Document of The World Bank FOR OFFICIAL USE ONLY Public Disclosure Authorized Report No. P-6984-AR MEMORANDUM AND RECOMMENDATION OF THE PRESIDENT OF THE Public Disclosure Authorized INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED LOAN Public Disclosure Authorized IN AN AMOUNT OF US$200 MILLION TO THE ARGENTINE REPUBLIC FOR THE BUENOS AIRES URBAN TRANSPORT PROJECT April 11, 1997 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. CURRENCY EQUIVALENTS Currency Unit = Peso US$1 = 1 Peso WEIGHTS AND MEASURES Metric System FISCAL YEAR January 1 - December 31 PRINCIPAL ABBREVIATIONS AND ACRONYMS AMBA - Buenos Aires Metropolitan Area (Area Metropolitana de Buenos Aires) ICB - International Competitive Bidding IERR - Internal Economic Rate of Return MCBA - Municipality of the City of Buenos Aires NCB - National Competitive Bidding PAR - Project Analysis Report PCR - Project Completion Report PPF - Project Preparation Facility SOPyT - Secretariat of Public Works and Transport (Secretaria de Obras Piblicas y Transporte) UEP - Project Implementation Unit (Unidad de Ejecuci6n del Proyecto) Vice President Shahid Javed Burki Director Gobind T. Nankani Division Chief Asif Faiz Task Manager Gerhard Menckhoff FOR OFFICIAL USE ONLY ARGENTINA BUENOS AIRES URBAN TRANSPORT PROJECT LOAN AND PROJECT SUMMARY Borrower: Argentine Republic Implementing Agency: Public Works and Transport Secretariat (SOPyT) of the Ministry of Economy and Public Works and Services. Beneficiaries: Residents of the Buenos Aires Metropolitan Area, particularly those who use public transport. Poverty: Not applicable. Amount: US$200 million (including up to US$20 million in retroactive financing). Terms: Repayment in 15 years, including five years of grace, at the Bank's standard interest rate for variable LIBOR-based US Dollar single-currency loans. Commitment Fee: 0.75 percent on undisbursed loan balances, beginning 60 days after signing, less any waiver. Onlending Terms: Not applicable. Financing Plan: See Schedule A. Net Present Value: At 12 percent: US$239 million for the Metrovias concession; US$338 million for subway Line A; and between US$0.68 million and US$24.82 million for the road/rail grade separations. Staff Appraisal Report: No. 15951-AR, dated April 2, 1997. Maps: IBRD No. 28384 and IBRD No. 28385 Project ID: AR-PA-39584 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. MEMORANDUM AND RECOMMENDATION OF THE PRESIDENT OF THE INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED LOAN TO THE ARGENTINE REPUBLIC FOR THE BUENOS AIRES URBAN TRANSPORT PROJECT 1. I submit for your approval the following memorandum and recommendation on a proposed loan to the Argentine Republic for US$200 million to help finance the Buenos Aires Urban Transport Project. The loan would be at the Bank's standard interest rate for variable LIBOR-based US Dollar single- currency loans, with a maturity of 15 years, including five years of grace. Background 2. At the beginning of the century Argentina was one of the five wealthiest nations in the world. It was a time when railways were at their zenith, and Argentina built an extensive rail system and Latin America's first subway line. For the next three decades, the nation's capital, Buenos Aires, enjoyed the most modern and comprehensive public transport system in Latin America. But the international depression of the 1930s and continued economic difficulties after World War II caused a gradual decline in Argentina's rail infrastructure. During the 1960s and 1970s, almost no new investments were made in Argentina's rail systems. By the 1980s, unreliable schedules and safety concerns had caused a drop in the number of people using the rail systems. Between 1984 and 1993, suburban rail usage dropped by more than 30 percent, and that of the subway by more than 20 percent. In 1993, more than 37,000 suburban trains were canceled or late, and the subway was inoperative for a total of 152 hours during the year. 3. The neglected rail infrastructure got a boost when the Government passed the State Reform and Public Enterprises Restructuring Law (No. 23696) in 1989. It declared many public enterprises "subject to privatization," including all of the country's railways. Following a widely publicized tender in 1992, the first urban rail concession became effective in January 1994 when the subway and Urquiza commuter services were transferred to the Metrovias consortium. By mid-1995 all metropolitan passenger rail services in Greater Buenos Aires were concessioned to the private sector. The initial results of the private sector participation have been encouraging. Since 1993 (the last year of government operation) ridership is up 98 percent on the suburban railways and 37 percent on the subway system. The number of canceled or late suburban trains has dropped by 80 percent, and there are 61 percent fewer service interruptions on the subway. 4. The railway concession contracts spell out investments to be financed by the Government and implemented by the concessionaires. In addition, the Government committed itself to rehabilitate the subway Line A. Although it was built in 1913, Line A's original wooden cars, complete with manually- operated doors, are still in operation. Its tracks have been in operation 16 hours a day for 65 years. The last upgrades to the line were forty years ago, and there has been little maintenance since then. 5. Besides supporting urgently needed civil works, the proposed project would also address the weaknesses and inefficiencies in the sector. Perhaps the most pronounced weakness is the absence of a strategy for coordinating urban transport in the Buenos Aires Metropolitan Area (AMBA). National, provincial and municipal levels of government have overlapping responsibilities and little coordination. In the road transport sector of the AMBA, for example, roads are controlled by the municipal, provincial and national jurisdictions, each with its own standards and administrators. To help address this problem, the National Government attempted to create an apex Metropolitan Area Transport Authority, but the Argentine Congress did not pass the legislation. The Government now plans to formally establish a technical unit responsible for transport planning in the metropolitan area, utilizing professionals that have been staffing a similar unit which was set up in anticipation of the transport authority. Collaborating closely with the Project Implementation Unit (UEP) responsible for coordinating the proposed project, this technical unit would become the nucleus of a future agency responsible for metropolitan transport -2- planning by fostering technical cooperation among the different jurisdictions in a bottom-up development strategy. Project Objectives 6. The Project's objectives would be to: (a) support the private-public partnership in improving the service quality and coverage of mass transit; (b) support the infrastructure improvements defined in the concession agreement between the Government and the private sector; (c) assist in improving the conditions of traffic safety and environmental quality; and (d) help in developing an integrated urban transport (road and rail) system for the AMBA. Project Description 7. The project would comprise a package of actions and investments aimed at the following: (a) finance the rail equipment and infrastructure which are critical for the upgrading of public transport services; (b) promote the integration of the transport system by upgrading transfer stations among rail lines, building better transfer facilities between rail and road-based transport, and generally improving road access to rail stations; (c) improve traffic safety and environmental conditions through the construction of grade separations at high-volume crossings, the enhancement of controls at road/rail grade crossings, the development of a complementary program of road safety actions, and the introduction of systematic air pollution monitoring; and (d) strengthen the institutional framework which would ensure the continued operation of an economically and environmentally sustainable transport system in the metropolitan area. 8. The proposed works, goods acquisition and technical assistance have been grouped into the following five subprojects: (a) support of the basic investment program of the Metrovias concession (36 percent of total project costs net of project administration); (b) rehabilitation of the subway Line A (31 percent); (c) integration of the transport system (9 percent); (d) environmental monitoring and traffic safety program, including road/rail grade separations (16 percent); and (e) strengthening of the institutional framework (8 percent). Metrovias Concession 9. The Metrovias consortium started operating the Buenos Aires subway and the Urquiza suburban railway on January 1, 1994 under a 20-year concession. The concession contract specifies the improvements and rehabilitation of the system which are to be carried out by Metrovias and funded by the Government. In addition, Metrovias will receive operating subsidies until 1998. Starting in 1999, Metrovias will pay the Government a fee (canon) which