,245 10,063 11,000Clai, s ConetrA 2,43 4,609 5,143 3,142Clai as Frrta Sector 11.263 11,632 22,962 14,300

t?rmae or laa .r)

> ~ ~ ~ ~~Isa m_ d aiIoe as 4o eE l 23.6 24 23.4 23.6Canral Prc n 1 t960 - 100) 2121.9 121.3 127.2 142.1

Annual Pretae Ca_e isa

Cueoal Pric ne 11.9 6.. 4.9 11.SClaim. - _o.e 49.3 69.. 11.6 0.0Clam as Priat Sector U1.7 S.1 9.4 12.0

Oota: Al ouealn to dollar Intin C tleb *r t tho ve emag rateprealt auin the period coeed.

Set,r 1963

-28-ANME 1Page 6 of 6

VA. -aXs OmD CI w PM

ULA o rnasW _________ (19814 b.)

1973 1977 199 1963 198 _ I

I on 145.0 52.2Jidi Pw 126.1 45.4

NO= OE Gcf , NS 144.7 178.4 3123 372.9 3360 All Otbd C 1dz 6.9 2.4bWq of ci f WS -154.8 -373.8 -63.8 617.0 411.71AMMx Gq (df k -t -1S. --- .1 :S t311 7:r JIM! TheAl 278 100.0

lt t P I- C) -2.0 -14.6 -34.9 -386 -24.6Wadrt'S PA_I t -145 S U.6 -30.7 -23.0 -189Otbr Fau 1W 3 t3 -S. 1 3.5 18.4 16.4 19.1Noe e zm 31.2 12D.4 84.5 '61.1 29.9 EL mm, a of D w 31, 194Bml~ c t . -111.5z6 :91M :W - 170.2

D1xe Foudn _wtm 10.3 4.4 14.9 .8 12.5 AE D6e, cL pu _ 1.170.5k: M 6 La It Brw g 8.6 55.4 2D6.1 172.2 59.3 Nopmnrtidmul YebeIDIi ums (11.0) (87.5) (Z22.0) (194.8) (106.1) Total 0bwdh. ad Dix1 17.176

(-2.4) (-32.1) (-15.9) (-22.6) (-46J)Capl eaG 8.4 13.6 31.0 18.5 47.0Otb COu1 (MO -14.2 -1.9 @ -19.6 7.4 -10.9 DEM- SU2 W U 19U4 1/ 2Cdi. I"= t6L. -13.2 -0.9auu in Offldl 1 -. 7 -43.0 -48.8 -29.3 -623 Ptb1b Ddit. 4t. Gama.d 23.6

Nmura_a.d P D*tTotal 0 ad D_ 23.6

cm. Official MPi(ad yr) 43.7 56.6 125.5 134.S 96.7

.L ad Pim c 1.IMIN

Turt .. .. .. .. .of dddb: PGt=1m 9.9 30.6 63.0 53.6 4ZSBoftt - - 7.1 2M.8

,,f dib: PcmIsm - - 7.1 20.8 .. IEDIM lC a cE xw 31, 1991

RA~~~~~~~~~~ W -~~~~~~W LS

C~.ad_ adD*U1 ld7 6XM15.OO - 44.5 52.2 51.8 54.0 63.8 UOI1brgd 0 4U.9

stdi I_ m d 57.0 1153

IJ Rai* of dabt of so,b and in-ftu savim

Nmw

-29-AMU 2Paoe I of 2

I 0S OF B ( ERIP CR3ATUD DI WMAEA

A. Stadt of Euclams ad MID Cred:its(as of Septuew 30, 1985)

hAnt (less ca*-lnti)

* Lamor B.k ML _n_____

Credit 1Nuhe Year Bonww RuM

M Tam md! Te Credits fuflly disbursd 126.0 38.9 0.00

888M a 1979 Nwni1a Ur and Rund Develqpiat 8.0 0.461068UU- 1981 ArtWAA Gorgl roIlatI 15.0 3.651175aD 1982 thritada Petwimu 3.0 1.3312144 1982 1owlita Seod Jaicatic 5.7 2.701231-M 1982 M1wita FPcrth H1~mmy 4.0 2.971292 1982 Nlda Seczid T lcal Asdldtg 4.6 2.981414-a 1983 lbzit±da Seared Tedda As to 8.1 5.0

Rural Sector1567-W 1995 NmzItuda Pdilic Noepris Tedmical Assistave 16.40 16.40

3/ and RdeImlItation1571-M 1985 Nitmdn i.11 Scsl Irrptima 7.50 7.501572iU_ 1985 bwiitmda Industral ad Artim DeuelIt 5.25 5.25

TOM 126.0 116.45 48.24of idi bos bem repad 72.0 2.26

Total nmw outstaoding 54.0 114.19

Asmt scld 63.4of srdi hbas bee repaid 63.4

Total hw bald by Bank and I 54.0 l4. 19

Total udiabarued 0.00 48.24 48.24

1/ Pror to cdmig adjuats.

2/ DB.dzig idwth Credit 1068-MW, credits bme bem In SpedalDradng its. 1he do]lI amunts In t1e cohi -s represant the dollaeiptv.lmtsat the tim of credit t for the ML m.mts and thedollr equvalets as of lkrd 31. 1985, for the undiawsed, ammzts.

31 Not yet effecve.

* Tae stat of the proJect listed In Part A Is decribed in a separate r an all Book IDA finmialprojects In emmmi, bhdih is pdated bdce yeary and cirulated to the Banotive Directors an April 30and Octdber 31.

-30-

ARM 2Pare 2 of 2

B. Statint of IE InvesDt_(as of Sq*m6w 30, 1965)

Fiscal~~~~~~~~~~~~~~~~~~~~~~~~~~~yew CbI*w~~~>p TaN of Ad= TaRn Wt;y Total

195 Sada ,$ IIS$ i1

Total GEM cbientu 1.21 _ 1.2

.is _es i qa_ _ Tinu-t1m lPqAP ts ud SOla -- -

Motal dmits am beld by tiC - -

a.a _ _me

1/ P3e. tae that Initmt bas wt beam s1gM yet.

I BRD 19048

MAURITANIASNIM REHABILITATlON EPROJEC

~~~~~~~~~~~~~~~~~~'- -- liQe - maf-- PAVEDD fOM UNDIR OWTRUvlON

- 0 ,RAVL ROADS - ' '

** -. 4-- HAILR OADS . -,Ir -100- -NUAL RAMA" . .LU M R C

-O"----- -- ALGERIA. - HltiNAOR|MARIt4E

ne 7UATUN

SJLPI4U

£EIDHIIATITIERPD IVO

_ *lOI.TSTNTE|||ml4OF JoI t , - - -\24. - THEfONsStA"ISHSF- I

- - t' / EW~~F erNl GST j MAL I* DeIk MINING SITE jM L,. o (See Aap IBRo 75049)

-- N..dhibftl

* 0C hinkuefti i

:: ff, ' oo1 ,¢ *>IPWiE - NOtJICH Ti| Moudjeria /{/

". ',,00''\ , S tOO

gbNem0 200

- -St. Louij 3 0 6

- - . ,} 500 ̂z\\ \ sa _S_ } ,600 70

--Bake ?\ M A L I

. , ~S E N E G A L _- --,_

JULY 1985

MAURITANIASNIM REHAILITATION PROJECT U

Site Plan of Kedia Mining Operations and ELRHEINGUCL

Location of the Eastern Guelbs

IIA 01 M ~~~~~~~~~~~~~~~~~~~~~~~~~~~. WiAWGN 0GULD

. C -- ' J