Argentina - Railway Project

Document of The World Bank FOR OFFICIAL USE ONLY Report No. 4379 PROJECT COMPLETION REPORT ARGENTINA FIRST RAILWAY PROJECT (LOAN 733-AR) March 1983 Latin America and the Caribbean Regional Office 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. PROJECT COMPLETION REPORT FOR OFFICIAL USE ONLY ARGENTINA - LOAN 733-AR FIRST RAILWAY PROJECT TABLE OF CONTENTS Page No. PREFACE ...................******.***...... ................ BASIC DATA SHEET ..... ................i..................... i HIGHLIGHTS .................................................. v I. INTRODUCTION ....................................... ...... I II. PROJECT PREPARATION AND APPRAISAL ................ ........ 4 III. PROJECT IMPLEMENTATION AND COST .............6.............6 IV. TRAFFIC AND OPERATIONS ......................... ........... 11 V. FINANCIAL PERFORMANCE ...................................... 14 VI. INSTITUTIONAL PERFORMANCE AND DEVELOPMENT ................ 17 VII. ECONOMIC REEVALUATION .......................... ........... 17 VIII. THE ROLE OF THE BANK .......................... ............ 18 IX. CONCLUSIONS ............................................. 20 TABLES 1. Actual and Expected Physical Completion .................. 1A. Major Investments-Physical Units ........................ 2. Actual and Appraisal Estimates of Project Costs.......... 2A. Planned and Actual (1971-72] and (1971-1975) in Constant Dollars and in Physical Units. ........................ 3. Disbursement Schedule..................................... 3A. Disbursements by Category ................................ 4. Projected and Actual Freight Traffic....... 4A. Projected and Actual Passenger Traffic .................. 5. Selected Operating Statistics............................ 6. Actual and Projected Income Statement (1970-1975) ........ 7. Actual and Projected Balance Sheets (1970-1975) .......... 8. Actual and Projected Financing of Project................ 9. Economic Reevaluation .................................... MAP IBRD 13699 - Argentine Railways (1978) 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. PREFACE This report presents a Project Completion Report of the Argentina First Railway Project for which Loan 733-AR for US$84.0 million equivalent was approved on April 20, 1971. The Project Completion Report (PCR) was prepared by the Latin America and Caribbean Regional Office. In accordance with the revised procedures for project performance audit reporting, this PCR was read by the Operations Evaluation Department (OED) but the project was not audited by OED staff. The PCR was sent to the Borrower for comments; however, none were received. - ii - BASIC DATA SHEET Key Project Data Actual or Current Appraisal Expectation Estimate Total Project Cost (US$ million) 368.0 406.7 Overrun % 11% a/ Loan Amount 84.0 56.3 Disbursed 56.3 Cancelled 27.7 Date Physical Components Completed 1972 1979 Proportion Completed by Above Date 35% Proportion Time Overrun 65% Economic Rate of Return 14.5% b/ 10% Financial Performance 26.50 - Poor Institutional Performance - Below expectation Guarantor's Performance Poor a/ The project was not fully implemented. If it had been the cost overruns would have been higher. b/ 14.5% was the minimum estimate with conservative assumptions and stagnant traffic, 26.5% was the most optimistic estimate with the most favorable assumptions. - iii - OTHER PROJECT DATA Original Revision Actual First Mention in Timetable Government Application Negotiations 12/16-23/70 Board Approval April 20, 1971 Loan Agreement Date 4/28/71 Closing Date 4/30/74 6/30/79 7/1/80 Borrower Argentine Railways Executing Agency Argentine Railways Fiscal Year of Borrower January 1 to December 31 Follow on Project Name Second Railway Project Loan Credit Number 1677-AR Amount (US$ million) 96.00 Loan Credit Agreement Date 11/8/79 - iv - MISSION DATA Date of Item Month/Year No. of days No. of Persons Mandays Report Identification 06/69 15 4 60 07/69 Preparation 11/69 12 4 48 12/69 Preappraisal 11/69 12 4 48 12/69 Appraisal 05/70 26 5 130 03/71 Total 286 (50 Manweeks) Supervision I 11/72 8 3 24 12/72 Supervision II 05/73 19 5 95 07/73 Supervision III 06/74 4 1 4 06/74 Supervision IV 02/76 5 1 5 05/76 Supervision V 08/76 5 4 20 08/76 Supervision VI 03/77 /a 1 1 1 04/77 Supervision VII 01/81 4 2 8 (for PCR) Supervision VIII 05/81 3 3 9 (for PCR) Total 114 652 COUNTRY EXCHANGE RATE Name of Currency Year: Argentina Peso ($a) Appraisal Year US$1 = $a 4 Intervening year Average US$ = $a 973 Completion Year Average US$ = $a 1950 a/ Between 1977 and 1981 there were a series of BankMissions first in connection with the Appraisal and then for Supervision of Second Railway Project. - v - HIGHLIGHTS 1. The project was the first Bank loan for Argentina's railways and was aimed at rehabilitation of the railway network. However due to factors arising largely from the political and economic conditions that prevailed in Argentina during the early 70's the investments and actions planned were not implemented adequately and it was decided to cancel $27.5 million out of the loan of $84.0 million (para. 1.03). The reduced amount of $56.5 million was used to finance 59 items which had been contracted up to the extended project completion date of April 30, 1974. 2. The project was based on FA's Investment Plan for the five year period 1971-75 and comprised the first two years (1971-72) of the Investment Plan together with a program of action to improve the operations and financial position of the Argentine Railways. Investments of $368 million were proposed during the project period and the Bank loan of $84 million was to finance 23% of the project or 49% of the foreign exchange cost. Subsequent to the signing of the Loan Agreement, FA agreed, by exchange of letters, to a time phased program for rationalization of services, line closures, staff reductions, rehabilitation of diesel locos, reorganization of workshops, and the introduction of commercial policies and targets. 3. The implementation of the project was adversely affected from the start as the political and economic problems faced by the country resulted in grossly inadequate levels of investments and scant attention to the program of actions agreed with the Bank (para. 3.01). Although the completion date of the project was postponed to April 30, 1974, little progress was achieved and the Bank offered the Government and FA one of two alternatives: a) to renegotiate the loan on the basis of new targets and specific actions to be taken by the Government and FA, or b) to cancel the balance of the loan. The Government and FA chose the latter. 4. The project was actually completed in 1980 instead of 1972, with a cost overrun of 11% (para. 3.03). As far as the loan disbursements are concerned, it is relevant to mention that no disbursements were made until 1973, and the year of the highest disbursements was 1974 ($22.1 million) tapering off, in an irregular fashion, to $1.4 million in 1979 (Table 3). Hardly any action was taken by the Government or FA to seriously implement any of the several action programs (para. 3.07), which showed the direction in which the railway should have been reformed. On the other hand substantial increases in the personnel strength of FA took place which had no relation to the declining volumes of traffic, and the management of FA was changed 11 times between 1971 and 1975. - vi - 5. The economic rate of return of the project was estimated during appraisal to be 21%. The ERR of the delayed and inadequately implemented project has been recalculated at 10% (Table 9) which is equivalent to the opportunity cost of capital and represents a marginal return (para. 7.02). 6. Other points of special interest in this project are the following: (i) Although progress under the project was poor the formation and strengthening of the central office of FA (Oficina Central) was an unintended benefit of the relationship with the Bank which led finally to the creation and development of the Planning Office of FA (para. 6.02). (ii) FA's report on the completion of the project concludes that despite the fact that the project was not implemented adequately, the Bank's contribution to the medium term planning of FA was positive, the diagnosis of the railway situation appropriate and that the measures proposed were not only necessary but were possible of implementation had the requisite political and economic conditions existed at the time (para. 8.02). (iii) Bank's involvement with FA in the first railway project tended to "orient" the railways and particularly the Government towards judicious investments consistent with the need for pruning and rationalization of railway services. Those two factors in course of time, formed the basis for the Second Railway Project currently under implementation. INTRODUCTION 1.01 Argentina has developed a highly diverse and extensive transport 2 network to integrate its 2.8 million km of territory and to serve the needs of its population of 28 million. The network includes 100,800 km of national and provincial primary roads, 32,200 km of railways; 17,000 km of pipelines for crude oil, petroleum products and natural gas; over 100 ports and 90 commercial airports. Following the worldwide trend, highways increasingly represent the dominant mode. From 1965 to 1978, road transport's share of cargo traffic increased from 47% of total inter-urban ton-km to 55%, while rail's share declined from 18% to 10%. Similarly, in terms of passenger service, roads' share rose from 76% of inter-urban passenger-km to 88%, while rail declined from 22% to 7%, with air transport increasing its share from 2% to 6%. 1.02 During the half century preceding the first World War, the railways played a crucial role in the economic growth of the country by opening up new areas to development and providing the only transport link between production areas and the main ports. Thereafter, however, their relative importance declined steadily with the growth in road, river and pipeline transport, and their financial situation deteriorated. In 1946, the Government purchased the 12 private railway companies and combined them with the six it already owned and one owned by the Province of Buenos Aires, to form Ferrocarriles Argentinos (FA). The resulting railway had 44,000 km of lines and was one of the largest in the world. Unfortunately, the Government failed to maintain the railway infrastructure to provide continuity of management, to integrate fully organiza- tions of the original railway companies, to discontinue services which could no longer be provided economically, to insulate the railways from political interference and to maintain adequate tariff levels. Consequently, financial losses mounted, maintenance expenditures lagged and service deteriorated; railway traffic declined from 16.5 billion ton-km and 32.8 million tons in 1951 to 14.2 billion ton-km and 22.1 million tons in 1970. 1.03 The realization of the changing role of the railway has led to several attempts at rationalizing the system and the services offered. One of these attempts was initiated in 1970 and formed the basis for the Bank's First Railway Project (Loan 733-AR) which is the subject of this Project Completion Report (PCR). However, due to factors arising largely from the political and economic conditions that prevailed in Argentina during the early 70's the investments and actions planned were not implemented and by February 1974, it was apparent that little or no improvement had been made by FA and that performance was well below the established targets. In April 1974, the Bank offered the Government and FA the alternative of renegotiating the loan on the basis of new targets and specific actions to be taken by the Government and FA or cancelling the balance of the loan for items not yet contracted. The Government and FA chose the latter alternative and US$27.5 million of the US$84.0 million loan were cancelled. 1.04 An analysis of the railways during-the period of 1970's, the time- frame for this PCR, is complicated by the severe economic and political crisis which came to a head by the middle of the decade. A combination of - 2 - domestic and international events undermined the country's economy resulting in rising external debt and falling foreign exchange reserves; inflation reached over 300% in 1975 and rose to an annual rate of over 800% by early 1976. The Administration which came to power in 1976 moved to stabilize the economy. Nevertheless, in 1981 the situation was still not stable, with infla- tion continuing at over 100% and a series of substantial devaluations and other measures being instituted to stop the outflow of capital. 1.05 The transport sector was significantly affected by the economic crisis. Traffic declined on much of the road and rail network (with the exception of rail passengers) and public expenditures were drastically reduced both for maintenance and construction. From 1976, however, as the road subsector rebounded, with investment support in critical areas, rail freight remained stagnant largely due to poor levels of service caused by: (a) govern- ment apathy over the years; (b) grossly inadequate investments; (c) frequent changes of management (between 1971 and 1979 the management of the Railway was changed 13 times); and (d) changing geographic structure of the economy which favored competing modes. The Government again instituted plans in 1976 to rationalize the railways and has reduced the labor force from 157,000 to under 96,000, eliminated 7,600 km of uneconomic branch lines, recommended an addi- tional 3,000 km for elimination, reduced service on another 13,000 km of line and is striving to improve operational efficiency. Some of this work has overlapped with the preparation and implementation of the Second Railway Project (see para 1.06 below). However, though some improvements have been achieved in railway operations, no systematic reorganization nor any significant efficiency-oriented investments 1/ have yet been made in FA to improve its operations. 1980 was a particularly bad year when floods and poor economic conditions depressed traffic levels and FA's working ratio rose to 208. The railway problem thus remains a key issue facing the Argentine Government and its resolution represents a long term project. 1.06 Based on the lessons learned during the First Railway Project and with the belief that the Government was committed to a substantial ration- alization of the system, the Bank reentered the subsector with the Second Railway Project (1677 AR) which was appraised in 1978-79 and became effective in May, 1980. 1.07 The Bank has also been involved in other transport subsectors, especially during the 1970's. Highway development has been supported by the Bank over the last 20 years by four loans totalling US$228.5 million (Loan 288-AR, June 1961, US$31 million after cancellation; Loan 619-AR, June 1969, US$25 million; Loan 734-AR, May 1971, US$67.5 million, and Loan 1384-AR, May 1977, US$105 million). All of these projects experienced serious delays and in many cases, substantial cost overruns mainly due to the economic crisis of the mid-1970's. A port project was appraised in 1979 for which negotiations have not yet been held; a Fifth Highway Sector Project has been appraised (March 1981) and is currently being processed. 1/ Such as improved telecommunication facilities, computerized wagon and yard control systems, etc., which are producing marked efficiency improvements on railways over the world. - 3 - In addition, the Bank has been extensively involved in sector planning culmi- nating in the National Transport Plan (NTP) and the establishment of the National Directorate for Transport Planning (DNPT) with financial assistance provided under the Fourth Highway Loan. 1.08 This PCR, covering the First Railway Project, has been prepared with the assistance of the Borrower, who provided a set of reports for the Bank's review. These reports, together with data obtained from Bank files were reviewed with FA by Bank missions which visited Argentina in January and May 1981. II. PROJECT PREPARATION AND APPRAISAL Background 2.01 The first loan to Argentine Railways was preceded by a long series of contacts between the Bank and Argentina dealing with the problems of the railways. Until 1946 the financial results for the railways were reason- able but, thereafter, increasing road competition, political influences, frequent changes in railway management, low staff morale, inadequate invest- ments for the maintenance and renewal of assets and for improvements to meet changing circumstances led to deterioration of railways services and increasing financial difficulties. The deficits also increased the burden on the Govern- ment budgets. 2.02 In 1960 the Argentine Government, the United Nations Special Fund and the Bank set up a Transport Planning Group to formulate long-term transportation plans and investment programs. The recommendations proposed inter-alia extensive reforms and economies for the railways. The Government attempted to implement these in 1962-63 but a drastic reduction of labor created political and financial problems beside having an adverse effect upon the morale and efficiency of the railways. The program was abandoned and the only permanent result was the retirement of about 50,000 FA staff. 2.03 In early 1967, the Government embarked upon measures to stabilize the economy, including the reorganization of the railways. The direction of FA was placed under military control and steps were taken to restore discipline and the morale of the staff. Design of a complete recovery program for FA was started and, at the request of the Government, the progress made and the plans for the future were reviewed by a Bank mission in September 1968. The Bank recommended that the recovery measures be accelerated and that medium-term investment and financial programs be developed. A subsequent series of missions determined that serious efforts were being made to improve the physical and financial position of FA. Traffic increased and deficits appeared to be decreasing. In June 1969 the Bank sent a Project Identification/Preappraisal Mission to Argentina which discussed conditions for Bank participation in a project which was appraised in May 1970. Project Description and Goals 2.04 The project was based on FA's Investment Plan for the five year period 1971-1975 and comprised the first two years (1971-72) of the Investment Plan together with a program of action to improve the operations and financial position of the Argentine Railways. Subsequent to the signing of the loan agreement, FA agreed by exchange of letters to a time phased program for rationalization of services and line closures, staff redeployment and reduc- tions, rehabilitation of diesel locos, reorganization of workshops, and the introduction of commercial policies and targets. 2.05 Investment of the equivalent of US$368 million were proposed during the project period 1971-72 of which the foreign exchange component was computed to be about US$172 million equivalent. The Bank loan of US$84 million was to finance 23% of the project or 49% of the foreign exchange requirements. The - 5 - major components of the project were (a) track renewals and improvement as well as procurement of track materials and equipment (25%); (b) signalling and telecommunications equipment and works (3%); (c) structural civil works (8%); (d) procurement of new locomotives and freight cars (41%); and (e) maintenance of locomotives and freightcars (22%). The Bank loan of $84 million was expected to finance procurement of freight cars, workshop equipment, and components for rehabilitating and renovating locomotives and cars, track material and track workshop equipment and signalling and telecommunications equipment. A small portion of the loan was also expected to finance track civil works. 2.06 Negotiations with FA and the Government were held in December 1970. The loan and Guarantee Agreements were signed on April 28, 1971 and became effective on August 5, 1971. - 6 - III. PROJECT IMPLEMENTATION AND COST 3.01 Implementation of the project ran into trouble almost fror the start. The political and economic problems faced by the country from the initial years of the project resulted in grossly inadequate levels of investments and scant attention to the plans of action agreed with the Bank. As the action taken in implementation of the agreed program was grossly inadequate, the Bank decided, within a year of the loan becoming effective, to stop disbursements in July 1972. In August 1972, the Bank held detailed discussions with FA and the Argentine Government and approved of some changes in the Project and investment figures and agreed to postpone the project completion date to April 30, 1974. By February 1974, it was apparent that little or no improvement had been achieved in FA's physical and financial condition during 1972 and 1973 and that performance was well below established targets. In April 1974, the Bank offered the Government and FA one of two alternatives: (a) to renegotiate the loan on the basis of new targets and specific actions to be taken by the Government and FA; or (b) to cancel the balance of the loan. The Government and FA chose the latter, and it was decided to cancel $27.5 million out of the loan of $84 million, agreeing to maintain an amount of $56.5 million in the loan to finance 59 items which had been contracted up to the project completion date of April 30, 1974. The loan closing date was extended to December 31, 1976. Table 1 gives details of the physical completion of each item of the project in juxtaposition with the expected completion as foreseen during appraisal. Table 2 details the actual costs in comparison with the appraisal cost estimates. Table 2A details the investments in the project years 1971-72 and the Investment Plan years 1971-1975, in physical units as well as in constant dollars. Project Cost 3.02 Analysis of project costs for Argentina is a difficult task not only because of the high inflation rates but also because the parity between the dollar and the peso is rather unevenly maintained, with marked fluctuations in certain years. However, an attempt has been made to reduce all costs to constant dollars in terms of the 1970 rate of exchange so that resultant figures would be comparable to appraisal estimates. 3.03 An analysis of Tables 1 and 2 illustrates that the main features of the project implementation were as follows: (a) The project was completed in 1980 instead of 1972 as planned. (b) The main reason for delay in investments was the lack of adequate funds as reflected in the government allocations of funds from year to year. For the project period 1971- 72 FA investments amounted to $128 million instead of $368 million and for the 5 Year Investment Plan period 1971-1975 $268 million instead of $839 million. (c) The cost of the project at US$406 million was 11% higher than the appraisal estimate of US$368 million including contingencies. Some items of the project were not implemented as detailed in para. 3.04. - 7 - (d) Only 34% of the investments expected to be made by 1972 were actually made by end 1972. (e) As far as the 1971-1975 investment program is concerned, only 31% of the investments expected to be made by 1975 were actually made by end 1975. (f) Though the overall cost overrun for the 1971-72 project was 11%, the cost overrun for the track works was nearly 25% and for the freightcars over 34% largely because of the extended period of time over which these were implemented (see para 3.04 below). For procurement of electric coaches the cost overrun was 197% chiefly because more electric coaches were purchased than foreseen (92 instead of 42). Project Composition 3.04 The principal changes in project scope and implementation arose from inadequate authorization of funds for the various works and in particular a slow rate of execution of track renewal and improvement works. Though the appraisal report exhorted (para 5.07) that the investment plan should be carried out as early as possible to capture traffic, the government never authorized sufficient funds to implement the project/plan in a meaningful way. Table lA shows the rate at which the principal items of work were executed from the year 1971 to 1975 and this in conjunction with Table 1 gives a fair idea of the tempo of work and time taken for the various items of work. (a) Track Works Track related works comprised about 25% of the project and of these the track renewal and improvement works comprised 72% the rest being workshop and maintenance equipment and machinery. Although 368 km of track renewal work were done in 1971 against 450 km planned, the figure fell to 250 km in 1972 against 500 planned, 215 in 1973 against 600 planned and to 81 in 1975 against 800 planned. The average over the years 1971-1975 was 214 km per year against 610 km per year planned, i.e. about one-third of the original plan. It is significant to note that the 5-year program for 1971-1975 for track renewal (3050 km) and improvement (3800 km) work has not yet been completed up to the year 1980 but meanwhile the second railway project was appraised in 1978 which fixed new targets from 1979 onwards. In so far as the workshop and maintenance equipment is concerned only 4% of the equipment was procured and installed up to 1972 and 6.5% up to 1974. The work was completed in 1980. (b) Signalling and Telecommunications Though Signalling and Telecommunication Works constitute a relatively small portion of the project, these were vital for improving train operations. However no significant work was done in the years 1971-72 and by 1974 only 17% of the works were completed. Less than one third of the Bank loan earmarked for the purpose was utilized. -8- (c) Structures These comprised various power and water installations, bridge strengthening works, station buildings, housing and Zarate Brazo Largo Bridge. These works were completed 20% up to 1972, 50% up to 1974 and finally completed in 1976. (d) Locomotive and Car Maintenance This part of the project pertained to the purchase of spare parts and rehabilitation of locomotives, freight cars and passenger cars. However, up to 1972 only 1% of the amount foreseen was spent and up to 1974 only 6%. This was one of the major reasons for the fall in the availability of locomotives from 63.8% in 1971 to 55.8% in 1976, and similar deterioration in the availability of freight cars and passenger cars. (e) Purchase of New Locomotives and Cars 40 Broadgauge locomotives were purchased as planned from GM by 1972. However only 40 of the 150 narrow gauge locos to be procured in the 1971-1975 period had been actually purchased by 1975. As for the standard gauge locos, the 20 locomotives expected to be purchased in 1972 did not show up until 1977 (18 nos) followed by 22 in 1978. Taking the 5-year period 1971-1975, FA purchased only 80 out of 230 locomotives programmed having had to defer the procurement of the rest of the locomotives to later years. This was the other principal cause of drop in locomotive availability 1/ (see 3.04(d) above). A similar situation arose in respect of the rail tractors which were to be supplied at the rate of 50 per year for the 4 years 1971-1974 but actually nothing was delivered until 1979 when 39 were delivered and 1980 when 36 were delivered, resulting in the continued utilization of obsolete steam/diesel locos in shunting operations in the railway yards. As for freight cars of which 4400 units were to be purchased in 1971-72 largely to replace overaged stock, only about 2,000 were procured by end 1972. This was also the pattern for the 5 year project for 1971-1975 during which period, 5192 freidht cars were purchased against 10,400 foreseen during appraisal. As most purchases were in replacement of overaged and run-down stock, the effect on loading and handling capacity and train operations in general was negative. (f) The case of passenger cars is rather special for here 215 cars were purchased in 1971-72 against 175 foreseen though over the 5 year period 1971-1975 FA purchased 385 passenger cars against 523 foreseen during appraisal. For electric rail cars FA ended up purchasing 92 rail cars against 75 foreseen over the 5 year period (1971-1975) although for the project years (1971-72) no purchases were made versus 42 foreseen at appraisal time. Viewed with hindsight (intercity passenger services and suburban passenger services in cities other than Buenos Aires were drastically reduced in 1978/79) this emerged as a parti- cularly wasteful investment (US$14 million). 1/ One of the principal causes of the low availability of the locomotives on FA has been the multiplicity of types (22 types in 1972) of locomotives many of which were overaged, for which there have been severe problems in procuring spare parts. Hence the accent on procurement of new locomotives (to reduce the number of types) and to purchase spare parts to improve availability. -9- Procurement 3.05 Slow implementation of the project resulted in curtailment of the loan to $56.3 million to limit Bank financing to a list of 59 items ordered up to April 1974. No disbursements were made until 1973, the year of the highest disbursement was 1974 ($22.1 million) with $1.4 million in 1979. 3.06 The disbursement schedule is given in Table 3 which shows the actual disbursements in comparison with the original schedule. Table 3A shows the disbursements by category. The disbursements that dragged on the longest were for the wagon bodies of which the last lot was delivered in 1978 and final payments were made in 1979. In addition, spare parts for locomotives and cars were last delivered in 1979 and the deliveries of track materials and equipment, signalling equipment, etc. was completed in 1978. Most of the extended deliveries were caused by budget limitations, except for small numbers of spare parts delivered late due to supplier constraints. At one stage FA requested the Bank to finance the purchase of locotractors which was postponed due to lack of funds (para. 3.4e), but the Bank did not agree to this, presumably because it meant financing a contract signed several years earlier. All procurement financed by the Bank was done by ICB. Action Program 3.07 The project was accompanied by a program of action agreed between FA and the Bank inter-alia for: (a) Rationalization of services and closing of lines aiming at an examination and possible closure of about 6300 km of lines by 1975. (b) Reduction of staff from 145,000 in 1970 to 120,000 in 1975. (c) Rehabilitation of diesel locomotives to increase the number in running condition from 900 in 1971 to 1163 in 1975, and a similar program for diesel rail cars (150 to 281). (d) Centralization of workshops and reduction of the number of workshops from 24 to 18 and staff strength in workshops from 19,500 to 14,700 by 1975. (e) A program of tariff increases. (f) A program of marketing studies and promotion. Hardly any action was taken either by the Government or FA to seriously implement any of the above programs within the time-frame agreed with the Bank except tariff increases which were carried out to an extent generally close to appraisal expectation (see para 5.06). The management of FA was changed 11 times between 1971 and 1975. Staff strength instead of being reduced was increased from 145,000 in 1971 to 175,000 in 1975 by direct government intervention. The number of diesel locomotives in running condition steadily deteriorated instead of improving and locomotive availability fell from 63.8% in 1971 to an - 10 - all time low of 55.8% in 1976. Similarly electric coaches availability fell from 51.8% in 1971 to 45.4% in 1975. No serious rationalization of workshops was attempted. This state of affairs continued until the new military govern- ment took over in 1976. 3.08 It is important, however, that the action program prepared for this project, though not implemented, showed the direction in which the railway should be reformed, and the management of FA initiated similar measures in 1976 when in collaboration with Bank Mission it started on a program of line closures, staff reductions, workshop and services rationalization, leading to the formulation of the Bank's Second Railway Project (see paras. 1.05 and 1.06). - 11 - IV. TRAFFIC AND OPERATIONS Performance of the Economy 4.01 At the time of appraisal in 1971 data available indicated that the Argentine economy was recovering from a period of slow and uneven growth and considerable inflation. The production potential of the country was rated as high and the appraisal report projected an annual growth in real GDP of about 5.5% over the next five years which was expected to generate a substantially larger demand for transport of both primary products and manufactured goods. In actual fact, it appears from the data available that the economic crisis during the project period affected national production in general so that no significant growth occurred in the production of the principal commodities carried by the railways, although between 1961 and 1970 GDP grew in real terms at an average rate of 3.7% per year or just over 2% on a per capita basis. Freight Traffic 4.02 The appraisal forecast assumed that with the implementation of FA's investment plan and the program of action agreed upon with the Bank to rationalize the railway system and to improve its operations, the freight traffic decline which had occurred since 1947 would be arrested and that traffic would rise steadily between 1970 and 1975 at an annual growth rate of about 4% from 22 to 27 million tons and from 13.4 billion ton km to 16.3 billion ton-km. However, due to a combination of factors (see para 4.03 below), the expected traffic growth did not materialize. Freight traffic continued to decline, and by 1975 it was 21% lower than in 1970. 4.03 The disparities between projected and actual freight traffic are the result of the combination of three factors: (i) the country's economic decline; (ii) the deteriorating level of service because of the lack of full implementation of the investment plan and also of the plans for improving operational efficiency; and (iii) the diversion of commodities which could be more appropriately handled by other modes. 4.04 The economic crisis during the project period affected national production in general so that no significant growth occurred in the production of principal railway commodities such as grain, cement, wine and minerals. At the same time, substantial delays affected the implementation of both the in- vestment and action plans. Less than 1/3 of the investments foreseen for the 1971-1975 period (which were essentially deferred maintenance and replacement works and equipments) were actually made (Table 2A) and some of the important investments to be made in 1972 (e.g. for replacement of overaged wagons) have not yet been completed. The expected actions to improve the efficiency of operations were not taken and the end result was a continuous decline in the quality of the service which prevented the railways from increasing their share in the total transport of the principal railway commodities, although the railways' share for such commodities did not decline. - 12 - 4.05 Finally, about 70% of the decline in traffic between 1970 and 1975 can be accounted for by the reduction in the traffic of petroleum and "other" commodities which are not considered "prime" rail traffic and were susceptible to competition from new pipelines and expanded truck services. Also, the average distance per ton carried increased from 637 km to 664 km which indicates that shorter distance traffic has left the railways, again not a "prime" target for traffic growth (the average distance for "other" commodities increased from 600 km to 862 km). In economic terms it can be expected that it would be cheaper to haul many of the short haul commodities by other modes even under improved rail operating conditions. 4.06 The results of the First Railway Project illustrate the great difficulty economists and railway planners have faced in estimating rail traffic for projects which are expected to reverse the long term neglect of the rail system. A major question which is important in assessing the rail forecasts and which has implications for future rail forecasts is to what extent the lack of traffic growth was a phenomenon which because of the changing geographic structure of trade and the improvement of the highway network would have occurred despite improvements in the railway, and to what extent it was a consequence of lack of investment in the railways. The appraisal forecast appears to have been based on the latter reasoning and concluded that increased investment, together with improved operational efficiency, would attract substantial traffic that had been lost, and increase railways' transport share. The data from Argentina suggest that the "with-project" appraisal assumption may have been over-optimistic. On the other hand, the conspicuous difference between the actual and the planned investments and the scant attention given to implementation of the action program (paras 3.04 and 3.07) are important factors which are of considerable consequence. The period in which the First Railway Project was to have been implemented was an era of unprecedented political and economic turmoil in Argentina and perhaps clearer answers will emerge when the Second Railway Project started in 1980 near completion, and is analyzed in the light of the various studies included in that project. Passenger Traffic 4.07 The appraisal passenger forecast assumed that intercity passenger-km would increase by 22% between 1970 and 1975 while suburban passenger-km would remain relatively stable increasing by about 10% (Table 4A). Actual intercity passenger traffic for this period was equivalent to the forecasts and was apparently insensitive to the economic difficulties reaching 6.6 billion passenger-km by 1975. The declines after 1976 were due to the reduction of intercity passenger services. Suburban traffic declined steadily until 1974 when traffic levels rebounded to a level of about 8 billion passenger-km. Much of this increase may be due to the rise in fuel prices in March 1974. - 13 - Operations 4.08 Selected operating statistics for FA for the years 1970-1979 are given in Table 5. During the six year period 1970-1975, the total traffic units (comprising freight ton km and passenger km) remained between 25 and 26 billion units. No serious attempt was made to reduce staff which, on the other hand, was increased from 145,000 in 1970 to 155,000 in 1976. The mounting arrears of track renewal and improvement works led to a steady deterioration in the condition of the track, leading to an increase in speed restrictions and minor derailments. As a result the average speeds fell to an all time low of 22.8 km/hr in 1976 and the average wagon turn around time increased steadily from 16.3 days in 1970 to 20 days in 1976. Due to inadequate replacements of the overaged and obsolete motive power and inadequate purchases of spare parts, the avail- ability of locomotives dropped from 63.8% in 1971 to 55.8% in 1976. If it is remembered that in a fleet of 1,100 locomotives this drop in itself represents 90 locomotives lost, the effect on FA's potential capacity to capture more traffic can well be imagined. Lack of funds led to a wholesale postponement of the purchase of locotractors to be used for shunting operations in yards stations and sidings in replacement of the overaged and expensive steam locomotives. As a result projected improvements in shunting operations never materialized and FA continued to maintain unreliable steam locomotives at exorbitant costs. Locotractors against the Belgian contract finally started coming in 1979 at prices several times more than the planned 1971-72 purchases, Freightcar availability fell from 75.8% in 1971 to 68.7% in 1975 due to the fact that less than half of the wagon replacement program was implemented. 4.09 The cumulative effect of the above delays and defaults was a marked deterioration in the quality of the service provided by the railway and the result was that instead of capturing more traffic as the project and action program had foreseen, there was loss of traffic, and further deterioration of the railway infrastructure. It is pertinent to note that over the years 1970-1976 manpower productivity measured in the number of annual traffic units per employee fell from 188,000 to 162,000. 4.10 During the 30 year period 1946-1976 thus Argentina witnessed the systematic erosion of its railway property and potential by what appears to have been a combination of gross neglect in the period 1946-1970 and some ill-conceived government actions during the years of political and economic turmoil from 1970 to 1976. - 14 - V. FINANCIAL PERFORMANCE 5.01 FA's financial Performance during the Project execution period was very poor and, in fact, became the major factor which led to the Bank's cancelling a portion of the loan. At the time of the appraisal the long term financial objective was for FA to cover all operating expenses, including depreciation by 1979 ie within ten years. In this context a set of financial targets, covering the five years from 1971 to 1975, were established. The substantial difference between these original targets and the actual perfor- mance is shown clearly below: 1971 1972 1973 1974 1975 Working Ratio Forecest 126 117 108 101 98 Actual 179 156 168 183 262 Operating Ratio Forecast 147 136 127 119 115 Actual 199 180 182 193 267 5.02 The dramatic difference between the appraisal projection and what actually happened is shown clearly in Table 6. It can be seen in 1974 1/ (when the loan was cancelled) that revenues were about 83% below the appraisal projections and total operating costs were 25% above the appraisal estimates. These operating cost comparisons are distorted because depreciation is under- stated in the actual data; comparison of the working expenses (excluding depreciation) is more meaningful and shows that costs were 40% higher (in real terms) than the appraisal estimates. 5.03 The appraisal had projected that the improvement in financial performance would be achieved through a steady increase in total revenues while operating expenses were expected to be held essentially constant. Thus, between 1971 and 1975 revenues were expected to increase by 31%, reflecting traffic increases of 11% (in unit-km) and tariff increases of nearly 20% in real terms. Actually total traffic declined by 10% (in unit km) and the cumulative increase in unit revenues was about 14%. 5.04 The main reasons for the difference in the actual versus antici- pated expenses were the higher actual personnel costs. The appraisal report projected a 24% increase in personnel costs between 1970 and 1975 while they actually increased by 71% (in real terms). Other costs in total increased roughly in line with the appraisal projections but, as personnel costs consti- tuted over 70% of local expenses, the difference in these dominated the results. 1/ 1975 data is not discussed because the extreme inflation of that year makes the data practically meaningless. - 15 - 5.05 The difference between the projected and actual labor costs reflect both higher staffing levels and greater salary increases. It had been anticipated that staff would be decreased from the 1969 level of 145,000 to 120,000 by 1975 while actual staff was reduce to only 141,000 in 1974 before increases were commenced (after the balance of the loan was cancelled). More importantly, average personnel costs were increased by about 50% more than expected by the end of 1974. 5.06 The extreme difference between the actual results and the projections raises a question as to the reasonableness of the Bank original financial projections. Obviously, in retrospect, the projections seem to have been far too optimistic and yet it is clear from the information in the files that a very serious and thorough attempt was made to present reasonable financial projections for FA. The main weaknesses in -the financial projections seem to have been: (i) the assumption that the investment program and plan of action would be carried out with resulting improvements in operations, reductions in cost and improvement in the quality of services. The appraisal mission did not foresee the chaos which would overtake the political and economic system which in turn made the execution of the project impossible. (ii) the assumption that steady real tariff increases could be implemented while at the same time, traffic increases occurred. In fact tariff increases seem to have taken marginally short of the assumed ones but the lower increases seem reasonable in view of the fact that the traffic declines were so severe. More importantly, the Bank seems to have placed great emphasis on the need for greater tariff increases, during supervision, in order to achieve the financial targets but it is not clear from the limited information available on competitive tariffs for trucks that such increases were possible without losing significant traffic and, worsening the financial situation; (iii) the assumption that costs, particularly personnel costs, would be maintained at their preappraisal levels seem to have been unreasonable mainly because it was not possible to hold the salary levels relatively constant. It is not clear to what extent this need for greater increases in salaries could have been foreseen, railway salaries were known to be low but apparently were only felt to be 20% too low, not 50% too low. Balance Sheets 5.07 A comparison of the appraisal and actual Balance Sheets (in comparable unit currency) is shown in Table 7. Because of FA's extreme unprofitability (and resultant dependence on the government budget) these figures have little financial importance. However, it is interesting to note that FA's actual financial position generally strengthened throughout the 1970-1974 period, in spite of the large losses. It is particularly evident that one of the Bank's main objectives, a strengthening in the working capital position, was achieved a fact which shows that the government did give good financial support to FA's operating budget. - 16 - 5.08 With respect to the Balance Sheet, a further objection of the project was to improve the quality of the data presented in the Balance Sheet through: (i) determination of a more accurate valuation of FA's asset; (ii) carrying out of regular audits by private auditors. Both steps were carried out, at least partially while the loan was active. A firm of private auditors was appointed and produced annual reports until 1973, when the loan was cancelled, and a major portion of the asset revaluation was carried out at the end of 1972 but this work was not extended to the rest of the assets. Financial Plan 5.09 A comparison of actual project financing in comparison with the appraisal estimate is shown in Table 8. It can be seen that while the size of the project was reduced there was still an increase of 11% in the funds required to execute the project. The total cost of the project was US$407 million, of which Bank contributed only US$56.3 million, or 14%, whereas during appraisal it was forecast that the Bank loan would contribute 23% of the project cost. 5.10 This reduction in Bank contribution meant that other financial sources, mainly government had to make larger contributions to the financing of the project, it is estimated that the government contribution increased from an estimated US$160 million equivalent to US$317 equivalent or about 100% more. 5.11 Though over the extended period of the project, government contribution was higher than anticipated, the inadequate overall provision for investments year by year (see Tables 2, 2A) was a serious problem that prevented the project and the investment plan from being implemented and completed as planned. - 17 - VI. INSTITUTIONAL PERFORMANCE AND DEVELOPMENT 6.01 The appraisal report reviewed in a general way the organization and staffing of FA and highlighted the need for (i) improving the administrative control of the headquarters over the individual railways and (ii) reduction of surplus staff and the need for government assistance in retraining and re- employment of such staff. The formation of an incipient planning office was touched upon. The project, per se, however, did not contain any specific proposals for institutional reforms either within on FA or in FA's relationships with the government. Neither did the project contain any proposals for studies on any institutional aspects of the railway problem. 6.02 FA's report on the completion of this project, however, contains a chapter on institutional development which refers to the strengthening of the central organization (Organismo Central) of FA in relationship with the different railways each of which had its own individuality inherited from the premerger years. It does appear that during the seventies the central organization of FA found a role for itself, albeit slowly and flatteringly at first, and later in a surer manner, with the creation and development of the Organization for Engineering Administration (Organismo de Ingenieria Adminis- trativa). The latter led to the formation of the planning office which has in recent years assumed the responsibility for preparation of FA's short-term (one year), medium term (5 year) and long-term (10 year) investment plans. It would appear therefore that though the First Railway Project did not contain any specific proposals on the institutional front certain developments did take place, largely on the initiative of the borrower, which have had a positive effect in defining a role for the headquarters office (Organismo Central) and in formation of the planning office, which has been playing an increasingly active role in the making of plans and projections for the future. VII. ECONOMIC REEVALUATION 7.01 The economic evaluation carried out at appraisal calculated the economic rate of return for the investment plan for 1971 to 1975. Although a technical assessment was made of individual investments, the investment plan was economically assessed as a whole rather than by individual components and the underlying assumption was that such an integrated plan would attract additional traffic and stop further diversion of traffic to other modes. The 1980 freight forecasts in the appraisal report for the "with" and "without" project situation were estimated at 18.0 billion and 4.0 billion ton-km respectively; for passengers, 15.0 billion and 5.6 billion pass-km respectively, The major benefits were the savings in transport costs between rail and road. The economic rate of return (ERR) was estimated at 21%. 7.02 Although the original plan was not carried out, some investment did occur and 67% of the loan funds were disbursed though with inordinate delays (1974-1980). Applying a similar methodology, the ERR was recalculated taking into account the actual traffic for 1971 to 1981 and revised forecasts to 2000; and the reduced investment level from 1971 to 1981. Investments beyond 1980 were derived from the recent proposals of the National Transport Plan - 18 - (NTP). No changes were made in the "without" project forecast. Rail and road costs were revised based on the appraisal methodology used in the Second Railway Project and the estimates of the NTP. Other benefit parameters applied in the appraisal evaluation could not be included because of the lack of data in the project file needed to reconstruct them. Instead an additional benefit was calculated representing the savings in the maintenance costs from track rehabilitation which was carried out. To avoid double counting of benefits these savings are calculated on the basis of the traffic which would not have diverted to road in the "without" case. The recalculated ERR is estimated at 10% (Table 9) which is equivalent to the opportunity costs of capital and represents a marginal return. Given the fact that FA did not institute many of the operational improvements originally agreed as well as the bulk of the investment plan, and that traffic was below appraisal estimates the ERR appears to be reasonable. 7.03 The main drawback to the evaluation methodology is that it does not permit an analysis of the marginal impacts on project benefits when the individual components are substantially changed as happened in Argentina. Thus, it is difficult to assess, in economic terms, whether the type of investment and/or the location of the investments was appropriate. System- wide traffic loss estimates are subject to a high level of uncertainty. The Second Railway Project was evaluated through an analysis of the marginal benefits of specific investments and a similar methodology was applied in developing the NTP investment plan. The ERR's calculated for types of invest- ments in the Second Railway Project and the NTP should be indicative of the returns on investments made in the 1971-1975 period. Thus rehabilitation projects on the trunk lines should register ERR's of from 10% to 20%; locomotive procurement projects from 15% to 25%; and wagon procurement projects from 12% to 20%. VIII. THE ROLE OF THE BANK 8.01 This Project Completion Report is being written almost ten years after appraisal of the project, and though this has meant that retrieval of project-related data was quite difficult because of the several waves of changes in the management and staff of FA (and to a lesser extent the Bank), this does give the Bank and the borrower the advantage of considerable 'hind- sight' particularly because in the intervening years another appraisal exercise was undertaken (1978-79) for the ongoing Second Railway Project. 8.02 FA's report on the completion of this project concludes that despite the fact that the project was not implemented adequately, the Bank's contribution to the medium term (5 year plan) was positive. In FA's view the Bank mission's diagnosis of the railway situation was appropriate and the measures proposed not only necessary but also possible, given the indications received from the Argentine Government during appraisal. The report further comments that the Bank supervision missions were useful and the information requirements not particularly burdensome. It is FA's view that the project was not implemented because of political and economic problems that "annulled" the optimistic expectations of the appraisal for recuperation - 19 - of the railways and maintained the distortions 1/ in the transport sector that supported the railways' principal competitor, the highways. It is further argued that inasmuch as the Bank's appraisal indicated that the principal economic benefit of the railway program was based on the avoided investments in and higher cost of highway transport the Bank's support of road construction 2/ and general neglect of road-pricing issues (which helped the railways' principal competitor), was in conflict with the objectives of the railway project. FA's comment is at least partially valid. It is significant however that the Bank has since sought to resolve such conflicts by the assignment of transport economists on a country sector basis to ensure a more balanced approach to intermodal issues. The National Transport Plan (financed under the 4th Highway Project) is also expected to focus attention on the development of evenhanded transport policies. 8.03 In conclusion FA's report states that collaboration with the Bank was useful because (i) the plans developed for the rehabilitation of the system (although inadequately implemented) were basically sound and have retained their validity in as much as they are being implemented now (with suitable mutations) as part of the ongoing railway project; (ii) the financial participation of the Bank (although reduced from $84 million to $56.3 million) was valuable because of the long term, low interest rates and above all the procurement of significant volumes of railway materials at international prices; and (iii) Bank's involvement tended to orient the railways "and particularly" the Government towards investment plans consistent with the rationalization and development of FA. In fact, in retrospect, this last factor has been particularly important because the influence of the Bank does appear to have had some effect in developing a positive attitude towards the railways which emphasizes the need for pruning and rationalizing the system as well as support for judicious investments in essential maintenance and efficiency oriented projects. 8.04 The principal question that arises in this analysis however is to what,extent was the Bank's rather precipitate action in cancelling a part of the loan in 1974 justified. It is evident from the files that the cancella- tion of part of the loan followed a series of measures which were deliberated within the highest levels of the Bank. Initially, when it was noted that the financial position of FA was deteriorating instead of improving, the Loan Committee came to the conclusion in May 1972 that disbursements should be suspended. In August 1972 the targets were renegotiated, but in July 1974 a part of the loan ($27.5 million out of $84 million) was cancelled and the closing dated extended to December 1976. It is clear that the Bank loan was expected to finance purchase of railway equipment by international bidding and thus to exert a stabilizing influence on the prices of railway equipment in Argentina which have traditionally been considerably higher than inter- national prices. In fact to the extent the Bank loan was disbursed, it did finance the purchase of various items such as track and workshop machinery, spare parts and freight cars at competitive prices, and there is evidence that this did have a salutary effect (although not for long) on the price 1/ We presume reference here is to such factors as low diesel fuel costs, relatively high investments in highways, etc. 2/ There were four Bank loans for highways between 1961 and 1977 ($229 million) of which two ($173 million) between 1971 and 1977. - 20 - levels in the indegenous industry. The cancellation of a significant portion of the loan (33%) amounted in effect to the Bank abandoning this project, and the question that naturally arises is whether it would not have been better for the Bank to continue to disburse and complete the procurements planned for the loan. 8.05 It is easy to understand the reasons that led to the cancellation of the loan in 1974 - inadequate government funding for investments, little or no attention to the implementation of the action programs, and above all a political and economic climate that showed no signs of improving. As a matter of fact the year 1975 following the year of cancellation of the loan was perhaps the worst year of the project period. It is also clear that proceeding with (instead of cancelling) the project would have been inordinately expensive in Bank manpower in view of the general situation in Argentina, and perhaps helping FA did not have a high enough priority to warrant the Bank making such an investment of staff effort at the time. In retrospect, however, and given the advantage of hindsight and of the knowledge of somewhat better succeeding years, it does appear that if the loan had not been cancelled the project would have received the benefit of closer monitoring (both by FA and the Bank), and incidentally the procurement of some more badly needed equipment at internationally competitive prices. Experience with railway projects has shown that if any significant changes are to be achieved in railways' operations and financial condition a long term association with the Bank perhaps covering a series of carefully planned projects and action plans is required. As it turned out, the Bank picked up the threads again in 1976 when a mission was sent to evaluate the position under the new government regime, which lead to the appraisal of the Second Railway Project in 1978-79. IX. CONCLUSIONS 9.01 It is clear from an examination of the data furnished by FA as well as the supervision reports and the Bank file on the subject that the project failed largely because of the political and economic problems which overtook the country in the most critical years of its implementation viz 1971-1975. It also appears that the management of FA tried as far as it could to main- tain its relations with the Bank and feels that its association with the Bank was beneficial even though a significant part of the loan was cancelled. It does appear in retrospect however that the Bank's response to the poor performance under the project was overly stern inasmuch as disbursements were suspended almost within a year of the loan becoming effective. An attempt at accommodation was made when targets were revised a few months later but this was followed within 2 years by cancellation of one third of the loan. The cumulative experience of the railway projects in the Bank indicates that long term association of the Bank covering several projects is necessary in order to bring about significant improvements in the financial condition and operations of railways, suggests (with hindsight) that the objectives of the project would have been better served if the loan had not been curtailed in 1974 but it could also be argued that Bank efforts to help FA in 1975 and 1976 would not have been effective. 9.02 One of the reasons for the overoptimistic financial forecasts appears to have been that though measures aimed at increasing revenues (primarily through investments for improving railway operations and increasing tariffs) - 21 - were included in the project, there does not appear to have been an analysis of the railway costs or any concrete steps for reducing costs, which clearly should have been planned concurrently with measures to increase traffic and revenues. Although it is doubtful whether in the political conditions then prevailing any serious consideration would have been given to cost reductions (as indeed the experience with staff increases suggests), it is clear that the project would have been improved by the inclusion of an analysis of and some concrete measures for reduction of costs. While such a task would have been difficult to achieve in one project, it seems unfortunate that no studies to help define the appropriate dimension of the railway were supported by the project and the Bank loan. PROJECT COMPLETION REPORT ARGENTINA - LOAN 733-AR FIRST RAILWAY PROJECT Actual and Expected Physical Completion Percentage of Original Works Completed by Units Completed Date of Completion Expected date Main Works Units Actual Expected Actual Expected 12/31/72 7/1/74 1. Track Complete renewal km 1.104 950 1976 1972 65 95,8 Improvement km 1.306 1.200 1975 1972 48 77,1 Maintenance Equipment, Workshops, etc. US$ 41,3 53,2 1980 1972 4,1 6,8 2. Signalling & Telecom- munications US$ 22,2 8,5 1978 1972 7,2 17,6 3. Structures US$ 28,1 28,1 1976 1972 20,3 50,0 4. Locomotive and Car Maintenance US$ 61,5 75,2 1977 1972 1,0 6,0 5. New Locomotives & Cars Diesel Locomotives GB Number 40 40 1972 1972 100 100 NG " 91 60 1979 1972 66,0 66,0 SG " 40 20 1978 1972 - - Rail Tractors " - 100 - 1972 - - Electric Railcars 92 42 1973 1972 0 219 Passenger Cars 215 175 1972 1972 122,0 181,5 Freight Cars: Boxes " 4,837 4,400 1979 1972 46,0 75,0 Bogies " 8,800 8,800 1974 1972 - 80,0 July 5, 1981 PROJECT COMPLETION REPORT ARGENTINA - LOAN 733-AR FIRST RAILWAY PROJECT Major Investments - Physical Units Total 1971 1972 1973 1974 1975 1971-1975 1976-1980 Total Track Renewal - Programmed 450 500 600 700 800 3050 - Actual 368 250 215 155 81 1069 10461/ 331311 Track Improvement - Programmed 500 700 800 900 900 3800 - 11 Actual 322 268 241 208 159 1198 - Locomotives - Programmed 80 40 40 35 35 230 - Actual - 80 - - - 80 165 245 Rail Tractors - Programmed 50 50 50 50 - 200 - - Actual - - - - - 75 75 Electric Cars - Programmed 6 36 33 - - 75 - Actual - - 92 - - 92 36 128 Passenger Cars - Programmed 105 70 105 175 68 523 - - Actual 100 115 99 7 64 385 96 481 Freight Cars - Programmed 2200 2200 2000 2000 2000 101400 - Actual 693 1359 668 1146 1091 4977 3505 8482 1/ Renewal and improvement are combined Source: Appraisal Report and FA July 1981 - 24 - TABLE 2 PROJECT COMPLETION REPORT ARGENTINA - LOAN 733-AR FIRST RAILWAY PROJECT Actual and Appraisal Estimates of Project Costs Actual Cost as 1/ Percentage of Actual Costs- Estimated Costs Estimated Costs Main Works US$ US$ % 1. Track 104.3 83.3 65 2. Signalling and Telecom- munications 14.33 8.2 270 3. Structures 37.84 28.1 100 4. Locomotive and Car Maintenance 76.7 75.2 81 5. New Locomotives and Cars Diesel Locomotives 44.5 36.0 109 Rail Tractors - 5.0 - Electric Coaches 14.0 4.7 348 Passenger Cars 25.7 28.6 73 Freight Cars: Boxes 85.9 41.5 108 Bogies 85.9 22.5 64 6. Miscellaneous 3.4 2.7 155 7. Total 8. Contingencies - 32.2 - 9. Grand Total 406.67 368 84 The actual cost figures given in this colum are in constant US dollars (1970) and are based on the units completed as detailed in Table 1. July 5, 1981 - 25 - TABLE 2A PROJECT COMPLETIN REPORT ARGENTINA - LOAN 733-AR FIRST RAILWAY PROJECT Planned and Actual - Constant Dollars (Figures in million of dollars) 1971-72 1971-75 Nos. Title Planned Actual Planned Actual 1. Track 83.3 25.3 245.7 68.0 2. Signalling and Telecom. 8.2 2.0 21.6 6.3 3. Structures 28.1 6.9 65.5 20.8 4. Loco and Car Maintenance 75.2 11.3 125.2 36.0 5. New Locos Incl.Locotractor 41.0 30.2 79.0 30.2 6. New Freight Cars 64.0 26.0 151.0 52.0 7. New Passenger Cars 33.3 25.9 70.1 54.3 8. Miscellaneous 2.7 - 5.7 .1 9. Contingencies 32.2 - 75.2 - TOTAL 368.0 128.0 839.0 267.7 Planned and Actual - Physical Units (1971-1975) 1971-72 1971-1975 Planned Actual Planned Actual Remarks (1971-1975) Track Renewal 950 618 3050 1069 35% Track Improvement 1200 590 3800 1198 31% Total Track 6850 2267 33% Locomotives 120 80 230 80 34.7% Rail Tractors 100 0 200 0 0% Total Locos 430 80 18.6% Freight Cars 4400 2052 10400 5192 49.9% Passenger Cars 175 215 523 385 73% Electric Cars 42 0 75 92 122% Total Passenger Cars 217 215 598 477 79.7% - 26 - TABLE 3 Page 1 of 2 PROJECT COMPLETION REPORT ARGENTINA - LOAN 733-AR FIRST RAILWAY PROJECT Disbursement Schedule (in Millions of Dollars) Quarterly Cumulative I Fiscal Year 1971-1972 Actual Original Actual Original September 30, 1971 - 0,3 - 0,3 December 31, 1971 - 3,1 - 3,4 March 31, 1972 - 3,4 - 6,8 June 30, 1972 - 5,6 - 12,4 II Fiscal Year 1972-1973 September 30, 1972 - 10,3 - 22,7 December 31, 1972 - 13,4 - 36,1 March 31, 1973 - 13,3 - 49,4 June 30, 1973 - 10,5 - 59,9 III Fiscal Year 1973-1974 September 30, 1973 5,6 6,5 5,6 66,4 December 31, 1973 4,1 5,9 9,7 72,3 March 31, 1974 6,0 5,2 15,7 77,5 June 30, 1974 5,1 3,2 20,8 80,7 IV Fiscal Year 1974-1975 September 30, 1974 6,0 2,3 26,8 83,0 December 31, 1974 5,0 1,0 31,8 84,0 March 31, 1975 2,7 34,5 June 30, 1975 1,7 36,2 V Fiscal Year 1975-1976 September 30, 1975 0,7 36,9 December 31, 1975 0,5 37,4 March 31, 1976 3,1 40,5 June 30, 1976 1,9 42,4 VI Fiscal Year 1976-1977 September 30, 1976 5,4 47,8 December 31, 1976 1,3 49,1 March 31, 1977 0,6 49,7 June 30, 1977 0,7 50,4 - 27 - TABLE 3 Page 2 of 2 Quarterly Cumulative VII Fiscal Year 1977-1978 Actual Original Actual Original September 30, 1977 - 50,4 December 31, 1977 2,3 52,7 March 31, 1978 1,3 54,0 June 30, 1978 0,6 54,6 VIII Fiscal Year 1978-1979 September 30, 1978 0,1 54,7 December 31, 1978 0,2 54,9 March 31, 1979 - 54,9 June 30, 1979 0,6 55,5 IX Fiscal Year 1979-1980 September 30, 1979 0,1 55,6 December 31, 1979 0,7 56,3 July 5, 1981 - 28 - TABLE 3A PROJECT COMPLETION REPORT ARGENTINA - Loan 733-AR FIRST RAILWAY PROJECT Disbursements by Category (in millions of dollars) Category Title Proposed Utilized 1 Track Civil Works 3.5 2 Track Material and 1o.4 8.69 Equipment 3 Signalling and 3.3 0.27 Telecommunications 4 Locomotive and Car 16.5 4.50 Rehabilitation 5 Freight Car Bodies 15.8 18.30 6 Freight Car Bogies 22.5 17.10 7 Unallocated 12.0 7.401/ TOTAL 84.0 56.26 Freight and Insurance, etc. - 29 - TABLE 4 PROJECT COMPLETION REPORT ARGENTINA - LOAN 733-AR FIRST RAILWAY PROJECT Projected and Actual Freight Traffic (in billions of ton-km) Year With Project-- Without Project!- Actual 1970 13.4 13.4 13.6 1971 14.1 13.4 13.7 1972 14.9 13.2 12.5 1973 15.3 12.5 12.5 1974 15.9 11.0 12.3 1975 16.3 9.5 10.7 1976 16.8 8.0 10.9 1977 17.3 6.7 11.6 1978 18.0 5.6 9.8 1979 18.0 4.6 10.9 1980 18.0 4.0 9.3 1/ Appraisal Traffic Estimates These figures were used by the appraisal mission for the economic evaluation. Source: Appraisal Report and FA July 1981 - 30 - TABLE 4A PROJECT COMPLETION REPORT ARGENTINA - LOAN 733-AR FIRST RAILWAY PROJECT Projected and Actual Passenger Traffic (in billion of pass-km) Appraisal Estimation Intercity Service With Project Without Project Actual 1970 5.1 5.1 4.7 1971 5.3 5.3 5.0 1972 5.6 5.3 5.0 1973 5.8 5.1 5.5 1974 6.0 4.7 6.2 1975 6.2 4.4 6.6 1976 6.2 3.9 6.0 1/ 1977 6.3 3.3 4.4- 1978 6.3 2.5 3.7 1979 6.4 2.0 4.0 1980 6.4 1.4 4.1 Suburban Service 1970 7.8 7.8 8.0 1971 8.0 8.0 7.8 1972 8.0 8.0 7.3 1973 8.2 7.9 7.1 1974 8.4 7.7 7.7 1975 8.6 7.5 8.0 1976 8.6 6.9 8.2 1977 8.6 6.4 8.1 1978 8.6 5.7 7.8 1979 8.6 5.2 8.0 1980 8.6 4.4 8.5 1/ After elimination of uneconomic services. Source: Appraisal Report and FA July 1981 PROJECT COMPLETION REPORT ARGENTINA - LOAN 733-AR FIRST RAILWAY PROJECT Selected Operating Statistics (1971-79) 1970 1971 1972 1973 1974 1975 1976 1977 1978 1979 SYSTEM Length (kms) 39.300 39.800 39.800 39.800 39.800 39.800 39.800 38.000 34.400 34.300 Staff (thousands) 145 143 140 142 141 149 155 124 111 106 TRAFFIC 6 Number of passengers, total (10 ) 44o 435 406 391 423 437 448 41o 380 377 Passengers, Suburban 106) 413 409 386 363 393 4o5 413 390 367 366 Passengers, Other (100) 6 27 26 20 28 30 32 35 20 13 11 Passengers Kms, total (10 ) 12.700 12.800 12.500 12.840 14.110 14.370 14.610 13.000 11.560 12 028 Passengers, Suburban 19,2 19,1 19,4 20,0 20,0 19,0 19,6 19,5 21,1 21,9 Passengers, General 177,5 192 250 204 214 202 186 270 291 371 Freight 6 616,6 638 683 658 644 656 652 590 577 573 Net Freight Tons (10 ) 6 25,7 21,5 18,3 19,1 19,1 16,3 17,2 20,1 17,1 19,1 Tons kms Commercial (10 ) 13.640 13.700 12.500 12.500 12.300 10.700 10.900 11.577 9.870 10.947 Average Haul (kms) 6 616 638 683 658 644 656 652 590 577 573 Total Gross Tons km 10 ) 52.800 51.600 50.300 48.800 47.100 45.000 43 900 42.220 37.556 39.318 Wagon kms loaded (10 ) 633 608 570 538 502 448 431 451 372 395 t Wagon kms empty (10) 364 352 462 337 313 279 286 312 285 310 TRAFFIC DENSITY Passengers km/Route km (10 ) 318 321 316 323 354 362 367 349 337 351 Freight net tons/route km 342 343 314 314 310 283 273 299 287 319 OPERATIONS 6 Passenger Train kms ( o ) 64,7 61,5 61,2 61,9 62,8 62,2 65,9 53,0 47,2 41,8 Freight Train kms ( 00) 39,0 37,1 38,1 35,6 31,4 38,9 29,8 30,0 38,5 31,4 Total Train kms (10b) 6 112,7 98,6 99,3 97,5 94,2 91,1 95,7 83,0 75,7 73,2 Steam Locomotives, kms (10 )6 35,2 28,4 21,9 18,9 16,4 17,3 14,4 7,3 2,9 Diesel Locomotivies, kms (10 85,1 86,4 87,4 87,6 84,1 82,9 75,4 72,8 76,1 Electric Coaches, kms (lob) 55,1 56,7 60,9 57,9 61,3 64,o 56,3 54,9 53,0 EFFICIENCY OF FREIGHT OPERATIONS Ton kms/Gross Train kms 1.354 1.391 1.320 1.371 1.500 1.557 1.473 1.407 1.318 1 252 Ton kms/Net Train kms 363 369 328 351 392 370 297 385 346 349 Ton kms/Net loaded wagon kms 22.949 22.533 21.930 23.234 24.502 23.884 25.290 25.277 26.532 27.714 Wagon Turnaround (days) 16,3 16,8 18,7 19,3 19,4 20,8 20,0 20,0 22,0 23,6 Average Speed (km/h) 24,1 24,0 25,5 25,7 24,7 24,7 22,8 24,3 25,5 26,1 Traffic units per employee (10 ) 188 185 179 178 167 169 162 207 197 220 AVAILABILITY Steam locomotives (%) 59,7 55,0 53,8 53,1 50,8 47,8 49,1 52,5 65,7 56,7 Diesel locomotives (M) 60,4 63,8 63,8 65,4 59,5 56,4 55,8 62,9 66,4 70,3 Electric coaches (%) 69,7 73,1 68,3 69,6 71,9 70,5 77,2 75,0 71,2 75,7 Freight cars () 75,9 75,8 75,9 76,9 71,0 68,7 71,9 72,5 77,7 74,6 , Passenger Coaches (%) 74,8 72,5 70,3 70,0 72,9 71,5 71,4 70,7 68,4 76,9 July 5, 1981 PROJECT OMPLETION REPORT ARGENTINA: First Rawilway Project (Loan 733-AR) Actual and Projected Income Statement for 1970-1975 ($a millions) OPERATING REVENUE 1970 1971 1972 1973 1974 1975 Actual Forecast Actual Forecast Actual Forecast Actual Forecast Actual Forecast Actual Freight 450 550 519 578 479 609 545 642 558 675 379 Parcels 39 20 - 20 - 20 - 20 - 20 - Passengers - Suburban 165 216 212 243 190 292 205 300 220 307 180 - General 186 202 210 226 189 252 200 289 211 298 162 Miscellaneous 35 37 69 38 59 40 53 42 60 42 45 Mail 48 35 - 35 - 35 - 35 - 35 - State Reimbursements 47 18 - 22 - 24 - 28 - 32 - TOTAL OPERATING REVENUE 970 1,078 1,010 1,167 918 1,272 1,003 1,356 1,049 1,409 766 OPERATING EXPENSES Personnel 902 1,086 1,377 1,102 1,144 1,117 1,365 1,119 1,546 1,120 1,683 Materials 145 140 217 144 125 149 117 153 116 157 122 Fuel and Power 90 109 111 94 93 89 122 81 148 77 109 Miscellaneoup 42 45 60 45 40 45 45 45 60 45 50 Contractorsj' 26 35 46 38 34 28 35 24 45 20 46 1,205 1,415 1,810 1,417 1,436 1,428 1,684 1,422 1,915 1,419 2,009 Less Investment Overheads - 59 - 59 - 54 - 50 - 46 - TOTAL WORKING EXPENSES 1,205 1,356 1,810 1,358 1,436 1,374 1,684 1,372 1,915 1,373 2,009 Depreciation 200 225 208 231 215 237 140 243 112 247 36 TOTAL OPERATING EXPENSES 1,405 1,581 2,018 1,589 1,651 1,611 1,824 1,615 2,027 1,620 2,046 NET RECEIPTS (LOSS) FROM OPERATIONS (235) (278) (800) (191) (518) (102) (680) (16) (867) 36 (1,244) NET OPERATING LOSS 435 503 (1,008) 122 (733) 339 (820) 259 (979) 211 (1,280) Interest Charges 24 64 10 85 145 88 84 101 120 111 37 NET DEFICIT 459 567 (1,g18) 507 (878) 427 (904) 360 (1,099) 322 (1,317) Working Ratio 124 126 179 117 156 108 168 101 183 98 262 Operating Ratio 145 147 199 136 180 127 182 119 193 115 267 Source - FA I Covers consultants and contractors for cleaning coaches, offices, stations, etc. 2/ Actual figures are in constant pesos PROJECT COMPLETION REPORT ARGENTINA - First Railway Project (Loan 733-AR) 1/ Actual- and Projected Balance Sheets for 1971-1975 1971 1972 1973 1974 1975 Factual Actual Factual Actual Factual Actual Factual Actual Factual Actual Assets 1. Fixed Assets: Gross Value 7,000 3,167 7,600 19,282 8,100 12,880 8,600 10,468 9,000 3,596 Less: Accrued Depreciation 4,500 354 4,600 215 4,700 277 4,800 318 4,900 131 Net Fixed Assets 2,500 2,813 3,000 19,067 3,400 12,603 3,800 10,150 4,100 3,465 2. Current Assets 700 1,327 730 1,239 750 1,196 770 1,680 770 1,182 Total Assets 3,200 4,140 3,730 20,306 4,150 13,799 4,570 11,829 4,870 4,647 Liabilities 1. Equity 1,905 973 2,190 17,462 2,345 11,389 2,535 8,728 2,655 1,870 2. Long Term Debt 945 2,819 1,190 2,031 1,455 1,703 1,685 2,147 1,865 1,398 3. Current Liabilities 350 861 350 813 350 707 350 954 350 1,379 Total Liabilities 3,200 4,140 3,730 20,306 4,150 13,799 4,570 11,829 4,870 4,647 Current Ratio 2.0 2.5 1.5 2.1 1.7 2.2 1.8 2.1 1.2 Debt/Equity Ratio 33/67 35/65 10/90 38/62 9/91 40/60 20/80 41/59 43/57 Source - FA 1 Actual figures are presented in constant pesos. PROJECT COMPLETION REPORT ARGENTINA: FIRST RAILWAY PROJECT (Loan 733-AR) Actual and Appraisal Expectation of Project Financing , ocal Currency Foreign Currency Actual:-' Anticipated Actual Anticipated Million Pesos % Million Pesos % Million US$ % Million US$ % Government 868.5 100 419.6 54 100.1 52 54.4 32 World Bank - - 56.3 29 84.0 48 Other - 362.8 46 35.0 18 34.0 20 TOTAL 868.5 100 782.4 100 191.4 100 172.4 100 Actual figures are presented in constant 1971 pesos. PROJECT COMPLETION REPORT ARGENTINA - LOAN 733-AR FIRST RAILWAY PROJECT Economic Reevaluation Traffic (in billion unite) Costs/Benefits (in millions of 1980A$) Actual/ Year Projected with Without Operating Savings Project Project Investment Freight Passenger for Non-Diverted Net Ton-Km Pas.-km Ton-km Pas.Km Cost SavingsY1 Savingal/ Traffic Benefits 1971 13.7 12.8 13.7 12.8 186.5 - - 3.2 (183.3) 1972 12.5 12.3 12.5 12.3 306.6 - - 2.4 (304.2) 1973 12.5 12.6 12.5 12.6 244.9 - - 2.1 (242.8) 1974 12.1 13.9 11.0 12.4 103.8 46.2 36.0 1.7 ( 19.9) 1975 10.5 14.6 9.5 11.9 192.2 42.0 64.8 1.1 ( 84.3) 1976 10.9 14.2 8.0 10.8 266.8 121.8 81.6 2.2 ( 61.2) 1977 11.5 12.5 6.7 9.7 226.2 201.6 74.4 0.9 50.7 1978 9.7 11.5 5.6 8.2 336.0 172.2 79.2 1.0 ( 83.6) 1979 10.7 12.0 4.6 7.2 368.8 256.2 115.2 1.2 3.8 1980 9.3 12.6 4.0 5.8 340.4 222.6 163.2 1.8 47.2 1981 10.0 12.7 4.0 5.8 485.3 252.0 165.6 1.8 ( 65.9) 1982 10.9 13.2 4.0 5.0 485.3 278.9 181.7 3.0 ( 21.7) 1983 11.8 13.8 4.0 5.0 485.3 308.6 199.4 3.0 25.7 1984 12.9 14.4 4.0 5.0 485.3 341.6 218.7 3.0 78.0 1985 14.0 15.0 4.0 5.0 485.3 378.0 240.0 3.0 135.7 1986-2000 14.0 15.0 4.0 5.0 370.6 462.0 240.0 3.0 334.4 ECONOMIC RATE OF RETURN = 10% 1/ Average savings per unit of traffic in 1970 US$ is estimated at US$0.011/ton-km and US$0.006/pass-km. Source; FA and Bank Staff July 1981. ----e B R A AZ i L - B O L I V I A .- ) ARA AV -<ceARGENTINA NARGENTINE RAILWAYS P.- ¼ FmLlrrnrjL ''.lRUUAY Rc Il P CARRAIGEUTAEY JUAJUY QZo T--JA.+ B R A Z l,A FS B-1bcd.r c,C 5-5- R l p GpAt N-ch, AAP--r- , P7 ih - cis) \-b.,al P-SA-0AS , 97 31- S~ANbrd LU ANTRIAGUOY34 --EL- ESTERO FPrro lestoscws ..20~~G.d TAgscAasy 0 K- ETR ,, Km10 3 -+S 5, FriesG hNbEhUK3GTUaEN A Z 16* ~ ~ ~ 64 WV~Z Cabalar Rereo K 3S1'