FILECopy Report No. 570a-BR Brazil Appraisalof a Public Disclosure Authorized SecondRailway Project

December 20, 1974 Latin America and CaribbeanProjects Department Not for PublicUse Public Disclosure Authorized Public Disclosure Authorized

Documentof the InternationalBank for Reconstructionand Development

Public Disclosure Authorized InternationalDevelopment Association

Thisreport was preparedfor official use only by the BankGroup. It maynot be published, quoted or cited without BankGroup authorization. The Bank Group does not accept responsibility for the accuracyor completenessof the report Currency Equivalents

National currency is the Cruzeiro (Cr$) divided into 100 centavos

US$1.00 = Cr$ 7.00 (selling) US$142.86 = Cr$ 1,000 (August 1974)

Fiscal Year

January 1 - December 31

Weights and Measures

Metric System

Metric US Units

1 ton = 1.102 short tons 1 km = 0.621 mile 1 ton-km = o.684 short ton-mile 1 pass-km = 0.621 pass-mile 1 meter = 3.281 feet 1 kg = 2,205 pounds

Abbreviations

COSIPA - Companhia Siderurgica Paulista CSN - Companhia Siderurgica Nacional CVRD - Campanhia Vale do Rio Doce DNEF - Departamento Nacional de Estradas de Ferro EFVM - Estrada de Ferro Vitoria a Minas ENEFER - Engenharia Ferroviaria FEPASA - Federacao de Estradas de Ferro Paulista, S. A. GEIFOT - Empresa Brasileira de Planejamento de Transportes MBR - Mineracoes Brasileiras Reunidas RFFSA - Rede Ferroviaria Federal S.A. BRAZIL

APPRAISAL OF A SECOND RAILWAYPROJECT (RFFSA)

TABLE OF CONTENTS

Page No.

SUMIARY AND CONCLUSIONS ...... i-iii

1. INTRODUCTION ...... I

2. BACKGROUND ...... 2

3. THE FEDERAL RAILWAY SYSTEM ...... 2

A. Organization, Management and Staff ...... 2 B. Railway Property ...... 4 C. Productivity of Operations ...... 5 D. Uneconomic Lines ...... 5

4. THE PLAN AND THE PROJECT ...... S

A. The Five-Year Investment Plan, 1975-1979 ...... 5 B. The Project and the Program of Action ...... 6 C. The Proposed Loan ...... 7 D. Execution, Procurement and Disbursement ...... 9

55. ECONOMIC EVALUATION ...... ll

A. General .. l1...... B. Traffic Forecasts ...... 11 C. Cost Benefit Analysis ...... 12

6. FINANCES ...... 16

A. Accounts,, Budget and Audit ...... 16 B. Present Financial Position ...... 17 C. Tariffs and Costs ...... 18 D. Future Prospects ...... 18

7. AGREEMENTS REACHED AND RECOMMENDATION ...... 22

This Appraisal Report has been prepared by Messrs. Karman (engineer), Jones (financial analyst), Blanc and Taborga (economists) and Sander (financial analyst consultant) and has been edited by Miss Foster. Table of Contents (Continued)

TABLES

1. Statistics 1969-1973and Projection for 1979 (3 pages) 2. Details of the Project (2 pages) 3. Doubtful or Remote Items Excluded from the Project 4. Items to be Financed by the Proposed Loan 5. Intercity Freight Transport Statistics (1960-1972) 6. Traffic Statistics (1968-1973)and Forecasts (1974-1979) (6 pages) 7. Intercity Passenger Traffic 8. Breakdown of the Project for the Economic Evaluation 9. Truck and Railroad Costs (3 pages) 10. Statement of Revenues and Expenses for the Years 1963 and 1968 through 1973 in Current Cruzeiros 11. Statement of Revenues and Expenses for 1973 by Region 12. Balance Sheets for the Years 1968 through 1973 in 1973 Cruzeiros 13. Analysis of 1979 Forecast Income Account by Region 14. Forecast Income Account 15. Cash Flow and Financing Plan 16. Summary Forecast Balance Sheets as of December 31, 1974 through 1979

ANNEXES

1. RFFSA Organization Chart 2. Action Taken on Uneconomic Lines 3. Uneconomic Lines and Services to be Studied 4. Brief Descriptionof Items in the Project 5. Doubtful Items Excluded from the Project 6. Program of Action, 1975-1979 7. Terms of Reference for Technical Assistance 8. RFFSA's Department of Human Development 9. Estimated Schedule of Disbursements 10. Traffic Forecasts 11. Economic Justificationof the Items in the Project 12. Future Expansion of the Steel Industry 13. Tariffs and Costs 14. Assumptions Used in Making Forecast Income Account 15. Details of the FinancingPlan

MAPS

IBRD 11,109 - Brazil Railroads IBRD 11,110 - Central Region System IBRb 11,111 - Southern Region System IBRD 11,112 - Rio de Janeiro Suburban Railroad System IBRD 11,113 - Sao Paulo Suburban Railroad System BRAZIL

APPRAISAL OF A SECONDRAILWAY PROJECT (RFFSA)

SUMMARYAND CONCLUSIONS i. The development plans of the Government of Brazil for the next five years are based in part on a substantial increase in the mining and steel industries and in agricultural production, both for local consumption and for export. Higher oil prices and Brazil's dependence on imported crude for 75% of its needs give greater urgency to self-sufficiency schemes in which the comparative advantages are in the country's favor; the steel industry and agriculturaldevelopment are examples of this situation. Railways will play a very important role in this anticipateddevelopment since there is no economic alternativefor transportingiron ore, steel, and agricultural products in bulk over long distances. The Government has therefore rightly decided to give more emphasis to rall investmentsnow than in the past. ii. This report appraises the Government'splans for the Brazilian Federal Railways (RFFSA) and concludes that they warrant Bank support. It is worth noting that RFFSA is one of the largest publicly owned corporations in Brazil, but that its organizationand management are weak. Its poor financialposition, although improving, has resulted in a continuous drain on the Federal Treasury. It is believed that Bank lending, by being associated with firm Government objectives for strengthening RFFSA's operational effi- ciency, management and planning capacity, could support both important institution-buildingand financialobjectives. iii. A loan of US$175 million is recommended to help finance a five-year (1975-1979)Investment Plan amounting to about US$4.5 billion, with a foreign exchange componentof US$2.2 billion equivalent. The present RFFSA Investment Plan, as amended by the new Governmentwhich took office in March 1974, re- flects the very high priority which the Government has placed on the improve- ment and expansion of railway services but includes items for which economic justification and optimum timing are still uncertain. Furthermore, implement- ing the entire Plan would seriously strain RFFSA's project implementation capacity. Therefore, in this report, the Plan has been divided into two parts: (a) the Project, consisting of items to be started in 1975 or 1976 and showing good justification;and (b) those items excluded from the Project because of their doubtful or remote nature. An agreementwas obtained during negotiations that execution of any major item not in the Project will not proceed until RFFSA has demonstratedsatisfactorily to the Bank that the item is economically justified and that satisfactoryfinancing would be available. Agreement was also obtained with RFFSA and the Government that implementation of certain investmentsin the Project for new construction,for which final engineering is not yet available, will not commence until final engineering is completed and the economic feasibilityis reconfirmed. The total cost of the Project - ii - is estimated at US$3.0 billi6n with a foreign exchange component of US$1.5 billion. The proposed loan of US$175 million would represent less than 6% of the total cost of the Project. iv. This would be the second Bank loan to RFFSA. The first, Loan 786-BR (US$46 million), made in 1971, helped finance facilities required to trans- port 12 million tons of iron ore annually under the MBR (MineracoesBrazileiras Reunidas) Project. Traffic started on time in July 1973, but iron ore trans- port was hindered by operational problems, mainly derailments on the existing central line whose rehabilitationwas not carried out as scheduled. Other delays were encountered,e.g., for the bridge strengtheningprogram and for providingnew workshops. The situation is improving, however, and traffic reached the forecast level monthly by November 1974. v. As the industrial and agriculturalsectors of Brazil developed, especially during the last several years, it became obvious that the country lacked capacity for transporting large volumes of bulk goods, particularly in the Rio-Belo Horizonte-SaoPaulo region,which carried about 60% of the net ton-km on 35% of the track in 1973. The developmentof a rail network to support further growth in agriculture and in the steel industry is the main objective of RFFSA's Investment Plan and comprises a major step toward correcting what would otherwise be a growing imbalance in the Brazilian transport sector. Improvement and expansion of railway services have lagged behind what would be economicallyjustified. Investments are therefore planned to rehabilitateexisting track, build new lines, strengthen bridges, eliminate level crossings,improve signalling and communications facilities, add motive power and rolling stock, concentrate and modernize workshops, and expand stations and yards. vi. A part of the proposed investments is directed toward improving the quality, and increasing the capacity, of the suburban passenger services in Rio de Janeiro and Sao Paulo. In addition to effecting overall cost savings, these investmentswill help reduce accidents and life losses, avoid further urban congestion and additional air pollution, reduce travel time and improve passenger comfort. In Rio, especially,commuters are almost exclusively low-incomepeople who have to live far from their place of work. The present suburban services of RFFSA are overcrowded,antiquated and dangerous. Impro- ving them is a long overdue measure. vii. Investmentsalone, however, will not be enough to achieve the Government'sgoals. Improvementsin management, operations,and maintenance procedures are essential, and are to be implemented in accordance with a Program of Action, which sets physical and financialtargets. To help RFFSA implement the Program of Action, the Project contains an important element of technical assistance and an extensive training program. viii. As in most Bank-financedProjects, a certain amount of risk is involved in this Project, which is based on continued rapid growth of the - iii -

Brazilian economy. Should there be an economic slowdown, some of the railway investmentsmight be premature,especially those not related to the steel expansionprogram. Also, if the railways'management does not succeed in implementing the operational improvements needed to carry the increased traffic in the five years now enzisaged, the expected benefits of the invest- ments would not materialize as early as forecast.

ix. Nevertheless, the Government and the railways are determined to make the necessary effort to come as close as possible to the ambitious targets of the Plan. This determination seems assured, as announcedpublicly by the President of the Republic and various Ministers. x. The proposed loan would help finance the procurement of rails, switches, ballast crushers and maintenance equipment in support of the track rehabilitationprogram, parts for freight car modernizationand workshop equipment, signalling and communication equipment as well as rolling stock and signallingequipment for the suburban services of Rio and Sao Paulo. Tne loan would also finance part of the cost of the technical assistance program. xi. All goods financed under the proposed loan would be acquired on the basis of international competitive bidding in accordance with the Bank's Guidelineson Procurement. Local bidders would be granted a margin of prefer- ence by adding 15% (or the applicablecustoms duties, whichever is lower) to the CIF value of the foreign bids. Brazilian firms are likely to compete for most items and, since they are often competitivein the world market, it is possible that as much as 50% of the orders may be awarded locally. The actual percentagemay be lower, however, because local manufacturersof rail- way equipment are working close to full capacity and may not be able to meet the required delivery periods. For imported goods, disbursements would be made on the basis of CIF costs. For bids won by local suppliers, disburse- ments would be made on the basis of 100% of ex-factory costs. xii. An overall economic evaluation of all items in the Project gives a rate of return of 19%. Because not all benefits could be easily quantified, this is a conservativeestimate, and a higher return can be expected, thus underlining the economic significance of the Project. xiii. RFFSA's financial performance is expected to improve gradually as traffic increases,tariffs are raised, operating efficiency improves and un- economic services are reduced. Including subsidies for the uneconomic services which the Government wishes to retain for social and other reasons, the operating ratio is expected to improve from 163 in 1973 to 105 in 1979 or, excluding the subsidies,from 185 in 1973 to 124 in 1979. xiv. The Project would provide a suitable basis for a Bank loan of US$175 million for a term of 25 years, including a grace period of about five years.

BRAZIL

APPRAISAL OF A SECOND RAILWAY PROJECT (RFFSA)

1. INTRODUCTION

1.01 The Government of Brazil and the Brazilian Federal Railways (RFFSA) have asked the Bank for a loan of US$175 million equivalent to finance part of the foreign exchange costs of RFFSA's five-year Investment Plan, 1975-1979, with total costs estimated at US$4.4 billion equivalent and a foreign ex- change component of US$2.3 billion equivalent. This Plan, however, includes items for which economic justification and optimum timing are still un- certain. By eliminating investments of a doubtful or remote nature, a well justified Project was devised, with total investments of US$3.0 billion and a foreign exchange component of US$1.5 billion.

1.02 This would be the second Bank loan to RFFSA. The first (Loan 786-BR, US$46 million), made in 1971, was to help finance the railway portion of the MBR (Mineracoes Brasileiras Reunidas) iron ore project to carry 12 million tons of iron ore annually from the Aguas Claras mine to the Sepetiba ocean port terminal. Traffic started on time in July 1973, but iron ore transport was hindered by operational problems, mainly derailments on the existing central line whose rehabilitation was carried out behind schedule. Other delays were encountered, e.g., for the bridge strengthening program and for providing new workshops. The situation is improving, however, and traffic reached the forecast monthly level in November 1974. To date, about US$39.7 million, or 86% of the loan, have been disbursed, and the full amount is expected to be disbursed by early 1977.

1.03 "The Transport Sector of Brazil" (TSB), Report No. 571a-BR of even date, is being circulated simultaneously with the Appraisal and President's Reports for this project and for the Fifth Highway Project. The history of Bank participation in the transport sector is documented in paragraphs 1 to 5 of that Report.

1.04 In addition to RFFSA, with 25,000 route-km, the Brazilian railway network includes about 5,000 km of lines operated by a state-owned company, FEPASA (Sao Paulo State Railways); 935 km of lines owned and operated by EFVM (Estrada de Ferro Vitoria a Minas), a department of the Government mining company, Companhia Vale do Rio Doce (CVRD), carrying mostly iron ore traffic; and 718 km of lines operated by five small private companies. The new Federal Government, which took office in March 1974, has indicated that it is actively investigating means to merge FEPASA with RFFSA.

1.05 Under RFFSA's present Investment Plan, several new lines are to be constructed, and an extensive rehabilitation program is to be carried out in the fields of track, workshops, signalling and communications. New loco- motives and rolling stock will be purchased, and a number of older freight -2-

cars will be rehabilitated. Also, suburban services in Rio de Janeiro and Sao Paulo will be improved with new rolling stock and improved track and signalling equipment. As part of the Plan, an extensive technical assistance program has been devised to help RFFSA implement the Project and to improve RFFSA's practices in management, permanent way, workshops and operations.

1.06 This appraisal is based on informationsupplied by the Brazilian Government, GEIPOT (Empresa Brasileira de Planejamento de Transportes), RFFSA and its consultants ENGETRAN(Brazil) associated with SOFRERAIL (France), and on the findings of three Bank missions-- in November 1973, and February and June 1974, comprising Messrs. Karman (engineer), Jones (financial analyst), Blanc and Taborga (economists) and Sander (financial analyst consultant). This report has been prepared by them and has been edited by Miss Foster.

2. BACKGROUND

2.01 All background informationon the transportsector and on the role of the various modes in the past is given in TSB which also analyzes the im- plicationsof the energy crisis on the transport problems facing Brazil. Therefore, sector information usually included in the Background chapter is omitted from this report.

3. THE FEDERAL RAILWAY SYSTEM

A. Organization, Management and Staff

3.01 RFFSA was created in 1957 as a publicly owned corporationgrouping 18 railways, formerly under separate management. As a federal enterprise, RFFSA comes within the portfolio of the Minister of Transport. Government approval is required for RFFSA's annual operating and capital budgets, for increases in tariffs and for matters of public interest (line closure, eliminationof services, etc.). The Governmentalso exerts a strong influence in determiningRFFSA's investmentsand salary policy. Managementis under- taken by a board of six members, chaired by the President of RFFSA. The former railways continue to exist as "Divisions"under local management. In 1968, RFFSA's organizationwas reshaped to provide for four regional systems in order to obtain economies in administration by concentrating responsibility in regional headquarters for financial and personnel matters and statistics.

3.02 Until 1973,when a new organizationstructure was approved, railway administrationsuffered from excessive centralizationof authority. Partly because of the newness of the regional structure, the regional managers merely acted as intermediaries between the President and his staff on the one hand and divisional managers (traditional management centers) on the other. - 3 -

3.03 With the change of Government, a new top management was appointed in March 1974. The new President is a dedicated and energetic man, as well as a good manager, formerly in charge of the construction of the Rio subway system. The Board is composed of capable high-ranking RFFSA officials and several other Government-appointed Directors. The new management amended the organization chart (Annex 1), a step in the right direction but which will take some time to implement fully. The main changes are (i) a strengthening of the coordinating and planning superintendency reporting directly to the President; and (ii) a strengthening of the regional superintendencies, reduc- ing the divisions to operating units responsible only for train operations and maintenance.

3.04 Past weaknesses of the RFFSA management were mostly in the fields of corporate planning and project execution. This was mainly the result of: (a) little interest from the Government for the railway mode, most efforts being directed toward highways; (b) a deficient internal organization; and (c) an inadequate salary policy, which could not attract competent staff, especially at the middle and upper levels.

3.05 There is evidence that the situation is now improving. The Govern- ment has understood the need for an efficient rail system and has taken steps to implement necessary measures, especially regarding overall investment policies and budget allocations. The railways' organization has been improved (paras. 3.01 to 3.03). The strengthened planning unit, however, needs to be adequately staffed and supported for some time by technical assistance (para. 4.13) in order to implement the ambitious five-year Investment Plan effec- tively. Another positive step is the recent creation of Engenharia Ferroviaria (ENGEFER), a mixed company subsidiary of RFFSA, in charge of all new construc- tion works not interfering with traffic (para. 4.12). This executing agency relieves RFFSA's management of the burden of organizing and supervising a number of important construction sites, although RFFSA keeps overall control of the investments. Measures regarding staff compensation have already been taken, and more are presently under consideration (para. 3.07).

3.06 Staff numbers at RFFSA have declined steadily over the years from 154,000 in 1963 to 125,000 in 1970 to 114,000 at the end of 1973. At present, some 300 employees are resigning or retiring per month, but suitable staff should be hired and trained to cater for forecast traffic growth. By the end of 1979, RFFSA staff is expected to be an adequate 104,000.

3.07 As mentioned in paragraph 3.04, a basic obstacle to successful management generally has been RFFSA's inability to attract and hold competent staff because of poor salary levels. In December 1973, RFFSA introduced a new wage structure for all university level employees and for all so-called commissioned staff (totaling about 8,000 staff members). The new scale should enable RFFSA to retain experienced staff and attract university graduates, although competition from the private sector and other public agencies will remain strong. RFFSA also loses machinists and other trained staff, espe- cially in areas of strong labor demand (e.g., Sao Paulo), because of its low - 4 - pay scales. A new salary structure for these staff categories is now being prepared by RFFSA. The adequacy of these measures will not be known for some time. During negotiations, RFFSA undertook to furnish to the Bank, by the end of March 1976, its compensation studies for an exchange of views.

3.08 Each of the railroads taken over by RFFSA had its own union, and these unions, each with its own jurisdiction, have survived to the present. There have been no labor disputes in recent years.

B. Railway Property

3.09 Total length of RFFSA's network is 24,546 route-km, 92% meter gauge, 7% broad gauge (1.60 m) and 1% narrow gauge (0.76 m) (Map IBRD 11,109). About 98% of the network is single line and about 1,000 km are electrified. Due to the mountainous terrain, alignments are often poor, with many curves and steep gradients. The track is generally in poor to fair condition. Sig- nalling varies widely over the system, from simple "entry orders", where traffic is light, to the most elaborate two-way CTC (Central Traffic Control) on some high-density lines. Overall, it is adequate, but improvements are needed locally. Telecommunication facilities are generally satisfactory.

3.10 Renewals and general maintenance of the track have not been carried out lately at the appropriate level because the railways have been starved of capital investments for many years. An important effort to erase the backlog of track improvements will be needed to carry safely the traffic now expected. This work is included in RFFSA's Investment Plan, and, by end-1979, over one-half of the lines (carrying most of the traffic) are expected to be in good physical condition.

3.11 At present, 80% of RFFSA's fleet of about 1,300 diesel locomotives is less than 15 years old. With new acquisitions and scrapping of older types, it will be made up of only two main types, General Motors and General Electric. RFFSA also has 75 electric locomotives. Most of the 168 steam locomotives still in use for shunting and work trains are going to be scrapped by 1976. The composition of the fleet is adequate for the present level of traffic, but additional motive power will be needed to handle the growing traffic expected. Purchase of 313 locomotives is contemplated in the years 1975 to 1979.

3.12 More than half of the 2,100 passenger cars used for intercity traffic are over 30 years old and of obsolete wooden construction. Commuter traffic, mainly over 80 route-km in Rio and 120 route-km in Sao Paulo, is handled by electric train sets (313), diesel railcars and train sets (44), and electric railcars (18). Since the demand for intercity passenger services is expected to decline, minimum investments are required, but the suburban services urgently need new stock: 70 train sets are to be purchased under the proposed plan. Freight cars total about 34,000; 60% are in fair condi- tion. The remainder are more than 30 years old; about half will be modern- ized and the rest scrapped. The expected increase of traffic calls for about 13,400 new freight cars to be purchased between 1975 and 1979. -5-

3.13 RFFSA presentlyhas an excessivenumber of main workshops,66 for locomotivesand 49 for rolling stock, and about 150 running sheds (refueling stations and light repairs). This situationdates back to the time of steam - traction and of individualrailways under separate management. Standardization of diesel locomotivesand scrappingof obsolete stock, now under way, should enable RFFSA to concentrateits workshops significantlyand probably to cut their total number by half. This is, however, a long-term goal and involves many social and economic implications. In order to define a general workshops policy, and as part of the technicalassistance program (paras. 4.13 and 4.14), a study is to be carried out with the help of consultants.

C. Productivityof Operations

3.14 Operating performance in RFFSA varies widely between the divisions according to the nature and volume of traffic and the shape of the route network, and there is large scope for improvement in the productive use of locomotives and rolling stock. Turnaround time for iron ore traffic (about 5 days) and general cargo (about 11 days) could both be reduced, while yearly mileage of diesel locomotivesin freight services should increase from the present 70,000 km to about 100,000 km. These and other statistics (Table 1) are expected to improve with the change in the traffic pattern forecast for the coming years, mainly the increase in iron ore traffic and the use of more unit trains, especially for steel products and agricultural exports.

D. Uneconomic Lines

3.15 A program of study of uneconomiclines was started in 1966. It originallyfocused on 6,315 km, but was later extended to 8,065 km. The study is now complete,and, as a result, a total of 7,109 km of uneconomic lines will have been taken out of service by the end of 1974, or 88.1% of the lines studied. More details on this subject are given in Annex 2.

3.16 Further studies should be initiated,particularly in the Northeast and in the Leopoldinadivision. These studies should not only focus on total eliminationof uneconomiclines (as done in the past) but should also envisage suppressinguneconomic services (i.e., passenger trains, stations. etc.). RFFSA agreed during negotiationsto undertake these studies as outlined in Annex 3, by the end of 1976 and provide them to the Bank for an exchange of views. The studies would be carried out with the assistanceof consultants (para 4.13).

4. THE PLAN AND THE PROJECT

A. The Five-Year InvestmentPlan, 1975-1979

4.01 RFFSA prepared,with the help of consultantsENGETRAN (Brazil)and SOFRERAIL (France), a preliminary five-year Investment Plan covering the -6- period 1974-1978. When the new Government took office in March 1974, the Ministry of Transport revised the Plan, increasing its size and scope sub- stantially and shifting the planning period forward to 1975-1979 to conform with the Government'sown preparation of a new National DevelopmentPlan. It includes several new items and major increases in the scope of previously included items and provides for capital investmentsof Cr$ (1975) 33.4 billion (US$4.5billion) with a foreign exchange component 1/ of US$2.3 billion equivalent.

B. The Project and the Program of Action

4.02 For the purpose of Bank consideration, RFFSA's Investment Plan has been divided into two parts: the Project (Table 2 and Annex 4), consisting of those items to be started in 1975 or 1976 and showing good justification, amounting to about 66% of the Plan, and the remainder (Table 3), i.e., the items excluded from the Project because of their present doubtful or remote nature. The doubtful items are described in Annex 5, which also gives the reasons for their exclusion. It was agreed during negotiationsthat major items (new lines amounting to more than US$20 million or procurementof equip- ment in a particular category amounting to more than US$5 million in any given year) presently excluded from the Project be implementedonly after their feasibilityhas been demonstratedto the satisfactionof the Bank and a financing plan for these items is presented to the Bank and found satisfactory.

4.03 The main objectives of the investmentsin the Project are to enable RFFSA to meet the transport demand expected during the coming years, mainly iron ore and steel products in the Central region, and agriculturalproducts in the South. To this end, it will be necessary to rehabilitateexisting track, build new lines (Maps IBRD 11,110 and 11,111), strengthen bridges, eliminate level crossings, install signalling and communicationfacilities, add motive power and rolling stock, concentrateand modernize workshops, improve stations and yards, etc. Suburban services in Rio and Sao Paulo (Maps IBRD 11,112 and 11,113)will be substantiallyimproved by track rehabil- itation, better signalling and the addition of 70 unit trains. The Project also contains an important element of technical assistance (para. 4.13) and an extensive training program (para. 4.14). It is supportedby a Program of Action (para. 4.09).

4.04 As in most Bank-financedProjects, a certain amount of risk is in- volved in this Project, which is based on continued rapid growth of the Brazilian economy. Should there be an economic slowdown, some of the railway investmentsmight be premature, in particular, those not related to the steel expansion program. Also, if the railways' management does not succeed in implementingthe operationalimprovements needed to carry the increased traffic in the five years now envisaged, thieexpected benefits of the invest- ments would not materialize as early as forecast.

1/ The foreign exchange component includes all direct and indirect foreign exchange costs as well as the costs of materials of which Brazil is a net importer, e.g., steeel. -7-

4.05 Nevertheless,the Government and the railways are determinedto make the necessary effort to come as close as possible to the ambitious tar- gets of the Plan. This determinationseems assured, as announced publicly by the President of the Republic and various Ministers.

4.06 The Project tentativelyincludes some items (Table 2) for which the economic justificationhas not yet been firmly established. During nego- tiations,RFFSA and the Governmentagreed that these investmentswill not be carried out until their economic justificationhas been established to the satisfactionof the Bank.

4.07 The total cost of the Project is estimated at Cr$ (1975) 22.3 billion (US$3.0 billion) with a foreign exchange component (see footnote in paragraph 4.01 preceding)of US$1.5 billion equivalent (Table 2). A summary of the main items included in the Project appears on page 8.

4.08 Physical contingencieshave been individuallyestimated for each item of the Project and vary between 0%, when the quantities of goods are well defined, to more than 20% for some parts of the civil works program. The average physical contingency allowance is 7.3%. Price contingencies have been treated on the same basis for local and foreign costs because it is the practice of the Brazilian Government to devalue the cruzeiro frequently in order to maintain a constant relationshipbetween Brazilian and external prices. Price contingencieswere based on cost increases for civil works and equipment estimated respectivelyat 15% and 11% for 1975, 13% and 10% for 1976 and 1977, and 12% and 9% for 1978. The average price contingency allowance is about 23%.

4.09 Investmentsalone will not be enough to enable RFFSA to meet the traffic demand expected in the coming years. Improvementsin management, operations,maintenance procedures, etc., are essential, and, without them, the financialrehabilitation of the railways will not materialize. Physical targets and financialobjectives were developed and are listed in the Program of Action (Annex 6). The Program of Action was reviewed during negotiations, at which time the Bank received a commitmentby RFFSA and the Government to the effect that all necessary measures will be taken to achieve the agreed targets.

C. The Proposed Loan

4.10 As mentioned in paragraph 4,07, the foreign exchange component of the Project cost is estimated at about US$1.5 billion equivalent. In order to help implement the very high priority investmentscontemplated and to lend the Bank's support to improved railway management, operations,planning and finances, a loan of US$175 million is proposed. This would represent less than 6% of the total cost of the Project. The proposed loan would com- plement other financing arrangementsmade and being sought (para. 6.14). -8-

SUMMARYOF MAIN PROJECT ITEMS

Pro- posed CO/(1975)L4 Bank Cr$ (1975)- million US million Loan Local Foreign Total Local Foreign Total US$ m

Headquarters/1 137 41 178 18.3 5.5 23.8 5.5

New lines, realign- ments (a) Industrial corridors 3,225 1,739 4,964 429.7 232.0 661.7 - (b) Export corridors 1,410 846 2,256 187.9 112.9 300.8 - Cc) Other 1,284 616 1,900 171.4 82.1 253.5 - Stations and yards 226 54 280 30.1 7.2 37.3 - Signallingand communications 70 266 336 9.3 35.5 44.8 19.6 Motive power, rolling stock /2 370 3,332 3,702 49.3 444.4 493.7 3.8 Suburban services 437 654 1,091 58.2 87.3 145.5 52.4 Modernization/3 954 1,271 2,225 127.1 169.5 296.6 54.0 Base cost estimate 8,813 8,821 16,934 1,081.3 1,176.4 2,257.7 135.3 Physical contin- gencies (7.3%) 722 512 1,234 96.2 68.2 164.4 6.8 Price contingencies (22.8%) 2,195 1,946 4,141 292.7 259.5 552.2 32.9 Total estimated cost 11,030 11,279 22,309 1,470.2 1,504.1 2,974.3 175.0

/1 Includes technicalassistance and training. /2 Because of standardization(para. 3.11), locomotiveswill be purchased under bilateral arrangements. For the procurementof freight cars, financialarrangements are either made or being negotiated,in Brazil and abroad. Therefore, the proposed loan includes financing only for parts for freight car rehabilitation. /3 Mainly of permanent way and workshops; also includes electrification and gauge unification. /4 Cr$ (1975) 7.5 = US$1.0. -9-

4.11 As shown in detail in Table 4, about US$49 million would be in support of the track rehabilitationprogram, about US$20 million would be for signalling and communicationequipment, and about US$52 million for the suburban services (rolling stock for Rio and Sao Paulo, signalling and electricalequipment for Rio only). These items are suitable for inter- national competitivebidding and were selected because other sources of financingat favorableterms are not available. Although other items would qualify from these points of view, the total amount of the proposed loan has been held down in order to limit initial Bank exposure in a Project which is complex and requires a substantial institutionalbuildup. An amount of about US$5.5 million is earmarked for financing 65% of the estimated cost of a comprehensiveprogram of technicalassistance (para. 4.13). Physical con- tingencies amount to 5% of the loan. Price contingencieswere calculatedas explained in paragraph 4.08 and amount to about 23% of the basic estimated cost plus physical contingencies.

D. Execution, Procurementand Disbursement

(i) Execution

4.12 One of the Bank's main concerns is the capabilityof RFFSA to imple- ment such an ambitious Investment Plan. This concern is shared by the Govern- ment, which has recently created ENGEFER, a company subsidiary to RFFSA, acting as an investment execution body for those aspects of the program (e.g., new line construction)not linked with present operations. This alleviates the workload of the superintendencyof Coordinationand Planning,which would otherwisehave to supervise the implementationof all investments.

(a) TechnicalAssistance and Higher Level Training

4.13 To increase the capability of RFFSA for implementingthe Project and to improve operationalefficiency in general, an extensive program of technical assistanceinvolving about 980 man-months has been agreed with RFFSA. It would cover direct assistance and training in: (a) management (including corporate planning, data processing and costing); (b) workshops (reorganization,centralization, equipment, and methods); (c) permanent way (maintenanceand renewals); (d) operations (includingmarketing aspects); (e) supervisionof construction;(f) uneconomic lines and services; (g) clec- trification; and (h) suburban commuter services. The scope of this technical assistance is described in more detail in Annex 7. It would extend until 1977 at a total cost of about US$8.5 million equivalent, and its foreign exchange cost is estimated at about US$5.5 million. This is a priority item, and it is therefore recommended that this amount be included in the proposed Bank loan, of which it would represent about 4%. Because of the importance of this external aid to RFFSA for the successful and timely implementation of the Project, it was agreed during negotiationsthat the signature of technical assistance contracts in the most important fields mentioned above be made a conditionof effectivenessof the proposed Loan (para 7.02). - 10 -

(b) Lower Level Training

4.14 RFFSA's training activitiesare carried out through its Department of Human Development (Annex 8), which works in close cooperationwith SENAI, a semi-officialtraining organizationsponsored by the Federationof Industry and Commerce,which, in 1972, trained 300,000 techniciansin 235 centers throughoutBrazil. RFFSA's training program was started in 1958. In 1972, about 16,700 employees of the middle and lower levels, or 14% of total staff, received some training at a cost of Cr$ 24 million (Annex 8, Table 2). Great efforts are being made in all regions, mainly in the training of existing personnel, through audio-visualmethods. RFFSA's Departmentof Human Devel- opment has the capability,given adequate financialmeans, to train the additionallocomotive operators and workshop and other specialists required. The consultantshave prepared a list of such personnel,which can be used as a basis for planning and implementingthe expanded training program.

(ii) Procurement

4.15 All goods financed under the proposed loan would be acquired on the basis of internationalcompetitive bidding, in accordancewith the Bank's Guidelineson Procurement. Local bidders 1/ would be granted a margin of preferenceby adding 15% (or the applicablecustoms duties, whichever is lower) to the CIF value of the foreign bids. Brazilian firms are likely to compete for most items and, since they are often competitivein the world market, it is possible that as much as 50% of the orders to be financed by the Bank may be awarded locally. The actual percentage may be lower, however, because local manufacturersof railway equipment are working close to full capacity and might not be able to meet the required delivery periods. Brazil is a member of ALALC, the Latin American Free Trade Association,but pre- ferential trade agreementsare not applicable in the case of RFFSA because it is exempt from duties on imported equipment.

(iii) Disbursement

4.16 For imported goods, disbursementswould be made on the basis of CIF costs. For bids won by local suppliers, disbursementswould be made on the basis of 100% of ex-factory costs. The Bank would also finance 65% of the total cost of technicalassistance. Annex 9 gives the estimated schedule of disbursements,assuming the loan is signed during the quarter ending March 31, 1975. Cost estimates are based on recent quotationsobtained for similar goods under internationalcompetitive bidding. If any savings result from favorableprices in competitivebidding, the correspondingsavings in the loan account would be used to finance additionalbut similar project items subject to review and agreement with the Bank.

1/ A local bidder is a Brazilian firm (or a consortium)offering goods containing components manufactured in Brazil and representing at least 50% of the value of the complete goods. - 1 1 -

5. ECONOMIC EVALUATION

A. General

5.01 The accelerated economic growth of Brazil during the last decade has been supported by substantialinvestments in the transport sector (TSB, Chapter III). Developmentefforts were mostly concentratedon road trans- port. As the industrialand agriculturalsectors developed,it became clear that the country lacked capacity for transportinglarge volumes of bulk goods. This situation currently threatens to slow down the process of economic development and to undercut the future expansion of Brazilian exports. This is recognized by the Government,and the long delayed institutionalbuildup and channelingof resources to rail transport is beginning to take place. RFFSA's InvestmentPlan is a major step to help prevent a growing imbalance in the Brazilian transportsector.

5.02 Total intercity freight movement increased by almost 10% annually between 1960 and 1972, and highway transportincreased its share from 60% to 73% (Table 5 and TSB, paras. 17 and 18). Although the share of the railroad decreased in relative terms from 19 to 16% during this period, rail freight traffic increased in absolute terms from 13 to 33 billion ton-km, of which about 16 billion ton-km are increased iron ore exports on the EFVMrailroad. The growth of RFFSA traffic averaged only 4% per year during this period but was over 6% in the years 1969-1973 (Table 5). Much of this growth was in iron ore, petroleum derivatives,cement, limestone, fertilizers,steel prod- ucts, wheat, soybeans and sugar, which together accounted for 75% of the total net ton-km transportedby RFFSA. Traffic is concentratedmostly in the Rio-Belo Horizonte-SaoPaulo triangle,which carried about 60% of the net ton-km on 35% of the track in 1973, whereas the Northeast system carried only 8% of the net ton-km on 30% of the track. The systemwide average haul was about 400 km.

B. Traffic Forecasts

(i) Freight

5.03 The export of iron ore under the MBR contract and the development of the steei industry will dramaticallyincrease the level of rail traffic. Total rail traffic is expected to increase at an average annual growth rate of 15% in tons and 18.6% in ton-km. Between 1973 and 1979, the iron ore and steel related traffic will account for 71% of the increase in ton-km. The Export Corridor Program (TSB, para. 11), will also affect rail traffic in the Southern region, and the increase in bulk cereals traffic alone will contribute another 8.5% to the total increase. Traffic of other commodities is expected to grow at lower rates, about 6.4% in tons and 9.6% in ton-km per annum over the 1973-1979period. - 12 -

5.04 These forecasts,based on consultants'projections for each region and for each main product, have been revised on the basis of 1973 statistics and take into account the latest industrial and agricultural developments. They are to a large extent insensitive to tariff variations since iron ore, steel-relatedproducts and bulk cereals--whichwill account for about 70% of the 1979 traffic--constitutea captive traffic which can be carried at tariffs above long run marginal cost (para. 5.09). For other commoditieswhich are mostly of bulk type (cement, fertilizer,limestone, salt, etc.), projections have been made conservatively,assuming no traffic increase and even a decrease for a few commoditieswhich are presently carried at rates below marginal cost and which are subject to road competition. Forecasts are detailed in Table 6 and Annex 10.

(ii) Passengers

5.05 Suburban passenger rail traffic (mainly commuters) in Rio and Sao Paulo is limited by the capacity of the present system. Forecast passenger traffic is conservatively based only on the expected growth in commuter trips using mass transportation in the area of influence of the railways up to 1979 (Annex 10 gives the analysis). Between 1965 and 1972, intercity passenger traffic declined 50% from 5.4 to 2.7 million pass-km. This is due to the very strong competitionof bus and air transportwhich provides faster, more comfortableand more reliable service. Except in limited cases, intercity passenger traffic cannot at present be served economically by rail because passenger numbers are small and the geometry of the line and condition of the track do not permit the speeds that would make rail transport competitive with other modes. Total intercity passenger traffic is expected to decrease about 4% per year up to 1979 (Table 7).

C. Cost Benefit Analysis

(i) General

5.06 There is room for increasing the capacity of the existing railway system by improving its operational efficiency; however, this alone would not allow RFFSA to meet its objectives. The Project and the accompanyingProgram of Action provide, therefore, a combination of investments and measures for improving operations to ensure that the expansion of the system is achieved and that railroad assets are used efficiently.

(ii) Methodology

5.07 The economic evaluation focuses on the Project globally (para. 5.17) and on particular items whenever possible. For evaluation purposes, the items in the Project were grouped into five categories (details in Annex 11 and Table 8). These categorieswere evaluated separately,and, from the results, an overall evaluation of the Project was derived. The items which are subject- ed to further review (Annex 11, section C) have been excluded from the econo- - 13 -

mic evaluationfor lack of appropriatecost-benefit data, although there is enough evidence at this stage to support their tentative inclusion in the Project.

(iii) Economic Evaluation of Categories

(a) Iron Ore and Steel-RelatedInvestments

5.08 The investments required by the Steel Expansion Plan total Cr$ 7,401 million (US$987million equivalent). Since economic developmenthas outpaced the growth in the steel industry (Annex 12), the Governmenthas placed high priority on the Third Phase of the Steel Expansion Plan, which should result in self-sufficiencybefore the end of the decade. Furthermore,Brazil's ability to depend upon imported steel to support future growth will be cur- tailed by a greater fuel import bill which, together with strong comparative advantages (steel production costs in Brazil compare favorablywith costs of producing steel in other countries),is an incentive for Brazil to expand its steel production. The Bank is presently appraisingthe third Phase of the Steel Expansion Plan. Two loans to support this expansion are scheduled for Board presentationin FY 1975. Annex 12 gives further details on the likely prospects of the steel industry in Brazil.

5.09 Regarding the steel-relatedinvestments, the question is not only whether they generate enough economic benefits, but also whether a sufficient portion of the benefits is retained by RFFSA. A tariff setting policy for iron ore and steel-relatedtraffic based on the following principles (Program of Action, Annex 6) is required: (a) long-run variable costs should be completely covered; (b) a reasonable share of overhead costs should be recovered; and (c) capital costs should be recovered fully over 25 years at 15% interest. The interest chosen reflects the high opportunity cost of capital in Brazil (estimated at 10-14%) and the expectation that the Project's return should exceed the opportunity cost of capital. Computation of a tariff for transporting iron ore from Belo Horizonte to Volta Redonda (an expensive new line to be built through difficult terrain) is shown in Annex 11, Tables 1-3. The tariffs required to yield a 15% return when the new line operates at capacity are 35% above the current rates for domestic iron ore traffic. Even with an increase in tariffs of 40%, the increase in the iron ore cost at the plant would be less than 8%, and, since it represents less than 20% of total steel costs, the impact on the cost structure of the steel industry would be less than 1.6%. Tariffs for steel shipments from Sao Paulo for various hauls are shown in Annex 11, Table 3, and would be about 13% above current rates; this additional cost should be mostly offset by savings from faster delivery made possible by the new equipment and yard investments in- cluded in the Project. All rates of return to RFFSA are smaller than the expected economic and financial returns of planned investments for the steel industry in Brazil. - 14 -

(b) Motive Power, Rolling Stock and Permanent Way Program Not Related to the Steel ExpansionPlan

5.10 Catering for the 1978 forecast trafficwill require a large increase in transportcapacity. The investmentin locomotivesand rolling stock needed to meet the demand is discussedin Annex 11. Unless the proposed investment is carried out, an additional 5.4 billion ton-km would have to be transported by truck at higher cost (Table 9 and Annex 11). This excludes iron ore and steel-relatedtraffic for which truck transportwould not be a viable alter- native and which was analyzed separately (para. 5.09 above).

5.11 Track rehabilitationis an important componentof the Project. It consists mostly of improving track conditionby replacingrails, ties and switches and by doing minor track realignments. The various benefits are common to rolling stock and other investments(workshops, signalization, communications)and have been evaluated globally (Table 8). An improved track will carry a larger trafficwith heavier cars at higher speeds more safely and will generate substantialtransport savings. Sizable savings in future maintenanceand renewal costs can also be derived from improved track standards and an increased use of mechanized track maintenance equipment as provided in the Project.

5.12 The investments in this category are therefore renewal type and capacity increasing type. They generate savings in transportation costs for the traffic above current level (which would have to be hauled by truck at a higher cost if these investments were not made) and for the existing traffic (which will be transported at a lower cost when the Project is implemented). Considering only the 1975-1977 investments, the above savings yield a rate of return of 33%. Even including the 1974 sunk investments, the rate of return would still be 28% (Annex 11).

(c) Suburban Passenger Services in Rio and Sao Paulo

5.13 The Project includes Cr$ 1,453 million (US$194 million equivalent) for investments in the suburban rail services in the two largest metropolitan areas of Brazil for replacing over-aged rolling stock, improving signaliza- tion, lengtheningstation platforms and fencing the right of way (Annex 4, Section VI). These investments are not expected to decrease the current high levels of urban congestion; instead, they are expected to help prevent the situation from deteriorating. Most passengers of suburban rail services are low-salaried workers wholly dependent on mass transport to reach their work (Annex 11). The planned investments are intended to better utilize existing infrastructure and right-of-way and to improve the generally poor level of current service. Thus, the improvement will tend to ease mass transport problems in Rio and Sao Paulo while Metropolitan Transport Studies are being carried out in both cities. The complete results and policy recommendations of such studies are, however, years away, and interim solutions are urgently needed. Improving the suburban services is the only short term alternative - 15 -

in Rio and Sao Paulo (Annex 11, para. 15). Furthermore,it has been ascertained that the improvementscontemplated in the Project are not in conflict with the long-term solutions envisaged. Few car trips are expected to be initially diverted to rail in either city since car ownership in the area of influence of the suburban service is low. However, since the improved suburban rail services will support and complementMetro systems under con- struction, this combined operation may result in diverting more car trips to rail in the future.

5.14 The benefits quantifiedare transport cost savings had the incremental traffic been handled by buses and total rail cost savings for current traffic levels. Nonquantifiedbenefits include: (a) in Rio, reduction in the number of accidents and life losses in railway services; (b) avoidance of further urban congestion and its effect on city form and land use from increases in bus traffic; (c) avoidance of additional air pollution from buses and cars; (d) reduction in travel time for rail passengers;and (e) improvementsin frequency of rail services and passenger comfort. Under these assumptions, the rate of return for this investmentpackage is 34%, and the first year benefit is 25% (Annex 11). These results clearly show that the investments are justified,and the high first year benefit indicates that the upgrading of the service is overdue. Pricing policy of suburban services is discussed In paragraph 6.11.

(d) New Lines Related to Agriculture and Other Developments

5.15 Based on present cost estimates and traffic forecasts,most of the new lines included in the Project have already been shown to be economi- cally well justified,and their constructionshould be given priority. Annex 11 gives a summary of the cost benefit analysis for these new lines, for which rates of return were found to range between 12 and 36%. The realignment of the line leading to Brasilia and the widening of the meter gauge line to Santos might be somewhat premature, but have been included for reasons of safety, in the case of the latter, and because work is already well under way, in the case of the former. For many of these lines, construction is either under way or the economic case is clear enough so that construction can proceed without further updating of the feasibility studies. In the case of the Parana export corridor lines, however, RFFSA agreed, during negotiations, to provide the Bank with the updated cost and traffic estimates to allow for an exchange of views on the feasibility of the investments before construction starts.

(e) Other Miscellaneous Investments

5.16 These are the remaining minor items that have not been incorporated in the above groups. They include the building of new headquarters in Brasilia, training centers, studies and technical assistance. They amount to CR$ 222 million, about 1% of Project costs, and are treated here as overhead expenses. - 16 -

(iv) Overall Economic Evaluation

5.17 An overall economic evaluationof the total Project gives the following results. For a total investment of CR$ 16,934 million, the esti- mated rate of return is 19%. The rate of return would be reduced to 15% or 14% if costs are 25% or 40% greater than expected and to 14% if benefits are 30% lower than expected. These rates of return are the results of con- solidating costs and benefits as defined in paragraph 5.07 and Annex 11. All categories correspond to partial subsystems with little or no interaction, so that no double counting of benefits results.

(v) Items Tentatively Included in the Project

5.18 Other items tentativelyincluded in the Project have a good prob- ability of being economicallyjustified, but constructionshould proceed only after an appropriatefeasibility study clearly establishes their economic viability on the basis of engineering cost estimates and revised traffic forecasts (para. 4.06 and Annex 11, Section C).

6. FINANCES

A. Accounts, Budget and Audit

(i) Accounts

6.01 With the assistanceof consultants (SOFRERAIL),who designed the schedule of expense accounts, RFFSA revised its accounting plan in 1972. The plan is well suited for cost analysis purposes; however, balance sheets are less satisfactory: fixed assets appear at historical cost, which bears no relationship to present values. A revaluation of fixed assets, except land and buildings, was carried out by RFFSA in 1971, but the results were never incorporated into the balance sheets for the reason that the resulting increase in related depreciationwould have raised reported RFFSA losses and, hence, the Governmentsubsidy, considerably. Agreement was obtained during negotiationsthat all depreciable fixed assets (excludingland, tunnels, etc.) would be revalued'by the end of 1976 and depreciationwould be charged in RFFSA's accounts based on the revalued figures in 1977 and thereafter;other fixed assets would be revalued by the end of 1977. There are also a number of old unclearedbalances between headquartersand divisions. Some assistance is needed to improve balance sheet presentationand accountingprocedures in general, and agreement was obtained during negotiationsthat RFFSA will retain consultants to design and install adequate financial reporting and budgeting systems. Terms of reference for such assistanceare given in Annex 7. - 17 -

(ii) Budget

6.02 RFFSA has annual revenue and capital budgets which are approved by its Board of Directors. It receives financial support from the Ministries of Transport and Planning for its capital budget; such support is part of the Federal Budget and subject to Congressional approval. RFFSA also receives a share of imposto unico 1/ taxes each year to support its investment program. Normalization payments (para. 6.05) are authorized in the Ministry of Trans- port's budget.

(iii) Audit

6.03 As required under Loan 786-BR, RFFSA's accounts are audited by the General Inspectorate of Finance of the Ministry of Finance. However, RFFSA has now decided to retain a firm of independent external auditors and agreed, during negotiations, that the firm would be acceptable to the Bank.

B. Present Financial Position

6.04 Since RFFSA was created in 1957, its operations have been clharac- terized by heavy financial deficits which reached a maximum in 1963. Between 1963 and 1970, considerable progress was made: the deficit was reduced 55% in real terms, principally by reducing staff numbers by 23% and personnel costs by 28% (by reducing fringe benefits, travel privileges, etc., and by granting wage increases less than increases in the cost of living). These measures, together with some real increases in suburban passenger fares, reduced the operating ratio from 366 in 1963 to 185 in 1970 and the operating deficit from Cr$ 2,129 million (US$350 million) to Cr$ 962 million (US$157 million) in constant terms (1973 Cr$). In 1971 and 1972, the situation deteriorated somewhat as traffic declined and personnel costs rose- the situation improved again in 1973 as freight traffic increased. Income and expense figures for 1963 and for the years 1968 through 1973 are given in Table 10, and 1973 results for each region are given in Table 11. In 1973, the deficit amounted to Cr$ (1973) 981 million (US$161 million equivalent).

6.05 Operating deficits have been met out of the Federal Treasury. In 1968, the Government instituted a program of normalization, consisting of specific subsidies to supplement low suburban fares and freight rates, the extra cost of employing former civil servants receiving higher compensation than if employed under the Common Labor Laws (CLT staff) and the losses on certain uneconomic services. The effect of the normalization is shown in Table 10. In 1973, normalization payments to RFFSA amounted to Cr$ 204 nillion (US$34 million) and reduced the operating ratio from 185 to 163.

6.06 To give some idea of RFFSA's financial position, reconstructed summary balance sheets (converted to 1973 Cr$ to facilitate comparisons) are

1/ Tax on fuel, oil and lubricants (see TSB, para. 47). - 18 -

shown in Table 12. The working capital position of RFFSA has improved since 1968, and outstanding current obligationshave been considerablyreduced since that year. Amounts due from Government have increased since 1970 due to delays in making payments to RFFSA to cover its operating deficits. This is adversely affecting RFFSA's ability to pay for its supplies and services as promptly as it would wish, which, in an inflationaryenvironment, increases the costs of such inputs. The Government agreed during loan negotiations that normalization and other Government payments would be made promptly in the future.

6.07 Materials and supplies inventorieshave been reduced by about 14% from the high level reached at the end of 1969 and are now at a reasonable level. Because of the shop concentrationplan, inventoriesare not expected to increase despite the increase in the wagon and locomotive fleet. Long- term debt amounted to Cr$ 1,604 million (US$263 million) at the end of 1973, of which Cr$ 939 million (US$154 million) representedobligations in foreign currencies. All principal and interest payments are made directly by the Federal Government or with its support. At the end of 1973, debt amounted to 28% of total capitalization. This figure will decline significantlyafter the fixed assets are revalued.

C. Tariffs and Costs

6.08 Although freight rates have generallykept pace with inflation in recent years, they are generally low relative to trucking rates and should be increased as railway services are improved. Freight rates on goods other than those for export carry a 10% surchargewhich goes to the Ministry of Labor for social purposes. During negotiations,the Government agreed to neutralize the effect on RFFSA's competitiveposition of the surcharge by January 1, 1976. Except in the Northeast Region and Division 7 (Leopoldina), freight revenues generally cover long-run variable costs; however, there is very little contributionto fixed costs. For passenger services, only on the suburban Sao Paulo and Santos services do passenger fares cover long- run variable costs and make a contributionto fixed costs. A Government subsidy is paid to supplement the low Rio suburban passenger fares. On intercity passenger services, long-run variable costs are from two to four times receipts. A more detailed discussionof tariffs and costs is given in Annex 13.

D. Future Prospects

6.09 Based on traffic forecasts discussed in Chapter 5, a forecast of operating revenues and expenses was made for the years 1974 through 1979. Figures are in 1974 Cr$ for 1974 and in estimated 1975 Cr$ for 1975 through 1979 to facilitateinclusion in the Finane-:ngPlan with Project cost figures which are also estimated in 1975 Cr$. Allowancewas made for increasesin fuel prices, reductions in personnel numbers in line with recent trends and increases in personnel remuneration of 10% for unskilled, 25% for skilled and 30% for administrativestaff. No increases have been assumed in intercity passenger fares, but an increase of 15% in Rio suburban fares was assumed at - 19 -

the end of 1978 when service is improved (para. 6.11). A 20% increase in average freight rates (except for MBR traffic)was projected in real terms in 1976 to offset forecast fuel price increaseswhile maintaining the rail- ways' competitiveposition with highway transport. Further increases are expected for certain commoditieswhere the railways' competitiveposition will permit, but the extent of such increases is not known. A detailed list of assumptions used in making the forecasts is given in Annex 14.

6.10 An analysis of RFFSA's 1979 forecast income account by region is given in Table 13, and the following analysis of the 1979 operating deficit (excluding imposto unico taxes which RFFSA recovers through its capital account) was made in millions of 1975 Cr$:

Intercity Freight and Pass. Service Other Services Total _

Northeast Region (Divisions1 to 4) 43.2 257.2 300.4 52 Leopoldina (Division 7) 13.4 153.4 166.8 29 Remainder of RFFSA System 88.8 21.1 109.9 19

145.4 431.7 577.1 100

The Northeast is expected to carry only 4% of the freight traffic in 1979 but will account for 52% of the deficit. Comparable figures for the Leopoldina are 3% and 29%. Such losses cannot be eliminated by increases in freight rates and passenger fares, although, because of the increases in fuel costs, some rates (especially on night trains and fast day trains) should be increased in real terms. The Government plans to keep the basic Northeast system in service for social and other reasons. However, RFFSA agreed, during loan negotiations, to study its uneconomic lines and services (Annex 3) by the end of 1976, and the Government would review and use such studies as the basis for reducing or eliminating such lines and services. The Government further agreed that, where uneconomic lines or services were retained (or where tariffswere set) for social or other reasons, the Government would extend its subsidy system with RFFSA by the end of 1977 to cover the difference between the avoidable costs and tariffs for such services.

6.11 At present, the Government is paying RFFSA a subsidy to cover direct losses on the Rio suburban services. The Governmentand RFFSA agreed, during negotiations, to increase Rio suburban passenger fares as services are improved in order to eliminate the need for the subsidy by the end of 1978; an increase of an estimated 15% in real terms over the average 1972 level would be required.

6.12 On the assumption that the above changes would be made in the Government subsidy policy towards RFFSA, a forecast income account (in 1975 - 20 -

Cr$ million) for RFFSA was prepared (Table 14). Results are summarized below:

Working Depre-/1 Total Operating Year Revenues Expenses ciation Expenses Deficit Working Ratio Op. Ratio (a) (b) (a) (b)

1975 2,275 3,066 647 3,713 1,438 135 146 163 177 1976 2,925 3,163 714 3,877 952 108 115 133 140 1977 3,149 3,249 778 4,027 888 103 108 128 134 1978 3,949 3,336 841 4,177 228 84 103 106 129 1979 4,203 3,460 948 4,408 205 83 98 105 124

/1 Bank estimate used in 1975 and 1976 for comparativepurposes; a realistic charge for depreciationwill be required starting in 1977.

(a) After normalization. (b) Without normalization.

The large improvement in the working and operating ratios in 1976 is due prin- cipally to the 20% freight tariff increase in real terms projected for that year (although this increase will be partly put into effect in 1975). A further improvement will take place in the ratios (after normalization)in 1978 when the system of specific Government subsidies is extended to cover un- economic services retained for social or other reasons. (It is unlikely that subsidies, reflectingestimated losses in the Northeast Region, Leopoldina Division and for intercity passenger services, will be as great as forecast. As uneconomic services are reduced, RFFSA's operating expenses and costs and the related subsidieswill also be reduced.) Thereafter, there would be a steady improvement in these ratios, and it is expected that the operating ratio (after normalization) should reach 100 by about 1981. Steps to be taken (tariff studies and rate increases, studies of uneconomic lines and services) and targets to be achieved (operating improvements,financial ratios, staff reductions)are given in the Program of Action, Annex 6, which was agreed with the Government and RFFSA during negotiations.

6.13 A preliminary cash flow and financing plan is given in Table 15 and is summarized at the end of this paragraph. Details of financing arrahged and assumed are given in Annex 15. Since project items extend into 1978, the financingplan was made to cover the entire period of the Five-Year Investment Plan, 1975 to 1979. The financing plan depends to a considerableextent (53%) on appropriationsfrom the Federal Budget and a continued growth in imposto unico receipts, in accordancewith past trends. The Government'sfuture policy for allocating these funds is under review. Commencing in 1977, depreciation of RFFSA's fixed assets will comprise an important source of funds (the Plan of Action requires that RFFSA charge reasonable depreciationin its accounts commencing in 1977). During negotiations, the Governmentagreed to provide funds or arrange financing to execute the Project satisfactorily and in a timely manner. - 21 -

1975 - 1979

Millions of 1975 Cr$ _

Requirements

RFFSA's operating deficits 2,582 8 Estimatedproject cost and cost of remote items in the InvestmentPlan 22,850 71 Debt service 6,776 21

32,208 100

Sources of Funds

RFFSA depreciation 2,810 9 Imposto unico 3,507 11 Government budgets 13,605 42 Domestic loans 4,689 15 Foreign loans, including proposed Bank loan 7,439 23 Other 158 -

32,208 100 h,.14 Projected foreign loans account for only about one-thirdof invest- ment costs, whereas the foreign exchange componentis estimated to be some 50%. RFFSA, however, intends to meet the possible foreignexchange gap either by arranging additionalforeign financingor by obtaining foreign exchange from the Governmentthrough its budget allocations to RFFSA.

6.15 In view of the unsatisfactorynature of RFFSA's currentbalance sheet, it is not possible to project future balance sheets in the usual manner. Instead, forecast statementshave been built up on the basis of an estimate of the revised gross value of fixed assets, and of accumulateddepreciation, forecast acquisitionsand the related financingplan, and forecast operating results. Summary forecast balance sheets for the years ending December 31, 1974 through 1979 are given in Table 16. The increase in fixed assets in 1976 reflects the revaluationof depreciablefixed assets to be made by the end of that year. (No further adjustmentswere made to reflect the revaluationof land, tunnels, etc. to be made in 1977 since the amount of such adjustments could not be estimated.) Inventoriesand trade receivablesare expected to grow in line with operatingexpenses (excludingdepreciation) and freight revenues, respectively. Working capital should decline as the Government's obligationsto RFFSA are reduced (para. 6.06). The debt/equity ratio is expect- ed to be only 37/63 by the end of 1979. However, this ratio may rise as fi- nancing is obtained for additionalProject items and those presentlyexcluded from the Project but which will be reinstatedwhen their economic justifica- tion has been established. The Bank should be satisfied that the terms of - 22 - such financingare acceptable before agreeing that they can be carried out (para. 4.02). Furthermore,in order that RFFSA can achieve financial self- sufficiencywithin a reasonable time period, a limit should be placed on the amount of the borrowing. Agreement was obtained during negotiations that, from 1977, when RFFSA's depreciablefixed assets are revalued, its debt will not exceed 50% of total capitalization.

7. AGREEMENTS REACHED AND RECOMMENDATION

7.01 During negotiations,agreement was reached on the followingmatters:

(a) RFFSA sending its staff compensationstudies to the Bank for an exchange of views by March 31, 1976 (para 3.07)

(b) RFFSA carrying out further studies by the end nif 1976 for the eliminationof unremunerativelines and services (paras. 3.16 and 6.10);

(c) consultationswith the Bank prior to carrying out major items outside the Project (para. 4.02);

(d) a review of the economic justificationof items tentatively included in the Project to the satisfactionof the Bank, before starting the works (paras. 4.06 and 5.15);

(e) a commitment that all necessary measures would be taken to achieve the operating targets of the Program of Action (para. 4.09);

(f) the inclusion of revalued fixed assets in RFFSA balance sheets by end-1976 and the charging of depreciation(based on re- valued figures) in the annual accounts in 1977 and thereafter (para. 6.01);

(g) the hiring of consultantsto design and install adequate financial reporting and budgeting systems (para. 6.01) and of an independentauditor (para. 6.03);

(h) the prompt payment to RFFSA of normalizationand other Government payments (para. 6.06);

(i) the Government neutralizingthe effect on RFFSA's competitive position of the 10% surcharge on freight rates on goods other than for export by end-1975 (para. 6.08); - 23 -

(j) the extension by the Government,bbyJanuary 1, 1978, of the subsidy system to specificallycover the difference between tariffs charged and avoidable costs on uneconomic services retained for social or other reasons (para. 6.10):

(k) RFFSA increasingRio suburban passenger fares as services are improved (para. 6.11);

(1) the operating and working ratios and the other financial steps listed in the Program of Action (para 6.12);

(m) the Government providing funds or arranging financing to execute the Project satisfactorily and in a timely manner (para. 6.13); and

(n) the commitmentthat, from 1976, RFFSA's debt will not exceed 50% of total capitalization(para. 6.15).

7.02 Signature of technicalassistance contracts in the fields of (a) workshops, (b) permanent way, (c) operations, (d) supervisionof construc- tion, (e) studies to improve Rio suburban services, (f) studies of uneconomic services, and (g) marketing, are a conditionof effectivenessof the proposed loan (para. 4.13).

7.03 The Project provides a suitable basis for a Bank loan of US$175 million for a term of 25 years, including a grace period of about five years.

.ze,'ber 20, 1974

TAIHLZX Pag 1 of 3 pages

EBOAZIL

APPRAISALOF A SE 3FD JCTŽ(FFSA)(RY'

1 Statistics 1969-l273 and Projection for 97S

1969 1970 1971 1972 1973 1979

Traffic

Passengers, no. (000) .suburban 266,216 248,791 227,932 229,637 226,299 382 490 interior 37,226 33,831 33,787 35,810 32,950 24,751 Passenger-im (million) suburban 6,601.o 5,979.6 5,269.3 5,245.7 5,166 8,752.0 interior 2,896.1 2,724.2 2,196.2 2,742.4 2,634 2,120.8 Freight, tons (000) 32,039 32,984 30,512 30,921 35,492 81,256.0 ton-lee (million) 11,548.9 12,212.0 11,564.4 11,847.9 14,150 38,986.0 Train-ckm (000)

Psssnger, suburban - unit trains 11,053 '11,586 10,528 10,996 10,909 15,636 diesel 1,548 1,476 1,249 1,096 2,095 1,382 electric 552 60 60 56 56 56 steam 92 20 - - Passenger, interior - urit trains 1,500 1,500 1,300 1,259 1.328 979 dieael 12,724 12,183 11,593 10,938 11,652 6,803 electric 144.1 1,1491 1,231 1,238 1,306 1,186 auteote8ises 2,o46 2,245 2,198 7,055 2,259 2,833 steam 169 88 7 1 1 - Nixed - diesel 8,877 8,139 8,258 8,1h1. 8,002 5,797 electric 238 145 144 148 184 77 steam 1,128 864 373 169 152 Freight - diesel 24,018 25,286 26,895 28,616 31,080 54,544 electric 1,922 2,186 2,026 1,918 1,759 3,429 steam 1,200 905 589 .89 94 327 Service - diesel 2,500 2,800 2,800 2,897 2,723 41095 electric 50 1i0 80 74 59 80 steam 1,000 801 600 91 36- Total train-km 72,058 71,874 70,160 70,505 73,695 97,274

Other Looetivo-k. (000)

Assisting - carzes motores 11,053 11,677 11,208 14,869 15,C13 28,740 diesel 9,913 7,001 5,388 6,093 5,688 26,073 electric 266 253 - 505 339 80 Yards - diesel 9,000 11,000 12,000 13,603 13,057 23,280 steam 3,806 2,931 1,739 398 681 60 Tota1 Loc.omtive-km (000)

Diesel 68,580 67,888 68,183 71,707 74,457 119,781 Electric 4,469 4,235 3,665 3,939 3,703 41908 Steam 7,395 5,609 3,308 1,148 964 387 Carros otomres 23,606 23,763 23,036 27,121. 27,250 45,355 Automotrizes 2.046 2,245 2.198 2,055 2,259 2.833

Total 106,096 103,7140 100,390 105,973 108,663 183,214

Vehicle-km (million) Passenger: Carros motores 23.6 23.8 23.0 27.1 27.2 45.4 Tailers 47.2 47.6 46.o 54.2 54.4 90.8 Astettrizes 2.0 2.2 2.2 2.1 2.3 2.8 Pmanger cars, day 100.0 91.5 87.6 87.1 88.9 60.7 Sl*epieg cars 14.2 12.8 11.6 12.9 13.1 12.9 Re*terant cars 10.1 9.9 9.7 9.1 8.7 8.5 Mail and baggage cars 32.5 27.0 24.0 20.5 19.7 15.5 Other 2.9 2.5 2.1 1.8 1.4 1.8

Total, passenger trains 232.5 217.3 206.2 215.1 215.7 238.4

Freight (revenue-earning): Loaded 100.0 4o5.0 384.0 386.7 h26.5 857.0 Fpty 290.8 280.9 266.7 274.0 296.3 621.7

Total 690.8 685.9 650.7 660.7 722.8 1;478.7

of which, railway wagons 526.8 523.9 496.7 504.1 551.5 1,308.5 private wagons 164.0 162.0 154.0 156.6 171.3 170.2

Gross Trailing Ton-km (million)

Passenger 5,970 5,5T7 5,250 5,174 5,816 5,756 Freight - revenue earning 22,564 23,19 21,940 22,383 25,522 57,167 service 1,5D0 1.600 1.650 1,669 1.877 3.769

Total 30,034 3D,319 28,840 29,526 33,215 76,692

Gross Ton-kb (including Loeoe) (dllion)

Passenger 8,530 8,090 7,630 7,996 8,495 9,016 Freight - revenue-earning 25,617 25,052 24,775 25,391 29,063 73,168 service 1.800 1.900 1,950 1,983 2.231 4.389 Total 35,9o7 35,042 34,355 35,370 39,789 86,573

These figures differ slightly from those in Table 6 as the latter excludes animals traffic.

TABLE 1 BRAZIL 'age 7 of 3 pages

APPRAISAL OF A SEWONDRAILWAY PROJECT (RFFSA)

Statistices 1969-1973 and Projection for 1979

1969 1970 1971 1972 1973 1979

Locomtives in Stock

Diesel 1,0o51 1,039 1,080 1,181 1,248 1,654 Electric 85 79 76 75 75 73 Steam 553 450 342 206 ii6 33 Carros motores 342 344 3441 343 345 430 Automotriss. 44 43 40 35 34 39

Locomotives in Traffic

Diesel - Pnasenger, suburban 35 34 30 27 28 27 Passenger, interior 115 110 100 94 98 52 Mixed 100 100 103 106 110 58 Freight 409 387 435 899 512 804 Service trains 50 66 66 70 73 82 eards 200 220 210 296 308 466

Total 909 917 974 4 1,082 1,129 1,489

Electric - Pessenger, suburban 8 3 2 2 2 1 Passenger, interior 15 15 15 15 15 16 Mixed 3 3 2 2 2 1 Freight 40 43 42 40 43 47 Service trains 1 2 2 1 1 1

Total 66 67 63 62 63 66

Steam - Freight 60 50 40 25 19 18 Other services 295 224 201 60 44 4

T.t1l 355 274 241 85 63 22

Carros motoree - Passenger, suburban 290 295 286 285 281 353 Pessenger, interior 10 10 9 8 8 12

Total 300 305 295 293 289 365

Actonotrices - P-saenger, interior 32 31 2B 26 25 31

Loconotive-lkn per Locomotive in Traffic

Diesel - P.ssenger, euburban 44,200 43,400 41,600 40,60o 40,2co 50,000 Passenger, interior 110,600 110,800 115,Q00 116,400 115,500 133,000 Kixed 88,700 81,1.00 80,200 80,000 79,400 100,000 Freight 83,000 83,400 74,200 71,000 70,500 100,000 Service trains 50,000 42,400 42,b00 41,400 41,100 50,O0O Yards 45,000 50,000 50,000 46,00 45,6oo 50,000 Average, a11 services 75,400 71,000 70,000 66,300 65,900 81,500 Average, all public traffic services 86,600 85,300 79,000 77,100 76,400 100,000 Electric ) 67,700 63,200 5e,200 63,500 58,800 75,000 Carros motores ) Average, all services 78,700 77,900 7,100 9s2,600 94,300 124,000 Aatomtrizes ) 63,900 72,400 789500 79,000 75,200 92,000

Freight Wager. and Train Performance

9 loaded to total wagon-km 9.5 58.5 58.0 iho. of wagons in use, revenue-earning traffic 30,100 29,100 29,100 28,29F 29,1420 41,965 Xagon-days in use 000): Railway osetd wagons NA RA NA 8,4bb.9 8,778.5 13,430.1 Private wagons NA RA NA 1,883.7 1.958.7 1.887.1

Tetal 30,990 10,620 10,620 10,328.6 10,751.2 15,317.2

Average wagon-load, loaded wagons only (tons) 28.9 30.2 30.1 30.6 34.6 45.4 Ac. of wage.e loaded 1,109,600) 1,092,200) 1,013,'00 1,010.190 1,024,302 1,789,711. Wagon-ba pwr ago-day in use 62.9 64.6 61.3 61.0 66.5 96.0

Net6 ton-ba per wagon-day in use 1,051 1,150 1,089 1,147 1,319 2,528 W ago turnaround (days) 9.9 9.7 10.5 10.2 30.1 8.6 Wagon-km between tornaroond 623 628 6I,2 654 686 827 Average no. of wagons per train, freight and fre'ght propartion of mixed:- Loaded 11.8 11.7 10.9 10.5 11.3 13.8 Empty 8.5 8.2 7.5 7.b 8.0 9.8

Total 20.3 19.9 18.1. 17.9 19.3 23.6

Average train-icad (tone) N.s 31,0 3514 327 321 39C 627 Gross 664 671 620 607 695 1,080 Average train-load, ecludding 1ER traffic: Jet taa. 31o 3c4 327 321 376 475 Gross tons 664 671 620 507 686 839 TABLE1. SIAZIL P of i pages APPRAISAL OF A SECOOD RAILIAY PROJECT (RFPSA)

Statistic. 1969:1973 and Proaectlon for 1979

1969 1970 1971 1972 1973 1979 Passenger Car and Train Performance

Passesger cars in traffic: Passenger_carrying, day cars 1,421 1,38 1,766 l,9 1,143 770 Sleeping cars 169 167 155 Restaurant cars 138 126 118 113 112 101 Oail atd 83 88 77 baggage cars 331 326 Other 301 261 255 196 274 281 269 763 257 200 Total 2,308 2,234 2,092 1,933 1,869 1,361 Car-Im per car-day in traffic: Passenger carrying, day cars 193 186 Sleeping 190 201 204 216 cars 230 210 Rcstaurant cars 205 256 271 300 245 242 263 300 313 Mail end 302 baggage cars 269 227 OtAer 218 215 210 217 29 24 21 Average, 19 18 25 all cars 190 176 177 187 181 200 Average nc. of passengers per train, passenger and passenger proportion Suhubabc trains of mixed: 498 155 h15 432 Interior 40951 trains 136 133 138 149 128 154 Average no. of cars per train: Unit trains 5.6 5.5 5.8 Locomctlve..hauledtrains 7.1 6.6 6.6 8.2 7.2 7.9 8.1 7.8 8.8 Average no. of passengers per passenger carrying car: Unit trains 88.9 82.7 76.7 L... mti-h..baI.d trains:- 65.5 65.6 61.0 Sleeping c-ar (say) 10 - Dlay cars 10 10 10 10 26.9 27.3 10 26.0 29.1 28.1 29.1 Average so. of seats per car 59 59 59 Seat occupancy 59 ratio 45.6% 46.3% 44.1% 49.3% 48.9% 49.3% indices (1969 - 100)

General price index, Brazil 100 120 111 Railwaystaff costs par ma employed 167 192 100 117 14416 188 Average revenue per:- Passenger-_m, interior 1o0 122 119 160 190 Passenger-k1s, suburban 100 151 193 210 190 let ton-km, general goods 100 121 117 167 186 livestock 100 125 144 119 141

July 1974

Source: RFFSA and Sank statistics :t;'rn 000000000 - - a2 I 0000-0. *0' -. -. 00.0 . . 030 000000 .r0.to o. 0 00 0 0 "' 00 p000 0 0 0 00.00 00 00.0' 00000000-0000 0000 00000000 (.00000,0 I 0o000 0 OOOOoOotooOo 0000000. '000000...00o 00 000000 00000.0000' 0 0000 0 000'00000000 00.0000OOtOOO0.0000000oOOOOoo 00(300 0 0.00 000 000000000000,000000 0000000000000'' '000o0. 0000000000 00 00 0 0 0 000000 00.000 00 00 0 0 00000 0' 0' 0000000000.Oooo' 0 000-0 000 ."oO'00.0. 0030000.00000000 - 000 oOoo,r',-OOo 00000 oOOOo'00.oOo 0.03 00 0 00'00 0o0000o0-00 0000 'OoOo.OOOoO oo.ooooooo 0 - 00.00 0' 00 -o0000 ,o ooS,7oo400O0 0.0,... 0000.0.OoZO0. 000000000'00'000 0000000 00 0. 000. 0000 '0'0 0 o' '' 0 00 00 00000' 000.00 0.0000000 00 000 0.0000 000 0.0000 a 'oo'0'-0 0 0000 00 000 000 00'oO 0030000000 -. 00000 - 0. O00,; 0 00' 0000000000 0 '00 '000.0-0 000000 0.000000 0 0 00 o.00ooooo.--000oo 00' 00000 01 0'0000 '000 00 otOono 0' 0000 00000.0 0 000 00.000,0 0 0 0 000 0'0 000 0 -0-coo 0 0 000.0 <0 0 0000 00000000 0. 0 o <0- 0.0'0.'o 0000 -. 00 0 0 0 0 no' Oo'0 to 0.00 0 00' 0 000-0 0.0 0 Oo 0 0 0 0' 00 0 0 000 3-'Oo 0 0 00 0 00 0 0 0 '0 0 0 0 000 0.000000 03 0 000.0 0 0. '0 0 0 0 0 0 0 000.0-0000 0 0 0 '-no '0 0 0 0 0 0 0 0 0000 0 0 0 o -. ,, 0 0 -.0. oo'o

- - 0 000-

o - 00 000000 00 00000000000 0000000000000000000000000 ' ' 0-300- 0-0-000.300 00'000 00 00.0000 '0 000030'0.00000000000 , 000'0000 0 00'000000'00 -0.0 ' ' 0000000 0000000 0'..00000 0,0.

'00-0000-0 '000 0 0000000000-0000 000 0- 03000 0-0 00 0 000000 00003 000

00 000-000 0' 00 (00000 00 0-00.' 000 0' 0000 0000 0 '0 '0 00000 0' 0- '00- '0 0-000 00 0 00000.0.00000 '0 000-03 0-0 03 0 0 00'00 '0 '0 0-

000000000' 000 0 0000000000000000000 0'0 0-0'0 0000 00 0 00000000 00000 000 3. 00-000000 0000 0- 000-0000000-0000 000 .0 0000000000 0 00000 '0000 000 0

00 00 0-00 0 0 0 0 0 0 000' 000.0000 000 0 000- "'000 000000-000000-000 0 0-00000000000000000-00000 000-0000000-0-00000000 000300000 ,o0-000 0-0'000"Oo'000000' 0000000000'000000000000 00000-00000000000 0000000

00 0 0- 0' '0 000 0000 0000000 '00,000 Oo 00 0 0 0 000,000 00 0-00-00000000 00000000000-0000000 000000 (3000.000-00000000 0-000 000 0 00000000 000000.00000.0000 00 000000000000-00-0000000 00000000-00000 0-000 000000 00

.0 0' 000000000000 0(30000000000*0000-00300 0000000000000000000 0000 0 000000- 000000000000000000 0 00-000000 0 000000000000000000 0000000000 000000000 00-000000-0000 0' 0000000*33000000-0000000 00-0000000000000'000 00000000

0' - - 0- 0 - 0 0 0 00 0000 0 o'0000300 '0000303000-000000 0000 00 0.0 03 0-0 to 0-0 00 000000-0000000000 00 00 00-0-0 00 00 00 000000 0000-00 00 0000000000 0 0 000- 0 0-0-0-0000000000000' 000000000 00 0 00 0-03000 00000000 0 00000000

00 0 0*0(303000000' '0 0oO 000 00 0 0000 00 0000 0 0 000 00 0 00000000000-000 '0 00 000000 000 0 00 000000- 00-0000000 0000- 0 0 to 0 000000000000 00 00 0000 00 0 0 0000 0-000000 0 00-0- 0

0 0 OooOotoW 00-00- '0000000000000 00 00 00 Ž00 00 000 00 0000 0 0-0 00 00000000000000 00 0000 0-00000 00 00 0- 0030000000000 0 0-0000000 0000 0 00-00000000-0000 0 00 0000 00 0 0 00000 0*030000 0 000000000

00 00 0' 00 0 0 00 0 00 000 0 0000-0- 0 000 00 000 0 0000 00 000 00'00 0000000 0000000 00 0000 00 00 00 003 O.OtO '00'00000 0 000 000 '0 0-000000 '000000 00 00 00 00 0 003 0000 0000000 00 - 00 000 0 00 0 0-0' 00 0- 00 0 00 0000 000 00 0 0000 0000 0' 0000 0 00' 0 000 00-00-0.00 000t 00'000 0 000 00 '0 00300 0*000 00 000 00 000 0 00 0000 0-0000 00

0 0 0-00000 000000 00 00 0' 000 00 0000 0000 000 00 00 0'0'0'00 0000000 00 000 .0 000 03 0-to 000000 00000000 0 '00 0 00000003000000 0 000 00 00 0 00 000 000000000 0

0000 0- '0 '0 '000 t 000 0' 0 03 '0 '0 0-00 00

'0 0- 00 00 0- 0' 0.0 0 0 0 0 03 00 00 00 0 0

000 03 0 00 00 00 030 00 0 0 00 00 000 00 0000 0 0 00 0 0 00 0

00 - 0000 00 00 00 0- 0000003 000 00 0 000 '0 000000000-00000 0 0-0'0000' 0000000000000003000000000000000000 00 00 00 0 000000-00 0-0-000-000000000 '0 00000000000000000000000 000-000000000000003 0 0'0'00 0 0000000 00000-0-00-000000 0 000000-000000000000000-0000030000-00000.00000 000000000

0 00 00 0 0 00 0- 00 000-00000000-00 0- 000000000000000000000000000000000-0 0 0003 00000 00 00003 '00 0-00000 00 00000-000-000 0 000000000003000000000000 0030-00-000-000 000 ooo 0000 ''''' 00000000 0 00000000000 00 000000000'300000'0000000 0-0000000000000 0-000 0000 00 0- 00 00 00 00 00 0' 00*00000 00 00 00 0000 0- 00 00- 0 Oo 0 I 000 00 000-00000-000000 00 00000000000000000-003000 0000-0-000000030000-00 00000000 00 0 000000- 00-0000000000000- 0 0000'0'0000000000000000 000000000000-0000000 00000-000 0

00000000 OO00OoO0'0000 03 0000030000000000000000 000-000000-000000-000 0-000300.000 0

00 00 0000 0' 000000 0 0 0 0-00 00 0000 00 0000 00 0 0 003000 0000000-00000000 00 00000-0*00-00000000000000- 0000-0000000000000000 00-00000 0

0000000 0-0000000000-0000 0 000000-0000000-0000000000- 000-000000000000-00000 00000000 00 0 00 0 0 0 00 0 00 0000 0 0030 00 0000 0000000 00000000000000000 00 00000003000000-0000000-00- 000000 0000000o 0000 000003 0003 030000000 00 0-000000-000- 0 0o0-00000'0o0000oo00,oo. 0000-00000000 000 00000 0 '''''' '03 00 00 000000000 00 0000000-00003000000000 000000000 0 0000000000-00000000000000000000000000 000000000000-000000000 00 0000 0 00000-000300 0

00000000 00000000000000 0 0-000000000000' 0-0000000000000-000300000-00-00300 00000000 0

00 00 00 (3 03

oo2od 2 JO T *Soj BRAZIL

APPRAZOSALOF A SECOND RAILWAYPROJECT (RFFSAS

m.i8llion 01$ (19755 million B.dg.t -Cc$ 1974 million Cr9 (1975) million Cr0$ (1975) Category 1975-1978 7, Fef. 01q74 1975 1976 1977 1978 1975-197 L F T 1. F T -L F T L F T L F T L. F T L F T

IV OIONALI.NC AND TELECOMMUNICATIONS 6.7 23.1 29.8 0.9 3.1 4.0 Mis improemets In signalling 25 0.1 0.4 0.5 2.1 7.4 9.5 2.1 7.4 9.5 2.5 8.3 10.8 - - - 12.1 26 2.9 16.3 19.2 4.3 24.2 29.5 4.3 24.2 28.5 5.2 28.9 34.1 - - - 13.8 77.3 91.1 1.8 18.3 Mis imprOvements in teleoms 5-8 19.5 25.3 39 - - - 6.6 21.9 28.5 21.8 73.2 95.0 15.3 51.2 66.5 - - - 43.7 146.3 198.0 CTC Rio-lEo PanIc 0.8 2.8 3.4 52 3.3 11.1 14.4 5.8 19.4 25.2 ------5.9 19.4 25. AlTC CamFo rGade-J-edse( 44.8 2.0 1.3 27.8 34.1 18.9 72.9 91.7 28.2 104.8 133.0 23.0 88.4 111.4 - - - 70.0 286.1 I36. 9.3 35.5

O MOTIVE POWER AND R01LLINGSTOCK ------60 locon (EaP C-er ) 2,OOOhP, 1.50n 67 21.0 189.3 210.3 ------36.3 3268. 363.1 4.9 43.8 48.4 119 ros (F.B.I.N2,250 hr l.60m 48 ------23.1 208.1 231.2 13.2 118.7 131.9 - - - I 55.6 500.7 558.3 7.4 86.8 74.2 195 locos, o.identified 33 - - - 24.3 218.2 242.4 31.4 282.3 313.9 ------2.4 21.4 23.8 0.3 2.9 3.2 10 shooer 33 - - - 2.4 21.4 23,8 ------0.8 3.7 6.3 0.1 0.8 0.9 Farce f totehilding 12 loose 33 - - - 0.2 1.9 2.1 0.2 1.9 2.1 0.2 8.9 2.1 - - 107.0 962.5 1069.5 14.3 129.3 142.8 Cor-) 67 - - - 58.5 454.3 504.9 36.9 332.3 369.2 19.6 175.9 193.35 4,391 freight corn (REp 4.9 42.7 47.5 0.6 5.7 8.3 109 -efrig cas(REp Corr 67 - - - 4.9 42.7 47.5 ------992 freightcr (Rodnap) 09 16.1 144.4 160.5 ------29.8 23.1 371.9 302.1 17.3 155.8 173.11 ------17.3 155.9 173.1 2.3 3,000 freight cae(D) 00 30.2 60.9 546.7 807.5 9.1 72.9 81.0 2,90feihcr (F.B..N4 29.3 162.2 202.3 20.3 102.3 302.5 29.3 192.2 202.35 -- - - task cars 00 1.7 15.2 16 .9 ------190 615.4 693.9 9.1 82.1 91.2 2,8009 f-oight cars, misc 100 & 1600 31 - - - 38.4 345.6 384.0 16.4 147.9 164.2 13.6 122.0 135.6 -68-i.4 - -- - - 6 reiners 32 3.0 36.4 29.4 ------.8 7.4 0.2 0.1 5.0 0.1 30 metalli paecr 1 0.7 8.1 6.9 0.9 7.4 02 - - 1.9 12.0 15.7 2.1 19.0 21.1 Mdr of 297fegtcr31 - - - 50 44.9 49.9 4.591 4. . 5. 33 -- 0.3 4.1 4.6 0.1 0.5 0.6 -_ - - 01 0.7 0.9 0. 2 1.7 1.9 0.2 1.7 1.9 - - - Modern of 49 pans. cas31 ~ 493.7 21.0 72.7 653.3 726.0 164.0 1471.1 1639.1 132.9 1195.6 1329.2 73.6 661.2 734.98 370.4 3332.0 3702.6 49.3 444.4

VI SUBURBAN SERVICES

(a)Mde Jo-i-o 11.2 00.0 30.6 37.0 964 7.1 7.7 122.0 Improvmets in Ppc. wy 29 13.0 19.0 33.0 9.0 13.5 22.5 7.0 10.5 17.5 15.0 22.6 37.0 7.6 34.5 81,6 136.1 7.3 10.9 18.2 Stations end yards 29 51.5 '7.2 128.7 7.6 11.4 19.0 9.4 14.1 23.5 32.1 40.1 80.2 5.4 8.0 13.4 57.4 95.6 113.3 169.9 393.2 15.1 22.7 37.9 Si gralliog andcomsiaos 29 7.3 11.0 10.3 20.5 42.9 71.3 32.1 49.0 80.1 14.5 21.7 36.2 30.2 36.1 60.1 00.6 91.0 151.6 9.1 12.1 20.2 30 ne snit trains 29 - - - 19.7 39.6 69.3 16.9 25.3 42.2 - - - 24.0 29 5.5 6.2 13.7 3._65.3 0.9 3.1 4.6 7.7 6.9 10.2 17.0 3.0 4.5 7.5 16.5 24.6 41.1 2.2 3.3 5.5 Modern of 54 unit trains 4.2 77.5 116.2 193.7 66.4 103.6 171.0 69.5 102.5 171.0 69.4 102.6 171.7 70. 2 117.2 195.4 293.5 424.9 708.4 37.9 56.7 94.5 (b) Boo Panic 8.2 10.3 27.1 40.5 67.6 3.6 5.4 9.0 Inproveasi In Pe-n way 30 5.4 0.1 13.5 3.5 5.3 9,9 6.5 9.1 13.2 13.4 19.9 33.3 4.1 12.1 20.2 52.9 79.1 531.9 7.0 10.5 17.5 stations ad yards 20 34,6 52.3 07. 1 3.4 3.1 0.5 00.0 26.9 44.9 23.3 35.0 30.3 6.1 0.6 1.0 2,9 4.2 7.1 0.4 0.6 1.0 Sig_lling and oosncios29 0.0 12.0 20.0 0.2 0.4 0.6 0.9 1.2 2.1 1.4 2.0 3.4 0.4 20.4 105.5 173.9 9.4 14.1 23.5 trains 28 - - - 30.0 46.3 77. 13.1 19.7 32.08 - 26.5 39.5 66.0 40 new .. it 30.6 51.0 2.3 40.2 72.6 120.4 37.9 57.1 95.0 30.1 56.9 95.0 39.1 36.9 95.0 39.1 58.4 97.5 153.2 229.3 392.5 20.4

5710 RAILWAY4MODERNIZBATION 466.9 594.2 1061.0 62.2 79.2 541.4 Track -ohahilitati-nptogran 23 09.0 109.0 189.0 132.3 169.4 300.7 171.0 217.7 398.7 163.5 209.1 371.6 - - 67.5 125.4 195.9 9.0 16.7 25.7 Workshop moderisotion 22 6.0 19.9 25.9 10.2 19.9 29.1 23.4 43.4 66.0 33.9 63.1 97.8 - .2 35.2 35.2 70.4 - - 93.3 93.3 106.6 12.4 12.5 24.9 * le-trificatio- progra 24 0.3 0.4 0.7 23.0 23.0 46.0 35.1 35.1 70 105.2 150.1 225.1 375.2 - -222.9 334.3 557.2 29.7 44.i 74.3 * lage unification progra 17 - - - 30.7 46.1 76.0 42.1 63.1 - 21.0 - 21.0 2.9 - 2.8 Road vehicles 34 3.5 - 3.5 7.8 - 7.0 7.0 - 7.0 7.0 - 7.0 - - 2.7 124.1 206.8 11.0 16.5 27.5 of the MBn P-ojoct 30 129.2 193.9 323.0 36.0 54.0 90.0 29.9 43.2 72.0 17.9 26.9 44.9 -8 Completion 298.6 13.1 219.0 525.1 542.1 239.2 310.4 549.6 307.4 402.5 709.9 407.0 559.4 966.0 - - - 954.2 1271.3 2225.5 127.1 169.5

606.9 1332.2 9112.7 8921.0 16,933.7 1991.3 1176.4 2257.7 100.0 Bass Cost Estinste 1336.9 1769.5 3106.3 2092.5 2057.6 4948.1 2722.4 3009.0 5722.4 2302.4 2356.6 4739.0 925.4 96.5 56.8 143.3 721.8 511.8 1233.6 96.2 69.2 164.4 7.3 Physical Coctinoe-ien 042.4 125.0 269.2 070.0 120.3 306.3 243.0 169.9 413.7 213.5 136.9 370.3 99-34.5 9332.9 19,.167.3 1177.5 1244.8 2422.1 197.3 100.0 Tote) 1479.2 1995.3 5374.5 2260.5 2905.9 5246.4 2906.2 3169.9 6136.l12595.9 2515.4 251009.. 3 1011.9 863.6 1675.1 5924,0 3917.9 9,771.9 793.9 509.0 1302.9 (547 0f which: civil woks 994.9 014.9 1909.8 1459.4 941.9 2400.3 2005.0 5265.6 3271.4 1803.9 1224.5 3028.3 606.0 395.9 1071.8 603.7 2990.5 5515.0 8,395.5 303.6 735.6 1119.2 (46) nenipoen 494.3 1000.4 1564.7 902.1 2044.0 2946.1 960.4 1904.3 2964.7 792.5 1290.9 2091.0 322.9 277.0 Ropectod price increases: 12.0 civI woks: 7, p~a. 0 15.0 13.0 13.0 opouded- 0 7.5 22.5 30.5 55.7 1041.7 2679.0 210.3 139.9 337.2 14.7 -mun 0 109.4 70.6 180.0 451.3 294.9 736.1 694.5 471.4 1165.9 302.1 214.9 597.0 1637.3 9.0 eosipm-t: 7 ,p. . 0 11.8 19.0 10.0 7. copouded 0 5.5 16.6 20.2 40.3 904.0 1462.2 74.4 120.6 192.0 8.1 am-nt 0 44.1 112.4 156.5 159.4 316.1 475.5 223.4 363.5 596.9 131.3 112.01243.3 550.2 2. 4.3 2195.5 1945.7 4141.2 292.7 259.3 222.2 22.8 n Total aexp-tsd price in-re.se. 0 0 8 153.5 193.0 336.5 61. 0. 21.6 917.9 034.9 1752.8 51. 1.525.3 090.5 2515.9 11039.0 11273.5 22309.5 5470.2 1504.1 2974.3- 122.0 Total repented cot of project 1479.2 1095.3 3574-.9 2414.0 3160.9 5502.9 5576.9 3770.8 7347.7 3513.8 3340.3 6862.1

Stems te-ttionly incloded is the project, sshjant to furthor review * 1uosyoinI ivncidct7: ''L Elc c.-. y,yI of tIc Froj-u.

Dcuo-isy 1'I7)i APPRAiSA OF A SECONDRAILWAY PROJECT RIFFSIA

Doubtfu1o Rfste Itin., RE-ldEd frmi the-oj

B.dgat CrO (1975) milliru Ct$ (1975) mllliou U1$ (19755 illee, Cut. Ref. 1975 1976 1971978 1979 1975-1979 1975-979 L F T 1 S T 1 F T L F T 1L F T I F T7

De- offl.e bOlidi.g. 81-3.6 - 3.6 3.6 - 3.6 7.2 - 7.2 1.0 - 1.0 Fu-i tore and 0lrso2-1.9 - 1.9 1.9 - 1.9 3.8 - 3.8 0.5 - 0.5 T-anf- Lo Ot-fIli 03-66.5 - 66.7 06.0 - 76.0 142.5 - 162.5 19.0 - 19.0 St.dies .od P-ojeot 0'64'3-3.3 6.2 9.5 3.3 6.2 9.5 6.6 12.4 19.0 0.9 1.7 2.6 Research ..d troleleg 06-11.0 6.2_ 17.2 11.0 6.2 17.2 22.0 12.4 36.4 2.9 1.7 4.6 06 3 12.4 98.7 95.8 12.4 108.2 182.1 24.8 206.9 74.C3 3.6 27.7 3.1

11 NEW6LINES dND RIIAL2CIOITS

R JuPeti-But,Cdo PiF"I 36 6.0 3.0 9.0 60.3 29.7 90.0 '2.6 35.6 108.0 76.7 37.0 114.5 - - - 215.4 106.1 321.5 28,7 14.1 42.0 8L1 Irrlgs- Sr' Paul 62 ------860.3 427.7 1296.0 868.3 427.7 1296.0 115.8 57.0 172.8 R. O-c*bs Pedr do SfI0 43 3.2 1.8 5.0 51.3 25.2 76.5 51.3 23.2 '6.5 53.1 2641 '9.2 - - - 158.9 78.3 237.2 21.2 10.6 31.6 R eedoRo-Jolo.40 4 45 2.5 7,0 2.4~35.6 108.8 '2.4~31.6 108.0 72.4 35.6 1080 - - 221.7 109.3 331.0 29.6 26.6 64.2 13.7 '.3 21.0 184.0 90.3 274.5 296.2 96.4 292.5 2.2 99.1 301.7 868.3 427.7 1296.0 1464.3 721.4 2185.7 195.3 96.1 291.4 32.3

(65b eutCrrdr

R Asnia11 040 - - - 10.4 10.3 20.7 13.5 13.5 27.0 ------23.9 23.8 47.7 3.2 3.2 6.4 N L CGo..r-1 Lus-Peetas 696 ------0.9 - 0.9 120.6 59.4 180.0 93.8 46.2 140.0 215.3 185.6 320.9 28,7 14.1 42.8 O TeSsiaooao-Cmpo lrande-…0.9 - 0.9 66.9 33.0 99.9 60.3 29.7 90.8 128.128.1 62762.7 190.190.6 17.1 8.49 25.599.9 - - - ~~~~~~10.410.3 20.7 15.3 13.5 28.0 107.5 92.4 279.9 15.1 71.9 230.0 367.3 192.1 558.4 49.0 21.7 74.7 6.3

mis.. loa t- gnel (Os-t IT) 09 ------30.2 14.8 45.0 30.2 14.8 45.0 60.4 29.6 90.0 8.1 3.8 12.0 115 11 2.2 3.2 1.4 22.3 33.5 55.8 22.9 34.3 57.2 36.0 54.0 90.0 24.2 01.4 135.6 137.6 206.4 344.0 18.3 27.5 45.8 1RI 0 -Mpl (Fart RIf-OtSClaros (Fore 77) 23 2.9 4.3 '.2 4.7 7.0 11.7 6.5 9.7 16.2 26.9 40.4 67.3 25.2 37.8 03.0 66.2 99.2 165.4 8.8 13.0 72.0 J..Joqolm 14.tinh.-lO-.o 14 ------30.2 14.9 45.0 33.2 16.3 49.5 63.3 31.2 94.5 8.4 4.2 12.6 0.1.. Tpatiogu-CapttloMaCrIco 15 - ~ ~ ~ - ~ - ~~~~---1.0 - 1.0 - - - -- 1.0 - 1.0 0.1 - 0.2 I.Moi-Sa1-do (Fr I . . 6. 7.1_ 0l.6I_17. 7.1 00.6 17.7 3. 58.2 970 39.4 59.7 96.6 95.1 1i42.7 237.8 12.7 19.0 31.7 .81.6 19.4 34.1 51.1 85.2 37.5 54.6 92.1 162. 183 344. 182.2 209.3 391.7 423.6 109.1 932.7 55.6 67.8 224.2 13.8

III STATIONSA085 ARDS Mist Y.rd ispr--meni 19------77.9 17.1 95.0 116.9 25.6 142.5 194.8 42.7 237.5 26.0 5.7 31.7 oem y.rd, IOcooflia 20-...... 7.8 1.7 9.5 7.8 1.7 8.5 15.06 3.4 19.0 2.1 0.4 2.3 05.7 18.8 104.5 124.7 27.3 152.0 210.4 46.1 256.5 20.1 6.1 34.2 3.8

v MLOTIVE_ 08E8 & ROLLING 07.0CR

Furts for rebulding8 r. 33 - 0.2 1.9 2.1 0.2 1.9 2.1 0.4 3.8 4.2 0.1 0.5 0.6 1217 -irsgtras(OpYort 1.00-1.60 67 -- 12.7 114.3 127.0 16.9 152.2 169.1 29.6 266.5 296.1 3.9 35.5 39.4 81 rlhsu(751) 1.60s 68 19.6 176.6 196.2 - - - 19.6 176.6 196.2 2.6 23.5 26.1 475loefjihtgt sts- 1.004+ 1.60 m31 21.6 204.0 115.6 - - - 11.6 104.0 115.6 1.5 13.9 15.4 Mo,der- of 2,268 freight r3s1 ------6.7 60.6 67.3 5.7 50.0 56.5 12.4 111.4 125.0 1.7 14.9 18.0 Mo,de,- If42 psu..... ruts 31 0.2 1.8 2.0 0.2 1.8 2.0 0.4 5.6 4.0 0.1 0.5 0.6 140 ..u.e_f_ ntst 52 112108 120 30 34.2 300 15. 135.0 150.0 2.01 18.0 20.0 ~~~~~~~~~~~~~~~62.2560.0 822.2 26.8 240.9 267.7 89.0 600.9 889.9 11. 106.8 118.7 13.2

VII RAILWAYMODERNIZATION Tronk -rebiblflit.t P-9-r 253 160.6 204.3 364.9 174.6 222.2 396.8 335.2 426.5 761.7 44.7 56.9 101.6 Wotlkshop dOlaro 22 -- 19.0 35.3 54,3 16.3 30.3 46.6 35.3 65.6 100.9 4.7 8.7 13.4 noorFtao proora 24 ------34.9 35.0 69.9 15.2 15.3 30.5 30.1 30.3 000.4 6.7 6.7 13.4 on,..ifirstionPro9es 17 … ……… ……150.1 225.1 375.2 150.1 225.1 375.2 300.2 450.2 750,4 40.0 60.0 100.0 RoOd sils34 - --- -70 - 7.0 7.0 - 72.0 14.0 - 14.0 1.9 - 1.9 371.6 499.7 671.3 363.2 492.9 856.1 734.8 992.6 1727.4 9. 13320.3 25.5

Bsse rout esiua2. 89 40.4 22. 5. 00. 4. 5..4 4t1157.516. 2622.6 1015.1 1486.6 330.7 3471.5~3287.0 ~67585 63.0 430.2~901.2 100.0 physIcalronringennlss 2.4 2.2 4.6 2~~~~~~~~~~~~~~~~~~~~_5.~416.9 42. 2766 1.345983 4. 81.~2102.0 ~184.0161.7 132.5 294.2 290.3 272.7 571.0 529.8 36.6 76.42 0.o5 T.ta 23.5 21.1 45.0 253.9 166.8~422.7 276.5~182.0 459.3 1230. 37920. 960 09039. 790359772. 0, 7. 977. 0. 0.

of hith: civil -eri 17.9 15.8 33.7 190.4 126.6 517.8 207.4 137.1 344.5 676.5 713.6 1290.1 1436.1 1001.4 2437.5 2740.3 1994.5 4742.8 366.4 265.9 632.3 (65) .Qnipeo.. 4.0 5.3 11.3 63.5 42.2 185.7 69.1 45.7 114.0 362.2 834.3 1216.5 520.7 617.7 1130.4 1021.5 1565.2 2506.7 136.4 200.7 345.1 (35) E.P..tsd ptiOoi. -. Ci,d I -kthu % P.. 15.0 13.0 13.0 12.0 12.0 I ttooudd 7.5 22.5 30.2 55.7 '4.4 asn_O 1.3 1.2 2 5 42 8 28.5 '1.3 79.0 52.0 132.6 488.2 397.5 885.7 1003.3 745.0 1020.3 1695.4 122560 2920.4 226.1 163.3 389.4 39.0 u0Opm5Or! I p a 11 .0 00.0 10.0 9.8 8.0 1 ropocdod 3 .5 16.6 28.2 40.3 52.3 suouct ~~~~~~~~~~~~0.30.3 0. I0.5I~7.0 17.5 19.5 12.0 32.4 146.0 344.3 490.5 272.3 323.1 595.4 440.6 607.6 1134.2 59.8 91..7 1451.95 15.5 Total ampoctOdprior. .no..... 1.6 15 3.1 533 3. 81 93 6. 56.0 63.2 741.8 ~1376.01355.6 1068.1 ~2423.7214. 19'r2.6 ~4056.6259 3.0 4.955.3 T.,t l epn-rod cen of it-g 15. smoodd frm the r-juc- 25.5 22.6 48. 1 307.2 2620.3 51 1.5 375.8 260. 5 624.3 1872.~92309.7 ~4162.63332.4 2687.2 46019.6 5913.0 5472.3 11.586.1 '8:8.7 ~729.61~518.3153

Of mhich: douhnftl inn- 25.5 52.6 40.1 307.2 204.3511.5 375.0 260.5 624.3 086.6 589.9 1476.7 617.6 515.9 1153.5 2212.9 1581.2 3794. 295.2 210.8 306.0 (33) tMot. iS0tO906.1 1719. 2785.9 2714.6 2171.3 4006.1 3700.9 3891.1 7592.0 493.5 5150. 1012.3 (675

Octob- 1974 BRAZIL

APPRAISAL OF A SECOND RAILWAY PROJECT (RFFSA)

Items to be Financed by the Proposed Loan

Cr$ (1975) million US$ (1975) million Expected Disbursement Schedule (USS million) Categery 1977 1978 Quantity To be ordered in Total To be ordered in Total % 1975 1976 I 1975 1976 1975 1976 I1 I II I

I Track Rehabilitation Program 27.8 - 6.1 6.1 7.8 7.8 (a) Rails and accessories 684 km 104 104 208 13.9 13.9 - 0.8 1.8 1.8 - (b) Switches 1,065 33 - 33 4.4 - 4.4 2.1 - 1.0 1.1 - (c) Ballast crushers 10 16 - 16 2.1 - 12.0 1.4 3.6 5.3 1.7 _ (d) Maintenance equipment 32 90 - 90 12.0 - - 2.4 - 1.2 1.2 - _ (e) Welding equipment 1 18 - 18 2.4 11.3 7.8 _ 261 104 365 34.8 13.9 48.7 36.0 1.4 12.7 15.5

II Mechanical Department 3.8 - 0.7 1.0 1.1 1.0 (a) Parts for freight car modernization Set 14 14 28 1.9 1.9 5.3 - 0.6 0.9 1.1 1.7 1.0 (b) Workshop equipment Set 14 26 40 1.8 3.5 2.2 2.7 1.0 28 40 68 3.7 5.4 9.1 6.7 - 1.3 1.9

III Signalling and Communications - 1.8 3.6 5.2 5.3 2.6 (a) CTC Rio de Janeiro-Sao Paulo Set 139 - 139 18.5 - 18.5 1.1 - 0.6 0.5 - - - (b) Telecommunication equipment Set 8 - 8 I.1 5.2 5.3 2.6 147 - 147 19.6 - 19.6 14.5 _ 2.4 4.1

IV Suburban Services

- 38.0 9.5 - 9.5 - 9.5 9.5 (a) Unit trains 40 285 - 285 38.0 14.4 - 1.8 2.7 3.6 3.8 2.5 (b) Signalling and electrical equipment Set 107 - 107 14.4 _ 12.2 3.6 13.3 12.0 392 - 392 52.4 52.4 38.7 9.5 1.8

V Consulting services 2.8 0.3 0.5 0.5 0.85 0,5 0.5 (a) Technical assistance _ 21 - 21 2.8 - 0.3 0.5 0.5 0.6 0.4 0,4 (b) Training _ 20 - 20 2.7 - 2.7 0.9 41 - 41 5.5 - 5.5 4.1 0.6 1.0 1.0 1.1 0.9

135.3 100.0 11.6 19.6 34.5 23.2 29.9 16.5 Base Cost Estimate 869 144 1,013 116.0 19.3 6.8 5.0 0.6 1.0 1.7 1.2 1.5 0.8 Physical contingencies 44 7 51 5.8 1.0 105.0 100.0 12.2 20.6 36.2 24.4 31.4 17.3 Sub-total 913 151 1L064 121.8 20.3 142.1

increases Expected price 10.0 9.0 7. P. A. 11.0 10.0 5.5 16.6 28.2 40.3 7. compounded 23.2 0.7 3.4 6.0 6.9 8.9 7.0 amount _ 248 . _ 32.9 123.2 12.9 24.0 42.2 31.3 40.3 24.3 Total 1,312 175.0

December 1971 BRAZIL

APPRAISAL OF A SECONDRAILWAY PROJECT (RFFSA)

Intercity Freight Transport Statistics (1960-1972) (in billion net ton-km) (Figures between ( ) are indices with the 1960 value taken as 100)

Average annual growth rate in % 1960 % 1965 % 1970 % 1972 % 1960/65 1965/72 1960/72

Highway 42.0 60.3 75.0 68.9 124.5 70.6 152.1 73.3 12.3 10.6 11.3 (ioo) (179) (296) (362)

RailwaZ

RFFSA 7.4 10.6 8.8 8.1 12.0 6.8 11.7 5.6 3.4 4.2 2/ 3.9 2/ (loo) (118) (156) (158) -

FEPASA 3.0 4-3 3.3 3.0 3.2 1.8 3.2 1.5 .7 .0 .6 (100) (11o) (107) (107)

Privatg 1/ 2.6 3.7 6.2 5.7 15.1 8.6 18.5 8.9 19.0 16.9 17.8 (ioo) (238) (581) (712)

Total Railway 13.1 18.8 18.3 16.8 30.3 17.2 33.3 16.0 7.1 8.9 8.2 (100) (141) (233) (254)

Coastal Shipping 14.5 20.8 15.5 14.2 21.4 12.1 21.8 10.5 1.3 5.0 3.4 (100) (107) (148) (150)

Air .1 .1 .1 .1 .2 .1 .3 .1 .0 17.0 9.6 (loo) _(_loc) (2 00) (300)

Total Transport 69.7 100 108.9 100 176.4 100 207.5 100 9.3 9.7 9.6 (ioo) (156) (253) (298)

1/ The Companhia Vale Rio Doce railroad (Vitqria Minas) accounts for most of this private traffic.

2/ 1971 and 1972 were bad years for RFFSA; over the reference period 1965-1973, the average growth rate is 6.8%.

Source: GEIPOT (Anuario Estatistico dos Tramsportes: 1972) DNER (Highway and Brazil's Development, Oct. 1973) and Bank staff

June 1974 BERAZIL

APPRAISAL OF A SECOND RAILWAYPEOJECT (RMA)

RFFSA Freight Traffic 1968-1973 asd Forecasts 1974-1979

Regional North East (1, 2, 3 and 4th Divisions)

Commodities 1968 1969 1970 1971 1972 1973 1974 1975 1976 1977 1978 1979

Minerals 1/ Thousand ton 171 213 256 295 365 434 526 565 604 639 673 720

Million ton-km 97 127 163 159 205 258 311 341 371 400 424 454

Cement Thousand ton 173 221 361 273 313 432 445 487 530 590 637 688

Million ton-km 102 96 190 142 149 198 218 238 258 289 312 337

POL derivatives Thousand ton 68 71 86 91 103 146 156 167 179 191 205 219

Million ton-km 24 27 29 36 43 67 72 77 82 88 94 101

Salt Thousand ton 65 78 55 64 125 168 176 185 194 204 214 225

Million ton-km 46 58 31 48 115 165 173 182 191 200 210 221

Sugar Cane Thousand ton 666 551 507 321 345 367 350 320 290 260 230 200

Million ton-km 17 14 16 13 12 11 12 8 7 6 5 4

Sugar Thousand ton 472 466 479 489 674 643 669 695 723 752 782 814

Million ton-kn .122 121 126 106 129 151 157 163 170 177 184 191

S-ub-Total Thousand ton 1,615 1,600 1,744 1,533 1,925 2,190 2,322 2,419 2,520 2,636 2,741 2,866

Million ton-km 408 443 555 504 653 850 943 1,009 1,079 1,160 1,229 1,308

Other Products 2/ Thousand ton 637 623 458 406 481 566 500 550 600 600 600 600

Million ton-km 256 242 180 160 181 230 200 220 240 240 240 240

T 0 T A L Thousand ton 212529 2*223 202 1*932 ?SJ&0 2 =82= 2,2269 3_1q=2 6 x_46 8 Million ton-km 66=4 =685 75 664 = 3 =080= 2-2 1 40Q 42

1/ From 1974 onward,inclades copper and quartz transport which were not included under this item in the Railway statistics.

2/ From 1974 onward does rot include copper and quartz which were included urnder this item in the Railwav statistics. Source: RFFSA, SCFRERAIL and Bank Estimates. June 1974 BRAZIL

APPRAISAL OF A SECOND RAILWAY PFOJECT (RFFSA)

RFESA Traffic 1O6-l973 and Forecasts 1974-1979

Central General System

1975 1976 1977 1978 1979 Commodities 1968 1969 1970 1971 1972 1973 1974

12,614 16,820 20,230 24,190 29,845 31,500 Iron ore 1/ Thousand ton 5,592 6,463 7,142 6,435 5,580 7,621 11,025 13,981 18,499 19,518 Million ton-K. 3,097 3,593 4,000 1,559 3,035 4,258 7,200 9,266 1,100 1,400 1,850 2,435 2,617 2,800 Coal Thosasnd ton 1,105 1,114 1,091 1,246 886 1,08o 202 266 351 377 403 Million ton-Km 182 181 172 184 128 160 158 1,820 2,959 3,250 3,500 3,900 4,300 Steel Produets ./ Thousand ton 68i 776 1,026 795 1,087 1,145 1,542 1,644 1,833 2,021 Million ton-Km 296 380 499 328 461 584 928 1,399 831 889 952 1,018 1,054 1,090 POL Thousand ton 102 192 446 519 726 712 806 847 889 911 934 Million ton-Km 44 131 323 457 697 642 768 1,299 1,495 1,670 1,874 2,092 2,310 Limestone Thousand ton 742 686 740 949 965 932 539 604 674 743 Million ton-Km 249 230 245 304 374 308 424 483 1,807 2,834 4,887 6,054 6,715 7,376 Cement Thoosand ton 966 1,226 1,029 889 1,150 1,557 1,572 2,770 3,427 3,800 4,172 Million ton-Km 5OO 663 659 458 704 899 982 405 425 446 450 45o 450 Sugar Thousand too 319 260 199 222 364 425 345 151 1,161 1,16i 1,161 Million ton-Km 112 88 64 73 132 150 139 299 385 481 550 580 611 Dolomite 3/ Thou-snd too 114 700 169 179 189 Million ton-Ks 79 138 174 204 282 300 319 Manganeso Ores 3/ Thousond ton 83 97 131 139 148 Million ton-Ks 67 258 270 285 301 308 316 Wheat Thousand ton 232 209 215 249 232 248 113 119 125 129 132 Million ton-Ks 90 89 90 103 96 153 107 540 579 595 607 614 622 Pig Iron Thousand ton 210 284 235 329 551 751 344 350 354 357 360 Million ton-Km 103 133 117 172 275 242 320 31,230 38,850 45,261 48,475 51,694 Sub-Totol Thouoand ton 9,949 11,210 12,303 11,632 11,541 14,471 02,811 22,407 25,290 27,014 28,736 Million ton-Km 4,672 5,490 6,168 5.639 5,842 7,346 13,174 17,526 i,816 1,900 1,900 1,950 2,052 1,950 Other Products Thoosand ton 2,674 2,608 2,352 1,972 1,735 2,471 830 829 905 889 Millin ton-Km 1,134 1,097 988 826 765 937 793 830 ISLIIO 36=75i 434211 50,527 Total Thomusad ton 12,623 13,818 14,655 1360l4 13,276 16,942 23,127 4L2UAW3 i Million ton-Km 6,8= Y 6 429 i432

1/ Includes Manganese ore and Dolomite up to 1972.

2/ Total tonnages adjusted for tearamhipment to avoid double counting due to change of gauge.

3/ For years 1966-73 Manganese and dolomite totals are included in Iron or totals. P1 Source: RFF3A, SOFRIERAIL and Bank eatimates.

December 1974 BRAZIL

APPRAISAL OF A SE0OND RAIILAY PliJECT (RFFSA)

RIFSA Traffic 1968-1973 and Foecaats 1974-1979

Center-South System - (9th Division-Broad Gauge)

Co_gdities 1968 1969 1970 1971 1972 1973 1974 1975 1976 1977 1978 1979 Iron Ore Thousand ton n.a. 572 735 587 878 897 920 1,130 2,230 2,630 3,350 3,540 MSillion ton-km n.a. 29 48 44 45 39 48 60 105 126 150 170 Coal Thousand ton 471 353 153 n.a. 81 137 108 126 147 171 200 230 Mi.llon ton-km 22 21 12 n.e. 6 9 8 10 12 13 16 18 Steel Preducts Thousand ton n.a. (*) (a) 163 349 376 429 692 826 861 897 Million ton-kn n.a. (*) (*) (a) 10 20 23 26 41 50 52 54 POL Thousand ton 987 1,162 1,245 1,361 1,074 394 300 300 300 300 300 300 Million ton-km 55 62 69 68 47 8 6 6 6 6 6 6 Fertilizer Thousand ton 534 581 621 426 590 584 630 662 694 729 766 1,000 Million ton-km 54 59 51 37 46 44 48 51 53 56 59 77 Salt Thousand ton 107 111 120 n.a. 60 61 60 60 60 60 60 60 Milliofton-ko, 6 6 7 n.e. 3 4 3 3 3 3 3 3 S,war Thousand ton 370 217 212 114 749 1,051 1,000 1,000 900 800 800 800 Million ton-km, 48 27 23 14 102 135 137 137 123 110 110 110 Coffee Thousand ton 452 361 441 385 184 203 210 220 232 243 255 270 Million ton-ks 29 21 17 19 22 22 24 25 27 28 29 30 Cotton Thousand ton 408 633 470 293 330 273 200 190 180 170 160 150 Million ton-ks 28 49 30 17 22 18 14 13 13 12 12 11 Wheat Thousand ton 313 315 275 176 264 369 370 397 417 438 459 482 Million ton-km 30 28 20 11 19 26 26 28 29 30 32 34 Other grain and mla Thousand ton n.a. n.a. 31.5 243 300 273 200 350 350 350 350 350 Million ton-Io n.a. n.s. 39 28 37 30 22 40 40 140 40 b Sub-total Thousand ton n.a. n.a. 4,587 3,585 4,673 4,591 4,374 4,864 6,202 6,717 7,361 8,079 Million ton-km n.a. n.a. 316 238 360 355 359 399 452 474 509 553 Other products Thousand ton n.s. 2,259 1,749 1,376 1,491 1,517 1,593 1,673 1,756 1,839 1,921 Million ton-Ion n.a. 126 89 91 100 100 105 111 116 119 123 T 0 T A L Thousand ton IQAZ Z6=QZ = 5,3314 60o49 §0822,891 ,I,57 7,876 82147= 9>20O 10 000 Millionton-km L5,1 5 =4a a.D23 55 k2 6014 663 590 628 676

Source: RFFSA, SOFERAIL and Bank Estisate. W. _

June 1974 BRAZIL

APPRAISAL OF A SEOOND RAIIWAY PROJECT (RFFSA)

RFFSA Traffic 1968-1973 and Forecasts 1974-1979

Center-South System - (10th Division - Metric Gauge)

1975 1976 1977 1978 1979 Cossenoditles 1968 1969 1970 1971 1972 1973 1974

162 170 179 188 197 Cement Thousand ton 111 165 112 160 138 150 154 90 94 99 104 109 Million ton-km 85 116 72 95 66 80 85 75 - - - _ _ Clinker Thousand ton 85 40 223 115 164 91 - - - - - Million ton-km 75 36 103 99 131 80 63 220 242 266 293 322 354 POL Thousand ton 136 138 153 154 169 211 230 250 280 310 341 Million ton-km 120 126 145 141 157 198 210 90 90 90 90 90 Wood Thousand ton 64 64 62 60 61 84 90 100 100 100 100 Million ton-km 64 63 66 67 68 96 100 100 55 66 80 95 114 137 Agric. Products Thousand ton n.a. * n.a.* 137 85 44 46 45 54 65 78 Million ton-km n.a. * n.a,* 66 31 25 26 31 37 36 41 47 54 62 72 82 Fertilizer Thousand ton n.a. $ n.a.* n.a.* n.a.* 31 31 36 41 47 54 62 Million ton-km n.a. * n.a.* n.a.* n.a.* 21 27

Internatio nal 70 75 80 84 88 91 Traffic Thousand ton n.a. * n.a.* ri.a.* 9 69 37 104 109 l14 120 Million ton-km n.a. * n.a.* n.a.* 12 90 18 90 97 682 740 803 87)4 951 Sub-Total Thousand ton 396 407 587 574 676 655 705 590 689 747 810 Million ton-km 344 341 452 445 558 525 610 634 330 330 330 330 330 Other Products Thousand ton 492 5o9 315 334 240 294 330 170 170 170 170 Million ton-km 268 271 198 167 132 202 170 170

1,012 1,070 1,133 1,204 1,281 T 0 T A L Thousand ton 88f 916 892 908 916 94° 1,035 t24 8=2 21Z 280 Million ton-km 612 6I2 692=7 ==87*=

170 170 170 170 170 170 Cattle Thousand ton 167 158 139 135 146 154 98 98 98 98 Million ton-km 112 112 81 78 85 88 98 98

* The corresponding figures have been lumped in the category "Other Products"; the total figure is therefore accurate but not the subtotals.

Source: hFFSA, SOFRERAIL and Bank Estimates June 1974 TABL5 6 BRAZIL Page 5 of 6 pages

APPRAISAL OF A SlSCONDh'ILWAY PROJECT (REUNA)

RFSA FreiRhht Traffic 1968-1973 and Forecasts 1974-1979

Southern System (11, 12 and 13th Division)

Co-modities F o re ast 1968 1969 1970 1971 1972 1973 1974 1975 1976 1977 197c 1979 Lisstone Thousand ton 266 295 242 369 289 336 350 350 350 350 350 350 Million tan-la io5 103 80 142 73 84 87 87 87 07 87 87 Cenmot Thousand ton 221 318 3C0 207 267 299 340 420 480 540 600 660 Million ten-kIc 118 101 137 103 145 188 213 250 300 320 350 390 POL Thousand too 474 498 1,065 1,297 1,546 1,236 1,428 1,556 1,696 1,200 1,300 1,400 Milion ton-las 151 235 466 577 673 605 643 702 763 540 580 630 Wood Thousand ton 956 837 898 778 562 526 483 442 402 361 321 285 Million ton-ka 455 373 373 337 256 240 217 199 181 163 145 129 Paper Thousand ton 155 152 155 165 144 143 1144 144 151 160 167 175 Millios ton-la 40 39 35 37 33 32 32 32 34 35 37 39 Sugar Thousand ton 87 78 84 64 7C 83 107 119 130 143 155 i68 Million ton-km 59 55 54 36 40 149 69 76 82 90 96 104 Coffee Thousand ton 552 560 498 685 72 64 70 77 81 9a 103 113 Million ton-lk 287 243 189 268 37 414 48 53 S8 61 71 78 Wh.at Thousand ton 322 618 790 1,002 755 583 750 960 1,030 1,090 1,150 1,200 Million ton-kIn 153 359 490 636 147 394 4510 640 67o 700 760 805 Fertili-er 1/ Thousend too 159 0 187 a 221 * 261 858 655 786 904 1,039 1,113 1,257 1,383

Million ton-kIs 91 0 108 127 * 150 284 334 401 461 530 583 641 705 Soybea.- Thousand ton 98 223 246 281 498 856 1,100 1,387 1,590 1,823 2,090 2,250 Million ton-kn 66 1414 i69 189 337 581 737 926 1,071 1,154 1,2 1,1400 Meals -nd Calms Th.usand too - 140 717 324 422 620 70C 937 1,133 1,300 1,656 1,081 Million tan-In - 103 229 246 323 371 420 532 637 763 915 1,120 Corn Thousand ton 328 216 272 158 153 1-44 150 200 200 20G 200 201

M4illion ton-lk 214 129 184 87 61 57 60 So 80 80 6c3, e0

Sub-Total Thousand ton 3,618 4,122 1,088 5,591 5,563 5,545 6,408 7,496 8,286 8,474 9,349 10,065 Milon ion-h 1,739 1,991 2,531 2,836 2,851 2,979 3,377 1,038 4,456 b,579 5,059 5,667 Othor Products Thousand ton 1,313 1,287 897 803 929 778 800 8oo BoO 8OO 800 800 Million ton-kh 685 768 479 414 399 334 3510 314 350 350 350 350

T 0 T 6 L 7Thsua-d ton 4,931 5,409 5,995 6,194 1,969 6.323 7,208 8,296 9,086 9,274 10149 10,865 (1 ad 10th DIv.) Million ton-kh 2,424 2.759 2.932 3,222 2,980 3,313 3.727 4,388 1,806 4,929 5,409 6,017 Coal Thoueand tio 2,112 2,147 2,064 2,047 2,002 2,095 l,Oo 2/ 2,000 2,000 2,000 2,000 2,000 71th Dir. ) Million ton-km 144 146 141 138 133 139 70 2/ 140 140 140 140 140 G0A3D TOTAL Thousand ton 720L43 - =t___ L7 L203 '•o9k2S = il,27b 111141 12; 881 Million .jaoSZ ton-kIn _f568 _f905 2,s73 2,1•5 11= _452 3,7=7 4,26 5=14•2 5fS49 5.15?

1/ Inoludiog iletans -ed a, fertillose. (- ) Figs fur 1968-69-70 arm estiratei.

2/ DuN to a flood, traffio 7as.ninrrupted. -t is etioated that the lies uill sperato in 19714 at half capacity.

Source, RPFFA, SOFRli8IL and Bank Eiti-atou. Jane 1974 BRAZIL

APPRAISAL OF A&SECONDRAILWAY PROJECT (RFFSA)

RFFSA Freight Traffic 1960-1973 ard Forecasts 1974-1979, by Regions

Regions F o r e c a s t s 1968 1969 1970 1971 1972 1973 19714 1975 1976 1977 1978 1979

Northeast Thousand ton 2,252 2,223 2,202 1,939 2,406 2,756 2,822 2,969 3,120 3,236 3,341 3,466

Million ton-km 664 685 735 664 834 1,080 1,143 1,229 1,319 1,400 1,469 1,548

Center Thousand ton 12,623 13,818 14,655 13,604 13,276 16,942 23,127 30,130 36,750 43,211 50,527 53,644

Million ton-km 5,806 6,587 7,156 6,465 6,607 8,283 11,967 15,356 19,236 22,619 27,919 29,625

Center South Thousand ton 7,975 8,023 7,738 6,242 6,966 7,031 6,926 7,469 8,945 9,606 10,404 11,281

Million ton-km 1,166 1,161 1,092 939 1,140 1,182 1,239 1,264 1,367 1,449 1,545 1,656

South Thousand ton 7,043 7,556 8,049 8,441 7,971 8,418 8,208 10,296 11,086 11,274 12,149 12,865

Million ton-km 2,568 2,905 3,073 3,360 3,110 3,452 3,797 4,528 4,946 5,069 5,549 6,157

TOTAL-RFF3A Thousand ton 2,893 31,620 32,644 30,226 30,619 35,147 IR,083 50,864 59,901 67,327 76,421 81,256

Million ton-km 10,204 11,338 12,056 11,428 11,690 13,997 18,1146 22,377 z6,868 30,537 36,482 38,986

Source: RFFSA, SOFRERAIL and Bank Estimates. jo0

Decemaber 1974 TABLE 7

BRAZIL

SECOND RAILWAY PROJECT (RFFSA)

Intercity Passenger Traffic

Forecasts 1965 1972 1973 P74. 1975 1976 1977 197F

North 000 Passengers n.aO 5,1I7 5,240 5,345 5,451 5,560 5,672 5,785 Million pass.km n.a. 542 524 335 545 556 567 579 Center 000 Passengers 36,544 17,838 13,972 12,574 11,316 10,185 9,166 8,250 Million passeAM 3,319 1,148 992 990 901 821 748 683 Center-South 000 Passengers n.a. 8,697 8,590 8,590 8,290 83090 8,090 8,090 Million pass.km n.a. 632 601 601 554 517 517 517 South RU-]Passengers 6,358 3,858 3,665 3,482 3,308 3,1i42 2,985 2,836 Million pass.km 761 421 400 380 361 343 326 310

Total WrPassengers 61,981 35,810 31,467 29,991 28,365 26,977 25,922 24,961 million pass.km 5,435 2,743 2,517 2,506 2,361 2,237 2,158 2,088

-Estimated

Source: RFFSA, SOFRERAILand Bank estimates.

Deceriber 1974 Page. oTf 2pee

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N- N TABLE9 BRAZIL Page 1

APPRAISALOF A SECONDRAILWAY PROJECT (RFFSA)

Truck and Railroad Costs

1. Estimated Heavy Truck Transport Costs in Cr$/vehicle and in Cr$/ton-km

November 1973-June 1975

November 1973 April 1974 5/ June 1975 - I/ in Cr$73 iC$74 in Cr$75 A. Direct Truck - 'Operating Cost

Fuel (Diesel) i/ .339 .456 Oil and lubricants - .042 .057 Tires and recapping .445 .644 Maintenance 2/339 .441 Drivers' wages - .294 .382 Depreciation .358 .465 Interest .351 .456 Insurance .165 .215 Licensing and Road Tax .025 .033

Sub-total 2.41 3.1L

B. Non-financial overhead costs for trucking firms 3/ + .48 .62

C. Taxes .43 -. 56

D. Economic Truck Operating Costs

per veiicle km 2.46 3-.O 3.84 per ton-km 100% utilization .098 .128 .154 90%q; " .109 .142 .170 Ba" " .123 .160 .192

1/ Trailer -tractor with a 25-ton maximum load running 8000 km/month on paved roads. 2/ Including 40% of social security taxes. 3/ Includes wages of office anr warehouse personnel, rental of office and warehouses, commission and brokerage fees, etc. These expenses can range from 15% to 56% of total costs depending on the firm. They have been assumed to be 20% here. 4/ Includes IPI and ICM taxes on the truck-trailer, Imposto UJnico on Fuel and Lubricants; and licensing and Road Tax 5/ Fuel, oil and lubricants ircreased 135%between Noreiber 1073 and April 1Q74 due to the fuel crisis (Diesel price went up fmm Cr$.67/liter in Noverlber 1973 to Cr$.90/liter in April 1974). Other costs increased 30% in accordance with the general price index variations during the same period. 6/ Assumes a general price index variation of 20% beiween April 1974 and June 1975.

Source: Revista de Administragao Publica. Fundapao Getulto Vargas. Vol 8. June-March 1974, and Bank estimates

Decerber 1974 BRAZIL

APPRAISAL OF A SECONDRAILWAY PROJECT (RFFSA)

Truck and Railroad Costs

2. Railroad unit transport costs (in 1975 i centavos/per ton-kn)

1973 1978 Iron ore & Total Iron ore & Total steel traffic other traffic RFFSA traffic steel traffic other traffic RFFSA traffic I. Financial Costs A. Long-run variable cost excluding depreciation and interest 3.7 5.7 5.0 2.2 5.2 ^.6

B. Depreciation and interest 1/ 3.8 6.1 5.2 2.1 5.2 3.6 - track 1.1 1.3 1.2 1.0 1.2 1.1 - shunting .4 .4 .4 .1 .4 .3 - locomotives .6 1.4 1.1 .4 1.0 .7 - wagons 1.6 3.0 2.5 .6 2.5 1.5

C. Long-run variable costs

- with D and I on track and shunting only 5.2 7.4 6.6 3.3 6.8 5.0 - with D and I on all renewable assets 7.5 11.8 10.2 4.3 10.4 7.2

D. Fixed cost 6.8 6.8 6.8 2.8 2.8 2.8 E. Total cost including fixed cost,depreciation and interest (13%) on all renewable assets 14.3 18.6 17.0 7.1 13.2 10.0

II. Economic Costs /

F. Total costs including fixed costs, depreciation and 12.9 16.7 15.3 6.4 11.9 9.0 interest 4l3%) on all renewable assets

Include all taxes on personnel and materials except Imposto Unico on diesel fuel. ICM (Imposto de circulacao de mercadorias) is 15% on all rail equipment. IPI (Imposto sobre productos industrializados) is 8% on spare parts and accessories. These taxes would apply to all materials and equipment costs. Their impact on all above categories is estimated at 10% excluding taxes on personnel costs.

Source: aFSSA and Bank estimates. July 1974 TABLE 9 Page 3

BRAZIL

APPRAISAL OF A SECONDRAILWAY PROJECT (RFFSA)

Truck and Railroad Costs

3. Comparison of estimated average economic truck and railroad costs

Cr$1975/pernet ton-km 1973 L978 Economic heavy truck operating costs i/

Range .15-.19 .15-.19

Economic railroad cost 2/ .15 .10

Difference (truck minus rail) 0-.4 .5-.9

/ As defined in D. page 2: A 25-km tractor trailer, running 8,000 km/month on paved road and loaded at 80 to 100% capacity. No infrastructure costs are included.

/ As defined in E page 1 and adjusted downward 10% for taxes, including fixed costs, depreciationand interest (13%) on all renewable assets.

Source: Bank estimates

July 197h TABLE 10

BRAZIL

APPRAISALOF A SECONDRAILWAY k'NOJECT (RFFSA)

Statement of Revenues and Expenses for the Years 1963 and 1968 Through 1973 in Current Cruzeiros (Cr$ million)

1963 1968 1969 1970 1971 1972 197 REVENUES

Passengers - SubIrban ) 20.8 36.1 50.6 ?0.6 77.8 96.2 101.4 -Passengers- Interior ) 40.7 47.4 54.4 61.1 71.8 76.7 Passengers -"Normalization" - 24.5 29.1 33.9 44.4 43.2 80.5 Baggage and mail 1.9 7.0 11.9 15.6 12.5 7.1 7.2 Freight 58.6 283.8 366.0 463.5 539.4 630.9 812.3 Freight "Normalization" -- - - - 146.2 9.7 Pipeline - 15.1 17.2 23.7 32.5 27.1 38.1 Other 17.9 56.6 65.8 81.6 99.0 75.5 116.4 99.2 463.8 0880 743.3 66 998.0 1242.3 EXPENSES

Personnel 270.2 588.4 685.9 794.3 932.2 1117.1 1220.0 Materials 48.0 186.9 227.8 287.6 357.0 396.2 459.8 Depreciation - - - - 26.5 43.4 63.2 Other 45.0 1-46.0 1 228.8 279.8 279.5 390.5 363.2 921.3 1092.14 1310.7 1595.5 1836.2 2133.5

Less: "Normalization" - 107.4 76.6 87.5 96.2 105.5 114.2 363.2 813.9 1015.8 1223.2 1499.3 1730.7 2019.3

DEFICIT - after "Normalization" 363.2 350.1 427.8 479.9 632.6 732.7 777.0 - without "Normalization" 363.2 482.0 533.5 601.3 773.2 927.6 981.4 - without "Normalization"in 1973 Cr$ 2129.3 1115.5 1022.2 961.6 1027.0 1064.8 981.4 Ratio of Expenses to Revenue: - After "Normalization" - 176 173 165 173 173 163 - without "Normalization 366 210 195 185 194 202 185

Traffic Volume (millions) Passenger-km - suburban 8870 6881 6601 5980 5269 5246 5168 Passenger-km - interior 5211 3112 2896 2724 2496 2742 2634 Freight-ton-km 7978 10463 11549 12212 11564 11848 14150

Total Traffic Units 22059 20456 21046 20916 19329 19836 21952

Number of Employees (Thousands) 154 128 126 125 123 120 116

Average Revenue (1973 centavos)

Per passenger-km - suburban ) 1.21 1.47 1.89 1.96 2.10 1.96 Per passenger-km - interior ) 1.19 3.03 3.114 3.19 3.25 3.01 2.91 Per freight-ton-km 5.93 6.28 6.07 6.07 6.20 6.11 5.74

Average Costs (1973 Cr$)

Personnel costs per employee (Cr$) 14149 10617 10414 10120 10053 10707 10517 Total costs per traffic unit - Before depreciation (centavos) 13.28 10.42 9.94 10.02 10.78 10.38 9.43

July 1974 BRAZIL

APPRAISALOF A SECONDRAILWAY PROJECT (RFFSA) Statement of Revenues and Expenses for 1973 By Region

(1973 Cr$ millions)

North- Central Central South Head- Total east South quarters

Revenues

Passengers - Interior 12.9 28.8 23.1 11.9 76.7 - Suburban 3.1 70.4 27.7 .2 101.4 Baggage and mail 1.5 2.6 1.7 1.4 7.2 Freight 56.1 376.9 155.6 223.7 812.3 Pipeline revenues - - 38.1 - 38.1 Other 8.0 41.1 25.4 30.6 11.3 116.4 81.6 519.8 271.6 267.8 11.3 1,152.1

Expenses

Administrationand general 62.6 140.3 34.7 5o.4 77.6 365.6 Maintenanceof way and works,electric plant and rolling stock 135.5 473.4 114.8 156.5 1.4 881.6 Pipeline - - 14.6 - - 14.6 Transportation 93.5 391.4 108.7 130.8 1.4 725.8 Cost of services and materials sold 0.9 23.7 3.3 3.8 - 31.7 Expensescovered by Govermnentsubsidy 30.5 60.8 6.5 16.2 0.2 114.2 323.0 1,089.6 282.6 357.7 80.6 2,133.5 |

Deficit 241.4 569.8 11.0 89.9 69.3 981.4 . Operatingratio 396 210 104 134 - 185

July 1974 BRAZIL

APPRAISALOF A SECONDRAIUIAY PROJECT (RFFSA)

Balance Sheets for the Years 1968 Through 1973 in 1973 Cruzeiros (Cr$millions)

1968 1969 1970 1971 1972 1973

ASSETS

CurrentAssets Cash 78.5 56.9 104.9 94.0 93.6 85.5 Receivables: Government accounts States and municipalities 108.8 112.0 108.4 244.o 283.9 317.2 Other 244.1 323.3 230.4 185.5 253.5 323.5 431.4 492.2 443.7 523.5 631.0 726.2

.CurrentLiabilities 708.3 615.2 365.1 334.2 355.9 336.7

Net WorkingCapital (276.9) (123.0) 78.6 189.3 275.1 389.5

Investments 100.5 81.6 15.4 17.2 19.5 48.1 Cash for SpecialPurposes 106.3 141.8 100.1 99.7 110.1 141.5 Inventories 570.7 631.2 565.4 509.1 512.2 542.8 FixedAssets and CapitalWorks in Progress 1,900.5 2,291.3 2,284.1 2,830.0 3,170.0 4,369.2 DeferredExpenses 433.5 350.4 364.9 380.1 451.5 138.0 TotalAssets 2 834.6 3 373.3 , _ _ = 3_, I 408.5_ -S 4,025.4__ 4 538.4 5 629.1 LIABILITIESAND CAPITAL

Long-termDebt 729.0 895.3 494.4 900.0 1,106.3 1,603.8 Provisionfor Indemnities 37.9 56.4 72.0 81.6 90.1 94.4 CapitalAccounts and ReserveFunds 2,067.7 2,421.6 2,842.1 3,043.8 3,342.0 3,930.9

TotalLiabilities and Capital 2,834.6 _3,373.3 3,408.5 4,025.4 4,538.4 5,629.1

July 1974 TABLE 13

BRAZIL

APPRAISALOF A SECONDRAILWAY PROJECT (RFFSA)

Analysis of 1979 Forecast Income Account by Region

(million1975 Cr$)

Headquarters Central & Regional Northeast Central South South Admini8- Total tration

OperatingRevenues

Passengers - suburban - 175.5 70.6 - 246.1 - interior 23.8 38.2 23.1 15.3 100.4 Baggage, mail, etc. 1.9 3.1 1.9 2.0 8.9 Freight - regular traffic 159.9 1,544.0 315.0 666.8 2,685.7 MBR traffic - 381.2 - _ 381.2 Pipeline - - 40.5 - 40.5 Miscellaneous 11.1 18.4 29.7 17.2 6.6 83.0

196.7 2,160.4 480.8 701.3 6.6 3,545.8

OperatingExpenses

Long-run variable costs: Passengers - suburban - 174.9 30.3 - 205.2 - interior 68.9 96.1 47.8 41.9 254.7 Freight - regular traffic 182.6 1,122.0 227.9 384.9 1,917.4 - MBR traffic - 299.0 - 299.0 Pipeline - 6.1 6.1 Fixed costs 245.6 667.1 148.6 235.1 144.1 1,440.5

497.1 2,359.1 460.7 661.9 144.1 4,122.9

Net OperatingSurplus (deficit) (300.4) (198-7) 20.1 39.4 (137-5) (577-1)

December 1974 TABLE 14

BRAZIL

APPRAISAL OF A SECONDRAILWAY PROJECT (RFFSA)

Forecast Income Account

(millions of Cr$)

1974 Cr$ 1975 Cr$ 1974 1975 1976 1977 1978 1979

OPERATINGREVENUES

Passengers - suburban 127.4 150.9 155.2 159.6 164.1 246.1 - interior 95.5 108.0 106.0 104.2 102.3 100.4 Baggage, mail, etc. 8.8 9.9 9.7 9.4 9.2 8.9 Freight - regular traffic 1,107.1 1,438.2 2,051.8 2,262.9 2,474.0 2,685.7 - NBR traffic 195.0 269.1 314.0 336.4 358.8 381.2 Pipeline 35.2 40.5 40.5 4o.5 40.5 40.5 Miscellaneous 72.2 83.0 83.0 83.0 83.0 83.0

Subtotal 1,641.2 2,099.6 2,760.2 2,996.0 3,231.9 3,545.8

Government subsidies (normalization) Northeast Region and Leopoldina Division deficits 478.5 467.2 Interior passenger services 1/ 96.6 88.8 Rio de Janeiro suburban passenger services 37.0 39.8 37.0 34.3 31.8 - Expenses met by the Government 125.6 135.9 127.4 118.9 110.4 101.7

Total Government subsidies 162.6 175.7 164.4 153.2 717.3 657.7

Total Revenues 1,803.8 2,275.3 2,924.6 3,149.2 3,949.2 4,203.5

OPERATINGEXPENSES

Long-run variable cost: Passengers - suburban 140.5 161.9 162.3 162.6 163.1 205.2 - interior 275.5 304.4 292.0 279.6 267.1 254.7 Freight - regular traffic 1,119.1 1,413.1 1,539.3 1,665.4 1,791.6 1,917.4 - MERtraffic 155.0 213.9 249.5 267.4 285.2 299.0 Pipeline 5.3 6.1 6.1 6.1 6.1 6.1 Steam locomotives costs 3.7 4.3 - - - - Imposto Unico 102.7 131.3 144.4 157.7 170.9 184.0 Fixed costs 1,155.1 1,342.0 1,355.7 1,369.4 1,383.1 1,440.5 Expenses met by the Government 125.6 135.9 127.4 118.9 110.4 101.7

3,082.5 3,712.9 3,876.7 4,027.1 4,177.5 4,408.6

Operating Deficit 1,278.7 1,437.6 952.2 877.9 228.3 205.1 Interest and commissions on borrowing 201.8 348.8 543.3 720.6 824.3 832.5

Deficit 1,480.5 1,776.4 1,1495.14 1,598.5 1,052.6 1,037.6

Working ratio - after normalization 143 135 108 103 84 83 - without normalization 157 146 115 108 103 go

Operating ratio - after normalization 171 163 133 128 106 10$ - without normalization 188 177 1140 134 129 124

Note: Depreciation charged in Operating Expenses 511.0 647.0 714.4 777.9 841.2 948.2 Depreciation budgeted 97.0 113.0 130.0

Other than in Northeast Region and Leopoldina Division.

December 1974 BRAZIL

APPRAISAL OF A SECONDRAILWAY PROJECT (RFFSA)

Cash Flow and Financing Plan

millions of 1974 Cr$ (millions of 1975 Cr$) Total 1974 1975 1976 1977 197B 1979 1975/1979

Requirements

RFFSA's Operating Deficits 1/ 864.7 903.6 367'.7 877.9 228.3 205.1 2,582.6 EstimatedProject Costs and Costs of Remote Items in RFFSA's InvestmentPlan 3,374.5 5,246.4 6,136.1 5,109.3 3,452.8 2,905.1 22,849.7 EstimatedDebt Repayments: Principal 261.5 306.8 545.6 672.3 880.2 1,101.5 3,506.4 Interest 201.8 348.8 543.3 720.6 824.3 832.5 3,269.5

4,702.5 6,805.6 7,592.7 7,380.1 5,385.6 5,o44.2 32,208.2

Sourcesof Funds GovernmentBudget Appropriations: To meet RFFSA's operatingdeficits 864.7 903.6 367.7 877.9 228.3 205.1 2,582.6 To cover debt repayments 463.3 655.6 1,088.9 1,392.9 1,704.5 1,934.0 6,775.9 To finance the InvestmentPlan 1 103.9 1 013 7 1,793.5 890.2 473.5 75.8 4,246.7 Total Government contributions 2,431.9 2,57T-9 3,250.1 3,161.0 2,406.3 2,214.9 13,605.2 RFFSA'sNet InternallyGenerated Funds: Depreciation 97.0 113.0 130.0 777.9 841.2 948.2 2,810.3 ImpostoUnico Receipts Allocated to RFFSA 526.o 635.o 666.o 700.0 735.0 771.0 3,507.0 DNPVN (Santos Rail Access) 54.0 54.0 108.0 DomesticLoans 626.8 997.7 1,614.0 1,405.0 520.0 152.0 4,688.7 Foreign Loans 998.8 2,414.9 1,870.5 1,328.1 875.0 950.0 7,438.5 Other 22.0 18.1 8.1 8.1 8.1 8.1 50.5

4,702.5 6,805.6 7,592.7 7,380.1 5,385.6 5,044.2 32,208.2

Reduced in 1974 through 1976 to reflect Cr$ 97 million,Cr$ 113 million and Cr$ 130 charged respectivelyto expense as (depreciation rather than the Cr$ 511 million, Cr$ 647 mtdllion and Cri 71f4.4 million calculated by the Bank. A realistic charge for depreciation will be required by the Rank starting in 1977.

December 1974 TABLE 16

BRAZIL

APPRAISAL OF A SECONDRAILWAY PROJECT (RFFSA)

Summary Forecast Balance Sheets as of December 31, 1974 through 1979 (millionsof Cr$)

1974 Cr$ 1975 Cr$------1974 1975 1976 1977 1978 1979

ASSETS

CurrentAssets: Cash 109 447 220 186 154 87 Receivables: Government,states and municipalities 375 76 223 218 214 205 Other 384 468 540 572 601 672 868 991 983 976 969 964 CurrentLiabilities 433 515 531 545 562 580 Net workingcapital 435 476 452 431 407 384 FixedAssets and Capital Works in Progress: Grossvalue 37,732 42,841 46,294 49,198 Less:accumulated depreciation 16294 17,072 17,913 18,861 Net FixedAssets 7,647 12,780 21,438 25,769 28,381 30,337 Inventories 637 757 781 802 826 850 Otherassets 383 447 454 461 469 475 Total Assets 9,102 14,460 23,125 27,463 30,083 32,046

LIABILITIES AND CAPITAL

Long-termDebt 3,209 6,205 9,198 11,259 11,774 11,773 Provisionfor Indemnities 115 139 146 153 161 168 CapitalAccounts and Reserve Fund 5,778 8,116 13,781 16,051 18,148 20,105 TotalLiabilities and Capital 9,102 14,460 23,125 27,463 30,083 32,046

Debt/Equity Ratio 37/63 44/56 40/60 41/59 40/60 37/63

December 1974 $ O 'n H ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~OmmerialinDivisio

o ,~~~~~co-i0v .o o 0 H General Superintendent eatos iiso o_ .4 _0 0) 'I) C1~~~~4)F.( Finances

General Superintendent Administration -- 4 General Superintendent Personnel

, ______._ _MechanicaL Division

9 1 X ~~~~~~~~~~~~GeneralSuperintendent_ II . o __ oL Ehgineeringr o 4'~~c - co 6 WayHj8Praet Div.

0)~~~~~ W- co °t I1

o eh S Northeastern t 1 TI I o° , I Wco 1 |

I I ~Cto4'C-)X t 8 CentralI >1~~ 1 ~~~~~~~1 1 1 to 0) 02~~~~~~~~~~~00 -H 4% ; | |Region 02~~~~~~~~u .4'~~~~GO 0 bO - CO~~~~E O4aC L eta 4' t t < SouCenter-nouth Region P~~~

|co |. |0bn n )i |L. ern|| I

r- L SH-2 It -HE.1...4 -- iRgo cc~~~~~~~~~~~~~~~~~ ANNiEX2

BRAZIL

APPRAISALOF A SECONIDRAILWAY PROJECT (RFFSA)

Action Taken on UneconomicLines

Lines Km

Original program, 1966 127 6,315 Added in 1967-1972 26 +1,961 Taken out in 1972 12 - 211

Finalprogram, 1972 141 8,o65 100.0 Situationas of end 1972

track lifted 78 44,298 53.3 trafficdiscontinued 23 1,259 15.6 remaining in service Ito 31.1

141 8,065 100.0

Action taken in 1973

track lifted 4 128 1.6 traffic discontinued 9 525 6.5 remainingin service 27 1,8% 23.0

40 2,508 31.1

erogrammed for 1927

traffic discontinued 8 899 11.1 remainingin service 19 956 11.9

27 1,855 23.0

Situationby end 1974

track lifted 82 14,426 54.9 traffic discontinued 40 2.683 33.2 Sub-total 122 7,109 88.1 remaining in service ..19 6 11.9 Total 141 8,065 100.0

Types of lines remaining in service after end 1974

economically justified 4 215 2.7 kept as private sidings 7 105 1.3 military 6 482 6.0 in observation 2 15 11.

"Ju-ly 19Th 19 956 11.9 ANNEX3 Page 1

BRAZIL

APPRAISAL OF A SECOND RAILWAY PROJECT (RFFSA)

Uneconomic Lines and Services to be Studied

1. The study on uneconomic lines and services should address itself to the two following areas:

(a) the low traffic density lines of the network; and

(b) the uneconomic services on the rest of the network (including intercity passenger services).

2. Since both aspects of the study may lead to substantial savings and since they are to sorne extent interrelated, they shotuld be tackled together on a regional basis. In each of the regional rail networks, the study sihould:

(a) clearly identify the uneconomic lines and services in general;

(b) analyze the future economic and financial viability of such services based on realistic traffic and revenue forecasts. Particular care should be exercised in the computation of avoidable costs and social benefits;

-(c) determine which services should be eliminated and when and outline the corresponding maintenance and operating policies to be adopted until the service is terminated;

(d) deterraine, for those services that should not be eliminated, a program of rationalization with a view to minimize costs.

3. In each regional network, the study should focus on, but not necessarily be limited to, the geographical parts of the network, which have a low level of traffic density, described below: AN1IEX 3 Page 2

Region and Division Sections

A. Northeast All

B. Center 5t]1Division Sao Peclro - Uberaba Azurita - Bom Despacho Camargos - Cidade Industrial Aureliano Mourao - Antonio Carlos Lines in Goias State Subnetwqork Varginha - Lavras - Born Jardim - Cruzeiro - Sapucai

6th Division Corinto - Pirapora Lorena - Piquete Japeri - Paracambi Del Castilho - Sao Mateus

7th Division All (Leopoldina)

C. Center South Indu Brazil - Ponta Pora Posto Agente - Porto Esperanca

D. South 11th Division Eng. Gutierrez - Porto Uniao Morretes - Antonina Mafra - San Francisco do Sul

12th Division Esplanada - Rio Deserto Pinheirinh1o- Treviso

13th Division General Luz - Caxias do Sul Carlos Barbosa - Bento Goncalves Sao Borja - Itaqui Santiago - Cerro Largo Alegrete - Quarai Entroncamento - Livrameento Sao Sebastiao - Dom Pedrito Santo Angelo - Cerro Largo Basilio - Jaguarao

DeceiTiber 1974 ANNEX 4 Page 1

BRAZIL

APPRAISAL OF A SECOND RAILWAY PROJECT (RFFSA)

Brief Descriptionof Items in the Project

The costs of all items in the Project are given in Table 2 of the report.

I. HEADQUARTERS

1. Includes principallythe costs of new offices in Porto Alegre, Recife and Sao Paulo; a new headquartersoffice and houses in Brasilia; training and research; and studies and engineeringdesigns.

II. NEW LINES AND REALIGNMENTS

(a) IndustrialCorridors

2. New Japeri-AraraLine. This 62-km line will provide a bypass between Japeri (on the main trunk line to Rio from both Belo Horizonte and Sao Paulo) and Arara, an existing yard in the port of Rio de Janeiro. The freight traffic to the port and the industrial zone presently transits downtown and interferes with suburban passenger traffic, adding to the congestionproblem. This by- pass is expected to be completed in 1975 (Map 11,110).

3. Rio-Sao Paulo Rehabilitation. This importantongoing project includes, in particular:

(i) realigning 50 km of track;

(ii) rehabilitationof 362 km of permanentway and superstructure between Barra do Pirai and Manoel Feio;

(iii) improving the Barra Mansa-Saudadesection and building a new station at Saudade;

(iv) remodeling the Barbara yard;

(v) linking the two yards of Barbara and Volta Redonda with a new 4-km spur;

(vi) rebuildingthe Volta Redonda yard and its power distribution system.

I!ostof the work except item (ii) above is tnow completed. ANNEX4 Page 2

4. Manoel Feio-Engenheiro-SaoPaulo. This complementto the above item comprises the addition of a third line for freight traffic on a con- gested 25-km section in the Sao Paulo western suburb. Works are to be completed in 1975.

5. Rio-Sao Paulo Over/UnderPasses. This program comprises the constructionbetween 1974 and 1976 of 80 over and under passes between Rio and Sao Paulo. This will allow for suppressing 174 level crossings and will significantlyincrease train and road vehicle safety and speed along this important corridor.

6. Ribeirao Pires-Sao Bernardo (Sao Paulo Rail Link). This is a 16.5-km long subsection of the 39.5-km southern section of the Sao Paulo rail link connecting,to the West, the Sorocabana line of the FEPASA system (Jurubatuba) with, to the East, the Santos-Jundiailine of the RFFSA system (Ribeirao Pires). Sao Bernardo is the intermediate station where both the RFFSA and FEPASA subsections would meet (see Map IBRD 11,113).

7. Sao Bernardo-Jurubatuba(Sao Paulo Rail Link). Continuationof the preceding line, theoreticallypart of the FEPASA system, but included in RFFSA's InvestmentPlan for budgeting reasons (Map 11,113).

8. New Belo Horizonte-VoltaRedonda Line. This new, 432-km long, electrified line is needed to cater for the iron ore and steel-related, trafficwhich is expected to exceed the capacity of the existing line (estimatedat about 30 million tons) before the end of the decade. Tnis expectation is based on detailed traffic studies made by a Brazilian consul- tant, TRANSCON, and confirmedby Bank forecasts. The Brazilian Government is accordinglygiving high priority to the constructionof this line, for which the engineeringstudies are under way. Constructionis expected to start in 1975 and last four years (Map 11,110).

9. EngineeringStudies for the Realignmentsbetween Joao Aires, Barao de Juparana and Barra do Pirai. These are realignments--about200-km long-- of the existing line between Belo Horizonte and Rio de Janeiro. Their con- struction.probablywill not be justified for several years, when the above new Belo Horizonte-VoltaRedonda line is saturated and/or the existing Belo- Rio line carries enough traffic to justify cost savings investments. There- fore, at this stage, studies only are included in the Project (Map 11,110).

10. Arcos Spur. This is a 9-km spur linking limestone deposits to the station of Arcos in the Central Region. The line is expected to carry about 2 million tons of limestoneper year to CSN (CompanhiaSiderurgica Nacional) in Volta Redonda (Map 11,110).

11. Third Rail Sao Paulo-Santos. Widening to 1.60 m of the existing meter-gauge line of FEPASA. RFFSA's traffic could then use this line instead of its present obsolete cable-operatedline and in addition to the new rack ANNEX4 Page 3

section being completed (item 15 below) but faced with serious technical problems. The availabilityof a safe connectionbetween the two important cities is essential.

12. New Paratinga-PiassagueraLine. Also on FEPASA territory,this 20-km line is under way and is to provide direct access to the port of Santos. About 13 km of track are already laid, and the completionof the line is expected in mid-1976.

13. Widening Ipatinga-Fabrica. USIMIINASis one of Brazil's major steel mills, located in Ipatinga on the meter gauge EFVM line. Problems are pre- sently being encounteredwith the shipment of steel products to the main centers of consumptionin Rio and Sao Paulo, better served by the broad gauge network of RFFSA. The track is to be widened to 1.60 m by adding two rails, and would then be suitable for both the EFVM meter gauge stock and RFFSA'swide gauge stock serving USIMINAS (Map 11,110).

(b) Export Corridors

14. Belo Hlorizonte-CostaLacerda Realignment. A limited rehabilitation of this section will improve the petroleum traffic from the Belo Horizonte refinery to Brasilia and the center west states (Map 11,110).

15. Serra do Mar (Sao Paulo-Santos)Rehabilitation. Constructionof an 8-km new rack railroad with electric traction to replace the old and costly cable car system in the Sierra section of the Santos-JundiaiRailroad, between Sao Paulo and Santos, is now complete,except for the signallingwhich is being installed and will be ready in 1975 (Map 11,112). However, individual problems are still being encountered.

16. Access to the Santos Left Bank. This is a 24-km spur connecting the newly expandingleft bank of the Santos Port with the existing railway lines between Sao Paulo and Santos. This item is included in the Santos Port project, financed under Loan 756-BR. Because of very substantialcost increases and changes in the scope of the project, the economic feasibility was re-examined in 1973 by consultants (Planave) and reconfirr,med by the Bank, subject to reductionsin the project design. The engineeringstudies are now being revised, and constructionis expected to start in 1975 (Map 11,110).

17. Curitiba-ParanaguaRehabilitation. Minor rehabilitationworks are needed on the old line to keep it open to traffic until the new line is ready by 1978. These works include building contention walls and changing rails in the curves. Other works will be done in the terminal,yard and stations that will be used by the new line (Map 11,111).

18. Curitiba-Paranaguaand Guarapuava-Cascavel.Each of these links is at one end of the export corridor leading from Cascavel,the center of a rapidly expanding soybean producing area in western Parana, to the port of Paranagua. Engineeringstudies for Curitiba-Paranagua(107 kn) are under way and to be completedby end of 1974; those for Guarapuava-Cascavel(260 km) are expected for completionby mid-1975 (Mfap11,111). ANNEX 4 Page 4

19. Engenheiro Bley-Curitiba. This new 70-km line is being built to replace the existing one, which has difficult gradient and curve character- istics. The works are to be completed in 1975 (Map 11,111).

20. Engenheiro Bley-Engnleiro Gutierrez,New Line. This section belongs to the same export corridor as the two preceding items and would avoid the present detour through Ponta Grossa. Priority seems lower, however, and this item has been only tentativelyincluded in the Project, subject to further review (Map 11,111).

21. Jussara-Londrina. The permanentway has to be improved along this section of the Parana Export Corridor,which serves one of the most important producing areas (Map 11,111).

22. Cianorte-Umuarama,New Line. This is a 50-km extensionof an existing line in western Parana, serving the soybean producing country and facilitatingexports. This item is tentativelyincluded in the Project, subject to further review (Map 11,111).

23. Rehabilitationof the Railway Lines Leading to the Port of Rio Grande. This program is for improving 540 km of lines in the hinterland of the Rio Grande do Sul State. Rehabilitationof these lines is part of the Export Corridor Program and is well under way. All the works are to be completed in 1976 (Map 11,111).

24. Philipson-CanabarroRealignment. This 29-km shortcut would, like the following items, facilitategrain exports from the hinterlandof the Rio Grande do Sul to the deep sea port of Rio Grande. It is part of the State Railway Master Plan Study, which was recently completed (Map 11,111).

25. Dilermandode Aguiar-SaoGabriel, New Line. This 70-km long new section would shorten the distance run by north-south trains in Rio Grande do Sul, avoiding the detour through Cacequi (Map 11,111).

26. Realignmentsalong the Cacequi-RioGrande Line. The three follow- ing realignmentsare also part of the Export Corridor Program for the State of Rio Grande do Sul:

(i) Tiaraju-VonBock, 44 km, to be completed in 1975;

(ii) Sao-Sebastiao-HulhaNegra, 66 km, to be completed in 1975;

(iii) Herval-Pelotas,85 km, to be completed in 1976 (Map 11,111). ANNEX 4 Page 5

(c) Other

27. Access to the Port of Aratu. This small railway spur (15 kri)to Aratu (the industrialport of Salvador) is to be completedin 1975 (Map 11,109).

28. Araguari-Piresdo Rio Realignment. This realignmentwill replace the existing line - 62 km longer and with very poor characteristics- and will thereby remove the major remainingobstacle to the traffic between Sao Paulo, Rio and Brasilia. (Map 11,110).

29. New Line to Cantagalo. This 70-km long spur could be built to link the limestone and cement producing area around Cantagalo to the main network at Nelo Barreto. This item is tentativelyincluded in the Project, subject to further review (Map 11,110).

30. MiscellaneousLocal Realignments. On lines with important traffic, minor realignmentcan bring about a better utilizationof the locomotives and rolling stock, thereby increasingthe capacity of the line.

31. Santo Eduardo-VitoriaRealignment. This 165-km long realignment would replace the existing 253-km long poorly aligned line. When the final engineering is completed and when the plans for the steel projects in Vitoria are firmed up, the feasibility of the Santo Eduardo-Vitoria realignment should be rechecked (Map 11,110).

32. Iacu-Mapele Realignment, and Other Major Realignmentson the Iacu- Montes Claros and Maceio-SalvadorSections. Constructionof the 270-km long realignmentfrom Iacu to Mapele and major realignmentworks along the Iacu- Montes Claros (814 km) and Maceio-Salvador(850 km) sections would basically serve two objectives: (a) rehabilitatingthe rail link between the Northeast region and the rest of the country and (b) improving transport conditions for both inputs and outputs of the petrochemicaland cement industriesaround Salvador (Map 10,109). Only the more urgent works are tentativelyincluded in the Project.

33. Roca Sales-Passo Fundo, New Line. This is a major connecting link between the northern wheat-producing region of Rio Grande do Sul and the state capital, Porto Alegre. Constructionwas started by DNEF back in 1950 and has been proceedingsince, mostly with the Army's help. Completionis expected in 1978 (Map 11,111).

34. Consolidationof New Lines. On many lines built by DNEF and oper- ated by RFFSA, geologicalstudies indicate the need for complementarycivil works such as widening cuts and land fills, building contention walls, etc. This will be the case in 1975 and beyond for the General Luz-Mafra section on the Southern Trunk Line (Tronco Sul). ANNEX 4 Page 6

III. STATIONS AND YARDS

35. Yard Improvementsin Arara. The Arara yard, with 26 km of lines, will have a capacity for about 5,400 cars per day; traffichandled will con- sist mostly of iron ore, coal and containersexported and imported through the Rio de Janeiro Port.

36. Yard and.StationImprovements. This item includes the construction of new, or the extension and remodelingof existing,yards, stations and sidings, with the provisionof equipment to improve train operations. About 50% of this investment will be made in the Central region in Rio, Sao Paulo, Belo Horizonte, Volta Redonda and Campos, 30% will be made in the Southern region and 20% in the Central-South and Northeast regions.

37. New Station Building in Brasilia. The sumptuousnew station build- ing now being built by DNEF in the capital, at a cost of Cr$ (1974) 19 million, is a prestige work without real justification,but which is almost completed.

38. Oil Handling Facilities. This includes the constructionof sidings and access spurs to the followingoil refineriesor main petroleum derivative distributioncenters: Aracaju, Juazeiro,Brumado, Candeias,Araucaria and San Jose dos Campos.

IV. SIGNALLINGAND TELECOMUNICATIONS

39. MiscellaneousImprovements in Signalling. This is principallyto modernize the automaticsignalling syster;i on those sections of the 6th and 9th Divisions'high traffic density lines, which are not coveredby other ongoing specific projects, such as MBR, Rio-Sao Paulo and Campo Grande- Jundiai.

40. MiscellaneousImprovements in Telecommunications.With the instal- lation of a telephonenetwork to cover the railway system and the provision of a communication system between the locomotives and the yards, train oper- ations could be substantiallyimproved.

41. CTC between Rio and Sao Paulo. This will increase the capacity of the line, which will have to carry a large number of iron ore and steel product trains as well as passengertrains. The engineeringis expected to be carried out in 1975 and the system installedin 1976.

42. ATC Campo Grande-Jundiai. This is to complete the installationof AutomaticTraffic Control on 104 km of lines of the 9th Division and, thus, to improve the efficiencyand the safety of operations in the Sao Paulo Export Corridor (Map 11,113).

V. MOTIVEPOWER AND ROLLINGSTOCK

43. One hundred and eighteen 2,250 HP broad gauge diesel electric locomotives are being acquired,especially to cater for iron ore and steel ANNEX4 Page 7 traffic to be carried on heavy block trains in the Central region; 15 are expected in 1974 and the rest will be delivered in 1975 and 1976.

44. One hundred and ninety-five locomotives (gauge and HP to be deter- mined); 10 shunters and parts for rebuilding 12 locomotives will be acquired between 1974 and 1978 as part of the expansion and modernization programs of the motive power fleet.

4'5. Four thousand three hundred and ninety-one freight cars and 100 refrigerator cars will be acquired over the three years 1974-1976 in addition to 1,850 hoppers already acquired in 1973. These wagons, like the locomotives of item 32 above, are part of the Export Corridor Program and will be used mostly in the Southern states for bulk cereals transport.

46. Three thousand nine hundred and eighty-two freight cars were ordered from several firms in Brazil (3,000) and in Yugoslavia (982) for delivery in 1974 and 1975.

47. Two thousand four lhundred and ninety broad gauge wagons will be acquired between 1974 and 1977 to meet the demands of the steel industry and iron ore exports.

48. Two thousand eight hundred and eight freight cars will be acquired between 1974 and 1978 to meet the increased traffic demand in products other than steel and cereals.

49. Tlirty metallic passenger cars. These are the only expenses for new rolling stock for interior passenger transport. They will allow for keeping certain services open when their elimination is neither possible nor desired.

50. Forty-eight passenger cars will be modernized between 1975 and 1977.

51. Two thousand nine hundred and seven freight cars will be modernized between 1975 and 1977, at a rate of about 1,000 a year. Many of the cars now used are very old and obsolete and should be scrapped while others can be moderni zed.

VI. SUBURBANSERVICES

(a) Rio de Janeiro

52. Improvements in Permanent Way of about 400 km of Line. Major rehabilitation, including drainage works, new concrete sleepers and small realignmients, will be done on about 100 km of line. Fences and walls will be built around the railway premises in order to prevent traffic evasion and increase safety. ANNEX 4 Page 8

53. Stations and Yards. The Don Pedro II Station will be remodeled for exclusive use of suburban passengers, whereas Barrao de Maua will attend the passengers of interior lines. The Deodoro and Sao Diego yards will also be remodeled. In many stations, the train platforms will be extended in order to permit operation of 12-car traiiis,and foot bridges will be built (Alap 11,112).

34. Signalling and Conriunications. The program includes remodeling of substations, substituting of transmission lines and a general upgrading of all the power supply system, along withi the installation of CTC in various sections.

Thirty New Unit Trains and MIodernization of 54 Unit Trains will replace obsolete stock and provide added capacity.

(b) Sao Paulo

,fl. Improvements in Permanent Way. This includes major upgrading of 50 km of way and construction of 30 1m of new lines to double track the Nlanoel Feio-Calmon Viana and Canpo Grande-MIaua sections and to add one more line between the Roosevelt station and Sebastiao Gualberto.

s7. Stations and Yards. As in Rio preceding, improvemenitswill include the extensions of platforms and the building of walls and foot bridges, as well as the remodeling and building of a few stations.

5{,. Signalling and Communications. This includes the electrification of thie above new lines and the upgrading of power supply systems on the existing system. ATC will be installed on the new lines and on the Roosevelt- Mogi section.

59. Forty new train sets will be acquired in 1975-1976.

VII. RAILWAYMODERNIZATION uUi. Track Rehabilitation Program. This three-year program is in addition to rehabilitation works carried out under special programs (e.g., MBR, para. 71 following; rehabilitation of tihe lines to Rio Grande, para. 23 preceding). It provides for (i) upgrading about 400 km of track each year, (ii) repairing or rebuilding bridges and other items, and (iii) equipment such as welding sets, track aligning machines, ballast crushers, etc.

61. Workshop Modernization. This program is to concentrate motive power and rolling stock maintenance in a few large modern workshops. It also provides for acquiring a basic stock of spare parts.

62. Electrification. This item includes the first three years of a program of electrification studies as well as the electrification of the following sections: Suzano-Rio Grande da Serra and Santos-Piassaguera, ANNEX 4 Page 9 where the expected traffic growth is such that the investment is considered justified. It also includes, subject to further review, electrificationof the Rio-Sao Paulo and Ponta Grossa-Curitiba-Paranagualines.

63. Gauge Unification: About 2,800 km of meter gauge line could be converted into broad gauge because of their localizationand the expected traffic volumes. This is being studied now and is tentativelyincluded in the Project, subject to further review.

64. Road Vehicles. These include vehicles for door-to-doorservices, pickups for the maintenanceservices and administrationcars.

65. MMBR. Completion of the MBR project is expected to cost Cr 74 $ million in 1974 and Cr 75 $ 207 million beyond. This project is partly financed out of the proceeds of Bank Loan 786-BR (first railway project).

December 1974 ANNEX 5 Page 1

BRAZIL

APPRAISAL OF A SECONDRAILWAY PROJECT (RFFSA)

Doubtful Items Excluded from the Project

I. New Lines and Realignments

(a) Industrial Corridors

(i) Japeri-Barrado Pirai Realignment (Map 11,110)

This 60-km long realignmentwould facilitatethe train movements between Rio and both Sao Paulo and Belo Horizonte in the steep section of the Serra do Mar. Total cost is estimated at Cr$(1975) 321.5 million, and con- structionwas to be carried out from 1975 to 1978. This section is not con- sidered to be a major bottleneck at present because most of the heavy iron ore or steel traffic is export bound; track improvementswould benefit passen- ger traffic between Rio and Sao Paulo, but savings are not expected to match the high cost of the works. A complete feasibilitystudy should be made, based on engineeringcost estimates and a careful forecast of the passenger traffic between Rio and Sao Paulo, before constructionis initiated. A reassessment should be made in 1975.

(ii) Jeceaba-Pedrado Sino-JoaoAires Realignment (Map 11,110)

These two important realignments,43 and 60 km long, respectively, along the existing line from Belo Horizonte to Rio cannot be justified at this stage. They would be completed,at the earliest, one or two years ahead of the next Belo Horizonte-VoltaRedonda connection,which is expected to divert most of the tfaffic from the existing route. The expected savings in speed and safety do not match the sizable investmentcosts of these works (Cr$ (1975) 568 million).

(b) Export Corridors

Azurita-Itauna,Realignment (Map 11,110)

The extensive rehabilitation(Cr$ (1975) 114 million) of over 600 km of track between southern Goias and the port of Vitoria has not been backed up so far by any reliable long term traffic forecasts. As a matter of fact, the Export Corridor Study by SERETE, based on short term projections, did not recommendany improvementson this line, which is consideredto have ample capacity. Even in the longer term, as economic expansion develops in the center west states of Matto Grosso and Goias, most exports would probably be directed to Santos through the FEPASA line and the Brasilia-Piresdo Rio- Araguari RFFSA line, which forms part of the Tronco Sul (SouthernTrunk) and ANNEX 5 Page 2 is under construction(Annex 11). The only rationale behind a very limited rehabilitationprogram is the shipping of petroleum products to Brasilia and the Center West states when the Belo Horizonte refinery comes into operation, and this is included in the Project (Annex 4, item 14).

(c) Other

Iacu-MapeleRealignment, and Other Major Realignmentson the Iacu-Montes Claros and Maceio-SalvadorSections (Map 11,109)

See Annex 11, paragraph 42.

November 1974 ANNEX 6 Page 1

BRAZIL

APPRAISAL OF A SECOND RAILWAY PROJECT (RFFSA)

Program of Action, 1975-1979

A. Quantitative Targets

1975 1976 1977 1978 1979

1. Number of staff (end of years) 112,000 110,000 108,000 106,000 104,000 2. Working ratio (%) After normalization 135 108 103 84 83 Without normalization 146 115 108 103 98 3. Operating ratio (Z) /1 After normalization - - 108 106 105 Without normalization - 134 129 124 4. Availability of locomotives (%) 85 86 87 88 90 5. Availability of freight cars (%) 86 87 88 89 90 6. Average net load per train (tons) excluding MBR traffic 405 425 440 460 475 7. Net ton-km per wagon day in use excluding MBR traffic 1,400 1,525 1,650 1,775 1,900 8. Wagon turnaround time (days) excluding MBR traffic 9.7 9.5 9.3 9.1 8.8 9. Kilometers of track rehabilitated 386 480 438 407 433 10. Number of freight cars rehabilitated 810 1,190 1,183 992 - 11. Number of unit trains rehabilitated 18 18 18 - _

/1 In arriving at the operating ratio, adequate provision for depreciation will be made, based on revised values of fixed assets and realistic asset lives.

B. Tariffs

Studies for a new tariff structure based on costs and competition will be carried out by the costing group (recently established in the Super- intendency of General Coordination and Planning) with the assistance of consultants. A new tariff structure for freight and passenger traffic will be introduced by the end of 1975. The new structure for freight traffic will incorporate selective tariff increases which will increase average freight revenues per ton-km (excluding that from iron ore, for which long-term freight contracts exist) by at least 20% in real terms above the level achieved during 1972, excluding subsidies. Passenger fares will be increased in the suburban Rio de Janeiro service to cover the long-run variable costs and to eliminate the need for Government subsidy of the service by the end of 1978. Other re- visions of passenger fares and freight rates will be made from time to time to achieve the financial targets referred to in section A preceding. ANNEX 6 Page 2

In order to secure for RFFSA a portion of the benefits of the Steel Expansion Plan which is commensuratewith the volume of new investmentsto be made by RFFSA to cater for steel and steel-relatedtraffic, tariffs for this trafficwill be established from January 1, 1979 (when the new line from Belo Horizonte to Volta Redonda is expected to be in service) to cover the long-run variable costs, including all current expenses (except imposto unico taxes), a reasonableshare of fixed costs and depreciationand interest at 15% on all investmentsmade necessary by the Steel Expansion Plan in order to fully recover their capital costs over 25 years.

C. UneconomicLines and Services

By the end of 1976, RFFSA will carry out a program of studies of uneconomiclines and services defined in agreementwith the Bank and will furnish to the Bank a Program of Action to be taken with respect to such lines and services for an exchange of views thereon promptly after the studies are completed. The studies would be carried out as described in Annex 3 of this report and focus on the sections referred to therein.

December 1974k ANNEX7 Page 1

BRAZIL

APPRAISALOF A SECONDRAILWAY PROJECT (RFFSA)

Terms of Reference for Technical Assistance

A. Objectives

RFFSA is engaged in implementing a large Investment Plan to increase its capacity to carry significantlygreater traffic in the near future. An importantelement of the Plan is its effort to improve the operatingefficiency of its operations. To do this effectivelyand expeditiously,it will need technicalassistance in the following areas:

1. Railway operations

(a) organization,concentration and modernizationof workshops

(b) maintenanceand renewal of permanent way

(c) train and station operations

(d) training

2. Project management and control

3. Suburban rail services

4. Uneconomic lines and services

5. Electrification

6. Data processing

7. Accounting

8. Marketing

Each of the preceding assignmentsrequires somewhat differentexpertise. However, this would not preclude a consultingfirm or individualconsultants offering its (or his) services in more than one of these areas if available staff had the necessarybackground to do an effectivejob.

B. Approach

The consultantswould work closelywith counterpartstaff assigned by the railways to work with them on a full-timebasis. The counterparts would take part in the assignmentand become thoroughlyfamiliar with the new ANNEX 7 Page 2 procedures proposed and would assist with their implementation. The counter- part staff should be experienced railway employees in early or mid-career, who would eventually be responsible for some aspect of the new systems installed by the consultants.

The assignments would normally be carried out in two phases:

(a) a fact-finding, review and recommendation phase;

(b) an implementation phase.

During the implementation phase, the consultants may wish to install new systems and procedures on a pilot basis in specific areas or regions, extend- ing them gradually to a larger part, or the entire railway system, if justi- fied. This would be acceptable in certain cases.

C. Scope of Services

The consultants will:

1. Railway operations

(a) Workshop organization, concentration and modernization

(i) define a general policy for equipment maintenance, including criteria for establishing maintenance cycles;

(ii) organize workshop administration and procedures, defining types of operations to be performed and installing systems for work programming and control;

(iii) establish a system of workshop inventory control for liaison with Purchasing and Stores Departments;

(iv) establish a workshop information system as a basis for management decisions;

(v) review and revise plans for shop concentration and modernization and assist in their implementation.

(b) Maintenance and renewal of permanent way

(i) establish procedures for programming track maintenance and carrying it out;

(ii) improve track maintenance techniques and methods, including rail welding and tie treatment and the organization of ballast supply and its transport; ANNEX7 Page 3

(iii) prepare procedures for programming renewals and assist in the programming and execution of designated renewal projects.

(c) Train and station operations

(i) establish freight and passenger schedules and operating rules;

(ii) improve train dispatching and safety regulations and practices;

(iii) establish a system of through and blocked (classified) freight trains;

-(iv) improve yard and station operations;

(v) develop procedures for updating the inventory of rolling stock;

(vi) establish procedures for improving control of the wagon and passenger fleet and motive power for improved utilizationand to effectivelyprogram rolling stock maintenance;

(vii) assist in the establishmentof an office of organizationand methods to study and develop improved systems and procedures.

(d) Training

(i) Review the manpower requirements, labor agreements and work procedures and make proposals for training programs needed to implement the recommendations, taking into account the training now being carried on in RFFSA.

2. Project management and control

The consultants will:

(i) assist RFFSA in selecting, engaging and supervising consultantsengaged in feasibilitystudies, final engineeringor supervisionof projects in the Five- Year Plan and in providing information and guidance to these consultants;

(ii) assist RFFSA in coordinating and implementing all aspects of the Five-Year Plan; ANNEX 7 Page 4

(iii) assist in preparing reports on the Five-YearPlan and in monitoring and controllingproject costs and progress;

(iv) assist RFFSA in the review and evaluation of consultants' proposals and studies, plans, specifications,tender documents,bidders' proposals, variation orders, pay estimates, progress reports and similar documents,making recommendationsregarding action to be taken upon them when appropriate.

3. Suburban rail services

The consultants will:

(a) make recommendations to improve the quality and reliability of suburban passenger train services and assist in their implementation for a reasonable period (i) for Rio de Janeiro and (ii) for Sao Paulo;

(b) make proposals for increasingthe capacity of these services, taking into account the potential demand for such services.

4. Uneconomic services

The consultantswill define criteria and methodologyfor identi- fying uneconomic lines and services and for studying and preparing proposals for eliminatingor reducing such services (Annex 3).

5. Electrification

The consultantswill review the case for electrifyinga section or sections of RFFSA's railway system and make recommendations based on their findings.

6. Data processing

The consultantswill:

(i) establish a data base for a management information system and as a tool for car distributionand control;

(ii) prepare a master plan for the extension of the use of computers by RFFSA, including training programs for personnel;

(iii) implement specific computer applications after agreementwith RFFSA and carry out the related training programs. ANNEX 7 Page 5

7. Accounting

The consultantswill design and install:

(i) a financial reportingsystem which meets the business management needs of the railway; and

(ii) an operatingbudget system for the planning and control of operating revenues and expenses and a capital investmentbudgeting system for the planning and control of capital expenditures.

'Ehe consultants will also assess the needs for training staff to implement the financialreporting and budgetingsystems and will prepare a trainingproposal, including an assessmentof training requirementsand a specific program to meet these requirements. After review and approval of the training program by RFFSA, the consultantswill carry it out. Consulting assistancewill also be obtained to extend to the regions the cost accounting system recently establishedat headquartersand to assist in its use through- out RFFSA generally.

8. Marketing The consultantswill:

(i) assist RFFSA in determiningthe policy of the recently created Commercial Division in the Superintendencyof Operations and in training its staff;

(ii) establish methods and procedures for short- and long- term traffic forecastingand for marketing railway services;

(iii) establish procedures for revising tariffs from time to time, taking into account the cost of services and competitionfrom other transportmodes.

December 1974 ANNEX 8 Page 1

BRAZIL

APPRAISAL OF A SECONDRAILWAY PROJECT (RFFSA)

RFFSA's Department of Human Development

I. Organization

The Department's present organization consists of three divisions:

1. Professional Training

(a) technical section for training (employees)

(b) technical section for apprenticeship(minors: 14-18 yrs.).

(c) technical section for programing and control

2. Selection and Adaptation

3. Instrumentation (audio-visual equipment)

The Department has plans to alter its organizationas follows:

1. Education Division

(a) technicalsections for training (employees)

(b) technical sections for industrial apprenticeship

(c) technical sections for basic instruction (high school level)

2. Planning of Human Resources Division:

(a) technical section for research

(b) technical section for programming and control

(c) technical section for audio-visual resources

3. Selection and Adaptation Division:

(a) technical section for psychometrics

(b) technicalsection for recruiting and selection ANNEX 8 Page 2

The four regions will have similar structures,with fixed and mobile training centers.

II. Financing

RFFSA's training program is financed from two sources:

(a) RFFSA's own budget

(b) funds proceeding from RFFSA-SENAI 1/ agreement

The total expenditureswere:

1972 Cr$ 22,682,336 1973 Cr$ 27,550,784 1974 - (estimate) Cr$ 30,000,000

Table 1 indicates, for 1973, the distribution of expenses by region and by type of training.

Industrial Apprenticeship = for minors (14-18 years) Training = for regular RFFSA employees Applied Psychology = selection and adaptation of trainees Materials = didactic equipment and materials Investment = new training centers

III. Operations

Table 2, for the years 1958-1973, gives RFFSA's personnel, the number of trainees (in medium and basic level courses), the cost of the program, and the cost per trainee.

November 1974

1/ SENAI is a semi-officialtraining organizationsponsored by the Federationof Industry and Commerce,which, in 1972, trained 300,000 techniciansin 235 centers all over Brazil. BRAZIL

APPRAISALOF A SECONDRAILWAEY PROJECT (RFFSA) Program for Personnel Trainingt1973 (in Cr$)

Region Industrial Training Applied Materials menvNst- Adminis- Total Aoprenticeship Psychology n tration

Northeast 763,537 1,511,944 260,516 49,o9hl 303,330 822,231 3,710,652

Center 5,193,912 2,183,509 955,384 71,805 656,816 1,897,499 11,258,925

Center South 1,179,221 8389092 147,781 6,511 15,200 411,746 2,598,551

South 1,355,742 1,299,925 379,188 32,490 54,240 489,329 3,610,964

General 361,200 177,840 706,946 1,245,986 Administration

Miscellaneous 2,435,982 150,000 2,239,722 1/ 300,000 5,125,706

Totals 8,792,412 8,630,652 1,920,709 309,900 3,269,308 1,627,751 27,550,784

1/ Accumulatedbalances from preVious years.

CD HICD ANNEX 8 Table 2

BRAZIL

APPRAISAL OF A SECONDRAILWAY PROJECT (RFFSA)

Training of Personnel

Cost of Average Year Staff Trainees Training Cost/Trainee -----…in current Cruzeiros)--- 1958 (Dec.) 157,311 - _

1959 154,1Ol 534 903,713 303

1960 153,539 2,791 3,034,670 172

1961 153,007 1,586 1,0111203 251

1962 153,151 3,193 2,296,525 246

1963 154h013 4,304 3,375,981 147

1964 153,434 3,539 2,540,231 1h2 1965 145,821 8,324 5,579,402 165

1966 137f712 11898 5,788,011 131

1967 132,533 12,392 6,900,761 160

1968 127,P27 11,138 6,622,548 210

1969 125,230 15,628 17,971,090 162

1970 -123,862 13,964 129331,665 196

1971 120,515 22,998 16,051,249 193

1972 118 j,045 16,716 23,679,591 270

1973 (Aug.) 114,226 18,608 274550,784 258

147,913 135,637,424 201 ANNEX 9

BRAZIL

APPRAISAL OF A SECONDRAILWAY PROJECT (RFFSA)

Estimated Schedule of Disbursements

------US$ million ------FISCAL ESTIMATED ESTIMATED YEAR CUMULATIVE AMOUNTS AND DISBURSEMENTS UNDISBURSED SEMSTER

1976 I 12.9 162.1 II 36.9 138.1

1977 I 79.1 95.9 II 110.4 64.6

1978 I 150.7 24.3 II 175.0 0

Proposed Closing Date: June 30, 1979

November 1974 ANNEX 10 Page 1

BRAZIL

.APPRAISALOF A SECOND RAILWAY PROJECT (RFFSA)

Traffic Forecasts

A. Freight

1. Detailed traffic forecastswere made for each region and division and for the main commodities in each region and are shown in Table 6 of the report. The table below indicates, in very brief form, the breakdown of the total traffic into (a) iron ore and steel-related products, (b) bulk cereals in the Southern region and (c) other commodities for the years. 1973 and 1979; it also shows the corresponding average annual growth rate.

Average annual 1973 (actual) 1979 (forecast) growth rate in % M ton M ton-km M ton M ton-km Tons Ton-km

Iron ore and steel related products 12.6 5,540 46.4 23,270 24.2 27.0 Bulk cereals in the Southern region 2.8 1,460 6.4 3,580 14.8 16.1 Others 19.7 7,000 28.5 12,140 6.4 9.6

Total 35.1 14,000 81.3 38,990 15.0 18.6

2. In spite of their unusuallyhigh level, these forecastsare reason- able and attainable,subject to the following two main assumptions:

(a) iron ore and steel figures depend on the timely completion of the expansion of the steel industry. A slippage of one year has been assumed for the steel production targets jointly established with the Industrial Projects Department (Annex 11);

(b) annual growth rates of 15-16% for bulk cereals traffic in the south are contingent upon the continued growth of export crops such as soybeans. All evidence indicates that sucn expansion is likely to continue (EconomicReport 355-BR, June 1974, paragraphs 62-64), and the traffic levels are in line with the Bank's agriculturalforecasts.

3. Due to the lack of adequate investments in the past, the poor qual- ity of railway services and the lack of adequate rolling stock, demand for railway services has been substantially suppressed in past years. Part of the increases forecast above reflects a recuperation of traffic by the railroad (for instance, 80% of steel products are now moved by truck at high cost). In view of this, an average annual growth rate for all other products of ANNEX 10 Page 2

9.6% (equal to the average growth rate of intercity freight traffic,Table 5 of report), is not unrealistic. Moreover, the intermodal split for freight transport will be affected only very gradually by the new emphasis on railroads. The traffic increase expected - iron ore and steel products excluded - merely reduces the average annual growth rate of truck-hauledcargo from 9% to 8.5%.

4. The steel expansion plan will increase the 1973 production of steel ingots more than three times by 1980. This expansion is consistent with a sustained growth of the economy of the order of 7.5% to 8% during 1974-1985 (Annex 11). Higher oil prices, and Brazil's dependence on imported crude for 75% of its needs for the foreseeable future, give high priority to self- sufficiency schemes where the comparative advantages are in the country's favor. Tne steel industry is an examiple of this situation, and the expansion plan is geared to obtain and maintain self-sufficiencyafter 1977. A summary of the iron ore and steel related traffic to be handled by RFFSA, including M[BRtraffic follows (see Table 6 for detailed forecasts).

Steel and Steel Related Traffic

1973 1979 M ton M ton-km M ton M ton-km

Iron Ore 8.5 4,300 35.0 19,700 Coal 1.2 170 3.0 420 Limestone .9 310 2.3 740 Steel Products 1.5 600 5.2 2,070 Other .5 160 .9 340 Total 12.6 5,540 46.4 23,270

There is no economic alternative to rail transport for the traffic volumes involved, and the lack of railway transportwould, in effect, block the expansion of the Brazilian steel industry.

5. Through the Export Corridor Program, total exports of bulk grains (corn and soybeans), meal and cakes, should reach 10 million tons in the late 1970's. With the increased railroad capacity provided by the planned investments,rail traffic for these commoditiesin the Southern region is expected to more than double from 2.8 million tons in 1973 to 6.4 million tons in 1979. Rail transport of other traditionalproducts such as coffee, rice, sugar and cotton has been forecast for each region and is generally expected to increase, albeit at a much slower rate than for grain traffic, in accordancewith future production levels and the economics of rail versus other types of transport.

B. Passenger Suburban Services - Rio de Janeiro

6. The population of the metropolitanarea of Rio de Janeiro has been growing consistentlyat an average rate of 6% per year over the last five years. A decreasing trend in the personal income of city residents is observed ANNEX 10 Page 3 as the distance from downtown Rio de Janeiro increases, which, in turn, makes the population of the outlying areas wholly dependent on mass transportation. Furthermore, the greatest concentration of job opportunities is in the core of the city. This city form pattern is not likely to change, and any further increase in the size of Rio de Janeiro will have a commensurate effect on the demand for urban mass transport. iHowever, the rate of population growth in greater Rio seems likely to slow down in the near future, and an average yearly rate of increase of 2.5% has been used.

7. The projections of passenger traffic in the area of influence of the suburban rail services in Rio de Janeiro are the following:

Population (millions) In greater Rio bus Rail Car Total trips (million passengers/day)

1968 6.0 1.0 .4 .2 1.6 1973 6.8 1.1 .5 .3 1.9 1978 7.8 1.1 .9 .3 2.3 1980 8.2 1.2 .9 .4 2.6 /1

/1 Values do not add up due to rounding.

Tne increase in suburban rail trips is due entirely to the comparative advantages of the improved suburban rail service offering:

(a) an increase of commercial speeds of trains fron 34 km/hr to 60 km/hr because of better power supply, elimination of grade crossings and installation of CTC systems;

(b) an increase in the capacity of the trains under peak con- ditions, at least by 25%-., because of an increase in the length of station platforms to allow the use of 12 unit trains;

(c) better frequency of service due to the introduction of CTC systems and line reinforcements which will increase by 100% the line capacity for suburban trains in and out of downtown Rio de Janeiro;

(d) an increase in reliability and comfort as a result of improved unit availability and maintenance standards, including interior lighting, air conditioning, working doors and windows, and elimination of train breakdowns. ANNEX10 Page 4

C. Suburban Services - Sao Paulo

8. Sao Paulo is by far the fastest growing metropolitan area in Brazil. Its population has nearly doubled every 10 years, reflecting the accelerated industrial development that has taken place in the region. Average salary incomes continue to be the highest in Brazil for all labor and are likely to remain the main attractive force for further migration into metropolitanSao Paulo. Further population growth of Sao Paulo will occur with further growth of the Brazilian economy. However, the complexity of the problems created by previous growth, and the size of the current popu- lation base, should tend to a lower rate of growth for greater Sao Paulo than in the past. The rate used for the projections up to 1980 is 2.8% per year. The population trends are as follows:

Year Population (Millions)

1950 2.7 1960 4.8 1971 8.1 1980 10.4

9. In relative terms, suburban rail traffic in Sao Paulo has decreased. In the face of continuousurban growth, the volume of passengers transportedhas remained stationaryover the last four years in both Divi- sions. The 6th Division has experienced a drop of paying customers, but ridershiphas remained the same. This situation is the direct result of both lack of line capacity and improvements in levels of service. The modal split, used for commuting trips, was established by the Sao Paulo Metro Study, based on a sampling performed in 1967, which is the following:

Mass transit (bus and rail): 65% of total trips; Individual transportation (cars and taxis): 35% of total trips.

-The investments in the 6th and 9th Divisions are unlikely to modify the current modal split; any diversion of passengers from individual forms of transportation to rail services can be expected to be marginal, and the - increases in rail ridership will come at the expense of increases in bus transport that would otherwise have taken place. The traffic projections for commuter trips in the area of influence of the 6th and 9th Divisions are the following: A.NNEX 1 0 Page 5

Population (millions) In Greater Sao Paulo Rail Bus Car Total trips (Million passengers/day)

1968 6.2 .20 1.00 .50 1.7 1973 (*) 8.6 .35 1.20 .85 2.4 1978 9.9 .55 1.20 .90 2.7 1980 10.4 .60 1.30 1.00 2.9

(*) Estimated

D. Intercit Passenger Traffic

10. Between 1965 and 1972, intercity passenger traffic declined 50% from 5.4 to 2.7 million pass-km. This is due to the very strong competition of bus and air transport, which provides faster, more comfortable and more reliable service. Except in limited cases, intercity passenger traffic can- not at present be served adequately or economically by rail because passenger numbers are small and the geometry of the line and condition of the track do not permit the speeds that would make rail transport competitive with other modes. Traffic is expected to decrease further for the following reasons: (a) as more secondary roads are built and paved, buses are going to capture an increasing share of the rail traffic; (b) passenger rail fares should be increased to cover variable costs, and this would reduce traffic levels; and (c) investments to improve the quality of service are not economically feasi- ble and will be avoided, adding, therefore, to the disincentives of rail transport. It is not believed that the higher fuel prices and the corres- ponding savings of rail versus road transport would significantly offset the existing disadvantages of passenger rail transport in Brazil. The Rio-Sao Paulo traffic, however, is expected to increase, due to the ongoing moderni- zation effort. New train sets have already been acquired which can provide a faster and more comfortable service than that by road. Traffic forecasts have been made on a regional basis to account'for regional differences (Table 7 of the report). Total intercitv passenger traffic is expected to decrease about 4% per year up to 1979.

November 1974 ANNEX 11 Page 1

BRAZIL

Economic Justificationof the Items in the Project

A. Introduction

1. For the economic justification,all items in the Project have been allocated to the five following categories (Table 8 of report):

(a) Iron ore and steel-related investments;

(b) Motive power, rolling stock and permanentway, not related to the Steel Expansion Plan;

(c) Suburban passenger services in Rio and Sao Paulo;

(d) New lines for agricultureand other developments;and

(e) Other miscellaneousinvestments.

This annex presents a separate economic justificationfor each category. New lines for agricultureand other developmentsare individuallyjustified. Para- graph 37 of this annex presents a consolidatedeconomic rate of return for the total Project, based on the categories'returns.

2. The above categoriesare separate and exclusive although some items could belong to one or another category (for example, yard improvements in Arara, the industrialport of Rio de Janeiro, could be in A or B). In these cases, in order to avoid any double counting of costs and benefits, the cost of the correspondingitem was prorated to the various categoriesto which it belongs according to the type and amount of benefits it will generate (in the case of the Arara yard, 70% of its investmentcost was charged to A and 30% to B, in accordancewith the estimatedbreakdown between the steel and iron ore related traffic and other traffic handled by the yard, Table 8 of report).

3. In the Central region of RFFSA, practically all rail investments are linked to Brazil's Steel Expansion Plan. The benefits of the Plan are expected to be sizable, but, assuming they could be fully quantified, they cannot be split and allocated for the purpose of justifying the railway investments. Therefore, based on forecast ore and steel industry-related traffic, tariff rates were calculatedwhich would cover railway costs and yield an acceptable economic return on the investment (para. 4 following). These rates are such that they can be paid for transportingraw materials and finished products without making proposed investmentsin the steel indus- try uneconomicor financiallyunsound. All other categoriesin the Invest- ment Plan are justified on the basis of total transport cost savings. ANNEX 11 Page 2

B. Economic Justification

(a) Iron Ore and Steel-RelatedInvestments

4. The investmentsrequired by the Steel Expansion Plan total Cr$ 7.4 billion (US$1 billion) between 1975 and 1978 (see Table 8 of report). As stated in paragraph 2 preceding, the question is not only whether these investments generate enough economic benefits but also whether a sufficient portion of the benefits is retained by RFFSA. A tariff-settingpolicy, to be applied to iron ore and steel-relatedtraffic and based on the following principles (Program of Action, Annex 6), is required:

(i) long-run variable cost should be completely covered;

(ii) a reasonable share of overhead costs should be recovered;

(iii) capital costs should be recovered fully over 25 years with interest at 15%.

The interest chosen reflects the high opportunity cost of capital in Brazil and the expectation that the Project's return would, in any case, exceed the opportunitycost of capital.

5. Estimates of the tariffs of transportingiron ore by rail from Belo Horizonte to Volta Redonda, the first stage in the Belo Horizonte-SaoPaulo rail connection,and of transportingsteel from Sao Paulo to various desti- nations 200, 400 and 600 km away have been made. In calculatingthese costs, interest on locomotives,railway wagons and track was included at 15%, and a capital recovery factor of 15% over 25 years was included on all new infra- structure investments (right of way, earthworks,bridges, tunnels, etc.) in order to secure a fair share of the benefits of the steel expansion plan for the railways.

6. The latest costs of rails, locomotivesand railway wagons were used in estimatingdepreciation and interest, and other operating costs were based on 1972 results adjusted to 1974 price levels. The cost of diesel fuel excludes the imposto unico tax. The freight rate calculationsare shown in Tables 1, 2 and 3 of this annex and are as follows: ANNEX 11 Page 3

Iron Ore Cr$ US$

Rate per ton Belo Horizonte to Volta Redonda (432 km) 23.78 3.40

Rate per ton-km .0551 .0o079

Steel (from Sao Paulo)

Rate per ton 200 km 13.73 1.96 400 km 26.25 3.75 600 km 38.76 5.54

Rate per ton-km 200 km .0687 .0098 400 km .0656 .0094 600 km .0646 .0092

The currentRFFSA freight rates in US$ equivalentsare as follows:

Iron ore (432 km haul) US$2.52/ton Steel (400 km haul) US$3.40/ton

7. The tariffs required for iron ore to yield a 15% return on the new Belo Horizonte-VoltaRedonda line are estimated to be some 35% above current rates. Rates for steel are expected to be about 11% above the current level. The IndustrialProjects Department agrees that rate increases of this magnitude could be borne without making investmentsin steel expansionun- viable either from an economic or financialviewpoint. (b) Motive Power, Rollin~gStock and Permanent Way not Related to the Steel ExcpansionPlan

(i) Motive Power AcquisitionProgram

8. On the assumption that the 195 locomotivesto be acquiredwill be broad gauge, the expected locomotive inventoryat the end of 1978 is given in Table 4 of this annex, together with the estimated 1979 locomotive require- ments which were calculatedfrom 1978 traffic forecasts and estimates of the utilizationof this equipment in the various railroad services (suburban passengerservices, intercitypassenger services, mixed trains, freight trains, yard services and service trains). The utilizationfigures (locomotive-km per year) are expected to increase as shown in Table 1 of the report, and these increases are consideredto be realistic. Table 4 of this annex indicates that there will be approximatelyas many broad gauge locomotives as required but a surplus of metric gauge locomotives. However, by 1979, traffic increaseswill absorb most of the excess meter gauge diesel locomotives. The results of the calculationindicate clearly that the 195 locomotivesof unidentifiedtype will have to be broad gauge locomotives. The situation should be reviewed again to take advantage of the latest traffic developments before the locomotiveprogram is revised further. ANNEX 11 Page 4

(ii) Freight Car AcquisitionProRram

9. Based on the current procurementprogram, the car fleet on hand by the end of 1977 would be as shown in Table 5 of this annex. Based on 1978 traffic forecasts,on the new sizes of wagons to be acquired and certain assumptions concerningfreight car performance,the number of freight cars needed to cater for 1978 traffic was estimated. Table 5 of this annex shows the results of the calculationsbased on the assumptions made. For example, wagon-km per wagon-day traffic is expected to increase, due principally to a large increase in block train operationswhere the distance traveled per day per wagon is large (e.g., MBR trains, 307 km per day). The analysis shows that there will be a surplus of wagons for meter gauge traffic but there will be a shortage of broad gauge wagons, especially of hopper cars for iron ore traffic. The program should be reviewed before more orders for freight wagons are placed to take traffic developmentsand the gauge unifi- cation program into account. In addition to the 2,907 old wagons to be rehabilitatedin the years 1975-1977,an estimated 4,000 wagons are to be scrapped, and this has been allowed for in the calculationsin Table 5 of this Annex. The wagon acquisitionprogram should be reviewed annually to take all these factors into account.

(iii) Combined Justificationof Motiv_ePower., Rolling Stock and PermanentWay Program not Related to the Steel Expansion Plan

10. This program includes items which maintain the capacity of the present system rather than increase it, e.g., modernizationof 2,907 freight cars is generally aimed at maintaining the capacity of the existing fleet. The track rehabilitationprogram consists of improving transport conditions by replacing rails, ties and switches and by doing minor local repairs. It thereforeincludes a sizable part of track maintenanceneeded, in any case, to keep the existing lines in operation,in addition to capacity-increasing investmentssuch as major realignmentsor increasingthe weight of the rail. For the purpose of the economic justification,all items in this category were therefore classifiedas (a) renewal type investmentsand (b) capacity increasinginvestments. The cost of each item or part thereof was then allocated to the correspondingsub-category.

11. The continuationof the railroad freight operation in Brazil justifies the renewals included in category (a) provided they relate to that part of the system which is economicallyviable. As Table 9 of the report indicates, the average cost of moving existing traffic by rail is less than by road, and this differencewill increase markedly as traffic increases. The fixed costs, which are expected to remain almost constant in absolute terms, will be spread over a much larger traffic, and their share on each ton-km of traffic will therefore decrease substantially. Trucking costs exclude highway capital and maintenance costs since these costs are not readily available. Differences between rail and trucking costs are there-foreconservatively estimated. Nevertheless, they indicate that maintaining the existing assets on those parts of the rail network which carry the bulk of the traffic, as provided by the Project, is justified. ANNEX 11 Page 5

12. Without the capacity-increasinginvestments of category C, the expected rail traffic increase would certainly not materialize,and, in fact, as the plant deteriorates,the trafficwould probably decrease under the road competition. It has been assumed conservativelythat, without the invest- ments, the present level of traffic could be maintained, and, therefore, savings in road versus rail transport costs have been computed only for the expected traffic increase over the 1974 level. Moreover, since the Project is expected to lower the average rail transport costs, this added benefit was also considered for the existing traffic (Table 6 of this Annex).

13. For the rate of return analysis of this category, the costs of capacitv-increasinginvestments appear at their actual value in the invest- ment cost stream of Table 6, whereas the renewal costs are included in the form of depreciationand interest in the long run variable costs used for computing the benefits. In order to avoid any double counting of costs, the following two main assumptionshave been made: (a) most of the newly acquired, specialized rolling stock and motive power are going to cater to the traffic increase in bulk cereals, fertilizer,etc., and are therefore consideredas capacity-increasinginvestments. As a result, depreciationand interest on rolling stock and motive power have been excluded from the long run variable costs for the computationof savings accruing to the traffic increase; (b) only half the track rehabilitationprogram is consideredas a capacity-increasing investment and appears in the investment cost stream. The other half, corres- ponding to replacementof existing track, is included in the long run variable cost in the form of depreciationand interest on the track elements.

14. Since many investments to increase rail capacity have been made in 1974, consideringonly the new "projecti"investments to be carried out between 1975 and 1979 would probably overestimatethe rate of return of this category because past investmentsare treated as sunk costs. In order to test the sensitivityof the rate of return to this sunk cost element, the analysis was carried out for two different initial project investment dates: 1974 and 1975. Variations of the rates of return under cost increases and benefit decreases were also analyzed. The following results justify the investmentsin all cases.

Rate of Return 15% Increase 25% Decrease Base in Costs in Benefits

1. Project investmentsonly (1975-1979) 33 30 26 2. 1974 sunk costs included 28 25 22

(c) Suburban Services in Rio and Sao Paulo

15. RFFSA provides all rail commuter services to the suburbs of Rio de Janeiro (Map IBRD 11,112) as well as the commuter services to all suburbs to the east and northwestof the "Estacao de la Luz" in Sao Paulo (Map IBRD 11,113). In both cities, the suburban rail services complement and support the services to be provided by the metro system currentlyunder construction. In bothiSao ANNEX 11 Page 6

Paulo and Rio, most passengers of suburban rail services are low-salaried workers wholly dependent on mass transport to reach their places of work. The planned investments in these services are intended to better utilize exist- ing infrastructureand right-of-wayand to improve the generally poor level of service of current operations. Thus, the improvementto suburban rail serv- ices will tend to ease mass transport problems while MetropolitanTransport Studies are carried out in Rio under GEIPOT's coordinationand in Sao Paulo under the coordinationof GEGRAN (Greater Sao Paulo Urban Planning Group). At any rate, the complete results and policy recommendationsof such studies are years away, and an interim solution is urgently needed.

(i) Rio de Janeiro Suburban Rail Services

16. The suburban rail services of Rio de Janeiro are overloaded and face serious problems. The level of service is extremely low; at peak hours, an average of 450 people travel in coaches with a normal capacity of 270-300 people. Trains either suffer breakdowns or experience delays because of insufficientpower. According to RFFSA's consultants,over 30% of all trans- ported passengers do not pay. An average of five people die per month as a result of falls along the right of way because of overcrowdingof train doors and platforms. Speeds are further reduced by level crossings and prac- tically free access to the right of way. Under these conditions,the suburban railway services in Rio de Janeiro transport 585,000 passengers per working day. Although more difficult to measure accurately,the suburban bus services currently transport over 1.1 million passengers per working day in the area of influence of the suburban railway.

17. The investments,totaling Cr$(1975) 940 million considered in the Project amount to an interim solution. They would absorb most of the increase in mass transport travel from the suburbs in the area of influence of the lines to the hub up to 1979 through improvementsin the level of service (speed, reliability,comfort) and general upgrading of the physical condition of the services. In addition to the economic benefits quantified below in paragraph 20, the improvement of the suburban services will help prevent further urban congestion at the center of Rio de Janeiro. It is doubtful whether the inner city grid could absorb a further increase of road traffic without serious effects on pollution levels, congestion and city form.

18. Cost Benefit Analysis. The economic evaluation of the improvement in suburban rail services does not attempt to quantify the followingbenefits:

- avoidance of further urban road congestion;

- avoidance of additional air pollution from buses and cars;

- reduction in the number of accidents and deaths in railway services;

- reduction of travel time for rail passengers.

The investmentsare assumed to be spaced in equal installmentsfrom 1975 through 1978. Economic benefits have been computed as cost differentials ANNEX 11 Page 7

between bus vs rail unit costs for suburban services, comparing the situation with the Project against the situation that would prevail without it. Further- more, althouglh not all the line capacity will be utilized by 1978, total rider- ship has been kept at its 1978 level, or 950,000 passengers per day. This is due to the need beyond 1978 to provide additional rolling stock, to coordinate and create feeder bus services to suburban rail stations, and to expand the Don Pedro II and Deodoro stations, all of which are required to accommodate suburban rail passengers beyond the projected 1978 demand. This need for additionial investments rules out from this evaluation the economic benefits of ridership levels above 950,000 passengers per day.

19. The cost of bus transport in Brazil is estimated at Cr$ .05 per pass-km, which does npt include the provision of infrastructure. Suburban rail transport, on the other hand, has an economic cost of Cr$ .026 equiv- alent per pass-km. The lifetime of investments has been estimated at 20 years and the average trip length at 25 km. On these premises, the rate of return of the investments involved is 39%X, and the first year benefit is 28%'.

20. The cost of bus transportation being sensitive to fuel prices introduces an element of uncertainty on the benefit side. A sensitivity analysis of both costs and benefits has been performed as follows:

15% increase 25% decrease Base in Costs in Benefits

Rate of Return 39 32 26

and shows the set of investments in the suburban rail services of Rio de Janeiro to be justified, even when a substantial portion of the benefits have not been quantified (para. 18 preceding).

(ii) Sao Paulo Suburban Services

21. The suburbs of Sao Paulo are served by three electrified lines. These lines are operated separately, one by FEPASA and the other two by RFFSA's 6tlh and 9th Divisions (Mfap 11,113). The investments in this Project for Sao Paulo Suburban Rail Services apply to RFFSA's lines. These lines, both broad gauge, provide quite different services.

22. The 6th Division serves a low-income area, starting from Roosevelt staitioin on the mainline to Rio de Janeiro and the Poa Variante. The trains in use are similar to those being used in Rio de Janeiro, with many of thle same problems. Except for the Roosevelt station, passenger facilities are rudimentary, checking of tickets rare, rolling stock availability low, vandalism usual, and, in spite of serious peak hour overcrowding, the number of paying passengers has declined. ANNEX 11 Page 8

23. The 9th Division serves industrial and residential neighborhoods on both sides of La Luz Station; the population served has a higher average income than that served by the 6th Division. Levels of services are much higher, rolling stock is well maintained, stations are satisfactory, and, even at peak hours, overcrowding does not seem excessive. Ridership has stabilized at around 52 million passengers per year, indicating that, unless a further increase in level of service takes place, the relative importance of suburban rail will continue to diminish in the areas served by the 9th Division.

24. Commercial speeds in both 6th and 9th Divisions are of the order of 35 to 40 km/hr and train capacities are 2,400 and 2,000 passengers, respective- ly. By adding and replacing rolling stock, increasing commercial speeds from 38 km/lhr to 48 km/hr, and increasing the frequency of service by means of CTC systems in the 6th Division and display signal systems in the 9th Division, a sizable contribution will be made toward alleviating Sao Paulo urban trans- port needs.

25. Cost Benefit Analysis. The unit costs and savings used in the analysis, as well as the rate at which the total of Cr$(1975) 460 million is invested, are the same as in the case of the Rio de Janeiro suburban system (paras. 18 and 19 preceding). The overall level of rail ridership has been forecast as much lower than that of Rio due to:

- the preponderance of car and bus traffic in Sao Paulo;

- existence of urban expressways;

- a city form crossed by radial rail corridors. (This prevents a unidirectional concentration of flow toward the core of the city, as can be observed in Rio de Janeiro, and facilitates bus and private car competition.)

On the conservative premises above, the results are as follows:

15% increase 25% decrease Base in Costs in Benefits

Rate of Return 28 23 19

First Year Benefit 21 -

(iii) Combined Suburban Services

2o. Combining all investments in suburban services and their benefits, the resulting rate of return is 34%/' and the first year benefit 25%. As in the case of Rio de Janeiro, the benefits indicated in paragraph 18 have not been quantified.

(d) New Lines Related to Agriculture and Other Developments ANNEX11 Page 9

Sao Paulo Corridor

27. Ribeirao Pires-Sao Bernardo-Jurubatuba (Sao Paulo Rail Link). The link would connect the main industrialarea of Sao Paulo, the ABC zone, named after the three industrial counties of Santo Andre, Sao Bernardo and Sao Caetano, to the existing rail network (Map 11,113). It would thus provide a much needed alternativeto trucking for many of the automotive and manufacturingplants of the area and it would also constitute a bypass for all the long distance heavy traffic between Belo Horizonte and Rio de Janeiro on the one hand, and the Santos industrialzones on the other. Benefits would be mostly savings in transportationcosts for products now being carried by road and savings to existing passenger and freight traffic due to decreased congestion,in- creased efficiency and faster transport time. Quantifiablebenefits yielded a rate of return of over 36% at the time the study was made. 1/ With the increased congestionand pollution in the Sao Paulo area and the higher fuel prices, the priority and urgency of this investmentappears even greater now, and its inclusion in the Project is warranted. Constructionis expected to start in early 1975 as soon as the engineeringproject is completed.

28. Access to the Santos Left Bank. This is a 24-km spur connecting the newly expanding left bank of the Santos Port with the existing railway lines between Sao Paulo and Santos. This item is included in the Santos Port project, financed under Bank loan 756-BR. Because of very substantial cost increases and changes in the scope of the Project, the economic feasi- bility was re-examined in 1973 and reconfirmed subject to reductionsin the Project design. The engineering studies are now being revised and construction is expected to start in early 1975. The railway will initially carry fertilizer and container traffic between the left bank terminals and the Sao Paulo area. If the Sao Paulo sugar export terminal is built on the left bank as expected, bulk sugar will also become an important commodity. Benefits derived from direct savings in transportationcosts alone yield an economic rate of return of 12% without sugar and 15% with sugar. These rates are conservativesince other real benefits were not quantifiedsuch as the avoidance of increased congestionon the right bank and the City of Santos and the avoidance of expensive highway maintenance and overhaul costs due to heavy truck traffic to the left bank.

29. Third Rail Sao Paulo-Santos. This is to provide an alternative broad gauge access to Santos along the existing one-meter gauge Sorocabana line of the FEPASA system. The new rack railroad that has been recently completedto replace the old cablecar system in the Serra section of the broad gauge Santos-JundiaiRFFSA line is still being tested following a locomotive accident that occurred in 1973. Although operationsare expected to improve, the Brazilian Governmentdoes not consider the system reliable enough in view of the prime economic importance of this rail link which sup- plies, inter alia, the Cosipa steel plant with the iron ore originating in

1/ FeasibilityStudy, 1970, by Asplan-Parsons,Brickeroff, Quade and Douglas. ANNEX 1 1 Page 10 the Central Region. Although, on capacity grounds, this broadening of the gauge would not be needed before the late 70's when the rack railroad could reach saturation,the increased safety and the flexibilityof operation pro- vided by a dual gauge system justify carrying out this work earlier than it would economicallybe justified.

30. Paratinga-Piassaguera,New Line. This is a 21-km rail link in the Santos area which connects the Santos-Jundiai (RFFSA) line to Sorocabana (FEPASA) lines. It also provides a meter gauge access to the Cosipa plant and the left bank of the port of Santos. Construction started several years ago and is partly financed out of the proceeds of the Santos Port loan (756-BR). Conclusion of the 7 remaining km in difficult terrainwith two viaducts and a bridge is expected in 1976.

Parana Corridor

31. Curitiba-Paranaguaand Guarapuava-Cascavel. Each of these links is at one end of the export corridor leading from Cascavel, the center of a rapidly expanding soybean-producingarea in western Parana, to the port of Paranagua (Map 11,111). They are consideredjointly because, on the one hand, the new line from Curitiba-Paranagua would hardly be justified to replace the existing one with limited capacitywithout the additional traffic generated upstream, and, on the other hand, the existing line does not offer enough capacity to cater for this additional traffic. The feasibility was demon- strated first by the Brazilian Consortium SERETE/SPL in its 1973 study of the Parana and Santa Catarina rail network 1/ and confirmedby ENGETRAN/SOFRERAIL. Based on revised, more conservativecost estimates and traffic projections, the economic analysis was updated by the Bank. None of these studies take into account the potentially importantbut still undefined transport demand generatedby the constructionin the late 70's of the 12,600 MW Itaipu hydro- electric plant, on the border with Paraguay, some 200 km southwest of Cascavel. The main savings, thus considered,result from avoiding trucking large quantities of bulk grain from the production areas to the port on distances exceeding 500 km. The highway maintenance cost associatedwith the heavy truck traffic has not been taken into account in the case where the railroad lines were not built. The combined economic rate of return for the joint investmentis therefore estimated conservativelyat 15%. Traffic volumes have also been kept at low levels because of capacity limitationson an intermediatelink of the chain (Guarapuava-Eng.Bley). These limitationswill disappearwhen the track rehabilitationprogram now under way on the Guarapuava-Eng. Gutierrez section is completed and when the next section, Eng. Gutierrez-Ponta Grossa is improved or, alternatively,the bypass line Eng. Gutierrez-Eng.Bley is built. The choice between these two alternatives and the optimal construc- tion timing will need to be studied more carefully when the engineering studies are completedbefore works actually start (Annex 5 and Section C of this Annex). The Brazilian Government attaches high priority to the two new lines

1/ Estudo do Sistema Ferroviario. Estados do Parana e Santa Catarina. Edital do 01 .CPC/A71,March 1973. ANNEX 1 1 Page 11

and expects to proceed witlh construction immediately after the engineering project is completed. because the economic case is good and expected to remain so even if substantial cost overruns were to occur, it was agreed during negotiations that the 13ankwould not request a revised feasibility study, provided RFFSA consult and provide the Bank with updated, engineering- based cost estimates and traffic forecasts before the works are carried otut. Engineering studies for Curitiba-Paranagua are under way and to be completed by end of 1974; those for Guarapuava-Cascavel are expected for completion by mid-1975.

Rio Grande do Sul Corridor

32. Five Realignments. With soybean production of about 4 million tolns in 1974 against 2.9 in 1973 and exports of soy products (coarse grain, meal and pellets) of respectively 2.5 million and 1.9 million, Rio Grande do Sul is the major soybean producing state in Brazil, and expansion prospects are very good. Removing transport bottlenecks and lowering transport costs are the main objectives of the Export Corridor Program which, in the State of Rio Grande do Sul, consists of rehabilitating sections in the hinterland of the State (see Annex 4, para. 23) and realigning five sections along tlle trunk line leading from Cruz Alta, the major soybean market center, to the Rio GrarLde export port:

(i) Philipson-Canabarro, a 30-km shiortcutsubstituting a difficult section with gradients up to 3.9wO and minimum radius curves of 90-100 m. Savings in operating costs resulting from a much reduced running time and from large train loads (1,090 net tons instead of 650 net tons on the downhill run) yield an estimated benefit cost ratio of 2.

(ii) Dilermando de Aguiar-Sao Gabriel. This 67-km long section will shorten the distance run by north-south trains, avoiding the detour througlhCacequi. The benefit cost ratio is also expected to be about 2.

(iii) Tiaraju-Von Bock (44 kmi); Sao Sebastiao-lIulhaNegra (66 kn); lierval-Pelotas (85 km). These are three other "variants" downstream from the preceding ones which were recommended by the export corridor studies as the most urgent in view of the particularly difficult characteristics of the existing alignment. Construction is expected to be carried out promptly and ternminatedbefore 1977.

33. Roca Sales-Passo Fundo, New Line. This is a major connecting link between the northern wheat-producing region of Rio Grande do Sul and the state capital, Porto Alegre. Construction was started by DNEF back in 1950 and has been proceeding since at a slow pace, mostly with the Army's help. The feasi- bility of this investment was questioned in 1966 bv Coverdale and Colpitts, consultants, who recommendledthat a reassessment be made an(d that the line be completed promptly, if justified. Total investment has been estimated at CrS 8'20million, and Cr$ (1975) 450(million, or about half, is now included ANTNEX I 1 Page 12

in the Five-Year Plan to complete the line. This connection has recently been restudied as part of the DNEF-finaince(d Rio Grande do Sul rail network study, and its conclusion was found to be highly justified.

Other Lines

34. Araguari-Pires do Rio Realignment. Construction of this 166-km long realignment by the 2nd Army Battalion started this year and is expected to be concluded in 1976 at a total cost of Cr$ (1975) 282 million. Detailed engineering was carried out by the Army, assisted by consultants and financed by DNEF funds. This realignment will replace the existing line - 62 km longer and with very poor characteristics - and will thereby remove the major remain- ing obstacle to the traffic between Sao Paulo, Rio and Brasilia. No feasi- bility study has been done. SOFRERAIL justified the investment with an eco- nomic rate of return of 12% on the basis of traffic estimates prepared by the Army Battalion. These estimates call for increases in traffic levels from about 600,000 tons in 1970 to 2.7 million tons in 1980 and 4.8 million tons in 1985. These figures seem to be overestimated and the economic justification might therefore be questionable. However, construction is already well under wav and the Government attaches high priority to this line which links the Federal District with the economic centers of Brazil and, in particular, supplies fuel products to Brasilia.

35. New line access to Aratu. This is a relatively minor investment, CrS (1975) 45 million, for a 15-km long rail line linking the new industrial center of Aratu near Salvador in northeast Brazil with the mineral berth of the Porto de Fora.

(e) Other MLiscellaneous Investments

36. There is no separate economic justification for these items, but their cost has been included in the total Project cost for the computation of the overall economic rate of return.

(f) Overall Economic Evaluation

37. The overall economic evaluation of the Project was performed by consolidating the costs and benefits of all investment categories evaluated above. Care was exercised in defining subsystems with little or no overlapping. This, in turn, was facilitated by RFFSA's particular traffic patterns and the geograplhicallocations of economic activity in Brazil. As a result, the con- solidation of costs and benefits does not involve double counting of benefits. The set of investments designated as Miscellaneous Investments could not be allocated to any particular category and has been included in the overall evaluation as an overhead which is, to some extent, instrumental in bringing about all the benefits of the investment program. For a total investment of CrS 16,934 million, the rate of return obtained is 19%,';an increase in costs of 25 and 40% would reduce the rate of return to 15% and 14',; and a 30% reduc- tion of benefits would bring it down to 14'.' ANNEX 11 Page 13

C. Items TentativelyIncluded in the Project

(i) Eng. Bley-Eng. Gutierrez,New Line (Map. 11,111)

38. As part of the Parana Export Corridor program, a new line is to be built between Guarapuava and Cascavel, and also between Curitiba and Paranagua para 31 above). The section between Curitiba and Eng. Bley is being substan- tially upgraded. From Eng. Bley to Eng. Gutierrez, the present line goes through Ponta Grossa and has a poor alignment, especially between Ponta Grossa and Eng. Gutierrez. A direct link has thereforebeen envisagedbetween Eng. Bley and Eng. Gutierrez, bypassing Ponta Grossa and thus reducing the distance between these two points by some 70 km. However, since part of the traffic would still transit through Ponta Grossa, the benefits of this shortcut should be examined closely and compared with those generated by improving the existing section of Eng. Gutierrez-Ponta Grossa. A feasibility study should thereforebe carried out and, if it proves viable, the conbtruction of this new link should be phased with that of the upstream section, Guarapuava- Cascavel.

(ii) Cianorte-Umuarama,New Line (Map 11,111)

39. This is a 50-km extension of an existing line to Umuarama, a locality in western Parana. Like the Guarapuava-Cascavelline included in the Project, this new railroad section would serve the soybean producing country and facili- tate exports. Presently, the economic case for the undertakingis weaker than for the Cascavel line because of lower production and export levels. However, this may change if the soybean production of southern Mato Grosso (Pantanal area) increases as forecast, and if it is proven that road/rail exports along Highway BR 163/487 to Umuarama is a cheaper alternativethan via BR 376 to Maringa or via BR 267 to Presidente Prudente on the Sao Paulo network. The constructionof a hydro complex at Guaira, west of Umuarama on the Parana river, would also be a factor to consider. The feasibilitystudy should there- fore be updated when the engineering studies are completed.

(iii) Cantagalo Branch Line (Map 11,110)

40. The Cantagalo branch line would serve a cement-producingarea of great potential. An entirely new traffic totaling 1.5 million tons (1.2 M cement, .17 M fuel oil, plus other traffic) is expected to materialize by 1978 over an average length of haul of 270 km to Rio de Janeiro and Guanabara. The branch line itself costs Cr$ 200 million (Table 8 of the report), but other improvementsto the Leopoldina lines will be required at an estimated additional cost of Cr$ 30 million. The feasibilitybased on present cost estimates and on the expansion plans of the cement industry in the area was demonstratedin various studies, and an updating of the cost-benefitanalysis was done in the Bank, showing a 22% rate of return. The economic case for the new line therefore seems well established and, after the detailed engi- neering is completed, a checking of the feasibility would suffice to ensure that the project is still fully justified. ANNEX 11 Page 14

(iv) Santo Eduardo-VitoriaRealignment (Map 11,110)

41. This 165-km long realignmentwould replace the existing 253-km long poorly aligned line. Construction,costing about Cr$ (1975) 396 million, would start in 1976 and terminate in 1978. Final engineering is contracted and should be completed in 1975. In 1970, in a DNEF-financedstudy, the consultantsTRANSCON found the line to be economicallyjustified provided that a rail access to a cement factory be built and railway operationsbe improved. SOFRERAIL remade a pilot feasibilitystudy of this line in 1973 and found a very low return. However, based on new plans for the steel com- plex in the Vitoria area, which will generate transport demand for limestone and finished steel products, and on contracts for sugar transport to Vitoria, RFFSA has decided to go ahead with the design and has obtained a preliminary financing agreement with BNDE. When the final engineering is completed by the end of 1975 and when the plans for the steel projects in Vitoria are firmed up, the feasibility of the Santo Eduardo-Vitoria realignment should be re-evaluated.

(v) Iacu-Napele Realignment and Other Major Realignments on the Iacu-Montes Claros and Maceio-Salvador Sections (Map 11,109)

42. Construction of the 270-km long realignment from Iacu to Mapele and major realignment works along the Iacu-Montes Claros (814 km) and Maceio- Salvador (850 km) sections would basically serve two objectives: (a) re- habilitating the rail link between the Northeast region and the rest of the country and (b) improving transport conditions for both inputs and outputs of the petrochemical and cement industries around Salvador. Final engineering for the Iacu-Mapelerealignment is being contracted and is expected to be ready by September 1975. Works on the other sections are also expected to begin in 1976. Total cost during the Five-YearPlan period is estimated at Cr$ (1975) 943 million. A feasibilitystudy of the realignmentwas prepared in 1971 by the Brazilian consortium TRANSCON-ASTEP-TEMPOas part of a study of the railway network in the state of Bahia. SOFRERAIL, which performed a rapid updating of the economics in 1973, showed that, despite the new trans- port flows generatedby the industrialdevelopment around Salvador, the feasibilityof the investmentwould still be marginal. This conclusionwould a priori hold for the other two sections,which presently have lower traffic levels. Traffic forecastshave recently been revised by the consortium TRANSCON-ASTEPas part of the DNEF-GEIPOTstudy of the Northeast Railway System and provide a sound basis for reformulationof the project. An updated feasibilitystudy should define the optimum level and timing of investments necessary to improve the presentlyvery bad traffic conditions. In view of the undevelopedstage of the Northeast economy, this study should consider the possible developmentimpact of a better rail link between the main economic centers of Brazil and the Northeast, and should investigatethe possibilityof, and define the eventual economic benefits of, resorting to more labor-intensive constructionmethods. ANNEX11 Page 15

(vi) ElectrificationProgram

43. With a view to reducing Brazil's dependencyon foreignsources of energy, the Government has embarked on a program to reduce fuel consumption in the transportationsector and use alternative domestic sources of energy such as hydro power. The railway electrificationprogram is one aspect of this overall program. A feasibilitystudy is under way, and should be com- pleted shortly,which should define what investmentsshould be made and in what order. It should be reviewed by, and agreed with, the Bank before im- plementationstarts.

(vii) Gauge UnificationProgram

44. This program has the long tenr objectiveof standardizingthe gauge of Brazil Railways and, thus, lowering transportationcosts by avoiding transshipments and enhancing long distance hauls by rail. A feasibility study is under way and expected to be completedsoon. Preliminaryresults show that such a program would be very expensiveand should be implementedin a piecemeal fashion, over a long time period (more than 10 years). A care- ful review of the cost benefit analysis will be needed before the program is started.

~iete-i-mer i4 ANNEX11 Table 1

BRAZIL

APPRAISALOF A SECONDRAILWAY PROJECT (RFFSA)

Estimated Long-Run Variable Cost and Total Cost of Iron Ore Traffic

Belo Horizonte - Volta Redonda

Rnri Statistics

Length of haul 432 km Empty return 100% Net train load 9,500 tons Gross train load - loaded 12,000 tons - empty 2,500 tons Gross train load including six locomotives - loaded 12,500tons - empty 3,000 tons

No. of wagons per train 100 Turnaround 3 days

Locomotive-kn 5,184 Train-km 864 Net tn-km ,10o4,000 Gross ton-km (includinglocomotives) 6,696,ooo Wagon-km 86,40o Wagon-days 300

Source: Bank estimates

July 1974 ANNEX11 Table 2 BRAZIL

APPRAISALOF A SECONDRAILWAY PROJECT (RFFSA) * Estimated Long-Run Variable Cost and Total Cost of Iron Ore Traffic per Trip

Belo Horizonte - Volta Redonda

No. of Cost per Total Units Unit (Cr$) Cost (Cr$)

Locomotive crew 864 1.h1 1,218 Fuel and lubricants 6,264,ooo .0053 33,199 Otherlocomotive costs 5,184 5.90 30,586 Traincrew 864 .976 843 Trackcosts 6,696,000 .o46o 30,802 Wagon costs - day 300 47.52 14,256 - km 86,400 .26 22,464 Terminalshunting 36 70.00 2,520 Documentation 10 27.00 270 Long-runvariable cost 136,158

Add: Share of overhead costs (10%) 13,616 Add: Return on investmenton Belo Horizonte-VoltaRedonda line

Cost (excludingrails) - Cr$ 3,000 million Capitalrecovery factor (15%, 25 years) .1547 Annual cost to be recovered - Cr$ 464 million Traffic capacity of line - 25 billion ton-km Cost per ton-km- .01856 Cost for 4,104,000 net ton-km 76,170 225, 944 Cr$ US$ Cost per ton 23.78 3.4o Cost per ton-km .0551 .0079

Current RFFSA freight rate per ton for 432 km haul 2.52

Comparable figures assuming 13% rate of return

Cost per ton 21.91 3.13 Cost per ton-km .0507 .0072

* Includes depreciationand interest at 15% on renewable assets (locomotives, freight wagons, track and yard investments) Source: Bank estimates July 1974 ANNEX 11 Table 3

BRAZIL

APPRAISALOF A SECONDRAILWAY PROJECT (RFFSA)

Estimated Long-Run Variable Cost and Total Cost of Steel Traffic

1972 Costs Adjusted to 1974 Prices

200 km Haul 400km Haul 600 kmnHaul Cost Item Unit No.of No.of No.of Cost Units Cost Units Cost Units Cost

Documentation 27.00 1 27.00 1 27.00 1 27.00 Terminal Shunting 20.00 4 80.00 4 80.00 4 80.00 Intermediate Shunting 20.00 - - 1 20.00 2 40.00 Wagon-km .26 360 93.60 720 187.20 1,080 280.80 Wagon-day 39.01 2.9 113.13 5.9 230.16 8.9 347019 Locomotive,train & track costs 0.0154 24,000 369.60 L8,000 739.20 72,000 1,108.80

Long-run variable 683e33 1,283,56 1,883.79 costs

Add: overhead costs 10C 68.33 128036 188.38 capital recovery factor 278.40 556.80 835.20 1,030.06 1,968.72 2,907.37 Statistics

Gross wagon load: -loaded 100 tons 100 tons 100 tons -empty 25 tons 25 tons 25 tons

% empty return 80% 80% 80%

Gross trailington-km 24,000 48,0oo 72,000 Net ton-km 15,000 30,000 h5,ooo

Cost per ton -cr$ 13.73 26.25 38.76 -US$ 1.96 3*75 5.54 Cost per ton-km -Cr$ o687 .o656 .0646 -US$ .0098 .oo94 .0092

Present RFFSA tariff per ton-km -US$ .oo85 oo85 Source: Bank estimates

July 1974 BRAZIL

APPRAISAL 01 A SECONDRAILWAY PROJECT (RFFSA)

ESTIMATED LOCOMOTIVEREQUIREMENTS (1978)

Broad gauge Meter and Blarro Gauge Suburban Iotar.ity Eapeotod Sob-rbu Intar-ity IaPeotd Pas.enger. Passengers Mixed Freight Servica Yards Total Inventory Pa.e.n.ar Paar en MersMixed FreiSht Servica Yard. Total Inventory 1979 1979

Locoeotive-ke ('000)

Carroms otorea 40,647 1.258 41,905 260 100 360 Auto etri.e. 1,538 1,538 1,114 1,114 Eteas, ~~~~~~~ 56 ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~306362 Diesel 534 1,218 749 37,755 1,427 11,232 52,915 760 5,150 4,677 37,534 2,406 10,558 61,085 Elextrir ___ 915 2.242 3.157 52 195 72 1,043 75l 1.437 41,191 4,929 749 39,997 1,427 11,232 99,515 15072 6,559 4,749 38,883 2,481 10,614 64,358

Locoeotive-k. per loruootive in traff ic

Carroe gotorga 124,000 124,000 124,000 100,000 100,000 100,000 Adtoatgirs 92,000 92,000 92,000 92,000 BIem 18,500 12.000 17,608 Di8ce 50,000 133,000 100.100 100,000 10,000 50,000 80,358 50,000 133,00 100.000 100,000 50.000 500°00 83,000 Electric 75,000 75,000 75,000 75,000 75,000 75,000 75,000 75,000 75,000

LaronotiveS in traffic

Carro. -otore- 328 10 338 3 1 4 A.to otri.ea 17 17 13 13 Stsa 17 4 21 Diesel 11 10 8 378 29 225 661 16 39 47 375 49 212 738 ElectrIc 13 30 43 1 3 1 14 1 20 1,059 796

Locogotives required in *tock

Cartai wotores 398 383 5 5

Autogotri.em 21 19 16 26 (80% availability) 32 45

(677 availability)32 4 Die.sl 734 728 820 883 (90% availability) Electric 41 45 23 38 (90% availability) 1,201 1,175 896 997

Bourca: RFF8A and Bank eatieetee

Noveeber 1974

BRAZIL

APPRAISAL OF A SECOND RAILWAY PROJECT (RFFSA)

Estimated Freight Car Requirements (1978)

Broad Gauge Meter and Narrow Gauge I-on Ore, Coal and Steel Traffic Bulk Agricultural Other Iron Other Total Ffoducts, Fertilizer GRAND MBR Iron Ore (re and Coal steel Tontal TEaffic Broad gauge sd Cement Other TDtal TOTAL

A. Rectuirements in 1978

Traffic (1978)

Tonnage (millions) 16.0 16.4 2.5 34.9 13.1 48.0 9.9 14.1 24.0

Ton-km (billions) 9.9 9.0 1.2 20.1 4.9 25.0 5.3 6.2 11.5

Freight Car Performance

Average wagon load, loaded wagons (tons) 95.0 75.0 75.0 83.0 40.0 64.2 54.0 28.0 34.9

Average haul (km) 615.0 549.0 480.0 576.0 374.0 521.0 535.0 440.0 479.0

% loaded wagons to total 50.0 60.0 60.0 55.0 55.0 55.0 50.0 63.0 57.0

Wagon-km between turnaround 1,230.0 915.0 800.0 1,047.0 680.0 947.0 1,070.0 698.0 840.0

Wagon-km per wagon day in traffic (km) 307.5 122.0 122.0 172.0 80.0 132.0 120.0 70.0 88.0

Wagon turnaround (days) 4.0 7,5 6.6 6.1 8.5 7.2 8.9 10.0 9.5

Number of trips per wagon per year 91.0 48.0 55.0 60.0 43.0 51.0 27.0 2/ 36.0 33.1

Number of wagon loads 168,500.0 218,700.0 33,300.0 420,500.0 327,500.0 748,000.0 183,300.0 503,500.0 686,800.0

Number of wagons required in service 1,850.0 4,556.0 606.0 7,012,0 7,616.0 14,628.0 6,790.0 13,988.0 20,778.0

Number of wagons reouired in stock 1/ 2,056.0 5,063.0 674.0 7,793.0 8,463.0 16,256.0 7,544.0 15,542.0 23,086.0

Service wagons reouired (4%) 700 700 1,000 1,000

Total 1978 reouirements 2,056 5,063 674 7,793 9,163 16,956 7,544 16,542 24,086 41,042

B. Expected inventory end 1977 3/ 1,790 4,689 700 7,179 8,946 16,125 8,800 18,996 27,796 43,921

C (Shortage) Surplus (266) (374) 26 (614) (217) (831) 1,256 2,454 3,710 2,879

/ Including 107 out-of service for repair.

2/ Eight month harvest season assumed to cater for peak seasonal demand.

3/ Based on latest data on wagon procurement plans.

Source: RFFSA and Bank estimates

November 1974 BRAZIL

APPRAISAL OP A SECOND RAILWAY PROJECT (RFFSA)

Cost Benefit Analysis of Category B (Motive Power, Rolling Stock and Permanent Way not Related to the Steel Expansion Plan) (All costs are in 1975 million Cr$) Rate of Return Analysis Traffic increase with Project items in 1975-77 only With 1974 sunk investments respect to base Savings to: Savings to: Total costs of Capacity levels AR of: Traffic Traffic investments in increasing Adjusted Traffic 3/ 1974 1975 Adjusted increase Current Adjusted increase Current Year Category B investments 1/ costs 2/ million ton-km million ton-km costs 2/ only traffic costs 2/ only traffic

1974 1,450 854 794 9,200 - - - - - 794 1975 1,692 1,176 1,094 10,700 1,500 - 1,094 - _ 1,094 150 1976 1,208 872 811 13,200 4,000 2,500 811 250 - 811 400 1977 745 517 481 13,500 4,300 2,800 481 280 - 481 430 - 1978 - - - 14,600 5,400 3,900 - 430 535 - 595 460 1979 - - - 14,600 5,400 3,900 - 430 535 - 595 460 1980-99 - - - 14,600 5,400 3,900 - 430 535 - 595 460 2000 - - 14,600 5,400 3,900 -239 -/ 430 535 -318 -4/ 595 460

Transport Cost Savings: in 1975 Cr$/ton-km Economic Rate of Return

1. To rail traffic above current levels- 1973/77 1978 and after Base 33 28

Economic heavy truck transport costs 5/ .17 .17 15% increase in costs 30 25

Economic long-run variable rail costs 25% decrease in benefits 26 22 for traffic other than iron ore and steel including depreciation and interest on track and shunting .7 .6

Savings .10 .11

2. To rail traffic at current levels:

Total railroad costs for non iron ore and steel traffic including depreciation and interest on all renewable assets 5/ .167 .119

Savings - .05

1, Investments in Category B were divided into two parts: capacity increasing investments (70% of the total cost of the Category between 1975 and 1977) and renewal type investments (30% of the same cost). 2/ Physical contingencies range from 0% for ecuipment (53% of the cost) to 10% for the construction items to be completed in 1974-75. Overall they amount to 3% of total costs Since taxes were conservatively estimated at 10%, the base cost was adjusted 7% downward to reflect both physical contingencies and taxes, 3/ Total traffic excluding iron ore, steel and steel related products. Traffic is kept at constant level from 1978 onwards. 4/ Assumes an overall salvage value of 10% after 25 years. 5/ See Table 9. 'WI

Source: Bank Estimates

December 1974 ANNEX 12 Page 1

BRAZIL

APPRAISALOF A SECOND RAILWAY PROJECT (RFFSA)

Future Expansionof the Steel Industry

The Current Situation

1. During the last four years, the steel industryhas been character- ized by a vigorous expansionin productionof over 9% per year. This expan- sion, however, has not been able to keep up with the increase in domestic consumptionof steel productswhich, during the same period, has been grow- ing at more than 15% per year. Domestic steel consumptionreached 8.7 million tons in 1973, and the short fall in local productionwas 1.7 million tons. Steel consumptionis centered in the State of Sao Paulo, followed by Guanabara- Rio de Janeiro and Minas Gerais. This situation is expected to continuebeyond 1980.

2. The annual growth of the Brazilianeconomy was 10%; during 1969- 1973, however, the industrialsector grew at a rate of 13% per year, the transportationindustry at 14%, the civil works industry at 12% and power generationat 11%. This underscoresthe crucial role that the steel industry plays in the current phase of overall Brazilianeconomic development and suggests that, even if economicgrowth were to slow down slightly,a very large scope would still exist for economic expansionof the steel industry to eliminatethe net import requirements. The Governmenthas requestedBank financialsupport for the Third Phase of the Steel ExpansionPlan.

Effect of l!theEer_risis

3. The recently increasedfuel costs may slow down the growth of the Brazilianeconomy. The latest Bank estimatesare that the economywill still grow at 10% in 1974 but at a slightly (on the order of 8-9%) lower rate thereafter. These projections,however, are subject to change.

4. In the face of a possible slowdown in the growth of the Brazilian economy, the Steel ExpansionPlan is likely to go ahead as envisaged,with the only possible exceptionbeing the slippage of the developmentof the export oriented semi-finishedproduct mill at Itaqui,which depends on the developmentof ore deposits at Carajas, by four years at the most. The projectionof demand for steel products,measured in equivalentingots, as shown in Table 1 of this annex, has been computed on the basis of a yearly growth rate that is slightly above 10% and is compatiblewith an overall growth rate for the economy of 7-1/2%-8%a year. Therefore,no sizable slow- down of demand for steel is to be expected if a 7-1/2% to 8% growth is achieved until 1980. ANNEX 12 Page 2

5. Furthermore,delay in the expansion of steel production for export does not seem likely. In the face of higher fuel costs, Brazil can be expected to move to improve its balance of trade by encouragingexports. Brazil's comparativeadvantage for steel productionis such that it will eventually expand its steel production beyond its domestic needs. Projected demand for Brazilian iron ore and steel ingots has not been reduced since Japan, a principal customer for these products,will undoubtedly attempt to pay its greatly increased fuel import bill by export expansion,especially of industrialproducts. It is not expected that the forecast of demand for steel, raw materials, and plant capacities given in Tables 1 and 4 of this annex and explained in paragraph 6 will be affected substantiallyby increased fuel costs.

The Steel Epansion Plan

6. The Steel Expansion Plan will attempt to increase Brazilian produc- tion of steel ingots and, hence, to eliminate the net steel import requirement. The demand forecast is in keeping with the somewhat reduced growth rates for Brazil that now appear likely (para. 4 preceding). As a consequence,the projected demand for steel is conservative,since the effects of the recent increases in fuel costs do not preclude the possibilityof consumptionof steel higher than that forecast. In this context, the excess capacity of 2.8 million tons of steel ingot equivalentsprojected for 1980 gives a moder- ate margin of safety for Brazilian supplies under peak demand when likely exports, currentlybeing negotiated, are taken into account. 1/ Furthermore, the timing of the expansion plan as presented in Tables 1 to 4 representsa minimum necessary requirement for sustained Brazilian growth.

July 1974

1/ By 1980, Brazil is expected to export 4.0 million tons of steel ingots to Japan. ANNEX]2 Table 1

BRAZIL

APPRAISALOF A SECONDRAILWAY PROJECT (RFFSA)

Brazilian Demand for Steel

And Steel :m,orts 1/ (003 tons oe i valents)

YEAR IMPORTS DEMAND

1970 800 5,690 (g/) 1971 1,600 6,600oo /)

1972 1,200 7,650 (/

1973 1,700 8,900

1974 21500 9,500

1975 I,000 11,000

1976 2,000 13,600 1977 (1,100) 15,200 1978 (3,000) 17,000 1979 (5,200) 18,600 1980 (6,800) 20,000

1/ Figures in parenthese.s are excess steel plant capacities, they are not projected export figures. (2/) Effective consumption recordech BRAZIL ANNEX 12 Table 2 APPRAISAL OF A SECONDRAILWAY PROJECT (FFSA)T

Brazilian Production of Steel (Plant capacitv in million tons of steel ingot equivalents)

1974 1977 1980 1985

1. Flat Steel (Product to ingot ratio: 75%)

(a) sxisting_plants

USIMINAS 1.5 3.6 4.0 5.0

COSIPA 1.6 2.3 3.5 3.5

CSN 1.5 3.0 4.0 4U5

(b) new plants

Tubarao - - 1.0 1.5

(c) total 4.6 8.9 12.5 14.5

2. Non-Flat Steel (Product to ingot ratio 80%)

(a) existing Plants

Belgo Mineira 0.6 0.7 0.8 1.0

COSIGUA 0.3 0.6 0.9 1.0

CSN 0.3 0.5 0.5 1.0

GERDA GROUP 03 o.6 1.0 1.2

COFAVI 001 0.2 0.3 0.5

Others 0.9 1,4 2.0 2.3

(b) new plants

(Mendes Jr.) - 1.0 1.0 2.0 (c) sub-total 2.5 5.0 6.5 9.0

3, Semi-FinishedSteel

ea) new

ltaqui - - 2.0 4.0

Tubarao (Kawasaki) - 3.0 6,0 60o

(b) total - 370 g.5 100

Total: l(c) + 2(c) + 3(b) 7.1 16,9 27.0 33.5 ANNEX12 Taiblg 3 BRAZIL

APPRAISALOF A SECONDRAILWAY PROJECT (RFFSA)

Total Consumption of Raw Materials in the Brazilian Steel Sector

Technical Coefficients '73 f74 175 '76 f77 '78 '79 '80 Iron Ore (1.3) 9.4 11.1 13.0 15.1 21.1 26.8 28.6 32.5 Limestone1/ ( .2) 1.5 1.6 1.7 2.3 3.2 3.6 4h.0 4.6 Coal (.75) 5.4 6.4 7.5 8.7 12.2 15.0 16.5 18.8 ScrapIron 2/ (.2) 1.5 1.6 1.7 2.3 3.2 3.6 4.0 4.6

ManganeseOre (.03) .2 .2 .3 .4 .5 .5 .6 .7 SteelProduction 7.2 8.5 10.0 11.6 16.2 20.0 22.0 25.0 (estimate)

1/ Includesapproximately one thirdof doloaite0 2/ 50% of whichis generated'in house'. ANNEX1.2

BRAZIL

APPRAISALOF A SECONDRAILWAY PROJECT (RFFSA)

Sources of Raw Materials for Main Steel Producers

PLANT IRON ORE LIMESTONE2/ COAL3/ SCRAPIRON W MANGANESE

Usiminas Itabira Matozinho Port of Brazil Rio Acima Victoria

Cosigua Aguaas C. Belo Port or Brazil Cons. Lafaiete Claras Rio

Cosipa Aguas Salto de Pira- Port of Brazil Rio Acima Claras pora Bom Jesus Santos de Pirapora

CSN Congonhas CO Belo, Port of Brazil Cons Lafahete Araa 1/ Barroso, Arcos Arara J. MurVinho 1/

Tubarao Itabira Miatozinho Port of Brazil Rio Acima Tubarao Itaqui Carajas undefi ned Port of Port of UndefiLed Sao Luis Sao Luis

Mendes Aguas Nova Granja Port of Brazil Cons Lafaiete Jr. Claras Rio

1/ Sources of pellets

2/ Sources of Dolomite Ouro Preto, Juperana, Burnice

3/ Sources of coal are: in Brazil, Criciuma, Cafivari, Imbituba; and abroad, USA, Poland and Colombia.

4/ Sources of Scrap Iron in addition to the plants themselves are assumed throughout the country. ANNEX13 Page 1

BRAZIL

APPRAISAL OF A SECONDRAILWAY PROJECT (RFFSA)

Tariffs and Costs

1. The present RFFSA tariff came into effect in February 1968. It has eight basic commodity schedules for carload shipments, three of which are special schedules for iron ore, lumber and cement. The tariff sets maximum rates, but 70% of freight traffic is carried at significantly lower special contract rates. Proposals for rate increases are sent to the General Trans- port Accounting Bureau (Ministry of Transport), which reviews them for con- sistency with FEPASA's proposals; the proposals are then sent to the Inter- ministerial Price Commission for approval. Rate increases in recent years have generally kept pace with inflation. Freight rates on goods other than those for export carry a 10% surcharge (amounting to some Cr$ 43 million in 1972) which goes to the Ministry of Labor for social purposes. The Govern- ment planned to incorporate this surcharge into RFFSA's tariffs by June 1970, but the Ministry of Labor opposed it. During negotiations, the Government agreed to neutralize the effect on RFFSA's competitive position of the sur- charge by January 1, 1976.

2. In June-July 1973, a Bank consultant (Mr. F. Sander) visited RFFSA for five weeks to undertake a traffic costing study and to train four RFFSA staff in the techniques of railway costing,with a view to establishing a permanent costing team in RFFSA. The following comments are based on the re- sults of this study.

(i) Passenger Fares

3. A comparison of passenger train costs (excluding interest) and revenues by Division for 1972 is given in Table 1 of this annex. Only on the suburban Sao Paulo and Santos services (Division 9) do passenger fares cover long-run variable costs and make a contribution to fixed costs. For the Rio suburban services (Division 6), cost per train-km were considerably higher than for the Sao Paulo service because of exceptionally high repair costs of old electric unit trains. A Government subsidy was paid to supplement the low passenger fares, and this was just sufficient to cover the loss on these ope- rations.

4. On interior passenger services, long-run variable costs are from two to four times receipts. The cost per train-km of Cr$ 11.36 (US$1.89) is reasonable. The large passenger deficit is caused by low fares and poor patronage of the service offered. The fare paid (equivalent to US40.43 per km) is one of the world's lowest. ANNEX13 Page 2

(ii) Freight Tariffs

5. A comparisonof receipts and long-run variable costs (excluding interest) by Division is given in Table 2 of this annex. Except in Divisions 1 to 4 (the Northeast) and 7 (Leopoldina), revenues cover or approximate long-run variable costs on freight (excludinglivestock). However, there is very little contributionto fixed costs. To give some idea of the adequacy of freight rates on individualcommodities, a comparisonof receipts and long- run variable costs is given (Table 3 to this annex) for the Sixth Division, which accounted for 40% of ton-km of RFFSA in 1972. This shows that a number of commoditieswere carried below variable cost. In general, rates are low, averaging 1972 Cr$ .0524 (USd0.88)per ton-km. Trucking costs are generally higher (Table 9 of the main report), and there is room for increases in rail- way rates as services are improved.

December 1974 BRAZIL A'PPAISAL OF A SECONDRAIIWAY FM (CT (IF)

Passenger Train Receipts and C-sts. 1'72

(Exprsssed in 19';2 Cr$)

1- 4 5 6 - D I V I _S7IO N S 9 10 1-1 Interior Suubrban Interior Sulkirban Total RFFSA Receipts,~~ ...... ~~~~...... (Cr $000) ...... Receixpts:.(r$0)

Passengers, interior 11,462 3,990 17,962 - 9,835 9,952 7,865 10,7411 71,815 suburban 2,235 168 - 65,935 1,561 - 26,177 - 158 ,6,,134 Baggage 1,218 3?74 1,041 - 453 2h9 - 933 1,373 5,641 Mail 6 41 852 - - 132 - 15C 262 1,1'43

Total receipts 14,921 4,581 19,855 65,935 11,849 10,333 26,17? 8,9418 12,53;' 175,133 Long-run Variable Cost:

Maintenance,repair and excludi±g depreciation 32,175 12,942 412,170 91,999 24,570 15,061 8,464 14,332 24,)L5( 266,163 Depreciation 9,229 4,522 11,067 3,451 7,228 5,022 3,433 4,792 12,992 61,736 Total 41,404 17,464 53,237 95,450 31,798 20,083 11,897 19,124 37,442 327,899

Resullts of Operation:

Net lose 2.6,483 12,883 33,382 29,515 19,949 9,750 - 10,176 24,9CP Contributi-on to fixed 152,766 costs - - - - - ,280 _-

Receipts Expressed as Percentage of Long-run Variable Cost 36 26 37 69 37 51 220 147 33 53

Statistics:

Train-km (000) 2,927 1,806 4,931 9,487 3,078 1,402 1,703 1,982 3,297 30,613 Passenger-km (million) 674.7 204.6 1468.41 4,292.6 520.7. 371.3 767.8 260.6 1427.5 7,S9Y.2 Average no. of passengers per train 233 113 95 152 169 265 451 131 130 261 Receipts per train km (Crli) 5.10 2.51 6.95 3.85 7.37 15.37 1.G3l 3.80 5.72 Long-raq variable cost oer tra-n-kn (Cr$) 14.15 9.67 10.80 10.06 10.33 1-432 6.99 9.65 1l.; 10.71 Average fare paid per passenger-km (centavas) 2.03 2.014 3.83 1.54t .2.19 2.68 3.1 3.02 2.55 2.10 Long-rnn variable cost per passenger-km (centavoS) 6.11 8.54 i1-17 t.42 2 L.1C6.11 5.41 1.55 . 6

December 1974 H ANINEX 13 BRAZL Table.

APPRAISALOF A SECONDRAILWAY PROJECT (RFFSA)

Freight Receipts and Costs by Divisioor, 1972

(Excluding Livestock on Divisions 6, 10 and 13) (1972 Cr$)

Division Receipts Long-run Excess or Net Receipts Long-run Variable (Shortfall) ton-km per Net Variable Cost of Revenues (million) ton-km Cost per - (Cr$ '000) - over Cost Net ton-km ------(Cr$) ---- -

1 1,510 4,786 ( 3,276) 31 .o487 .1544

2 9,230 14,651 ( 5,421) 162 .0570 .0904 3 18,700 35,980 (17,280) 314 *o596 .1146

4 14,708 26,708 (12,000) 336 .0438 .0795 $ 74,651 79,952 ( 5,301) 1,541 .o484 .0519

6 194,469 173,075 21,394 4,785 .o464 .0362

7 17,575 39,101 (21,526) 288 .0610 .1358

9 72,400 68,706 3,694 450 .160g .1527

10 32,583 33,116 ( 533) 690 .0472 .o480

11 70,827 71,780 ( 953) 1,1409 .0503 .0509 12 1-3,449 8,148 5,301 132 .1019 .0617

13 93,204 70,579 22,625 1,570 .0594 .o450

613,306 626,582 (13,276) 11,708 .0524 .0535

Decerfiber197L BRAZIL APPRAISALOF A SE2Z000RAELdAX PIOJECT (MA2

6th Ditlalon - reOtral

Comoartson of Receipts a-t Lorg-ran Variable Costs of Principal Comaodities T.e" 1972

Averag Porcentaes n-load Drtaitbation Ton-b Commmodity C~ .0 11 sayw Private Average Renal to o.-r,VaaleCostT Ratio of rItr |1-1.00" l.oO 1.00" hWagon agon 1 Tone Ton-Km egh haul ipr ton-Km Total - p.ron Par- o otI Receipts (Tons) |(000 (1illn (p (Wr$)rc) (cr $000 ((:r . IC. $) (fCr Soo1) to Costs M.nrio de ferro (iron ore) 48 - 100 - 50 50 5,152 2,908.1 56b 0.0334 97,135 15-50 0.0275 79,856 1.12 Caento (censnt) b5 25 70 30 80 20 6B4 423.9 620 0.0370 15,667 2?.16 0.0357 15,157 1.03 Ferro a ago (iron and ateel) 40 25 90 10 60 bO 830 400.8 b92 0.0503 20,602 16.72 0.0339 t3,878 1.8 Calcfrios (limestone) b5 25 50 50 80 20 6L4 t89.6 294 0.01S3 10,300 10.85 0.0368 6,937 .1b7 C.rvToeinsal (ooal) L0 - 1OD - 100 - 88S 128.4 1L5 0.083 10,818 8.00 0.0551 7,080 1.53 Trigo (wheat) 35 20 93 10 100 152 61.9 407 0.0552 3,b16 17.82 O.C038 2,709 1.26

Fe-ro . .Plg tiron) 35 25 9 - 10 100 - 191 60.6 3l7 0.0521 3,158 15.03 o.o074 2,871 1.10

Carv-o vegetal (charcoal) - 15 - 100 100 - 128 56.4 1i. o.O51.6 3,077 36.00 o.0816 ,608 0.67 C,,,o,ed.err (iron ptpes) 20 15 90 10 50 50 61. 53.8 6b1 n.0h80 2,581. L2.88 0.0510 2,-,44 0.94

Nas>o (apswm 50 - 10u - 1.70 _ 65 0.4 745 0.02h42 1,173 23.33 0.0313 1,516 0.77

.A;4c*r (auger) 30 20 90 10 100 - 914 38.9 1.1 0.0h26 1,659 21.21 0.0513 1.997 0.83 Dolomite (dolomite) b0 25 70 30 100 700 36.3 18e 0.0790 2,867 9.82 o.o0513 1,Y6L 1.146 NinSrio de mangeia (,aacglae Ir.) b0 25 60 b0 100 - 38 29.5 776 O.C0118 1,231 32.10 0.0ob4 1,220 1.01 Papal * papelFo (paper and card- board) 35 15 70 30 I W h1 21.9 bv8 0.0510 1,116 16.65 0.0535 1,173 0.95 Ar&,%s (wire) 35 10 70 30 100 26 18.1 708 0.0453 831 32.91 0.0o65 856 0.97

Outra 25 15 70 30 100 - 71l 299.2 0ob - o0.0629 18,819 26.15 0.o655 19,599 0.91 m Peqasnee eapedi;*os (LL) (terdnAl comtat trwspert Included In O0traa'-analyzis to b coqoletead by FFISA) 1,112

Oabtotal - meraluortaa 9,938 Lb,7S5.z b8z 0.Oh06 192,4!;59 16.6b 0.03b6 165,327 1.18

Animals - b(3 22.5 523 0.1471 3,310 110.00 0.2102 4,730 0.70

Collection od delt ery ) . 2,9L9 (to be illoodt.d by RmPPAwhen data ar. aveilable) Trsa.slitpant between puges 201

VrAL~~~~_ __ _ - _ - DeIAL- Cernrp 740360 1,7,?, 1.82 0.,1 (975769 1719 i72a207 t.11

December1974. [t 3 ANNEX 14 Page 1

BRAZIL

APPRAISAL OF A SECOND RAILWAY PROJECT (RFFSA)

Assumptions Used in Making Forecast Income Account

Operating Revenues

1. Tariff levels for 1972 were used to project all passenger and freight revenues (except for NBR traffic), with an adjustment of 15% a year (the 1973 rate of Brazilian inflation) to allow for inflation between 1972 and 1975. In 1976, a further 20% increase in average unit freight revenues was calculated except on MBR traffic (rates for MTBR traffic are contract rates which vary with the annual tonnage shipped). The Government agreed, during negotiations, to take whatever action was needed to neutralize the effects of the 10% surcharge on freight on RFFSA's competitive position by January 1, 1976. This will enable RFFSA to increase its tariffs by 10%, and it was as- sumed that this would be done beginning in 1976. These tariffs were applied to the traffic forecasts given in Chapter 5 of the report. No allowance was made for the additional revenues expected to begin in 1979 from increased tariffs (for freight using the new Belo Horizonte to Volta Redonda line) proposed to retain a share of the benefits from the Steel Expansion Plan. Suburban Rio passenger tariffs were increased 15% from 1978.

2. Other revenues (pipelines, miscellaneous) are based on 1972 tariff levels adjusted for estimated inflation between 1972 and 1975.

Operating Expenses

3. A costing analysis was carried out for each division of RFFSA in June-July 1973, in which costs were separated between passenger (intercity and suburban) and freight and between fixed and variable. Variable costs were related to measurable operating statistics (train-km, locomotive-km, gross ton-km, wagon-km, etc.). Based on the traffic forecasts, operating statistics were calculated for each division, allowing for a modest improvement in certain measures of operating performance (average wagon load, wagon-km per day, loco- motive-km per annum, number of wagons per train). Based on these operating statistics and the variable and fixed costs calculated in the costing analysis, 1979 costs were estimated. These were then adjusted for four factors:

(a) average estimated inflation between 1972 and 1975 at 15% a year;

(b) reductions in personnel numbers expected between 1972 and 1979 assuming the recent trend in staff reductions continues, resulting in a decline in staff numbers as follows: ANNEX14 Page 2

end 1974 112,000 1975 110,400 1976 108,800 1977 107,200 1978 105,600 1979 104,000

(c) increases in average real salaries by 1979 as follows:

30,600 locomotive crew and workshop personnel 25% 14,000 head office and regional administration staff 30% approximately 60,000 other staff 10%

(d) increased fuel costs and imposto unico taxes to reflect recent increases to a CIF price of US$9 a barrel in Brazil, i.e., 1974 Cr$ 1.02 per liter (including Cr$0.31 imposto unico).

4. Depreciation has been included in variable and fixed costs in the cost analysis. Principal items of depreciation are on locomotives, on freight and passenger wagons and on rail and fittings. Depreciation on these items is calculated on the basis of locomotive-km, wagon-km, passenger car-km and gross ton-km, respectively. In addition, depreciation was included, beginning in 1975, on other items in the Project, such as new lines and realignments (1%), headquarters investments (2%), stations and yards (2%) and signalling and telecommunications (2.5%).

Subsidies

5. Subsidies were estimated by calculating the difference between revenues and costs for the Northeast and Leopoldina (excluding imposto unico, which RFFSA recovers through its capital account). Other subsidies represent the difference between long-run variable costs and related re- venues. Expenses paid by the Government, principally the extra costs of employing civil servants receiving higher compensation than if employed under the Common Labor Laws (CLT), are expected to decline steadily as employees in this category retire and are replaced by CLT staff.

6. It is unlikely that the subsidies will be as great as forecast. As a result of the studies of uneconomic lines and services, such lines and serv- ices will be reduced or eliminated, thereby reducing RFFSA's operating costs and revenues and the related subsidies.

December 1974 ANNEX15 Page 1

BRAZIL

APPRAISALOF A SECONDRAILWAY PROJECT (RFFSA)

Deals of Financ ing Plan

1. RFFSA's cash flow and financing plan are given in Table 18 to this report. Amounts are shown in 1974 Cr$ for 1974 and in 1975 Cr$ for the years 1975 through 1979. Because amounts are in 1974 and 1975 Cr$, price contin- gencies have been excluded from project costs and amounts of financing required.

2. The financingplan covers the period of the investmentplan rather than that of the project. Since project items extend into 1978, it was consideredmore convenientto present a financingplan for the full plan period and to show sources of finance for project items and remote items of RFFSA's five-yearplan.

3. The plan depends to a considerableextent upon appropriations from the Federal Budget and imposto unico receipts, in accordancewith past trends. The Government'sfuture policy in allocating these funds is presently under review. Commencingin 1976, depreciationof RFFSA's fixed assets will comprise an importantsource of funds. (The Plan of Action requires that RFFSA be allowed to charge reasonabledepreciation in its accounts commencing in 1976.)

4. RFFSA's long-termdebt as of December 31, 1973 is given in Table 1 to this Annex. Foreign obligationsare converted at the rates of exchange prevailingon that date. Details of foreign and domestic financing,arranged or assumed, are given in Table 2 to this Annex. Foreign financingis con- verted to Cr$ at US$1 = Cr$ 7 in 1974 and US$1 = Cr$ 7.50 in 1975 through 1979.

5. Domestic or foreign financinghas been arranged for a large part of the investmentplan. Negotiationsare under way with the U.S. Export- Import Bank to finance 195 locomotivesto be acquired in 1975 and 1976. It was assumed that a loan would be obtained to cover 80% of the cost with 8% interest and repayable in 15 years, including three years of grace. It was further assumed that finance for an additional 118 locomotivesto be acquired in 1976 and 1977 could be obtained from the same source and on the same terms.

6. It was assumed that, in addition to the proposed Bank loan, the Governmentwill request additionalBank financingfor RFFSA, in an amount of up to US$200 million, to help finance items in the Five-Year Plan over the 1917-1979period. Finally, the Governmentand RFFSA intend to finance a considerablequantity of rails and fittings (in addition to that already financed) in order to carry out the large line constructionand rehabilitation and wagon rebuildingprogram. It was assumed that about 20% of rails and ANNEX 15 Page 2 fittingswould be acquired from domesticsteel mills and financed domestically. The balance would be acquired and financedabroad. The terms in each case (Table 2) are similar to those for similar financingsin the past.

7. Railway wagons being acquired are already financed, except for about 6,400 wagons being acquired in the years 1976-1979;for these, RFFSA has signed a protocol of intentionswith BNDE (as part of a long-termcon- struction contractwith domestic suppliers)to finance them at 7% interest with principal repayableover 12 years, includingtwo years of grace.

8. RFFSA also hopes to obtain finance for its electrificationprogram from abroad,but the sources are not certain and the terms are unknown. To the extent that such finance is obtained, the Government's contributions to the plan will be reduced.

December 1974 ANNEX1i Table 1

BRAZIL

APPRAISAL OF A SECONDRAILWAY PROJECT (RFFSA)

Long-Term Debt as of December 31, 1973

US$ Cr$ ('000) millions

Foreign Creditors

Export-ImportBank of the United States 22,713 First National Bank of Memphis 74 Ganz Mavag Locomotive and Carriage Manufacturing 3,488 InternationalBank for Reconstructionand Development(Loan 786-BR) 20,715 ManufacturersHanover Trust Company 26,223 Marubeni Lida Co. Ltd. 4,665 Material y ConstruccionesS.A. 25,044 Mrgan Guaranty Trust Company of New York 7,489 P.H.Z. - Stalexport 834 Rudnap,Export Import 16,590 The Northern Trust Company 569 Banco do Brasil (agent for certain foreign creditors)20,258

Total US$ obligations 148,662

MaterielIndustriel S.A. - Sw.Fr.1,525,131 343 OsterreichischeLanderbank - A.Sch.37,576,228 2,030 Societe des Anciens Etablissements L. Geismar - F.F. 654,058 142 151,177 939.5

Domestic Creditors

Banco Nacional de DesenvolvimentoEconomico 464.8 Caixa Economic Federal 136.5 Institutodo Alcool e do Acucar 6.2 PETROBRAS 9.0

616.5

Other long-term obligations 47.8

Total long-term debt as of 1,603.8 December 31, 1973

October1974 BRAZIL

APPRAISAL OF A SECOND RAILWAY PROJECT (RFFSA)

Details of Foreign and Domestic Financing Arranged and Assumed to Finance RFFSA Development Plan

Figures in Millions of Cr$ Credit Terms Rate Financing for 1974 1975 1976 1977 1978 1979 Term of Loan Grace Period Interest

Foreign Financing various various of 31/12/73 823.2 235.7 109.5 48.1 various Contracts arranged as 15 years 6 years 6% Bank (arranged) Export Corridor 83.4 41.9 Export-Import 8 years 2½ years 8k% Bank of America (arranged) 83.4 41.9 8.8 9.4 11 years 2 years 4.3% Banco do Brasil (arranged) 8% Project 513.0 551.0 25 years 5 years IBRD loan (proposed) 7 years jsentne after 7b Rutnap Export-Import (arranged) 3,000 wagons 578.0 e very 7 8 years 2 years 7% Mecanoexport Import (arranged) 2,900 wagons 245.0 205.0 15 years 3 years 8% 1/ (in negotiations) 195 locomotives 200.0 250.0 Export-Import Bank 15 years 3 years 8% 1/ Bank (to obtain) 118 locomotives 185.0 105.0 Export-Import 375.0 450.0 10 years 3 years 8% 1' Source to be identified rails and accessories 550.0 570.0 675.0 500.0 000 500.0 25 years 5 years 8% T1 IBRD loan (assumed) 998.8 2,414.9 1,870.5 1,328.1 875.0 950.0

Domestic Financing various various various of 31 '12/73 124.7 24.6 Contracts arranged as 10 years 2 years 8% 2/ (arranged) 3,000 wagons 302 1 173.1 BNDE 13 years 3 years 6% 2/ (arranged) new lines and variantes 200.0 600.0 1,000.0 700.0 BNDE 152.0 12 years 2 years 7% 2 BNDE (protocol of intentions signed) 6,391 wagons - - 414.0 480.0 395.0 225.0 125.0 _ 12 years 3 years 8% 2/ Source to be identified rails and accessories - 200.0 200.0 626.8 997.7 1,614.0 1,405.0 520.0 152.0

1/ Assumed financing terms.

2/ Plus monetary correction.

October 1974

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