Magadi Expansion Project

completed

MSC is a Kenyan soda ash producer with 300,000 tpa of nominal capacity, and 2001 sales of $31 million. Magadi is one of Kenya''s oldest companies, operating for about 85 years utilizing Lake Magadi''s trona to produce sodium carbonate (soda ash). The venture, an expansion of an existing IFC-financed project, consists of the construction of a new plant and associated off-plot projects that would produce up to 365,000 tons annually of higher purity soda ash for export, primarily to the glass packaging sector in Magadi''s existing markets. The new plant will be constructed over a 27-month period. The existing plant would continue to operate at full capacity throughout project implementation, and, thereafter, produce about 75,000 tons annually of lower quality soda ash for about 5 to 10 years after the new plant initiates commercial operations. To stay in business in the medium-to-longer term, Magadi needs to implement this project. Its existing lower-grade soda ash product will face shrinking markets as demand shifts to higher purity soda ash. Without this project, Kenya will lose one of its most important exports and leave unutilized a valuable renewable natural resource - the trona reserves in Lake Magadi. Moreover, the closure of the company''s operation in a remote part of Kenya would leave the surrounding community without basic life-sustaining services and development.The project has a strong development impact. First of all, Magadi provides direct permanent employment to about 400 people and temporary employment to another 100. At its peak, the construction of the project would require about 350 additional employees. Secondly, the company is an integral part of the local Maasai community, helping it to cope with depressed economic conditions and develop socially and economically. Magadi provides health, water, education, and transportation services to the township and promotes entrepreneurship among the community members. The company maintains a hospital, three primary schools and one secondary school, housing for employees, teachers and medical personnel and an 86 km road to Magadi. It has contracted out cleaning services to the local community. It has reserved 40% of the stalls in the public market for locals. It is exploring business opportunities in tourism and ways of diversifying income sources, away from livestock raising into bee-keeping and maize mills - especially for local women. Thirdly, Magadi is an important foreign exchange earner for Kenya. Finally, the project will upgrade the environmental standards of the existing operation, particularly with respect to the reduction of dust levels at the Mombasa terminal.The proposed investment follows from an IFC review of the technical, commercial and financial aspects of a project undertaken in 2000 at the request of the company. On the technical side, IFC has played an important role in reviewing the development of the production process for improved purity ash, its capital costs, project management structure and arrangements, operating costs, marketing arrangements, and environmental and supply chain aspects. Moreover, IFC has helped ensure that the proposed improvement of environmental standards of the existing operation, particularly with respect to the reduction of dust levels at the Mombasa terminal, was incorporated in the Environmental Action Plan for the project. Finally, IFC has played a significant role in developing a bankable financial plan and in helping Magadi, a middle-tier company, raise both term loans and quasi-equity from international financial institutions.