Brazil - Central Do Brasil Priority Rehabilitation Project : Loan 0065 - Press Release - Conformed

HOLD FOR R1EASE HOLD FOR RELASE INTMNATIONAL BANK FOR RECONSTRUCTION AND IVOPMENT Washington, D.C. FOR TE PRESS FOR REASE A.M. Newspapers Press Release No. 296 Sunday, June 29, 1952 The International Bank for Reconstruction and Development bas made loans totaling $37,500,000 for electric power development and railway rehabilitation in Brazil. A loan of $25,000,000 will finance imported equipment needed for an electric power program in the State of Rio Grande do Sul. The borrower is a State-owned agency, the Comissao Estadual de 'nergia Eletrica (CEE); the loan is guaranteed by the Government of Brazil. The second loan, of $12,500,000, was made directly to the Brazilian Government. It will be used to purchase urgently needed rolling stock and equipment and to rehabilitate the track on the broad-gauge section of the Central do Brasil Railroad. The Central is Brazil's largest railway and serves the most highly industrialized centers. Additional.power is urgently needed in the State of Rio Grande do Sul. Because of its favorable climate, fertile land and vigorous population, the State is an important agricultural and cattle raising area. Related industries, such as food processing, shoe manufacturing and textile plants have already been established there. The State contains Brazil's largest known deposits of coal. Prospects are good for further development of industry as well as agriculture. Demands for electric power for both industrial and residential purposes have been steadily increasing, and shortages have necessitated power rationing. In the north central section of the State, over 3,000 industrial plants now have to generate their own power in relatively small and inefficient plants. The State has undertaken an electrification program to meet present needs and to provide for future requirements. The program is being carried out in -2- two stages. The first, now almost completed, will add about 40,000 kw to present capacity and will relieve the most critical power shortages. The second stage, which will take eight years to complete, will provide power for longer range development. It will add 185,000 kw to the State's power system through the construction of four hydroelectric power stations, two steem-turbine plants and some small diesel plants. By 1960, the system will have more than doubled its present capacity. The Bank's loan will be applied to the foreign-exchange cost of projects which will be completed during the first five years of the program's second stage. The total cost of this part of the program will be equivalent to about $80 million. The Brazilian Government will' finance works costing the equivalent of $16 million; CE will receive $39 million worth of cruzeiros from the pro- ceeds of a State electrification tax and from operating revenues; and the Bank's loan will provide $25 million. The Bank's power loan is for a term of 25 years and bears interest at the rate of 4-3/4% per annum, including the 1% commission which, under the Bank's Articles of Agreement, is allocated to a special reserve. Amortization payments will begin in November 1957. The Central do Brasil Railroad serves the economic center of Brazil. It links the important cities of Rio de Janeiro, Sao Paulo and Belo Horizonte; and serves Volta Redonda, Brazil's largest steel plant and the mining State of Minas Ge-rais. The railroad is a large carrier of iron ores, steel, fuel, food products and passengers. The Central has always been owned by the Brazilian Government. Difficulties encountered in its operation and administration have led the Government to consider plans for improving the Central and other government-owned railroads. The project for which the Bank's loan will be used is designed to meet the imediate needs for increasing the Central's carrying capacity, This project will take about 3 years to complete, with the exception of track rehabilitation which will require about 5 years. The total cost will be equivalent to approxi- mately $76 million. Of this amount, the Brazilian Government will provide $64 million in cruzeiros and the Bank will provide $12.5 million in foreign exchange. The Bank's loan will pay for the imported equipment needed for the immediate program. Most of the loan will be used to buy components of freight cars to be assembled in Brazil; the remainder will be used to buy equipment for track maintenance, stone quarries, maintenance shops and switches. The railway loan is for a term of 15 years and bears interest at the rate of 4-5/8% per annum, including the 1% commission which, under the Bank's Articles of Agreement, is allocated to a special reserve. Amortization payments will begin in November 1955. A supplementary application for a further $12.5 million loan to the Central Railroad, for rolling stock, is being prepared by the Brazilian Government and will be considered by the Bank as soon as it is received. Brazil's balance of payments difficulties, although acute, need not be of long duration. The present exchange shortage was caused in the main by heavy imports in 1951. In August 1951, when it was realized that the rate of imports was exceeding that of exchange earnings, the authorities re-imposed severe import restrictions. These have now resulted in a reduction of actual imports and, together with seasonal coffee receipts which are customarily higher in the latter half of the year, should improve the exchange position towards the end of 1952. Brazil's long-term prospects have not been materially affected by her immediate difficulties. However, the danger of inflation still persists and exchange difficulties may recur from time to time. The Government is now taking measures to improve this situation. It is giving its support to legislation for the establishment of a free exchange market which will be open to capital 4U transactions; and it has already put into effect a compulsory savings program to provide cruzeiro funds for development loans to be made through a newly established Economic Development Bank. After having been approved by the Bank's Executive Directors, the loan documents were signed on June 27, 1952 by His Excellency Walther Moreire Salles, Brazilian Ambassador to the U.S., on behalf of the United States of Brazil; by Dr. Antonio Brochado da Rocha, State Secretary of Finance, on behalf of the State of Rio Grande do Sul; by Dr. Noe de Mello Freitas, Director General, on behalf of the Comissao Estadual de Energia Eletrica; and by Eugene R. Black, President, on behalf of the International Bank for Reconstruc- tion and Development.