Brazil - Federal Railways Restructuring and Privatization Project

Document of The World Bank FOR OFFICIAL USE ONLY Report No. P-6907-BR MEMORANDUM AND RECOMMENDATION OF THE PRESIDENT OF THE INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED LOAN IN AN AMOUNT EQUIVALENT TO US$350 MILLION TO THE FEDERAL REPUBLIC OF BRAZIL FOR A FEDERAL RAILWAYS RESTRUCTURING AND PRIVATIZATION PROJECT May 29, 1996 This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization. CURRENCY EQUIVALENTS (as of May 14, 1996) Currency Unit = Real (R$) US$1 = R$0.995 WEIGHTS AND MEASURES Metric System FISCAL YEAR January 1 - December 31 ABBREVIATIONS AND ACRONYMS BNDES - Banco Nacional de Desenvolvimento Econ6mico e Social National Bank for Economic and Social Development COFER - Commissdo Federal de Transportes Ferroviarios Federal Rail Transport Commission CVRD - Companhia Vale do Rio Doce Vale do Rio Doce Company DTF - Departamento de Transportes Ferroviarios Rail Transport Department of the Ministry of Transport FEPASA - Ferrovia Paulista S.A. Sdo Paulo State Railway ICB - International Competitive Bidding ICR - Implementation Completion Report IERR - Internal Economic Rate of Return MT - Minist6rio dos Transportes Ministry of Transport NCB - National Competitive Bidding NPV - Net Present Value PIP - Project Implementation Plan PMU - Project Management Unit RFFSA - Rede Ferroviaria Federal S.A. Federal Railways SRP - Staff Retrenchment Program FOR OFFICIAL USE ONLY BRAZIL FEDERAL RAILWAYS RESTRUCTURING AND PRIVATIZATION PROJECT Loan and Project Summary Borrower: Federative Republic of Brazil Implementing Agency: Rede Ferroviaria Federal S.A. (RFFSA) Beneficiary: Rede Ferroviaria Federal S.A. (RFFSA) Poverty: Not applicable Amount: US$350 million equivalent Terms: Repayment in 15 years, including five years of grace, at the Bank's standard variable interest rate for currency pool loans Commitment Fee: 0.75% on undisbursed loan balances, beginning 60 days after signing, less any waiver Onlending Terms: Not applicable Financing Plan: See para. 13 and Schedule A Net Present Value: R$2.6 billion Staff Appraisal Report: No. 15580-BR Map: IBRD No. 27392 Project Identification Number: BR-PA-40028 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 wiLhout World Bank authorization.  MEMORANDUM AND RECOMMENDATION OF THE PRESIDENT OF THE INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED LOAN TO THE FEDERATIVE REPUBLIC OF BRAZIL FOR A FEDERAL RAILWAYS RESTRUCTURING AND PRIVATIZATION PROJECT 1. I submit for your approval the following memorandum and recommendation on a proposed loan to the Federative Republic of Brazil for the equivalent of US$350 million to help finance a project for the restructuring and privatization of the federal railways. The loan would be at the Bank's standard variable interest rate, with a maturity of 15 years, including five years of grace. 2. Country Background. The macroeconomic policy framework in Brazil remains within the parameters outlined in the Base Case of the Country Assistance Strategy. Core inflation remains below its targeted level with a rate of under one percent per month, and actual inflation for 1995, at 15 percent, was the lowest in decades. The balance of payments also remained strong, and gross international reserves have continued to accumulate, reaching $52 billion by December 1995, or 11 months of imports of goods and nonfactor services. This has occurred despite a weakening of the current account deficit to 2.6 percent of GDP, higher than anticipated as a result of more rapid growth in 1995 and an appreciation of the real exchange rate. These positive outcomes for inflation and the balance of payments appear set to continue in the medium term. 3. Fiscal policy, however, weakened in 1995, with the operational balance of the public sector declining from a surplus of 0.5 percent of GDP in 1994 to a deficit of 5 percent in 1995. The primary balance remained in surplus in 1995 (0.4 percent of GDP), but was significantly lower than in 1994 (4.3 percent of GDP). The most important factors behind this deterioration were an increase in wages and a much higher domestic interest bill resulting from tight monetary policy and an accumulation of internal debt by Federal and State governments. While the Government is committed to reducing fiscal deficits over the medium term, it has been hampered by structural rigidities in public sector accounts (revenue earmarking, payroll and pension rigidities and interest consume almost all the budget). The structural reforms required to improve the situation (privatization, pension, administrative and tax reforms) have been progressing slowly through the political system, but should provide the basis for fiscal improvements on both operational and primary balances in 1997 and 1998. The sectoral adjustment supported by the project would contribute positively to this medium-term fiscal improvement. 4. Sector Background. Brazil has the largest railway system in Latin America, with 30,000 km of track and a freight traffic of 120 billion ton-km. Railways play an important role in the country's economy, accounting for over 25% of total freight ton-km, particularly long- haul bulk cargo movements in the mineral, petroleum product and export sectors. Inter-city passenger rail transport is insignificant since line geometry does not allow for competitive speeds. Rede Ferroviaria Federal S.A. (RFFSA), which owns and operates 22,000 km of track countrywide and carries about 38 billion ton-km of cargoes in many sectors, is Brazil's main -2- railway. Two other railways, owned by Companhia Vale do Rio Doce (CVRD), mostly carry iron ore from CVRD mines to export terminals. The Sao Paulo State Railway (FEPASA) operates freight and some passenger services essentially within the state of Sao Paulo. 5. RFFSA was created in 1957 under the Federal Government's jurisdiction by consolidating 18 formerly privately-owned and operated railways which, facing competition from trucking and shifts in the location of industry, required increasing Government subsidies. But RFFSA's performance has been poor in both operational and financial terms. Operationally, its 12 regions still function basically as autonomous units. The railways' traffic is predominantly in the export- import corridors. Rail transport is insignificant along the eastern seaboard, where highways are increasingly congested. Inappropriate government regulations and excessive political interference have hampered the railway to adjust to the changing market environment. The railway's poorly designed rate structure has encouraged high-value cargoes to shift to trucks. Government- imposed uniform pricing policies and restrictions on line and service abandonment have led to extensive cross-subsidization, underinvestment in economically viable operations, deferred maintenance and consequent deterioration and low productivity of rolling stock and track, to mediocre quality of service, and to further traffic losses. The availability of RFFSA's locomotives has already fallen to 50 percent as a system-wide average, and as low as 30 percent in some regions, which compares with some of the worst railways of the world. 6. RFFSA's staff has been reduced from 110,000 to 40,000 over the past twenty years. However, labor productivity remains low compared to North American railways, and even to the recently-concessioned railways in Argentina and Chile. Labor costs still represent 70 percent of RFFSA's revenues. Further staff reductions are therefore critical to the success of the railway reform. But RFFSA's employees, who in general have had little education or have excessively specialized skills, an average 18 years of service in the company, and salaries 10 to 30 percent higher than the corresponding labor market averages, would have difficulties in finding new jobs, and they are likely to be paid less. Brazil's regional labor markets are characterized by the modest qualifications of the labor force and a capacity to generate jobs of poor quality. Unemployment rates are about 5 percent in most regions, except in the Northeast where they reach almost 8 percent. But due to the high turnover, the average duration of unemployment ranges from less than 200 days in the South to almost 400 days in the Northeast. 7. During most of its history, RFFSA has generated substantial annual operating losses, which, exacerbated by the unstable macroeconomic environment, reached the US$300-400 million range in the early 1990s, after insufficient government compensation for public service obligations. RFFSA's debt (almost US$3.0 billion as of December 1995) consists essentially of rapidly increasing short-term liabilities to Government entities such as the social security system (US$1.9 billion including interest and monetary correction), financial institutions (US$400 million), contractors (US$200 million), and the staff pension fund (US$300 million); its long term debt is only about US$200 million. RFFSA's assets total about US$16 billion; the non-operational assets are estimated at about US$1.0 billion in market value, but they cannot be sold in the short term due to past legal decisions on actions by creditors. 8. The Government has decided to restructure and privatize RFFSA's operations in order to stop the deteriorating trend in RFFSA's performance and to improve the efficiency of rail -3- transport. The National Bank for Economic and Social Development (BNDES) prepared, and the interministerial National Destatization Council recently approved, RFFSA's restructuring and privatization plan. The plan basically consists of restructuring RFFSA's operations into six regional systems and of transferring operation and maintenance to private concessionaires who would lease the necessary assets from RFFSA. The Bank assisted through policy dialogue and the preparation of a comprehensive analysis of the railway subsector and of alternative public policy options (Report No. 11752-BR, The Brazilian Railroad Industry: Options for Organizational Restructuring, February 15, 1994). The proposed project would assist the Government and RFFSA in effectively implementing the plan. 9. Project Objectives. The project aims to reduce the cost of freight transport in Brazil's main corridors by restructuring and privatizing the federal railways. Specific objectives would be to: (a) improve performance by restructuring and concessioning RFFSA's operations to private operators, and by restructuring its finances to settle debts and labor liabilities; (b) increase productivity through staff retrenchment and emergency rehabilitation of critical assets in order to make the proposed concessions viable, while minimizing the social cost of staff retrenchment; (c) enhance competition through regulatory reform, with a view to increase the railways' market share and reduce freight transport rates. Achievement of these objectives would be measured and monitored during implementation through a set of key indicators (paras. 14, 23 and 24). 10. Project Description. The project, a specific investment operation, would consist of the following six components: (a) Operations Restructuring and Concessioning Component (1% of total project cost), including the division of the railway into six regional operations, establishment of interchange traffic arrangements and trackage rights, preparation of bidding documents, negotiation of concession and lease contracts, transfer of rail assets to concessionaires, closure of RFFSA's operational divisions, and the organization and strengthening of RFFSA's technical supervision units; (b) Staff Retrenchment Program (56% of total project cost), including appropriate incentive schemes for early retirement and voluntary separation, severance payments for the remaining redundant staff, retraining programs and outplacement assistance, aiming to reduce RFFSA staff by about 18,000 in order to increase staff productivity, while minimizing the social costs of retrenchment; (c) Emergency Rehabilitation Program (41 % of total project cost), consisting of the emergency rehabilitation, repair and maintenance of locomotives, wagons and critical -4- sections of track which are necessary to avoid further deterioration and traffic losses during the restructuring and concessioning process; (d) Environmental Management Component (less than 1 % of total project cost), including environmental audits of railway facilities and strengthening of RFFSA's environmental management and safety unit; and (e) Regulatory Reform Component (less than 1 % of total project cost), including the development, monitoring and evaluation of railway regulations, strengthening of the railway regulatory and supervisory agency (MT/DTF), and establishment of a dispute settlement commission (COFER); (f) Financial Restructuring and Settlement Component (1.5% of total project cost), including establishment of a Settlement Division within RFFSA and contracting of a real estate manager to manage and sell non-rail assets in order to settle debts and labor liabilities. 11. The project would help finance RFFSA's staff retrenchment program (SRP), including severance payments, since they are critical to the success of the reform. RFFSA has identified the number of redundant staff by job categories on the basis of staffing plans for the six regional systems, consistent with redefined operational procedures and consolidated responsibilities, and analyzed redundant staff profiles against labor market characteristics in the various regions. The SRP was developed on the basis of these analyses, and the various parameters have been tested and optimized through a social and economic analysis. In addition to legally-required severance payments which, on average, are equivalent to 10 months of salary, the SRP would include: (a) incentives for voluntary separation ranging from 4 to 12 months of salary, depending on the period of employment; (b) involuntary separation grants for the remaining redundant staff equivalent to 80 percent of the incentives; (c) training and re-training programs based on regional employment opportunities; and (d) job searching and outplacement assistance. The proposed severance payments are not as generous as those offered under recent enterprise reforms in Brazil and Argentina; the results of a comparative analysis are available in the Project Files. However, they still reflect the importance of the Government's social concerns. 12. The SRP would be implemented in two phases. In the first phase, prior to concessioning, RFFSA would implement the incentive schemes for early retirement and voluntary separation, which would be offered only to certain categories of redundant staff and within pre-determined limits. Depending on the results of the voluntary schemes, RFFSA would then lay off the redundant staff selectively, taking into account employee performance, and pay an involuntary separation grant. In the second phase, after the auction, RFFSA would pay an involuntary separation grant of the same amount as in the first phase to remaining redundant staff who would not be hired by the concessionaire, up to a maximum number of staff specified in the concession bidding documents. Compensation packages for additional layoffs beyond the specified number would be the concessionaire's responsibility. RFFSA would be committed not to rehire SRP beneficiaries. About 4000 employees have already retired with early retirement incentives, and 2000 employees have terminated their contracts and been paid the voluntary separation incentives. -5- 13. Project Cost and Financing. The cost of the project is estimated at US$700 million equivalent. The project would be financed from the proposed Bank loan of US$350 million (50% of project cost) and from RFFSA and Federal Government counterpart funds (US$350 million or 50% of project cost). The Bank loan would be disbursed against: (a) severance payments at the rate of 50% of total payments (US$170 million); (b) retraining and outplacement of redundant employees, technical assistance and training of staff at the rate of 100% of total expenditures (US$20 million); (c) supply of goods at the rate of 100% of foreign or local (ex- factory cost) expenditures (US$20 million); and (d) supply and installation of goods, and civil works at the rate of 80% of total expenditures (US$140 million). RFFSA has already paid some early retirement incentives, and would fund 100% of specific locomotive and track repairs and the counterpart of project components partly financed by the Bank. The Government would guarantee all the necessary counterpart funds. To permit RFFSA to keep project implementation on the schedule agreed at appraisal in spite of the delays in loan negotiations, retroactive financing of expenditures incurred not earlier than twelve months before loan signing would be permitted up to US$70 million equivalent (or 20% of the loan amount). At the request of the Government, the Bank could appraise specific investments proposed by the concessionaires for partial risk and/or credit guarantees. A breakdown of project costs and the financing plan are shown in Schedule A. A summary of project benefits and costs is given in Schedule B. Amounts and methods of procurement and of disbursement are shown in Schedule C. A timetable of key project processing events and the status of Bank Group operations in Brazil are presented in Schedules D and E respectively. The Brazil-at-a-Glance table is included as Schedule F. A map is also attached. The Staff Appraisal Report, No. 15580-BR, dated May 29, 1996, is being distributed separately. 14. Project Implementation. The project would be implemented in accordance with an agreed Project Implementation Plan (PIP), based on an appropriate sequence of activities and on clearly defined responsibilities distributed between the Government and RFFSA. The Government would be responsible for implementing the concessioning component through the National Destatization Council and the National Bank for Social and Economic Development (BNDES) in accordance with the timetable included in the Project Implementation Plan (PIP); the Oeste concession has already been successfully auctioned to a consortium of investors from the United States. The Government would also implement the regulatory reform component, through the Ministry of Transport, and to this effect would strengthen MT's Department of Rail Transport (DTF) and establish the Federal Rail Transport Commission (COFER) by December 31, 1996. RFFSA would be responsible for implementing the operations restructuring, the staff retrenchment, the emergency rehabilitation, the environmental management, and the financial restructuring and settlement components in accordance with the time schedule and monitoring indicators and targets included in the PIP. RFFSA has completed staff retrenchment at headquarters and in the Oeste concession, and would complete the staff retrenchment program by the end of 1997. The emergency rehabilitation program, for which the bidding documents have been prepared, is scheduled for completion by the end of 1997. The environmental audits would be completed by the time of the respective auctions in accordance with the agreed targets included in the PIP. The Bank would: review ex-ante procurement documentation for all contracts above US$5.0 million and the first two contracts for supply and installation of goods and for civil works below US$5.0 million, all contracts for goods above US$350,000, and consultant and training contracts above US$100,000; and review ex-post other contracts on a -6- sample basis. The Bank would not disburse loan proceeds for severance payments unless the withdrawal application contains a certification by an independent auditor that the severance payments were made in accordance with the provisions of the agreed SRP. Implementation progress would be monitored against a set of implementation indicators and targets. Project impact would be monitored against a set of indicators of development objectives. Comprehensive reviews of the implementation of the project would be carried out in the month of June each year during project implementation, and when 50 percent of the loan amount allocated to separation grants has been disbursed. The Government and RFFSA would be committed to implementing all the proposed measures as necessary to ensure the efficient completion of the project and the attainment of its objectives. 15. Project Sustainability. The project was designed to ensure sustainable operation and maintenance of the federal railway system. Private concessions will help alleviate the burden on public sector finances and take advantage of effective private sector management. The proposed technical assistance and training program would contribute to sustainability by improving the competence and motivation of the staff of the residual public entities. 16. Lessons Learned from Previous Bank Involvement. Completed Bank-financed railway projects have generally achieved their physical objectives. Policy and institutional components, however, have often fallen short of their objectives of encouraging the public railways to operate on commercial principles. The experience with recently-completed railway projects in Brazil (Loans No. 2563-BR and 2857-BR) is consistent with these conclusions. Despite substantial implementation delays due to the unstable macroeconomic environment and to management weaknesses, track rehabilitation and capacity investments have substantially increased railway efficiency and modal share in major corridors. Although some progress was made in railway operations such as nominal tariff freedom, closure of uneconomic inter-city passenger services, separation of commuter trains, and staff reductions, continued Government intervention in the management of the public railways has led to chronic operational and financial problems. Preliminary experience with the recently-concessioned railways in Argentina shows that many of the problems faced by publicly-operated railways can be effectively addressed through concessioning of operations and maintenance by private operators within an appropriate regulatory framework. The design of the proposed project was based on these experiences. 17. Rationale for Bank Involvement. The Bank's country assistance strategy for Brazil, discussed by the Board of Executive Directors on June 29, 1995, identifies human capital formation and infrastructure development as the principal bottlenecks to Brazil's social and economic development. The emphasis is on structural reforms aimed at stabilization and resumption of broad-based growth, including the deregulation and privatization of infrastructure services, and on rebuilding and expanding a deteriorated and insufficient infrastructure in partnership with the private sector. The proposed project is fully supportive of this strategy and the Country Assistance Strategy Progress Report which will be discussed on the same day. By helping to deregulate and privatize the federal railway operations, the project, in addition to reducing the financial burden on public sector finances, would substantially increase the efficiency of rail and intermodal transport in the country's important corridors, and thereby contribute to economic stabilization, resumption of growth in agriculture and industry, and increased export competitiveness. -7- 18. Agreed Actions. During loan negotiations, the Government and RFFSA confirmed in particular that: (a) RFFSA would restructure its operations and the Government would, through BNDES, auction the concessions and, if successful, through MT, transfer operations and maintenance responsibilities to concessionaires in accordance with the time schedule and monitoring indicators included in the PIP, and, by June 30, 1997, present a plan for the concessioning of the Nordeste operation to the Bank for comments; (b) RFFSA would implement the staff retrenchment program in accordance with the terms and conditions, time schedule, and staff reduction, re-training and outplacement targets set forth in the PIP; (c) RFFSA would procure the goods and services for, and implement the emergency rehabilitation program, in accordance with the time schedule and targets set forth in the PIP; (d) RFFSA would carry out environmental audits of its facilities and the Government would specify responsibilities for environmental liabilities in concession contracts; (e) by December 31, 1996, the Government, through MT, would present to the Bank for comments a preliminary report on a review of the Concession Law and the Plano Real Law with respect to rail transport tariffs and, after taking into account the comments of the Bank, submit a final report to its relevant authorities, and would strengthen MT/DTF and establish COFER; and, prior to concessioning the Sudeste and the Nordeste operations, would develop appropriate mechanisms, criteria and guidelines to implement the captive shipper rate and line abandonment regulations, respectively; (f) by December 31, 1996, the Government would take a decision to settle RFFSA's debt with the social security agency INSS so as to enable RFFSA to sell its non-rail assets, and by June 30, 1997, it would present a plan for RFFSA's financial restructuring and debt settlement; and RFFSA would contract with a real estate management firm to sell its non-rail assets, and would keep its staff, sell non-rail assets, and pay its debts in accordance with the targets set forth in the PIP; and (g) RFFSA would contract a project management consultant and complete the installation of its computerized project management system not later than 90 days after the date of the project agreement. As conditions of loan effectiveness, RFFSA would: (a) establish the Settlement Division; and (b) restructure its Project Management Unit, with staff and functions satisfactory to the Bank. 19. Poverty Category. The project is not expected to confer direct poverty-reduction benefits, although the reduced transport costs should be reflected in the prices of basic commodities and therefore have indirect benefits for the poor. 20. Environmental Aspects. Brazil has adequate environmental legislation and regulations, and MT has developed specific Environmental Guidelines for the transport sector, including railways. Railway operators will be required, under concession contracts, to comply with the environmental regulations for all their operations and investments. DTF would delegate environmental supervision responsibilities to RFFSA, which would ensure the compliance of the operators with the regulations. The project would include environmental surveys of the potential pollution sites, and the respective responsibilities of RFFSA and the concessionaires for possible environmental liabilities would be specified in the concession contracts. The project is in the environmental category B, since the possible adverse environmental effects of locomotive, wagon and track repairs can be prevented or mitigated through appropriate measures. In particular, through appropriate clauses incorporated into contracts, all contractors will be obligated to comply with the environmental regulations, and payments to contractors will be subject to full compliance with such clauses. RFFSA would carry out appropriate supervision of the contracts, -8- including environment-related clauses. In order to effectively carry out the above tasks, RFFSA would strengthen its environmental management and safety unit, and the project would include technical assistance and training services for this purpose. 21. Program Objective Categories. Private Sector Development (PV) is the main thrust of the project, which will help concession the railway to private operators in order to improve efficiency and to reduce the burden on public finances. The project will also contribute to Environmentally Sustainable Development (EN) through reducing the costs of rail transport and indirectly relieving highway congestion in Brazil's major corridors. 22. Participatory Approach. In the course of project preparation, BNDES and RFFSA organized a number of public conferences and meetings to discuss the restructuring and privatization plan. Clients and potential concessionaires have provided useful inputs to the design of the project, including concession contracts and investment priorities. The labor unions have opposed the plan. But many employees have expressed their appreciation for the efforts being made to provide redundant staff with retraining and outplacement assistance, and have provided useful feedback in designing these programs. 23. Project Benefits. The project, by achieving more efficient, privately operated railway and intermodal transport services, is expected to result in a substantial increase in the federal railways' share of freight traffic, from 35 billion ton-km in 1995 to an estimated 53 billion ton- km in 2000, and in a 20 percent reduction in freight transport costs in Brazil's main corridors. It would thereby contribute to economic growth in agriculture, industry and exports. The estimated net present value (NPV) of the project, which was derived from transport cost savings on existing rail traffic and on traffic which, without the project, would be using trucks, is about US$2.6 billion equivalent, and its internal economic rate of return (IERR) is about 68% under base case assumptions. The emergency rehabilitation program is expected to increase locomotive availability, from 50 percent in 1995 to about 80 percent in 2000, and average productivity, from 52 million ton-km per locomotive and per year in 1995 to about 60 million ton-km in 2000. The IERR for the rehabilitation program, which was derived from estimates of the avoided costs of locomotive failures and train derailments, and the avoided incremental costs of transport of freight which, without the program, would be diverted to trucks, was estimated at 36 percent under base case assumptions. 24. The staff retrenchment program (SRP) is expected to result in substantial productivity gains for railway staff, from less than 1.0 million ton-km per employee in 1995 to over 1.7 million ton-km in 2000, and for redeployed staff. The design and economic analysis of the SRP were based on a detailed analysis of Brazil's regional labor markets. Benefits were estimated as the net increase in the marginal productivity of the redundant staff who are redeployed from RFFSA to other productive activities, and the marginal gain from the avoided labor-related costs. The IERR of the program is estimated at 40 percent under the most conservative estimates of re-employment and marginal productivity. The estimated IERRs of the program in the various concessions range from 19 percent in the Nordeste to over 50 percent in the Sudeste and at RFFSA's headquarters. The fiscal implications of the project are also expected to be very positive. RFFSA's operational deficit, about US$250 million equivalent as an average over the past seven years, should be gradually reduced and eliminated after the staff -9- retrenchment program and the concessioning process are completed. RFFSA's expected revenues from rail asset leases and from non-rail asset sales could be sufficient to service its restructured debt and to repay a portion of it over the project's implementation period. 25. Project Risks. The project would be subject to four types of risks. First, Brazil's first large-scale privatization of a public service could bring a number of unexpected implementation problems, including legal challenges, which could affect the proposed sequential concessioning process. Vested interests may attempt to stop, delay or re-direct the process, and Government bureaucracy may not cooperate fully. A future Government could even revoke the proposed railway concessions, rehire retrenched railway staff, and/or oppose the sale of non-rail assets. The commitment of the Government, the assignment of concessioning responsibilities to the National Destatization Council and to BNDES, the proposed labor separation incentive schemes, and the project implementation, monitoring and supervision plans mitigate such risks, which are taken into account in the conservative implementation time schedule. The successful auction of the Oeste concession provides additional assurances that the process is now firmly established. Second, some concessions which will be brought to auction might not find a buyer. Private investors have shown a strong interest in, and are preparing to bid for the the Centro-Leste, Sudeste and Sul concessions. The sole customer of the Tubarao line might have to take an interest in the concession and either operate it directly or under contract. Although the Government would be committed to present a plan for the Nordeste concession to the Bank for comments, there is a real risk that this concession would not find a buyer. In this event, the region's railway might have to be operated under a management contract, which would nevertheless represent an improvement over the current public operation. 26. Third, the emergency rehabilitation program could suffer from implementation delays, and/or the concessioning process could be accelerated, and some rehabilitation and maintenance works might not be needed or could be implemented by the concessionaires. The scope of the emergency rehabilitation program might therefore need adjustment during project implementation. Fourth, Brazil's institutions and private companies are not familiar with the proposed form of economic regulation and unexpected problems could lead to some form of restrictive regulations in such areas as pricing, competitive access or line abandonment. Enacting the new regulation for railways prior to concessioning, strengthening DTF and establishing the COFER, including the proposed training programs for MT/DTF and RFFSA staff and COFER members, are expected to help preserve competition and protect consumers' rights. Overall, the project carries real risks, but it also provides an exceptional opportunity to effectively reform Brazil's federal railways. 27. Recommendation. I am satisfied that the proposed loan would comply with the Articles of Agreement of the Bank, and recommend that the Executive Directors approve it. James D. Wolfensohn Washington, D.C. President May 29, 1996 Attachments - 10 - Schedule A BRAZIL FEDERAL RAILWAYS RESTRUCTURING AND PRIVATIZATION PROJECT Estimated Costs and Financing Plan (US$ million equivalent) Estimated Project Costs!' Local Foreign Total Severance Payments 380.0 - 380.0 Retraining and Outplacement 10.0 5.0 15.0 Goods and Installation 50.0 155.0 205.0 Civil Works 38.0 17.0 55.0 Surveys and Studies 33.0 1.0 4.0 Technical Assistance and Training 4.0 2.0 6.0 Total Base Cost 485.0 180.0 665.0 Physical Contingencies 10.0 16.0 26.0 Price Contingencies 5.0 4.0 9.0 Total Project Cost 500.0 200.0 700.0 Financing Plan RFFSA/Government 300.0 50.0 350.0 Bank 200.0 150.0 350.0 Total 500.0 200.0 700.0 1/ including taxes and duties equivalent to US$105.0 million - 11 - Schedule B BRAZIL FEDERAL RAILWAYS RESTRUCTURING AND PRIVATIZATION PROJECT Project Benefits and Costs (US$ million, 1996) Present Value of Flows Source of Difference Economic Financial Analysis Analysis Taxes Subsidies Other" Benefits Staff Productivity 763 1989 -1,226 Asset Produtivity 254 298 -44 Transport Cost Savings 24 2; n.a. 24 Total Benefits 3,198 2,287 -44 1,209 Costs Staff Retrenchment 362 395 -33 Asset Rehabilitation 160 190 -30 Other Components 48 115 -7 -603/ Total Costs 570 700 -70 -60 Net Present Value 2,628 1,587 IERR 68% n.a. Overall risk: probability NPV <0 is negligible 1/ Nature ot beneits: increases of statt marginal productivity (economic) versus wage savings (tinancial); and overall transport cost savings (economic) not considered in financial analysis. 2/ Includes asset productivity benefits 3/ Locomotive maintenance expenditures financed by RFFSA not included in economic analysis Main Assumptions: discount rate: 12% growth in railway traffic (ton-km): 8% per year rail and truck marginal costs (SAR Annex 10, section D) marginal productivity value of RFFSA's retrenched employees (SAR Annex 8. section B) Nature of benefits: increases in labor productivity; increases in rail asset productivity; reductions in transport costs; reductions in highway traffic congestion and accident costs not quantified Main beneficiaries: consumers of products with long-haul shipments; shippers and rail concessionaires; railway employees. - 12 - Schedule C BRAZIL FEDERAL RAILWAYS RESTRUCTURING AND PRIVATIZATION PROJECT Procurement and Disbursement A. Procurement Arrangements 1' (US$ million) --------------Procurement Method------------- Project Element ICB NCB Other n.b.f 2' Total Separation Grants 340 40 380 (170) (170) Supply and Installation 100 35 70 205 of Goods (80) (26) (106) Goods 20 20 (20) (20) Civil Works - 45 30 75 (34) (34) Consultants & Training 20 2' 20 (20) (20) Total 120 80 360 140 700 (Bank-financed) (100) (60) (190) (350) 1/ Figures in parentheses are the respective amounts financed by the Bank loan. 2/ Severance pay component, locomotive and track repairs and maintenance expenditures not financed by the Bank. 3/ Services contracted in accordance with Bank Guidelines for Use of Consultants. - 13 - Schedule C B. Disbursement Arrangements Loan Category Amount Disbursement Rates ($ million) 1. Separation Grants 170.0 50% of total expenditures 2. Supply and Installation of Goods 95.0 80% of total expenditures 3. Goods 20.0 100% of foreign expenditures; 100% of local ex-factory cost 4. Civil Works 25.0 80% of total expenditures 5. Consultants & Training 100% of total expenditures (a) retraining and outplacement 15.0 (b) technical assistance and training 5.0 6. Unallocated 20.0 Total 350.0 Estimated Disbursements 4' Bank Fiscal Year 1996 1997 1998 1999 2000 2001 --------------------------------- ($million) ---------------------- Annual - 150 100 60 30 10 Cumulative - 150 250 310 340 350 41 1FY97 amount includes initial deposit of less than US$40.0 million into the Special Account. - 14 - Schedule D BRAZIL FEDERAL RAILWAYS RESTRUCTURING AND PRIVATIZATION PROJECT Timetable of Key Project Processing Events (a) Time taken to prepare: 9 months (b) Prepared by: RFFSA and BNDES with the assistance of the Bank. (c) First Bank mission: June 1995 (d) Appraisal mission departure: February 1996 (e) Negotiations: May 1996 (f) Planned Date of Effectiveness: August 1996 (g) List of Relevant ICRs and PPARs: Loan No. 2563-BR Federal Railway-Export Corridor Project ICR dated March 1, 1996 - 15 - Schedule E Status of Bank Group Operations in Brazil IBRD Loans and IDA Credits in the Operations Portfolio Difference between expected Project Loan Fiscal and actual ID No. Year Borrower Purpose IBR.D IDA Cancellations Undisbursed disbursementsa Number of Closed Loans 171 Active Loans BR-PA-35717 L39170 1995 STATE OF BAHIA RURAL POV (BAHIA) 1050 101.5 1.83 BR-PA-38882 L39150 1995 FED REPUBLIC OF BRAZIL RECIFE M TSP 1020 102 11.68 BR-PA-38884 L39180 1995 STATE OF CEARA RURAL POV - CEARA 700 70 3 BR-PA-38885 L39190 1995 STATE OF SERGIPE RURAL POV -SERGIPE 36 0 34 5 0.33 BR-PA-6360 L29500 1988 FED REPUBLIC OF BRAZIL IRR SUB-SECTOR 1950 26 14.29 4029 BR-PA-6364 L33750 1991 STATE OF SAO PAULO INNOV BASIC ED 245.0 192.57 17534 BR-PA-6367 L26810 1986 FED REPUBLIC OF BRAZIL SALVADOR METRO DEVT 55 0 1839 6.41 24.8 BR-PA-6368 L34420 1992 FED REPUBLIC OF BRAZIL WATER SECTOR MODERNI 2500 201 151.28 BR-PA-6369 L27620 1987 FED REPUBLIC OF BRAZIL NRDP PIAUI 78 0 25 1 33 26.33 BR-PA-6370 L30130 1989 FED REPUBLIC OF BRAZIL NE IRRI JAIBA 71 0 2564 21 97 BR-PA-6378 L35470 1993 STATE OF SANTA CATARINA STATE HWY MGMT 50 0 23.61 8.08 BR-PA-6378 L35480 1993 STATE OF ALAGOAS STATE HWY MGMT 380 32.57 -543 BR-PA-6379 L34570 1992 FED REPUBLIC OF BRAZIL METRO TRANSP SPAULO 1260 51.41 5008 BR-PA-6392 L28640 1987 FED REPUBLIC OF BRAZIL LVSTK DISEASE CNTL 51 0 10 10 94 20.94 BR-PA-6403 L31350 1990 FED REPUBLIC OF BRAZIL NE BASIC HLTH SRV II 2670 50 9231 138.03 BR-PA-6407 L31020 1989 SABESP WATER SCTR SAO PAULO 2800 94 94 BR-PA-6414 L30430 1989 COMGAS, SAO PAULO NTRL GAS DIST 94 0 32 02 32.02 BR-PA-6422 L28950 1988 STATE OF MINAS GERAIS MINAS GER'S FRSTRY 48 5 8 2 7 10.7 BR-PA-6426 L28610 1987 FED REPUBLIC OF BRAZIL NRDP MINAS GERAIS 55.0 27.22 2722 BR-PA-6427 L36040 1993 FED REPUBLIC OF BRAZIL NE BASIC EDUC 11 212.0 159.24 84.82 BR-PA-6431 L28100 1987 FED REPUBLIC OF BRAZIL SKILLS FORMATION 745 589 122 5968 BR-PA-6432 L27180 1986 FED REPUBLIC OF BRAZIL NRDP PERNAMBUCO 92 0 20 885 28.85 BR-PA-6433 L28620 1987 FED REPUBLIC OF BRAZIL NRDP MARANHAO 840 46.37 46.37 BR-PA-6436 L37890 1995 STATE OF CEARA CEARA UR DVWATER CO 1400 1296 2027 BR-PA-6437 L29830 1988 CEF W&S/PROSANEAR Ego 83 83 BR-PA-6438 L29310 1988 FED REPUBLIC OF BRAZIL NE ENDEMIC DIS CTL 109.0 27 4.47 31 47 BR-PA-6439 L30720 1989 FED REPUBLIC OF BRAZIL AMAZON BASIN MALARIA 990 26.1 0.73 2683 BR-PA-6440 L28310 1987 FED REPUBLIC OF BRAZIL 2ND SP IND POLLUTN 50.0 2 4 7.02 942 BR-PA-6442 L28831 1990 ELETROBRAS ITAPARICA 1000 10.92 -8908 BR-PA-6444 L31690 1990 FED REPUBLIC OF BRAZIL HWY MGMT AND REHAB 3100 40 2283 62.83 BR-PA-6445 L28600 1987 FED REPUBLIC OF BRAZIL NRDP PARAIBA 600 17.06 17.06 BR-PA-6446 L31730 1990 FED REPUBLIC OF BRAZIL NAT ENVIRONMT 1170 5933 5933 BR-PA-6448 L30180 1989 STATE OF PARANA LND MGMT I-PARANA 630 7 16 523 BR-PA-6452 L36630 1994 FED REPUBLIC OF BRAZIL NE BASIC EDUC Ill 206.6 161.56 51 48 BR-PA-6453 L31700 1990 FED REPUBLIC OF BRAZIL NE IRRIG I 210.0 69 112.08 18108 BR-PA-6454 L34440 1992 FED REPUBLIC OF BRAZIL RONDONIA NTRL RES M 1670 81.09 47 76 BR-PA-6467 L31300 1990 FED REPUBLIC OF BRAZIL AG RESEARCH Ill 470 5 2.84 7 84 BR-PA-6473 L31600 1990 STATE OF SANTA CATARINA LND MGMT 11-S CATAR 330 1426 1083 BR-PA-6483 L32690 1991 FED REPUBLIC OF BRAZIL SCIENCE RESEARCH&TRN 1500 10 3643 46.43 BR-PA-6492 L33760 1991 PETROBRAS HYDROCARBNTRNSP/PRO 2600 14479 14479 BR-PA-6495 L34800 1992 BNDES NATL IND POLLUITN 50.0 38.24 3824 BR-PA-6505 L34920 1992 FED REPUBLIC OF BRAZIL MATO GROSSO NAT RES 205.0 143.76 10576 BR-PA-6512 L39240 1996 CVRD ENV/CONS(CVRD) 50.0 47.79 -1 21 BR-PA-6522 L37670 1994 STATE OF ESPIRITO SANTO ESP.SANTO WATER 154.0 14261 5501 BR-PA-6524 L36390 1994 STATE OF MINAS GERAIS MINAS MINC DEVELOPMT 1500 138 04 63.04 BR-PA-6540 L35540 1993 STATE OF MINAS GERAIS WTR QJPLN(MINAS GERA 1450 12885 116.02 BR-PA-6541 L35030 1993 FED REPUBLIC OF BRAZIL WXTR Q/PLN(SP/PARANA) 90 8 3 738 BR-PA-6541 L35040 1993 STATE OF SAO PAULO WTR Q/PLN(SP/PARANA) 1190 9578 8291 - 16 - Schedule E Status of Bank Group Operations in Brazil IBRD Loans and IDA Credits in the Operations Portfolio Dilnce betweenacpcte Project Loan Fiscal 0d acta ID No. Year Borrower Purpose IBRD IDA Cancellations Undisbursed disbaramentsa BR-PA-6541 L35050 1993 STATE OF PARANA WTR Q/PLN(SP/PARANA) 117.0 94.74 82.12 BR-PA-6543 L37330 1994 STATE OF MINAS GERAIS M. GERAIS BASIC EDUC 150.0 122.44 16.77 BR-PA-6546 L36590 1994 FED REPUBLIC OF BRAZIL AIDS CONTROL 160.0 70.03 -7.17 BR-PA-6547 L36330 1993 FED REPUBLIC OF BRAZIL METRO TRANSP. RIO 128.5 88.86 63.04 BR-PA-6555 L37130 1994 STATE OF PIAUI STE HWY MGT11 54.0 is 32.17 16.1 BR-PA-6555 L37140 1994 STATE OF TOCANTINS STE HWY MOT 11 87.0 56.82 -30.18 BR-PA-6555 L37150 1994 STATE OF MARANHAO STE HWY MGT II 79.0 18 54.17 -6.83 BR-PA-6558 L37660 1994 STATE OF PARANA PARANA BASIC EDUC 96.0 88.33 19.66 BR-PA-6564 L39160 1995 FED REPUBLIC OF BRAZIL BELO H M.TSP 99.0 99 12 TOTAL 6733.1 0 431.79 3602.14 2326.76 Active Loans Closed Loans Total Total disbursed (IBRD and IDA) 2699.17 13244.87 15944.04 Of which repaid 594.87 10284.21 10B79.08 Total now held by IBRD and IDA 570644 3057.71 8764.15 Amount sold 0 45.83 45.83 Of which repaid 0 45.83 45.83 Total undiasbursed 3602.14 97.04 3699.18 a Intended disbursements to date minus actual disbursements to date as projected at appraisal. Note: Disbursement data are updated at the end of the fist week of the month. - 17- Schedule E BRAZIL Statement of JFC Investments As of3/31/96i (US$ millions) Ongnl Grs Commmenis Fiscal IFC IFC Held by Held by Undisb. Year Obhgor Type offBusiness Loan Equity icipants Totals IFC arncip. artrp. 1957 a/ Siemens do Brasil Cia. de Electricidade Manufacturing 2 00 2 00 1958 at DL R. Plasticos do Brasil, S.A Motor Vehicles and Components (including 0 45 0 45 1958 a/ Olinkraft, S A Celulose e Papel Timber, Pulp and Paper 1 20 1 20 1958 at Willys Overland do Brasil, S.A. Industria e Comercio Motor Vehicles and Components (including 2 45 2 45 1959 at Champion Papel c Celulose, S A Timber, Pulp and Paper 083 3 18 4 01 1959 at Companhia Mineira de Cimento Portland, S A Cement and Construction Materials I 20 1 20 1966 at Acos Villares, S A Mining and Extraction of Metals and Other 0 3 10 0 90 0 90 4 90 1966 Papel e Celulose Catarnense. S A Timber, Pulp and Paper 0 74 3 13 2 26 6 13 1967 at Ultrafertil, S.A Industria e Comercio de Fertilizantes Fertilizers and Agricultural Chemicals 799 300 026 11 25 1968 a/ Acos Villares, S A Mining and Extraction of Metals and Other 0 0 06 0 06 1969 Papel e Celulose Catarmense, S.A Timber, Pulp and Paper 0 69 0 37 1 06 1969 al PetroquimicaUniao S.A. Chemicals and Petrochemicals 3 88 2 05 246 8 39 1970 a/ Poliolefinas, S A Industrie e Comercio Chemicals and Petrochemicals 4 86 2 14 1 38 8 38 1971 a/ Oxiteno, S A Industna c Comercio Oil Refining 460 1 44 604 1971 a/ Rio Grande - Compahnia de Celulose do Sul (Riocell) Timber, Pulp and Paper 4 90 4 90 1972 at Acos Villares, S A Mining and Extraction of Metals and Other 0 200 048 248 496 1972 at CIMINAS - Cimento Nacional de Minas, S.A Cement and Construction Materials 4 38 3 20 2476 3234 1973 at Capital Market Development Fund (FUMCAP) Financial Services 500 50 o 1973 a/ Companhia Siderurgica da Guanabara (COSIGUA) Mining and Extraction of Metals and Other 0 2 00 2 00 S 00 9 00 1973 Empresa de Desenvolvimento de Recursos Mineras (CO Mining and Extraction of Metals and Other 0 13 00 3 80 13 60 30 40 1974 at Companhia Siderurgica da Guanabara (COSIGUA) Mining and Extraction of Metals and Other 0 1000 5 50 5997 75 -17 1974 at Fabrica de Tecidos Tatuape SA Textiles 7 75 23 25 31 00 1974 a/ Industrias Villares S.A Manufacturing 3100 3 00 6 0 1975 a/ Capuava Carbones Industriais, Ltda Oil Refining 2 48 1 08 3 70 7 26 1975 Oxiteno Nordeste S Alndustna E Comercio Chemicals and Petrochemicals 1000 10 00 1976 at Santista Industria TeKtil doNordeste, SA Textiles 6 45 1 00 7 45 1976 at Tecanor S.A Textil Catarnense doNordeste and Hering Textiles 6 (0 600 1977 a/ FMNB S A Produtos Metalurgicos Motor Vehicles and Components (including 20 00 20 On 1977 a/ Mineracao Rio do Norte S A Mining and Extraction of Metals and Other 0 15 00 15 00 1978 a/ Cimetal Siderurgia S.A Mining and Extraction of Metals and Other 0 8 38 3 00 11 18 1978 Empresa de Desenvolvimento de Recursos Minerais (CO Mining and Extraction of Metals and Other 0 5 00 3 94 54 00 62 94 3 94 1979 a/ Capuava Carbones Industnais, Ltda Oil Refining 0 11 0 11 1979 a/ Volvo do Brasil Motores e Veiculos S A Motor Vehicles and Components (including 10 00 4 10 50 00 64 10 1980 Dende do Para S/A-DENPASA-Agricultura, IndEstria e Food and Agribusiness 3 73 1 00 473 1 48 004 1980 a/ Destilana Cianorte S.A Chemicals and Petrochemicals 0 25 0 25 1980 a/ Hering do Nordeste SA - MALHAS Textiles 200 200 1980 Polisul Petroquimica S A Chemicals and Petrochemicals 15 00 5 00 28 00 48 00 5 00 1980 PPH - Companhia Industrial de Poltopropileno Chemicals and Petrochemicals IS 00 2 00 17 00 1 64 1980 a/ Tecanor S A. Textil Catarmense do Nordeste and Hering Textiles 10 20 10 20 1980 at Villares Industrias de Base S A - VIBASA Mining and Extraction of Metals and Other 0 5 00 5 00 1981 Brasilpar Com,rcio e PartLicipatoes S A Financial Services 1 50 1 50 004 1981 Companhia Brasileira de Agropecuaria - COBRAPE Food and Agribusiness 550 300 8 50 1 05 1981 a/ Companhia Siderurgica da Guanabara (COSIGUA) Mining and Extraction of Metals and Other 0 3 73 3 73 1981 a/ CIMINAS - Cimento Nacional de Minas, S A Cement and Construction Materials 30 00 3 50 110 00 143 50 1981 al Sotave Amazonia Quimica e Mineral S.A Fertilizers and Agricultural Chemicals 1600 400 20 00 1982 at Banco de Investimento Planibanc S A. Financial Services 10 00 0 45 20 on 30 45 1982 Cimento Caue S A Cement and Construction Materials 2000 5 00 20 00 45 00 326 1982 a/ Petroquimica Triunfo S A Chemicals and Petrochemicals I 00 4 00 31 00 50(0 1983 at Atlas Frigorifico S.A Food and Agribusiness 1000 3 0n 13 00 1983 at Cimento Portland Mato Grosso Cement and Construction Materials 35 00 35oO( 1983 a/ Companhia Dende do Amapa - CODEPA Food and Agribusiness 6 10 6 10 1983 at Companhia Riograndense de Participacoes Financial Services 0 01 n01 1983 a Companhis Sidenargica da Guanabara (COSIGUA) Mining and Extraction of Metals and Other 0 0 64 0 64 1983 Empresa de Desenvolvimento de Recursos Minerais (CO Mining and Extraction of Metals and Other 0 040 040 040 1983 PISA - Papel de Imprensa S.A Timber, Pulp and Paper 3000 3 50 2000 53 50 250 1983 at Sotave Amazonia Quimica e Mineral S A. Fertilizers and Agricultural Chemicals 600 200 13 00 21 i'j 1983 SOCOCO S/A - AgroindEstrias da Amazonia Food and Agribusiness 300 2 50 5 50 2 50 1983 a/ Volvo do Brasil Motores e Veiculos S.A Motor Vehicles and Components (including 1 17 1 17 1984 at Companhia Alcoolqu1mica Nacional - Alcoolquimica Chemicals and Petrochemicals 2000 4 0n 24 o 1984 a/ Companhia Siderurgica da Guanabara (COSIGUA) Mining and Extraction of Metals and Other 0 0 40 040 1985 a/ Companhia Siderurgica da Guanabara (COSIGUA) Mining and Extraction of Metals and Other O 300 . I) 1985 PISA - Papel de IMprensa S A Timber, Pulp and Paper 1 41. 11 67 13 07 1 40 1985 Qulmica da Bahia IndLstria e Com,rcio S A Chemicals and Petrochemicals 3 49 1 80 29 049 1986 a/ Nitroclor Produtos Quimicos S A Chemicals and Petrochemicals 3 00 S 70 8 70 1987 Amapa Florestal e Celulose S A - AMCEL Timber, Pulp and Paper 14 00 14 191 2 80 1987 Cimento Cauc S A Cement and Construction MvIaterials 1987 a/ CIINAS - Cimento Nacional de Minas, S A Cement and Construction Materials 10 00 2000 30 00 1987 Polisul Petroquimica S A Chemicals and Petrochemicals I 00 I 0 1 00 1987 S..o Paulo Alpargatas S A Textiles 30 00 3000 640 1 60 1987 at Volvo do Brasil Motores c Veiculos S A Motor Vehicles and Components (including I 68 1 68 - 18- Schedule E BRAZIL Statement of IFC Investments As of 3/31/96 (US5 mlhons) O~_ rm al oIGroes Commitelmets Fsao IFC IFC Held by Heldby dsb scl Ye'r Obhgor Typ of-Biness L-n Egn rhcpon Totai IFC merp-n rs,rns 1988 Bano Bozano. Simonsen S A Fiancial Services 20 00 20 00 l 00 067 1988 Banno L., S A Financial Ser-ices 3000 30 00 I 67 0 75 1988 a/ Brasital S A para a IndL%Lna c o Comrcio Textiles 0 10 0 10 1988 a/ Cebrace - Companhma Brasileira de Cnstal Mbfa~.curng 4000 5 00 4 00 1988 Duralex. O A Timber, Pulp and Paper '3' 13/ 042 1 05 1988 ./ Equiy Fund of Baz[ Financial Servmces 21 20 21 20 1988 e/ Fabrica de Tecidos Tatuape S A Textiles 8 80 880 1988 a/ Fabnce Carnn de Cathsadnes sSA Chemicals and Petrocheomcals 20 0 21)50 1988 Mineracoes Brasileiras Reunidas 0 A Mirng end Exrcction of Meals and Other Ores 20 00 20 00 4 28 1988 Perdkg., S A Com rco e Ind£tna Food and Agmbusiness 20 00 2 86 22 86 10 0) 1988 al Petroqu,mica Triunfo S A Chenicals and Petrochemicals 0 Il 0 Il 1988 PISA - Papel de Inprensa O A T,mber, Pulp and Paper 22 00 22 00 ' 0 1988 PPH - Conpanha Industral de Poliopropileno Chemicls ad Petrocemicals 1600 1600 3 < 60 1988 </ SA Monto Santst Ind£stns (ema)s Textiles 4 0) 4 00 1988 W/ Sanista Ind£stria Texil de Sergipe 5 A Tetmiles 3 20 < 30 4 50 1988 a/ Toalia S A IndLston Textil Texitles I 90 [ 90 1988 Unbanvo - Umao de Bances Bras1eros 5 A Financal Services 30 90 3000 I 40 0 67 1989 COPENE - Perloqu,mica do Nordeest S A Chemicals end Petrochemicals 45105 00 50 00 <818 1989 Eluma S A Idstna e Com io Minmg and Extraction of Metals and /1ther Ores 1500 <5 00 12 00 1989 Papel e Celulose Catarnnense S A Timber. Pulp and Peper i 0) 15.00 3 46 989 Politero Linear "nddstra c Com,rcro S A Chemca<s end Petrochemc os 50 650 2500 12 37 1990 BaIa Sol Celulo, S A Timber, Pulp and Paper 40 00 15 0Ø 60 00 <15 0 40 00 1991 Bahia Sul Celulose, S & Timber, Pulp and Paper 600 60) 5 97 1991 a/ Co-mna V)drma SaI Marna Manufacturmng 5 )) 1010 250W 1991 Engepol Engenharia de Pohmmeros Manufacturmg 3 5)) 3 50 2 19 1991 Rapase OA Celulsoe e Papel Tunber, Pulp end Pape, 20 00 5 00 25 00 16 43 <994 Chapeco Companhia Indusnal de Ahmncos Food end Agrbsness <D 00 1000 1001 1994 Dende d. Pra SA-DENPASA-Ancultura, Indlstria e Comrcio de 01 Food and Agribusness 0 50 0 12 0 62 0 37 I 07 1994 Gave Hoeana e T.nsmoS A Iotels end Tounm 16 7 50 24 25 16 5 [990 GP Capital Partners, L P Fnca Serv.ces 20 0 200) 19 51 9 031 1994 S A Indistria e Com.rcio Chapec Food and Agribusness 0 0) 5 00 5 00 0 15 <994 Sad,a Conc¢dia S A [dlstnia . Com io Food aod Agrnbsmness 40 0) 40 00 38 00 2 00 1995 Cambuhy M C Industial Ltd<a Food end Agrmbusmenss 30 00 30 00 3000 1995 Cevfmic Poobello 5 A Cememo and Construction Mmerials i? 00 5 00 22 0) 22 00 3 00 1995 Companua Cerv-eana Brahma Food end Agnbusses 15 00 123 00 158 00 35 00 123 00 1995 Coenpaina Petroqu,mmca Camacri - (CPC) Chemicais end Petrochemicals 12 86 12 86 12.86 [995 CRP-Caden Capital de Rdsco S A Fmencial Servoes 200 2 00 2 00 1 25 <995 Eucnte do Sul S A Timb,. Pulp and Pape 1 50 1995 Globo Cabo S A infisucture 35 0) 10 (0 80 00 125 00 45 00 2995 He1ng met)e exLns 7 50 1991 Lalas de AlUm,ruo S A Manufaclung 21 0(- 5 50 26 0) 21 00 5 0) 1995 Par Pigmenlos S A Mnmg ad Extacion of Metals and Other or, 30<0 9 00) 35 00 74 00 3900 35 00 il 17 1995 Sadia Conc¢rdia S A Indlstma e Com.rcio Food ad Agr,busmess 62 O/ 62 00 02 00 1996 Ccval Ahmmenos S A Food nd Agmbusiness 45 00 130 0 1 15 00 45 0P 1996 Chapeto Companha Indusial de Ahmentos Food end Agrbusmess 22 0 3 )0 50) ) 0 24 72 5 00 1996 Lojas Amncnas S A Industrial and Consumer Sem-ce 33 00 20 00 53 00 33 00 2000 53 00 1996 Oxnteno Novdeste S A Idustia E Comercio Chemmcals ad Perochemcls 500) 30 0 5000 3000 1996 PerdIgo O A Com,rc e Indd,tra Food end Agib-mess 5 510 /5 00 50 0 35 00 1996 Rhodiaco Iodutri.s Qummcas ITda Chemicals and PetrochemnaLs 50 0 1') 00 6 0) 10 00 30 5)2 00 Total gos comnutroents b' 1561 47 25' I6 1202 '4 3021 3' [ns cancela<oos, Cetnns, repaymnt & sales RI<5 81 82 96 824 89 <741 69 Total commitonens now held c 725 62 174 20 377 86 1277 68 899 82 377 86 201 38 Peodimg Ct-omtns Bacell Servicos e Industia Limitada Toober, Pulp end Pape <2 75 0 7 MALLORY 8 00 4 00 12 00 Politeno Lnmar Indistme c Conm.rcio S A Cheiocas and Petroch ails 2900 09 C RLHODIA-STER 0 95 0 95 S A IC C 7 00 7 00 TIGRE 25 00 5 10 30 00 60 00 Umbno - Uoao de Baoos Brasileros S A Fmancial Services 25 00 25 0)1 Tot,l pendog ncommitmtents 7 0 <7 65 30 00 124 65 Toli comaiotments held ad pendmg comonitoents 802 62 191 85 407 86 14)2 33 Total .ndisb-sed comtmens 134 03 12 <0 iS 25 201 38 a/ ln-estnents which have been filly cncelled, termoated. watlen off sold. redeemed or repaid b, Gross comtmanenis consist of pproved ad signed projenl c< Held cotomtents consist of disbursed ad undisbursed mvesene - 19- Schedule F Brazil at a glance Latin Upper- POVERTY and SOCIAL Aerica middle- Brazil &Carib. Income Development diamond* Population mid-1994 (millions) 159.0 471 472 Life expectancy GNP per capita 1994 (USS) 3.370 3,310 4,720 GNP 1994 (biltons USS) 535.9 1,558 2,230 Average annual growth, 199044 Population {%) 1.7 1.8 1.6 GNP Labor force (%) 2.2 2.4 2.2 per Most recent estimate (latest year available since 1969) capita e Poverty: headcount index (% of population) 17 Urban population (% of total population) 78 71 71 Life expectacyatbirth (years) 66 68 69 1 Infant mortality (per 1,000 live births) 58 42 37 Access to safe water Child malnutrition (% of children under 5) 18 A . Access to safe water (% of population) 96 80 86 Illiteracy (% or population age 15+) 19 15 15 Gross primary enrollment (% of school-age population) 111 110 107 Mate -- Upper-middle-income group Female .. p KEY ECONOMIC RATIOS and LONG-TERM TRENDS 1975 1985 1994 1996 Economic ratios GOP (billions US$) 121.8 222.9 554.6 677.0 Gross domestic investment/GOP 26.8 19.2 20.8 21,9 Openness of economy Exports o(goods and non-factor services/GDP 7.5 12.2 8,1 6.8 Gross domestic savings/GDP 22.9 24.4 22.4 21.1 Gross national savings/GDP 21.4 19.0 20.6 19.4 Current account balancelGDP -5.8 -0.2 -0.2 -2.6 Savings - Investment Interest payments/GOP 1.7 3.3 0.9 Total debt/GDP 22.4 47.2 27.2 24.0 Total debt servlcelexports 43.5 39.1 31.8 33.1 Present value of debt/GDP .. .. 25.4 Present value of debtlexports .. .. 278.2 .. Indebtedness 1975-84 1985-95 1994 1995 1996-04 (average animal growth) -Brazil GDP 3.0 1.5 5.8 4.2 5.3 GNP per capita 0.2 -0.1 2.2 2.4 3,8 Upper-middle-income group Exports of goods and nfs 10.4 6.2 7.7 -0.4 6.2 STRUCTURE of the ECONOMY 1975 1985 1994 1995 (% of GDP) Agriculture 12.1 11.5 12.7 12.8 wth ratesof outputand investment Industry 40.2 45.3 38.7 38.4 5 Manufacturing 30.3 33.7 25.2 24.8 o Services 47.7 43.1 48.7 48.8 s 52 93 94 5 10 Private consumption 66.5 65.8 61.1 62.1 General government consumption 10.6 9.9 16.5 16.8 GDI GDP Imports of goods and non-factor services 11.5 7.1 65 76 1975-84 1985-95 1994 1995 F (average annual growth) Agriculture 4.2 2.3 76 5.9 Industry 3.0 6.5 7.1 2.0 qTwth rates of exports and imports (%I Manufacturing 2.6 -0.9 5.5 1.6 3o Services 2.9 3.0 44 5 7 Private consumption 4.3 1.9 7.2 7.9 a so 91 93 94 95 General government consumption 0.8 2.3 -1.0 2.4 20 Gross domestic investment -3.2 0.2 8.5 9.2 Imports of goods and non-factor services -3.7 9.0 15.4 37.3 Gross national product 2.5 1.7 3.9 3.8 -Exprts Jmports Note: 1995 data are preliminary estimates. The diamonds show four key indicators in the country (in bold) compared with its income-group average. If data are missing, the diamond will be incomplete. - 20 - Schedule F Brazil PRICES and GOVERNMENT FINANCE 1975 1985 1994 1995 Inflation (%) Domestic prices (% change) 3000 Consumer prices 29.1 226.9 2,668.6 66.0 2000 Implicit GDP deflator 33.9 231.7 2,284.0 67.4 1000 Government finance (% of GDP) go Of 92 93 e4 9 Current revenue .. .. 30.7 30.5 Current budget balance .. .. 7.4 4.3 -GDPdef -,bCPI Overall surplus/deficit .. .. 4.4 1.8 TRADE (millions USS) 1975 1985 1994 1995 Export and import levels (mill. US$) Total exports (fob) . 25,638 43,563 46,506 so,ooo Coffee .. 2,607 1,942 2,850 Otherfood .. 2,545 1,851 2,100 40,000 Manufactures .. 13,356 26,844 27,081 3o.ooo Total imports (cif) .. 13,153 33,133 49,663 2001 Food .. .. 4,740 7,500 Fuel and energy .. 6,176 4,695 5,103 10,000 Capital goods .. 2,480 11,906 18,200 a Export price index (1987=100) .. 97 116 121 so s0ofa 92 93 as as Import price index (1987=100) .. 79 139 148 OExports iimports Terms of trade (1987=100) .. 123 84 82 BALANCE of PAYMENTS 1975 1985 1994 1995 (millions US$) Exports of goods and non-factor services 9,418 27,713 44,966 47,846 Imports of goods and non-factor services 14,323 16,928 36,187 53.516 2 Resource balance -4,905 10,785 8,779 -5,670 Net factor income -2,106 -11,213 -12,580 -15,246 C account bala ce GOP ratio (%) Net current transfers 0 0 2,597 3,513 L 9-- 2,597 3,81 91 92 9_3 S Current account balance, 1 before official transfers -7,011 -428 -1,203 -17,404 -2 Financing items (net) 5,946 1,842 8,203 30,450 Changes in net reserves 1,065 -1,414 -7,000 -13,046 Memo: Reserves including gold (mill. US$) 4,166 11,618 39,463 53,704 Conversion rate (locaVIUS$) 3.OOE-12 2.26E-09 0.6 0.9 EXTERNAL DEBT and RESOURCE FLOWS 1975 1985 1993 1994 (millions US$) Total debt outstanding and disbursed 27,329 105,187 145,438 151,104 IBRD 1,045 5,274 6,575 6,311 IDA 0 0 0 0 Total debt service 4,319 11,471 11,111 16,114 IBRD 98 796 1,857 1,883 IDA 0 0 0 0 G A CD Composition of net resource flows 3 270503046k Official grants 9 34 59 69 20304 Official creditors 1,059 935 -1,009 -2,116 F Private creditors 4,213 149 9,286 3,717 89636 Foreign direct investment 1,302 1,348 1,292 3,072 Portfolio equity 0 0 5,500 5,082 World Bank program Commitments 538 1,525 636 1,024 A - IBRD E - Bilateral Disbursements 249 765 471 640 B - IDA D - Other multilateral F - Private Principal repayments 26 405 1,279 1,346 C - IMF G - Short-term Net flows 224 359 -808 -706 Interest payments 72 391 579 536 Net transfers 152 -32 -1,387 -1,242 International Economics Department 3/8/96 MAP SECTION  IBRD 27392 7ý sol B R A Z IL VENEZUELA r.f' FR. (SURINAME GUIANA 0 250 500 750 1000 KILOMETERS RAILW AYS C OL OM BIA z 01 2ý 0 60 IE RFFSA REGIONS AND C iPLANNED CONCESSIONS 'i - d NORTHEAST 5.rro d. N.v- SR RECIFE (METER GAUGE) ------ SR 11 FORTALEZA (METER) Porto soon --, " . SR 12 SÅO LUS JMETER) CENTRAL EAST- R.o dø Norte B mb SR 2 BELO HORIZONTE (METER) SR 7 SALVADOR (METER) rSãoLtu SR 8 CAMPOS (METER) °'"° °Cp SOU TH EA ST Coo...ForCz SR 3 JUIZ DE FORA (BROAD GAUGE] -or uunp SR 4 SÅO PAULO (BROAD) Ter*n r cSOUTH P C o--- SR 5 CURTIBA (METER) S.ro d. C-ria0- SR 6 PORTO ALEGRE (METER) ort 0a TUBARAO Ct o o Velho Jod, P,,". SR 9 TUBARÅO (METER) \ s5.gue,r BAURU \-e•SR 10 BAURU (METER) Borreios •- PLANNED SECTIONS \cBROAD GAUGE (FEPASA) P-. METER GAUGE (FEPASA) -\AooGancalv.no 10-- _L _-METER GAUGE (EFVM) \ \ R U STANDARD GAUGE (E.F. CARAJAS) P0E0R0URIVERS SSELECTED CITIES AND TOWNS NATIONAL CAPITAL STATE ROUNDARIES - -- INTERNATIONAL BOUNDARIES Cu-ab BR5U0Mont Azu BOLIIGooaàn,o e~0nodos ora,no0 Prode Prpr .BeOPANAMA VENEZUELA IGUYANA BO L I V I A , \ SURCNAME ArgeiCOLOMBI AFEC GIN -- Corumbo Relo Horizo • cOOtEA -~ Ub-b. I Ara-érr- ECUADRO7 Sata Få dø Sol lW mb - A ar, )Porama asos : Bunier o V,tårua '., iP.- Mm.".ro-o. £ '' uo\ 9)04 000, P Coid.",M",Grnd P en E,4 /CIå- e 59W0 \ , o - ··---P, ~0 ' E P-ic . Frer Prb do Sl PERU B R A Z 1 L Pr Anr das Reis PARAGUAY I - . oo 0 S , SIapoR nor .- J ua iy C-mp., Ri d. i", BOLIVIA - CHILE Hormono M SR 4 SÅ0 PAULO ·\ 0~~i . Msslo Ptnrbzinbo ',NtARAGUAV P A C FtC uoop R dIrC Santa Giln Porto Un, o Pnadga CHILE 5 do V,ro.o0 MO OSão Frncnisco do Sol - 0 - Rr. L s ,ARGENTINA -Rosa Usa URUGUAY A R G E N T I N A ro' or BoFlorItaf aR 9 UBARÅO Urguaano,Contos dø Sul Poro Aig.re T. boundort,s. co/ar, d nonrtenaromn [ tvome to Pedr.ita ond arny other tnformohon shrown on his .op do not,ply, on Ith par al TI. World B.nk Group, any ldgmet on the legal -tau of ony terrr-rY, an 3RoGronde ny enosnmen ar acepal c. ., -uh boudone 7URUGUAY( 5e- i3- MARCH 1996   IMAGING Report No: P- 6907 BR Type: MOP