Transcript of joint meeting of the Executive Directors of the IBRD and IDA, held on Tuesday, May 20, 1986

STRICTLY CONFIDENTIAL NM:nm INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT INTERNATIONAL DEVELOPMENT ASSOCIATION Tuesday, May 20, 1986 Washington, D.C. The meeting of the Executive Directors was convened at 2:45 p.m. in the Board Room, 1818 H Street, N.W., Washington, D.C., Mr. A.W. Clausen, Chairman, presiding. rl L _ _J MILLER REPORTING CO .. INC . 507 C Street, N .E. Washington, D.C. 20002 (202) 546-6666  STRICTLY CONFIDENTIAL 2 C O N T E N T S 3 Argentina: (A) Refinery Conversion Project- Proposed Increase in the Loan Amount and Amendments; (B) Proposed Amendments to Gas Utilization and Technical Assistance Project 45 MILLER REPORTING CO .. INC. 507 C Street, N.E. Wa shington, D .C. 2000 2 (202) 5 46- 6666  45 STRICTLY CONFIDENTIAL [ -~---, __ __J Item three is a memorandum of May 1, proposing MILLER REPORTING CO .. INC. 507 C Street, N.E . Washington. D.C. 20002 (202) 546-6666  46 STRICTLY CONFIDENTIAL supplementary financing of $116 million equivalent to YPF, with the guarantee of the Republic of Argentina for the completion of a Refinery Conversion Project,and amending the terms of the loans for the Refinery Project and the Gas Utilization and Technical Assistance Project. And Mr. Nissenbaum of the Latin America/Caribbean Region will intro- duce this for us. MR. NISSENBAUM: Mr. Chairman, and Members of the Board: The request this afternoon for your approval of the proposed Supplementary Loan for the Refinery Conversion Project, together with the related amendments of the Gas Utilization and Technical Assistance Loan, provides a useful opportunity to inform the Board of recent developments in Argentina's oil and gas sector. Since our last presentation to you on this subject, the government has made good progress towards achieving its policy objectives in this field. It has opened to the private sector new attractive acreage in its oil and gas fields and sought to further overcome the instability of the contracts which had in the past deterred p r ivate investment in this area. Si milarly, it has helpe d and directe d YPF , the state oil company, to reduce payment arrears to pr i vate MILLER REPORTING CO .. INC, 507 C Street, N.E. Washington, D.C. 20002 (202) 546-6666  STRICTLY CONFIDENTIAL 47 producers. The government has both reduced and reoriented YPF's investment program so as to expand opportunities for the private sector in both exploration and development drilling, and in the .process to further contain public sector expenditures. Also, it has made additional increases in retail prices of petroleum products which have for some time been above international levels, as well as gas. Finally, in connection with our discussions on a medium-term economic policy reform and development program, the government has agre d to carry out a study on such reforms in the oil and gas field, with special emphases on rationalizing YPF's role and organization, as well as on improving private sector incentives. The proposed supplementary assistance to YPF for the Refinery Conversion Project, we believe, would usefully complement these actions. It would enable the government to successfully complete well-justi f ied but costly improvements in Argentina's refineries for which domestic and other external resources are insu f ficient. The proposed loan would also help to bring about needed improvements in YPF's f inancial manageme nt and planning Thank you. MILLER REPORTING CO .. INC. 507 C Street, N .E. W~shington. D.C. 20002 (202) 546-6666  STRICTLY CONFIDENTIAL 48 MR. CLAUSEN: Thank you, Mr. Nissenbaum. May we first call on Mr. Foster please. MR. FOSTER: Thank you, Mr. Chairman. We support the proposal to provide supplementary financing to this project. Completion of the refinery is economically and financially desirable. There is no cost overrun, and in consultation with the Bank, Argentina has established and is working toward sound sector objectives. We note in particular the expanded scope for the operation of private companies in this sector. Finally, Mr. Chairman, increased IBRD financing is justified, since the potential availability of alternative foreign,private and official capital for this particular project has been . put to the market test and found wanting. Thank you, Mr. Chairman. MR. CLAUSEN: Thank you, Mr. Foster. Other comments? (No response.) MR. CLAUSEN: If there are none, then, gentlemen, the minutes will show that the Executive Directors have approved the supplementary loan and modifications on the terms that have been proposed to you. MILLER REPORTING CO .. INC. 507 C Street, N.E. Washington , D.C. 20002 (202) 546-6666