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Public Disclosure Authorized Ca ~ ~ A0 , cc o 0~~ Public Disclosure Authorized Public Disclosure Authorized CountryDept. I Latin America and the Caribbean Region

Economic Notes

A Reform Agenda for the Uruguayan Transport Sector

Jorge Rebelo

August 1996

The World Bank

This series presents the findings of work in progress.They are preparedor sponsored by LAI staff to address immediate policy concerns identifiedthrough dialogue with governments,and they reflect the views of the LA1 Department.This note was preparedby Jorge Rebelo (LA11U)with the assistanceof Maria Lucy Giraido (LAIIU) and consultantsJorge Kohon (Railways), David Hughes (Forest Products Logistics),Eduardo Alvarez (Ports) . Questionsand concernscan be answeredby Mr. Rebelo at 202-473- 9323 or via email at jrebeloeworldbank.org. CURRENCYEQUIVALENTS

CurrencyUnit = UruguayanPeso (P$) US$1 = P$6.91

WEIGHTS AND MEASURES

Metric System

FISCAL YEAR

January 1 - December 31

PRINCIPAL ABBREVIATIONSAND ACRONYMS

AFE State RailwayAdministration ANCAP State Oil Company ANP NationalPort Administration ANSE NationalAdministration for StevedoreServices CATIDU UruguayanChamber for InternationalRoad Transport CGN GeneralAccounting Office CIF Cost, Insuranceand Freight CUTA UruguayanRoad TransportationUnion DNH NationalDirectorate for Hydrography DNV NationalDirectorate for Roads DNT NationalDirectorate for Transport GNP Gross NationalProduct IDB Inter AmericanDevelopment Bank INAPE NationalFishing Institute MTOP Ministryof Transportand Public Works OPP Officefor Planningand Budget PLUNA UruguayanNational Airline PNN NationalNaval Prefectship UNDP UnitedNations Development Program TC Officeof the ComptrollerGeneral UPT TransportPlanning Unit REPUBLIC OF URUGUAY

TRANSPORT SECTOR ECONOMIC NOTE

Introduction

This note identifiesand discussesthe main issues Officeof Budgeting and Planning (OPP, which is de which must be addressed in the several transport facto the Ministry of Planning), the Office of the subsectorsof the Republic of Uruguay,and proposes Comptroller General (TC), the Uruguayan Road an agenda for refomn. It is the result of a mission Transport Union (CUTA),the Uruguayan Chamber undertaken from December 4-8, 1995 to Uruguay, for International Transport (CATIDU), and the during which Bank staff and consultants had the National Administration for Stevedore Services opportunityto meet with officialsof the Ministry of (ANSE). Transport and Public Works (MTOP) and of the several agencies subordinatedto that Ministry. The This report is organizedas follows: mission also held meetings with officials from the Office of Planning and Budgeting (OPP) and the (a) Key Issues, Conclusions and Department of Forestryof the Ministry of Livestock, Recommendations. This is a snapshot of the Agriculture and Fisheries (MGAP). Finally, the sector with a description of the key issues, a mission held meetings with several transport vision for the sector and a matrix of actions to operators,shippers and producers. addressthose issues.

Objectives. The note has three main specific (b) Annex 1: Road Subsector. This is a detailed objectives: description of the subsector both from the physical, institutional,operational, financial and * it describes the current state of the economicstandpoints. transportsector in Uruguay,focusing on the activities of MTOP and of the main (c) Annex 2: Railway subsector. This is a detailed state enterprisesin the sector, as well as description of the subsector both from the the viewpoints of the producers, physical, institutional,operational, financial and shippers, users and operators of economicstandpoints transportinfrastructure and services; * it evaluateseach of the subsectorsusing (d) Annex 3: Ports and Shipping subsector. This is three basic criteria (seebelow); a detailed description of the subsectorboth from * it identifies key issues and proposes the physical, institutional, operational,financial reform options for the sector taking into and economicstandpoints. account the present and expected passengerand freight demand. (e) Annex 4: Intermodal Transport and the Logistics of Forest Products. A discussion of Evaluation Criteria. The note attempts to truck/rail combined movementswith a detailed evaluate the above subsectors with a consistent discussionon of the forestproducts situation and framework which focused mainly on the following its logisticrequirements. criteria: * Cost-Efficiencyof the subsector (f) Annex 5: Mercosur Integration Projects. A * Financial sustainabilityof the sector in summary description of proposed integration the long-term projects in the context of the Mercosur and their * Fiscal Implications impact on Uruguay.

Key Players. The key players in the transport Most of the numerical data included refers to sector are: The Ministry of Transport and Public 1994, because the Annual Transport Statistics book Works (MTOP),the UruguayanRailways (AFE), the for 1995, published by MTOP had not been released UruguayanNational Ports Administration(ANP), the at the time of the mission. RoadsDirectorate (DNV, a directorateof MTOP), the I REPUBLIC OF URUGUAY

A REFORM AGENDAFOR THE TRANSPORTSECTOR

L Key Sector Issues million tons of freight traffic or about 50 percent of the present freight traffic in the next five years. The wood All transport subsectorsexamined were analyzed products will come from the large number of tree from an efficiencystandpoint to assess whetherthey are plantation (mainly eucalyptus) that are entering able to respond to the existing and potentialdemand at production.If this wood is transported by 12-45 ton a reasonable cost; from a financial sustainability trucks through the feeder, interdepartmental and perspectiveto determinewhether or not they dependon national road network, the number of trucks expected government's subsidiesto maintain and expand their in the main routes will probablytriple and the damage infrastructure and operations to respond to potential to pavementswill accelerate.To illustrate the amount demand; and from a fiscal standpointto determinetheir of this damage, in countries confronted with the impact on government's finances and the need to evacuationof logs, total weights on 4 to 5 axle trucks revampthe existing user chargesystem. sometimesreach up to 75-80 tons and such monsters are devastating for the network. An 80 tons log- There are a number of key issues which must be carrying truck is 25 times more aggressive to the addressed to improve the performance of the pavement than a regular 40-ton load vehicle and does Uruguayan transport sector and to guarantee its as much damage to a road as 10 million cars! The developmentand sustainabilityin the long term. They RoadsDepartment (DNV) estimates that if all the wood are: (a) potential freight traffic demand and is to be transportedto the ports by road, investmentsof infrastructurecapacity constraints; (b) road, rail, and about US$600million would be needed to strengthen port infrastructureinvestment and maintenanceissues; the national, interdepartmental and feeder road (c) institutional framework related issues; (d) network.If, alternatively,30 percentof the woodwould regulatory issues; (e) cost recovery and financial be transported to rail heads by truck then to the ports, mianagementissues; (1) funding issues; (g) transport DNV and the Officeof Budgeting and Planning (OPP) planning issues; (h) private sector participation in estimate that investmentsof US$150 million will be investments and operations; and (i) Mercosur required in the road networkand about US$40 million integration issues. We examine each of these issues in the rail network.Capital dredginginvestments in the next. accessesto smaller ports such as Fray Bentos will also be required to accommodatefull ships in both options. PotentialFreight Traffic Demand and Capacity So, there is a short/mediumterm infrastructure Constraints.For the approximately5 million tons/year capacitybottleneck which is not only physical but also of freight traffic which, at present, are transported in has social impacts since there is a growing reaction to Uruguay's land transport network, there appears to be the circulationof trucks in the approachesto the cities no major infrastructurecapacity bottleneck.However, and ports. Finally, the need to store the wood which due to budgetary restrictions and poor pavement will be awaiting ships has generateda demand for land managementsystems, the primary and secondaryroad in areas not too far away (generally the old meat network lack maintenance, the tertiary network can packingplants which have been discontinued)or in the hardly cope with 1245 ton trucks used by most cattle ports themselves.This land is scarce and it is rather producers and wood products transporters, several expensive to store a product of low value such as bridges are narrow and require strengthening. The unfinished wood in the ports. Therefore,the issue of railway track is in poor condition but even so it could infrastructure capacity and land for storage must be handle much more than the 900,000 tons it handles studiedfrom a logistics standpoint,otherwise there now. So, at present there is no critical capacity will be continuoustruck congestion and road wear constraint in the land transport network of the and tear due to overloadingin feeder roads and in country, although the lack of maintenancein the rail the accesses to the ports. On the other hand, and road infrastructurecontribute to increasetrip times although a combination of rail plus road and operatingcosts by those modes. infrastructure investments seems more cost-effective (both from an economic and financial standpoint) However,a sudden surge of wood and other forest than just road investments (based on DNV's and products in Uruguay is expectedto generate about 2.4 OPP's estimates), it is far from certain that shippers 2 A Reform Agendafor Uruguay's Transport Sector would be more willingto use the truck/rail combined (e) Pavement Management System. There is an movementinstead of just truck, unless rail service is adequatepavement management system at the dramatically improved. Under the ongoingLn. 3021- national level but efforts must be made to UR, a study to evaluate different options for the improve it especially in the Intendencias movementof forest productsfrom a logisticsstandpoint (departmentalgovernments). is expectedto be completedby September1996. Freight demand (other than forest products) by road, is (f) Road and Bridge DesignStandards. Road and expectedto increaseat the same pace of GNP even if bridge design standards are obsolete and higher road-usercharges are applied.In the long term, inadequatefor the presenttype of trafficand need in case the Buenos Aires-Col6niabridge is built, it is to be correced to comply with MERCOSUR possiblethat internationalfreight traffic will increaseat standards. As mentioned above, a high a much higher rate than GNP and that will cause some percentageof the principalnetwork does not road bottlenecksin some parts of the national network. comply with the geometricaldesign standards requiredby the present traffic,since most roads Road Infrastructure Investment and have old alignments,with shortcomingssuch as Maintenance Related Issues. The key issues in the dangerouscuves, a high numberof sectionswith road subsectorare: reducedvisibility, narrow bridges, etc., as can be observed in sections of national roads (a) DNV's Staffing. DNV is overstaffed for 1,2,3,5,6,7,8,9and 11. The vertical sign posting Uruguay'sroad networksize. This has an impact is adequatebut the signs paintedon the roadway on its budgetbecause with reduced allocations for are insufficienton the principal routes. The laintenanmein the lastfive years, DNV needsto roadsidedrains and similaritems on the national find ways of decreasing its personnel and network require inmmediateattention. Finally, administrativeexpenses. Some pilot programs road safety is another factor which requires havebeen initiatedto graduallydownsize DNV's immediateattention. At present in Uruguaythe staffby puttingsome technical staff in chargeof number of fatal accidentsper hundredmilion certaincontracts, hoping that theywill later leave vehicle-lknis aboutfive times that of developed the agencyin return for conhtactsin sectionsof countries. the network (g) Road-User Charges. Although the present (b) Force Account vs. Contract Works. Unlike proceedsfrom road-usercharges appear to cover most modernroad agenciesin the world,DNV the maintenance allocationsto the sector, it executesits routinemaintenance activities mainly appearsthat lightvehicles are paying more than by forceaccount rather than contractingthem out theirfair sharetowards road wearand tear while to the private sector. DNV must make a trucks and especiallyvery heavy trucks are deliberateeffort to move from force accountto undercharged.A studyof road-usercharges needs contractworks to reduceits overheadsand have to be completedas soon as possiblegiven the moreresources allocated to maintenance. growthof heavytrucks in the country.

(c) Traffic Surveys.Planning and evaluationof road (h) Concessions. There is a structured plan to infrsucture improvementsis not based on increasethe participationof the privatesector in recent traffic surveysand up-to-dateinformation the operation,maintenance and investnentof the aboutthe movementof trucks with and without sectorbut very few roads have traffic volumes cargoexpected in the future.The eisting traffic which might be attractive for concessions.A database lacks continuity of information. consistentframework for concessioningout roads has beendiscussed and appliedin tworoads. (d) Compliance with Weight limits. Compliance with weight limits for vehicles which use the (i) Freight Road Transport A number of NationalRoads could be tightened and would interviews were made with road freight and thereforenot irvite overloading.It is estimated passengertansport operators. There were no that 8-10 percent of truck movements are complaints about regulatory bottlenecks. For overloaded internationaloperators the main complaintwas the inefficiencyof Uruguayan customs which A Reform Agendafor Uruguay's Transport Sector 3

takes too long to provideinternational permits be used for that purpose. Assuming that routine and is very slow in inspections.Examples cited maintenanceworks would be contractedout, Uruguay's are a 5 hour tnp from Buenos Aires to Fray network would not require more than 300 staff to Bentos ends up taking up to 14 hours due to manage it properly. Since 20 percent of the budget is customs delays. This increases the costs roughly US$20 million, proper staff sizing would free considerably.Also the health and sanitation that amount for contracting out routine maintenance inspectionsare very slow because one onlyknows works on some 6,000 km of roads (at US$3,000/km). 48 hoursbefore where the inspectionis goingto This is not a negligibleamount. Poor axleloadcontrol take place. Complaints about customs invite overloading. Insufficient funds for new documentationin the border with Brazil were constructionand very few concessionsor BOTs with also voiced.Operators claim that the forms are the private sector have restricted major rehabilitation not clear and they shouldbe simplifiedto avoid works and expansion.Timid albeit innovativesteps are mistakes.Also delaysin loadingand unloading being taken to gradually reduce DNV's staff, decrease operationsand slowcustoms during holidays tend the number of activities using force accounts, increase to increasethe operatingcosts. the number of concessionsand managementcontracts with the private sector, and better manage the j) TruckingIndustry. MTOP indicatesthat the equipmentfleet. But the impact of those steps on costs age of the truck fleet is high because is yet to be seen. Furthermore,better coordinationwith transporters, particularly, the small owner- the Intendenciasis underway(Ln. 3021-UR)to require operators are unable to find the funds to from them accountability in the use of resources replace their aging vehicles. In the off-peak, required for rehabilitation and maintenance of the smnallowner-operators charge tariffs which departmentalnetworks. The challenges created by the barely cover their out-of-pocketcosts, forcing MERCOSURare forcing Uruguay to change its road the formal truck companies to lower their standards, and to widen its bridges or build new ones. tariffs and this is good for the shippers. This is requiring a considerableeffort without a clear However, MTOP contends that the owner- guarantee of the benefits which will be reaped by the operator fleet is generally in poor and unsafe country. MTOP has obtained higher budgetary condition.An attempt to institute a system of resources for maintenance in 1996, but it must periodic inspection of trucks was met with rationalizeits staff and move away from force account resistance and a strike, because the small works to be able to cope with its growing maintenance owner-operatorsargue that they cannot buy requirements. So, in summary,road infrastructure new vehiclessince they don't have easy access investment and maintenance, pavement to credit. It is possiblethat this situation could management systems, and funding are major issues be improvedif the newly acquiredtrucks could which must be tackled in the short-term,hopefully be used as collateral. We recommend that a under Ln. 3021-UR. There is clear need to improve study on the domestic trucking industry be the road network standards, design and undertaken because the available data is maintenance. But this should be accompanied by insufficientfor analysis. restructuringchanges in DNV, staff rationalization, equipmentmanagement and a well-thoughtout and (k) Passenger Road Transport Operators also consistent plan for concessions/BOTsof highways complainabout delaysin immigration,customs and bridges. police and health and sanitationcontrol, all of which are contrary to the spirit of the Railway Infrastructure Investment and MERCOSURagreement. These issues deserve Maintenance Issues. Key issues identified in the furtherinvestigation. subsectorare:

The road network has been deteriorating due to (a) Decreasing Freight Demand Potential. insufficientallocation of funds for maintenance(which Freight traffic has stagnated below 1 million has been halved in real temns in the last five years) tons (961,000 tons in 1994, marginally less in despite the high number of agents per km of network 1995) well below the 1.6 millions transported (2,723 staff for 8,629 km, or 3.17 km per agent). More 40 years ago, in 1955, and the 1.3 million tons than 40 percent of DNV's US$90 million budget is moved more recently,in 1980; spent on payroll when no more than 20 percent should 4 A Reform Agendafor Uruguay's Transport Sector

(b) Poor Financial Performance. Railwayrevenues km in the Montevideo-25de Agostoservices. AFE duringthe 1990-1994period averaged about US$7 is probablylosing money in this operationbecause million,with a unit revenueof US$0.037per ton- the fee per train-kn charged to the private kIn in 1994. In 1993, the last year for which companyis not sufficientto cover its costs and financialstatements are available,working costs makea profit.So why is it providingthis service? reachedUS$ 23.4 million,with an unit working AFE has not yet fully accepted that passenger cost of US$0.132,and a workingratio (including semces is not a viable railway business in "other"revenue) of 3.15. Financialresults indicate Uruguayand is dedicatingmaintenance and other that AFE's deficit, including its undervalued resourcesto an operationwhich is unfeasibleboth depreciation,is US$19.3million; froman economicand financialstandpoint AFE's new administrationis investigatingthis passenger (c) Staff Redundancy. AlthoughAFE has made a train deal. remarkableeffort to reducepersonnel (from 9,050 agentsby the end of 1984to 2,115ten yearslater), (f) Lack of Corporate Planning Capacity. In spite the number of agents is still too large and its of all these facts, AFE is faced with an unique productivityis below 100,000ton-km per agent, historic Opportunityto restructureits services.A one of the lowestin the continent In particular, new ForestryLaw approvedby Congressin 1987, the "GeneralAdministration" concentrates nearly favoredthe increaseof land dedicatedto industrial 14 percentof the total staffand its salarycost per plantationswhich total,by now, 164,000hectares, capita is 63 percentsuperior to the salarycost of mostlyplanted with eucalyptus.In 1999,trees will the rollingstock maintenance area; start to mature and Governmentstudies estimate that by year 2001, the railway will have a 2.1 (d) Intense Track Deteioration. Under a million tons additional demand of logs (1.35 demanding financial scenario, with nearly no million tons to the port of Montevideo,0.75 resourcesfor mnaterials,the track has been the milliontons to the port of FrayBentos). Assuming more affected element of AFE's infrastructure, that the modalsplit estimates are correct,this new Althoughmost lines still accepta 18 tonsaxle load business opportunity calls for creative and (excludingthose of the "littoral"that only accept aggressive marketing and planning to take 14), sleepersare eitherdefective or rotten,ballast advantageof this market opportunitywhich may is inadequateor non-existing,speed restrictions changecompletely the viabilityof railwayactivity are increasinglyimposed and the roughnessof the in Uruguay. Unfortnately, marketingplanning ride has a heavy impact on maintenanceof and salesin AFE havebeen traditionally weak and locomotivesand rollingstock; if steps are not given to correctthis situationthe opportunityof capturingthe woodtraffic may be (e) Provisionof Uneconomicand Financially Non- lost Viable Services.Railway passenger services were eliminated,after intensepolitical debate, in 1988. Years of neglect, lack of commercialorientation, Five years later, passenger services were inefficient management coupled with inadequate marginallyrestored: eight daily serices (four in funding has brought AFE's infrastructure and eachdirection) join Montevideoand 25 de Agosto equipmentto very poor state. The main track is in very (64 km) and, also two daily services(one in each bad condition resulting in frequent derailments and direction)connect the cities of Tacuaremboand accidents,low operating speeds and unreliable service. Rivera(118 kIn). A privatecompany markets the It has had a significantimpact on market share erosion. servicesand providesthe crew for the passenger Unlessrail infrastructureis improvedsoon there will be cars,while AFEprovides the rollingstock, its fuel further market share erosion and the railway will and maintenance,the locomotivecrew, the track accumulatehigher deficits. However,it is a fallacy to and its maintenanceand, also, the corresponding believe that the improvement of infrastructure and trafficcontrol. Demand is scarce(about 80 people equipment will by itself attract new traffics. If one per train and per trip) and can be much better comparesAFE with similar size railways such as the servedby a small numberof buses.Low demand recentlyprivatized FerrocarrilMesopotamico (FCM) in may partally explainwhy AFE only gets about Argentina, it is fair to say that AFE should not have US$2.40per train-km in the Tacuaremb6-Rivera more than 550 employees and must increase its servicesand betweenUS$0.70 and 1.06per train- productivity10-15 fold to cover its costs. Fundamental A Reform Agendafor Uruguay's Transport Sector 5 restructuringof the railway is requiredto make it more commercially-oriented and by beefing up its (a) Crane Operation at the Port of Montevideo. marketing and sales function through more There are still some operatingrisks given that involvement of the private sector in operations and most cranes are operated by ANP personnel. management. AFE seems to be betting on the wood These cranesshould be operatedby the private products and eventual Mercosur traffic to be sector which should be responsiblefor their financially self-sufficient. AFE could possibly be maintenance.Installation of new mobile or rail restructuredin a way to play a significantrole in the basedcranes should also be concessionedout to sector, as long as it specializes in a number of the privatesector. products in which it might have comparative advantage over trucking, especially in the Rivera- (b) Container Tenninals. A final decision on Montevideo corridor. But that can only be whetherto re-bid this terminal shouldbe taken accomplishedif servicesare operatedby a dynamic, soon. Alsodecisions on locationof expansionsof client-oriented and financially conscious the terminal and its interface with the organization. This will not be achieved by the multipurposeterminal shouldbe taken to avoid present state-run railway organization, which over-investment. unfortunatelyis inwardlooking and unmotivated. (c) Costs/Tariffs. Studies on costs should be After the new Ports Law was approved (April continuedwith the objectiveof identifyingthose 1992) allowing for a more substantialparticipation of costs which are due to equipment which is the private sector in the investmentand operations of obsolete,inadequate or redundant(floating crane, the Uruguayan Ports Authority (ANP), this towboats, dredgers). This equipment or the organizationhas been very successfulin attracting the functionsthey serve shouldbe transferredto the private sector to the investmenton infrastructureand private sector. Concessionout to the private equipment of port facilities. This is a good example of sectortowage services. Rationalize the dredging, how productivitycan be improvedby easing restrictive towageand workshopsdepartment Once this is labor practices, how tariffs were lowered due to done, if trafficcontinues to grow, the policyof productivityimprovements and staff rationalizationand tariff reductionshould continue to keep the port revenues increased with a good combination of state competitiveand attractive. and private sector investment.A lot remains to be done but the concept of landlord port has acceleratedthe (d) ANP's Tariffs.Although ANP handlingtariffs investment in port facilities and handling equipment, have been reduced and its freeing ANP to concentrate in investments which are productivityconsiderably improved, the importers not of interest to the private sector. The challenge in and exportersare in some casespaying higher the ports area is to consolidatethe gains of the past, port tariffsthan before.This is mauily due to a to continueto entice the private sector to build and charge, which is not cost-based,levied by the operate port facilities, to re-bid the container maritimeagencies. This charge must be gradually terminal, to maintain the policy of eliminating reducedto be proportionalto the work produced restrictive labor practicesand to work with customs by the maritime agencies, instead of being a to ensure that the free port status of the port of mechanism to compensate them for their Montevideo is in practice and not just theory. replacementby a port operator.However, even Furthermore,due to the very high dredging costs, with slightlyhigher tariffs than before,the overall more private sector participation in this area is generalizedcost of shipmentsfor the majorityof required. The Uruguayan ports are mainly river the importers/exportersinterviewed is much ports and they are in constant need of maintenance lower than beforebecause handling times and dredging. Private sector participation in these reliabilityimproved dramatically with the ports activitieswill surely lower the costs of dredging for reform ANP. (e) NavalBase. Stepsshould be takento relocatethe Ports Infrastructure Investment and Naval Base from the port since that is a prime Maintenance Issues. Following are key issues which areafor handlingcontainers and facilitatingriver are still unresolvedand must be tackled by ANP and traffic.Since the port does not have much land MTOP: available this relocation is very important. 6 A Reform Agenda for Uruguay's Transport Sector

Compensation for this land expansion should be seats, safety standards) but it does not seem to affect the charged by ANP to the concessionaire interested consumer because there is competition in almost every in using this space. route. Road freight and rail tariffs are de facto deregulated, any foreign company can enter the market (f) Infrastructure. In view of the growth of the as long as there is a bilateral agreement between wood products traffic, ANP and AFE should Uruguay and its country. In the shipping sector, create a joint working group to analyze the best however, the demand that the national shipping lines way to store these products and decide on the should have an Uruguayan captain and chief engineer, locationof future storage areas. and crews who are 50 percent Uruguayan, is an imposition which has discouraged the formation of (g) Port Master Plans. These master plans should more local shipping companies. Probably, this is the be completed, carefully discussed and evaluated reason why, in spite of the new Ports Law, no both from the economic and financial Uruguayan cabotage shipping lines appear in the standpoints.Once the process is concluded, ANP market. Restrictive labor practices still exist in the ports should try to implement the proposed investment sector but the influence of the stevedoring unions has plan always trying to entice the private sector to decreased considerably and private terminals are now participatein the investment and operation of the operating without unionized workers. Some restrictive ports. ANP should restrict its investmentsto areas labor practices still exist in the ports/shipping where the private sector is not willing to imvest. subsectors (pilotage, towing, etc.) and they should be eliminated because they tend to increase costs. Institutional Related Issues. Although the institutional framework received a lot of attention in Cost Recovery and Financial Management the appraisal of ongoing Ln. 3021-UR, little has been Issues. Although ANP is turning out a profit, AFE is a implemented in this area. It seenis that project consistent loss-making institution. There is general economic and financial evaluation, setting of priorities, poor costing systems and consequently, tariffs do not intermodal planning and the study of options for reflect costs. Therefore, there is a need to address restructuring transport state companies remain weak. cost-recovery from a more commercially oriented This could be quickly improved through: (a) the fine- standpoint by: (a) setting tariffs which, when added tuning of relations between MTOP (and its DNP, to subsidies, cover at least the long-run variable DNV, DNT, DNH), AFE, ANP, OPP and TNC and a costs (defined as out-of-pocket costs plus clear definition of their respective roles in the depreciation of equipment and cost of capital) of the financing, planning, investment and operation of service provided. This is particularly true for AFE, transport services; (b) the creation of an entity since its costing system is very poor; (b) a reliable within MTOP which is formally empowered by OPP study on road-user charges to verify the extent of and the Minister of Transport to study the cross-subsidization of trucks by light vehicles and restructuring options for the several public propose corrective measures. This is included in Ln. transport enterprises (especially AFE); and; (c) the 3021-UR but has not yet been undertaken; and, (c) appropriate organization to ensure that the transfer improving financial management of the systems by of resources and technical interface between MTOP wide-ranging cost-cutting measures, staff and the Intendencias is adequately done and rationalization policies, and by appointing more monitored. ANP and AFE are not monitored by any financial managers to run the public transport MTOP department since there is no agency in enterprises. charge of overseeing ports or railways. If this is done by the Transport Directorate of MTOP (DNT), the Funding of the Transport Sector. Since the road- scope of the monitoring should be more clearly user charges are sufficient to cover the present costs of defined (e.g., contract-plans, operational and road maintenance and ANP turns out a profit, the main financial targets). issue in the transport sector funding is how to generate the funds for paying the operating subsidies of AFE and Regulatory Issues. Although there are no to finance capital expansion and major rehabilitation regulatory restrictions to market entry or exit, and no programs in all infrastructure subsectors. The tariff setting (except in road passenger transport), some revamping of funding mechanisms in order to regulation still exists in the road passenger transport guarantee adequate financing for the industry (minimum number of frequencies, type of implementation of new infrastructure and the A Reform Agendafor Uruguay's Transport Sector 7 sustainability of the existing systems is a priority concessionsand managementcontracts once it reduced and should be discussed in the forthcoming road- the importanceof the stevedoringunions in the ports. user charges study. The very high subsidies paid to But it was unable to complete the concession of the AFE (USS18million/year or US$8,352per employee container terminal since all the local operatorswere the per year) suggest that better financial management onlybidder and formed a cartel. AFE has not given any of the company will go a long way to lower the steps towards any type of concessionor management subsidies required from the State. For example, contract and in fact it appears to become more state AFE's real estate could be a source of funding if it is orientedby eliminatingsome of the gains made in the adequately exploited. AFE's scrap material, old past. The concessionin full or by group of activities wagons and locomotives and rail could be another might be a way to ensure that the level of service source of income. ANP's facilities should also provided is respected and the infrastructure and generate more funds and the concession of the equipment are properly maintained. It is worth container terminal and overhead cranes to the stressing that although a plebiscite annulled the private sector in exchange for a lease payment will privatization law approved by the previous provide additional funds. It is recommended that a government,present laws do not prevent any type of major sources and applications of funds analysis of concession,and therefore, as long as there is no sale the sector be undertaken and that recommendations of assets, the public enterprises' infrastructure and be made on the possible additional sources of funds equipment can be operated under concessions, for the sector. management contracts or any combination thereof. In this context, PLUNA the national airline is now a Transport Planning Related Issues. MTOP has a public-private enterprise owned by the Uruguay good statisticaldata base which is publishedevery year. government (49 percent) and an association of However, there is a need to strengthen MTOP Argentinean cable TV and free shop operators (51 transportationplanning, improve the traffic data base percent) and operated under concessionby VARIG, and the economic and financial evaluation of new the Brazilian airlines. The US$1 million/month investments especially the proposed Forest Products deficit of PLUNA has now been gradually reduced project and the next Roads rehabilitationproject. This and its service has been substantially improved. could be done quite easily if there is a formal Also, the government has been negotiating a number coordinating agency at MTOP. This agency should of bilateral agreements which increased competition also examine, evaluate and discuss with the state for intermational flights. Airports are under the transport enterprises their proposed restructuring jurisdiction of the Air Force and therefore they are options. all state-run. One exception has been a recent resource mobilization effort for a BOT project to Private Sector Participation. Since the build the Punta del Este AirporL government cannot provide adequate funds to public enterprises due to budgetary restrictions, attracting Mercosur Integration Issues. Although Uruguay more funds for investment in infrastructure and was alreadya memberof the CONOSURorganization, equipment from the private sector, is now a major its adhesion to Mercosur will have a number of priority in every subsector. Concessions and/or additionalimpacts on the transport sector.Uruguay will management contracts with the private sector will be be a transit countrybetween Brazil and Argentina, and one avenue to entice private sectorparticipation. There in principle, should adapt its infrastructure and is no comprehensive strategy in each subsector to equipment specificationsto allow the free transit of design concessions. At least, a basic concession trucks and containers. The main Mercosur integration philosophy should be defined to guide potential projects under study are the Col6nia-BuenosAires investors.In the road sectorsome timid steps have been bridge and the development of the Paraguay-ParanA given towards that goal through the concessionof the Waterway, which will allow a river connection with Interbalneariaroad under a BOT scheme which calls Argentina, Paraguay and Brazil. An Uruguayan- for the duplication of the road lanes and its Argentinean commission is studying the economic maintenance over a period of thirteen years. Several feasibilityof the Col6nia-BuenosAires bridge while the managementcontracts on a pilot basis have been signed ParanA waterway is being analyzed in depth by with former DNV personnel to entice them to create UruguayBrazil, Argentina, Paraguay and Bolivia.The their own companies.But there is no structuredplan for free port status of the Uruguayan ports will help other concessions.ANP has been partially successfulin integration as long as Uruguayancustoms respects that 8 A Reform Agendafor Uruguay's TransportSector

concept. Container movementby ship, truck and rail transport) and, even in road transport there is (the rail connectionthrough Saltowith the Argentinean competitionin every route amongst local and foreign privately-operated Ferrocarril Mesopotamico) are operators. Poor customs, immigration and health and probably the best benefits expected from the sanitation practices, however, increase operating costs MERCOSURintegration. The Port of Montevideowill due to long delaysat borderpoints. Customshas not yet competewith the port of Buenos Aires and, therefore, adapted to the spirit of MIERCOSURand they hardly will require further increases of productivity and respect the concept of free port which has been eventually a second container terminal. MERCOSUR approvedby the Ports Law for the Port of Montevideo. integrationwill force Uruguay to improve its transport infrastructureand equipment, and its competitiveness There are no laws which prevent increasedprivate otherwise the neighboring countries will soon grab sector participation in state-owned transport higher shares of the market. If the Col6nia-Buenos enterprises, in the form of concessions and or Aires bridge is built it will have a significantimpact on managementcontracts. The laws only prevent the full the road infrastructure of the countly which by then privatization and/or full sale of those companies. The should have complied with MERCOSUR road and questionthen, is whetherthere is the willingnesson the bridge standards. It will also have a considerable part of the government of Uruguay to undertake impact on the ferry boat transportation between fundamental restructuringof transport agencies where Argentina and Uruguay, and will eventually increase it is needed, especiallyAFE and DNV, and to support the transit traffic to and from Brazil and Argentina. the ongoingrestructuring of ANP (PortsAuthority) and Finally, the US Trade and DevelopmentAssociation is PLUNA(Uruguayan airlines), by preventingthe return financing a study of AFE to evaluate its role in the of restrictivelabor practices. Managementof AFE and MERCOSUR context. This study might shed some DNV appear rather reluctant to embark in fast staff light on other integrationissues. redundancy programs because they lack political support for that and the funds to buyout voluntary ]ELConclusions and Recommendations resignations. An unequivocal commitment of the Government to support restructuring, with a clear Based on the data collected and comparing with definition of the options for restructuring, should be a the last transport sector note prepared by the Bank in prerequisite for further lending in the sector to 1988,Uruguay's transportsector seemsto have evolved Uruguay.This is particularlytrue for AFE. It must be very little in the last eight years, with the notable emphasized that the "bricks and mortar" approach exception of the ports and aviation subsectors. Other used until now may only succeed with drastic subsectors such as road infrastructure are worse off institutional changes and by creating the enabling since in real terms the budgetary allocations for environment for more private sector participation. A maintenanceare lower than five years ago. Indeed, the successfulstory in restructuring(with Bank financing) wave of increased private sector participation which has been ANP, which tripled its productivity and is has produced dramatic effects in the road and railway now turning an operatingprofit. subsectors of other Latin American countries (especially in Argentina), has not reached Uruguay. From an infrastructureand equipment standpoint The guarded approach towards more private sector there is a major short/mediumterm bottleneckcreated participation expressed by AFE's management is a by the sharp increase of forest products traffic which major concern. MTOP seems to have little power to must be addressed.This is notjust a theoreticalforecast make drastic changes in AFE. MTOP also is following because one can see the ever growing number of a deliberatepolicy of gradual staff rationalizationand eucalyptus plantations and the already increasing very slow conversion of force account works into number of 1245 ton trucks circulating in the road contractworks. This might have a bearing on its budget network. This will affect the condition of the tertiary for maintenance and expansion. The approach to and secondarynetwork which are the main feeder roads explore concessions/BOTshas been applied in only two for a country whose exports depend heavily on the highways,but it is also true that very few links of the farm-to-marketor farm-to-porttransportation system. It national networkwill be attractivefor concessions. is therefore reconunended that, provided the governmentis willing to accept restructuring of AFE At present, there are few major regulatory and DNV, Bank lending concentrates on the best constraints in the sector which could prevent the combination of road/rail/inland terminal/port market entry or exit of transport sector operators. combination that minimizes the overall generalized Tariffs are not regulated (except for road passenger cost (economic operating cost plus waiting costs, A Reform Agendafor Uruguay's Transport Sector 9

reliabilityand inventorycosts) to the country.The best strengthening the institutional framework and the logisticscombination, however, should be not only the decisionmaking process in the sector through adequate one that will have the lowest economic costs for the coordinationbetween the several modal agencies and country but also one that can effectivelyattract the aboveall, proper economicand financial evaluation of shippers (instead of a theoretically optimal linear projects and their prioritization; (c) supporting an programming solution which might be impossible to emergency program to rehabilitate road and rail implement). It is clear after the interviews with infrastructurewhich can easily and quickly increase shippers,that they will only be convincedif the levelof their cost-efficiencyand capacity; (d) assisting in a serviceoffered by the intermodal combination,is from program to increase the private sector participation in their standpoint,better than a "truck only" alternative. the operationsand maintenanceof AFE particularly in Under Ln. 3021-UR a study, to be completed in the proposed forest products services; and,(e) ensure September 1996, should recommend the best that adequatecost-recovery mechanisms are in place for investmentplan to overcomethis bottleneck. all modes. In the medium term (3-5 years), our strategywould focus on promotinga more efficientand Vision of a More Efficiently Managed financially sustainable market-oriented supply of Transport Sector. Transport policies in Uruguay transport services,through: (a) an appropriatereform would be geared toward the efficient and equitable of regulationswhich will facilitate market entry, fare provision of services which are required to transport deregulation and safety regulations; (b) supporting passengersand goodsat the lowesteconomic cost to the integration with the other countries of the country and create the enabling environment for MERCOSUR, (c) further strengthening of funding financiallyviable transport enterprisesto deliver those mechanismsto ensure proper maintenanceof road and services.Policies would be consistentwith the broader rail infrastructure (based on pre-agreed targets) and macroeconomicpolicies of the country,as well as with finance or provide partial risk guarantees for the objectivesset for the sectorby OPP and MTOP.The investments which the private sector cannot finance generalapproach to cost-efficienttransport should be to alone; (d) undertake a study of the domestictrucking restore the incentives which exist when privately- industryand proposeoptions to facilitatethe renewalof ownedsystems operate under competitiveconditions. the fleet; (e) assisting in projects which improve the Re-designedregulations and concessionaryagreements, data base required for appropriate planning such as and improved bidding processes would promote O/D surveys and preparation of master plans which competition in the provision of services; and rates study land use, air quality and transport alternatives; would be liberalized in the corridors where there is and (f) restructuringthe railways company (AFE) for effective competition. DNV would move from force more efficiency and elimination of susbsidies.In the accountworks to contract work in routine maintenance long term (> 7 years), our strategy would aim at and will proposea systemof road-usercharges which is fosteringan intermodaltransport system which is cost- consonantwith the road wear and tear caused by motor efficient and a road, rail and port infrastructurewhich vehicles.DNV will also seek a better coordinationwith receivesproper maintenancedue to an adequatesystem the municipal road agencies (Intendencias).AFE will of user charges. consider concessioningout its operation starting with the new forestproducts serviceand hopefullyits overall The followingare short-termaction plans for each operation.ANP will pursue its policy of concessioning of the susbsectorsto achieve the goals stated in the out servicesand investmentswhich are attractiveto the proposedagenda for reform: private sector and will soon re-bid its container terminal operations. MTOP will strengthen its organizationby beefing up its planning capabilitiesand project evaluationand selectionfunctions.

Agenda for Reform. In view of the goals stated above, which encompass economic efficiency, cost recovery,social equity,administrative convenience and modal coordination our subsector strategy would be aimed at: in the short-tern (1-3 years) (a): assisting the government in formulating and implementing a transport policy consistent with those goals; (b) ISSUES AND ACTIONS MATRIX

______Table 1: Transport Sector as a Whole Issue Action Agency Responsible 1 Institutional MTOP should create a unit which is formally empoweredby MTOP and OPP to study and implement restructuring MTOP options in the transport agenciessuch as AFE.MTOP to improvethe coordinationbetween its departments,AFE, ANP, OPP and INC.MTOP to improveinterface with Intendencias. 2 Regulatory Continue to reduce regulations to a minimumespecially in the bus passenger industry and in the shipping industry. MTOP, DNT,ANP Attemptto eliminateremaining restrictive labor practices. 3 Costs Recovery Costs studies should continue to identify areas for cost-cuttingthrough reductionof overheads,by concessioningout MTOP, OPP and Financial activitiesto the private sectors.Clear benchmarksshould be set everyyear for all agenciesin particularAFE and DNV. Management Strong financialmanagers should be appointedfor these organizations. 4 Funding of the A comprehensivesources and applicationsof funds study should be done regularlyto assess the surplus/deficitof the MTOP, OPP Sector sector and proposeappropriate user chargesand taxation. 5 Transport Systematic short and long-term transport planning with well documented technical, economic, financial and MTOP Planning environmentalscreening and evaluation of projects should be undertaken. Priorities should be clearly established. Intermodalschemes should be consideredand thereforeinterface betweenmodes must be taken into account.New traffics such as the forestproducts traffic must be carefullyanalyzed so that infrastructurerequirements are properlyplanned. 6 Private Sector Prepare an enabling environmentand a consistentframework for private sector participationin all areas of transport, MTOP, OPP Participation mainly road maintenance,road concessions,rail concessions,pilotage, towage, dredging,etc. Commissiona study of optionsof privatesector participation,select the most desirableoption and set it in motion. Table 2: Road Subsector Issue Action Agency I______Responsible 1 DNV's staffing and Force Reduce the size of the work force by increasingthe amountof contractworks. Ensure that conditionsare DNV and MTOP Account vs. Contract Works created for private sector entrepreneursbid on contractworks and absorbthe personnel released by DNV. Move from a forceaccount organization to a contractoriented organization 2 Road Traffic Surveys Undertakedetailed and periodictraffic surveys. DNV and MTOP 3 Compliance with Weight Agree on uniformregulations for vehicle weight and size; conditionsfor driver education licensing and DNT, DNV and the limts safetyinspection of vehicles;develop a highwaydata base; Departmental I____ Authorities 4 Road and Bridge Design Coordinatehighway standards and specificationsfor design,construction and maintenanceto be applied to DNV and Standards all road networks,national and departmental;and develop traffic planningand engineeringcapabilities to Departmental improvenetwork operational efficiency, and safety, Authorities 5 Pavement Management Coordinate routine repairs of road maintenanceequipment between DNVs regional workshops and the DNV and Systems and Maintenance neighboringDepartments, and rely on the private sector for heavyrepairs; Departmental Coordination with Authorities Intendencias 6a Road-User charges Coordinateroad user departmentalcontributions: justify differentialswhere appropriate; MTOP,Ministry of Economyand Departmental Authorities 6b Road-User charges Review the effectsof collectingmore than the overall road-usercosts; impacton the cost of inputs and the Ministryof Economy priceof productsto be assessed; 6c Road-User charges Revise the structure of taxes, fees and other charges: study the increase in trucks' contribution to Ministryof Economy infrastructurecosts if budgetprogramming reflects highway priorities and the implementingcapability; and MTOP 6d Road-User charges Review specifictaxes: the tax on axles to be correctedto encouragetruck operatorsto switch to vehicles Ministryof Economy with less damagepotential (more axles); the tax on gross revenuesfrom passenger transport servicesto be and MTOP revised to includeconsideration of financialoperating results; 7 Freight Road Transport Maintain the conditions for market forces to perform in freight transport: study and review, based on DNT/MTOP commodityflow analyses and shippers'preferences, the optimum characteristicsof freight transport by road; the convenienceor not for freighttenninals should be reviewed; 8 Freight Road Transport Reviewand implementconditions for Uruguayanparticipation in internationalroad freight transport. DNT/MTOP 9 Passenger Road Transport De-regulatepublic services for passengertransport: the governmentto establish minimum standards of DNT/MTOP serviceabove which market forceswould interact;and 10 Concessions Prepare an enabling environmentand a consistent frameworkfor road and bridge concession with a DNT/MTOP ______detailed set of studies evaluatingtheir feasibility. Table 3: Railways Subsector Issue Action Agency Responsible 1 Decreasing Freight Produce a concise, down to earth, marketing plan, focusing on the commoditiesin which the railway may have AFE Demand Potential comparative advantage. Explore intermodal transport and particularlytransport of containers. Explore the most responsiveway to handle potential forestproducts traffic. 2 Poor Financial Prepare a cost-cuttingplan where optionsto subcontractservices to the private sector shouldbe considered.Re-examine AFE Pezfomruane existing tariffs and where possible adjust them upwards.Exploit the railway real estate and facilities by selling it or ______leasing it. Sell scrapmaterials in the market. 3 StaffRedundancy Prepare a staff downsizingprogram with a clear indicationof the minimumstaff needed to run operationsas a monolith AFE, MTOP, or as an holdingcompany with operationsand maintenanceconcessioned out to the private sector, examine possibilities OPP of severancepay and/or reallocationof surpluspersonnel. Bring staff payrollto no morethan 50 percentof total costs. 4 Intense track deteriora- Preparea detailed track rehabilitationprogram for the main corridorsof the networkand ensurethat bridges are also in AFE

_____ tion good condition;given lack of funds,prioritize the links whichshould undergo track rehabilitation. 5 Provision of unecono- Review existingpassenger services concessions and checkwhether they are profitablefor AFE;if not revise the contracts AFE,OPP rnic and financially and/or cancel such services. non viable services 6 Lack of Corporate Strengthencorporate capacity by creatinga marketingand sales departmentwhich works directlywith AFE's president, AFE Planning Capacity establish a real estate unit, review and strengthenthe cost unit and improvethe coordinationbetween the mechanical, track and operationsdepartment. 7 Private Sector Prepare an enablingenvironment and a consistent frameworkfor privatesector participation in the railway.Commission MTOP and Participation a study of optionsof private sector participation,select the mostdesirable option and set it in motion. OPP

Table 4: Ports Subsector Issue Action Agency Responsible 1 Crane Operation at the Givenits strategicimportance in the overallport operationthe operationand installationof present and future cranes ANP Port of Montevideo namelyoverhead cranes must be concessionedout to the private sector. 2 Container Terminals These shouldbe concessionedout to the private sector.A re-bid must take place as soon as possible and an attempt ANP shouldbe made to break the cartel whichwas the onlybidder in the first attempt to concessionit out. 3 Costs/Tariffs Costs studies should continueto identifyareas for cost-cuttingthrough reduction of overheads,by concessioningout ANP activitiessuch as towage,pilotage and dredging.This shouldbe reflected in the tariffs. LowerANP handling charges _____ by reducingthe levyimosed by maritimeagencies. 4 Naval Base A programfor relocationof the Naval Basemust be agreed with the Navyto make roomfor much needed land in the ANP port of Montevideo.The relocationcosts to be chargedby ANP to the private sector concessionaireinterested in that land. 5 Infrastructure Agreementshould be reached between ANP, MTOP,Forest productsassociation of shippers and producers on the ANP best way to store woodproducts, since theyare occupyingvaluable land in the portof Montevideo. _ 6 Port Master Plans Completeand discuss all the ongoingport masterplans and prepare a list of priority investrnentswhich the private ANP sector is not likely to invest in. A Reform Agendafor Uruguay's Transport Sector 13

ANNEX1

ROAD INFRASTRUCTUREAND ROAD TRANSPORTSUBSECTOR

A. Introduction systemroads have a light bituminoussurface; and This sectionidentifies and discussesthe key issues in the road transport subsector,proposes options for (c) local roads (1,196 km), connecting the reforms, and makes reconunendations for their arterial and collectors systems to the implementation. These recommendations are then departmentalroads. About20 percentof these translated into an Action Plan, which includes an roads have a light bituminous surface, with estimate of the resources required for their the remainderunpaved. implementation. The departmentsin charge of departmentalroads B. PresentSituation do not have an updated inventoryof road length and condition. It is estimated that of the 66,235 km of Nationaland DepartmentalRoad Network departmental roads, only 3 percent are paved, 37 percent are unpaved,and 60 percentare in place. For administrativepurposes roads are classified into national and departmental networks. The basic In summary,Uruguay has about 8,629 km in the national road networkis in place and its configuration national networkof which 2,319 km (27 percent) are dates back to the 1930s. Its planning, construction, finished to a high standard with concreteor asphalt; and maintenanceis the responsibilityof DNV within 5,072 km (59 percent) are medium standard with MTOP, and administeredthrough its headquartersin bituminous treatment; 1,196 km (14 percent) are Montevideoand nine regional offices. In the 1950s, finishedwith granular material(tosca) and 42 km with the goverrment, faced with high road passenger and compactedearth. In the National Road Networkthere freight growth rates, undertook a policy of surface- are 778 bridges with a total length of 61,000 m, of sealing the main highways. Today, except for a few which 6 percentare more than 75 yearsold, 50 percent highway sections, the national network presents the are more than 40 years old and 80 percent more than geometric and structural deficienciesassociated with 25 years old. Narrowbridges with a width of less than pavementsdesigned and built for vehicles and traffic 7 m amountto 55 percentof the total. 35 percent of all levels of 50 years ago: narrow roadwaysand bridges, bridges have structuralproblems. insufficient sight distance, dangerous intersections, and high rate of deterioration. The Departmental (Intendencias)Road Network has a total length of approximately66,235 km, of The national road network commenced which 1,961 km are paved, 24,476 km have granular development in the 1930s when it barely reached materialand 39,798km are of compactedearth. 1,000 km. By 1940, it had tripled its length and in 1950 reached 7,500 km. Since then, growth has been The above analysis shows that Uruguay has minimal. As of the end of 1994, the national network 35,024 km of roads in all, excluding earth roads, was 8,629 km long and divided into three systems: which for a populationof 3.1 million persons and an area of 177,000 km2 provides indicators which (a) major arteries (2,319 km), trunk highways comparefavorably to other countries. which, centered in Montevideo,radially link all main regions.About one third of the roads Road Traffic have an asphalt concrete or cement-concrete pavement and most of the remaining roads Road traffic data began to be collected have a light bituminoussurface; systematicallyin 1983. Since then the traffic counting program has been adjusted and, from 1992-94,data (b) collectors (5,072 km), secondary highways was obtained from about 90 stations on the national serving regional traffic and connectingto the network.Before 1983, some traffic data were available arterial system. More than 50 percent of the in correspondencewith tolling stations; traffic is underestimatedas only vehicles that paid tolls in one 14 A Reform Agenda for Uruguay's Transport Sector

Table 1.1: Count Com arison Paved kin! Paved km per % of Population Area 2 2 .Country...... I 000...... km ...... million inhab. Paved...... km Income (million) (million...... km ) Argentina 10.3 858 35 Medium High 33 2,767 Brazil 12.7 704 30 Medium High 154 8,512 Uruguay 198/53 a/ 16,678/3,017 47/12 Medium High 3 177 USA 386.2 14,172 >85 High 255 9,373 France 1,498 14,406 >85 High 57 552 Portugal 185.4 1,740 50 Medium High 10 92 Mexico 35.6 820 85 Medium High 85 1,958 Bolivia 1.4 198 21 Medium Low 8 1,099 Chile 13.5 753 42 Medium Low 14 757 Source:Data of the WorldBank (sources includingthe World DevelopmentReport). i The firstfigure includes roads finished with granular material within the paved category,1993 data,

direction were counted. Levels of trafflicon Uruguayan The use of the network during 1994 according to roads are generally not high; the highest are on the data of the Maintenance Department of MTOP is Interbalnearia Road, now in concession, the trunk shown in Table 1.2 (million vehicles per km). national highway linking the main coastal resorts east of Montevideo, which has levels averaging between Cargo movement for 1994 in the National 2,100 and 4,020 vehicles per day; and Route 1, the Network was about 2,900 million ton-km. This main road linking Colonia (the port closest to Buenos includes the export to contiguous countries of about Aires) with Montevideo, which averages 2,020 700,000 tons per year and imports of similar tonnage. vehicles per day. The rest of the primary highway network provides service to traffic levels of between Passenger movements by bus in 1994 were 700 and 900 vehicles per day. Heavy vehicles approximately 1,800 million passenger-km while represent a high proportion (about 40 percent) of the movement by autos, light vehicles and trucks was traffic on the primary network. On the secondary and 3,800 million passenger-km or a total of 5,600 million tertiary national networks, the present level of traffic passenger-km. fluctuates about 400 and 600 and 200 and 400 vehicles per day while, at the same time, the relative Traffic is expected to continue growing at an importance of heavy vehicles increases to about 45 and annual average rate of 4 to 5 percent, in line with the 50 percent. No systematic data exist for traffic on the prospects of economic recovery, not only of Uruguay, departmental road network. but also of its neighboring trading partners. The changing pattern of trade that favors growth of The number of vehicles recorded through toll regional interchanges will necessarily be reflected in stations as well as annual gasoline and diesel the greater importance of road transport. consumption figures show that overall traffic growth has followed a pattern correlated with the evolution of the economy. Fuel prices are US$0.97 per liter for T 12 _ gasoline and US$0.38 per liter for diesel. Type Amount Average Annual Daily Traffic Uruguay had the following distribution of road Autos 838.26 309.11 vehicles in the year 1994: Utility vehicles 359.13 132.43

Autos and pickups 440,480 Buses 115.61 42.63 Rigidtrucks 41,840 Medium trucks 189.74 69.97 Mobile units and semitrailers 14,275 Semi-heavy trucks 81.1 29.91 Buses 4,405 Heavy trucks 131.37 48.44 A Reform Agendafor Uruguay's Transport Sector 15

Table 1.3: State of Maintenance of the National Network, 1988-94 Good Regular Bad Without Evaluation ...... k ...... Total Km Year Km % Km % Km Km% 1988 3,916 41 4,54 47 784 8 338 4 9,578 1989 3,715 39 4,869 51 917 10 54 1 9,555 1990 3,265 34 4,862 51 923 10 494 5 9,544 1991 insufficientinformation 9,526 1992 insufficientinformation 9,508 1993 3,109 35 2,535 28 3,191 36 165 2 9,000 1994 3,213 37 2,377 28 3,039 35 0 0 8,629

Table 1.4: VehicleMovements, 1994 Very Good Good Regular Bad Total(kim) NetworkCategory Km %. Km % Km %. Km % . Primary 1,301 37 998 29 825 24 351 10 3,475 Secondary 289 7 1,449 35 961 23 1,424 35 4,123 Tertiary 174 17 272 26 335 32 250 24 1,031 Totals 1,764 20 2,719 32 2,121 25 2,025 23 8,629

Table1.5: State ofMaintenance_y Network Cate 1994 Very Good Good Regular Bad Total fKm) Network Category m %...... K ...... %...... % ...... Primary 1,161 33 695 20 697 20 922 27 3,475 Secondary 336 8 786 19 1334 32 1667 40 4,123 Tertiary 115 11 120 12 346 34 450 44 1,031 Totals 1,612 19 1,601 19 2,377 28 3,039 35 8,629

The national highways most significant for 326/986 (25 June 1986) with its modifications.The passenger movements are Routes 1 (the most recent versionwas approved in November1995. "Interbalnearia"), 9 and 3. For cargo movement,the most significantare Routes 1, 2, 3, 5 and 8. DNV currently has 3,378 employees. The workforcehas three major classifications:(a) budgeted Conditionof the Road Infrastructure personnel who are permanent, participate in the promotionalladder and are eligiblefor all benefits; (b) The Road Inventory of the DNV found the permanent personnel who enter the serviceat a high condition of the roads managed by the Central level, do not participate in the promotionalladder, and Governmentto be inadequate and 63 percent of the are eligible for all benefits; and (c) temporary and networkin poor or bad condition. contractpersonnel working in the regions,who do not participate in the promotional ladder and may be RoadNetwork Management released if work is slack. Unskilled labor may not be transferred between regions, but all other personnel The National HighwaysDirectorate (DNV) of the are eligibleto fill openings in lieu of being released. Ministry of Transport and Public Works (MTOP) maintains the National Network, while the DNVPersonnel and Equipment "Intendencias" manage the Departmental Network with assistance from the MTOP, by means of special A. Professionals(Graduates) 93 agreements. The National Transport Directorate B. Technicians 25 (DNT), which is part of the MTOP, is responsiblefor C. AdministrativeStaff 159 the regulationof the sector. Controlof freight vehicles D. Specialists 190 is provided by the Regulationsfor the Control of the E. OfficeStaff 2,843 weights of vehicles on National Highways - Decree F. AuxiliaryServices 60 16 A Reform Agendafor Uruguay's Transport Sector

J. Undefined 4 percent in budget maintenance expenditures were P. Political implemented1 Q. PersonnelBy SpecialAppointment 1 R NotIncluded Above 3 DNV's personnel distribution indicates that if it Total 3,378 continuesto work on a force-accountbasis, sufficient technical staff will not be available to perform Equipment: adequatelythe major highwayrelated functions.While Trucks 258 construction and maintenance are very important Machinery 481 functions, they could be better handled at the Vehicles 139 departmentallevel with supervisionfrom DNV. They Various 368 wouldthen be able to provide servicesnot yet available in Uruguay in the areas of planning, traffic RoadMaintenance Organization engineering,materials and soils testing, highway and bridge design, on-site and off-site drainage, and The Maintenance Department of the DNV is hydrology.The functions of research and development responsible for the maintenance of the National of highwaystandards could also be addressed.If DNV Network,for which it has 2,723 staff. The Divisionfor decides to adopt a strategy in which most of the Support of the Departmental Road Infrastructure is maintenanceworks are contractedout rather than done responsible for assistance to the Municipal by force account, it could reduce its staff to 300 and "Intendencias"by means of agreements which were still maintain its networkin good condition.If most of signed with each Intendencia.It has eight engineers its activities were contracted out, DNV would need while the Intendenciasprovide manpower,equipment, only 20 percent of its budget for payroll and spareparts and fuel. administrative expenses, thereby freeing close to US$20million for maintenanceworks. The focus of DNV's effort in recent years rightly has been on rehabilitationand on the strengtheningof DNV should be encouraged to reorganize to the national highwaynetwork, many sectionsof which performbetter major highway-relatedfunctions and to are approaching 47 to 57 years in service. The provide technical assistance to strengthen the Departments also have undertaken construction and Intendencias. The training function in DNV should be upgrading efforts, mainly through agreements with upgraded and expanded to provide input across the MTOP under the framework of a National Feeder range of activitiesperformed by highway agencies. Roads Program. Although each Department has an office responsible for public buildings and roads, An equipment management system is needed by understaffing,lack of technicalcapability and shortage both DNV and the Departments. However, before of funds are pervasive and limit any practical DNV can implement an effective Equipment undertaking unless assisted by MTOP. Routine ManagementSystem, the labor union problems must maintenance on the national highway network is be resolvedand the questionof duplicationof services generally satisfactory, but the combination of between parallel private, DNV and departmental increasingcosts, inadequateperiodic maintenance and repair facilities must be addressed.Heavy repairs and old networkrequires additionalefforts to maintain an overhauls should be contracted out with private acceptable level of service. Development of an workshops and routine maintenance of equipment effectivemaintenance management system has been a should be undertaken at regional workshops, shared high priority for DNV during the last few years. between DNV and the neighboring Departments. Maintenance by the Departmentshas improvedwith Proper cost accounting would make it possible to the actions undertaken under Bank- financed Ln. charge for services provided. Roadside repair and 3021-UR. serviceunits should be establishedto reduce the need for taking equipmentfrom the job site to a district or DNVs performance in implementing its budget central shop for minor breakdowns and routine has been far from good in recent years. In 1994, only service. 20 percent of the capital expenditurebudget and 38

1 The implementationfigures are based on January to October actualexpenditures and on Novemberto Decemberestimates A Reform Agendafor Uruguay's Transport Sector 17

The main concern regarding the public sector capacity, availability of equipment, staffing, annual organization involvedwith transport is the lack of a work capacityand past performances.As of November homogeneous and coordinated approach between 1995, 40 contractors were registered for highway national and departmental authorities regarding all projectswith 10 classifiedas first-levelcontractors, 15 aspects of road transport. Such coordination is as second, and 15 as third. Three or four contractors necessary in areas ranging from data collection to were classifiedfor bridgeprojects. Most ofthe work on standard norms for vehicle weight and size, conditions highways goes to the contractors in the top three for driver education and licensing and safety levels. inspectionsof vehicles, knowledgeof relevant vehicle operating costs, reduction of inefficienciesintroduced Expenditures for the national highway network by particular local or central governmentfees and are mainly those needed to maintain, expand, and taxes, development of market information systems, manage the system. These expenditures are mostly and others. Adequatedata on works performed,costs, incurred by DNV, but other agencies, such as the equipmentavailability and use, staff and salaries are Departments,DNT and the HighwayPolice also incur not availablefor the Departments. road-relatedexpenses.

Constructionand Maintenance PrivateSector Participation in the Subsector. Concessions All road constructionby DNV is done under unit price contracts after competitive bidding, with in- Private sector involvementin managementof the house construction supervision. Maintenance of all road sector of Uruguay began in 1994 with the national highwaysis performedby DNV using its own concessionof Route 1, the "Interbalnearia"road. The equipment, personnel and materials.Maintenance is concessionhas a period of 13 years and includes the carried out by ten zonal offices subdivided into 27 constructionof a second lane (of 30 km in the first districts. Each zonal office is allocated its own stage), its maintenanceas well as that of the existing equipment and has a field workshop for routine lane and road signs. This concession receives no equipmentmaintenance. A central workshopin Colon subsidyfrom the government.The bidding documents and private garages perform all major equipment follow no specific model applied in other countries. repairs. The concessionaireis responsiblefor charging a toll and is allowed to offer other services along the road, The Departments attempt to maintain their suchas servicestations and kiosks. The toll is updated networks, but the results are uneven and everyfour months in accordancewith the terms of the unsatisfactory. They are, for the most part, under contract. staffed and under funded, weakly managed, lack experiencedprofessionals, and are short of equipment, C. RoadTransport Management materials,and equipmentmaintenance facilities. The TruckingIndustry The construction industry in Uruguay is well organized. To qualify for participation in bidding for The trucking industry is fragmented and highwayprojects, contractorsmust register in MTOP's competitive,dominated by individualowner-operators, General Register of Contractors. Each firm is that predominantly use two-axle/six-wheelertrucks classifiedaccording to field of specialization,financial with payloadsbetween 5 and 8 tons. Uruguay'ssmall- Table 1.6: Characterisfics of Concession of the Interbalnearia Road Term Concessionsfor 13years, renewable Ownership The State is the owner of all land and installations.New facilities are built by concessionaireaccording to contract (30 kn of second lane) Staff The concessionaireis notobliged to use DNV'spersonnel. Operationsand All commercialand maintenanceoperations are the responsibilityof the concessionaire Maintenance Prices The concessionairecharges a toll specifiedin its proposaland is allowedto exploitfrom semce stationsand kiosks along the road The toll is updated every four months in accordancewith the terms of the contract. Control DNV monitorsthe concession 18 A Reforn Agendafor Uruguay's Transport Sector volume commodityflows and relativelyshort distances the fleet and has a 54 percent share of the market. justify the important share of these trucks in the fleet, About62 percent of the units are models of 8 or more registrationof which has grown little in recent years years. Altogetherannual demand was about 1.9 billion (1.2 percent yearly over the last six years). Larger, passenger-km during 1994, and capacity varied more efficient combinations have in recent years between 2.1 and 3.6 billion seat-km each year. The joined the fleet at a rapid pace (11.2 percent per year average seat-occupationfactor was 55 percent, with during the past six years). These vehicles as well as seasonalpeaks during the summermonths (60 percent new three-axle/ten- wheeler trucks have helped to in December, January, and February and valleys make the overall fleet more efficient by being diesel- during winter (49 percentin June, July, and August). powered. Twenty-onebuses belonging to five companies A limited number of small trucking companies provide international passenger services. About half and owner-operators(less than 5 percent)are members the fleet is 8 or less years old and the averageage is 10 of the Uruguayan Road Transport Union (CUTA). years. Traffic figures show steep decreases in recent Companiesauthorized to perform internationalfreight years;between 1992and 1994a I to 10 percentannual transport belong to a different union, the Uruguayan decline in growthwas recorded.About three-fourths of Chamberfor InternationalRoad Transport(CATIDU). the passengerstravel to and from Argentinawith most This union's member companiesoperate on average of the remaindertraveling to and from Brazil, to and with larger fleets (15 vehiclesper memberas opposed from Paraguay, and to and from Chile. These bus to 1.5). services, like any other service activity catering to tourists,are sensitiveto fluctuationsin the economies The volume of internationalfreight transport by of the tourist-originatingcountries, namely, Argentina road has rapidly increased in recent years as the and Brazil. structure of foreign trade has changed and regional imports and exportshave gained importance.Clearly, Road Transport Rates trade handled by road with Brazil is most important, representingmore than 1/2 of the total in the two-year Tariffs for domestic freight transport are period, which is likely to increase, given recent unregulated. Shippers and owner-operatorsnegotiate bilateral agreements. Brazil and Uruguay have each contract rates, which, while point-to-point, depend approved static capacity of 14,000 tons. Uruguayan specifically on commodities and volumes, hauling truckers, however,find competitiondifficult for they distances, terrain and road surface, and also on lack access to the large volumes and long hauling geographic area of destination, which affects the distances of domestic Brazilian cargo handled to and likelihoodof return loads. Thesetariffs appear to cover from Uruguay. costs adequately--at least for trucks carrying interdepartmentaltraffic. The Passenger Transport Industry With DNT monitoring the load factor of The bus services in Uruguay,regulated by DNT, companies providing passenger services at the are operated by 10 companies in the suburban area interdepartmentallevel, and revisingtariffs from time close to Montevideo, 60 companies providing to time, data exists for each line and month of the year interdepartmentaldomestic services,and 8 companies on traffic, revenues, and average revenue per satisfyinginternational passenger demand. passenger-km.

Two-hundredand ninety-eightvehicles constitute Main Transport Regulations the fleet operated for passenger services in the suburban area of Montevideo.The average age of the Domestic road freight transport is basically fleet is eight years, with individual models ranging unregulated not as a matter of policy but rather as a from 1987 to 1994. One companyowns 62 percent of result of the difficulty of imposing and effectively the units. controlling compliance with regulations. Again, national and departmentalfreight transport must be Interdepartmental services are provided with distinguishedaccording to the road network(national 1,129 authorized buses that average seven years of or departmental) used by traffic. Market entry of age, with the units ranging betweenmodels from 1988 trucks and their tariffs are generally unrestricted. to 1992. Here, too, one company owns 37 percent of Trucks operating on national roads are required by A Reform Agendafor Uruguay's Transport Sector 19

DNT to be registeredand to have a valid circulation Fares are established by DNT and approved by permit. The permit, (once issued, and provided no Presidential decree. From time to time tariffs are charges are pending against the vehicle), is normally adjusted, also by decree, based on DNT estimates of validfor one year. The vehicle must satisfyweight and operationalcosts. For settingfares two further types of size norms. service are defined: direct (no intermediate stops between origin and destination)and interrupted (with Plates, tags and drivers' licenses are issuedby the authorized stops at predetermined locations). Intendencias,which also caffy out vehicle registration. Discounts are also stipulated for season tickets, for These regulations are important to local governments student and teachers at all educationallevels and for as a source of funds but impose limitations,since fees two-waytickets. vary from Department to Department, encouraging ownersto register trucks in low-costones while basing The 1975 regulations for vehicle size and operations in other areas of the country.Moreover, the operation were revised in 1984, and in November lack of uniform criteria leads to poor quality and 1995, when changes in the gross weight per vehicle unevenstatistical information. and per axle were made. Vehicle size has been increasedto cover the larger international truck and Internationalfreight and passenger transport by trailer units (maximumlength betweenaxles of 15 m) road is regulatedby a multilateralagreement between from Brazil and Argentina and weight limits have Argentina,Bolivia, Brazil, Chile, Paraguay,Peru, and been raised to 45 tons, in line with the Argentine and Uruguay approved in June 1978, and approved by Brazilian limits. Enforcement is carried out using a Mercosur in January 1995. The agreement sets system of permanentscale locationsat major points of reciprocityconditions, restricts transportto authorized the arterial network, with teams using portable scales operators on pre determined routes, establishes checking movements elsewhere in the national terminal and border-crossingpoints, forbids en-route network.As only trucks suspectedof being overloaded domestic transport by vehicles of one country in are subject to being weighed, no information is another, exempts transit traffic2 from import/export recorded.Vehicles found exceedingthe maximumaxle duties and requires tariffs to be established on each loads are not allowed to continue without first country's routes, (to be reviewed periodically), and unloadingthe excess weight. Fines, which are revised changes to be communicatedto and acknowledgedby everyyear in January,vary with the excess weight and all signingcountries. the distance traveled when this information can be verified. Otherwise, the maximum fine is applied. Road passenger transport by public service is Fines range from US$30to US$3,800. basically regulated by the provision of service concessions in Decree 228 of 1991. This regulation The government will need to ensure that the defines road passenger operations as public services domestic freight transport market remains largely authorized by government (DNT) under the legal competitive, focusing regulations on safety and frameworkof five-yearrenewable service concessions. infrastructuredamage-prevention. Efforts to improve It classifies nine types of passenger lines (four regulations in lieu of market freedom, based on the international and five domestic), subject to fixed understandingthat DNT has an obligationto protect routes, frequencies, timetables, and tariffs, sets five truckers (and bus operators), might be beneficial to categoriesof service, and lays down the proceduresfor operatorsbut not to users, whose interestsDNT should concessionsto be requested, approved, and canceled. also be concerned about. The large share owner- Number and types of seats, doors, baggage operatorsand small to medium-sizedtrucks in the fleet compartments,etc. are stipulated in detail, as well as often are used to favor regulations that would foster maximum age of the individual vehicles and of the the existence of companies and secure economiesof operators' fleet. Entry is thus regulated by DNT's scale. These are not valid arguments.The demand for system of granting concessions with a view to freight transport in Uruguayis low; consignmentsare adjustingsupply to demand. small-scale,hauling distances are short, and shippers prefer to avoid storage and inventory costs. These characteristicstypify trucking operations.For the same reasons, efforts to consolidate freight at special terminals should be carefullyreviewed, as these could 2 Trafficon a county's systembut wit ogin and destinationin be instrumental in advancing public regulation and other countrjiesthat are party to the Agreement control of trucking industry. Moreover,studies should 20 A Reform Agendafor Uruguay's Transport Sector be undertaken, since the lower cost per ton-km that D. Sources And Applications Of Funds In The Sector consolidation of freight would bring in the long run (higher load factors and larger, more efficient trucks), DNV's budget is included in the overall budget of to some degree may be offset by additional costs due to MTOP: for the year 1993 the budget for Roads was complementary transport (door-to-terminal, and US$ 68.8 million, of which US$ 36.4 million was terminal-to-door), double handling of freight involved, spent on works. In 1994 the budget was US$ 94.3 and administrative overhead. million (2.8 percent of national budget) with US$ 54.5 million spent in works, which shows that of the total Although changes are likely to be desirable in the budget of Roads for the years 1993 and 1994, 53 international road transport market, these are difficult percent and 58 percent respectively was assigned to to bring about since they would require amending a works of rehabilitation and maintenance of the Road multinational agreement. Uruguay, however, favored Network. The remainder, 47 percent and 42 percent in by its location between Argentina and Brazil, and the two years are absorbed by administration costs. In considering the growing importance of regional trade, the year 1986 DNV had 3,324 staff and at the present would do well to study an approach to possible time, the number is 3,378. revision of the agreement with a view to lowering the cost of transport to shippers rather than protecting (in The movement of passengers and cargo in the theory) the Uruguayan international freight operators. National Network represents an important source of tax revenue for the State. Revenue collected by the Another area of concern should be the bus State in year 1993 related to movements on the transport market, which is still regulated: the National Network was as follows (US$ million): government decides if and when a service should be performed, sets the rates, the characteristics that * Expenditure on transport vehicles and services should have, and monitors for persons and goods 119 performance, including revenues and load factors. * SpecificInternal Tax (IMESI) 67 There are no similar regulations for the protection of * Value Added Tax (IVA) 52 users. Moreover, the overriding of market forces by * Expenditure by DNV 11 DNT's perception of needs for and supply of services * SpecificInternal Tax (IMESI) 2 has led to the dominance by a few companies in each * Value Added Tax (IVA) 9 market (one company handles more than 50 percent of the suburban passenger services market and the long * Receipts "allocated"to maintenance: 30 distance interdepartmental market). For the same * Tolls 9 reason, the average age of the fleet is high. As all * Vehicle tax on diesel 18 features, including quality of service, are regulated, * Tax on bus transport 3 there is no incentive for operators to improve, and for * Total receipts: 160 users to exercise their preference. Despite all the operator-protection regulations, many companies are The Taxon Axles,"provernWs" and otherrevenues have not in financial difficulties. beenincluded in thetotal, since these financethe functioning ofDNT. The government should also be concerned with Thetoll revenuesfor 1995will be reducedby the concession settingsetting minimumminimum standards to cover safety,safety, quality Ofof far)of Routeand by 1, thethe diesel Interbalneanatax, whtich road has (the not only been concession appliedon so a service, frequencies, scheduled trip times, and related far) abaies aspects. Companies could be allowed to compete by offering services with standards higher than the Comparison of the annual user charge receipts minimum. Concessions of lines and services could and the budget and actual road expenditures indicates then follow a public bidding procedure. Steps could be that the latter are excessive in both cases. However, taken to gradually optimize the passenger transport such comparisons do not indicate whether the system. For this to take place, demand (users) should contribution of each vehicle is adequate or not to cover be given a chance to respond to different prices and/or the costs incurred. To this end, the total budget and service qualities, and the supply (operators) should be actual expenditures were allocated according to allowed to adjust the level of public transport output, surface or structure strength requirements of bus, truck including by means of different types of buses, and light vehicle traffic, expressed in equivalent frequencies, and possibly tariffs adjusted according to vehicle and axle loads. peak and off peak hours, days, and/or seasons. A Reform Agendafor Uruguay's Transport Sector 21

operations of other transport modes? Are road-user Thoughit may be difficultto assess the benefits of taxes attractive to governmentin part because of the changesin regulations,and while the governmentmay nonexistence of income tax in Uruguay? Whatever perceive other issues in the transport sector as more answers are offered,road user taxes constitutea large urgent (e.g., railways and ports), the importance of part of vehicle operating costs (24 percent for trucks, road transport expendituresmust be borne in mnind, 32 percent for buses, and 33 percent for light and the relatively large impact that more efficient vehicles),and hence have significant incidencein the policies and regulations would have on the economy. cost of inputs and the price of outputs. Transport expendituresestimated for traffic circulating on the national highwaynetwork alone representabout Cross-subsidization--thatis light vehicles and US$915 million, equivalent to 6 percent of GNP. buses contributing to pay the shortage of truck user Every 1 percent reduction in road transport costs is charge revenues--appearsto occur. It is recomnmended estimatedto be worth US$9million eachyear. that the governmentaddress this potential issue. At the same time, the distortionaryeffect of the tax on the Charges to road users are high in Uruguay. The number of heavy vehicle axles should be modified to main taxes are collected by the central government penalize vehicleswith greater potential for damaging through the price of fuel3 and lubricants,import duties infrastructure.The tax on gross revenues from bus on vehiclesand spare parts, tolls on key trunk roads, passengers,which disregardsthe costsof providingthe and direct taxes on buses and trucks (tax on axles m services,should also be corrected. the case of trucks, and tax on gross revenues in the case of interdepartmental bus services). Local E. KeyIssues in the Subsector governments collect mainly through vehicle registration,licenses, and other municipalfees. Value- In summarythe key issues in the road subsector added tax, which is 20 percent, reflects the cost to are: users of lubricants, tires, vehicles and spare parts, insurance and labor (when maintenance and repairs (a) DNV's Staffing. DNV is overstaffed for are undertakenby contract). Uruguay's road network size. This has an impact on its budget because with reduced On average, the incidenceof taxes on the cost of allocationsfor maintenancein the last fiveyears, operating light vehicles ranges from 31.3 percent DNV needs to find ways of decreasingits (cars) to 37.5 percent (pickups) when gasoline- personnel and administrtive expenses. Some powered,and from 29.3 percent (cars) to 33.0 percent pilotprograms have been initiatedto gradually (pickups) when diesel-powered. For the downsizeDNVs staffby puttingsome technical interdepartmentalbus, the incidence of taxes on the staff in chargeof certain contracts,hoping that operating cost is 31.6 percent while for trucks the they wil later leave the agency in return for incidencevaries from 23.6 percent for heavy tractor- contractsin sectionsof the network. trailer units to 24.7 percent for the typical medium- sized truck. If the average cost of tolls were to be (b) Force Accountvs ContractWorks. Unlike added, the incidence of charges on each vehicle's most modemroad agenciesin the world,DNV operating costswould be slightlyhigher. executes its routine maintenance activities mainlyby force accountrather than contracting Road users pay in excess of what actually is spent themout to the privatesector. DNV must make on national roads. The question to address is whether a deliberateeffort to movefrom force account to the excesspayment could have a higher return for the contractworks to reduceits overheadsand have economy if left as increased savings (for capital moreresources allocated to maintenance. formation) or additional consumption within the private sector. Severalquestions--the answers to which (c) Traffic Surveys Planning and evaluationof would requirefurther studies--canbe raised. Could the roadifrasrctur improvementsis not basedon tax revenuesbe raised in the economythrough more recenttraffic surveys and up-to-dateinformation efficient and equitable means? Are road-tax revenues aboutthe movementof trucks with and without in excess of costs instrumental in subsidizing cargoexpected in the future.The existingtraffic data base lacks continuity of information.

Local governmentshave a share of revenues from fuel taxes. 22 A Reform Agendafor Uruguay's Transport Sector

(d) Compliance with Weight Limits. Compliance (i) Freight Road TransporL A number of with weight limits for vehicles which use the interviews were mnade with road freight and National Roads could be tightened and therefore passenger transport operators. There were no is not respected inviting overloading. It is complaints about regulatory bottlenecks. For estirated that 8-10 percent of truck movements international operators the main complaint was are overloaded. the inefficiency of Uruguayan customs which takes too long to provide international permits (e) Pavement Management System. There is an and is very slow in inspections. Examples cited adequate pavement management system at the are a 5 hour trip from Buenos Aires to Fray national level but efforts must be made to Bentos ends up taking up to 14 hours due to improve it especiallyin the Intendencias. customs delays. This increases the costs considerably. Also the health and sanitation (t) Road and Bridge Design Standards. Road and mspections are very slow because one only bridge design standards are obsolete and knows 48 hours before where the inspection is inadequate for the present type of traffic and going to take place. Complaints about customs need to be corrected to comply with documentation in the border with Brazil were MERCOSUR standards. As mentionedabove, a also voicecdOperators claim that the forms are high percentage of the principal network does not clear and they should be simplified to avoid not comply with the geometrical design mistakes. Also delays in loading and unloading standards required by the present traffic, since operations and slow customs during holidays most roads have old alignments, with tend to increase the operating costs shortcomings such as: dangerous curves, a high number of sections with reduced visibility, (j) Trucking Industry. MITOPindicates that the narrow bridges, etc., as can be observed in age of the truck fleet is high because sections of national roads 1,2,3,5,6,7,8,9and 1. transporters, particularly, the small owner- The vertical sign posting is adequate but the operators are unable to find the funds to horizontal is insufficient on the prncipal routes replace their aging vehicles. In the off-peak, and the roadside drains and similar items on the small owner-operators charge tariffs which national network require a immediate attention. barely cover their out-of-pocket costs, forcing Finally, road safety is another factor which the formal truck companies to lower their requires immediate attention. At present in tariffs and this is good for the shippers. Uruguay the number of fatal accidents per However, MTOP contends that the owner- hundred million vehicle-km is of the order of 5 operator fleet is generally in poor and unsafe times that of developedcountries. condition. An attempt to institute a system of periodic inspection of trucks was met with (g) Road-User Charges. Although the present resistance and a strike, because the small proceeds from road-user charges appear to cover owner-operators argue that they cannot buy the maintenance allocations to the sector, it new vehicles since they don't have easy appears that light vehicles are paying more than access to credit. It is possible that this their fair share towards road wear and tear while situation could be improved if the newly trucks and especially very heavy trucks are acquired trucks could be used as collateral. undercharged. A study of road-user charges We recommend that a study on the domestic needs to be completed as soon as possible given trucking industry be undertaken because the the growth of heavy trucks in the country. available data is insufficient for analysis

(h) Concessions. There is a structured plan to (k) Passenger Road TransporL Operators also increase the participation of the private sector in complain about delays in immigration, customs the operation, maintenance and investment of police and health and sanitation control all of the sector but very few roads have traffic them contrary to the spirit of the MERCOSUR volumes which might be attractive for agreement These issues deserve further concessions. A consistent framework for investigation. concessioning out roads has been discussed and applied in two roads. A Reform Agendafor Uruguay's Transport Sector 23

FutureTraffic and Evolutionof the Sector operation of the total highway network. This would end the duplicationof facilities, personnel,equipment The most recent forecastsrelated to the growth of and materials, would reduce costs, and most wood exports, on the basis on the eucalyptus importantly,, would permit DNV to develop as an plantations, are those supplied by the Forestry institution, focusing on the improvement of road Directorateof the Ministry of Livestock,Agriculture transport managementthrough research, development and Fisheries(MGAP) for the next ten years. of design, construction and maintenance standards, specifications management techniques, and traffic 1995 721,225m 3 2000 1,839,374n 3 operations. 1996 923,620m 3 2001 3,268,432m 3 1997 742,274m 3 2002 4,165,045n 3 1998 741,682m 3 2003 6,683,591m 3 1999 1,416,434m 3 2004 7,863,489m 3

On the basis of the above data, the DNV, under the assumption that the movement of these forest products would be done only by road, has prepared a program for rehabilitation works to be started immediately,which is shownin the box below.

So far there is no detailed program for the execution of these works, since DNV expects to use the informationprovided by a study to be contracted shortly under a Bank loan to the forestry sector. However,high priorityis given to the rehabilitationof the sectorscomprising roads 90, 25 and 24.

F. ConclusionsAnd Recommendations hstitutionalChanges

MTOP is awareof the reformsneeded in the road subsectorand shouldinitiate the followingmeasures:

• InstitutionalStrengthening of MTOP and DNV; definitionand implementation. * Identifydifferent options for maintenanceof the networkto includeprivate sector participation (communities,mnicroenterprises, etc.). * Reduceforce-account activities. * Revisethe presentcargo control points, establishing strictenforcement of naturalcompliance with regulations. * Initiatea maintenanceprogram for bridges. * Rationalizeresources of DNV to increasethose for worksand reduceadministrative costs.

DNV should be encouraged to reorganize to provide technical assistance to strengthen the Departments, develop and implement Uruguayan highway standards, promote participation of the private sector,and eventuallydelegate responsibility to the Departments for construction, maintenance, and 24 A Reform Agendafor Uruguay's Transport Sector

Table 1.7: Routes Road Route Distance Cost Region Litoral 26 y 3 Tramo El Eucalipto - Paysandu 100 km 25,000 90 Tramo Guichon - Paysandu 85 km 3 y 24 Tramo Paysandu - Fray Bentos 125 km 94,875 25 Tramo Algorta - Tres Bocas 65 km 20 Greco - Empalme con R. 24 100 km 15,000 2 Palmitas - Fray Bentos 70 km 14,000 21 Mercedes - Nueva Palmira 85 km 12,000 105 Palnitas - Dolores 40 km 6,000 14 Cerra Vera - Mercedes 60 km 9 000 Subtotal 175,875 RegionNorte 27 Ataques - Rivers 35 km 5,250 5 Tacauarembo - Curtina 165 km 41,250 Subtotal 46,500 Region Sur 5 220 km 44,000 43, 42, 19, 14 Blanquillo - La Boyada - Durazno 120 km 18,000 7 Fraile Muieto - Carro Colorado Montevideo 350 km 87,500 8 Trenta y Tres - Mariscala - Minas - Montevideo 210 km 57,000 9 Rocha - San Carlos - Pan de Azucar - Montevideo 210 km 42,000 98 Empalme con R. 7 - Treinta y Tres 60 km 9,000 39, 109, 15 Empalme con R. 9 - Aigua - Rocha - La Paloma 50 km 12,000 60 Empalme con R. 12 y Pan de Azucar 50 km 7.500 Total 277,000 Grand Total 500,125 A Reform Agendafor Uruguay's Transport Sector 25

Table 1.8. ActionPlan Action Agency Responsible ...... (i) Agree on uniform regulationsfor vehicle weight and size; conditions DNT, DNV and the for driver education, licensing, and safety inspection of vehicles; DepartmentalAuthorities

...... develop...... a highway...... data ...... base;...... (ii) Coordinate highway standards and specifications for design, DNV and Departmental construction and maintenance to be applied to all road networks, Authorities national and departmental; and develop traffic- planning and engineering capabilities to improve network operational efficiency, ...... and safety; ...... (iii) Coordinate routine repairs of road maintenanceequipment between DNV and Departmental DNVs regionalworkshops and the neighboringDepartments, and rely Authorities on the private sectorfor he.vy rep.....rs...... (iv) Coordinateroad-user departmentalcontributions: justify differentials MTOP,Ministry of Economy whereappropriate; and DepartmentalAuthorities (v) Reviewthe effectsof collectingmore than the overall road-usercosts; Ministryof Economy .impact.on~~~~~~~~~~~~~~~~~~~~~~~~~~...... the cost of inputs and the price of products...... to be assessed;,...... (vi) Revisethe structureof taxes, fees and other charges:study the increase Ministry of Economyand in trucks' contributionto infrastructurecosts if budget programming MTOP reflectshighway priorities and the implementationcapabilty; (vii) Review specifictaxes: the tax on axles to be corrected to encourage Ministryof Economyand truck operators to switch to vehicles with less potential damage to MTOP roads (moreaxles); the tax on grossrevenues from passengertransport servicesto be revised to include considerationof financial operating results; (viii) Maintain the conditions for market forces to perform in freight DNTtMTOP transport: study and review, based on commodityflow analysesand shippers' preferences,the optimum characteristicsof freight transport by road; the possibilityforfeight terminals shouldbe reviewed; (ix) Review and implement conditions for Uruguayan participation in DNTMTOP ...... internationalroad freight transport...... (x) Deregulate public services for passenger transport: the government DNT/MTOP should establish minimum standards of service above which market ...... forces...... would interact; and (xi) In the short term, review the impact of abandoningrailway suburban DNTtMTOP passenger services; adjust tariffs as required; if the present subsidy elementis not immediatelyremoved, it shouldbe made explicit and a timetableto eliminate it drawn up. 26 A Reform Agendafor Uruguay's Transport Sector

Table1.9: AveraXe Daily Traffic throgIoll Stations

...... Year Lightw ...... Buses...... Trucks Total PANDO (Route Interb.) 1990 3,189 237 79 3,505 33.2 km 1991 3,457 233 70 3,706 1992 4,061 250 71 4,382 1993 4,069 258 74 4,401 1994 3,730 258 73 4,061 SOLIS (Route Interb.) 1990 1,833 96 80 2,009 81.0 km 1991 1,912 96 56 2,064 1992 2,171 113 52 2,336 1993 2,071 115 50 2,236 1994 1,968 107 47 2,122 LA BARRA (Route 1) 1990 1,272 291 331 1,894 22.5 km 1991 1,260 271 319 1,850 1992 1,463 272 332 2,067 1993 1,478 288 344 2,110 1994 1,542 293 390 2,225 MENDOZA (Route 5) 1990 449 61 77 587 67.5 km 1991 483 64 75 622 1992 549 70 79 698 1993 597 76 75 748 1994 630 79 73 790 SOCA (Route 8) 1990 476 57 138 671 50.5 km 1991 600 54 143 797 1992 802 69 203 1,074 1993 890 70 196 1,156 1994 853 76 191 1,220 Source:MTOP - TransportAnnual StatisticalRepor, December1995. Note: Includesonly the trafficin one direction.

Table 1.10: Total Fuel Consum tion thousandsof cubicmeters

Year Gasoline Diesel9/ Fuel Oil" 1992 352.9A' 7.8 395. 1993 381.0a' 8.6 293.0" 1994 417.3a' 7.9 234.9 Source:MTOP - TransportAnnual Statistical Report, December 1995. a/ Includesgasoline for aviationand JP4. b/Includes 56.6m of fuel oil sold to Argentina. c/ Includes 30. lm of fuel oil sold to Argentina. A Reform Agendafor Uruguay's Transport Sector 27

Table 1.11: International Freight TranspoIrtby Road (000 t) Boarder ...... 1992 1993 ...... 1994...... Crossing Exports imports Total Exports imports Total Exports Imports Total Montevideo (NA) (NA) (NA) (NA) (NA) (NA) (NA) (NA) (NA) Colonia 80.3 20.5 110.8 78.2 23.5 101.8 58.4 14.4 72.8 FrayBentos 187.8 265.1 452.9 188.3 263.5 451.8 236.2 340.7 577 Paysandu 23.8 34.9 58.7 29.3 33.5 62.8 45.5 27.9 73.5 Salto 2.6 14.7 17.3 6.9 8.5 15.4 26.5 14.2 183.4 Artigas 18.0 4.9 22.9 7.4 0.14 7.4 35.0 0.90 35.1 Bella Union 3.6 0 3.6 29.0 3.5 32.6 4.8 2.1 7.0 Rivera 56.0 59.8 115.8 82.7 51.9 134.7 121.9 61.4 183.4 AceguAW 0.315 0.276 0.591 2.0 0.950 2.9 (NA) (NA) (NA) Rio Branco 147.2 82.4 229.6 187.4 121.8 309.3 169.4 132.5 302.01 Chuy 150.6 176.2 326.8 118.8 267.7 386.6 172.2 327.3 499.5 Total 670.4 659.0 1,329 730.5 775.3 1,505.8 870.3 921.1 791.4 Source: MTOP - Transport Annual Staiical Rqport, December 1995 a No pennanent border crossing

Tablel1.12: Volumeof TradekbRoad, 000)t)------Boarder ...... 1993 1994 Crossing Exports Imports Total Exports Imports Total Uruguay- Argentina 250 287 537 278 349 627 Uruguay - Brazil 427 439 866 499 506 1005 Uruguay - Paraguay 25 21 46 25 27 52 Uruguay - Chile 7 15 22 30 16 46 Total 709 762 1,471 832 898 1,730_ Source: MTOP - Transport AnnualStaistical Report December 1995

Table 1.13: IntemnationalPassenZer.Transport by Bus To/From 1992 1993 1994 ...... _. Argentina 309,000 289,000 264,000 Brazil 109,000 129,000 117,000 Paraguay 13,000 14,000 12,000 Chile 8,000 6,000 4,000 Subtotal 439,000 438,000 397,000 If traffic to/from Argentina that combines with ferry, hydrofoil or plane at Colonia is included: Total 468,159 461,118 426,578 Source:MTOP - TransortAnnual Statistica Repor Dember 1995 28 A Reform Agendafor Uruguay's Transport Sector

Table 1.14A: VehicleOperating Costs On GoodRoads Component ger Vehicles Trucks Auto S/W Bus Light Medium Heavy Fuel 76.38 46.75 105.91 109.79 156.12 175.90 Lubs 5.88 6.02 10.84 10.84 16.46 19.14 Tires 5.09 9.92 45.86 31.63 61.31 84.64 Crew 0.00 0.00 102.57 85.84 95.37 83.90 Passengers 52.49 64.11 335.23 0.00 0.00 0.00 Maintenance 9.01 10.27 40.03 31.63 38.60 71.39 Spares 16.64 35.77 138.43 30.27 53.36 105.98 Depreciation 88.92 76.51 31.69 40.21 45.98 65.50 Interest 20.64 24.79 14.18 21.69 20.44 29.44 Others 27.78 19.61 0.00 44.00 41.54 45.71 Insurance 78.25 54.90 12.34 42.00 35.38 55.71 Total 387.26 348.65 837.08 447.90 564.56 773 Assumption: Average Roughness2 m/km IRI (good road) Unit:US$/(1000 veh-km)

Table 1.14B:Vehicle 0 eratingCosts-On Re lar Roads o nEonent ~~~~~~~~~~~~~~~~~~~.....aseerVehiclesP...... hicle.s...... Tuk Auto SIW Bus Light Medium Heavy Fuel 77.09 47.09 105.33 109.56 156.77 177.96 Lubs 6.69 6.74 11.64 11.64 17.08 19.85 Tires 6.08 11.82 46.46 31.88 62.27 85.89 Crew 0.00 0.00 104.55 88.52 98.26 88.40 Passengers 53.29 64.99 342.05 0.00 0.00 0.00 Maintenance 10.75 12.00 47.09 39.91 44.91 78.85 Spares 22.77 48.27 148.67 50.11 72.20 128.62 Depreciation 90.01 77.07 31.83 41.09 47.02 68.51 Interest 27.05 25.14 14.19 22.25 20.97 30.75 Others 27.78 19.61 0.00 44.00 41.54 45.71 Insurance 78.25 54.90 12.34 42.00 35.38 55.71 Total 399.74 367.60 864.13 480.93 596.38 780.23 Assumption: Average Roughness3.5 rn/km IRI (regular road) Unit: US$/(1000 veh-km)

Table 1.14C: Vehicle Operating Costs On Bad Roads Passenger Vehicles Trucks Co.mponet...... Auto S/W Bus Light Medium Heavy Fuel 77.79 47.43 104.75 109.32 157.42 180.02 Lubs 7.49 7.45 12.43 12.43 17.70 20.55 Tires 7.07 13.72 47.05 32.12 63.22 87.13 Crew 0.00 0.00 106.52 91.19 101.15 92.89 Passengers 54.08 65.86 348.87 0.00 0.00 0.00 Maintenance 12.48 13.72 54.15 48.18 51.21 86.31 Spares 28.70 60.76 158.90 69.94 91.04 151.25 Depreciation 91.10 77.62 31.96 41.97 48.05 71.51 Interest 27.46 25.48 14.20 22.80 21.49 32.06 Others 27.78 19.61 0.00 44.00 41.54 45.71 Insurance 78.25 54.90 12.34 42.00 35.38 55.71 Total 412.20 386.55 891.17 513.95 628.20 823.14 Assumption: Average Roughness 5 m/km IRI (bad road) Unit: US$/(1000 veh-km) A Reform Agendafor Uruguay's Transport Sector 29

Table 1.15: Average-Daily Trafric 1994 Route Section Auto % Bus % Truck % Total 2 Cardona-J.E. Rodo 827 69 58 5 315 26 1200 2 J.E. Rodo-Palmitas 1000 66 55 4 460 30 1515 2 Palmitas-Mercedes 907 71 66 5 311 24 1284 2 Mercedes-Pte.G.San Martin 1178 80 70 5 225 15 1473 14 Accesos Ao Cololo 277 74 9 2 89 24 375 14 Acc.al Botic., Las Piedras y Bequ. 277 74 9 2 89 24 375 15 La Paloma-Emp. Ruta 9 2213 90 87 4 151 6 2451 3 km 128 - Trinidad 816 73 48 4 255 23 1119 3 Emp. Ruta 24 - Constancia 1134 74 63 4 328 22 1525 3 Rivas - Chapicuy 585 71 46 6 193 23 824 5 Goni - Durazno 1083 69 94 6 390 25 1567 5 Emp. Ruta 12 - La Cruz 1114 69 110 7 399 25 1623 8 Melo - Buena Vista 549 78 31 4 120 17 700 8 Buena Vista - Acegua 549 78 31 4 120 17 700 9 Ao Sause - San Carlos 1950 81 114 5 337 14 2401 10 Solis - Piriapolis 1957 88 78 3 194 9 2229 10 Emp. Ruta 104 - Jose Ignacio 1443 89 47 3 130 8 1620 12 Emp. Ruta 54 - Emp. Ruta 2 216 71 6 2 82 27 304 15 km 112-Lascano 270 74 21 6 72 20 363 18 Emp. Ruta 17 - Ao de ro 351 65 24 4 164 30 539 18 Ao de Oro - Vergara 351 65 24 4 164 30 539 18 Tacuari -Emp. Ruta26 262 63 24 6 127 31 413 34 Emp. Ruta 8 - Ruta 87 1729 86 78 4 212 11 2019 34 Emp. Ruta 87 - Emp. Ruta Interb. 321 84 5 1 54 14 380 87 Emp. Ruta 34 - Emp Ruta Interb. 1408 86 73 4 157 10 1638 22 Emp. Ruta 1 - Tarariras 804 74 41 4 244 22 1089 55 Emp. Ruta 12 -Emp.Ruta2 165 82 1 0 35 17 201 55 Emp. Ruta 21 - Emp. Ruta 12 288 88 6 2 34 10 328 57 Trinidad - Ao del Monzon (km 38) 94 66 3 2 46 32 143 67 Las Piedras - Sause 1731 91 121 6 47 2 1899 68 Progreso - Emp. Ruta 31 641 73 14 2 227 26 882 Bridges 7 overAoLaYeguada 165 71 15 6 51 22 231 14 over Ao Boticario 277 74 9 2 89 24 375 14 over Canada de las Piedras 277 74 9 2 89 24 375 14 over Ao Bequelo 277 74 9 2 89 24 375 18 overAo_ParaoyZArro2ito ..... 292 63 29 6 144 31 465

Table 1.16: DNV & MTOP Expenditures, 1994 .(,OQ's of USES------Item Budget Actual Capital Expenditures Financed by MTOP 18,308 27,280 Externally Financed 26,041 16,220 Institutional Strengthening Financed by MTOP 1,302 2,490 Externally Financed 1,115 210 MaintenanceExpenditures Financed by MTOP 30,406 29,400 Externally Financed 0 0 Total 77,172 75,630 30 A Reform Agendafor Uruguay's Transport Sector

Table 1.18: State Revenues from Taxes on Table 1.17: Annual Vehicle Operating Costs Vehicle Operating Cost Components in the in the National Road Network, 1995 National Road Network, 1995 (millions of USS) millions of U=S Vehicles Amount % of Total Vehicles Amount % of Total ...... Cars 35.10 28.55% Cars 408.49 44.66% Station Wagons 22.77 18.53% Station Wagons 160.00 17.49% Buses 13.03 10.60% Buses 102.37 11.19% Light Trucks 19.43 15.81% Light Trucks 97.11 10.62% MediumTrucks 11.09 9.02% Medium Trucks 49.21 5.38% Heavy Trucks 21.50 17.49% Heavy Trucks 97.44 10.65% Total 122.92 Total 914.62

Bibliography

AnuanioEstadistico de Transporte- MTOP 1994 Anuario Estadisticode Transporte - MTOP 1993 Situaci6n de la Vialidad Uruguaya - 1994 - Asociaci6nUruguaya de Caminos. AnAlisisdel SectorTransporte de Uruguay - 1994- Ing Ariel Nieto Datos de la Direcci6n Nacionalde Vialidad, DAIVD, DNT. A Reform Agenda for Uruguay's Transport Sector 31

ANNEX2

THE RAILWAYSSUBSECTOR (AFE)

A. Background Tractionand Rolling Stock The Network By the end of 1995, AFE's active main line The entire Uruguayan railway network, of 2,993 tractive fleet is comprisedof 41 locomotives.Twelve km, is a standard gauge (1,435 meters), single-track of these locomotivesare GE/Alco (1,500-1,600 hp, network, except for 11 km of double track near the 102-117tons), nearly all procured between 1951 and Montevideocentral station. The systemis operated by 1955. Their diesel engines were refurbished and AFE (Administraci6nde Ferrocarrilesdel Estado), a modernized in the USA between 1970 and 1979. state-owned, formally autonomousand decentralized There are 19 Alsthom locomotives(825 hp, 56 tons) company,which connects with the recentlyprivatized that, coupled, operate the 14 ton axle load littoral Ferrocarril MesopotAmico(FM) freight railway in lines. The 10 recently incorporated GE 2,000 hp Argentina, which, in turn, connects with the locomotives complete the main line fleet. Overall Presidente CarlosAntonio L6pez Railwayof Paraguay availabilityis 75 percent. In 1994, on average, 30.7 (both are also standard gauge). It also connectswith locomotiveswere ready for service on a daily basis the meter gauge RFFSA Railwayof Brazil at Rivera (Table 2.4). There are also nine shunting locomotives and Rio Branco. However,RFFSA has discontinued in operation. the line to the Uruguayanborder at Rio Branco, and only the Rivera-SantaAna connectionis in operation. Passenger serviceswere discontinuedin 1988 but Of the total network,only 2,076 km (about70 percent) partially restoredat the end of 1993. AFE's passenger is in operationof which 1,555km (abouthalf the total) rolling-stock inventory still reveals shows 6 Ganz constitute the "active main line" (Table 2.2). The Mavag push pull diesel electric locomotivesand 33 system has 191 stations, with average spacing of 15 hauled coaches, 6 Brill railcars (60 years old) and 4 km, of which, currentlyonly 47 are open. railcars (procured second hand in West Germany, some of which have never been in operation due to Most AFE lines were built at the lowest possible their deteriorated condition). The inventory also constmction cost with minimum earthworks, leading includes28 steel cars that must be pulled by main line to frequent, short (1.5-2 percent) gradients and locomotives. numerous curves and reverse curves that cause high operating costs. The permissible axle load is 18 tons The active wagon fleet numbers only 890, except on lines close to the Uruguay/Riode la Plata including cement tanks and limestone hoppers owned rivers, where tracks and bridges were built to 14 ton by the National Oil Company (ANCAP). A large axle load standards. portion of the fleet, where covered wagons are predominant and constitute 65 percent of the total, In recent years almost the entire network has only admits a payload of 30 tons. Overall availability deteriorated to a poor or very poor condition. the is 85 percent(Table 2.5). majority of wooden sleepers are either defective or completely rotten; rails are worn out and crippled at AFE operates a major workshopat Pefiarol (near the ends; and ballasting, when it exists, is inadequate Montevideo)for overhaulinglocomotives and wagons and thoroughlypolluted. Speed restrictions have been with smallerworkshops at Paysandii,Piedra Alta, and imposedon trains because of safety concerns, and the Sudriers to repair and convert wagons. There are quality of track maintenance standards is completely running sheds at or close to Montevideo (Central, inadequate.In 1985,there were 25 derailmentson the Pefiarol and Carnelli), and in the interior at three open track; 10 years later, the number of derailments locations. Alsthom locomotives are maintained at has grown to 63. Track roughnessincreased the need Salto. Fueling points are maintained by AFE at six for locomotivesand rolling stock maintenance. some other locationsover the network. years ago, the bogies of the Alsthom locomotiveswere reinforced shortly after commissioning because of Traffic and Services rough track. AFE provides freight carload services over all "active" lines. Less-than-Carload (LCL) traffic, in 32 A Reform Agendafor Uruguay's Transport Sector practice,is almost completelydiscontinued. AFE also kIn). The movementsto the Paysanduidepot, provides 8 daily passenger services along the 63-km previouslydone by rail, are now totallyby water Montevideo-25de Agosto line (four in the morning to transporL Montevideoand four in the evening back to 25 de Agosto per working day, with reduced frequency on (f) Wood. 93,000 tons in 1994, all shipped to Saturdays), and two daily services (one in each Montevideo,for exports; about 40 percent direction)between Tacuaremb6and Rivera (118 km), (38,000tons) movefrom Rivera (540 km), while in the north of the country. 28,000tons comefrom Rocha (206 km), 27,000 from Minas (115km), and 5,000 from Montes Freight traffic in the last five years (1990-94 (90km) and Merinos(350 km). period) has averaged slightly less than one million tons (965,000);since distances are short (205 km), it (g) Sugar. Importantin the past, it is nonexistent has only produced 198 million ton-km on average, in becauseof industry re .uctuing. this period. The decline has been significant since 1955, when AFE moved 1.93 million tons, and again (h) General Freight. 20,000tons in 1994;different in 1980 when it transported 1.37 million tons (Table origins,destinations, and productswith a clear 2.6). tendencyto disappear.

In 1994, six products (limestone, cement, rice, Freight train-km in 1994, was 778,000 (Table fuel oil, wood and malted barley)provided 89 percent 2.7). This figure shows the over-dimensioning,for of total tons and 80 percent of total ton-km, while traffic, of the traction fleet: even considering every generaltraffic (20,000 tons) and livestock(7,000 tons) pair of Alsthom locomotivesthat work coupled in the nearlydisappeared. littoral lines as one locomotive,every locomotive of the fleet travels 25,000 km per year. If only the The main flowscurrently carried by AFE are: available fleet is considered, and taking the same factors into accountas in the case of available Alsthom (a) Limestone. For cement production; 288,000 locomotives,each traction unit travels 33,500 km per tons in 1994 fromthe quarry at Uruguayto the year, or 2,800 km per month, a clear indicator of cement plant in Paysandui,only a 26 km under-utilization. Wagon use is not much better: distance. consideringan averagepayload of 30 tons per wagon, each availablewagon travels 8,300 km per year, which (b) Cement. 181,000tons in 1994;about 90 percent is reduced to 7,070 km if the total fleet is considered. movedfrom the cement plant at Verdumto a Finally, train efficiencyis not much better: only 240 storage and bagging plant at Manga, near tons per train-km. Montevideo,109 km away. Passenger services were discontinued at the (c) Rice. 166,000tons in 1994;about 20 percent beginning of 1988 after an intense political dispute, moved from Tacuaremb6to Montevideo(445 but partially restoredby the end of 1993. Although in Iam); 70 percent from various stations on the theory they are not run by AFE but by a private Varela-Treintaand Tres-Rio Branco line to company,in practice AFE provides the rolling stock, Montevideo(230 to 450 km); 5 percentare local fuel and maintenance, the locomotive crew, and of movementsover this line and the remaining5 course, track maintenance and traffic control. Some percent(6,000 tons) are carriedfrom Argentina stationsalso neededto be reopenedand staffedby AFE destinedfor Brazil. because of passenger services. The private company only handles the commercial side of operations and (d) Malted Barley. 47,000 tons in 1994; entirely provides the car's crew. AFE only gets US$2.40 per shippedto Brazil from Paysandu(distance from train-km from the Tacuaremb6-Riveraservices and Paysanduito Rivera on the border with Brazil: betweenUS$0.70 and US$1.06 per train-km, based on 383hn). the rolling stock used from the Montevideo-25 de Agosto service. Passenger statistics are scarce as the (e) Fuel Oil. 105,000tons in 1994;flows take place private operator was not required to provide this among the refinery in Montevideoand the information under the contract. According to AFE, cementplant at Verdum(15 percent, 125 km) betweenMay 1994 and June 1995, 583,600passengers and the distributiondepots at Treintay Tres (48 were transported, although there is no information percent,334 km) and Durazno(37 percent,205 about passenger-km.In the aggregate, services reach A Reform Agendafor Uruguay's Transport Sector 33 about 200,000 train-km, only 8 percent of the barleytraffic, faced with a 12-dayturnaround time for passenger train-km run by AFE in 1987, (before wagons, (mostlyspent on the border with Brazil), is passenger serviceswere eliminated),but 25 percent of far from coveringits directcosts. total freight train-km run by AFE in 1994. It can be concludedthat it is not the operational Freight traffic density is low by any standard and inefficiency with the main products that produces average, on the "active" network (2,076 km), at AFE'sfinancial burden,but the extendedsystem costs, 91,000 ton-km per km of track. Based again on a which are increased by labor redundancy. Labor payload of 30 tons per wagon,this means about 3,000 productivityonly reaches 90,000ton-km per employee. wagons per km/per year, and 10 loaded wagons (less The General Administration, in particular, employs than half a train) per workingday. nearly 300 people and, salaries for whom general expensesin 1993,totaled one quarter (24.4 percent)of Pastand Present FinancialPerformance all workingexpenses.

AFE financial performancehas not improved in The followingfigures have been obtainedin Table the last few years. Table 2.8 indicates its Income 2.1. Statementfor 1993, the last year for which complete Table2.1: Comparisonof SelectedAFE Main Products, financial information is available. Traffic Revenue & DirectCosts-(igres _nues in UScents- (US$6.7 million, US$0.038 per ton-km) and Other Revenue Direct Revenue/Direct Revenue (US$0.718 million) totalled US$7.4 million Costs Costs against expenses(traffic expensesand other expenses) Limestone 0.0669 0.0209 3.20 of US$ 22.2 million. The correspondingratio is 3. If Cement 0.0463 0.0160 2.89 other items are included (financial revenues and Rice 0.0332 0.0408 0.81 expenses, extraordinary revenues and redundant Malted 0.0280 0.0740 0.38 reallocated personnel expenses), the difference Barley 0.0617 0.0259 2.38 between revenues and expenses reached US$16.8 FuelOil 0.0441 0.0353 1.25 million.If undervalueddepreciation is added,the total FuelOil deficit reaches US$19.3 million. This being the case, a/Weightedperton--in-. each client provides, on average, US$0.038 per ton- Im, while the Governmentprovides US$0.10 per ton- General Organization mn. AFE is theoreticallyan autonomous,decentralized Salaries are a major contributor to expenses, agencywith a line relationshipto the ExecutivePower constituting 63 percent of traffic expenditure and through the Ministry of Transport and Public Works nearly duplicatetraffic revenues. (MTOP). However, its need for financial support makes AFE totally dependent on the Office of An expenditurecosting exerciseto comparedirect Planning and Budgeting (OPP) of the Presidencyof costs (train crew, rolling stock maintenance,fuel and the Republic,which, in practice, decides on subsidies, lubricants, and rolling stock depreciation without levels of investment, salaries, and number of including interest on capital) and present revenueshas employees. been done for five main rail movements (limestone, cement, rice, malted barley, and fuel oil) that in 1994 AFE has a board of directorschosen to represent constituted82 percent of total tons and 65 percent of both the ruling and main opposition parties. It is total ton-km. AFE figures and own estimates were involved in the daily management and decision- used where necessary. In two cases (limestone and making process,often limiting the role of the General cement), ANCAP,the national oil company,provides Managerto, that of an advisor.The business approach the wagonsand performstheir heavy maintenance.So, depends,then, on the orientationand will of the Board capital costs and the largest portion of wagon to run a commercial,profit-oriented enterprise. With maintenancecosts were not included. such politicalnature, the Board's frequent policy shifts The analyzedproducts, weightedby their ton-km (passengerservices are an example)are not surprising. participation,have a direct cost of US$0.0353and an AFE is organized into four technical divisions average revenue of US$0.0441, with a 1.25 (Transport, Communications, Traction and Rolling revenue/direct cost ratio, making a positive Stock, and Infrastructure) and three administrative contribution to system indirect costs. Only malted divisions(Human Resources, Finances and Purchases). 34 A Reform Agendafor Uruguay's Transport Sector

The commercial area, dependent on the Transport load (excluding those of the "littoral," that only Division, is weak, with a clear lack of aggressive and accept 14), sleepers are either defective or innovative approaches and initiatives to increase completely rotten, ballast is inadequate or non AFE's reduced market share (less than 10 percent of existent, speed restrictions are increasingly the freight market). Corporate planning is not imposed, and the roughness of the ride has a practiced, hence, AFE does not devise investment heavy impact on maintenance of locomotives plans, make project economic evaluations, or define and rolling stock; investment and expenditure priorities. (e) Provision of Uneconomic and Financially The total AFE workforce by the end of 1994 was Unviable Services. Railway passenger services 2,115 employees distributed between: General were eliminated in 1988 after intense political Administration, 286 employees (14 percent); debate. Five years later, passenger serviceswere Operations, 756 employees (36 percent); marginally restored: eight daily services (four in Infrastructure, 680 staff (32 percent); and Traction and each direction) join Montevideo and 25 de Rolling Stock, 393 employees (18 percent). Agosto (64 kIn), and two daily services (one in each direction) connect the cities of Tacuarembo B. Key Issues in the Railway Subsector and Rivera (118 kIn). A private company markets the services and provides the crew for Key issues identified in the subsector are: passenger cars, while AFE provides rolling stock, its fuel and maintenance, the locomotive (a) Decreasing Freight Demand Potential. crew, the track and its maintenance, and the Freight traffic has stagnated below one corresponding traffic control. Demand is weak million tons (961,000 tons in 1994, margi- (about 80 people per train/per trip) and easily nally less in 1995) well below the 1.6 million can be better served by a smaller number of transported 40 years ago (in 1955), and the buses. Low demand may partially explain why 1.3 million tons moved more recently, in AFE only gets about US$2.40 per train-kIn on 1980; the Tacuaremb6-Rivera route and between US$0.70 and 1.06 per train-kin on the Monte- (b) Poor Financial Performance.Revenues during video-25 de Agosto line. AFE is probably losing the 1990-94 period averaged about US$7 money in this operation because the fee per million, with a unit revenue of US$0.037 per train-km charged to the private company is not ton-km in 1994. In 1993, the last year for which sufficient to cover its costs and make a profit So financial statements are available,working costs why is it providing this service? AFE has not yet reached US$23.4 million, with an unit working fully accepted that passenger services are not a cost of US$0.1320, and a working ratio, viable railway business in Uruguay, and is including "other" revenue, of 3.15. Financial assisting maintenance and other resources to an results indicate that AFE's deficit, including its operation that is unfeasible both from an undervalued depreciation, is US$19.3 million; economic and financial standpoint. AFE's new administraion is investigating this passenger (c) Staff Redundancy. Although AFE has made a train deal. remarkable effort to reduce personnel (from 9,050 agents by the end of 1984 to 2,115 ten (f) Lack of Corporate Planning Capacity. years later), the nurnber of agents is still too Despite these conditions, AFE is faced with a large and its productivity is below 100,000 ton- unique opportunity to restructure its semces. A km per agent, one of the lowest on the continent. new Forestry Law, approved by Congress in "General Administration" represents only 14 1987, favored the increase of land dedicated to percent of the total staff, yet salary cost per industrial plantations, which now total, 164,000 person is 63 percent higher than the salary of the ha, mostly planted with eucalyptus. In 1999, the rolling stock maintenance; trees should start to mature and Government studies estimate that by year 2001, the railway (d) Widespread Track Deterioration. Under a will have an additional 2.1 million tons of logs demanding financial scenario, with nearly no (1.35 million tons to the port of Montevideo, resources for materials, the track has been the 0.75 million tons to the Port of Fray Bentos). more affected element of AFE's infiasucture. Assuming that the modal split estimates are Although most lines still accept an 18-ton axle correct, this new business opportunity calls for A Reform Agendafor Uruguay's Transport Sector 35

creativeand aggressivemarketing and planning of the private sectorin the railway sector.A new entity to take advantageof this opportunity,which under the jurisdictionof the MTPW, "Unit for Private couldcompletely change the viabilityof railway SectorParticipation in the RailwayIndustry" (Unidad activityin Uruguay.Unfortunately, marketing, para la Participaci6n del Sector Privado en la planning and sales in AFE traditionallyhave Actividad Ferroviaria), will need to be well staffed, been weak. If stepsare not taken to correctthis with adequate technical assistance provided (if situation,the opportunityof capturingthe wood necessary),as soon as possible. trafficmay be lost. This new unit should be the place when AFE RegulatoryReform strategy is discussed and implemented. AFE's management plans to restructure, following the Transport Sectorpolicy is definedby the Ministry unsuccessful Swedish model, which divides the of Transportation and Public Works (MTPW). railway companyin two: infrastructureand operations. However,the agency that actually makes short-term The Govermment'sview is that, given present political transport policy is the Office of Planning and constraints,this is the only possibleway to facilitate Budgeting (OPP), of the Presidencyof the Republic, and encourage private sector participation. A which discusses every year with AFE its subsidy, vertically-integrated concession as was done in personnel, and salary levels. AFE is free to define its Argentinaand Chile, includingtrack maintenanceand tariffs as long as they do not surpass 85 percent of rehabilitation,is not legally (or politically)feasible. alternativeroad (truck) transporttariffs. In practice,as road transport tariffs are only known to the shipper Sourcesand Applications of Funds. and operator, AFE defines its own tariff levels and communicatesthem to the Ministry of Transportation. Current 1995 and 1996 projections of AFE's The Ministry has never objectedto tariffs set by AFE. financial results show that its working deficit will be approximatelyUS$18 million. The Government will Proposed Reforms cover the deficit. AFE believes that up to 1999 (without consideringthe impact of wood products),it The enormous growth forecast for wood traffic will be able to reduce its subsidy by US$6 million. opens new possibilities to the railway industry in Although the mission did not have access to detailed Uruguay. There is a consensus among shippers that figures,part of the strategy is based on huge increases AFE, as a state-ownedcorporation, will not be able to in AFE's existing traffic, a forecast that seems overly make the best of this unique opportunity without optimistic-basedon AFE commercialand operational strong participationby the private sector. The issue is limitations in the competitive environment of the what type of private sector participation is most surfacetransport sector. appropriate, legally feasible, and can be quickly implemented. The history of private sector If the idea to split AFE is successful, a clear participation in state-ownedcompanies has been and knowledgeof the level of support that AFE infrastruc- still is in Uruguay a complicated issue. Existing ture may require from Government will be necessary legislation only allowed the partial privatization of (assuming AFE operations, under strong private PLUNA (the national airline) and some servicesat the participation,will cover its costs). Then, a study on Port of Montevideo.A national "plebiscite" in 1992 road-user charges should begin immediately, to voted against a law which the government had determine the level of subsidy now received by approved allowing the privatization of most state- different types of trucks. The same level of subsidy ownedcompanies, one of them being AFE. (per ton-km transported)should, in theory, be received by AFE Infrastructure.The rest of infrastructurecosts Article 122 of the proposed 1996 Budget Law, should be recoveredfrom operations. This the theory still being considered in Congress opens a new on which the Swedishmodel is based. possibility for private participation in AFE, as it permits "under the regime of concessions, the InvestmentPlan execution of works and the provision of railway services."The scopeof this article is not interpretedin The proposedinvestment plan for forest products the same way by all Government parties involved. concentrates mainly in infrastructure rehabilitation. AFE does not seem to be, given its history and its The main objectiveof this componentis: limitationsas a commnercially-orientedcorporation, an adequateagency to lead or encouragethe participation 36 A Reform Agendafor Uruguay's Transport Sector

(a) to reach 18 tons of axle load (instead of 14 tons) Differences in gauge (the Brazilian lines that serve in all forestry product lines, permitting the this part of the country are narrow gauge) requires a circulation of the heavy 2,000 hp GE transfer of the load from one wagon to another at the locomotives; border. A powerful 45-ton crane will be operating in Rivera before the end of 1996 for this purpose. (b) to allow an operating speed of 40 km/h over the Rivera-Fray Bentos corridor and between 40 to The railway connection with Argentina (the 60 kmi/hin the remaining corridors; and privately-owned Ferrocarril Mesopotamico -FCM) occurs at the Salto Grande dam. As both railways have (c) to operate under safe conditions. the same gauge, combined operations do not present difficulties. International traffic is important to AFE, The works would consist mainly of: providing about 20 percent of its total ton-km. However, it is difficult to understand AFE's satisfaction with its (a) for the Fray Bentos-Rivera line (445 kIn), the short-term growth. Although no detailed studies were total renewal of 75 km of track and upgrading presentedto the mission, expectationsare mostlybased on the remaining part, incorporating hardwood capturing container traffic to Paraguay, which now moves (quebracho) sleepers, aluminothermic weldings through the Port of Buenos Aires. The use of the Port of and ballast Montevideo instead of Buenos Aires would mean the use of the Uruguayan railway system to Salto, and, in (b) for the Montevideo-P.Sola line (338 km), combination with FCM, to Encarnacion, Asunci6n, and extensive maintenance; Ciudad del Este.

(c) for the Florida-Blanquilloline, which is not acti- Lessons Leaamed ye at present (169 km), total reconditioning of the trak; and A comparison of the performance of AFE and the recently privatized (October 1993) FCM in Argentina, (d) the Sayago-Monas (117 kIn) and Toledo-Nico which connects AFE, shows some important Perez (205 km) sections (lines to Minas and Rio differences. Main comparable indicators are the follo- Branco respectively),extensive maintenance. wing:

The works cover 1,319 km (44 percent of the Among the indicators, the one with the largest entire railway system) and 1,176 km of the 2,076 difference is: labor productivity, which, under private "active" lines (55 percent). Total cost is estimated by operation, is 14 times higher. International Railway AFE at US$61.2 million, of which US$21.7 million experience shows the extreme difficulty of (35 percent) will be provided by AFE (rails, switches, transforming a small, loss-making, state-owned rail- sleepers, and some labor) and the rest, some US$39.5 road of a country such as Uruguay into a successful million (65 percent), by the Govermuent. profit-oriented corporation. Intense private sector participation appears the only alternative if Uruguay The project also includes the rehabilitation of 100 wants to have a profitable, financially self-sufficient existing (out of service) wagons at a cost of about railway industry in the next century. US$30,000 per wagon (including the purchase of the corresponding bogies) and the acquisition of 130 new Table 2.2: AFE Rail Network wagons at a cost of $US50,000 to 55,000 each. Total Main Active Network 1,555 km cost will about US$10 nillion. Intense private Secondary Active Network 521 km participation in this component is expected, however, Subtotal Active 2,076 km to date no contacts have been made with the plantation owners. Unclosed Inactive Network 826 km Closed Inactive Network 91 km AFE and Mercosur Subtotal Inactive 917 km Total 2,930 km AFE has three intemational connections: two with S_ AFE Brazil (Rivera and Rio Branco) and one with Argentina (Salto). The Rede Ferroviaria Federal from Brazil only connects with AFE in Rivera, as the Brazilian line to Rio Branco has been discontinued. A Reform Agendafor Uruguay's Transport Sector 37

Tabe2.: 2Tan fl Table2.3:omparnA-AFE and the FerrocarrilMSoptmcoo rgnia (FCM) ...... AFE (1993) FCM (1994) (FCM/AFE)/AFE Ton (th) 930 1,168 26% Ton Km (m) 178 620 248% Train-Km (th) 846 1,075 27% Line Length (km) 2,993 2,739 -8% Ton-Km/Train-km(n) 210 577 175% Employees(n) 2,115 524 -76% Ton-Km/Employee(th) 83 1,183 1,425% Employee/Km(n) 0.72 0.19 -73% Revenue(US$ m) 7.4 13.6 83% Revenue/Ton-km(US$ Cts) 4.2 2.2 -48% Working Subsidy (US$ m) 16 -

Locomotive Fleet In ServiceL- Availability ~~~~~~...... ALLSTHQM(800 H.P.) 19 15.0 79% GE (1500/1600H.P.) 12 8.2 68% GE (2000 H.P.) 10 7.5 75% Total 41 30.7 75%

Source: AFE i/ 1994 average availability

Table 2.5: AFE Waon Fleet; December 1995 Type Fleet In Service Payload (tons) In Service Since: CoveredMetalic 385. 327 30 1957/62/63 Covered",American" 194 183 30 1975/76/77 Wood Platforms 121 112 30 1977 Platformsfor Containers 48 42 30 1975/76/84 GrainHoppers 20 17 36 1978/79 CementHoppers 30 22 40 1930 Tanks 92 53 30 1922/29/31/50/ Total 890 756 - 55/70 Source: AFE.

Table 2.6: AFE Traffic Evolution (to~nsin thousands,ton-km in miLions,distances in kin)j Freight Passenger ...... Year Ton Ton-km. Avg. Dist Passenger Pass-km Avg. Dist Total Traffic Units 1995 1,926 433.5 225 11,996 513.9 43 947.4 1960 1,772 400.2 226 9,767 534.7 55 934.9 1965 1,596 439.5 275 9,093 550.7 61 990.2 1970 1,157 301.2 260 7,794 491.2 63 792.4 1975 1,330 281.1 211 6,053 357.7 59 638.8 1980 1,365 261.6 192 5,435 417.5 77 679.1 1985 785 183.7 234 4,096 240.8 59 424.5 1990 965 203.6 211 - - - 203.6 1992 1,020 215.2 211 - - - 215.2 1994 961 188.8 196 n.a n.a n.a n.a Source: AFE a/ Includes Livestock and parcels 38 A Reform Agenda for Uruguay's Transport Sector

Table 2.7: AFE Train-km per Type of Service (in thousands of train-kin) Year Freight Passengerga Total ...... 1980 1,311 5,116 6,427 1985 1,044 3,257 4,301 1990 935 -- 935 1992 958 -- 958 1994 788 2 0 0 - 9882 Source: AFE and own estimations a/ IncludesDiesel Locomotives, Raficars and Ganz Trins. b/ Estiated.

Table 2.8: AFE 1993 Income Statement (allfigures in US$thousands; USS1=N$3Pj4) Revenue Amount Traffic...... Revenue 6,694.6,69''.... OtherRevenue 718 Financial Revenue 1,477 Extraordinary Revenue 306 Total Revenue 9,195. Expenses Traffic Expenses 20,527 Saaries 12,864 Materials 6,464 Miscellaneous 4,199 Other Expenses 1,703 Financial Expenses 2,611 Redundant ReallocatedPersonnel 1,122 Total Expenses 25,963 Depreciation 2,500 Grand Total ------28,463

Table2.9: AFE MainProducts Trasortdm nusfor,Apoiat6otn

Limestone Cement Rice MaltedBarley Fuel Oil From: Queguay Verdum Varela Paysandu Montevideo To: Paysandui Manga Montevideo Rivera Treinta y Tres Distance: 26 km 109 km 304 km 383khn 334 km Locomotive: ALSTHOM GE 2000 GE 2000 ALSTHOM GE 2000 (coupled) (coupled) No. of Wagons: 15 15 24 16 24 Net tons/wagon: 45 40 30 30 30 Net tons/train: 675 600 720 480 720 Train Crews/Trip: 0.4 2 4 6 4 Turnaround Time for locomotives(days): 0.2 1 2 2 2 Tunaround Times for Wagons,(dy) 0.2 1 5 12 2 A Reform Agenda for Uruguay's Transport Sector 39

ANNEX 3

PORT/SHIPPING SUBSECTOR

A. Background helped decentralizeresponsibilities to these ports. The Port of Fray Bentosis improvingin the export of forest Before 1990, the Uruguayan port sector was products,citrus and grains. The port of Nueva Palmira plagued by lack of efficiency and reliability, is very active in the transshippingof dry bulk grains inadequate facilities, heavy red tape governing from the waterways,citrus, and general cargo, and is stevedoreservices, high tariffs, cross-subsidies,and a in fact, the main port for citrus exports. Coloniais an highly centralized port organization. The Port of important port for passengers traveling to and from Montevideo, the main port of the country, was Buenos Aires; the Port of Juan Lacaze is just experiencing declining traffic when the govermnent beginningpassenger operations. decidedto reform the ports sector. Tourist ports performthree functions: (a) ports of Ports, Networkand Traffic call to enable recreational craft traveling along the coast to find a haven at night or in bad weather, There are four differenttypes of ports: commercial starting primarily from Montevideoor, in the case of (cargo and passengers), tourism (recreational use), Argentine boats, from Coloma; (b) short-term fishing (fish landing and export of processed moorings for the holiday season and (c) permanent products), and oil terminals. In terms of freight moorings. The role of these ports is clearly to handled excludingcrude oil and derivatives,the Port accommodaterecreation and tourism, both national of Montevideois by far the most important.Colonia is and international. the busiest passengerport with its ferry servicesto and from Argentina. Montevideo is also the principal Organization and Regulatory Framework fishing port, followedby La Paloma on the Atlantic coast. Oil terminals includea single-mooringbuoy for The principal agencies of port activity include: crude oil imports about 3.6 km offshore from Punta MTOP throughDNH and DNT; ANP; the Ministry of Jose Ignacio, installations at Montevideo, and Labor and Social Security, through the National distribution terminals at Juan Lacaze and Paysandu. Administration of Stevedore Services (ANSE); the Several ports combine more than one function. The Ministry of Economyand Finance, through Customs, government owns nearly all significant port foreign trade regulations, and naval industries; the installationsexcept the private bulk terminal at Nueva Ministry of Defense and the Navy, through the Palmira. There are also severalinactive berths on the National Naval Prefecture(PNN); and the Ministry of UruguayRiver. Agriculture, through the National Institute for Fisheries (INAPE). PNN controls vessel movements, Montevideohandles about 85 percent of national pilotage, and lights and buoysoutside port limits, and seaborne traffic other than crude oil, amounting to provides police services at each port; Customs about 58 percent of the country's trade volume. The exercises its normal regulatory functions; INAPE is rest is carried by road (41 percent)and air (less than 1 concernedwith fish landings and export; and ANSE percent). Small volumesof sea traffic in Montevideo, administersthe work of social security and industrial after transshipment in Buenos Aires and Rio Grande safety of port operator's manpower, including arrive in Montevideoby road. Montevideoalso serves stevedores.In addition, the Ministry of Tourism deals as a transshipmentport for Paraguayantraffic, and to with aspects of tourist port development,and the State a lesser extent, for Argentine and southern Brazil Oil Company (ANCAP) is responsible for oil traffic. Transit traffic in 1994 was 243,100 tons, most installations. of which was general cargo headed for Paraguay (partly in containers) and some containers for Buenos The National Port Authority (ANP) is an Aires. This represented about 70 percent of all autonomousstate agency,with a five-memberBoard of international transshipment traffic from other ports, Directors appointed by the Executive Power and with Nueva Palmirataking the remainderof traffic. approvedby the Parliament.Communications with the Executive Power occur through the Ministry of The Interior Ports are organized into a system Transport and Public Works (MTOP). The Executive with the Port of Montevideo. The new Ports Law 40 A Reform Agenda for Uruguay's Transport Sector

Powerestablishes port policyguidelines, with the ANP Inland Waterways, which reported to different playingan advisoryrole. ministries. Over the years it lost certain functions including the administration of commercial ports ANP's operating and investment budget is outside Montevideoand responsibilityfor navigation approvedby the Planning and Budget Office (OPP), aids and surveys the two major rivers and coastal with financial management under the General waters. On the other hand, has assumed others, such Comptroller'sOffice (TCR). The revenue from tariffs as constructionin free zonesand tourist ports. DNH is and non operational activities can be used to cover organizedinto five divisions,three for hydraulicworks operatingexpenses and investments.Port Law 16.246 (such as irrigation and aspects of water quality), and (1992), gives ANP the mission to manage, maintain, two with port works and maintenanceof water depth. and developthe Port of Montevideoas well as others The Maritime and River Division is the largest in assigned by the ExecutivePower, including, to date, terms of personnel,with 295 men, becauseof dredging the Ports of Fray Bentos,Nueva Palmira, Colonia, and crewsand shipyardworkers. Juan Lacaze. Law 16.246of 4/8/92, Regulations412 and 413 of Other public entities participating in port 10/01/92 and the Ministry of Labor and Social activities are: the Prefectura Nacional Naval (PNN), Security Resolution, 03/12/93 are the laws for Direcci6n Nacional de Aduanas (DNA), governing all ports in Uruguay. The current Administraci6nNacional de los Servicios de Estiba regulations give importance to innovations in cargo (ANSE), and Ministerio de Ganaderia, Agriculturay handling,loading and unloading and related activities, Pesca (MGAP). establishing: (a) a competitivepolicy and free cargo- handling; (b) the unificationof onboard and offshore Port servicesare providedaround the clock under dutiesunder one directorate;and (c) the protection of management of one private operator, who has port workersthrough Universal Labor Rights. responsibilityfor onboard and on shore tasks. Port Law N16.246, led to a historic change in the port Facilities sector in Uruguay in the direction of private sector involvement.Its main featuresare: With 75 hectares of land and more than 4 km of total berth length, Montevideois of an appropriatesize * Minimal participation of the State in the provision in almostall respectsfor the level of traffic it receives. of port services, giving the private sector the It was built and expandedfor general cargo between freedomto providethem. 1905 and 1935. Someimprovements have been made, * Based on the above, authorized companies will an important one of which was transforming an provide freight handling in open competition. existing wharf to operate as a container terminal with The State will act to assure the competitive Bank financing. The port at some berths allows up to system. 10 m of vessel draught. The access channel (6.5 kin) * Capacity of the port administration to grant, by and an operationalarea within the harbor also have 10 concessionor permission,the use or occupation m draught. of public or bonded areas within the port area. To facilitate this, the Port Authority provides The Port of Montevideo is well protected and the necessary guarantees to attract private offers over 300,000 sq. m of storage space, half of it investment. covered.Principal freight handling equipmentconsists * Creation of a decentralizedagency headquartered in of: 36 quay cranes, a container gantry crane, and the National Port Authority,the Harbor Master generalfreight handling equipment. which will be in charge of coordinatingall port activities,to optimizeperformance. The interior ports, with much capacity unused, handle a total of one million tons of dry traffic a year, DNH is responsiblefor a wide range of activities, including traffic through the private facility of Nueva including studies, construction, and maintenance of Palmira. Col6nia, on the Rio de la Plata, handles ports (exceptMontevideo Nueva Palmira, Fray Bentos, freight and passengers allowing 5 m draughts. It has Col6nia, and Juan Lacaze),-maintenance of navigable two wharves a RoRo ramp and about 8,500 sq. m of waterways, hydraulic works such as irrigation, and covered storage. Nueva Palmira, on the Rio Uruguay, coastal protection. DNH was created by Law 3.817 is a bulk terminal, constrained by the draught of the (1911) combining the Offices of Hydrography and waterway (San Pedro Channel near Martin Garcia), A Reform Agendafor Uruguay's Transport Sector 41 which is 6.5 m. It has 200 m of berth length and perimeter. The port, however is not sufficiently elevated (42,000 t) and underground(30,000 t) silos. protected to permit full development of marina Next to the port, a private companyhas facilities to facilities, but works are underway. Punta del Este store and mechanically load/unload grains and offers berthing and mooringfor 400 boats and inland minerals. Fray Bentos, also on the Rio Uruguay,was parking for another 400, allowingup to 5 m draughts. built as a dry bulk terminal. It has 350 m of berth length and 6.5 m draught, constrained by depths of Traffic river passages (75,000 t and 50,000 t). The port has 22,000 t of silo capacity, and 1,100 sq. m of general The total traffic of Montevideoin 1994 was 4.19 cargo coveredstorage area. million t, including 1.68 million t of petroleum products. About 2.5 million t was Uruguayan traffic La Paloma is basicallya fishing port serving the and 243,091 t was international transit traffic bound industries established there and some naval for Paraguay and Argentina. The 1994 traffic level installations.The port consists of a partially protected was above the ten-year average (1.2 million) mainly basin. It has 600 m of quays, of which, 240 m are due to the Ports Reform. The compositionof traffic operational due to siltation. The access channel and changed considerably, with containerized traffic the basin are also affected by heavy siltation which growing and breakbulk cargo correspondingly imposes constraintson operations of both the fishing declining. In 1994, a total of 105,784 twenty-foot- fleet and commercialvessels. The port does not own equivalentboxes (TEU) were handled. In 1995, about equipment; all landing of fish for feed processing is 30 percent more TEUtraffic is estimated. done directlyby suction facilities owned and operated by the plants operating at the port. Fish for human Over the past six years, freight traffic in the consumption is placed in crates onboard, pelletized, interior ports has averaged 811,666 annually, and transferred directly to the plant at the port, or including the private terminal traffic at Nueva trucked to other plants outsidethe port. Palimira.Traffic at Col6nia (57,997 t in 1994) is followedby Fray Bentos (41,714 t) and NuevaPalrira Uruguay's network of small-craft harbors was (19,300 t). Most traffic through Fray Bentos and built using natural location advantages along its NuevaPalmira wastransit. extensiveshoreline to providefacilities to boat traffic. River and maritime resorts have traditionallyattracted The commercial Port of Montevideo reported a Argentine tourism encouragedby short distances and total of 727,000 passenger movementsin 1994, with recreational facilities not available in Argentina or about 70 percent of the total passing through Colonia. near Buenos Aires. On the Rio Uruguay, the main Traffic at small-craft tourist ports is measured in recreational ports are Fray Bentos, Mercedes, and movement,which increasedto 254,000in 1994. Higueritas.Fray Bentos is a well protected bay with a boat ramp, boat parking, club, and camping facilities. B. The Port Sector Prior to Reform Mercedes offers marinas and a main pier close to the beach. Higueritas has a 200 m wharf and permits From 1916, until April 1992 when Law 16.246 draughts of 2.5 m. Down the Rio de la Plata to was implemented,operational services for vesselsand Montevideo,there are 8 small-craft harbors. Carmelo cargo were provided according to a complex system, has a 400 m wharf. The Rio San Juan is a natural which in practice had the followingcharacteristics: haven and inland waterway of about 3 km. Col6nia has a 100 m wooden pier and a 100 m wharf front. (a) Basic port operations-consistingof loading Extension of the existing breakwater and mooring from berth and stowageon board or vice-versa, places and marinas are planned. Sauce has 90 m of removalof goodsfrom vessel and dischargeon wharf and allows 4 m draughts; plans exist to develop berth and land transportationof cargo-lacked facilities for about 50 boats. The Rio Rosario and Rio unified management,as there were different Santa Lucia are natural waterways,navigable upriver entities responsiblefor each activity, either for 18 km and 40 kin, respectively.Finally, there are ashoreor onboard. three ports east of Montevideo.Buceo, the small-craft harbor of Montevideo,is well developedand protected. (b) Each of the parties involved in the prnmary It has marinas, boat ramps, equipment, and all operationwere monopolies operated by publicor services and facilities. The Port of Piriapolis has a parastatal organizations, namely: (i) the breakwater with a 170 m berth along its inner NationalPort Authority(ANP), responsible for 42 A Reform Agendafor Uruguay's TransportSector

cargo services ashore; and (ii) the National averageberth waiting time of 12 hours and an average Administration for Stevedoring Services loading and unloading time was twice the (ANSE), which provided onboard stevedores international average; and (c) during the five-year througha laborpool. period from 1986 to 1990, time consumed by interruption of activities,strikes and the like, both of (c) There was no participation from private stevedoresand port workers, amountedto 20 percent companiesspecialized in ports activities,except of the total time, equivalentto one year. In this sense, in rare cases where public or parastatal shift performance and equipment availability for orgnizationswere unable to provideany service towage services were extremely important given the or lacked the necessaryequipment for such uncertaintycaused to vessels as to their arrival and purpose.The onlyprivate agents were Maritime departurefrom the port. Agencies that actually did not act as port operators in the currentsense, but insteadhired Faced with these problems,but prior to the 1992 the necessarystevedore gangs and requestedthe reform, two actions were taken by ANP: (a) long-term equipmentto be providedby ANP, with no Development Plan for the Port of Montevideo powerto manageand assumeresponsibility for (INTECSA 1986-89) and the General Diagnosis of the completeoperation. Port Activity (MTOP 1988). The first study, also known as the Master Plan, establisheda development (d) ANP's role was to provide land and maritime plan for the Port of Montevideo as well as services.Although intervening in port planning recommendationsfor its implementation,also noting and development,neither ANP nor any other the need to define ANP's role overcoming the related entity assumed the character of Port problemsidentified; and (b) the second study included Authority,with enough power to manage or a critical analysis of ANP and the port sector, coordinate all public or private agents identifying and quantifying problems related to participatingin port activities,who, in many administration,operations, tariffs and competitiveness cases,had conflictinginterests and motives, of Uruguayanports comparedto the region.

(e) There was no codificationof basic principles Using the results of these studies, ANP's that unequivocallyset out for membersof the administration,prior to the legislativeapproval of the port communitythe basicobjectives of national Ports Law, commenced an administrative port policy, providing a framework for the reorganization.It focused mainly on the creation of a activitiesof eachsector, providing a framework commercially-orientedorganization at the managerial to allow each organization,company, union, or level, with high-level decision-makingcentralized in institutionwithinsuch conunnity to defendand two general managers and ten division managers, foster its sector principles and goals. This while the previous organization involved 100 shortcoming caused disputes among state managerial positions and several decision-making institutions and sectors, conflicts between levels. This was a fundamental innovation:turning a workersand employersand amongunions, since classicalpyramidal organizationinto two separateand each sector had its own interpretationof port parallel organizations:one for targeted functions and sectorobjectives based on selfinterests. the other for supporting functions, with important decision-makingpower. As a consequence of the lack of unified management, port services were uncoordinated and C. The Port Sector after the Reform inefficient. Direct port costs were high, because of ANP's complex structure. Port services, thus were Once the Ports Law was approved, ANP began to neither effective,efficient nor reliable. This precluded switch from the role of a port operator,to a framework the quality of service and decreased regional General Systemof Port Servicesdefining the purpose competitiveness. of ANP and related Public and Private Companies. The Law intends to correct the negative aspects Three examples illustrate the very poor level of mentionedabove, with basic guidelinesas follows: quality of the service provided prior to reforms: (a) frequent, almost daily unavailability or lack of (a) demonopolizationof port services; adequate mechanical equipment for container operations; (b) far common in cargo handling, an A Reform Agenda for Uruguay's Transport Sector 43

(b) basic port operations, such as loading, in cargohandling inside the port, resultingin an unloading,stowage, and mobilizationof cargo important improvement in operation ashore, are to be carried out by private performance. companiesin a system of open competition, creating a port operator as the responsible (c) Tariff Reduction.Due to its neworganizational agent; structureand staffing,ANP was ableto adapt its budgetand in 1992implement a tariff reduction (c) modesof participationfor privatecompanies in for imported goods which were significantly the rest of port serviceswere also established affectedby the costsof operationalinefficiencies. including: authorizations, permits, and The followingyear, the second stage of tariff concessions,as wellas the possibilityof entering adjustmentstook place whereby the whole intojoint-ventures with other public or private system was reorganizedpermitting a global entities. rebateof previoustariffs.

(d) The basic purposesof ANP were re-organized, (d) TrafficGains As a consequenceof the rebateof passing from a servicing entity to a Port port costs and improvementof operational Authority,with the objectivesof administration, performance,there wasan increasein trafficand maintenance and developmentof the ports a gain in new business,which wouldnot have entusted to it by the ExecutivePower, while ocurred otherwise.Such is the case of the retaining the control and coordination almost 40,000 cars in tiansit through mechanismsof port activity. Montevideoand Nueva Palnira in 1993,using an operatingstrategy that was not economically This established the framework to correct the possibleunder the stevedoringsystem prior to main causes for the deteriorationof port servicesprior the PortsLaw. to the reform. The implementationof such drastic changes, which was new for public organizations (e) Private Sector Participation. New involved significant effort. Significant progress has opportunitiesfor private sector participation been achieved, particularly through the (concessions, pernits, and authorizations) implementation of the various modules of the createdan enablingenvironment for the future Technical Assistanceprogram for ANP institutional developmentof a sectorthat will serve trade, re-organization,funded by the WorldBank under Ln. with the possibilityof increasingvalue-added, 3021-UR. and counting on with the logistic support of computers and communications,as in more D. OutcomeAnd Results developedports, that is, throughthe creationof a goods distribution center, including related Somenotable results of the port reform were: services.

(a) Staff Rationalization.With the incentives (f) Productivity Increase Defers Need for providedin the Ports Law,a significantnumber Expansion. The improvementof operational of voluntaryresignations took place in ANP's performanceis equivalentto the improvementof port staff, and the ANSE stevedoringpool was port capability to deal with larger traffic virtuallyeliminated. This led to the transferof volumes.This has a significanteconomic value almostUS$20 million to private activitywhich becauseit involvedextension of the port with no promotedthe formationof about48 companies additionalinvestment. acting in the variouscommercial ports in open competition,under the authorizationsysten, (g) ANP's Image. This change has led to an thus givingplace to the increaseof productivity improvement in the image of ANP, both and supplyof more servicesto handlefreight internallyand externally.

(b) Private Sector Involvement within Port (h) Port Reliability.The chaotic conditions that led Facilities.The privatesector, which had already to 20 percentof time lost by serviceinterruptions developedoutside the port premisesin container wasturned around by the jointeffort of directors, operationsthrough significant investmentsin managersand workers,where, despite numerous yards and equipment,assumed the leadingrole obstacles, there have been no service

*1- 44 A Reform Agendafor Uruguay's Transport Sector

interruptions in port operations during the last Punta del Este, charges are per meter length and day, three years. with differentials depending on the berth and the season (high, mid, and low). Charges also are made (i) Comparison with Regional Ports. The for utilities and other services at two levels: high and Uruguayan Committee for the Development of low season. At the other ports charges do not depend Investment contracted with the Rotterdam on the time of year and are equivalent to those at Maritime Group Consulting Consortium and Punta in the low season. The tariff structure is IBERSIS (Uruguay) to conduct a Study on transparent and rational. Services with Potential Development in the River Plate Basin. This study shows advantages Financial Performance of the Port of Montevideo in terms of the low cost of container loading, unloading, storage, During the 1990s, ANP's financial performance and that the total cost of a vessel calling in was good. The evolution of net income in foreign Montevideo is approximately 50 percent lower exchange and the working and operating ratios are than for the same vessel in other ports of the shown in Table 3.1. region. It also attests to the availability of reliable personnel and relatively low burglary Table 3.1: ANP Financial Results rates. Net Income Working Operating ...... OOO' o,US$J Ratio Ratio Total Investment and Fees paid by Concessionairesas 1988 73.0 89.4 of December 1995 (m millions) 1989 65.1 81.7 1990 (28.497) 67.4 89.4 Total nvestment Committed US$22.38 1991 (22.143) 71.7 88.3 AnnualFees from Concessions US$13.82 1992 (4.740) 82.1 95.0 1993 (1.043) 83.7 98.6 Tariffs and Revenues 1994 2.660_(positye) 70.5 84.5

ANP charges tariffs based on costs. The principal headings for the Port of Montevideo are: (a) for ships: use of port and tugs, depending on the ships GRT4 and quay dues (per meter-length of vessels and day or fraction thereof); (b) for freight: on imports and exports and transit (in US$ per ton) according to its value and different categories of freight; (c) for containers in the container terminal, US$32/unit and in other berths US$16/unit; (d) Storage: US$ per ton and period; and (e) other services: special tariffs. Stevedoring charges depend on the authorized private operators. Pilotage is charged and collected by PNN.

ANP tariffs are the same for all ports except for exports in special cases. Of the four principal interior ports administered by ANP, Colonia makes a substantial operating surplus, Fray Bentos makes a small surplus and Nueva Palinura has large surplus. The revenues for the remaining small interior ports are insufficient to cover their administrative costs. At La Paloma, no charges are levied on any vessel.

Two tariffs are current for tourist ports: one applies to Punta del Este, the other (lower) to Colonia (Puerto Viejo), Higueritas, Piriapolis and Carmelo. For

GRT = GrossRegistered Tonnage. A Reform Agendafor Uruguay's Transport Sector 45

Table 3.2: Characteristicsof Concessionsand Pernits to Operate in the Port of Montevideo Term Concessionsof 5-15years and permits for 3 years, renewable. Ownership The State and ANP are the owners of all land and installations. New facilities are built by concessionaireaccording to contract specifications. Staff The concessionaire is not obliged to use ANP or ANSE's personnel. If ANP personnel will be absorbed, it receives preferential treatment in the evaluation of the proposal as establishedin the bidding documents. OperationsAnd All conmnercial and maintenance operations are the responsibility of the Maintenance concessionaire. Prices The concessionairepays a fee for the infiastructure used and the freight handledc For pernits, only a fee is paid for the area occupied. Investments The concessionaire submits to ANP an annual investment program, which is _implemented under the technical supervisionof ANP. FinancialSituation The concessionairemust submit its business and financial plan and is responsible for achieving a minimum target, which in turn defines the minimum fee paid. ______Thepermit holder must only submit financial statements. Control ANP created an officeto monitor concessions

Table 3.3: Productivityand Efficiency Indicators,The Impact of the Ports Law on ANP and ANSE 1988 1992 1994 % Var 88194 ANP...... Traffic Handled (000's) 1698 2020 4199 147.2 Staff 4674 2700 2000 -57.2 Tons /Staff 363 748 2099 477.8 ANSE Stevedores 650 650 0 -100 Administrative Staff 150 150/48 48 68 Note: 1. In 1995 ANP'sstaffwasifirtherreducedto 1800employees. 2. The most sigrificantgain was the reductionof ANSE's stevedoresto O and their replacemetby private seclorpt oatp swhidh incwaesedpoat pdudity.

Table3.4: Port of MontevideoEfficiency Indicators: The IMpactof the PortsLaw ...... 1988 1992 1994 % Var88/94 Numnberof ships 3913 3862 5070 29.5 Total Berth-Hours (000's) 534 400 338 -36.8 Berth-hours/ship 130 100 60 -53.8 Waiting Time/ship (hours) 12 12 0 100 Containers (000's) 20 75 105 415.4 Complaints/Year 8900 4900 3000 -67 Revenue (millions US$) 42.3 48 Revenue ($US/ton) 25 11 Note: I1.The neasure Files/Yearis given as an indicatorof less bureucraic procedure showingthat less problemcases were handiedby ANP.In 1985, the mmber of caseshandled were 15,000! 2. The revenue/tonindicates that despite much lower 46 A Reform Agendafor Uruguay's Transport Sector

Table3.5: Decentralizationof Responsibilities:The Caseof Citrus and the Impact of the_PortsLaw (in_000'stons).. Port 1990 1993 1994 Montevideo...... 75,000i ...... 20,000 ...... 22,000 ...... NuevaPalmira 0 62,000 78,000 FrayBentos ... 35,000 34,000 34,000

Table 3.6: Port of Montevideo:Trafric in1994 000O t).....

...... Total Amount Exports 792.5 LiquidBulk DryBulk 44.5 Containers 364.6 General 383.3 Imports 1,473.6 Liquid Bulk Dry Bulk 863.5 Containers 414.4 General 195.7 Transit (National& Ship Supplies) 243.1 Bulk 4.5 Containers 118.6 General 120.0 Total" 2,509.3 Dry Bulk 912.5 Containers 897.6 General 699.0 Source: ANP Statistics (_994) a/ Excludes crude oil imports and oil transit (1,684.9). Total w/crude oil - 4,194.2

Table 3.7: MontevideoPort Traffic. (000 t) Liquid Bulk& Commercial ...... i...... Total 1990 393.6 1,242.8 1,636.4 1991 448.6 1,183.7 1,632.3 1992 715.9 1,267.9 1,983.8 1993 1,467.4 1,557.3 3,024.7 1994 1,684.9 2,509.3 4,194.2 Source: ANP - December 1995 a/ La Teja ANCAP A Reform Agendafor Uruguay's Transpor Sector 47

Table 3.8: Containerized Traffic through Montevideo Year ...... Loaded ...... Discharge Total Full Empty Total Full Empty Total Full Empty Total

1991 ------1992 24,022 1,085 35,107 23,223 16,752 39,975 7,245 27,837 75,082 1993 27,279 1,560 38,839 31,909 10,139 42,048 9,188 21,699 80,887

SourceANP, December 1995

Table 3.9: Montevideo- ModalSplit (in tons and in Passeneers) Type of Cargo 1994 Jan-June1995 Container 897,669 770,466 General 699,093 289,486 Dry Bulk 912,510 359,658 Liquid Bulk 1,684,976 435,610 Total 4,194,248 1,855,220 (Passenger) 726,556 312,877 Source: ANP

Table 3.10: InteniorPort Traffic (Private and Publ! .... Year Imports Exports Transit Total ...... 1990 21 219 601 841 1991 17 222 324 563 1992 67 163 463 693 1993 36 198 732 966 1994 145 279 599 1023 Source:ANP - December1995

Table 3.11: National Fleet Company Vessel Type Dwt Year Built ...... DEEP SEA Sebax Presidente Riviera Tanker 87,325 1981 Montemar Uruguay Express F.C. 28,153 1978 COASTALI Ancap A. Noveno Tanker 3,219 1979 Tramaco Tramaco I Tanker 403 1979 Ondetur S.A. San Salvador General Cargo 200 1956 OndeturS.A. Nueva Palmira General Cargo 400 1976 OndeturS.A. Dolores GeneralCargo 400 1976 Tramaco S.A. Valiente Tanker 1,000 1966 Copemar S.R.L Copenar I Tanker 1,650 1962 Copemar S.RL Delta Cruz Tanker 285 1923 Lloyd Uruguay Lloyd 001-020 Barge 1983 Source:DTFM, Decenber 1995 48 A ReformAgendafor Uruguay's TransportSector

Table 3.12: Dredging Completed by Individual E. Dredging Fleets And Requirements Dr_grs (sq. m) Dredgers Type Amount Dredging Fleets ... . Trailer Suction D7 0 Dredgers are owned by both ANP and DNH. In D9 2,556,000 all, there are seven dredgers, excluding two that have Cutter Suction D8 0 been out of service for a number of years (D5 and Ladder D6 124,890 DHD 17) ; two trailer-suction (D7, D9), four cutter- Grab GF2 1,890 suction (D8, DHD1, DHD2, DHD18) and three ladder- Total 2,682,780 bucket (D6, DHDll, DHD14). DNHb'

Details of the dredgers, together with associated Cutter Suction DHDI barges, including their ages and present condition are DHD2 9,090 given in Table 3.13. LaDId8 12,170 Ladder DHiDIl 27,093 Dredging Complemented in 1994 DHD14 8,906 Total 57,259 In 1995, ANPs' two trailer dredgers dredged a! ANPfigures are for 1994. 2,566,000 cu m of channel and port maintenance. D7 took care of port maintenance. This volume with the By far the largest part of total dredging is the combined possible annual capacity of 181,000 for D7 maintenance of the channels to Montevideo, which is and D9. Two 12-hour shifts per day is normal practice. the largest trailer suction work for which D7 and D9 In the same period, the stationary dredgers, D6 and have more than adequate capacity. There is also a D8, dredged 126,870 cu m. This compares with a requirement in Montevideo for a stationary dredger to theoretical combined annual capacity for D6 and D8 of maintain the depths at the berths and in other confined 1,130,000 cu m. areas. D8 is suitable and adequate for this task. There may be an occasional requirement for work on hard In 1995, only DNH's cutter-suction dredgers material, for which a ladder dredger is appropriate. DHD2 DHD18 and Laker dredger DHD14 were operating. They dredged a total of 57,954 cu m. These Dredging, currently the responsibility of DNH, figures compare with a theoretical annual capacity of consists of relatively small volumes at a variety of sites 2,890,000 for the whole DNH fleet if all dredgers were which necessitates careful scheduling. The current in working order. potential annual capacity of the DNH fleet is 2,890,000 cu m per year, which is more than ten times Future Dredging Requirements the maximum annual forecast of 1,240,000 cu m. The two newest cutter-suction dredgers, DHD1 and DHD2, Forecast dredging volume for the next few years adequately meet that volume even allowing for has been obtained from DNH for their fleet and the traveling. relevant figures are given in. The required dredging volumes for ANP are under study. To provide for the probability of very hard material or rock dredging, a ladder-dredger should be The required capacity can be divided into three kept available, and could be used for other dredging sectors: (a) Trailer-suction - for use in channel and assignments as well. large basins on soft material capital and maintenance dredging; (b) Cutter-suction - for use in confined areas Barges and Tugs on harder material capital dredging and maintenance dredging; and, (c) Ladder-suction - for hard material An adequate number of hopper barges and tugs or and rock dredging. It can also be used for maintenance self-propelled hopper barges are required to work with dredging. the stationary dredgers, together with an adequate supply of pipe. It is not possible to calculate their numbers and sizes, as the haul distances to dumping Prefix D refersto ANP dredgers;prefixes OHD refer to DNH gr are not k dredgers. A Reform Agenda for Uruguay's Transport Sector 49

The numbers of hopper barges and pipelines in To correct these inefficiencies,ANP took two both ANP and DNH fleets appear insufficientto allow actionsin the privatizationprocess: (a) it contracteda economic continuous working of the stationary dredging firm (Boskalis from Holland) to conduct a dredgers.However, as the dredgers are not being used new survey, and (b) it contracted a private company at anywhere near their full capacity, the number of from Argentina,Pentamar, by public tender to dredge barges is probablysufficient for current purposes,but approximately70,000 sq. m. in three berths. The cost would not be sufficient for increased volumes of of this operation was above the standard due to the dredging. small volumeof the operation.Nevertheless, the main objectivewas to develop a new system for dredging Dredger Fleet Organization independentof the previousantiquated system. Results are evaluatedto make a final decisionfor the future of There is good reason to consider that annual this sector. dredging volumes in Montevideowill remain fairly constant, although significantly less than the Dredging Maintenance 19,230,000cu m. potentialannual capacity.A volume of 11 to 12 million cu m, suggested as a probable DNH dredgers are maintained at Carmelo in the volumeof necessarymaintenance, is under study. DNH shipyard. AMP dredgers are maintained in Montevideo. The volume of DNH dredging has varied widely from year to year. Most fluctuations are caused by capitalworks.

The usual, and probablymost economic way of dealing with capital works, is to contract them. However,in Uruguay,ANP and DNH have sufficient dredging capacity to carry out the work. Also, dredging volumes are too small for international contractors,and there are no local private contractors (except in Argentina). Capacity is divided between ANP and DNH, with no interchange of equipment, which leads to significantinefficiencies.

Table 3.13: Dre nAFleet - ANP Namel Dredging Hopper Length Beam Draft 3 Number Type (m /hr) Capacity(m) (m) (m) (m) Year Fuel Remarks Dredgers D6 Ladder 250 59.12 12.19 2.20 1949 F Note age D7 Trailer Suction 8070 2690 92 15.50 6.30 1970 G In Service D8 Cutter Suction 200 28 6.04 1.20 1982 G In Service D9 Trailer Suction 12000 3000 90.50 17.70 6.30 1984 G In Service Self-PropelledHopper Barges C4 400 50.73 8.4 2.18 1913 F

DumbHopper Barges GHI 650 62.01 9.55 32.5 1985 GH2 650 62.01 9.55 32.5 1985 GH3 650 62.01 9.55 32.5 1985 Tugs TR3 Diesel 20.5 5.00 2.10 1954 G Source: ANP Note F=Fuel Oil G=Gas Oil 50 A ReformAgendafor Uruguay's Transport Sector

Table 3.14: Total Available Dredging Capacity .Ti ...... OwnerI...... XnerDrdeDrde.rdgRtrrbbeAn lCpct Degn Rate....( ...... Probable Annual Capacity (Mr'- Trailer Suction ANP D7 8,070 7,300,000 ANP D9 12,000 10,800,000 Total 18,100,000 Cutter Suction ANP D8 200 540,000 DNH DHD1 240 650,000 DHD2 240 650,000 SHS17 100 DHD18 70 190,000 Total 2,030,000 Ladder DNH D6 250 590,000 DHD11 300 700,000 DHDI4 300 700,000 Total ~~~~~~~~~~~~~~~~1,990,000 Source:Mission estimates. "Basedon hourlyrate x 12 hrs/dayx 300 days/yearx "F', where F is the assuned fractionof workingtime achuallyspent dredging.(i.e., Trailer suction,"F' = 0.25, CutnerSuction, "F" = 0.75;Ladder, "F' = 0.65)

equpment (floating crane, towboats, dredgers). Table 3.15: ProjectedDredging Volumes tasrreThis equipment otepiaesco.Cneso or the functions should be (thousandsof M) trausfered to the pnvat sector. Concssion 1996 1997 199 1999 200 towage servicesto the private sector. Rationalize 19*96 199.7 1.9.981999. .2000. . the dredging, towage, and workshops DNH department. Once this is done, if traffic keep the Capital Dredging 130 170 30 0 0 polcy of tariff rduion should keep the port Maintenance 110 30 85 70 60 competive and attractive. Total 240 200 115 70 60 (d) ANP's Tariffs. Although ANP handling tariffs F. Key Issues and Action Plan have been substantially reduced and its productivity considerably improved, the Following are key issues that are still unresolved importers and exporters are in some cases and must be tackled by ANP and MTOP: paying higher port tariffs than before. This is mainly due to a charge, which is not cost-based, (a) Crane Operation at the Port of Montevideo. levied by the maritime agencies. This charge There are still some operating risks given that must be gradualy reduced to be proportional to most cranes are operated by ANP personnel. the work produced by the maritime agencies, These cranes should be operated by the private instead of being a mechanism to compensate sector, which should be responsible for them for their replacement by a port operator. maintenance. Installation of new mobile or rail However, even with slightly higher tariffs than based cranes should also be concessionedto the before, the overall generalized cost of shipments private sector. for the najority of the importers/exporters interviewed is much lower than before because (b) Container Terminals. A final decision on handling times and reliability improved whether to re-bid this terminal should be taken dramatically with the ports reform. soon. Also decisions on location of terminal expansions and interface with the multipurpose (e) Naval Base. Steps should be taken to relocate terminal should be taken to avoid over- the Naval Base from the port since that is a investment. prime area for handling containers and facilitating river traffic. Since the port does not (c) Costs/Tariffs. Studies on costs should be have much land available this relocation is very continued with the objective of identifing those important. Compensation for this land costs due to obsolete, inadequate or redundant A Reform Agenda for Uruguay's Transport Sector 51

expansionshould be charged by ANP to the concessionaireinterested m usingthis space.

(f) Infrastructure. In view of the growth of the wood products traffic, ANP and AFE should createa joint workinggroup to analyzethe best way to store these productsand decide on the locationof futre storageareas.

(g) Port MasterPlans. These master plans should be completed,carefu discussedand evaluated both from the economic and financial standpoints.Once the processis concluded,ANP shouldtry to implementthe proposed investment plan alwaystrying to enticethe privatesector to participatein the investmentand operationof the ports.ANP shouldrestrict its investmentsto areas where the privatesector is not willingto invest. A 52 A Reform Agendafor Uruguay's Transport Sector

ANNEX 4

INTERMODAL TRANSPORT AND THE LOGISTICS OF FOREST PRODUCTS

* A. Background The Transport Task

The Growth in Demand for Transportation of The wood will originate in three principal Forest Products in Uruguay production regions although some wood production occurs in virtually all sections of the country. All of From the mid-1970s through the early 1990s, the additional wood produced in the country will be Uruguay had modest production of forest products exported by ship. The principal ports will be from about 30,000 hectares of industrial plantations of Montevideo, Fray Bentos, La Paloma and possibly eucalyptus, pine and a few other species. In 1987, the Palmira but some exports may be expected through a Government passed legislation encouraging the number of other small ports. According to the development of plantations through a combination of goverrnent's plan10 export flows will be as follows in tax incentives and planting subsidies. The incentives 2001. have been very successful and from 1989 through 1994, 134,000 hectares of plantations have been Table 4.1 above shows that in 2001, 726,000 tons created with about 82 percent being fast growing annually moving to Montevideo and 1,352,000 tons eucalyptus6, 15 percent pine and 3 percent poplar and annually moving to Fray Bentos in 2001. By 2004, willow. The Direccion Forestal estimates that between total exports are forecast to be 4.225 million tons per 1995 and 2010, an additional 40,000 hectares per year year split 2.2 million at Fray Bentos and 2.025 at will be planted resulting in the production of about 8 Montevideo. Of the total, 1.48 million tons are slated million cubic meters of wood for industrial use7 in to move to port by rail and 0.60 million tons by truck, 20038. To address the challenges of this large implying a 71 percent rail market share. additional demand for domestic freight transport, the Oficina de Planeamiento y Presupuesto has developed These estimates are in sharp contrast to the views an infrastructure investment pla9. expressed in interviews held in December 1995 with forest products representatives. In that interview, the Table 4.1: Forest Products Exports: Transport industry representatives said that no wood move by TDemandbBy Port rail to Fray Bentos from the Littoral region and that Export Transport wood would only move by rail to Fray Bentos from the RegionrDeprandto ModepPort North region after dredging was complete. Therefore, Region Demandto Mode/Port there seems to be a significant discrepancy between the Ports (tons) iGovernment'sassumptions regarding modal sclecuon North 616,000 40-70 percent by rail for transport for forest products and the actual to Fray Bentos; 30 transportation plans of the private sector. This percent by rail to difference in views is quite significant for two reasons. Montevideo First, once the private sector makes a commitment to a Littoral 923,622 100 percent by rail non-rail logistics system, it will be all but impossible to Fray Bentos for the railroad to gain a market share. Second, the Central 200,000 100 percent by rail investment plans of the railroad are not consistent with to Montevideo the private sector's view on the need for investment. East 340,000 50 percent by rail The forest products industry does not plan to make 50 percent by truck, significant use of the Piedra Sola-Fray Bentos line all to Montevideo which is slated for over US$24 million in improvements until dredging is completed, and even after dredging, actual use of the line is likely to be 6 Matures in 8 - 10 years for pulpwood use. much lower than the government's estimates. 7 Industrial use is either for value added products such as saw logs, wood chips or veneer, or for export as logs. 8 Politica Y Legislacion Forestal - Incentivos Para La Forestacion, Dec, 1995. 9 Programa de Infraestructura de Transporte de Productos 10 Sec. 4.33 - 4.38 - Programa de Infraestructura de Transporte Forestales, August 1995. de Productos Forestales, August 1995. A Reform Agenda for Uruguay's Transport Sector 53

The Comparative Economics of Rail vs. Truck US$0.034per ton-km is similar to rates charged by Transport North Americancarriers, for a haul of about 250 km. AFE's haul from Rivera to Montevideois 445 km Between Rivera and Montevideo, a distance of which is longer than the moves identified in North 445 km, the direct truck rate is US$17 per ton America. Since rail rates per ton-km generally decline comparedto the rail rate of US$15 per ton. However, with increasing haul distances,it is likely that North additional costs of US$4.50 per ton are incurred in American rail rates for a haul distance of 445 km moving the product from the harvestinglocation to a would be between US$0.02 and US$0.03per ton-km rail siding and loading it onto the rail car, for a total comparedto AFE's rate of US$0.034.However, since transportcost to port of US$19.50per ton. AFE's rate AFE is a light density railroad, it is probably has been established at a level which makes AFE unrealistic to expect them to meet North American competitive with trucks, but which is probably not rates. covering AFE's full costs, including infrastructure. However,a brief analysis of rail costs which may be TransportationCosts as a Percentage of FOB achievable by an efficient rail operation using an CommodityValue at the Port infrastructurein normal condition, suggests that rail operating costs could be in the range of US$0.02 to The value of eucalyptuslogs at the port is around US$0.04per ton km which is competitivewith truck US$50 to US$55 per ton. Of this amount, $17 (truck) costs in the Rivera -Montevideocorridor. to US$19.5 (rail plus transport to rail loadingsite) per ton is absorbed by transportation costs from the Current Rail Rates in Uruguay as Comparedto plantation to the port. Therefore, between 31 to 39 NorthAmerican Rates percent of the market value of the product is absorbed by transportation to the port from Rivera. Many The currentrail rate fromRivera to Montevideoof plantations are closer to port than Rivera and should US$15 per metric ton equals US$0.034 per ton- have correspondinglylower transportation costs. kilometer. Chart 1 below shows that a rate of

Chart 4.1

RailroadRate vs. Lengthof Haul - Pulpwood

$o.090

$0.080 - 0 USWaybill Statistics c 0,0.070 _ I * AFE- Rivera- Montevideo E $0.060-_ o $0.080 A Samplemoves - NE RR $0.050 __

$0.040 A_ 11' __

-a $0.030- - C

g $0.020 AA $0.010

- 50 100 150 200 250 300 350 400 450 Lengthof haul- kilometers 54 A ReformAgendafor Uruguay's Transport Sector

B. The Rail Investment Proposal head of operations, a minimum of 12 to 15 locomotivesare required for road service and 5 units Infrastructure are requiredfor switchingservice. It is clear that AFE has surplus locomotive capacity, both in the 13, To prepare for an anticipated increase in forest locomotiveswhich are available, but not needed each products related rail traffic, the governmentproposes day, and in the low utilization of the 12-15 to make substantial improvements to the rail lines locomotiveswhich are used. Until a clear operating which are best situated to serve the principal plan is developed, it is not possible to quantify the production areas. At present, these corridors are extent of existing surplus capacity.However, a rough operatingat a fractionof their capacityand are in very estimate suggests that the 10 new GE locomotives poor physicalcondition. AFE estimatesthat there will alone couldhandle one to two million net tons per year be 62 main line derailmentsin 1995, up from 25 in and AFE's total capacitycould possiblyreach as much 1990, while handlinga total of around one million net as 4 rnillion total tons, suggestingthat locomotivesare tons eachyear. Onlythe corridorsbetween Montevideo not a major bottleneckin the short to mediumterm. In and Minas and Chamberlain,a total of 414 km are in the long run, h of the locomotivefleet, except for the satisfactorycondition, while the networkproposed for 10 new locomotives,will eventuallyneed to be rebuilt serving the forest products industry, is 1,319 km. or replaced. MTOP proposes to either rebuild or perform heavy maintenanceon 1,319km in orderto upgrade the axle Wagons loads on the networkto 18 tons and permit operating speeds of 40 to 60 kph over the entire 1,319 km. The AFE has 120 flat cars with side stakes which are total cost of the railroad improvements is US$61 dedicatedto wood handling. As a part of the project, million of which MTOP plans to finance with US$39 AFE proposes to rehabilitate 100 cars it presently million in funds from the Bank with the remaining ownsbut which are not serviceable.An additional 130 US$22million financedwith railroadfunds or railroad cars are proposed to meet the anticipated demand. material on hand. The mission has reviewed the These cars would be financed outside of the project proposed rehabilitation plan and believes that the presently under consideration. In an efficient quantity of materials and scope of work proposed operation,(4 day car cycle) one car could handle about should be adequateto achievethe stated objectivesof 2,600 tons per year, suggesting the planned fleet of 11~~~~~~~~~~~~~~~~~1 the project . 315 cars12 would have an annual capacity of 820,000 tons per year, which is adequatefor projecteddemand However,the mission notes that two thirds of the in the latter part of the 1990s,but may fall far short of total expenditures planned for track and structures requirementsif significant demand materializes13. At improvementsis allocatedfor improvementof the Fray present, AFE is at 100 percent of car capacity Bentos-Piedra Sola line. The private sector has accordingto the private sectorand cannot fill all of the indicated that no investment should be made in this ordersplaced for cars. line until the river is dredged and that, even with dredging, no wood from the Littoral region will move Based on this preliminary review, the mission by rail to Fray Bentos, in contrast to the government believes that the proposed track and structures estimate of 923,622 tons by rail from this region to investment is likely to achieve the stated results. Fray Bentos. However, the size of the locomotive fleet may be inadequate by the end of the 1990s and the planned Locomotives car fleet is clearly inadequate for the traffic volumes forecastfor AFE (assumingthe traffic materializes). AFE has 51 locomotives, of which 41 are generally considered"in service".Of the 41, about 28 Private Sector Views on the Transport of Forest are available for daily service. According to AFE's Products by Rail

Even though the physical assets of AFE appear The ffission's opinion is based on interviews vh the staff of adequate to handle the projected levels of traffic AFE and spot inspections of three locations on the railroad. The mission has not performed a physical inspection of the lines, other immediatelyfollowing the proposedproject, it is by no than three spot inspections. Likewise, the mission has not audited MTOP's rehabilitation plan for errors or omissions. So while the mission believesthe plan is adequate based on the investigationto 12 350 cars less 10 percent reserve. date, it cannot categorically certify that it is adequate. 13 The acual demand for rail service is highly uncertain. A Reform Agendafor Uruguay's Transport Sector 55 means certain that the projected demand for railway operator provides freight service and pays service will materialize. The potential for rail fees to the infrastructurecompany. participation in the movement of forest products is * In Argentina, long term concessionsfor the cloudedby a number of issues: use of infrastructureand equipmentby private companies were granted in exchange for * AFE's service is not well regarded by its capitalinvestment commitments and payment customers and it receives large operating of fees to the govermnent subsidiesmaking it's future uncertain. * There is no persuasive plan which would None of these models may be appropriate for ensure a significantrailroad market share. In Uruguay.Each country which seeks to restructureits the absence of a clear plan, firmly supported railroad operations must carefully consider its goals of the private sector, railroad participationin and design a restructuring approach that meets that the market will be marginal. In similar country's unique needs. Uruguay's immediateneed is markets elsewhere in the world, the truck to providerail transportationfor forestproducts which market share is 70 to 80 percent, leaving 20 will be attractiveto the forest productsindustry. A few to 30 percent for rail. The government's of many possible forms of restructuring are listed currentplanning assumptionsinclude a 70/30 below: percentmodal split betweenrail and truck. * The origins are diffuse and will change as . Establish a division within AFE dedicated harvesting moves from area to area, making exclusivelyto meeting the needs of the forest the demand a difficultmarket for a railway to products industry possibly with dedicated serve. locomotives and wagons and sufficient freedomto enter into long term transportation Considering the reservations expressed by the agreements.This division should be operated forest products industry about using AFE's services under a managementcontract with the private and the worldwidepredisposition of woodproducers to sectorhighest bidder. use trucks, substantial railroad participation in this * Grant rights to independent companies to market is unlikely without significant institutional provide specific selected services such as reformin the railway sector. hauling forest products using AFE facilities as is now done with passenger service, with Restructuring for GreaterEffectiveness the independentcompany paying fees to AFE for the use of facilities Restructuring does not equal privatization. . The independent companies could be solely Restructuringis a process by which desired changes railroad operators,or engagein a widerrange are broughtabout to help an industry, or an individual of servicesto the forest productsindustry such enterprise that serves customers more efficientlyand as the operationof railcar loading points and economically.Restructuring can take manyforms with possiblyproviding trucking serviceto the rail different degrees of independenceand change for the loadingsite. railroad. One extreme of restructuring options is * Locomotivesand wagons could be owned by privatization. However, there are many viable AFE, shippers or by third party leasing restructuring steps which make the enterprise more companiesor an independentoperator. commercially oriented but stop far short of full privatization.Some examples of the optionschosen by The optionsabove are only a few of many possible other countriesare listed below. choices. The key to developing options and selecting among them is to have a clear understandingof the * In Colombia,a governmentowned entity was desired results and to have the support of the railroad created to own and operate the infrastructure. authority, the private sector and the government to An operating company was established with achievethose results. partial public and partial private ownershipin which the government contributed Considering AFE's low level of commercial locomotivesand cars to the new companyand sophisticationand marketing prowess,the general low the private sectorcontributed private capital. esteem in which AFE is held and the worldwide * In Chile, a government owned entity owns predisposition of wood producers to use trucks, and operatesthe infrastructurewhile a private substantial railroad participation in this market is 56 A Reform Agenda for Uruguay's Transport Sector

unlikely without profound institutional reform of the * AFE is not an alternative. There was railway sector. complete agreement that total structural change in AFE which removed it from C Interviews with Wood And Forest Products political influence, union influence and Representatives regulation and changed the management was necessary before AFE could be a significant In general, the industry representatives appeared participant in forest products transportation to have fairly homogenous views about transportation * None of the forest products representatives priorities, AFE, and the future of the industry. Here could imagine a national market share for are some highlights: AFE higher than 20 percent however, in fairness, they have no experiences with a Views on the Transportation Task good railroad operation * AFE's primary value to the forest products * Dredging of the river channel as far as Frey industry at present is leverage in truck price Bentos is essential if Fray Bentos is going to negotiations be a major port. They consider this dredging * AFE is operating at 100 percent of forest to be high priority. 50 percent of national products capacity today, limited by car exports will be from Littoral and North supply. Tile paid to have cars refurbished but Central regions. They were unanimous that has a shortage of cars because AFE is until the dredging is performed, the railroad supplying the cars to other forest products investment is not necessary. They recognize companies for loading that it will be at least 4 to 5 years before the . The line from Rivera to Montevideo should dredging can be done and see no needfor the be upgraded and will be a useful corridor for railroadfrom Fray Bentos to Piedra Sola (the forest products (note that those present did junction with the Rivera - Montevideo line) not represent forest products interests in the until the channel is dredged eastem part of the country, but did represent * Ports must be modified to provide adequate the Littoral and north central areas) storage space which is near the dock, and * The forest products companies have signed near the railroad, if it is to be used. (Autos contracts with AFE already, but AFE is not and other non-essential storage should be able to provide the equipment or service. removed from the port lands in their view). . The forest products representatives are The present primary ports are Montevideo convinced that they must participate in and Fray Bentos but in the future, Paysandu resolving the AFE situation and they are and Nueva Palmira (both on the river willing to participate in transportation Uruguay) could become important as well as outsourcing. They are willing to sign private ports which may be developed on the contracts for service with a rail service river. provider as an indication of their * Roads from the forest to rail concentration willingness to use rail, but only to the points are poor and need to be improved if extent that they are able to exit the rail is going to be used significantly - 2000 contract if contractual commitments are km of road. not observed by the transportation * Corridors from concentration points to the provider. They would do this on an ports must be improved, both rail and road individual basis, not as a consortium. * 63 percent of the roads in the country are in either regular or bad condition; currently 5.5 Views on Expected Flows to Ports million tons of freight moves as import/export or transit in the country; forest products will * The Littoral region, along the Rio Uruguay add 3 to 4 million tons in the next 3 to 4 years has no need for rail transportation. All wood - a big issue (from Ing. Ariel Nieto, will move by truck principally to Fray Bentos, Consultor) Time is important. with some going to Paysandu and possible private ports which are under consideration Views on AFE * Product from the North Central Region will flow to Montevideo, or possible Fray Bentos, but only if the channel is dredged first. A Reform Agendafor Uruguay's Transport Sector 57

Productcould also be exportedthrough Brazil from this area. The Southeast Region will probably flow Observations through Montevideo, but could also move throughLa Palomain the future. * The forest products representatives present seemed genuinely open to working with Viewson Port Issues transportationproviders, including a railroad, but are frustratedwith AFE. * They believe that river dredging needs to go * In discussionsover the public reaction to the to 32 feet in order to accommodatewood chip large increase in truck traffic which looms in ships rather than the 27 feet which has been the near future, there was general agreement mentioned by MTOP and the 23 feed now that this was a concern to the forest products being dredgedby Argentina. industryand that they would like to mitigate * If dredgingis not performed,Montevideo will it. be the primaryport. * The referendumin 1993 +/- was against the * The shortageof properly located land in the sale of public assets, not against private port of Montevideo is a concern to them. operation The forest products industry will There is apparently no real plan to make not investin transportationequipment. spacefor forestproducts and time is short. * Their consultant mentionedthat one way to * The MGAP people believe the investmentin move wood from truck to rail was through the line to Fray Bentos was planned to take higher highway user charges and there was pressureoff the Port of Montevideo. no disagreementfrom his clients. * Additional land is available at Fray Bentos and the total land which could be made availableshould be sufficient. - Each forest products company needs 2 hectares at the port and there are 10 companies;therefore, could need as much as 15 to 20 hectaresat Montevideoand it needs to be studied. * The current charge of USS0.55per month per sq. meter is not consideredexcessive.

Views on the Future Development of the Industry

* Over the next five years there will be a movement away from logs to value added products such as saw products, veneer and chips. • Industrialization centers (sawing, chipping, etc.) will be in the forest, not at the ports. * There will eventuallybe 500,000 hectares of forestin productionin Uruguay * The forestproducts industrywill not invest in transportation equipment. They have extensiveopportunities for investmentin land acquisition and facilities for valued added products. * Transportation will be outsourced; none of the representatives expect to perform their own transportation. Interest was expressedin freight forwarders who might perform the entire transportation task, rather than individualcompanies performing pieces. 58 A Reform A,genda for UiWguzv's Tran.¶port Sector

ANNEX 5

MERCOSUR INTEGRATION PROJECTS

There are two major projects which are being * Land Development and Franchise Options; studied and, if implemented, will have a significant Value Capture Analysis and Probable Revenue impact on MERCOSUR integration and, most Estimates (new task) probably, on Uruguay's transport sector as well. They * Regional Integration and Economic Context are: (a) The Buenos Aires-Col6nia del Sacramento of the Project (new task) Bridge; axid (b) The Parana-Paraguay waterway. A sununary description of the status of these projects is If the bridge is built it will have a significant given next: effect on portions of the Uruguayan National Network and this should be take into account in any scenario or A. Buenos Aires - Col6nia del Sacramento Bridge long-term analysis of the road and rail subsectors. Also, the effect on the existing ferry services between This bridge would connect Argentina and both countries should be considered. Uruguay over the Rio de La Plata and is expected to have either a 450 m span or two 340m span bridges B. The Parana-Paraguay Waterway according to the selected alignment. A Buenos Aires- Colonia Bridge Binational Commission (COBAICO) The Parani-Paraguay Waterway is the name given was established in 1985 by the Govermnents of to the hydrographic system formed by the ParanA and Argentina and Uruguay in order to analyze the Paraguay rivers waterway which is navigable from feasibility of a fixed crossing of the river and to Port Caceres in the State of Mato Grosso, Brazil to the consider the possibility to design, build and operate it. Port of Nueva Palmira in Uruguay. It has 3,442 km, of which, 892 km are in Brazil, 48 km are between In 1987, COBAICO prepared a pre-feasibility Brazil and Bolivia, 327 km are between Brazil and study which concluded that a fixed river crossing was Paraguay, 553 km in Paraguay, 375 km lie between a feasible project under certain scenarios. Argentina and Paraguay and 1,241 km of the Parana Subsequently, a Consultant formed by Louis Berger River is in Argentine territory. International, Inc., Bear Steams & Co., Inc.(BSCI) and Latham and Watkins with collaboration of several In 1989, the Ministry of Public Works and other firms of Argentina, Uruguay and other countries Transport established the Intergovernmental were comnmissionedby COBAICO to prepare the basic Commission for the Parana-Paraguay Waterway with studies related to the fixed river crossing. The purpose the mandate to identify specific projects and works and of the study was to evaluate the various transportation to determine priorities as well as to define a regulatory alternatives for the River de La Plata crossing; to framework. In 1992, the foreign ministers of the determine if there are ways to increase low-cost countries involved signed an Agreement for Transport transportation capacity; and, to establish a foundation by the Waterway which became known as the Acuerdo to allow for the commencement of a promotion process de Santa Cruz de la Sierra. for granting a concession to private enterprises, under which the Rio de La Plata crossing could be designed, Studies undertaken by consultants Rotterdam built and operated. Preliminary estimates provided by Maritime Group estimate that the traffic in the the consultant suggest that a four lane bridge will cost waterway may reach 20 to 30 million tons per year in between US$910 and US$1,260 million. a ten year horizon mainly grains and minerals. The investments required are estimated to be US$250 It is understood that new demand studies are million for works on the river bed and signaling of being undertaken to take into account the following which US$160 for dredging. Also, US$130 million are aspects: needed for extension and rehabilitation of ports. * Transport Demand Modeling, Traffic Finally, it is estimated that the acquisition of 600 Analysis, Economic and Financial A calyses,barges and 40 high horse power towboats would analysis,kcnmcan Analyses,iaca amount at US$690mnillion.

* Engineering and Detailed Cost Estimates * Environmental and Social Impact Analysis; This project will certainly require a very detailed Public Hearings l environmental impact given the nature of the works necessary to improve navigation. I I* \. J Au RT I;A ,S \

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