Document of The World Bank
Public Disclosure Authorized FOR OFFICIAL USE ONLY
Report No: 46755-BR
PROJECT APPRAISAL DOCUMENT
ON A Public Disclosure Authorized PROPOSED LOAN
IN THE AMOUNT OF US$211.7 MILLION
TO THE
STATE OF RIO DE JANEIRO, BRAZIL
WITH THE GUARANTEE OF
THE FEDERATIVE REPUBLIC OF BRAZIL Public Disclosure Authorized FOR A
RIO DE JANEIRO MASS TRANSIT 2 PROJECT
June 2,2009
Sustainable Development Department Brazil Country Management Unit Latin America and Caribbean Regional Office
- This document has a restricted distribution and may be used by recipients only in the
Public Disclosure Authorized perfoiinance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization. FOR OFFICIAL USE ONLY
CURRENCY EQUIVALENTS
(Exchange Rate Effective April 2008-Dec. 2008)
Currency Unit =Brazilian Real (R$) R$1.7-2.35 = US$1
FISCAL YEAR January 1 - December 31
ABBREVIATIONS AND ACRONYMS
AGETRANS Rio de Janeiro State Transport Regulatory Agency Agencia Reguladora de Transportes do Estado do Rio de Janeiro AMTU-RJ Metropolitan Urban Transport Authority of Rio de Janeiro (Autoridade Metropolitana de Transporte Urbano-Rio de Janeiro) ASEP-RJ Original name of State Regulatory Agency BNDES National Economic and Social Development Bank (Banco Nacional de Desenvolvimento EconGmico e Social) CBTC Coinmunications Based Train Control CBTU Brazilian Urban Train Company (Companhia Brasileira de Trens Urbanos) CENTRAL State agency in charge of the suburban railway system; it is also the project implementation agency reporting to SETRANS; it succeeded Flumitrens (see below) (Companhia Estadzral de Engenharia de Transportes e Logistica) CMU Country Management Unit CMSP SBo Paulo Metro Company (Companhia do MetrG de Sd'o Patilo) CPS Country Partnership Strategy CPTM SRo Paulo Metropolitan Train Company (Companhia Paulista de Trens Metropolitanos) EMU Electric Multiple Unit FLUMITRJZNS Former Rio de Janeiro State suburban railway company which was replaced by CENTRAL IBGE Brazilian Institute of Geography and Statistics (Instituto Brasileiro de GeograJia e Estatistica) ICB International Competitive Bidding ICMS Circulation Tax on Goods and Services (Impost0 de Circulacd'o sobre Mercadorias e Serviyos) IERR Internal Economic Rate of Return IMT Integrated Modal Tariff (Tarfa Modal Integrada)
1 FOR OFFICIAL USE ONLY
MetrBRio Rio de Janeiro Metro Private Concessionaire (also known as Metro) NPV Net present value 0-D Origin-Destination PER-RAP Preliminary Environmental Report (Relatorio Ambiental Preliminar) PDTU Urban Transport Master Plan (Plano Diretor de Transporte Urbano) PMIG Project Management and Implementation Group SEAIN Federal Secretariat for Foreign Affairs (Secretaria de Assuntos Internacionais) SMA Secretariat for the Environment (Secretaria do Meio Ambiente) MRJ Rio de Janeiro Municipality RJMR Rio de Janeiro Metropolitan Region SRJ State of Rio de Janeiro STM Rio de Janeiro Municipal Secretariat for Transport (Secretaria de Transportes da Prefeitura do Municbio de Sfio Paulo) SETRANS Rio de Janeiro State Secretariat for Transport (Secretaria de Estado de Transportes do Rio de Janeiro) SUPERVIA Private concessionaire in charge ofoperations and maintenance of the Rio de Janeiro suburban rail since 1998
Vice President: Pamela Cox Country Director: Makhtar Diop Sector Director: Laura Tuck Sector Managerhector Leader: Aurelio MenendezLTennifer Sara Task Team Leader: Jorge M. Rebelo
This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.
This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not be otherwise disclosed without World Bank authorization.
BRAZIL RIO DE JANEIRO MASS TRANSIT 2 PROJECT
TABLE OF CONTENTS
Page
I. STRATEGIC CONTEXT AND RATIONALE ...... 1 A . Background ...... 1 B. Evolution ofUrban Transport in RJMR ...... 1 C . State’s Strategy for the Sector ...... 3 D. Rationale for Bank Involvement ...... 6 E. Higher Level Objectives to which the Project Contributes ...... 7
I1. PROJECT DESCRIPTION ...... 7 A . Lending Instrument...... 7 B. Project Development Objective and Key Indicators: ...... 7 C . Project Components ...... 8 D. Lessons Learned and Reflected in the Project Design ...... 8 E. Alternatives Considered and Reasons for Rejection ...... 9
I11. IMPLEMENTATION ...... 10 A . Institutional and Implementation Arrangements ...... 10 B. Monitoring and Evaluation of OutcomeslResults ...... 10 C . Sustainability ...... 11 D. Critical Risks and Possible Controversial Aspects ...... 11 E. Loadcredit conditions and covenants ...... 13
IV. APPRAISAL SUMMARY ...... 13 A . Economic and Financial Analyses ...... 13 B. Technical ...... 14 C . Fiduciary ...... 15 D. Social ...... 15 E. Environment ...... 16 .. F. Safeguard pollcies...... 16 G. Policy Exceptions and Readiness ...... 16
iii Annex 1: Sector Background...... 17
Annex 2: Major Related Projects Financed by the Bank and/or other Agencies ...... 22
Annex 3: Results Framework and Monitoring ...... 24
Annex 4: Detailed Project Description ...... 26
Annex 5: Project Costs ...... 28
Annex 6: Implementation Arrangements ...... 30
Annex 7: Financial Management and Disbursement Arrangements ...... 32
Annex 8: Procurement Arrangements ...... 39
Annex 9: Economic and Financial Analysis ...... 44
Annex 10: Safeguard Policy Issues...... 51
Annex 11: Project Preparation and Supervision ...... 55
Annex 12: Documents in the Project File ...... 57
Annex 13: Statement of Loans and Credits ...... 58
Annex 14: Country at a Glance ...... 62
Annex 15: Maps ...... 64
iv BRAZIL
RIO DE JANEIRO MASS TRANSIT 2 PROJECT
PROJECT APPRAISAL DOCUMENT
LATIN AMERICA AND CARIBBEAN
LCSTR
Date: June 2,2009 Team Leader: Jorge M. Rebelo Country Director: Makhtar Diop Sectors: General transportation sector (1 00%) Sector ManagedDirector: Aurelio Menendez/ Themes: Other urban development (P) Laura Tuck Project ID: P111996 Environmental screening category: B Lending Instrument: Specific Investment Loan
[XI Loan [ ] Credit [ ] Grant [ ] Guarantee [ ] Other:
For Loandcreditdothers: Total Bank financing (US$m.): 21 1.70 Proposed terms: Single currency, disbursement-linked US$ denominated IBRD flexible loan with variable spread option, repayable in 24.5 years, including 7 years grace and level principal repayments
International Bank for Reconstruction and 0.00 21 1.70 21 1.70 Development Total: 9.29 21 1.70 220.99 Borrower: State of Rio de Janeiro (Secretaria de Estado de Transportes do Rio de Janeiro-SETRANS)
Responsible Agency: CENTRAL-Companhia Estadual de Engenharia de Transportes e Logistica Jairo Favario, PMIG Coordinator Avenida Nossa Senhora de Copacabana, no493 / 5" andar - sala 503 - Rio de Janeiro - RJ - Codigo Postal: 22.03 1-000. Telefax: (21) 38 16-6457, 38 16-6458, 38 16-6459. E-mail: [email protected]
Annual I 43.9 123.4 9.2 17.6 17.6 ' Cumulative' 43.9 167.3 176.5 194.1 211.70 I
V Expected effectiveness date: September 30,2009 Expected closing date: June 30,2014
Does the project depart from the CAS in content or other significant respects? [ ] Yes [x]No Does the project require any exceptions from Bank policies? [ ]Yes [x]No Have these been approved by Bank management? n/a I ]Yes [ IN0 Is approval for any policy exception sought from the Board? [ ]Yes [ x]No Does the project include any critical risks rated “substantial” or “high”? [x]Yes [ ]No It might have prolonged litigation in procurement award oftrains/systems . Does the project meet the Regional criteria for readiness for implementation? [ x ]Yes [ J No
Project development objective The proposed PDO is to: a) improve the level-of-service provided to the suburban rail transport users in RJMR in a safe and cost-efficient manner and b) to improve the transport management and policy framework in the RJMR. Project description [one-sentence summary of each component] (Part A) Infrastructure and Eauipment: Acquisition of at least thirty (30) trains (EMUS)of four (4) cars each and accessories for a total of at least 120 cars to be operated, on the lines of CENTRAL’S System, by the Concessionaire under the terms ofthe Concessionaire Contract (Part B) Institutional and Policy Development: provision oftechnical assistance to SETRANS for : 1, the carrying out ofstudies on policy development, including consolidating regional coordination, updating the current integrated transport policy, land use and air quality management master plan ( for the RJMR, introducing sound cost-recovery, tariff, regulatory and subsidy policies; and supporting the adoption ofIntegrated Modal Tariff; and 2. Supporting the management and supervision ofthe project. Which safeguard policies are triggered, if any? Environmental Assessment and Pest Management Significant, non-standard conditions, if any, for: None Board presentation: None Loadcredit effectiveness: 1. Conditions of effectiveness are the signing ofthe subsidiary agreement between CENTRAL and the State ofRio de Janeiro and the duly registration ofthe loan at the Central Bank. 2. Covenants applicable to pro-ject implementation: The State shall, within the limits of its authority, commit to preserve AMTU-RJ and to introduce and maintain a type of Integrated Modal Tariff (IMT) at all times during execution and until the completion of the Project, in the present or other format as long as it continues to enhance the mobility and affordability of metropolitan transport to users, particularly those of low income. In addition, the Borrower shall undertake its best efforts to extend the IMT to other modes oftransportation and expand the AMTU-RJ to formally include other municipalities of the RJMR. 3. State of Rio de JaneiroBETRANS must maintain throughout the project a Project Management Unit responsible for (1) managing the components of the project and tracking the physical and financial progress of each component, and (2) ensuring the overall coordination ofthe project and implementing studies in the institutional component related to the sector policy strengthening.
vi 4. Retroactive financing up.to 20% of the value of the loan to cover expenses made after December 2 1,2008 related to the train acquisition contract.
vii I. STRATEGIC CONTEXT AND RATIONALE
A. Background
1. The Rio de Janeiro Metropolitan Region (RJMR), with 546,865 ha. and 11.3 million inhabitants spread irregularly over 17 individual municipalities, is dominated by the Municipality of Rio de Janeiro (MRJ) with 5.7 million inhabitants. Roughly 76% of the population in RJMR occupies just 15% of its territory. MRJ alone has 56% of the population of the State of Rio de Janeiro (SRJ) and 77% of the income of RJMR. MRJ generates roughly 85% of SRJ’s income and 4.5 millionjobs.
2. Overview of Urban Transport in RJMR: In 2004, according to the Origin-Destination surveys used for the development of the Urban Transport Master Plan (PDTU), the RJMR generated about 20 million trips per day of which about 6.7 million (34%) were by foot. Of the 12.5 million motorized trips, 74% were by public transport. The share of public transport trips has been decreasing in favor of other modes, particularly automobile, despite some important improvements in the rail-based transport systems. RJMR has a multimodal transport system including a suburban railway of 225 km, which currently carries nearly 0.5 million passengers daily and is operated by the concessionaire Supervia. A metro network of 42 km is currently carrying 0.46 million passengers per day and a formal bus system operating 14,000 buses carries 6.6 million passengers per day. Another 1.6 million daily trips are made in 13,000 minibuses and informal buses, most of them considered “illegal” transport. The ferries carry 82,000 trips per day (about 1% of public transport trips), school buses 190,000 per day, and chartered buses 92,000 per day. Individual or private transport accounts for 3.3 million tripdday, of which 90% are by private cars; 4% by taxis, 3% by motorcycles and 1% by truck.
3. On the other hand, rapid motorization and over-reliance on cars and inefficient bus operations in RJMR also have a negative impact on mobility, air quality and road safety. Average travel times are increasing as congestion grows. In 2007 alone, there were 196,000 new vehicles out of a total fleet of 3.0 million vehicles registered in the RJMR. In some areas of the RMRJ, air quality is degraded by the presence of excessive levels of carbon monoxide, ozone and particulate matter. Indeed, during 2007 particulate matter alerts were issued for RJMR on 27 days and ground-level ozone alerts on 6 days. Vehicles account for three-quarters of most air pollutants in the RJMR, and contribute to 40% of particulate matter. However, vehicular air pollution has been somewhat mitigated by the use of ethanol in lieu of gasoline. In addition, vehicular accidents continue to increase and pose severe health risks. In 2006, there were about 24,000 road accidents in MRJ which accounted for 13,000 injuries and about 719 deaths, with a cost conservatively estimated at US$ 1.4 milliodday.
B. Evolution of Urban Transport in RJMR
4. The foundation for the partnership between the State of Rio de Janeiro and the Bank in the urban transport sector was cast more than 15 years ago when the Federal Government initiated the decentralization of the federally-owned and operated suburban rail system (CBTU). Table 1 is a comprehensive summary of the Bank-supported sector reform and investment programs since the early 1990’s. The decentralization was mandated by the 1988 Constitution, which assigned the responsibility of urban and metropolitan transport to the local
1 State and Municipalities authorities. At that time, the Federal Government transferred to SRJ the CBTU-RJ rail network, which spread throughout the entire RJMR. The SRJ was faced with the major challenges of integrating that system with the other public transport modes already existing in the metropolitan region. As part of this process, the State prepared with Bank support (Ln. 3633-BR and 421 1-BR) a long-term metropolitan transport strategy and sector reform program, anchored in four pillars: a) establishment of a regional transport coordination commission with the municipalities, operators and users; b) implementation of an integrated land use, urban transport and air quality strategy; c) financing mechanisms which would guarantee the long-term sustainability of RJMR’s urban transport system; and d) the progressive participation of the private sector in the investment and operational management ofthe systems.
5. Through a number of measures summarized in Table 1, the State basically eliminated most of the operating subsidies for urban transport while keeping, for social reasons, only a very small part of the suburban rail network where demand is very low. Two milestones of this reform were the concession to operate and maintain the suburban railway and subway systems to private sector concessionaires, respectively SuperVia and MetrBRio, without operating subsidies. To comply with its obligations in the concession contract of the suburban railway in mid-1998, the State obtained a US$186 million loan from the Bank (Rio de Janeiro Mass Transit Project, Ln.4291-BR) to support the rehabilitation and acquisition of rolling stock, rehabilitate stations and improve long-term transport sector planning in the RJMR. In early 2008, an Additional Financing Loan of US$44 million was approved to compensate for the devaluation of the US Dollar in relation to the Brazilian Real and allow for the completion of the investments included in Ln. 4291-BR. These actions by the State were a pioneering effort in Brazil and probably ended up saving the rail-based systems from further decay and abandonment given the very severe fiscal crisis of 1999-2005.
6. Ten years after the concessions, both SuperVia and MetrGRio are holding steady and public opinion surveys suggest that they are well accepted by the population, Despite the shortcomings of SRJ in complying from the outset with some important obligations in the concession contracts (such as imposing tariff integration between inter-municipal buses and rail and providing the investments agreed on schedule), the concessions survived through a combination of good private management, staff downsizing, control of fare evasion and tariff integration agreements with other modes. SuperVia struggled more than MetrBRio because the rolling stock to be rehabilitated under the Rio de Janeiro Mass Transit loan arrived late due to a combination of fiscal restrictions and technical delays and also weak performance by the rolling stock companies in charge of rehabilitation. But when the rehabilitated fleet and 20 new trains acquired under Ln. 429 1-BR were put into service, there was a resurgence of demand reflecting the desire of the riding public for more comfortable (air conditioned) trains and better level-of- service. Metr6Rio also was affected by delays in the completion of new stations, yet it developed a captive demand when MRJ’s mayor allowed the concessionaire to operate buses as an extension of the metro (Le., passengers pay one single tariff for the municipal bus plus metro ride).
7. The State has agreed to invest in more trains for SuperVia given the recent successful experience with the acquisition of new trains. In addition, the State regulatory agency (AGETRANS) has recently ruled that the State has to compensate SuperVia for not complying
2 with some of the obligations of the concession contract in the previous administrations. One of the first major steps taken by the newly-elected State government in 2007 was to negotiate an extension of the Metro concession with new terms making MetreRio responsible for investment in additional rolling stock, systems and some civil works. The Metr8Rio concession has been sufficiently profitable to ,make its shareholders interested in renewing the concession for 30 years and assume these investments, which were not required in the original concession. SuperVia also wants to do the same, but given its lower profitability, still requires the support of the State in major investments.
8. Despite very significant improvements in the rail-based system, congestion levels in the RJMR continue to increase. Bus service is slow and there are few areas where there is sufficient space for segregated busways. Wherever possible, some busways, or at least reserved bus lanes, are in use or being planned such as in Avenida Brad and Alameda Ssio Boaventura in Niteroi. Furthermore, in the mid-l99O's, the proliferation of illegal vans @emas) increased traffic and attracted 1.6 million passengers per day away from the formal. legal bus system. These illegal vans are popular as they normally do not have fixed pick-up and drop-off points (Le,, picking up passengers along the way and dropping them off closer to their destinations) and often provide a more direct service with fewer transfers. Yet, they are often operated unsafely with drivers who are not tested and vehicles which are not crashworthy.
C. State's Strategy for the Sector
9. As recommended in the PDTU, the State's strategy for the sector is to strengthen the main network of rail-based and road-based public transport trunk corridors, which can be accessed by feeder buses and non-motorized modes. The State, in cooperation with the MRJ, public transport operators, and other regional partners, plans to improve the capacity and operations of several major public transport corridors that connect regional activity centers, in part driven by the anticipation of future special events such as the 2014 World Cup. The improvement of the rail lines currently operated by SuperVia and the rationalization ofbus services to feed these lines are an important near-tern1 component of this regional plan. Investnients are also planned to upgrade busway operations, terminals and ticketing (Le. bus rapid transit), and improve non- motorized facilities such as bicycle rental and parking near public transport. The public transportation system is expected to function under compatible smart cards and with the oversight of a strong metropolitan agency, which will periodically update the PDTU and oversee the physical and tariff modal integration to increase the accessibility, availability, acceptability and overall affordability ofurban transport for low-income users.
10. The State is also crafting the necessary financial mechanisms to ensure periodic and reliable investments to extend the metro and suburban rail, and transform the latter into a surface metro-type operation. On the financial management side, the State is starting to merge the organizations which oversee rail-based transport and taking measures to reduce the operating subsidy in the lines which were not concessioned out to the private sector. Finally, the State is committed to gradually push for the optimization of its inter-municipal bus network and cracking down on illegal vans. With these projects and other investments, the State is making progress on the interconnection of its rail-based transport network and facilitating the integration with buses and other modes to expand the reach of its existing network. This integration will improve the
3 accessibility of employment, health and education facilities, particularly to the low-income population.
11. At the same time that physical improvements in infrastructure are being made, the State has progressed in the more challenging institutional aspects of the strategy. Of special importance is making the regional transport coordination commission operational with the municipalities of the RJMR. The Secretaries of Transport and Finance created a group with representatives of all the operating agencies and the AMTU-RJ, which with the support of consultants is responsible for the study and gradual introduction of Integrated Modal Tariffs (IMT). The IMT allows a user to buy a single ticket that can be used in several modes within a certain period oftime to complete a trip. It costs less than the sum ofthe individual tickets, thereby significantly benefiting the low-income segments of the population, which make the longest trips and most transfers. Most likely, it will also increase considerably the demand on rail-based systems.
i 12. There is therefore an urgent need to increase the supply of trains at peak hour. SuperVia expects its daily ridership to double to nearly 1 million passengers by 2015. The projected demand must be transported with a level-of-service that is acceptable and safe, and with frequencies that reduce the waiting time at stations making the integration with buses more attractive. Doing so will also attract more users from road to rail with positive impacts on the environment and on containing or reducing congestion. Not doing so will discourage people from using the rail system and continue the over-reliance on road-based systems increasing all the negative externalities associated with such systems.
13. The proposed project would contribute to the financing of the trains that are required by the State to meet this growing demand, The project would be a logical next step in the continuation of Bank support to help the State solidify the achievements of its long-term strategy for the sustainable implementation of the RJMR transport system, especially in tenns of financial sustainability, the adoption of more Integrated Modal Tariffs and metropolitan coordination. The project would benefit the low-income population who make up over 50% of rail users, and contribute to a reduction in road congestion, accidents, air pollution and greenhouse gases. Finally, although small, the institutional development component will assist in the updating of the PDTU which is being used as a planning tool by all operating agencies in the RJMR.
4 Table 1: Sequencing of World Bank Supported Reform and Investment p Yertt institutional Milestone Related Bank Loan 1992 Federal Government decides to transfer Rio de Janeiro Metropolitan CBTL-RJ to the State rolling stock of CBTU-RJ Transport Decentraliiation State agrees and draws Long-Term Project (Ln. 3633-Br) to the Strategy with Bank support Federal Government (US$126M) 1996- State assumes CBTU-RJ and creates the State starts studying the Studies under Ln.3633 -BR 97 State Commuter Railway (Flumitrens) privatization of its urban evaluate the concessions State creates the Regional Transport transport operating agencies Coordination Commission by decree (AMTU-RJ) 1998 State decides to concession out and or State re-starts financing the Rio de Janeiro State Reform privatize Flumitrens, RJ Metro, Conerj extension of the Metra with and Privatization loan (Ln. (feq,boat services) and sell the State- BNDES 421 1-BR) was approved and owned bus company reducing its annual State concessions the metro and assisted the operating subsidy with urban transport suburban railway to the private concessiodprivatization operations fLom USS4OOM per year to sector, privatizes the ferries and program zero. liquidates its bus company. State creates the Regulatory Agency State reduces its operating (ASEP-RJ) subsidies in urban transport froniUS$400M to zero with these concessions 2000 State decides to request Bank support to Rio Metro expansion to Rio de Janeiro Mass Transit comply with its obligations in the Copacabana is re-started loan (Ln.4291-BR) assists in concession of Flumitrens financed by BNDES the rehabilitation of existing State rehabilitates trains trains, acquisition ofnew (including air conditioning) and trains, rehabilitation of acquires 20 new trains stations and preparation of the Transport Master Plan 2000- RJ Municipality allows MetrBRio to have The rehabilitated trains start Additional Financing loan to 07 integrated bus services and fares in arriving Ln. 429 1-BR to cover the selected locations The new twenty trains are devaluation of the US$ in D SuperVia starts integrated fare with delivered relation to the BRL, closes in MetrBRio and selected Municipal and June 2009 Intermunicipal buses
I There is an uncontrolled proliferation of informal vans both in MRJ and other municipalities of RJMR e ASEP-RJ was split in several regulatory agencies. The regulatory agency for transport is named AGETRANS-RJ
2008 D Demand for rail increases dramatically Determination of need to State requests from the Bank
B State declares Mass Transit one of its increase carrying capacity and :he proposed Rio de Janeiro priorities peak hour frequencies Mass Transit 2 loan
D State starts fighting informal vans
B State grants extension to MetrGRio concession
b State agrees with expansion plan for SuperVia (Pr6XXI)
1 State continues with the extension of the metro to Ipanema
1 State announces its intention to create an Intenrated Modal Tariff
5 14. Key Development issues: In the proposed loan the key development issues that will be addressed are:
A) Improvement of quality-of-life of low-income users: Low-income users are the most affected by poor public transport services because they have few options and spend a considerable portion of their income on transport services. Their chances to access better employment, health and education facilities are higher if accessibility, availability, acceptability and affordability ofpublic transport services are improved. B) Bus Network Optimization: Large efficiency gains could be achieved by optimizing bus network operated by the association of intermunicipal bus operators (FETRANSPOR) and its members to optimize their route network. The same needs to be done by the MRJ bus network operators. C) Metropolitan Coordination: Strengthening the metropolitan coordination between the State and municipalities of the RJMR through the consolidation of the efforts, which started with the AMTU-RJ, is key to the success ofthe strategy adopted by the SRJ. D) Reduced Externalities: the switch to rail-based transport is likely to reduce andor contain congestion and road accidents in certain corridors, and improve air quality and greenhouse gases by decreasing the number ofbus-luns traveled. E) Cost-Recovery, Financial Management and Funding Issues: The increase in ridership through better integration of the public transport network, more private sector participation in activities ofthe sector, and oversight of the use ofthe proposed Integrated Modal Tariffs are other issues that will be addressed by the project through the institutional and policy development component in order to improve cost-recovery, financial management and funding ofthe urban transport systems.
D. Rationale for Bank Involvement
15. The Bank’s assistance strategy in Brazil is to support policies and investments that will encourage economic growth and social development in a context ofmacroeconomic stability. This will be achieved through efficient resource allocation, increased efficiency in the public sector and the appropriate targeting and delivery of support systems to the poor. The proposed project is consistent with the Bank’s Country Partnership Strategy (CPS) endorsed by the Bank on May 1, 2008 (Report No:42677-BR). This CPS will continue to support the same four main pillars, namely equity, sustainability, competitiveness and sound macro-economic management endorsed in the previous country strategy.
16. The proposed project objectives are in line with the Bank’s Brazil Department and Transport Sector Board objectives, namely: (i)to promote financial viability of public enterprises and their reform, including decentralization to various levels; (ii)to contribute to poverty alleviation; and (iii)to reduce government subsidies through better tariff policies and improved financial management. Through its involvement, the Bank has already helped in the decentralization process from Federal to State and is now assisting the State in the consolidation of its rail-based systems and in the tariff and modal integration process. The proposed project is also a follow-up to the efforts started under: a) the Rio de Janeiro Metropolitan Transport Decentralization Project (Ln.
6 363 3 -BR), which succeeded in the decentralization and modernization of the federally-owned CBTU to the State and laid the foundations for metropolitan coordination and a long-term strategy; b) the Rio de Janeiro Mass Transit project which financed the rehabilitation of 52 trains and acquisition of 20 new trains, as well as supporting the PDTU and metro and urban railway concessions. The State has made good progress in improving metropolitan coordination; designing, updating and implementing an urban transport, land use and air quality strategy (PDTU); looking for financing mechanisms other than government budgets; and progressively promoting the pa?ticipation of the private sector in operations and investment in the sector. The new State administration has shown commitment and has given priority to urban transport Bank-financed projects even in times of budget restrictions.
17. Finally, the project is a cornerstone ofthe Bank engagement strategy with Rio de Janeiro State. When the new Governor took office in January 2007, the Secretaries ofFinance and Planning were tasked to work with the economic team and sectoral secretariats to define a 4-year government investment plan and identify external borrowing needs. A US$500 million lending program was agreed and is underway consisting of investment projects in urban transport, rural development and private sector reform. The State has indicated that urban transport is one ofits priorities.
E. Higher Level Objectives to which the Project Contributes
18. Affordable and accessible urban transport services contribute to higher equity and poverty reduction by allowing all segments of society, and particularly those with low-income, to be able to reach employment areas, health, education and leisure facilities, thereby contributing to an improvement in quality of life. This project seeks to improve the rail-based urban transport system to the primary benefit ofthe low-income population, while also contributing to air quality improvement and climate change mitigation.
11. PROJECT DESCRIPTION
A. Lending Instrument
19. The Project will be implemented as a Specific Investment Loan (SIL) to be disbursed over a five year period (FY20 10-20 14).
B. Project Development Objective and Key Indicators:
20. The proposed development objective is to: a) improve the level-of-service provided to the suburban rail transport users in RJMR in a safe and cost-efficient manner and b) improve the transport management and policy framework in the RJMR.
21. These objectives will be met by: (i)financing rolling stock to increase the peak-hour carrying capacity of the rail-based system; (ii)designing urban transport strategies and actions to mitigate the impact of rising transport costs on the mobility of the poor through the introduction of Integrated Modal Tariffs; and (iii)strengthening the AMTU-RJ and updating the PDTU.
22. The proposed indicators and intermediate outcome indicators that will be used to measure project performance are described in Annex 3 and include:
7 1) In-vehicle travel time plus waiting time to measure the reduction in trip-time for selected origins and destinations 2) Passengers per square meter in peak hour as an indicator ofthe level ofcomfort 3) Percentage of low-income SuperVia passengers to measure the distribution of benefits to the poor 4) Bicycle parking facilities installed at railway stations to promote non-motorized access 5) Number of SuperVia stations with bushail tariff integration as a measure of intermodal integration 6) Off-peak hours of the day when smartcard-based discounted fare is to be offered to encourage integration Intermediate Outcome Indicators: Component la. Number of trains per direction in peak/off-peak hour in 5 SuperVia lines Component 1b. Additional SuperVia demand (passengerdday) generated by the Project Component IC.Working ratio ofSuperVia as a measure ofthe financial condition Component 1d. Cumulative percent completion of trains to be delivered to SuperVia Component 2a. Update/completion of studies that support the institutional and development component
C. Project Components
23. The prqject will comprise two components:
/PART A): Infrastructure and Eauipment: Acquisition of at least thirty (30) trains (EMUs) of four (4) cars each and accessories for a total of at least 120 cars to be operated, on the lines of CENTRAL’S System, by the Concessionaire under the terms of the Concessionaire Contract. This component represents about 97% ofthe total project cost.
lPART B): Institutional and Policv Development 1, Provision of technical assistance to SETRANS for the carrying out of studies on policy development, including: (a) consolidating the AMTU-RJ for the RJMR; (b) updating the current integrated transport policy, land use and air quality management master plan (PDTU) for the RJMR to meet both transport and air quality targets and to introduce sound cost-recovery, tariff, regulatory and subsidy policies; and (c) supporting the adoption of Integrated Modal Tariffs; and 2. Provision of technical assistance to CENTRAL for the management and supervision of the Project, including the acquisition and reception of the trains (EMUs). This component represents about 3% ofthe total project cost.
D. Lessons Learned and Reflected in the Project Design
24. The major lessons learned from previous projects in the urban transport sector are: 0 The first Rio de Janeiro Mass Transit project (Ln. 4291, closing June 30, 2009) quality assurance review showed that a combination of integrated modal tariffs and new, air conditioned rolling stock can increase demand substantially. But strong action on the part of the SRJ and MRJ is still needed to prevent illegal transport and to rationalize their respective bus networks.
8 It also showed that train rehabilitation takes longer and costs more than expected. On the other hand, acquisition of new trains provide technological advances which attract demand and are environmentally friendly producing energy savings and carbon dioxide reductions though regenerative braking. The lessons from the first Rio de Janeiro Mass Transit loan are also that counterpart fbnds should be minimized and the State should assign budget priority for the project even in times of fiscal restriction to avoid costly delays in the delivery ofworks and rolling stock. The Siio Paul0 urban transport projects have shown that the coordination between the different levels of government (State, Municipalities) in urban transport is fundamental for medium and long term planning and for the implementation of a truly integrated system, both modal and tariff-wise. The policy for the sector must be strengthened to minimize distortions resulting from inefficient physical and financial coordination between transport modes and to promote multiniodal integration. The tariff levels should allow for significant cost recovery of working costs and must be complemented by financing mechanisms and transparent subsidy policies which cover the shortfall. Demand forecast by the borrowers should be carefully scrutinized.
25. In addition, reconmendations emerging from the Independent Evaluation Group review ofthe transport sector have been taken into account in terms of the need for strengthening the sector’s monitoring and evaluation efforts, and aligning them with the new strategy which emphasizes urban transport, multiniodal transport and climate change oriented projects. This is being achieved through the use ofrelevant intermediate indicators that can be readily measured.
E. Alternatives Considered and Reasons for Rejection
26. Many alternative project scenarios were analyzed for the proposed trains. The first alternative focused on whether there would be any more cost-efficient public transport options, such as segregated busways with improved service that could meet the same objectives. However, this alternative was rejected because it proved to be less cost-efficient in view of the scarce road space and existing congestion in RJMR, as well as the resettlement and expropriation costs that would be involved. The analysis then evaluated the different options that would be available by using the existing rail lines, thereby avoiding the need for any resettlement or expropriation. The following five alternatives considered were:
Do-nothing. The growing lack of system capacity and the low service frequency would result in longer waiting times and lack of comfort at peak hours, and therefore deter new users and encourage existing users to return to road-based modes of transport. This alternative would go against the State policy ofincreasing rail-based public transport. Rehabilitate existing trains which are immobilized. Almost all trains available for rehabilitation, which were inherited by SuperVia from Flumitrens/CBTU, were rehabilitated. Part of the fleet that was not rehabilitated needs to be replaced because it is too old and is becoming impossible to maintain since spare parts are no longer available. Also, they consume much more energy than the new generation of trains and subsequently have higher carbon dioxide emissions. In addition, lessons from rehabilitation in the previous loans show
9 that it always takes longer and costs more than estimated at the outset ofthe contract because it is difficult to assess all of the rehabilitation costs without disassembling the cars. Rehabilitation does not allow for the easy installation of some modern features, including interactions with new signaling and telecom systems, as well as air-conditioning. This alternative was therefore rejected. 0 Buy second-hand trains abroad. This was only tried once by the State of Si30 Paul0 and was quite difficult since the railway gauge (1.61~1) only exists in a few countries (Spain and Australia). Furthermore, the Association of Brazilian Railway Industries (ABIFER) forbids the acquisition of second-hand equipment even if it were possible to find trains that could be rehabilitated. 0 Lease new trains: This option was rejected because the present federal tax structure does not provide adequate incentives for passenger train leasing to be profitable. 0 Buy new trains: This was the alternative selected because SuperVia needs to decrease the average age of its fleet and start taking advantage of standard features such as air conditioning, modern signaling equipment and regenerative braking. This will save energy and increase comfort and safety.
111. IMPLEMENTATION
A, Institutional and Implementation Arrangements
27. The Borrower is the State of Rio de Janeiro. The Secretary of Transport of the State of Rio de Janeiro (SETRANS) is the main Government agency responsible for the project. CENTRAL, the implementation agency and successor of Flumitrens, reports to SETRANS. Project management will be located in CENTRAL through an established Project Management Implementation Group (PMIG) which will be in charge ofthe implementation ofthe project. The PMIG will be headed by a Project Coordinator who will report directly to the Director-President in charge ofthe implementation ofthe project. The PMIG will be staffed with regular staff from CENTRAL and supported by project management and supervision consultants in charge of providing technical support in areas such as engineering, procurement, environment and financial management. CENTRAL has considerable experience with this PMIG unit, acquired in ongoing and previous Bank-financed projects.
B. Monitoring and Evaluation of OutcomesEtesults
28. Project progress reports will be prepared by the PMIG on a semi-annual basis, consolidated in a single report and submitted to the Bank for review. These reports should indicate the progress made under the different components of the project and measure the performance against the indicators established in the results framework (see Annex 3). In addition, progress reports will include the following: (i)disbursement performance over the period covered by the report and updated disbursement schedule; (ii)updated procurement plan for activities under each of the project’s components; (iii)a description ofprogress achieved in the implementation of environmental and social aspects of the project; (iv) a section describing potential developments that could affect project implementation, which could consist of a review of the main risks and the impact of mitigation measures suggested at appraisal (see Section D on risks). For the infrastructure and equipment component, particularly the acquisition of trains,
10 implementation progress will be measured against physical progress in their manufacturing and installation (see intermediate outcome indicators in Annex 3).
C. Sustainability
29. The sustainability of the project results will depend on: (i)continued ownership and priority given to the urban transport sector by the State administration; (ii)timely implementation and funding of rehabilitation and maintenance interventions to keep the infrastructure and equipment in good condition; (iii)bus network optimization and control of informal vans through appropriate incentives and/or enforcement; and (iv) maintenance and expansion ofthe Integrated Modal Tariffs, which benefits primarily the low-income segments of the population and have been introduced with success in Sa0 Paulo.
30. The State has demonstrated its ownership of the project and of the sector in the last 3 years by giving priority to investments in this area even in times of fiscal restriction. The timely implementation and funding of rehabilitation of infrastructure and equipment suffered during the periods of fiscal space restriction, but even then the State provided the funds necessary to maintain the infrastructure and rolling stock or has sought mechanisms to provide the funds. The State has started a deliberate campaign to limit the number of illegal vans and license only those that comply with minimum requirements. Furthermore, the newly-elected Mayor ofRio de Janeiro indicated that he would join SRJ in consolidating the AMTU-RJ, rationalizing the bus network, restricting illegal vans in as much as possible, and encouraging improvements in SuperVia and MetrGRio. Integrated Modal Tariffs are likely to continue because both the State and Municipalities have understood how important it is for the low-income segments of the population. Therefore, the sustainability ofthe project and ofthe sector seems likely.
D. Critical Risks and Possible Controversial Aspects
Potential risks and mitigation
31. The overall level of risk associated with this project is assessed as Moderate. The main project risks involved are listed in Table 2 below.
Table 2: Critical Risks and Possible Controversial Aspects
Potential Risks Delays in negotiations and State sought very early the necessary support in SEAN Moderate effectiveness due to slow and Fazenda to hold negotiations after receiving invitation; approval by Federal it is also working with Cornissilo de Avaliaqilo EconGmica Government and Senate: This do Senado (CAE) as soon as negotiations are completed to has been a major reason for speed up legislative approval and effectiveness. project delays and subsequent extensions
11 Proposed Mitigation Prolonged Litigation in the WB experience has been that the Borrower must have a High award of the trains: It is not very good legal team which should quickly defeat any uncommon in Brazil that the injunction (liniinar) without merit to avoid that its judgment second ranked proponent will drags through the courts. This also requires that the bidding try to go to court to stop the documents and bidding process respect all the guidelines to signing of the contract ensure that there is no legal reason to be questioned
As the major activity of this Advanced procurement was completed and Bank gave its Moderate project is one large contract no objection on May 12, 2009. The Bank provided a close for the procurement of trains, review of the procurement process with a view to address ifthe biddingfails and the bid previous lessons and mitigate any potential issues requires re-issuing, there could be major delays to project implementation Delays in the actual provision This should be mitigated by very close supervision of the Moderate of the trains: Although in the supplier, and with stiff penalties for delays in the delivery last contract financed by the or, conversely, with bonus for approved deliveries ahead of Bank the trains were provided time. on schedule, it is not uncommon to have delays in the supply of new trains
Final cost of trains contract A detailed analysis of similar bids for trains from around Moderate higher due to addenda to the the world was used to estimate project costs. The winning contract bid was below cost estimates. Any addenda to the contract must be carefully evaluated to avoid cost overruns
Failure of the State to There is already Integrated Modal Tariffs between Moderate introduce more SuperVia and 150 bus line at 30 stations. The State also has comprehensive Integrated started studies for the introduction of a single electronic Modal Tariff fare system to facilitate IMT and has officially committed that this is one of its priorities. The plan is to continually expand IMT through pilot programs in specific areas of the RJMR. If this fails, the State will mandate integrated tariffs or allow SuperVia to charter its own buses to pick up passengers and deliver them to its stations at a lower integrated fare.
SuperVia fails to comp$ with State has the right to request corrective measures, apply Moderate its contractual obligations fines and ultimately cancel the concession if need be and re- with State in a manner as to bid it. The Regulatory Agency (AGETRANS) monitors jeopardize level-of-service periodically the level-of-service provided. Financial Management CENTRAL has experience with fmancial management of Moderate Bank-fuianced projects but is late in delivering the annual audits. CENTRAL will be asked to start the bidding process for audits earlier and for 2 years in a row. BudgetprioriQ fiscal space) The State was asked in the minutes of negotiation to Moderate prioritize this loan in case of budgetary restrictions, that is, to give priority to the investments financed by the Bank in case of fiscal restrictions. Overall Risk Moderate
12 E. Loadcredit conditions and covenants
32. Conditions of effectiveness of this loan are the signing ofthe subsidiary agreement between Central and the State of Rio de Janeiro and the duly registration of the loan at the Central Bank. Covenants applicable to prqject implementation are: The State shall, within the limits of its authority, commit to preserve AMTU-RJ and to introduce and maintain a type of Integrated Modal Tariff (IMT) at all times during execution and until the completion of the Project, in the present or other format as long as it continues to enhance the mobility and affordability of metropolitan transport to users, particularly those of low income. In addition, the State shall undertake its best efforts to extend the IMT to other modes of transportation and expand the AMTU-RJ to formally include other municipalities ofthe RJMR.
33. The State of-Rio de Janeiro/SETRANS must maintain throughout the project a Project Management Unit responsible for (1) managing the components of the project and tracking the physical and financial progress of each component, and (2) ensuring the overall coordination of the project and implementing studies in the institutional component related to the sector policy strengthening.
34. Retroactive financing up to 20% of the value of the loan to cover expenses made after December 22,2008 related to the train acquisition contract.
IV. APPRAISAL SUMMARY
A. Economic and Financial Analyses
35. Economic evaluation of the proposed project was undertaken by the StateKENTRAL comparing the situation without project with the situation with project. For that purpose, the State estimated through demand modeling the passenger hours and passenger-kms with and without the project and converted them into time savings and operating cost savings. An estimate of reduction of accidents and road-based vehicle emissions was made using the same data and compared to the investment costs (see Annex 9 for detailed description of economic and financial analysis). The results for the base case are the following: [XICost-Benefit Analysis: NPV@lO%=US$225.3 million; EIRR= 20.8% For the EIRR to be below 10% the investment costs would have to increase by about 147%, which is unlikely. EIRR will also be below 10% if the “value oftime” is reduced by 67% from the hourly average of about R$3.50 derived from user surveys. [XIFinancial Analysis: NPV@1O%=US$47.8 million; FRR= 12.5% This analysis was done by comparing total investments vs. savings due to lower maintenance costs, lower number ofbreakdowns and higher revenues. The differences in the economic and financial indicators are because no value oftime savings were included in the financial analysis, while travel time savings are the vast majority of the project benefits in the economic analysis.
36. Financial projections were prepared for SuperVia for the 2007-2026 period and they show that the working ratio of both operating agencies will be equal or less than one, and operating costs will therefore be below operating revenues. Details are available in the Project File
13 37. Fiscal impact. The National Secretary of the Treasury (STN) does an exhaustive and highly-professional analysis of state debt capacity. It is on the basis of such analysis that the State is allowed to borrow with a guarantee from the Federative Republic of Brazil. The Brazil CMU undertook its own analysis of the State debt capacity and the fiscal impact of the proposed loans. The fiscal impact of the project on the State’s finances was evaluated and a full assessment can be found in the Project File. A summary of the due diligence fiscal impact analysis is also available in the Project Files. The debt assumed by the State for this project and other loans approved at the sanie time for preparation was part ofthe debt renegotiations with the Federal Government. The project itself and the other loans under preparation would have a minor impact on the State’s finances.
B. Technical
38. Overall, this project follows the recommendations of the PDTU, which prioritizes increased carrying capacity of the rail-based system at peak hour, bus network rationalization, substantial reduction of illegal transport, improvement oftransfer terminals, introduction of more IMT, and non-motorized access to stations wherever possible. The State and Municipality are moving towards the implementation of these recommendations. After reviewing the alternative options for the use of the funds available, a technical evaluation was undertaken to compare the acquisition of new trains with other alternatives such as do-nothing, increasing reserved bus operations, rehabilitation and/or modernization of trains, acquisition of second hand trains, and leasing of trains. The acquisition of new trains in this case was judged the most cost-effective alternative either because the others were not feasible or there are no available immobilized trains to be rehabilitated. Specialized consultants examined the options rejected and agreed that the selected alternative is the most suitable for SuperVia. Bank consultants and staff also examined the present SuperVia operations and maintenance policies and reviewed its stations facilities, particularly the integration terminals, to assess their capacity to facilitate the smooth transfer of passengers from other modes. The costs for the trains and each of the systems proposed are in line with those acquired recently by other equivalent metro and suburban rail systems. Specialized consultants also reviewed the proposed specifications for the acquisition of the trains and the present SuperVia signaling, telecom and energy systems and ensured that the acquisition ofthe trains alone is sufficient to accommodate the potential demand and increase the peak-hour carrying capacity. Although the existing signal system is sufficient to accommodate the new trains, SuperVia intends to further improve this system as part ofthe existing concession contract. These assessments are available in the Project File.
39. The State opted for the acquisition of at least thirty Electrical Multiple Units (EMUS)of 4 cars each and accessories for a total of at least 120 cars to meet the near-term potential for significant ridership growth in 5 Lines currently in operation (Japeri, Santa Cruz, Saracuruna, Belford Roxo, and Deodoro). Detailed technical characteristics for the trains are presented in Annex 4. This investment and related institutional activities will complement longer-term plans by the State and its regional partners to create a integrated network of high-capacity public transport corridors, to rationalize bus routes to better serve trunk lines and terminals, and encourage non-motorized travel with improved bicycle and pedestrian facilities.
14 C. Fiduciary
40. CENTRAL (ex-Flumitrens) has extensive experience with Bank fiduciary requirements and a successful history of financial management in recent Bank loans. The Rio de Janeiro Mass Transit Project (Ln. 4291-BR) and its Additional Financing Loan are still ongoing with satisfactory financial management reporting and auditing. The operating agency has very experienced staff working in their accounting departments to ensure that financial management will be carried out according to Bank guidelines. Audit of the project accounts will be carried out by independent consultants to be hired on a competitive basis according to Bank procurement guidelines. Annex 7 provides a complete discussion of financial management and disbursements. Procurement for the proposed project would be carried out in accordance with the World Bank "Guidelines: Procurement Under IBRD Loans and IDA Credits" dated May 2004 (revised in October 2006), "Guidelines: Selection and Employment of Consultants by World Bank Borrowers" dated May 2004 (revised in October 20061, and the provisions stipulated in the Legal Agreement. An assessment of the capacity of CENTRAL to implement procurement actions for the project has been carried out by the project team. The assessment reviewed the organizational structure for implementing the project and the interaction between the project's staff responsible for procurement and the relevant units for administration and finance. CENTRAL is very familiar with Bank procedures and procurement guidelines since it has implemented Bank- financed projects recently. Annex 8 provides a complete discussion of procurement arrangements. The State will ensure that the project is implemented in accordance with the Guidelines on "Preventing and Combating Fraud and Corruption in Projects Financed by IBRD Loans and IDA Credits and Grants" dated October 15, 2006.
D. Social
41. The project will have a positive impact on the quality of life of the population who use SuperVia and the urban transport network. The project will increase the quality and availability of mass transport within the Rio de Janeiro Metropolitan Region and will provide commuters with alternatives to private automobiles, buses and vans. New air conditioned passenger rail cars will provide a higher level of comfort to passengers and shorter intervals between trains, increasing the attractiveness of SuperVia for commuting to work and accessing urban services. Direct impacts include increasing the accessibility of public transport to employment centers, health, education and leisure facilities. Most of SuperVia users are low-income and live in the suburbs of the greater RJMR. Improving metro and suburban rail services in general increases the accessibility of this lqw-income segment of the population to employment centers and facilitates their transfer between rail and the municipal and intermunicipal bus networks. In addition, increased use of public transport will help reduce traffic congestion and air pollution, thereby contributing to overall improvements in the quality oflife in the RJMR.
42. The proposed project will not cause any dislocation or involuntary resettlement. Upgrading of stations is being carried out with non-Bank funding and is taking place entirely within the railway right-of-way. Aside from possible minor traffic disruptions and short-term delays along train routes, there will be no adverse social impact.
15 E. Environment
43. Overall, the project is expected to have a positive impact on the environment. Congestion and air pollution are among the main environmental problems facing RJMR. Providing a high-quality and safe transport alternative, especially for longer trips, will help dampen the rapid increase in motorized trips and related environmental impacts.
44. The project will contribute to reduce greenhouse gas emissions from the transport sector in the RJMR in two ways: (1) by replacing conventional electro-dynamic rheostatic braking trains with new cars that use regenerative braking technology requiring less energy from the grid, and (2) by inducing a modal shift from busedautos to trains through the expansion of the rail system’s capacity, which in the case of Rio de Janeiro is cleaner than other modes. Taking into account the Brazilian electricity mix characteristics, the potential for carbon dioxide reduction only from the regenerative braking is around 8,000 tons per year (See Annex 10, also detailed calculations available in the Project File).
45. The Project Team reviewed the documentation prepared by SuperVia describing its compliance with environmental practices recommended when the concession was awarded. The team also reviewed Supervia’s environmental management system and policies to reduce and mitigate environmental impacts at the train maintenance and other facilities. They were found to be satisfactory and will continue to be strengthened during project implementation. The pest management policy is triggered only because the rail operator sprays its premises periodically to combat the dengue mosquito.
F. Safeguard policies
Safeguard Policies Triggered by the Project Yes No Environmental Assessment (OP/BP 4.0 1) [XI [I Natural Habitats (OP/BP 4.04) [I [XI Pest Management (OP 4.09) [XI [I Physical Cultural Resources (OP/BP 4.11) [I [XI Involuntary Resettlement (OP/BP 4.12) [I [XI Indigenous Peoples (OP/BP 4.10) [I [XI Forests (OP/BP 4.36) [I [XI Safety of Dams (OP/BP 4.37) [I [XI Projects in Disputed Areas (OP/BP 7.60)* [I [XI Projects on International Waterways (OP/BP 7.50) [I [XI
G. Policy Exceptions and Readiness
The project does not warrant any exceptions to Bank policies and is deemed to be ready for implementation, The procurement process for the 30 trains contract is very advanced and the opening of the bids took place on February 5,2009. The Borrower indicated that the contract will be awarded and signed soon after the proposed loan is approved.
* By supporting the proposedproject, the Bank does not intend to prejudice the final determination oj’the parties‘ claims on the disputed areas
16 Annex 1: Sector Background BRAZIL: RIO DE JANEIRO MASS TRANSIT 2
I. Rio de Janeiro State Government's Urban Transport Sector Strategy
1. The SRJ urban transport strategy for the RJMR is anchored in 4 pillars: a) to establish with the municipalities, operators and users a regional transport coordination commission (RTCC); b) to develop and update on a periodic basis, an integrated land use, urban transport and air quality strategy; c) to introduce financing mechanisms which will guarantee the long-term sustainability of the urban transport systems; and d) to promote progressive private sector participation in the investment and operations management of those systems. SRJ has shown progress towards the above objectives. First, an RTCC (named AMTU-RJ) functions as a forum for discussion of metropolitan policies for prices and subsidies as well for discussion of common issues such as multimodal tickets and major investment projects. Second, SRJ has refined an integrated land use, urban transport and air quality strategy using sketch planning techniques (PDTU), which is now a major planning tool which is continuously updated. This strategy has been used for decision-makers and stakeholders to discuss proposed projects. SRJ has explored several financing mechanisms for the urban transport sector other than government budgets. Through its concessionaires, it has accelerated the rental of station spaces, in-vehicle and outside vehicle advertising, has created partnerships for shopping centers close to metro stations and sells space in the right-of-way for cable services in an effort to increase non-operating revenues. Lastly, conscious of the scarcity of resources it faces, SRJ is the most advanced Brazilian state regarding private sector participation in investments and operations considering all its operating agencies have been concessioned out to the private sector and/or privatized since 1998.
2. In 2007 and very early in the current administration, the State made it clear that mass transport was a priority for his administration. The State confirmed that he will take all steps necessary to strengthen the trunk systems (both rail and road-based) and improve hub-and-spoke networks as a means to decongest the RJMR. SRJ's strategy is to integrate the existing systems, to offer an acceptable level of service to the user and to reduce operating subsidies. But it is also a State goal to improve rail-based urban transport in low-income areas to facilitate the access to employment centers, health, education and leisure facilities. Finally, the State has clearly decided that a major improvement of the rail-based network, particularly the SuperVia and MetrBRio networks, is a cost-efficient priority, upgrading it to surface metro like operation.
3. A number of key issues must be addressed in order to improve the supply of urban transport services and to guarantee their orderly development and sustainability in the long term for the RJMR. They are: (a) institutional issues; (b) cost recovery and financial management issues; (c) environmental issues; and (d) transport planning issues.
0 Institutionnl Issues. The most critical institutional issues are: (a) the fine-tuning of relations between state and municipal governments and a clear definition of their respective roles in the financing, planning and operation of urban transport services in accordance with the 1988 Constitution; and (b) a clear definition ofthe funding mechanisms of the sector at the metropolitan level through an agreement between State and Municipalities of the region. The Government's strategy developed under the previous Bank-supported project was to
17 create a regional urban transport coordination agency (AMTU-RJ) for planning, coordinating and setting priorities for new investments and modal integration. AMTU-RJ now meets frequently and is primarily a forum for discussion of metropolitan transport policies and projects. The SRJ has made it clear that it intends to strengthen AMTU-RJ, merge the state administrations of metro and suburban rail, and strengthen the enabling environment to build integration terminals identified in the PDTU.
0 Cost Recovery, Financial Management and Funding Issues. A number of measures are needed to improve the cost and financial performance of the sector: (a) setting tariffs which. when added to subsidies, cover at least the long-run variable costs (defined as out- of-pocket costs plus depreciation of equipment and cost ofcapital) ofthe service provided; (b) controlling fare evasion; (c) appropriate peak and off-peak pricing; (d) improving the financial management of the systems through wide-ranging cost cutting measures and generating more non-operating revenues through advertising, station space rentals and use of the right-of-way; and (e) revamping the funding mechanisms in order to guarantee adequate financing for the implementation of new mass transit systems and the sustainability of the existing systems. Since 1998, to help achieve these goals, SRJ has embarked on an aggressive campaign to promote private sector participation in the urban transport sector, to reduce fare evasion, to cut costs and to generate more non-operating revenues. But much more needs to be done and, in the proposed project, the institutional and policy development component includes studies to assist the State in this area. As its financial situation improves and its capacity to obtain authorization from the Federal government for multilateral/bilateral loans is increased, SRJ plans to increase investment in public transport.
0 Environnzental Issues. Air pollution, noise, traffic congestion, and road accidents are major environmental issues to be addressed in the RJMR. The reduction of the environmental impacts ofurban congestion and noise pollution in the urban area could be done through: (a) the allocation of responsibilities across govemment levels for the enforcement of the law and definition of tougher standards; (b) the use of cleaner and quieter systems; (c) where appropriate, the use of non-motorized transport; (d) improved traffic management and control: and (e) the strengthening of traffic safety education and the enforcement of traffic regulations. Extension of the MetrBRio network and the proposed improvements on Metro and SuperVia will most likely reduce the number of bus-his in the corridors where they are happening and consequently will reduce vehicle emissions. Mandated fuel changes to CNG in inteiinunicipal and municipal buses would also contribute. Aggressive control of informal vans may also help because these vehicles are in general in bad maintenance condition. This may also reduce congestion and emissions.
0 Transport Planning Issues. The need to continue to strengthen RJMR's transportation planning, traffic data base, traffic management, and economic and financial evaluation of new investments was emphasized during the preparation of the project and was addressed by SRJ. SETRANSICENTRAL is equipped with a battery of sketch planning, demand and supply models which will test different land use, air quality, and urban transport scenarios. Furthermore, an integrated land use, urban transport, and air-quality strategy (PDTU) exists and should continue to be fine-tuned with more attention to the land use and environmental aspects. The PDTU will be updated under this loan and should be an important tool in the planning of future transport networks.
18 11. Urban Transport Characteristies in RJMR
4. Figure 1-1 depicts the mode share for all 20 million daily trips in RJMR estimated in 2004. About one-third of all trips are iion-motorized, about one-half are on public transport (PT) modes, and the remained {about one-sixth) are on private modes. The share for private modes shares, hoheter, are increasing at the expense ofnon-motorized and public transport trips.
Figure 1-1: Mode Shares of All Trips in RJMR Taxi Mtorcycle I%-\ 1% merMV ', /- 1% Other PT (ferries,
5. Sub~irbanrail. currently operated by Supervia. represents about 3% of all trips. less than 4% of all motorized trips. and less than 5% of all public transport trips. Table 1-1 provides a suimary of the most recent Supervia operational characteristics. Table 1-2 is a summary of operational characteristics by Line.
Table 1-1: Summary Data OM. SuperVia Operations
i O~era~ionaIStations 80
6. Table 1-3 presents the growth in total passengers transported and passenger-luii since 1999. The number of passengers transported has nearly doubled in 10 years, Figure 1-2 presents the evolution of ayerage SuperVia daily demand by month for the last IO years. Finally. Figure 1-3
19 Peak-hourioff-peak Headway Local - 711 0 (minutes) Direct - 5110 6110 6110 20130 10120 Local - 18,000 Peak hour seats offered Direct - 23,000 13,000 16,000 4,500 9.000 Local - Average Commercial Speed 34 (kndh) Direct - 47 43 46 39 33 Travel Time (min) 38 75 79 46153 59163
* as of December 2008, averagelyear 464
20 Figure 1-2: Average Daily Demand on SuperVia
~~diamensa1 dia u~jl
-1999 -- -2000 -2001 - 2002 -2004 - -2003 -2005 -2006 2007 ~ -2008
Figure 1-3: Socio-Economic Classes* of SuperVis Passengers D E A 8% 1% -1% B
65%
I Class A: Hi~h-~~iddleIncome (89 or inore essential household items, equivalent to 6 and higher MS) Class B: 3fiddle Income (59-88 essential household items, equivalent to 3-6 MS) i Class D: Poor (20-34 essential lrousehold items. equivalent to 2-3 MS) I Class E: Very poor (0-19 essential household items, equivalent to 1-2 minimum salaries (MS)) 1 *Defined by the ABPEME (Brazilian Market Research Association) based on ownership of essential household items bv families. I
More derailed transport and socio-economic data available in the Project Fife Annex 2: Major Related Projects Financed by the Bank and/or other Agencies BRAZIL: RIO DE JANEIRO MASS TRANSIT 2
Sector Issue Project IEG rating Latest PSR Ratings Implementation Development Progress (IP) Objective (DO) Bank-financed Decentralization of rail services Sao Paulo S froin federal to state govenunent Metropolitan with system Transport rehabilitatiodmodernization . Decentralization (Ln. Borrower was Federal 3457-BR) Government Decentralization ofrail services Rio de Janeiro S from federal to state government Metropolitan with system Transport rehabilitatiodmodernization. Decentralization (Ln. Borrower was Federal 3 63 3 -BR) Government Decentralization ofrail services Recife Metropolitan S from federal to state govemnent Transport with system rehabilitation and Decentralization (Ln. extension. Borrower was Federal 3 9 15 -BR) Government Decentralization ofrail services Belo Horizonte S from federal to state government Metropolitan with system extension. Borrower Transport was Federal Government Decentralization (Ln. 3916-BR) Decentralization ofrail services Salvador Urban NA MS MS from federal to state government Transport Project with system extension. Borrower (Ln.4494-Br was Federal Government Decentralization ofrail services Fortaleza NA MS MS from federal to state government Metropolitan with system extension. Borrower Transport Project was Federal Government (Ln. 7083-Br) Consolidation ofthe system and Rio de Janeiro Mass NA S S its concession to the private Transit Project(Ln. sector. Borrower was the State of 429 1-Br) Rio de Janeiro Table continues on following page.. .
22 Table continues from previous page.. . Connection between the ex- Stio Paulo Integrated HS federally owned CBTU system Urban Transport and the State-owned Fepasa Project (the Barra system to create CPTM and Funda-Roosevelt modernization of major link) (Ln.43 12-Br) integration stations. Borrower was the State of Siio Paulo Construction of Line 4 of SBo Stio Paulo Metro Line NA Paulo Metro under a PPP project. 4 project(Ln. 4646- Borrower was the State of SBo BR) Paulo Provision oftrains, signaling and Stio Paulo Trains and NA telecom systems for Stio Paulo Signaling Metro and CPTM Other development agencies IDB-financed improvements of Metro’s Line 5 stations ofex-FEPASA South line, acquisition of rolling stock and construction of Metro’s Fifth Line
In general, all State financed prqjects have fared very well particularly those in Silo Paulo State and Rio de Janeiro. Two federally-financed projects such as Salvador and Fortaleza were highly affected by the fiscal restrictions from 2002-2005 which delayed implementation.
23 Annex 3: Results Framework and Monitoring BRAZIL: RIO DE JANEIRO MASS TRANSIT 2
Results Framework PDO Project Outcome Indicators Use of Project Outcome Information a) to improve the level-of-service 1. Reduction of in-vehicle 1. To assess the improvement in provided to the urban rail travel time plus waiting time trip time transport users in RJMR in a safe 2. Passengers per square meter 2. To assess improvement in and cost-efficient manner; and 3. Number oflow-income level-of-service b) to strengthen the transport passengers (up to 4MS) in 3. To assess impact on the low- management and policy SuperVia income population framework in the RJMR. 4. Bicycle parking facilities 4. To assess progress of policy installed at railway stations to promote non-motorized 5. Number of SuperVia stations facilities with bus-rail tariff 5. To assess progress in integration intermodal integration policy 6. Use ofsmartcard-based 6. To assess the level of fare discounted fare during off- integration where ridership peak by SuperVia can be increased
Intermediate Outcomes Use of Intermediate Outcome Monitoring Component 1 a. Number oftrains per peak a. To assess the carrying Deli\,en oftrains to SuperVia hour/direction and off-peak capacity in peak hour and off in 5 lines of SuperVia peak b. Additional demand generated b. To measure overall impact of by the Project project on total ridership of c. Working ratio of SuperVia the lines benefited by project d. % completion oftrains to be c. To assess the financial delivered to SuperVia condition ofoperations d. To assess the progress on the delivery of SuperVia trains Component 2 a. Updatekompletion of studies a. To assess the progress of Maintaining and strengthening of plans for metropolitan the PDTU coordination
Arrangements for results monitoring:
0 Institutional issues: The PMU will be in charge of making sure that the periodic supervision reports include data on the project outcome indicators and the intermediate outcome indicators 0 Data collection: Data collection will be undertaken by operating divisions of SETRANS and by CENTRAL will be verified by the project management consultants. The low-income participation surveys will be undertaken every two years. 0 Capacity: SETRANWENTRAL have the capability required to collect the data and prepare the progress reports. In case they cannot do it directly they will be supported by the prqject management consultants
24 I Annex 4: Detailed Project Description BRAZIL: RIO DE JANEIRO MASS TRANSIT 2
1, The proposed project comprises the following components:
[PART A): Infrastructure and EauiDment: Acquisition of at least thirty (30) trains (EMUs) of four (4) cars each and accessories for a total of at least 120 cars to be operated, on the lines of CENTRAL’S System, by the Concessionaire under the terms of the Concessionaire Contract. This component represents about 97% ofthe total project cost. lPART B): Institutional and Policv Development 1. Provision of technical assistance to SETRANS for the carrying out of studies on policy development, including: (a) consolidating the AMTU-RJ for the RJMR; (b) updating the current integrated transport policy, land use and air quality management master plan (PDTU) for the RJMR to meet both transport and air quality targets and to introduce sound cost-recovery, tariff, regulatory and subsidy policies; and (c) supporting the adoption ofIntegrated Modal Tariffs; and 2. Provision of technical assistance to CENTRAL for the management and supervision of the Project, including the acquisition and reception of the trains (EMUs). This component represents about 3% ofthe total project cost.
2. Summary Terms ofReference
i. Strengthen and expand the Regional Transport Coordination Commission (AMTU- RJ) for the RJMR: this institutional action will examine the present configuration of the AMTU-RJ, identify its weaknesses and propose ifneed be staff changes and a discussion of its proposed plan of action. Furthermore, it will design a strategy for expanding the AMTU- RJ to other municipalities of the RJMR which have not yet joined it. The main goal is to make the AMTU-RJ a stronger coordination body in charge of periodically updating ofthe PDTU, preparation of medium and long-term investment plans with proper evaluation of individual investments and package of investments as well as an alternative analysis of policy packages to increase accessibility, affordability, availability and acceptability of public transport in the RJMR. .. 11. Update the Integrated Transport Policy, Land Use and Air Quality Management strategy (PDTU) for the RJMR to meet both transport and air quality targets and to introduce sound cost-recovery, tariff, regulatory and subsidy policies: a study will be undertaken to update the current PDTU data base and run again the models to assess the impact of policy measures related to integrated modal tariffs, bus network rationalization and reduction of informal transport. The main objective is to have an updated data base that RJMR planners will continue to use in their transport options alternative analysis. ... 111. Support the adoption of Integrated Modal Tariffs (IMT): This study will examine specific transport corridors and will test bus network rationalization in a way as to increase modal and tariff integration between rail and bus. On the basis of the several alternatives tested, an optimized bus network will be proposed as well as Integrated Modal Tariffs for discussion between the operators and with the State and Municipalities involved.
26 iv. Project management and supervision, including acquisition and reception of the trains designed to support the implementation and supervision of the project: this consultancy will support the PMIG in the management and supervision of the project and in the preparation ofmonitoring reports agreed with the Bank.
TECHNICAL CHARACTERISTICS OF NODE JANEIRO NEW 30 ELECTICAL MULTIPLE UNITS COMPOSITION OF EMU M+T+T+M I EMU capacity (8 standing passengers/m2) 1,300 passengers I Seated passenger 20% of its capacity (with a density of 6 standing Dasseneers/mZ) I Seats for preferential passengers 5% oftotal seats Car body shell structure and collision strut austenitic stainless steel Sides austenitic stainless steel plates Framework head: low alloy and high resistance carbon steel Front mask: polyester resin reinforced with fiberglass Car body shell length: 22,000 mm + 1 % / - 2 % Car’s width between 2.970 inm and 2.980 mm Floor height starting from top ofthe tracks: 1,305 mm Floor manufactured with hardboard plywood plates covered with stainless steel and floor finished with last generation plastic Internal finishing plates made with polyester resin reinforced with fiberglass Side windows high resistance polycarbonate fixed panels 1 Bogie conventional, with four wheels, with welded plate structure and frame cross member with pivot plate 1 Suspension primary: By helicoidal springs secondary: Pneumatic (air chambers) 1 Wheel type: A38 material: Forged drawn steel diameter: 965 mm (new wheel) diameter: 889 mm (life diameter) wheel axle gauge: 1,600 mm Bearings self-trimmer type Brake amlication disk brake in all cars 1 Parking Brake spring brake cylinder built-in to the main brake equipment I Power 3000V dc , Overhead catenary 1 AccelerationDeceleratioii performance Acc: 0.85 ds2, between 0 and 35 kdh. Dec: Service Braking: 0.77 ids2 Emergency Braking: equal or above 1.1 ids2, between extreme speed limits (1 00 km/h down to 0) Coupler and traction and collision mechanism automatic mechanic coupler, having equipment for energy absorption (hydraulic gas type), compatible with the load Passengers car doors Number of doors Der each car side 1 Number of door sheets per gap
27 Annex 5: Project Costs BRAZIL: NODE JANEIRO MASS TRANSIT 2
(I) Identifiable taxes and duties are US$ 26.5 million, and the total project cost, net of taxes, is US$ 194.5 million. Therefore, the share of project cost net of taxes is 12 %.
28 Schedule of Estimated Disbursements (including Contingencies)
June 30 2009 to December 3 1
December 3 1,2009 to June
June 30 1013 to December
Estimated Disbursements (including Contingencies, US$ Million)
LBRD Fiscal Year 10 11 12 13 14 TOTAL - ANNUAL 43.9 123.4 9.2 17.6 17.6
TOTAL - CUMULATIVE 43.9 167.3 176.5 194.1 211.7
29 Annex 6: Implementation Arrangements BRAZIL: RIO DE JANEIRO MASS TRANSIT 2
A. State Agency Responsible for the Project
1. The Secretary of Transport ofthe State ofRio de Janeiro (SETRANS) is the main Government agency responsible for the project and it will represent the State of Rio de Janeiro. To oversee the project on behalf ofthe State of Rio de Janeiro, SETRANS has delegated the implementation of the project to CENTRAL one ofthe operating agencies under its jurisdiction, which was in charge ofthe implementation ofthe first Rio de Janeiro Mass Transit loan (Ln.4291 -BR).
B. Project Implementation Agent
2. CENTRAL will maintain the same Project Management Implementation Group (PMIG) used in the previous loan. This group which will be in charge of the implementation and monitoring of the project components. It will be headed by a Project Coordinator which would report directly to the Director-President in charge ofthe implementation ofthe project. This Director-President will report to the Secretary of Transport. PMIG will be staffed with regular staff from CENTRAL and supported by project management and supervision consultants in charge of providing technical support in areas such as engineering, procurement, environment and financial management. CENTRAL acquired considerable experience with this PMIG unit in the Rio de Janeiro Mass Transit Project (Ln.4291-BR) and the Additional Financing loan to the sanie project.
3. Given the importance of quick response to issues that might be faced during the project, the Director-President to which the PMIG reports is required to have sufficient autonomy to decide and, in extreme cases, have quick access to the Secretary of SETRANS. CENTRAL has strong technical, procurement, environmental and legal staff which will support the implementation of the project.
C. Assessment of Project Implementation Capacity
4. As mentioned above, CENTRAL’S PMIG has considerable experience acquired in recent Bank-financed projects. Their knowledge of procurement, financial, disbursement and safeguards procedures will be an asset for the project implementation. No special launch training is judged necessary.
Legal Agreements
5. There will be a Guarantee agreement between the Federative Republic ofBrazil and the Bank, a loan agreement between the State and the Bank and subsidiary agreement between SETRANS and CENTRAL.
30 LEGAL AGREEMENTS
Loan Agreement State of CENTRAL ' RJ
1Concession Agreement I
31 Annex 7: Financial Management and Disbursement Arrangements BRAZIL: NODE JANEIRO MASS TRANSIT 2
1. A financial management assessment of the Rio de Janeiro Mass Transit Project I1 was carried out for Companhia Estadual de Engenharia de Transporte e Logistica - CENTRAL, in accordance with OP/BP 10.02 and the Financial Management Practices in World Bank Financed Investment, dated November 3, 2005. The purpose of the assessment was to determine whether the implementing agency, CENTRAL, have acceptable financial management and disbursements arrangements in place to adequately control, manage, account and report about the funds to be allocated to this project.
2. These arrangements include, but are not limited to its capacity to: (a) properly manage and account for all Project's proceeds, expenditures and transactions, (b) produce timely, accurate and reliable financial statements and reports, including unaudited Interim Financial Reports (IFRs) for project management and monitoring purposes, (c) safeguard the project's assets, and (c) disburse Bank funds in the most efficient way, in accordance with applicable Bank rules and procedures.
3. This assessment was completed based on the last FM Mission to CENTRAL and included discussions with the coordinators and staff of the implementing agency on: (i)review of staffing requirements; (ii)review of the flow of funds arrangements and disbursement methodology; (iii) review of internal control mechanisms in place; (iv) discussion in regard to reporting requirements, including the forniat and content of IFRs; and (v) review of internal and external audit arrangements.
4. Based on the assessment of the implementing agency (CENTRAL), the conclusion of the assessment is that the financial management arrangements as set out for this project satisfy the Bank's minimum fiduciary requirements and that the project can rely on and utilize the State Administrative and Financial Management Systems (SIGO and SIAFEM).
5. The overall financial management risk associated with this project is considered Moderate mainly due to: (a) highly qualified project staff, including professionals with strong capacity in planning, budgeting and financial management, the commitment of the entity to the Project; (b) strong existing financial management arrangements in place SIAFEM; and, (c) a strong and supportive internal audit department.
32 Risk Assessment Matrix
Risk Risk Identified Risks & Mitigation Measures
Rating ~~ ~~~~ ~ Inherent Risks Country Level L Brazil’s Federal government system provides reliable information. Adequate systems exist to manage and track the receipt and use of funds and there is a high level of fiscal transparency, both of which would support any lending program. The risk to both the Bank and the country funds is low. The government is coininitted to addressing its PFM weaknesses. Federal FM laws and regulations applicable to sub-nationals provide a strong PFM framework for sub-nationals.
Overall Inherent Risk Control Risks Budget The budget and accounting of the project are part of the state accounting system, so all transactions of the Project will be implemented by the Budgetary Administration, Finance and Accounting System - SIGO Accounting L SIAFEM state’s PFM system
Funds Flow Financial [FR’s by excel worksheet
Auditin
Risk H-High S-Substantial M-Moderate L-Low
Implementation Arrangements
6. The project components will be implemented by CENTRAL which will be responsible for all administrative and financial management activities, including accounting and disbursements (based on Records/SOEs) for the components. CENTRAL will be responsible for consolidating the interim financial reports and forwarding them to the Bank.
7. CENTRAL is the State company responsible for Rio’s suburban rail system, and reports to the State Secretary of Transport. There is already an active Pr0.j ect Management Implementation Group (PMIG), which manages the ongoing Bank financed Rio de Janeiro Mass Transit Project -PET (Loan NO.4291-BlUP043421).
8. CENTRAL PMIG will be responsible for carrying out the project activities related to its respective component and also for coordinating the preparation of Project periodic financial
33 reports to the Bank. The CENTRAL PMIG is staffed with qualified professionals and staff turnover has been low. CENTRAL PMIG staff has prior experience in Bank and state procedures.
9. Under the ongoing Ln. 4291-Br, CENTRAL signed on 12/08/2005, a services contract (Gerenciadora) with a project management consultant to provide consulting (program management) services. TRENDS-ENEFER will be responsible for deployment planning and other related services, including technical supervision, monitoring and control of works and services, in addition to planning for materials, equipment and services.
10. The proposed institutional arrangements are as follows:
I I I I I I
I--==+---
I I /I--
A. Internal Control
11. CENTRAL has no management information system (MIS) in place capable of ensuring the schedules of payments to be made and schedules of future payments, linked to the Designated Account related to the two separate sources of payments, including the control of its flow of resources.
12. All financial management information is maintained in Excel. Many customary internal controls, however, such as the segregation of staff functions, fiscal/administrative staff expertise, review of support documentation, passwords for access to systems and approval of expenses are in place. As part of the service contract, to be signed between CENTRAL and the project management consultant for this loan, the former will actively participate in and support the financial management administration ofthe project.
34 13. Additionally, Internal Audits examine expenses, the schedule of planning, implementation and disbursement and annual reports, financial statements required by law and the explanatory notes prepared by the external auditors.
B. Financial Management System
14. CENTRAL manages their financial accounts through the Sistema Integrado de Gestco Orqamentciria - SIGO and Sistema de Administraq8o Financeira para Estados e MunicrIpios - SIAFEM and Excel spreadsheets. a. The annual budget is entered and controlled in SIGO; b. The commitment and disbursement cycle (empenho, liqzaidaqfio e pagamento) is controlled in SIAFEM. SIAFEM is part of the state public financial management system for the recording of activities, work plans, budget, revenues, commitments, expenditures and payments. The system has the ability to provide financial information on project execution by activity. c. SIAFEM is the integrated administrative and financial system used by the State of Rio de Janeiro to execute its budget. SIAFEM was developed to comply with the national regulations on budget execution and other fiscal requirements of the national treasury (see Lei de Responsabilidade Fiscal). d. CENTRAL’S financial management systems, SIAFEM, SIGO and Excel, have been used before by CENTRAL to adequately account for prior WB loans proceeds. CENTRAL follows the accounting practices adopted in Brazil
15. In addition to producing entity and state-wide budget monitoring reports, the CENTRAL’S financial systems can also produce project financial management reports (for project monitoring and/or disbursements). The financial systems can record project transactions utilizing the loan disbursement categories. They are able to produce detailed and sunmary that meet the reporting requirements ofthe Bank.
16. Reporting and Monitoring: CENTRAL will use the same IFR forms used on LN 4291-BR and 7508-BR. However, these previous financial reports will be complemented by report 1-C (Designated Account reconciliation) format below.
17. CENTRAL will also provide annual financial statements for auditing purposes that reflect the activities of the operation supported by the Bank loan, prepared in accordance with accounting standards acceptable to the Bank and will be responsible for sending to the Bank the consolidated 1-A, 1-By 1-C and 1-D IFRs, on a quarterly basis the reports will be prepared following cash-basis of accounting. e IFR 1-A Source and application offunds by cost category as per Project Agreement; IFR I-B Statement of Investments by Components and activities;
35 0 IFR 1-C Designated Account reconciliation; and
18. All IFRs will be in local currency (R$), and will present expenditures by quarter, accuinulated for the year and accumulated over the life of the project. IFRs for the project will be submitted by CENTRAL through its PMIG to the Bank up to 45 days after the closing of each quarter.
19. Any other funds and counterpart contributions which is part of the project, such as cofinanciers, should be reflected in IFRs (1 -A and 1-B), to better monitor all amounts invested under the project.
20. The fourth quarter IFRs generated during the year, showing the cumulative figures for the year, may be used as the project annual financial statements that would be audited.. In addition to IFRs each entity will be responsible for producing physical implementation progress reports, as well as procurement and contracting reports as part of the Project Report. The contents and the formats of I-C and 1D reports will be discuss prior to the Loan Agreement singing.
C. Flow of Funds and Disbursements
21. The Bank will make loan disbursements to the Project primarily using the advance method. A Designated Account (DA) opened in the name of the State of Rio de Janeiro at Banco do Brasil S.A. in U.S. Dollars - managed by CENTRAL as it was the case in LN 4291-BR and 7508-BR could be used for the deposit of advances under the proposed loan provided that there are no loan proceeds or counterpart funds, or pending transactions, from the previous loans in the Designated Account or to flow through the Designated account when the new loan becomes effective or subsequent to that date.
22. Loan proceeds will be transferred from the Designated Account to the State's single treasury account and subsequently to a project Operating Account. Payments for eligible expenditures would be made directly from Operating Account by the State on behalf of the implementing entity CENTRAL. The PMU will also have the option ofrequesting direct payments by the Bank to service providers for large payments in either local or foreign currency. Counterpart funds will be disbursed from the State Treasury's single account to contractors and service providers through an operative account.
36 Project Designated Account World Bank Banco do Brasil-New York
t Counterpart funds SEFM single account (in Reais)
Operating Account .(in Reais)
+ Providers of Goods, works and I I Services -- .I I 23. The proposed ceiling for the Designated Account will be based on projected cash needs of the project. The proposed DA Ceiling will be included in the loan Disbursement Letter prepared by the Bank's Loan Department and will be discussed and agreed at negotiations. The minimum amount for Reimbursement or Direct Payment applications, if any, will also be established in the Disbursement Letter and discussed and agreed at negotiations.
24. Records and/or Statements of Expenditures (SOEs) will be used to report the use of loan advances and request replenishment of the Designated Account. Ideally, Withdrawal Applications should be submitted monthly to the Bank but not later than quarterly. Each Withdrawal Application requesting a replenishment of the Designated Account should be accompanied by a reconciled bank statement as well as other appropriate supporting documents. The Statements of Expenditures (SOEs) will be prepared on the basis of payments actually made through bank payment orders issued under instructions from CENTRAL. The detailed requirements for submitting SOEs, supporting documentation and SOE formats will be established in the Disbursement Letter.
D. External Audit
25. The project's accounts and financial statements will be audited by an independent audit firm, selected among a pre-approved short list of three to six candidates, under Terms of Reference previously reviewed and approved by the Bank. It is recommended that the hiring process starts right after the signature of the Loan. The annual audit report will contain a single opinion on projects' financial statements which would include retroactive financing, if any, the Designated Accounts, IFRs and SOEs, and a management letter identifying any internal control weaknesses and areas of improvement.
37 26. The audit report should be submitted to the Bank within six months at the end fiscal year (including the grace period, if any). All records(contracts, orders, invoices, bills, receipts, and other documents) evidencing eligible expenditures and to enable the Bank’s representative to examine such records for at least one year following receipt by the Bank of the final audited financial statement required in accordance with the legal agreement or two years after the closing date, whichever is later.
27. The financial statements, as audited by an independent entity acceptable by the Bank, should be audited in accordance with International Standards on Auditing (ISA) issued by the International Federation of Accountants (IFAC). CENTRAL will be responsible for hiring an external audit firm to audit its respective components. External auditing costs are to be financed by project funds, thus allowing for the use of Bank’s procurement guidelines Quality and Cost based - or national procurement procedures if financed by counterpart funds.
E. Supervision
28. The Bank will undertake supervision missions two times per year to monitor the implementation and performance of the Project and confirm that the financial management, disbursement and audit arrangements included in the project design are being adhered to and continue to be valid.
F. Withdrawal ofLoan Proceeds
29. The following table specifies the categories of Eligible Expenditures that may be financed out of the proceeds of the Loan (“Category”), the allocation ofthe amounts of the Loan to each Category, and the percentage of expenditures to be financed for Eligible Expenditures in each Category
Amount of the Loan Percentage of Expenditures Allocated to be financed -Cateeorv (exnressed in US9 (1) Goods (including warehousing) 206,370,750 100%
(2) Consultant services 4,800,000 100%
(3) Front-end Fee 529,250 100% TOTAL AMOUNT 2 11,700,000
38 Annex 8: Procurement Arrangements BRAZIL: RIO DE JANEIRO MASS TRANSIT 2
A. General
1. Procurement for the proposed project would be carried out in accordance with the World Bank "Guidelines: Procurement Under IBRD Loans and IDA Credits" dated May 2004 (revised in October 2006), "Guidelines: Selection and Employment of Consultants by World Bank Borrowers" dated May 2004 (revised in October 2006), and the provisions stipulated in the Legal Agreement. The various items under different expenditure categories are described in general below. For each contract to be financed by the Loadcredit, the different procurement methods or consultant selection methods, the need for pre-qualification, estimated costs, prior review requirements, and time frame are