Financing The Mozal Project


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The financing of the mozal project in Mozambique

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  • not only for the people and government of Mozambique but on a more global level as well, allowing the international investors, suppliers, distributors, and sponsors involved in the deal to enjoy the catalytic effects spurred by the project and the investment itself.
  • Financing The Mozal Project

    1. 1. Financing the Mozal Project<br />Presented By:<br />Vijay Krishna<br />Praful Anchaliya<br />
    2. 2. Country Profile<br />Gained its freedom from Portugese<br /> in 1974 after a civil war broke out <br /> between the Frelimo & Renamo<br />The two sides signed a peace accord in 1992<br />Post this, the Mozambican Govt. made constant efforts to improve the macroeconomic situation & encourages the private sector investment.<br />The GDP and FDI were increasing & the inflation decreased. But still, Mozambique remained a poor underdeveloped country<br />
    3. 3. Investment opportunity<br />Pros<br />GDP growth<br />0.5% - growth rate (1980-91)<br />6.5% - growth rate (1992-96)<br />Risk rating from 7.6 – 14.0<br />Power tariff<br />Labor cost<br />Cons<br />Legal & approval system<br />Openness to trade<br />Pessimistic approach of potential investor<br />
    4. 4. Challenges faced<br />No existing infrastructure<br />Unskilled labor<br />Logistical challenges<br />Health issues<br />Expectations of world standards was unlikely considering the above issues<br />
    5. 5. About Mozal<br />It began as consortium of three entities naming Eskom, Alusaf & Mozambican Govt.<br />To built Aluminum smelter due to potential availability of hydroelectric power<br />The project worth was estimated at around US$ 1.4 billion<br />It’s a low cost smelter<br />
    6. 6. Essentials for the project<br />Alumina – They hedged the alumina for 25 years from Billitons, Australia<br />Electricity – Supply of electricity was also contracted for 25 years from Eskom & Mozambican Govt.<br />Labor & Misc<br />
    7. 7. Who is involved?<br />It was a joint venture between Genecor & IDC<br />Genecorbecame the worlds fourth largest producer of aluminum after acquiring Billiton from Royal-Dutch shell in 1994<br />Alusaf(Subsidiary of Genecor) and the Industrial development corporation of South Africa each owned a share of 25%<br />IDC-Government owned development bank in SA. There goal was to promote entrepreneurship and financing private sector enterprises <br />In 1996-They constructed a 1.8 billion Hillside smelter<br />
    8. 8. Who is involved & what is happens next?<br />It would appear along the Maputo corridor, a major trading route between Johannesburg & Maputo<br />Estimated time: 34 months+6 months to reach full capacity<br />The average capital cost for any smelter was $4850 per ton but the Mozal Project had an overall capital cost of$4750 per ton<br />
    9. 9. Financing<br />
    10. 10. Future of Project<br />Currency denomination: US dollar<br />Sponsors are potential buyers<br />The plant was targeted for an industrial free zone exempting it from paying tax<br />Chase-Manhattan corp-trustee responsible for collecting sale proceeds, paying debt holders, remitting operating expenses & paying dividends <br />
    11. 11. Average production cost $1510 per ton(Excluding depreciation & financing charges) but Mozal projected breakeven price $1493 per ton(Including depreciation & financing charges) in the 4th year and further declining to $1070 in the 11th year<br />
    12. 12. Profitability<br />Selling price of the metal is higher than the Mozal cost<br />
    13. 13. About IFC<br />A member of World bank group founded in the year 1956 and owned by 172 member countries<br />Invests in private sector for social cause like reducing poverty, increasing the living standards etc.<br />Provides multilateral source of debt and equity for private sector projects<br />The loans provided by IFC aren’t backed by the sovereign funds<br />
    14. 14. They mainly concentrate on the green field projects<br />Financial ROR-projects IRR was based on the constant price projections considering interest & tax<br />For the appraisal of Mozal took a tenure of three months (Jan – March, 1997)<br />
    15. 15. Anticipated Outcomes<br />Increase in:<br />GDP by $157 million (9% compared to 6.4%)<br />Exports by $430 million<br />Net foreign exchange by $161 million<br />It would generate 5000 construction jobs<br />Provide critical infrastructure and investment along with Maputo corridor<br />Assess environmental and social impact<br />
    16. 16. Recommendations<br />IFC should immediately seize the opportunity presented in the financing of Mozal.<br />Investment in the project on the part of the IFC would generate valuable social, financial, and economic benefits<br />
    17. 17. Recommendations<br />The use of the South African power supply, the obtaining of alumina from Australia, the technology from France, and the holding of sales proceeds in a foreign bank account provide an excellent structure that will alleviate sovereign, expropriation, and operating risks. <br />The Mozal Project has qualified sponsors: at $78 billion and a conglomerate such as Mitsubishi Corporation has signed in as a strong candidate with infinitesimal chance of default.<br />
    18. 18. Updated status<br />Overall Project status: Delayed from due date<br />Scheduled: Considering prior status it is now likely to be delayed<br />Budget: Budget allocation has been done adequately<br />Project Risk: There has been a fluctuation from the status of being “No risk” to “some risk” as there are delays in infrastructure of 4 unitsw<br />
    19. 19. Thank You<br />