Brazil Appraisal of a Third Railway Project(Fepasa) Organization of Fepasa
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ReportNo. 856-BR FILECOPY Brazil Appraisalof a Public Disclosure Authorized Third RailwayProject September2, 1975 Latin America and CaribbeanProjects Department Not for PublicUse Public Disclosure Authorized Public Disclosure Authorized Bankfor Reconstructionand Development Public Disclosure Authorized Document of the International InternationalDevelopment Association This report was prepared btr official use only by the Bank Group. It may not be published, quoted or cited without Bank Group authorization. The Bank Group does not accept responsibility for the accuracy or completeness of the report. Currency Equivalents National currency is the Cruzeiro (Cr$) divided into 100 centavos US$ 1.00 = rJr$8.285 selling US$120.7 = Cr$ 1,000 (August 4, 1975) Fiscal Year January 1 - December 31 Weights and Measures - Metric System Metric US Units 1 ton 1.102 short tons 1 kin 0.621 mile 1 ton-km = o.684 short ton-mile 1 pass-han 0.621 pass-mile 1 Pieter 3.281 feet 1 kg = 2.205 pounds Abbreviations APARAQUARA - Estradade Ferro Araraquara,S.A. CODGRA_N - Conselho Deliberativodo Grande Sao Paulo COSIPA - Conmpanhia Siderurgica Paulista CSN - Companhia Siderurgica Nacional G,VRD - Companhia Vale do Rio Doce DER - Departamento de Estradas de Rodagem (State level) DERSA - Desenvolvimento Rodoviario, S.A. DNTDJF - Departamento Macional de Estradas de Ferro DNER - Departamento Nacional de Estradas de Rodagem (Federal level) DNPVN - Departamento Nacional de Puertos e Vias Navegaveis EFVT4 - E-strada de Ferro Vitoria a Minas EMPLSA - Empresa ?4letropolitana de Plane,,jamento de Sao Paulo, S.A. ETUSP - Empresa de Transportes Urbanos do Grande Sao Paulo FIFPASA - Ferrovia Paulista S.A. GEIPOT - Empresa Brasileira de Planejamento de Transportes GEGRAN - Grupo Executivo do Grande Sao Paulo GSP - Greater Sao Paulo KBR - Mineracoes Brasileiras Reunidas MIOGIANA Companhia Mogiana de Estrada de Ferro PAU'LTCTA - Companhia Paulista de Estrada de Ferro RFFSA - Rede Ferroviaria Federal, S.A. SAO PAULO MDIAS - Estrada de Ferro Sao Paulo Minas SOROCARANA - Estrada de Ferro Sorocabana,S.A. BRAZIL APPRAISAL OF A THIRD RAILWAY PROJECT (FEPASA) TABLE OF CONTENTS Page No. SUMMARY AND CONCLUSIONS ................ ............... i-iv 1. INTRODUCTION ........ .................................. 1 2. BACKGROUND ................................. 2 A. General ........................................... 2 B. The Transport Sector .............................. 2 C. Transport Investments and Coordination .... ........ 4 3. THE FEPASA RAILWAYS ................................... 6 A. Organization, Management and Staff .... ............ 6 B. Railway Property .................................. 8 C. Productivity of Operations ........................ 9 D. Uneconomic Lines and Services ..................... 10 4. THE PLAN AND THE PROJECT ...............o ............... 10 A. The Five-Year Investment Plan, 1975-1979 .... ...... 10 B. The Project and the Program of Action .... ......... 11 C. The Proposed Loan ................................. 12 D. Execution, Procurement and Disbursement .... ....... 13 5. ECONOMIC EVALUATION ................................... 14 A. Traffic Forecasts ................................. 14 B. Cost Benefit Analysis .......................... ,. 16 6. FINANCES .............................................. 19 A. Accounts, Budget and Audit ........................ 19 B.. Present Financial Position .20 C. Tariffs and Costs ................................. 21 D. Future Prospects . ..................................21 7. AGREEMENTS REACHED AND RECOMMENDATION .................. 23 This Appraisal Report has been prepared by Messrs. Karman (engineer), Jones (financial analyst), and Blanc (economist) with the Latin America and Caribbean Projects Department, Taborga (economist) with the Transportation and Urban Projects Department, and Sander (financial analyst), consultant, and has been edited by Miss Foster. TABLE OF CONiFINTS(Cont!nued) TAsLES 1. Capital Investmentin the Transport Sector in Sao Paulo State 1970-1974 and TentativeProjections 1975-1977 2. Projected Populationand miploymentin Area of Influenceof FEPASA's Suburban Services (1980) 3. Statistics1971-1974 and Projection for 1979 4. Evolution of FEPASA's Network (km) 5. Five-Year InvestmentPlan 1975-1979 6. 1976-1977 Project and Proposed Loan 7. Items to be financed by the Proposed Loan 8. Freight Traffic (1969-1974)and Forecasts (1975-1979) 9. IntercityPassenger Traffic (1969-1974)and Forecasts (1975-1979) 10. Cash Flow and Financing Plan 1975-1979 11. Income Account - Years Ended December 31, 1972 to 1974 12. Balance Sheets - As of December 31, 1972 through 1974 Actual and 1975 through 1979 Forecast 13. Forecast Income Account, 1975-1979 ANNEXES 1. State Transport Coordination 2. Secretariatof MetropolitanAffairs 3. MetropolitanTransport Coordination 4. FEPASA's OrganizationChart 5. Program of Action, 1975-1979 6. Items to be Financed by the Proposed Loan 7. Studies and Technical AssistanceProgram 8. Estimated Schedule of Disbursements 9. Traffic Forecasts 10. Items Subject to Further Review 11. Suburban Services 12. Economic Justificationof the New Lines and Realignments 13. Economic Justificationof the Rehabilitationand ModernizationProgram 14. Overall Economic Evaluationof the InvestmentPlan 15. Tariffs and Costs 16. AssumptionsUsed in Making Financial Forecasts 17. FinancingPlan 4MAPS IBRD 11570 - Brazil Railroads IBRD 11571R - FEPASA Network IBRD 11572R - Sao Paulo - Santos Corridor IBRD 11573R - Sao Paulo Suburban Area BRAZIL APPRAISAL OF A THIRD RAILWAYPROJECT (FEPASA) SUMMARYAND CONCLUSIONS i. The rehabilitationof the railways has become a key element in Brazil's economic developmentstrategy. The railways will be a crucial factor in helping the Governmentto achieve energy conservationobjectives and in im- proving the bulk transportcapacity required to support the growth in agri- cultural exports and steel production,aimed at efficientimport substitu- tion. These developmentefforts have intensifiedin light of the increases in petroleumprices and the resultingpressure on Brazil's balance of pay- ments. ii. This report appraises the Sao Paulo State and Federal Governments' plans for the Sao Paulo State Railways,FEPASA, and concludesthat they warrant Bank support. FEPASA is importantmainly on two grounds: (a) at the country level, it is operationallyinseparable from the main federal network; and (b) at the local level, it is a vital element of the regional economy, serving Brazil's most developed industrialcenters (the Sao Paulo area and the export corridor to Santos,Brazil's main port). In January 1975, the Bank made a US$175.0 million loan to RFFSA, the Federal Railways of Brazil, to support the rehabilitation,modernization, and expansionof the federal railway system. The proposed loan to FEPASA would be a logical followupwhich could lead to considerableoverall benefits for both networks. iii. It is likely that, in the future, FEPASA and RFFSA will be mferged into one comprehensiverail system. A special commissioncreated in June 1975 is studyin -he means to achieve a more efficientoperational integration between the two railroadsin the State of Sao Paulo. Bank support to FEPASA would assist in integratingthe operationof the two networks, thus further developing a national rail system. iv. An importantobjective in Bank lendingwould be to support improve- ments in the operationaland financialperformance of FEPASA. As in the loan to RFFSA, Bank financing of FEPASA would have strong justificationin terms of institution-buildingand financialrehabilitation. Bank financing would be accompaniedby a firm Program of Action to improve operational efficiency,reduce or eliminateuneconomic services and increase tariffsas necessary,all to reach time-phasedperformance targets. v. An additionalobjective in Bank financingof the FEPASA program would be to support the Government'sefforts in making urgently needed im- provements in suburban passenger services,which are antiquatedand seriously overcrowded;such improvementis required to further discourage the growth of private automobileuse in Sao Paulo. Presently,mass transportservices - ii - arc provided in the area by four separate entities: FEPASA, RFFSA, METRO and the Metropolitan Bus System. While these are complementary to a large extent, undesirable duplications may occur if adequate coordination is not actively pursued in order to ensure the economic viability of each subsystem. Coverriment measures to achieve such coordination are already being taken. vi. One of the major items in the Five-Year Investment Plan is the package of investments related to the modernization and expansion of FEPASA's 8iiburban services. In order to ensure a satisfactory return on these sizable investments, the Government should (a) avoid parallel investments on the METROline which would partly duplicate FEPASA's planned investments and, therefore, divert part of the expected users of FEPASA's suburban lines to METROservices: and (b) take specific measures to coordinate feeder bus lines to the FEPASA stations. The Bank could not support FEPASA's Investment Plan without firm assurances that the two above conditions would be met, Oral assurances were received during appraisal from FEPASA, the State Government of Sao Paulo, and the Federal Government. The draft legal documents for the proposed loan, reflecting the above-mentioned conditions, were discussed with the Brazilian delegation during negotiations and represent a firm commitment by the Brazilian authorities. vii.