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Financing the Mozal Project - Essay Example

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Case: Financing the Mozal Project Sub-Sahara Africa is one of the poorest regions in the world. Absolute poverty grew in the region from 42% to 47% from 1981 to 2001 (Bbc). A way to help the region out of poverty is through foreign investment and capital projects that provide jobs…
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Financing the Mozal Project
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Download file to see previous pages Along with the great benefits of the project there are also risks factors associated with its implementation. Some of the risk factors that must be considered in the business plan of a project are recurring revenue, economic uncertainty, and liquidity (Bizkanal). Mozambique is a high risk country due to a variety of factors. Among 20 African nations the country ranks last in road infrastructure, completion of secondary school, and legal effectiveness. It also ranks second to last in openness to trade and time spent to obtain permits. These factors make the country a difficult sell to foreign investors. Another major risk in the region is the political factor. The country is recovering from the effects of a civil war that lasted 17 years. There are still political tensions and bitterness between the Frelimo and Renamo parties. A risk that can inhibit the profitability and success of the project is a decline in the market price of aluminum in the future. The price of electricity is a determinant of the plant’s competitive position. Some of the key partners of the Mozal project are Alusaf, the government of Mozambique, Eskom, Electricidade de Mucambique (EdM), trustee responsible for the administrative duties, lenders, and the International Monetary Fund (IMF). Alusaf is the company that will own and administer the project. The company is a subsidiary of the Gencor Group. In 1996 Alusaf generated net income of $41.7 million. The company has the vision of expanding the firm through the Mozal project. The risk of acquiring its primary raw material, alumina, will be naturally hedged by fixing the prices based on LME. Eskom and Electricidade de Mucambique will supply the project with all the electricity it needs for production. The government of Mozambique is an important partner that must invest in improving the infrastructure of the country as well as honor the economic incentives and tariff exemptions available in the Industrial Free Zones. These factors will provide the company with a competitive advantage. The risk of the government bailing out and breaking the agreements is low because the government desperately needs the income and jobs the project generates. The trustee will be responsible of collecting sales proceeds, paying debt, remitting expenses, and paying dividends. The International Monetary Fund is a key partner because it has the capacity to provide large funds of money. Getting its approval would help the company obtain more financing from the private sector. The risk of the IMF are minimized by performing a throughout evaluation of projects to ensure its sustainability and that it provides an economic benefit for the community. There are several key factors to the success of the Mozal project. One of those factors is the ability of the company to develop and manage its human resources adequately. The management of human resources starts in the construction phase of the project. The company plans to bring experienced managers and skilled workers from South America during the initial phases of the project. It is imperative to properly manage the construction phase of the project. The firm is responsible for the work performance of a construction crew composed of 5,000 workers. The timeliness and the ability of the firm of completing the project within budget are highly dependent on being able to motivate the workers to perform at a high level. A second factor ...Download file to see next pagesRead More
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