Argentina - Grain Storage Project

Documnt of The World Bank FOR OFFOCIAL USE ONLY Report No. 9346 PROJECT COMPLETION REPORT ARGENTINA GRAIN STORAGE PROJECT (LOAN 1521-AR) FEBRUARY 8, 1991 Agriculture Division Country Department IV Latin America and the caribbean Regional Office This document has a restrieted 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 autborization.  CURRENCY Et)UIVALENTS Currency Unit: Peso ($) at appraisal New Peso (N$) at reappraisal (equivalent to 10,000 old pesos) Austral (A) at completion (equivalent to 1,000 new pesos) Rate at Appraisals US$1 - $960 Rate at Re-appraisal: US$I - N$6.45 Rate at Completiont US$1 - A8.70 WEIGMT AND MEASURES metric System ABREVIATIONS AND ACRONYMS BNA : Banco de la Naci6n Argentina (Bank of the Argentine Nation) DIGID : Direcci6n General de Investigaci6n y Desarrollo (General Directorate for Research and Development) DNCEG : Direcci6n Nacional de Construcci6n de Elevadores (National Directorate for Grain Elevator Construction) FA : Ferrocarriles Argentinos (National Railways of Argentina) JNG : Junta Nacional de Granos (National Grain Board) MOSP s Hinisterio de Obras y Servicios P6blicos (Ministry of Public Works) SAGyP : Secretaria de Agricultura y Pesca (Secretariat of Agriculture and Fisheries) SIGEP : Sindicatura General de Empresas Piblicas (General Union for Public Enterprises)  FORt OMCICAL USE ONLY THE WORLD BANK Wa:hington. D.C. 20433 USA. ONf* o4 OiW.Cestua Opifatif SIMIw w February 8, 1991 EMHORANDUM TO THE EXECUTIVE DIRECTORS AND THE PRESIDENT SUBJECT: Project Completion Report on Argentina Grain Storate Pro1ect (Credit 1521-AR) Attached, for information, is a copy of a report entitled "Project Completion Report on Argentina% Grain Storage Project (Credit 1521-AR)" prepared by the Latin America and the Caribbean Regional Office. No audit of this project has been made by the Operations Evaluation Department at this time. Attachment I This document has a restricted distribution and may be used by recipients only in the performance I of their official duties. Its contents may not otherwise be disclosed without World Dank authorization.  FOR OMFl%IAL USE ONLY PROJECT ,QXgg!W lQ1j,_jORT GRAIN STORAGE PROJECT L(gan 1521-AR) TABLE OF CNETS Paa. NSo. Preface . . . . . . . . . . . . . . . . . . . . . . . . . . . . . i Evaluation Summary . . . . . . . . . . . . . . . . . . . . . . . iii PART I PROJECT REVIEW -BANK PERSPECTIVE . . . . . . . . . . .1 Project Identity . . . . . . . . . . . . . . . . . . . . . . Project Background . . . . . . . . . . . . . . . . . . . . 1 Project Objectives and Description . . . . . . . . . . . . 2 Design and Preparation of the Original Project . . . . . . 4 Project Reformulation .9. * * * ** . . a.. . . . .. . . . 6 Project Implementation . . . . . . . . . . . . * . . . . . 10 Procurement . . . . .. . . . * .. .. . * * .. * . . . . . 16 Project Results . . .. . . .. .. .* . . . . . . . .... . 17 Bank Performance . . . . . . . *. . . . . . . . . . . . . 20 Borrower Performance o.rmance .................... 20 Relationship between Bank and Borrower . . . . . . . . . . 21 Consulting Services . a .. . ....................... 22 Project Documentation and Data ... ... . . . . .. . . .. . 22 Conclusions and Lessons Learned . . . . . . . . . . . . . 22 PART II PROJECT REVIEW - BORROWER PERSPECTIVE . . . . . . . . . . 27 PART III STATISTICAL INFORMATION .* .. .*.,. . . . ...... 29 Table 1: Related B ankLons o s. .. .. .. . .. . . . . ... . 29 Table 2: Project Timetable . . . . . . . . . . . . . . . . . . . . 32 Table 3: Loan Disbursements A. Cumulative Estimated and Actual Disbursements . . . . 34 B. Time Line of Disbursement . . . . . . . . . . . . . . 35 Table 4: Project Implementation . . . . . . . . . . . . . . . . . . 36 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.  Table Ss Project Costs and Financing A. Project Costs . . . . . . . . . . . . . . . . . . . . 37 B. Project Financing . . . . . . . . . . . . . . . . . . 38 Table 6: Project Benefits A. Direct Benefits . . . . . . . . . . . . . . . . . . . 39 B. Finaneialmpacti.................. 40 C. Economic Impact . . . . . . . . . . . . . . . . . . . 41 Table 7:DStatusdofCovenants ...................... 43 Table 8: Use of Bank Resources A. Staff Inputs . . . . . . . . . . . . . . . . . . . . . 46 Be Missions . ........ . . * . . . 47 C* Costs . . . . . a . . . . . . . . . . . . . . . . . . 49 MAP IBRD 13012R  PROJECT COMPLETION REPORT ARGENTINA GRAIN STORAGE PROJECT (Loan 152.-AR) PREFACE This is the Project Completion Report (PCR) for the Grain Storage Project in Argentina, for which Ln. 1521-AR in the amount of US$105.0 million was approved on February 21, 1978. The project was restructured in 1983 and the amended loan of US$87.0 million was approved by the Board on a no-objection basis on October 26, 1983. US$18.0 million were canceled. The final loan closing date was December 31, 1987, one year behind schedule, but the loan account was held open informally until June 30, 1988. US$14.6 million were canceled, and the last disbursement was on July 15, 1988. The PCR was prepared by the Agricultural Operations Division, Department IV of the Latin America and the Caribbean Region (Preface, Evaluation Summary, Parts I and III). The Borrower has not submitted Part II. Preparation of this PCR was started during a supervision mission in November 1987, and is based, inter alia, on the Staff Appraisal Report and President's Report and Memorandum, the Loan and Project Agreements and their amendments, supervision reports, correspondence between the Bank and Borrower, internal Bank memoranda and interviews. The report is handicapped by a lack of data on end of project results. Attempts to obtain data from the principal Borrower agency and individual participating agencies have been unsuccessful.  - 1ii - PROJECT COMPLETION REPORT ARGENTINA GRAIN STORAGE PROJECT (Loan 1521-AR) EVALUATION SUNMARY Background and Obiectives 1. The original project (1978) Was designed to assist Argentina to export grain more efficiently through construction of grain storage facilities and associated rail and port improvements and in the process to open a dialogue with the country on issues affecting the grain sector. Political and economic turmoil from 1979 in Argentina caused the project to languish for several years with minimal progress despite efforts by the Bank to resolve obstacles impeding implementation. Government support for the original project eroded rather rapidly following negotiations and had largely disappeared by loan effectiveness. The project was reformulated in 1983 with revised objectives and with a different allocation of loan proceeds and important new financial covenants. 2. The objectives of the reformulated project were: (a) to assist Argentina to export grain more efficiently; (b) to strengthen the financial position of the Argentine Railways (FA) and to reduce dependence on government subsidies; (c) to help improve the balance between public and private sector responsibilities in grain ma?keting; and (d) to advance the development of Argentina's relatively depressed northern regions. 3. These objectives were to be achieved through the following components: (a) construction of 22 public silos averaging 8,000 tons, all in northern provinces; (b) credit for subloans to build private storage and handling facilities; (c) purchase of 845 specialized grain rail wagons, and other rail improvements; and (d) final design and engineering studies for future Bahia Blanca port investments. Implementation Exicerience 4. The port studies and physical aspects of the rail component were completed successfully, though implementation of the latter was delayed by a prolonged procurement dispute stemming from Comore Argentino laws. Implementation of the Bank of the Argentine Nation (BRA) private credit line and National Grain Board (JNG) silo construction program, however, experienced serious difficulties. 5. The Bank agreed, while acknowledging the element of risk, to include the BNA private credit line in the project reformulation, but over-estimated  - iv - BNA's operational preparedness. The technical and policy problems affecting the component were not %rvercome uncil early 1986, when a surge in demand caused the credit line to be committed within a year. 6. The public silo program was hampered by the fluctuating commitment of its lead agency (JNG), counterpart funding shortages, on-site physical problems and slow procurement processes. A major constraint on project implementation from the beginning was the rivalry between the Secretariat of Agriculture (SAGyP) and the Ministry of Public Works (MOSP). Extension of the closing date to December 31, 1987 and leaving the loan account open for a further six months did little to improve performance, and by loan closing only 70% of the component was complete and there had been substantial cost overruns. Some US$14.4 million of the US$87.0 million reformulated loan was eventually cancelled. Proiect Results 7. The project objectives (especially those of the reformulated project) were ambitious, and available evidence suggests they were, for the most part, not achieved. They depended on too high a degree of coordination between agencies; on policy decisions which were beyond the scope or control of a single project; and on a higher level of institutional performance than materialized. 8. The Silo ComDonent. JNG silos were not complete by mid-1988 and, given the need for about US$25.0 million in additional GOA funds, the outlook for completion remains unclear. Argentine storage capacity is now just under 100Z of production and almost 2.5 times the level at appraisal in 1977. 9. An improvement in returns to growers through better prices and lower marketing costs was an implied objective of storage construction under both the original and reformulated projects. However, increased storage availability-- whether Bank-financed or otherwise--has not led to price improvement or better phasing of grain marketing. Pressure to sell in the immediate post-harvest period remains acute on account of a complex mix of factors, (e.g., lack of financial incentives and hedging instruments, competitive pressures at peak periods, etc.) which go far beyond the availability of storage capacity per se. In addition, returns to producers are depressed by export taxes and other discriminatory measures which improved storage availability cannot countervail. 10. BNA Credit. The project sought to improve the public versus private "balance" in grain marketing. However, the inclusion of public (JNG) and private (BNA credit) storage components, unrelated to a thorough marketing analysis, could not in itself create balance, if in fact this ambiguous idea had practical meaning. Government policy and market forces had already combined to change the grain marketing structure, and thus the credit line probably had a useful incremental impact on private storage capacity. 11. Rail Improvements. The purchase of new rail wagons improved the FA's carrying capacity, but this was insufficient in itself to promote higher volume traffic, since unfinished silos, poorly maintained and allocated locomotives and an inadequate number of spur sidings to grain storage points foreseen in the project, inhibited unit train operations. The demanding financial targets set  -v - under the project for the FA were overly optimistic given the shortfalls in traffic, the political pressure to retain low tariffs and the chronic institutional deficiencies of PA. 12. Ports Componegt. Bahia Blanca dredging and studies were executed successfully and resulted in a subsequent port development project which, when completed, will provide Argentina with a modern, deepwater grain terminal. Optimal use of this facility will depend on a major GOA effort to alleviate persistent transportation bottlenecke at the port and within the wider system. 13. Institutional DevelopRiGtn. The project had some valuable institutional benefits, actual and potential. The BNA gained experience lending for grain storage (although this was a modest part of its overall operations) and its relative efficiency and profitability have prompted its lead role in carrying out the Agricultural Credit Project II (Ln. 2970-AR). Further, the project appears to have contributed to a desire by new management at the FA for institutional improvement, though this is still far from being achieved. Lastly, the project experience demonstrated the urgent need to restructure the JNG as a pre-requisite for further improvement in Argentine grain marketing. Seustainabilitv 14. The main issues of sustainability are institutional and financial. Project-funded infrastructure and equipment will require efficient operation and maintenance which presumes, based on the project experience, profound improvements in the JNG and PA and commitment of the necessary funds. Further moves to privatize JNG silos, as now proposed by the GOA would shift these responsibilities. Privatization of port silos, now also official Government policy, will have significant implications for the Bahia Blanca port improvements. Finally, the reorganization of FA is under active consideration. Conclusions and Lessons Learned 15. The Argentina Grain Storage Project suffered from a number of problems common to other Bank-financed grain storage projects, including the following: (a) a concentration on infrastructural investment without taking adequate account of the relationship between the project, its policy context and institutional capacity; (b) discounting or overlooking the political strains and managerial weaknesses of public agencies; (c) a reluctance to channel loan funds to the private sector; (d) a lack of agro-industrial, marketirg and technical expertise in the Bank itself, causing considerable reliance on consultants; and (e) a concentration on broad strategic objectives to the detriment of practical solutions. 16. The stated core objective of both versions of the project was to increase the efficiency of Argentina's grain exports. However, this was unlikely to be achieved through a project almost 90% of which was expansion of public storage capacity (original project), and which in any case lost Government support due to the ideological debate over storage privatization. The  - vi - reformulation introduced new objectives (strengthening the financial position of the VA; advancing the development of the rorthern region) which, while perhaps inherently desirable, were largely divorced from the original core objective of the project. 17. The lack of clarity in the project's rationale was exemplified in the Bank's willingness first to undertake complex raformulation in mid-stream and then to persist with the JNG silo component after it had become clear that further public silo capacity was questionablo technically and inconsistent with stated public policy. Indeed, the continued emphasis of the reformulated project on silo construction illustrates a poor anal.ysis of the fundamental problem of grain marketing in Argentina which, by tha, time of the reformulation, was increasingly unrelated to the availability ot physical storage capacity. 18. Over the years the project and its implementation were affected by changing political commitment and chronic institutional weakness. Cancellation wos debated frequently, but was always rejected following appeals for flexibility and understanding. Nevertheless, the project should have been cancelled, either during the stagnation of 1981-82, or during 1985 when there was still no activity under the JNG silo or BRA credit components (i.e., the "storage" components), some two years after Board approval of the amended loan. 19. There are a number of other conclusions arising from the project as follows: (a) the protracted mid-stream restructuring was, as time passed, driven increasingly by staff determination to salvage what was believed to be a still useful project, the Bank's broader concern to alleviate a critical balance of payments situation, and the desire to avoid cancellation in the interest of preserving country relations and linkages to other grain-related sectors (rail and port); (b) supervision of the project suffered from discontinuity of staff and from fragmentation of divisional effort resulting in the component parts becoming mini-projects within a general framework; (c) procurement was mishandled and the Bank's response was inadequate; and (d) the project coordinating unit was unable to countervail existing bureaucratic antagonisms. Being situated within a major implementing agency, it tended to foster that agency's interests, to the detriment of project momentum and objectives.  PROJECT COHPglETO REOT ARGENTIM GRAIN STORAGE PROJECT (Loan 1521-AR) PART Is PROJECT REVIEW XROl BANK PERSPECTIVE Project Identlty Project Names Grain Storage Loan No.: 1521-AR RVP Unit: Latin America and the Caribbean Countrys Argentina Sectors Agriculture Subsector: Grains Background 1.01 The Grain Storage Project, as originally conceived, was seen as supporting regional development and export industry--both key targets for Bank lending in the 1970e. It originated in a 1974 request from the Argentine Ministry of Economy for Bank assistance in financing a high-priority National Grain Storage Program. The project came to be seen as complementing the growth strategy of the military government, newly-installed in 1976, which sought to strengthen the country's external payments position through the accelerated development of sectors in which the country enjoyed comparative advantage. 1.02 From 1976 on, tLe new administration was pre-occupied with pressing macroeconomic problems. It acted quickly to reduce the public sector deficit, free prices and interest rates and correct the exchange rate. It saw its role in the economy generally, and in agriculture in particular, as leaving all productive activities to the private sector and ultimately limiting its role to the purely regulatory. In the grain industry this meant the progressive removal of export taxes,11 liberalization of the export trade, and proposed changes in the Grain Law (Ley de Granos) that would allow private construction and operation of port silos, and the National Grain Board (JNG) to lease and eventually sell inland storage facilities. 1.03 Expansion of agricultural output under the new policy was constrained by infrastructural weaknesses such as inadequate storage and port facilities and inefficient transportation services. The many changes in government grain policy which had taken place over previous decades, and frequent shifts in responsibility for marketin8 between the public and private sectors, had discouraged grain storage investment, with capacity of less than 50S of annual production by 1977 and had impaired development of an efficient domestic and it Re-imposed in 1981.  2- export marketing network. Lack of storage caused serious losses from open-air deterioration and was seen at that time as an important factors' forcing producers to sell at lowB prices immediately following harvest, and silo operatore to push through as much grain as possible to maximize returns. This in turn put pressure on a run-down transportation and port silo system and on exporters to move grain out to export rapidly. This contributed to the "Descuento ArgentinollA' phenomenon, which, inter alia, the project sought to overcome. Prolect Obiective and Deacription 1.04 Le Oriinal Proiset. With this background, the Bank saw an opportunity to inject order, economy and innovation into a poorly functioning eystem that wasted natural advantage. At appraisa