Argentina - First and Second Railway Project

-' DOiNW of The World Bank FOn OMCL USE ONLY MICROFICHE COPY RqotNo. 10255 Report No. 10255-AR Type: (PPR) BARAHONA-S/ X31706 / T9 079/ OEDD3 PROJECT PERFORMANCE AUDIT REPORT ARGENTINA FIRST AND SECOND RAILWAY PROJECTS (LOANS 733-AR AND 1677-AR) DECEMBER 31, 1991 Operations Evaluation Department This document has a restricted distribution and may be used by reciplents only In the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization. CURRENCY EOUIVALENTS Currency Unit - Peso (P), Austral (A$) (Annual Averages) EXchange Rate Y"r Pesos Per US$ Australes Per USS 1970 (Appraisal Year, Railway I) 4.0 1971-74 5.0 1975 60.9 1976 274.5 1977 597.5 1978 (Appraisal Yeav, Railway II) 1,003.5 1979 1,618.5 1980 (Completion Year, Railway I) 1,819.5 1981 .4 1982 2.6 1983 10.5 1984 (Completion Year, Railway II) 67.6 ABBREVIATIONS AND ACRONYMS ERR - Economic Rate of Return FA - Ferrocarriles Argentinos (Argentine Railways) FY - Fiscal Year km - Kilometers OED - Operations Evaluation Department PCR - Project Completion Report PPAR - Project Performance Audit Report SAR - Staff Appraisal Report FISCAL YEAR January 1 to December 31 THE WORLD BANKC FOR OFFICIAL USE ONLY Washington, D.C. 20433 U.S.A. Ofce nf Directoh*Geneal Opeatlons Evaluat"n December 31, 1991 MEMORANDUM TO THE EXECUTIVE DIRECTORS AND Tmg PRESIDENT SUBJECT: Project Performance Audit Report on Argentina First and Second Railway Projects (Loans 733-AR) and 1677-AR) Attached, for information, is a copy of a report entitled "Project Performance Audit Report on Argentina - First and Second Railway Projects (Loans 733-AR and 1677-AR)" prepared by the Operations Evaluation Depart:enSt. 2 Attachment 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. FOR OFFICIAL USE ONLY PROJECT PERFORMANCE AUDIT REPORT ARGENTINA FIRST AND SECOND RAILWAY PROJECTS (LOANS 733-AR AND 1677-AR) TABLE O* CONTENTS PageNo. Preface ............................................................. i Basic Data Sheet..................................................... iii Evaluation Summary................................................... ix I. BACKGROUND..................................................... 1 A. Genesis of the First Railway Project..................... 1 B. Preparation, Appraisal and Negotiation of First Railway Project.......................................... 1 C. Genesis of the Second Railway Project ................. . 1 D. Preparation, Appraisal and Negotiation of Second Railway Project.......................................... 2 II. PROJECT IMPLEMENTATION......................................... 3 A. Early Constraint on Implementation........................ 3 B. Physical Implementation of First Railway Project ......... 3 C. Physical Implementation of Second Railway Project . 3 D. Studies, Technical Assistance and Training ............... 4 III. RESULTS......................................................... 5 A. Improvement of Railway Facilities ........................ 5 B. Economic Returns ......................................... 6 C. Project Costs ............................................ 7 D. Operational and Financial Performance .................... 7 E. Institutional Strengthening .............................. 10 F. Sustainability ........................................... 10 G. Lessons Learned........................................... 11 H. Recommendations .......................................... 11 IBRD 22800 This document has a restricted distribution and may be used by recipients only in the performance .0 theit official duties. Its contents may not otherwise be disclosed without World Bank authorization. PROJECT PERFORMANCE AUDIT REPORT ARGENTINA FIRST AND SECOND RAILWAY PROJECTS (LOANS 733-AR and 1677-AR) PREFACE i. This is the Project Performance Audit Report (PPAR) of two closely related railway projects, the first of which (733-AR) involved a Bank loan in the amount of US$84.0 million to the Argentine Railways (FA) for the pui-ose of helping to finance a two year investment program. The loan was approved on March 20, 1971 and became effective August 5, 1971. The Closing Date of April 30, 1974 was extended to June 30, 1979. Final disbursement was made on May 27, 1980. The Bank canceled US$27.5 million of the loan in July 1974 and US$0.2 million in 1980 after the final disbursement. ii. The Second Railway Project (1677-AR) involved a Bank loan of US$96.0 million to the FA with the objective of strengthening the railways through rationalization, redimensioning and rehabilitation of the railway system. The loan was approved on March 27, 1979 and became effective on May 6, 1980. The Closing Date of June 30, 1983 was extended to June 30, 1985. Final disbursement was made on March 12, 1986 at which time the balance of the loan, US$29.7 million, was canceled. iii. The PPAR is based on the Project Completion Reports (PCR) prepared by the Latin America and the Caribbean Regional Office, the President's Reports, the loan documents, the transcripts of the Executive Directors' meetings at which these projects were considered, a study of Bank files and discussions with Bank staff. An OED mission visited Argentina in July 1991 and discussed the effectiveness of the Bank's assistance with the Ministry of Economy and the FA. Their close cooperation and valuable assistance in providing information for this report is acknowledged. iv. The two PCRs' for the railway projects provide detailed accounts and assessments of the project experience. The Audit Report supplements the PCRs and highlights certain aspects of the project experience such as the poor performance of the railways and the adverse consequences of retaining uneconomic rail lines, unjustified services and redundant staff. In addition, the Audit has reviewed and updated the ex post economic rates of return of both projects. Project Completion Report, "Argentina: First Railway Project, Loan Number 733-AR," Report Number 4379, March 1983 and Project Completion Report, "Argentina: Second Railway Project, Loan Number 1677-AR," Report Number 7855, June 26, 1989. ii v. Following standard OED procedures, copies of the draft PPAR was sent to the Government for comment. No comments, however, were received. iii PROJECT PERFORMANCE AUDIT REPORT ARGENTINA FIRST AND SECOND RAILWAY PROJECTS (L,OANS 733-AR and 1677-AR) BASIC DATA SHEET (A) First Railway Project KEY PROJECT DATA Appraisal Actual or im Expectation Current Estimate Total Project Cost (US$ million) 368.0 406.7 Cost Overrun (%) 10.5 Loan Amount (US$ million) 84.0 84.0 Disbursed as of May 27, 1980 56.3 Canceled 27.7 Repaid as of May 31, 1991 32.8 Outstanding as of May 31, 1991 21.7 Project Completion Date 1972 1979 Proportion Completed by above date (%) 25 Overall Economic Rate of Return (%) 14.5 Negative2 Financial Performance Fair Poor Institutional Performance Fair Poor CUMULATIVE ESTIMATED AND ACTUAL DISBURSEMENTS (US$ million) F72~ FY73 FY7 FY75 FY76 FY77 FY78. FY79 FY80 Appraisal Estimate 12.4 59.9 80.7 84.0 Actual 0 0 20.8 36.2 42.4 50.4 54.6 55.5 56.3 Actual as % of Appraisal 0 0 25.8 43.1 2 The corresponding PCR estimate, made in 1983, was 10%; see para. 3.02 of this audit. iv SUEF INEMUT (Staff Weeks) 9.2 f2 EY.A IZ EIZA EX2Z Z EM EY1 ElM11 EEM Inal Preappraisals Appraisal3 Negotiation3 Supervision 46.8 49.0 14.7 1.0 2.6 1.0 .2 1.7 4.5 4.0 125.4 Total 46.8 49.0 14.7 1.0 2.6 1.0 .2 1.7 4.5 4.0 125.4 MIS5SION DT No. of Man Mission Perform Type of I= MoZXr Persons Weeks Composition Rating Problems Identific. 06/69 4 13 EN EN EC FA Preparation 11/79 4 13 EN EN EC FA Preappraisal 11/69 4 13 EN EN EC FA Appraisal 05/70 5 35 EN EN EC FA CONS Supervision 11/72 3 3 EN EC EC Supervision 05/73 5 3 EN EN EC FA CONS Supervision 05/74 2 1 EC FA Supervision 06/74 2 1 EN EC 3 F M P Supervision 02/76 1 1 EN 2 F M P Supervision 08/76 4 6 EN EN EC FA Supervision 03/77 1 1 FA Supervision 01/81 2 3 EN EN Supervision 05/81 3 2 EN EC FA Key: Mission Composition: EN - Engineer; EC - Economist; FA - Financial Analyst; CONS - Consultant. Performance Rating: 1. Problem-free or minor problems; 2. Moderate problems; 3. Major problems. Type of Problems: F. Financial; M. Managerial; P. Political. No staff input data is available for pre-appraisal, appraisal or negotiation. V PROJECT DATES Imn Original Plan Actu Negotiations 12/70 Board Approval 3/20/71 Loan Agreement Date 4/28/71 Effectiveness Date 8/5/71 Closing Date 4/30/74 6/30/79 OTHER -PROJECT DT Borrower Argentine Railways Executing Agency Argentine Railways Cuarantor The Argentia Republic FOLLOW ON PROJECT Loan Amount Date of Prolect Number US$ million Agreeent Second Railway 1677-AR 96.0 11/8/79 (B) Second Railway Project KEY PROJECT DATA Appraisal Actual or item Expectation Current Estimate Total Project Cost (US$ million) 748.9 869.9 Cost Overrun (%) 16.2 Loan Amount (US$ million) 96.0 96.0 Disbursed as of March 12, 1986 66.4 Canceled 29.6 Repaid as of May 31, 1991 56.2 Outstanding as of May 31, 1991 10.1 Project Completion Date 12/82 12/84 Proportion Completed by above date (%) 40 Overall Economic Rate of Return (%) 22 8 Financial Performance Fair Poor Institutional Performance Fair Poor vi CUMULATIVE ESTIMATED AND ACTUAL DISBURSEMENTS (US$ million) FY80 FY81J FY82~ FY83 ELY84 FY85 F8 Appraisal Estimate 26.0 75.0 96.0 Actual 0 0 21.8 46.6 52.1 57.2 66.4 Actual as % of Appraisal 0 0 22.8 STAFF INPUTS (Staff Weeks) 1976 1977 1978 1979 1980 181 1982 1983 1984 1985 Preappraisal .1 47.0 52.0 Appraisal 67.2 32.5 Negotiation 16.7 Supervision 4.5 24.4 32.3 20.1 16.9 12.0 19.9 Other 1.9 5.5 11.3 Total .1 48.9 124.7 65.0 24.4 32.3 20.1 16.9 12.0 19.9 1986 1987 1988 1989 1990 Total Preappraisal 99.1 Appraisal 99.7 Negotiation 16.7 Supervision 10.4 8.2 5.4 1.6 .1 155.8 Other 18.7 Total 10.4 8.2 5.4 1.6 .1 390.0 vii MISSION DATA No. of Man Mission Perform Type of Mo/Yr Persons Weeks Composition Rating Problems Identification 08/76 3 4 EN EN EC Preparation 12/76 3 7 EN EN EG Preparation 03/77 1 1 FA Preparation 05/77 4 11 EN EN EG FA Preparation 08/77 3 6 EN EC FA Appraisal 02/78 5 22 EN EN EN EG FA Post Appraisal 05/78 3 8 EN EC FA Financial Rev. 09/78 1 1 FA Supervision 02/79 2 4 EN EG Supervision 06/79 1 1 EN Supervision 08/79 1 1 EN Supervision 12/79 2 4 EN FA Supervision 02/80 2 2 EN FA 2 F Supervision 05/80 1 4 EG 2 F Supervision 06/80 3 4 EN EG FA 2 F Supervision 10/80 3 4 EN EG FA 2 F Supervision 01/81 2 4 EN FA 2 F Supervision 06/81 3 7 EN EC FA 2 F Supervision 08/81 1 2 EN 2 F Supervision 11/81 2 4 EN EG 2 F Supervision 02/82 1 1 EN 2 F Supervision 06/82 3 2 EN EG EG 2 F Supervision 08/82 1 2 EG 2 F Supervision 09/82 1 3 EN 2 F Supervision 12/82 5 12 EN EN EN EG EG 2 F Supervision 04/83 1 1 EN 2 F Supervision 07/83 3 6 EN EG FA 2 F Supervision 09/83 4 5 EN EN EG FA 2 F Supervision 03/84 2 1 EG EG 2 F Supervision 07/84 4 8 EN EG EG FA 2 F Supe7 ::sion 03/85 3 7 EN EG CONS 2 F Supexýision 07/85 2 4 EN EG Key: Mission Composition: EN - Engineer; EG - Economist; FA - Financial Analyst; CONS - Consultant. Performance Rating: 1. Problem-free or minor problems; 2. Moderate problems; 3. Maior problems. Types of Problems: F - Financial. viii PROJECT DATES 11m Original Actual First Mention in Files 6/76 Government Application 7/76 Negotiations 10/78 11/78 Board Approval 11/78 3/27/79 Loan Agreement Date 11/8/79 Effectiveness Date 5/6/80 Closing Date 6/30/83 6/30/85 OTHER PROJECT DATA Borrower Argentine Railways Executing Agency Argentine Railways Guarantor The Argentine Republic FOLLOW ON PROJECTS Loan Amount Date of Project Number (USSmillions) Agreement Public Enterprise Reform Adjustment Loan 3291-AR 300 4/8/91 Public Enterprise Reform Execution Loan 3292-AR 23 4/8/91 ix PROJECT PERFORMANCE AUDIT REPORT ARGENTINA FIRST AND SECOND RAILWAY PROJECTS LOANS 733-AR AND 1677-AR) EVALUATION SUMMARY Introduction 1, The First Railway Project railway system, was estimated represented a significant to cost US$368 million and opportunity to revitalize the the amount of the loan was Argentine railway system which in US$84 million. 1971 had become seriously deteriorated with disparate needs - The Second Railway Project for investment. A further was approved by the Board in opportunity to revitalize the 1979. It had a broader scope system was afforded by the Second than the first; project cost Railway Project in 1979 when the was estimated at US$749 investment requirements continued million and the amount of the to be very serious. Notwith- loan was US$96 million. The standing these critical needs, the Bank loan for the First projects had a minimal impact on Railway Project was closed on the overall condition of the June 30, 1979, five years system or its operating perfor- behind schedule and for the mance. In fact, the physical Second on June 30, 1985, two condition of the railway in 1991 years behind schedule. was the worst ever. Traffic and most other measures of operating 2. Objectives performance deteriorated not only during execution of the projects The objectives of the two but also in subsequent years. railway projects were as follows: There are a number of reasons, as discussed below, for the failure of - First Railway Project: The the two projects -- achieve their principal objective was to objectives. rehabilitate the Argentine Railways by supporting the Some details of the two railway organization's investment projects are: program (para. 1.1). - The First Railway Project in - Second Railway Project: While Argentina was approved by the also supporting the invest- Board in 1971 after many ment program, this project years of study and detailed had a somewhat broader discussions between Bank objective of strengthening staff and officials in the railway not only in a Argentina. The project, physical sense but also as an aimed at strengthening the institution. A specific x objective was to redimension project (para. 2.3). The the railway by elimination of effectiveness of FA's economic services, closure of management during project uneconomic lines and implementation was seriously reduction of staff (para. weakened by frequent changes 1.4). Both projects included of top management. The a substantial amount of track average length of service works and procurement of for FA's President or motive power and rolling Interventor was only 9.3 stock as well as lesser months over the 15 year amounts of o the r period of project execution rehabilitation investment. (para. 2.3, 3.11). The Second Railway Project included, in addition, Studies and Technical significant studies and Assistance. Certain studies were technical assistance aimed at included in the Second Railway strengthening te planning Project (paras. 2.6-2.9): capabilities of FA. (paras. 1.6, 1.7). - Railway planning study which was completed satisfactorily. 3. Implementation Experience - Limited study of intercity Civil Works and Procurement passenger services which was of Equipment. Implementation of completed satisfactorily. the two projects was as follows: - Manpower study which was not Implementation of the First undertaken because of Railway Project was limited sensitivity of the problem. from the start because of inadequate provision of - Uneconomic lines study which project funds by Government was not undertaken because of which was experiencing local political opposition to severe political and economic suggested line closures. problems at the time. Track works completed were only Supervision Missions. about a third of the amount programmed while the numbers - During implementation of the of locomotives and freight first project, the Bank sent wagons procured fell far nine supervision missions to short of plan (para. 2.2). Argentina, about one a year, which was low (para. 2.10). Implementation of the Second Railway Project was - The succeeding project had handicapped by serious delays twenty four supervision caused mainly by severe missions, about four a year, economic turmoil, especially which was somewhat high but rapid inflation, and warranted in view of the managerial problems; never- serious problems encountered theless, track works and (para. 2.10). procurement of equipment were implemented more successfully than under the preceding xi 4. Results estimate even though neither project was fully implemented The two railway projects (para. 3.5). contributed modestly to the strengthening of FA's physical - Despite the strengthening of plant. After project completion, railway facilities under the the general condition of the two projects, traffic and railway remained rather poor due to operations did not show inadequate investment over a period favorable trends during of many years and the failure to implementation or thereafter. provide adequate maintenance (para. Railway traffic levels were 3.1). greatly overestimated at appraisal (paras. 3.6 and The reevaluated economic rate 3.7). of return of the First Railway Project was negative, - The railway failed to achieve compared with the 21% most of the operating targets appraisal estimate and the established in the projects 10% PCR estimate; the (para. 3.8). principal reason for the Audit's negative return is - FA as a state enterprise has that actual traffic levels clearly failed, over a period were far lower than estimated of many years, to achieve either at appraisal or at the satisfactory levels of time of ex-post review (para. service, efficient operations 3.2). and economic viability. It is difficult to see how these The Second Railway Project objectives would be achieved had a reevaluated economic in the future with rate of return of 8%, continuation of the railway compared with the 22% as a state enterprise (paras. appraisal estimate and the 3.2, 3.6, 3.7 and 3.8). 18% PCR estimate; the principal reason for the - Financial performance Audit's relatively low return worsened mainly because of is that actual traffic reluctance to increase rates levels declined sharply in and fares as costs rose contrast to the very dramatically (para. 3.10). optimistic appraisal forecasts developed in the - Institutional strengthening appraisal and the traffic fell short of goals because levels considered in the PCR. of frequent changes in top The Audit's economic return management, failure to is supported by a review of undertake the manpower study the appraisal sensitivity and failure to carry out the analysis and actual data on study of uneconomic lines sensitivity factors (paras. (para. 3.11). 3.3 and 3.4). - A main purpose of the Second The actual cost of each of Railway Project was to reduce the two projects was higher the size of both the railway than the related appraisal facilities and staff. xii However, the project had - Insufficient attention was little impact on either the given by FA to improving total length of the railway operating efficiency of the network or the size of the railway and more focus on staff. Significant staff this problem is needed in the reductions were made between future. 1976 and 1990 but these reductions are attributable - Bank missions gave a to financial pressures on the disproportionate amount of central Government, which attention to procurement heavily subsidized FA, rather issues and not sufficient than to the project (paras. attention to the problem of 2.8, 3.11 and 3.12). assisting FA in achieving better operating efficiency. In conclusion, both projects must be rated unsatisfactory. - The lack of success in achieving fundamental reforms 5. Sustainability and greater efficiency in the Argentine railway system As both projects are rated suggests that some form of unsatisfactory, the benefits are privatization probably offers unlikely to be sustained (para. a better opportunity for 3.14). realizing these objectives than the continuation of the 6. Lessons and Recommendations railway as a state-owned enterprise. It is The principal lessons learned recommended (para. 3.17) that (para. 3.16) from the railway the Bank review with special projects are that: care the experience of privatizing the Argentine The objectives of such Railways not only to enable projects cannot be fully the Bank to provide achieved without the appropriate guidance to the provision of local financial Government as it carries out resources by Government in the particular reform program accordance with the financing but also to derive from this plan established for the valuable experience a project. workable approach to railway privatization that might be The Bank pressed FA and the applied elsewhere. Government on a number of occasions for increased rates and fares, in light of sharply increased costs, but to little avail, partly because FA feared losing large amounts of traffic to road transport; the Bank urged authorities to act but stronger action was required of the Bank. 1 PROJECT PERFORMANCE AUDIT REPORT ARGENTINA FIRST AND SECOND RAILWAY PROJECTS (Loans 733-AR and 1677-AR) I. BACKGROUND A. Genesis of the First Railway Project 1.01 The Bank demonstrated an early interest in the Argentine Railways (FA) beginning with significant discussions in the late 1950s between Bank staff and both Government and railway officials concerning railway problems. These discussions led to the Bank conducting an Argentine Transportation Study in 1960-1961 as Executing Agency for the United Nations Special Fund. The resulting Larkin Report of 1961 embodied a great deal of information about the sector and made practical recommendations, inter alia, for improvements in railway facilities and operations. A strike of railway unions in 1962, however, hindered implementation of report recommendations; the railway continued to drift. Prospects for serious attention to the fundamental problems of the railways improved in the late 1960s following a World Bank Sector Review Mission in September 1968. A Bank mission in June 1969 identified the First Railway Project which was to consist of the first two years (1971-1972) of FA's five year investment plan (1971-1975). B. Preparation, Appraisal and Negotiations of First Railway Project 1.02 The June 1969 mission not only identified but also pre-appraised the project. In May 1970, the project was subject to a regular appraisal. Some difficulties arose during appraisal over FA's plans to electrify a part of its system, the Roca Line, a project which the Bank deemed of doubtful economic justification requiring further study. Such a study was subsequently undertaken and the Bank thereafter did not object to the construction work although it gave it a low priority; FA was unable to obtain financing for it. An important deficiency in the design of the First Railway Project was the lack of components to deal with major institutional reform in the FA. 1.03 Loan negotiations were held in December 1970 during which the principal issue under discussion was Government's strong preference for local procurement of freight wagons; the issue was resolved and the negotiations were then completed. The Board approved the US$84 million loan on April 20, 1971 and the loan became effective on August 5, 1971. C. Genesis of the Second Railway Project 1.04 Neither the Bank nor the Argentine Railways entertained any illusion that the First Railway Project would be sufficient for either long term rehabilitation of the system or substantially improved operations. 2 Thus it was understood early on that a Second Railway Project would be required at some point in time. In August 1976, a Bank mission recommended that the Bank support a Second Railway Project, provided that FA take certain steps concerning procurement of spare parts for locomotives, reduction of passenger services and closure of uneconomic lines. Despite overdue action on these matters, the Bank considered that the outlook in this regard was favorable; this optimism was based on its assessment of new FA management and the fact that a much needed major railway tariff increase had just been introduced. These promising signs tended to outweigh the poor operating and financial performance of the FA during preceding months. D. Preparation. Apraisal and Negotiations of Second Railway Project 1.05 Bank preparation missions of December 1976 and May 1977 confirmed the optimistic assessment of the August 1976 mission, noting significant recent reductions in intercity passenger services, closures of some uneconomic lines and reduction in FA staff. The need for "redimensioning" of the railway system seemed to have broad support of Government officials and FA management as well as the Bank. Appraisal of the Second Railway Project took place in January and February 1978; three major problems arose during the appraisal one of which was the Government's sudden large reduction of the FA investment budget. The second problem was that the Government was pressing hard for preference in FA procurement from local suppliers. Another problem was the controversial Roca electrification project which FA wanted retained in the FA investment program but the Bank considered a low priority and insisted that it be removed from the program. (Nevertheless, construction work on the electrification began in 1981.) These problems were resolved in principle during a post-appraisal of May 1978 and agreement was reached more specifically in negotiations held in November 1978. The loan of US$96 million was approved by the Board on March 27, 1979. Because of subsequent delays in obtaining Government's formal agreement on the investment plan and other conditions of the loan, it did not become effective until May 6, 1980. 1.06 The principal component of the Second Railway Project was the railway investment plan for the years 1980-1983 which contained substantial track works and other civil works as well as procurement of locomotives and rolling stock. These basic features of the project were generally similar to the content of the First Railway Project. The Second Railway Project, however, included a program of technical assistance to FA and feasibility studies for certain projects. Thus, in contrast with the preceding project, the second had a broader scope and sought to address some of the institutional problems of FA. It also recognized explicitly that the FA was over-dimensioned and, accordingly, included a strategy for redimensioning the system consistent with modern transport realities. 1.07 The project design thus reflected a recognition that the FA faced urgent institutional problems of fundamental significance. There was clearly a need for basic reforms in railway organization and operations. While this need was taken into account to some extent, particularly with its features directed toward redimensioning the railway system, the Second project did not incorporate other components, such as a modification of work 3 rules, which could have led to major improvements in operating efficiency of the railway system. II. PROJECT IMPLEMENTATION A. Early Constraint on IMlementation of First Railway Project 2.01 A major constraint on the implementation of the First Railway Project arose almost immediately after the loan became effective on August 5, 1971: grossly inadequate provision of investment funds by Government. This budgetary shortcoming resulted from the severe political and economic problems confronting Argentina during this period. The shortfall of investment funds for the project and the failure of FA to implement certain plans of action led the Bank in July 1972 to suspend loan disbursements for a time. The basic problem of local financing was eased only slightly as a result of the suspension and, in April 1974, the Bank offered to renegotiate the loan (on the basis of new targets and specific actions to be taken by the Government and FA) or, alternatively, to cancel the balance of the loan. The Government and FA chose the latter alternative and it was decided to cancel US$27.5 million of the loan. This cancellation amounted to one third of the loan amount. The Closing Date of the loan was extended to June 30, 1979. B. Physical Implementation of the First Railway Project 2.02 Under the First Railway Project, renewal on 3,050 km of track was programmed for the period 1971-1975 but work on only 1,069 km was actually accomplished. Likewise, 3,800 km of track improvements were planned in the period but only 1,198 km of such work realized. Similar shortfalls occurred in other civil works. Only 80 locomotives were procured in the 5 year period as compared with the plan to acquire 230. The total purchase of freight wagons was 5,192 which was far below the 10,400 programmed. The procurement of spare parts for maintenance of locomotives and rolling stock fell far short of the plan. C. Physical Implementation of the Second Railway Project 2.03 In addition to the long time-lapse between Board approval and loan effectiveness for the Second Railway Project, further long delays occurred in initiating project implementation. The principal delays are attributable to the management of FA, at best not well organized to tackle the difficult tasks involved in the project. Managerial capabilities were seriously limited by the instability of top management. During the 14 years between Bank approval of the First Railway Project and the Closing Date of the Second Railway Project, a series of 18 individuals served as President or Interventor of the FA. Thus the average length of service was only 9.3 months, an unreasonably short term for the chief executive officer of a large and complex organization. Moreover, each incoming chief executive officer made major changes in subordinate senior level managers. The consequent lack of continuity in FA management was a major cause of problems in project implementation and poor railway performance generally. 4 2.04 In addition to the limitations of railway management, adverse political and economic conditions affected project implementation. Severe inflation led to sharp increases in railway costs while revenues lagged. The resulting increased railway deficit put further pressure on the Government for increased funds to support the system during the critical years of project implementation. Limitations of funds for the project slowed the procurement. One of the consequences of delays in implementation was that the planned completion date, December 31, 1982, was not realized; in fact, that target was much too optimistic. When the Bank decided not to extend the Closing Date beyond June 30, 1985, a substantial US$29.65 million of the US$96 million loan was canceled. The final disbursement was made in March 12, 1986. 2.05 During the five year period, 1980-1984, track renewal amounted to 1,357 km compared with 2,073 km in the plan while track improvement was completed on 1,078 km or slightly more than the 1,052 km planned for such works. Other civil works were completed in accordance with plans. Procurement of 21 locomotives was accomplished as programmed. Purchase of 7,383 bogeys for freight wagons was virtually on target but the procurement of wagon bodies and modification of wagons fell somewhat short of plan; this latter reduction, however, was deliberate from the point of view of FA; it reflected a reduced need for wagons based on the fact that traffic did not develop as foreseen. Appraisal forecasts of freight traffic, as noted below, were substantially overestimated. In general, physical implementation under the Second Railway Project despite its shortcomings was better than was achieved under the First Railway Project. D. Studies, Technical Assistance and Training 2.06 Notwithstanding the many needs of FA for assistance in strengthening the institutions responsible for rail services, the First Railway Project, as noted above, did not include components for this purpose. The Second Railway Project, however, provided for a significant amount of technical assistance and studies. Some of the studies were to be carried out by FA and some by Government (Undersecretary for Transport). 2.07 Certain studies intended to be carried out by FA were actually completed by the organization. A Canadian firm undertook the FA planning study which assisted in the development of a planning capability in FA and helped to define the organization's investment needs. The consultants' team trained FA staff in project evaluation and prepared a manual for their use in evaluation of projects and analysis of investments. A signal and communications study was done by Italian consultants and a motive power and rolling stock study was completed by a French consulting firm. While the Bank considered these studies valuable, containing useful analyses of FA's needs and important investment guidelines, FA had less regard for the study results and largely ignored them; the Bank sought to persuade FA to make practical application of -the guidelines but without success. 2.08 An FA manpower study was to define staff requirements in detail and to review training needs and salary structure. The study of this sensitive subject was to be accomplished by FA itself. No work was done, 5 however, on this important study, despite the urging of the Bank, because of the sensitivity of the problem. Since over-staffing of the railway was a serious problem at the time of appraisal, study results could have been very useful. Notwithstanding its failure to undertake the manpower study, FA reduced its staff from 156,000 to 84,000 between 1976 and 1990. Even with an abundance of redundant staff in this period, a manpower study could have enabled FA to make better selections of personnel to retain on the FA staff as well as determine where to assign them. A major drop in traffic occurred during the 1976-1991 period but the staff reductions had less to do with traffic levels than with the limitation of funds available from central government to support the bloated staff. Despite the 46% manpower reduction, the work force in early 1991 was still considered substantially higher than needed for efficient railway operations (para. 3.11). 2.09 Three studies in the Second Railway Project were to be undertaken by the Government, rather than FA. One of these studies was to include the development of a master plan for suburban passenger services, the latter to be organized separately from FA's intercity passenger services; however, no master plan for suburban services emerged. A limited study of intercity passenger services was undertaken and thereafter substantial curtailment of such services was achieved, although there is probably potential for much more cost savings from further service reductions of this kind. Finally, the Government was to conduct a study of uneconomic railway lines; this study was intended as a key element in the agreed strategy to redimension the railway system. Regrettably, the study was not undertaken, mainly because of political opposition of local groups, and consequently the economic basis for discontinuing many uneconomic lines was never established. While FA has abandoned some uneconomic lines over the years, the discontinuance of operations on more lines represents one means of achieving more economic railway transportation in Argentina. In general, the Government did not demonstrate a strong interest in undertaking project studies despite pressures from the Bank to do so. 2.10 The Bank sent 9 supervision missions to Argentina over a period of about 8 years to supervise the First Railway Project. In view of the serious implementation problems that developed, this number of supervision missions was low. Remarkably, there were no supervision missions between March 1977 and January 1981. In the case of the Second Railway Project, 24 supervision missions were sent over a period of 5 years for an average of about 5 missions per year, which is somewhat high but warranted in view of the severe implementation problems encountered. III. RESULTS A. Improvement of Railway Facilities 3.01 The two railway projects contributed modestly to the strengthening of PA's physical plant. The 2,426 km of track renewal and 2,276 km of track improvement represent only about 14% of the 34,000 km total length of rail line in 1979 but these works were concentrated on sections of 6 the system that handled relatively high traffic. Under the two projects, 291 diesel locomotives were added to the diesel fleet which in 1979 comprised 1,171 units. At that time, the freight wagon fleet comprised about 57,000 units and under the two projects some 12,500 wagons were added to the fleet. Overall, the projects had a favorable influence on the physical facilities of the railway but even after the completion of the project the general condition of the system remained rather poor due to the inadequate level of investments over a period of many years and the failure to provide adequate maintenance. B. Economic Returns 3.02 The economic rate of return of the First Railway Project, as shown in the Staff Appraisal Report (SAR) was 21%. It was recognized in the SAR that this return was sensitive to projected levels of traffic, particularly freight traffic; the appraisal projected that freight traffic would reach 18 billion ton kilometers in 1980. In reality, freight traffic declined to about half that level in 1980. The PCR, completed in 1983, found the reevaluated ERR for the project was only 10%. The latter estimate, however, was calculated on the basis of PCR traffic forecasts which also subsequently proved to be too optimistic. The PCR expected freight traffic, in ton kilometers, to reach 14 billion in 1985; in fact, such traffic fell to 9.5 billion in that year and dropped even lower in later years to 8.3 billion in 1989. When taking account of the significant shortfall in freight traffic the project shows a negative economic rate of return. 3.03 In the case of the Second Railway Project, the SAR shows an attractive 22% ERR. As in the previous project, this economic rate of return is also sensitive to traffic levels. A rising level of freight traffic was forecast in the SAR, that is, from 10.8 billion to 14.9 billion ton kilometers between 1979 and 1983; no explicit freight traffic forecast beyond 1983 was presented. The PCR found the 1983 forecast to be too optimistic since actual freight traffic declined after 1979, rose briefly and then declined again. The PCR found an 18% reevaluated ERR; at the time of the PCR analysis, actual traffic data through 1986 was available. Traffic declined further after 1986 and, while the PCR does not present its traffic forecasts, the Audit finds that the ERR could not exceed 8% when taking into account actual traffic through 1989 and reasonable expectations of traffic levels beyond 1989. 3.04 Further indication that the reevaluated ERR for the Second Railway Project should be lower than the PCR rate of 18% is seen in a review of the sensitivity analysis in the SAR. That analysis indicated that the ERR would fall from 22% to 16% if the following conditions prevailed: (1) 30% reduction in the rate of growth of freight traffic; (2) a shortfall of 10% in the attainment of targets for locomotive availability and turnaround time; and (3) 10% increase in economic costs. In actuality, freight traffic did not grow at all but sharply declined (as did passenger traffic); targets for locomotive availability and most other targets for operating efficiency were not achieved while economic costs increased by 16%. Taking these factors into account, the ERR does not exceed 8%. Thus performance under the Second 7 Railway Project, as in the case of the First Railway Project, must be considered unsatisfactory. C. Project Costs 3.05 The actual cost of the First Railway Project was about US$406 million, 11% higher than the appraisal estimate of US$368 million. It should be noted, however, that significant portions of the civil works and procurement included in the project as approved were not implemented; thus, the project cost does not represent the project as designed and appraised but only the limited portion of the project actually implemented. For the Second Railway Project, the actual cost was about US$870 million, 16% higher than the US$749 million appraisal estimate. In this latter project, although a higher proportion of the planned civil works and procurement was actually achieved than in the case of the First Railway Project, the full scope of the project as appraised was not implemented. D. Operational and Financial Performance 3.06 Despite the strengthening of railway facilities under the two projects, as detailed above, traffic and operations did not show favorable trends during the project periods. During the six year period, 1970-1975, freight traffic declined by 21%; during the subsequent period, 1975-1985, freight traffic further declined. After 1985, freight traffic fell still further. Intercity passenger traffic in 1985 was virtually the same as in 1970. Suburban passenger traffic declined between 1970 and 1985 by 26%. The following comparison of appraisal forecasts, PCR forecasts and actual traffic indicates that freight traffic levels were greatly overestimated at appraisal and that the PCR forecasts (where available) were also unrealistic: 8 FREIGHT TRAFFIC (BILLION OF TON KILOMETERS) Appraisal PCR Appraisal PCR Forecast of Forecast of Forecast of Forecast of March 1971 March 1983 Egbruary 1978 June 1989 Actua 1973 15.3 12.5 1974 15.9 12.3 1975 16.3 10.7 1976 16.8 10.9 1977 17.3 11.6 1978 18.0 9.8 1979 18.0 10.8 10.9 1980 18.0 11.8 95 1981 10.0 12.8 9.2 1982 10.9 13.9 11.5 1983 11.8 14.9 13.4 1984 12.9 11.2 1985 14.0 9.5 1986 8.8 1987 NA 7.9 1988 NA 8.7 1989 NA 8.3 The average rattes of freight traffic growth reflected in the above data are: 3 to 4% for the 1971 appraisal, 9% for the 1983 PCR, and 9% for the 1978 appraisal. The Audit estimates that future traffic, at best, will remain at its present level so long as the railway is operated as a state enterprise. 3.07 Various measures of railway operating efficiency showed a generally adverse picture during the periods when these projects were implemented. For example, average train speeds for freight operations fell from 24.1 km/hour in 1970 to an all-time low of 22.8 km/hour in 1976, then improved to 26.1 in 1979. Availability of locomotives fell from 63.8% in 1971 to 55.8% in 1976, then rose to 67.2 in 1985. Average wagon turnaround time increased from 16.3 days in 1970 to 20 days in 1976 and 23.8 days in 1985. Most of the operating targets established at appraisal were not achieved. Partly as a consequence of low levels of efficiency, the quality of service declined and substantial traffic was lost to competitive means of transport. Bank supervision missions urged FA to improve operating efficiency although the missions tended to give most of their attention to procurement problems. 3.08 FA's financial performance during the execution of the First Railway Project was poor and this became a major factor leading to Bank cancellation of a portion of the loan. By 1974, revenues were about 83% below appraisal estimates while operating costs were about 25% above appraisal projections. Failure of revenue to increase between 1971 and 1974 was due to traffic decline and insufficient rate increases. Sharp increases in operating costs were attributable mainly to the rise in personnel costs. 9 The adverse trend of financial performance in comparison with project targets is clearly reflected in the following measures: 1971 1972 121 1974 1975 Working Ratio: Appraisal Forecast 126 117 108 101 98 Actual 179 156 168 183 262 Operating Ratio: Appraisal Forecast 147 136 127 119 115 Actual 199 180 182 193 267 3.09 During the execution of the Second Railway Project, financial performance was also unsatisfactory, as reflected in the following data: 129 1980 1981 1982 1983 Working Ratio: Appraisal Forecast 151 141 127 121 - Actual 190 208 208 208 180 Operating Ratio: Appraisal Forecast 182 170 156 149 - Actual 216 271 298 392 296 The principal reasons for the shortfall in revenues during the period were that traffic declined and that FA failed to increase tariffs in line with general cost increases. While operating expenses fell between 1979 and 1982, because of both a reduction in staff and a decline in real terms of personnel costs per employee, the decrease was more than offset by the revenue decline. The Bank frequently pressed FA and the Government to increase rates and fares; these pressures, however, were resisted and generally had little effect. 3.10 Rate and fare increases were held down, during a period of rapid inflation, below levels necessary to offset operating cost increases. Several reasons account for the reluctance to raise rates and fares. One reason was that the FA feared that higher rates and fares would result in even greater traffic declines than actually occurred. Another was that FA had little motivation to raise rates because the Government had historically made up railway deficits and thus it was somewhat a matter of indifference whether the needed additional funds came from rate increases or subsidies. Also, the Government viewed railway rate increases more as contributors to inflation than as means of holding down subsidies to the FA. 10 E. Institutional Strengthenina 3.11 The effectiveness of FA management during the execution of both railway projects was seriously weakened, as discussed above (para. 2.3), by frequent changes in top management of FA. Some actions taken by FA, however, had a positive effect on the institution. In particular, FA consultants, financed by the Second Railway Project, provided certain staff with valuable training in project planning and investment analysis. The manpower study included in this project afforded FA an opportunity to review fundamental staffing needs and related problems and, had the study been done, the results could have had a profound impact on the institutional character and effectiveness of FA. Although the FA lacked an orderly plan for staff reductions, the Government nevertheless forced major staff reductions between 1976 and 1990 (para. 2.8). FA has long been run essentially as an employment and social service provider without serious consideration of the staff actually required for the railway. Even the 84,000 staff at the beginning of 1991 was, according to an analysis, so inflated that a further 30 to 50% reduction would not affect railway output. Actual staff reductions certainly represented a move in the right direction and in that regard constituted an aspect of redimensioning of the railway; these actions cannot, however, be attributed to the two railway projects but rather to financial pressures on the central Government. 3.12 Under the Second Railway Project, the Undersecretary for Transport was to have a role in achieving one of the most important objectives of the project, the redimensioning of the railway system. As noted above, a study was designed to provide the economic bases for downsizing the railway system but it was not undertaken, for reasons given above (para. 2.9), and therefore opportunities were lost to reduce the system to more appropriate economic dimensions. Nevertheless, too much attention was probably focussed on this problem relative to the potential benefits from attacking other railway problems. A government official and a Bank staff member both observed to the Audit that further line closures would have resulted in relatively small benefits (and would have involved high political costs) while much greater benefits could have been realized through reforms such as modifying the archaic railway work rules. 3.13 Viewed overall, the results of the two projects fall far short of their objectives. In conclusion, both projects are rated unsatisfactory. F. Sustainability 3.14 Both projects, given their unsatisfactory ERRs, are unlikely to be sustainable. The sustainability of benefits from the project investments would depend to a considerable extent on the ability of the railway in the future to attract large volumes of traffic. A number of factors will determine its ability to turn the traffic around or at least prevent further loss of traffic to competing modes of transport, especially road transport. Among these factors are staff reductions and better utilization of staff, adoption of a more commercial orientation in management, and modernization of facilities. Without major reorganization of FA, it is unlikely that the recent decline in traffic will be arrested or growth in traffic achieved. 11 3.15 At present, the government of Argentina is operating on the belief that the best hope for the railway to achieve its economic role in the transport system of the country is to privatize the railway, or at least major parts of it. This effort is being assisted by two World Bank projects which are considered follow-on projects of the Second Railway Project. For a variety of reasons, FA as a state enterprise has clearly failed, over a period of many years, to achieve satisfactory levels of service, efficient operations and economic viability. It is difficult to see how these objectives would be achieved in the future with continuation of the railway as a state enterprise. While many problems and uncertainties are associated with privatization of the railway system, there are good reasons for optimism that better results will be forthcoming under the new program than under the traditional scheme. G. Lessons Learned 3.16 The principal lessons leArned from the two railway projects are that (1) the objectives of such projects cannot be fully achieved without the provision of local financial resources by Government in accordance with the financing plan established for the project; (2) the Bank pressed the FA and Government on a number of occasions to increase rates and fares, in light of sharply increased costs, but to little avail, partly because FA feared losing large amcunts of traffic to road transport, and thus more Bank action than mere urging of such increases was required; (3) insufficient attention was given by FA to improving operating efficiency of the railway and more focus on this problem is needed in the future; (4) Bank missions gave a disproportionate amount of attention to procurement issues and not sufficient attention to the problem of assisting FA in achieving greater operating efficiency; and (5) the limited success experienced in achieving fundamental reforms and greater efficiency in the Argentine railway system suggests that some form of privatization probably offers a better opportunity for realizing these objectives than the continuation of the railway as a state-owned enterprise-/* H. Recommendations 3.17 It is recommended that the Bank review with special care the experience of privatizing the Argentine Railways not only to enable the Bank to provide appropriate guidance to the Government as it carries out this particular reform program but also to derive from this valuable experience a workable appr.ach to railway privatization that might be applied elsewhere. / Upon review of this Audit, the Latin America and the Caribbean Regional Office, in this context, stated the following: "The lack of success in achieving fundamental reforms and greater efficiency in the Argentine railway system suggests that regular investment projects offer little opportunity for realizing these objectives. Because of this failure a radical railway reform program was conceived and is being executed under the Bank's public enterprise adjustment loan. Basically, large lines and Buenos Aires metro rail are being concessioned to the private sector; the interurban rail will be drastically reduced and significant labor shedding is being implemented." 9 The adverse trend of financial performance in comparison with project targets is clearly reflected in the following measures: 1971 1972 1973 1974 1975 Working Ratio: Appraisal Forecast 126 117 108 101 98 Actual 179 156 168 183 262 Operating Ratio: Appraisal Forecast 147 136 127 119 115 Actual 199 180 182 193 267 3.09 During the execution of the Second Railway Project, financial performance was also unsatisfactory, as reflected in the following data: 1979 1980 1981 1982 1983 Working Ratio: Appraisal Forecast 151 141 127 121 - Actual 190 208 208 208 180 Operating Ratio: ApDraisal Forecast 182 170 156 149 - Actual 216 271 298 392 296 The principal reasons for the shortfall in revenues during the period were that traffic declined and that FA failed to increase tariffs in line with general cost increases. While operating expenses fell between 1979 and 1982, because of both a reduction in staff and a decline in real terms of personnel costs per employee, the decrease was more than offset by the revenue decline. The Bank frequently pressed FA and the Government to increase rates and fares; these pressures, however, were resisted and generally had little effect. 3.10 Rate and fare increases were held down, during a period of rapid inflation, below levels necessary to offset operating cost increases. Several reasons account for the reluctance to raise rates and fares. One reason was that the FA feared that higher rates and fares would result in even greater traffic declines than actually occurred. Another was that FA had little motivation to raise rates because the Government had historically made up railway deficits and thus it was somewhat a matter of indifference whether the needed additional funds came from rate increases or subsidies. Also, the Government viewed railway rate increases more as contributors to inflation than as means of holding down subsidies to the FA. 10 E. Institutional Strengthening 3.11 The effectiveness of FA management during the execution of both railway projects was seriously weakened, as discussed above (para. 2.3), by frequent changes in top management of FA. Some actions taken by FA, however, had a positive effect on the institution. In particular, FA consultants, financed by the Second Railway Project, provided certain staff with valuable training in project planning and investment analysis. The manpower study included in this project afforded FA an opportunity to review fundamental staffing needs and related problems and, had the study been done, the results could have had a profound impact on the institutional character and effectiveness of FA. Although the FA '.acked an orderly plan for staff reductions, the Government nevertheless forced major staff reductions between 1976 and 1990 (para. 2.8). FA has long been run essentially as an employment and social service provider without serious consideration of the staff actually required for the railway. Even the 84,000 staff at the beginning of 1991 was, according to an analysis, so inflated that a further 30 to 50% reduction would not affect railway output. Actual staff reductions certainly represented a move in the right direction and in that regard constituted an aspect of redimensioning of the railway; these actions cannot, however, be attributed to the two railway projects but rather to financial pressures on the central Government. 3.12 Under the Second Railway Project, the Undersecretary for Transport was to have a role in achieving one of the most important objectives of the project, the redimensioning of the railway system. As noted above, a study was designed to provide the economic bases for downsizing the railway system but it was not undertaken, for reasons given above (para. 2.9), and therefore opportunities were lost to reduce the system to more appropriate economic dimensions. Nevertheless, too much attention was probably focussed on this problem relative to the potential benefits from attacking other railway problems. A government official and a Bank staff member both observed to the Audit that further line closures would have resulted in relatively small benefits (and would have involved high political costs) while much greater benefits could have been realized through reforms such as modifying the archaic railway work rules. 3.13 Viewed overall, the resultE of the two projects fall far short of their objectives. In conclusion, both projects are rated unsatisfactory. F. Sustainability 3.14 Both projects, given their unsatisfactory ERRs, are unlikely to be sustainable. The sustainability of benefits from the project investments would depend to a considerable extent on the ability of the railway in the future to attract large volumes of traffic. A number of factors will determine its ability to turn the traffic around or at least prevent further loss of traffic to competing modes of transport, especially road transport. Among these factors are staff reductions and better utilization of staff, adoption of a more commercial orientation in management, and modernization of facilities. Without major reorganization of FA, it is unlikely that the recent decline in traffic will be arrested or growth in traffic achieved. 11 3.15 At present, the government of Argentina is operating on the belief that the best hope for the railway to achieve its economic role in the transport system of the country is to privatize the railway, or at least major parts of it. This effort is being assisted by two World Bank projects which are considered follow-on projects of the Second Railway Project. For a variety of reasons, FA as a state enterprise has clearly failed, over a period of many years, to achieve satisfactory levels of service, efficient operations and economic viability. It is difficult to see how these objectives would be achieved in the future with continuation of the railway as a state enterprise. While many problems and uncertainties are associated with privatization of the railway system, there are good reasons for optimism that better results will be forthcoming under the new program than under the traditional scheme. G. Lessons Learned 3.16 The principal lessons learned from the two railway projects are that (1) the objectives of such projects cannot be fully achievej without the provision of local financ±al resources by Government in accordance with the financing plan established for the project; (2) the Bank pressed the FA and Government on a number of occasions to increase rates and fares, in light of sharply increased costs, but to little avail, partly because FA feared losing large amounts of traffic to road transport, and thus more Bank action than mere urging of such increases was required; (3) insufficient attention was given by FA to improving operating efficiency of the railway and more focus on this problem is needed in the future; (4) Bank missions gave a disproportionate amount of attention to procurement issues and not sufficient attention to the problem of assisting FA in achieving greater operating efficiency; and (5) the limited success experienced in achieving fundamental reforms and greater efficiency in the Argentine railway system suggests that some form of privatization probably offers a better opportunity for realizing these objectives than the continuation of the railway as a state-owned enterprise.!/* H. Recommendations 3.17 It is recommended that the Bank review with special care the experience of privatizing the Argentine Railways not only to enable the Bank to provide appropriate guidance to the Government as it carries out this particular reform program but also to derive from this valuable experience a workable approach to railway privatization that might be applied elsewhere. 1/ Upon review of this Audit, the Latin America and the Caribbean Regional Office, in this context, stated the following: "The lack of success in achieving fundamental reforms and greater efficiency in the Argentine railway system suggests that regular investment projects offer little opportunity for realizing these objectives. Because of this failure a radical railway reform program was conceived and is being executed under the Bank's public enterprise adjustment loan. Basically, large lines and Buenos Aires metro rail are being concessioned to the private sector; the interurban rail will be drastically reduced an4 significant labor shedding is being implemented." 믹