World Bank Document

Document of The World Bank

FOR OFFICIAL USE ONLY

Public Disclosure Authorized Report No: 50987-BR

PROJECT PAPER

ON A

Public Disclosure Authorized PROPOSED ADDITIONAL LOAN

IN THE AMOUNT OF US$112.91 MILLION

TO THE

STATE OF SÃO PAULO, BRAZIL

WITH THE GUARANTEE OF

THE FEDERATIVE REPUBLIC OF BRAZIL

Public Disclosure Authorized FOR A

SÃO PAULO TRAINS AND SIGNALING PROJECT

August 11, 2010

Sustainable Development Department Brazil Country Management Unit Latin America and Caribbean Regional Office

Public Disclosure Authorized This document is being made publicly available prior to Board consideration. This does not imply a presumed outcome. This document may be updated following Board consideration and the updated document will be made publicly available in accordance with the Bank’s Policy on Access to Information.

FOR OFFICIAL USE ONLY

CURRENCY EQUIVALENTS

(Exchange Rate Effective November 2009 – July 2010)

Currency Unit =Brazilian Real (R$) R$1.77 = US$1

FISCAL YEAR January 1 – December 31

ABBREVIATIONS AND ACRONYMS

AF Additional Financing loan ATC Automatic Train Control BNDES National Economic and Social Development Bank (Banco Nacional de Desenvolvimento Econômico e Social) BUI Single Integrated Fare Ticket (Bilhete Único Integrado) CBTC Communications-Based Train Control CBTU Brazilian Urban Train Company (Companhia Brasileira de Trens Urbanos) CETESB Environmental Technology Company (Companhia de Tecnologia de Saneamento Ambiental) CDTI Integrated Transport Coordination Commission (Comité Diretor de Transporte Integrado) CMSP São Paulo Metro Company (Companhia do Metrô de São Paulo) also known as METRO (see below) CPTM São Paulo Metropolitan Train Company (Companhia Paulista de Trens Metropolitanos) EA Environmental Assessment EIRR Economic Internal Rate of Return EMTU Metropolitan Bus Company (Empresa Metropolitana de Transporte Urbano) EMU Electric Multiple Unit IBGE Brazilian Institute of Geography and Statistics (Instituto Brasileiro de Geografia e Estatística) IBRD International Bank for Reconstruction and Development (World Bank) ICB International Competitive Bidding ICMS Circulation Tax on Goods and Services (Imposto de Circulacão sobre Mercadorias e Serviços) IERR Internal Economic Rate of Return JBIC Japanese Bank for International Cooperation

METRO São Paulo Metro Company (Companhia do Metropolitano de São Paulo). Same as CMSP MS Minimum salary, as defined by the Brazilian Government OP/BP Operational Procedure/Bank Policy PCU Project Coordination Unit PER Preliminary Environmental Report (Relatório Ambiental Preliminar) PITU Integrated Urban Transport Project (Plano Integrado de Transporte Urbano) PMU Project Management Unit SEAIN Federal Secretariat for Foreign Affairs (Secretaria de Assuntos Internacionais) SMA Secretariat for the Environment (Secretaria do Meio Ambiente) SOE Statement of Expenses SPM São Paulo Municipality SPMR São Paulo Metropolitan Region SSP State of São Paulo SMTSP São Paulo Municipal Secretariat for Transport (Secretaria de Transportes da Prefeitura do Município de São Paulo) STN Secretariat of the National Treasury (Secretaria do Tesouro Nacional) STM São Paulo State Secretariat for Metropolitan Transport (Secretaria dos Transportes Metropolitanos de São Paulo) TOR Terms of Reference

Vice President: Pamela Cox Country Director: Makhtar Diop Sector Director: Laura Tuck Sector Manager/Sector Leader: Aurelio Menendez/Sameh Wahba Task Team Leader: Georges Darido

This document is being made publicly available prior to Board consideration. This does not imply a presumed outcome. This document may be updated following Board consideration and the updated document will be made publicly available in accordance with the Bank’s Policy on Access to Information.

BRAZIL: SÃO PAULO TRAINS AND SIGNALING ADDITIONAL FINANCING

CONTENTS

Page

I. Introduction ...... 1

II. Background and Rationale for Additional Financing ...... 1

III. Proposed Changes ...... 3

IV. Consistency with Country Partnership Strategy (CPS) ...... 4

V. Appraisal of Scaled-up Project Activities ...... 4 A. Institutional and Implementation Arrangements ...... 4 B. Economic and Financial ...... 5 C. Technical ...... 6 D. Fiduciary ...... 6 E. Social...... 7 F. Environment ...... 8

VI. Expected Outcomes ...... 9

VII. Benefits and Risks ...... 9

VIII. Financial Terms and Conditions For the Additional Financing ...... 11

Annex 1: Sector and System Background ...... 12 Annex 2: Results Framework and Monitoring...... 20 Annex 3: Project Costs, Financing Plan and Disbursement Schedule ...... 22 Annex 4: Financial Management ...... 24 Annex 5: Procurement Arrangements ...... 29 Annex 6: Economic and Financial Analysis ...... 34 Annex 7: Safeguard Policy Issues...... 52 Annex 8: Documents in the Project File ...... 56 Annex 9: Maps ...... 57

iii

BRAZIL: SÃO PAULO TRAINS AND SIGNALING ADDITIONAL FINANCING

ADDITIONAL FINANCING DATA SHEET

Basic Information - Additional Financing (AF) Country Director: Makhtar Diop Sectors: General transportation (100%) Sector Manager/Director: Laura Tuck/ Themes: Other urban development (P) Aurelio Menendez Environmental category: B Team Leader: Georges Darido Expected Closing Date: Dec. 31, 2012 Project ID: P117122 Expected Effectiveness Date: Jan. 2011 Joint IFC: n/a Lending Instrument: Specific Investment Joint Level: n/a Loan Additional Financing Type: Scale-up Basic Information - Original Project Project ID: P106038 Environmental category: B Project Name: São Paulo Trains and Expected Closing Date: June 30, 2013 Signaling Lending Instrument: Specific Investment Joint IFC: n/a Loan Joint Level: n/a AF Project Financing Data [ X ] Loan [ ] Credit [ ] Grant [ ] Guarantee [ ] Other: Proposed terms: IBRD Flexible Loan (IFL) with variable spread option, payable in 30 years, including a 5-year grace period. Repayment schedule linked to commitment and all the conversion options are selected. AF Financing Plan (US$m) Source Total Amount (US $m) Total Project Cost: 161.46 Cofinancing: 0 Borrower: 48.55 Total Bank Financing: IBRD 112.91 Client Information Borrower: State of São Paulo, Secretaria dos Transportes Metropolitanos (STM) Contact Person: Humberto Kimura Telephone No.: 55-11-3291-2231 Fax No.: 55-11-3291-2191 Email: [email protected]

Responsible Agency: Companhia Paulista de Trens Metropolitanos (CPTM) Contact Person: Afonso Bissoli Telephone No.: 55-11-3101-7141 Fax No.: 55-11-3107-2040 Email: [email protected]

AF Estimated Disbursements (Bank FY/US$m) FY 2011 2012 2013 Annual 28.11 74.35 10.45 Cumulative 28.11 102.46 112.91 Project Development Objective and Description Original project development objective is: a) to improve the level-of-service provided to the urban rail transport users in the São Paulo Metropolitan Region in a safe and cost-efficient manner by increasing the peak–hour and off-peak carrying capacity of Lines A and F (now known as Lines 7 and 12) of CPTM and Lines 1, 2 and 3 of the São Paulo Metro Company (Metro); and b) to continue the strengthening of the transport management and policy framework in the SPMR.

Revised project development objective: The PDO of the original Project is scaled-up to include Line 11-Coral of the CPTM system and no other changes are proposed. Therefore, the objective of the proposed Project including the additional financing is: a) to improve the level- of-service provided to the urban rail transport users in the São Paulo Metropolitan Region in a safe and cost-efficient manner by increasing the peak–hour and off-peak carrying capacity of Lines 7, 11 and 12 of CPTM and Lines 1, 2 and 3 of the São Paulo Metro Company (Metro); and b) to continue the strengthening of the transport management and policy framework in the SPMR.

Project description [one-sentence summary of each component]: The Project includes two parts: (a) Trains and Equipment: at least nine trains (Electrical Multiple Units) of eight cars each and related accessories, and (b) Institutional and Policy Development: technical assistance to support CPTM in carrying out studies for the design of a climate change strategy, and to manage and supervise the manufacturing and implementation of the new trains. Safeguard and Exception to Policies Safeguard policies triggered: Environmental Assessment (OP/BP 4.01) [ X ]Yes [ ] No Natural Habitats (OP/BP 4.04) [ ]Yes [ X] No Forests (OP/BP 4.36) [ ]Yes [ X] No Pest Management (OP 4.09) [ ]Yes [ X] No Physical Cultural Resources (OP/BP 4.11) [ ]Yes [ X] No Indigenous Peoples (OP/BP 4.10) [ ]Yes [ X] No Involuntary Resettlement (OP/BP 4.12) [ ]Yes [ X] No Safety of Dams (OP/BP 4.37) [ ]Yes [ X] No Projects on International Waters (OP/BP 7.50) [ ]Yes [ X] No Projects in Disputed Areas (OP/BP 7.60) [ ]Yes [ X] No Does the project require any exceptions from Bank policies? [ ]Yes [X] No Have these been approved by Bank management? [ ]Yes [ ] No

Conditions and Legal Covenants: Financing Agreement Description of Condition/Covenant Date Due Reference Loan Agreement, Signing of the Subsidiary Agreement between the Before Article 4.01 Borrower and CPTM effectiveness

Loan Agreement, The Borrower shall maintain, at all times during the n/a Schedule 2, Section execution and until completion of the Project, a unit I.A.1 within STM to be responsible for the overall coordination of the Project (the “PCU”).

Loan Agreement, Borrower shall carry out and shall cause the Project to n/a Schedule 2, Section be carried out in accordance with the provisions and I.D recommendations of the Environmental Assessment and the Addendum to the EA.

Loan Agreement, The Borrower shall, within the limits of its authority, n/a Schedule 2, Section commit to preserve the CDTI and BUI at all times VI during execution and until the completion of the Project, in the present or other format as long as they continue 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 BUI to other modes of transportation and expand the CDTI to include other municipalities of the SPMR.

Project Agreement, CPTM shall maintain, at all times during the n/a Schedule, Section I.A execution and until completion of the Project, a unit responsible for the overall coordination of the implementation of the Project (the “PMU”).

Project Agreement, CPTM shall complete the studies referred to in Part B. Within 18 Schedule, Section IV (a) of Schedule 1 to the Loan Agreement, by no later months after than eighteen (18) months after the Effective Date. effectiveness

I. Introduction

1. This Project Paper seeks the approval of the Executive Directors to provide an additional loan in the amount of US$112.91 million to the State of São Paulo, Brazil for the São Paulo Trains and Signaling Project (P106038, Ln. 7506-BR).

2. The proposed additional loan would help finance the costs associated with scaled-up activities to enhance the impact of a well-performing Project by acquiring additional trains for a suburban rail line (CPTM Line 11-Coral, formerly known as Line E) that was not included in the original loan because of fiscal space limitations at the time. The State of São Paulo has been able to increase its debt capacity through careful spending, concessioning of public assets and the sale of the State-owned savings bank. It is therefore now in a better position to work on service improvements for Line 11-Coral. The CPTM (Companhia Paulista de Trens Metropolitanos) system consists of 6 suburban rail lines in the São Paulo Metropolitan Region (SPMR) (see Annex 1 for a profile of CPTM and its lines). CPTM Line 11-Coral is an already existing 50.8 km suburban rail line connecting the center of São Paulo to the Eastern areas of SPMR (see maps in Annex 9).

II. Background and Rationale for Additional Financing

3. Strategic Context. In the past several years, the State of São Paulo has embarked on a large investment program to improve the rail-based network of the SPMR. SPMR has more than 18 million inhabitants spread irregularly over 8,000 square kilometers. Although dominated by the Municipality of São Paulo with 11 million inhabitants, SPMR is made up of 39 municipalities. The region generates roughly one-fifth of Brazil’s GDP and is considered to be the most important economic region of the country. SPMR’s existing 61 km subway network (Metro) and 261 km suburban rail network (CPTM) is relatively small for one of the largest metropolitan areas in the world. Excessive traffic congestion, due in part to the fast-growing vehicle fleet and the lack of adequate transport infrastructure and services, has a negative impact on economic and social development in the region and contributes to rising local and global emissions. Moreover, the users of public transport, the majority of whom are the urban poor, commonly experience overcrowding, long travel times due to congestion and multiple transfers, and high fares relative to their income.

4. SPMR has made considerable progress in enhancing public transport infrastructure and services with the support of several World Bank lending operations since the 1990s. As described in Annex 1, in the last two decades the Bank has helped finance the integration of the suburban railways, Line 4 of the Metro, trains and signaling systems for CPTM and Metro, and other critical urban transport investments. The State has been pursuing a strategy of incrementally transforming the CPTM network into a Metro-like operation with more frequent services in the peak and off-peak, and the proposed additional financing (AF) will contribute to this objective. The State has also worked steadily on the four pillars of its long- term urban transport strategy, namely: (1) regional coordination through its CDTI (Integrated Transport Coordination Commission), (2) an integrated urban transport, land use and air quality strategy, namely PITU (Integrated Urban Transport Plan), (3) financing mechanisms which ensure the long-term sustainability of SPMR’s urban transport system, and (4) the progressive participation of the private sector in operations and construction. In the last 6 years, the strong alliance between the State and the Municipality of São Paulo has produced

significant improvements in terms of tariff and modal integration and the prioritization of transport infrastructure investments. In particular, the adoption and expansion of the Bilhete Único Integrado (BUI) in recent years has increased ridership significantly through intermodal tariff integration of subway, suburban rail and buses.

5. An important consequence of the improvements in the metropolitan transport system has been a dramatic increase in user demand for rail-based systems. In the case of CPTM, ridership has increased at least 10% per year since 2006 (as shown by the data provided in Annex 1). This significant growth has led to the urgent need for increasing the carrying capacity and frequency of suburban trains, especially at peak hours, in order to maintain an acceptable level-of-service quality that ensures passenger safety while reducing waiting time at stations. In addition, the continued improvement of the carrying capacity of the system is expected to attract additional users from road-based modes.

6. Rationale. CPTM Line 11-Coral (also known as the Coral Line and formerly known as Line E in the original Project) connects the Eastern part of the City of São Paulo and SPMR, where a large portion of the low-income residents live, to the center of the city, where many jobs, commerce and other services are located. Line 11-Coral has been operating with extremely crowded trains in the peak hours (over 8 passengers per square meter) and has experienced significant growth in the number of passengers transported. This is in part due to improved travel times from Luz Station to Guaianazes Station after the introduction of the Expresso Leste service (currently train headways are 6-minutes at peak times). CPTM expects to increase the daily ridership on its Line 11-Coral from 436,000 in 2008 to approximately 560,000 passengers in 2012 by modernizing the line and extending the Expresso Leste service further east to the station at Suzano, i.e. reducing train headways to as few as 4 minutes in the peak hour. To this end, CPTM urgently requires additional trains for Line 11-Coral with compatible communications equipment and accessories to increase the service frequency and provide additional carrying capacity in the peak hours. The expected growth in ridership (attracting trips from more polluting road-based modes), the advanced train technology (including regenerative braking), and other planned activities also provide an opportunity to design the first climate change strategy for CPTM.

7. Pursuant to OP/BP 13.20, the additional financing is requested to scale-up activities that enhance the development impact of a well-performing Project. The proposed Project would provide partial financing of the trains and related accessories that are required by the State to meet the 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 SPMR transport system. The Project would particularly benefit current and future rail users of Line 11-Coral (a majority of which are low-income people) and have a positive impact in the corridor regarding current trends in traffic congestion and vehicle emissions, which are important to the air quality and climate change agenda.

8. The Original Loan. The Board approved the original loan for the São Paulo Trains and Signaling Project for US$550 million (Ln. 7506-BR) on May 1, 2008 and the ongoing Project became effective on July 28, 2008. The Project Development Objectives (PDO) and Implementation Performance (IP) ratings of the original Project have been satisfactory and progress has been generally good to date. The implementation of six main contracts is

underway and disbursement is progressing according to plan. As of August 2010, the original Project has disbursed about US$266.75 million or about 48% of the original loan. The four main contracts of the original Project for rolling stock and signal systems for both the São Paulo Metro and CPTM have been awarded and are well underway. The first CPTM trains have been delivered and are being tested before entering into operations. The contract for the supply and installation of track and the overhead electrical system (catenary) was begun late due to delays in pre-qualification. The CPTM project management consultant is in place and all other supervision for trains and signaling consulting services bids have been completed or are underway.

9. There have been no changes to the PDO of the original Project and the proposed additional loan will not alter it other than to include Line 11-Coral in its scope. The original PDO is to: a) improve the level-of-service provided to the urban rail transport users in the São Paulo Metropolitan Region in a safe and cost-efficient manner by increasing the peak– hour and off-peak carrying capacity of Lines A and F (now known as Lines 7 and 12) of CPTM and Lines 1, 2 and 3 of the São Paulo Metro Company (Metro); and b) continue the strengthening of the transport management and policy framework in the SPMR.

III. Proposed Changes

10. Project Components. The components and costs for the proposed AF are listed below. The AF loan would finance about 75% of the total estimated purchase cost of new trains and equipment for CPTM. The local counterpart funds for the AF would total about US$48.55 million. The breakdown of all IBRD financing for the original and proposed Project by component is shown below.

a. Trains and Equipment: to acquire at least (9) nine trains (Electrical Multiple Units, EMUs) of eight cars each and related accessories for CPTM to increase the level of service on Line 11-Coral. This component accounts for about 98% of the loan. b. Institutional and Policy Development: technical assistance to: (a) carry out studies, in accordance with terms of reference acceptable to the Bank, for the design of a climate change strategy; and (b) manage and supervise the carrying out of Part A of the Project, including with respect to the manufacturing and implementation of the new trains. This component accounts for about 2% of the loan.

IBRD Project Financing Plan Original Additional (Millions of US Dollars) Project Financing Total Part A: Trains and Equipment 536.35 110.43 646.78 Part B: Institutional and Policy 13.65 2.48 16.13 Development Total 550.00 112.91 662.91 Note: Contingencies and the front-end fee were included in Part A in the above table.

11. The PDO of the original Project is being scaled-up to include Line 11-Coral of the CPTM system. The objective of the proposed Project is: (a) to improve the level-of- service provided to the urban rail transport users of CPTM’s Line 11- Coral in the SPMR in a safe and cost-efficient manner by increasing the peak–hour and off-peak

carrying capacity of CPTM’s Line 11-Coral; and (b) continue the strengthening of the transport management and policy framework in the SPMR. As described in the PAD for the original Project, this will be accomplished by: (a) increasing the peak–hour and off- peak carrying capacity of Line 11-Coral, and (b) continuing to strengthen the transport management and policy framework in the SPMR.

12. While the closing date of the original loan and Project is unchanged at June 30, 2013, the Borrower has specifically requested a loan closing date of December 31, 2012 for the additional loan to be consistent with the authorization received by the Brazilian Government. The delivery of the final train to be financed by the additional loan is expected by February 2012. The Project’s monitoring indicators will remain the same as those used in the original Project (please see Annex 2: Results Framework and Monitoring). However, the scope of the monitoring plan will be expanded to include Line 11-Coral, which is the focus of the proposed Project.

IV. Consistency with Country Partnership Strategy (CPS)

13. The proposed Project and its objectives remain fully consistent with the World Bank Group Country Partnership Strategy (CPS) 2008-11 (Report # 42677-BR) discussed by the Executive Directors on May 1, 2008, and the Progress Report (Report # 53356-BR) discussed by the Executive Directors on April 20, 2010. The Bank's strategy in Brazil is to support policies and investments that will encourage economic growth and social development in a context of macroeconomic stability. The emphasis is on efficient resource allocation, increased efficiency in the public sector and the appropriate targeting and delivery of support systems to the poor. The proposed Project will improve the accessibility of low- income residents to jobs and services, particularly in the Eastern part of the SPMR. 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 generating an improvement of quality of life.

V. Appraisal of Scaled-up Project Activities

The following sections summarize the relevant assessments of the proposed Project, which are further detailed in the Annexes and Project Files.

A. Institutional and Implementation Arrangements

14. The institutional and implementation arrangements are unchanged from the original loan and they are adequate for the proposed additional loan. The São Paulo State Secretariat of Metropolitan Transport (STM) is the main Government agency responsible for the Project. The Borrower is the State of São Paulo, which has delegated project implementation to CPTM, the State Company that operates and manages the suburban rail system and who reports to STM for purposes of the Project. Project management will be located in the STM through an established Project Coordination Unit (PCU) that will oversee the implementation of this Project and other ongoing Bank-financed projects. In addition, CPTM will maintain a separate Project Management Unit (PMU) in charge of the implementation and headed by a Project Coordinator who would reports directly to the

Director in charge of the implementation of the Project. The PMU is staffed with regular staff from the agencies and supported by project management and supervision consultants in charge of providing technical support in areas such as engineering, procurement, environment and financial management. CPTM has considerable experience with PMU units acquired through ongoing and previous Bank-financed projects. The additional management resources under Component B of the proposed Project will help ensure close supervision, successful manufacturing and implementation of the new trains, and studies to support further institutional strengthening.

B. Economic and Financial

15. An economic evaluation was undertaken by CPTM and reviewed by the Bank which consisted of two approaches. The first approach (referred to as Incremental) evaluated the situation with and without the proposed AF Project alone (i.e., new trains for Line 11- Coral and the extension of Expresso Leste service). The second approach (referred to as Global) evaluated the proposed AF Project together with the original Project (i.e., new trains and signaling for lines 7, 11, and 12) using the same methodology as the original Project. Under both approaches a demand model and analysis was used to estimate the passenger hours and passenger-km with and without the Project. These data were then converted into travel time savings and operating cost savings. An estimate of the reduction of accidents and road-based vehicle emissions was also made using the same data and compared to the investment costs. Annex 5 provides a description of the economic and financial analysis.

16. The results of the cost-benefit analysis (i.e., net present value and economic rate of return) are summarized below. The results of the Incremental analysis show that the proposed AF Project alone is economically justified. Moreover, the results of the Global analysis are significantly consistent with the economic evaluation performed for the original Project.  Incremental (Proposed AF Project alone): NPV (discounted at 10%) =US$ 88.7 million; EIRR= 16.1% For the EIRR (economic internal rate of return) to be below 10%, the investment costs would have to increase by about 66%, which is unlikely. EIRR would be below 10% if the travel time savings were reduced by more than 23%.  Global (Original Project plus proposed AF Project): NPV (discounted at 10%) =US$ 1,572 million; EIRR= 21.3% Considering the original and AF Project, for the EIRR to be below 10% the investment costs would have to increase by about 108%, which is unlikely. EIRR would be below 10% if the Value of Time is estimated using a factor of 12% of the hourly wage instead of a very conservative 33%.

17. Financial projections were prepared by CPTM for the 2007-2026 period and they show that the working ratio will be equal or less than one, even with the inclusion of the AF Project. Therefore, operating costs will be below operating revenues for the Borrower.

18. Fiscal Impact. The Brazilian National Secretary of the Treasury (STN) did an exhaustive 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. During the preparation of the original loan, the Bank undertook its own analysis of the State debt capacity and the fiscal impact. A summary of the due diligence fiscal impact analysis is available in the Project Files for the original loan. The additional loan, by virtue of its size, would have a minor impact on the State’s finances. Counterpart financing for the original plus additional loan would equal roughly 10% of projected capital spending during the implementation period. Annual interest for the original loan plus the additional loan in nominal terms once they are fully disbursed would be equal to or less than 0.3% of net current revenues.

C. Technical

19. CPTM has estimated that for Line 11-Coral the acquisition of at least nine Electrical Multiple Units (EMUs) of eight cars each would allow them to maintain a maximum occupancy in the peak hour of 6 passengers per square meter. The operational analysis was based on reasonable assumptions of future demand, cycle times, and fleet availability. Each train will be composed of 8 cars of approximately 20 meters each, with a total carrying capacity of about 1,900 passengers at the abovementioned occupancy standard and assuming a seated proportion of 22%. The technical characteristics of the trains are described in Annex 5.

20. During the preparation of the original Project, a technical evaluation was undertaken to compare the acquisition of new trains with other alternatives such as do-nothing, rehabilitation and/or modernization of trains, acquisition of second hand trains, and leasing of trains. The acquisition of new trains was judged as the most cost-effective alternative either because the others were not feasible or there are no available trains to be rehabilitated. The proposed systems were also compared with a do-nothing alternative and other types of systems. These assessments are available in the Project File.

D. Fiduciary

21. CPTM has extensive experience with Bank fiduciary requirements and a successful history of financial management in recent loans with the Bank. The ongoing Project with CPTM and Metro, the São Paulo Trains and Signaling Project, has had satisfactory financial management reporting and auditing arrangements. CPTM has very experienced staff working in their accounting departments to ensure that financial management will be carried out according to Bank guidelines. The State’s system is used for most financial management arrangements and will be updated to reflect the project design of the proposed additional loan. An audit of the project accounts will be carried out by independent consultants to be selected on a competitive basis according to Bank Procurement Guidelines. The arrangements for financial management and disbursements for the proposed Project are unchanged from those of the original Project. 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.

22. A satisfactory assessment of the capacity of Metro and CPTM to implement procurement actions was carried out by the Bank for the original loan. 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. CPTM is very familiar with Bank procedures and procurement guidelines since it has implemented Bank-financed projects recently. Procurement for the Project is being carried out in accordance with the World Bank "Guidelines: Procurement Under IBRD Loans and IDA Credits" dated May 2004 (revised in October 2006 and May 2010), "Guidelines: Selection and Employment of Consultants by World Bank Borrowers" dated May 2004 (revised in October 2006 and May 2010), and the provisions stipulated in the Legal Agreements, including the cross debarment provision.

23. The Borrower may request retroactive financing for up to 20% of the loan (US$22,582,000 equivalent) for payments made within one year prior to the date of the Loan Agreement but in no case before November 16, 2009. Annex 4 provides additional details on the procurement arrangements for the AF.

E. Social

24. CPTM Line 11-Coral is an existing suburban rail line that has been in operation for decades and with no known legacy issues. The proposed Project to add new trains will not cause any dislocation or involuntary resettlement of population as confirmed by the Addendum to the Environmental Assessment (EA). The Project will have a positive impact on the quality of life of the population who use the rail system by providing increased quality and availability of services. New passenger rail cars will provide a higher level of comfort to passengers and shorter intervals between trains, increasing the attractiveness of CPTM services to current and future users. Other beneficial impacts include increasing the accessibility to employment centers, health, educational and leisure facilities along the Line 11-Coral corridor by public transport. Most of CPTM users are low-income and live in the suburbs of the greater SPMR. An analysis of the impact of the original Project on SPMR’s low-income population, including CPTM users, is available in the Project File. Improving suburban rail services in general increases the accessibility of this low-income segment of the population to employment centers and improves connectivity with the bus network.

25. CPTM will also implement a major modernization program not financed by the Bank to upgrade the infrastructure, electrical and communication systems on various lines. On Line 11-Coral, the modernization program will upgrade existing stations, platforms, and systems along 13 km of track between Guaianazes to Suzano Stations, facilitating the extension of the Expresso Leste service. CPTM received the Installation License for the Line 11-Coral works on March 24, 2010. All works on Line 11-Coral are taking place entirely within the existing railway right-of-way and no involuntary resettlement of the surrounding population is expected. The ongoing investment program also includes: (i) making CPTM stations compliant with relevant accessibility requirements for mobility- impaired users, including adequate sidewalks, platform surfaces, ramps, restrooms, elevators, as well as visual, audio and tactile signage; and (ii) making improvements to intermodal integration at stations, such as the construction of bus bays. Aside from possible minor traffic disruptions in the surrounding areas and short-term delays along train routes, there will be very little adverse social impact associated with the modernization program of Line 11-Coral. CPTM will inform passengers in advance of

major planned service disruptions and minimize the temporary impacts for users or communities near Line 11-Coral as a result of the planned works. The Bank will monitor the works associated with the modernization program, particularly regarding community outreach and communications with existing users of CPTM’s Line 11-Coral services.

F. Environmental

26. Overall and in the long-term, the Project is expected to have a positive impact on the environment as confirmed by the Addendum to the EA. Congestion and vehicle emissions are among the main environmental problems faced by SPMR. Providing a high quality and safe transport alternative, especially for longer trips, will help contain the rapid increase in motorized trips and related environmental impacts. One of the ways the Project has the potential to reduce vehicular emissions is by reorganizing existing bus services to feed the CPTM stations with improved services, and thereby reducing vehicle-kilometers in the Project’s area of influence. The Project will finance studies to help quantify these long- term environmental benefits and design a climate change strategy for CPTM that is complementary to government efforts for the SPMR.

27. During the preparation of the original loan, the Bank reviewed all environmental documentation, including the Environmental Assessment (dated August 2007), CPTM’s planned environmental management systems and policies to reduce and mitigate environmental impacts at train maintenance facilities. An Addendum to the EA for the Additional Financing (including the Plano Básico Ambiental for CPTM Line 11-Coral dated April 2009 and the Environmental Report dated October 2009) was reviewed and disclosed on CPTM’s website on February 2, 2010 and in Infoshop on October 16, 2009. These documents were found to be satisfactory at the time of review and will continue to be strengthened during project implementation. Although the progress on the components financed by the original Project is according to plan, the trains and systems have not yet been delivered in full or are not yet fully operational. The Bank will continue to help CPTM improve its environmental management systems by supporting: (i) the strengthening and consolidating of corporate-level policy, goals and tools for the preparation, construction, rehabilitation and operation of rail lines, and (ii) supporting the design of a climate change strategy that seeks to identify opportunities to reduce energy consumption and emissions, as well as carbon finance opportunities.

28. The planned upgrades and reconstruction of the Line 11-Coral stations and platforms will have a minimal and temporary negative impact on the environment as they will be undertaken entirely within the existing railroad right-of-way and involve minor civil works. The impact on the road network will be limited to very few high-volume intersections during implementation. CPTM already holds the installation license from the relevant State agencies for the modernization program on Line 11-Coral. The Bank team will ensure that the environmental management plan set forth in the EA and Addendum to the EA is implemented.

29. The original Project is Category B with the Environmental Assessment policy triggered (OP 4.01). No new safeguards are triggered by this AF and the Project remains Category B. The existing safeguards framework as defined by the EA and Addendum to the EA is

adequate for the additional activities as the proposed Project will have no significant negative social or environment impact.

Safeguard Policies Triggered by the Project Yes No Environmental Assessment (OP/BP 4.01) [X] [ ] Natural Habitats (OP/BP 4.04) [ ] [X] Pest Management (OP 4.09) [ ] [X] Physical Cultural Resources (OP/BP 4.11) [ ] [X] Involuntary Resettlement (OP/BP 4.12) [ ] [X] Indigenous Peoples (OP/BP 4.10) [ ] [X] Forests (OP/BP 4.36) [ ] [X] Safety of Dams (OP/BP 4.37) [ ] [X] Projects in Disputed Areas (OP/BP 7.60)* [ ] [X] Projects on International Waterways (OP/BP 7.50) [ ] [X]

VI. Expected Outcomes

30. The AF will not affect the Project’s original indicators, but will cause the monitoring plan to be expanded to include Line 11-Coral. The proposed indicators that will be used to measure the performance of the original and AF project are described in Annex 2.

31. Project Progress Reports will continue to be prepared by the PMU on a semi-annual basis, consolidated in a single report and submitted to the Bank for review. These reports 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 2). 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 of progress achieved in the implementation of environmental and social aspects of the Project; (iv) a section describing potential developments that could affect project implementation. For the acquisition of trains and the installation of systems, implementation progress will be measured against physical progress in their manufacturing and/or construction and installation.

VII. Benefits and Risks

32. The main Project beneficiaries will remain unchanged. These include the public transport users of the São Paulo Metropolitan Region, particularly those in the area of influence of Line 11-Coral and low-income households (earning up to four minimum salaries) who are the major users of public transport. This investment will improve the availability and quality of rail services on Line 11-Coral and serve to lessen the over- reliance on road-based transport modes and associated impact on congestion and emissions. The reduction of vehicle-kilometers will have a positive impact on the trajectory of emissions in the area of influence of the Project.

* By supporting the proposed project, the Bank does not intend to prejudice the final determination of the parties' claims on the disputed areas

33. The proposed Project triggers no additional risks beyond those involved in the original Project. Because the additional loan is mainly dedicated to one single acquisition contract for trains, this risk is highlighted in the table below. As with the ongoing Project, the other main risks are related to delays due to procurement litigation or the delivery of trains, cost escalation or the timely availability of counterpart funds. The possible risks and mitigation measures are described in the table below. Overall, the risk rating is deemed Moderate.

Risk Original Risk Minimization. Current Risk Measure Risk Rating Rating Failure by the State to M The Bank will review every year the State’s M provide budget priority proposed allocations in the budget to ensure or the timely availability that the project implementation schedule is not of counterpart funds affected in case of fiscal space restrictions. Delays due to judicial S The Borrower has a good legal team on call M litigation in the able to act quickly in response to any possible awarding of contracts injunctions. Delays will also be minimized by advanced procurement of the trains. The bidding documents and process will be designed to ensure compliance with all required guidelines to minimize the number of legal challenges. Delays in effectiveness M As with previous projects, the State will seek N due slow approval by the necessary support in the Comissão de the Federal government Avaliação Econômica do Senado (CAE) very early to speed up approvals. Delays in the actual M This will be mitigated by very close supervision M provision of trains and of the supplier, and with stiff penalties and/or equipment incentives timely delivery. Escalation in the final M A detailed analysis of similar bids for trains N costs of the trains from around the world was used to estimate contract if there are project costs. As with the original Project, the unnecessary addenda borrower has chosen to include “domestic preference” for the procurement of trains. The Bank’s previous experience and close supervision will help mitigate this cost risk. Lower than forecast M Several independent demand forecast studies N ridership because of have been previously reviewed to confirm the further proliferation of likely growth in ridership. The State has been informal modes, lack of working steadily towards intermodal tariff modal fare integration, integration with BUI and towards enforcing lack of a rationalized regulations. It is unlikely that tariff increases bus network to feed rail above the annual inflation adjustment will stations, or tariff occur or negatively impact ridership. increases.

The major activity of S Advanced procurement and the close M this Project is one large supervision of the procurement process by the contract for the Bank will mitigate this risk. The contract procurement of trains, award is expected to be completed before the which if delayed would Project is approved by the Bank. The Bank have a large impact on issued its no-objection to the award the overall project recommendation for the new trains on July 7, implementation. 2010 in compliance with Bank Guidelines. Overall Risk Rating Moderate Moderate Risk Rating - H (High Risk), S (Substantial Risk), M (Moderate Risk), N (Negligible or Low Risk)

VIII. Financial Terms and Conditions For the Additional Financing

34. The AF loan will be implemented as a Specific Investment Loan (SIL) to be disbursed through FY2013. The Borrower has selected a flexible loan with variable spread option, payable in 30 years, including a 5-year grace period. Repayment schedule linked to commitment and all the conversion options are selected.

35. To date, the Borrower is complying with the covenants and conditions of the original loan, which will also apply to the AF loan. The additional covenants and conditions for the AF loan, as specified in the Loan and Project Agreements, include the signing of a Subsidiary Agreement between CPTM and the Borrower, completion of studies to support a climate change strategy within 18 months after the effective date of the loan, and compliance with the Addendum to the EA.

36. Readiness. This proposed scale-up operation does not involve any exceptions to Bank policies and is deemed ready for implementation. CPTM is proceeding with advanced procurement for the acquisition of the new trains and the Borrower may request retroactive financing up to 20% of the loan for eligible expenditures. The Bank reviewed the relevant bidding documents for this ICB procurement issued on September 12, 2009 consistent with Bank Guidelines and issued its no-objection for the recommended award on July 7, 2010.

Annex 1: Sector and System Background BRAZIL: SÃO PAULO TRAINS AND SIGNALING ADDITIONAL FINANCING

A. Urban Transport Sector Strategy

1. Each day, around 39 million person-trips take place in the São Paulo Metropolitan Region (SPMR), of which 33% are pedestrians, 37% are by private auto, and the rest (30%) are by public transport (23% bus, 4.5% Metro (subway) and 2.5% CPTM (suburban rail)). Considering the region’s size and congestion level, the existing operational rail network of 61 km of metro and 261 km of suburban rail still lacks adequate coverage and full integration. This reinforces an over-reliance on private automobiles and bus operations, creating heavy congestion on the roads during peak hours and significantly increasing home- to-work trip times. Despite recent improvements, the users of public transport (the majority of them being the urban poor) suffer from overcrowding, long travel times due congestion and multiple transfers, and high fares relative to income. This level of urban transport activity dominated by road-based motorized modes also has significant negative impacts on SPMR's environment, air quality, and safety.

2. The State of São Paulo’s (SSP) urban transport strategy for the SPMR is anchored in four 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.

3. SSP has shown a remarkable progress towards the above objectives. First, there is an RTCC (named CDTI) which 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, SSP has refined an integrated land use, urban transport and air quality strategy using sketch planning techniques (PITU) 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. SSP has explored several financing mechanisms for the urban transport sector other than government budgets. It has accelerated the rental of station spaces, in–vehicle and off-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. Last, conscious of the scarcity of resources it faces, SSP has sought a progressive participation of the private sector in the operation of its systems: the São Mateus-Jabaquara busway was successfully concessioned out to the private sector for 20 years, the PPP for Line 4 of the Metro was signed. Several activities of the Metro and CPTM were outsourced to the private sector and they are either reducing costs or generating non-operating revenues. The construction of Line 4 under a public-private partnership is a pioneer project because it starts a trend towards investment of the private sector in the construction of new infrastructure and equipment.

4. SSP‘s strategy is therefore 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, educational and leisure facilities. Finally, the State has clearly decided that a major improvement of the rail-based network, particularly the CPTM network, is a cost-efficient priority, upgrading it to surface metro like operation.

5. A number of key issues are being 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 SPMR. These are summarized below.

 Institutional 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 of the funding mechanisms of the sector at the metropolitan level through an agreement between State and Municipalities of the region. SSP’s strategy was to create a regional coordination entity empowered by the SPMR for planning, coordinating and setting priorities for new investments and modal integration. This entity (CDTI) meets frequently and is primarily a forum for discussion of metropolitan transport policies and projects. Its first product was the introduction of the Bilhete-Único.

 Cost Recovery, Financial Management and Funding Issues. The need to address cost recovery from a more commercially-oriented standpoint by: (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 of capital) of the 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 1992, to help achieve these goals, the São Paulo State Government 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.

 Environmental Issues. Air pollution, noise, traffic congestion, and road accidents are major environmental issues being addressed in the SPMR. The reduction of the environmental impacts of urban congestion and noise pollution in the urban area could be done through: (a) the allocation of responsibilities across government 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.. Construction of Line 4 and the proposed improvements on Metro and CPTM will most likely reduce the number of bus-kms in the corridors where they are happening and consequently

will reduce vehicle emissions. The existing municipal legislation, by which vehicles with plates ending with a certain number cannot circulate during peak periods of one day of the week (rodízio), continues with some success.

 Transport Planning Issues. The need to continue to strengthen SPMR'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 the SPMR. STM 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 (PITU) exists and should continue to be fine-tuned with more attention to the land use and environmental aspects.

B. Chronology of World Bank Supported Reforms and Investments in SPMR

Year Institutional Milestone Physical Investment Related World Bank Operation 1992  Federal Government  Modernization of São Paulo Metropolitan Transport decides to transfer CBTU-SP to plant and rolling stock Decentralization project (Ln. 3457- the State of CBTU-SP Br) with Federal Government  State agrees and draws (US$126M) approved in 1992. Long-Term Strategy with Bank support 1996  State assumes CBTU-SP  State starts further São Paulo Metropolitan Transport -98 and merges it with State modernization of Decentralization project closed in commuter railway (FEPASA) CPTM with own funds 1998. creating CPTM  State creates the Regional Transport Coordination Commission under the name of Câmara Temática 1999  State decides to physically  The old CBTU-SP São Paulo Integrated Urban Transport -00 integrate the suburban rail network is linked to Project, the Barra Funda –Roosevelt networks of CBTU and FEPASA network link (Ln. 4312-Br) to the State FEPASA and to improve some through Barra Funda – (US$45M) approved in 1998. CPTM corridors to facilitate Roosevelt link free access between them  Dramatic improvements to key transfer stations such as Luz and Brás 2001  State decides to continue the  São Paulo Metro São Paulo Metro Line 4 Project (Ln. -02 physical integration between Line 4 planned to link 4646-Br.) to the State (US$209M) Metro and CPTM and Metro and CPTM approved 2002. introduces free transfer between networks the two systems  State decides Line 4 would have major private sector participation through a concession or PPP

2004  São Paulo Municipality  Integration São Paulo Integrated Urban Transport -06 introduces free transfer between investments including Project, the Barra Funda –Roosevelt buses BUI. link, closed in 2004.  State creates the CDTI, the successor to the Câmara Temática  State and Municipality introduce the Bilhete Unico Integrado 2006  Demand for rail increases  Determination of State requests financing for São Paulo -07 dramatically need to increase Trains and Signaling project  Line 4 PPP (the first in carrying capacity and (US$550M) and additional financing Brazil) is signed peak hour frequencies for Phase 1 of Line 4 (US$95M).

2008  Intermunicipal buses to be  State to continue Trains and Signaling (Ln.7506-BR) -09 included in the BUI as State and to increase carrying and additional financing for Phase 1 Municipality sign an agreement capacity, transforming of Line 4 (Ln.7536-BR), both to have a common smart card critical segments of approved in 2008. for all buses and rail based CPTM lines to Metro- State requests financing for Line 5 (in systems like service preparation) and Line 4 Phase 2 (going to be negotiated). 2009  Line 4 (Phase 1) to enter in  Construction of São Paulo Metro Line 4 Project -10 operation Line 4 Phase 2 to start (Phase 1) closing June 2010.  Modal integration to around March 2010 Preparing Brazil-GEF $8.5M Grant continue  Extension of Line for Sustainable Transport & Air 5 begins Quality to include studies in São Paulo. 2012  Increased private sector  Completion of Original SP Trains and Signaling -13 participation planned Metro Line 5 and Line Project closing June 2013. 4 Phase 2.

C. Background on the CPTM System and Line 11-Coral

6. The average daily ridership for the Companhia Paulista de Trens Metropolitanos (CPTM) has risen steadily from around 800,000 in 1996 to more than 1.7 million in 2008. The following table provides a summary of operational data for the CPTM by line. Of the more than 13 million daily trips by public transport in SPMR, about one-third requires transfer to another mode. The share of suburban rail trips with a transfer is even higher at around 60%. The implementation of Bilhete Único starting in 2006, a multimodal fare card, and the continued physical and tariff integration of the rail network with the bus network in the SPMR has driven some of this growth in ridership. The growth for CPTM is likely to continue as the integration strategy and level-of-service standards, such as Expresso Leste, are expanded.

7. The Eastern area of the SPMR is one of the most densely populated by low-income residents. This area is served by three lines of the rail system, namely Metro Line 3, CPTM Line 11 and CPTM Line 12. In the case of Line 11-Coral, an improved standard of operational service called Expresso Leste between Luz and Guaianazes stations has attracted an increasing number of new users, which led CPTM to study the possibility of

extending the service standard to Suzano station. With planned investments in the rolling stock and upgrades to the stations and system, it is expected that by 2012 the daily ridership will increase from 436,000 in 2008 to 560,000 and the occupancy measure will decrease to about 6 passengers per square meter in the peak period.

8. The data in the following tables were provided by CPTM and, unless otherwise noted, are based on data from 2007-2008 in the “Carta Consulta” and other materials available in the Project Files.

CPTM Profile by Line

Line 7 Line 8 Line 9 Line 10 Line 11 Line 12 Line and Link Fco Luz a Júlio Itapevi a Guaianazes Brás a Morato Osasco a Luz a Rio Luz a Fco Prestes a Amador a Calmon INDICATORS a Jurubatuba Gde da Serra Guaianazes Morato Itapevi Bueno Estudantes Viana Jundiaí

Operational Link 39 km 21.5 km 35.2 km 6.33 km 24.3 km 37.2 km 24 km 26.8 km 38.8 km

Number of Stations 17 24 15 14 16 10

Stations Integrated w/ 2 1 1 2 4 2 Metro

Stations with Bus terminals 4 9 2 4 4 2

Passengers Transported (daily average in business 341,818 329,509 124,673 264,435 375,909 132,741 day) ( from MAR/2007)

Peak-hour Headway 8 22 7 30 6 8 6 9 8

Peak hour trains/direction 14 3 16 2 15 13/14 12 9 14

12,120 / Peak hour seats offered 14,408 2,487 1,402 9,350 13,995 19,960 10,960 13,755 21,210

Average Commercial Speed 46 km/h 52 km/h 36 km/h 18 km/h 36 km/h 41 km/h 45 km/h 45 km/h 39 km/h

Grade Crossings 4 1 3 41 2 5 1

Travel Time 53 25 59 21 52 32 36 59 Data from 2007; Additional information is available at: www.cptm.sp.gov.br

Growth in CPTM Ridership 2008 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 (estim ated) Total passengers 248 246 230 273 312 323 354 369 390 430 479 582 (millions/yr) Change in ridership n/a -1% -7% 19% 14% 4% 10% 4% 6% 10% 11% 21% from previous year Passenger-km 5,498 5,441 5,170 5,955 6,858 7,099 7,783 8,113 8,221 9,077 10,113 12,281 (millions/yr) Source: CPTM. Note: Passengers transported are counted twice when transfers occur. The 2008 figures are estimated based on average daily figures.

Summary of Operation Data for Line 11-Coral (as of Nov. 2008)

Line 11 by Segment Luz - Guaianazes Guaianazes - Estudantes Operational Route Length 24 km 26,8 km São Paulo, Ferraz de Vasconcelos, Poá, Suzano, Mogi Municipalities served das Cruzes Stations 7 10 Stations integrated with Metro 4 - Stations with bus terminals 3 4 At-grade crossings - 5 Daily passengers carried (Nov. 2008) 347,033 163,309 Train headway (minutes) 6 9 Number of trains in peak hour 12 9 Seat capacity in the peak hour 19,960 10,773 Average operation speed 45 km/h 45 km/h Travel time 32 36 Type of signaling system ATS ATC

9. The users of the Line 11-Coral service can be characterized by following data from a 2005 Origin-Destination Study:  Around 55% of users arrive and leave stations on foot  81% of user trips are for work  70% of users earn 3 minimum salaries or less (considered very low income)  78% of users are between 18 and 44 years of age  45% of users are women

 16% of users have not completed primary education, 18% have not competed secondary education  The average trip is 22 km in length

10. The following table provided by CPTM is a comparison of the modes of access and departure from the CPTM system as a whole and just Line 11-Coral. It is important to note that the vast majority of people enter and exit on foot or on other public transport modes.

Accessing Leaving Connecting CPTM system Line 11 CPTM system Line 11 Mode % % % % Walking 56.3 55.2 52.5 54.8 Bicycle 0.3 0.2 0.2 0.2 Car 2.1 2.2 0.5 0.4 Ride-share 1.7 1.2 0.2 0.4 Taxi 0.2 0.3 0.2 0.2 Bus 21.6 16.9 24.1 18.6 Van 2.1 3.4 1.8 3.6 Mini-bus 0.6 0.0 0.4 0.2 Metro 8.7 12.4 19 20.8 CPTM 5.8 7.6 0.3 0.2 Other 0.6 0.6 0.8 0.6 TOTAL 100 100 100 100

11. As presented in the following table, the vast majority of CPTM and Line 11-Coral users travel for work. These trips tend to be in the peak periods.

CPTM system Line 11 Trip purpose % % Work 85.7 80.9 School 4.5 7.5 Shopping/Leisure 3.1 4.2 Health 1.4 2 Seeking Work 1 1.2 Other 0.1 0.2 Non Home Based 4.2 4 TOTAL 100 100

12. A large share of CPTM users are of the lower income classes, as shown in the table below. The profile of the Line 11-Coral user in particular tends to be slightly less affluent consistent with the characteristics of the zones served by that line.

Line 11- Individual Income CPTM system Coral (measured in minimum salaries, % % MS) Less than or equal to 1 MS 8.44 9.54 1 to 2 MS 30.91 30.17 2 to 3 MS 27.81 30.0 3 to 5 MS 17.7 16.92 5 to 10 MS 7.03 5.59 10 to 15 MS 1.38 1.25 More than 15 MS 0.91 0.64 No response 5.82 5.89 TOTAL 100 100

Annex 2: Results Framework and Monitoring BRAZIL: SÃO PAULO TRAINS AND SIGNALING ADDITIONAL FINANCING

Results Framework PDO (after Additional Project Outcome Indicators Use of Project Outcome Financing) Information To improve the level-of-service 1. Number of trains per peak 1. To assess if the carrying provided to the urban rail transport hour/direction and off-peak in capacity at peak hour and off users in the São Paulo Metropolitan Lines 7, 11, and 12 of CPTM peak has been increased Region in a safe and cost-efficient and Lines 1, 2, and 3 of Metro manner by increasing the peak–hour 2. Reduction in on-board travel 2. Assess improvement in level-of- and off peak carrying capacity of time plus waiting time in service regarding travel time Lines 7, 11 and 12 of the minutes per passenger. 3. Assess improvement in level-of- Companhia Paulista de Trens 3. Passengers per square meter service regarding occupancy Metropolitanos (CPTM) and Lines 4. Incremental demand in Metro’s 4. Measure overall impact of 1, 2 and 3 of the São Paulo Metro Line 1, 2, 3 and CPTM’s Lines project on total ridership of the Company (CMSP). 7, 11, and 12. lines benefited by project 5. Number of low-income 5. To assess impact on the low- A subsidiary objective will be to passengers (up to 4MS) in income population continue the strengthening of the CPTM lines 7, 11, 12 and Metro transport management and policy Lines 1, 2, 3. functions at the SPMR. 6. Working Ratio of Metro and 6. Assess cost-efficiency as the Working Ratio of CPTM. working ration is the ratio of 7. Maintaining/Strengthening of operating cost to operating the Integrated Urban Transport, revenue Strategy (PITU and CDTI 7. Assess Metropolitan coordination) Coordination Intermediate Outcomes Intermediate Outcome Use of Intermediate Indicators Outcome Monitoring Component 1 1. % completion of trains to be 1. To assess the progress on the Delivery of all new trains of Metro delivered to Metro and CPTM delivery of Metro and CPTM Delivery of all new trains of CPTM (incremental, not cumulative) trains and ; Entry in operation of all Metro new 2. % completion of systems by 2. To assess the progress made on “systems” Metro and CPTM (incremental, the installation and delivery of Entry in operation of all CPTM not cumulative) the “systems “ in Metro and “systems” CPTM Component 2 % of progress towards completion To assess the progress made in the Consulting Studies preparation of the studies agreed

Arrangements for results monitoring of the Additional Financing Project:  The number of indicators is unchanged from the original project, but the results framework has been expanded to include Line 11-Coral under project outcome indicators 1, 2, 3, 4 and 5 and intermediate outcome indicator 1 (shaded rows in table in the following page).  Institutional issues: The PMUs will be in charge of making sure that the periodic supervision reports include data on the project outcome indicators or/and the intermediate outcome indicators.  Data collection: Data collection will be undertaken by the operating division of CPTM and will be verified by the project management consultants. The low-income participation surveys will be undertaken every two years because they are costly.  Capacity: CPTM has 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 project management consultants.

Arrangements for Results Monitoring

Values Data Collection and Reporting Project Outcome Indicators for the Additional Financing for 2008 2009 2010 2011 2012 Data Responsibility the São Paulo Trains and Signaling Project Baseline Frequency and Collection for Data (referring only to the shaded indicators below) 2007 Reports Target Values Instruments Collection

Number of trains in peak/off peak-hour - CPTM Line 7 (A) 7.5 / 4 7,5 / 4 7,5 / 4 7,5 / 4 15 / 8 15 / 8 Biannual CPTM Number of trains in peak/off peak-hour - CPTM Line 12 (F) 7.5 / 4 7.5 / 4 7.5 / 4 7.5 / 4 15 / 8 15 / 8 Biannual CPTM Number of trains in peak/off peak-hour - CPTM Line 11 (E) - 8.5 / 5 8.5 / 6 8.5 / 6 15 / 7 15 / 8 Biannual CPTM baseline 2008 Number of trains in peak/off peak-hour - METRÔ Line 1 33 / 24 34 / 24 35 / 24 36 / 24 38 / 24 41 / 26 Biannual METRÔ Number of trains in peak/off peak-hour - METRÔ Line 2 24 / 16 25 / 16 26 / 16 27 / 16 28 / 16 28 / 18 Biannual METRÔ Number of trains in peak/off peak-hour - METRÔ Line 3 35 / 25 36 / 25 37 / 25 38 / 25 40 / 25 44 / 28 Biannual METRÔ Travel Time + Waiting Time reduction in CPTM* 80 65 57 Biannual CPTM Operational Travel Time + Waiting Time reduction in CPTM Line 11 (E) - 83 58 51 Biannual Reports CPTM baseline 2008 (minutes) Travel Time +Waiting Time reduction in Metro** 29 19 14 Biannual METRÔ Passengers/Square meter - CPTM Lines A and F 8 7 6 Biannual CPTM Passengers/Square meter - CPTM Line 11 (baseline 2008) 8.3 7 6 Biannual CPTM Passengers/Square meter - METRÔ Lines 1,2 and 3 8 7 6 Biannual METRÔ Incremental Demand in CPTM - Lines A+ F (baseline 2006) 0 219,341 219,341 Every year CPTM Incremental Demand in CPTM - Lines 11 (baseline 2008) 242,634 273,828 Every year CPTM Incremental Demand in Metro - Lines 1+2+3 (baseline 2006) 0 886,800 921,320 Every year METRÔ Number of users/day of households with less than 4 MS - CPTM 357 357 Every 2 years CPTM Lines A & F - thousand (baseline 2006) 237 Number of users/day of households with less than 4 MS - CPTM 313 531 559 Every 2 years Train Survey CPTM Line 11 - thousand (baseline 2008) Number of users/day of households with less than 4 MS - 1,219 1,231 Every 2 years METRÔ METRÔ Lines 1, 2 & 3 - thousand (baseline 2006) 908.53 Working Ratio - CPTM (com gratuidade e sem subsídio para Audited 1 1 1 1 <1.0 <1.0 Annual CPTM equilíbrio de contas) Financial Working Ratio – METRÔ 1 1 1 1 <1.0 <1.0 Annual Statements METRÔ Maintaining/Strengthening of PITU 0% 10% 25% 50% 75% 100% Annual STM

Intermediate Outcome Indicators % Completion of CPTM Trains 0.0% 10.0% 79.0% 11.0% 0.0% Biannual CPTM % Completion of CPTM Trains (Additional Financing) 0.0% 0.0% 80.0% 20.0% Biannual CPTM % Completion of METRÔ Trains 0.0% 10.0% 79.9% 10.1% 0.0% Biannual Operational METRÔ % Completion of CPTM Systems 0.0% 37.2% 57.8% 5.0% 0.0% Biannual Reports CPTM % Completion of METRÔ Systems 0.0% 37.2% 57.8% 5.0% 0.0% Biannual METRÔ % STM Studies Completed 0.0% 0.0% 77.5% 22.5% 0.0% Biannual STM * CPTM Line 7 - Luz to Francisco Morato - length 39 km ** METRÔ Line 1 - Sé to Penha - length 9.5 km

Annex 3: Project Costs, Financing Plan and Disbursement Schedule BRAZIL: SÃO PAULO TRAINS AND SIGNALING ADDITIONAL FINANCING

Table 1: Project Cost By Component and/or Activity Foreign Local Total (in US$ millions) (IBRD) (State of São Paulo) Trains and Equipment - Part A CPTM Trains 104.72 45.85 150.57 Management and Studies - Part B Administration/Supervision 2.16 0.30 2.45 Technical Assistance and Studies 0.32 0.04 0.36 Total Baseline Cost 107.20 46.18 153.38 Physical Contingencies 2.67 1.17 3.84 Price Contingencies 2.76 1.21 3.97 Total Project Costs1 112.63 48.55 161.18 Front-end Fee IBRD (0.25%) 0.28 - 0.28

Total Financing Required 112.91 48.55 161.46

1 Identifiable taxes and duties are US$26.5 million and the total project cost, net of taxes, is US$135.0 million. Therefore, the share of project cost net of taxes is: 83.6%. Value s have been rounded to the nearest US$10,000.

Table 2: Financing Plan and Sources

Total (with Add. Financing Plan (in US$ millions) Original Project Additional Financing Fin.)

Local Financing (State of São Paulo) 465.00 48.55 513.50

Foreign Loans (IBRD and JBIC) 1,085.00 112.91 1,197.90 IBRD Loan 550.00 112.91 662.90 JBIC Loan 535.00 - 535.00

Total Financing 1,550.00 161.46 1,711.40

Table 3: Schedule of Estimated Disbursements

SCHEDULE OF ESTIMATED DISBURSEMENTS (INCLUDING CONTINGENCIES)

IBRD Estimated Estimated Estimated Fiscal Year Disbursements Cumulative Cumulative as Semester per Semester Disbursements % of Total

Year 1

December 31 - 2010 22.20 22.20 19.66% Jun 30 - 2011 5.91 28.11 24.89%

Year 2

December 31 - 2011 36.80 64.90 57.48% Jun 30 - 2012 37.55 102.46 90.74%

Year3

December 31 - 2012 10.45 112.91 100.00%

ESTIMATED DISBURSEMENTS (INCLUDING CONTINGENCIES)

IBRD Fiscal Year 1 2 3

CPTM - ANNUAL 28.11 74.35 10.45 CPTM - CUMULATIVE 28.11 102.46 112.91

TOTAL - ANNUAL 28.11 74.35 10.45

TOTAL - CUMULATIVE 28.11 102.46 112.91

Annex 4: Financial Management BRAZIL: SÃO PAULO TRAINS AND SIGNALING ADDITIONAL FINANCING

1. For the original project, a financial management assessment of the São Paulo Trains and Signaling Project was carried out for the Companhia do Metropolitano de São Paulo (Metro) and Companhia Paulista de Trens Metropolitanos (CPTM), 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 two implementing agencies, Metro and CPTM, 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 their 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 on-site and included discussions sessions with the coordinators and staff for both implementing agencies on: a) financial and administrative staff to be engaged in the Project; b) review of internal controls and administrative procedures, c) financial administration and accounting system to be used for project’s accounting, implementation, monitoring and reporting; d) reporting requirements, including format, contents and frequency of IFRs submission to the Bank; e) review of funds flow mechanisms, f) disbursement methodology, and g) external audit arrangements.

4. Based on the assessment of both implementing agencies (Metro and CPTM), the conclusion was that the financial management arrangements as set out for the original project satisfy the Bank’s minimum fiduciary requirements and that the project can rely on and utilize the state administrative and financial management systems (SIAFEM- SP). The State’s system is used for most financial management arrangements and will be updated to reflect the additional financing project design and detailed in the operational manual. Considering this assessment and the successful implementation of the original project with CPTM to date, the financial arrangements for the additional financing are proposed to remain unchanged.

5. The overall financial management risk associated with this project is considered low 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-SP; and (c) a strong and supportive internal audit department.

Risk Metro Mitigation Measures CPTM Mitigation Measures Inherent Risks Country specific L L Sub-national (state) level L L Entity specific L L Project specific L L Overall Inherent Risk L L Implementing Agency L Flow of Funds M SOE/Summary M Same as Metro Sheet/Records disbursed based – SOE reviews should be done during FM missions. Staffing L L Same as Metro Accounting procedures L L Internal/External Audit M Bidding process should M Same as Metro start after effectiveness Information Systems L L Reporting & Monitoring L L Overall Control Risk M M H-High S-Substantial M-Moderate L-Low

A. Implementation Arrangements

6. The project activities included in the additional financing will be implemented by CPTM (Companhia Paulista de Trens Metropolitanos). CPTM is the State Company responsible for metropolitan suburban trains, and is under the overall responsibility of the State Secretary of Metropolitan Transport (STM). The CPTM PMU was created to coordinate the original project and will be maintained for this Project, and it reports to the President of CPTM. A Project Coordination Unit was created for the original project and will be maintained in STM. CPTM has prior experience with WB and State Governmental procedures. The PMU is staffed with qualified professionals hired under competitive processes. It is expected that the current staffing arrangements are kept during project implementation, and no turnover is expected. Staff has prior experience in Bank, and State procedures. CPTM will implement all components under the proposed additional financing loan. The CPTM PMU financial management team is comprised of a financial specialist, and a planning and controllership specialist supported by an administrative assistant. The CPTM PMU will also be supported by a consultant hired to carry out the monitoring of project implementation’s tasks. In case of a large number of commitments, an additional staff member may be required. The detailed institutional arrangements can be found in the Project Files for the original Project.

B. Internal Control

7. The internal control systems at CPTM are done through proper financial management systems, segregation of staff functions, fiscal/administrative counsels and staff expertise. All procedures are to be stated in the operational manual. Internal systems are also able to provide timely information to the management that a) asset safeguards protect against loss resulting from

misuse, b) transactions are made following internal authorizations, c) the financial systems account for all transactions and generate adequate and reconciled financial reports, d) supporting documentation is properly archived, e) entities´ staff, archiving documentation and financial systems have satisfactory daily control over project transactions, f) external auditors are hired to assure reliable financial reports, g) the most recent audit report confirmed that the internal control systems in place are adequate.

8. Additionally, a fiscal/administrative counsel examines the annual reports, financial statements required by law and the explanatory notes prepared by the external auditors and the company’s management provide an opinion to be submitted to final analysis and approval by the shareholder’s general meeting, called for such purpose.

C. Financial Management System

9. CPTM manages their financial accounts through the State of São Paulo’s SIAFEM system and through a proper administrative/finance/accounting management and information system. SIAFEM is the integrated administrative and financial system used by the State of São Paulo to execute its budget. SIAFEM was developed to comply with the national regulations regarding budget execution and other fiscal requirements of the national treasury (see Lei de Responsabilidade Fiscal). SIAFEM is part of the state public financial management system for the recording of activities, work plans, budget, revenues, commitments and payments. The system has the ability to provide financial information on project execution by activity. SIAFEM was upgraded in 2005, and has also been utilized by both the Bank and Inter-American Development Bank to manage projects implemented by the State of São Paulo. CPTM’s Financial Management Systems include sophisticated information systems, which have been used before by the PMU to adequately account for prior WB loans proceeds. CPTM follows the accounting practices adopted in Brazil. The assessment concluded that SIAFEM, together with CPTM systems to be used to account loan proceeds, fulfill the Bank’s requirement for financial management.

10. Reporting and Monitoring: The systems are properly structured and allow the PMU to have access and feed only to its related project activities. The PMU 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. As in the original project, the CPTM PMU will consolidate the IFRs produced for management and reporting purposes and forward to the State of Metropolitan Transport Secretariat for signature and which will be responsible for sending to the Bank the consolidated 1-A and 1-B IFRs, on a quarterly basis– the reports will be prepared following cash-basis of accounting.

1 IFR 1 – Source and application of funds by cost category as per Project Agreement; 2 IFR 2 – Statement of Investments by Components and activities; 3 IFR 3 – Designated Account reconciliation; 4 IFR 4 – Disbursements reconciliation with Bank’s Client Connection site.

11. All IFRs will be in local currency (R$), and will present the expenditures figures by quarter, accumulated for the year and accumulated over the life of the project. IFRs for each PMU will be submitted to the Bank up to 45 days after the closing of each quarter. Any other funds and counterpart contributions which are part of the project should be reflected in IFRs (1- A and 1-B), to better monitor all amounts invested under the project.

12. The fourth quarter IFRs generated during the year will show the cumulative figures for the period and should be submitted to the auditors for review under the annual external audit. 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 these reports have been discussed within each entity.

D. Flow of Funds and Disbursements

13. As with the original project, a new Designated Account (DA) in Brazilian Reais (R$) will be opened at the Banco do Brasil in the name of the State of São Paulo. Payments for eligible expenditures will be made directly from this account by the State of São Paulo on behalf of the implementing agency (CPTM). The PMU will also have the option of making Direct Payments, Reimbursements and Special Commitments. Counterpart funds will be disbursed from the State Treasury’s single account to contractors and service providers through an operative account.

14. The proposed ceiling for the Designated Account will be based on the quarterly forecast presented in the quarterly IFRs. The Minimum Application Size for Reimbursements, Special Commitments and Direct Payment applications will be US$1,000,000 equivalent.

15. The frequency of reporting of payments made from the Designated Account is at least quarterly if not more often. Each application requesting a further advance to the Designated Account should be accompanied by a reconciled bank statement as well as other appropriate supporting documents. The Summary Sheets/Records/Statements of Expenditures (SOEs) will be prepared on the basis of payments actually made through Bank payment orders issued under instructions from the PMU. The requirements for submitting Summary Sheets/Records/SOEs will be specified in the Disbursement Letter.

16. The project allows for retroactive financing. As a result eligible expenditures, up to 20 percent of the loan amount paid 12 months before the date of the Loan Agreement, but in no case before November 16, 2009 can be reimbursed out of the Bank’s Loan proceeds.

E. External Audit

17. 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, and 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 the Designated Accounts, IFRs and SOEs, and a management letter identifying any internal control weaknesses and areas of improvement.

18. Each audit of the Financial Statements shall cover the period of one fiscal year of the Borrower. The Borrower shall ensure that the audited Financial Statements for each such period shall be: (a) furnished to the Bank not later than six months after the end of such period; and (b) made publicly available in a timely fashion and in a manner acceptable to the Bank. The respective terms of reference (TOR) for such audits shall be prepared by the Borrower and approved by the Bank.

19. Terms of reference for the audit will also cover all retroactive financing. As previously noted, the IFRs issued at the end of Project implementation period with cumulative figures will be used by the auditors to express their independent opinion. The State Secretariat of Metropolitan Transport 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 on Quality and Cost based selection or national procurement procedures if financed by counterpart funds.

20. The PMU will maintain all original project expenditure supporting documentation in order to make it available to internal and external auditors, as well as to the Bank during supervision and post-review. External audit reports and other financial statements will be available on the implementing agency’s website.

F. Supervision

21. As with the original Project, during the first implementation year, financial management supervision will take place every six months and will include (a) the review of quarterly IFRs; (b) the review of the auditor’s report and follow-up of issues raised by auditors in the management letter as appropriate; and (c) the participation in project supervision, following up on any financial reporting and disbursement issues. Upon assurance that proper financial management arrangements are in place and are being maintained, the supervision missions may be scheduled to be conducted annually.

G. Allocation of Loan Proceeds

22. The following table specifies the categories of Eligible Expenditures that may be financed out of the proceeds of the Loan (“Category”), the allocation of the 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 Category (as defined in the Allocated to be financed Loan Agreement) (expressed in USD) (inclusive of taxes)

(1) Consultants’ services for Part B of the Project 2,480,000 100%

(2) Goods for Part A of the Project 110,147,725 100%

(3) Front-end Fee 282,275 Amount payable pursuant to Section 2.03 of the Loan Agreement in accordance with Section 2.07 (b) of the General Conditions

(4) Premia for Interest Rate Amount payable pursuant to Caps and Interest Rate 0 Section 2.07 (c) of the Loan Collars Agreement

TOTAL AMOUNT 112,910,000

Annex 5: Procurement Arrangements BRAZIL: SÃO PAULO TRAINS AND SIGNALING ADDITIONAL FINANCING

A. General

1. The general procurement arrangements for the additional financing loan will follow those of the original project, with the exception that no works will be procured. Procurement for the proposed project would be carried out in accordance with the World Bank’s "Guidelines: Procurement Under IBRD Loans and IDA Credits" dated May 2004 and revised in October 2006; and "Guidelines: Selection and Employment of Consultants by World Bank Borrowers" dated May 2004 and revised in October 2006 and May 2010, and the provisions stipulated in the Loan and Project Agreements. The various items under different expenditure categories are described in general below. For each contract to be financed by the Loan, the different procurement methods or consultant selection methods, the need for pre-qualification, estimated costs, prior review requirements, and time frame are agreed between the Borrower and the Bank in the Procurement Plan. The Procurement Plan (dated October 5, 2007, updated on August 3, 2010) will be updated at least annually or as required to reflect the actual project implementation needs and improvements in institutional capacity.

2. Procurement of Goods: Goods procured under this project would include the acquisition of at least nine trains of eight cars each and accessories for CPTM’s Line 11-Coral. The trains to be financed under the additional loan will have technical characteristics, including communication, traction and braking, compatible with the existing fleet of CPTM trains operating from Luz to Suzano on Line 11-Coral (2000 series). The new trains will be Electrical Multiple Units (EMUs) with 50% motorization and attain grades of up to 4% with a maximum acceleration of 0.9 m/s2, service braking of 1.1 m/s2, and a maximum velocity of 90 km/h. All accessibility requirements under national laws (NBR 14.021) will be attained. CPTM Line 11-Coral utilizes an electrical feed system of 3,000 V DC with overhead catenary and a railroad gauge of 1,600 mm.

3. Advanced procurement was undertaken by the Borrower and the bidding documents were issued on September 12, 2009. As with the original project, the trains are being procured using the Bank’s Standard Bidding Documents for Goods with domestic preference at the request of the Borrower. The bids were opened on February 22, 2010 and the Bank issued its no objection to the recommended award of contract on July 7, 2010.

4. Selection of Consultants: The project includes the use of Consultants for (a) supervision of assembling the trains and inspection for delivery of finalized units; (b) project management consultant services for CPTM; and (c) specific consultancy for technical assistance and studies to design a climate change strategy to be refined in accordance with implementation of the project and the State’s overall strategy. Short lists of consultants for services estimated to cost less than US$500,000 equivalent per contract may be composed entirely of national consultants in accordance with the provisions of paragraph 2.7 of the Consultant Guidelines.

B. Assessment of the Agency’s Capacity to Implement Procurement

5. Procurement activities for goods are being carried out by CPTM and through STM. CPTM will carry out the selection and contracting of all consultant services and procurement of goods. CPTM is staffed by a very competent group of procurement specialists with experience in complex Bank-financed contracts.

6. The assessment of the capacity of Metro and CPTM to implement procurement actions for the original project carried out by the Bank’s procurement specialist on October 5, 2007 still stands. 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. CPTM is very familiar with Bank procedures and procurement guidelines since they have recent experience in implementing Bank-financed projects. As with the original project, the overall project risk for procurement remains Average.

C. Procurement Plan

7. The Borrower developed a procurement plan for project implementation for appraisal which provided the basis for the procurement methods. A preliminary procurement plan for the Additional Financing loan was agreed between the Borrower and the Project Team on July 24, 2009 and was updated on August 3, 2010. The plan is available in the Project Files and will also be available in the project’s database and in the Bank’s external website. The procurement plan will be updated in agreement with the Project Team annually or as required to reflect the actual project implementation needs and improvements in institutional capacity.

D. Frequency of Procurement Supervision

8. As with the original project and recommended as a result of the capacity assessment, Bank supervision missions will carry out any post review of procurement actions (if necessary) during annual visits to the implementing agency. This will complement the prior review supervision to be carried out from Bank offices.

E. Details of the Procurement Arrangements

1. Goods:

1 2 3 4 5 6 7 8 Estimated Review Baseline Domestic Bid- Ref. Contract Procurement by Bank Total Cost in P-Q Preference Opening No. (Description) Method (Prior / US$ (yes/no) Date Post) millions* Supply of 09 1 150.45 ICB No Yes Prior Feb-10 trains of 8 cars *Estimated prices at appraisal including taxes

2. Consultant Services:

1 2 3 4 5 6

Estimated Expected Ref. Contract Baseline Total Proposals Selection Method Review No. (Description) Cost in US$ Submission millions Date

Project Management and 2.45 QCBS Prior Aug-10 Supervision Technical Assistance and 0.25 QCBS Prior May-11 Studies

Auditing 0.10 QCBS Prior Jan-11

(a) It is expected that all the consulting contracts will be awarded on the basis of Quality and Cost-based Selection. The Procurement Plan will define which contracts will be subject to prior review by the Bank. The following list specifies the methods of procurement, other than Quality and Cost-based Selection, which may be used for consultants’ services. The Procurement Plan shall specify the circumstances under which the following methods may be used:  Quality-Based Selection  Selection under a Fixed-Budget  Least-Cost Selection  Selection of Individual consultants  Selection Based on the Consultants Qualifications (CQS)  Single Source Selection (SSS)

(b) Short lists composed entirely of national consultants: Short lists of consultants for services estimated to cost less than US$500,000 (five hundred thousand US dollar) equivalent per contract may be composed entirely of national consultants in accordance with the provisions of paragraph 2.7 of the Consultant Guidelines.

Procurement Method Total Cost including Expenditure Category contingencies ICB NCB Other N.B.F 1. Goods 158.38 158.38 Trains (110.15) (110.15) 2. Consultant Services 2.48 2.48 a. Proj. Mgmt. and Supervision (2.29) (2.29) b. Technical Assistance, Studies 0.32 0.32 and Auditing (0.19) (0.19) 158.38 2.80 161.18 Sub total (110.15) (2.48) (112.63) 0.28 0.28 3. Front-end fee (0.28) (0.28) 158.66 2.80 161.46 Total (110.43) (2.48) (112.91) Notes: N.B.F. = Not Bank-financed (includes elements procured under parallel co-financing procedures, consultancies under trust funds, any reserved procurement, and any other miscellaneous items). Other- Consultant services to be procured under QCBS. Values in parentheses are financed by the AF loan.

1 Thresholds for Procurement Methods and Prior Review Description Type of Prior Review Contract Value Procurement Limit 1. Goods ICB All No threshold 2. Consultant QCBS To be defined in the To be defined in the Services procurement plan procurement plan

Procurement Plan for Additional Financing: Estimated Review by Baseline Procure- Bank Actual or Ref. Contract Total Cost in ment (Prior / Expected Bid- No. (Description) US$ millions Method Post) Opening Date Goods Supply of 09 trains AF1 of 8 cars 150.45 ICB Prior Feb-10 Consultants Project Management AF2 and Supervision 2.45 QCBS Prior Aug-10 Technical Assistance AF3 and Studies 0.25 QCBS Prior May-11 AF4 Auditing 0.1 QCBS Prior Jan-11

Annex 6: Economic and Financial Analysis BRAZIL: SÃO PAULO TRAINS AND SIGNALING ADDITIONAL FINANCING

A. Summary of Cost Benefit-Analysis

1. The main objective of this analysis is to carry out the economic evaluation of CPTM Line 11-Coral including an extension of an improved level of service (known as Expresso Leste) at 5 stations between Guaianazes and Suzano, thereby reducing the current train headways in the peak hours from about 7-9 minutes currently to about 4 minutes by 2011.

2. Since the proposed project is an additional financing, the demand and economic analysis adopted two approaches in relation to the original project, São Paulo Trains and Signaling, and the original analysis carried out in 2007. Firstly, an incremental cost-benefit analysis of only the proposed additional financing for Line 11-Coral was undertaken to evaluate the economic feasibility of the incremental project but taking in account modifications to the initial configuration of services and improvements to passenger stations since the original 2007 analysis. Second, a global or network-wide cost-benefit analysis was carried out to evaluate the additional investments for Line 11-Coral together with the original project considering the do-nothing situation existing under the original 2007 analysis. Henceforth, each of the analyses is referred as Incremental or Global Analysis below.

3. The basic scenario estimated demand of Line 11-Coral (Luz – Guaianazes) for 2010. The demand and transport economics analysis involved the following activities: a) Network simulation review estimating passenger stations in the year 2010 and demand projection of the period 2009-2038; b) Estimation of investment flows, including assignment of future investments to the period 2009-2011 as reported by the PMU; c) Calculation of the internal rate of return considering updated unit costs and operational parameters of the transport system. All data were provided by CPTM and analysis utilized the São Paulo Metropolitan Region’s Origin-Destination Matrix updated in 2007.

4. The methodology used consisted of comparing the situation with and without the project under the two approaches and quantifying the benefits due to time savings for users of all public modes, operating cost savings for all modes, road maintenance cost savings, accident savings, air pollution savings and the investment and operating costs. The demand for each mode was determined using a demand model that estimated the passenger-hours and passenger-km saved by mode with and without the project under the two approaches.

5. The main benefits considered were: a) Operating cost savings resulting from the lower costs of operating all modes through estimates of passenger-km with and without the project and multiplied by the respective unit operating costs; b) Travel time savings estimated by determining the passenger-hours saved, by type of trip (home-to-work, business or other) and multiplied by the value of time for each mode according to each scenario with and without project; c) Reduction in road maintenance costs due to the reduction of bus-km with the project (minor); d) Reduction in the bus system managing

costs due to avoided costs of expanding the existing public management structure; e) Reduction of air pollution costs due to reduction in bus-km with the project (minor). To be conservative the costs of avoided investments in the do-nothing situation were not considered; f) Reduction of accidents costs estimated by multiplying the average cost per accident per 1000 passenger-km with and without project and are a function of the number of bus-km saved (minor).

6. The main costs considered were: a) Investment costs for the acquisition of trains and consulting and management services and b) Operating costs including personnel, consumption and maintenance of railway infrastructure, fleet and systems. The minor works associated with the ongoing modernization of stations, platforms and systems for Line 11-Coral were considered sunk costs for the purposes of this analysis.

7. The project will decrease the number of bus-km and bus passenger-hour traveled on the urban network through the implantation of the new express service. The total bus-km saved per year is estimated by the demand model. The main beneficial impacts of the project under evaluation are reduced congestion (mainly due to less buses on the street), reduction in traffic-related accidents, reduced vehicular air pollution, reduced noise due to less buses on the street and economic savings from reduction of travel time.

8. The above are all quantifiable and were used in the economic analysis. There are, however, a great number of non-quantifiable benefits which cannot be captured in a standard cost-benefit analysis but are worth noting:

a. Improvement of travel level of service: (i) Train occupation rates are expected to decrease due to the expansion of the network and services within the metropolitan area; (ii) Comfort level improvements on railway services are non-measurable benefits and will certainly lead to higher utility levels of travel consumption and associated benefits. b. Avoidable costs in building up urban road infrastructure capacity: several investments on roadway infrastructure are expected to be avoided or postponed by the enhancement of the proposed railway services. c. Employment Generation: The project may promote the creation of jobs with multiplier effects in several sectors of the economy.

B. Traffic Demand Analysis

9. The demand analysis was undertaken by a specialized team of transport economists under STM based on a comprehensive 2007 Origin-Destination Survey that collected data in 460 zones and interviewed around 30,000 households.

10. Traffic demand levels for the project life cycle were estimated by CPTM technical staff through a demand simulation using a EMME/2-based model, which tested progressive scenarios with different configurations of passenger stations for the Expresso Leste, considering Luz-Guaianazes and Luz-Suzano alternatives. EMME/2 uses the 4 step approach of the Urban Transport Planning System, namely Traffic Generation, Traffic

Distribution, Modal Split and Traffic Assignment, and is one of the most commonly used traffic demand package in the Americas.

11. The without project scenario consisted of simulation of the present urban bus network and the CPTM network without the Expresso Leste expansion to Suzano. It comprised the following configuration: (i) Metro Line 1: Tucuruvi – Jabaquara; (ii) Metro Line 2: Vila Madalena – Vila Prudente; (iii) Metro Line 3: Barra Funda – Itaquera; (iv) Metro Line 5: Capão Redondo-Largo 13; (v) Rail Line 7: Francisco Morato-Luz; (vii) Rail Line 8: Julio Prestes-Itapevi; (viii) Rail Line 9: Osasco-Grajaú (ix) Rail Line 10: Luz-Rio Grande da Serra; (x) East Express: Luz-Guaianazes; (xi) Rail Line 11: Guaianazes-Estudantes. (xii) Rail Line 12: Luz-Calmon Viana; (xiii) implantation of the Bilhete-Único, an integrated tariff which allows a user to buy a single ticket which costs less than the sum of individual tickets and can be used in several modes within a certain period of time.

12. The with project scenario in the year 2010 expands Line 11-Coral express service in the CPTM network to 5 additional passenger stations: Antonio Gianetti Neto, Poá, Ferraz de Vasconcelos, Calmon Vianna and Suzano, and added the Metro Line 4 from Luz to Butantã to the network.

13. Under the Incremental Analysis, the peak hour demand for CPTM system in the year 2010 was estimated to be 251,309 passengers in the do-nothing alternative but increases to 251,859 in the with project alternative (a net increase of 550 passengers in the peak hour). Under the Global Analysis, the passenger increase was estimated as 47,950 in the peak hour.

14. CPTM maintain an updated database of demand and income surveys applied on each service line. Bus system demand is also monitored by SPTrans (Urban Bus Public Agency). As shown in Table 1 below, the value of time was estimated for each public transport system and trip purpose based on survey data of average hourly wages. Consistent with World Bank guidance on on value of time assumptions, it was assumed that work/commuting trips and other purposes were assigned 33% of the average hourly wage and non-commuting business trips were assigned 100% of the average hourly wage.

Table 1: Value of Time Distribution (US$)

Travel Purpose Rail Metro Bus

Work (commuting) 0.82 1.84 2.48 Business (non- commuting) 6.03 7.93 3.53 Other 0.82 1.84 2.48 Exchange Rate: R$2.16/US$ referred to December 1, 2006

15. Trip distribution by purpose in the peak period is derived for each public transport system according to Origin-Destination data. The Metro exhibits the highest share of 60.6% work commuting trips and the highest share of business hour trips accounting for 15.3%. The bus system presents a significant share of trips (31.9%) which include school and

access to other social activities. Table 2 presents the trip purpose distribution for each system.

Table 2: Travel Purpose Distribution (%)

Travel Purpose Metro Bus Rail Work 60.59 52.94 74.08 Business hours 15.29 15.18 13.27 Other 24.12 31.88 12.65

16. According to the model results, the main indicators for the peak hour simulation can be summarized as shown in Table 3 for both incremental and global analyses. Basically, there is an increase of trips by train and a decrease in metro and bus trips, which drive variations in passenger-hours and passenger-km for each transport modes. Operating speeds showed a positive change for rail. It is worth noting that a conservative approach has been taken by not considering the possible modal shift from private cars to rail. The majority of new CPTM riders are reasonably expected to come from other public transport modes as indicated in Table 3.

Table 3: Variation of Peak Hour Indicators for Tested Scenarios Incremental Analysis

Indicator Rail (CPTM) Metro Bus Passenger Trips  Without project 251,309 420,743 1,940,428  With project 251,859 419,163 1,928,405  Net change +550 -1,580 -12,023 Pass-Km  Without project 4,494,508 2,273,800 19,177,000  With project 4,666,400 2,688,800 19,061,000  Net change +171,892 +415,000 -116,000 Pass-Hour  Without project 96,718 85,668 1,316,700  With project 102,065 84,568 1,307,090  Net change +5,347 -1,100 -9,610 Speed (Km/h)  Without project 46.47 31.79 14.56  With project 45.72 31.79 14.58  Net change +0.75 0.00 -0.02

Global Analysis

Indicator Rail Metro Bus Passenger Trips  Without project 203,909 347,670 2,007,664  With project 251,859 419,163 1,928,405  Net change +47,950 +71,493 -79,259 Pass-Km  Without project 3,705,300 2,273,800 20,463,000  With project 4,670,200 2,688,800 19,061,000  Net change +964,900 +415,000 -1,402,000 Pass-Hour  Without project 93,835 71,487 1,398,610  With project 102,135 84,568 1,307,090  Net change +8,300 +13,081 -91,520 Speed (Km/h)  Without project 46.47 31.81 14.67  With project 45.72 31.79 14.56  Net change +0.75 +0.01 +0.10

C. CPTM Economic Costs

17. Total Investment Costs were estimated as US$ 161.470 million (see Table 4) including the following components: (i) Fleet Acquisition Costs: additional fleet required was estimated in US$ 158.270 million; (ii) Consulting costs amounting to US$ 3.2 million.

Table 4: Investment Flows for Line 11 – Expresso Leste Expansion

Year Fleet Consulting Total Investment 2009 47.59 0.96 48.55

2010 83.01 1.68 84.69 2011 27.67 0.56 28.23

Total 158.27 3.2 161.47

Exchange Rate: R$2.16/US$ referred to December 1, 2006

18. Operational Costs: CPTM provided an estimation of operating costs for the system during partial and full project operation period from 2009 to 2038. As shown in Table 5, operational costs basically involved two types of expenses: (i) personnel expenses involving resources for operating trains including wages and labor costs, and (ii) general expenses involving fleet maintenance, operating systems maintenance and electrical energy consumption costs. Costs are expected to grow from a yearly value of US$ 16.693 million in 2010 to US$ 34.365 million in 2014 and remaining constant from 2014 to 2038.

Table 5: Operational Costs for Additional Trains and Signaling (US$ 1,000)

Personnel Consumption Operational Year Costs 2009 0 0 0

2010 0 0 0

2011 4,730 12,233 16,963

2012 8,958 25,407 34,365

Exchange Rate: R$2.16/US$ referred to December 1, 2006

19. Salvage Value and Depreciation: depreciation assumptions were made for investment of the components of rolling stock and systems, as shown in Table 6. According to information received from CPTM, the trains will have a value of US$21.103 million after a project useful life of 29 years considering depreciation.

Table 6: Salvage Value and Depreciation Basic Assumptions (US$ 1,000)

Project Completion Total Yearly Project Residual Value Depreciation Life Cycle Value Expansion East Express 158,270 5,276 29 21,103

Exchange Rate: R$2.16/US$ referred to December 1, 2006

D. Public Transport Economic Benefits

20. Direct economic benefits were derived from the application of unit values of operating costs, passenger travel time cost, bus system management cost and road maintenance costs for each scenario. Indirect benefits were similarly derived from estimated pollution and accident costs applied on network indicators. Table 7 summarizes basic unit values which were assumed.

Table 7: Unit Cost Values Applied to Network Data (US$)

With/Without Project Attribute metro bus rail Operating Costs / pass*Km 0.0598 0.0344 0.0433 Road Maintenance Costs /Km 0.00302 Bus System Managing Savings /Km 0.00317 Travel Time Costs / Hour  Work 1.84 2.48 0.82  Business 7.93 3.53 6.03  Other 1.84 2.48 0.82 Accident Cost/Km 1.1282 Pollutant Emissions/Km 0.01795 Exchange Rate: R$2.16/US$ referred to December 1, 2006

21. Expansion factors of 7.68 and 13.68 adopted form previous studies were used to convert peak hour results to daily indicators of time and distance traveled based on CPTM data. Daily results were multiplied by a factor of 310 working days to obtain yearly results.

The basic estimators used for accident and pollution valuation for the SPMR are presented in Table 8.

Table 8: Indirect Costs Estimates (Year 2011) Indirect Cost Items Basic Estimators (US$) Accident Frequency ( per event type) Without Project With project  Property Damage Only 24,751.00 24,601.00  Injury 40,355.00 40,111.00  Fatal 11,778.00 11,707.00  Total 76,884.00 76,419.00 Pollutant Emissions (per ton)  CO 10,232.00 10,170.00  HC 7,126.00 7,083.00  NO x 37,484.00 37,258.00  SO x 2,790.00 2,773.00  PM 10,175.00 10,114.00  CO 2 84,415.00 83,904.00  Total 152,222.00 151,302.00 Exchange Rate: R$2.16/US$ referred to December 1, 2006

E. Economic Cost Benefit Analysis

22. The general cost-benefit evaluation methodology adopted was that of comparing the situation with the proposed project implemented to the situation that would occur without implementation of the project. This implies that operating savings, travel time savings and avoided road conservation and accident and pollution costs for the proposed project are considered to be the variation (with-project costs minus without-project costs).

23. Project development and growth rationale: According to data sources from existing studies such as PITU 2020 (Metropolitan Transport Master Plan) and the estimates from the planning departments of Metro and CPTM, the annual demand growth rate of 1% is assumed for the project period. This growth trend for all rail-based modes was also consistent with official demographic and income projections carried out by federal and state government.

24. For the Global Analysis, civil works, expropriation, fleet and systems acquisition are considered non-separable components for the purposes of this evaluation. CPTM acquisitions were evaluated vis a vis a stream of net benefits. Transfer payments such as taxes and subsidies were withdrawn from the project profile and the adopted value for the exchange rate was R$2.16/US$, as in the analysis for the original project, referenced to December 1, 2006.

F. Incremental Analysis Results

25. The project flows are presented in the Table 10, discounted to present values at a rate of 10% for the basic alternative studied. For the Incremental Analysis, the results show a positive net present value of US$ 88.744 million and benefit/cost ratio of 1.23. The economic internal rate of return of 16.13% was obtained for the basic alternative. Travel

time savings are the most significant benefits obtained, accounting for 86% of total benefit. Operating costs saved by the decrease of bus and metro services account for 1.1% of total benefits. Avoided road maintenance and bus system costs amounting to 10.2% and environmental benefits were estimated as 2.3% of total benefits.

26. The incremental sensitivity analysis is shown in Table 11. The results indicators were tested against changes to the cost and benefit assumptions of the base case. The base case accounts for a standard discount rate of 10%, and annual demand growth of 1% during the project life cycle. Net present values range from US$144 to US$11 million with discount rates ranging from 8% to 15%. The most significant variations were observed for a change of value of time benefits and investment costs. Switching values was achieved with a 22.7% reduction in travel time savings and an increase of 66.4% of fleet acquisition costs, which are unlikely.

Table 9: Incremental Analysis LINE 11 Net Present Value and Cost/Benefit Ratio Variation US$ Thousands Discount Net Present Present Benefit Rate Present Value Value Cost Value of Costs of Benefits Ratio (A - B) (B) (A) (A / B)

8% 144,062 595,157 451,095 1.32

9% 113,938 530,426 416,488 1.27

10% 88,744 475,275 386,531 1.23

11% 67,571 428,004 360,433 1.19

12% 49,692 387,250 337,558 1.15

13% 34,528 351,917 317,389 1.11

14% 21,613 321,118 299,505 1.07

15% 10,571 294,132 283,561 1.04

Table 10: Incremental Analysis LINE 11: BENEFITS AND COSTS US$ Thousands DIRECT BENEFITS EXTERNALITIES TOTAL INVESTMENTS & OPERATING COSTS TOTAL BENEFITS BUS PROJECT CALENDAR TRAVEL OPERATING MAINTENANCE SYSTEM ACCIDENT AIR BENEFITS INVESTMENTS WAGES OTHERS COSTS Minus YEAR YEAR TIME COST COST COST SAVINGS POLLUTION COSTS & COST COSTS SAVINGS SAVINGS SAVINGS SAVINGS SAVINGS (A) SALARIES (B) (A - B) 1 2009 0 48,550 48,550 -48,550 2 2010 0 84,690 84,690 -84,690 3 2011 25,613 1,535 744 1,249 233 460 29,833 28,230 1,119 15,922 45,271 -15,439 4 2012 51,737 3,101 1,502 2,523 470 929 60,262 2,325 32,200 34,524 25,738 5 2013 52,255 3,132 1,517 2,548 474 938 60,864 0 2,325 32,200 34,524 26,340 6 2014 52,777 3,163 1,532 2,574 479 948 61,473 2,325 32,200 34,524 26,949 7 2015 53,305 3,195 1,547 2,599 484 957 62,088 2,325 32,200 34,524 27,564 8 2016 53,838 3,227 1,563 2,625 489 967 62,709 2,325 32,200 34,524 28,184 9 2017 54,376 3,259 1,578 2,652 494 977 63,336 2,325 32,200 34,524 28,812 10 2018 54,920 3,291 1,594 2,678 499 986 63,969 2,325 32,200 34,524 29,445 11 2019 55,469 3,324 1,610 2,705 504 996 64,609 2,325 32,200 34,524 30,085 12 2020 56,024 3,358 1,626 2,732 509 1,006 65,255 2,325 32,200 34,524 30,731 13 2021 56,584 3,391 1,643 2,759 514 1,016 65,907 2,325 32,200 34,524 31,383 14 2022 57,150 3,425 1,659 2,787 519 1,026 66,566 2,325 32,200 34,524 32,042 15 2023 57,722 3,459 1,676 2,815 524 1,037 67,232 2,325 32,200 34,524 32,708 16 2024 58,299 3,494 1,692 2,843 529 1,047 67,904 2,325 32,200 34,524 33,380 17 2025 58,882 3,529 1,709 2,871 535 1,058 68,583 2,325 32,200 34,524 34,059 18 2026 59,471 3,564 1,726 2,900 540 1,068 69,269 2,325 32,200 34,524 34,745 19 2027 60,065 3,600 1,744 2,929 545 1,079 69,962 2,325 32,200 34,524 35,438 20 2028 60,666 3,636 1,761 2,958 551 1,090 70,662 2,325 32,200 34,524 36,137 21 2029 61,273 3,672 1,779 2,988 556 1,100 71,368 2,325 32,200 34,524 36,844 22 2030 61,885 3,709 1,796 3,018 562 1,111 72,082 2,325 32,200 34,524 37,558 23 2031 62,504 3,746 1,814 3,048 567 1,123 72,803 2,325 32,200 34,524 38,279 24 2032 63,129 3,783 1,833 3,079 573 1,134 73,531 2,325 32,200 34,524 39,007 25 2033 63,761 3,821 1,851 3,109 579 1,145 74,266 2,325 32,200 34,524 39,742 26 2034 64,398 3,859 1,869 3,140 585 1,157 75,009 2,325 32,200 34,524 40,485 27 2035 65,042 3,898 1,888 3,172 590 1,168 75,759 2,325 32,200 34,524 41,235 28 2036 65,693 3,937 1,907 3,204 596 1,180 76,516 2,325 32,200 34,524 41,992 29 2037 66,350 3,976 1,926 3,236 602 1,192 77,281 2,325 32,200 34,524 42,757 30 2038 67,013 4,016 1,945 3,268 608 1,204 78,054 -21,103 2,325 32,200 13,421 64,633 IRR 16.13% NPV 10% 88,744 PV Benefits 10% 475,275 PV Cost 10% 386,531 Exchange Rate: R$2.16/US$ referred to December 1, 2006 B/C 1.23

Table 11: Incremental Analysis LINE 11 - Sensitivity Analysis NPV Ratio IRR (US$ million) B/C Scenario % p.a. r=10% r=10%

Base Case 16.05 87.51 1.23

22.7% reduction Switching value 10% higher 18.74 129.5 1.34 Value of Time 10% lower 13.40 47.9 1.12 15% higher 20.02 150.0 1.39 15% lower 11.98 27.5 1.07

10% lower 15.97 86.3 1.22 BENEFITS Operating Costs 20% higher 16.45 93.6 1.24 30% higher 16.60 96.1 1.25

Externalities 80% higher 16.70 97.5 1.25 (Accidents and Air Pollution )

66.4% increase Switching value 10% higher 14.82 75.3 1.19 Rolling Stock 20% higher 13.69 61.9 1.15 Acquisition Costs 30% higher 12.71 48.5 1.11 COSTS 40% higher 11.85 35.10 1.08

Operating Costs 10% increase 14.43 63.5 1.15 (Additional costs due to fleet increase) 25% increase 11.82 25.6 1.06

Estimated starting date of Service operation start-up One Year Delay benefits in year 2012 14.40 72.7 1.20 date Two Years Delay Estimated starting date of benefits in year 2013 13.36 54.6 1.29

G. Global Analysis Results

27. The project flows for the Global Scenario are presented in the Table 12, discounted to present values at a rate of 10% per year for the base case. The results show a positive net present value of US$ 1,571.9 million and benefit/cost ratio of 1.71. The economic internal rate of return of 21.26% was calculated for the base case. As shown in the sensitivity analysis in Table 13, the results appear robust and they are significantly consistent with the results of the original project analysis in 2007. The most significant variations are observed for changes in the value of time and investment costs. Since the size of the proposed project on Line 11-Coral is relatively small in comparison to the original project, rational switching values were not possible and are not presented.

H. Financial Analysis

28. The following sections present the financial evaluation of CPTM. As with the original project, financial projections prepared for CPTM for the 2007-2026 period show that the working ratio of the operating agency will be equal or less than one and operating costs will therefore be below operating revenues.

Table 12: Global analysis LINE 11: BENEFITS AND COSTS US$ Thousands DIRECT BENEFITS EXTERNALITIES TOTAL INVESTMENTS & OPERATING COSTS TOTAL BENEFITS BUS PROJECT CALENDAR TRAVEL OPERATING MAINTENANCE SYSTEM ACCIDENT AIR BENEFITS INVESTMENTS WAGES OTHERS COSTS Minus YEAR YEAR TIME COST COST COST SAVINGS POLLUTION COSTS & COST COSTS SAVINGS SAVINGS SAVINGS SAVINGS SAVINGS (A) SALARIES (B) (A - B) 1 2008 0 524500 524,500 -524,500 2 2009 0 0 0 0 0 0 0 499,550 2,375 1,099 503,024 -503,024 3 2010 314,704 31,003 14,913 16,326 4,665 9,236 390,849 659,190 8,030 28,770 695,990 -305,142 4 2011 326,079 32,124 15,452 16,916 4,834 9,570 404,976 28,230 20,285 84,034 132,548 272,428 5 2012 379,162 37,353 17,968 19,670 5,621 11,128 470,902 24,551 85,616 110,166 360,736 6 2013 382,954 37,727 18,148 19,867 5,677 11,239 475,611 25,210 85,616 110,825 364,786 7 2014 386,783 38,104 18,329 20,065 5,734 11,352 480,367 28,421 89,047 117,467 362,900 8 2015 390,651 38,485 18,512 20,266 5,791 11,465 485,171 28,421 89,047 117,467 367,704 9 2016 394,557 38,870 18,698 20,469 5,849 11,580 490,023 28,421 89,047 117,467 372,555 10 2017 398,503 39,258 18,885 20,673 5,908 11,696 494,923 28,421 89,047 117,467 377,456 11 2018 402,488 39,651 19,073 20,880 5,967 11,813 499,872 28,421 89,047 117,467 382,405 12 2019 406,513 40,047 19,264 21,089 6,026 11,931 504,871 28,421 89,047 117,467 387,404 13 2020 410,578 40,448 19,457 21,300 6,087 12,050 509,919 28,421 89,047 117,467 392,452 14 2021 414,684 40,852 19,651 21,513 6,148 12,171 515,019 28,421 89,047 117,467 397,552 15 2022 418,831 41,261 19,848 21,728 6,209 12,292 520,169 28,421 89,047 117,467 402,702 16 2023 423,019 41,674 20,046 21,945 6,271 12,415 525,370 28,421 89,047 117,467 407,903 17 2024 427,249 42,090 20,247 22,165 6,334 12,539 530,624 28,421 89,047 117,467 413,157 18 2025 431,522 42,511 20,449 22,386 6,397 12,665 535,930 28,421 89,047 117,467 418,463 19 2026 435,837 42,936 20,654 22,610 6,461 12,791 541,290 28,421 89,047 117,467 423,823 20 2027 440,195 43,366 20,860 22,836 6,526 12,919 546,703 28,421 89,047 117,467 429,236 21 2028 444,597 43,799 21,069 23,065 6,591 13,048 552,170 28,421 89,047 117,467 434,703 22 2029 449,043 44,237 21,280 23,295 6,657 13,179 557,691 28,421 89,047 117,467 440,224 23 2030 453,534 44,680 21,492 23,528 6,724 13,311 563,268 28,421 89,047 117,467 445,801 24 2031 458,069 45,126 21,707 23,764 6,791 13,444 568,901 28,421 89,047 117,467 451,434 25 2032 462,650 45,578 21,924 24,001 6,859 13,578 574,590 28,421 89,047 117,467 457,123 26 2033 467,276 46,034 22,144 24,241 6,927 13,714 580,336 28,421 89,047 117,467 462,869 27 2034 471,949 46,494 22,365 24,484 6,997 13,851 586,139 28,421 89,047 117,467 468,672 28 2035 476,668 46,959 22,589 24,728 7,067 13,990 592,001 -321,650 28,421 89,047 -204,183 796,184 29 2036 481,435 47,428 22,815 24,976 7,137 14,130 597,921 28,421 89,047 117,467 480,454 30 2037 486,249 47,903 23,043 25,225 7,209 14,271 603,900 28,421 89,047 117,467 486,433 31 2038 491,112 48,382 23,273 25,478 7,281 14,414 609,939 -21,103 28,421 89,047 96,364 513,575 Exchange Rate: R$2.16/US$ referred to December 1, 2006 IRR 21.26%

NPV 10% 1,571,928 PV Benefits 10% 3,787,339 PV Cost 10% 2,215,411 B/C 1.71

Table 13: Global Analysis LINE 11 - Sensitivity Analysis NPV Ratio IRR (US$ million) B/C Scenario % p.a. r=10% r=10%

Base Case 21.26 1,571.9 1.71

10% higher 23.31 1,876.8 1.85 10% lower 19.17 1,267.0 1.57 Value of Time 15% higher 24.63 2,215.4 1.92 15% lower 18.12 1,114.5 1.50

10% lower 21.46 1,602.0 1.72 BENEFITS Operating Costs 20% higher 21.66 1,632.0 1.74 30% higher 21.87 1,662.0 1.75

Externalities 80% higher 21.98 1,679.7 1.76 (Accidents and Air Pollution )

10% higher 19.42 1,433.8 1.61 Rolling Stock 20% higher 17.87 1,295.8 1.52 Acquisition Costs 30% higher 16.55 1,157.7 1.44 40% higher 15.40 1,019.60 1.37 COSTS Operating Costs 10% increase 20.70 1,488.4 1.65 (Additio0nal costs due to fleet increase) 25% increase 19.85 1,363.3 1.56

FINANCIAL EVALUATION OF CPTM

COMPANHIA PAULISTA DE TRENS METROPOLITANOS - CPTM

BALANCE SHEET 2007 - 2026

US$ Milion 2.007 2008 2009 2010 2011 2012 2013 2014 2015 2016 ASSETS Current Assets 67,5 64,9 63,8 63,8 63,8 63,8 63,8 63,8 63,8 63,8

Non-Current Assets 51,2 51,2 51,2 51,2 51,2 51,2 51,2 51,2 51,2 51,2

Permanent Assets 2.927,0 3.361,7 3.931,1 4.573,3 5.105,7 5.225,5 5.395,8 5.272,5 5.095,2 4.921,3

Investiment 673,7 656,1 638,6 621,0 603,4 585,8 568,2 550,6 533,0 515,4 Investiment Line 5 709,0 709,0 709,0 709,0 709,0 709,0 709,0 709,0 709,0 709,0 Less Accum. Dep. -35,3 -52,9 -70,5 -88,1 -105,7 -123,3 -140,8 -158,4 -176,0 -193,6

Net Fixed Assets 1.674,9 1.830,4 2.193,8 2.916,9 3.534,2 3.547,6 3.771,0 4.012,2 3.928,8 3.772,5 Fixed Assets 2.350,9 2.604,9 3.073,5 3.917,6 4.669,5 4.834,1 5.212,3 5.615,5 5.691,9 5.691,9 Less Accum. Dep. -676,0 -774,5 -879,7 -1.000,7 -1.135,3 -1.286,5 -1.441,3 -1.603,3 -1.763,1 -1.919,4

Construction in Progress 568,9 865,7 1.089,2 1.025,9 958,6 1.082,6 1.047,1 700,2 623,9 623,90

Net Defered Charges 9,5 9,5 9,5 9,5 9,5 9,5 9,5 9,5 9,5 9,5 (-) Desp. Diferido Acumulada 0,0 0,0 0,0 0,0 0,0 0,0 0,0 0,0 0,0 0,0

TOTAL ASSETS 3.045,6 3.477,9 4.046,1 4.688,1 5.220,6 5.340,5 5.510,8 5.387,6 5.210,2 5.036,3

LIABILITIES & EQUITY Current Liabilities 94,1 92,7 74,4 74,4 74,4 74,4 74,4 74,4 74,4 74,4 Supplier 42,2 42,2 42,2 42,2 42,2 42,2 42,2 42,2 42,2 42,2 Salary & Wage 4,5 4,5 4,5 4,5 4,5 4,5 4,5 4,5 4,5 4,5 Sales Taxes 4,3 4,3 4,3 4,3 4,3 4,3 4,3 4,3 4,3 4,3 Accounts Payables 7,6 7,6 7,6 7,6 7,6 7,6 7,6 7,6 7,6 7,6 Domestic ST Loans 19,8 18,3 0,0 0,0 0,0 0,0 0,0 0,0 0,0 0,0 Othesr Provisions 15,8 15,8 15,8 15,8 15,8 15,8 15,8 15,8 15,8 15,8

Non-Current Liabilities 268,2 240,2 225,6 210,9 196,4 181,8 167,2 163,6 163,6 163,6 Domestic ST Loans 17,2 FDIC 87,5 76,6 62,0 47,4 32,8 18,2 3,6 Others 163,5 163,6 163,6 163,5 163,6 163,6 163,6 163,6 163,6 163,6

Stockholders Equity 2.683,2 3.145,0 3.746,1 4.402,9 4.949,8 5.084,3 5.269,2 5.149,6 4.972,2 4.798,3 Capital 4.409,6 5.092,9 5.947,8 6.739,5 7.488,0 7.842,6 8.238,1 8.388,5 8.478,8 8.566,6 Accumulated Losses -1.726,4 -1.947,9 -2.201,7 -2.336,6 -2.538,2 -2.758,3 -2.968,9 -3.238,9 -3.506,6 -3.768,3

TOTAL LIABILITIES 3.045,6 3.477,9 4.046,1 4.688,1 5.220,6 5.340,5 5.510,8 5.387,6 5.210,2 5.036,3

COMPANHIA PAULISTA DE TRENS METROPOLITANOS - CPTM

BALANCE SHEET 2007 - 2026

US$ Milion 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 ASSETS Current Assets 63,8 63,8 63,8 63,8 63,8 63,8 63,8 63,8 63,8 63,8

Non-Current Assets 51,2 51,2 51,2 51,2 51,2 51,2 51,2 51,2 51,2 51,2

Permanent Assets 4.750,6 4.583,0 4.418,3 4.256,4 4.097,0 3.940,0 3.785,3 3.632,7 3.482,1 3.333,5

Investiment 497,8 480,2 462,6 445,1 427,5 409,9 392,3 374,7 357,1 339,5 Investiment Line 5 709,0 709,0 709,0 709,0 709,0 709,0 709,0 709,0 709,0 709,0 Less Accum. Dep. -211,2 -228,8 -246,4 -264,0 -281,6 -299,2 -316,8 -334,4 -352,0 -369,5

Net Fixed Assets 3.619,4 3.469,4 3.322,3 3.177,9 3.036,1 2.896,7 2.759,6 2.624,6 2.491,6 2.360,6 Fixed Assets 5.691,9 5.691,9 5.691,9 5.691,9 5.691,9 5.691,9 5.691,9 5.691,9 5.691,9 5.691,9 Less Accum. Dep. -2.072,5 -2.222,5 -2.369,6 -2.514,0 -2.655,8 -2.795,2 -2.932,3 -3.067,3 -3.200,3 -3.331,3

Construction in Progress 623,90 623,90 623,90 623,90 623,90 623,90 623,90 623,90 623,90 623,90

Net Defered Charges 9,5 9,5 9,5 9,5 9,5 9,5 9,5 9,5 9,5 9,5 (-) Desp. Diferido Acumulada 0,0 0,0 0,0 0,0 0,0 0,0 0,0 0,0 0,0 0,0

TOTAL ASSETS 4.865,6 4.697,9 4.533,4 4.371,3 4.211,9 4.055,0 3.900,1 3.747,5 3.597,1 3.448,4

LIABILITIES & EQUITY Current Liabilities 74,4 74,4 74,4 74,4 74,4 74,4 74,4 74,4 74,4 74,4 Supplier 42,2 42,2 42,2 42,2 42,2 42,2 42,2 42,2 42,2 42,2 Salary & Wage 4,5 4,5 4,5 4,5 4,5 4,5 4,5 4,5 4,5 4,5 Sales Taxes 4,3 4,3 4,3 4,3 4,3 4,3 4,3 4,3 4,3 4,3 Accounts Payables 7,6 7,6 7,6 7,6 7,6 7,6 7,6 7,6 7,6 7,6 Domestic ST Loans 0,0 0,0 0,0 0,0 0,0 0,0 0,0 0,0 0,0 0,0 Othesr Provisions 15,8 15,8 15,8 15,8 15,8 15,8 15,8 15,8 15,8 15,8

Non-Current Liabilities 163,6 163,5 163,7 163,6 163,6 163,6 163,5 163,5 163,6 163,6 Domestic ST Loans FDIC Others 163,6 163,5 163,7 163,6 163,6 163,6 163,5 163,5 163,6 163,6

Stockholders Equity 4.627,6 4.460,0 4.295,4 4.133,4 3.974,0 3.817,0 3.662,2 3.509,7 3.359,1 3.210,4 Capital 8.651,9 8.734,7 8.815,0 8.892,7 8.967,9 9.040,5 9.110,6 9.178,0 9.242,9 9.305,1 Accumulated Losses -4.024,3 -4.274,7 -4.519,6 -4.759,4 -4.993,9 -5.223,6 -5.448,3 -5.668,4 -5.883,8 -6.094,7

TOTAL LIABILITIES 4.865,6 4.697,9 4.533,4 4.371,3 4.211,9 4.055,0 3.900,1 3.747,5 3.597,1 3.448,4

COMPANHIA PAULISTA DE TRENS METROPOLITANOS - CPTM

INCOME STATEMENT 2007 - 2026

US$ Million 2.007 2008 2009 2010 2011 2012 2013 2014 2015 2016 OPERATING STATISTICS Passegenrs (Trips) - Million 474 519 533 807 842 877 911 946 946 946 Paying Passengers - Million 271 297 305 462 482 501 521 524 524 524

OPERATING REVENUES Paying Passengers - Mil 277,4 303,0 310,8 465,7 485,2 504,7 524,2 526,0 529,9 532,5 Subsidy (1) 139,4 115,2 145,6 10,9 63,9 65,9 52,8 94,0 90,3 87,8 Total Operating Revenue 416,8 418,3 456,5 476,6 549,1 570,6 577,0 620,0 620,2 620,3

NON-OPERATING INCOME 0,0 0,0 0,0 0,0 0,0 0,0 0,0 0,0 0,0 0,0

PASEP/COFINS -11,6 -12,6 -13,0 -19,4 -20,2 -21,1 -21,9 -22,0 -22,1 -22,2

Total Income 405,2 405,6 443,5 457,2 528,8 549,5 555,1 598,1 598,1 598,1

Total Working Costs 405,2 405,6 443,5 457,2 528,8 549,5 555,1 598,1 598,1 598,1

Depreciation 116,0 116,1 122,8 138,6 152,2 168,8 172,4 179,6 177,4 173,9

Total Operating Costs 521,2 521,7 566,3 595,7 681,1 718,3 727,5 777,6 775,5 772,0

Financial Charges 0,0 0,0 ------

Total Expenses 521,2 521,7 566,3 595,7 681,1 718,3 727,5 777,6 775,5 772,0

Net Income -116,0 -116,1 -122,8 -138,6 -152,2 -168,8 -172,4 -179,6 -177,4 -173,9

Working Ratio 97% 97% 97% 96% 96% 96% 96% 96% 96% 96% Operating Ratio 125% 125% 124% 125% 124% 126% 126% 125% 125% 124%

Working Cost Coverage (%) 103% 103% 103% 104% 104% 104% 104% 104% 104% 104%

PER TRIP STATISTICS ($) Average Tariff 1,02 1,02 1,02 1,01 1,01 1,01 1,01 1,00 1,01 1,02 Average Working Cost 1,50 1,37 1,45 0,99 1,10 1,10 1,07 1,14 1,14 1,14 Average Operationg Cost 1,92 1,76 1,86 1,29 1,41 1,43 1,40 1,48 1,48 1,47 Total Costs 1,92 1,76 1,86 1,29 1,41 1,43 1,40 1,48 1,48 1,47 (1) Subsidy for Non-Paying Passengers and Cost Subsidy

COMPANHIA PAULISTA DE TRENS METROPOLITANOS - CPTM

INCOME STATEMENT 2007 - 2026

US$ Million 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 OPERATING STATISTICS Passegenrs (Trips) - Million 946 946 946 946 946 946 946 946 946 946 Paying Passengers - Million 524 524 524 524 524 524 524 524 524 524

OPERATING REVENUES Paying Passengers - Mil 535,1 537,7 540,3 543,0 545,6 548,3 551,0 553,7 556,4 559,2 Subsidy (1) 85,3 82,8 80,3 77,7 75,2 72,6 70,0 67,5 64,8 62,2 Total Operating Revenue 620,4 620,5 620,6 620,7 620,8 620,9 621,1 621,2 621,3 621,4

NON-OPERATING INCOME 0,0 0,0 0,0 0,0 0,0 0,0 0,0 0,0 0,0 0,0

PASEP/COFINS -22,3 -22,4 -22,5 -22,7 -22,8 -22,9 -23,0 -23,1 -23,2 -23,3

Total Income 598,1 598,1 598,1 598,1 598,1 598,1 598,1 598,1 598,1 598,1

Total Working Costs 598,1 598,1 598,1 598,1 598,1 598,1 598,1 598,1 598,1 598,1

Depreciation 170,6 167,6 164,7 162,0 159,4 157,0 154,7 152,6 150,6 148,7

Total Operating Costs 768,7 765,7 762,7 760,1 757,5 755,1 752,8 750,7 748,6 746,7

Financial Charges ------

Total Expenses 768,7 765,7 762,7 760,1 757,5 755,1 752,8 750,7 748,6 746,7

Net Income -170,6 -167,6 -164,7 -162,0 -159,4 -157,0 -154,7 -152,6 -150,6 -148,7

Working Ratio 96% 96% 96% 96% 96% 96% 96% 96% 96% 96% Operating Ratio 124% 123% 123% 122% 122% 122% 121% 121% 120% 120%

Working Cost Coverage (%) 104% 104% 104% 104% 104% 104% 104% 104% 104% 104%

PER TRIP STATISTICS ($) Average Tariff 1,02 1,03 1,03 1,04 1,04 1,05 1,05 1,06 1,06 1,07 Average Working Cost 1,14 1,14 1,14 1,14 1,14 1,14 1,14 1,14 1,14 1,14 Average Operationg Cost 1,47 1,46 1,46 1,45 1,45 1,44 1,44 1,43 1,43 1,43 Total Costs 1,47 1,46 1,46 1,45 1,45 1,44 1,44 1,43 1,43 1,43 (1) Subsidy for Non-Paying Passengers and Cost Subsidy

COMPANHIA PAULISTA DE TRENS METROPOLITANOS - CPTM

SOURCES AND APPLICATIONS OF FUNDS 2007 - 2026

US$ Million 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 SOURCES

Internal Cash Generation 0,0 0,0 0,0 0,0 0,0 0,0 0,0 0,0 0,0 0,0

Net Income -116,0 -116,1 -122,8 -138,6 -152,2 -168,8 -172,4 -179,6 -177,4 -173,9 Depreciation 116,0 116,1 122,8 138,6 152,2 168,8 172,4 179,6 177,4 173,9

Loans 87,5 FIDC 87,5

Govermment´s Contribution for:

Civil Works 149,3 190,0 324,3 245,1 290,0 108,3 143,9 56,3 System 29,5 121,5 121,9 96,7 62,1 41,4 29,1 Trains 158,8 214,8 240,1 438,4 332,5 138,9 169,7 Other 4,3 24,7 5,8 0,5 Interest Payment Support 4,0 2,6 1,1 0,0 Amortization Payment Support 17,2 17,2 17,2 0,0

Total Sources 450,7 570,6 710,4 780,7 684,6 288,6 342,7 56,3 0,0 0,0

APPLICATIONS

Investiment 341,9 550,9 692,1 780,7 684,6 288,6 342,7 56,3

Civil Works 149,3 190,0 324,3 245,1 290,0 108,3 143,9 56,3 System (in use) 29,5 120,1 117,7 93,0 29,7 36,8 25,4 Trains (in use) 69,0 32,9 23,4 22,0 Other 4,3 24,7 5,8 0,5 System (new) 0,0 1,4 4,2 3,7 32,4 4,6 3,7 Trains (new) 89,9 181,9 216,7 416,4 332,5 138,9 169,7

Amortization 17,2 17,2 17,2

Change in the Working Capital 91,5 2,6 1,1 0,0 0,0 0,0 0,0 0,0 0,0 0,0

Total Applications 450,7 570,6 710,4 780,7 684,6 288,6 342,7 56,3 0,0 0,0 N.B-Sources and applications of funds forecast to 2014

Annex 7: Safeguard Policy Issues BRAZIL: SÃO PAULO TRAINS AND SIGNALING ADDITIONAL FINANCING

1. The additional loan will trigger the same safeguard policy as the original loan (OP/BP 4.01) and will maintain the same environmental category, which is Category B. The existing safeguards framework is adequate for the additional activities as the proposed project will have no significant negative social or environment impact. An assessment of the social and environmental issues is provided below.

A. Social Safeguards 2. The proposed project will not cause any dislocation or involuntary resettlement. The project will have a positive impact on the quality of life of the population who use the rail system by providing increased quality and availability of services. New passenger rail cars will provide a higher level of comfort to passengers and shorter intervals between trains, increasing the attractiveness of CPTM services to current and future users. Other beneficial impacts include increasing the accessibility to employment centers, health, educational and leisure facilities along the Line 11-Coral corridor by public transport. Most of CPTM users are low-income and live in the suburbs of the greater SPMR. Improving suburban rail services in general increases the accessibility of this low-income segment of the population to employment centers and facilitates transfers with the bus network.

3. CPTM is also implementing a US$801 million modernization program to upgrade infrastructure, electrical and communication systems on various lines of its system. None of the works under this program are being financed by the Bank. On Line 11-Coral, the modernization program is upgrading existing stations, platforms, and systems along 13 km of track between Guaianazes to Suzano Stations to allow for the extension of the Expresso Leste service. All works on Line 11-Coral are taking place entirely within the existing railway right-of-way, so no involuntary resettlement and only minimal negative impact to surrounding neighborhoods is expected. The ongoing investment program also includes: (i) making CPTM stations compliant with relevant accessibility requirements for mobility-impaired users, including adequate sidewalks, platform surfaces, ramps, restrooms, elevators, as well as visual, audio and tactile signage; and (ii) improvements to intermodal integration at stations, such as the construction of bus bays. Aside from possible minor traffic disruptions and short-term delays along train routes, there will be very little adverse social impact associated with the program.

B. Environmental Analysis

4. Overall, the project is expected to have a positive impact on the environment. Congestion and vehicle emissions are among the main environmental problems SPMR is facing. Providing a high quality and safe transport alternative, especially for longer trips, will help mitigate the rapid increase in motorized trips and related environmental impacts. One of the ways the project has the potential to reduce vehicular emissions is by reorganizing existing bus services to feed the CPTM stations with improved services, and thereby reducing vehicle-kilometers in the project’s

area of influence. The project will help quantify these long-term environmental benefits and incorporate them into the proposed CPTM Climate Change strategy and action plan.

5. While the State and City of São Paulo have taken initial steps to inventory and mitigate overall GHG emissions, little has been done at the enterprise level. The proposed climate change strategy for CPTM is expected to: (i) contribute to the State’s overall strategy, (ii)help identify methodologies for evaluation and, (iii) the potential application of carbon financing for CPTM’s planned investments. Some of the available technologies that may be considered include: a) Methodology for Emission Reduction by low-greenhouse gas emitting vehicles (AMS III.c) including regenerative braking and other common technologies for trains b) Methodology for fixed-guideway systems powered by electricity (AMS III.u) c) Methodology for Transit System Optimization (AMS III.x, currently under review by the UNFCCC) for technologies and polices that reduce VKTs required to move a given number of passengers over a given distance d) Energy Efficiency Methodologies Suitable for Proposed Station Upgrades, including: i. Grid-Connected Renewable Energy Generation (AMS I D); ii. Supply Side Energy Efficiency Improvements (AMS II B); iii. Demand Side Energy Efficiency Improvements (AMS II C); iv. Energy Efficiency and Fuel Switching for Buildings (AMS II E).

6. During the preparation of the original loan, the Bank reviewed all environmental documentation, including the Environmental Assessment (EA, dated August 2007), CPTM’s planned environmental management systems and policies to reduce and mitigate environmental impacts at the train maintenance and other facilities. An Addendum to the EA for the Additional Financing (including the Plano Básico Ambiental for CPTM Line 11-Coral dated April 2009, and the Environmental Report dated October 2009) was reviewed and disclosed in-country on February 2, 2010 and in Infoshop on October 16, 2009. These documents were found to be satisfactory at the time of review and will continue to be strengthened during project implementation.

7. For the original project, the environmental assessment during preparation of the original project focused on the environmental management systems at the assembly and maintenance facilities for trains of CPTM and the overall environmental policies of the company. In addition, the team reviewed the environmental licenses and recommendations for works and operation of existing Lines A and F (now known as Line 7 and 12). Although the World Bank is not directly financing any works, the acquired trains will be operating on these lines and the team wanted to ensure that CPTM is following all required steps to reduce and mitigate potential impacts according to OP 4.01. Any outstanding environmental licenses related to each of the civil works interventions will also be submitted to the Bank for review.

8. The approach to the environmental analysis therefore included the undertaking of: (i) an analysis of the overall environmental results/impacts anticipated by Project’s interventions; and (ii) a specific environmental analysis of CPTM’s environmental policies at the maintenance facilities. The impact analysis and environmental management plan (EMP) are similarly presented: firstly, by considering the general impacts of the Project and, secondly, by reviewing the specific impacts of each activity.

C. Licensing Requirements

9. In the State of São Paulo, the environmental licensing is issued by the SMA (Secretariat of the Environment) via DAIA (Department of Environmental Impact Assessment), which analyzes the environmental studies of projects potentially or effectively causing significant environmental impact, subject to licensing with an environmental study, according to CONAMA Resolutions 01/86 and 237/97.

10. Following the Federal and State Legislation, CPTM’s Line 11-Coral is required to obtain three different environmental licenses prior to operation:

(i) Preliminary License (Licença Prévia - LP) is granted in the planning stage of the project and contains basic requirements for site selection, installation and operation; (ii) Installation License (Licença de Instalação - LI) authorizes the establishment of the business, according to the specifications of the approved executive project; and (iii) Operation License (Licença de Operação - LO) authorizes the start of the use of the new works and systems, as well as for the functioning of the required equipment after the environmental authorities verify the fulfillment of the requirements in the Installation License. This license is not required for the new trains because trains are already being operated in Line 11-Coral.

11. Instead of a full EIA, the relevant State authorities have required CPTM to prepare a Preliminary Environmental Report (PER-Relatório Ambiental Preliminar) for Line 11-Coral before issuing the LP. The LP (no. 1330) for Line 11-Coral was issued on December 1, 2008 and the LI (no. 23992) was issued on March 23, 2010.

12. CPTM is following all required steps by State Legislation to address potential environmental impacts related to the rehabilitation, improvement and operation of the existing Line 11-Coral. CPTM is working closely with the State Environmental Agencies and Authorities to reduce and mitigate potential negative impacts of rehabilitation works and operation of the lines.

13. A summary of the Preliminary Environmental Report for Line 11-Coral and environmental recommendation presented by the SMA were submitted to the Bank and disclosed in October 2009 as part of the Addendum to the EA. CPTM will submit to the Bank the documentation required for the LO of Line 11-Coral in the event it is required to renewal the operation licenses of the railroad and for renovated and new facilities (stations, platforms, etc.).

D. CPTM’s Environmental Management Systems 14. CPTM’s railway network of more than 260 km covers 22 municipalities of the SPMR with dozens of stations and hundreds of trains. It transports more than 1.7 million passengers on an average day and the demand is rising. As part of the modernization of services and improved efficiency, the CPTM is implementing an Environmental Management System (Sistema de Gestão Ambiental – SGA) to improve waste management and reduce environmental impacts from CPTM’s operations. The SGA is being implemented in 3 steps: (i) training and awareness

raising among staff and managers of different units of CPTM; (ii) introduction of generic guidelines and procedures for proper waste management; and (iii) preparation and implementation of Specific Management Plans (Planos de Gestão Específicos – PGE’s), which focus on industrial wastes, domestic wastes and other demands.

15. Between November 2006 and May 2007, over 146 managers and leaders of different units had been trained on issues related to: basic environmental concepts, environmental impact evaluation, ISO 14001 guidelines, operational control of industrial waste, management of hazardous materials, effluents and emissions, energy efficiency, and introduction to relevant national and state regulations and norms. As required by the original project, a social- environmental specialist was assigned to the PMU to help integrate environmental concerns into the daily activities of CPTM’s maintenance facilities, focusing on implementing activities to reduce and properly treat different waste streams, reduce energy use, better manage the risk associated with using hazardous chemicals, and integrate environmental and worker safety and health requirements in daily operations.

16. CPTM has already implemented a number of specific environmental management practices to manage specific waste-streams. An inventory of waste streams has been finalized and a detailed process for each type of waste has been defined following these steps: (i) waste classification (ii) segregation (iii) storage; (iv) transport; (v) final treatment: re-use, recycling, co-processing, incineration and final disposal in sanitary landfills.

17. The original project, including the additional financing loan, will help in the implementation of these plans and strengthening CPTM’s efforts in implementing integrated environmental management systems. These systems will include social aspects and outreach to users and the surrounding population through information systems. The project will help CPTM in implementing a set of management tools and principles designed to guide the allocation of resources, assignment of responsibilities and ongoing evaluation of processes to integrate environmental concerns into its daily business practices.

Annex 8: Documents in the Project File BRAZIL: SÃO PAULO TRAINS AND SIGNALING ADDITIONAL FINANCING

1. CPTM, “Carta Consulta” to COFIEX on the Modernization Program for CPTM Line 11- Coral, April 22, 2009. 2. CPTM, Presentation on “Modernização da Linha 11 – Coral da CPTM”, September 2009. 3. COFIEX, Recommendation No. 1106 on the Modernization Program for Line 11-Coral, April 24, 2009. 4. CPTM, Environmental Assessment, Plano Básico Ambiental para Linha 11 da CPTM, April 2009. 5. CPTM, Addendum to the Environmental Assessment and Environmental Licensing Documentation for the Line 11-Coral Modernization Program (including the Plano Basico Ambiental for CPTM Line 11-Coral dated April 2009 and the Environmental Reports and Addendum for CPTM Line 11- Coral dated October 2009). 6. CPTM, Operational Analysis for Justification of New Trains for Line 11-Coral, July 2009. 7. CPTM, Summary of Demand Analysis for Line 11-Coral, July 2009. 8. CPTM, Presentation on Results of Market Research Performed in 2008 and 2009, July 2009.

56 Annex 9: Maps BRAZIL: SÃO PAULO TRAINS AND SIGNALING

Metropolitan Transport Map- São Paulo Metropolitan Region

Maps of São Paulo CPTM Line 11-Coral (with Integration Points) and Expresso Leste Service