Audit of the Suez Cement Company

Audit report covers the period 7/76-3/81 and is based on document review, site visits, and interviews with A.I.D., Government of Egypt (GOE), contractor, and SCC officials. Initial understatement of project costs, especially of local currency costs in the feasibility study, have hurt the project, now 2 years behind schedule due to the prime contractor"s inability to maintain the civil works construction schedule. Rising costs required A.I.D. to authorize an additional $10 million in 4/80 and the GOE to liberalize the terms of its subgrant and subloan of A.I.D. funds to SCC in order to keep SCC financially viable. Since the feasibility study was prepared by a firm with interest in the project, USAID/E should have reviewed it more thoroughly. Further, private SCC stockholders have shared unduly in the benefits of SCC"s debt restructuring; an SCC contractor paid over $71,000 in dollars in commission to its agents, although the contract required that local costs be paid in local currency; and $400,000 in A.I.D. funds were used to pay for inland transportation of commodities, although funds were to finance only foreign exchange costs. When the contract of SCC"s consulting engineer, H.K. Ferguson International Company (HKFI), was extended from 8/80 to 11/81, the fixed fee was increased by $185,000 solely on the basis of the contract extension and despite a decrease in required services. (A further extension to 8/82 is expected.) For its part, the SCC has diverted for its own use 8 vehicles and 17 air conditioners procured for HKFI. Also, a minicomputer included in the HKFI contract budget has proven unnecessary and should be deleted. In other matters, warranties for $11 million worth of quarry equipment are due to expire before the project terminates, and some suppliers received final payment before providing required equipment training and assembly assistance; Letters of Commitment for project costs have totalled $210,000 more than authorized; and only the SCC - the borrower - has kept detailed loan records, records which understate by some $6 million the amount of its loan from the GOE. Twelve recommendations are made.