Argentina - Hydrocarbon Engineering Project

Document of The World Bank FOR OFFICIAL USE ONLY Report No. 15323 IMPLEMENTATION COMPLETION REPORT ARGENTINA HYDROCARBON ENGINEERING PROJECT (LOAN 3416-AR) FEBRUARY 2, 1996 Infrastructure Operations Division Country Department I Latin America and the Caribbean Region This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.  Currency Equivalent Currency Unit = Peso US$1.00= I Peso Weights and Measures Metric System Fiscal Year of the Borrower January 1-December 31 Glossary to Acronyms DLC = Lujan de Cuyo Refinery DLP = La Plata Refinery FHA = Federal Hydrocarbon Agency GUTA = Gas Utilization & Technical Assistance Project MIS = Management Information System l'E = Public Enterprise PERAL = Public Enterprise Reform Adjustment Loan PEREL = Public Enterprise Reform Execution Loan SC = Fuel Secretariat (Sub-Secretaria de Combustible), Ministry of Economy TA = Technical Assistance YPF = Yacimientos Petroliferos Fiscales (state-owned corporation) YPFSA = YPF Sociedad Anonima (incorporated entity succeeding YPF)  FOR OFFICIAL USE ONLY ARGENTINA HYDROCARBON ENGINEERING PROJECT (LOAN 3416-AR) Table of Contents Preface ..................................... Evaluation Summary .................., , .... ii PART I: FINDINGS AND LESSONS.................................................................................................1 A. Background .... . B. Project Objectives and Definition .............................,.,.,.,.,.,.,.,.,.,.2 C. Achievement of Project Objectives .3 D. Major Factors Affecting Project Implementation .3 E. Project Sustainability .6 F. Performance .6 G. Assessment of Outcome .6 H. Future Operations .6 I. Key Lessons Learned .6 Appendix: Comments of the YPFSA and the Government .8 PART Il: STATISTICAL INFORMATION Note: Implementation Completion Reports (ICRs) normally include tables comparing actual and forecast indicators for project implementation/operation and for economic justification. As none appear in the loan documents for the Hydrocarbon Engineering Project, which consisted of studies and other kinds of technical assistance, the ICR includes none. The ICR includes no table describing and commenting on non-adherence by the Bank to its own operating policies as we are not aware of such non-adherence. Table 1. Summary of Assessments ..........................10....... , ...........,........ 10 Table 2. Related Bank Loans .....................,. , . , .11 Table 3. Project Timetable ...................... ........,.........,.... 13 Table 4. Actual & Forecast Cumulative Disbursements .13 Table 5. Actual & Forecast Disbursements by Category .13 Table 6. Studies Included in the Project: Timetable & Cost-- Actual, Revised, and Forecast Data. . 14 Table 7a Actual & Forecast Project Cost (Adjusted) , ......................................... 20 Table 7b Sources of Financing ..20 Table 8. Status of Legal Covenants.............................21......., . ........................,.,., 21 Table 9. Bank Resources: Staff Inputs....................................,,,,,.,.,.,,.,, . 24 Table 10. Bank Resources: Missions ...........................24..,,,,,,,............,., 24 This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.   IMPLEMENTATION COMPLETION REPORT (ICR) ARGENTINA HYDROCARBON ENGINEERING PROJECT (LOAN 3416-AR) Preface This is the Implementation Completion Report (ICR) for the Hydrocarbon Engineering Project in Argentina, for which Loan 3416-AR in the amount of US$28.0 million equivalent was approved on November 19, 1991 and made effective on June 9, 1992. The borrower was YPF Sociedad An6nima (YPFSA), the former state-owned national oil company. The last disbursement was on July 5, 1994 and the outstanding balance was prepaid on September 15, 1994. The loan was closed as scheduled on July 31, 1995. The ICR was prepared by Mr. Andrew Waldrop, LAIIU, under the supervision of Mr. Ricardo Klockner, Task Manager, and was reviewed by Mr. AsifFaiz, Chief, LAlIU, and by Mr. Orville Grimes, Project Adviser, LA1DR. Preparation of this ICR was begun in August 1994. It is based on material in the project file, interviews with Bank staff, and information provided by the borrower. A draft of this ICR was sent to YPFSA and the Government for their review. Their comments are included as an appendix to Part I of the ICR.   ii Evaluation Summary HYDROCARBON ENGINEERING PROJECT (LOAN 3416-AR) ARGENTINA Introduction Hydrocarbon and Adjustment Loans to Argentina. The borrower of Loan 3416-AR (US$28.0 million, 1991) is Y P F Sociedad An6nima (YPFSA), a privately-owned corporate successor to the state-owned oil company (para.. 1). The Bank has loaned Argentina since 1980 US$651 million, including Loan 3416-AR for hydrocarbon development, and about US$1.5 billion between 1989 and 1993 for adjustment operations to restructure and stabilize the economy. It makes sense to think of Loan 3416-AR as serving both the efficiency objectives of a normal engineering project and the privatization objectives of adjustment operations. Project Objectives and Definition Objectives. To help YPFSA privatize, the project aimed at improving the efficiency of YPFSA. To further mobilize private participation in the newly liberalized hydrocarbon sector, the project aimed at strengthening the capacity of the Fuels Secretariat (Sub-Secretaria de Combustibles-- SC) for overseeing sector policy and regulatory activities and for negotiating contracts for exploration and production. The project also supported SC's efforts to develop and enforce environmental standards in the sector (para. 6). Definition. The project consisted of engineering studies (Parts 1-3) and technical assistance (TA--Part 4). The studies were to: improve/enhance recovery of crude oil and natural gas (Part 1); construct natural gas processing plants and define the adequacy of a geological formation for storing natural gas (Part 2); and enhance the capacity of certain plants and facilities (crude oil processing, export infrastructure, and marketing plants--Part 3). Under Part 4, to benefit SC, consultants would: establish a hydrocarbon development promotion unit, and develop a manual setting forth sector-wide environmental standards. In connection with the unit, consultants were expected to train staff and transfer from YPFSA a national data bank on oil acreage in Argentina. To benefit YPFSA, there was also an institutional strengthening component (para. 7). Special Covenants. Except for a timetable governing the execution of the studies, the Loan Agreement did not include special covenants for project execution. Evaluation. The project objectives were compatible with sector and macroeconomic objectives and achievements of prior investment and adjustment loans. The loan documents clearly stated the objectives which were consistent with the country development objectives and the Bank's lending strategy (para. 9).  iii Implementation Experience & Results Achievement of Objectives. Although the project was reduced in scope, the components carried out by YPFSA (Parts 1-3, plus some of Part 4) substantially achieved their privatization and efficiency objectives, and these achievements appear to be sustainable. Under Part 4, SC achieved part of its environmental objective through the development of standards for development drilling operations. It remains to be seen how the environmental standards will be enforced and whether additional standards will be developed for other operations (such as exploratory drilling). SC did not establish a hydrocarbon promotion unit and did not transfer the national data bank from YPFSA. In the opinion of SC, the existing policy framework was achieving satisfactory private participation in the sector; hence, the unit was not really needed. Lack of physical space at the SC was the reason for not transferring the data bank. The Bank accepts SC's judgment on not establishing the unit but the wisdom of not transferring the data bank remains to be seen (paras. 10 and 12). Timetable, Cost, and Financing. The project started six months late--June 11, 1992-- due to bureaucratic delay on the part of the Argentinean authorities; the project ended five months early--July 5, 1994, with the last disbursement. Underlying the early completion date was YPFSA' s growing disinterest, following its privatization, with Bank financing which was considered non- competitive with what was available in commercial credit markets. The actual project cost was US$19.1 mnillion vs. the forecast cost of US$23.9 million; and Bank financing amounted to US$8.3 million vs. the forecast of US$12.8 million. The forecast cost and financing have been adjusted to reflect the reduction in the scope of the project. The original project cost was US$40.1 million, which was to have been financed with a Bank loan (US$28.0 million) and funding from YPFSA and the Government (US$12.1 million) (paras. 8, 13, and 15). Factors Affecting Project Implementation. Factors affecting implementation included a reduction in project scope (see above); the privatized status of YPFSA, which caused it to end its relationship with the Bank and prepay Loan 3416-AR (September 15, 1994); and SC's progressive disinterest, due to reduced need, in establishing the hydrocarbon promotion unit. These factors affected the project timetable, cost, financing, results, and sustainability of achievements under the project (para. 11). Performance. With the objectives of the studies benefiting the YPFSA and SC substantially achieved and likely to be sustained, the performances of YPFSA, SC and the Bank should be judged "satisfactory" (para. 20). Assessment of Outcome. Given the gains of privatization and greater efficiency at YPFSA, satisfactory private participation in the sector, and the establishmnent of partial environmental standards at the SC, the outcome of the project merits an overall rating of " satisfactory" (para. 21).  iv , Future Operations and Lessons to be Learned No Further Projects. As a private company, YPFSA has access to commercial credit markets in a way that was not possible in the past. Given such access, the Bank is not planning future operations in the hydrocarbon sector (para. 22). Key Lessons. The efficiency gains under this project provide no obvious lessons. The privatization of YPFSA demonstrates the importance of commitment on the part of political authorities to the objectives of the project. The privatization of YPFSA also demonstrates that, in connection with a multi-loan, economic stabilization and restructuring operation, it is important that the Bank ensure that the successive loans properly "link" in order to advance or achieve the final objective(s) of the operation. Another lesson relates to the realities of a privatized sector. The retention of the data bank by YPFSA may be perceived by other oil companies as a sign of preferential treatment on the part of the Government and may lead them to defer needed investment in the sector. In retrospect, the Bank should have impressed on the SC the importance of transferring the data bank from YPFSA to a neutral location with open access to all interested parties. This would have the impact of enhancing competition in the sector and would remove concerns of preferential treatment of YPFSA by the Government (para. 23).   ARGENTINA HYDROCARBON ENGINEERING PROJECT (LOAN 3416-AR) PART I: FINDINGS AND LESSONS A. Background 1. The Borrower. The borrower of Loan 3416-AR is Y P F Sociedad An6nima (YPFSA), a privately owned oil company (since July-September 1993), which became the corporate successor (on January 1, 1991) to the state-owned oil company (Yacimientos Petroliferos Fiscales--YPF). 2. Political and Economic Context. During the 1970s and 1980s, Argentina, a rich country, struggled to reverse a slow economic decline resulting, in part, from its statist economic approach. In 1989-1990, the Administration of President Menem initiated reforms to stabilize and restructure the economy. The stabilization reform focused on reducing the government deficit. The restructuring reform emphasized market forces, private initiatives, reducing the role of the state, and improving the performance of public enterprises (PEs) which accounted for about 10% of the GDP and 50% of the annual government deficit. Supporting these reforms was a Bank program of adjustment and technical assistance (TA) loans which exceeded US$1.5 billion (through 1993). 3. Hydrocarbon Loans. To restructure the economy and to secure future energy needs, the Government began preparing the hydrocarbon sector and YPF for, respectively, deregulation and commercial operations, reorganization, and privatization. Concerning key issues, the Bank provided the Govemment with financing for TA and studies, including: (1) the institutional strengthening component of the Gas Utilization and Technical Assistance Project--GUTA (Loan 2592-AR, US$70.9 million, 1985); (2) the corporate strategy component of the Public Enterprise Reform Project--PEREL (Loan 3292-AR, US$23.0 million, 1991); (3) the energy sector reform conditions of the Public Enterprise Reform Adjustment Loan--PERAL (Loan 3291-AR, US$300 million, 1991); and (4) the engineering studies and TA of the Hydrocarbon Engineering Project (Loan 3416-AR, US$28.0 million, 1991). 4. GUTA, PEREL, and PERAL. At appraisal, the institutional strengthening component of the GUTA included an organizational review of YPF to streamline decision-making and to improve operational efficiency; and improvements to its financial management systems. To advance the program of privatizing PEs (para. 3), the objectives of the organizational review were expanded to include the identification and analysis of key financial and institutional issues, including how to assure a good reception for YPF shares on local and intemational equity markets. The GUTA studies produced a diagnosis for restructuring and the identification of assets (non-core) to be sold'. Building on the GUTA studies, the PEREL studies examined the strategic plans of the restructured YPF and defined needed changes to its legal regime and relationship with the Government. The PERAL extended the achievements of the GUTA and PEREL by conditioning the release of a " floating" (or undated) energy The study on restructuring led, inter alia, to a reduction of employees from 40,000 to 10,000. The study which assessed and identified core and non-core activities led to the disposal of pipelines, refineries, storage facilitates, etc. Also financed under Loan 2592-AR were the design and implementation of a new, comprehensive accounting system which became operational in 1993.  2 sector tranche (US$75.0 million) to, inter alia, the approval of a new charter providing for financial and operational autonomy, divestiture and privatization of non-core assets, and increasing private ownership of YPF. 5. Milestones. On January 1, 1991, YPF was converted into a stock corporation (YPFSA) with the shares held by the Government. (The same month, work began on the subject engineering project.) Seventeen months after conversion, the Government began to fulfil the conditions for release of the energy sector tranche. First, it enacted (September 24, 1992) new legislation (Law 24.145) which established YPFSA's new corporate charter, thereby laying the foundation for restructuring and privatization. Then, it disposed of non-core assets, still leaving YPFSA with a dominant position in the sector2. Finally, at the beginning of February 1993, it commnitted itself to the near-terrn privatization of YPFSA On February 17, 1993, the Bank, satisfied that the release conditions had been fulfilled, disbursed the tranche and closed Loan 3291-AR. In July 1993, the Government sold 46% of YPFSA's common stock (first offering) on domestic and international equity markets, and in mid September 1993, an additional 22% (second offering) with the result that a majority of YPFSA's stock was in private hands. The privatization of YPFSA resulted directly from TA financed by Loan 3416-AR and the prior achievements of Loans 2592-AR, 3291-AR. and 3292-AR.. B. Project Objectives and Definition 6. Objectives. The proposed project aimed to improve the efficiency of YPFSA's operations, thereby helping YPFSA make an effective transition to its commercial role and eventual privatization; and strengthen the capacity of the Fuel Secretariat (Sub-Secretaria de Combustibles--SC) to regulate the hydrocarbon sector; and support its efforts to develop and enforce environmental standards in the sector. The project was also expected to improve SC's capacity to mobilize private participation in the newly liberalized hydrocarbon sector. 7. Definition. The project consisted of engineering studies (Parts 1-3) and TA (Part 4). Part I studies were to improve/enhance crude oil and natural gas recovery. Part 2 included studies to construct natural gas processing plants and to define the adequacy of underground storage facilities for natural gas. The underground storage study was to be jointly executed by SC and YPFSA. Part 3 studies were to enhance crude oil processing, upgrade export infrastructure, and automate marketing plants. Under Part 4, to benefit SC, consultants would help to: establish a hydrocarbon development promotion unit which would auction oil acreage and operate an exploration data bank; train staff for the unit; and develop a manual establishing sector-wide environmental standards. To benefit YPFSA, consultants would redesign the management information systems (MIS), especially the budgeting and accounting systems, and monitor the environmental impact of projects identified in Parts 1-3. Also benefiting YPFSA was a component for overseas management training. 8. Cost, Timing and Mode of Execution. At an expected cost of US$40.1 million, the project was to be executed between December 15, 1991 and December 30, 1994. Typically, the engineering studies were to be executed in three phases: (i) data collection/system design; (ii) preparing/issuing bid documents; and (iii) evaluating bids/awarding contracts. 2 After restructuring, YPFSA accounted for 40% of national oil production, 60-70% of refining capacity, 50-60% of sales of hydrocarbon products, and 60% of the gas production market.  3 9. Evaluation. The project objectives were compatible with sector and macroeconomic objectives (para. 3) and achievements under the GUTA, the PERAL, and the PEREL (paras. 4-5). As set forth in the loan documents, the objectives were clearly stated; they were also important, appropriate to the development of Argentina, and consistent with the Bank's lending strategy. C. Achievement of Project Objectives 10. Assessment. If the achievements of TA/engineering projects are indicated by the actions taken on the basis of consultant recommendations, then YPFSA substantially achieved its objectives (para. 6). For example, based on the results of Part 4, YPFSA introduced its shares on domestic and international stock exchanges; and based on the results of Parts 1-3, YPFSA discarded or adopted investment options and installed or planned to install works. Improved efficiency, it is assumed, follows from the completion of such works, although the degree of improvement cannot be measured because no indicators were established at appraisal. SC did not establish a hydrocarbon promotion unit and did not transfer the national data bank from YPFSA, but, by setting a proper policy framework--rules for privatization and other regulatory norms--it prompted, to its satisfaction, private participation in the sector, which was the result to be expected from establishing the hydrocarbon promotion unit. The Bank accepts SC's judgment on not establishing the unit, but the wisdom of not transferring the data bank remains to be seen. SC achieved part of the objective of developing environmental standards; and a regulatory unit, the Federal Hydrocarbon Agency (FHA), is contemplated in connection with an amendment to the Hydrocarbon Law (Law 17.319). Economic benefit calculations were not applied to the project. D. Major Factors Affecting Project Implementation 11. General. Factors affecting implementation included a reduction in project scope; YPFSA's changed status as a private company; and SC's progressive disinterest in establishing the hydrocarbon promotion unit. SC found that a proper policy framework was sufficient to prompt private participation in the sector and that it did not need to create the hydrocarbon promotion unit. Because of their impact on one another, it is convenient to relate the reduced project scope to cost reductions; and the changed status of YPFSA to the changed composition of financing and to the early project completion date. (a) Changes: Project Content and Cost 12. Project Content: As compared with what was planned at appraisal, the completed project was reduced in scope through the deletion of major items in Parts 2 and 4. The reduced project was then further diminished through the non-completion of studies in Parts 1 and 2 due to altered circumstances. There was a partial offset to the reduction in scope and non-completions by the addition of TA from investment bankers (Part 4). As shown later, to compare actual and forecast costs meaningfully, the forecast costs have to be adjusted to reflect the impact of the deletions (see Schedule 1). Set forth below are details on changes to the project and the actions taken based on the recommendations of the consultants. (i) Part 1. Because more was accomplished under existing contracts financed by Loan 2592- AR than had been expected, the Part 1 studies, as completed, involved less work and less cost (-54.5%)  4 than anticipated, but, nonetheless, led YPFSA to install telemetric control systems and to continue studying an implementation plan for tertiary recovery. (ii) Part 2. YPFSA did not complete the study of the gas treatment facilities at the Lotena fields and the related study of dew point separators. Initial investigation showed that further investment was not worthwhile. SC (which excluded YPFSA from participation in the study for underground gas storage) deleted the study due to considerations of cost and doubts about whether the study might be more appropriately carried out by private investors. Foregone expenditure on the storage study amounted to US$9.96 million. Because of the discontinued studies on the Lotena fields, the actual cost of Part 2 was 65% less than the expected cost (adjusted for deletion of the storage study) . (iii) Part 3. These studies focused on improving refinery operations, export facilities, and automating storage and dispatch plants. Following the completion of feasibility studies on changing the capacity of certain pipelines, YPFSA took no action because the pipelines were sold to other investors. The other studies resulted in YPFSA's discarding, installing or advancing the preparation of works. The actual cost was 13.5% less than expected. (iv) Part 4: SC. Under Part 4, consultants prepared a manual establishing environmental standards for development drilling, and completed an initial study of SC's organization. SC is using the manual, but the manual(s) relating to exploratory and production drilling are pending. Since, in the opinion of SC, a proper policy framework was prompting satisfactory private participation in the sector (para. 17), the hydrocarbon promotion unit was not established. Total expenditures were 19.1% greater than expected. (v) Part 4: YPFSA. YPFSA reduced the project scope by deleting the overseas training component and the TA to install an improved MIS. With Bank agreement, YPFSA added the advice of investment bankers to advance the introduction of its shares on equity markets. The foregone expenditures for training and the MIS amounted to US$4.76 million. Consultants established environmental monitoring programs related to only a few projects identified in Part 3. As compared with forecast costs adjusted to reflect the deletion of TA for MIS, actual Part 4 expenditures by YPFSA were 126.3% higher. (In late 1993, YPFSA discontinued discussions about the possibility of Bank funding for a study of further improvements to the accounting/budgeting system--expected cost: US$4.0 million.) 13. Cost. Without adjustment to take account of the reduction in project scope, the forecast cost (US$40.1 million) is not comparable with the actual cost (US$19.1 million). After adjustment for reduction, the actual and forecast projects are reasonably comparable, and, as shown in Schedule 1, the adjusted (reduced) forecast cost (US$23.9 million) is comparable to the actual cost (19.1 million).  5 Schedule 1: Actual and Forecast (Adjusted) Cost (in thousands of US$) Parts 1 2 3 4 (SC) 4(YPFSA) Total Actual 3,064 572 10,365 3,179 1,946 19,126 Forecast (adjusted) 6,740 1,650* 11,980 2,670 860** 23,900 %Diff. from Forecast -54.5 -65.3 -13.5 19.1 126.3 -19.97 * Reduction of original forecast: US$9,960 thousands, representing the expected cost of a study (never executed) of the underground storage capacity (natural gas) of a geological formation known as the Beazeley Canyon. ** Reduction of original forecast: US$4,760 thousands representing the expected cost of TA (never executed) for, respectively, the installation of a modem management information system (US$4,000 thousands) and training (US$760 thousands). (b) Changes: YPFSA, Financing and Timetable 14. YPFSA as a Private Company. Following the first offering (July 1993--para. 5), YPFSA and the Bank began to prepare for loan negotiations on a proposed oil industry environment rmitigation project. In this connection, the Bank sought the agreement of YPFSA to more stringent financial performance covenants (a quick ratio not less than 1.2:1 and a debt/equity ratio not less than 40:60) than had prevailed in earlier loan agreements on the grounds that the more stringent covenants were appropriate to borrower's changed status as a private company in a competitive world. YPFSA objected that the proposed covenants were too onerous and that the terms and conditions of the proposed Bank loan were not competitive with what was available on international credit markets. The Bank and YPFSA did not find common ground on this issue. Accordingly, YPFSA halted (August 1993) preparations for negotiations, and, thereafter, progressively limited its applications for disbursements from Loan 3416-AR. The last disbursement was on July 5, 1994; YPFSA prepaid (September 15, 1994) the outstanding balance. How the changed status of YPFSA impacted on project financing and the project completion date is set forth below. 15. Composition of Financing. While reductions in the scope of the project led to reductions in project cost, and therefore the level of financing, the composition of such financing reflected the decision of YPFSA to limit the use of Bank funding. Schedule 2 shows actual Bank financing at US$8.3 million; YPFSA/SC furnished the balance of US$10.8 million. Reduced due to changes to the project, the corresponding appraisal forecasts were, respectively, US$12.8 million and US$11.1 million. (At appraisal, the sources of financing were: the Bank, US$28.0 million; YPFSA/SC, US$12.1 million). Schedule 2: Actual and Forecast (Adjusted) Sources of Financing (in thousands of US$) Sources Actual Forecast % Diff. (Adjusted) World Bank 8,273 12,770 -35.2 YPFSA/SC 10,853 11,130 -2.5 Total 19,126 23,900 -19.9 16. Timetable. At appraisal, the expected period of execution was December 15, 1991 to December 30, 1994. Due to bureaucratic delays after loan negotiations, the project actually began six  6 months late--June 11, 1992, when the first consulting contraet was signed. The project ended about five months early--July 5, 1994, on the occasion of the last disbursement from Loan 3416-AR (para. 14). (c) Reduced Need for the Hydrocarbon Promotion Unit 17. SC. Under Part 4, SC employed consultants to study its organizational needs; but did not transfer the national data bank from the YPFSA and did not establish the hydrocarbon promotion unit. Concerning the national data bank, the transfer was not effected due to lack of space at SC Without such transfer, SC passes requests of potential bidders for information on available acreage to YPFSA. Concerning the unit, its creation was initially delayed because, in the context of lean government budgets, the SC was obliged to secure reliable funding from non-government sources if the unit were to achieve operational status. This did not happen, with the result that the creation of the unit languished. However, as time passed, it became clear to SC that the unit was not really needed, that the objective of improved private participation was being satisfactorily met through the rules for privatization and such regulation as promoted competition among the natural monopolies of the sector. E. Project Sustainablity 18. YPFSA. Provided that the works resulting from the project are properly maintained and operated, there is every reason to believe that the efficiency improvements which they embody shall be sustained over the economic lives of the works. YPFSA's status as a private company is also likely to be sustained, as its profitability, market standing, and competitive position are strong. Further, a political decision to reintroduce state control seems remote at this juncture. Concerning environmental protection, while quantitative data are not available to measure the benefits of avoided environmental damage, presumably the benefits remain (or are sustained) since they originated in connection with project construction and should not disappear as a consequence of project completion. 19. SC. Part 4 led to the preparation of an environmental standards handbook for development drilling. The objective of increased private participation in the sector was achieved to the satisfaction of SC without establishing the hydrocarbon promotion unit and without the transfer of the national data bank from YPFSA. SC's progressive disinterest in the promotional unit seems justified, but the wisdom of leaving the national data bank at YPFSA remains to be seen. F. Performance 20. The Bank and the Beneficiaries. Results under the project are the starting point for judging the performance of parties to the project. As the objectives of the studies benefiting the YPFSA were substantially achieved and appear likely to be sustained, so the performances of YPFSA and the Bank should be judged satisfactory. Since the objectives of the TA benefiting SC also appear to have been achieved, the performance of the government should be judged satisfactory. The same judgment should apply to the Bank. H. Assessment of Outcome 21. A Good Project. Results with respect to the studies and TA benefiting YPFSA and SC were positive. Hence, the outcome of the project merits an overall rating of " satisfactory".  7 I. Future dperations 22. No Further Projects. As a private company, YPFSA has access to commercial credit markets in a way that was not possible in the past. Given such access, the Bank is not planning future lending operations in the hydrocarbon sector of Argentina. J. Key Lessons Learned 23. Key Lessons. The efficiency gains under this project provide no obvious lessons. The privatization of YPFSA demonstrates the importance of commitment on the part of political authorities to the objectives of the project. The privatization of YPFSA also demonstrates that, in connection with a multi-loan, economic stabilization and restructuring operation, it is important that the Bank ensure that the successive loans properly "link" together to advance or achieve the final objective(s) of the operation. Another lesson relates to the realities of a privatized sector. The retention of the data bank by YPFSA may be perceived by othe oil companies as a sign of preferential treatment on the part of the Government and may lead them to defer needed investment in the sector. In retrospect, the Bank should have impressed on SC the importance of transferring the data bank from YPFSA to a neutral location with open access to all interested parties. This would have the impact of enhancing competition in the sector and would remove concerns of preferential treatment by the Government.  8 Appendix to Part I: Comments of YPFSA and the Government Note: Respectively dated December 6 and December 14, 1995, the comments of YPFSA and the Government have been edited as indicated with brackets to improve their clarity or to achieve editorial consistency with the rest of Part I. The Government's corrections of Part II (Table 6) concerning the work of consultants have been directly incorporated into Part II and are not set forth below. Also not set forth below is the Government's disclaimer concerning facts and judgments on that part of the project executed by YPFSA. Comments of YPFSA: "After examining the above mentioned report, YPFSA has no important comments to make about the development of the Project. "However, we are pleased to express our satisfaction with regards to the Bank's performance and to thank [the Bank] as well for the assistance offered every time it was requested." Comments of the Government: "[Set forth below are].. .the comments of the Subsecretaria de Energia... Obviously, these comments relate only to the component financed by the World Bank and carried out by Subsecretaria de Combustibles (SC). "The first [comment] is a general [one--namely] that the Federal Hydrocarbon Agency (FHA), which is... cited in the [subject ICR], is an institution contemplated in the [proposed] amendment of Law 17.319, the Hydrocarbon Law. [Currently,] Law 17.319 is being amended by National Congress. Therefore, pending completion [of] the amendment process by the National Congress and its promulgation by the National Executive Power, the FHA [does not exist] and shall not function. "The consultant ['X'], who carried out part of the study financed by.. .Loan 3416-AR, only outlined the tentative organizational structure of the FHA, assigning a reduced part of its time and resources to [such study]. To implement the FHA, the execution of a deeper [organization] study ...shall be necessary; [and] until the amendment [of the Hydrocarbon Law] is approved, the SE shall not [take action on the study.] "On various pages of the ICR..., it is stated that the objective of the project was [only] partially achieved or inadequately completed because it was believed that the...the hydrocarbon promotion unit [was not created] within.. .the SC. Also having not formed the promotion unit, it is doubted that the objectives of attracting private participation in the petroleum and natural gas industries can be reached. "Concerning the [above, the following] should be said: "a) The authorities of the SC decided, having reevaluated the [concept] of the... unit, that it would be more useful for energy policy... .to assign the funds for the reorganization of the SC to the training of personnel.. through courses [offered locally or abroad].  9 "b) It is difficult to believe that the non-creation of the... .unit is going to affect the success of petroleum policy in the sense that the private sector would not be part of the development of the sector. Energy policy in the developed area of hydrocarbons.. .consists of establishing rules for the deregulation of 'upstream ' petroleum and natural gas activities and [of establishing] regulation [to promote] competition in areas characterized by natural monopolies. [Such rules and regulations] are the unique conditions for success, as has been shown by production increases for natural gas and petroleum and by increments of investments in 'upstream' and 'downstream' [facilities]. To maintain that, without the Unit, there [are inadequate] incentives [to attract] the private sector to complete investments in exploration and development seems to be a [chancy proposition]. "Another question meriting commentary is that the national data bank, which... contains in- formation on exploration..., belongs to the Secretaria de Energia and not a private company. The data bank is located at YPFSA because... the Secretaria... [lacks sufficient physical space]; but it is required that other companies interested in [exploration activities] have access to the data bank on conditions equal to that of YPFSA."  10 Part II: Statistical Information Table 1: Summarv of Assessment A. Achievement of Obiectives Substantial Partial Neeligible Not ADnlicabie Macroeconomic Policies X Sector Policies X Financial Objectives X Institutional Development YPFSA X SC-Manual x -Unit X Physical Objectives X Poverty Reduction X Gender Concerns X Other Social Objectives X Environmental Objectives X Public Sector Management X Private Sector Development X B. Proiect Sustainability Likelv Unlikelv Uncertain Not Applicable YPFSA X SC-Manual x -Unit X C. Bank Performance Hil!hlv Satisfactory Satisfactory Deficient Identification X Preparation X Appraisal X Supervision X D. Borrower Performance Preparation X Implementation X Covenant Compliance X E. Assessment of Outcome Hinhlv Satisfactory Satisfactory Unsatisfactory Hiehly Unsatisfactory x  11 Page 1 of 2 Table 2: Related Bank Loans Loan Number; Year of Approval; Amount Project Name (in US$ millions) Purpose Status Preceding Operations 2592-AR; 70.9 To rationalize use of and Loan closed 12.31.91. 1985; develop hydrocarbon re- two years late. Achieved Gas sources by eliminating installation of oil/gas in- Utilization bottlenecks in deliveries frastructure plus impor- and Technical of gas and oil, expand tant institutional streng- Assistance enhanced recovery facili- thening in the form of a Project ties, etc., plus institutional diagnosis of the financial strengthening. and institutional issues related to the future pri- vatization of YPFSA, the identification of core and non-core assets, and the development and installa- tion of an accounting/budet- ing system appropriate to a major oil company. 3291-AR; 300 To advance Government Loan closed 12.31.92. 1991; objectives of deregulating Achieved dergulation of Public Enterprise the economy and privatizing prices of crude and re- Reform Adjustment PEs. Tranche release was refined oil products; (PERAL) conditioned to fulfillment of greater private invest- macroeconomic and sector ment in crude oil pro- specific conditionalities. duction; privatization of YPFSA. 3292-AR; 32 Companion loan to 3291-AR. Loan closed 06.30.95; 1991; To support deregulating and last disbursement was Public Enterprise and privatizing SEs by financing on 12.15.93. Consul- Reform Execution consultant studies re corporate tants proposed success Loan (PEREL) development strategies and pur- ful strategy for YPFSA chase of related equipment. implementation. led to privatization.  12 Page 2 of 2 Table 2 (Cont'd.) Loan Number; Year of Approval; Amount Project Name (in US$ millions) Purpose Status Subject Loan 3416-AR; 28 TA project consisting of Loan closed, 07.31.95,as 1991; studies to improve the effi- scheduled; last disburse- Hydrocarbon Sector ciency of YPFSA's opera- ment, 07.05.94; loan pre- Engineering Project tions and to strengthen the paid, 09.15.94. Project regulatory capacity of the SC. experienced deletions, sub- stitutions, etc., amounting to a reduction in scope. Studies benefiting YPFSA led to adoption/rejection of investment options, plus successful offering of shares on equity markets of Buenos Aires and New York City. Total 430.9 1/ 1/ Total does not include investment lending (since 1980) amounting to US$623 million or adjustment operations (from 1989 to 1993) amounting to about US$1.2 billion.  13 Table 3: Project Timetable Steps in Project Cycle Date Planned Actual Date Preparation 02/03-15/91 Appraisal 06/91 06/18-25/91 Negotiations 10/91 10/08/91' Board Presentation 08/91 11/19/91 Signing 03/12/92 Effectiveness 02/92 06/09/92 Project Completion 12/31/94 07/05/94 Loan Closing 07/31/95 07/31/95 1/ One minor criticism which applies to all parties pertains to the choice, made during negotiations, of December 15, 1991 as the starting date for the project. Given that negotiations began on October 8, 1991, the negotiators allowed only eight weeks for completing the tasks relating to loan processing (Board approval, loan signing, and effectiveness) and the signing of consultancy contracts (agreement on "short" lists, evaluating proposals, negotiating contracts). Clearly, this represented an unrealistic estimate of the efficiency of all parties. Fortunately, the choice of December 15, 1991 was not a major factor affecting the timetable of project implementation. The late start reflected the fact that after Board approval (November 19, 1991) YPFSA and the Govemnment did not move promptly to fulfill their own bureaucratic requirements for loan signing (March 12, 1992) and effectiveness (June 9, 1992). Table 4: Actual and Forecast Cumulative Disbursements (in millions of US$) IBRD Fiscal Year 1992 1993 1994 1995 Forecast 10.00 22.00 27.00 28.00 Actual 0.00 7.58 8.27 8.27 Actual as a percent of forecast 0 34.4 30.6 29.5 Date of Final Disbursement: 07/05/94 Amount Canceled: US$19.73 million Table 5: Actual and Forecast Disbursements by Category (in millions of US$) Actual as a Cateaorv Actual Forecast Percent of Forecast 1. Consultant services benefitting YPFSA 6.2 14.5 -57.2 2. Consultant services benefitting SC 2.1 11.5 -81.7 3. Unallocated 0.0 2.0 -100.0 Total 8.3 28.0 -70.4  14 Page I of 6 Table 6: Studies Included in the Project: Timetable and Cost-- Forecast, Revised, and Actual Data Actual Date of Bank's Part 1: Production Enhancemnent Con- "No Obiection" Date for (benefiting YPFSA) sul- Short Consultant Starting Work Date Category Study Description Studv Objective tant List Selection (Contract Signing) for Ending Work Cost Commentary (in millions US$s) a Design: Teleme- Proper control of Tech- NA* 34/ 04.14.92' Forecast: 12.15..91 Forecast: 07.31.92 Fore: 3.000 Ln. 3416-AR financed phase 1-data collec- tric Control Sys- field production & nip/Sol- Revised: NA Revised: 12.31.94 Revised: 2.310 tion/systen design based on studies of the tem for Produc- allocation san Actual: 01.07.936 Actual: 04.19.94 Actual: 1.679 Comodoro Rivadavia and Mendoza fields. tion MDF**: 6.5 MDF: 21 (Disbursed, Phase I continuedworkatartedunderLa Bank In: 0.932') 2592-AR. YPFSA did not use Bank financ- ing for phases 2 & 3-issuing bid documents and evaluating proposals/awarding contracts. Study was the basis for the development of telemetric control systems in above fields, plus a list of oil fields where YPFSA will install such systems. 1/ b. Design: Second- Optimization of Total- NA 04.16.92 Forecast: 12.15.91 Fore: 07.31.92 Fore: 3.740 This study, consistingofadvice for implemen- ary and Tertiary crude oil produc- Cullen Revised: NA Revised: 12.31.94 Revised: 0.824 ting a pilot project for oil recovery, continued Projects (Enhan- tion from produc- Valdez Actual: 10.06.93 Actual: NA Actual: 1.367 work started under Loan 2592-AR; however ced Recovery) ing fields. Rojas MDF: 10.5 MDF: NA (Disbursed, only modest part of Ln. 3416-AR was used Bank In: 0. 182) due to YPFSA's dissatisfaction with teffs and conditions of Bank fmancing. Implemen- tation of proposed project is being studied. *NA: Not Applicable or Not Available; MDF: Months Differing from Appraisal Forecast 3 Both the Bank and YPFSA believed that the contract would be an extension of an existing contract financed by another Bank loan (2592-AR). 4 On 04.01.93, in an internal memo, the Bank set forth its agreement with the Borrower's decision to continue its relationship (under a new contract) with an experienced consultant already contracted under another Bank loan. S Bank telexes to YPFSA, dated respectively 04.14.92 and 04.16.92, indicated " no objection" to extension of existing contracts. 6 On 04.08.93, Bank informed YPFSA that under Loan 3416-AR it would only finance that portion of the contract covering the field work; and would not finance the storage and pumping stations. The Bank reconfirmed its position in a communication to YPFSA dated June 21, 1993. 7 After YPFSA renegotiated the contract to expand the scope of services, Bank limited its disbursements to apply to only those services defined in the original contract.  15 Page 2 of 6 Table 6: Studies Included in the Project: Timetable and Cost-- Forecast, Revised and Actual Data (Cont'd.) Part 2: Natural Gas Processing & Actual Date of Bank's Underground Storage Con- "No Obiection" sul- Short Consultant Starting Work Date Category Study Description Study Objective tant List Selection (Contract Signing) for Ending Work Cost Commentary ( in millions USSs) a.1 Si Design: Gas Treat- Optiniizationof Fish En- 05.04.92 08.21.92 Forecast: 12.15.91 Fore: 07.31.92 Fore: 1.650) Because the initial phase showedthatfur- ment Facilities, natural gas liquid gineer- Revised: NA Revised: 03.30.94 Revised: 0.5799) ther investment in project was not worthwhile, Lotena Fields extraction and ring & Actual: 11.09.92 Actual: 10.20.93 Actual: 0.573) YPFSA, after obtaining Bank agreement, did energy savings. Cons. MDF: 11.5 MDF: 2.5 (Disbursed, not continue with the study10. Bank In: 0.384) a(ii) 8/ Detailed Engin- Increased conden- Fish En- SAA*** SAA SAA SAA SAA SAA Fore: 1.650) Study not executed. See above commentary for details. eering: Dew Point sate production gineer- .Separators ing b Detailed Geologi- Determining ade- NA'1 NA NA NA NA NA NA Fore: 9.960 Study never executed. Worrying about its cost cal, Geophysical, quacy of under- Revised: 0.000 plus doubts about whether the study might be and Laboratory ground storage. Actual: 0.000 more appropriately executed by a private in- Work for Under- vestor undermined the Government's interest ground Storage and delayed its execution. (SC) ***SAA: Same as above 8 Studies a(i) and a(ii) were companion studies. 9 Cost of first phase of study. '1 On 10.06.93, Bank agreed to reduce scope, and therefore the cost, of consultant services. I This study was supposed to determine the security and useability of a geological formation for underground storage of natural gas. The formation was referred to as the Beazley Canyon. If found acceptable, the Beazley Canyon formation would have provided natural gas storage at a location convenient for serving metropolitan Buenos Aires.  16 Page 3 of 6 Table 6: Studies Included in the Project: Timetable and Cost-- Forecast, Revised and Actual Data (Cont'd.) Part 3: Improving Crude Oil Processing, Actual Date of Bank's Marketing, & Export Facilities Con- "No Obiection" Date for sul- Short Consultant Starting Work Date Categorv Study Description Study Obiective tant List Selection (Contract Signing) for Ending Work Cost Commentary (in millions, US$s) al.2 Quality Enhancement Improved mar- U.O.P. 05.12.92 03.25.93 Fore: 12.15.91 Fore: 06.30.93 Fore: 9.120) The study was successfully executed, andthe (Isomerization, ketability. Revised: NA Revised: 07.07.93 Revised: 2.889 resulting works have been started. YPFSA did at Refineries La Actual: NA Actual: NA Actual: 2.700 not finance the study with the resources of Ln. Plata--DLP-- and MDF: NA MDF: (Disbursed, 3416-AR. Lujan de Cuyo-- Bank In: 0.000) DLC) 12/ a.2 Control Room More efficient ABB- 05.04.92 08.25.92 Fore: 12.15.91 Fore. 06.30.93 Fore: 9.120) Basic engineering fmancedbyBank(Ln. Instrumentation/ terminal traffic Siincon Revised: NA Revised: 07.07.93 Revised: 0.755 3416-AR). YPFSAfinanced later phases. Revamp (Modemi- for both public Actual: 10.05.92 Actual: 10.20.93 Actual: 0.755 The consultant carried out the basic engin- zation) at DLP and private sec- MDF: 10.5 MDF: 4 (Disbursed, eering for the modemization ofthe facilities and DLC tor association. Bank In: 0.406) and the unification of the control rooms, but YPFSA, after analyzing the results, decided to discontinue the project. 12/ a. 3 Integral Study of Improvedpollu- Badger 05.04.92 09.09.92; Fore: 12.15.91 Fore: 12.31.93 Fore: 9.120) The study was successfully executed, result- Effluents Treat- tion control. Engin- Revised: NA Revised: 01.15.94 Revised: 4.512 11/ ing in a technical economic proposal corres- ment at )LP eers Actual: 09.23.92, Actual: 05.19.93 Actual: 4.512 pondingto several subprojects. Their impl'>- 08.20.93 '3 (Disbursed, mentation is part of the plan of action of the MDF: 9 MDF: -7 Bank In. 1.700) DLP. 12/ a.4 Improved Energy Improved energy Bechtel NA 10.15.92'4 Fore: 12.15.91 Fore: 12.31.93 Fore: 9.120 ) This component consisted of software to con- Efficiency Costs savings & product Engin- Revised: NA Revised: 01.15.94 Revised: 0.057 trol industrial processes, plus license agree- and Performance efficiency. eering Actual: NA Actual: 03.11.93 Actual: 0.057 ment and start-up supervision. The software at DLP. MDF: NA MDF: -9 (Disbursed, was purchased and successfully installed. Bank In: 0.047) 12 The studies a 1 to a.4 were companion studies, aiming to improve the overall performance of the DLP. 3 Bank agreed to YPFSA's request to amend consultant's contract to finance additional services costing US$2.738 millions. 1 On 01.19.93, the Bank agreed to amend the contract to include the study of the rehabilitation of the Topping Unit C at the DLP, but would not finance such amendment as the study was not part of the project definition.  17 Page 4 of 6 Table 6: Studies Included in the Project: Timetable and Cost-- Forecast, Revised and Actual Data (Cont'd) Actual Date of Bank's Parts 3 (Cont'd.) Con- "No Objection" Date for sul- Short Consultant Starting Work Date Catepory Study Description Study Objective tant List Selection (Contract Signinp) for Ending Work Cost Comrentary (in millions, USSs) b.1 Upgrading Ex- More efficient Williams 01.23.92 06.03.92 Fore: 12.15.91 Fore: 06.30.93 Fore: 1.320) Feasibility study ofTransandeanpipeline to port Facilities: terminal traffic, Brothers Revised: NA Revised: 07.07.93 Revised: 0.410 Chile (phase 1), plus bid package (phase 2), Feasibility study, etc. Actual: 07.17.92 Actual: 01.06.93 Actual: 0.321 were successfullyexecuted, leadingto con- Oil Pipelines MDF: 7 MDF: -6 (Disbursed, struction and inauguration (02.94) of pipe- Bank In: 0.263) line. b.2 Upgrading Ex- More efficient Williams 01.23.92 06.03.92 Fore: 12.15.91 Fore: 06.30.93 Fore: 1.320) Three feasibilitystudieswere reviewed: one to port Facilties: terminal traffic, Brothers Revised: NA Revised: 07.07.93 Revised: 0.654 reduce flow/volume ofthe Puesto Hernandez- Feasibility study, etc. Actual: 07.17.92 Actual: 05.19.93 Actual: 0.654 Puerto Rosalespipeline; andtwoto increase Oil Pipelines MDF: 7 MDF: -1 (Disbursed, the capacities ofthe pipelines Palmar Largo- Bank In: 0.435) Campo Duran and Allen-Puerto Rosales. YPFSA took no action based on these studies because they were privatized. c. Automationof Assuranceofaccur- Foster 02.28.92 06.01.92 Fore: 12.15.91 Fore: 06.30.93 Fore: 1.540 Studyconsistingofbasicengineeringforauto- the Storage and acyofproductstocks Wheeler Revised: NA Revised: 11.30.93 Revised: 1.360 mating the dispatch terninals was success- DispatchPlants andsales. Iberia Actual: 06.11.92 Actual: 03.11.93 Actual: 1.365 fullycompleted. Recornmendations were leum Products MDF: 6 MDF: -3 (Disbursed, judged as appropiate. Implementation is Bank In: 0.904) at the bidding stage.  18 Page 5 of 6 Table 6: Studies Included in the Project: Timetable and Cost-- Forecast. Revised, and Actual Data (Cont'd) Actual Date of Bank's Part 4: Institution Building: SC Con- "No Objection"_ Date for sul- Short Consultant Starting Work Date Cateizory Study Description Study Objective tant List Selection (Contract Simning) for Ending Work Cost Commentary (in millions USSs) a.1 Settingupaco- To coordinate, (i)Direc- NA 06.24.92 Fore: 12.15.91 Fore: 06.30.94 Fore: 2.670) Following appliestoPart4.a- I &a2. The ordination unit the work of tor and Revised: NA Revised: 06.30.93 Revised: 0.126 Government did not establish the hydro- withintheSC consulting Technical Actual: 08.15.92 Actual: 07.14.93 Actual: 0.121 carbonpromotionesunit anddidnottransfer firms in , Economic MDF: 8 MDF: -9 (Disbursed, the national data bank from YPFSA to SC connection Advisor BankIn: 0.121) According to the Government, there was no with a.2 & need for the unit because its objective -protnoting a.3 below. private participation in the sector- was being met by establishing rules for privatization and by (ii)Tech- NA 06.15.93 Fore: 12.15.91 Fore: 06.30.94 Fore: 2.670) establishingappropriateregulationofthose areas preneurs. nical & Revised: NA Revised: NA Revised: 0.060 of the sector which were natural monopolies Economic Actual: NA Actual: 07.14.93 Actual: 0.023 Hence theGovernmentfeltitnmoreusefultore- Advisor MDF: NA MDF: -9 (Disbursed, assign Bank resources to train staff. According Bank In: 0.023) to the Government, the national data bank has not been transferred from YPFSA because SC lacks the space for the data bank. However, SC requires YPFSAto permit potential competition to have access to the Bank on equal terms. a.2 Analyzethe new Studiesthe fanc- IID: NA 06.15.93 Fore: 12.15.91 Fore: 06.30.94 Fore: 2.670) functions to be tions., organization Informa- Revised: NA Revised: NA Revised: 1.790 carried out by and personnel of for Invest- Actual: NA Actual: 06.14.94 Actual: 2.213 the SC. the SC; studies the ment De- MDF: NA MDF: 0 (Disbursed, the future structure cisions Bank In: 1.369) of the FHA ; training of perssonnel. a.3 Environmental Identifying effects Ambien- 12.16.92 05.19.93 Fore: 12.15.91 Fore: 12.31.92 Fore: 2.670) Amanual establishingenvironmental stan- Manual (SC) of hydrocarbon tal, SA/ Revised: NA Revised: 06.30.93 Revised: 0.763 dards for development drilling was prepared. sector project Econosult Actual: 08.12.93 Actual: 06.14.94 Actual: 0.594 The SC is enforcing those standards. Still components on MDF: 8 MDF: 18 (Disbursed, pending are manuals establishing environ- environment. Bank In: 0.594) mental standards for exploratory and produc- tion drilling.  19 Page 6 of 6 Table 6: Studies Included in the Project: Timetable and Cost-- Forecast. Revised and Actual Data (Cont'd) Actual Date of Bank's Part 4 (Cont'd.): Institutional Strengthening, YPFSA Con- "No Objection" Date for sul- Short Consultant Starting Work Date Category StudY Description Study Objective tant List Selection (Contract Siming) for Ending Work Cost Commentary (in millions USSs) Bank In: 0.053) b Improvement of Asthe original First 07.24.92 09.08.92 Fore: 12.15.91 Fore: 06.30.93 Fore: 5.510 Consultant advice was useful in helping YPFSA YPFSA's economic objective--facili- Boston Revised: NA Revised: NA Revised: 1.524 to bring its shares successfully to the equity market data system for man- tating privatiza- Cor- Actual: 03.18.93 Actual: 01.07.94 Actual: 1.674 of New York City and Buenos Aires. The other agement of funds, tion through the pora- MDF: 15 MDF: 6 (Disbursed, study objective-installation of an MIS system- funds, tax payments installation of an tion, Bank In: 0.858) was achieved under loan 2592-AR. and stock market. MIS appropriate Merrill to a private com- Lynch, any-had been Banco substantially General achieved under de Negocios Ln. 2592-AR, a complementary objective was sub- stituted: facilita- ting privatization by obtaining advice from investment bankers on the in- troduction of YPFSA shares on the equity markets of Buenos Aires & New York City. c. Enviromnental Improvedpollu- Golden 05.13.92 10.30.92 Fore: 12.15.91 Fore: 12.31.92 Fore: 0.860 Environmentalmonitoringexecutedincon- Impact Studies tion control. Engineer- Revised: NA Revised: 04.15.93 Revised: 0.527 nection with construction of Transandean of Projects ing/SGS Actual: 12.28.92 Actual: 10.20.93 Revised: 0.383 pipeline and secondary recovery effortL Fur- IdentifiedUnder Argentina MDF: 12 MDF: 10 Actual: 0.272 therworkwasforestalledasaconsequence Parts A and B (Disbursed, of YPFSA's decision to prepay Ln. 3416-AR. Bank In.: 0.053)  20 Table 7(a) and (b): Actual and Forecast (Adjusted) Project Costs and Sources of Financing (in thousands of US$) % Diff. Proiect Cost Actual Forecast (Adiusted) from Local Frgn. Total Local Frgn. Total Fren. Part 1: Production Enhancement 812 2,252 3,064 2,060 4.680 6,740 -54.5 (a) Primary Production 565 1,132 1,697 840 2,160 3,000 -43.4 (b) Tertiary Recovery 247 1,120 1,367 1,220 2,520 3,740 -63.4 Part 2: Natural Gas Processing & Underground Storage 104 468 572 520 1.130 1 640 -65.1 (a) Natural GasProcessing 104 468 572 520 1,130 1,640 -65.1 (Underground Storage) (--------Deleted------) (2,400) (7,560) (9,960) NA Part 3: Improving Crude Oil Processing, Ex- port Facilities, & Marketing 3,753 6.612 10365 7,180 4,800 11,90 -13.5 (a) Quality Enhancement 3,375 4,649 8,024 6,260 2,860 9,120 -12.0 (Isomerization, modern- izing refinery control rooms, software for process control, efflu- ent treatment) (b) Upgrading Export 118 858 976 460 860 1,320 -26.1 Facilities (Pipeline feasibility studies) (c)Automation 260 1,105 1,365 460 1,080 1,540 -11.4 Part 4: Institutional Strengthenin 2.678 2.447 5.125 1,370 2 160 3 530 19.4 (a) SC: Promotional 1,685 1,494 3,179 1,370 1,300 2,670 19.1 Unit, Manual (b) YPFSA: Investment Bankers 789 885 1,674 ------ ------ ---- NA Environment 204 68 272 0 860 860 -68.4 (MIS) ( ------Deleted---------) (2,000 3,510 5,510) NA (Training) (------Deleted---- ( 0 760 760) NA Total 7,347 11,779 19,126 11,130 12,770 23,900 -19.9 Project Financing By Source World Bank 1,416 6,587 8,273 3,400 12,770 16,170 -48.8 YPFSA/SC 5.931 4.922 10,853 7 730 0 7 730 40.4 Total 7,347 11,779 19,126 11,130 12,770 23,900 -19.9  21 Page I of 3 Table 8: Status of Legal Covenants Original Revised Covenant Present Fulfillment Fulfillment Description of Agreement Section Type Status Date Date Covenant Comments LA 3.01(bXi) Subsidiary C Borrower shall enter into subsidiary agreement with No action required. Agreement Guarantor satisfactory to Bank that contains terms and conditions for onlending to the Guarantor the part of the proceeds allocated from Category 2 for carrying out the Guarantors portion of the project. LA 3.01(bXii) Subsidiary C Borrower shall enter into subsidiary agreement with No action required. Agreement Guarantor satisfactory to the Bank; such agreement to contain: provisions for the payment by the Guarantor of the fee referred to in Section 5.02. LA 3.02(a) Project C The Borrower shall for the purpose of carrying out the No action required.. Execution Project employ consultants whose selection, experience and terms of employment and conditions shall be satisfactory to the Bank. LA 3.02(b) Project C The Borrower shall cooperate fully with the consultants No action required. Execution in the performance of their services and make available to them all information relevant to the Project. LA 3.02(c) Monitoring/ C The Borrower shall cause the consultants to ftrnish to No action required . Reviews the Bank copies of documents, including reports, drafts, plans, designs, specifications, work schedules and cost estimates. LA 3.02(dXi) Monitoring/ C Borrower and Bank shall exchange views on No action required. &(ii) Reviews recommendations and conclusions contained in consultants' reports; upon completion. Borrower shall consult with Bank on recommendations and conclusions and initiate implementation program to strengthen operational capacity. LA 3.03 Execution C The Borrower, shall not later than June 30 of each No action required. year, beginning in 1992, exchange views with the Bank and Guarantor on the progress in implementing the project including the implementation schedule in the Annex to Schedule 2.  22 Page 2 of 3 Table 8 (Cont'd.) Original Revised Description of Agreement Section Covenant Present Fulfillment Fulfillment Covenant Comments Type Status Date Date LA 3.04 C The Borrower shall maintain Project Administrative No action required. Execution Unit until the Project has been completed. LA 4.01 C The Borrower shall carry on its operations and conduct No action required. Management its affairs in accordance with sound administrative, and Operations financial and petroleum engineering practices. LA 4.02 Management C The Borrower shall at all times operate and maintain its No action required and Operations plants, machinery and equipment in accordance with sound engineering, financial and petroleum mdustry practices and make all necessary repairs. LA 4.03 C The Borrower shall take out and maintain with No action required. Management responsible insurers, or make other provisions and Operations satisfactory to the Bank for insurance against risk and in such amounts as shall be consistent with appropriate practices. LA 5.01(a) CD The Borrower shall maintain records and accounts No action required. Accounting/ adequate to reflect in accordance with sound accounting Audits practice its operations and financial condition, including records and separate accounts for the Parts of the Project. LA 5.01(bXi) & C Borrower shall: (i) have the records and accounts for No action required (ii) Accounting/ each FY audited by independent auditors acceptable to Audits Bank; (ii) furnish to Bank as soon as available and not later than 6 months after the end of FY certified copies of fin. statement and auditor's reports.. LA 5.01(cXi) C For all expenditures made on the basis of statements of No action required. Accounting/ expenditures, the Borrower shall maintain records and Audits accounts reflecting such expenditures.  23 Page 3 of 3 Table 8 (Cont'd.) Original Revised Covenant Present Fulfillment Fulfillment Description of Agreement Section Type Status Date Date Covenant Comments LA 5.01(cXiv) Accounting/ C Ensure that records and accounts in 5.01 (c) (I) are No action required. Audit included in annual audit and that audit contains a separate opinion as to whether the SOEs together with the procedures and intemal controls can be relied upon to support the related withdrawals. LA 5.02 Accounting/ C The Borrower shall pay to the Guarantor a guarantee No action required. Audit fee of 0.80% per annum on the amount outstanding of the Loan allocated to Category (1) of Schedule 1. LA 7.01(a) Effectiveness C The following events are specified as additional No action needed. conditions to the effectiveness of the Loan Agreement: (a) that the Guarantor and the Borrower have entered into the Subsidiary Agreement. LA 7.01(b) Effectiveness C The following events are specified as additional No further action needed. conditions to the effectiveness of the Loan Agreement: (b) that all actions have been taken by the Guarantor in order to permit the procurement of services to be financed out of the proceeds of the loan. GA 2.02(b) Provisional C The Guarantor undertakes to provide to the Borrower No action required. Funds funds for carrying out the Project if there is reasonable cause to believe that the funds available to the Borrower will be inadequate to meet the estimated expenditures. GA 3.02(a) Project C The Guarantor shall for the purpose of carrying part of No action required.. Execution the Project employ consultants whose selection, experience and terms of employment and conditions shall be satisfactory to the Bank. GA 3.02(b) Project C The Guarantor shall cooperate fully with the No action required. Execution consultants in the performance of their services and make available to them all information relevant to the Project. LA - Loan Agreement; GA Guarantee Agreement. C = Complied with; C = Complied with Delay  24 Table 9: Bank Resources: Staff Inputs Note: Data on planned and actual expenditures and planned staff weeks are not available. Stage of Actual Project Staff Cycle Weeks Through appraisal 19.7 Appraisal- Board 10.4 Board-Effectiveness 4.9 Sub-total 35.0 Supervision: 1992: 6.9 1993: 22.2 1994: 13.9 Table 10: Bank Resources: Missions Performance Rating Imple- Types Stage of Number Days Specialized menta- Develop- of Project Month/ of in Staff Skills tion ment pro- Cycle Year Persons Field Represented Status Impact blems Prep- ara- tion 2/91 3 14 2 P-ENGs; 1 FA NA NA NA Appraisal 06/91 3 7 2 P-NGs: 1 GS NA NA NA Total 63 1/ Implemen tation Supervision I 06/92 1 4 1 FA I I NA Supervision II 10-11/92 2 11.5 1 P-ENG; I FA I I NA Supervision 111 11-12/93 1 15 1 FA 2 1 DL Total 42 1/ 1/ Computed by multiplying number of persons by number of days in the fielld. Key to Acronyms: P-ENGs Petroleum Engineer; FA: Financail Analyst; GS: Government Specialist; NA: Not Applicable; DL: Disbursement Lag.   IMAGINE; Report Nlo: 15323 Type: ICR