IBRD GOB State of São Paulo Metro CPTM

Document of The World Bank

FOR OFFICIAL USE ONLY

Public Disclosure Authorized Report No: 40891-BR

PROJECT APPRAISAL DOCUMENT

ON A

Public Disclosure Authorized PROPOSED LOAN

IN THE AMOUNT OF US$550 MILLION

TO THE

STATE OF SÃO PAULO, BRAZIL

WITH THE GUARANTEE OF

THE FEDERATIVE REPUBLIC OF BRAZIL

Public Disclosure Authorized FOR A

SÃO PAULO TRAINS AND SIGNALING PROJECT

March 3, 2008

Sustainable Development Department Brazil Country Management Unit Latin America and Caribbean Regional Office

Public Disclosure Authorized This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.

FOR OFFICIAL USE ONLY

CURRENCY EQUIVALENTS

(Exchange Rate Effective July 2007-Feb. 2008)

Currency Unit =Brazilian Real (R$) R$2.1-1.75 = US$1

FISCAL YEAR January 1 – December 31

ABBREVIATIONS AND ACRONYMS

ATC Automatic Train Control National Economic and Social Development Bank BNDES (Banco Nacional de Desenvolvimento Econômico e Social) Single Integrated Fare Ticket BUI (Bilhete Único Integrado) CBTC Communications Based Train Control Brazilian Urban Train Company CBTU (Companhia Brasileira de Trens Urbanos) CETESB Environmental Technology Company (Companhia de Tecnologia de Saneamento Ambiental) Integrated Transport Coordination Commission CDTI (Comité Diretor de Transporte Integrado) São Paulo Metro Company CMSP (Companhia do Metrô de São Paulo) also known as METRO (see below) São Paulo Metropolitan Train Company CPTM (Companhia Paulista de Trens Metropolitanos) Metropolitan Bus Company EMTU (Empresa Metropolitana de Transporte Urbano) EMU Electric Multiple Unit Brazilian Institute of Geography and Statistics IBGE (Instituto Brasileiro de Geografia e Estatística) ICB International Competitive Bidding Circulation Tax on Goods and Services ICMS (Imposto de Circulacão sobre Mercadorias e Serviços) IERR Internal Economic Rate of Return IFR Intermediate Financial Report Fiscal Responsibility Law LRF (Lei de Responsabilidade Fiscal) METRO São Paulo Metro Company (Companhia do Metropolitano de São Paulo). Same as CMSP

MR Metropolitan Region PCU Project Coordination Unit PER Preliminary Environmental Report (Relatório Ambiental Preliminar) Integrated Urban Transport Project PITU (Plano Integrado de Transporte Urbano) PMU Project Management Unit RTCC Regional Transport Coordination Commission Federal Secretariat for Foreign Affairs SEAIN (Secretaria de Assuntos Internacionais) São Paulo State Government & Integrated Financial Administration System for SIAFEM States & Municipalities (Sistema Integrado de Administração Financeira para Estados e Municípios) Secretariat for the Environment SMA (Secretaria do Meio Ambiente) SPM São Paulo Municipality SPMR São Paulo Metropolitan Region SSP State of São Paulo São Paulo Municipal Secretariat for Transport STM (Secretaria de Transportes da Prefeitura do Município de São Paulo) STMSP São Paulo Secretariat for Metropolitan Transport (Secretaria de Transportes Metropolitanos Região Metropolitana de São Paulo) TOR Terms of Reference

Vice President: Pamela Cox Country Director: John Briscoe Sector Director: Laura Tuck Sector Manager/Sector Leader: José Luís Irigoyen/Jennifer Sara Task Team Leader: Jorge M. Rebelo

This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.

BRAZIL SÃO PAULO TRAINS AND SIGNALING CONTENTS

Page

I. STRATEGIC CONTEXT AND RATIONALE ...... 1 A. Background ...... 1 B. Evolution of the Metropolitan Transport System of the State of São Paulo...... 2 C. Rationale for Bank Involvement ...... 5 D. Higher Level Objectives to which the Project Contributes...... 6

II. PROJECT DESCRIPTION ...... 6 A. Lending Instrument...... 6 B. Project Development Objective and Key Indicators:...... 6 C. Project Components...... 7 D. Lessons Learned and Reflected in the Project Design...... 7 E. Alternatives Considered and Reasons for Rejection...... 8

III. IMPLEMENTATION ...... 9 A. Partnership Arrangements...... 9 B. Institutional and Implementation Arrangements ...... 9 C. Monitoring and Evaluation of Outcomes/Results...... 9 D. Sustainability...... 10 E. Critical Risks and Possible Controversial Aspects ...... 10 F. Loan/credit conditions and covenants ...... 12

IV. APPRAISAL SUMMARY ...... 12 A. Economic and Financial Analyses...... 12 B. Technical...... 13 C. Fiduciary ...... 13 D. Social...... 14 E. Environment...... 14 F. Safeguard policies...... 15 G. Policy Exceptions and Readiness...... 15

iii

Annex 1: Country and Sector or Program Background ...... 16

Annex 2: Major Related Projects Financed by the Bank and/or other Agencies ...... 23

Annex 3: Results Framework and Monitoring ...... 25

Annex 4: Detailed Project Description...... 28 Annex 5: Project Costs…………………………………………………………………………30

Annex 6: Implementation Arrangements ...... 32 Annex 7: Financial Management and Disbursement Arrangements ……………………….37

Annex 8: Procurement Arrangements...... 43

Annex 9: Economic and Financial Analysis ...... 50

Annex 10: Safeguard Policy Issues...... 70

Annex 11: Project Preparation and Supervision ...... 74

Annex 12: Documents in the Project File ...... 76

Annex 13: Statement of Loans and Credits...... 77

Annex 14: Country at a Glance ...... 81

Annex 15: Impact on Low-Income Users...... 83

Annex 16: Fiscal Analysis of São Paulo State Government, 2003-2007...... 98

Annex 17: Maps...... 100

BRAZIL

SÃO PAULO TRAINS AND SIGNALING PROJECT

PROJECT APPRAISAL DOCUMENT

LATIN AMERICA AND CARIBBEAN

LCSTR

Date: March 3, 2008 Team Leader: Jorge M. Rebelo Country Director: John Briscoe Sectors: General transportation sector (100%) Sector Manager/Director: Jose Luis Irigoyen/ Themes: Other urban development (P) Laura Tuck Project ID: P106038 Environmental screening category: B Lending Instrument: Specific Investment Loan

Project Financing Data [X] Loan [ ] Credit [ ] Grant [ ] Guarantee [ ] Other:

For Loans/Credits/Others: Total Bank financing (US$m.): 550.00 Proposed terms: FSL, Loan denominated in US$ payable in 25 years, including 5 years of grace and level principal repayment; with Fixed Spread and automatic rate fixing and options for currency and interest conversion Financing Plan (US$m) Source Local Foreign Total Borrower 465.00 0.00 465.00 International Bank for Reconstruction and 0.00 550.00 550.00 Development JAPAN: Japan Bank for International 0.00 535.00 535.00 Cooperation (JBIC) Total: 465.00 1085.00 1,550.00 Borrower: Secretaria de Transportes Metropolitanos do Estado de São Paulo Rua Boa Vista, 175 – 10th floor 01014-001 São Paulo - SP Brazil Phone: 55-11-3291-2231 Fax: 55-11-3291-2210 [email protected]

Responsible Agency: Companhia do Metrô de São Paulo Rua Boa Vista, 175 - Bloco B – 8th floor 01014-001 São Paulo - SP Brazil Phone: 55-11-3291-2899 Fax: 55- 11-3291-2890 [email protected] Companhia Paulista de Trens Metropolitanos Rua Boa Vista, 185 - 2nd floor 01014-001 São Paulo - SP Brazil Phone: 55-11-3293-4407 Fax: 55-11-3293 4580 [email protected]

Estimated disbursements (Bank FY/US$m) FY 08 09 10 11 12 13 Annual 79.8 113.9 305.9 50.1 0.28 .02 Cumulative 79.8 193.7 499.6 549.7 549.98 550.0 Project implementation period: Start FY2008 End: FY2013 Expected effectiveness date: June 2008 Expected closing date: June 30, 2013

Does the project depart from the CAS in content or other significant respects? [ ]Yes [ x ] No Does the project require any exceptions from Bank policies? [ ]Yes [ x] No Have these been approved by Bank management? [ ]Yes [ ] No Is approval for any policy exception sought from the Board? [ ]Yes [ ] No Does the project include any critical risks rated “substantial” or “high”? [ x ]Yes [ ] No It might have prolonged litigation in procurement award of trains/systems Does the project meet the Regional criteria for readiness for implementation? [ x ]Yes [ ] No

Project development objective The proposed development objective is to: a) improve the level-of-service provided to the urban rail transport users in the São Paulo Metropolitan Region in a safe and cost-efficient manner by increasing the peak–hour and off-peak carrying capacity of Lines A and F of the Companhia Paulista de Trens Metropolitanos (CPTM) and Lines 1, 2 and 3 of the São Paulo Metro Company (Metro); and b) continue the strengthening of the transport management and policy framework in the SPMR. Project description [one-sentence summary of each component] a) Infrastructure and Equipment: to acquire (i) forty trains (Electrical Multiple Units-EMUs) of eight cars each and accessories for the CPTM; (ii) seventeen trains of 6 cars each and accessories for the Metro; (iii) signaling , telecom and electrical related equipment and associated infrastructure for the CPTM; (iv) signaling and telecom equipment and associated infrastructure for the Metro. This component accounts for about 97% of the total project cost, of which the train acquisition alone represents about 75% of the total project cost of US$1550m.

b) Institutional and Policy Development: to support in the SPMR the (i) consolidation of the Regional Transport Coordination Commission (CDTI); (ii) updating of the integrated Transport Policy, Land Use and Air Quality Management strategy (PITU) to meet both transport and air quality targets and introduce sound cost-recovery, tariff, regulatory and subsidy policies; (iii) preparation of an action plan to review the funding of the urban transport system in view of the adoption of the Bilhete-Único Integrado; and (iv) project management and supervision. This component represents about 3% of the total project cost. Which safeguard policies are triggered, if any? Environmental Assessment Significant, non-standard conditions, if any, for: Board presentation: None Loan/credit effectiveness:

1. The Subsidiary Agreement has been executed on behalf of the Borrower and the CPTM/SP METRO.

2. The Additional Legal Matters consist of the following:

a) The CPTM Project Agreement has been duly authorized or ratified by the CPTM and is legally binding upon the CPTM in accordance with its terms.

b) The SP METRO Project Agreement has been duly authorized or ratified by SP METRO and is legally binding upon the SP METRO in accordance with its terms.

c) The Loan has been validly registered by the Guarantor’s Central Bank.

Covenants applicable to project implementation:

1. The Borrower shall, within its limits of its authority, commit to preserve CDTI and BUI at all times during execution and until the completion of the Project, in the present or other format as long as it continues to enhance the mobility and affordability of metropolitan transport to users particularly those of low-income. In addition, the Borrower shall undertake its best efforts to extend the BUI to other modes of transportation and expand the CDTI to include other municipalities of the SPMR. 2. Both CPTM and Metro must maintain throughout the duration of the project a Project Management Unit in charge of managing their respective components of the project and tracking its physical and financial progress. 3. STMSP must maintain throughout the project a Project Coordination Unit responsible for the overall coordination of the project and to implement the studies in the institutional component related to the sector policy strengthening. 4. CPTM must complete the study of outsourcing options to the private sector not later than 48 months after effectiveness.

vii I. STRATEGIC CONTEXT AND RATIONALE

A. Background

1. The São Paulo Metropolitan Region (SPMR) has 18 million inhabitants spread irregularly over 8,000 square kilometers. Although dominated by the São Paulo Municipality with 11 million inhabitants, SPMR is made up of 39 municipalities. The passenger and freight transport needs of such a region are enormous. The region generates roughly 20% of Brazil’s GNP and is considered to be the most important economic region of the country. However, rapid urbanization has resulted in uncontrolled urban sprawl with associated traffic congestion, long travel distances, and social problems including crime and rising unemployment. Of the 26 metropolitan regions in Brazil, SPMR has the highest population density (2,245 inhabitants per km2) and the fourth highest share living in slums (9%)1.The problems and costs of traffic congestion in SPMR affect both passengers and freight logistics and also contribute negatively to the economic development and competitiveness prospects of the region.

2. Overview of Public Transport in SPMR: Each day, 39 million person-trips take place, of which 13 million (33%) are by foot, 14 million (37%) by car and the rest by public transport (23% by bus, 4.5% by metrorail and 2.5% by suburban rail). Of the 12 million trips taken by public modes, about one third of the passengers use more than one mode of transport, and require some sort of modal transfer. In fact, 78% of all metro trips, 61% of all train trips and 16% of all bus trips require one or more transfers to be completed. Despite an existing 315 km rail-based network (see Annex 1 with information on São Paulo Metro and Suburban rail-CPTM), the lack of full physical and tariff integration between the bus, metro and the suburban trains has over the years discouraged low-income users from using rail. This has led to an over-reliance on other more inefficient and environmentally-unfriendly modes including buses and automobiles, and contributes to the heavy congestion experienced in the SPMR. The low-income urban households, as the main users of public transport, bear the brunt of the low quality of the service, and consequently suffer from: (i) extreme overcrowding of trains (>8 pass/m2) due to shortage of capacity at peak hours; (ii) long work journeys (2.5 hours/day from the metropolitan periphery to the urban centers), with often more than two modal transfers; and (c) high costs of transport resulting in the need to pay between15% and 20% of income towards fares, a situation which is exacerbated if not formally employed. Congestion and overcrowding of the public transport system are a source of environmental stress and prompt trampling and fights

3. On the other hand, the over-reliance on cars and buses in SPMR also has a negative impact on air quality and contributes to increases in accidents. In 2006, there were 4.3 million vehicles registered in the SPMR. Air quality is degraded by the presence of excessive levels of carbon monoxide, ozone and particulate matter. During 2006, health warnings due to air pollution from CO were issued for a total of 250 days, ozone--108 days, and particulate--54 days. Vehicles account for 73-94% of most air pollutants in the SPMR, and contribute to 31% of particulate matter. Vehicular air pollution has been somewhat mitigated by the use of alcohol in lieu of gasoline. However, vehicular accidents continue to increase and pose environmental risks. In 2006, there were about 150,000 road accidents in SPM which accounted for 35,000 injuries and

1 Brazil São Paulo: Inputs for a Sustainable Competitive City Strategy, World Bank, 2007

about 1,500 deaths, with a cost conservatively estimated at US$1.5 million/day. According to the SPM's Traffic Engineering Department, congestion has been increasing at a rate of 20 percent per year; the economic cost of time and fuel lost due to traffic congestion has been estimated at US$6 million per day.

B. Evolution of the Metropolitan Transport System of the State of São Paulo

4. The foundation for the partnership between the State of São Paulo and the Bank in the urban transport sector was cast about 15 years ago when the Federal Government of Brazil initiated the decentralization of the federally-owned and operated suburban rail system (CBTU). This decentralization was mandated by the 1988 Constitution which assigned the responsibility of urban and metropolitan transport to the local State and Municipalities authorities. At that time the State was receiving in transfer from the Federal Government the CBTU-SP rail network which is spread throughout the entire SPMR and was faced with major challenges of integrating that system with the other public transport modes already existing in the metropolitan region. As part of this process, the State prepared with Bank support a long-term metropolitan transport strategy, anchored in four pillars: a) establishment of a regional transport coordination commission with the municipalities, operators and users; b) implementation of an integrated land use, urban transport and air quality strategy; c) financing mechanisms which would guarantee the long-term sustainability of SPMR’s urban transport system; and d) the progressive participation of the private sector in the investment and operational management of the systems. The Bank-supported São Paulo Metropolitan Transport Decentralization Project (Ln. 3457-BR) played an important role in allowing for the decentralization and modernization of the federally-owned CBTU to the State and laid the foundation for metropolitan coordination and the implementation of the long- term strategy (see Table1).

5. Upon the successful completion of the decentralization of the federal system, in the late 1990’s, the State requested Bank support to link the CBTU-SP to its existing suburban railway system (FEPASA) as a means to better physically integrate the systems and improve the key transfer stations for passenger use. During the initial discussions, the intention was that the same Bank project would finance a new subway line (Metro Line 4) to connect the expanding suburban rail system with the existing, small, subway network. However, due to fiscal constraints in the State this request was split into two projects. The first Bank loan, Project Ln.4312-BR, was approved in 2000 and contributed to the financing of the São Paulo Integrated Urban Transport project (the Barra Funda-Roosevelt link). The project was completed successfully and resulted in connecting the two suburban railway networks (which together make up the present CPTM network) and improving the Luz and Brás stations which are key for intermodal transfers. The second loan was approved in early 2002 and is known as the ongoing Metro Line 4 Project (Ln.4646-Br). The main objective of the project, which will be completed in 2009, goes a step further in improving the quality and long-term sustainability of urban transport in SPMR by interconnecting the existing subway, commuter rail and bus networks through the construction of Metro Line 4. In addition, it introduces, for the first time, a “BOT” type scheme, partially financed by the private sector. Finally, in November 2006, the Government successfully awarded a 30-year concession for system operation. This was a landmark event, and the first PPP signed by any public sector agency in Brazil since the passage of the new PPP legislation more than 2 years ago.

6. With these projects and other investments, the State is successfully achieving the interconnection of all of its rail-based transport network and facilitating the integration with buses and other transport modes. In a cost-efficient way, the State has therefore been able to vastly expand the reach of the relatively small 60 km of subway network with an existing 275 2

km suburban rail network and associated bus routes. This integration is improving the accessibility of the low-income population, in particular, to employment opportunities as well as to health and education facilities.

7. At the same time that physical improvements in infrastructure are being made, the State has progressed in the more challenging institutional aspects of the strategy. Of special importance is the operationalization of the regional transport coordination commission with the Municipality of São Paulo. This group is now called Integrated Transport Coordination Committee (Comité Diretor de Transporte Integrado - CDTI) and has been responsible for the introduction of an integrated tariff, (Bilhete-Único Integrado –BUI), which allows users to buy a single ticket that can be used across transport modes during a two-hour period. The integrated ticket is less expensive than the sum of individual tickets, and has a particularly positive impact on the poor, who tend to travel longer distances and more readily switch transport modes (see Annex 16).

8. An important consequence of the improvements in the metropolitan transport system has been the dramatic increase in user demand for rail-based systems (more than 12% in one year). This significant growth in demand has led to the urgent need for the rapid increase in the carrying capacity and frequency of trains, especially at peak hours, in order to maintain an acceptable level- of-service quality that ensures passenger safety while minimizing waiting time at stations. In addition, the continuation in the improvement of the carrying capacity of the system is expected to further attract additional users from road to rail thereby containing, or reducing, congestion while also contributing to positive environment impacts, which are important to the climate change agenda.

9. The proposed project would contribute to the financing of the trains and systems that are required by the State to meet this growing demand. The project would be a logical next step in the continuation of Bank support to help the State solidify the achievements of its long-term strategy for the sustainable implementation of the SPMR transport system, especially in terms of financial sustainability, the adoption of the Bilhete-Único Integrado and metropolitan coordination. The project would benefit the low-income population who make up 50% of rail users, and contribute to a reduction in road congestion, accidents and air pollution.

Table 1: Sequencing of World Bank Supported Reform and Investment Year Institutional Milestone Physical Investment Related Bank Loan 1992 • Federal Government decides to transfer • Modernization of plant and São Paulo Metropolitan CBTU-SP to the State rolling stock of CBTU-SP Transport • State agrees and draws Long-Term Decentralization project Strategy with Bank support (Ln. 3457-Br) to the Federal Government (US$126M) 1996/97 • State assumes CBTU-SP and merges it • State starts further with State commuter railway (FEPASA) modernization of CPTM creating CPTM with own funds • State creates the Regional Transport Coordination Commission under the name of Câmara Temática 1999/00 • State decides to physically integrate the • The old CBTU-SP network São Paulo Integrated suburban rail networks of CBTU and is linked to the FEPASA Urban Transport FEPASA and to improve some CPTM network through the Barra Project- The Barra corridors to facilitate free access between Funda –Roosevelt link Funda –Roosevelt link them • Dramatic improvements to (Ln. 4312-Br) to the key transfer stations such as State (US$45M); State Luz and Brás hires IFC Advisory Services to look at options for PSP in new Metro Line 4. 2001/02 • State decides to continue the physical • São Paulo Metro Line 4 São Paulo Metro Line 4 integration between Metro and CPTM planned to link Metro and Project (Ln. 4646-Br.) and introduces free transfer between the CPTM networks to the State (US$209M two systems • State decides Line 4 would have major private sector participation through a concession or PPP 2004-06 • São Paulo Municipality introduces free transfer between buses • State creates the CDTI , a successor to the Câmara Temática • State introduces with Municipality the Bilhete Unico Integrado 2006-07 • Demand for rail increases dramatically • Determination of need to • State requests Bank • Line 4 PPP (the first in Brazil) is signed increase carrying capacity proposed São and peak hour frequencies Paulo Trains and Signaling project and additional financing for phase 1 of Line (US$95M) 2008 • Intermunicipal buses to be included in the • State to continue to increase • State requests add. BUI carrying capacity Financing for phase 2 of Line 4 2009/10 • Line 4 (phase 1)to enter in operation • Construction of Phase 2 of • Modal Integration to continue Line 4 to start 2012 • Increased private sector participation • Completion of Phase 2 of planned Line 4

10. Key Development issues: In the proposed loan the key development issues that will be addressed are:

a) Improvement of quality-of-life of low-income users: Low-income users are the most affected by poor public transport services because they have few options. Their chances to access better employment, health and education facilities are higher if accessibility, availability, acceptability and affordability of public transport services are improved;

b) Metropolitan Coordination: Strengthening the Metropolitan Coordination between the State and municipalities of the SPMR through the consolidation of the efforts started with the CDTI, is key to the success of the strategy adopted by the SSP;

c) Congestion and road accidents reduction: the switch to rail-based transport is likely to reduce and/or contain congestion and road accidents and improve air quality by decreasing the number of bus-kms traveled;

d) Cost-Recovery, Financial Management and Funding Issues: The increase in ridership through better integration of the public transport network, more private sector participation in activities of the sector, and oversight of the use of the BUI are other issues that will be addressed by the project through the policy component in order to improve cost-recovery, financial management and funding of the urban transport systems.

C. Rationale for Bank Involvement

11. The Bank's assistance strategy in Brazil is to support policies and investments that will encourage economic growth and social development in a context of macroeconomic stability. The proposed project is consistent with the Bank’s Country Assistance Progress Report endorsed by the Bank on May 6, 2006, and the new Country Partnership Strategy (CPS) under preparation. The proposed project objectives are also in line with the Bank’s overall Transport Strategy as well as the customized sectoral strategy for Brazil, in terms of: (i) improving public transport in urban areas as a means to improve access to jobs, education and health facilities; (ii) contributing to poverty alleviation; and (iii) improving financial performance of service providers through better cost recovery and reducing dependence on public subsidies.

12. This project would represent a continuation of Bank support to the overall decentralization of urban transport systems from the Federal Government to selected states, as has been the case in São Paulo, Rio de Janeiro, Ceará and Bahia. More specifically, it is a logical sequence to a long- term engagement with the State to consolidate and expand its rail-based transport systems taking care of the important issues of inter-modal integration and sensible tariff policy to recover costs and meet social objectives.

13. Finally, the project is a cornerstone of the Bank engagement strategy with São Paulo State. When the new Governor took office in January 2007, the Secretary of Planning was tasked to work with the economic team and sectoral secretariats to define a 4-year government investment plan and identify external borrowing needs. A $1.2B lending program was carved out with the World Bank and consists of investment projects in urban transport, feeder roads, rural development and water resource management. This is the first time that a State has negotiated and obtained approval from the federal government of a packaged approach to WB borrowing. It is expected that such a programmatic approach would reduce the time required for the approval of each individual project.

D. Higher Level Objectives to which the Project Contributes

14. Affordable and accessible urban transport services contribute to higher equity and poverty reduction by allowing all segments of society, and particularly those with low-income, to be able to reach employment areas, health, education and leisure facilities, thereby contributing to an improvement of quality of life. This project seeks to improve the rail-based urban transport system in benefit of the low-income population and will also make important contribution to the improvement in air quality and reduction in vehicle emissions as a positive impact on climate change.

II. PROJECT DESCRIPTION

A. Lending Instrument

15. The Project will be implemented as a Specific Investment Loan (SIL) to be disbursed over 2008-2013. The Borrower chose a Fixed Spread loan in US$ with a total maturity of 25 years and 5 years grace, with Automatic Rate Fixing by period with options for currency and interest rate conversion. The Borrower benefited from the new policy maturity extension approved by the Board on February 12, 2008. The main reasons for the selection of this type of loan and options reflect the Borrower’s intention to hedge against possible currency devaluation.

B. Project Development Objective and Key Indicators:

16. The proposed development objective is to: a) improve the level-of-service provided to the urban rail transport users in the São Paulo Metropolitan Region in a safe and cost-efficient manner by increasing the peak–hour and off-peak carrying capacity of Lines A and F of the São Paulo Metropolitan Train Company (CPTM) and Lines 1, 2 and 3 of the São Paulo Metro Company (Metro)”; and b) continue the strengthening of the transport management and policy framework in the SPMR.

17. This objective will be met by: (i) financing rolling stock critical for increasing the peak- hour carrying capacity of CPTM and the Metro and “systems” (signaling, telecom and electrical) to allow for the increase in train frequencies and timely transfers between buses, suburban trains and the metro; (ii) fine-tuning and implementing pricing, regulatory and financial policies which improve cost-recovery and increase long-term financial sustainability of the State and municipal governments, and the operating agencies involved and (iii) designing urban transport strategies and actions to mitigate the impact of rising transport costs on the mobility of the poor.

18. The proposed indicators that will be used to measure project performance are described in Annex 3 and include:

a) Peak-hour and off-peak carrying capacity measured by the number of trains per peak hour and off-peak hour per direction. This indicator will measure the increase in level-of-service (waiting time and carrying capacity) provided;

b) Reduction in travel time plus waiting time which will measure the reduction in trip-time for selected origins and destinations;

c) Working ratio of CPTM and Metro to measure the financial health of the operating agencies;

d) Additional demand generated by the project;

e) Number of low-income users of CPTM and Metro to measure the impact of the project on the low-income population;

f) Updating/strengthening of the Integrated Urban Transport Strategy (PITU) and associated policies. This indicator will measure the strengthening of the transport management and policy functions at the SPMR;

g) Intermediate outcome indicators will measure the progress in the manufacturing, installation and/or delivery of trains and systems included in the project.

C. Project Components

19. The project will comprise two components:

a) Infrastructure and Equipment: to acquire (i) forty trains (Electrical Multiple Units-EMUs) of eight cars each and accessories for the CPTM; (ii) seventeen trains of 6 cars each and accessories for the Metro; (iii) signaling , telecom and electrical related equipment and associated infrastructure for the CPTM; (iv) signaling and telecom equipment and associated infrastructure for the Metro. This component accounts for about 97% of the total project cost, of which the train acquisition alone represents about 75% of the total project cost of US$1550m. b) Institutional and Policy Development: to support in the SPMR the (i) consolidation of the Regional Transport Coordination Commission (CDTI); (ii) updating of the integrated Transport Policy, Land Use and Air Quality Management strategy (PITU) to meet both transport and air quality targets and introduce sound cost-recovery, tariff, regulatory and subsidy policies; (iii) preparation of an action plan to review the funding of the urban transport system in view of the adoption of the Bilhete-Único Integrado; and (iv) project management and supervision. This component represents about 3% of the total project cost.

D. Lessons Learned and Reflected in the Project Design

20. The major lessons learned from previous projects in the urban transport sector are:

a) The coordination between the different levels of government (State, Municipalities) in urban transport is fundamental for medium and long term planning and for the implementation of a truly integrated system both modal and tariff-wise;

b) The policy for the sector must be strengthened to minimize distortions resulting from inefficient physical and financial coordination between modes and to promote multimodal integration;

c) The tariff levels should allow for significant cost recovery of working costs and must be complemented by financing mechanisms which cover the shortfall;

d) Demand levels forecast by the borrowers should be carefully scrutinized;

e) Availability of counterpart funds and of fiscal space for the project must be assured to avoid costly construction delays.

21. In addition, recommendations emerging from the IEG review of the transport sector have been taken into account in terms of building up the sector’s monitoring and evaluation efforts and aligning them with the new strategy which emphasizes urban transport and multimodal transport. This is being achieved through the use of relevant intermediate indicators that can be readily measured and are applicable to a broad range of projects.

E. Alternatives Considered and Reasons for Rejection

22. Many alternative project scenarios were analyzed for the trains and systems. Regarding the trains the first alternative focused on whether there would be any other more cost-efficient public transport modes, such as segregated busways, that could meet the same objectives. However, this alternative was rejected because it proved to be less cost-efficient in view of the scarce road space in SPMR, as well as the resettlement and expropriation costs that would be involved. The analysis then evaluated the different options that would be available by using the existing rail lines and thereby avoiding the need for any resettlement or expropriation. The following five alternatives considered were:

a) Do-nothing. The growing lack of capacity of the trains and their low frequency would result in longer waiting times and lack of comfort at peak hours and therefore deter new users and make some of the old users return to road-based modes of transport. This alternative would go against the State policy of increasing rail-based public transport.

b) Rehabilitate existing trains which are immobilized. Metro does not have any immobilized trains to be rehabilitated because of its outstanding maintenance policy. In a similar manner, CPTM embarked on a huge rehabilitation program financed by the State and has no more trains available for rehabilitation. In addition, lessons from rehabilitation in the previous loans show that it always takes longer and costs more than estimated at the outset of the contract because it is difficult to assess all of the rehabilitation costs without disassembling the cars. Rehabilitation does not allow for the easy installation of some modern features, including interactions with new signaling and telecom systems, as well as air-conditioning. This alternative was therefore rejected.

c) Buy second hand trains abroad. This was only tried once in São Paulo and was quite difficult since the railway gauge (1.6m) only exists in a few countries (Spain and Australia). Furthermore, the Association of Brazilian Railway Industries (ABIFER) forbids the acquisition of second hand equipment even if it were possible to find trains that could be rehabilitated.

d) Lease new trains: This option was rejected because the industry claims that the present federal tax structure does not provide adequate incentives for passenger train leasing to be profitable.

e) Buy new trains: this was the alternative selected because both Metro and CPTM need to decrease the average age of their fleets and start taking advantage of standard features such as air conditioning and modern signaling equipment. 8

23. Insofar as the “systems” are concerned the alternatives would be:

a) Do nothing: In this case Metro would hardly be able to decrease its headway at peak-hour because its signaling system, which at present is based on the fixed block concept, does not allow shorter intervals between trains. CPTM would also have problems in decreasing its headway with the present system in the lines which will receive more trains because of lack of an integrated Operations Control Centre. So, in both cases, a very short headway at peak hours, one of the main requirements for heavily traveled trunk lines, would not be achieved if nothing is done.

b) Modernize the systems: In the case of Metro, the CBTC system will allow a moving block system which will accommodate shorter headways between trains. In the case of CPTM, modernization of the systems in the lines under consideration will shorten the headways and put them at the same level as other lines of CPTM. Alternatives were examined in detail by specialized consultants whose reports are in the Project File.

III. IMPLEMENTATION

A. Partnership Arrangements

24. The project is co-financed by the Japan Bank of International Cooperation (JBIC). As in the case of the ongoing São Paulo Metro Line 4 project, JBIC will sign a co-lender’s agreement delegating to the Bank the supervision of the project. JBIC follows Bank procurement guidelines and its financing is untied. The partnership with JBIC has been very productive in the ongoing Metro Line 4 Project.

B. Institutional and Implementation Arrangements

25. The Secretary of Metropolitan Transport of the State of São Paulo (STMSP) is the main Government agency responsible for the project. Both Metro and CPTM report to the STMSP. The Borrower is the State of São Paulo who will delegate the project implementation to CPTM and Metro. Project management will be located in the STMSP through an established Project Coordination Unit (PCU) that will oversee the implementation of this project and other ongoing projects (Metro Line 4). In addition, Metro and CPTM have separate Project Management Units (PMUs) which will be in charge of the implementation of their respective components. Each PMU will be headed by a Project Coordinator who would report directly to the Director in charge of the implementation of the project. The PMUs will be staffed with regular staff from the agencies and supported by project management and supervision consultants in charge of providing technical support in areas such as engineering, procurement, environment and financial management. Both Metro and CPTM have considerable experience with these PMU units, acquired in ongoing and/or previous Bank-financed projects.

C. Monitoring and Evaluation of Outcomes/Results

26. Project progress reports will be prepared by the PMUs on a semi-annual basis, consolidated in a single report and submitted to the Bank for review. These reports should indicate the progress made under the different components of the project and measure the performance against the results indicators established in the results framework (see Annex 3). In addition, 9

progress reports will include the following: (i) disbursement performance over the period covered by the report and updated disbursement schedule; (ii) updated procurement plan for activities under each of the project’s components; (iii) a description of progress achieved in the implementation of environmental and social aspects of the project; (iv) a section describing potential developments that could affect project implementation, which could consist of a review of the main risks and the impact of mitigation measures suggested at appraisal (see Section on risks). For the infrastructure and equipment component, particularly the acquisition of trains and the installation of systems, implementation progress will be measured against physical progress in their manufacturing and/or construction and installation (see intermediate outcome indicators in Annex 3).

D. Sustainability

27. The sustainability of the project results will depend on: (i) continued ownership and priority given to the urban transport sector by the State administration; (ii) timely implementation and funding of rehabilitation and maintenance interventions to keep the infrastructure and equipment in good condition; and (iii) maintenance of integrated tariffs such as the Bilhete-Único Integrado which benefits primarily the low-income segments of the population. The State has demonstrated its ownership of the project and of the sector in the last 8 years by giving priority to investments in this area even in times of fiscal restriction. The timely implementation and funding of rehabilitation of infrastructure and equipment suffered during the periods of fiscal space restriction but even then the State provided the funds necessary to maintain the infrastructure and rolling stock or has sought mechanisms to provide the funds. The Bilhete-Único Integrado is likely to continue because both the State and Municipalities have understood how important it is for the low-income segments of the population. So, the sustainability of the project and of the sector seems likely.

E. Critical Risks and Possible Controversial Aspects

Table 2: Critical Risks and Possible Controversial Aspects Level of Risk after Risks Risk Minimization Measure Mitigation Delays in effectiveness due State will seek very early the necessary support Moderate to slow approval by Federal in Comissão de Avaliação Econômica do Senate: this has been a Senado (CAE) to speed up approval. This is to major reason for project be discussed during preparation and at delays and subsequent negotiations. extensions in Brazil. Prolonged Litigation in the Our experience has been that the Borrower High award of the trains: it is not must have a very good legal team standby uncommon in Brazil that which should quickly defeat any injunction the second ranked (liminar) without merit, to avoid that its proponent would try to go judgment drags through the courts. This also to court to stop the signing requires that the bidding documents and process of the contract. respect the procurement guidelines to ensure that there is no legal or procedural reason to be questioned. Delays in the actual This should be mitigated by very close Moderate provision of the trains: supervision of the supplier, and with stiff although in the last contract penalties for delays in the delivery or, 10 financed by the Bank the conversely, with bonus for approved deliveries trains were provided on ahead of time. schedule, it is not uncommon to have delays in the supply of new trains. Delays/problems in the JBIC has been appraising the project in parallel Moderate signing of the co-financing with the Bank. In the eventuality that there is a loan delay or obstacle to the co-financing loan ,the State has indicated that it will finance it with its own funds Higher than appraised costs In the case of trains, the latest bids will be Moderate in the acquisition of trains reviewed and adjusted to estimate the costs of and system (signaling, the trains. In the case of systems, preliminary telecom, electrical) detailed engineering projects with contingency contracts. factors based on recent experience will be required at appraisal to try to minimize cost overruns. Metro/CPTM labor strikes Legal union strikes might occur at pay Moderate negotiations but essential services at peak hours is mandated by law. Line managers of Metro/CPTM are capable of running the trains in case of strikes. It is unlikely that the project will be a cause for strikes because it is adding infrastructure and equipment which the unions have long endorsed. Both Metro/CPTM are moving to less labor-intensive systems for ticketing and operations. Tariff increases and impact There will be annual adjustments to tariffs to Moderate on ridership account for inflation. In the event that the Integrated tariff is increased but will still be lower than the sum of individual modal tickets, it is unlikely that there will be a decrease in home-to-work trips. Sharp increases in tariffs will affect non-work trips which are the first to be eliminated in difficult economic times. The actual elasticity of the demand in relation to the tariff will be carefully monitored by the State to protect affordability. Sharp increases of the integrated tariff are politically unfeasible because of the success that this tariff had so far. Timely Availability of The Bank will review every year with the State Moderate counterpart funds and the allocations it proposes in the budget so that budget priority. the project implementation schedule is not affected in case of fiscal space restrictions Overall Risk Moderate Source: Bank Staff Estimates

F. Loan/credit conditions and covenants

28. The Borrower shall, within its limits of its authority, commit to preserve CDTI and BUI at all times during execution and until the completion of the Project, in the present or other format as long as it continues to enhance the mobility and affordability of metropolitan transport to users particularly those of low-income. In addition, the Borrower shall undertake its best efforts to extend the BUI to other modes of transportation and expand the CDTI to include other municipalities of the SPMR. 29. Both CPTM and Metro must maintain throughout the duration of the project a Project Management Unit in charge of managing their respective components of the project and tracking its physical and financial progress. 30. STMSP must maintain throughout the project a Project Coordination Unit responsible for the overall coordination of the project and to implement the studies in the institutional component related to the sector policy strengthening. 31. CPTM must complete the study of outsourcing options to the private sector not later than 48 months after effectiveness.

IV. APPRAISAL SUMMARY

A. Economic and Financial Analyses

32. Economic evaluation of the proposed project was undertaken by Metro/CPTM comparing the situation without project with the situation with project. For that purpose, Metro/CPTM estimated through demand modeling the passenger hours and passenger kms with and without the project and converted them into time savings and operating cost savings. An estimate of reduction of accidents and road-based vehicle emissions was made using the same data and compared to the investment costs (see Annex 9 for detailed description of economic and financial analysis). The results for the base case are the following:

• Cost-Benefit Analysis: NPV@10%=US$ 1,381M million; IERR= 21.4% For the EIRR to be below 10% the investment costs would have to increase by about 108% which is unlikely. EIRR will also be below 10% if “value of time” is estimated using a factor of 12% of the hourly wage instead of the very conservative 33%. • Financial Analysis: NPV@10%=US$ 13.1million; FRR= 10.4% This analysis was done by comparing total investments vs savings due to lower maintenance costs, lower number of breakdowns and higher revenues. No value of time savings were included which explains the difference from the economic evaluation. 33. Financial projections were prepared both for Metro and CPTM for the 2007-2026 period and they show that the working ratio of both operating agencies will be equal or less than one, and operating costs will therefore be below operating revenues.

a) Fiscal impact

34. The Brazil Secretary of the Treasury (STN) does an exhaustive and highly-professional analysis of state debt capacity. It is on the basis of such analysis that the State is allowed to borrow with a guarantee from the Federative Republic of Brazil. The Brazil CMU undertook its own analysis of the State debt capacity and the fiscal impact of the proposed loans. The fiscal impact of the project on the state finances was evaluated and a state finances full assessment can be found in the project file. A summary of the due diligence fiscal impact analysis is presented in Annex 17. The debt assumed by the State for this project and other loans approved at the same time for preparation was part of the debt renegotiations with the Federal Government. The project itself and the other loans under preparation would have a minor impact on the State’s finances. Counterpart financing would equal 8% of projected capital spending during the implementation period. Annual interest on the two loans (Bank and JBIC) in nominal terms would total about R$120 million once they are fully disbursed, or less than 0.2 % of net current revenues. B. Technical

35. A technical evaluation was undertaken to compare the acquisition of new trains with other alternatives such as do-nothing, rehabilitation and/or modernization of trains, acquisition of second hand trains, and leasing of trains. The acquisition of new trains in this case was judged as the most cost-effective alternative either because the others were not feasible or there are no available immobilized trains to be rehabilitated. The proposed “systems” were also compared with a do-nothing alternative and other types of systems. Specialized consultants examined the options rejected and agreed that the proposed alternatives are the most suitable for both CPTM and Metro. The costs for the trains and each of the systems proposed are in line with those acquired recently by other equivalent metro and suburban rail systems. The specialized consultants also reviewed the proposed specifications for the acquisition of the trains and the signaling, telecom and energy systems and ensured that they were sound and not favoring any particular manufacturer. These assessments are available in the Project File.

36. Metro opted for the acquisition of seventeen Electrical Multiple Units (EMUs) of 6 cars each and accessories for a total of 102 cars to be used in Lines 1 (7) and 3 (10) ; and the supply and installation of a new signaling system known as Communication Based Train Control (CBTC) in Lines 1, 2 and 3 of the network; acquisition of a Telecommunication Systems, Access Control System (ACS); Platform Screen Doors (PSD) and modernization of the existing Operational Control Centre (OCC).

37. CPTM opted for the acquisition of forty Electrical Multiple Units (EMUs) of 8 cars each and accessories for 320 cars to be used in Lines A (20) and F (20); supply and installation and /or rehabilitation of traction electrical power systems for selected substations of Line A and Line F; installation and/or rehabilitation of some electrical cabinets of Line A and Line F; auxiliary power lines for Lines A and F; installation of a signaling system operated from the Operations Control Centre (OCC) and supply and installation of an electronic telecommunication systems.

C. Fiduciary

38. Both CPTM and Metro have extensive experience with Bank fiduciary requirements and a successful history of financial management in recent loans with the Bank. Metro’s Line 4 Project is still ongoing and its financial management reporting and auditing is satisfactory. CPTM’s Barra Funda-Roosevelt project (Ln.4312-BR) closed in 2004 also with a highly 13

satisfactory rating and financial management was always satisfactory. Both operating agencies have very experienced staff working in their accounting departments to ensure that financial management will be carried out according to Bank guidelines. Audit of the project accounts will be carried out by independent consultants to be on a competitive basis according to Bank procurement guidelines. See Annex 7 for a complete discussion of financial management and disbursements. An assessment of the capacity of Metro and of CPTM to implement procurement actions for the project has been carried out by the project team. The assessment reviewed the organizational structure for implementing the project and the interaction between the project’s staff responsible for procurement and the relevant units for administration and finance. Both agencies are very familiar with Bank procedures and procurement guidelines since they had implemented Bank financed projects recently. See Annex 8 for a complete discussion of procurement arrangements.

D. Social

39. The project will have a positive impact on the quality of life of the population who use the Metro and CPTM network. The project would increase the quality and availability of mass transport within the Metropolitan São Paulo Region and provide the commuting public with alternatives to private automobiles, buses and vans. New passenger rail cars will provide a higher level of comfort to passengers and shorter intervals between trains, increasing the attractiveness of CPTM/Metro for commuting to work and accessing urban services. Direct impacts include increasing the accessibility of public transport to employment centers, health, education and leisure facilities. Most of CPTM users are low-income and live in the suburbs of the greater SPMR. Improving suburban and metrorail services in general increases the accessibility of this low-income segment of the population to employment centers and facilitates their transfer between both networks and the municipal and intermunicipal bus networks. No negative social impacts are expected from the proposed project while the benefits will be overwhelmingly positive. In addition, increased use of public transport will help reduce traffic congestion and air pollution, thereby contributing to overall improvements in the quality of life in the Metropolitan Region.

40. The proposed project will not cause any dislocation or involuntary resettlement. Reconstruction of stations along lines A and F is being carried out with non-Bank funding and is taking place entirely within the railway right-of-way. Aside from possible minor traffic disruptions and short-term delays along train routes, there will be very little adverse social impact.

E. Environment

41. Overall, the project is expected to have a positive impact on the environment. Congestion and air pollution are currently some of the main environmental problems that the metropolitan region is facing. Providing a high quality and safe transport alternative, especially for long trips, will help reduce the fast increase in motorized trips and related environmental impacts. The project will help quantify these long-term environmental impacts in term of modal ‘retention’ or shift and associated emission benefits. 42. The Project Team reviewed the documentation prepared by CPTM and the recommendations from the State Secretary of Environment (SMA) for the ‘preliminary’ and ‘installation’ licenses of Line F, as well as the Terms of Reference (TOR) for preparing the Preliminary Environmental Report (PER-Relatório Ambiental Preliminar) for the ‘preliminary’ license of Line A. Once the 14

systems are installed, SMA will verify if all the requirements set forth in the “installation license” have been fulfilled and will grant the license to use them (Operational License). The infrastructure improvements on Line A and F will mostly generate temporary negative environmental impacts during their respective construction periods since most of the work will happen along existing right-of-ways. The environmental impacts of civil works are described in the PER and include recommendations to mitigate, attenuate and/or counteract the negative impacts caused by the interventions. The team also reviewed CPTM’s environmental management system and policies to reduce and mitigate environmental impacts at the train maintenance and other facilities. They were found to be satisfactory and will continue to be strengthened during project implementation.

F. Safeguard policies

Safeguard Policies Triggered by the Project Yes No Environmental Assessment (OP/BP 4.01) [X] [ ] Natural Habitats (OP/BP 4.04) [ ] [X] Pest Management (OP 4.09) [ ] [X] Physical Cultural Resources (OP/BP 4.11) [ ] [X] Involuntary Resettlement (OP/BP 4.12) [ ] [X] Indigenous Peoples (OP/BP 4.10) [ ] [X] Forests (OP/BP 4.36) [ ] [X] Safety of Dams (OP/BP 4.37) [ ] [X] Projects in Disputed Areas (OP/BP 7.60)* [ ] [X] Projects on International Waterways (OP/BP 7.50) [ ] [X]

G. Policy Exceptions and Readiness

43. The project does not warrant any exceptions to Bank policies and is deemed to be ready for implementation.

* By supporting the proposed project, the Bank does not intend to prejudice the final determination of the parties' claims on the disputed areas 15

Annex 1: Country and Sector or Program Background BRAZIL: SÃO PAULO TRAINS AND SIGNALING

I. BRAZIL: ECONOMIC & SOCIAL DEVELOPMENTS

1. Brazil could be entering a more robust economic growth cycle. The economy grew at an annual rate of 5.4% in the second quarter of 2007, the highest rate in recent years. Growth was fostered mainly by investment. However, stronger than originally predicted, growth may reduce the impetus for policy reforms, which are key to increasing economic growth and progress on the poverty and inequality. Reforms are aimed at strengthening medium-term fiscal solvency (by reforming the social security system), reducing distortions introduced by the tax system, improving the quality of public expenditure, strengthening the monetary policy framework (by granting de jure autonomy to the Central Bank), updating labor laws, and creating better conditions for private investment (by strengthening the regulatory agencies and reducing red tape). At present, Brazil ranks 122 out of 178 on the Doing Business Report, out of 178, below China (83), Russia (106) and India (120). 2. Poverty reduction has accelerated in 2006. The poverty rate dropped significantly to 25.6% in 2006 from 34.1% in 2003, which can be attributed to higher economic growth, well targeted conditional cash transfer programs (such as the Bolsa Familia, supported by the Bank through a US$572 million loan), increases in labor income, declines in unemployment rates, and a fall in inequality (Gini index fell to 0.56 in 2006, from 0.59 in 2002). 3. Sound macroeconomic policy fostered improved growth prospects and enhanced resilience to shocks. The government’s fiscal discipline reassured the financial market and improved public debt sustainability. Public debt fell to 44.3% of GDP in July 2007, from over 53.7% of GDP in 2003. However, concerns about the sustainability of the fiscal path and on the quality of fiscal adjustment remain. 4. The inflation targeting regime has been successful. Inflation fell from 12.5% in 2002 to 3.1% in 2006. Consequently, the Central Bank has reduced the headline interest rate from 19.75% in 2005 to 11.25% in September 2007; however, real interest rates continue to be high (8%) by international standards. 5. Strong external sector performance has reduced external vulnerability. Exports more than doubled from 2002 to 2006, reaching US$140 billion. The trade balance grew from US$13 billion in 2002 to US$46 billion in 2006 and the external current account surplus grew from -1.7% of GDP in 2002 to 1.2% of GDP in 2006. Brazil’s external debt sustainability indicators are now the strongest in 30 years. Sovereign spreads fell from 2,400 basis points in 2002 to 140 basis points in 2007, its lowest level. Brazil is now one-level below investment grade. 6. Brazil has shown resilience to external shocks following the recent international financial market turbulence. In the immediate wake of the turbulence Brazilian financial indicators worsened. However, Central Bank intervention in developed economies and good economic fundamentals allowed Brazilian financial indicators to recover quickly to their levels observed in July.

II. SÃO PAULO: RECENT ECONOMIC DEVELOPMENTS

A. Background

7. The State of São Paulo has the country’s largest population (40.2 million people, equivalent to 22% of Brazil’s population). The state has most diverse population of Brazil, with strong Italian, Portuguese, Arab, Japanese, Chinese, Korean and Bolivian since the 19th century.

8. São Paulo’s economy is the largest in the country (the state is responsible for 32% of the country’s GDP). It is two times the size of Chile’s, Paraguay’s and Uruguay’s economies combined. Its economy is based on machinery, the automobile and aviation industries, services, financial companies, commerce, textiles, orange growing, sugar cane and coffee production.

9. Notwithstanding the fact that São Paulo State is the leading economic star in Brazil, poverty and inequality are high in the state and city of São Paulo, especially in urban areas. Wealth is unequally distributed in the state. The richest municipalities are centered around Greater São Paulo and a few other centers. Other regions are as poor as municipalities in the Northeast of Brazil. There are numerous slums in São Paulo city, where poverty and public safety are predominant issues.

10. The Bank has a long tradition of collaboration with the State of São Paulo, both in urban and rural areas, covering urban transport, education, environment, agriculture, water and sanitation and slum upgrading. The World Bank has also collaborated with the municipality of São Paulo, mostly through non-lending instruments, including an ongoing assessment of São Paulo’s development strategy.

B. Economy

11. Since 1995 São Paulo has implemented a strong and continuous fiscal adjustment that covered the 12 years of state administration by the PSDB. This adjustment promoted a turnaround of the very difficult financial situation that the state had in the early nineties.

12. São Paulo is well positioned in the four key requirements of Brazil's Fiscal Responsibility Law: debt to revenue ratio is 188% (ceiling is 200%); personnel expenditures to revenue of 44% (60% ceiling), debt service of 11% (11.5% ceiling) and credit operations to revenue of 0.5% (ceiling of 16%).

13. The State has a reasonable indebtedness capacity: State has capacity to borrow at least US$ 3 billion authorized by the Federal Government at the latest debt renegotiation exercise. The state was able to generate large primary surpluses in the last 7 years which implies a considerable repayment capacity.

Sao Paulo: Primary Surplus (in billion of Reais)

4.0 3.7 3.6 3.5 3.2 3.0 3.0 2.6

2.0 1.6

1.0

0.0 2000 2001 2002 2003 2004 2005 2006

Source: Bank Staff Estimates

14. Supporting the evidence of considerable repayment capacity, Moody's recently rated the state debt in domestic currency as BA2, two levels below the investment grade (one level superior to the federal government debt) and BA3 in foreign currency (same level than the federal government). So, this rating agency consider SP as having strong credit conditions with the state debt considered as of moderate risk, and stronger than any Brazilian state.

15. A third element is the compliance of the Fiscal Adjustment program agreed with Brazil's Federal Treasury (STN). The information on the agreement and the evaluation of the program by the STN is confidential, however, the state Finance Secretary says that the state met all the conditions of the program in 2005.

C. São Paulo State Government Urban Transport Sector Strategy

16. The SSP urban transport strategy for the São Paulo Metropolitan Region (SPMR) is anchored in 4 pillars: a) to establish with the municipalities, operators and users a regional transport coordination commission (RTCC); b) to develop and update on a periodic basis, an integrated land use, urban transport and air quality strategy; c) to introduce financing mechanisms which will guarantee the long-term sustainability of the urban transport systems; and d) to promote progressive private sector participation in the investment and operations management of those systems. SSP has shown a remarkable progress towards the above objectives. First, there is an RTCC (named Integrated Transport Coordination Commission, CDTI) functioning which functions as a forum for discussion of metropolitan policies for prices and subsidies as well for discussion of common issues such as multimodal tickets and major investment projects. Second, SSP has refined an integrated land use, urban transport and air quality strategy using sketch planning techniques (PITU) which is now a major planning tool which is continuously updated. This strategy has been used for decision-makers and stakeholders to discuss proposed projects. SSP has explored several financing mechanisms for the urban transport sector other than government budgets. It has accelerated the rental of station spaces, in –vehicle and outside vehicle advertising, has created partnerships for shopping centers close to metro stations and sells space in the right-of-way for cable services, in an effort to increase non- operating revenues. Lastly, conscious of the scarcity of resources it faces, SSP has sought a progressive participation of the private sector in the operation of its systems: the São Mateus- 18

Jabaquara busway was successfully concessioned out to the private sector for 20 years, the PPP for Line 4 of the Metro was signed. Several activities of the Metro and CPTM were outsourced to the private sector and they are either reducing costs or generating non-operating revenues. The construction of Line 4 under a public-private partnership is a pioneer project because it starts a trend towards investment of the private sector in the construction of new infrastructure and equipment.

17. SSP‘s strategy is therefore to integrate the existing systems, to offer an acceptable level of service to the user and to reduce operating subsidies. But it is also a State goal to improve rail- based urban transport in low-income areas to facilitate the access to employment centers, health, education and leisure facilities. Finally, the State has clearly decided that a major improvement of the rail-based network, particularly the CPTM network, is a cost-efficient priority, upgrading it to surface metro-like operation. 18. A number of key issues must be addressed in order to improve the supply of urban transport services and to guarantee their orderly development and sustainability in the long term for the SPMR. They are: (a) institutional issues; (b) cost recovery and financial management issues; (c) environmental issues; and (d) transport planning issues. a) Institutional Issues. The most critical institutional issues are: (a) the fine-tuning of relations between state and municipal governments and a clear definition of their respective roles in the financing, planning and operation of urban transport services in accordance with the 1988 Constitution; and (b) A clear definition of the funding mechanisms of the sector at the metropolitan level through an agreement between State and Municipalities of the region. The Government's strategy was to create a regional coordination entity empowered by the SPMR for planning, coordinating and setting priorities for new investments and modal integration. This entity (CDTI) meets frequently and is primarily a forum for discussion of metropolitan transport policies and projects. Its first product was the introduction of the Bilhete-Único.

b) Cost Recovery, Financial Management and Funding Issues. The need to address cost recovery from a more commercially oriented standpoint by: (a) setting tariffs which, when added to subsidies, cover at least the long-run variable costs (defined as out-of-pocket costs plus depreciation of equipment and cost of capital) of the service provided; (b) controlling fare evasion; (c) appropriate peak and off-peak pricing; (d) improving the financial management of the systems through wide-ranging cost cutting measures and generating more non-operating revenues through advertising, station space rentals and use of the right- of-way ; and (e) revamping the funding mechanisms in order to guarantee adequate financing for the implementation of new mass transit systems and the sustainability of the existing systems. Since 1992, to help achieve these goals, the São Paulo State Government (GSP) has embarked on an aggressive campaign to promote private sector participation in the urban transport sector, to reduce fare evasion, to cut costs and to generate more non- operating revenues. But much more needs to be done and, in the proposed project, the institutional and policy development component includes studies to assist the State in this area.

c) Environmental Issues. Air pollution, noise, traffic congestion, and road accidents are major environmental issues to be addressed in the SPMR. The reduction of the environmental impacts of urban congestion and noise pollution in the urban area could be done through: (a) the allocation of responsibilities across government levels for the enforcement of the law and definition of tougher standards; (b) the use of cleaner and quieter systems; (c) where appropriate, the use of non-motorized transport; (d) improved traffic management and control; 19

and (e) the strengthening of traffic safety education and the enforcement of traffic regulations. Construction of Line 4 and the proposed improvements on Metro and CPTM will most likely reduce the number of bus-kms in the corridors where they are happening and consequently will reduce vehicle emissions. The existing municipal legislation, by which vehicles with plates ending with a certain number cannot circulate during peak periods of one day of the week (rodízio) continue with some success. This has reduced the number of vehicles per day by 600,000 during those peak periods providing some congestion reduction and less emissions.

d) Transport Planning Issues. The need to continue to strengthen SPMR's transportation planning, traffic data base, traffic management, and economic and financial evaluation of new investments was emphasized during the preparation of the project and was addressed by the SPMR. STMSP is equipped with a battery of sketch planning, demand and supply models which will test different land use, air quality, and urban transport scenarios. Furthermore, an integrated land use, urban transport, and air-quality strategy (PITU) exists and should continue to be fine-tuned with more attention to the land use and environmental aspects.

19. A brief look at Companhia do Metropolitano de São Paulo (Metro): The basic network of the São Paulo Metro is comprised of four lines in operation, Line 1 - Blue linking Jabaquara to Tucuruvi, Line 2 - Green from Alto do Ipiranga to Vila Madalena, Line 3 - Red from Barra Funda to Corinthians-Itaquera and Line 5 - Lilac from Capão Redondo to Largo Treze, in a total length of 61.3 km and 55 stations. Besides that, it is integrated with several transport modes (metropolitan train, urban bus, intermunicipal bus, inter-state bus and cars). Line 4 will have 12.7 km and is under construction. It is partially financed by a Bank loan (Ln.4646- BR).

20. In 2006, the Metro accounted for 13.8% of the total motorized trips made by public transport in the São Paulo Metropolitan Region.

Table 1: São Paulo Metro: Average Demand by Line in 2007 Line Line Line Line Total 1-Blue 2-Green 3-Red 5-Violet Total 241,783 62,424 283,025 24,422 611,654 (thousands) Average 827,061 2,252 967,117 90,338 2,109,717 Working Day Average 452,522 89,496 542,321 49,252 1,133,591 Saturday Average 264,379 50,027 315,158 - 629,565 Sunday Maximum reached per 944,385 26,842 1,098,776 118,061 2,429,642 day

Line Blue Green Red Violet Total Start of Commercial Operation 1974 1991 1979 2002 - Present length of lines (km) 20.2 10.7 22 8.4 61.3 Stations 23 11 18 6 55(1) Transfer stations 3 2 1 - 3 Stations connecting with the railway 1 1(2) 4 1 7 Stations with urban bus terminals 6 1 10 5 22 Stations with inter-city bus terminals 2 - 1 1 3 Number of cars of the fleet (3) 306 66 282 48 702 Number of cars used at peak hours 258 90 252 24 624 Minimum headway (seconds) 109 150 101 381 - Maximum speed (km/h) 87 87 87 68 - Commercial speed (km/h) 32 35 42 41 - Passenger entry (million) (4) 227.1 55.2 262.8 18.5 563.6 Passenger entry/km of line (million) 16.58 10.16 15.11 1.78 9.5 Note : (1) The transfer stations were stated in both lines they serve - Sé (L1 and L3), Ana Rosa (L1 and L2), Paraíso (L1 and L2) - but only once in the entire network; (2) connection carried out by Orca Shuttle; (3) One train comprises 6 cars; and, (4) Data related to 2006.

Table 2: São Paulo Metro-Total passengers Transported and Passenger/km (000’s)

1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 Passengers transported (see 689,535 673,997 658,603 688,681 714,810 731,935 711,546 699,708 710,484 774,641 844,548 note)

Passenger-kms (millions) 4,381 4,276 4,174 4,757 4,945 5,096 4,947 4,846 4,947 4,983 5,808 Note: Passengers transported are counted twice when users use more than one line. This line differs from passenger entries Source: São Paulo Metro

Table 3: Facts on the Companhia Paulista de Trens Metropolitanos (CPTM) Operational stations 83 Total extension of the network 253.2km Number of municipalities served 22 349 EMUs* Operational fleet (1119 cars) Average trips per day 1684 1,581,000 Total passengers per day (May 2007) Passengers on Specific Lines Line A 342,000 Line B 330,000 Line C 128,000 Line D 265,000 Line E 380,000 Line F 136,000 Note : * Multiple Electric Unit

Table 4: CPTM Total passengers Transported and Passenger-km (000’s)

1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

Total Passengers 247.571 246.259 230.198 273.443 311.717 322.686 353.750 368.795 389.627 430.149 479.250 transported

Passenger- km 5.497.800 5.440.600 5.170.000 5.955.400 6.857.787 7.099.098 7.782.509 8.113.489 8.221.131 9.076.532 10.112.608

Note: Passengers transported are counted twice when users use more than one line. This line differs from passenger entries Source: CPTM.

Table 5: CPTM Line Profile

A B C D E F Line and Link Fco Luz a Júlio Itapevi a Luz a Rio Guaianazes Brás a Morato Osasco a Luz a Fco Prestes a Amador Gde da a Calmon INDICATORS a Jurubatuba Guaianazes Morato Itapevi Bueno Serra Estudantes Viana Jundiaí

Operational Link 39 km 21.5 km 35.2 km 6.33 km 24.3 km 37.2 km 24 km 26.8 km 38.8 km

Number of Stations 17 24 15 14 16 10

Stations Integrated w/ Metro 2 1 1 2 4 2

Stations with Bus terminals 4 9 2 4 4 2

Passengers Transported (daily average in business day) 341.818 329.509 124.673 264.435 375.909 132.741 (*MAR/2007)

Peak-hour Headway 8 22 7 30 6 8 6 9 8

Peak hour trains/direction 14 3 16 2 15 13/14 12 9 14

12.120 / Peak hour seats offered 14.408 2.487 1.402 9.350 13.995 19.960 10.960 13.755 21.210

Avearge Commercial Speed 46 km/h 52 km/h 36 km/h 18 km/h 36 km/h 41 km/h 45 km/h 45 km/h 39

Grade Crossings 4 1 3 41 2 5 1

Travel Time 53 25 59 21 52 32 36 59 Source: CPTM.

Annex 2: Major Related Projects Financed by the Bank and/or other Agencies BRAZIL: SÃO PAULO TRAINS AND SIGNALING

Table 1: Major Brazil Transport Projects Financed by the IBRD and IDB Latest PSR Ratings Development OED Development Sector Issue Project Implementation Agency rating Objective Progress (IP) (DO) Decentralization of rail services from federal to state government with Sao Paulo Metropolitan IBRD system Transport Decentralization S ehabilitation/modernizati (Ln. 3457-BR) on . Borrower was Federal Government Decentralization of rail services from federal to state government with Rio de Janeiro Metropolitan Transport IBRD system S rehabilitation/modernizat Decentralization (Ln. 3633- ion. Borrower was BR) Federal Government Decentralization of rail services from federal to state government with Recife Metropolitan IBRD system rehabilitation and Transport Decentralization S extension. Borrower was (Ln. 3915-BR) Federal Government Decentralization of rail services from federal to Belo Horizonte state government with Metropolitan Transport IBRD S system extension. Decentralization (Ln. 3916- Borrower was Federal BR) Government Table continues on following page…

Table continues from previous page… Decentralization of rail services from federal Salvador Urban IBRD to state government with system extension. Transport Project NA MS MS Borrower was Federal Government (Ln.4494-Br Fortaleza Decentralization of rail services from federal Metropolitan IBRD to state government with system extension. NA MS MS Transport Project Borrower was Federal Government (Ln. 7083-Br) Rio de Janeiro Consolidation of the system and its Mass Transit IBRD concession to the private sector. Borrower NA S S Project(Ln. 4291- was the State of Rio de Janeiro Br) São Paulo Connection between the ex-federally owned Integrated Urban CBTU system and the State-owned Fepasa Transport Project IBRD system to create CPTM and modernization of HS (the Barra Funda- major integration stations. Borrower was the Roosevelt link) State of São Paulo (Ln.4312-Br) São Paulo Metro Construction of Line 4 of São Paulo Metro Line 4 IBRD under a PPP project. NA S S project(Ln. 4646- Borrower was the State of São Paulo BR) IDB-financed improvements of stations of ex- IDB FEPASA South line, acquisition of rolling Metro’s Line 5 stock and construction of Metro’s Fifth Line

In general, all State financed projects have fared very well particularly those in São Paulo State and Rio de Janeiro. The federally-financed projects such as Salvador and Fortaleza were highly affected by the fiscal restrictions from 2002-2005 which delayed implementation.

Annex 3: Results Framework and Monitoring BRAZIL: BR SÃO PAULO TRAINS AND SIGNALING

Table 1: Results Framework PDO Project Outcome Indicators Use of Project Outcome Information To improve the level-of-service 1. Number of trains per peak 1. Assess if the carrying capacity provided to the urban rail transport hour/direction and off-peak in at peak hour and off peak has users in the São Paulo Metropolitan Lines A and F of CPTM and been increased Region in a safe and cost-efficient Lines 1, 2, and 3 of Metro 2. Assess improvement in level-of- manner by increasing the peak–hour 2. Reduction in travel time plus service and off peak carrying capacity of the waiting time. 3. Assess improvement in level-of- Lines A and F of the Companhia 3. Passengers per square meter service Paulista de Trens Metropolitanos 4. Incremental demand in Metro’s 4. Measure overall impact of (CPTM) and Lines 1, 2 and 3 of the Line 1,2,3 and CPTM’s Lines A project on total ridership of the São Paulo Metro Company (CMSP) and F. lines benefited by project A subsidiary objective will be to 5. Number of low-income 5. To assess impact on the low- continue the strengthening of the passengers (up to 4MS) in income population transport management and policy CPTM lines A and F and Metro 6. Assess cost-efficiency functions at the SPMR Lines 1, 2, and 3. 7. Assess Metropolitan 6. Working Ratio of Metro and Coordination Working Ratio of CPTM. 7. Maintaining/Strengthening of the Integrated Urban Transport, Land use and air quality strategy (PITU) Intermediate Outcomes Intermediate Outcome Use of Intermediate Indicators Outcome Monitoring Component 1 1. To assess the progress on the • Delivery of all new trains of Metro 1. % of completion of trains to be delivery of Metro and CPTM • Delivery of all new trains of delivered to Metro and CPTM trains and ; CPTM 2. % of completion of systems by 2. To assess the progress made on • Entry in operation of all Metro new Metro and CPTM the installation and delivery of “systems” the “systems “ in Metro and • Entry in operation of all CPTM CPTM “systems”

Component 2 % of progress towards completion To assess the progress made in the Consulting Studies preparation of the studies agreed

Source: Bank staff estimates.

A. Arrangements for Results Monitoring a) Institutional issues: The PMUs will be in charge of making sure that the periodic supervision reports include data on the project outcome indicators or/and the intermediate outcome indicators. b) Data collection: Data collection will be undertaken by the operating divisions of each of the agencies and will be verified by the project management consultants. The low-income participation surveys will be undertaken every two years because they are costly.

25 c) Capacity: Both Metro and CPTM have the capability required to collect the data and prepare the progress reports. In case they cannot do it directly they will be supported by the project management consultants.

Table 2: Arrangements for Results Monitoring

Target Values Data Collection and Reporting Responsability Project Outcome Indicators Frequency Data Collection Baseline 2007 Yr 1 Yr 2 Yr 3 Yr 4 Yr 5 for Data and Reports Instruments Collection

Number of trains / peak/off peak-hour - CPTM Line A 7.5 / 4 7.5 / 4 7.5 / 4 7.5 / 4 15 / 8 15 / 8 Bi-annual CPTM

Number of trains / peak/off peak-hour - CPTM Line F 7.5 / 4 7.5 / 4 7.5 / 4 7.5 / 4 15 / 8 15 / 8 Bi-annual Operational CPTM Number of trains / peak/off peak-hour - METRO Line 1 33 / 24 34 / 24 35 / 24 36 / 24 38 / 24 41 / 26 Bi-annual Reports / METRÔ Counting Number of trains / peak/off peak-hour - METRO Line 2 24 / 16 25 / 16 26 / 16 27 / 16 28 / 16 28 / 18 Bi-annual METRÔ Number of trains / peak/off peak-hour - METRO Line 3 35 / 2I 36 / 25 37 / 25 38 / 25 40 / 25 44 / 28 Bi-annual METRÔ Travel Time+ Waiting Time reduction in CPTM (minutes) 80 65 57 Bi-annual Oper. Reports CPTM Travel Time +Waiting Time reduction in Metro (minutes) 29 19 14 Bi-annual Oper. Reports METRÔ Passengers/Square meter CPTM Lines A and F 8 7 6 Bi-annual Oper. Reports CPTM Passengers/Square meter Metro Lines 1,2 and 3 8 7 6 Bi-annual Oper. Reports METRÔ Incremental Demand in CPTM (Lines A+ F)/day 0 219,341 219,341 Every year Oper. Reports CPTM Incremental Demand in Metro (Lines 1+2+3)/day 0 886,800 921,320 Every year Oper. Reports METRÔ Number of users/day of households with less than 4 MS 236.62 356.59 356.59 Every 2 years CPTM - CPTM Lines A & F – 000’s (baseline 2006) Train Survey Number of users/day of households with less than 4 MS 908.50 1231.09 1231.09 Every 2 years METRÔ - METRÔ Lines 1, 2 & 3 – 000’s (baseline 2006) Working Ratio - CPTM (com gratuidade e sem subsídio 1.00 1.00 1.00 1.00 <1.0 <1.0 Annual Audited CPTM para equilíbrio de contas) Financial Working Ratio - METRO 1.00 1.00 <1.00 <1.00 <1.00 <1.00 Annual Statements METRÔ Maintaining / Strengthening of PITU 0% 10% 25% 50% 75% 100% Annual Progress Rep. STM

Intermediate Outcome Indicators % of Completion of CPTM Trains 0.0% 10.0% 85.2% 4.8% 0.0% Annual CPTM % of Completion of METRO Trains 0.0% 10.0% 85.8% 4.2% 0.0% Annual METRÔ Operational % of Completion of CPTM Systems 0.0% 54.8% 45.2% 0.0% 0.0% Annual CPTM Reports % of Completion of METRO Systems 0.0% 54.8% 45.2% 0.0% 0.0% Annual METRÔ % of STMSP Studies Completed 5.0% 15.0% 55.0% 19.0% 6.0% Annual STM * CPTM Line A - Luz a Francisco Morato - length 39 km ** METRO Line 1 - Sé a Penha - length 9.5 km

Annex 4: Detailed Project Description BRAZIL: SÃO PAULO TRAINS AND SIGNALING

1. The proposed project comprises the following components:

2. Part A: An Infrastructure and Equipment Component: Acquisition of trains for Metro and CPTM and supply and installation and rehabilitation of systems and associated civil works for Metro and CPTM. This component is estimated to cost 97 % of the total project cost. It comprises the following sub-components:

• Part A.1-CPTM Trains and Systems: a) Acquisition of forty Electrical Multiple Units (EMUs) of 8 cars each and accessories for a total of 320 cars to be used in Lines A (20) and F (20); and b) supply and installation and /or rehabilitation of traction electrical power systems for the substations of Line A (Jaraguá, Tietê and Campo Limpo Paulista) and Line F (Manoel Feio, Engenheiro Gualberto and Comendador Ermelino); installation and/or rehabilitation of the electrical cabinets of Line A ( Nothmann, Vila Clarice, Franco da Rocha and Botujuru) and Line F (Itaim Paulista); auxiliary power lines for Lines A and F; installation of a signaling system operated from the Operations Control Centre (OCC) and supply and installation of an electronic telecommunication systems.

• Part A.2-Metro trains and Systems: a) Acquisition of seventeen Electrical Multiple Units (EMUs) of 6 cars each and accessories for a total of 102 cars to be used in Lines 1 (7) and 3 (10) ; and, b) supply and installation of a new signaling system known as Communication Based Train Control (CBTC) in Lines 1, 2 and 3 of the network; acquisition of a Telecommunication Systems, Access Control System (ACS); Platform Screen Doors (PSD) and modernization of the existing Operational Control Centre (OCC).

3. PART B: An Institutional and Policy Development Component designed to support the implementation and supervision of the project as well as furthering STMSP’s pricing, funding and regulatory policies; and also allowing Metro and CPTM to pursue studies to improve their technical and financial performance. This component represents about 3% of the total project cost. The proposed technical assistance is described below

• Part B.1: Provision of technical assistance to the STMSP or the carrying out of studies on policy development, including: (a) consolidating the CDTI for the SPMR; (b) updating the current integrated transport policy, land use and air quality management strategy (PITU) for the SPMR to meet both transport and air quality targets and to introduce sound cost-recovery, tariff, regulatory and subsidy policies; and, (c) providing an action plan to review the funding of the urban transport system in the SPMR in view of the adoption of the BUI.

• Part B.2: Provision of technical assistance to CPTM for (a) the carrying out of studies on evaluating the outsourcing to the private sector of selected services including but not limited to maintenance of track and systems, rolling stock and other operational services; and assessing the impact on affordability, accessibility, availability and acceptability of the project on the low income urban rail transport users and (b) management and supervision of the implementation of Part A.1 of the Project.

• Part B.3: Provision of technical assistance to SP Metro for (a) the carrying out of studies to assess the impact on affordability, accessibility, availability and acceptability of the project on the low income urban rail transport users and (b) the management and supervision of the implementation of Part A.2 of the Project.

3. Following is a summary of the objective and scope for the studies above:

a) Consolidating the Metropolitan Transport Coordination Commission (CDTI) for the SPMR: Provide an orderly expansion of the CDTI by attracting other municipalities of the region. Study the funding of the CDTI and migrate some of the functions of the State and Municipal Secretaries of Transport to the CDTI.

b) Updating the integrated Transport Policy, Land Use and Air Quality Management strategy (PITU) for the SPMR to meet both transport and air quality targets and to introduce sound cost-recovery, tariff regulatory and subsidy policies: continue the PITU’s integration with the Integrated Plan of the São Paulo Municipality and other major municipalities. Explore areas of demand management similar to the London congestion pricing. Evaluate the impact of alternative fuels on the system. Evaluate the impact of major events such as the World Cup of 2014.

c) Providing an action plan to review the funding of the urban transport system in the SPMR in view of the adoption of the Bilhete-Único: The sources for funding the Bilhete-Único must be clearly defined to ensure that they are predictable and reliable. Discussion of the types of funding required and preparation of an action plan in case legislative approval is necessary.

d) CPTM/METRO to evaluate the outsourcing to the private sector of selected services: these studies will examine maintenance and other activities and compare the advantages for the operating agencies of outsourcing them to the private sector as vs. in-house services.

Annex 5: Project Costs BRAZIL: SÃO PAULO TRAINS AND SIGNALING Table 1

Foreign US$ Local US$ Project Cost By Component and/or Activity Total US$ million million million

Infrastructure and Equipment – Part A CPTM Trains 550.00 50.00 600.00 METRÔ Trains 145.85 62.51 208.36 CPTM Systems and Assoc. Civil Works 104.90 227.32 332.22 METRÔ Systems and Assoc. Civil Works 209.05 88.60 297.64

Institutional and Policy Develop. - Part B Administration/Supervision CPTM 16.24 1.76 18.00 Administration/Supervision METRÔ 1.11 3.48 4.59 Technical Assistance CPTM 3.66 0.34 4.00 Technical Assistance METRÔ 3.66 0.34 4.00 PMU Operating Cost - METRÔ - 3.00 3.00 SPMR Policy Development 0.25 0.25 0.50 Total Baseline Cost 1,034.72 437.59 1,472.31 Physical Contingencies 2.66 5.67 8.34 Price Contingencies 46.24 21.73 67.98 Total Project Costs1 1,.083.63 465.00 1,548.63 Front-end Fee 1.37 - 1.37 Total Financing Required 1,085.00 465.00 1,550.00 1 Identifiable taxes and duties are US$ 253.53 million, and the total project cost, net of taxes, is US$ 1,159.4 million. Therefore, the share of project cost net of taxes is 83.6 %. 2. Metro’s costs are net of taxes. Source: Bank staff estimates.

Table 2: Schedule of Estimated Disbursements (including Contingencies) in US$ Million

IBRD Estimated Estimated Estimated Fiscal Year Disbursements Cumulative Cumulative as Semester per Semester Disbursements % of Total

Year 1

December 31, 2007 - - 0.00 Jun 30, 2008 79.8 79.8 14.53

Year 2

December 31, 2008 27.6 107.4 20.21

Jun 30, 2009 86.4 193.7 35.57

Year 3

December 31, 2009 98.5 292.2 53.13

Jun 30, 2010 207.4 499.6 90.83

Year 4

December 31, 2010 36.1 535.7 97.40

Jun 30, 2011 14.0 549.7 99.94

Year 5

December 31, 2011 0.16 549.86 99.97

Jun 30, 2012 0.11 549.98 99.99

Year 6

December 31, 2012 0.01 549.99 99.99%

Jun 30, 2013 0.01 550.00 100% Source: Bank staff estimates.

Table 3: Estimated Disbursements (including Contingencies) in US$ Million

IBRD Fiscal Year 1 2 3 4 5 6

CPTM - ANNUAL 46.73 69.93 206.39 33.52 0.28 0.02

CPTM - CUMULATIVE 46.73 116.66 323.05 356.56 356.84 356.87

METRÔ - ANNUAL 33.08 43.98 99.49 16.60 0.00 0.00

METRÔ - CUMULATIVE 33.08 77.05 176.54 193.13 193.13 193.13

TOTAL - ANNUAL 79.80 113.91 305.88 50.11 0.28 0.02

TOTAL - CUMULATIVE 79.80 193.71 499.59 549.70 549.98 550.00

Annex 6: Implementation Arrangements BRAZIL: SÃO PAULO TRAINS AND SIGNALING

A. State Agency Responsible for the Project

1. The Secretary of Metropolitan Transport of the State of São Paulo (STMSP) is the main Government agency responsible for the project and it will represent the State. To oversee the project on behalf of the State of São Paulo, STMSP has established and maintained a Project Coordination Unit (PCU) headed by a Project Coordinator, to follow the implementation of the project and oversee policy issues. This PCU already exists to oversee the São Paulo Metro Line 4 project and its mandate has been extended to cover the proposed project. The actual implementation of the project will be done by the two operating agencies Metro and CPTM which are under the jurisdiction of the Secretary of the STMSP. Both Metro and CPTM have implemented Bank-financed projects and have the manpower capacity required to implement the respective subcomponents of the proposed project.

B. Project Implementation Agents

2. Both Metro and CPTM will have separate Project Management Units (PMUs) which will be in charge of the implementation of their respective components. Each will be headed by a Project Coordinator which would report directly to the Director in charge of the implementation of the project. The PMUs will be staffed with regular staff from the agencies and supported by project management and supervision consultants in charge of providing technical support in areas such as engineering, procurement, environment and financial management. Both Metro and CPTM have considerable experience with these PMU units in ongoing projects (São Paulo Metro Line 4) or recently concluded projects (São Paulo Barra Funda-Roosevelt project).

3. The division of responsibilities is quite clear. CPTM will be responsible for implementing Part A.1 and technical assistance, supervision and studies of Part B dealing with CPTM; Metro will be responsible for implementing Part A.2 and technical assistance, supervision and studies of Part B dealing with Metro. Studies in Part B which are of interest to the SPMR will be the responsibility of the STMSP because their objective is to support sector policy and the consolidation of the regional transport coordination commission (CDTI).

4. Given the importance of quick response to issues that might be faced during the project , the Director to which each PMU reports is required to have sufficient autonomy to decide and, in extreme cases, have quick access to the President of each operating company. Both CPTM and Metro have strong technical, procurement, environmental and legal staff which will support the implementation of the project.

C. Assessment of Project Implementation Capacity

5. As mentioned above, both Metro and CPTM have considerable experience with these PMU units in ongoing projects (São Paulo Metro Line 4) or recently concluded projects (São Paulo Intergrated Urban Transport Project: the Barra Funda-Roosevelt link). Their knowledge of procurement, financial, disbursement and safeguards procedures will be an asset for the project implementation. No special launch training is judged necessary.

D. Legal Agreements

6. There will be a Guarantee agreement between the Federative Republic of Brazil and the Bank, a loan agreement between the State and the Bank and project agreements between the Bank and CPTM and the Bank and Metro.

Table 1: CPTM Organization Chart

PR Presidência PRG Gabinete da Presidência DROV Ouvidoria GRA Ger. Auditoria Ger. Marketing Desenv. GRM Negoc. GRJ Ger. Jurídica

DO Dir. Operação e Manutenção DF Dir. Administrativa e Financeira DP Dir. de Planejamento DE Dir. Engenharia e Obras

Ger. Circ. Controle Ger. Finan. e Cont. Ger. Engenharia Infra- Ger. Planej. Transp. GOC Operacional GFF Orçamentário GPT GEE Estrutura Ger. Proj. Func. Ger. Operação Estações Ger. Des. Org. Rec. Humanos Ger. Engenharia Sistemas GOP GFH GPI Integr.Transp. GES GOS Ger. Segurança GFC Ger Contratações e Compras GEO Ger. Obras Montagens Ger. Manut. Material Ger. Administração Ger. Coordenação GOR Rodante GFP Patrimônio GEC Ger. Manut. Instalações Ger. Tecnologia da GOF Fixas GFI Informação GOQ Ger. Gestão e Qualidade (1) PMU Coordenação do Projeto BIRD

PLAN Planejamento e Controle FIN Administrativo / Financeiro TEC Apoio Técnico (1) Team includes: economists, environmental engineer, procurement specialist, electrical, civil and mechanical engineers and an accountant. To deal with financial management issues. Source: CPTM.

Table 2: METRO Organization Chart

P Presidência GAD Ger. Auditoria Gest. Normativa GCE Ger. Controle e Engª. de Custos GRH Ger. Recursos Humanos DIM Imprensa OVD Ouvidoria

DO Dir. Operação DF Dir. Financeira DA Dir. de Assuntos Corporativos DE Dir. Engenharia e Construções

GMT Ger. Manutenção GNK Ger. Negócios e Marketing GJU Ger. Jurídica GCI Ger. Concepção Civil GOP Ger. Operação GCT Ger. Controle Financeiro GIT Ger. Tecnologia da Informação GC2 Ger. Construção Linha 2 GCS Ger. Concepção de Sistemas GOF Ger Operações Financeiras GSI Ger. Serviços e Infra-estrutura GC4 Ger. Construção Linha 4 GPF Ger. Planejamento Financeiro GCP Ger..Contratações e Compras PMU Unid. Gerenc. de Empreend.

Dir. Planej. Expansão Trans. DM Metr.

Ger. Planej. Transporte

GPM Metropol. GPE Ger. Planejamento Empresarial Ass. Gestão Ambiental

AGD Sustentab. Source: Metro.

Table 3: Legal Agreements

IBRD Guarantee Agreement G.O.B

Loan Agreement State of São Paulo

Subsidiary Agreements

Metro CPTM

Project Agreements

Annex 7: Financial Management and Disbursement Arrangements BRAZIL: São Paulo Trains and Signaling

1. A financial management assessment of the São Paulo Trains and Signaling Project was carried out for the Companhia do Metropolitano de São Paulo (Metro) and Companhia Paulista de Trens Metropolitanos (CPTM), in accordance with OP/BP 10.02 and the Financial Management Practices in World Bank Financed Investment, dated November 3, 2005. The purpose of the assessment was to determine whether the two implementing agencies, Metro and CPTM, have acceptable financial management and disbursements arrangements in place to adequately control, manage, account and report about the funds to be allocated to this project.

2. These arrangements include, but are not limited to its capacity to: (a) properly manage and account for all Project’s proceeds, expenditures and transactions, (b) produce timely, accurate and reliable financial statements and reports, including unaudited Interim Financial Reports (IFRs) for project management and monitoring purposes, (c) safeguard the project’s assets, and (c) disburse Bank funds in the most efficient way, in accordance with applicable Bank rules and procedures.

3. This assessment was completed on-site and included discussions sessions with the coordinators and staff for both implementing agencies on: a) financial and administrative staff to be engaged in the project; b) review of internal controls and administrative procedures; c) financial administration and accounting system to be used for project’s accounting, implementation, monitoring and reporting; d) reporting requirements, including format, contents and frequency of IFRs submission to the Bank; e) review of funds flow mechanisms; f) disbursement methodology; and, g) external audit arrangements.

4. Based on the assessment of both implementing agencies (Metro and CPTM), the conclusion of the assessment is that the financial management arrangements as set out for this project satisfy the Bank’s minimum fiduciary requirements and that the project can rely on and utilize the State Administrative and Financial Management Systems (SIAFEM).

5. The overall financial management risk associated with this project is considered low mainly due to: (a) highly qualified project staff, including professionals with strong capacity in planning, budgeting and financial management, the commitment of the entity to the Project; (b) strong existing financial management arrangements in place – SIAFEM; and, (c) a strong and supportive internal audit department.

Table 1 Risk Metro Mitigation Measures CPTM Mitigation Measures Inherent Risks Country specific L L Sub-national (state) level L L Entity specific L L Project specific L L Overall Inherent Risk L L Implementing Agency L M SOE disbursed based – M Same as Metro Flow of Funds SOE reviews should be done during FM missions. Staffing L L Same as Metro Accounting procedures L L M Bidding process should M Same as Metro Internal/External Audit start after effectiveness Information Systems L L Reporting & Monitoring L L Overall Control Risk M M Note: H-High S-Substantial M-Moderate L-Low Source: Metro Estimates

Table 2: Pending Issues and Deadlines Issues Due date Responsible Draft of the Operational Manual By negotiations Metro/CPTM Submit auditors short list for Bank’s no objection Effectiveness Metro/CPTM

Auditors Terms of Reference for Bank’s review. Effectiveness Metro/CPTM

A. Implementation Arrangements

6. The project components will be implemented by two implementing agencies, as described in Annex 6.

7. Companhia do Metro de São Paulo (Metro) and Companhia Paulista de Trens Metropolitanos (CPTM). Each implementing agency would carry out their respective administrative and financial management tasks, accounting and disbursements (based on SOEs) for their components, through two separate Project Management Units (PMUs) within both Metro and CPTM. Metro will be responsible to consolidate the two sets of required interim financial reports (for both Metro and CPTM) and forward them to the Bank. Both entities are under the State of Metropolitan Transport Secretariat. As the biggest city in Brazil, both companies are structured with high level staff, technology and information system (i.e., administrative, accounting and managerial).

8. Companhia do Metro de São Paulo (Metro) is the State company responsible for São Paulo’s subway system, and operates under the State Secretary of MetropolitanTransport. There is already an active Project Management Unit (PMU), which manages the ongoing Bank-

financed São Paulo Metro Line 4 project (Loan No. 4646-BR/P051696), and which reports to the Finance Director. Metro’s PMU will be responsible to carry out the project activities related to its respective component and also to coordinate the consolidation of Metro and CPTM periodic financial reports to the Bank. The Metro PMU is staffed with qualified professionals, hired under competitive processes and staff turnover has been low. Metro PMU staff has prior experience in Bank, JBIC, and state procedures. Metro will implement components under Part A2 and some of Part B with the total amount of US$500 million (without contingencies). The Metro PMU financial management team will have a financial coordinator and an administrative assistant, besides the direct support of METRO´s accounting and administrative department in transaction and payment processing. In case of a large number of commitments, an additional staff member may be required. The detailed institutional arrangements can be found in the project files and the operational manual

9. CPTM is the State company responsible for metropolitan suburban trains, and is also under the State Secretary of Metropolitan Transport. The CPTM PMU was created to coordinate the proposed project, and reports to the Director of Finance. CPTM has prior experience with WB and State Governmental procedures. The PMU is staffed with qualified professionals, hired under competitive processes. It is expected that the current staffing arrangements are kept during project implementation, and no turnover is expected. Staff has prior experience in Bank, and State procedures. CPTM will implement components under Part A1 and some of Part B with the total amount of US$930 million (without contingencies). The CPTM PMU financial management team is comprised of a financial specialist, and a planning and controllership specialist supported by an administrative assistant. The CPTM PMU will also be supported by a consultant hired to carry out the monitoring of project implementation’s tasks. In case of a large number of commitments, an additional staff member may be required. The detailed institutional arrangements can be found in the project files and the operational manual.

B. Internal Control

10. The internal control systems at both entities are done through proper financial management systems, segregation of staff functions, fiscal/administrative counsels and staff expertise. All procedures are to be stated in the operational manual. Both systems are also able to provide timely information to the management that a) asset safeguards protect against loss resulting from misuse, b) transactions are made following internal authorizations, c) the financial systems account for all transactions and generate adequate and reconciled financial reports, d) supporting documentation is properly archived, e) entities´ staff, archiving documentation and financial systems have satisfactory daily control over project transactions, f) external auditors are hired to assure reliable financial reports, g) the most recent audit report confirmed that the internal control systems in place are adequate. Additionally, in case of METRO all accounting documentation are scanned and an electronic copy is kept at a safe place.

11. Additionally, each fiscal/administrative counsel exams the annual reports, financial statements required by law and the explanatory notes prepared by the external auditors and each company’s management provide an opinion to be submitted to final analysis and approval by the shareholder’s general meeting, called for such purpose.

C. Financial Management System

12. Both implementing agencies manage their financial accounts through the SIAFEM system and through a proper administrative/finance/accounting management and information system designed for each entity.

a) SIAFEM is the integrated administrative and financial system used by the State of Sao Paulo to execute its budget. SIAFEM was developed to comply with the national regulations regarding budget execution and other fiscal requirements of the national treasury (see Lei de Responsibilidade Fiscal). SIAFEM is part of the state public financial management system for the recording of activities, work plans, budget, revenues, commitments and payments. The system has the ability to provide financial information on project execution by activity. SIAFEM was upgraded in 2005, and has also been utilized by both the Bank and IDB to manage projects implemented by the state of Sao Paulo.

b) Entity’s FMS: Both systems are sophisticated management and information systems, which have been used before by both PMUs to adequately account for prior WB loans proceeds. Both project entities follow the accounting practices adopted in Brazil

13. The assessment concluded that SIAFEM, together with each entity’s systems, to be used to account loan proceeds, fulfill the Bank’s requirement for financial management.

14. Aside from producing state and entities´ budget monitoring reports, the systems can also produce project financial management reports (for project monitoring and/or disbursements). The project will be a cost center, within the state budget – the cost center will be opened by each PMU. The systems can record project transactions utilizing the loan disbursement categories. They are able to produce reports by cost center – and these reports are of such detail that they would meet the reporting requirements of the Bank. For controlling and reporting purposes, all costs incurred will be accumulated by components and activities as set forth in the project description.

15. Reporting and Monitoring: The systems are properly structured and allow each PMU to have access and feed only to its related project activities. Project Management Unit within each entity will also provide annual financial statements for auditing purposes that reflect the activities of the operation supported by the Bank loan, prepared in accordance with accounting standards acceptable to the Bank. The CPTM PMU will have the role of consolidating the IFRs produced by CPTM and Metro for management and reporting purposes and forward to the State of Metropolitan Transport Secretariat for signature and which will be responsible for sending to the Bank the consolidated 1-A and 1-B IFRs, on a quarterly basis– the reports will be prepared following cash-basis of accounting.

• IFR 1 – Source and application of funds by cost category as per Project Agreement; • IFR 2 – Statement of Investments by Components and activities;

• IFR 3 – Designated Account reconciliation; • IFR 4 – Disbursements reconciliation with Bank’s Client Connection site.

16. All IFRs will be in local currency (R$), and will present the expenditures figures by quarter, accumulated for the year and accumulated over the life of the project. IFRs for each PMU will be submitted to the Bank up to 45 days after the closing of each quarter. Any other funds and counterpart contributions which is part of the project, such as co financiers (i.e., JBIC for METRO), should be reflected in IFRs (1-A and 1-B), to better monitor all amounts invested under the project.

17. The fourth quarter IFRs generated during the year, showing the cumulative figures for the period, should be submitted to the auditors for review under the annual external audit. In addition to IFRs each entity will be responsible for producing physical implementation progress reports, as well as procurement and contracting reports as part of the Project Report. The contents and the formats of these reports have been discussed within each entity.

D. Flow of Funds and Disbursements

18. A Designated Account (DA) in Reais (R$) will be opened at the Banco Nossa Caixa S.A. in the name of the State of São Paulo. Payments for eligible expenditures will be made directly from this account by the State of São Paulo on behalf of the implementing entities CPTM and Metro. The PMU will also have the option of making Direct Payments to service providers for large payments in either local or foreign currency. Counterpart funds will be disbursed from the state Treasury’s single account to contractors and service providers through an operative account.

19. The proposed ceiling for the Designated Account will be based on the quarterly forecast presented in the quarterly IFRs with the exception of the first advance which will be made in the amount of US$110 million to cover the initial advances on goods and works contracts. The minimum amount for Reimbursement or Direct Payment applications will be established in the Disbursement Letter.

20. The frequency of reporting of payments made from the Designated Account is at least quarterly if not more often. Each application requesting a replenishment of the Designated Account should be accompanied by a reconciled bank statement as well as other appropriate supporting documents. The Statements of Expenditures (SOEs) will be prepared on the basis of payments actually made through Bank payment orders issued under instructions from each PMU. The requirements for submitting SOEs with supporting documentation will be established in the Disbursement Letter.

E. External Audit

21. The project’s accounts and financial statements will be audited by an independent audit firm, selected among a pre-approved short list of three to six candidates, and under Terms of Reference previously reviewed and approved by the Bank. It is recommended that the hiring process starts right after the signature of the Loan. The annual audit report will contain a single

opinion on projects’ financial statements which would include the Designated Accounts, IFRs and SOEs, and a management letter identifying any internal control weaknesses and areas of improvement.

22. Terms of reference of audit will also cover all retroactive financing. As previously noted, the IFRs issued at the end of Project implementation period with cumulative figures will be used by the auditors to express their independent opinion. The auditors’ report must be submitted to the World Bank no later than six months after the end of each calendar year. The State of Metropolitan Transport Secretariat will be responsible for hiring an external audit firm to audit its respective components. External auditing costs are to be financed by project funds, thus allowing for the use of Bank’s procurement guidelines Quality and Cost based - or national procurement procedures if financed by counterpart funds.

23. Each PMU will maintain all original project expenditure supporting documentation in order and make it available to internal and external auditors, as well as to the Bank during supervision and post-review.

24. External audit reports and other financial statements are available on each implementing agency’s website.

F. Supervision

25. During the first implementation year, financial management supervision will take place every six months and will include (a) the review of quarterly IFRs; (b) the review of the auditor’s report and follow-up of issues raised by auditors in the management letter as appropriate; and (c) the participation in project supervision, following up on any financial reporting and disbursement issues. Upon assurance that proper FM arrangements are in place and are being maintained, the supervision missions may be scheduled to be conducted annually.

Annex 8: Procurement Arrangements BRAZIL: SÃO PAULO TRAINS AND SIGNALING

A. General

1. Procurement for the proposed project would be carried out in accordance with the World Bank’s "Guidelines: Procurement Under IBRD Loans and IDA Credits" dated May 2004 and revised in October 2006; and "Guidelines: Selection and Employment of Consultants by World Bank Borrowers" dated May 2004 and revised in October 2006, and the provisions stipulated in the Legal Agreement. The various items under different expenditure categories are described in general below. For each contract to be financed by the Loan/Credit, the different procurement methods or consultant selection methods, the need for pre-qualification, estimated costs, prior review requirements, and time frame are agreed between the Borrower and the Bank in the Procurement Plan. The Procurement Plan will be updated at least annually or as required to reflect the actual project implementation needs and improvements in institutional capacity.

2. Procurement of Works: There are two major bids under the category works for the provision of systems both for Metro and CPTM. This procurement involves two very different signaling and control systems, including communications for controlling train traffic, the first (for Metro) will include supply and installation of a system for signaling, control and communications, and the second (for CPTM) will in addition to signaling, control and telecommunications include electrical energy equipment. The procurement of those signaling, telecommunications and control systems will be done using the Bank’s SBD for supply and installation with agreed modifications for “turnkey” contract.

3. Procurement of Goods: Goods procured under this project would include procurement of two types of trains, 17 trains with 6 passenger cars each (all motorized) for use in underground metro system (by Metro) and 40 trains with 8 passenger cars each (half of them motorized) for use in the suburban rail system (CPTM). The procurement of trains was done using the Bank’s SBD of goods with few adaptations agreed with the Bank, which include to allow foreign bidders who decide to assemble their trains in existing facilities in the country for rehabilitation of trains to compete in equal footing (with respect to domestic preference) with bidders having manufacturing facilities in the country.

4. The procurement process is well advanced to speed up project implementation, and was carried out in four bidding processes: two for trains and two for signaling and control systems. At the time of loan negotiations, the bidding process for all major contracts had already been completed. For three of the four contracts mentioned above bid evaluation reports were reviewed by the Bank and recommendations for award confirmed subject to the signing of the loan. For the remaining bid, a bid evaluation report Bank was expected shortly after negotiations. This advanced procurement was authorized by the Brazil CMU Director at the PCN meeting. Given the lead time for manufacturing the trains is at least 16-18 months after signing, the Borrower requested this advanced procurement at his own risk.

5. Selection of Consultants: The project includes the use of Consultants for (a) supervision of assembling the trains and inspection for delivery of finalized units for both company contracts

(METRO SP and CPTM); (b) supervision and final acceptance of the supply of the signaling and control systems for both company contracts (Metro and CPTM); (c) project management consulting services for CPTM; (d) specific consultancy needs to be defined in accordance with implementation of the project. Short lists of consultants for services estimated to cost less than US$ 500,000 equivalent per contract may be composed entirely of national consultants in accordance with the provisions of paragraph 2.7 of the Consultant Guidelines.

6. Operating Costs: Metro carries out project management and monitoring activities using in its PMU regular qualified staff exclusively dedicated to new investment projects. This has been the case of the ongoing Line 4 project financed by the Bank and will be the case of the proposed project. Metro requested that the PMU operating costs (regular staff salaries) be financed out of the project counterpart funds provided by the State. The project team analyzed and confirmed that the PMU staff is dedicated full time to the project. The operating cost of the PMU was estimated at US$3 million equivalent for the duration of the project which are proposed to be financed as project unit operating costs for project implementation. The main reason for the above request from Metro is a directive from the São Paulo Secretary of Finance that all costs borne by the implementation of the project should be financed by project counterpart funds provided by the State. The project team also received assurances that regular staff on the PMU will not receive any additional salary supplements because they are financed by the project counterpart funds provided by the State.

B. Assessment of the Agency’s Capacity to Implement Procurement

7. Procurement activities were and will be carried out by a joint Metro/CPTM committee under the leadership of Metro. Metro is staffed by a General Manager for procurement and contracts and administration of material, who oversees among other departments the manager of the procurement department. The procurement department is staffed by a very competent group of procurement specialists (about 20) all with large experience of procurement including of complex Bank financed contract such as those financed under Ln. 4646-Br (Line 4).

8. An assessment of the capacity of Metro and of CPTM to implement procurement actions for the project has been carried out by the project team procurement specialist on October 5, 2007. The assessment reviewed the organizational structure for implementing the project and the interaction between the project’s staff responsible for procurement and the relevant units for administration and finance. Both agencies are very familiar with Bank procedures and procurement guidelines since they had implemented Bank financed projects recently.

9. The overall project risk for procurement is Average.

C. Procurement Plan

10. The Borrower, at appraisal, developed a procurement plan for project implementation which provides the basis for the procurement methods. This plan has been agreed between the Borrower and the Project Team on October 5, 2007 and is available at project files. It will also be available in the project’s database and in the Bank’s external website. The Procurement Plan

will be updated in agreement with the Project Team annually or as required to reflect the actual project implementation needs and improvements in institutional capacity.

D. Frequency of Procurement Supervision

11. In addition to the prior review supervision to be carried out from Bank offices, the capacity assessment of the Implementing Agency has recommended supervision missions to visit the field to carry out post review of procurement actions every six months during the first year of project implementation and annual visits thereafter.

E. Details of the Procurement Arrangements Involving International Competition

a) List of contract packages to be procured following ICB and direct contracting:

Table 1: Goods, Works, and Non Consulting Services Estimated Base Total Domestic Review Expected Ref. Contract Procurement Cost P-Q Preference by Bank Bid-Opening Comments No. (Description) Method US$ (yes/no) (Prior / Post) Date million* Supply of 17 For 1 trains of 6 320.36 ICB No Yes Prior October 2007 METRO motorized cars Supply of 40 trains of 8 cars 2 600.00 ICB No Yes Prior October 2007 For CPTM (half motorized) Turn-Key contract for For 3 395.50 ICB No No Prior November 2007 signaling and METRO control system Turn-Key contract for signaling and 4 172.30 ICB No No Prior November 2007 For CPTM control system plus energy supply *Estimated prices at appraisal including taxes Source: Bank staff estimates.

b) List of consulting assignments with short-list of international firms:

Table 2: Consulting Services Expected Estimated Review Ref. Description of Base Total Selection Proposals by Bank Comments No. Assignment Cost Method Submission (Prior / Post) US$ million Date supervision of assembling To be defined in 1 the trains and inspection for 2.00 QCBS Prior the Procurement For Metro delivery of finalized units Plan supervision of assembling To be defined in 2 the trains and inspection for 2.00 QCBS Prior the Procurement For CPTM delivery of finalized units Plan supervision and final To be defined in acceptance of the supply of 3 QCBS Prior the Procurement For Metro the signaling and control 2.00 Plan systems supervision and final To be defined in acceptance of the supply of 4 QCBS Prior the Procurement For CPTM the signaling and control 8.00 Plan systems management of the fleet To be defined in 5 and system modernization 8.00 QCBS Prior the Procurement For CPTM program Plan specific Consultancy needs To be defined To be defined To be defined in To be defined in to be defined in accordance in the in the 6 the Procurement the Procurement with implementation of the 0.50 Procurement Procurement Plan Plan project Plan Plan Source: Bank staff estimates. c) The Procurement Plan will define which contracts will be subject to prior review by the Bank. d) Short lists composed entirely of national consultants: Short lists of consultants for services estimated to cost less than US$500,000 (five hundred thousand US dollar) equivalent per contract, may be composed entirely of national consultants in accordance with the provisions of paragraph 2.7 of the Consultant Guidelines.

Table 3

Procurement Method Total Cost Expenditure Category (including contingencies) ICB NCB Other N.B.F 1. Works a. Turnkey for systems 660.84 660.84 (165.94) (165.94) 2. Goods a. Trains 851.43 851.43

(369.04) (369.04) 2. Consulting Services a. Proj. Mgmt. and 24.26 24.26

Supervision (9.54) (9.54) b. Technical Assistance 8.60 8.60

(3.98) (3.98) 3.00 3.00 c. PMU Operating Costs - - 0.50 0.50 d. SPMR Policy Develop. (0.13) (0.13) 1.37 4. Front end fee (1.37)

1,513.64 36.36 1,550.00 Total (536.35) (13.65) (550.00) Note: N.B.F. = Not Bank-financed (includes elements procured under parallel co-financing procedures, consultancies under trust funds, any reserved procurement, and any other miscellaneous items). Other- Consultant services to be procured under QCBS Source: Bank staff estimates.

1 Table 4: Thresholds for Procurement Methods and Prior Review

Description Type of Procurement Prior Review Limit Contract Value

1. Works: Turnkey ICB All ICB No threshold Contract 2. Goods ICB All No threshold

2. Consulting Services QCBS To be defined in the To be defined in the Firms procurement plan procurement plan

Table 5: Allocation of Loan Proceeds

Amount of the Loan % of Expenditures to be Category Allocated 1/ US$ million Financed 1. Works a) Systems - CPTM 56.76 100% b) Systems - METRÔ 109.17 100% 2. Goods a) Rolling Stocks - CPTM 288.23 100% b) Rolling Stocks - METRÔ 80.80 100% 3. Consulting Services a) Supervision and Project 100% Management - CPTM 8.92 b) Supervision and Project 100% Management - METRÔ 0.62 c) Technical Assistance CPTM 1.99 100% d) Technical Assistance METRÔ 1.99 100% e) SPMR Policy Development Studies 0.13 100% 4. Non Allocated - - 5. Front-end Fee 1.37 100% TOTAL 550.00 Source: Bank staff estimates.

Table 6: Procurement Plan Estimated Bids Delivery Component Type of Procurement Documents Contract Initiation Bank Cost b/ Prop. Goods Contract Method Ready Signature of Works Review Ref. Nº Contract US$ million Invited (1st train)

Infrastructure and Equipment – Part A

1 CPTM-01 40 Trains 600.00 Supp. ICB ago-07 ago-07 apr-08 set-09 Prior 2 CPTM-02 Systems and Civil Works 112.30 Supp./ Works ICB ago-07 set-07 mar-08 jan-09 jul-09 Prior 3 METRO-01 17 Trains 276.51 Supp. ICB ago-07 ago-07 mar-08 set-09 Prior 4 METRO-02 Systems and Civil Works 409.40 Supp./ Works ICB ago-07 set-07 mar-08 jan-09 jul-09 Prior

Institutional and Policy Develop.- Part B

5 CPTM – 03 Project Management 7.22 Services QCBS out-07 mar-08 jul-08 jul-08 Prior 6 CPTM – 04 Supervision - Trains 1.80 Services QCBS out-07 mar-08 jul-08 jul-08 Prior 7 CPTM – 05 Supervision - Signaling 7.22 Services QCBS out-07 mar-08 jul-08 jul-08 Prior 8 METRÔ – 03 Supervision - Trains 1.11 Services QCBS out-07 mar-08 jul-08 jul-08 Post 9 METRÔ – 04 Supervision - Signaling 1.20 Services QCBS out-07 mar-08 jul-08 jul-08 Post 10 STM-01 Institutional Policy 0.25 Services QCBS out-07 mar-08 jul-08 Jul-08 Post

a/ Items to be financed under the Bank Loan (IBRD+JBIC) b/ Base Cost – with taxes (inf. at the time of loan negs.) Source: Bank staff estimates.

Annex 9: Economic and Financial Analysis BRAZIL: SÃO PAULO TRAINS AND SIGNALING

A. Summary of Cost Benefit-Analysis

1. An incremental cost-benefit analysis of the proposed investments on Metro and CPTM were undertaken to evaluate the economic feasibility of the project. The methodology used consisted in comparing the situation with and without project and quantifying the benefits due to time savings for users of all public modes, operating cost savings for all modes, road maintenance cost savings, accident savings, air pollution savings and the investment and operating costs. The demand for each mode was determined using a demand model which estimated the passenger-hours and passenger-km saved by mode with the project for without and with scenarios.

2. The main benefits considered were: a) Operating cost savings resulting from the lower costs of operating all modes with and without the project through estimates of passenger-km with and without the project which are multiplied by the respective estimated operating costs; b) Travel time savings estimated by determining the passenger-hours saved, by type of trip (home-to-work, business or other) and multiplied by the value of time for each mode according to each scenario with and without project; c) Reduction in road maintenance costs due to the reduction of bus-km with the project (minor); d) Reduction in the bus system managing costs due to avoided costs of expanding the existing public management structure; e) Reduction of air pollution costs due to reduction in bus-km with project (minor). To be conservative the costs of avoided investments in the do-nothing situation were not considered; f) Reduction of accidents costs estimated by multiplying the average cost per accident per 1000 passenger-km with and without project and are a function of the number of bus-km saved (minor);

3. The main costs considered were: a) Investment costs for the acquisition of trains and signaling systems and b) Operating costs including personnel, consumption and maintenance of additional fleet and systems.

4. The project will decrease the number of bus-km and bus passenger-hour traveled on the urban network through the acquisition of new fleet and systems. The bus-km saved per year are estimated by the demand model. The main beneficial impacts of the project under evaluation are reduced congestion (mainly due to less buses on the street), reduction in traffic-related accidents, reduced vehicular air pollution, reduced noise due to less buses on the street and economic savings from reduction of travel time.

5. The above are all quantifiable and were used in the economic analysis. There are, however, a great number of non-quantifiable benefits which cannot be captured in a standard cost-benefit analysis but are worth noting:

a) Improvement of travel level of service: (i) Train occupation rates are expected to decrease to an upper limit of 6 passengers per square meter in the with project scenario; (ii) Comfort level improvements on Metro and CPTM services are non-measurable

benefits and will certainly lead to higher utility levels of travel consumption and associated benefits.

b) Accessibility and creation of new opportunities: (i) Promotes the interconnection between residential and employment areas and social equipment (hospitals, schools) facilities; (ii) Strengthens existing sub-centers and corridors.

c) Land Use and Value (i) It increases land values due to lower generalized travel costs by public transport and by auto even without changes in the zoning law; (ii) It increases the dynamics of the real estate market which is reflected by the occupation of empty lots and the renewal of older building in the area of influence of the metro and train railways.

d) Employment Generation: It will promote the creation of jobs with multiplier effects in several sectors of the economy.

6. A detailed economic evaluation report can be found in the Project File. The evaluation was done for the Metro and CPTM together due to the complementary nature of the effects implied by simultaneous headway reduction for lines in both services.

B. Traffic Demand Analysis

7. Demand analysis was undertaken by two different specialized teams based on the data provided by a comprehensive 1997 Origin -Destination Survey which collected data in 389 zones, interviewed close to 26,065 households and 97,760 people.

8. Traffic demand levels for the project life cycle were estimated by the technical staff of Metro and CPTM through a demand simulation using separately two EMME/2 based models, which tested several scenarios with different combinations of headway and network configurations.

9. EMME/2 uses the 4 step approach of the Urban Transport Planning System, namely Traffic Generation, Traffic Distribution, Modal Split and Traffic Assignment, and is one of the most commonly used traffic demand package in the Americas.

10. The without project scenario consisted of simulation of the present urban bus network with the Metro and CPTM network without the headway improvements which will result from the acquisition of the rolling stock fleet and systems acquisition.

11. The with project scenario included for the Metro network in the year 2010: (i) the metro rail Line 1 from Tucuruvi to Jabaquara with a 95 seconds headway, (ii) metro rail Line 2 from Vila Madalena to Vila Prudente, (iii) Line 3 from Bara Funda to Itaquera with a 80 seconds headway, (iv) Line 4 from Butantã to Luz, (v) Line 5 from Capão Redondo to Largo 13, and, (vi) implantation of the Bilhete-Único, an integrated tariff which allows a user to buy a single ticket which costs less than the sum of individual tickets and can be used in several modes within a certain period of time.

12. As for the CPTM network in the year 2010, the with project scenario includes: (i) Line A from Francisco Morato to Luz with a 4 minutes headway, (ii) Line B from Luz to Itapevi, (iii) Line C from Osasco to Grajau with a 4 minutes headway, (iv) Line D from Luz to Rio Grande da Serra, (v) Line E from Guaianazes to Estudates, (vi) Line F from Brás to Calmon Viana with a 4 minutes headway, (vii) ABC Express from Luz to Mauá, (viii) East Express from Luz to Guaianazes and (ix) Guarulhos Train from Brás to Zezinho Magalhães.

13. In the year 2010 the daily traffic for Metro systems was estimated to be 4,338,020 passengers in the do-nothing scenario increasing to 4,497,670 in the with project scenario, increasing 159,650 passengers. Estimations for CPTM incremented 274,233 from a daily frequency of 2,545,091 do-nothing to 2,819,324 with project. The total passenger increase which is observed in the simulated scenarios is due to headway reduction to meet occupation equilibrium with an upper threshold of 6 passengers per square meter during peak hour operation.

14. The network performance in the year 2010 for the scenarios without and with project showed statistically similar results for both models developed by Metro and CPTM as presented in the Table 1 below.

Table 1: Peak Hour Network Performance Pass-Hours per Model Model Scenario Bus Metro Rail Total Metro Without Project 1,188,359 62,211 121,963 1,372,533 With Project 1,055,073 82,579 141,783 1,279,435 CPTM Without Project 1,183,240 75,177 113,159 1,371,576 With Project 1,023,740 98,807 134,070 1,256,617 Metro 133,286 -20.368 -19,820 93,098 Net Changes CPTM 159,500 -23,630 -20,291 114,959 Mean deviation 13,107 1,631 546 10,931 % Mean deviation 9.0% 7.4% 2.7% 10.5% Source: Metro/CPTM/Bank staff estimates

15. Considering that the results from both models provided mutual validation it was decided to adopt the Metro Model results as the reference for cost and benefit calculations.

16. Metro and CPTM maintain an updated database of demand income surveys applied on each service line. On the other hand the bus system demand is also monitored by SPTRANS. Value of time is then calculated for each transport system providing different wage/hour average rates of US$ 5.57 for Metro demand, US$2.48 for Rail and US$1.40 for Bus.

17. Trip distribution by purpose is derived for each transport system according to Origin / Destination data. Rail system presents the higher proportion of commuting trips 74% followed by metro 61% and bus 53%. Bus system presents a significant share of other purpose trips with 32% which includes journey to school and access to other social urban activities. Table 2 presents the trip purpose distribution for each system.

Table 2: Travel Purpose Distribution (%) Travel Purpose Metro Bus Rail Work 60.59 52.94 74.08 Business 15.29 15.18 13.27 Other 21.12 31.88 12.65 Source: Metro/CPTM/Bank staff estimates

18. According to the model results the main indicators for the peak hour simulation can be summarized as showed in the Table 3. Basically there were an increase of trips by metro and train and a decrease of bus trips which implied corresponding variations of pass-hour and pass-km for each transport modes. Operating speeds showed a minor change for metro rail and train but presented a more significant effect in the bus system.

Table 3: Variation of Peak Hour Indicators for Tested Scenarios Indicator Metro Bus Rail Passenger Trips • Without project 426,331 4,141,163 262,110 • With project 585,639 3,771,004 335,167 • Net change 159,308 -370,159 73,057 Pass-Km • Without project 2,595,376 22,254,432 4,943,339 • With project 3,447,208 20,712,295 5,742,809 • Net change 851,832 -1,542,137 799,470 Pass-Hour • Without project 62,211 1,188,359 121,963 • With project 82,579 1,055,073 141,783 • Net change 20,368 133,286 19,820 Speed (Km/h) • Without project 41.72 18.73 40.53 • With project 41.74 19.63 40.50 • Net change 0.02 0.90 -0.03 Source: Metro/CPTM/Bank staff estimates

C. Metro and CPTM Economic Costs

19. Investment Cost estimations resulted in a total of US$1,550 million including the following components:

a) Fleet Acquisition Costs: additional fleet required was estimated in 17 trains for the metro system and 40 trains for the rail system amounting to US$1,246 million. Metrô and CPTM have provided a detailed estimation of additional fleet and schedules for the years 2008 to 2010. Evaluation of the quantities were made taking in account targeted passenger occupation indexes (6 passengers per square meter) in subway and train lines and respective passenger loads during peak hours resulting from network assignment.

b) Signaling and Control System Costs: investment requirements on signaling amount to US$304 million for both Metro and CPTM systems. According to information received from Metro and CPTM, signaling and telecom equipment and associated infrastructure will also need to be acquired, as the headway for meeting future demand can not be achieved with existing signaling systems in use.

Table 4: Investment Components for Trains and Signaling Investment Item 2008 2009 2010 Total US$ Million 17 Trains 96.3 113.5 134.2 344.0 Metro Signaling 56.0 66.0 78.0 200.0 Sub-total 152.3 179.5 212.2 544.0 40 Trains 333.8 243.5 324.7 902.0 CPTM Signaling 38.4 28.0 37.6 104.0 Sub-total 372.2 271.5 362.3 1,006.0 57 Trains 430.1 357.0 458.9 1,246.0 Total Signaling 94.4 94.0 115.6 304.0 TOTAL 524.5 451.0 574.5 1,550.0 Source: Metro/CPTM/Bank staff estimates

c) Salvage Value and Depreciation: depreciation assumptions were made for investment the components on rolling stock and systems amounting to 284,825 for both Metro and CPTM after a project useful life of 25 years and 10 months. According to information received from Metro and CPTM, signaling systems have a full depreciation period of 40 years and trains are considered to a period of 30 years.

Table 5: Salvage Value and Depreciation Basic Assumptions

Total Yearly Project 2010 Residual Component Value Depreciation Life Cycle (10 months) Value Systems 304,000 7,600 25 5,700 108,300 Rolling Stock 1,246,000 41,533 25 31,150 176,525 Source: Metro/CPTM/Bank staff estimates

20. Operational Costs: Metro and CPTM provided an estimation of additional costs for the fleet and system operation during project implementation from 2009 to 2014. The breakdown of operational costs basically involved two types of expenses: (i) personnel expenses involving resources for operating the new trains including wages and labor costs, and (ii) general expenses involving fleet maintenance, operating systems maintenance and electrical energy consumption costs. Costs were expected to grow from a yearly value of US$ 3.474 million in 2009 to US$ 82.943 million in 2014.

Table 6: Operational Costs for Additional Trains and Signaling (US$ 1,000)

Operational Year Personnel Consumption Costs 2009 2,375 1,099 3,474 2010 6,911 12,848 19,759 2011 17,960 51,834 69,794 2012 22,226 53,416 75,642 2013 22,885 55,088 77,973 2014 26,096 56,847 82,943 Source: Metro/CPTM/Bank staff estimates

D. Public Transport Economic Benefits

21. Direct economic benefits were derived from the application of unit values of operating costs, passenger travel time cost, bus system management cost and road maintenance costs considered for each scenario (w or w/o project) on network performance indicators. Indirect benefits were similarly derived from estimated pollution and accident costs applied on network indicators. Table 7 summarizes basic unit values which were adopted. As for the travel time valuation it was assumed that to work and other purposes were assigned 33% of the average hourly income estimate and to business purpose a 160% factor were used.

Table 7: Unit Cost Values Applied to Network Data (US$)

Without Project With Project Attribute metro bus rail metro bus rail Operating Costs / Km 0.0598 0.0550 0.0433 0.0623 0.0550 0.0451 Road Maintenance Costs /Km 0.0051 0.0051 Bus System Managing Savings /Km 0.0051 0.0051 Travel Time Costs / Hour • Work 1.84 0.82 1.40 1.84 0.82 1.40 • Business 12.68 5.64 9.64 12.68 5.64 9.64 • Other 1.84 0.82 1.40 1.84 0.82 1.40 Accident Cost/Km 1.1282 1.1282 Pollutant Emissions/Km 0.0030 0.0030 Source: Metro/CPTM/Bank staff estimates

22. Expansion factors of 7.68 and 13.68 were adopted to convert peak hour results to daily indicators of time and distance traveled. Daily results were multiplied by a constant of 310 working days to obtain yearly results. Basic estimators used for accident and pollution valuation are referred to the Sao Paulo Metropolitan Area (SPMA) and are presented in Table 8.

Table 8: Indirect Costs Estimates Indirect Cost Items Basic Estimators Accident Frequency ( per event type) • Property Damage Only 1,779.21 • Injury 9,523.32 • Fatal 78,620.88 • Average 59,920.42 Pollutant Emissions (per ton) CO 318.74 HC 1,410.84 NO x 1,630.80 SO x 6,207.28 PM 8,341.05 CO 2 51.23 Source: Metro/CPTM/Bank staff estimates

E. Economic Cost Benefit Analysis

23. The general cost-benefit evaluation methodology adopted was that of comparing the situation with the proposed project implemented, with the situation that would occur without implementation of the project. This implies that operating savings, travel time savings and avoided road conservation and accident and pollution costs for the proposed project are considered to be the incremental: with-project costs minus without-project costs.

24. Project Development and Growth Rationale: according to information based in sources from existing studies such as PITU 2020 (Metropolitan Transport Master Plan) and the internal estimates of the Planning Units of Metro and CPTM it was adopted a demand growth

rate of 1% during the project period. The trend adopted was also consistent with official demographic and income projections carried out by federal and state level.

25. Fleet and systems acquisition are considered non separable components for the purposes of this evaluation. Metro and CPTM acquisitions were evaluated together vis a vis the same stream of net benefits. Transfer payments such as taxes and subsidies were withdrawn from the project profile and the adopted value for the exchange rate was R$2.16/US$ referred to December 2006.

26. The project flows are presented in the Table 9, discounted to present values at a rate of 10% per year for the basic alternative studied. As may be seen the simulated scenario present positive net present value of US$1,383 million and benefit/cost ratio of 1.757. The economic internal rate of return of 21.41% was obtained for the basic alternative.

27. Travel time savings are the most significant benefits obtained. Operating costs saved by the decrease of bus services showed an insufficient amount to compensate metro and train additional operating costs generated by the new service frequency and longer travel distances.

28. Road maintenance and bus system avoided costs amount to 4.5% of the value of time benefits and environmental benefits were estimated in 2%.

F. Sensitivity Analysis

29. The general sensitivity analysis is showed in Table 10 where effects on the performance indicators were tested from changes in the cost and benefit selected items referred to the base case.

30. The base case accounts for a standard valuation of 33% in travel time for work and other purpose trips, and demand growth of 1 % during the project life cycle.

31. Significant variations were observed for value of time benefits and investment costs. The switching cases for discount rate of 10% of each one of those attributes were determined and results showed factor of 0.12 for value of time and 2.08 for investment costs.

32. Variation due to environmental benefits can be assumed irrelevant for the purposes of the present analysis.

Table 9: Economic Evaluation (Base Case)

INVESTIMENTS & DIRECT BENEFITS INDIRECT BENEFITS OPERATING COSTS PROJECT BUS YEAR MANAGING TOTAL NET TRAVEL OPERATING MAINTENANCE COST ACCIDENT AIR TOTAL WAGES COST BENEFITS TIME COST COST SAVINGS REDUCTION POLLUTION BENEFIT INVESTIMENTS LABOR OTHERS YEAR SAVINGS SAVINGS SAVINGS SAVINGS (A) COSTS EXPENSES COST (B) (A - B) 1 2008 0 0 0 0 0 0 0 524,500 0 0 524,500 -524,500 2 2009 0 0 0 0 0 0 0 451,000 2,375 1,099 454,474 -454,474 3 2010 502,245 -203,271 8,504 14,292 3,370 6,671 331,811 574,500 6,911 12,848 594,259 -262,448 4 2011 608,721 -246,364 10,307 17,322 4,084 8,085 402,155 17,960 51,834 69,794 332,361 5 2012 614,808 -248,828 10,410 17,495 4,125 8,166 406,176 22,226 53,416 75,642 330,534 6 2013 620,956 -251,316 10,514 17,670 4,166 8,248 410,238 22,885 55,088 77,973 332,265 7 2014 627,166 -253,829 10,619 17,847 4,208 8,330 414,341 26,096 56,847 82,943 331,398 8 2015 633,438 -256,367 10,725 18,025 4,250 8,413 418,484 26,096 56,847 82,943 335,541 9 2016 639,772 -258,931 10,832 18,205 4,293 8,497 422,668 26,096 56,847 82,943 339,725 10 2017 646,170 -261,520 10,940 18,387 4,336 8,582 426,895 26,096 56,847 82,943 343,952 11 2018 652,632 -264,135 11,049 18,571 4,379 8,668 431,164 26,096 56,847 82,943 348,221 12 2019 659,158 -266,776 11,159 18,757 4,423 8,755 435,476 26,096 56,847 82,943 352,533 13 2020 665,750 -269,444 11,271 18,945 4,467 8,843 439,832 26,096 56,847 82,943 356,889 14 2021 672,408 -272,138 11,384 19,134 4,512 8,931 444,231 26,096 56,847 82,943 361,288 15 2022 679,132 -274,859 11,498 19,325 4,557 9,020 448,673 26,096 56,847 82,943 365,730 16 2023 685,923 -277,608 11,613 19,518 4,603 9,110 453,159 26,096 56,847 82,943 370,216 17 2024 692,782 -280,384 11,729 19,713 4,649 9,201 457,690 26,096 56,847 82,943 374,747 18 2025 699,710 -283,188 11,846 19,910 4,695 9,293 462,266 26,096 56,847 82,943 379,323 19 2026 706,707 -286,020 11,964 20,109 4,742 9,386 466,888 26,096 56,847 82,943 383,945 20 2027 713,774 -288,880 12,084 20,310 4,789 9,480 471,557 26,096 56,847 82,943 388,614 21 2028 720,912 -291,769 12,205 20,513 4,837 9,575 476,273 26,096 56,847 82,943 393,330 22 2029 728,121 -294,687 12,327 20,718 4,885 9,671 481,035 26,096 56,847 82,943 398,092 23 2030 735,402 -297,634 12,450 20,925 4,934 9,768 485,845 26,096 56,847 82,943 402,902 24 2031 742,756 -300,610 12,575 21,134 4,983 9,866 490,704 26,096 56,847 82,943 407,761 25 2032 750,184 -303,616 12,701 21,345 5,033 9,965 495,612 26,096 56,847 82,943 412,669 26 2033 757,686 -306,652 12,828 21,558 5,083 10,065 500,568 26,096 56,847 82,943 417,625 27 2034 765,263 -309,719 12,956 21,774 5,134 10,166 505,574 26,096 56,847 82,943 422,631 - 28 2035 772,916 -312,816 13,086 21,992 5,185 10,268 510,631 -321,650 26,096 56,847 238,707 749,338

IRR 21.41% NPV 0 1,383,179

PV Benefits 10% 3,209,094 PV Cost 10% 1,825,916

B/C 1.758

Table 10

EIRR NPV B/C ALTERNATIVE % a a (US$ millions) Ratio R =10% r=10%

Base Case 21.41 1,383.5 1.76

10% reduction 17.60 897.8 1.49 10% increase 25.10 1869.3 2.02 15% increase 26.92 2112.1 2.16 Value of Time 15% reduction 15.63 654.9 1.36 12% VoT (switching value) 10.10 11.36 1.00 33% VoT reduction 21.41 1,383.52 1.76 50% VoT reduction 29.71 2,492.02 2.36

BENEFITS 10% increase 19.89 1186.9 1.59 Operational 10% reduction 22.92 1580.1 1.80 50% reduction 28.79 2366.5 2.21

Indirect Benefits 100% increase 22.16 1,480.6 1.81 (Accidents and Air Pollution)

Demand Growth Rate 0.5% increase on yearly growth 21.90 1,502.3 1.82 (base case = 1% per year) 1.0% increase on yearly growth 22.39 1,628.6 1.89

10% increase 19.53 1,255.1 1.64 Rolling Stock and System Acquisition Costs 25% increase 17.23 1,062.9 1.50 108% increase (switching value) 10.00 (0.15) 1.00

COSTS 10% increase 21.18 1,363.3 1.74 Additional Fleet Operating Costs 25% reduction 20.83 1,333.4 1.71

Source: Metro/CPTM/Bank staff estimates

59 Table 11: Financial Evaluation of Metro and CPTM

CIA. DO METROPOLITANO DE SÃO PAULO - METRÔ

BALANCE SHEET 2007 - 2026

US$ Million 2.007 2008 2009 2010 2011 2012 2013 2014 2015 2016 ASSETS Current Assets 108,9 118,1 109,7 171,6 230,1 287,2 343,0 397,3 450,1 501,4

Non-Currents Assets 100,2 100,2 100,2 100,2 100,2 100,2 100,2 100,2 100,2 100,2

Permanent Assets 4.864,7 5.744,3 6.282,9 6.553,9 6.739,6 6.890,1 6.904,3 6.885,8 6.845,1 6.736,1

Investiment 204,3 190,4 176,4 162,5 148,6 134,6 120,7 106,7 92,8 78,8

Net Fixed Assets 2.962,4 3.039,6 3.197,4 3.338,4 4.294,3 4.399,6 6.069,3 6.149,3 6.069,1 6.634,1 . Fixed Assets 4.045,5 4.212,0 4.468,1 4.712,1 5.774,2 5.988,9 7.768,5 7.958,1 7.986,9 8.659,3 . Less: Accum. Dep. -1.083,1 -1.172,4 -1.270,7 -1.373,7 -1.479,9 -1.589,3 -1.699,2 -1.808,8 -1.917,8 -2.025,2

. Construction in Progress 1.639,8 2.465,5 2.867,3 3.016,6 2.264,3 2.326,5 687,2 604,4 659,1

Net Defered Charges 58,2 48,8 41,8 36,4 32,4 29,4 27,1 25,4 24,1 23,2 . Defered Charges 182,0 182,0 182,0 182,0 182,0 182,0 182,0 182,0 182,0 182,0 . Less: Accum. Defer. Exp. -123,8 -133,2 -140,2 -145,6 -149,6 -152,6 -154,9 -156,6 -157,9 -158,8

TOTAL ASSET 5.073,8 5.962,6 6.492,8 6.825,7 7.069,9 7.277,5 7.347,5 7.383,3 7.395,4 7.337,7

LIABILITIES & EQUITY Current Liabilities 239,0 358,9 394,6 431,3 482,0 534,3 520,6 506,9 493,4 479,7 Domestic ST Loans 46,2 46,2 46,2 34,6 Debentures 0,0 20,1 12,2 12,2 12,2 12,2 12,2 12,2 12,2 12,2 Supplier 116,9 217,5 261,8 310,9 397,0 450,0 437,1 424,2 411,4 398,5 Account Payable 75,9 75,1 74,4 73,6 72,8 72,1 71,3 70,5 69,8 69,0

Nons Current Liabilities 680,5 584,4 496,0 419,3 377,2 335,2 293,1 250,9 208,9 166,7 Domestic ST Loans 126,9 80,8 34,6 Debentures 154,1 134,0 121,8 109,6 97,4 85,3 73,1 60,9 48,7 36,5 Estado de São Paulo 167,3 153,4 139,4 125,5 111,5 97,6 83,7 69,7 55,8 41,8 Other 232,2 216,2 200,2 184,2 168,3 152,3 136,3 120,3 104,4 88,4

Deferred Income 3,7 3,6 3,7 3,7 3,7 3,6 3,7 3,8 3,6 3,7

Stockholders Equity 4.150,6 5.015,7 5.598,5 5.971,4 6.207,0 6.404,4 6.530,1 6.621,7 6.689,5 6.687,6 Capital 6.164,3 7.114,1 7.832,6 8.240,5 8.511,2 8.744,8 8.906,6 9.020,4 9.109,6 9.127,4 Accumulated Losses -2.013,7 -2.098,4 -2.234,1 -2.269,1 -2.304,2 -2.340,4 -2.376,5 -2.398,7 -2.420,1 -2.439,8

TOTAL LIABILITY 5.073,8 5.962,6 6.492,8 6.825,7 7.069,9 7.277,5 7.347,5 7.383,3 7.395,4 7.337,7 Source: Metro/CPTM/Bank staff estimates

CIA. DO METROPOLITANO DE SÃO PAULO - METRÔ

BALANCE SHEET 2007 - 2026

US$ Million 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 ASSETS Current Assets 551,3 599,6 662,2 723,3 795,0 864,9 933,2 999,8 1.064,7 1.127,4

Non-Currents Assets 100,2 100,2 100,2 100,2 100,2 100,2 100,2 100,2 100,2 100,2

Permanent Assets 6.629,0 6.537,9 6.434,5 6.346,8 6.260,6 6.176,1 6.093,2 6.011,9 5.932,0 5.853,7

Investiment 64,9 64,9 51,0 51,0 51,0 51,0 51,0 51,0 51,0 51,0

Net Fixed Assets 6.541,7 6.451,1 6.362,0 6.274,6 6.188,7 6.104,4 6.021,6 5.940,4 5.860,6 5.782,3 . Fixed Assets 8.672,5 8.685,8 8.699,0 8.712,3 8.725,5 8.738,8 8.752,0 8.765,3 8.778,5 8.791,8 . Less: Accum. Dep. -2.130,8 -2.234,7 -2.337,0 -2.437,7 -2.536,8 -2.634,4 -2.730,4 -2.824,9 -2.917,9 -3.009,5

. Construction in Progress

Net Defered Charges 22,4 21,9 21,5 21,2 20,9 20,7 20,6 20,5 20,4 20,4 . Defered Charges 182,0 182,0 182,0 182,0 182,0 182,0 182,0 182,0 182,0 182,0 . Less: Accum. Defer. Exp. -159,6 -160,1 -160,5 -160,8 -161,1 -161,3 -161,4 -161,5 -161,6 -161,6

TOTAL ASSET 7.280,5 7.237,7 7.196,9 7.170,3 7.155,8 7.141,2 7.126,6 7.111,9 7.096,9 7.081,3

LIABILITIES & EQUITY Current Liabilities 466,0 465,6 452,0 426,1 412,5 398,8 385,1 371,5 357,8 344,1 Domestic ST Loans Debentures 12,2 12,2 12,2 0,0 0,0 0,0 0,0 0,0 0,0 0,0 Supplier 385,6 385,9 373,1 360,2 347,3 334,4 321,5 308,6 295,7 282,8 Account Payable 68,2 67,5 66,7 65,9 65,2 64,4 63,6 62,9 62,1 61,3

Nons Current Liabilities 124,7 82,5 56,4 56,4 56,4 56,4 56,4 56,4 56,4 56,4 Domestic ST Loans Debentures 24,4 12,2 Estado de São Paulo 27,9 13,9 Other 72,4 56,4 56,4 56,4 56,4 56,4 56,4 56,4 56,4 56,4

Deferred Income 3,6 3,9 3,7 3,8 3,8 3,7 3,7 3,7 3,8 3,9

Stockholders Equity 6.686,2 6.685,7 6.684,8 6.684,0 6.683,1 6.682,3 6.681,4 6.680,3 6.678,9 6.676,9 Capital 9.143,9 9.159,2 9.173,3 9.186,1 9.197,6 9.209,2 9.220,8 9.232,4 9.243,9 9.255,5 Accumulated Losses -2.457,7 -2.473,5 -2.488,5 -2.502,1 -2.514,5 -2.526,9 -2.539,4 -2.552,1 -2.565,0 -2.578,6

TOTAL LIABILITY 7.280,5 7.237,7 7.196,9 7.170,3 7.155,8 7.141,2 7.126,6 7.111,9 7.096,9 7.081,3 Source: Metro/CPTM/Bank staff estimates

COMPANHIA DO METROPOLITANO DE SÃO PAULO - METRÔ

INCOME STATEMENT 2007 - 2026

US$ Million 2.007 2008 2009 2010 2011 2012 2013 2014 2015 2016 OPERATING STATISTICS Passegenrs (Trips) - Million 544 546 549 675 679 682 686 689 692 696 Paying Passengers - Million 488 491 493 606 610 613 616 619 622 625

OPERATING REVENUES Paying Passengers - Mil (1) 446,8 449,0 451,2 555,1 557,9 560,7 563,5 579,5 582,4 585,2 Subsidy for Non-Paying Passengers 79,9 80,3 80,7 99,3 99,8 100,3 100,8 101,3 101,8 102,3 Total Operating Revenue 526,7 529,3 531,9 654,4 657,7 661,0 664,3 680,8 684,2 687,5

NON-OPERATING INCOME 26,8 26,9 27,1 27,2 27,3 27,5 27,6 27,8 27,9 28,0

PASEP/COFINS -31,0 -31,1 -31,3 -38,2 -38,4 -38,6 -38,8 -38,9 -39,1 -39,3

Total Income 522,5 525,1 527,7 643,4 646,6 649,9 653,1 669,7 673,0 676,2

OPERATING COSTS (4) Personnel 336,0 337,8 337,8 367,1 377,2 381,0 384,8 388,6 392,5 396,5 Materials 18,2 18,4 18,4 20,1 20,7 20,8 20,9 21,0 21,1 21,2 Other (incl. Energy Contracts) 140,9 141,6 141,6 164,1 159,9 160,7 161,4 162,2 162,9 163,7 Total Working Costs 495,1 497,8 497,8 551,3 557,8 562,5 567,1 571,8 576,5 581,4

Depreciation 74,9 89,3 98,3 102,9 106,2 109,4 109,9 109,6 109,0 107,3

Deferred Costs 12,4 9,4 7,1 5,3 4,0 3,0 2,3 1,7 1,3 1,0

Total Operating Costs 582,4 596,5 603,2 659,5 668,0 674,9 679,3 683,1 686,8 689,7

Financial Charges 18,3 13,2 60,2 18,8 13,6 11,2 9,9 8,6 7,4 6,2

Total Expenses 600,7 609,7 663,4 678,3 681,6 686,1 689,2 691,7 694,2 695,9

Net Income -78,2 -84,6 -135,7 -34,9 -35,0 -36,2 -36,1 -22,0 -21,2 -19,7

Working Ratio 94% 94% 94% 84% 85% 85% 85% 84% 84% 85% Operating Ratio 111% 113% 113% 101% 102% 102% 102% 100% 100% 100%

Working Cost Coverage (%) 106% 106% 107% 119% 118% 118% 117% 119% 119% 118%

PER TRIP STATISTICS ($) Average Tariff 0,92 0,91 0,92 0,92 0,91 0,91 0,91 0,94 0,94 0,94 Average Working Cost 1,01 1,01 1,01 0,91 0,91 0,92 0,92 0,92 0,93 0,93 Average Operationg Cost 1,19 1,21 1,22 1,09 1,10 1,10 1,10 1,10 1,10 1,10 Total Costs 1,23 1,24 1,35 1,12 1,12 1,12 1,12 1,12 1,12 1,11 Source: Metro/CPTM/Bank staff estimates

COMPANHIA DO METROPOLITANO DE SÃO PAULO - METRÔ

INCOME STATEMENT 2007 - 2026

US$ Million 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 OPERATING STATISTICS Passegenrs (Trips) - Million 699 703 707 710 714 717 721 724 728 732 Paying Passengers - Million 628 632 635 638 641 644 647 651 654 657

OPERATING REVENUES Paying Passengers - Mil (1) 588,1 591,6 593,8 596,7 599,6 602,6 605,5 608,5 611,5 614,5 Subsidy for Non-Paying Passengers 102,8 103,3 103,8 104,3 104,9 105,4 105,9 106,4 107,0 107,5 Total Operating Revenue 690,9 694,9 697,6 701,0 704,5 708,0 711,4 714,9 718,5 722,0

NON-OPERATING INCOME 28,2 28,3 28,5 28,6 28,7 28,9 29,0 29,2 29,3 29,5

PASEP/COFINS -39,5 -39,7 -39,9 -40,1 -40,3 -40,5 -40,7 -40,9 -41,1 -41,7

Total Income 679,6 683,5 686,2 689,5 692,9 696,4 699,7 703,2 706,7 709,8

OPERATING COSTS (4) Personnel 400,4 404,4 408,5 412,6 416,7 420,9 425,1 429,3 433,6 437,9 Materials 21,3 21,4 21,5 21,6 21,7 21,8 21,9 22,1 22,2 22,3 Other (incl. Energy Contracts) 164,4 165,2 166,0 166,8 167,5 168,3 169,1 169,9 170,7 171,5 Total Working Costs 586,1 591,0 596,0 601,0 605,9 611,0 616,1 621,3 626,5 631,7

Depreciation 105,6 103,9 102,3 100,7 99,1 97,5 96,0 94,5 93,0 91,5

Deferred Costs 0,7 0,6 0,4 0,3 0,2 0,2 0,1 0,1 0,1 0,1

Total Operating Costs 692,4 695,5 698,7 702,0 705,2 708,7 712,2 715,9 719,6 723,3

Financial Charges 4,9 3,7 2,5 1,2 0,0 0,0 0,0 0,0 0,0 0,0

Total Expenses 697,3 699,2 701,2 703,2 705,2 708,7 712,2 715,9 719,6 723,3

Net Income -17,7 -15,7 -15,0 -13,7 -12,3 -12,3 -12,5 -12,7 -12,9 -13,5

Working Ratio 85% 85% 85% 86% 86% 86% 87% 87% 87% 87% Operating Ratio 100% 100% 100% 100% 100% 100% 100% 100% 100% 100%

Working Cost Coverage (%) 118% 118% 117% 117% 116% 116% 115% 115% 115% 114%

PER TRIP STATISTICS ($) Average Tariff 0,94 0,94 0,94 0,94 0,94 0,94 0,94 0,93 0,94 0,94 Average Working Cost 0,93 0,94 0,94 0,94 0,95 0,95 0,95 0,95 0,96 0,96 Average Operationg Cost 1,10 1,10 1,10 1,10 1,10 1,10 1,10 1,10 1,10 1,10 Total Costs 1,11 1,11 1,10 1,10 1,10 1,10 1,10 1,10 1,10 1,10 Source: Metro/CPTM/Bank staff estimates

CIA. DO METROPOLITANO DE SÃO PAULO - METRÔ

SOURCES AND APPLICATIONS OF FUNDS 2007 - 2026

US$ Million 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 SOURCES

Internal Cash Generation 9,0 14,0 -30,3 73,2 75,1 76,2 76,1 89,1 88,9 88,7

Net Income -78,3 -84,7 -135,7 -35,0 -35,1 -36,2 -36,1 -22,2 -21,4 -19,6 Depreciation 74,9 89,3 98,3 102,9 106,2 109,4 109,9 109,6 109,0 107,3 Defered Expenses 12,4 9,4 7,1 5,3 4,0 3,0 2,3 1,7 1,3 1,0

Govermment´s Contribution for

New Investment Programs 716,6 890,5 612,2 343,0 222,5 222,4 151,9 105,1 81,8 11,6 Interest Payment Support 18,3 13,2 60,2 18,8 13,6 11,2 9,9 8,6 7,4 6,2 Amortization Payment Support 47,1 46,2 66,3 58,3 46,8 12,2 12,2 12,2 12,2 12,2

Total Sources 791,0 963,9 708,4 493,3 358,0 322,0 250,1 215,0 190,3 118,7

APPLICATION

Investiment 716,5 890,5 612,1 343,0 222,4 222,4 151,9 105,1 81,8 11,6

Line 2 - Alto do Ipiranga - Vila Prudente 160,0 348,0 359,6 28,5 Line 4 468,5 323,1 55,3 113,9 140,7 93,8 Others 88,0 219,4 197,2 200,6 81,7 128,6 151,9 105,1 81,8 11,6

Amortization 47,1 46,2 66,3 58,3 46,8 12,2 12,2 12,2 12,2 12,2

Change in the Working Capital 27,4 27,2 30,0 92,0 88,8 87,4 86,0 97,7 96,3 94,9

Total Aplication 791,0 963,9 708,4 493,3 358,0 322,0 250,1 215,0 190,3 118,7 CIA. DO METROPOLITANO DE SÃO PAULO - METRÔ SOURCES AND APPLICATIONS OF FUNDS 2007 - 2026

US$ Million 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 SOURCES Internal Cash Generation 88,3 88,8 87,7 87,3 86,9 85,3 83,6 81,9 80,2 78,1 Net Income -18,0 -15,7 -15,0 -13,7 -12,4 -12,4 -12,5 -12,7 -12,9 -13,5 Depreciation 105,6 103,9 102,3 100,7 99,1 97,5 96,0 94,5 93,0 91,5 Defered Expenses 0,7 0,6 0,4 0,3 0,2 0,2 0,1 0,1 0,1 0,1

Govermment´s Contribution for New Investment Programs 11,6 11,6 11,6 11,6 11,6 11,6 11,6 11,6 11,6 11,6 Interest Payment Support 4,9 3,7 2,5 1,2 AmortizationC Payment Support 12,2 12,2 12,2 12,2

Total Sources 117,0 116,3 114,0 112,3 98,5 96,9 95,2 93,5 91,8 89,7

APPLICATION

Investiment 11,611,611,611,611,611,611,611,611,611,6

Line 2 - Alto do Ipiranga - Vila Prudente Line 4 Others 11,6 11,6 11,6 11,6 11,6 11,6 11,6 11,6 11,6 11,6

Amortization 12,2 12,2 12,2 12,2

Change in the Working Capital 93,2 92,5 90,2 88,5 86,9 85,3 83,6 81,9 80,2 78,1

Total Aplication 117,0 116,3 114,0 112,3 98,5 96,9 95,2 93,5 91,8 89,7

Source: Metro/CPTM/Bank staff estimates

COMPANHIA PAULISTA DE TRENS METROPOLITANOS - CPTM

BALANCE SHEET 2007 - 2026

US$ Milion 2.007 2008 2009 2010 2011 2012 2013 2014 2015 2016 ASSETS Current Assets 67,5 64,9 63,8 63,8 63,8 63,8 63,8 63,8 63,8 63,8

Non-Current Assets 51,2 51,2 51,2 51,2 51,2 51,2 51,2 51,2 51,2 51,2

Permanent Assets 2.927,0 3.361,7 3.931,1 4.573,3 5.105,7 5.225,5 5.395,8 5.272,5 5.095,2 4.921,3

Investiment 673,7 656,1 638,6 621,0 603,4 585,8 568,2 550,6 533,0 515,4 Investiment Line 5 709,0 709,0 709,0 709,0 709,0 709,0 709,0 709,0 709,0 709,0 Less Accum. Dep. -35,3 -52,9 -70,5 -88,1 -105,7 -123,3 -140,8 -158,4 -176,0 -193,6

Net Fixed Assets 1.674,9 1.830,4 2.193,8 2.916,9 3.534,2 3.547,6 3.771,0 4.012,2 3.928,8 3.772,5 Fixed Assets 2.350,9 2.604,9 3.073,5 3.917,6 4.669,5 4.834,1 5.212,3 5.615,5 5.691,9 5.691,9 Less Accum. Dep. -676,0 -774,5 -879,7 -1.000,7 -1.135,3 -1.286,5 -1.441,3 -1.603,3 -1.763,1 -1.919,4

Construction in Progress 568,9 865,7 1.089,2 1.025,9 958,6 1.082,6 1.047,1 700,2 623,9 623,90

Net Defered Charges 9,5 9,5 9,5 9,5 9,5 9,5 9,5 9,5 9,5 9,5 (-) Desp. Diferido Acumulada 0,0 0,0 0,0 0,0 0,0 0,0 0,0 0,0 0,0 0,0

TOTAL ASSETS 3.045,6 3.477,9 4.046,1 4.688,1 5.220,6 5.340,5 5.510,8 5.387,6 5.210,2 5.036,3

LIABILITIES & EQUITY Current Liabilities 94,1 92,7 74,4 74,4 74,4 74,4 74,4 74,4 74,4 74,4 Supplier 42,2 42,2 42,2 42,2 42,2 42,2 42,2 42,2 42,2 42,2 Salary & Wage 4,5 4,5 4,5 4,5 4,5 4,5 4,5 4,5 4,5 4,5 Sales Taxes 4,3 4,3 4,3 4,3 4,3 4,3 4,3 4,3 4,3 4,3 Accounts Payables 7,6 7,6 7,6 7,6 7,6 7,6 7,6 7,6 7,6 7,6 Domestic ST Loans 19,8 18,3 0,0 0,0 0,0 0,0 0,0 0,0 0,0 0,0 Othesr Provisions 15,8 15,8 15,8 15,8 15,8 15,8 15,8 15,8 15,8 15,8

Non-Current Liabilities 268,2 240,2 225,6 210,9 196,4 181,8 167,2 163,6 163,6 163,6 Domestic ST Loans 17,2 FDIC 87,5 76,6 62,0 47,4 32,8 18,2 3,6 Others 163,5 163,6 163,6 163,5 163,6 163,6 163,6 163,6 163,6 163,6

Stockholders Equity 2.683,2 3.145,0 3.746,1 4.402,9 4.949,8 5.084,3 5.269,2 5.149,6 4.972,2 4.798,3 Capital 4.409,6 5.092,9 5.947,8 6.739,5 7.488,0 7.842,6 8.238,1 8.388,5 8.478,8 8.566,6 Accumulated Losses -1.726,4 -1.947,9 -2.201,7 -2.336,6 -2.538,2 -2.758,3 -2.968,9 -3.238,9 -3.506,6 -3.768,3

TOTAL LIABILITIES 3.045,6 3.477,9 4.046,1 4.688,1 5.220,6 5.340,5 5.510,8 5.387,6 5.210,2 5.036,3 Source: Metro/CPTM/Bank staff estimates

COMPANHIA PAULISTA DE TRENS METROPOLITANOS - CPTM

BALANCE SHEET 2007 - 2026

US$ Milion 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 ASSETS Current Assets 63,8 63,8 63,8 63,8 63,8 63,8 63,8 63,8 63,8 63,8

Non-Current Assets 51,2 51,2 51,2 51,2 51,2 51,2 51,2 51,2 51,2 51,2

Permanent Assets 4.750,6 4.583,0 4.418,3 4.256,4 4.097,0 3.940,0 3.785,3 3.632,7 3.482,1 3.333,5

Investiment 497,8 480,2 462,6 445,1 427,5 409,9 392,3 374,7 357,1 339,5 Investiment Line 5 709,0 709,0 709,0 709,0 709,0 709,0 709,0 709,0 709,0 709,0 Less Accum. Dep. -211,2 -228,8 -246,4 -264,0 -281,6 -299,2 -316,8 -334,4 -352,0 -369,5

Net Fixed Assets 3.619,4 3.469,4 3.322,3 3.177,9 3.036,1 2.896,7 2.759,6 2.624,6 2.491,6 2.360,6 Fixed Assets 5.691,9 5.691,9 5.691,9 5.691,9 5.691,9 5.691,9 5.691,9 5.691,9 5.691,9 5.691,9 Less Accum. Dep. -2.072,5 -2.222,5 -2.369,6 -2.514,0 -2.655,8 -2.795,2 -2.932,3 -3.067,3 -3.200,3 -3.331,3

Construction in Progress 623,90 623,90 623,90 623,90 623,90 623,90 623,90 623,90 623,90 623,90

Net Defered Charges 9,5 9,5 9,5 9,5 9,5 9,5 9,5 9,5 9,5 9,5 (-) Desp. Diferido Acumulada 0,0 0,0 0,0 0,0 0,0 0,0 0,0 0,0 0,0 0,0

TOTAL ASSETS 4.865,6 4.697,9 4.533,4 4.371,3 4.211,9 4.055,0 3.900,1 3.747,5 3.597,1 3.448,4

LIABILITIES & EQUITY Current Liabilities 74,4 74,4 74,4 74,4 74,4 74,4 74,4 74,4 74,4 74,4 Supplier 42,2 42,2 42,2 42,2 42,2 42,2 42,2 42,2 42,2 42,2 Salary & Wage 4,5 4,5 4,5 4,5 4,5 4,5 4,5 4,5 4,5 4,5 Sales Taxes 4,3 4,3 4,3 4,3 4,3 4,3 4,3 4,3 4,3 4,3 Accounts Payables 7,6 7,6 7,6 7,6 7,6 7,6 7,6 7,6 7,6 7,6 Domestic ST Loans 0,0 0,0 0,0 0,0 0,0 0,0 0,0 0,0 0,0 0,0 Othesr Provisions 15,8 15,8 15,8 15,8 15,8 15,8 15,8 15,8 15,8 15,8

Non-Current Liabilities 163,6 163,5 163,7 163,6 163,6 163,6 163,5 163,5 163,6 163,6 Domestic ST Loans FDIC Others 163,6 163,5 163,7 163,6 163,6 163,6 163,5 163,5 163,6 163,6

Stockholders Equity 4.627,6 4.460,0 4.295,4 4.133,4 3.974,0 3.817,0 3.662,2 3.509,7 3.359,1 3.210,4 Capital 8.651,9 8.734,7 8.815,0 8.892,7 8.967,9 9.040,5 9.110,6 9.178,0 9.242,9 9.305,1 Accumulated Losses -4.024,3 -4.274,7 -4.519,6 -4.759,4 -4.993,9 -5.223,6 -5.448,3 -5.668,4 -5.883,8 -6.094,7

TOTAL LIABILITIES 4.865,6 4.697,9 4.533,4 4.371,3 4.211,9 4.055,0 3.900,1 3.747,5 3.597,1 3.448,4 Source: Metro/CPTM/Bank staff estimates

COMPANHIA PAULISTA DE TRENS METROPOLITANOS - CPTM

INCOME STATEMENT 2007 - 2026

US$ Million 2.007 2008 2009 2010 2011 2012 2013 2014 2015 2016 OPERATING STATISTICS Passegenrs (Trips) - Million 474 519 533 807 842 877 911 946 946 946 Paying Passengers - Million 271 297 305 462 482 501 521 524 524 524

OPERATING REVENUES Paying Passengers - Mil 277,4 303,0 310,8 465,7 485,2 504,7 524,2 526,0 529,9 532,5 Subsidy (1) 139,4 115,2 145,6 10,9 63,9 65,9 52,8 94,0 90,3 87,8 Total Operating Revenue 416,8 418,3 456,5 476,6 549,1 570,6 577,0 620,0 620,2 620,3

NON-OPERATING INCOME 0,0 0,0 0,0 0,0 0,0 0,0 0,0 0,0 0,0 0,0

PASEP/COFINS -11,6 -12,6 -13,0 -19,4 -20,2 -21,1 -21,9 -22,0 -22,1 -22,2

Total Income 405,2 405,6 443,5 457,2 528,8 549,5 555,1 598,1 598,1 598,1

Total Working Costs 405,2 405,6 443,5 457,2 528,8 549,5 555,1 598,1 598,1 598,1

Depreciation 116,0 116,1 122,8 138,6 152,2 168,8 172,4 179,6 177,4 173,9

Total Operating Costs 521,2 521,7 566,3 595,7 681,1 718,3 727,5 777,6 775,5 772,0

Financial Charges 0,0 0,0 ------

Total Expenses 521,2 521,7 566,3 595,7 681,1 718,3 727,5 777,6 775,5 772,0

Net Income -116,0 -116,1 -122,8 -138,6 -152,2 -168,8 -172,4 -179,6 -177,4 -173,9

Working Ratio 97% 97% 97% 96% 96% 96% 96% 96% 96% 96% Operating Ratio 125% 125% 124% 125% 124% 126% 126% 125% 125% 124%

Working Cost Coverage (%) 103% 103% 103% 104% 104% 104% 104% 104% 104% 104%

PER TRIP STATISTICS ($) Average Tariff 1,02 1,02 1,02 1,01 1,01 1,01 1,01 1,00 1,01 1,02 Average Working Cost 1,50 1,37 1,45 0,99 1,10 1,10 1,07 1,14 1,14 1,14 Average Operationg Cost 1,92 1,76 1,86 1,29 1,41 1,43 1,40 1,48 1,48 1,47 Total Costs 1,92 1,76 1,86 1,29 1,41 1,43 1,40 1,48 1,48 1,47 (1) Subsidy for Non-Paying Passengers and Cost Subsidy Source: Metro/CPTM/Bank staff estimates

COMPANHIA PAULISTA DE TRENS METROPOLITANOS - CPTM

INCOME STATEMENT 2007 - 2026

US$ Million 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 OPERATING STATISTICS Passegenrs (Trips) - Million 946 946 946 946 946 946 946 946 946 946 Paying Passengers - Million 524 524 524 524 524 524 524 524 524 524

OPERATING REVENUES Paying Passengers - Mil 535,1 537,7 540,3 543,0 545,6 548,3 551,0 553,7 556,4 559,2 Subsidy (1) 85,3 82,8 80,3 77,7 75,2 72,6 70,0 67,5 64,8 62,2 Total Operating Revenue 620,4 620,5 620,6 620,7 620,8 620,9 621,1 621,2 621,3 621,4

NON-OPERATING INCOME 0,0 0,0 0,0 0,0 0,0 0,0 0,0 0,0 0,0 0,0

PASEP/COFINS -22,3 -22,4 -22,5 -22,7 -22,8 -22,9 -23,0 -23,1 -23,2 -23,3

Total Income 598,1 598,1 598,1 598,1 598,1 598,1 598,1 598,1 598,1 598,1

Total Working Costs 598,1 598,1 598,1 598,1 598,1 598,1 598,1 598,1 598,1 598,1

Depreciation 170,6 167,6 164,7 162,0 159,4 157,0 154,7 152,6 150,6 148,7

Total Operating Costs 768,7 765,7 762,7 760,1 757,5 755,1 752,8 750,7 748,6 746,7

Financial Charges ------

Total Expenses 768,7 765,7 762,7 760,1 757,5 755,1 752,8 750,7 748,6 746,7

Net Income -170,6 -167,6 -164,7 -162,0 -159,4 -157,0 -154,7 -152,6 -150,6 -148,7

Working Ratio 96% 96% 96% 96% 96% 96% 96% 96% 96% 96% Operating Ratio 124% 123% 123% 122% 122% 122% 121% 121% 120% 120%

Working Cost Coverage (%) 104% 104% 104% 104% 104% 104% 104% 104% 104% 104%

PER TRIP STATISTICS ($) Average Tariff 1,02 1,03 1,03 1,04 1,04 1,05 1,05 1,06 1,06 1,07 Average Working Cost 1,14 1,14 1,14 1,14 1,14 1,14 1,14 1,14 1,14 1,14 Average Operationg Cost 1,47 1,46 1,46 1,45 1,45 1,44 1,44 1,43 1,43 1,43 Total Costs 1,47 1,46 1,46 1,45 1,45 1,44 1,44 1,43 1,43 1,43 (1) Subsidy for Non-Paying Passengers and Cost Subsidy Source: Metro/CPTM/Bank staff estimates

COMPANHIA PAULISTA DE TRENS METROPOLITANOS - CPTM

SOURCES AND APPLICATIONS OF FUNDS 2007 - 2026

US$ Million 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 SOURCES

Internal Cash Generation 0,0 0,0 0,0 0,0 0,0 0,0 0,0 0,0 0,0 0,0

Net Income -116,0 -116,1 -122,8 -138,6 -152,2 -168,8 -172,4 -179,6 -177,4 -173,9 Depreciation 116,0 116,1 122,8 138,6 152,2 168,8 172,4 179,6 177,4 173,9

Loans 87,5 FIDC 87,5

Govermment´s Contribution for:

Civil Works 149,3 190,0 324,3 245,1 290,0 108,3 143,9 56,3 System 29,5 121,5 121,9 96,7 62,1 41,4 29,1 Trains 158,8 214,8 240,1 438,4 332,5 138,9 169,7 Other 4,3 24,7 5,8 0,5 Interest Payment Support 4,0 2,6 1,1 0,0 Amortization Payment Support 17,2 17,2 17,2 0,0

Total Sources 450,7 570,6 710,4 780,7 684,6 288,6 342,7 56,3 0,0 0,0

APPLICATIONS

Investiment 341,9 550,9 692,1 780,7 684,6 288,6 342,7 56,3

Civil Works 149,3 190,0 324,3 245,1 290,0 108,3 143,9 56,3 System (in use) 29,5 120,1 117,7 93,0 29,7 36,8 25,4 Trains (in use) 69,0 32,9 23,4 22,0 Other 4,3 24,7 5,8 0,5 System (new) 0,0 1,4 4,2 3,7 32,4 4,6 3,7 Trains (new) 89,9 181,9 216,7 416,4 332,5 138,9 169,7

Amortization 17,2 17,2 17,2

Change in the Working Capital 91,5 2,6 1,1 0,0 0,0 0,0 0,0 0,0 0,0 0,0

Total Applications 450,7 570,6 710,4 780,7 684,6 288,6 342,7 56,3 0,0 0,0 Source: Metro/CPTM/Bank staff estimates

Annex 10: Safeguard Policy Issues BRAZIL: SÃO PAULO TRAINS AND SIGNALING

A. Social Safeguards 1. The proposed project will not cause any dislocation or involuntary resettlement. Reconstruction of stations along lines A and F is being carried out with non-Bank funding and is taking place entirely within the railway right-of-way. Aside from possible minor traffic disruptions and short-term delays along train routes, there will be very little adverse social impact.

B. Environmental analysis

2. Overall, the project is expected to have a positive impact on the environment. Congestion and air pollution are currently some of the main environmental problems that the metropolitan region is facing. Providing a high quality and safe transport alternative, especially for long trips, will help reduce the fast increase in motorized trips and related environmental impacts. The project will help quantify these long-term environmental impacts in term of modal ‘retention’ or shift and associated emission benefits.

3. As mentioned above, the main activity of the project is the acquisition of new trains, which will be operating on Line A and F of CPTM’s network. Besides, the project will acquire specific signaling and supporting infrastructure to improve reliability and efficiency of the overall system. These activities on themselves are not expected to result in any significant negative environmental and social impacts.

4. The environmental assessment during project preparation focused on the environmental management systems at the assembly and maintenance facilities for trains of CPTM and the overall environmental policies of the company. In addition, the team reviewed the environmental licenses and recommendations for works and operation of existing Lines A and F. Although the World Bank is not directly financing any works along these lines, the acquired trains will be operating on these lines and the team wanted to ensure that CPTM is following all required steps to reduce and mitigate potential impacts according to OP 4.01. Any outstanding environmental licenses related to each of the civil works interventions will also be submitted to the Bank for review.

5. The approach to the environmental analysis therefore includes the undertaking of: (i) an analysis of the overall environmental results/impacts anticipated by Project’s interventions; and (ii) a specific environmental analysis of CPTM’s environmental policies at the maintenance facilities. The impact analysis and environmental management plan (EMP) are similarly presented: firstly, by considering the general impacts of the Project and, secondly, by reviewing the specific impacts of each activity.

C. Environmental Assessment of Line A & F

6. In the State of São Paulo, the environmental licensing occurs in the SMA – Secretariat of the Environment, by means of DAIA – Department of Environmental Impact Assessment, which analyzes the environmental studies of projects potentially or effectively causing significant environmental impact, subject to licensing with an environmental study, according to CONAMA Resolutions 01/86 and 237/97.

7. Following the Federal and State Legislation, CPTM’s Line A and F are required to obtain the three different environmental licenses prior to operation:

a) Preliminary License (Licença Prévia - LP) is granted in the planning stage of the project and contains basic requirements for site selection, installation and operation;

b) Installation License (Licença de Instalação - LI) authorizes the establishment of the business, according to the specifications of the approved executive project; and,

c) Operation License (Licença de Operação - LO) authorizes the start of the use of the new works and systems in each Line, as well as for the functioning of the required equipment after the environmental authorities verify the fulfillment of the requirements in the Installation License. This license is not required for the new trains because trains are already being operated in the Lines included in this study.

8. Instead of a full EIA, the State required CPTM to prepare a Preliminary Environmental Report (PER-Relatório Ambiental Preliminar) for each Line before issuing the LP. Line F has already gotten the LP. Line A does not have a LP and CPTM has prepared a TOR and is starting the selection process of a consultant to prepare the PER for this Line.

9. In parallel, a single TOR is being developed to prepare all required documentation and information for the LO of each Line A and F. The license should include the renewal of the operation licenses of the railroad and new operation licenses for renovated and new facilities (stations, maintenance facilities, etc.).

10. For reference, below is a table summarizing the status of the license of each of the Lines.

Table 1: Summary Status of Licensing of Line A and F

Step 1: LP Step 2: LI Step 3: LO Line A LP has not been issued. Selection LI has not yet been A single contract for process for consultant to prepare issued preparing documentation for RAP has started. both Line A and F is being issued. Once the turnkey is Line F LP has been issued based on a LI was issued completed, SMA will verify RAP if all requirements set forth in the LI were met and will issue the LO. Operational license for operating the enw trains is not required because trains already operate in those lines

11. CPTM is following all required steps by State Legislation to address potential environmental impacts related to the rehabilitation, improvement and operation of the existing Line A and F. CPTM is working closely with the State Environmental Agencies and Authorities to reduce and mitigate potential negative impacts of rehabilitation works and operation of the lines.

12. The Preliminary Environmental Report for Line A and environmental recommendation presented by the SMA was submitted to the Bank, and CPTM will submit the documentation required for the LI of both Line A and F to the Bank prior to requesting the LO. D. CPTM’s Environmental Management Systems 13. CPTM’s railway network of 253km covers 22 municipalities of the SPMR with 83 stations and 349 trains, it transport 1,58 million passengers on average every day. The strategic plan of CPTM includes a duplication of passengers until 2010 to over 3 million/day. As part of the modernization of services and improved efficiency, the CPTM is implementing an Enviromental Management System (Sistema de Gestão Ambiental – SGA) to improve waste management and reduce environmental impacts from CPTM’s operations.

14. The SGA is being implemented in 3 steps: (i) training and awareness raising among staff and managers of different units of CPTM; (ii) introduction of generic guidelines and procedures for proper waste management; and (iii) preparation and implementation of Specific Management Plans (Planos de Gestão Específicos – PGE’s), which focus on industrial wastes, domestic wastes and other demands.

15. Between November 2006 and May 2007, over 146 managers and leaders of different units had been trained on issues related to: basic environmental concepts, environmental impact evaluation, ISO 14001 guidelines, operational control of industrial waste, management of hazardous materials, effluents and emissions, energy efficiency, and introduction to relevant national and state regulations and norms.

16. CPTM has implemented guidelines for treatment of waste. An inventory of waste streams has been finalized and a detailed process for each type of waste has been defined following these

steps: (i) waste classification (ii) segregation (iii) storage; (iv) transport; (v) final treatment: re- use, recycling, co-processing, incineration and final disposal in sanitary landfills.

17. The CPTM has implemented a number of specific PGE’s to manage specific waste-streams. The project will help in the implementation of these Plans and strengthening CPTM’s efforts in implementing integrated environmental management systems in CPTM. These systems will include social and outreach aspects related to users and surrounding population and information systems. These efforts will be part of the institutional capacity building and management efforts of the Project.

E. Compliance with World Bank environmental safeguard policy

18. The proposed São Paulo Trains and Signaling project has received an Environmental Category “B” rating in accordance with the corresponding safeguard policies. The PMG interventions planned in the Project triggered OP 4.01 (Environmental Assessment), but no specific Plan is required to mitigate the potential impacts.

19. Environmental Assessment The Project Team reviewed the documentation prepared by CPTM and the recommendations from the SMA for the ‘preliminary’ and ‘installation’ licenses of Line A and F; as well as the TOR for preparing the Preliminary Environmental Report for the ‘preliminary’ license of Line A and the TOR for the ‘operational license’ of all three lines. The infrastructure improvements on Line A and F will mostly generate temporary negative environmental impacts during their respective construction periods since most of the work will happen along existing right-of-ways. The environmental impacts of civil works are described in the Preliminary Environmental Report and include recommendations to mitigate, attenuate and/or counteract the negative impacts caused by the interventions. The team also reviewed CPTMs environmental management systems and policies to reduce and mitigate environmental impacts at the train maintenance and other facilities, which will be strengthened during project implementation

F. Environmental Management System.

20. A Project Management Unit will be established by the Borrower to supervise the project and ensure compliance with Bank policies. A social-environmental specialist will be assigned to this unit and help integrate environmental concerns into the daily activities of CPTM’s maintenance facilities, focusing on implementing activities to reduce and properly treat different waste streams, reduce energy use, better manage the risk associated with using hazardous chemicals, and integrate environmental and worker safety and health requirements in daily operations.

21. The Project will help CPTM in implementing a set of management tools and principles designed to guide the allocation of resources, assignment of responsibilities and ongoing evaluation of practices, procedures, and processes to integrate environmental concerns into its daily business practices, as well as outreach and improve user-satisfaction to address specific concerns and continuously improve environmental and social management practices.

Annex 11: Project Preparation and Supervision BRAZIL: SÃO PAULO TRAINS AND SIGNALING

Table 1: Project Preparation and Supervision Key Dates

Planned Actual PCN review 07/24/2007 07/24/2007 Initial PID to PIC 08/06/2007 Initial ISDS to PIC 07/26/2007 OC Review Meeting 11/20/2007 11/19/2007 Appraisal 10/17/2007 12/03/2007 Negotiations 12/10/2007 02/18/2008 Board/RVP approval 04/22/2008 Planned date of effectiveness 06/20/2008 Planned date of mid-term review 06/30/2010 Planned closing date 06/30/2013

Key institutions responsible for preparation of the project: Companhia do Metropolitano de São Paulo (Metro), Companhia Paulista de Trens Metropolitanos (CPTM), Secretaria de Transportes Metropolitanos, Secretaria da Fazenda and Secretaria de Economia e Planejamento;World Bank staff and consultants.

Table 2: Bank Staff and Consultants Who Worked on the Project

Name Title Unit Jorge Rebelo TTL, Lead Transport Specialist LCSTR Armando Araújo Procurement Specialist Consultant Bernardo Alvim Transport Economics and Consultant Demand Analysis Daniel Gross Safeguards Specialist Consultant Paul Procee Environmental Specialist LCSEN Patricia Hoyes Senior Finance Officer LOAFC Miguel Navarro Martin Senior Financial Officer BDM Fernando Blanco Economist for Fiscal Analysis LCSPE Arturo Ardila Transport Specialist LCSTR Suzana Amaral FM Specialist LCSFM Catarina Portelo Counselor LEGLA Sergio Wanderley Rolling Stock Specialist Consultant Sérgio Gonçalves Signaling and Telecom Specialist Consultant Peter Alouche Electrical Energy Specialist Consultant Aurélio Menendez Peer Reviewer, Lead Transport EASTE Specialist Martha Lawrence Peer Reviewer, Sr. Transport ECSSD (Railway) Specialist José Barbero Peer Reviewer, Sr. Transport LCSTR Specialist Jennifer Sara Sector Leader for Brazil LCSSD Solange Van Veldhuizen Program Assistant LCSTR Aires Conceição Research Assistant Consultant

2) Bank funds expended to date on project preparation: a) Bank resources:US$ 120,000 (committed) b) Trust funds: 0 c) Total: US$120,000

3) Estimated Approval and Supervision costs: a) Remaining costs to approval: US$30,000 b) Estimated annual supervision cost: US$100,000/year= US$500,000

Annex 12: Documents in the Project File BRAZIL: SÃO PAULO TRAINS AND SIGNALING

1. Project Implementation Plans approved by Metro and CPTM at appraisal, 12/04/2007. 2. Companhia do Metropolitano de São Paulo. 2007. “Avaliação dos Sistemas de Sinalização e Telecomunicações Especificados para as Linhas A e F da CPTM.” By Sérgio Gonçalves. Consultant report. São Paulo, Brazil. 3. Companhia Paulista de Trens Metropolitanos. 2007. “Trem Metroviário - Especificações Técnicas do Material Rodante para as Linhas 1 - Azul e 3 – Vermelha.” São Paulo, Brazil. [2 docs] 4. Governo do Estado de São Paulo. 2007. “Programa de Reestruturação e Ajuste Fiscal do Estado de São Paulo: Período 2007-2009.” Lei N. 9.496/97, Resolução do Senado Federal N. 118/97, Contrato STN/COAFI S/N., de 22 de Maio de 1997 entre a União e o Estado de São Paulo. 5. Governo do Estado de São Paulo – Secretaria de Estado dos Transportes Metropolitanos and Companhia Paulista de Trens Metropolitanos. 2006. “Recapacitação e Dinamização da Linha F, Projeto Básico Ambiental (PBA), Vol. 1, Plano de Controle Ambiental da Obra (PCA).” By Prime Engenharia. São Paulo, Brazil. 6. Governo do Estado de São Paulo – Secretaria de Estado dos Transportes Metropolitanos and Companhia Paulista de Trens Metropolitanos. 2006. “Recapacitação e Dinamização da Linha F, Projeto Básico Ambiental (PBA), Vol. II, Programas Ambientais.” By Prime Engenharia. São Paulo, Brazil. 7. Governo do Estado de São Paulo – Secretaria de Estado dos Transportes Metropolitanos. 2005. “Recapacitação da Linha F, Relatório Ambiental Preliminar (RAP), Vol. II – Figures.” By Prime Engenharia. São Paulo, Brazil. 8. METRÔ. “Transporte Metropolitano – Benefícios Econômicos da Renovação de Frota e Sistemas, Anexo (Relatório Técnico RT-9.00.00.00/1V3-005.” By the Gerência de Planejamento de Transporte Metropolitano (GPM), Departamento de Planejamento e Avaliação de Transporte (PML), Diretoria Financeira (DF), Gerência de Planejamento Financeiro (GPF), and the Departamento de Estudos Econômicos Financeiros (PFE). São Paulo, Brazil. 9. World Bank. 2007. “Análise do Suprimento de Energia.” By Peter Ludwig Alouche. Consultant report. São Paulo, Brazil. 10. World Bank. 2007. “Especificação Técnica dos 40 Novos TUES da CPTM – Report and Tecnical Specifications.” By Sergio Wanderley. Consultant report. São Paulo, Brazil. [2 docs] 11. World Bank. 2007. “Avaliação dos Sistemas de Sinalização e Telecomunicações Especificados para as Linhas 1, 2, e 3 da CMSP.” By Sérgio Gonçalves. Consultant report. São Paulo, Brazil.

Annex 13: Statement of Loans and Credits BRAZIL: SÃO PAULO TRAINS AND SIGNALING

Difference between Original Amount in US$ Millions expected and actual disbursements Project ID FY Purpose IBRD IDA SF GEF Cancel. Undisb. Orig. Frm. Rev’d P089011 2007 BR Municipal APL1: Uberaba 17.27 0.00 0.00 0.00 0.00 17.27 0.00 0.00 P095460 2007 BR-Bahia Integr.Hway Mngmt. 100.00 0.00 0.00 0.00 0.00 100.00 0.07 0.00 P089793 2007 BR State Pension Reform TAL II 5.00 0.00 0.00 0.00 0.00 5.00 0.00 0.00 P082651 2007 BR APL 1 Para Integrated Rural Dev 60.00 0.00 0.00 0.00 0.00 60.00 6.67 0.00 P082523 2006 BR HD Technical Assistance Loan 8.00 0.00 0.00 0.00 0.00 7.98 5.70 0.00 P066535 2006 BR GEF Amazon Aquatic Res - AquaBio 0.00 0.00 0.00 7.18 0.00 7.18 0.90 0.00 P082142 2006 BR-Ceara Multi-sector Social Inclus Dev 149.75 0.00 0.00 0.00 0.00 35.09 25.09 0.00 P081436 2006 BR-Bahia Poor Urban Areas Integrated 49.30 0.00 0.00 0.00 0.00 45.34 18.21 0.00 Dev P081023 2006 BR- Sugar Bagasse Cogeneration Project 0.00 0.00 0.00 0.00 0.00 0.27 0.00 0.00 P052256 2006 BR-MG Rural Poverty Reduction 35.00 0.00 0.00 0.00 0.00 29.45 5.90 0.00 P095675 2006 BR-2nd Progr. Sustn.& Equit Growth 601.50 0.00 0.00 0.00 0.00 601.51 601.51 0.00 P093787 2006 BR Bahia State Integ Proj Rur Pov 54.35 0.00 0.00 0.00 0.00 10.62 -19.77 0.00 P089440 2006 BR-Brasilia Environmentally Sustainable 57.64 0.00 0.00 0.00 0.00 57.50 16.19 0.00 P090041 2006 BR ENVIRONMENTAL SUST. 8.00 0.00 0.00 0.00 0.00 6.92 4.65 0.00 AGENDA TAL P092990 2006 BR - Road Transport Project 501.25 0.00 0.00 0.00 0.00 501.25 76.67 0.00 P050761 2006 BR-Housing Sector TAL 4.00 0.00 0.00 0.00 0.00 3.99 -0.01 0.00 P069934 2005 BR-PERNAMBUCO INTEG DEVT: 31.50 0.00 0.00 0.00 0.00 24.06 15.10 0.00 EDUC QUAL IMPR P082328 2005 BR-Integ.Munic.Proj.-Betim Municipality 24.08 0.00 0.00 0.00 0.00 4.64 -2.48 0.00 P075379 2005 BR GEF-RJ Sust IEM in Prod Landscapes 0.00 0.00 0.00 6.73 0.00 5.93 2.16 0.00 P083533 2005 BR TA-Sustain. & Equit Growth 12.12 0.00 0.00 0.00 0.00 10.72 5.41 0.00 P087711 2005 BR Espirito Santo Wtr & Coastal Pollu 36.00 0.00 0.00 0.00 0.00 27.36 25.38 0.00 P076924 2005 BR- Amapa Sustainable Communities 4.80 0.00 0.00 0.00 0.00 3.98 2.28 0.00 P088009 2005 BR GEF-Sao Paulo Riparian Forests 0.00 0.00 0.00 7.75 0.00 5.13 2.23 0.00 P080830 2004 BR Maranhao Integrated: Rural Dev 30.00 0.00 0.00 0.00 0.00 23.04 17.79 0.00 P083013 2004 BR Disease Surveillance & Control APL 100.00 0.00 0.00 0.00 0.00 59.86 42.36 0.00 2 P060573 2004 BR Tocantins Sustainable Regional Dev 60.00 0.00 0.00 0.00 0.00 55.54 41.54 7.64 P087713 2004 BR Bolsa Familia 1st APL 572.20 0.00 0.00 0.00 2.86 11.89 14.75 0.00 P080400 2003 BR-AIDS & STD Control 3 100.00 0.00 0.00 0.00 0.00 29.10 29.10 0.00 P076977 2003 BR-Energy Sector TA Project 12.12 0.00 0.00 0.00 0.00 11.01 11.01 0.00 P049265 2003 BR-RECIFE URBAN UPGRADING 46.00 0.00 0.00 0.00 0.00 40.95 29.80 9.31 PROJECT P054119 2003 BR BAHIA DEVT (HEALTH ) 30.00 0.00 0.00 0.00 0.00 14.56 12.31 0.00 P058503 2003 GEF BR Amazon Region Prot Areas 0.00 0.00 0.00 30.00 0.00 13.57 30.00 0.00 (ARPA) P070827 2003 BR-2nd APL BAHIA DEV. 60.00 0.00 0.00 0.00 0.00 1.77 1.77 0.00 EDUCATION PROJECT P074777 2003 BR-Municipal Pension Reform TAL 5.00 0.00 0.00 0.00 0.00 4.20 4.20 4.20 P073192 2002 BR TA Financial Sector 14.50 0.00 0.00 0.00 4.57 4.04 8.61 -0.08 P070552 2002 GEF BR PARANA BIODIVERSITY 0.00 0.00 0.00 8.00 0.00 2.96 7.98 0.00 PROJECT P043869 2002 BR SANTA CATARINA NATURAL 62.80 0.00 0.00 0.00 0.00 23.05 12.45 0.00 RESOURC & POV. P060221 2002 BR FORTALEZA METROPOLITAN 85.00 0.00 0.00 0.00 86.49 34.02 84.02 21.13

TRANSPORT PROJ P051696 2002 BR SÃO PAULO METRO LINE 4 209.00 0.00 0.00 0.00 0.00 78.18 78.18 66.49 PROJECT P057665 2002 BR-FAMILY HEALTH EXTENSION 68.00 0.00 0.00 0.00 0.00 8.26 8.26 0.00 PROJECT I P057653 2002 BR- FUNDESCOLA IIIA 160.00 0.00 0.00 0.00 0.00 62.35 -7.65 0.00 P050880 2001 BR Pernambuco Rural Poverty Reduction 30.10 0.00 0.00 0.00 0.00 30.63 0.63 0.42 P050875 2001 BR Ceara Rural Poverty Reduction 37.50 0.00 0.00 0.00 0.00 14.92 -22.58 -22.58 Project P050772 2001 BR LAND-BASED POVRTY 202.10 0.00 0.00 0.00 58.13 98.46 89.16 -1.53 ALLEVIATION I (SIM) P050881 2001 BR BR-PIAUI RURAL POVERTY 22.50 0.00 0.00 0.00 0.00 22.50 0.00 0.00 REDUCTION P073294 2001 BR Fiscal & Fin. Mgmt. TAL 8.88 0.00 0.00 0.00 0.00 5.11 4.81 4.81 P059566 2001 BR- CEARA BASIC EDUCATION 90.00 0.00 0.00 0.00 0.00 13.68 13.68 11.73 P039199 2000 BR PROSANEAR 2 30.30 0.00 0.00 0.00 6.40 13.04 19.44 6.54 P006449 2000 BR CEARA WTR MGT PROGERIRH 136.00 0.00 0.00 0.00 0.00 11.88 11.88 -2.95 SIM P048869 1999 BR SALVADOR URBAN TRANS 150.00 0.00 0.00 0.00 32.00 12.03 44.03 0.00 P038895 1998 BR FED.WTR MGT 198.00 0.00 0.00 0.00 40.00 50.00 40.00 0.00 P043421 1998 BR RJ M.TRANSIT PRJ. 186.00 0.00 0.00 0.00 0.00 12.51 12.51 12.51 P043420 1998 BR WATER S.MOD.2 150.00 0.00 0.00 0.00 125.00 11.73 136.70 0.58 P006474 1998 BR LAND MGT 3 (SAO PAULO) 55.00 0.00 0.00 0.00 10.00 9.68 19.68 8.42 Total: 4,670.56 0.00 0.00 59.66 365.45 2,355.71 1,588.28 126.64

BRAZIL STATEMENT OF IFC’s Held and Disbursed Portfolio In Millions of US Dollars

Committed Disbursed IFC IFC FY Approval Company Loan Equity Quasi Partic. Loan Equity Quasi Partic. ABN AMRO REAL 98.00 0.00 0.00 0.00 15.77 0.00 0.00 0.00 2005 2005 ABN AMRO REAL 98.00 0.00 0.00 0.00 15.77 0.00 0.00 0.00 2001 AG Concession 0.00 30.00 0.00 0.00 0.00 30.00 0.00 0.00 2002 Amaggi 17.14 0.00 0.00 0.00 17.14 0.00 0.00 0.00 2005 Amaggi 30.00 0.00 0.00 0.00 30.00 0.00 0.00 0.00 2002 Andrade G. SA 22.00 0.00 10.00 12.12 22.00 0.00 10.00 12.12 2001 Apolo 6.04 0.00 0.00 0.00 3.54 0.00 0.00 0.00 1998 Arteb 20.00 0.00 0.00 18.33 20.00 0.00 0.00 18.33 2006 BBM 49.40 0.00 0.00 0.00 49.40 0.00 0.00 0.00 2001 Brazil CGFund 0.00 19.75 0.00 0.00 0.00 18.15 0.00 0.00 2004 CGTF 54.01 0.00 7.00 65.12 54.01 0.00 7.00 65.12 1994 CHAPECO 10.00 0.00 0.00 0.00 10.00 0.00 0.00 0.00 1996 CHAPECO 1.50 0.00 0.00 5.26 1.50 0.00 0.00 5.26 2003 CPFL Energia 0.00 40.00 0.00 0.00 0.00 40.00 0.00 0.00 1996 CTBC Telecom 3.00 8.00 0.00 0.00 3.00 8.00 0.00 0.00 1997 CTBC Telecom 0.00 6.54 0.00 0.00 0.00 6.54 0.00 0.00 1999 Cibrasec 0.00 3.27 0.00 0.00 0.00 3.27 0.00 0.00 2004 Comgas 11.90 0.00 0.00 11.54 11.90 0.00 0.00 11.54 78

2005 Cosan S.A. 50.00 5.00 15.00 0.00 50.00 5.00 15.00 0.00 Coteminas 0.00 1.84 0.00 0.00 0.00 1.84 0.00 0.00 1997 Coteminas 1.85 1.25 0.00 0.00 1.85 1.25 0.00 0.00 2000 Coteminas 0.00 0.18 0.00 0.00 0.00 0.18 0.00 0.00 1980 DENPASA 0.00 0.52 0.00 0.00 0.00 0.48 0.00 0.00 1992 DENPASA 0.00 0.06 0.00 0.00 0.00 0.06 0.00 0.00 Dixie Toga 0.00 0.34 0.00 0.00 0.00 0.34 0.00 0.00 1998 Dixie Toga 0.00 10.03 0.00 0.00 0.00 10.03 0.00 0.00 1997 Duratex 1.36 0.00 3.00 0.57 1.36 0.00 3.00 0.57 2005 EMBRAER 35.00 0.00 0.00 145.00 35.00 0.00 0.00 145.00 1999 Eliane 14.93 0.00 13.00 0.00 14.93 0.00 13.00 0.00 1998 Empesca 1.33 0.00 2.67 0.00 1.33 0.00 2.67 0.00 2006 Endesa Brasil 0.00 50.00 0.00 0.00 0.00 50.00 0.00 0.00 2006 Enerbrasil Ltda 0.00 5.50 0.00 0.00 0.00 0.00 0.00 0.00 2006 FEBR 12.00 0.00 0.00 0.00 12.00 0.00 0.00 0.00 2000 Fleury 0.00 0.00 6.00 0.00 0.00 0.00 6.00 0.00 1998 Fras-le 4.00 0.00 9.34 0.00 4.00 0.00 6.04 0.00 2006 GOL 50.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 2005 GP Capital III 0.00 14.00 0.00 0.00 0.00 0.14 0.00 0.00 GP Cptl Rstrctd 0.00 2.22 0.00 0.00 0.00 2.16 0.00 0.00 2001 GPC 0.00 0.00 9.00 0.00 0.00 0.00 9.00 0.00 GTFP BIC Banco 44.91 0.00 0.00 0.00 44.91 0.00 0.00 0.00 GTFP BM Brazil 4.22 0.00 0.00 0.00 4.22 0.00 0.00 0.00 GTFP Indusval 5.00 0.00 0.00 0.00 5.00 0.00 0.00 0.00 1997 Guilman-Amorim 18.08 0.00 0.00 14.37 18.08 0.00 0.00 14.37 1998 Icatu Equity 0.00 5.46 0.00 0.00 0.00 4.16 0.00 0.00 1999 Innova SA 0.00 5.00 0.00 0.00 0.00 5.00 0.00 0.00 1980 Ipiranga 0.00 2.87 0.00 0.00 0.00 2.87 0.00 0.00 1987 Ipiranga 0.00 0.54 0.00 0.00 0.00 0.54 0.00 0.00 2006 Ipiranga 50.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 2006 Itambe 15.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 2000 Itau-BBA 12.86 0.00 0.00 0.00 12.86 0.00 0.00 0.00 2002 Itau-BBA 70.61 0.00 0.00 0.00 38.47 0.00 0.00 0.00 1999 JOSAPAR 7.57 0.00 7.00 0.00 2.57 0.00 7.00 0.00 2005 Lojas Americana 35.00 0.00 0.00 0.00 35.00 0.00 0.00 0.00 1992 MBR 0.00 0.00 10.00 0.00 0.00 0.00 10.00 0.00 2006 MRS 50.00 0.00 0.00 50.00 0.00 0.00 0.00 0.00 2002 Microinvest 0.00 1.25 0.00 0.00 0.00 0.82 0.00 0.00 Net Servicos 0.00 10.93 0.00 0.00 0.00 10.93 0.00 0.00 2002 Net Servicos 0.00 1.60 0.00 0.00 0.00 1.60 0.00 0.00 2005 Net Servicos 0.00 5.08 0.00 0.00 0.00 5.08 0.00 0.00 1994 Para Pigmentos 2.15 0.00 9.00 0.00 2.15 0.00 9.00 0.00 1994 Portobello 0.00 0.59 0.00 0.00 0.00 0.59 0.00 0.00 2000 Portobello 4.28 0.00 7.00 0.00 4.28 0.00 7.00 0.00 2002 Portobello 0.00 0.90 0.00 0.00 0.00 0.90 0.00 0.00 2000 Puras 0.00 0.00 1.00 0.00 0.00 0.00 1.00 0.00 2003 Queiroz Galvao 26.67 0.00 10.00 0.00 26.67 0.00 10.00 0.00 2004 Queiroz Galvao 0.60 0.00 0.00 0.00 0.08 0.00 0.00 0.00 2006 RBSec 22.83 1.51 0.00 0.00 0.00 1.51 0.00 0.00 Randon Impl Part 2.33 0.00 3.00 0.00 2.33 0.00 3.00 0.00 1997 Sadia 2.55 0.00 2.33 3.28 2.55 0.00 2.33 3.28 1997 Samarco 3.60 0.00 0.00 0.00 3.60 0.00 0.00 0.00 79

1998 Saraiva 0.00 1.24 0.00 0.00 0.00 1.24 0.00 0.00 2000 Sepetiba 26.24 0.00 5.00 0.00 11.24 0.00 5.00 0.00 2002 Suape ICT 6.00 0.00 0.00 0.00 6.00 0.00 0.00 0.00 1999 Sudamerica 0.00 7.35 0.00 0.00 0.00 7.35 0.00 0.00 2006 Suzano petroq 50.00 0.00 10.00 140.00 39.50 0.00 10.00 110.50 2001 Synteko 11.57 0.00 0.00 0.00 11.57 0.00 0.00 0.00 2006 TAM 50.00 0.00 0.00 0.00 17.00 0.00 0.00 0.00 1998 Tecon Rio Grande 3.55 0.00 5.50 3.71 3.55 0.00 5.50 3.71 2004 Tecon Rio Grande 7.87 0.00 0.00 7.76 7.59 0.00 0.00 7.48 2001 Tecon Salvador 2.95 1.00 0.00 3.10 2.95 0.77 0.00 3.10 2003 Tecon Salvador 0.00 0.55 0.00 0.00 0.00 0.55 0.00 0.00 2004 TriBanco 10.00 0.00 0.00 0.00 10.00 0.00 0.00 0.00 2006 TriBanco 0.35 0.00 0.00 0.00 0.35 0.00 0.00 0.00 2002 UP Offshore 9.01 9.51 0.00 23.29 0.00 2.51 0.00 0.00 2002 Unibanco 16.89 0.00 0.00 0.00 16.89 0.00 0.00 0.00 Total portfolio: 1,164.15 253.88 144.84 503.45 703.91 223.86 141.54 400.38

Approvals Pending Commitment FY Approval Company Loan Equity Quasi Partic. 2000 BBA 0.01 0.00 0.00 0.00 1999 Cibrasec 0.00 0.00 0.00 0.00 2006 Ipiranga II 0.00 0.00 0.00 0.10 2002 Banco Itau-BBA 0.00 0.00 0.00 0.10 Total pending commitment: 0.01 0.00 0.00 0.20

Annex 14: Country at a Glance BRAZIL: SÃO PAULO TRAINS AND SIGNALING

Latin Lower- POVERTY and SOCIAL America middle- Development diamond* Brazil & Carib. income 2005 Population, mid-year (millions) 186.4 551 2,475 Life expectancy GNI per capita (Atlas method, US$) 3,460 4,008 1,918 GNI (Atlas method, US$ billions) 645.0 2,210 4,747

Average annual growth, 1999-05 Population (%) 1. 4 1. 4 1. 0 GNI Gross Labor force (%) 1. 8 2 . 2 1. 4 per primary M ost recent estimate (latest year available, 1999-05) capita enrollment Poverty (% of population below national poverty line) ...... Urban population (% of total population) 84 77 50 Life expectancy at birth (years) 71 72 70 Infant mortality (per 1,000 live births) 32 27 33 Child malnutrition (% of children under 5) .. 7 12 Access to improved water source Access to an improved water source (% of population) 90 91 82 Literacy (% of population age 15+) 89 90 89 Gross primary enrollment (% of school-age population) 14 1 119 114 Brazil M a l e 14 5 12 1 115 Lower-middle-income group F e m a l e 13 7 117 113

KEY ECONOM IC RATIOS and LONG-TERM TRENDS 1985 1995 2004 2005 Economic ratios* GDP (US$ billions) 222.9 704.2 604.0 794.1 Gross capital formation/GDP 19.2 22.3 21.3 19.3 Trade Exports of goods and services/GDP 12.2 7.7 18.0 22.7 Gross domestic savings/GDP 24.4 20.5 25.8 28.1 Gross national savings/GDP 19.0 19.5 23.2 22.4 Current account balance/GDP -0.2 -2.6 1.9 2.5 Domestic Capital Interest payments/GDP 3.3 1.2 2.0 .. savings formation Total debt/GDP 46.5 22.8 36.8 .. Total debt service/exports 39.1 38.1 47.8 .. Present value of debt/GDP .. .. 39.6 .. Present value of debt/exports .. .. 212.9 .. Indebtedness 1985-95 1995-05 2004 2005 2005-09 (average annual growth) GDP 1.7 2.1 4.9 2.3 3.5 Brazil GDP per capita 0.0 0.6 3.5 0.9 2.7 Lower-middle-income group Exports of goods and services 6.1 10.5 18.0 20.9 12.6

STRUCTURE of the ECONOMY 1985 1995 2004 2005 Growth of capital and GDP (%) (% of GDP) A griculture 11.5 9.0 10.4 9.8 20 Industry 45.3 36.7 40.0 37.9 10 M anufacturing 33.7 23.6 .. 0.0 Services 43.1 54.3 49.6 52.3 0 00 01 02 03 04 05 Household final consumption expenditure 65.8 59.9 55.4 58.4 -10 General gov't final consumption expenditure 9.9 19.6 18.8 14.6 Imports of goods and services 7.1 9.5 13.4 15.0 GCF GDP

1985-95 1995-05 2004 2005 Growth of exports and imports (%) (average annual growth) Agriculture 2.1 4.2 5.3 2.7 30

Industry 0.3 1.6 6.2 2.7 15 M anufacturing -1.1 1.3 .. .. Services 2.3 0.8 -5.5 -6.0 0 00 01 02 03 04 05 Household final consumption expenditure 2.8 0.3 4.3 0.8 -15 General gov't final consumption expenditure 1.3 3.7 0.7 5.6 -30 Gross capital formation 2.3 0.2 14.3 -7.6 Exports Imports Imports of goods and services 9.0 0.7 14.3 8.8

Note: 2005 data are preliminary estimates. This table was produced from the Development Economics LDB database. * The diamonds show four key indicators in the country (in bold) compared with its income-group average. If data are missing, the diamond will be incomplete.

Brazil

PRICES and GOVERNM ENT FINANCE 1985 1995 2004 2005 Inflation (%) Domestic prices (% change) 20 Consumer prices 200.0 66.0 6.6 6.9 15 Implicit GDP deflator 231.7 77.6 8.2 7.2 10 Government finance 5 (% of GDP, includes current grants) 0 Current revenue 9.8 19.6 .. .. 00 01 02 03 04 05 Current budget balance -0.7 -1.5 .. .. GDP deflator CPI Overall surplus/deficit -1.3 ......

TRADE 1985 1995 2004 2005 Export and import levels (US$ mill.) (US$ millions)

Total exports (fob) 25,638 46,506 81,466 118,308 150,000 Iron ore, manganese 1,804 2,746 4,759 .. Soybeans 2,545 3,820 5,395 .. 100,000 M anufactures 13,356 29,720 52,948 71,112 Total imports (cif) 13,153 49,972 62,809 75,965 Food .. 3,514 1,058 .. 50,000 Fuel and energy 6,176 2,587 10,317 .. Capital goods 2,480 19,891 12,132 25,114 0 99 00 01 02 03 04 05 Export price index (2000=100) 78 103 108 117 Import price index (2000=100) 47 85 90 97 Export s Imports Terms of trade (2000=100) 16 7 12 1 12 0 12 0

BALANCE of PAYMENTS 1985 1995 2004 2005 Current account balance to GDP (%) (US$ millions) Exports of goods and services 27,713 49,544 109,059 142,955 4 Imports of goods and services 16,928 58,750 80,069 94,403 Resource balance 10,785 -9,206 28,990 48,552 2

Net income -11,213 -12,741 -20,520 -28,980 0 Net current transfers 16 3,973 3,268 50 99 00 01 02 03 04 05 -2 Current account balance -412 -17,973 11,738 19,622

Financing items (net) -99 30,942 -15,377 -3,476 -4 Changes in net reserves 511 -12,969 3,639 -16,146 -6 Memo: Reserves including gold (US$ millions) 11,608 51,840 52,935 61,716 Conversion rate (DEC, local/US$) 2.26E-9 0.9 2.9 2.4

EXTERNAL DEBT and RESOURCE FLOWS 1985 1995 2004 2005 Composition of 2004 debt (US$ mill.) (US$ millions) Total debt outstanding and disbursed 103,612 160,515 222,026 .. IBRD 5,274 6,038 8,668 8,083 A: 8,668 G: 25,267 C: IDA 0 0 0 0 25,029 Total debt service 11,471 21,576 53,710 .. IBRD 796 1,868 1,843 1,335 D: 10,930 IDA 0 0 0 0 E: 7,678 Composition of net resource flows Official grants 34 65 91 .. Official creditors 936 -1,714 -2,938 .. Private creditors 150 10,925 -4,614 .. Foreign direct investment (net inflows) 1,441 4,859 18,166 .. Portfolio equity (net inflows) 0 2,775 2,081 .. F: World Bank program 144,454 Commitments 1,525 404 1,215 .. A - IBRD E - Bilateral Disbursements 765 838 1,447 773 B - IDA D - Ot her mult ilat eral F - Private Principal repayments 406 1,377 1,564 1,029 C - IM F G - Short-term Net flows 359 -539 -116 -255 Interest payments 391 491 280 307 Net transfers -32 -1,031 -396 -562

Note: This table was produced from the Development Economics LDB database. 8/12/06

Annex 15: Impact on Low-Income Users BRAZIL: SÃO PAULO TRAINS AND SIGNALING

IMPACT OF THE PROJECT ON THE MOBILITY OF SPMR’s LOW-INCOME POPULATION

1. This Annex evaluates the impact of the Project on the low-income ridership of SPMR’s rail- based network.

A. Poverty and Mobility in SPMR

2. At the turn of the century SPMR’s low-income population made few trips and two thirds were on foot

3. By the year 2000 about 7 million people or 41% of SPMR’s population was living below the poverty line.2 The 2002 Origin-Destination (OD) survey showed the low-income population made only 1.73 trips per day. This value was about half the number of trips made by high- income groups (3.33 trips per day). Furthermore, the majority of the low-income population would commute by foot (walking) and 56% of the low-income population did not travel at all.

Table 1: Modal split for the low-income population in the SPMR (below 4 Monthly Minimum Salaries (MS) of family income) - 2002

Family Income below 4 Family Income above 4 MS MS Mode Percentage traveling on each mode

Bus 25.43 22.11 Automobile 10.60 40.65 Metro 2.80 5.49 Train 2.54 1.73 Bicycle 1.57 0.56 Walk 56.51 28.00 Others 0.56 1.46 Total 100.00 100.00 Source: 2002 OD Survey

4. By 2002 only for 5% of the daily trips of the low-income population were by metro or commuter rail.

5. In 2002, when the poor used public transportation, they preferred traveling by bus, given the higher capillarity of the bus network, which reached SPMR’s peripheral areas where the majority of the low-income population lives. The low-income population made few trips on suburban rail

2 The poverty line adopted here is based on the methodology defined by Rocha, S., from FGV/RIO. This methodology combines the per capita family income with other indicators related to the consumption of families, which varies throughout metropolitan regions in Brazil. The data is gathered by the Instituto Brasileiro de Geografia e Estatistica (IBGE) in its Survey on Family Income (Pesquisa de Orçamento Familiar - POF). Therefore, the poverty line—that is, the income below which an individual or a family are considered poor—varies from one metropolitan region to another. In the SPMR case, where the cost of living is higher, the poverty line is one of the highest of the country. In 2001, the poverty line for the SPMR based on the studies by Rocha was 1.04 MS (Monthly Minimum Salary) for an individual or 2.6 US$/day, and for a family it was 3.96 MS , value rounded to 4 MS here. 83

and by metro, slightly above 5% of the daily trips of this group. This low value occurred despite the large length of the suburban rail network (253 Km), which covers significant portions of the SPMR low-income areas.

6. The State Government decided to investigate why low-income people made few trips in general and fewer on rail modes, concluding that it was the inadequacy of the public transportation service to meet its mobility needs coupled to the service being too expensive:

7. Urban mobility surveys helped identify the main causes of the low usage of public transportation by low-income groups—who used to make lengthy trips by foot:

• Unaffordable fares: most of the people surveyed indicated their inability to pay the fares given their low-income and the rather extensive need to use more than one mode—and hence pay more than once—to reach their destination. This reason also highlighted the lack of an integrated fare across transit modes in the SPMR.

• Poor Micro-accessibility: transit supply in areas where the low-income population lived was inadequate. Namely, bus stops or stations were far and there was a lack of integration between bus and high-capacity modes (train or metro). Further, riders had to cross unsafe areas to walk to the bus stop or rail station.

• Low frequencies, delays and unreliable service: service was not frequent enough and was unreliable causing long waiting periods and delays.

• Long travel times: caused by road congestion in the case of buses and frequent breakdowns in the case of trains. Indeed, the 2002 OD survey showed that the average duration of a trip by public transport for this income group was 1.5 hours, and in some more peripheral areas it exceeded two hours.

• Uncomfortable and unsafe travel conditions: overcrowded vehicles (buses and trains) were common. Additionally, users faced unsafe conditions to get to the bus stop or train station, and there were instances of assaults and violence within the vehicles, mainly in buses.

8. Inadequate transportation service to the low-income population has negative effects on its living conditions and jeopardizes its insertion in the labor market.

9. Analysis of trip purpose for this group shows the negative impacts of not providing adequate and affordable public transit. For example, only 38% of the trips to work were by public transportation and riders faced long waiting and travel times (on average more than 90 minutes/trip) and unfavorable travel conditions. As a result, 45% of low-income riders walk to work (up to 18 minutes). But having to walk means that this population cannot look for jobs in more dynamic poles (generally far way from the areas where they live). This population therefore ends up working in the peripheral areas, close to where they live, and where informal jobs and sub-employment prevail. This situation shows that lack of accessibility and affordability of public transport is an important obstacle to the insertion in the formal and better-paying labor market. The State Government realized that a different strategy was needed to improve public transport for the low-income population.

B. Strategies Adopted between 2000 and 2005

10. Strategies implemented regarding operations and fare structure in the rail-based network increased the trips undertaken by the low-income population and increased overall ridership.

11. To address the problems regarding the mobility of the low-income population, CPTM and Metro adopted two interrelated sets of strategies: a) strategies to make rail transit more affordable; b) strategies to improve operations to make rail transit more accessible and comfortable. Many of these actions were part of the “CPTM’s Modernization Program”, which started in 1999 and is still underway.

a) Strategies to make rail transit more affordable: This strategy sought to reduce the total amount spent by riders on fares. The strategy had a positive impact on riders, mainly those using the CPTM network. As a result many more low-income people use the rail-based network. The strategy included these measures:

• Free Transfer between METRO and CPTM: started in 2000 at main stations (Brás, Luz, Santo Amaro, Barra Funda and Vila Madalena). Between these last two stations a free express shuttle was implemented in 2001 (PONTE ORCA) to connect CPTM to Metro lines.

• “Bilhete Unitário Lilás:” it is a single ticket specific for Metro’s Line 5, implemented in May of 2003 as a lower fare for this line. It created incentives for its use and enhanced demand.

• Integration between the inter-municipal bus lines and Line 5 of the Metro: took place in 2004.

12. Thanks to these actions, riders using both commuter rail and metro increased from 3.5 million passengers/month in September, 2001, to 5.8 million/month in September, 2005, a 65.7%, as shown in Figure 1.

Figure 1: Passengers Transferring for Free between CPTM and Metro

Transferência Livre CPTM - Metrô 6.500

6.000

5.500

5.000

4.500

4.000 Passageiros (mil) Passageiros 3.500

3.000

2.500 Jan Fev Mar Abr Mai Jun Jul Ago Set Out Nov Dez

2001 2005 Passengers (millions per month)

Year

Source: GPM PML PMR/CEU based on the demand data of the CPTM and Metro.

b) Strategies to improve operations to make rail transit more accessible and comfortable: Both CPTM and Metro undertook measures.

13. The main actions taken by CPTM were:

• “Expresso Leste”: involved creating an express rail service to the periphery of SPMR’s Eastern Zone using Line E of CPTM commuter rail. Service runs between the Brás and Guaianazes stations. The measure also involved retrofitting the segment of the line between Artur Alvim and Guaianazes and building three new and modern stations to replace the old ones, which were in poor condition. These works allowed the integration of CPTM’s Line E to Metro’s Line 3, which offers a service that stops at every station (omnibus service). This project included the acquisition of trains and the modernization of the signaling and telecommunication systems, which allowed trains to go faster and handle shorter headways between trains, thus improving the level of comfort for passengers.

• “Integração Centro”: it is a physical integration between six CPTM lines and the Metro at Luz stations, in the city center. This IBRD-financed project included rehabilitating and improving CPTM’s Luz station and linking it through an underground walkway (150 m. long) to Metro’s Luz station. The new linkage facilitated the transfer of passengers between the two rail systems. This project also linked Roosevelt and Bras Stations and completely modernized the latter making it a major rail hub.

• Improvement of CPTM’s Line C: This IDB-financed project included line rehabilitation, in the Osasco-Jurubatuba section, with the construction of seven new intermediate stations and retrofitting six old stations. It also included fleet renewal and modernizing the signaling and electrification systems.

14. The main action taken by Metro was to extend Line 2 by more than 2.6 Km and add two new stations: Chácara Klabin and Imigrantes. This action increased Metro’s coverage and improved rail service. 86

15. Due to the implementation of these two strategies - making transit more affordable, and more accessible and comfortable - CPTM’s demand grew 47% in 5 years and the percentage of low-income population in the rail-based network went from 25% in 2001 to 40% in 2005.

16. The two strategies had a positive impact mainly on CPTM’s ridership, which grew from 869,000 riders in a typical work day in 2000 to 1,278,000 riders in 2005. This is almost a 50% growth in ridership. In parallel, Metro’s ridership in the same period grew from 2,366,000 passengers per day in 2000 to 2,417,000 in 2005.

17. The strategies also impacted favorably the low-income population, which increased its use of the rail services. In 2001 low-income users were 25% of total demand and by 2005 they accounted for around 40%. This share is equivalent to 1.5 million users per day (800,000 in CPTM and 700,000 in Metro). In CPTM, the proportion of users with family income below 4 MS grew from 37.7% to 63.7% from 2001 to 2005 and in the Metro, from 20.3% to 28.0%3. In the two systems, the higher growth occurred among the users with lowest family income—below 2 MS.

Table 2: Low-income¹ Riders as a Percentage of Total Ridership by Rail Mode CPTM Metro Monthly Family Income 2001 2005 2001 2005 Very Low-Income (below 2 MS) 10.5 26.3 1.9 7.7 Low-Income (from 2 to 4 MS)* 27.2 37.4 15.1 20.3 Total Low-Income Users 37.7 63.7 20 28 * Estimate for the income layer between 2 and 4 MS from the CPTM/2005, based on the data of “Pesquisa AD CPTM” for the layer between 3 to 5 MS for the same year. Source : Pesquisa AD CPTM and Pesquisa da GOP / Metro. ¹ In 2001, the poverty line to the SPMR was close to 4 MS of family income, according to projections based on data of S. Rocha. In 2004 (last year of the author’s series) the per capita line established by the author allowed to calculate a family line that remained in 3.65 mw, reason why we continue to round the poverty family line to 4 MS. We keep this cut value for 2005 also, due to the lack of more recent data.

C. The Bilhete Único Integrado-Bui (Integrated Single Fare Ticket)

18. While the previous measures had a positive impact on low-income users, it was the Bilhete Único Integrado-BUI (Integrated Single Fare Ticket), introduced between 2004 and 2006, that had the largest positive impact. The BUI is an electronic fare card that within a two- hour period allows free transfer between any municipal bus and between bus and metro and/or commuter rail. At the time of its implementation, the price of the BUI was set at R$2.00 while the unit price of the municipal bus was R$ 1.70. The system was first implemented by the São Paulo Municipality in 2004, in the municipal bus system. The integration with the rail-based system occurred in stages, throughout 2006, involving CPTM and Metro. The fare of the integrated ticket was set to R$3.00, that is, 37% lower that the sum, at that time, of the fares of the Metro or Commuter rail plus bus modes.

D. Impact on Low-Income Users

19. A survey performed in September 2005 by DataSol—São Paulo’s reputable NGO specialized in social inclusion studies4—on the use of the BUI showed that before the

3 According to estimates of PML/GPM based on the GOP/DM Survey for those years. 4 “Impactos do Bilhete Único na vida do trabalhador “ - Pochmann, M. e Oliveira , MP., Ed Digital, fev 2005. 87 integration to the rail network, the BUI was used basically by low-income and low to medium- income users. 82% of the users of the Bilhete Único had family income below 5 MS (4 MS being the poverty line).

Table 3: Income profile of the BUI user - 2005 Percentage of all Monthly Family Income users Less than 1 MS 6.3 From 1 to 2 MS 30.7 From 3 to 5 MS 44.8 More than 5 MS 18.2 Total 100 Source : Research Datasol / Marcio Pochman

20. Also, the analysis of the residential location of the BUI users, performed by the municipal bus company (SPTRANS) in 20055, indicated that the districts with higher percentage of users of the BUI are from the more peripheral regions of the SPMR, where the low-income population lives.

21. Thanks to the Bilhete Único the cost of daily transportation dropped by half for the low- income population.

22. The high acceptance of the BUI by SPMR’s lowest-income population was mainly because it made transit more affordable (Table 4).

23. Using the Bilhete Único Integrado made families spend less of their income in transportation, particularly benefiting the lower-income households. In the case of users with family income below 2 MS, when using two municipal buses per direction, the share of family income devoted to transit dropped from 30% in 2004 to 13.1% in 2006. Similarly, for the users with family income from 2 to 4 MS, this share went down from 15% in 2004 to 8.8% in 2006. For the user of the combination Bus + Metro and/or Train, the share of the family income spent in transit fell from 27.3% to 19.7 % for families with income below 2 MS and from 18.6 % to 13.1% for families with income between 2 to 4 MS.

5 “ Tarifa Temporal – Impactos na Cidade “ - Paiva Souza,Ana Odila, 12ª semana de Tecnologia Metroviária. 88

Table 4: Percentage of Family Income Spent in Transit (¹) in October 2004 and 2006 Without BUI 2004 With BUI(2) 2006 Without BUI 2006 Mode Below 2 2 to 4 Below 2 2 to 4 Below 2 2 to 4 MS MS MS MS MS MS % % % % % % Municipal Bus 15.0 7.5 13.1 8.8 Municipal Bus + Municipal Bus 30.0 15.0 13,1 8,8 (using Bilhete Único) Metro/Railway/Trolleybus 16.8 11.2 13.8 9.2 Bus+Metro (integrated)/Railway 27.9 18.6 19.7 13.1 Bus + Metro + Bus (integrated) 46.9 31.3 19.7 13.1 Inter-municipal Bus(3) 18.8 12.6 14.9 9.9 Inter-municipal Bus(3) + 35.7 23.8 28.7 19.1 Metro/Railway (1) Theoretical values, not considering the possible employer subsidy due to the “Vale Transporte.“ The Vale Transporte is a policy that makes employers partially compensate employees for the use of public transit on their trip to work. (2) In 2006 the Bilhete Único Integrado allows a metro and/or train trip plus up to 3 transfers in the municipal bus system. (3) Average fare. Source: Table prepared by GPM/PML, considering the actual fare values of the various public transportation modes, the value of the minimum salary for the years considered, and the average number of trips/month., * Fares considered: bus municipal R$2.00; Metro/Railway and Trolleybus R$2.10; inter-municipal bus R$2.27 (average). Bilhete Único R$2.00; Bilhete Único integrado R$3.00. ** Increase of the minimum salary from 2004 (R$260,00) to 2006 (R$350,00) – 35% (nominal)

24. The use of the BUI had immediate positive impacts in the quality-of-life and travel conditions of the low-income population.

25. Datasol Research and the Metro’s GOP Research show that the use of the BUI had immediate positive impacts on the life and travel conditions of SPMR’s low-income population:

• Reduced expenditures in transit have allowed families to spend in other needs. For instance, 43% of BUI users of municipal buses (Datasol Research) declared that they started using the newly available income in food. Also, according to the Metro Survey in 2006, BUI users had an average expenditure of R$8.00 in public transportation prior to the introduction of the BUI and after its implementation are spending R$5.95—a 26% gain in disposable income.

• Mobility of the low-income families increased for 52% of respondents to the Datasol Research survey in terms of: o Higher number of daily trips; o Trips by members of the family who previously did not travel; o Trips which could not be done before due to lack of resources.

• And positive changes in travel conditions in terms of: o More travel options, with the possibility of choosing the fastest and shortest route; o Larger use of integrated service: In the case of the Metro, the GOP Research verified that there was an increase in the use of the BUI between bus and metro/train, going from 2% in 2005 to 38% in 2007. The use of Metro combined to other modes, such as train or inter-municipal buses also increased; 89

o Lower trip time: this benefit was mentioned by 65% of the bus users interviewed in the Datasol Research and by 18% of the users of the Metro. Among the latter, the average gain in the total travel time was 19 minutes per day. Users now have more time to perform other activities.

26. All these gains in terms of increased mobility and reduced travel time significantly improve the quality-of-life of the low-income population, allowing it the possibility of enjoying better access to labor poles and to health, education and leisure facilities.

27. Thanks to the BUI the low-income population increased its use of the rail-based system. This segment today accounts for almost 45% of the rail-based network ridership.

28. As indicated above, the participation of the lowest-income users in the CPTM and Metro’s ridership was already growing due to the free transfer between the two systems and the series of operating measures that improved micro-accessibility and travel conditions. And with the extension of the BUI to the rail networks, a larger number of low-income people saw the possibility of accessing CPTM and METRO. Hence the share of low-income users in total ridership increased.

29. Table 5 shows the results of Metro’s survey to its riders. The data shows that there is a trend underlying the share of total ridership represented by low-income people in Metro’s daily ridership. For instance, the increase in the share of low-income users in the Metro was more than 7 percent points between 2005 and 2006— jumping from 28% to 35% of ridership. In comparison to 2001, the share grew by 75%. On the other hand, CPTM’s survey to its users is still not available and no observations can be made for this mode.

Table 5: Metro’s Demand by Income Ranges by Year Household’s Income 1995 1997 1999 2001 2003 2005 2006 Below 4 MS 10 7 12 20 25 28 35 4 to 8 MS 19 17 24 27 31 31 31 8 to 15 MS 30 31 29 17 25 24 22 15 to 30 MS 29 31 24 171 5 13 10 Above 30 MS 12 14 11 19 4 4 2 Source: Pesquisa GOP

30. Notwithstanding the lack of data for CPTM for 2006, we can use the 2005 figure to estimate the total share of riders that are low income in both Metro and CPTM. In 2005, 63.7% of the riders of CPTM’s rail network were low income. Conservatively, we can assume this same figure for 2006. Therefore, in this year an estimated 44.3% of all rail-based transit users were low-income, equivalent to 1.75 millions riders per day.

Table 6: Percentage of Low-Income Users in the Network Demand in 2006 with the BUI1 CPTM Metro Network Monthly Household Income 2005 20062 2005 2006 2006 Very Low-income (below 2 MS) 26.3 26.3 7.7 10.9 - Low-income (from 2 to 4 MS)3 37.4 37.4 20.3 24.1 - Total Low-Income 63.7 63.7 28 35 44.3 1The BUI was implemented in the railway network in 2006. 2 Estimates for CPTM for 2006 based on the growth factor occurred in the Metro between 2005 and 2006 (2.5). 3 Estimate for the 2 to 4 MS range of CPTM demand based on the data from the Pesquisa AD 2005 for the 3 to 5 MS range for the same year. Source: CPTM Pesquisa AD 2005, Metro Pesquisa GOP 2005 and 2006, and GPMestimates

E. Impact on the Rail-Based Network

31. With the Bilhete Único Integado, the demand of the rail-based network grew 10.5% in only one year.

32. In addition to increasing the number of low-income riders, the BUI also increased total demand in the rail-based network (Figures 2 and 3). The downside was a decrease in the quality of service, particularly during the peak-hour, because trains were too crowded. Station platforms are also congested with passengers waiting for the next train. Important crowd control measures have been introduced. Furthermore, ridership has increased also during off-peak hours. Therefore, it is urgent to restore the level-of-service by increasing the peak and off-peak carrying capacity of the metro and commuter rail systems.

Figures 2 and 3 - Evolution of daily ridership with the BUI for Metro and CPTM METRÔ - Passageiros Transportados - Média Dias Úteis CPTM - Passageiros Transportados - Média Dias Úteis 3,00 1,60

2,90 1,50 2,80

2,70 1,40 2,60

2,50 1,30

2,40 1,20 Passageiros (milhões)2,30 2,20 Passageiros (milhões ) 1,10 2,10 Passengers (millions per day) day) per (millions Passengers 2,00 1,00 Jan Fev Mar Abr Mai Jun Jul Ago Set Ou t Nov Dez Jan Fev Mar Abr Mai Jun Jul Ag o Set Out Nov Dez 2002 2003 2004 2005 2006 2007 2003 2004 2005 2006 2007

Year Year

Source: GPM PML PMR/CEU, based on CPTM and Metro demand data.

F. The Acquisition of Trains and Signaling Systems and the Expected Impact on General Mobility

Expected Benefits Due to Increase in Carrying Capacity

33. Acquiring trains and improving track signaling will increase the carrying capacity of both Metro and CPTM. Both rail systems will offer more frequent, comfortable and reliable service. Current users will benefit thanks to shorter wait times and faster travel. Further, the improvements will also attract new users, particularly in the case of CPTM where there is a significant latent demand. Table 7 shows the forecasts for CPTM for 2010 for the with project and without the project situations. For the entire commuter rail network, demand is expected to increase by 1,040,000 riders per day, when compared to the without project scenario for 2010. Therefore, with the proposed project, a 58.8% increase in the daily ridership is expected for 2010, serving more than 2.8 million passengers per day.

Table 7: Expected Ridership in CPTM by 2010 with and without Project 2010 2010 Gains Headway (minutes) Current* W/O Investments W/ W/ IBRD Investments Investments Line A 8 8 4 4 Line F 9 7 4 3 Demand 2010 2010 Increase (ThousandTransp.Passenger/working day) Current* W/O Investments W/ W/ IBRD Investments Investments Line A 337 269 436 167 Line F 135 188 215 27 Lines A+F 472 457 651 194 Total of CPTM 1534 1,779 2,819 1,040 Note: *Apr/2007 Source: CPTM / DP / GPI and GPT

34. In the case of the Metro, current ridership is very high leading to crowded trains. Thanks to the increased capacity rendered by the project users will experience a better service in terms of lower waiting times and more reliable service. Users will continue to have a good impression and image of metro’s service. With the project, the expected ridership will reach 4.5 million per day—159,000 passengers more than in the scenario without the project.

35. Therefore, the overall additional ridership in rail modes thanks to the project is estimated to be 1,199,000 per day. Of these, 1,049,000 will ride CPTM’s commuter rail and 159,000 will ride the Metro.

Table 8: Expected Ridership in Metro by 2010 with and without Project 2010*** 2010*** Gains Headway (seconds) Current* w/o IBRD w/ investments w/ investments investments Line 1 109 109 90 19 Line 2 153 150 150 3 Line 3 101 101 85 16 2010*** 2010*** Change w/ Comfort Level Current* w/o IBRD w/ Investments investments investments Line 1 6.8 ** 4,6 -2,2 Line 2 4,5 6,2 6,2 +1,7 Line 3 8.3 ** 6.5 -1,8 Demand (thousands Transp. 2010*** 2010*** w/ Increase w/ Passenger/working day) Current* w/o Investments Investments Investments IBRD Line 1 1,258 1,242 1,283 41 Line 2 348 830 835 5 Line 3 1,260 1,304 1,364 60 Line 1 + Line 2 + Line 3 2,866 3,376 3,482 106 Total of Metro 2,952 4,338 4,497 159 Note: *Apr/2007; ** data not available; ***Includes the extension of Line 2 to V.Prudente + Line 4 – Phase 1 Source: Metro GPM / CPT

36. In addition to these benefits, there will be some important indirect effects to society as a whole, such as a reduction of traffic congestion and pollution, fuel savings, a reduction of traffic accidents, and a decrease in travel time of riders (see Annex 9).

G. Expected Benefits for the Poor Population

37. The rail lines that area part of the project are already used mainly by low-income population.

38. The low-income population will be the most benefited by the proposed investments, because it already constitutes the largest share of total ridership in the lines that are part of the project.

Table 9: Percentage of Riders that Are Low Income Benefited by the Project (2006)

Systems % of population up to 4 mw of family income CPTM* 63,7 Line A 63,9 Line F 73,1 METRO Line 1 31 Line 2 29 Line 3 39 * PML conservative estimate for the income range below 4 MS in CPTM demand, based on data from Pesquisa AD/2005. Source: CPTM / Pesquisa AD and Metro/ Pesquisa GOP

39. By reaching peripheral regions in the Eastern and Northern areas of the SPMR–where the lower-income population is concentrated—the lines benefited by the investment will attract new users from these poor neighborhoods, facilitating the mobility of this segment of the population. The following map (Figure 4) shows the average income of the areas surrounding the lines impacted by the project. Notice the remarkable predominance of low-income population in the districts that surround lines A and F of CPTM and Line 3 of Metro.

Figure 4: Average Family Income in the Areas Surrounding the Benefited Rail Lines

Source: GPM PML PMR/CEU, based on data from Pesquisa OD 97

40. Based on similar experiences (e.g. Expresso Leste), the improvements in micro- accessibility and travel conditions in these rail lines are expected to impact favorably the surrounding urban areas. More shopping and leisure facilities are expected, for example. These impacts will also improve the quality of life of these populations.

41. The improvements to the rail lines will reduce travel times and increase comfort to acceptable levels, benefiting mainly the SPMR periphery where the poor live.

42. The improvements in the service offered (see tables 7 and 8, above) will increase the level of service of rail service, along these lines:

• Reduction of travel time: mainly in the lines that serve the Eastern Zone of the SPMR, that is CPTM’s Line F and Metro’s Line 3 (Red). These are precisely the lines with a higher proportion of low-income households;

• Improvement of travel conditions in Metro’s Line 3 by decreasing the number of passengers per unit area from 8.3 passengers/m² to 6.5 passengers/m². In CPTM the improvement brought about by a higher frequency will be partially offset by the increase in demand.

43. The mobility of the low-income population will increase, because out of the expected increase of 1,199,000 passengers by 2010, 60,0 % will be users with income below the poverty line.

44. As seen, thanks to the project, ridership will increase in both CPTM and Metro. The low- income population will benefit because they can travel more, particularly in CPTM. Tables 10 and 11 show the increase in each service thanks to the improved service and disaggregates the impact on low-income users (family income below 4 MS). Impacts are shown for each line and then for the entire network (totals are larger because of network effects). Currently, 63.7% of CPTM riders and 35.0% of Metro riders are low income. Assuming these shares remain constant in the situation with project, an estimated 718,000 of the 1,199,000 additional riders will be low income.

Table 10: Total Ridership, Total Ridership Increase, and Low-Income Ridership Increase for CPTM in 2010 2010 Demand with investment Increase with the investment Portion up to 4 mw Total Demand (Thousands Pass. Transport/working day) Total Increase Passeng of households with less than 4 mw 1 Line A 436 167 120 Line F 215 27 20 Lines A+F 651 194 127 Total CPTM 2,819 1,040 662 Notes: *Apr/2007; 1Estimate CPTM Source: CPTM / DP / GPI and GPT and GPM estimate.

Table 11: Total ridership, total ridership increase, and low-income ridership increase for Metro in 2010 2010 Demand with investment Increase with the investment Total Demand Passeng of household with less than (Thousands Pass. Transport/working day) Total Increase 4 mwPortion up to 4 mw1 Line 1 1,283 41 13 Line 2 835 5 2 Line 3 1,364 60 23 Line 1+ Line 2 + Line 3 3,482 106 38 Total Metro 4,497 159 56 Notes: *Apr/2007; ***Includes the extension of Line 2 up to V.Prudente + Line 4 – Phase 1; 1Estimate GPM. Source: Metro GPM / CPT and GPM estimate.

45. The project’s impacts therefore cater significantly to the low-income population increasing its social inclusion. These positive impacts will materialize if the following action plan is maintained until 2010 and beyond:

• Further enhancement of the physical integration between the rail-based network and the bus system;

• Maintenance and improvement of the fare integration between rail and road-based systems through the Bilhete Único Integrado. For example, a reasonable amount of time should be given for passengers to transfer between modes and the cost of the BUI to the rider has to remain lower than the sum of individual modal fares;

• Enhancement of the Bilhete Único Integrado by including inter-municipal buses. This measure will allow more low-income users residing in the peripheral municipalities of the metropolitan region a faster access to the rail-based network.

H. Conclusions 46. Over the last seven years the SPMR has adopted a series of transit policies that have significantly benefited the low-income population. Before these policies were implemented, the poor were highly constrained in their travel because of high fares and the need to transfer frequently paying each time. Public transit was inconvenient and unaffordable for a majority of citizens in Sao Paulo. Reform started when State and City governments integrated the Metro and commuter rail services (CPTM) by making transfers between the two cheaper and easier in physical terms. Ridership increased, particularly by low-income users. Yet the main reform was to adopt a fully-integrated transit system through the Bilhete Único Integrado, BUI. BUI allows users to ride buses, metro and commuter rail during a two-hour period for a fare lower than the sum of individual modal fares. The BUI made transit more affordable. Low-income families can travel more or access other areas of the metropolitan area in search for jobs. Family expenditures in transit decreased freeing up income to spend for example in basic items such as food. Coupled to other investments and improvements, rail transit increased its coverage, and the quality and reliability of its service. Overall ridership increased significantly as did the ridership by poor people. While before the reforms less than 5 percent of rail users were low income, thanks to the reforms 35.0 percent of Metro users and 63.7% of commuter-rail users are low income. However, quality of service is declining due to an increasing demand, crowded trains and higher- than-needed wait times. Therefore, reform should continue in the form of increasing fleet size

and improving signaling systems to increase the capacity of the rail modes. These investments also benefit the poor because of their high and increasing use of the transit system.

I. Bibliographical References used in this Annex

CMSP - Pesquisa de Origem e Destino (Origin and Destination Research) 1997 e 2002 Companhia do Metropolitano de São Paulo– Metrô , SP.

Impacto do Bilhete Único nos Usuários do Metrô – GOP / CMSP. 2006.

Caracterização Sócio-Econômica do Usuário – GOP / CMSP. 2006.

CPTM - Pesquisa Acesso e Difusão 2001 e 2005 - CPTM.

POCHMANN, Marcio and OLIVEIRA,Marcos Paulo de - Impactos do Bilhete Único na vida do trabalhador: a visão do usuário - Datasol – Instituto de Estudos e Pesquisas para o Desenvolvimento com Inclusão Social . Fev/2005.

ROCHA, Sonia - “Pobreza no Brasil : afinal do que se trata” - Edit FGV, RJ 2003.

ROCHA, Sonia - Alguns aspectos relativos à evolução 2003 - 2004 da Pobreza e da Indigência no Brasil - l “ mimeo / FGV/Rio de Janeiro; Jan 2006.

SOUZA, Ana Odila Paiva - “ Tarifa Temporal – Impactos na Cidade ” “ work presented in the 12th Semana de Tecnologia - AEAMESP / 2006.

Annex 16: Fiscal Analysis of São Paulo State Government, 2003-2007 BRAZIL: SÃO PAULO TRAINS AND SIGNALING

1. The full fiscal analysis is included in the Project File and contains five sections. The first describes the evolution of the fiscal balances and fiscal revenues and expenditure for the period 2003-07. The second section analyzes the evolution and composition of the state debt. The third relates the evolution of the main Fiscal Responsibility Law indicators of Sã Paulo and the accomplishment of the state fiscal accounts with the legal ceilings and the targets of the Fiscal Adjustment Agreement agreed with the STN. The fourth part contents the projection exercises which depict scenarios for the evolution of fiscal accounts and estimate the impact of the World Bank lending operation on the state fiscal accounts. The fifth section performs a sensitivity analysis to illustrate the effects of changes in the determinants of fiscal accounts on them. A summary is provided below.

A. Summary

2. São Paulo state government exhibited a responsible fiscal performance during 2003 to 2007. The state government has achieved increasing and substantial positive gross operating and primary balances which led to positive net lending results, except in 2004. Substantial operating balances allowed the state to sustain considerable levels of public investment and to reduce indebtedness.

3. The good fiscal performance resulted from the strong performance of state revenue and the control of expenses, in particular, personnel expenses which have been maintained practically constant in the last years. As a result of its sound fiscal performance, São Paulo complied with most of the fiscal requirements established by the Fiscal Responsibility Law (FRL). Even more important, the FRL indicators improved as a consequence of the strong fiscal discipline. Net consolidated debt, used for compliance with the Fiscal Responsibility Law, fell from 224 percent of net current revenue in 2003 to 179 percent of net current revenue in 2007, below the legal ceiling for state governments of 200%. In 2003-2007, personnel costs to net current revenue ratio fell from 54 percent to 48 percent of net current revenue, below the ceiling of 60%. Given the high debt service payments, debt services to net current revenues varied around 12 percent (against the FRL ceiling of 11.5% of net current revenue).

4. In addition to the Fiscal Responsibility Law requirements, the São Paulo state government achieved most of the targets of the Fiscal Adjustment Program agreed with the National Treasury Secretariat (STN). Given the good performance of the last year and the reduction of indebtedness ratio, the STN authorized the state to contract new credit operations for the period 2007-09.

5. Projection exercises for the period 2007-2021, depict a favorable evolution for the main fiscal and financial indicators showing that the continuity of the responsible fiscal behavior should guarantee state debt sustainability. The substantial fiscal balances obtained over the past few years, together with projections based on realistic assumptions, indicate that São Paulo state government could assume the new loan from the World Bank without risking the fiscal health of the state government.

6. Despite the general improvement of São Paulo fiscal conditions and favorable medium term fiscal scenario, there exits remaining vulnerabilities that could put under risk the state public finances. The most important source of fiscal risks is the still high level of indebtedness and its composition characterized by its extreme concentration on debt instruments indexed to the Whole Sale Price Index (IGP) which is closely linked to the exchange rate. Therefore, an exchange rate shock could lead to the resumption of the increasing trajectory of state indebtedness.

7. In addition, the state would need to maintain the high performance of revenue collection observed in the previous years. As revenue collection depends on economic activity, the favorable fiscal trends will depend on the economic activity. On the expenditure side, despite its comfortable situation, a major source of vulnerability is the upward trend of pension/social security benefits for retired public employees (RPPS). The state employees’ social security system is a pay as you go system and presented an actuarial deficit of R$202 billion at July 2007, or 300 percent of net current revenues. This indicates potential increase on personnel expenditures that can deteriorate the financial situation of São Paulo. However, it is important to mention that social security imbalance is a reality for public sector in Brazil at all levels of government.

Annex 17: Maps BRAZIL: SÃO PAULO TRAINS AND SIGNALING

Metropolitan Transport Map - São Paulo Metropolitan Region

100

São Paulo Metro and CPTM Lines Financed by the Project

101