DaMurn of The World Bank FOR OFFICILL USE ONLY Report No. P-4485-AR MEMORANDUM AND RECOMMENDATION OF THE PRESIDENT OF THE INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED LOAN IN AN AMOUNT EQUIVALENT TO US050.0 MILLION TO THE GOVERNMENT OF THE REPUBLIC OF ARGENTINA FOR THE BAHIA BLANCA PORT I PROJECT April 10, 1987 This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization. Currency Equivalents Currency Unit - Austral (A$) AS I - US$ .806 (December, 1986) A$ 100 - USS 80.64 (December, 1986) System of Weights and Measures 1 meter (m) - 3.28 feet (ft) 1 kilogramo - 2.205 pounds (lb) I ton - 2,205 pounds (lb) Fiscal Year January 1 to December 31 Abbreviations and Acronyms AGP - General Port Administration CGP - General Port Captaincy DNCPVN - National Directorate of Port Construction and Navigable Waterway DNPPT - National Directorate for Transport Policies and Programing DNV - Directorate of National Highways FA - Argentine Railways JNG - National Grain Board MOSP - Ministry of Public Works and Services PC - Project Committee PCU - Project Coordination Unit PNT - National Transport Plan sMm - Secretariat of Merchant Marine SNA - National Architectural Services SPW - Secretariat of Public Works SSD - Safety Services Department SMM - Secretariat of Merchant Marine SSPT - Sub-Secretariat of Transport Planning SST - Sub-Secretariat of Transport 4 ST - Secretariat of Transport FOR OMChIL USE ONLY BARI BLANCA I P0tr PROJECT LOAN AND PROJECT SUMMARY Borrower: The Government of the Republic of Argentina Beneficiaries: The General Port Administration (AGP), the National Directorate of Port and Navigable Waterway Construction (DNCPVN) and Argentine Railways (FA) of the Ministry of Public Works and Services (MOSP), and the National Grain Board (JNG) of the Secretariat of Agriculture, Livestock and Fisheries (SAG) would be responsible for utilization of the proposed loan proceeds. Amount: USS 50.0 million equivalent Terms: Repayment in 15 years, including 3 years of grace, with interest at the Bank's standard variable rate. On-Lending Terms US$ 12.3 million, 0.8 million and 1.1 million from the Government to National Grain Board (JNG), the Argentine Railways (FA) and the General Port Administration (AGP), respectively, under same terms and conditions as the Bank loan. Financing Plan: Government USS 10.2 million General Port Administration US$ 1.5 million National Grain Board US$ 3.7 million Argentine Railways US$ 1.3 million IBRD US$ 50.0 million 4 TOTAL (excluding taxes) USS 66.7 million Economic Rate of Return: 45% Staff Appraisal Report: No. 5528-AR This document has a restricted distributon and may be used by reipients only in the performanc of their official duties. Its contents may not otherwise be discsed without World Bank authorization. NMEORANDUM AND RECOMNENDATIONS OF TIHE PRESIDENT OF THE INTERNATIONAL BANK FOR RECONSTIECTION AND DEVEWPFEWI TO THE IZECU(IVE DIRECTORS ON A PROPOSED LOAN TO THE REPUBLIC OF ARGENTINA FOR A BAHIA BLANCA I PORT PROJECT 1. The following report on a proposed loan to the Government of Argentina for US$50.0 million is submitted for approval. It would help to finance the Bahia Blanca I Port Project. The proposed loan would be on standard Bank terms to be repaid over 15 years, including three years of grace, at the Bank's standard variable interest rate. 2. Background. The transport sector plays an important role in the economic development of Argentina, representing about 6-8% of GDP and around 18-20% of public sector investment. Most of the foreign trade and about 50 million tons of domestic traffic are handled by the port system, the efficiency of which is crucial to the competitiveness of Argentina's exports. Grain exports constitute a major component of Argentina's trade and one which is subject to severe competition in the world market. Such exports averaged about 22 million tons in 1983-1985. The port of Bahia Blanca is mainly a grain export port, and due to its draft advantages over the remaining ports in the country, plays a fundamental role in that traffic. In 1985, a serious accident at Bahia Blanca put one grain elevator out of service considerably reducing the grain terminal export capabilities. The accident only confirms doubts about the inadequacy of safety conditions of grain silo facilities in the country. The proposed project would rehabilitate the existing infrastructure including reconstruction of the damaged elevator, and would assist in implementing a silos safety program in the country. The main agencies involved in the project are: (i) the General Port Administration (AGP) under the Secretariat of Merchant Marine (SMM), which is responsible for the construction, maintenance and administration of shore facilities but port operations are concessioned to private stevedoring companies; (ii) the National Directorate of Port and Navigable Waterway Construction (DNCPVN) also under the SlMM, responsible for planning and carrying out waterway and port dredging; and (iii) the National Grain Board (JNG) under the Secretariat of Agriculture of the Ministry of Economy responsible for domestic and foreign grain trade, and for administration and management of public grain elevators and storage facilities. General and cost accounting, planning and management of the first two agencies need strengthening and the proposed project addresses these issues. Maintenance services and efficiency of DNCPVN and JNG would also be improved through the technical assistance component of the proposed project. 3. Project Objectives. This would be the first Bank involvement in the port subsector. The proposed project would provide grain export capacity for the medium term (until 1993) while a proposed follow-on project would address the long term grain export needs at Bahia Blanca. The project would contribute to the Government's efforts to enhance the competitiveness of its grain exports by: (a) the rehabilitation of existing infrastructure of the Bahia Blanca grain terminal; and (b) strengthening port management, adminis- tration and operational systems through technical assistance to AGP and DNCPVN for cost accounting, planning, and management information systems, and to DNCPVN and JNG for maintenance services. - 2 - 4. Project Description: The proposed project comprlses: (a) civil works and equipment for the rehabilitation and modernization of the grain-handling systems, including emergency works; upgrading silo safety systems at selected grain terminals and complementary maritime and railway works; and (b) technical assistance to streugthen port management, administration and maintenance systems; and completion of engineering studies for a proposed expansion of the Bahia Blanca grain terminal, initiated under the Loan 1521-AR. 5. Project Cost and Financing. The total cost of the project is estimated at US$71.0 million including US$4.3 million of taxes and duties with a foreign exchange component of US$50.7 millicr (71%). A Bank loan of US$50.0 million equivalent would cover 100' of the foreign exchange cost component of items to be financed by the Bank. Counterpart resources to the proposed loan amounting to US$16.7 million equivalent will be provided by Government, AGP and JNG contributions of US$11.5 million, US$1.5 million and US$3.7 million respectively. The Government contribution includes US$1.3 million corresponding to the funds required by PA to implement the railway component. Retroactive financing of payments made between November 1, 1985 and loan signature, amount to US$2.3 million equivalent. Costs and the financing plan are shown in Schedule A. Procurement and disbursements of the proposed project, a timetable of the key project processing events and status of Bank group operations in Argentina are given in Schedules B, C and D, respectively. Two maps showing the proposed items to be financed under the project are also attached. The Staff Appraisal Report No. 5528-AR is being distributed separately. 6. Onlending. The Government as the proposed Borrower will onlend US$12.3 million, US$0.8 million and US$1.1 million to JNG, FA and AGP, respectively, under the same terms and conditions as the Bank loan. 7. Rationale for Bank Involvement. The Bank's objective is to support Government efforts to reactivate the economy through export-led growth, increase the availability of foreign exchange and stabilize the economy; thus it should support country's efforts to enhance its international competitiveness, to increase domestic resource mobilization and to improve public sector management. The proposed project would help reduce shipping costs, rationalize port tariffs, improve the operation of export corridors, and promote efficient operations. Bank assistance is of high priority, given the current unsatisfactory conditions of the port of Bahia Blanca, its importance in the national system, and the vital role it plays in handling cargo onto large vessels unable to get full load in other Argentine ports due to draft limitations. 8. Agreed Actions: The Borrower, AGP and JNG agreed to the following main actions: The Borrower confirmed the inclusion of the necessary counterpart funds required for the project, including those for the Argentine Railways (FA), in the national budget, and agreed to enter into on-lending agreements with AGP, FA and JNG; there will be appropriate audit arrangements satisfactory to the Bank; DNCPVN's and AGP's annual investment programs will be prepared according to criteria satisfactory to the Bank and these agencies will consult with the Bank on any new investment project over US$10.0 million; MOSP through the National Architectural Services (SNA) wili retain - 3 - appropriately qualified consultants for the supervision of the construction and modernization of the grain-handling systems, prior to the award of the construction contracts and will establish a Project Coordination Unit with terms of reference satisfactory to the Bank; and It will review at least once a year the costs and tariffs of tugboats operations and forward for the Bank's comments the proposed new arrangements by mid-1991 for tugboat operations after 1991. DNCPVN will implement commercially based general and cost-accounting systems and develop a mechanism satisfactory to the Bank to recover dredging costs by December 31, 1989; prepare a plan of action for implementation by December 31, 1990 and commence implementation of such action action plan by June 30, 1991; and carry out appropriate audit arrangements satisfactory to the Bank. AGP will introduce the necessary tariff increases and cost-saving actions to ensure that in 1987-1990 working ratios will be declining annually from 0.85 to 0.80; revalue its assets not later than December 31, 1989 and incorporate the results in its books from January 1, 1991; ensure that the working and operating ratios in 1991-1994 will be no more than 0.84 and 1.23, respectively, taking into account the results of the above mentioned asset revaluation; implement appropriate cost-accounting systems by December 31, 1989; formulate cost-related tariff structures, satisfactory to the Bank, by June 30, 1990, develop an action plan for its implementation by December 31, 1990 and start implementing it by June 30, 1991; and carry out appropriate audit arrangements satisfactory to the Bank. JNG will carry out the silo safety plan of action; implement the necessary actions to reorganize its maintenance services by December 31, 1990; and take all necessary actions to achieve the operational targets such as ship loading and reception unloading rates. 9. Justification and Risks . The proposed project yields an estimated overall economic rate of return of about 45%. In aidition, the institutional measures are expected to improve the overall efficiency of the management and operations of the agencies involved In the handling of grain exports. Possible implementation delays would be minimized by intensive project supervision and the establishment of a Project Committee and a Project Coordination Unit. 10. Recommendation. I am satisfied that the proposed loan would comply with Articles of Agreement of the Bank and recommend that the Executive Directors approve it. Barber B. Conable Attachments April 10, 1987 Washington, D.C. Schedule A Estimated Project Coats: 1/ ----US$ Million----- Local Foreign Total Civil Works 14.7 9.8 24.5 Equipment 1.9 29.5 31.4 Project Supervision 0.4 1.7 2.1 Technical Assistance and Engineering Studies 0.6 2.4 3.0 Total Base Cost (December 1986 prices) 17.6 43.4 61.0 Physical Contingencies 2.3 5.9 8.2 Price Contingencies 0.4 1.4 1.8 Total Project Cost 20.3 50.7 71.0 Financing Plan: --1US$ Million Foreign Local Total 2/ Proposed IBRD Loan 50.0 - 50.0 Government 0.5 9.7 10.2 AGP - 1.5 1.5 JNG 0.2 3.5 3.7 FA - 1.3 1.3 Total Financing: 50.7 16.0 66.7 1/ Prices as of December 1986 2/ Taxes and duties amounting to US$4.3 million equivalent, to be borne and collected by the Government, are excluded. -5- Schedule B Page 1 of 2 PROCUREMENT (US$ million) Total Project Element Procurement Procedures Cost LCB ICB ICS Other 1. Emergency Works 1.7 - - - 1.7 (1.3) (1.3) 2. Maritime Works 2.4 - - - 2.4 (1.0) (1.0) 3. Grain Handling Rehabili- tation and Reconstruction (a) Civil Works - 14.4 - - 14.4 (6.1) (6.1) (b) Equipment - 26.3 - - 26.3 (26.3) (26.3) 4. Silo Safety Works (a) Civil Works 6.1 - - - 6.1 (2.4) (2.4) (b) Equipment - 4.0 3.9 - 7.9 (4.0) (3.9) (7.9) 5. Railway 2.1 - - - 2.1 (0.8) (0.8) 6. Supervision of Construction - - - 1.7 1.7 (1.4) (1.4) 7. Technical Assistance - - - 1.0 1.0 (0.9) (0.9) 8. Engineering Studies - - - 2.1 2.1 (1.7) (1.7) 9. Total 3/ 12.3 44.7 3.9 4.8 65.7 2 (5.5) (36.4) (3.9) (4.0) (50.0) 1I/ Consultants' services would be retained in accordance with Bank Guidelines. 2/ Maritime works for a total of about US$1.0 million financed directly by the Government are not included. 3/ Totals may not add up due to rounding. Note: Figures in 0) correspond to the foreign exchange cost component that would be financed by the Bank. -6- Schedule B Page 2 of 2 DISBURSEMENT Z of Expenditures Loan Category Amount Financed US$ '000) (1) Works 9,400 40% (2) Goods 29,500 100% of foreign expenditures and 100% of local expenditures (ex- factory cost) and 85% of local expen- ditures for imported goods locally procured (3) Consultants' Services 4,100 100% of foreign (including supervision expenditures and of construction) B0% of local expenditures (4) Unallocated 7,000 TOTAL: 50,000 Estimated Disbursements: Bank FY 1988 1/ 1989 1990 1991 1992 1993 1994 ----------TJS$ million- Annual 5.1 5.3 12.0 12.0 10.3 4.5 0.8 Cumulative 5.1 10.4 22.4 34.4 44.7 49.2 50.0 1/ Includes retroactive financing. Schedule C ARGENTINA BAHIA BLANCA I PORT PROJECT Timetable of Key Project Processing Events (a) Time Taken to Prepare Project1l/: 3 years (b) Project Prepared by: Ministerio de Obras y Servicios Publicos (MOSP) cc) First Bank Mission: February 1984 (d) Appraisal Mission: December 1984 (e) Post-Appraisal Mission: June 1986 (f) Negotiations: March 26-31, 1987 (f) Planned Date of Effectiveness: August 1987 1/ In early 1984, the Government decided to undertake the Bahia Blanca Port Project in two phases, and consequently that date became the beginning of Phase I preparation. S Schedule D Page 1 of 2 THE STATUS OF BANK GROUP OPERATIONS A. STATEMENT OF BANK LOANS AND IDA CREDITS (as of September 3. 1986) ARGENTINA Amount less Uniis- Loan No. Year Borrower Purpose Cancellations bursed C USS million) Fully disbursed loans (14) 786.0 1384 1977 Argentina Righways 104.7 8.6 1251 1978 Argentina Grain Storage 87.0 53.4 1761 1979 Argentina Yacyreta Power 210.0 165.3 1905 1980 Argentina Vocational Training 58.0 57.1 S-020 1980 Argentina Coal Exploration 10.0 1.6 2031 1981 Banco Nacional Oil and Gas de Desarrollo Credit 100.0 78.2 2032 1981 Yacimientos Petroliferos Refinery Fiscales Conversion 200.0 8.7 2032 1/ 1986 Yacimientos Petroliferos Refinery Fiscales Conversion 116.0 116.0 2063 1981 Banco Nacional Industrial de Desarrollo Credit II 100.0 84.4 2296 1983 Argentina Highway. 100.0 68.5 2592 1986 Yacimientos Gas Utilization 180.0 180.0 Petroliferos and Technical Fiscales Assistance 2641 1/ 1986 Argentina Water Supply 60.0 60.0 2675 1986 Argentina Agricultural 350.0 178.1 Sector Loan 2712 1/ 19B6 Argentina Public Sector 18.5 18.5 Management 2571 1/ 1986 Argentina Power Engineering 14.0 14.0 Total 2,494.2 Of which has been repaid 543.5 1,950.7 Amount sold 12.8 Of which has been repaid 12.8 - Total now held by Bank 1,950.? Total undisbursed 1,092.4 1/ This loan is not yet effective. -9- Schedule D Page 2 of 2 B. STATEMENT OF IFC INVESTMENTS (as of September 30, 1986) ARGENTINA Fiscal Amount in USS million Year Obligor Type of Business Loans Equity Total 1960 Acindar Industria Steel Products 3.7 - 3.7 Argentina de Aceros, S.A 1960 Papelera Rio Parana, S.A. Pulp and Paper 3.0 - 3.0 Engranajes, S.A.I.C. 1961 Fabrica Argentina de Automotive 1.5 - 1.5 1962 PASA, Petroquimica Petrochemicals 3.0 - 3.0 Argentina, S.A.I.C. 1965/72 Celulosa Argentina, S.A. Pulp and Paper 12.5 - 12.5 196917! Dalmine Siderca, S.A. Steel Products 17.0 - 17.0 1969 Edltorial Codex, S.A. Printing and Publishing 5.0 2.0 7.0 1971/73 Calera Avellaneda, S.A. Cement 5.5 - 5.5 1977/84 Alpargatas S.A.I.C. Textiles & Fibres 28.4 2.0 30.4 1977 Soyex S.A. Soybean Processing Plant 25.0 - 25.0 1978 Massuh, S.A. Pulp and Paper 13.5 2.3 15.8 1978/ Juan Minetti, S.A. Cement and Construc- 81/82 tion Materials 83.0 - 83.0 1978/ Ipako-Industrias Chemicals and 79/82/ Petroquimicas Petrochemicals 87 Argentinas, S.A. 18.3 2.0 20.3 1979/ Alpesca, S.A. Fisheries 5.2 1.6 6.8 83/84 1984/86 Petroquimica Cuyo SAIC Chemicals and Petrochemicals 39.7 4.0 43.7 1986 Inversiones Industriales Money and Capital S.A. and Roberts Partici- Markets - 1.3 1.3 paciones, S.A. 1986 Atanor S.A.M. Chemicals and Petrochemicals 7.0 1.0 8.0 Total Gross Commitments 271.3 16.2 287.5 Less Cancellations, Terminations Repayments and Sales 161.2 2.0 163.2 Total Commitments Now Held by IFC 110.1 14.2 124.3 Total Undisbursed 50.6 5.1 55.7 MAR DEL PLATA EUUNoeIAI _LACA auequhn PASO 4 to PUYEHUE I t,' /C obrodo LiOW Esm 40'~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~d ._ < Boriloche I >wolor3ao - + Y~IEDMA 401- S ° c~~~~~~c l 1 ) vD ~~~~~~Madryn SO1VRAWS#ON ARGENTINA BAHIA BLANCA PORT PROJECT P.ASO COVb,AIQU' Lo _- s \t "Aarw an fth fgs rw; of &v OsS UU Ior WV axn6V or ac7aLfiwc6 to K \.~~~~~~~~~~ / r , E S I { a > X s * ' > ~~~~~~~~~~~~~~~~~~~~~~Cdt t, | S ! ,S4Q24 / '-~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~3' I;aer! n: 3 o ~ h \ ]s,1, : ..2 \ ! : -1''~~ ~~~~~~ ~~~~4, \, a.2 S.< /{f z * ral N - rz.x ' J 3 0' - } 0 - s C < n ,, \ \ h r ' , I , / l e p e , : ( ' : ' , 3 0/ CPOA9i RL G A Y | S R E~~~~~~~~~~~~~~~~~~~~~~M5ONT EVID EOl I ~ ~~~~~~~ /ķi d) __t l |ti V iV MAR DEL PlATA I I-; , !;' :'. ' I ARGENT NA A X 0 I 1 _A K i ~~~~~~ K1 Li L ~~~~~~~~~~S04T ~~~~Y.P.F NAIIONAt WHARF IRN WHARF INOT IN ;AH,A BL p==gTF * CES$ OC Ht suNKEN\ 111n 9DREDE2EA \-~~~~~~~~~RiA ,..AN 0ono A IBRD 20383 0 ~~~~~~~ARGENTINA BAHIA BLANCA I PORT PROJECT PROPOSED GRAIN HANDLING FACILITIES AT INGENIERO WHITE :Sj- 4 /''/1 *1 ;,I tv _/|/| 1 PROPOSED IMPROVEMENTS AREA TO BE PAVED mi ____ / . ,EXISTING PORT FACILITIES r_ '/_PRESENT Y.P.F. BUILT-UP AREAS // EXISTING DEBA POWER PLANT 0 -vo~~~~1 SHIP LOA at - ~~~~~~~BERTHI9 - ..- N. f 5 \ f /01 0 0 0 \ \|200 300 KILOMETERS r._k -b-P~wb p oa.s*0ek.fk w-.~o -- ?W, h..n -d.q,.dr lby, ff. k~ -.& St. 6.C*.I Wby &.* offVWi '.:C.p-oh. d.on -d W f. bbjd Wn M n RW do g i :; bgAi F n OV , a o,dnIad w r o ch boxb APRIL 1987