Transcript of joint meeting of the Executive Directors of the IBRD and IDA, held on Tuesday, May 5, 1987 : Argentina - Bahia Blanca Port Project

STRICTLY CONFIDENTIAL NM:nm INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT INTERNATIONAL DEVELOPMENT ASSOCIATION Tuesday, May 5, 1987 Washington, D.C. The meeting of the Executive Directors was convened at 11:29 a.m. in the Board Room, 1818 H Street, N.W., Washington, D.C., Mr. Barber B. Conable, Chairman, presiding. : l L J MILLER REPORTING CO .. INC. 507 C Street, N .I'. W as hington , D.C. 20002 (20 2) 546- 6666  STRICTLY CONFIDENTIAL 2 C O N T E N T S ITEM PAGE 3 Proposed Loan - Argentina (Bahia Blanca Port I Project) 14 Mr. Rao Sahib 17 Mr. Sherwin 18 Mr. Keating 18 Mr. Mizoguchi 21 Mr. Malan 21 Mr. Benachenhou 22 I _ _, MILLER REPORTING CO .. INC . i \1 7 C Street, N. E. 1\'.,, hington. D .C. 20002 \-'(· • 546 - ~661)  STRICTLY CONFIDENTIAL 14 Item three is a proposed loan to Argentina in the amount of $50 million U.S. equivalent for the Bahia Blanca I Port Project. Mr. Artaza-Rouxel, the loan officer, will introduce the proposal. Mr. Artaza-Rouxel, you are recognized. MR. ARTAZA-ROUXEL: Thank you, Mr. Chairman. Mr. Chairman, Members of the Board: Transport plays MILLER REPORTING CO .. INC . .507 C Street, N.E. Washington, D .C. 2000 2 (202) 546-6666  15 STRICTLY CONFIDENTIAL a critically important role in the development of Argentina. High transport costs cut very significantly into the price the Argentine grain farmer actually receives for his exports, the country's main source of foreign exchange. The government therefore, is giving priority to overcoming the deterioration and bottlenecks in the transport system. Faced with severe financial constraints, the government's strategy aims at improving the efficiency of transport infrastructure and services, with a special emphasis on the measures required to enhance exports. As part of this strategy, the government also seeks to stimulate increased r-1 I - I ~ , participation of the private sector in functions currently performed by public enterprises, and the reduction of transpor costs through improved management planning and coordination among the different modes. New public investments are being concentrated on the highest priority projects in ports, railroads and maintenance of the road network and main waterways. The Argentine authorities have taken a number of steps to carry out this strategy. They have solicited private L sector proposals to operate railway lines of more than 20,000 kilometers. At the same time, they are moving to divest Argentina's major domestic airline to the private sector. MILLER REPORTING CO .. INC . ,,17 C Srreet, N.E. W.uhington . D .C. 20002 1l 1.' 1 1 546- (-(,66  16 STRICTLY CONFIDENTIAL Legislation has been presented to Congress to promote private operation of ports. This legislation will n also lead to the decentralization of port administration, giving the main ports more operational and financial autonomy and requiring them to function as fully commercial enterprises. The government initiatives have broader significance because of their contribution to raising the efficiency and international competitiveness of the productive sectors. Strengthening the country's export support facilities fits squarely with the government's development strategy to - I l reorient Argentina towards a more open economy. It would L J complement trade policy reforms and enhance export promotion incentives in an overall effort to align the country's productive structure with Argentina's comparative advantages. The dialogue between the government and the Bank on the transport sector addresses further institutional and policy reforms needed to manage the government enterprises on commercially-oriented principles, increase internal efficiency through higher productivity and lower costs and improve the coordination and relationship of these enter- prises. A study on the transport sector in Argentina is MILLER REPORTING CO .. INC . 507 C Street, N.E. Washington. D.C. 20002 (202) 546-6666  17 STRICTLY CONFIDENTIAL underway and it will provide the government and the Bank with the required updated information for our future recommenda- tions and for further operations in this sector. With regard to ports' development, the government is aware that further efforts are still needed to improve costing systems, management information and planning systems, and coordination with private sector operations. The project presented for your consideration today is directed towards these efforts. It aims at reducing shipping costs for exports, rationalization of port tariffs and promotion of efficient r-1 'L _J operations. Within these parameters, the proposed loan makes a contribution to the government's current efforts to improve its links with the world. Thank you, Mr. Chairman. MR. CONABLE: Thank you, Mr. Artaza-Rouxel. What questions do we have now on this loan to Argentina? Mr. Rao Sahib. MR. RAO SAHIB: Mr. Chairman, I have no question, just a line to say that we extend our support to this proposal. This project seeks to improve Argentina's export infrastructure and is therefore commendable. MILLER REPORTING CO .. INC . , ,17 C St reet, N .E. \V.1,hington . D.C. 20002  18 STRICTLY CONFIDENTIAL Thank you, Mr. Chairman. MR. CONABLE: Mr. Sherwin. MR. SHERWIN: Thank you, Mr. Chairman. Just briefly to voice my support for the proposal and to highlight one particular aspect of the project, that is the work proposed on ports administration and particularly cost accounting and cost allocation systems. I would simply urge that that work be expedited and implemented both comprehensively and with all possible haste. Thank you. ~] MR. CONABLE: Thank you. Mr. Keating, did you wish to be recognized? MR. KEATING: Yes. Thank you, Mr. Chairman. We support this loan of $50 million for the first stage of the Bahia Blanca Port Project, and we regard it as the type of export-oriented basic infrastructure rehabilitation which Argentina needs. And I note that the general Port Administration, the AGP, will recover all working costs by 1995. That includes dredging and interest expenses and maintenance and revised depreciation. And this strikes me as a stricter financial standard than simply requiring AGP to be profitable by 1995, MILLER REPORTING CO .. INC. 507 C Street, N. E. Washington. D.C. 20002 (202) 546-6666  19 STRICTLY CONFIDENTIAL as it correctly does not permit operating losses to be offset by non-operating income. Ii L J Well, certainly I would have preferred a somewhat faster rate of financial reform for AGP, but I recognize that achieving this goal by 1995 will certainly require real tariff increases and/or cost savings of about 50 percent. I think it is also good news that the tariff structures will be reviewed, and I think there must be a need to measure better the extent of cross subsidization in the public sector port system and to reduce this cross subsidization as much as possible. 1 I 1• '- _; Of course, in this context the loan will play a vital role in doing away with by 1995 the implicit subsidy which currently exists at public sector ports for Argentina's wheat exports. And I hope very much that the Bank lending for ports in Argentina and elsewhere will promote private sector activity whenever possible. For example, p e rhaps AGP could contract out such activities as stevedoring and maintenance dredging. The tugboats and the capital dredging I assume are already in the private sector. And finally, I would welcome assurances from the staff that no commitment will be made by the Bank to any MILLER REPORTING CO .. INC. 507 C Street, N .E. \Va,hington , D.C. 20002 ~..'.02; 5 46. 6666  20 STRICTLY CONFIDENTIAL second stage project at Bahia Blanca until the implications of a possible private sector grain export port at Rosales becomes clearer. Thank you, Mr. Chairman. M~. CONAHLE: Mr. Artaza-Rouxel, cto you wish to say anything in response? MR. ARTAZA-ROUXEL: Yes, Mr. Chairman. Referring to the last point of the Executive Director's observation, the preparation of Bahia Blanca II takes into consideration, as he has recognized and we are going to push for this -- a complete study of the impact of Puerto Rosales, of this private port, in the preparation of Bahia Blanca II. Puerto Rosales is still at the stage of preparation, and we have considered a total expected through output of Puerto Rosales, which is about 3 million tons, in the possible design of Bahia Blanca II. The consultants studying the preparation of Bahia Blanca II have specific instruction to look on these matters. Just to confirm that, of course, through our dialogue with Argentina and our sector study, we are going to promote the maximum possible participation of the private sector in ports' activities. MILLER REPORTING CO .. INC . 507 C Street. N.E. Washingron , D .C. 20002 (201) 546-6666  21 STRICTLY CONFIDENTIAL MR. CONABLE: Thank you. Mr. Mizoguchi. MR. MIZOGUCHI: Thank you, Mr. Chairman. I have no problem in supporting this proposal. I have just one question. According to the table on page 5, that cost for the supervision of the construction is estimated to be $1.7 million U.S. dollars and $1.4 million of which will be financed by the borrowing from the Bank. I am just interested in knowing whether the cost is a reasonable one or unusual one. It seems to me that the cost for the supervision of construction seems to be a little bit high. MR. CONABLE: Mr. Artaza-Rouxel. MR. ARTAZA-ROUXEL: Yes, Mr. Chairman. We consider this cost reasonable and it represents about 4 percent of the total project costs. MR. CONABLE: So it is a reasonable cost. All right. Mr. Malan please. MR. MALAN: Yes, Mr . Chairman. L A five-word intervention. We full y sup port t h is loan. Thank you. MILLER REPORTING CO .. INC . .\117 C Street, N .E. \V oshi ngton, D .C. 20002 \ .!02, 546-f(,6(,  22 STRICTLY CONFIDENTIAL MR. CONABLE: Mr. Benachenhou. MR. BENACHENHOU: Thank you, Mr. Chairman. This Chair should like to be recorded as strongly supporting this loan, which finances a project which is important not only to Argentina but too to the countries which import some of its agricultural products. Thank you, Mr. Chairman. MR. CONABLE: Thank you, Mr. Benachenhou. Are there further comments or questions? (No response.) MR. CONABLE: If there are not, the minutes will show the Executive Directors approve the loan on the terms proposed. MILLER REPORTING CO .. INC . 507 C Street, N .E. Washington. D.C. 20002 (202) 546-6666