Argentina - Bahia Blanca Port Project

Document of The World Bank FOR OFFICIAL USE ONLY Report No. 15202 PROJECT COMPLETION NOTE ARGENTINA KAHIA BLANCA PORT PROJECT (LOAN 2805-AR) DECEMBER 22, 1995 Infrastructure and Urban Development Division Department I Latin America and 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 EQUIVALENTS (yearly average in pesos) 1987 US$1 = A$ 0.000214 1988 US$1 = A$ 0.000875 1989 US$1 = A$ 0.042330 1990 US$1 = A$ 0.487590 1991 US$1 = A$ 0.953550 1992 US$1 = A$ 0.950000 ABBREVIATIONS AND ACRONYMS GOA - Government of Argentina YC SAR - Yellow Cover Staff Appraisal Report AGP - Administraci6n General de Puertos MOSP - Ministerio de Obras y Servicios Piblicos JNG - Junta Nacional de Granos FISCAL YEAR January 1 to December 31  FOR OFFICIAL USE ONLY PROJECT COMPLETION NOTE ARGENTINA BAHIA BLANCA PORT PROJECT (Loan 2805-AR) 1. The Bahia Blanca Port Project, Loan 2805-AR for US$50 million equivalent, was ap- proved in May 1987 and was cancelled in June 1992, with US$42.8 million undisbursed. Be- cause the Loan was largely undisbursed and prematurely cancelled, this Note was prepared in lieu of a full Implementation Completion Report. The Note is based on a desk review of project files and related documents.' Background 2. By the late 1970s the Government of Argentina (GOA) had been pursuing an economic policy of export-led growth for many years. Grain was one of the most important exports, and the port of Bahia Blanca the most important grain exporting port. In 1978 GOA and the Bank identified a project to expand and improve the capacity of the port, and to improve safety in this and other public ports. By February 1980 project preparation had reached an advanced stage. However, uncertainties about investment priorities and the onset of the South Atlantic conflict delayed project processing. Instead, funding for engineering and other needed studies was allocated from the Grain Storage Project, Loan 1521-AR. 3. In 1984, GOA decided to revive the project and proposed to undertake it in two phases. The first phase would rehabilitate existing facilities, and the second would expand capacity. A project covering the first phase was appraised in December 1984, and the Yellow Cover (YC) Staff Appraisal Report (SAR) was issued in March 1985. However, at about the same time a serious accident put grain Elevator 5 at Bahia Blanca out of action, and while discussions went on about whether to rebuild and who should do it, the project was postponed. 4. In May 1987, for unknown reasons on the basis of a revised Yellow Cover SAR rather than the usual Green Cover, the normal review process was cut short and the project was hurried and approved. This was the Bank's first port project in Argentina. Project Objectives 5. The project was designed to achieve the following objectives: (a) facilitate grain exports by rehabilitating the grain handling and shipping facilities at the port of Bahia Blanca; and (b) im- prove the institutional capabilities of the Borrower's port subsector (which included technical assistance to improve safety at maritime grain terminals, and to develop and implement a modern cost accounting system for the grain ports). Project Description 6. The project had a cost of US$78 million equivalent, and included the following main components (percentages of total baseline costs in parentheses): (i) emergency works (3%), 1/ The Annex has a chronology of project implementation, including project ratings. 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.  maritime works (8%), reconstruction of the grain elevator (58%), silo safety program (19%), technical assistance (2%), associated railway yard works (3%) and engineering studies (7%). Proiect Results 7. Two important factors affected the development of this project: (I) neither the Bank nor the Argentinean Ports Administration (AGP) had any previous experience with one another, and in the project not only the Ports Administration but a major ministry (the Ministry of Works (MOSP)) and two other agencies (the National Grains Board (JNG) and Ferrocarriles Argentinos (FA)) were involved; and (2) general elections were to be held in mid-1989. 8. The project was handicapped from the beginning. Although the Loan was approved in May 1987, it did not become effective until September 1988. AGP and the other two agencies involved had difficulty understanding Bank effectiveness requirements and the need to finalize Subsidiary Loan Agreements necessary to, in turn, pass a Presidential Decree that would set the project in motion. A mission in November 1988 concluded that notwithstanding the delays, some of which had to do with repeated attempts at adapting procurement documents to Bank standards and a lack of effort on the part of the Bank to train the Borrower in this area, prospects for making up lost time were good. In fact, prequalification and other activities had been proceeding in parallel albeit slowly because of the unfamiliarity of the Borrower with Bank procedures. 9. In June 1989, as expected (para.7 (2)), the government changed and the priorities of the new administration were quite different from those its predecessor had. Only a month after the change, proposals were drafted to concession all grain handling activities to the private sector. The government made it clear to the Bank that counterpart funding for the project would be difficult to come by. A supervision mission in December 1989 noted that: (a) the project could hardly advance further without counterpart funds, and (b) JNG was unlikely to continue to partici- pate in the project. Still, project implementation continued, and bids for the reconstruction of Elevator 5 and other major works were opened in December 1989. Concurrently the Bank requested from the government a Plan of Action to bring the project back on schedule. But in its response, in March 1990, the government made no commitment, as it was clear that the Concessions Program was going to significantly affect AGP as well as JNG. 10. In May 1990, Bank documents raised the possibility of cancelling the Loan. Instead, MOSP was advised that unless other sources of financing were established by July 31, 1990, MOSP would have to fund the project out of its own budget. The deadline passed without a response. By December 1990 the evaluations of the bids for the reconstruction of Elevator 5 were received and concurred with, and there was agreement to use Loan funds to provide techni- cal assistance to restructure AGP. Both the Bank and MOSP were hopeful that the project could be rescued in some form. Yet, GOA had to request an amendment to the Loan Agreement as it was obvious that the project could not be carried out in its original form. No request came forth. 11. In May 1991, the question of cancellation was raised again in Bank documents, but no action was taken. There was no field supervision of the project in 1991, but technical correspon- dence continued. Finally in January 1992, a letter from MOSP galvanized the Bank into action. The GOA, faced with Loan repayments larger than disbursements, asked the Bank to reformulate the project. The reformulation had to take into account that the reconstruction of Elevator 5 had been passed to private hands, and that the magnitude of the investment proposed was unacceptable to the concessionaire. The Bank rejected the proposal and a formal request of the GOA to cancel  the loan was received in April 1992. In June 1992, the US$42.8 million remaining in the Loan account was cancelled, effective April 1992, when the request was received. Lessons Learned 12. In coming to conclusions about this project, three questions arise: did it fulfill its objec- tives, could difficulties have been foreseen, and should/could the project have been cancelled earlier? 13. The US$7.2 million disbursed from the loan account were used to pay for: (i) retroactive expenses on works not directly related to the main purpose of the project; (ii) for engineering design work for the reconstruction of Elevator 5 which, in the end, the concessionaire found overdesigned and did not use; and (iii) to fund the authorized deposit to the Special Account (US$3.0 million). Clearly, no expenditures were made for the project's declared objectives (im- proving grain handling facilities and the port sector's institutional capacity), and there is no evidence that the two smaller components of the project (the silo safety program and the railway yard component) were ever carried out. 14. In retrospect, it appears that the Bank did not respond quickly, or effectively enough to the policy changes the administration was introducing. First, though the SAR noted (para 2.11) that private share of grain export handling at ports had risen from 15% in 1982 to 27% in 1985 and that projections to 1991 envisaged further private penetration to 30%, the strategic implica- tion that full privatization of grain handling might occur seems to have been missed. Second, though the SAR raised the issue of the likely negative impact on Bahia Blanca of nearby private port development at Puerto Rosales, the implications seem to have been ignored. Third, though the deteriorating finances forecast for AGP should have signalled that the government might be tempted to privatize the agency, they did not. Finally, elections were due and there were no guarantees that policies on which success of the project depended would continue. 15. The new administration inaugurated in June 1989, took little time to signal its intention to concession a wide range of activities, many in the transport sector. It was clear by November 1990 that JNG, AGP and FA would all be privatized and that the project components associated with them had lost relevance. Yet the Bank lingered and tried to reform the project in a way which, inevitably, would have fundamentally altered its character and rationale. Notwithstanding these facts, there was no suggestion that the project should be reappraised and its merits reas- sessed. Moreover, the critical deadline noted in para. 10 was allowed to pass without comment and project implementation continued as if nothing were amiss. Indeed, it appears that the only event that persuaded the Bank to signal the GOA that the loan should be cancelled was the immi- nence of repayments in excess of the amount disbursed under the Loan. While the political consequences of an earlier cancellation can only be guessed at, there is strong evidence that grounds existed to cancel the Loan at least two years earlier.  -4- Annex Project Chronology Action Date Comments/SupervisionRatingsl/ Project Identified 1978 Project Preparation in hand 1980 Investment uncertainties; South Atlantic conflict Project Revived 1984 Project Appraised 12/84 YC SAR 03/85 Elevator 5 burns down Revised YC SAR 01/87 Loan Approval 04/87 Supervision 05/87 1111 2/ Supervision 09/87 1111 Effectiveness 09/88 Supervision 11/88 1111 Supervision 04/89 1111 Revised 4/89 SPN Report 07/89 22121 3/ Change of government 06/89 Supervision 12/89 33322 Supervision 04/90 44424 4/ Supervision 11/90 44422 5/ No-objection to Elevator 5 bid award 02/91 GOA request alternative use of Loan 01/92 Bank declines request 02/92 Request for cancellation 05/92 Cancellation 06/92  - 5 - 1/ Supervision ratings: 1 =No significant problems; 2=Moderate problems, significant but not critical deviations from appraisal expectations; 3=Major problems but adequate attention is being given to problem; 4 =Major problems but lack of satisfactory response from the borrower/implementing agency. 2/ Until April 1989 ratings are in the following order: Funds Disbursed, Management Performance, Development Objectives, Overall Status. 3/ As of July 1989 ratings are in the following order: Project Development Objectives, Implementation Progress, Compliance with Legal Covenants, Project Management Per- formiance, Availability of Counterpart Funds. 4/ Form 592 issued along with Form 590, the Implementation Summary, recommended a December 1991 deadline for counterpart funding commitment, after which the Bank should consider cancellation. 5/ Supervision Report reported that: (i) the silo safety program and the railway component had been dropped from project; (ii) the AGP technical assistance program would have to be changed to reflect AGP's restructuring; (iii) GOA wanted to reconstruct Elevator 5 with the concessionaire's counterpart financing.      IMAGING Report No: 15202 Type: PCN