阿根廷私营铁路管理的程序、信息和财务会计缺口

V4P752&3 6 POLICY RESEARCH WORKING PAPER 263 6 Processes, Information, How do you set up a regulatory accounting system and Accounting Gaps in the for a sector no longer under . * g v ~~~~~~~~~~~the government's direct Regulation of Argentina's tegvmetsdrc control, after railways have Private Railways been turned over to concessions in varied circumstances and where Javier Campos-Mendez available information is Antonio Estache provided mainly by private Lourdes Trujillo operators? As a result of inexperience in setting up concession agreements, the agreements did not clearly define the information needed for oversight and regulation. The World Bank World Bank Institute Governance, Regulation, and Finance Division July 2001  I POLICY RESEARCH WORKING PAPER 2636 Summary findings Almost a decade after Argentina began privatizing its loopholes remained. Those unforeseen events have railways, resolution of the conflicts between regulators, happened, and the regulatory agency, the CNRT, has users, and operators continues to take longer, and to be had to adapt its procedures and decisions to available more difficult, than expected. Campos-M6ndez, Estache, information. In some cases, alleged modifications of the and Trujillo contend that many of these conflicts arose operating environment have led to renegotiations. because there are no ru]es for interactions between the Changes have been introduced in the approach to key stakeholders: government, regulators, users, unions, furnishing information to the government for oversight and the media. and regulatory accounting. The changes center on clearer One result of inexperience in setting up concession definitions in connection with four major issues: agreements has been that the agreements did not clearly * The harmonization and comparison of accounting define the information needed for oversight and data. regulation. Argentine rail concession contracts were * The measurement of efficiency. supposed to be specific about the way tariffs, quality, * Access prices. investment, exclusivity, and so on, would change over * The financial model. time. And the newly created regulatory bodies were Circumstances in the Argentine rail industry early in given some discretion about adjusting the contracts in the 2001 did not favor dramatic changes, but currenlt face of unforeseen developments. renegotiations could be used to adjust information However, initial privatizations were carried out in such requirements to reflect what has been learned through a way that there was no time to refine terms, so many six years of experience. This paper-a product of Governance, Regulation, and Finance Division, World Bank Institute-is part of a larger effort in the institute to promote best practice in the regulation of privatized infrastructure. Copies of the paper are available free from the World Bank, 1818 H Street NW, Washington, DC 20433. Please contact Gabriela Chenet-Smith, room J3-304, telephotne 202-473-6370, fax 202-676-9874, email address gchenetr@worldbank.org. Policy Research Working Papers are also posted on the Web at http://econ.worldbank.org. Antonio Estache may be contacted at aestache(Ja.worldbank.org. July 2001. (45 pages) The Policy Research Working Paper Series disseminates the findings of work in progress to encourage the exchange of ideas about development issues. An objective of the series is to get the findings out quickly, even if the presentations are less than fully polished. The papers carry the names of the auithors and should be cited accordingly. The findings, interpretations, and conclusions expressed in this paper are entirely those of the authors. They do not necessarily represent the view of the World Bank, its Executive Directors, or the countries they represent. Produced by the Policy Research Dissemination Center  DRAFT COMMENTS WELCOME Processes, Information and Accounting Gaps in the Regulation of Argentina's Private Railways Javier Campos-Mendez* (The World Bank and University of Las Palmas) Antonio Estache (The World Bank) Lourdes Trujillo (The World Bank and University of Las Palmas) * The paper is based on information collected during a mission by the three authors to Argentina from November 19 to 28, 2000. It has benefited from useful discussions with Lou Thompson, Myrtha Pokorny, Miguel-Angel Martinez, Carmen Polo, Jorge Kogan and Patricia Brennan, although all the remaining errors are our own.   Contents 1. INTRODUCTION 3 2. REGULATION AND INFORMATION IN ARGENTINA 4 2.1. THE NEW INSTITUTIONAL STRUCTURE FOR REGULATION: WHO SHOULD DO IT? 5 2.2 THE OBJECTIVES OF REGULATION: WHAT SHOULD CNRT DO? 7 2.3. THE OPERATIONAL PROCEDURES AND THE PROCESSES: HOW SHOULD CNRT ACT? 8 2.4. IDENTIFYING THE PENDING ISSUES 11 3. INFORMATION FOR EFFICIENCY MEASUREMENT 12 3.1. PICKING A SYNTHETIC CONCEPT OF EFFICIENCY TO INCREASE REGULATORY ACCOUNTABILITY 13 3.2. MEASURING TOTAL FACTOR PRODUCTIVITY 14 3.3. HOW THE DATA AVAILABILITY DRIVES THE CHOICE OF METHODOLOGY 17 3.4. FROM FINANCIAL TO REGULATORY ACCOUNTING AND OTHER INFORMATION NEEDS 19 3.5. MEASURING EFFICIENCY AS A SIGN OF GOOD AND FAIR GOVERNANCE 22 4. INFORMATION FOR ACCESS PRICES 23 4.1. ACCESS PRICES IN ARGENTINA'S RAILWAYS 23 4.2. THE ECONOMICS OF ACCESS CHARGES: A QUICK REMINDER 25 4.3. REGULATORY ACCOUNTING PROCEDURES FOR SETTING ACCESS PRICES 26 4.3.1. IDENTIFYING THE RELEVANT DIRECT COSTS 26 4.3.2. ALLOCATING FIXED AND COMMON COSTS 27 4.3.3. ACCESS PRICES FROM A REGULATORY PERSPECTIVE 28 4.3.4 AN EXAMPLE: THE FERROEXPRESO PAMPEANO CASE 29 4.3.5 WHERE DO WE GO FROM HERE? 33 5. OTHER USES OF REGULATORY ACCOUNTING 33 5.1. COLLECTING FINANCIAL INFORMATION FOR PRICE-SETTING AND PRICE-REVISION 34 5.2. A FINANCIAL MODEL FOR CONTRACT RENEGOTIATION - 36 5.2.1. A FINANCIAL MODEL OF THE RENEGOTIATION PROCESS 37 5.2.2. AN EXAMPLE: THE COMMUTER SERVICES RENEGOTIATION 38 6. CONCLUSIONS 42 7. REFERENCES 44 2   1. INTRODUCTION Almost a decade after its privatization experience started, Argentina has achieved a lot of improvements in the delivery of most of its infrastructure services. Argentina is way ahead of many countries in the regulatory learning curve and continues its efforts to build up its regulatory capacity. However, the change has not been problem-free. The reform of the transport sector in particular has not been as smooth as many had expected or at least hoped for at the beginning of the reform process. Most rail concessions and toll roads have been renegotiated or are up for renegotiation. This adjustment is not unusual in itself and is somewhat expected for a precursor in a sector in which many stakeholders - unions, truckers among the most vocals - have never really stopped questioning the process. The resolution of the conflicts, in particular the tensions between the regulators, the users and the operators is however somewhat slower and more difficult than expected by many of the observers of Argentina's privatizations. This paper argues that many of these conflicts are the result of a failure to create a set of rules of interactions between the key stakeholders - government, regulators, users, unions and the media. Most concession contracts proved to be incomplete in terms of the information requirements needed to anticipate pricing and investment related problems. Moreover, the necessary autonomous but accountable regulatory capacity has never been fully developed for this sector in Argentina. In particular, as the level of private participation increases in the sector, Argentina's problem was every regulator's problem: how to regulate monopolies when the actual cost and production information is directly controlled by these monopolies. To be effective, any regulatory agencies has to be granted access to a minimum level of consistent information. It must also be given instructions on the mechanisms it needs to follow to use this information and how to tailor them to the regulatory commitments. It must also be given the necessary enforcement power when any of the players fails to comply. The big questions are: how and to what extent? Argentina's transport sector has not yet been able to answer these questions and many of the tense situations observed over the last 2 to 3 years are the product of this incomplete regulatory capacity. In practice, the main information channels between transport operators and regulatory agencies are the firms' accounting statements. Because the operators have only a limited capacity to generate the appropriate information, regulators end up relying as much as possible on standard accounting data to describe the past and the present of the regulated company, and to make inference about its future performance. The poverty of Argentina's standard accounting information is such that it limits the ability of any regulator to deliver on many of its most basic obligations and points to the clear need for the regulator to better use its leverage on the firms to get them to generate more of information relevant to the regulatory accounting needs.' Which information to ask, how I Several recent papers have dealt with the issue of regulatory accounting. Carey et al. (1994) provide a detailed account and examples of the relationship between accounting practices and regulatory process in the UK. The overall relationship between information and accounting is studied in Burns and Estache (1998), whereas an example of regulatory accounting for Brazilian railways can be found in Alexander et al. (1999). 3  to ask for it and how to use it are the main topics covered in the paper. The discussion is built around specific on-going regulatory issues in Argentina's railways including efficiency measurement, access tolls, price-setting, renegotiation - where the availability of adequate regulatory accounting procedures could make an essential difference. To address these issues, the structure of this document is as follows. Section 2 discusses in some detail the main regulatory functions and information needs in contexts where concession contracts are in use, adapting general well-known principles to the Argentine railways case. Section 3 identifies efficiency measurement as one of those particular needs in the Argentine case and provides elements for regulatory accounting on this issue. Section 4 analyzes access prices as a second example of what regulatory accounting can and cannot do. Finally, Section 5 deals with two other important issues for Argentina's railways: pricing and information for renegotiation, two critically relevant issues at the moment. Section 6 concludes identifying the main weaknesses and strengths of the current practices and provides some practical recommendations for its improvement. 2. REGULATION AND INFORMATION IN ARGENTINA Since 1990 Argentina has experienced an unprecedented process of transfer of services and publicly-owned firms to the private sector, both by selling assets and by concession contracts. The national railroad (Ferrocarriles Argentinos, FA) was privatized during the 1989-1995 period, after years of mismanagement, deteriorating services and huge increases in operating losses. The privatization was carried out by dividing FA into three business units: freight, commuter and intercity passenger services. Freight services were awarded in six concessions to private operators. FA's urban commuter railroad services, centered around the Buenos Aires Metropolitan Area, were divided into separate lines and offered in seven concessions (one of which also included the municipally-owned subway system). All intercity passenger services were offered to the provinces, but most of them were ultimately abandoned.2 The main changes in the industry and the current situation are summarized in Table 2.1. From the point of view of regulation (and, in particular, with reference to its implications for regulatory accounting), the reform of Argentina's railways has had different consequences for the operation of each of the former FA business units. In the case of intercity passenger services, all the management responsibility was transferred to the provinces. Freight railways continued to be vertically integrated and the concessionaires become responsible for delivering services and maintaining infrastructures. In the commuter services, the Federal Government kept the main responsibility for infrastructure improvements, whereas in the case of the Buenos Aires subway that duty corresponded to the municipality. 2 A recent summary and detailed description and analysis of the changes in the Argentine rail sector can be found in Thompson (2000) and Campos and Estache (2001). 4  Table 2.1. Argentina's railways privatization and current situation Typ eoprocems Curent optorsa Current situafton 1 0-year concession contract of rolling -Ferroexpreso Pampeano (FEPSA) Investment commitments stock, infrastructure and services in - Nuevo Central Argentino (NCA) have not been fulfilled. Freigh exchange for a canon payment to the -Frou oa(S)Otu nrae eo Railways Government. Concessionaires Buenos Aires al Pacifico (BAP) expetins. Strtn committed a volume of investment in BunsArsa. aiio(A) epcain.Satn their winning bids. - Mesopotamico Gral. Urquiza (MGU) renegotiation process. 1 0-year management contract for Demand exceeded passenger services (including - Trenes de Bs. Aires (TBA) (2 lines) predictions. More C;ommuter subways). (20 years for Metrovias). - Metrovias (1 line + Subway) investment was needed. Services Government pays an operating - Ferrovias (1 line) Renegotiation just subsidy or receives a canon and - Metropolitano (3 lines) concluded with some finances infrastructure investments. concessionaires. Transfer of rolling stock, tracks and Several companies owned by Direct operation with InercitZy services to provinces. Services not Provincial Governments. The most subsidies. Concession Passenger transferred or non-accepted by the important one is in the Buenos Aires project for Ferrobaires, provinces were discontinued. Province (Ferrobaires)3 not yet defined. 8 A sixth freight concession corresponding to Ferrocarril Belgrano is currently being operated by the unions, with Goverment support. Since the conclusion of the rail restructuring process, the Argentine government has been facing three main challenges: * the need of outlining a new institutional structure for the sector since the reform; D the redefinition of the regulatory objectives in the context of private participation, and * the definition of adequate operating procedures to reach these objectives efficiently. These three elements are crucial for the understanding of the main issues related to regulatory accounting and we review them in turn. 2.1. The new institutional structure for regulation: who should do it? The federal structure of the country and the large asymmetry between the provinces and the Buenos Aires Metropolitan Area in terms of population and economic activity results a differentiated regulatory responsibility. In the provinces rail regulation is still in the hands of dedicated units within their respective provincial transport secretariats These units have exclusive jurisdiction over the intercity passenger railroads that were transferred to them. Freight rail concessions are entirely under the jurisdiction of the Federal Government, although they have to grant access to passenger services by contract. 3 Apart from Buenos Aires, other provinces that have dedicated rail units for intercity passenger services are Rio Negro, Chubut, Chaco, C6rdoba, Tucuman and Salta. 5  On the other hand, transportation in the Metropolitan Area of Buenos Aires is subject to the regulatory and fiscal policies of the federal, provincial and municipal Governrnents. The Federal Government is responsible for construction and maintenance of national highways, for financing investments and operating subsidies for the suburban railways and the subway, for regulating the commuter bus lines that connect the city with its suburban districts and for regulating the buses operating entirely within the city of Buenos Aires. Furthermore, the Federal Government's traffic police division is responsible for traffic control and enforcement. The Provincial Government of Buenos Aires is responsible for the construction and maintenance of provincial roads, the rail passenger services between Buenos Aires and Mar del Plata and also controls inter-municipal bus lines. Finally, the Municipality of the City of Buenos Aires is the owner of the subway infrastructure and rolling stock and is in charge of road and traffic management within the boundaries of the city. In 1996 National Decree 1143 established the framework for the privatization of the Buenos Aires subway and the concessioning of the commuter rail services. This Decree also approved the agreement between the Ministry of Economy, Public Works and Services and the Municipality of the City of Buenos Aires for the creation of a Metropolitan Area Transport Authority (ATAM), that would have been a cooperative entity among the federal, provincial and municipal governments, with authority for planning, managing and regulating transportation in the Greater Buenos Aires. With specific reference to passenger rail transport, initial plans envisioned the ATAM with power to monitor and control the concession agreements, except for safety issues which were to be regulated by National Commission for Rail Transport (CNTF). Dispute resolution between concessionaires and the government were to be handled by the National Commission for Rail Regulation (CNRF). Both the CNRF and the CNTF were also to deal with inter-city passenger and freight railways. A 1993 decree established the CNTF, but two attempts in 1992 and 1994 to create an arbitration body (i.e., CNRF) failed. Although a preliminary institution (the so-called pre-ATAM) was created to define and develop the ATAM, the Congress could not pass the bill legalizing the ATAM, due to political and institutional conflict. The initial regulatory entity for the metropolitan railway concessions was the Railway Restructuring Program Coordination Unit (UCPRF, within the Ministry of Economy, Public Works and Services), which had designed and overseen the entire concessioning process. In this sense, no real regulatory framework was defined before the concessions took place. In 1996, the UCPRF was merged with the regulatory body for bus transport and the CNTF to form the National Commission for Transport Regulation (CNRT), created by Decree 660/96, within the context of a wider public administration's reorganization and restructuring process. CNRT was born as a decentralized agency inside the environment of the Secretary of Works and Public Services of the Ministry of Economy and Public Works and Services but was later integrated in the Secretary of Transport, under direct control of the Ministry of Economy. CNRT's main functions included the enforcement of laws and norms, information collection for system evaluation, verification of contract fulfillment, and 6  sanction application. The CNRT cannot dictate regulations and the Ministry effectively retains all responsibilities for changes in the concession contracts and for fare setting (including fare changes envisaged in the concession contracts). The CNRT ends up looking like a three-legged workhorse - significant resources but no regulatory power - and with limited vision - to the extent that since there is no real transport strategy, it is not to clear as to where it is heading as a partner in the implementation of transport policy. 2.2 The objectives of regulation: what should CNRT do? The Argentine case illustrates the difficult institutional transition that often accompanies the reform of any traditionally state-controlled sector. Once private participation has been introduced in the rail sector The objectives of regulation should have been explicitly redefined to reflect the fact that they are supposed to reconcile the interests of the private operators with those of consumers and users in general.4 This redefinition of objectives was difficult because the creation of CNRT was carried out amid a difficult political context that conditioned its future development, its functions and objectives. Although formally, CNRT is the main regulatory body in rail transport at the moment, a review of its main mandates and competencies show that it has no real regulatory functions. According to Decree 660/96, CNRT oversees and controls the performance of freight and passengers transportation, by road and railway under national jurisdiction. More specifically, these functions can be summarized as follows: - to enforce laws and decrees regarding road and railway transport, - to oversee road and railway transport companies' performance, - to request the information and the necessary documentation to transport companies to verify and evaluate the system performance, with the appropriate confidentiality of the used information, * to control that the fares settled in the concession contracts are complied with and apply the sanctions foreseen in the legal framework in case of non-fulfillment of the established conditions, * to take the necessary steps in order to respond to passengers and user's complaints about the services, and; * to promote civil or penal actions in order to ensure the execution of its functions. In particular, Decree 660/96, explicitly points out that CNRT has inspection and control activities, but it does not assign explicitly regulatory responsibilities which in most cases with boil down to the right to resolve conflicts between players with respect to pricing or contract compliance .De facto, the Transport Secretariat takes on that role. 4 In this context, Burns and Estache (1998) suggest that the regulation of newly privatized infrastructure firms as specified in the mandate of regulatory agencies ends to have very similar objectives around the world. They tend to identify up to five main regulatory objectives: protect customers' interests regarding prices and quality of service, ensure that the business, operating efficiently, can finance its activities, promote efficiency, fulfill obligations as decided initially by policymakers, and ensure that the regime is sustainable and robust. 7  CNRT's actions focus customer and community rights protection, competition promotion in the sector under national jurisdiction, and the achievement of higher safety standards, better operation, reliance, equity and widespread use of the road and railway transport system. Thus, when compared to the more general regulatory objectives usually expected from a regulator, it is clear that CNRT's mission is short of what would be expected from a regulator. Its objectives are mainly addressed to the protection of the consumer (in terms of prices and quality) and of the system as a whole (technical standards, safety, etc.). The viewpoint of the operator emerges only in as much as its interests are consistent with those of the consumers and the sector. Moreover, the need of making regulation in a consistent way with the financial and economic viability commitments made through the contract to each operator has been left out of the CNRT's functions and is managed by the Transport Secretariat. As discussed below, this is the key issue in the current regulatory debate and an element to think about in any future reform of the system. Assuming that the government decided to actually empower the regulator with a full-fledged regulatory responsibility - including the mandate to make fairer assessment of the viability of the operators - the need to define relevant operational procedures is the next challenge CNRT will have to face. 2.3. The operational procedures and the processes: how should CNRT act? In general terms, Argentina's rail concession contracts are not very different from those found in other parts of the world in the sector. They cover prices, investment decisions, service standards, technical quality and environmental quality. As suggested by Alexander et al. (1999), to be able to monitor compliance in these functions, any regulator will have to focus on some of the key aspects of the business covered by the contract with the private company. In general, the main elements of each industry to be monitored can be classified as operations, finance, transactions and services. Table 2.2 shows that for most of the key functions of a regulator, information is a necessary condition of their effectiveness in regulating. Table 2.2. Information requirements by regulatory functions ;: 0 0;;: f uncloFr: Opratlt0000004ra Finnca Trnstto $ervke Price control / I _ Technical quahty I / !$Non discminion iR p1ceing Promfiotioni of cmoomen I 8 8  In the case of Argentina, according to Decree 660/96, CNRT faces four primary targets when collecting information from the rail sector. The information must be useful for: * the instrumentation of the necessary mechanisms to guarantee the effective exercise of its attributions regarding the operation of the road and railway transport system under national jurisdiction, * the execution of the police power for activities under its competence in the transport system, enforcing the laws, decrees and other regulations, as well as the enforcement of concession contracts of the rail and subway services, * the control of the operating performance of rail concessionaires, and the control, regarding railway security, of the execution of the existing norrns referred to tracks and fixed facilities, rolling stock and other materials and spares, as well as of the works and provisions integrating the investments plans of the concessionaire. In order to evaluate the suitability of these objectives, any consideration of the range of information collected to meet these targets has to take into account the existing and future regulatory functions. Furthermore, there is a trade-off between having information regularly reported, with potentially high monitoring and compliance costs, and having agreed formats and definitions for information that can be requested when the need arises. The assessment should establish whether the minimum amount of information necessary for the day-to-day operation of the regulator is provided. In terms of the four categories of information to be monitored, CNRT's experience in information collection can be summarized as follows: * Operational information. It is provided on a monthly basis through direct contact with the concessionaires. For the commuter services, for each month and each of the concessioned lines, CNRT monitors output data in terms of total passengers, total number of trains and car-kilometers. For each of the freight operators, the operational information available each month to CNRT is the total output (in terms of total tons and total tons-kms). For the intercity passenger services operated by the provinces, CNRT obtains information on the total number of passengers. In general, the coverage of all this operational data is adequate for the purposes of CNRT. . Financial and investment information. In the case of commuter services, where prices are set by contract and revised by the Secretary of Transport, financial information is related to operating information. CNRT requests annual audited balance sheets and other accounting information from the concessionaires, but does not impose specific accounting procedures nor demands a full detail of cost assignment. The revision of investments commitments is carried out on a monthly, project by project basis, but unrelated to the overall financial and economic situation of the firm. With respect to freight concessionaires, apart from the same accounting information as above, CNRT obtains revenue data on a monthly basis, which allows it to calculate average tariffs. Investments are also reviewed project by project, in reference to the commitments made in the concession contracts. None of the concessionaires is in the 9  Stock Exchange, although their cost and financial information is audited every year. In the case of intercity passenger services, CNRT has only general information provided by the corresponding dedicated units in the provinces.