ERIPTA Second Supplementary Credit

closed

Unexpected difficulties and delays in the Zambia Consolidated Copper Mines (ZCCM) privatization led to an increase in costs, and shortage of funds for the privatization of the non-mining portfolio. The project was extended to September 30, 2004 to accommodate a supplemental credit, approved by the Board to support the privatization of non-mining parastatals. However, the undisbursed amount of the first supplemental credit is restricted, under the terms of such supplemental operation, to the privatization of the non-mining parastatals. This supplemental credit would assist the Government complete the transfer of interests in Konkola Copper Mines (KCM) to a new private investor. This will deal with the setback caused by the transfer of interests' withdrawal, and complete the privatization of KCM. The supplemental funds are required to assist the Government of Zambia settle the additional legal, financial, and technical advisory services rendered in bringing this transaction to a satisfactory close. Despite significant external support, Zambia's prospects for sustainable broad-based economic growth continues to face unstable macroeconomic environment, weak economic management, and implementation capacity. The project's cost overrun is due to exceptional circumstances beyond the borrower's control, while the project, and first supplemental credit are being implemented in compliance with the project's covenants, and in addition, it is extremely difficult to reduce the scope of the Project at this stage, to fit the resources available, without impairing the Project's ability to achieve its objectives. The Government remains committed and supportive of the effective transfer o f the KCM assets to private investors. Despite risks, This supplemental credit will complete the ZCCM privatization, ensure that assets remain in the private sector, and ensure as well the management, and financial resources needed to restore the mine's viability, avoiding a resumption of state subsidization of this important component of the Zambian economy.