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Assessment of the Railroad in Uruguay

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Assessment of the Railroad in Uruguay Report Number: 41884 -UY URUGUAY Public Disclosure Authorized Consolidated Report Public Disclosure Authorized Policy Options for Improving the Efficiency of Uruguay’s Railway Sector Public Disclosure Authorized Sustainable Development Department Argentina, Paraguay and Uruguay Country Management Unit Latin America and the Caribbean Region Public Disclosure Authorized World Bank DISCLAIMER This paper has been prepared by staff of the International Bank for Reconstruction and Development/World Bank. The results, interpretations, and conclusions expressed in this document do not necessarily reflect the opinions of the Executive Directors of the World Bank, or the governments and donors that they represent. The World Bank does not guarantee the accuracy of the data included in this report. The borders, colors, names and other data shown on any of the maps in this report do not imply an opinion on the part of the World Bank regarding the legal status of any territory and/or approval and/or acceptance of those borders. Vice President: Pamela Cox Country Director: Stefan Koeberle (Acting) Sector Director: Laura Tuck Sector Leader: Franz Drees-Gross Sector Manager: Aurelio Menendez Project Manager: Andrés G. Pizarro TABLE OF CONTENTS ACRONYMS AND ABBREVIATIONS .............................................................................................VI ACKNOWLEDGMENTS................................................................................................................... VII PREFACE .....................................................................................................................................VIII 1. EXECUTIVE SUMMARY............................................................................................................1 1.1 PROJECT RATIONALE.................................................................................................................1 1.2 GOU´S POLICY DEFINITIONS ON THE RAILWAY SECTOR...........................................................4 1.3 ASSESSMENT OF THE RAILWAY SECTOR IN URUGUAY ..............................................................4 1.3.1 Background ...........................................................................................................................4 1.3.2 Overview of AFE´s Current Situation: Assessment Summary.............................................5 1.4 REQUIRED DEFINITIONS FOR A COURSE OF ACTION ..................................................................8 1.4.1 Role of the Rail Corporation of Uruguay, CFU....................................................................8 1.4.2 Role of CCF ..........................................................................................................................9 1.4.3 Suburban passenger services.................................................................................................9 1.5 PROPOSAL FOR A COURSE OF ACTION .......................................................................................9 1.6 PROPOSED MODERNIZATION PLAN FOR THE RAILWAY............................................................11 1.6.1 Program 1: Transport policy definitions at the national level.............................................11 1.6.2 Program 2: development of a national railway policy ........................................................12 1.6.3 Program 3: Development of AFE modernization projects..................................................16 1.7 FINAL RECOMMENDATIONS.....................................................................................................16 2. INTRODUCTION........................................................................................................................18 2.1 CONTEXT.................................................................................................................................18 2.2 STUDY ON THE DEMAND FOR TRANSPORTATION OF FOREST PRODUCTS ...................................18 2.3 URUGUAY DEVELOPMENT POLICY REVIEW: ANALYSIS OF THE EFFICIENCY OF LAND TRANSPORTATION OF FOREST PRODUCTS ..................................................................21 2.4 ANALYSIS OF AFE’S OPERATING COSTS AND PROJECTION OF REVENUES AND EXPENSES.........................................................................................................................24 3. PROJECT RATIONALE .............................................................................................................30 4. ASSESSMENT OF THE RAILROAD IN URUGUAY .............................................................31 4.1 OVERVIEW OF URUGUAY RAILWAY SECTOR ...........................................................................31 4.1.1 Project guidelines ................................................................................................................31 4.1.2 Current situation in AFE .....................................................................................................32 4.1.3 Investments..........................................................................................................................41 4.1.4 Transportation market projections ......................................................................................44 4.1.5 Projection of operating income in a scenario in which forest products traffic is captured.................................................................................................................48 4.2 PROPOSED PRIVATE SECTOR INVOLVEMENT.............................................................................49 4.2.1 Overview .............................................................................................................................49 4.2.2 Infrastructure rehabilitation and maintenance.....................................................................49 i 4.2.3 Rolling stock .......................................................................................................................51 4.3 SUMMARY OF THE ASSESSMENT...............................................................................................53 4.3.1 Institutional structure...........................................................................................................53 4.3.2 Rail infrastructure................................................................................................................53 4.3.3 Rolling stock .......................................................................................................................54 4.3.4 Transport volume ................................................................................................................54 4.3.5 Operations ...........................................................................................................................54 4.3.6 Management........................................................................................................................54 4.3.7 Personnel .............................................................................................................................55 4.3.8 Financial performance.........................................................................................................55 4.3.9 Private sector participation..................................................................................................56 4.3.10 Conclusion........................................................................................................................56 5. INTERNATIONAL EXPERIENCE............................................................................................58 5.1 OVERVIEW...............................................................................................................................58 5.2 THE RAIL INDUSTRY CRISIS......................................................................................................58 5.2.1 Structural causes of the crisis..............................................................................................58 5.2.2 The developing crisis ..........................................................................................................58 5.3 REFORM OF THE RAIL SECTOR..................................................................................................59 5.3.1 Structural reforms................................................................................................................59 5.3.2 Economic results of the reforms..........................................................................................65 5.4 ALTERNATIVE PRIVATE PARTICIPATION MODELS .....................................................................66 5.5 CONSIDERATIONS FOR THE PRIVATE PARTICIPATION MODEL ...................................................69 5.5.1 Size of the market................................................................................................................70 5.5.2 Efficiency of AFE as a government enterprise ...................................................................70 5.5.3 Investor guarantees..............................................................................................................71 5.5.4 Economic viability of the model .........................................................................................72 6. REQUIRED DEFINITIONS FOR A COURSE OF ACTION ....................................................73 6.1 GENERAL ANALYTICAL FRAMEWORK ......................................................................................73 6.1.1 Basic concepts.....................................................................................................................73
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