Argentina - Refinery Conversion Project

Document of The World Banlk FOR OFFICIAL USE ONLY Report No. 11608 PROJECT COMPLETION REPORT ARGENTINA REFINERY CONVERSION PROJECT (LOANS 2032-AR AND 2032-1-AR) FEBRUARY 1, 1993 Infrastructure and Energy Division Country Department IV 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.  WEIGHTS AND MEASURES Metric System GLOSSARY OF ABBREVIATIONS FMIP - Financial Management Improvement Program POIP - Plant Operations Improvement Program YPF - Yacimientos Petroliferos Fiscales Fiscal Year January 1 - December 31  FOR OFFICIAL USE ONLY THE WORLD BANK Washington, D.C. 20433 U.S.A. Office of Director-General Operations Evaluation February 1, 1993 MEMORANDUM TO THE EXECUTIVE DIRECTORS AND THE PRESIDENT SUBJECT: Project Completion Report on Argentina Refinery Conversion Project (Loans 2032-AR and 2032-1-AR) Attached is the "Project Completion Report on Argentina - Refinery Conversion Project (Loans 2032-AR and 2032-1-AR)" prepared by the Latin America and the Caribbean Regional Office. Part II was extracted from the conclusions of the Borrower's report. The Project Completion Report is informative. However, the re-estimated economic return is based on questionable pricing assumptions. Furthermore, the Report fails to emphasize the inadequacy of the financial appraisal carried out by the Bank and does not document the present status with financial statements. The project, the third one in Argentina's oil & gas sector, essentially achieved its physical objectives, albeit with significant delays and some cost overruns. However the country's mounting economic crisis and inappropriate Government petroleum pricing policies resulted in a severe deterioration of the national oil company's finances; as a result, the Government failed to meet its commitment on fuel pricing and the oil company was unable to meet its financial covenants. This also led to a complete restructuring of the financing package for the project and the need for the Bank to process a supplementary loan. Some useful studies and training activities were carried out but energy conservation studies were not. Overall, the project is rated as unsatisfactory, its institutional impact as partial, and its long-term sustainability as uncertain, as it depends on the outcome of a recently-initiated financial rehabilitation (and possible privatization) of the national oil company. A combined audit of the Bank's three oil & gas loans to Argentina is planned. Attachment This document has a restricted distribution and may be used by recipients only in the performance of | their official duties. Its contents may not otherwise be disclosed without World Bank authorization.|   FOR OFFICIAL USE ONLY PROJECT COMPLETION REPORT ARGENTINA REFINERY CONVERSION PROJECT (LOANS 2032-AR AND 2032-1-AR) TABLE OF CONTENTS Page No. PREFACE ....................................................i EVALUATION SUMMARY .......................................... ii PART I: PROJECT REVIEW FROM THE BANK'S PERSPECTIVE ......... 1 Project Identity ............................................ I Background .................................................. 1 Project Objectives and Description .......................... 2 Project Design, Organization and Implementation ............. 4 Project Results ............................................. 7 Bank Performance ............................................ 7 Borrower Performance ........................................ 8 Financial Performance ....................................... 8 Economic Performance ........................................ 9 Consulting Services ......................................... 9 Lessons to be Learned ...................................... 10 PART II: PROJECT REVIEW FROM THE BORROWER'S PERSPECTIVE ... 11 PART III: STATISTICAL INFORMATION .......................... 12 Related Bank Loans ........................................... 12 Project Timetable ............................................ 13 Loan/Credit Disbursements .................................... 14 Project Implementation ....................................... 15 Project Costs and Financing .................................. 17 Project Results .............................................. 20 Status of Legal Covenants .................................... 21 Use of Bank Resources ........................................ 32 Map IBRD 22330 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.   - i - PROJECT COMPLETION REPORT ARGENTINA REFINERY CONVERSION PROJECT (LOANS 2032-AR AND 2032-1-AR) PREFACE This is the Project Completion Report (PCR) for the Refinery Conversion Project in Argentina, for which Loan 2032-AR and 2032-1-AR were approved, in the amounts of US$200 million for the first, on August 7, 1981, and an additional US$116 million in December 1986, (Loan 2032-1-AR), to supplement foreign exchange financing of the project. The PCR was prepared by the Infrastructure and Energy Division of Country Department IV of the Latin America and the Caribbean Regional Office (Preface, Evaluation Summary, Parts I and III), and by the Borrower (Part II). Preparation of this PCR is based, inter alia, on the President's Report; the Loan, Guarantee, and Project Agreements; supervision reports; correspondence between the Bank and the Borrower; and internal Bank memoranda.   - ii - PROJECT COMPLETION REPORT ARGENTINA REFINERY CONVERSION PROJECT (LOANS 2032-AR AND 2032-1-AR) EVALUATION SUMMARY Objectives 1. The project was designed to support the overall energy sector investment program, heavily based on the development of natural gas resource, while providing means for significant savings of foreign exchange. The main objectives of the Project were: (i) to convert Argentina's substantial surplus low-value residual fuel oil to higher-value refinery products, which were in short supply; (ii) improve the performance of YPF's major refineries; (iii) strengthen the company's financial management system; (iv) train YPF operational staff, and (v) study the potential for energy saving in the industrial sector. 2. The project consisted of: (i) Refineries Conversion Scheme: installation of secondary processing facilities at YPF's two existing refineries located in La Plata and Lujan de Cuyo; (ii) Plant Operations Improvement Program: debottlenecking of process and utilities sections of the refineries, installation of energy conservation, pollution control, and instrumentation modernization facilities; (iii) Financial Management Improvement and Training Programs: establishing standard cost accounting system, cost centers, capital budgeting and financial management improvements, as well as associated training of YPF personnel in these areas; and (iv) Industrial Energy Conservation Study: conducting energy audits in identified large and medium-scale industrial units, and establishing a national industrial energy conservation center, covering all major industrial sectors in the country, and training of personnel in energy conservation. (See para. 5). Implementation Experience and Results 3. The original US$200 million loan was approved in August 1981. A supplementary loan for US$116 million was approved in December 1986. Overall implementation of the project got off to a late start primarily because of the military confrontation in the South Atlantic. It also took longer than expected to complete the basic engineering for the conversion activities. Subsequently, as a result of the efforts of YPF's project unit, aided by two international consortia, execution of the project proceeded satisfactorily. In 1986, by YPF's request and prompted by its precarious financial situation, the Bank approved a supplementary loan of US$116 million, to help finance a portion of the foreign exchange cost of the conversion works and to help YPF strengthen its financial and other management controls. The Eximbank of Japan also provided cofinancing through a loan of US$180 million equivalent. 4. The loan was fully disbursed and all primary activities were completed. The loan was closed in December 1989, two years later than planned, and physical execution was completed in October 1990.  - iii - 5. The starting-up of the conversion units has resulted in a 23 percent reduction in the production of fuel oil, a 10 percent increase in naphtha, and a 17 percent increase in intermediate distillates. These improvements translate into a reduction of 4 million tons of fuel oil and an increase of 3 million cubic meters in the production of light and intermediate distillates. The Industrial Energy Conservation Study was not implemented, due to changes in priorities as counterpart financial resources became scarce. A study of YPF's financial and accounting practices was performed and the recommendations made by the consultant on the establishment of a cost center and cost control systems, were implemented only at the Lujan de Cuyo refinery. (See para. 8). Findings and Lessons 6. Due to the sensitivity of project economic performance to the evolution of crude oil and refined product to higher prices, the sector should develop or improve institutional and marketing capabilities to respond quickly and flexibly to market conditions. 7. While the physical execution of this project was successful, it suffered serious difficulties as a result of the country's economic instability, exacerbated by a non-supporting pricing and taxation policy, which prevented achievement of financial and institutional goals. The Government's pricing policies for crude oil, liquid fluids and natural gas are critical for the future of energy planning and development of the hydrocarbon industry in Argentina. (See paras. 37 and 38).  PROJECT COMPLETION REPORT ARGENTINA REFINERY CONVERSION PROJECT (LOANS 2032-AR AND 2032-1-AR) PART I: PROJECT REVIEW FROM THE BANK'S PERSPECTIVE Project Identity Project Name : Refinery Conversion Project Loan No. : 2032-AR and 2032-1-AR RVP Unit : Latin America and the Caribbean Regional Office Country : Argentina Sector : Energy Subsector : Oil and Gas Background I. Argentina's energy resources are substantial and diverse. They include crude oil, natural gas, and hydropower, as well as coal and uranium. Recent technical evaluations indicate, however, that the hydrocarbon proven reserves are not as large as had originally been estimated. Proven oil reserves in Argentina have been revised downward by 20%. Since 1984, over three-fourths of the energy produced in the country was obtained from hydrocarbon sources; the remainder was provided by hydropower, nuclear biomass, coal, and other sources. These resources have been developed primarily by the State. Petroleum output declined during the 1980s, mainly because of lack of adequate Government investments. Although production increased in 1988 and in 1990, the trend of declining production and diminishing proven reserves will return unless new investments in exploration and development are made. 2. The Borrower, Yacimientos Petroliferos Fiscales, (YPF), is the former State-owned petroleum company organized under the Secretariat of Energy, within the Ministry of Public Works. The company had a corporate structure similar to a private corporation, with the Government as the only shareholder. It was established in 1922 as a Government Department (a predecessor organization had begun operations in 1907.) In 1977 it was separated from the Ministry and converted into a State Corporation. It was the largest enterprise in Argentina and one of the largest oil companies in Latin America. YPF was in control of all the exploration and production of hydrocarbons, and the majority of refining and marketing activities in Argentina. Much of the difficulties in the sector have been concerned with the role of YPF, on which the Government depended for the implementation of a petroleum self-sufficiency policy. YPF operating deficiencies mainly resulted from erratic pricing and taxation policies and inconsistent Government oversight. 3. In order to develop the full potential of the sector and to secure future energy needs, in 1989 the Government took serious steps aiming, among other things, at restructuring YPF organization and redefining its role vis-a-vis the private sector, in order to trim inefficient operations and reduce public  - 2 - investment cost. The Government deregulated crude oil and refined product prices and trade, opening competition at all levels and attracting private investors. YPF was transformed from a State Enterprise into a shareholding corporation (YPFSA), with the view to its becoming commercially viable, financially self- sustaining, and in the medium-term, privately owned, through the sale of its shares. This requires a major structural reorganization that has been initiated. 4. This project was the third Bank operation in the oil and gas sector in Argentina. The first loan was for the Oil and Gas Engineering Project for US$27.5 million (Loan 1880-AR), aimed at (i) improving information on country- wide oil and natural gas reserves, (ii) assist YPF in locating favorable geological hydrocarbon structures; and (iii) to study the optimum development and utilization of natural gas, primarily to avoid waste and to determine investment requirements. The second operation consisted of a credit line of US$100.0 (Loan 2031-AR) through the Government's Development Bank, for financing local private sector investments in the petroleum industry. The loan subject of this report was followed by a Gas Utilization Technical Assistance Loan (Loan 2592-AR). Overall implementation of the above projects was successful, despite the country's economic difficulties and institutional deficiencies in the sector. Project Objectives and Description 5. The project was designed to support the overall energy sector investment program, heavily based on the development of natural gas resources, while providing means for significant savings of foreign exchange. As substitution of natural gas for fuel oil would take place in the power, industrial and residential sectors, the Project would convert Argentina's substantial surplus low-value residual fuel oil to higher-value refinery products, which were in short supply. The Project would also improve the performance of YPF's major refineries, strengthen the company's financial management system, train YPF operational staff, and study the potential for energy saving in the industrial sector. 6. The Project included five components: a. Refinery Conversion Scheme. The scheme aimed primarily at converting surplus low value fuel-oil, a heavy petroleum product, from two refineries --one at La Plata, near Buenos Aires, and the other at Lujan Cuyo, 1,000 km from Buenos Aires--into higher-value light and middle distillates (e.g. gasoline, gas oil, diesel oil, etc.) to redress the imbalance in the product slate of these two major refineries. These two facilities together account for 79% of YPF's total refinery capacity of its six refineries, and 51% of Argentine's total refining capacity. Individually, the La Plata and Lujan del Cuyo refineries were capable of processing 220,150 bpd and 128,950 bpd of crude oil, respectively. Although both refineries had secondary processing facilities in the form of coking and fluid catalytic-cracking units, the respective capacities were relatively small and a large proportion of reduced crude was being directly blended into the fuel oil pool. The Refinery Conversion Scheme was designed to process almost all of the reduced crude oil at each location by converting it into feedstocks for subsequent additional conversion into light or middle distillates, as well as coke. The proposed production increase was, from a total of about 4.2 million tons (28 million barrels) of fuel oil from La Plata  -3- and Lujan de Cuyo refineries, to about 3.9 million tons (26 million barrels) of higher-value lighter distillates and coke. b. Plant Operations Improvement Program (POIP): The component would implement an operations improvement program based upon the recommendations previously made by a French consultancy firm. The emphasis would be on energy saving and pollution control aspects at the La Plata and Lujan de Cuyo refineries. It included projects under five subcomponents: (i) pollution control improvements: (i) in the air floatation unit, by reducing hydrocarbons and solid content in liquid effluent; (ii) in the coke handling operations, by procuring 25 wagons to transport the product to a calcination unit to be placed about seven kilometers away from the process unit; and (iii) treatment of industrial waste water at La Plata refinery; (ii) energy conservation project aimed at reducing fuel consumption in the process furnaces at both refineries; (iii) production and process improvements by replacing one of the coke unit compressors at La Plata refinery; (iv) modernization of refinery instrumentation by installing in-line process analyzers at La Plata refinery; and (v) process unit optimization with the help of mathematical models that would determine optimum operating conditions for any desired product specifications. C. Financial Management Improvement Program (FMIP) for YPF. The program would concentrate on the establishment of a system of cost centers, the introduction of systems for cost-control, management information, capital budgeting and financial planning, which were to be based upon a study to be carried out by an American consultancy firm. d. Training Program. The program would concentrate on training YPF personnel in modern financial management systems, energy savings, pollution control techniques, and better operating and maintenance practices with particular emphasis on the needs of its refinery divisions. e. Industrial Energy Audit. This component was designed for monitoring energy consumption of the Argentine industry in general, with the purpose of recommending the necessary measures to improve efficiency in the use of energy by the major industrial enterprises of Argentina, and to determine the scope for energy saving in those entities, along with an estimate of investment requirements. The audit would concentrate on the following areas: (i) review the pattern of energy consumption and the scope for substitution;  (ii) examine the scope for the reduction in energy waste through retrofitting; and (iii) review the potential for developing retrofitting equipment production in the country. 7. This last component,(e), would be carried out with the assistance of consultants under the auspices of the Secretariat of Fuels of the Ministry of Works and Public Service, while the rest of the components would be carried out by YPF with the help of capable and experienced engineering firms for project design, engineering, procurement, and implementation. Project Design, Organization and Implementation 8. In the late 1970's Argentina was faced with the paradox of exporting important volumes of surplus fuel oil while importing middle distillates to make up the shortages and meet the increasing transportation, industrial, and household needs for those products. The fuel oil surplus was expected to increase as Argentina replaced the use of petroleum products with natural gas for industrial and household uses, thus reducing the quantity of natural gas being flared. The Government of Argentina and YPF approached the Bank in early 1980 to finance the Project. An identification mission from the Bank visited Argentina in March of that year followed by a pre-appraisal mission in June. The project was created as an integral part of the effort by the Government to reduce Argentina's dependence on imported petroleum products as a primary energy source. It would enable the conversion of the surplus fuel oil into higher value lighter and middle petroleum distillates, which otherwise would be imported, and would also better utilize the country's abundant natural gas resources, hence correcting the existing imbalance between the demand and the supply of petroleum products in Argentina. 9. Execution of this project took place during a period of great domestic and external difficulties for Argentina, such as an international armed conflict and serious economic instability. In 1982, Argentina had a serious military confrontation with the UK over the South Atlantic Falkland islands, which resulted in a serious drain of the country's financial resources and in international tension. In 1984, the Government launched a stabilization program to reduce excessive inflation and cut down the fiscal deficit. A new currency, the Austral, was created, and all Government support to public enterprises was eliminated. These decision affected YPF's financial position (see para. 30), which was worsened even further by internal inefficiencies in operation, which in turn, caused high financial costs and high prices that had to be paid by YPF to private suppliers and contractors to compensate for YPF's delays in payments, and therefore, inflated YPF's expenditures by US$400-500 million annually. 10. In early 1986, prompted by its precarious financial situation YPF requested from the Bank a supplementary loan of USS116 million, to help finance a portion of the foreign exchange cost of the conversion works and to help YPF strengthen its financial and other management controls. This supplementary loan was rapidly appraised and found financially and economically viable. The supplementary loan was approved on May 20,1986, pursuing the collateral  requirements of: (i) strengthening YPF's financial management and reestablishing creditworthiness; (ii) focussing its investment program on more balanced objectives, including the production of exportable crude oil and/or refined products; and (iii) expanding the role of the private sector in exploration and production. 11. Overall implementation of the project got off to a late start primarily because of the military confrontation in the South Atlantic. It also took longer than expected to complete the basic engineering for the conversion activities. Subsequently, as a result of the efforts of YPF's project unit, aided by two international consortia, execution of the project proceeded satisfactorily. 12. The Refinery Conversion Scheme. The component suffered serious delays for the following reasons: (i) delays in contracting of the engineering contractor, responsible for detailed engineering, procurement services, and all construction; (ii) delays on account of much longer than anticipated procedural time required for import of components of raw materials by domestic equipment fabricators, coupled with initial delays in providing complete process engineering documentation packages to the general engineering contractors; (iii) a longer than estimated engineering contractors' commitment for completing the works. 13. The Refinery Conversion Scheme for La Plata and Lujan del Cuyo refineries was managed in each case by a General Engineering Contractor. For the selection of these consultants YPF invited internationally-known contracting companies. Pre-qualification information was presented by eight international firms in association with local Argentine companies of their choice. Of the eight consortia, five were pre-qualified in accordance with selection criteria established mutually between YPF and the Bank, namely technical, economical and financial qualifications, guaranteed project completion, timing and contract price. Separate bids for La Plata and for Lujan del Cuyo refineries were invited to be presented on October 18, 1981. 14. The best qualified bids were selected for each refinery. For La Plata refinery, a Japanese-Argentine consortium was selected, with a bid price equivalent to US$99.73 million, including an estimated foreign exchange component of US$21.70 million. For the Lujan de Cuyo refinery, an American-Argentine consortium was selected, with a bid price of US$87.96 million, including an estimated foreign exchange component of US$20.25 million. 15. The main conversion works at both refineries, Lujan de Cuyo and La Plata, were completed on April 18, 1988 and December 13, 1989, respectively. At the Lujan del Cuyo refinery the new main processing units were placed in operation sequentially from mid-December 1987 through mid-April 1988. At La Plata, progress in project implementation was much slower, requiring twice re- prioritization and re-allocation of construction resources to allow completion of critical activities by mid-1988 and the whole component by end-1989. 16. As part of this component, YPF had agreed to construct a crude oil supply pipeline to the Lujan de Cuyo refinery and to increase the capacity of the product pipeline from the refineries to the Greater Buenos Aires area. Lack of foreign exchange prevented YPF to do this work. Subsequently, at YPF's request,  - 6 - the Bank agreed to finance the two pipelines under the Gas Utilization Project (Loan 2592-AR). 17. Plant Operations Improvement Program (POIP). Execution of the various subcomponents, under this part of the Loan, was considerably delayed, although all works had been contracted by the third quarter of 1988. Three of the main subcomponents were completed by mid-1989, and the remainder minor sub-projects were completed by end-1989, with the exception of a few sub-components consisting of support equipment for the main old refinery installations, where most of the financing under this component was to be provided directly by YPF. The reason for these delays was the poor economic situation prevailing in Argentina, which did not allow the Government to provide YPF with the necessary counterpart funds to finance execution of these projects. 18. The sub-components completed under this category included installation: (I) at the Lujan de Cuyo refinery of air heaters for the crude-oil, vacuum and coke furnaces, two Isomax compressors, as well as naphtha blending facilities; (II) at La Plata refinery, installation of heat recovery boiler for the catalytic cracking unit, air pre-heater for the furnaces, naphtha blending facilities, and on-line process analyzers, additionally, at La Plata refinery the electrical system was remodelled, and the vacuum lube furnace was modified. 19. Financial Management Improvement Program (FMIP) for YPF. An American consulting firm performed a study of YPF's financial and accounting practices. Based on the recommendations made by the consultant in both refineries, cost centers were established and cost control systems were implemented at Lujan Cuyo Refinery. The YPF team that worked along with the consultancy firm in performing this studies was able to introduce the systems at Plaza Huincul Refinery located in the Province of Neuquen. 20. Industrial Energy Audit. Initiation of this component suffered major delays mainly caused by problems in the bidding process for the selection of the consultancy firm, and in the award of the contract for the US$2.0 million Energy Gonservation Study, as well as by changes in the scope of the study and in the TOR's when the new Government came in to office. However, even after procurement matters were clarified and contract award decisions had been made, the Borrower requested not to proceed with the component at that time because the Government failed to give it sufficient priority. Therefore, the Industrial Energy Conservation, Pollution Control and Industrial Energy Audit studies were canceled from the loan. Instead, the Bank agreed to the Borrower's request for the funds to be reallocated to items of higher priority, such as equipment, spare parts, and erection and construction works. 21. Taking into account all the difficulties encountered during project execution, the Bank agreed to a one year extension of the revised Closing Date of the project, to December 31, 1988. However, additional difficulties led to an additional extension to December 31, 1989. Physical execution of the project was completed in October 1990.  -7- Proiect Results 22. Overall, the objectives of the project were essentially accomplished. Completion of the Refinery Conversion Scheme resulted in security of supply of light and middle petroleum products without altering the already established consumption pattern of heavy fuel-oil, and without using additional reserves to satisfy demand. Due to the natural gas substitution and industrial energy conservation efforts, fuel-oil demand has continuously declined while consumption of light and middle distillates has continued to grow. 23. The commissioning of the conversion units in both refineries has resulted in a 23 percent reduction in the production of fuel-oil, a 10 percent increase in the production of naphtha, and a 17 percent production increase in intermediate distillates. These improvements translate into a reduction of 4 million tons of fuel oil and an increase of 3 million cubic meters in the production of light and intermediate distillates. Additionally, given the variety in the materials to be processed, such as crude oil of high sulphur and metallic content, the new conversion units gave rise to the opportunity to increase crude oil production in the Mendoza fields. 24. The total cost of the project reached US$919 million, or 13 percent above the revised estimate, of which US$316 million,--34 percent of the total cost of the project-- was financed by the Bank. Bank Performance 25. The Bank made a significant contribution during preparation and identification of the project, particularly at the design stage, with the selection of the most appropriate conversion scheme vis-a-vis the inputs to be used in the process, and with the determination of the optimum production levels. During implementation, the Bank played a key role in ensuring and improving execution, since it followed-up closely the construction and procurement schedules of implementation, and monitored disbursements and the co-financing scheme. Supervision was sufficient and effective, resulting in provision of timely advice on corrective measures, in all aspects of project execution. 26. An excellent relationship between the Bank and YPF was built from the start. This association still contributed to progress even during times of difficulties and to solve problems more rapidly during the whole operation. At the same time, YPF's personnel benefitted from the technical, managerial and economic expertise of Bank staff. In addition, the Bank was pivotal in helping YPF to keep the project on course when its financing collapsed and to complete it two years later than envisaged, a considerable feat under Argentina instability during this period. When the loan was approved, foreign commercial sources were scheduled to provide nearly half of the estimated US$880 million total project costs, and almost all of its US$439 million foreign costs. By comparison, the Bank envisaged contribution was relatively small, i.e., limited to financing a part of local costs and less than a fourth of total expenses. However, when the other external financing fell through, the bank constructively stepped in with the supplementary loan and mobilized the complementary Export- Import Bank of Japan cofinancing. YPF had agreed to increase substantially its  - 8- own contribution as well (the final figures show the rise from US$257 million to some US$411 million). But the bank judged, in all likelihood correctly, that Argentina could not mobilize the alternative hard currency and generate internally all of the additional funds needed. Borrower Performance 27. The 1980's was a difficult decade for YPF, within the overall problematic situation of the country. Production and sales volumes suffered from low investment budgets for petroleum exploration and development. YPF's financial viability was also affected by insufficient prices for its products and a variety of taxes and other transfers to the rest of the economy. However, following the low crude oil production obtained in 1987, which jeopardized the country's self sufficiency, and created a need for oil imports, YPF and the Government initiated a set of measures to improve YPF's operations and earnings situation. 28. The problems which affected the conduct of the project could not be anticipated by the Borrower or the Bank during project design. The executing agency, YPF, dealt effectively with overcoming the initial delays, exercised careful cost controls, and acted to reschedule the works appropriately to prevent further delays in project completion. 29. The Government showed commitment to implement reforms in the sector by streamlining the public investment in the sector, relying more on private capital for exploration and development, and making equity contributions to YPF, which were aimed at eliminating the external debt obligations of YPF and its internal debt arrears. Financial Performance 30. The main difficulty faced by this project was the financial situation of YPF. At the time of appraisal, YPF planned to finance a large part of the engineering and equipment costs with both foreign and domestic borrowing, and use a substantial portion of the Bank loan for local construction awarded under ICB. With the curtailment of the Government's and YPF's capacity for foreign borrowing, due to the country's economic crisis, YPF decided to use the Bank loan to finance only foreign equipment, materials and spares, and to utilize all available local funds to finance local equipment and construction. In view of this, YPF requested a reallocation of Bank loan proceeds with a 61% dedication, instead of 28% initially assigned, that would go to equipment and spares purchases. This reallocation was approved by the Bank and the loan was amended in late 1985. 31. Due to YPF's increasing difficulties in mobilizing the anticipated commercial bank support, coupled with a tight cash-flow situation and sustained losses during the first half of the 1980s, the project had an unfilled financial gap of almost half of total project requirements. The Bank approved the YPF request for supplemental financing for an amount of US$116 million to complete the foreign exchange requirement and allowed for additional financing, through a Co-Lender's Agreement, for US$186 with the Eximbank of Japan, which was also obtained.  32. YPF failed to meet the financial targets covenanted in the Loan Agreement, as did the Government on its pricing undertakings. During the project execution period in fact, the company suffered a massive financial deterioration. Its indebtedness increased excessively and the company ran substantial operating deficits. Part of this stemmed from the Government's aforementioned failure to maintain adequate ex-refinery prices of YPF's products. Another factor was that, although excise taxes and consumer prices were quite high, the Government deprived YPF of substantial earnings. 33. These weaknesses were already apparent when the Bank agreed to proceed with the supplementary financing in 1986. Subsequently moreover, the revised financial covenants and related undertakings of the second loan were also not complied with, and YPF's financial performance remained deficient. On the face of it therefore, the Bank would appear to have erred in judging that the additional financing ... "while initially serving to resolve YPF's immediate financial problems, ...would also support the Government's efforts to restore YPF's financial self-sufficiency..." (Memorandum to the Board R86-110, May 1, 1986, para. 17). In fact, however, with the passage of time, the Bank's confidence was substantiated. Drawing on Bank sector work and the close personal relationships developed under the Project, YPF and the Government in recent years relied on the Bank for assistance on sweeping sector reforms, as well as privatizing and restructuring the company. These have yielded sound financial and other benefits." 34. At appraisal, the financial analysis was only performed on the Refinery Conversion Component. It was shown then that the financial performance of the project was more sensitive to the demand, and/or refinery capacity utilization, than to international oil prices. Economic Performance 35. At appraisal it was shown that, unlike the results of the financial evaluation, the economic performance of the project was more sensitive to the structure of petroleum product prices than to the demand or refinery capacity utilization. This was primarily because increased domestic demand was valued at lower retention prices as compared to any exportable surpluses, which were valued at relatively higher international prices. International prices of petroleum products were less favorable to YPF than anticipated, which resulted in an ERR of 11.99 percent, much lower than the 24.6 percent envisaged at appraisal. Assumptions, data, and calculations for the ex-post economic evaluation can be found in the addendum to the Completion Report prepared by the Borrower, available in the Region files. Consulting Services 36. The general performance of all consultants and contractors was satisfactory. The main consultants always showed extensive cooperation during all project phases--engineering, construction, start-up-- and commissioning. The most important aspect of the main consultant's participation was the considerable involvement it had with YPF's personnel, effectively transferring technological know-how.  - 10 - 37. The other contractors also performed well from the technical point of view. However, delays in procurement of materials and completion of works were frequent, explained by the abrupt changing economic conditions in the country during that period. Lessons to be Learned 38. Due to the sensitivity of project economic performance to the evolution of crude oil and refined products to domestic and international prices, the sector should develop or improve institutional and marketing capabilities to respond quickly, and flexibly to market conditions, including allowing the private refineries to export products directly, taking advantage of their export marketing channels, to develop export markets in contiguous countries to take advantage of the relative lower freights, and to develop abilities to adjust quickly refineries' operating conditions.  - 11 - PROJECT COMPLETION REPORT ARGENTINA REFINERY CONVERSION PROJECT (LOANS 2032-AR AND 2032-1-AR) PART II: PROJECT REVIEW FROM THE BORROWER'S PERSPECTIVE 1. The Borrower complied with Part II of the Project Completion Guidelines, by preparing a Project Completion Report sent under Note B-54 No. 1284 of October 12, 1990, and that will be forwarded to LAC Files for reference. 2. Although the loan was closed two years later than planned all the project components were executed, thus allowing the following: (a) Assurance that the supply of the local market in light and medium products can be achieved by the conversion of heavy cuts without having to increase the influx of crude oil to the refinery. In that way an increased production and a consequent decrease of hydrocarbon reserves will not be necessary to satisfy demand. (b) Raise the refining processes of YPF's refineries to international standards except for environmental and products quality. In that respect the local market demand can be satisfied for the next 10 years and the environment and products quality can be raised to international standards (mainly high octane gasoline) by investing not more than 100 million dollars. (c) Possibility to generate excess light products for export. (d) Inclusion of new management tcchniques as a result of the installation of the latest techniques for systems control. (e) On the macroeconomic aspect an investment of that magnitude contributes to the increase of the gross national product of the country with a direct impact on the areas where the projects are implemented. 3. The previous comments where extracted from the conclusions of the borrower's report.  - 12 - PROJECT COMPLETION REPORT ARGENTINA REFINERY CONVERSION PROJECT (LOANS 2032-AR AND 2032-1-AR) PART III: STATISTICAL INFORMATION 1. Related Bank Loans Year of Loan Title Purpose ApDroval Status Comments Oil and Gas To improve 1980 Closed The study for the Engineering information on optimization of Project crude oil and natural natural gas Loan 1880-AR gas reserves. utilization was To study the successfully optimum development completed, and a and utilization computerized model of natural gas. was developed, but the model was seldom used. Oil and Gas Line of credit to 1981 Closed Project has been Credit Project BANADE to support completed, but Loan 2031-AR local private sector with delays. participation in Lack of counter oil and gas part funds by exploration. BANADE. Prevented full utilization of loans resources Gas Utilization To increase the 1985 In There were some and Technical production of progress initial delays Assistance crude oil and due to political Loan 2592-AR condensates and to and financial expand the use difficulties, and of natural gas. also lack of project counterpart funds.  - 13 - 2. Project Timetable Date Date Date Item Planned Revised Actual Identification 01/23/80 Preparation 03/12/80 Appraisal Mission 10/13/80 Loan Negotiations 02/02/81 05/17/81 Board Approval 07/07/81 Loan Signature 10/02/81 Loan Effectiveness 01/05/82 02/05/82 Loan Closing 12/31/85 12/31/86 12/31/89 Project Completion 12/31/90 Supplemental Loan - Loan Negotiations 03/17/86 - Board Approval 05/01/86 05/20/86 - Loan Signature 05/22/86 - Loan Effectiveness 05/22/86 - Loan Closing 12/31/87 12/31/88 12/31/89 - Loan Completion 12/31/90  - 14 - 3. Loan/Credit Disbursements Cumulative Estimated and Actual Disbursements (USS million) FY82 FY83 FY84 FY85 FY86 FY87 FY88 FY89 Appraisat Estimate 14.0 60.0 160.0 200.0 - - Revised Estimate - - - 157.1 189.1 200.0 - Actual 18.1 37.6 99.1 184.9 198.8 197.1 197.1 200.0 Actual as a % of Estimate 128.0 62.0 62.0 118.0 105.0 98.0 98.0 100.0 Supplemental Loan FY82 FY83 FY84 FY85 FY86 FY87 FY88 FY89 AppraisaL Estimate - - - - 11.44 61.26 97.96 116.00 Revised Estimate - - - - - - - - ActuaL - - - - 00.00 68.63 110.38 116.00 Actuat as a X of Estimate - - - - - 112.00 112.00 100.00 Original Loan Date of First Disbursement 01/11/83 Initial Loan Closing Date 12/31/85 Actual Loan Closing Date 12/31/89 Date of Last Disbursement 05/29/90 Supplemental Loan Date of First Disbursement 10/01/86 Initial Loan Closing Date 12/31/87 Actual Loan Closing Date 12/31/89 Date of Last Disbursement 05/29/90  - 15 - 4. Project Implementation Indicator #l: Trend of Capacity Utilization in YPF Refineries (in million barrels) Refinery Refinery Capacity Thruput Capacity Utilization YPF Refineries 1979 1987 1979 1987 1979 1987 La Plata 67.8 57.54 79.1 84.94 86% 68% Lujan de Cuyo 41.3 28.4 43.8 47.06 96% 60% San Lorenzo 11.2 6.76 11.8 14.46 95% 47% Campo Duran 2.8 5.54 11.8 12.62 24% 44% Plaza Huincul 7.9 7.12 8.3 8.95 95% 79% Dock Sud 1.4 1.4 1.4 1.53 100% 91% Indicator 12: Total Crude Oil Produced and Processed (in million of barrels) Total Crude Total Crude Oil Produced Oil Processed 1979 1987 1979 1987 YPF a/ 115.0 100.4 134.0 106.7 Others 57.5 55.9 55.6 46.1 Total 172.5 156.3 189.6 152.8 a/ Excluding crude oil produced through YPF contracts with private firms.  - 16 - 4. Project Implementation (cont) Indicator #3: Expected l' vs. Actual Product Mix at YPF Refineries (in thousand of cubic meters per year) La Plata Lujan de Cuyo Refinery Refinery Expect. Actual Expect. Actual Premium Gas 708.0 489.0 Regular Gas 237.5 104.0 Kerosene - 13.5 Gas & Diesel 435.0 396.8 Refinery Gas 157.0 56.2 LPG 292.3 210.9 Coke 491.9 169.3 Total Production: 2321.8 1439.7 Indicator #4: Prices of Products 2/ US$/m3 Premium Gasoline 199 Regular Gasoline 179 Gas Oil 157 Propane 3/ 82 Normal Butane 91 Fuel Oil 114 Sponge Coke 4/ 95 ii Expected production at 95% capacity in June 1985. 2/ Monthly Average 1990, estimated US Gulf Coast Spot Lows & Highs. Taken from Platt's Oilgram Price Report. 3j Average from Conway and Mont Belvieu prices. 4/ From YPF's Report US$/Ton  - 17 - 5. Project Costs and Financing A. Loan Allocation Original Revised Amendment to Final Category Cost Allocations Cost Allocations Cost Allocations Cost AtLocat. CUSS equiv) CUSS equiv) (USS equiv) CUSS equiv) 1(&) Engineering & 10.0 mill 56.1 miLl 43.7 mill 48.7 miLL Licenses t(b) Equipment & 55.0 mill 122.0 milt 72.0 mill 101.3 miLl Spare parts L(c) Construction & 105.0 mill 0.0 mill 43.0 mill 140.0 mill Erection 2 Goods and 19.0 milL 17.3 mill 14.3 milL 25.3 miLl Services for Part l(b) 3 Services for 1.0 mill 1.0 mill 1.5 mill 0.7 milt Part ltc) 4 Training 1.0 miLl 1.0 mill 0.5 mill 0.0 mill 6 IndustriaL 2.0 mill 2.0 mill 0.0 mill 0.0 mill Energy Audit 8 Unallocated 7.0 mill 0.6 mill 0.0 miLl 0.0 mill 7 PESA Initial 0.0 miLl 0.0 mill 12.0 mill 0.0 mill Deposit 8 FESA Initial 0.0 mill 0.0 mill 13.0 mill 0.0 mill Deposit TOTAL 200.0 mill 200.0 mill 200.0 mill 316.0 mill  - 18 - 5. Project Costs and Financina B. Project Costs Appraisal Estimates Revised Estimates FinaL Costs Local Foreign TotaL LocaL Foreign TotaL LocaL Foreign TotaL I. Refinery Conversion Scheme License and Engineering 3.4 49.6 53.0 26.78 41.36 68.14 28.71 41.30 70.01 Equipment & MateriaL 84.8 128.4 213.2 112.43 143.19 255.62 219.70 102.76 322.16 Erection 101.4 25.3 126.7 106.86 39.15 146.00 164.50 0.0 184.50 CiviL Works 36.6 15.6 52.2 62.90 11.10 74.00 88.80 0.0 88.80 Construction Supervision 15.6 4.6 20.1 8.24 11.62 19.78 10.12 0.0 10.12 Start-up 10.0 5.3 15.3 3.89 3.34 7.03 1.64 6.33 6.97 Base Cost Estimate 251.8 228.7 480.5 320.89 249.88 570.55 512.94 149.40 662.34 PhysicaL Contingencies 25.2 22.9 48.1 35.10 9.36 44.46 0.0 0.0 0.0 Price EscaLation 116.3 69.6 185.9 - - - 0.0 0.0 0.0 Installed Cost 393.3 321.2 714.5 355.99 259.02 615.01 512.94 149.38 662.32 Working Capital 20.0 2.4 22.4 40.37 13.45 63.82 30.37 0.0 30.37 Interest during construction - 85.8 85.8 - 61.68 61.68 0.0 110.02 110.02 Total for conversion scheme 413.3 409.4 822.7 396.36 334.15 730.61 543.31 259.40 802.71 II.Plant Operations 24.0 26.0 50.0 52.31 28.47 80.78 96.34 20.01 116.35 III.Financial Management Improvement Program 1.0 1.0 2.0 0.05 0.4 0.45 0.0 0.0 0.0 IV.Training Program 0.5 1.0 1.5 0.0 0.0 0.0 0.0 0.2 0.2 V. Industrial Energy Audit 0.2 2.0 2.2 0.0 0.0 0.0 0.0 0.0 0.0 VI.Total Financing Required 439.0 439.4 878.4 448.74 363.32 812.06 639.65 279.60 919.26  - 19 - 5. Project Costs and Financing B. Proiect Financing FinaL Cost External Financing Local Foreign Total BIRF EXIM-BNA EXIM-REF TOTAL I. Refinery Conversion Scheme (a) License and Engineering and Start-up Assistance 30.346 46.625 76.971 47.04 0.00 2.478 49.52 (b) Equipment, Materials, Spares, Procurement, Freight and insurance and construction supervision 229.526 102.758 332.284 109.775 13.349 65.807 189.02 (c) Construction & Civil Works 253.069 0.00 253.069 132.910 0.00 65.113 198.02 Base Cost Estimate 512.941 149.383 662.324 289.729 13.439 133.398 436.56 PhysicaL Contingencies 0.00 0.00 0.00 0.00 0.00 0.00 00.0 Price Escalation 0.00 0.00 0.00 0.00 0.00 0.00 0.00 InstaLled Cost 512.941 149.383 862.324 289.729 13.439 133.398 438.66 Working CapitaL 30.730 0.00 30.730 0.00 0.00 0.00 0.00 Interest during construction 0.0 110.019 110.019 0.00 0.00 0.00 0.00 Total for conversion scheme 543.311 259.402 802.713 289.72 13.439 133.398 436.56 II. Plant Operations Improvement 96.343 20.004 116.347 25.211 1.381 46.597 72.18 III.FinanciaL Management Improvement Program and Training Program 0.00 0.20 0.20 0.20 0.00 0.00 0.20 IV. Total Financing Required 639.654 279.606 919.260 315.140 14.820 178.995 508.95  - 20 - 6. Project Results C. Studies 1. Energy Conservation Study: Not done At the request of the (i) Inprove the accuracy of the borrower, these studies were instrLnentation to locate and minimize cancelled and were to be done teaks; (ii) maximize the use of flared in the future under some other gas; (iii) maximize the recovery of LGP; project. The funds were (iv) optimize the steam balance; (v) reallocated to items with introduction of air preheat and forced higher priority, such as: the drought to save energy, (vi) combustion acquisition of equipment, control of furnaces and boilers; (vii) spare parts, erection and chemicaL cleaning of boilers. construction works. 2. PoLLution Control Study: Measures to Not done be taken to solve the water pollution probLem included: (i) direction of clean water that can be separated from the oily water into the side channel; (ii) reduction in the leakage from the cooling water system; (iii) maximization of the use of tank traps for rain-water collection; (iv) installation of necessary pollution control equipment. 3. IndustriaL Energy Audit Study: Not done Examine and Recommend the necessary measures to improve efficiency in the use of energy in major industrial enterprises.  - 21 - 7. Status of Legal Covenants Original Revised Description & Comments Agreement Section Status Date Date of Covenant Loan 2.04 Complied 12/31/85 12/31/89 Closing Date. See Section 1.04 of Loan Agreement for Amendment. 3.01(a) CompLied Carrying out Parts A,B,C&D of Project. 3.01(b) Complied Secretary of Energy to carry out Part E. 3.02 CompLied Hiring of consultants. 3.04(a) Complied To furnish technical Data for Parts A,B,C&D. 3.04(b) Complied To maintain adequate records. 3.04(d) Complied Project Completion Report. 3.04(e) Complied Inspection on site. 3.05(a)(i) In progress Construction of polyduct from the de Cuyo refinery to La Matanza distribution terminal. 3.05(a)(ii) Complied Construction of pipeline from the Neuquen fields to Lujan de Cuyo Refinery. 3.05(b) Complied Acquire Land necessary for (a) above. 3.06 Complied Ecology & environment. 4.01(a) Complied Management of affairs. 4.01(b)(i) CompLied Maintenance of plants. 4.01(b)(ii) Complied Not to sell assets. 4.02 Complied Right to operate 4.03 Complied Maintain insurance.  - 22 - Original Revised Description & Comments Agreement Section Status Date Date of Covenant Loan 4.04 Complied Maintain crude supply to refinery. 4.05 PartiaLly 03/31/82 06/30/85 Improve marketing operations. CompLeted 5.01 Comptied Maintain accounting record. 5.02(a)(i) Conplied Accounts to be audited by external auditors. 5.02(a)(ii) Partially 04/30 Annually Accounts audits to be Complied submitted on time. Late in coming. 5.03(a) Complied No Lien on assets as security for-any debt. 5.03(b) Complied No new lien on assets unless agreed by the Bank. 5.04 Conplied 04/30 Annually Financial projections. 5.05(a) CompLied Not to acquire own shares. 5.05(b) Not CompLied Maintain quick ratio of 06:1 and not to pay dividends; but quick ratio of 0.8:1 allowed in special cases. Financial 5.05(c) Not Complied Maintain debt/equity ratio not greater than 60/40. 5.05(d) Not Complied Not to incur any debt unLess cash flow forecast shows at Least 1.4 debt service coverage. Loan from Japan Exim Bank obtained with Bank's consent. 5.06 Complied Pay Guarantor 1% per annum fee. 5.07 Complied To revaLue assets once a year w/ methods agreed w/ the Bank  23 - Original Revised Description & Comments Agreement Section Status Date Date of Covenant Guarantee 2.01 Complied Unconditional guarantee of punctual payments of principal, interest, fees, etc. 2.02 PartiaLLy To provide counterpart funds Complied or make other arrangements satisfactory to the Bank. 3.01 Complied Guarantor to carry Part E of the project through the Secretary of Energy. 3.02 CompLied To hire consultants to carry- out Part E of Project. 3.03 CompLied To comply with obligations and not to take any action affecting the project. 3.04 Complied To use Loan proceeds transferred from Borrower for executing Part E of the project. 3.05(a) CompLied To maintain records of progress on Part E of the project. 3.05(b) Complied Furnish to the Bank aLL information requested on Part E of the Project. 3.06 Complied Guarantor to cooperate with Borrower in preparation of reports (PCR) referred in Section 3.04(d) of Loan Agreement. 3.07 CompLied 12/31/82 Furnish recommendation, based on the results of Part E of the Project, and a plan of action to carry them out.  - 24 - OriginaL Revised Description & Comments Aoreement Section Status Date Date of Covenant Guarantee 3.08 Coaplied Upon award of any contracts for services for Part E of the Project, Bank to publish description of services, name and nationality of contractor. 4.01(a) Complied No other debt to have priority 4.01(b) Complied over the Bank's loan. 4.01(c) Complied 4.02 Partially Ex-refinery prices of Complied petroleum products to be adequate to provide sufficient funds to cover all its costs and expenses, to earn a reasonable return on its revalued assets and to meet the financial ratios set forth in section 5.05 of the Loan Agreement. 4.03 Complied To exchange views with the Bank regarding any expansion of petroleum refining in Argentina. 4.04 Comptied To provide Borrower with utilities require for the utilization of the facilities included in Part A of the Project. 4.05 Conplied To compensate Borrower for any exchange rate differences for the repayment of the loan.  - 25 - 7 - Amending Agreement to the Loan and Guarantee Agreements Original Revised Description Agreement Section Status Date Date of Covenant Comnments Amendments 1.01 Complied Amending currency Amends to the Loan denomination section 1.02 Agreement from Pesos to of the Loan Australes. Agreement. 1.02 Complied Bank agrees to Amends lend USS 316 Section 2.01 miLLion in two of the Loan tranches of Agreement. US$200 and USS116 million. 1.03 ConpLied ALL amounts with- Amends drawn from the Section 2.02 Loan pursuant of the Loan to Section 5.02 Agreement. of the general conditions, shalt be charged against the first tranche.- 1.04 Complied 12/31/87 12/31/89 Closing Date Amends Section 2.04 of Loan Agreement. 1.05 Complied Commitment Addition charges on the to Section second tranche 2.05 of the shall accrue Loan 60 days after Agreement the date of the Amending Agreement.  - 26 - Original Revised Description Agreement Section Status Date Date of Covenant Commnents Amendments 1.06 Complied Borrower shall Amends to the Loan pay interest at Section 2.06 Agreement rate of 9.3/5% of the Loan per year on the Agreement. first tranche withdrawn and variable interest above 1/2% per annum of the cost of qualified Borrowing. 1.07(a) Partially Borrower to Amending 1.07(b) CompLied prepare and Article 1.07(c) furnish the Section 4.06 Bank with action of the Loan plan to improve Agreement. accounting cost control and finance system, satisfactory to the Bank, with implementation schedule and with reports due on April 1st each year. 1.08 Complied Borrower shall Amends maintain records Sections and accounts to 5.01 e 5.02 reflect its of the Loan operations, Agreement. including separate records and accounts for the project. (a) The Borrower (i) shall have its accounts and financial statements for each fiscal year audited. (ii) furnish to the Bank (A) certified copies of its financiaL statements (B) the report of such audit (iii) furnish to the Bank such other information as the Bank shall request.  - 27 - Original Revised Description Agreement Section Status Date Date of Covenant Comments Amendments 1.08 (continued) (b) For all expenditures to the Loan made on the basis of Agreement statement of expenditures the same principles set forth above (under a)) aLso apply. 1.09 Not Complied Except as the Amends Bank shaLl Section 5.05 otherwise agreed of the Loan (a) the Borrower Agreement shall not purchase, its own shares. (b) The Borrower shaLl maintain (i a quick ratio of 0.6:1 (ii) not pay dividends, and under certain conditions maintain a quick ratio smaller than 8:1. (c) The Borrower shaLL maintain a debt/equity ratio not greater than 68:32 in FY87; 66:34 in FY-88 and 60; 40 in FY-89 and thereafter; and (d) the Borrower shaLL not incur in any debt in any FY unless a favorable forecast of revenues and expenditures shows that projected revenues shall be 1.4 times the projected debt service in such year. 1.10 Partially Not Later than Addition Complied November 30th to Section each year, to 5.09 Loan furnish the Bank (a) w/ draft of Borrower's budget for foLtowing fiscal year  - 28 - Original Revised Description Agreement-Section Status Date Date of Covenant Corments Amendments 1.10 (continued) (b) afford the Bank to the Loan to commit on the Agreement proposed budget and (c) furnish the bank not Later than March 30 of each year with balanced budget for such year formally approved by the Ministry of Economy, including investment and work plans, (d) The Borrower shall carry out the approved budget within 10X its total amount, (e) The Borrower shall submit quarterly reports to the Bank, 30 days within the end of each quarter on progress made on budget execution. 1.11 PartiatLy (c) The Guarantor, Amends Comptied the Bank and the Section Borrower shatt have 6.01 of faited to agree on the Loan contents of the Agreement. budget referred to in paragraph (c) of Section 5.09 of the Loan Agreement 1.12 Complied Substitutes the Amends word 'in para. (a) Section and (b) for those 6.02 of 'in paragraphs (a) the Loan or (b) or (c) '. Agreement.  - 29 - Original Revised Description Agreement-Section Status Date Date of Covenant Comments Amendments 1.13 Complied The percentage The table in to the Loan of expenditures paragraph 1 Agreement to be financed as of Schedule set forth in 1 to be Loan schedule 1, shall Agreement is be applicable to to be payments made for amended as expenditures set forth incurred on or in Schedule after the date 1 of this of this Amending amending Agreement. Agreement. 1.14 Complied Paragraph 2 of Amends ScheduLe 1 to paragraph 2 to the Loan of Schedule Agreement is 1 to the amended by Loan designing the Agreement. current definition of foreign expenditures as indicated in paragraph (a) and adding the following (b) local expenditures' means expenditures in the currency of the guarantor, or for goods for services supplied from the territory of the guarantor. 1.15 Complied Schedule 3 to the Amends Loan Agreement is Schedule 3 amended as set to the forth in Schedule Loan 2 to this Amending Agreement. Agreement.  - 30 - Original Revised Description Agreement-Section Status Date Date of Covenant Comments Amendments 2.01 Complied The Guarantor The to the undertakes to Guarantee Guarantee make capital Agreement is Agreement contributions amended by to the Borrower the addition in amounts of this new satisfactory to Section 2.03 the Bank for each FiscaL Year, to aLLow the Borrower to balance the budget for such Fiscal Year, referred to in paragraph (c) of Section 5.09 of the Loan Agreement. 2.02 Coirplied The guarantor The shall make Guarantee capital Agreement contributions is amended to the Borrower by adding to enable to pay this new principal, Section interests and 2.04. other financial charges (including taxes), on its external and internal debt. 2.03 Comiplied The Guarantee Amends Agreement is the amended by Guarantee substituting the Agreement date in Section concerning 3.07 by the dates December 31, 1986. set forth in Section 3.07  - 31 - Original Revised Description Coments Agreement Section Status Date Date of Covenant Comments Amendments 2.04 ComLied The Guarantor The to the shall exchange Guarantee Guarantee views with the Agreement Agreement Bank, through is amended the Ministerio by adding de Economia on the new the quarterly Section reports furnished 4.06. by the Borrower pursuant to Section 4.06(c) and 5.09(e) of the Loan Agreement. 3.01 CompLied These sections 3.02 determine the date 3.03 of Effectiveness of 3.04 the Amending Agreement, the procedures to be followed for compliance with the conditions of effectiveness, and when, as well as under which conditions this Agreement may be terminated.  - 32 - 8. Use of Bank Resources A. Staff Inputs Stage of Project Cycle Staff Weeks (Actual) Through Appraisal 34.34 Appraisal through Board Approval 52.91 Board Approval Through Effectiveness 15.26 Supervision 134.94 TOTAL 237.45 B. Missions Month/ Number of No. Of Staff Dates of Specialization Activity Year Persons Weeks Weeks Report Represented Preparation 03/80 3 1.4 4.2 04/80 ENG,FIN,DIV Preparation 06/80 2 1.0 2.0 08/80 ENG,FIN Appraisal 10/80 4 2.8 11.2 11/80 ENG,FIN Appraisal 10/80 2 2.0 4.0 11/80 DIV,L-OFF Appraisal 11/80 1 0.5 0.5 12/80 ENG Negotiations 05/81 3 0.5 1.5 07/81 DIV,L-OFF,LEG Subtotal 8.2 23.4 Supervision 12/81 2 0.5 1.0 02/82 FIN,ENG Supervision 08/82 2 1.0 2.0 10/82 FIN,ENG Supervision 11/82 1 0.3 0.3 01/83 FIN Supervision 02/83 1 1.0 1.0 04/83 FIN Supervision 06/83 2 1.0 2.0 07/83 FIN,ENG Supervision 10/83 1 0.5 0.5 12/83 ENG Supervision 03/84 1 0.3 0.3 06/84 FIN Supervision 06/85 3 1.8 5.4 08/85 SubtotaL 6.4 12.5 Supplemental Loan Supervision 11/85 3 1.5 4.5 01/86 FIN,ENG,ECON Supervision 05/87 2 2.0 4.0 06/87 FIN,ENG Supervision 12/87 2 3.6 7.2 02/88 ENG,ENG Supervision 04/88 3 1.5 4.5 06/88 ENG,FIN Supervision 10/88 4 1.0 4.0 12/88 ENG,FIN Supervision 11/89 1 0.5 0.5 01/90 ENG Supervision 04/90 2 1.5 3.0 06/90 ENG,ENG Subtotal 11.6 27.7 Total 26.2 63.6  C r EDbf `NTARO fAS t1. 3 Bo,or,e, IA * ~~~PARAGUAY .L C q.a BRAZIL 2? N,,mho. F ) \ ormoso# tS S4 GfoS DrpC 16 Mor.rrrA>rsool ( AriAMARE AC I SArIAGOJ Ritnc|eCo,,rr 'rrI\ 0' 7 ~~~~~~~~~S __ ' r ~~Cor=ornrcr Li 8 / 2O/1 I . D. C.1 >'> 9oRlb<,@ 0 + ax- CORRIENItS 15 Son bronze - URUGUAYK9-1 32 a3 laLi A FENOSAIRES X _ E B U,/N .O S ..5 32Lo P - >m ;tZA S A NM 7 'ONO AIRES,X, , > / . , 'LA PAMPAr~~~~~~~~~~~~~1 ~ A 111 qNEUQUEr\ oedrrito P 81l a ooA,dlP I ). * - =0io BloL.o Flo. .~ ~~rqn / 11t, - ARGENTINA ,u,