Lukavac Cement

completed

FCL and ALAS Bosna, a special purpose company for modernizing the cement plant for FCL, would be the co-borrowers for the project. FCL was established in 1974 as a state owned company, and uses the dry process technology of the 1970’s. It has a kiln capacity of 800 tons per day, translating to around 340,000 tons of cement a year. The project would involve the post privatization rehabilitation and modernization of the company. The project would consist of (i) optimization of production capacity of the existing facility of the borrowers located at Lukavac, Macan Marije bb, Bosnia and Herzegovina from its current cement output level of about 260,000 tons per year (tpy) to a full capacity level of 340,000 tpy (stage 1); (ii) expansion of the existing cement grinding capacity to 800,000 tpy (stage 2); and (iii) expansion of clinker production capacity by installing a new kiln line of 2,000 tons per day (tpd) capacity to match the cement production level of 800,000 tpy (stage 3). The first two stages will be implemented together as Phase I, while the kiln will be constructed as Phase II of the project.The project is underpinned by strong local demand driven by the need to complete repairs to buildings, bridges and other infrastructure damaged during the war. Demand is also growing from new construction of industrial and commercial facilities, fueled by a high post war GDP growth rate and is currently being met through heavy cement imports (estimated at 900,000 tpy in 2001). The modernization will also bring down production costs and enable the company to compete with imports, thus contributing to foreign exchange savings. The project provides an opportunity for IFC to support privatization and one of the largest and highly visible FDI in BiH. Moreover, the underdeveloped financial system in BiH is not able to provide the sponsors with access to adequate long-term limited recourse financing. In addition, IFC’s review and approval of the project will provide confidence to other potential lenders and signal an improving investment climate in BiH, as the current perception of BiH, and its associated macroeconomic risk, by many international banks is somewhat negative. IFC’s investment, including long term funding for its own account and mobilizing commercial resources, would also play an important role in assisting a company whose modernization would have a substantial positive impact on the economic development in the area.