Docent of The World Bank FOR OFFICIAL USE ONLY Public Disclosure Authorized Report No. 13457 PROJECT COMPLETION REPORT ARGENTINA Public Disclosure Authorized PUBLIC ENTERPRISE ADJUSTMENT LOAN (LOAN 3291-AR) AUGUST 17, 1994 Public Disclosure Authorized Public Disclosure Authorized Trade, Finance and Private Sector Development Country Department IV Latin America and the Caribbean Regional Office This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization. CURRENCY EQUIVALENTS Currency Unit = Argentinean Peso Exchange Rate I US Dollar = 1 Peso (Since April 1, 1991, the exchange rate has been established by law) GOVERNMENT OF ARGENTINA FISCAL YEAR January 1 - December 31 ABBREVIATIONS AND ACRONYMS ADELCO = Non profit Consumer Advocate Organization "Accion del Consumidor" ATAM = Urban Transit Railway Authority for Buenos Aires CNT = Comisi6n Nacional de Telecomunicaciones EFF = IMF's Extended Fund Facility ENTEL = Empresa Nacional de Telecomunicaciones FA = Ferrocarriles Argentinos FEMESA = Ferrocarriles Metropolitanos Sociedad An6nima GdE = Gas del Estado IMF = International Monetary Fund OSN = Obras Sanitarias de la Naci6n PE = Public Enterprises PERAL = Public Enterprise Reform Adjustment Loan PEREL = Public Enterprise Reform Execution Loan SFM = Servicios Ferroviarios Metropolitanos YPF = YPF Sociedad Anonima (The new name of the National Oil Company) FOR OFFICIAL USE ONLY THE WORLD BANK Washington, D.C. 20433 U.S.A. Office of Director-General Operations Evaluation August 17, 1994 MEMORANDUM TO THE EXECUTIVE DIRECTORS AND THE PRESIDENT SUBJECT: Project Completion Report on Argentina Public Enterprise Reform Adiustment Project (Loan 3291-AR) Attached is the "Project Completion Report on Argentina - Public Enterprise Reform Adjustment (PERAL) Project (Loan 3291-AR)" prepared by the Latin America and the Caribbean Regional Office, with Part II prepared by the Borrower. The PERAL, approved in February 1991, was aimed at supporting the Government's program to privatize most of Argentina's inefficient public enterprise sector. In addition to broad overall macroeconomic management conditions, the Loan included conditions related to the telecommunications, railroads, and oil and gas sectors, as well as provisions for the preparation of privatization plans for PEs in other sectors and the repeal of legislation granting unlimited domestic preference in PE's procurement policies. Actions provided under the program were supported by a companion Public Enterprise Reform Execution Loan (PEREL). The loan was closed ten months earlier than scheduled as most of the loan objectives and conditions were achieved in a timely manner and even exceeded in certain key areas (e.g. early privatization of the power and port utilities). Argentina's telecommunications, gas, and oil companies were successfully privatized in record time, providing useful models for other countries. Hydrocarbon prices were deregulated. Progress was made, albeit more slowly, in the privatization of railroads and on the regulatory front. By drawing on the vast amount of sector work carried out in the targeted sectors before the inception of the privatization program, the Bank was able to respond quickly to the Government's request for assistance. An interesting and innovative feature of this operation was that it financed substantial severance payments to staff of privatized PEs. Strong Government ownership of the programs and the existence of a very effective Project Unit also contributed to project success. Both the Bank's and the Borrower's performance are considered to have been very good. The reform of the PE sector undertaken by the Argentine Government with the support of the PERAL was among the most far-reaching ever carried out by any country. Based on results thus far, the project has been very successful and its institutional impact can be considered substantial. Likewise, its sustainability is considered likely and its overall outcome is judged as highly satisfactory. The PCR is very thorough and informative. An audit is planned. Attachment This docunent has a restricted distribution and may be used by recipients onLy in the performance of their officiaL duties. Its contents may not otherwise be discLosed without World Bank authorization. FOR OFFICIAL USE ONLY PRJETCOMPLETMON REPOR ARGENTINA TABLE OF CONTENTS Page Preface ............................................ i Evaluation Summary .................................. n-ix FAKI1 A. The Program ...................................... 1 B. Background ....................................... 1 C. Loan Objectives .................................... 3 D. Overall Conditions and their Fulfillment ......................... 4 E. The Sectors: Iblecommunications .......................... 5 F. The Sectors: Railroads ................................ 9 G. The Sectors: Oil ................................... 15 H. The Sectors: Natural Gas .............................. 17 I. Evaluation ....................................... 19 PAR II A. Introduction ...................................... 26 B. Achievements in Meeting Commitments ....................... 27 C. Institutional Development of a Telecommunications Regulatory Authority . 27 D. Commitments to Action in the Hydrocarbons Sector .............. 27 E. ResultsintheRailway Sector ........................... 30 F. Results under Supplemental Letters ........................ 32 G. Evaluation ....................................... 33 H. Borrower Performance ............................... 34 I. Project Relationship ................................. 35 L Lessons Learned and Conclusions ......................... 35 K. Summary ....................................... 38 PARIr W Statistical Thbles A. Related Bank Loans.................................. 39 B. Project 'limetable ................................... 40 C. Loan Disbursements ................................. 40 D. Dates of Tranche Disbursements ......................... 40 E. Project Costand Financing ............................. 41 F. Status of Covenants ................................. 42 G. UseofBankResources ............................... 44 H. Project Preparation Funding ............................ 45 This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization. -1- ARGENTINA PROJECT COMPLETION REPOR PUBLIC ENTERPRISE REFORM ADJUSTMENT LOAN PERAL I (LOAN 3291-AR) PREFACE 1. This is the Project Completion Report (PCR) for that part of the public enterprise privatization program of Argentina for which Loan 3291- AR was approved on February 12, 1991. The Loan was fully disbursed and closed on February 17, 1993, ten and a half months ahead of schedule. 2. The PCR was jointly prepared by the Tade, Finance and Private Sector Division of Country Program Department IV of the Latin America & the Caribbean Regional Office (Preface, Evaluation Summary, Parts I and III) and the Borrower (Part II). 3. Preparation of the PCR started in May 1993, and is based, inter alia. on the Staff Appraisal Report, the Loan Agreement and Supplementary Documents, the Supervision Reports, various consultants' studies and reports, correspondence between the Borrower and the Bank, internal Bank memoranda and a short evaluation mission to Argentina which included discussions with agencies of the Borrower involved with the program, as well as discussions with selected clients of these agencies, i.e., some of the intended ultimate beneficiaries of the operation. 4. StaffAssignments: (a) During Loan Preparation (up to July 1990) Division Chief and Task Manager: Peter R. Scherer Department Director: Pieter Botellier (b) From Post Appraisal through Project Completion Thask Manager: Stefan Alber Division Chief: Paul Meo Department Directors: Pieter Botellier/Ping-Cheung Loh - 11- ARGENTINA PROJECT COMPLETION REPORT PUBLIC ENTERPRISE REFORM ADJUSTMENT LOAN PERAL I (LOAN 3291-AR) EVALUATION SUMMARY A. Loan Objectives and Structure 1. The US$300 million PERAL I Loan to the Government of Argentina, approved on February 12, 1991, was designed to support a part of President Carlos Menem's new (August 1989) Administration's program to privatize most of the country's public enterprises (PEs). These had been a heavy drain on Argentina's economy for many years, both because of their inefficiency (the microeconomic burden) and because of their losses, covered by the Treasury (the macroeconomic cost). 2. The Bank's role was to offer financial (including the visible use of Loan counterpart funds for labor redundancy payments), technical (including a broad program of T.A. through a companion Loan, PEREL) and moral (through assistance to market access, etc.) support. The privatization programs receiving direct support under the Loan were those in the 'Iblecommunications, Railroads and Hydrocarbons (Oil and Gas) sectors. Ultimately, the Government's total program went much further; it included, inter alia, airlines, ports, electricity, water, shipping and many industrial enterprises. Eventually, the Loan became part of a much larger Bank adjustment lending program of an additional US$1.5 billion, directed at public sector institutions, enterprises of the defense complex, the financial sector and foreign debt reduction (the so-called "Brady Deal"). 3. The Loan was structured so as to