IMPLEMENTATION COMPLETION REPORT BRAZIL SAO ......development of a serious effort to integrate rail...

Document ofThe World Bank

FOR OFFICIAL USE ONLY

Report No. 18814

IMPLEMENTATION COMPLETION REPORT

BRAZIL

SAO PAULO METROPOLITAN TRANSPORTDECENTRALIZATION PROJECT

(LOAN 3457-BR)

January 22, 1999

Transport ClusterFinance, Public Sector, and Infrastructure Sector Management UnitCountry Management Unit LCC5CLatin America and the Caribbean Region

This document has a restricted distribution and may be used by recipients only in theperformance of their official duties. Its contents may not otherwise be disclosed withoutWorld Bank authorization.

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CURRENCY EQUIVALENTS

June 1991Currency Unit: Cruzerio (Cr$)

US$1.00 = Cr$297.87

June 1998Currency Unit: Reals (R$)

US$ 1.00 = R$1.1525

WEIGHTS AND MEASURES

Metric System

FISCAL YEARJanuary 1 - December 31

Vice President Shahid Javed BurkiCountry Management Director Gobind NankaniSector Management Director Danny LeipzigerLead Specialist Jeffrey S. GutmanTask Manager Jorge M. Rebelo

FOR OFFICLIL USE ONLY

ABBREVIATIONS AND ACRONYMS

ATC Automatic Train ControlATS Automatic Train StopBC Central Bank of Brazil

Banco Central do BrasilBNDES National Economic and Social Development Bank

Banco Nacional de Desenvolvimento Econ6mico e SocialCBTU Brazilian Urban Train Company

Companhia Brasileira de Trens UrbanosCBTU-SP Brazilian Urban Train Company, Sao Paulo Subdivision

Companhia Brasileira de Trens UrbanosCPTM Metropolitan Train Company of Sao Paulo

Companhia Paulista de Trens MetropolitanosCCE Centralized Energy ControlCCO Operational Control CenterEBTU Brazilian Urban Train Company

Empresa Brasileira de Trens UrbanosEMU Electric Multiple UnitFEPASA Ferrovias Paulistas S.A.

Sdo Paulo State RailwayGEIPOT National Transport Planning Agency

Empresa Brasileira de Planejamento dos TransportesGOB Federal Government

Governo FederalIDB Inter-American Investment BankMSP Municipality of Sao Paulo

Governo Municipal do Sdo PauloMAS Ministry of Social Action

Ministerio de Social AccioMETRO/SP Metropolitan Train Company of SAo Paulo

Companhia do Metropolitano de Sdo PauloPITU Urban Transport Integration Program

Programa Integrado de Transporte UrbanoRFFSA Federal Railways

Rede Ferrovi6ria Federal S.A.SNT National Transport Secretariat

Secretdria Nacional de TransporteSP State of Sao Paulo

Governo Estadual do Sdo PauloSPMR Sao Paulo Metropolitan Region

Regido Metropolitana do Sao PauloSTM Secretariat for Metropolitan Transport

Secretdria dos Tranportes MetropolitanosUIP/PIU Project Implementation Unit

Unidade de Implementacio do Projeto

This document has a restricted distribution and may be used by recipients only in theperfornance of their official duties. Its contents may not, otherwise be disclosed withoutWorld Bank authorization.

TABLE OF CONTENTS

PREFACE .....................EVALUATION SUMMARY ................... ii

Part I. PROJECT IMPLEMENTATION ASSESSMENTA. Statement of Objectives .B. Achievement of Objectives. C. Major Factors Affecting the Project .10D. Project Sustainability .1E. Bank Performance .12F. Borrower Performance .13G. Assessment of Outcome .14H. Future Operations .14I. Lessons Learned .15

Part II. Statistical TablesTable 1: Summary of Assessment .17Table 2: Related Bank Loans .18Table 3: Project Timetable .20Table 4: Loan Disbursements Cumulative Estimated and Actual .20Table 5: Key Indicators for Project Implementation .21Table 6A: Project Operational Indicators .................................................. 22Table 6B: Project Financial Indicators .................................................. 22Table 7: Studies Included in Project .................................................. 23Table 8A: Project Costs .................................................. 25Table 8B: Project Financing .................................................. 25Table 9A Economic Evaluation .................................................. 26Table 9B Sensitivity Analysis .................................................. 26Table 10: Status of Legal Covenants .................................................. 28Table 11: Compliance with Operational Manual Statements .................................................. 30Table 12: Bank Resources: Staff Inputs .................................................. 30Table 13: Bank Resources: Missions .................................................. 30

Appendix A: Aide Memoire for Final Supervision Mission .................................................. 31Appendix B: Borrower Summary of the Project and Sector Action Plan .......................................... 35


BRAZIL


LOAN 3457-BR

PREFACE

This is the Implementation Completion Report (ICR) for the Sao Paulo Metropolitan TransportDecentralization Project, for which Loan 3457-BR in the amount of US$126.0 million equivalent wasapproved on March 31, 1992 and made effective on February 3, 1993. The Borrower provided anadditional US$168.0 million equivalent.

The original closing date of March 31, 1996 was extended twice and the project closed on March31, 1998. The Bank loan was 100% disbursed, and the last disbursement took place on July 16, 1998.

The ICR was prepared by Messrs. Albert Amos (LCSFP) and Jorge M. Rebelo (LCSFP), and itwas reviewed by Messrs./Mmes. Maria Victoria Lister (Quality Assurance Support Unit), Jeffery S.Gutman (Lead Specialist, LCSFP) and Gobind Nankani (Director, LCC5C).

Preparation of the ICR was initiated during the Bank's supervision mission in February 1998 andfinalized during the Bank's ICR mission in September 1998. It is based on material in the project file anddiscussions with the Borrower. The latter contributed to the preparation of the ICR by preparing aretrospective assessment of the project and conducting an ex-post economic evaluation of the project.

ii

EVALUATION SUMMARY

BRAZIL


(LOAN 3457-BR)

Introduction

i. The Sao Paulo Metropolitan Transport Decentralization Project was the fifth of ten Bank loans toBrazil in the urban transport sector approved since 1978. This loan was the first in a program designed toassist the Government of Brazil in transferring the ownership and management of the Federally-ownedBrazilian Urban Train Company (CBTU) to the States where its subdivisions were located. The 1988Brazilian Constitution mandated the transfer of ownership and management of urban transport systems tolocal (state and municipal) governments and, in 1991, GOB decided to implement this mandate. Atappraisal, CBTU operated urban rail services in 44 municipalities spread over 9 states with a totalpopulation of 38 million inhabitants and total ridership levels averaging roughly 1.9 million dailypassengers. The largest nine CBTU commuter systems were located in Rio de Janeiro (380 km), SaoPaulo (192 km), Recife (52.5 km), Belo Horizonte (33.6 km), Salvador (13.5 km), Fortaleza (42 kin),Macei6 (33 km), Joao Pessoa (30 km) and Natal (56 km). The program designed by the Braziliangovernment called for the transfer of all 9 of these systems to their respective States.

ii. The commuter rail system serving Sao Paulo had deteriorated significantly due to themaintenance backlog accumulated during the last five years of CBTU's management. Passenger trainsbroke down frequently, and the track, signaling, telecom and power infrastructure were in poor conditioni,causing frequent service disruptions, severe overcrowding of trains, and unsafe conditionis with anunacceptably high number of accidents and fatalities. Since the Sao Paulo rail commuter system wasmanaged by CBTU from its Rio de Janeiro headquarters, service provision, maintenance needs, andinvestment priorities were frequently disconnected from local expectations and poorly integrated withother modes. Finally, CBTU-SP was badly managed from a financial standpoint and had a large operatingdeficit. The Bank agreed to assist the Government of Brazil in carrying out its decentralization programsince the project provided a unique opportunity to make structural changes in the urban transport sector,promote modal integration and improve long-term financial sustainability. In addition, the Bank's role asthe "honest broker" was crucial in mediating between the Federal and State governments, since the latterwere distrustful of receiving the systems, which were highly deteriorated and required substantialoperating subsidies.

Project Objectives

iii. The stated broad objective of the Sao Paulo Metropolitan Transport Decentralization Project(3457-BR) was to lay the foundations for the financial, institutional, and organizational policy changes toachieve sustainable integrated multimodal transport in the Sao Paulo Metropolitan Region. The specificobjectives of the project were to: (i) support the Federal Government in its efforts to transfer the CBTU-SP subdivision to the State of Sao Paulo to enhance its management and operations; (ii) introduceinstitutional, organizational, and financial policy reforms to ensure its long-term financial sustainability,including cost-efficiency gains, improved multimodal integration, expanded capacity and substantialreduction in subsidies; and (iii) contribute to poverty alleviation and environmental improvement (by

iii

facilitating access to work, decreasing travel time to and from work, reducing congestion, and reducingaccidents and fatalities through the provision of safer and more comfortable rail transport).

Implementation experience and results

iv. The project objectives were substantially achieved. Some of the results achieved by the project,particularly in regard to sector restructuring, were significant: (i) full decentralization of the CBTU-SPsubdivision from the Federal Government to the State of Sao Paulo and the creation of a new company,the Metropolitan Train Company of Sao Paulo (CPTM) to operate the transferred assets; (ii) merger ofCBTU-SP with FEPASA, the state-owned metropolitan railway, under the CPTM umbrella providing270-km of unified commuter lines to the region; (iii) creation of a Secretary of Metropolitan Transport(STM) within the State government to enhance coordination of metropolitan transport services; (iv)development of a serious effort to integrate rail with other transport modes (Metro, bus, trolley bus, andautos) and discussion of metropolitan transport issues through an informal Regional TransportCoordination Commission (RTCC), where the State, the Municipality of Sao Paulo and othermunicipalities and all operators are represented; (v) preparation of a study to evaluate options toconcession out CPTM to the private sector with an action plan for its implementatioll; and (vi)preparation of a study to propose financial mechanisms for the sector. The infrastructure and equipmenltrehabilitation program of the project achieved inter alia: (i) rehabilitation of 50 trains and 19 stations, newtelecom and signaling systems, improvement of track infrastructure and a new operational control center;and (ii) improvement of safety conditions, evidenced by the reduction from 160 to 2 fatal accidents peryear.

V. Initial delays between loan approval and effectiveness plus the delays in setting up a specialaccount in a commercial bank (the first time that this was being done in Brazil) were among the criticalfactors that resulted in the 18 month extension of the closing date. Furthermore, the introductioni of a newcurrency (the Real) with a stronger than expected exchange rate to the dollar and the approval of a newnational procurement law were additional factors, which could not be identified at appraisal that causedimplementation difficulties. These difficulties were overcome by a very intensive project supervisioneffort. Although the infrastructure and equipment componenit was duly completed, delays in thecompletion of train rehabilitation contracts resulted in low train availability throughout most of theproject period, which had a negative effect on passenger traffic levels and operating subsidy targets. Soonafter the delivery of the rehabilitated trains, which was completed barely I monthi before the closing date,there were already visible improvements in the level-of-service offered by CPTM.

vi. Decentralization. This primary project objective was achieved in full. The transfer process wasinitiated in August 1991 with the signing of the Decentralization Agreement, which defined the generalterms of the transfer of CBTU urban rail assets and operations to the State government. Enacted inAugust 1993, the Asset Transfer Law amended the prevailing legal framework to permit thedecentralization of federal assets and mandate the eventual transfer of all urban rail assets within CBTUto their respective state and municipal governments. The decentralization process was completed on May28, 1994 with the transfer of CBTU, FEPASA, and RFFSA rail assets in the SPMR to the newly created,state-agency, CPTM.

vii. Multimodal Integration. This objective was substantially achieved and is now regarded as abasic strategic pillar in any new urban transport investment in the SPMR. The project consolidatedmetropolitan rail services that had been previously provided by FEPASA and CBTU under the CPTMumbrella and reconfigured existing bus lines to better complement the urban rail network. STMconcurrently carried out a number of actions to better integrate CPTM operations with Metro andmetropolitan bus services provided by Empresa Metropolitana de Transportes Urbanos (EMTU) and the

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municipal-owned Sao Paulo Transportes (SPTRANS). STM has also designed an integrated urbantransport, land use, and air quality strategy (PITU) to promote modal integration and improve investmentplanning. To improve connections with the Sao Paulo Metro (subway), CPTM is scheduled to transfertwo of its lines to the Metro in November 1998. A study financed by the project identified the intermodalconn'ections needed to encourage the use of rail networks as the main passenger trunk corridors. To thisend, STM is gradually reconfiguring bus networks to better feed CPTM and Metro. These efforts areindicative of the crucial role of STM in promoting a dialogue between transport operating agencies.

viii. Physical Works. The project infrastructure and equipment component was satisfactorilycompleted, albeit with considerable delays, and at a cost overrun of US$12.4 million (or 4.4 percenthigher than appraisal estimates). Low train availability due to insufficient Federal (beforedecentralization) and State budget allocations for maintenance activities throughout most of the projecthad a negative effect on passenger traffic. This situation was compounded by the two-year delay in thedelivery of the rehabilitated trains. A consortium of two respected local manufacturers, which had beenawarded the 101 train series contract on an ICB bid, experienced serious financial difficulties after theintroduction of the Real. Although several options were proposed, such as canceling the contract, themoney and time losses stemming from possible judicial litigation led CBTU to a protracted period ofnegotiations with the two firms. In the end, the problems were resolved satisfactorily but the delay indelivering the 101 train series affected the quality of service offered.

ix. Without the rehabilitated trains, available peak-period capacity was stretched and total passengertraffic steadily decreased. Difficulties in finding available space on trains and often cramped conditionsconistrained ridership. By project end, daily passenger traffic decreased 10 percent. With the delivery ofthe rehabilitated trains, train availability has increased to 72 percent and passenger traffic has started torespond accordingly. In addition, the project financed the renovation of 19 stations, the construction ofthe new Lageado station, an Operational Control Center, and 9 pedestrian bridges, and the installation ofmodern telecom and signaling equipment. In response to public and political pressure, the State increasedCPTM's mainteniance budget in late 1996, helping CPTM to carry out an emergency rehabilitationprogram that decreased the maintenance backlog that had accumulated in its first two years. One of themain advantages of decentralization was to force the State to react faster to public complaints andimprove the condition of the trains and infrastructure.

x. Economic Evaluation. Project civil works, which accounted for a total investment of US$284.8million (at 1998 prices) or 97.1 percent of total project cost, yielded a project net present value (NPV) ofUS$138.1 million, and an economic rate of return (ERR) of 18.6 percent. These calculations include thebenefits of the externalities achieved stemming from project implementation, e.g., fewer accidents,reduced congestion, and improved air quality. If these externalities are factored out, the project wouldstill have an ERR of 16.4 percent and an NPV of US$87.8 million.

xi. Urban Transport Sector Strengthening. A major contribution of the project was to help createthe enabling environment needed to restructure the institutional framework for urban transport in theSPMR. As a condition for appraisal, the State of Sao Paulo established the Secretary of MetropolitanTransport (STM) to be in charge of all metropolitan transport in the SPMR. The project was alsoinstrumental in pushing for the creation of a Regional Transport Coordination Commission (RTCC), aninformal forum for the State, municipal governments, and transport service providers to discuss urbantransport issues common to the region, such as modal integration, automated ticketing, tariff and subsidypolicies.

xii. CPTM Institutional Strengthening. This objective was partially achieved through the studiesincluded in the institutional component, which were intended to develop, build, and deepen institutional

v

capacity within CPTM. The project substantially improved management information systems,management of financial resources, revenue generation, and organizational processes. Although CPTMdid not achieve the mid-term review working ratio target of 1.40, this ratio nevertheless declined from4.23 to 1.81 from 1990 to 1997. The improved working ratio is linked to an increase in revenues. CPTMstill requires subsidies (estimated at US$91.6 million in 1997) due to overstaffing and high fare evasion,but it should be noted that 1997 was an unusual year as service interruption caused an increase insubsides. CPTM is also constrained by political interference and bureaucratic red tape. These factorsexplain why the concession of the CPTM system to the private sector would be desirable. To encouragegreater private sector participation in the management of CPTM, the project financed a major study toevaluate the options available and prepare an action plan for procuring a concession of the system. Thewillingness to undertake the study shows that decision-makers are now ready to explore private sectorparticipation in rail operations, another important achievement of this project.

xiii. The project assisted in the transfer of tariff setting functions for commuter rail services to theState, harmonized tariffs with the transferred FEPASA lines, and raised CPTM tariffs to more closelyreflect the cost of service delivery. By project end, commuter rail tariffs (in 1991 constant dollars) wereUS$0.79, or more than double the appraisal target for the end of the project. To maintain price stability,CPTM was provided with a single opportunity to raise tariffs during the subsequenttwelve-month periodafter the introduction of the Real. However, the higher tariffs, the economic downturn in 1995, and thedelayed delivery of the rehabilitated trains all had a negative impact on passenger demand. Passengertraffic decreased by about 10 percent from pre-project levels to 796,000 daily passengers, or slightlylower than 830,000 target set during the mid-term review. This decrease was also due to lower trainavailability, which began to improve in 1998.

xiv. Through project implementation, the fare evasion rate was around 25 percent. Unfortunately,CPTM has been slow in taking the necessary measures to reduce fare evasion. CPTM has hired 1200guards and began installing station enclosures. The project itself financed the construction of right-of-wayseparation barriers. It is estimated that a 50 percent reduction in fare evasion would reduce operatingsubsidies by 16.6 percent. Installation of automated ticketing machines would also help to reduce fareevasion. The problem of fare evasion would certainly be handled more aggressively under a concessioncontract with the private sector, as was shown with the concession of the commuter rail lines in BuenosAires.

Bank Performance

xv. Bank performance is satisfactory during preparation, appraisal, and supervision. Duringpreparation (and again at appraisal), the Bank strengthened the capacity of CBTU to carry out thetechnical, economic, and financial evaluations and undertake Bank procurement procedures. The use ofeconomic evaluation and strict financial assessment methodologies in investment planning is now therule. During supervision, the Bank played the role of the "honest broker" by mediating between theFederal government and the State, especially during the most critical stages of the decentralizationprocess. This role was highly appreciated by both sides. In sensing a favorable shift towards theacceptance of concessions to the private sector, the Bank encouraged the evaluation of options forconcessioning out the CPTM system to the private sector and convinced the State to undertake a majorstudy on this subject. This study laid the groundwork for the concession of CPTM, which should takeplace by late 1999. During supervision, the Bank was instrumental in resolving the difficulties related tothe train rehabilitation program, and encouraging the creation of an informal RTCC, which has been animportant entity for promoting modal integration in the metropolitan region. The project team also held anumber of presentations to the urban transport community emphasizing the basic pillars for sectorsustainability, which include: (i) the Regional Transport Coordination Commission; (ii) the Integrated

vi

Urban Transport, Land Use and Air Quality Strategy; (iii) financial mechanisms to improvesustainability; and (iv) private participation in the operation of urban transport systems.

Borrower Performance

xvi. Borrower performance was overall satisfactory during project preparation, appraisal, andimplementation. The Federal Government deserves high marks for enacting the Asset Transfer Law (Law8693/93) and assuming previous debt commitments. However, it was slow in approving the loan and theprocedures necessary to set up the special account in a commercial bank, and did not provide adequatemaintenance budgets to CBTU-SP between loan appraisal and decentralization. CBTU, was a diligentimplementation agent, and quickly learned Bank procurement methods and economic and financialmethodologies. CBTU management also acted promptly in obtaining the necessary approval of thedecentralization law and overcoming implementation difficulties imposed by the new currency and thenational procurement law. The State government was excellent in all the institutional aspects related tothe decentralization process, but similarly failed to provide adequate maintenance funds to ensure trainavailability-at least until late 1996. From that point onward, the State made a significant effort toprovide funds to CPTM, which enabled the company to dramatically improve the level of serviceprovided. From 1997 onwards, the State made the improvement of CPTM's services and image one of itsmain priorities and launched a number of investment programs to arrest further deterioration of thesystem. Although not part of the project, the State failed to seize the opportunity to concession out CPTMbefore the end of its term.

Summary of Findings

xvii. General project outcome was considered to be satisfactory. Decentralization of the CBTU-SPsystem to the State government and the merger of two existing commuter railways (CBTU and FEPASA)into the newly created CPTM, was successfully completed. This merger unified 270 km of commuterlines and improved modal integration. The project also laid the foundation for the necessary financial,institutional, and organizational policy changes to achieve sustainable and integrated multimodaltransport in the SPMR. The physical condition of the urban commuter system in Sao Paulo is in markedlybetter condition, especially with the addition of the rehabilitated trains, completion of the stationrenovation works, and installation of modern signaling telecommunications and electrical equipment.These works should serve to reduce maintenance costs and improve service delivery. Effective revenuegeneration has improved CPTM's finances, but its financial performance remains weaker than expected.CPTM is now better poised for a potential concession, which is under preparation.

Future Operation

xviii. Building on the progress achieved, the next critical step is the concession of CPTM. Notably, theintroduction of private sector participation would improve CPTM's financial performance by increasingits commercial orientation, supporting staff retrenchment, and limiting fare evasion. Political interferencewould also be reduced. The concession of the CPTM system is one of main objectives in the first follow-up project in the SPMR, the Sao Paulo Integrated Urban Transport (Barra Funda-Roosevelt Link). Barra-Funda is also supporting intermodal integration by financing the infrastructure and equipment necessaryto physically link all CPTM commuter lines with the Sao Paulo subway system. The GOB'sdecentralization agenda continues to more forward. The Sao Paulo Metropolitan TransportDecentralization Project, which was undertaken in parallel with a similar decentralization initiative in Riode Janeiro, has been emulated in later lending operations in Recife and Belo Horizonte. The project hasalso provided the conceptual framework in support of the transfer of CBTU subdivisions to othermunicipalities (Salvador and Fortaleza).

vii

Lessons Learned

xix. The following lessons learned were derived from this project:

xx. Gradual Decentralization Process. Although this project has been highly innovative insupporting one of the rail first transport decentralization initiatives in the world, a more gradual transitionwould have likely minimized the difficulties associated with the actual transfer. After the State assumedthe ownership and management of the system, there should have been a I to 2 year transition periodduring which the Federal Government continued to contribute a pre-negotiated amount to help the Statein operating the system. A contribution that would be phased out at the end of the transition period wouldhave eased the burden of the State while it set up the new company. Furthermore, the best scenario wouldhave been if the State, shortly after this transition period, tried to concession out the decentralized systemto the private sector. These lessons were applied in the ongoing sister project in Rio de Janeiro, where thesystem was concessioned 3 years after decentralization.

xxi. Decentralization Followed by Concession. Despite the fact that the state-owned operatingagency is better placed than CBTU to respond to local realities, CPTM is still constrained by politicalinterference and bureaucratic red tape, which affects its productivity. CPTM like most state-ownedagencies is unable to eliminate operating subsidies. These factors are best addressed through a concessionto the private sector. Decentralization is, therefore, only a mandatory stopover in the journey to greaterprivate sector participation. The 1988 Constitution allows the States, but not the Federal government, toconcession out the provision of urban transport services. In addition, CBTU management had feared thatif the condition to concession out the system to the private sector had been introduced at appraisal, therewould have been political and labor opposition to the decentralization. Now that the political climate ismore favorable to concessions, future projects should consider including dated covenants, which requiresubstantial private sector participation in the system. Subsequent Bank lending operations in the railsector in Rio de Janeiro, Belo Horizonte, and Recife have made private participation a critical objectiveof project implementation.

xxii. Reducing Fare Evasion. In systems where there is substantial fare evasion, it is important tochallenge base data on evasion estimates more thoroughly and periodically than was done by CBTU. Theimpact of fare evasion should not be underestimated, as it has led to inaccurate estimates of totalpassenger traffic and the amount of operating subsidies required. Station and right-of-way enclosures,automated ticketing machines, outsourcing of ticket sales and revenue collection to private firms as wellas hiring a larger security force are deterrents to fare evasion and should be included as dated covenantsin future projects. Fare evasion and ticket fraud are common problems in most state-owned systems in theworld, but have been drastically reduced after the private sector takes over, as demonstrated in theBuenos Aires system.

xxiii. Whether to Rehabilitate Existing Trains or Purchase New Trains. The issue of whether topurchase new trains or rehabilitate existing trains was heavily debated during appraisal. The Borroweropted for rehabilitation due to the lower costs involved-US$2.5 to 3.0 million for a rehabilitated train asopposed to US$10 million for a new train-and the relatively shorter time periods for completing trainrehabilitation works. Given the delays experienced, it might have been preferable to have opted for a mixof rehabilitated and new trains, even if there is no guarantee that the new trains would have beendelivered on time. Potential delays in the delivery of rehabilitated trains should be factored in projectpreparation by providing adequate slack in the rehabilitation schedule and adjusting operating plansaccordingly.


BRAZIL

LOAN 3457-BR

PART I. PROJECT IMPLEMENTATION ASSESSMENT

A. STATEMENT OF OBJECTIVES

1. The stated broad objectives of the Sao Paulo Metropolitan Transport Decentralization Project(Ln. 3457-BR) were to lay the foundations for the financial, institutional, and organizational policychanges required to achieve sustainable integrated multimodal transport in the Sao Paulo MetropolitanRegion. The specific objectives of the project were to: (i) support the Federal Government in its efforts totransfer the CBTU-SP subdivision to the State of Sao Paulo to enhance its management and operations;(ii) introduce institutional, organizational, and financial policy reforms to ensure its long-term financialsustainability, including cost-efficiency gains, improved multimodal integration, expanded capacity andsubstantial reduction in subsidies; and (iii) contribute to poverty alleviation and environmentalimprovement (by facilitating access to work, decreasing travel time to and from work, reducingcongestion, reduction accidents and fatalities through the provision of safer and more comfortable railtransport).

B. ACHIEVEMENT OF OBJECTIVES

2. The broad project objectives were substantially achieved despite implementation delays largelybeyond the control of the implementation agency. Initial delays between loan approval and effectivenessplus the delay in setting up a special account in a commercial bank (the first time that this was being donein Brazil) had a negative effect on project implementation and were primarily responsible for the 18month extension of the closing date. Furthermore, the introduction of a new currency (the Real) with astronger than expected exchange rate to the dollar and the approval of a new national procurement lawwere factors, which could not be identified at appraisal that caused implementation difficulties anddelays. These difficulties were skillfully overcome by a very intensive project supervision effort. Some ofthe results achieved by the project, particularly regarding sector restructuring, have been significant:

* Full decentralization of the CBTU-SP subdivision from the Federal Government to State of SaoPaulo and the creation of a new company, the Metropolitan Train Company of Sao Paulo (CPTM),to operate the transferred assets. Decentralization included the transfer of ownership and operationsof the system, and was free of any debt or labor liabilities incurred prior to the transfer;

* Merger of CBTU-SP with FEPASA, the state-owned metropolitan railway, under the CPTMumbrella providing 270 km of unified commuter lines to the region;

* Creation of a Secretary of Metropolitan Transport (STM) within the State government to enhancecoordination of metropolitan transport services;

* Development of a serious effort to integrate rail with other transport modes (Metro, bus, trolley bus,and autos) and for discussing metropolitan transport issues through an informal forum, the Regional

2

Transport Coordination Commission (RTCC) ', where the State, the Municipality of Sao Paulo andother municipalities and all transport operators are represented;

* Preparation of a study to evaluate options to concession out CPTM to the private sector and anaction plan for the implementation of the concession;

* Preparation of a study to propose financial mechanisms for the sector;

* Rehabilitation of 50 trains and 19 stations, construction of a new commuter rail station, new telecomand signaling systems, improvement of track infrastructure and a new operational control center; and

* Improvement of safety conditions, evidenced by the reduction from 160 to 2 fatal accidents per year.

3. Background. At appraisal, CBTU operated urban rail services in 44 municipalities spread over 9states with a total population of 38 million inhabitants and total ridership levels averaging roughly 1.9million daily passengers. The largest nine CBTU commuter systems were located in Rio de Janeiro (380km), Sao Paulo (192 km), Recife (52.5 km), Belo Horizonte (33.6 km), Salvador (13.5 km), Fortaleza (42km), Macei6 (33 km), Joao Pessoa (30 km) and Natal (56 km).2 To operate these services, CBTUrequired an estimated $700.0 million in annual subsidies from the GOB, which became difficult to sustaingiven recurring fiscal deficits and urgent macroeconomic and investment priorities. This policy alsocreated an institutional dependence on government subsidies and curtailed incentives within CBTU forimproving financial sustainability through revenue maximization, expenditure reduction, and tightenedfare evasion. Especially during the 1980s and early 1990s, Federal Government budgetary support toCBTU was insufficient to address general rehabilitation and maintenance needs, which led to a gradualdeterioration of rolling stock and track infrastructure and a general decline in the level of service offered.In turn, this situation affected ridership levels.

4. The CBTU subdivision for Sao Paulo, a metropolitan area of 16 million inhabitants, was severelyaffected by the maintenance backlog accumulated during the 1980s and early 1990s. Passenger trainsbroke down frequently and track, signaling, telecom and power infrastructure were in poor condition,causing frequent service disruptions, severe overcrowding of trains and often dangerous conditions.Unlike the other modes (buses, trolleys, Metro, FEPASA commuter railway) in the Sao PauloMetropolitan Region (SPMR) which were under the jurisdiction of either municipal or State agencies,CBTU-SP was part of a federally-owned agency. Since the Sao Paulo rail commuter system was managedby CBTU from its Rio de Janeiro headquarters, service provision, maintenance needs, and investmentpriorities were frequently disconnected from local expectations and poorly integrated with other modes.The existence of 3 levels of government dealing with urban transport in the SPMR complicated tariff andmodal integration and was the main obstacle for improved transport coordination.

5. In 1991, to improve this situation and fulfill the mandate outlined in the 1988 FederalConstitution, the GOB decided to decentralize urban rail services under CBTU to their respective States(or municipalities), beginning with the rail systems in Sao Paulo and Rio de Janeiro.3 The transfer ofurban rail transport services and assets to local governments was undertaken to improve service

I The RTCC for the SPMR is called "Camaras Tematicas"

2 In 1984, the Govemment of Brazil established the Brazilian Urban Rail Company (CBTU), by separating suburban from freight railservices, which were both being provided by the Federal Railway (RFFSA), along 810 km of existing rail lines in nine states.

3 A parallel lending operation, Ln. 3633-BR, supported the decentralization of the commuter rail system in Rio de Janeiro.

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provision, permit greater discretion at local levels in planning and implementing investment priorities,better integrate bus and rail services, and improve financial sustainability. To encourage the States to takeover the systems, the Federal Government agreed to finance this rehabilitation as well as assume debtcommitments and labor liabilities incurred prior to the transfer. In return, the States would assumeownership of the systems and responsibility for their operation, management, and any operating subsidiesrequired after the transfer. The Federal Government would finance technical assistance to set up a newstate-owned entity, the Companhia Paulista de Trens Metropolitanos (CPTM) to operate the transferredservices. The GOB approached the Bank to finance the CBTU decentralization program in 1991. TheBank agreed to assist Brazil in this program because this was a unique opportunity to undertake structuralchanges in the urban transport sector, promote its modal integration, and improve prospects for its long-term financial sustainability. In addition, GOB indicated to the Bank that the role of an "honest broker"would be crucial in mediating between the Federal and State governments, as the latter were distrustful ofreceiving systems that were highly deteriorated and required substantial operating subsidies.

6. Decentralization of CBTU-SP. This primary project objective was achieved in full. Completingthe transfer process ahead of schedule represented a major achievement given the legal prerequisites andcomplicated negotiations that were involved. The transfer process was initiated in August 1991 with thesigning of the Decentralization Agreement, which defined the general terms of the transfer of CBTUoperations in the SPMR to the State government. The passage of the CBTU Asset Transfer Law(8693/93) in August 1993 amended the prevailing legal framework to permit the decentralization ofCBTU, i.e. the eventual transfer of all urban rail assets within CBTU to their respective State andmunicipal governments. Throughout the process, extensive discussions and town hall meetings were heldwith impacted constituencies, e.g. local politicians, labor unions, and user associations, to discuss thechallenges and potential benefits of decentralization. The decentralization process was completed on May28, 1994 with the transfer of CBTU and FEPASA rail assets in the SPMR to CPTM. The merger ofFEPASA, the state-owned commuter railway, with CPTM unified 270-km commuter of lines to betterserve metropolitan transit needs.

Table 1: Important Decentralization MilestonesDate Achievement

August 1991 * Signing of Decentralization Agreement by the Federal Government and the State of SAo Paulo

May 1992 * Establishment of CPTM through Law 7861/1992 (Sao Paulo State)

December 1992 * Signing of an Addendum to the Decentralization Agreement

July 1993 * Nomination of CPTM Managerial Board

August 1993 * Enactment of the Asset Transfer Law by the GOB (Law 8693/93)

December 1993 * Agreement between CBTU and RFFSA for the valorization and transfer of RFFSA assets to CBTU

March 1994 * Public Decree by the Sao Paulo State Govemment for accepting the transferred assets

* RFFSA and FEPASA Management Boards approve transfer of their respective shares and assets to CBTU

* CBTU and CPTM Management Boards approve the division and separate incorporation of CPTMMay 1994

* Signing of the relevant legal documentation; completion of the transfer of CPTM to Sao Paulo Stategovernment

Sources: CPTM, Bank Staff

7. Despite initial difficulties, CPTM has steadily improved its internal operations and hasdemonstrated sufficient capacity in managing and operating the commuter rail system. At the time of thetransfer, CBTU had completed less than 30 percent of the agreed works and had neglected the

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maintenance funding for CPTM due to the financial crisis at the State level. Only in late 1996 and inresponse to public pressure, the State administration made urban transport a greater priority by increasingmaintenance allocations to CPTM. CPTM has since improved its maintenance activities and has started totighten fare evasion controls.

8. The physical condition of the transferred assets and overall service provision have improvedconsiderably since the transfer to the State government. Decentralization has facilitated the identificationof investment needs and planning strategies for improving commuter rail services, including betterintegration with other transit services. In addition, the administration of urban rail services has beenplaced closer to users, as policy changes affecting service levels or tariff increases have been met withpublic reactions requiring immediate response. Local governments are also beginning to exploit theeconomic growth potential of rail lines in their metropolitan regions. Despite these accomplishments, thedecentralization of CBTU operations to the State government and the creation of CPTM should only beviewed as a stepping stone toward the next goal-the concession of the CPTM system to the privatesector.4 Like other major state-owned enterprises, CPTM continues to suffer from political interferencein the appointment of key managerial posts, bureaucracy in procurement decisions, and obstacles inimplementing measures leading to staff retrenchment. CPTM also lacks the commercial orientationneeded to eliminate operating subsidies, i.e. become more user friendly, carry out comprehensive cost-reduction measures, and drastically reduce fare evasion.

9. Multimodal Integration. This objective was substantially achieved and is now regarded as abasic strategic pillar in any expansion and investment in the SPMR. The project consolidatedmetropolitan rail services provided by FEPASA and CBTU under the CPTM umbrella and reconfiguredexisting bus lines to better complement the urban rail network. STM, which was established as anappraisal condition, has concurrently carried out a number of actions to better integrate CPTM operationswith Metro, and metropolitan bus services provided by the state-owned Empresa Metropolitana deTransportes Urbanos (EMTU) and the municipal-owned Sao Paulo Transportes (SPTRANS). Throughstudies finaniced by the project, STM has also designed and periodically reviews an integrated urbantransport, land use, and air quality strategy (PITU) to promote modal integration. PITU has broughtdiscipline to investment planning and execution and has facilitated "town-hall" meetings with users anddecision-makers. As part of these efforts, EMTU is undertaking the Metropolitan Corridors andTerminals Program, which would organize bus lines according to regions and create a network of 66 bustrunk routes, close to 190 feeder bus lines, and 52 rail stations.

10. To improve connections with the Sao Paulo Metro (subway), CPTM is scheduled to transfer twoof its lines to Metro in November 1998. Metro will operate these lines as semi-express services.5 Tophysically link the ex-CBTU and FEPASA systems managed by CPTM, the State is building about 7 kmof track between the Bras-Roosevelt and the Barra Funda stations, building two new stations and arailyard, renovating the Luz station, and installing new telecommunications and signaling equipment.This initiative is being supported by a $45.0 million loan financed by the Bank. One of the best tools usedin promoting multimodal integration was a study financed by the project, which identified the intermodalconnections needed to encourage greater use of rail networks as the main passenger trunk corridors. An

4 The follow-up loan to this project, the Sao Paulo Integrated Urban Transport Project (Ln. 4312-BR) stipulates the award ofthe concessionofthe operation, management, and maintenance of at least one of CPTM's lines by December 31, 2000, at the latest.

CPTM is rehabilitating and modernizing the transferred lines. The Leste Tronco works include the construction of 3 new stations, closingthree parallel stations, replacing S stations with subway stations, and the purchase of 30 new EMUs at an estimated cost of $700.0 million.The Linha Sul works include the development of 7 new stations and integrated rail-bus terminal, and the purchase of 6 EMUs. The latteris being partially financed by the IDB.

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connections needed to encourage greater use of rail networks as the main passenger trunk corridors. Anaction plan developed under the study is gradually being implemented by the STM. These efforts areindicative of the crucial role of STM in promoting a dialogue between transport operating agencies.

PHYSICAL WORKS

11. Improved Level-of Service through Infrastructure and Equipment Rehabilitation. All theworks specified as part of this component were achieved despite two-year delays related to difficulties inmeeting effectiveness requirements, procurement litigation, and the late delivery of the 101 trains series.The success of the project in carrying out physical investments has supported the privatization process byhelping CPTM to become a more attractive candidate for concession, as the responsibility for relievingthe maintenance backlog would have been shifted to the private operator.

12. The rehabilitation and maintenance neglect of the 1980s and early 1990s resulted in the generaldeterioration of the rail system infrastructure. CBTU-SP was characterized by inefficient operations,frequent disruptions caused by equipment shortages and failures, lack of appropriate signaling to increaseheadways, and numerous fatal accidents. The project attempted to ameliorate this situation by directingabout 97 percent of project resources to goods and civil works, which included inter alia, renovatingrolling stock, signaling, power supply, telecommunications, traffic engineering equipment, buildingtransfer points, and improving stations and pedestrian access routes. During appraisal (and the mid-termreview), it was agreed that CPTM would rehabilitate and modernize about 50 trains-twenty-three Series101, twelve Series 160 trains, and fifteen Series 400 trains. The project also financed the rehabilitation of8 locomotives required for CPTM's general services.

13. Less than 30 percent of the rehabilitation and maintenance works agreed by CBTU in the transferagreement had been concluded at decentralization. From the beginning, this delay prevented trainavailability from reaching the level necessary to fully meet passenger demand. Low train availability dueto insufficient Federal (before decentralization) and State budget allocations for maintenance activitiesthroughout most of the project also had a negative effect on passenger traffic. This situation wascompounded by a two-year delay in the delivery of the rehabilitated trains. A consortium of tworespected local manufacturers, which had been awarded the 101 train series contract on an ICB bid,experienced serious financial difficulties after the introduction of the Real. Although several options wereproposed, such as canceling the contract, the money and time losses stemming from possible judiciallitigation led CBTU to a protracted period of negotiations with the two firms. In the end, these problemswere resolved satisfactorily, but the delay in delivering the 101 train series affected the quality of serviceoffered. Without the rehabilitated trains, available peak-period capacity was stretched and total passengertraffic decreased between 1992 and 1996. Soon after the delivery of the rehabilitated trains, which wascompleted barely one month before the closing date, there were already visible improvements in thelevel-of-service offered by CPTM. Passenger levels have since started to recover even further. (Annex II,Table 6)

14. Similarly, performance indicators relating to train availability and utilization rates, which werecrucial to guarantee train capacity at peak-hours, began to improve during the final months of the project.(Part II, Table 6). Due to the aforementioned contractor delays, the train availability rate bottomed out to61 percent in 1996. Without the supply of the rehabilitated trains during most of the projectimplementation period to accommodate potential demand, average daily passenger traffic decreasedsteadily by about 28 percent to 632,000 in 1996, but has since increased to 796,000. Difficulties infinding available space on trains and often cramped conditions constrained ridership. As a result,previous and potential passengers opted to use alternate forms of transit, e.g. buses, non-motorizedtransit, or not travel at all. Train modernization was finally completed in early 1998 and train availability

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has increased to 72 percent. The higher maintenance budget allocations provided by the State since late1996 are expected to further improve train availability. Although passenger traffic will take time tomaterialize, it is expected that the increased supply of urban rail services will lead to a commensurate risein traffic levels, because in most cases when functioning adequately, rail is faster and cheaper than busesin the corridors parallel to the rail lines.

15. Civil works relating to the modernization of 19 stations located throughout the entire system werecompleted with only minimal delays. The renovated works included the addition and repair of protectiveceilings, improved road access, and the construction and renovation of five new and four existingpedestrian overpasses, respectively. The project also financed the construction of the new Lageado railstation, which shortened travel times for 40,000 passengers, and 6.8 km of right-of-way walls to helpreduce fare evasion and accidents. In response to public and political pressure, the State governmentincreased CPTM's maintenance budget in late 1996, helping CPTM to carry out an emergencyrehabilitation program that decreased the maintenance backlog that had accumulated in its first two years.Completed in early 1997, these measures have since increased train availability and improved thephysical condition of stations, trains and railway superstructure. These works, which included theimprovement of the infrastructure along the Noroeste-Sudeste (No/Se) Line helped to quell the violentdemonstrations, that resulted from the temporary shut down of the line in 1996. Ironically, thisdemonstration was a "wake-up" call for the State, which has since earmarked adequate resources for themaintenance and overhaul of CPTM infrastructure and equipment.

16. Improved Headways. The project also financed the installation of modern telecommunications,signaling, and electrical equipment as well as the construction of a new Operational Control Center at theRoosevelt Station. The project was modified to require signaling equipment for the Leste Tronco Line tomeet three-minute headway specifications. To improve communications links between trains and theOperational Control Center and better coordinate service provision, the project also financedtelecommunications equipment-telephone digital radio and radio address systems, fiber optic lines, andsupervision and controlling system-for 17 stations along the Leste Tronco, Variante, and No/Se raillines. Telecommunications equipment was also installed for 350 trains, three times the amount foreseen atappraisal.

17. At the mid-term review in July 1994, only 10 percent of the project funds had been disbursed.With an intensified effort, the civil works relating to the rehabilitation of rolling stock were finished,albeit with a 2 year delay. Total project cost was US$293.4 million, as the project experienced a costoverrun of US$12.4 million (or 4.4 percent of total cost). Increases in project expenditures were largelydue to the appreciation of the Real, which increased the local cost of works and goods that had beenestimated in dollars but contracted in local currency. Differences between estimated and actual projectcosts were made up through counterpart funds.6 (Part 11, Table 8A) Given the historical prevalence ofhigh inflation in Brazil, the introduction of a new currency with a particularly strong exchange rate inrelation to the dollar could not have been foreseen at appraisal. Additional costs were related to thecompensation of contractors for delays caused by the passage of a new procurement law, and the legalchallenges to awarded contracts.

18. Economic Evaluation. Upon completion, ex-post economic evaluation and sensitivity analyseswere undertaken by the Borrower, using the same methodology and parameters employed in the SAR.Although satisfactory, the economic indicators were lower than the appraisal estimates due to the longer

6 Project costs, including contingencies were estimated to be about $281.0 million at the mid-term review. At project end, total expenditureswere estimated at $293.4 million.

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1998 prices) or 97.1 percent of total project cost, yielded a project net present value (NPV) of US$138.1million, and an economic rate of return (ERR) of 18.6 percent. These calculations include the benefits ofthe externalities achieved stemming from project implementation, e.g. fewer accidents, reducedcongestion, and improved air quality levels. If these externalities are factored out, the project would stillhave an ERR of 16.4 percent and an NPV of US$87.8 million.

Institutional Strengthening

19. Urban Transport Sector Strengthening. A major contribution of the project was to help createthe environment necessary to restructure the institutional framework for urban transport in the SPMR. Asa condition for appraisal, the State of Sao Paulo established the Secretariat of Metropolitan Transport(STM) to be in charge of all metropolitan transport in the SPMR. After discussions with the Bank, STMadopted a 4 point strategy for restructuring the transport sector, which consisted of: (i) creating aRegional Transport Coordination Commission (RTCC); (ii) preparing an Integrated Urban Transport,Land Use and Air Quality Strategy (PITU); (iii) introducing financial mechanisms to improvesustainability; and (iv) progressively introducing private sector participation in the operation of urbantransport systems. STM has regularly updated the PITU to address changing needs. The project was alsoinstrumental in pushing for the creation of a Regional Transport Coordination Commission (RTCC), aninformal forum for the State, municipal governments and transport service providers to discuss urbantransport issues common to the region, such as automated ticketing (smart cards), definition of trunkcorridors and feeder lines, organization of bus lines, and tariff harmonization.

20. The establishment of the RTCC has allowed for the rational discussion of proposed investmentsin the sector before being submitted for political approval. A recent example was the discussion of theroutes to be chosen by the "Fura-Fila," a new intermediate capacity transit system to be introduced by theMunicipality of Sao Paulo, which would act as a feeder for the Metro. RTCC discussions have preventedroute duplication and enhanced modal integration. The project also financed the development of theFinancing Mechanisms Study, which proposed new mechanisms for sector financing investments and theprovision of operating subsidies, as needed. The State is now drafting a law based on the studyrecommendations. Finally, STM has concessioned the Sao Mateus-Jabaquara busway to the privatesector, the first busway concession in the world. STM is actively pursuing private sector participation inthe management and operations of CPTM and in the development of the proposed Metro Line 4.

21. CPTM Institutional Strengthening. This objective was partially achieved through the studiesincluded in the institutional component, which were intended to develop, build, and deepen institutionalcapacity within CPTM. The project substantially improved management information systems, financialresource use, revenue generation, and organizational processes. Although CPTM has been better inresponding to local priorities than the Federal Government, the State still has considerable influence overits managerial appointments, imposed bureaucratic red tape in procurement, and constrained staffreorganization. In addition, the financial condition of CPTM has become directly linked to the financialsituation of the State government. This link has become problematic, as evidenced by the limitedavailability of maintenance funds during periods of fiscal uncertainty (especially in the first 2 years aftertransfer). The concession of the CPTM system to the private sector would weaken this link. To this end,the project supported the development of the Concession Options Study, which reviewed the options forincreasing private sector participation in CPTM operations and laid the foundations for the concession ofCPTM lines. Although this study was not explicitly included in the project appraisal, the Bank was ableto convince CPTM management and the State government of its importance. The willingness toundertake the study shows that key decision-makers are now ready to explore private sector participationin rail operations, another important achievement of this project.

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undertake the study shows that key decision-makers are now ready to explore private sector participationin rail operations, another important achievement of this project.

22. Improving CPTM's Financial Management. The financial performance targets set at appraisaland modified during the mid-term review were only partially achieved. The project increased CPTM'sfinancial autonomy, brought investment decisions closer to users, raised tariffs, improved revenuegeneration, and increased operational efficiency. Although CPTM did not achieve the mid-term reviewworking ratio target of 1.40, this ratio nevertheless declined from 4.23 to 1.81 from 1990 to 1997. Theimprovement in the working ratio is largely related to the increase in revenues, which were approximately35 percent greater than estimated at appraisal. This increase in revenues was generated from highertariffs, income from renting station space, advertising, and real estate holdings and was achieved despitethe adverse macroeconomic conditions and the decrease in passenger traffic. CPTM still requiressubsidies (estimated at US$91.6 million in 1997) due to overstaffing and high fare evasion, but it shouldbe noted that 1997 was an unusual year as service interruption caused an increase in subsides. Toimprove its financial sustainability in the long-term and reduce its reliance on subsidies, CPTM needs toattract higher paying passenger demand, carry out a comprehensive cost reduction program, furtherincrease non-operating revenues, and drastically reduce fare evasion. For example, it is estimated that a50 percent reduction in fare evasion would reduce operating subsidies by about 16.6%.7

23. Passenger Traffic. Daily passenger traffic for the commuter system is highly sensitive tochanges in economic growth, tariffs, and service levels. Potential traffic demand, which was estimated atappraisal to be about 1.20 million passengers per day at project end, was revised downward to about 0.83million at the midterm review in July 1994. This forecast was based on recapturing passenger demandlost to buses, as travel times between stations and the central business district and the generalized costs ofservice are lower by rail.8 Although a full demand analysis based on the Tranplan model was used toestimate CPTM demand, an analysis undertaken at the mid-term review suggested that the assumptionsused to estimate total traffic generation in the SPMR were optimistic due to: (i) a general decrease inurban transport trips by all modes in the SPMR caused by a slowdown in economic activity and increasedunemployment; (ii) longer than expected delays in providing rehabilitated trains, since passenger demandin Sao Paulo is supply driven, especially during peak hours; and (iii) flaws in the data used for estimatingtotal daily passengers carried, which was based on the number of paying passengers divided by a fareevasion coefficient (estimated by survey). Passenger traffic by the end of the project reached 796,000daily passengers, slightly below the 830,000 forecast at the mid-term review. This sustained decrease wasdue to three factors: (i) the decline in economic growth that took place from late 1994 to 1996 and againin mid-1998, which affected all transit modes. The 1997 O-D survey indicated that there were 7 percentfewer public transport trips (all modes) in the SPMR compared to the 1987 O-D survey; (ii) delays inreceiving rehabilitated trains, which persisted after the mid-term review, resulting in fewer trains at peakhours; and (iii) higher than expected tariffs, which lessened demand among low-income users, especiallyamong workers ineligible to receive the "vale-transporte," and for non-work related trips.9

7 This calculation is based on the potential revenues generated from total fare evading riders multiplied by the current tariff. A 75 percentand 100 percent reduction in fare evasion would decrease operating subsidies by 24.8 percent and 33.1 percent, respectively.

8 Generalized costs of service are a function not only of travel times, but also of tariffs, service reliability, and safety.

9 Additional factors that may have impacted on the level of passenger traffic include competition from other forms of urban transit, such asinformal vans, which proliferated since 1992, and growth in non-motorized vehicle traffic. The initial demand analysis suggested thattariff increases higher than those proposed at appraisal would have a negative impact on non-work related trips. The "vale-transporte"refers to a targeted subsidy to low-income groups that requires the employer to assume the difference for commuting costs above 6 percentof total annual earnings.

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24. Tariffs. The project assisted in the transfer of tariff setting functions for commuter rail servicesto the State, harmonized tariffs with the transferred FEPASA tariffs, which were 3 times greater thanthose of CPTM at the time of appraisal, and raised CPTM tariffs to more closely reflect the cost ofservice delivery.'" These efforts were aided by the firm measures required by the introduction of the newcurrency, which imposed economic discipline and allowed politically sensitive tariff increases. Tomaintain price stability, CPTM was provided with a single opportunity to raise tariffs during thesubsequent twelve-month period after the introduction of the Real. In discussions with the Stategovernment, CPTM opted to increase tariffs well beyond what had been agreed at appraisal (and despiteforecasts that such an increase in tariffs would result in a significant negative impact on the non-workdemand)." The economic downturn that took place the following year had a negative impact on1 overalltransport user demand, especially for those users who were not entitled to the "vale-transporte."'2 Byproject end, commuter rail tariffs (in 1991 constant dollars) were $0.79, which represented more thantwice the tariff target, $0.37, specified at appraisal. The CPTM tariffs continue to be 70 to 90 percent ofurban and intermunicipal bus tariffs, respectively. For users willing to travel and faced with a choice ofusing the bus or CPTM, the most important factor is the level-of-service offered. Due to the improvedlevel of service offered, CPTM expects to recapture some of the "low-income" user market, which it lostto the buses and vans from 1994 to 1997.

25. Fare Evasion. This problem has not been satisfactorily addressed during project implementationand remains at roughly the same level as at effectiveness. CPTM launched a specific survey on majorstations to assess the prevalence of fare evasion and arrived at an adjusted rate of 25 percent, consistingof 15 percent of ticket paying avoidance plus 10 percent in revenue losses due to ticket theft or loss. Fareevasion has hurt the financial sustainability of CPTM. Toward the end of the project, CPTM hired about1200 guards and began installing station enclosures. Due to bureaucratic red tape at the State level, it tookCPTM two years to hire this security force. However, the additional guards have been primarily used toprevent accidents and enforce safety at stations rather than limit fare evasion. The project itself financedthe construction of right-of-way separation barriers to block outside access to right-of-way platforms.Nevertheless, fare evasion would certainly be handled more aggressively under a concession contractwith the private sector as was shown with the concession of the commuter rail lines in Buenos Aires.

26. Cost Reductions. Despite substantial reductions in overtime expenses, more drastic costreductions were not achieved in large part due to federal legislation mandating salary adjustments andbenefits right after decentralization. Bureaucracy at the State level also prevented the implementation of amore encompassing staff retrenchment plan. Additional factors that raised operational expendituresinclude the implementation of the emergency works program, anti-vandalism initiatives, the improvedsecurity presence, and higher energy costs due to an increase in electricity rates at peak-hours. Despitethese factors, CPTM has been able to reduce personnel costs as a percentage of total operationalexpenditures-from 70 to 51 percent. In addition, the modernization works financed by the project-therehabilitated trains, station renovation, the implementation of new fiber optic telecommunicationsequipment, etc-will serve to lower CPTM maintenance costs over time. A Constitutional bill onadministrative reform, currently under consideration would: (i) allow civil servants to be removed fromGovernment employment in case of an excess of personnel; (ii) establish an overall wage and pensionceiling; and (iii) allow the Government to place civil servants on leave with reduced wages. The

0 The state and municipal governments have historically set subway (Metrd) and EMTU (bus) tariffs, respectively.

I At the time, it was suggested that tariffs should be doubled. Tariffs are now four times greater in real terms than at appraisal.12 Although workers in the informal economy, which comprises 50 percent of urban commuters, are not entitled to the "vale-transporte,"

roughly half of these workers frequently have their commuting costs covered by their employers and is built into their salaries. However,about 20 to 30 percent of low-income urban commuters still lack any sort of financial assistance in regard to commuting costs.

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significant reduction of fatal accidents should also decrease the number of expensive legal actions againstCPTM. Nevertheless, the fastest way to reduce costs is to concession CPTM to the private sector, as thelatter is more agile in trimming overstaffing and is not constrained by the State bureaucracy.

27. Poverty Alleviation. As a result of the late delivery of the trains, this objective was only partiallyachieved within the planned timetable. At one point, travelling conditions for the low-income populationwith no other transport alternatives available worsened as a result of train shortages and overcrowding.Travel conditions began to improve toward the end of the project as soon as the rehabilitated trains cameon-line. User surveys show that the improvements have been noticed, but that the low-income ridersexpect better train availability and frequency. An estimated 78 percent of daily passenger traffic in theSao Paulo system consists of low income passengers who live in the outskirts of the SPMR and earn lessthan five minimum wages. The number of non-work related trips were certainly affected by the drastictariff increase. Despite the tariff increase, rail tariffs continue to be 70 to 90 percent of urban andintermunicipal bus tariffs, respectively. Although the poor who have access to the "vale-transporte" werelargely not affected by the tariff increases, potential users not employed in the formal sector or withoutjobs, may have opted to forgo travel altogether, especially during economic downturns. According to thelatest SPMR O-D survey, the number of home to work trips by foot increased substantially in number andin average distance walked.

28. Social and Environmental Impact. This objective was partially achieved through the substantialreduction of fatal accidents (from 160 to 2). Air quality improvements related to a rationalization of busroutes and a shift of passengers from bus to rail will only become significant after train availability ishigh enough to recapture some of the traffic lost to buses.

C. MAJOR FACTORS AFFECTING THE PROJECT

29. Introduction of the Real. The introduction of the Real at an 0.83:1 exchange rate to the USdollar and the strong measures used to maintain macroeconomic stability eradicated hyperinflation,increased foreign reserves, and established the foundation for private sector growth. As a result of thesemeasures, CPI inflation decreased from 2,668 percent in 1994 to about 6.5 percent in 1997. The Real Planalso marked a swing in income distribution in favor of the poor, through the disappearance of theinflation tax and through higher real wages. These accomplishments required drastic adjustments inrelative price levels and in local attitudes in relation to inflation. Due to the instability of previouscurrencies, project counterpart funds were estimated in dollars, while contracts entered with localcompanies were enumerated in local currency. With the stronger local currency, the cost of thesecontracts increased in dollar terms, which led to modest project cost overruns and an adjustment incounterpart funds.

30. The other significant impact of the stronger Real was on passenger demand. To demonstrate theGOB's firm commitment in maintaining a stable currency, the central bank raised interest rates, whichtightened credit. From 1994 to 1996, GDP growth slowed from 5.8 percent to 2.9 percent. Employmentlosses were experienced during this period, especially among low-income workers. To encourage pricestability there was a one-year moratorium on price increases for public sector services. In meeting thisrequirement, CPTM opted to raise tariffs to more than twice the level agreed at appraisal; this decisionwas based, in part, on concerns that inflation would persist at historical rates. The higher tariffsconstrained passenger demand, as transport expenses, especially those for employed individuals who didnot receive the "vale transporte" constituted a larger portion of daily income.

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31. Inadequate Maintenance Budgets. Adverse fiscal conditions at the Federal and State levelsslowed the allocation of the necessary financial resources for CBTU (before decentralization) and CPTM(after decentralization), which limited the routine maintenance of track infrastructure and rolling stockequipment. In particular, the deterioration in the finances of the State of Sao Paulo impacted allocationsto all State-level public enterprises. This situation was due to: (i) higher prevailing interest rates, whichincreased debt service costs; (ii) the reduction in tax revenues once economic growth started to slowdown in 1995; and (iii) increases in public sector wages between 1994-95. With less than adequatemaintenance budgets, CPTM's physical infrastructure and equipment continued to deteriorate, resultingin train availability rates below the levels agreed at appraisal, thereby constraining passenger demand. Itwas not until late 1996 that public pressure forced the State govemment to increase its allocations toCPTM. Once these revenues became available, CPTM began to address its maintenance backlog,resulting in higher train availability and improved level of service offered. The risk of insufficientfinancial allocations was examined at appraisal. At the time, it was considered that the State governmentwould be able to fully meet the financial needs of CPTM since the estimated operating subsidies wouldbe only 3 percent of total transport sector fiscal expenditures in the five years prior to appraisal.

32. Changes in Procurement Legislation. Although identified during appraisal, procurementdifficulties were experienced during the initial phase of the project, which delayed projectimplementation. The passage of Law 8666/94 and Decree 1411/95, changed national procurement rulesfor civil works, goods, and consultant services. These modifications required the Borrower to make thenecessary adjustments for contracts under bid affecting all Bank projects in Brazil. The enactment of thislegislation also led to additional implementation delays, as firms not prequalified would utilize the lack ofhistorical precedents with the new law to challenge bids awarded under Bank guidelines in the Federalcourts, claiming that Bank procurement guidelines could not be used."3 The first court decisions upheldthe use of Bank procurement guidelines for Bank financed-projects, and thereon the number ofchallenges decreased. Despite these difficulties, CBTU has become one of the most knowledgeablepublic sector entities in the application of Bank procurement procedures in Brazil and has helped CPTM,Flumitrens in the preparation of bidding documents under subsequent loans.

33. Initial Delays. Loan signing was delayed six months after board approval and effectiveness didnot take place until nine months after Board approval. These delays had a ripple effect on projectimplementation, especially for civil works, which were completed I to 2 years beyond their expectedcompletion dates. In addition, Government entities in charge were slow in opening the special account, asthis was the first project in Brazil that used a commercial bank for that purpose instead of the CentralBank. Obviously, this situation delayed the start of project disbursements.

D. PROJECT SUSTAINABILITY

34. Project Sustainability. Likely. The transfer of CBTU-SP operations and assets to the State ofSao Paulo government, the completion of rolling stock and track infrastructure modernization works, andthe measures taken to increase revenues are factors that bolster project sustainability. Considering therelative autonomy of Brazilian States, decentralization of the commuter rail system is an irreversibleprocess. The rehabilitation of rolling stock and track infrastructure arrested the deterioration of the CPTMcommuter rail system, increased train availability, improved service levels, and prompted a recovery indaily passenger levels. The institutional achievements, especially those related to the sector restructuring,

13 Under Brazilian law, the loser of these lawsuits is not required to cover court costs and similar damages, which has created a low-riskinstrument for companies to challenge procurement awards.

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including the establishment of STM and the development of the 4-point strategy (para. 19), have servedto improve access to the transit system, reduce travel times, and better integrate investment priorities.

35. Project financial targets, including wage and subsidy reductions, were only partially achieved.CPTM's working ratio, expected to reach 1.40 at project closing (and full cost-recovery two years afterthe project closing date), was 1.81 in 1997. This ratio, nevertheless, represents a significant improvementfrom the pre-project level of 4.23. CPTM still experiences excessive political interference in theappointment of its senior management and lacks freedom to undertake staff retrenchment. The successfulcompletion of the proposed concession to the private sector would bolster sustainability by imposinggreater discipline in limiting system expenditures, pursuing more effective revenue maximizationstrategies, and limiting political interference. Private sector participation would also reduce fare evasion,ensure adequate maintenance levels, and achieve higher train availability rates. The concession of at leastone of CPTM lines is a key objective of the Barra Funda-Roosevelt Project, approved by the Board onApril 7, 1998.

E. BANK PERFORMANCE

36. Project identification and preparation. Satisfactory. The project team engaged in aconstructive debate within the region and with the Borrower regarding the comparative advantage of theBank in projects of this type. In the end, there was a consensus that the World Bank's role as an "honestbroker" would be crucial in assisting the GOB in the decentralization process. The project team also madea strong case that the project provided a unique opportunity to restructure the urban transport sector inSao Paulo, support the development of CBTU-SP (later CPTM) as a more cost-efficient and user-orientedoperation, and improve modal integration. During preparation (and at appraisal), the Bank strengthenedthe capacity of CBTU to carry out the technical, economic, and financial evaluation of projects as well asBank procurement procedures. The use of economic evaluation and strict financial assessmentmethodologies in investment planning is now the rule for all proposed CBTU investments.

37. Project appraisal. Satisfactory. A comprehensive technical, economic and financial evaluationof the project was carried out by senior staff and experienced consultants. The SAR provided an in-depthanalysis of major issues in the sector and addressed probable risks to project implementation, e.g.insufficient political will for increasing tariffs, the timely availability of government funds to CPTM, andprocurement delays. The mitigation strategy proposed for minimizing procurement delays-having thebidding documents ready before effectiveness-could not have foreseen the confusion created by theintroduction of the new national procurement law.

38. Project supervision. Satisfactory. Sufficient resources were allocated toward projectsupervision, which allowed for the constant monitoring of the project. Supervision comprised of 58.3staff weeks, of which 11.4 staff weeks (20 percent) were spent in the field. Supervision missions of shortduration and with number of staff took place with relative frequency. Bank staff tended to combinesupervision with other missions to the region, which proved to be very cost-effective. The retention ofessential project team members permitted a high level of vigilance and a comprehensive understanding toguide the Borrower through implementation difficulties.

39. During supervision, the Bank mediated between the Federal government and the State, especiallyduring the most critical stages of the decentralization process. The project assisted CBTU in carrying outthe difficult process of decentralization, developing the necessary legal and regulatory framework toundertake the transfer, and ensuring that the necessary institutional restructuring took place. The Bankwas credited for its role as mediator between the Federal and State Government throughout the transfer

13

process. This role was highly appreciated by both sides. Bank support and advice was also crucial inseeing CBTU through the protracted procurement of the 101 train series and ensuring the eventualcompletion of these works. At the midterm review, traffic demand estimates prepared during appraisalwere found to be somewhat optimistic in view of the changing economic conditions and the delays in thesupply of the rehabilitated trains. Demand estimates were revised downward with the initial forecast of1.2 million daily passengers deferred until 2 years after the project has closed. Subsequent delays in traindelivery suggest that these traffic targets should have been deferred for 4 years. In sensing a favorableshift towards the acceptance of concessions to the private sector, the Bank encouraged the evaluation ofoptions for concessioning out the CPTM system to the private sector and convinced the State to undertakea major study on this subject. The study laid the groundwork for the concession of CPTM, which shouldtake p!ace by late 1999. The project team also held a number of presentations to the urban transportcommunity emphasizing the four basic pillars for sector sustainability and intermodal integration. Thecreation of the RTCC was a central element of this important strategy.

F. BORROWER PERFORMANCE

40. Project preparation and appraisal. Satisfactory. Borrower performance was overallsatisfactory during project preparation and appraisal. CBTU worked in good faith throughout projectpreparation and provided substantial logistical support and the necessary information to appraise theproject. This project was a "learning experience" for the CBTU Project Implementation Unit, which hassubsequently managed three additional decentralization projects. Both the GOB and the State governmentpromptly and successfully carried out, the necessary legal steps to initiate the decentralization process.However, the base total traffic estimates provided by the Borrower were based on incorrect fare evasionestimates, which led to optimistic passenger traffic projections.

41. Project implementation. Satisfactory. The Borrower promptly and successfully achieved thecritical objective of the project, the decentralization of CBTU-SP subdivision to the State of Sao Paulo.The Federal Government deserves high marks for enacting the Asset Transfer Law (Law 8693/93) andassuming previous debt commitments. However, it was slow in approving the loan and the proceduresnecessary to set up the special account in a commercial bank, and did not provide adequate maintenancebudgets to CBTU-SP between loan appraisal and decentralization. CBTU management acted promptly inobtaining the necessary approval of the decentralization law and overcoming implementation difficulties.Despite initial difficulties with procurement (in part due to the confusion generated by the nationalprocurement law), CBTU made a substantial effort in mastering the Bank's procurement guidelines andstandard bidding documents and is now one of the best implementation agencies in terms of procurementin Brazil. CBTU was also successful in adopting more rigorous economic and financial methodologiesfor project evaluation.

42. The State government should be commended for quickly setting up CPTM, merging FEPASArail lines with CPTM, and establishing STM. However, the State government failed to provide adequatemaintenance funds to ensure train availability until late 1996. From that point onward, the State made asignificant effort to provide funds to CPTM, which enabled the company to dramatically improve thelevel of service provided. The decision by the State to buy 40 used trains from a Spanish company toincrease train availability was in response to an inefficient local industry which failed to deliver on atimely basis in other State programs. These "Spanish" trains combined with the trains rehabilitated by theproject have boosted capacity at peak-hours allowing CPTM to provide much better service and attractmore users. Although not part of the project, the State administration, however, failed to seize theopportunity to concession out the CPTM system before the end of its term. It should also be noted that the

14

ability of CPTM to carry out and implement the recommendations of some institutional strengtheningstudies was somewhat weak.

43. Covenant Compliance. Satisfactory. Compliance with the project legal covenants was generallygood. It should be noted that few covenants relating to institutional strengthening and financialmanagement were completed with some delays.

G. ASSESSMENT OF OUTCOME

44. Satisfactory. Nearly all of the decentralization objectives were successfully completed ahead ofschedule. Decentralization of the CBTU-SP system to the State government and the merger of the twoexisting commuter railways (CBTU and FEPASA) into the newly created, CPTM, was successfullycompleted. The merger of FEPASA into CPTM allowed for the integration of 270-km unified commuterlines and improved modal integration. CBTU has since followed up the decentralization of its operationsin Sao Paulo with similar projects in Rio de Janeiro, Belo Horizonte and Recife. The physical conditionof the urban commuter system in Sao Paulo is in markedly better condition, especially with the additionof the rehabilitated trains, completion of the station renovation works, and installation of modernsignaling telecommunications, and electrical equipment. These works should serve to reduce maintenancecosts and improve service delivery. The completion of project works has also raised user opinionsregarding the reliability of urban commuter rail systems. Considering the budget constraints experiencedby the Federal and State governments, it is the opinion of key decision-makers that without the projectCBTU-SP would have collapsed.

45. The project has also laid the foundation for the financial, institutional, and organizational policychanges to achieve sustainable integrated multimodal transport in the SPMR and has instilled the idea thatany urban transport project should have modal integration as one of its main objectives. STM is preparingto transfer two CPTM commuter lines to Metro and is working toward improving integration of transitservices provided by CPTM, METRO (subway), EMTU (intermunicipal buses), and SPTRANS(municipal buses).

46. As far as financial management is concerned, the State government has not fared much better.Although some improvements have been made (notably higher tariffs and increased revenue generation),the financial performance of CPTM remains weaker than expected. CPTM's working ratio dropped from4.23 to 1.81 in the final year of the project. CPTM still requires substantial operating subsidies. Staffretrenchment and greater outsourcing of services, which was not fully exploited, would decreaseexpenditures. CPTM has only belatedly addressed the problem of fare evasion by building walls aroundrights-of-way and stations and placing a larger security presence throughout the system. It is estimatedthat a 50 percent reduction in fare evasion would reduce operating subsidies by about 16.6 percent.

H. FUTURE OPERATION

47. Building on the progress achieved, the next critical step is the concession of CPTM. Notably, theintroduction of private sector participation would improve CPTM's financial performance by increasingits commercial orientation, supporting staff retrenchment, and limiting fare evasion. Political interferencewould also be reduced. The concession of the CPTM system is one of main objectives in the first follow-up project in the SPMR, the Sao Paulo Integrated Urban Transport (Barra Funda-Roosevelt Link). Barra-Funda is also supporting intermodal integration by financing the infrastructure and equipment necessaryto physically link all CPTM commuter lines with the Sao Paulo subway system. The Sao Paulo Integrated

15

Transport Project, a second follow-up project under preparation, would support intermodal integration byfinancing the development of the Metro Yellow Line (Line 4). This project would link the Metro GreenLine to the Sul Line, a subway line that was recently transferred from CPTM to Metro.'4

48. The GOB's decentralization agenda continues to more forward. The Sao Paulo MetropolitanTransport Decentralization Project, which was undertaken in parallel with a similar decentralizationinitiative in Rio de Janeiro (BR-3633-BR), has been emulated in later lending operations in Recife (3915-BR) and Belo Horizonte (3916-BR). The lessons learned in the Sao Paulo project have been incorporatedin the preparation of these and all new loans to Brazil in the urban transport sector. The project has alsoprovided the conceptual framework and important lessons to support the transfer of CBTU subdivisionsto other municipalities (Salvador and Fortaleza).'5 With Bank assistance, it is expected that the GOB willcomplete the decentralization of urban rail services by its revised timetable of December 31, 2001.

I. KEY LESSONS LEARNED

49. Gradual decentralization process. Although this project has been highly innovative insupporting one of the first rail transport decentralization initiatives in the world, a more gradual transitionwould have likely minimized the difficulties associated with the actual transfer. After the State assumedownership and management of the system, there should have been a I to 2 year transition period duringwhich the Federal Government continued to contribute a pre-negotiated amount to help the State inoperating the system. This contribution would have been phased out at the end of this transition periodand would have eased the burden of the State while it set up its new company. Learning from the SaoPaulo project, the Federal Government agreed in the Rio de Janeiro and Recife decentralization projectsto cover labor costs of the systems for I and 2 years after the transfer, respectively. Furthermore, the bestscenario would have been if the State, shortly after this transition period, tried to concession out thedecentralized system to the private sector. This lesson was applied in the ongoing sister project in Rio deJaneiro, where the system was concessioned 3 years after decentralization.

50. Decentralization Followed by Concession. Despite the fact that the state-owned operatingagency is better placed than CBTU to respond to local realities, CPTM is still constrained by politicalinterference especially in the selection of key managerial appointments, and bureaucratic red tape, whichaffects its productivity and financial performance. At both the Federal and State levels, there have beenserious delays in the allocation of maintenance funds. Like most state-owned agencies, CPTM is unableto make a serious effort in eliminating operating subsidies. These factors are best addressed through aconcession to the private sector. Decentralization is, therefore, only a mandatory stopover in the journeyto greater private sector participation. The 1988 Constitution allows the States, but not the Federalgovernment, to concession out the provision of urban transport services. At the time of appraisal,concession contracts were not yet politically acceptable in Brazil, as the national concession law was stillbeing debated in the House. In addition, CBTU management had feared that if the condition toconcession out the system to the private sector had been introduced at appraisal, there would have been

With an estimated cost of US$1.5 billion, the Line 4 Project will support the construction of 9.1 km and nine new stations. Metro willimplement this project, which will be financed and operated by a private concessionaire, possibly through a 15-year BOT arrangement.World Bank, JEXIM, and/or BNDES funding for the project are being explored. Metro is also extending subway services along its GreenLine at an estimated cost of US$350.0 million, which consists of the construction of 2.5 km and 2 new stations. BNDES has providedfinancing for this project. It is expected that the Green Line extension will be operational by the end of 1998.

Is Supporting projects for these initiatives are the Salvador Urban Transport Project (BR-PE48869; expected Board date FY1999) and theFortaleza Urban Transport Project (BR-PE-6022; expected Board date of FY2000).

16

political and labor opposition to decentralization. Now that the political climate is more favorable toconcessions, future projects should consider including dated covenants, which require substantial privatesector participation in the system. Bank lending operations in Rio de Janeiro, Belo Horizonte, and Recifehave made private participation in the rail sector a critical objective of project implementation. The partialconcession of the CPTM system is a condition of the Sao Paulo Integrated Urban Transport Project.

51. Reducing Fare Evasion. In systems where there is substantial fare evasion, it is important tochallenge base data on evasion estimates more thoroughly and periodically than was done by CBTU. Theimpact of fare evasion and ticket theft should not be underestimated, as it has led to inaccurate estimatesof passenger traffic and operating subsidies required. Eliminating fare evasion is more complicated thanpreviously expected. Fare evaders have broken right-of-way separation walls so that they can reach thestation area and board trains. Crowds have sometimes become violent when barred from entering thesystem without a ticket, resulting in guards being attacked and even killed. Therefore, this problemshould be addressed as early as possible during project implementation to discourage fare evasionbehavior among regular riders. Station and rights-of-way enclosures, automated ticketing machines aswell as hiring a larger security force are deterrents to fare evasion and should be included as datedcovenants in future projects. The outsourcing of ticket sales and revenue collection to private firms,which would receive success fees based on the number of paying passengers above a certain pre-agreedlevel, should also be encouraged. In Sao Paulo, this approach was considered but abandoned because ofred tape and instead 1200 security guards were hired. Fare evasion and ticket fraud are common problemsin most state-owned systems in the world, but have been drastically reduced after the private sector takesover, as demonstrated in the Buenos Aires system.

52. Whether to Rehabilitate Existing Trains or Purchase New Trains. The issue of whether topurchase new railcars or rehabilitate existing trains was heavily debated during appraisal. The Borroweropted for rehabilitation due to the lower costs involved-US$2.5 to 3.0 million for a rehabilitated train asopposed to US$10 million for a new train-and the relatively shorter time periods for completing trainrehabilitation works. Given the delays experienced by the private firms responsible for the delivery ofrehabilitated trains, it might have been preferable to have opted for a mix of rehabilitated and new trains,even if there is no guarantee that the new trains would have been delivered on time. In any event,potential delays in the delivery of rehabilitated trains should be factored in project preparation byproviding adequate slack in the rehabilitation schedule and by adjusting operating plans accordingly.Neither the local firms involved nor the international firms who won contracts were able to deliver therehabilitated trains on schedule. These delays varied from 12 to 24 months.

17

PART II. STATISTICAL TABLES

Table 1: Summary of Assessment

Sector policies Financial objectives lInstitutional development l

Physical objectives l

Poverty reduction l

Gender issuesOther social objectives l

Environmental objectivesPublic sector management / lPrivate sector development V

IIdentifi:cation lPreparationri

Appraisal lSupervision

IPreparation l

Implementation liCovenant compliance l

IOperation (if applicable)

18

Table 2: Related Bank Loans

FEAARailway 2857-BR (a) assist the Government of Brazil in carrying out a program aimed at 1988 ILoan ClosedRehabilitation the financial rehabilitation and improved commercial performnance of December 31 |Project FEPASA (Ferroviaria Paulista, S.A.); and 1995l

(b) increase the efficiency of the transport corridors leading to Sao PauloMetropolitan Region and the Port of Santos.

Rio De Janeiro 3633-BR (a) assist the Government of Brazil in its efforts to transfer the CBTU-RJ 1993 Under ExecutionMetropolitan (Rio de Janeiro) system to the State in order to enhance itsTransport management and operations;DecentralizationProject (b) introduce institutional, organizational, and financial policy reforms to

ensure CBTU-RJ's long-term financial sustainability (including cost-efficiency gains, improved multimodal integration, expandedcapacity, and substantial reduction in subsidies; and

(c) contribute to poverty alleviation and environmental improvementthrough better routing of subsidies, improved access to work,decreased travel time to work, reduced congestion and pollutantemissions, and reeducated accidents and fatalities through theprovision of safer and more comfortable rail transport) in the Rio deJaneiro Metropolitan Region.

Recife 3915-BR (a) development of an integrated urban transport system for the Recife 1995 Under ExecutionMetropolitan Metropolitan Region under the existing regional transportTransport coordination commission that would be in charge of coordinating and

recommending common policies on pricing, regulation, financing andinvestments;

(b) decentralization of the Recife subdivision of CBTU (METRORECand South Line) from the Federal to the State level;

(c) reduction in the negative environmental and safety impacts of roadvehicles in the RMR and the promotion of non-motorized transportmodes; and

(d) development of targeted strategies and actions to improve theaccessibility of the low-income population to employment centers aswell as health and education facilities.

Belo Horizonte 3916-BR (a) development of an integrated urban transport system for the Belo 1995 Under ExecutionMetropolitan Horizonte Metropolitan Region under a Regional TransportationTransport Coordination Commission to coordinate and recommend common

policies on pricing, regulation, financing, project evaluation andselection;

(b) decentralization of the STU-BH from the Federal to the State andmunicipal levels;

(c) reduction of the environmental impacts due to motor vehicles and thepromotion of non-motorized transport modes; and

(d) development of special strategies and actions to improve theaccessibility of the low-income population to employment centers,health, and education facilities.

19

Table 2: Related Bank Loans (cont.)

Ri eJaneiro 4291 (a) Improve the quality o urban tranispor services in the Rio de Janeiro 1998 Approved bylMass Transit Metropolitan Region by enhancing the development of a fully the Board onl

integrated urban transport system; and March 8, 1998l

(b) substantially improve the level provided by Flumitrens while reducingoperating subsidies from the State through the substantial participationof the private sector in its operations and management.

Sao Paulo 4312-BR (a) finance infrastructure and equipment, which are critical to the physical 1998 Approved byIntegrated Urban integration between the two existing rail suburban systems and the Sao the Board onTransport (Barra- Paulo subway system (METRO); April 7, 1998Funda Roosevelt).l

(b) improve the level of service provided by enhancing the participation ofthe private sector in the management and operation of the Sao PauloMetropolitan Train Company (CPTM); and

(c) contribute toward the reduction of noise and air pollution fromtransport sources.

20

Table 3: Project Timetable

identification (Executive Project Summary) Dcmber 5, 1990l

Preparation Apil 1, 1991l

Appraisal July 1, 1991

Negotiations February 18, 1992

Board presentation March 31, 1992

Signing September 3, 1992

Effectiveness February 3, 1993

Project completion March 31, 1998

Loan closing March 31, 1998

Table 4: World Bank Loan Disbursements: Cumulative Estimated and Actual (US$ Millions)

Appraisal Estimate 20.0 55.0 95.0 115.0 126.0 N/A N/A

Revised Appraisal Estimate N/A N/A 9.5 85.2 126.0 N/A N/A

l Actual 0.0 0.0 16.6 51.4 81.5 112.6 126.0

Actual as % of estimate 0.0 0.0 18 45 65 89 100

Actual as % of revised 0.0 0.0 18 60 65 89 100

Date of final disbursement N/A N/A N/A N/A N/A N/A 7/16/98

1. The original project closing date June 30, 1996

21

Table 5: Key Indicators for Project Implementation

I%eyiuplendi.ntortindicators in SAR Appraisal Estimate Actil:Track/Station RehabilitationImprovement of drainage systems along rail lines 13 km 7 kmBridge rehabilitation 6 bridges 5 bridgesCulvert rehabilitation 43 m 43 mPedestrian overpasses (rehabilitated or new)' 3 new overpasses 4 new overpasses

4 rehabilitated overpasses 5 rehabilitated overpassesRetaining Walls 1,200 m2 1,200 m2

Fences along right-of-ways 6,800 m 6,800mSuperstructure replacement works (e.g. sleepers, 244 km 95kmfastening, ballast, and rail switches)Passenger station modernization 19 stations 19 stationsRolling StockEMU Rehabilitation 12 EMUs 12 EMUsEMU Modernization 37 EMUs 38 EMUsNew diesel locomotives 8 locomotives 8 locomotivesSupply of rail grinding machine --- I unitSupply of locotractors --- 2 unitsMaintenance depots 2 depots 2 depotsEquipment repair and testing laboratory I laboratory CanceledSignalingTrack circuit reinstallation 31 km 14 kmPoint machines 51machines 60 machinesATS installation 85 km 85 kmSignaling installation with two RFFSA lines Two rail lines Two rail linesCentralized traffic control systems 130 km 85 kmCable replacement 54 km 74 kmCentralized traffic control systems replacement 130 km 85 kmTelecommunications system overall network overall networkTrack to train radio system 14 stations 31 stations

336 movable stations (trains)Loudspeaker systems 26 stations 17 stations

114 trains 350 trains1. Modified after the July 1994 Midterm ReviewSources: CPTM, Bank Staff

22

Table 6A. Project Operational Indicators,

1O 1.99 1992 1993 1994 1995 1996 1997 June End of(DMe 1998 Projectyear) , _ (planned)

Daily Passenger Traffic 883,000 741,000 694,700 627,000 635,000 669,000 632,000 770,000 796,000 830,000

Headway (minutes) N/A N/A N/A Min. 10 Min. 10 Min. 10 Min. 10 Min. 10 Min.10 Min. 8Max. 12 Max. 12 Max. 12 Max. 12 Max. 12 Max. 12 Max. 10

EMU Availability (%)2 79 76 71 70 67 63 61 62 72 87EMU Utilization (%)2 98 92 95 93 94 92 91 90 90 98

Souirces: CPTM, Bank Staff1. Modified at the July 1994 nmid-ter-m review2. 1990 data was not available; July 1991 data was used.

Table 6B. Project Financial Indicators'

1990 199 1992 1993 1994 1995 1996 1997 July End of(Base 19982 Projectyear) _____ _____ ___ __(planned)

Daily Paying Passenger 707,000 729,000 528,000 484,000 444,000 457,000 474,000 578,000 597,000 735,000Traffic

Evasion Rate (%)j 11% 6% 24% 24% 24% 24% 22% 25% 25% 6%

Average Tariff (constant 0.11 0.17 0.21 0.30 0.47 0.64 0.73 0.79 0.79 0.371991 US$)

Operational Revenues 23.3 33.8 49.7 42.4 67.4 97.2 109.5 118.2 53.0 85.9(US$M)

Non-Operational 0.5 4.0 9.5 3.6 3.2 2.1 1.9 3.6 2.7 4.8Revenues (US$M) .

Total Revenues (US$M) 23.8 37.8 59.2 42.9 65.6 92.3 103.3 121.8 55.7 90.7

'Total Operational Costs 100.7 91.9 105.8 92.6 115.8 155.4 167.2 213.4 102.7 130.0(US$M)

Percent (%) of Personnel 65% N/A N/A 70% 65% 58% 61% 57% 51% 64%Costs as a part ofOperational Costs

Staff (# of employees) 4085 4085 3841 3673 3605 3460 3527 3684 4283 4457

Subsidies (USSM)2 76.9 54.1 46.6 46.6 45.2 56.1 55.8 91.6 47.0 36.3

Operating Subsidies as % 76.4% 58.9%e 44.0% 52.3% 40.1% 36.6% 33.7% 43.7 47.0 40.2%of Income

Working Ratio 4.23 2.43 N/A 2.18 1.72 1.60 I1.53 1.75 1.84 1.40Sources: CPTM, Bank Staff1. Modified at the July 1994 mid-tern review2. Finiancial data through May 19983. For 1997-98 fare evasion percentage consists of 15% (fare evasion)-and 10% (loss of revenues)

23

Table 7: Studies Included in Project

study ~~~~~~~Purpose as defined at Status Impact of study

= =appaisal/redefinedDecentralization and Financial Management StudiesCBTU Decentralization Study Elaboration of action plans to transfer the Completed Decentralization study delineated the

operations and ownership of CBTU required actions and drafted the legalsubdivisions to their respective States. agreements for transferring CBTU-

SP assets to Sao Paulo State.

Manpower Development and Review the organization of each of the Completed Study recommendations wereOrganization Restructuring Plan new systems by functional area, provide partially implemented.

job descriptions for each of the mainposts, and a strategy to rationalize staff.

Financing Mechanisms Define the general options for financing Completed The State has accepted some of theurban transport, covering operational recommendations of the study, and isdeficit and capital costs. Develop an preparing to draft law that is to beaction plan and timetable for submitted to the State legislatureimplementing study recommendations.

Costs, Tariffs, and Financial Determine the fixed and variable costs of Completed Consultant completed the costManagement Study CPTM modules.

Maintenance Services Outsourcing Identify options for contracting out Completed Study objectives were incorporatedStudy. maintenance and other services to private into the Rail Services Concession

contractors. IOptions StudyInstitutional Strengthening StudiesProject Management Contract Supervise project implementation to Completed Monitored implementation.

ensure achievement of project objectivesand assist in determining medium andlong-term investment priorities.

Monitoring/Supervision Study Provide an independent assessment of Completed Assisted CBTU/CPTM managementproject monitoring and progress in on key structural decisions.achieving project objectives

Management Information System Install a management information system Completed MIS has allowed the mapping ofwith the appropriate hardware/software processes at the DFD level and iswithin CBTU-SP to support the daily being expanded for the entire system.management and administration of theurban rail systems.

Private Sector Partnerships Study Identify approaches for developing and Cancelled Study objectives were incorporatedexpanding the private sector partnerships into the Rail Services Concessionin urban rail transit operations. Options Study

Rail Services Concession Options Examine the options, financing Completed Led to workshop on concessionStudyl mechanisms, and legal/regulatory options, attended by CPTM and

requirements for the concession of urban CBTU representatives. Providedtransit lines to the private sector. conception framework for urban rail

line concessions being supported bythe Barra Funda -Roosevelt Project

1. Added to the project during implementation.

24

Table 7: Studies Included in Project (cont.)

7.dy .Purpose as defined at Status - Impact of study-__'_'______________.___._.________.... -- appraisalUredefined ._-_

Non-Operational Revenues Study Identify possible commercial sources of Cancelled Study objectives were incorporatedincome to complement operational into the Rail Services Concessionactivities, e.g. advertising in stations and Options Studyother available areas.

Technical Supervision Supervision for the execution of civil Completed Technical supervision undertaken byworks and related services for urban consulting firms with the necessaryrailways, stations, signaling. telecom technical proficiency and expertise inequipment, and rolling stock each component.

Public Image Study Identify approaches to improve public Cancelled Study objectives were partiallyimage of the commuter rail and interaction incorporated into the Rail Serviceswith users and potential users Concession Options Study. Remainder

cancelled

Staff Training Provide training to CBTU-SP and later Completed The development of further trainingCPTM staff at all levels to strengthen their materials is necessary. Subcomponentcapacity. to be completed during the second

semester of 1998.

Stock Inventory Management Study Determine approaches and install a Completed Implementation of recommendationscomputerized system to optimize is underway. CPTM is bidding out theequipment and resource use. contract for the specialized software

use to administer equipment andmaterial usage.

Multimodal StudiesSao Paulo Metropolitan Region Master Identify urban transit needs for the Sao Completed Study funded by the State of SaoTransportation Plan Paulo Metropolitan Region Paulo. The study has served to

improve intermodal linkages in theSao Paulo Metropolitan area.

Route Rationalization (CMTC) Study Review and recommend options to Completed Study funded by the State of Saorehabilitate, integrate, and expand the urban Paulo. The study has served to betterrail network and integrate and minimize link bus lines with commuter rail andduplication of bus services. subway operations.

Regulatory Study Review the regulatory framework to allows Cancelled Study objectives partially incorporatedconcessions, permissions in the MSP and into CBTU-Bus Service IntegrationSPMR and facilitate implementation of Study. Remainder cancelled becauserecommendations of the Route the municipality did not participate inRationalization Study the loan as originally envisaged.

CBTU-Bus Service Integration Study Evaluate options for improving bus to rail Completed Elaborated options for modifying theintegration in the Sao Paulo area. legal framework and operational

practices that would assist in betterintegrating bus and rail services andaccommodating demand for suchservices in the Sao Paulo region.

FEPASA-CBTU Integration Study Define options for integrating FEPASA Completed Objectives were incorporated into._______ _ with the decentralized CBTU-SP _ __ CBTU-Bus Service Integration Study

25

Table 8A: Project CostsCategory Appraisal Estimate Revised Estimate Actual Estimate

(US$M) (US$M) (US$M)

Local Loan Total Local Loan Total Local Loan Total

Institutional Strengthening 3.607 6.806 10.413 2.991 5.280 8.271 4.856 3.736 8.592

Project monitoring 0.253 0.473 0.726 0.271 0.397 0.669 1.713 1.438 3.151

Studies 3.053 5.699 8.752 2.648 3.882 6.530 3.025 2.234 5.259

Training 0.301 0.634 0.935 0.072 1.000 1.072 0.118 0.064 0.182

Civil Works 129.256 100.804 230.060 151.984 102.720 254.704 162.976 121.864 284.840

Civil works 28.159 15.297 43.456 87.341 38.000 125.341 68.994 36.506 105.500

Materials 4.194 13.834 18.028 7.277 12.181 19.458 3.554 8.141 11.695

Equipment 52.671 29.649 82.320 5.269 8.819 14.088 13.395 12.585 25.980

Mechanical works 40.222 38.874 79.096 48.877 39.000 87.877 73.552 62.210 135.762

Supervision 4.010 3.150 7.160 3.220 4.720 7.940 3.481 2.422 5.903

Total Base Cost 132.863 107.610 240.473 154.975 108.000 262.975 167.832 125.600 293.432

Physical Contingency 13.170 10.083 23.253 0.000 0.000 0.000 0.000 0.000 0.°°0°0

Price Contingency 9.283 7.870 17.153 0.000 0.000 0.000 0.000 0.000 0.000

Unallocated 0.000 18.000 18.000 0.000 0.000 0.000

Total 155.316 125.563 280.879 154.975 126.000 280.975 167.832 125.600 293.432

Table 8B: Project Financing

Source Appraisal Estimate Actual Estimate

(US$ M) (US$ M)

Local Costs Foreign Total Local Foreign Total

Government 113.3 42.0 155.3 150.4 17.4 167.8

Bank --- 125.6 125.6 106.1 19.5 125.6

Total 113.3 167.6 280.9 256.5 36.9 293.4

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Table 9A: Economic Evaluation'

Pre-Appraisal Post-ProjectCorridor ERR NPV (US$ B/C ERR (%) NPV (US$ B/C

(%) million) million)No/Se, Direct Benefits 46.0 179.7 2.6 18.4 62.5 1.81No/Se without Externalities2 N/A N/A N/A 20.5 87.8 2.14

Leste Tronco, Direct Benefits 49.0 82.7 2.1 14.8 17.5 1.31Leste Tronco without Externalities2 N/A N/A N/A 17.3 32.4 1.58

Leste Variante, Direct Benefits 48.0 54.8 2.0 13.6 8.8 1.22Leste Variante without Externalities2 N/A N/A N/A 16.0 18.7 1.47

Total SAo Paulo, Direct Benefits 46.0 309.8 2.2 16.4 88.8 1.51Total SAo Paulo with Externalities N/A N/A N/A 18.6 138.9 1.801. Useful life: 20 years; Discounted Rate 11%/o/year.2. Project externalities include the reduction of accidents, decreased fatal accidents, and air pollution savings

Table 9B: Sensitivity Analysis

% Change ERR % NPV (US$ Million) B/C Ratio@11% @11%

BASE CASE Excludes salary, wages, electricity and 16.35% 87.97 1.51materials, benefits, investments, andexternalities

CASE I Salaries & Wages + 10% 15.28% 69.34 1.36- 10% 17.41% 106.60 1.69

CASE 2 Electricity and Materials + 10% 15.32% 70.03 1.37- 10% 17.36% 105.91 1.68

CASE 3 Salaries & Wages/ + 10% 14.21% 51.40 1.24Electricity and Materials + 10%Salaries & Wages/ + 10% 16.31% 87.28 1.50Electricity and Materials - 10%Salaries & Wages/ . - 10% 18.39% 124.55 1.91Electricity and Materials - 10%

CASE 4 Investments + 10% 15.38% 75.95 1.41- 10% 17.45% 99.99 1.62

CASE 5 Benefits; Investments, Salaries & Wages - 10% 12.93% 31.17 1.15- 10% N/A N/A N/A

CASE 6 Deferred of Benefits to the Fourth Year N/A 16.93% 94.34 1.54

CASE 7 Externalities (accidents and air pollution N/A 18.61% 138.15 1.80savings) 100% included

CASE 8 Deferred of Benefits to the Fourth Year + 10% 14.84% 63.69 1.31

'I'abic 91: Scisitivity AwialysisSAO PAULO SYSTEM

MAIN OUTPUT ERR(%/o) NPV(US$*10) B/CDirect Benefits 16.35% 87,971.30 1.51

With Externalities 18.61% 138,147.96 1.80BASIC INPUTS - PARAMETERS SYMBOL UNIT VALUE

Year 1 2 3 4 5 6 7 8Year 1993 1994 1995 1996 1997 1998 1999 2000

Investment I USSxIO' 2.14 31.06 42.67 43.02 41.24 18.39 0.00 0.00

Investment which will be Avoided IA USSxI0 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00

Year 6 7 8 9 10 11 12 13

Year 1998 1999 2000 2001 2002 2003 2004 2005

Present Demand Dc pass/day 940.00 940.00 940.00 940.00 940.00 940.00 940.00 940.00

Average Trip Length (Train) L km 18.70Average Bus Route Length Clc km 30.52

% )emand Captured by Train Fc 77% 88% 97% 91% 100% 100% 100% 100%

Train Capacity 0 pass/day 1,036.00 1,036.00 1,061.00 1,260.00 1,260.00 1,260.00 1,260.00 1,260.00

Average Income of Bus Users Rmo mw 5.00Average Income of Train Users Rsm mw 3.10

Renewal Factor for Bus FR 1.10Bus Commercial Speed - Peak Period Vo km/h 15.00

Train Commercial Speed Vt kmth 40.50ReductionofWaitingTime Rte min 0.035 0.035 0.035 0.035 0.035 0.035 0.035 0.035

Bus Operating Cost Cop US$/km 0.71Road Maintenance Cost Ccr US$/km 0.0004

Road Operation Management Cost Cor US$/kin 0.0004Op+Mtce Salaries and Wages - Basic Cost CPom USSx I06 19.4400

Present % Op+Mtce Staff Costs Pomat % 63.64% 63.64% 63.64% 63.64% 63.64% 63.64% 63.64% 63.64%

% Op+Mtce Salaries and Wages Pom % 70% 70% 70% 70% 70% 70% 70% 70%

Unit Cost (Op + Mtce) Staff Cup US$/pass 0.0657Unit Cost for Electrical Energy Cuee US$/c.km 0.1696

PresentCarkkm Pckm c.kmx I03 4,495.16 4,495.16 4,495.16 4,495.16 4,495.16 4,495.16 4,495.16 4,495.16

CorrectionFactorCar. km Fckm 1.0735 1.0735 1.0810 1.3442 1.3442 1.3442 1.3442 1.3442

SpareandMaterials-BasicCost Cms US$xt0 15 15 15 15 15 IS 15 15

Correction Factor for Cost of Materials With Project Mcp 1.1 1.1 1.1 1.1 1.1 I.1 1.1 1.1

Correction Factor for Cost of Materials Without Project Msp 1.2 1.2 1.2 1.2 1.2 1.2 1.2 1.2

Unit Cost for Spares and Materials Cums US$/c.km 0.2780% of Other Costs- Present Ocsp 11.50% t1.50% 11.50% 11.50% 11.50% 11.50% 11.50% 11.50%

%ofOtherCosts Poc 13.50% 13.50% 13.50% 13.50% 13.50% 13.50% 13.50% 13.50%Residual Value of Investment Vri 6.73%

Useful Days/Year Nd days 300Minimum Wage,Without Taxes SM USS 68

Minimum Wage With Taxes Vsm US$ 150Bus Capacity CV pass/bus 75

Number of Working Hours/Month Hm h 180% of Total Time Waste by Active Econ. Pop. %/Tpea 50%

% of Demand that Use Time Benefit %/.Dt 30%Accident Costt 1000 pass. km - Train CAt US$11000pas.km 0.06Accident Cost/ 1000 pass. km - Bus CAb USS/IOOOpas.km 2.40.

Table 10: Status of Legal CovenantsAgreement Text Reference Covenant Status Original Revised Description of Covenant Comments

Type Fulfillment FulfillmentDate Date

LOAN 3.01 3 C Borrower committed to the objectives of the project and is making the__________________ ___________ _____________ proceeds ofthe loan available to CBTU

3.02 5 C Procurement taking place in accordance with Bank guidelines. Standardbidding documents and letters of invitation to consultants being utilized.

3.04 4 C Borrower to provide needed funds for the project3.05 5 C 6/30(93 7/31/94 Borrower to exchange views with the Bank (mid-term review)3.06 5 C 1/31/92 Congress to approve a bill of law to effect the ownership transfer Law approved in August 1993

CBTU 2.06 5 1/31/92 12/31/95 CBTU to carry out the training program and exchange views everyPROJECT December

2.09 (a) 9 C 12/31/93 10/31/94 CBTU to employ a project monitoring auditor2.09 (b) 9 C 12/31/93 CBTU to retain a project consultant for supervision22.10 (a) 9 C CBTU to prepare quarterly reports

2.11 9 C CBTU to establish and maintain management information system.2.12 (a) 2 CD 10/11/93 CBTU to prepare and put into effect an action plan including tariff increases

and a set of operational measures in order to reach an operating ratio nothigher than one.

4.01 I C 5/31/94 CBTU to hire an independent auditor and send audited reports to the Bank Qnot later than May of each year to

Schedule A. l (a) 5 C 3/31/93 CBTU to complete a study and action plan.Schedule A. I (b) 5 C 3/31/93 CBTU to complete a study determining the long run variable cost.Schedule A. I (c) 5 C 6/30/93 CBTU to complete a study and action plan for setting a cost accounting

I________________ ____________ system and M IS.Schedule A.1 (d) 5 C 6/30/93 3/31/94 CBTU to complete a study and action plan on the financing mechanisms to

cover operating deficits and capital investments.Schedule A. 1 (e) 5 C 6/30/93 CBTU to prepare a contract plan between CBTU-SP and Sao StateSchedule A.2 (a) 5 C 6/30/93 CBTU and Sao Paulo State to prepare and implement a manpower

development and organization plan for CBTU-SP.Schedule A.2 (b) 5 C 6/30/93 CBTU and Sao Paulo State to prepare and implement an action plan to

improve the management of stocks for CBTU-SP.Schedule A.2 (c) 5 C 6/30/93 CBTU and Sao Paulo State to prepare and implement an action plan to

subcontract maintenance and other operations to the private sector.Schedule A.2 (d) 5 C 6/30/93 CBTU and Sao Paulo State to prepare and implement an action and revenue

plan through promotion of CBTU-SP station space, advertising, and realestate

Schedule A.2 (e) 5 C 6/30/93 CBTU and Sao Paulo State to prepare an action plan to market CBTU-SPIimage

Status C - Complied with SOON - Compliance Expected in Reasonably Short TimeCD Compliance after Delay CP - Complied with PartiallyNC Not Complied with NYD - Not Yet Due

Table 10: Status of Legal Covenants (cont.)Agreement Text Section Covenant Status Original Revised Description of Covenant Comments

Type Fulfillment FulfillmentDate Date

CBTU Schedule A.3 (a) 5 C 6/30/93 6/30/94 CBTU and Sao Paulo State to prepare a study and action plan to integrateProject CBTU-SP's system and the FEPASA metropolitan trains

Schedule A.3 (b) 5 C 6/30/93 6/30/94 CBTU and SAo Paulo State to prepare a study and action plan to integrateCBTU-SP's and the Sao Paulo Metro system.

Schedule A.3 (c) 5 CD 12/31/93 CBTU and Sao Paulo State to complete a study to update a proposedmaster plan for integration of transport services in the metropolitan regionof Sao Paulo

Schedule A.4 (a) 5 CD 3/31/93 CBTU and Sao Paulo State to complete a training action plan of CBTU-SPorganization.

Schedule B (a) 10 CD Borrower to carry out the rehabilitation component according to the agreedschedule indicated in Table 1.

sAo PAULO 2.05 (a) IC C 3/30/95 Sao Paulo State shall establish ajudicially independent public corporation.STATE

2.05 (b) 10 C Sao Paulo State shall execute agreements (Contract Plans) with CBTU-SP

2.06 (c) 10 C Sao Paulo State shall exchange views with the Bank on annual trainingprogram

2.09 (a) 5 C 3/31/93 Sao Paulo State shall prepare an action plan for the transfer, integration,

and consolidation of FEPASA metropolitan railway.

Status C - Complied with SOON - Compliance Expected in Reasonably Short TimeCD - Compliance after Delay CP - Complied with PartiallyNC - Not Complied with NYD - Not Yet Due

Covenant Type:I = Accounts/audits2 = Financial performance revenue generation from beneficiaries3 = Flow and utilization of project funds4 = Counterpart funding5 = Management aspects of the project or executing agency6 = Environmental covenants7 = Involuntary resettlement8 = Indigenous people9 = Monitoring, review, and reporting10 = Project implementation not covered by categories 1 -911 = Sectoral or cross-sectoral budgetary or other resource allocations12 = Sectoral or cross-sectoral policy/budgetary/institutional action13 = Other

30

Table 11: Compliance with Operational Statements(Not applicable)

Table 12: Bank Resources: Staff Inputs

Stage of Project Cycle Planned Revised ActualWeeks US$ Weeks US$ Weeks US$ 000

Through Appraisal N/A N/A N/A N/A 71.6 254.8Appraisal-Board N/A N/A N/A N/A 39.4 137.2

Board-Effectiveness N/A N/A N/A N/A 22.3 78.5Supervision N/A N/A N/A N/A 58.3 199.4Completion N/A N/A N/A N/A 4.5 20.0

Total N/A N/A N/A N/A 196.1 689.9

Table 13: Bank Resources and MissionsStage of Project Cycle Month/ Number of Days Specialized Performance Rating Types of

Year Persons in Staff Skills Problemsfield represented

Implementation Development.____________________ _______ __________ ______ ______________ Progress (IP) Objectives (DO)

Through Appraisal1 10/90 2 1 20 UP, TP N/A N/A N/A2 1/91 2 14 UP, TP N/A N/A N/A3 4/91 6 78 UP. TP, RE, FA N/A N/A N/A

Appraisal ThroughBoard Approval

1 7/91 6 90 UP, TP, RE, FA N/A N/A N/A2 10/91 1 3 UP N/A N/A N/A

Board ApprovalThrough Effectiveness

11/92 2 10 TP, RE I I N/A

Supervision5/93 12 TP. RE 2 2

2 10/93 3 6 TP, RE. FA 2 2 PMP3 2/94 2 6 TP, RE 2 2 Pp

(Midterm Review) 7/94 2 4 TP, RE S S PP, FP5 7/95 2 6 TP, RE S S PP, FP6 2/96 2 6 TP, RE S S PP, FP7 10/96 1 4 TS S S PP, FP8 12/96 1 3 TS S S PP, FP9 2/97 I 3 TS S S I10 7/97 I 4 TS S S II11 2/98 I 3 TS S S

Completion I

Total N/A 37 272 N/A N/A N/A N/AStaff Skills: FA = Financial Analyst; RE = Rail Engineer; TP = Transport Planner; TS = Transport Specialist; UP = Urban Planner

Problems: CLC: Compliance with covenants; FP: Financial Performance; TA: Technical Assistance Progress; PMP: Project Mgt. Progress PP:Procurement Progress; SP: Studies Progress

31

APPENDIX A

Sbo Paulo Metropolitan Transport Decentralization Project(CBTU-BTRD-b

ICR MISSIONScptember 28. 1998

AIDE-MEMOIRE

1. A World Bank Mission led by Jorge Rebelo (Principal TransportSpecialist) visited Sao Paulo to undertake a two day visit to obtain the feedback fromthe State of Sao Paulo and CPTM on this project and check the progress in the systemsince the last ICR mission which took place in February 1998. The mission wishes torecord its appreciation to Mr. Miguel Kozma, Uudersecretary of StLte for MetpolitanTransport, Mr. Jose Roberto Rosa, President of CPTM, Mr. Vitor Noronha, TechnicalDirector of CPTM, Mr. Sergio K. Rodrigues, PIU coordinator, and other staff of CPTMror the cooperatioi auld countesies extended to the mission. A list of participants in themeetings is attached as Annex l.

2:. The contents of this Aide Memoire describe the progress madesince the February 1998 mission and agreements made, and are subject to endorsemntby the management of the World Bank in Washington, D.C.

General Views

3. There is a general consensus that the project was successful indecentralizng the system and in creating CPTM. There is also a consensus that theproject has poised CPTM for better integration with other modes and for a potentialconcession. There was agreement that the institutional achievements of the project weresignificant to restructure the sector and to prepare it for long-term sustainabiliry. Most ofthe comments from CPlM's staff dealt with the infiastructure and equipmentcomponent. In hindsight, the participants claim that -the re-allocation of fuinds proposedby CPTM during the mid-tenn review should have concentrated more on repairing thetrack, which deteriorated heavily in the three years after the loan was signed fbr lack ofroutine maintenance, aid on improvingB the catenar System which is very unreliable.Indeed, there is a consensus that with the problem of rolling stock resolved or at leastunder control, the problem would now be: X improve the infrastructure. Despite themoney allocated for infiastructure in the project, only one third of the kms wererchabilitated because, when the contracts were initiated, the deterioration was such that2 times more had to be spent per km of track than originally anticipated. One participantindicated that because the bidding. of infrastructure separated the serviku from thematerial, there were a number of problems because sometimes the services wereawarded, but the matenials were not there on tine due to delays in delivery or judiciallitigation or customs delays. There were also some complaints that some of thecontrmcts jf the: inrrastructure component were out of sink with the needs. This wasaftribilted to a zentralized approach by CBTU decision-makers who were in Rio and didnot work as closely as desirable with the CBTU-SP staff. Some staff also indicated thatthe CBTU local office had little autonomy to act when needed and had to contact thehcad office even when for minor changes.

32

Fare Evasion4. It was conuirmed that at present with the deployment of therehabilitated fleet pius the used trains bought from Spain that the capacity offerd hasincrased. When asked about the fare cvssion it was confirmed tha C?TM hiredconsultants who measured the actual fare evasion in 58 stations. In addition, to theaverage figure of 15% which could be as high as 30% in some stations and as low as 5%in others, there is also ticket fraude estimated at 1IO/* which is under investiation. Inaddition there are compulsory gratuities of about 7Wo . So, the total number of totalpwssengers transported should be the numbcr of payiag passengers divided by one inthe sum of fkre evasion, raudc and grztuities. All CBTU provided figures must beadjusted and the number of passengers transported per day are close to 700,000. Thisseems to be in better agreement wiEh the figums from the Director of Operations whichindicate about 71 ,000 in an average day. CPT?'s president indicated that he is takingsteps to install automated ticketing machines and he has hired about 1,200 guards.However, recently there has been a number of hold ups in stations and the securityguards arc now controlling both fare evasion and theft. It is possible that because of theassaults that fare evasion has increased slightly. There is also a consess that the fare istoo high especially in the ofr-peak hours and his is probably inciting fre avasion. CP?Tfis negotiaiiig with the State lower res for the off-peak.

Level of Service

5. There appears to be so agreemeant that the lcv of svprovidedincreased considerably and this is reflected in the peiodic public survey undertaken byGallup. The problem now is to guarantee reiabiity. The number of fatalities decreasedfrom 160 to 2 and not 100 to 2. The hired guards wcre also responsible fbr the succes inreducing the fatalities.

Institutional Component

6. CPrM agreed tha2 ther= were less thian desired counterparts to absorb the resultsof some of the studies under.alcen although more than 60% of the reconmendations ofthe studies were followed. One asked why not to seize the opportunity to concess3on outthe system, the Undersecretary indicated that -the Stat had decded that it did not wantto go into a concession without improving the condition of the system for fear that aconcesion would collapse.

Next Steps

7. The next immediate steps are to correct the basic passenger statistics and thefinancial ratios as discussed during the mission to reflect the actual statisics of the ecx-CBTU part of CPTM instead of the whole network. In addition, the nission undertookto discuss with C I'U the status of some of the points raised bY CPTM about sotcequipment delivered. New statistics ae atLached as Annex 1.

Sao Paulo, September 30, 1998

33

Jorgc M. Rebelo Sea4o K Rod nge

woimBuwANOUPMO

34

Mlssfo de Setembro de 1998, Banico Mundial

Evento: Reuniso na EstaqSo da Luz [BIRD I Loan 3457 - BRJ

Pa,rtcipentes.

i E m 7tmSV;tor M. dce Almida Noronha DOM _ dwaldir Qujilc DOM/SPI Superintandente Prvduc4o Induamaljose flicarao Fazoie F-tmzra DOMISMA Superlntetnente c3e ManutendtoJose Cartos Nestart DOM/SOP SSergio Henrigue S. Neves- OMfMAM Gerente Manuten_8 Material Roc_ nteEvaddo Jose dos Rets Femira OOM/MAS IGrnt. Manut Sit. Eletro-EfetrnicosFlvivo de Aricirede Muller IDEOISOM Supflmntfdenlt* as oras e MAoftgeflsCleanto Pereinra aos Sanios DAF/SOF Sumnmen ente operaq4es Financeims (jWagner Baoiista Caoelletti | OAF/OpFO Asstent. Tcnico 2ramnt0Sergio K. Roc rigues P R/APR Assesor da Presidencla(1 interino

3So Paulo, 28 de setembm de 1998

35

APPENDIX B

CBTU

Companhia Brasileira de Trens Urbanos

Borrower Summary of the Project and Sector Action Plan

Loan Agreement no 3457-BR

Preface

This is the final report on the Sao Paulo Urban Transport Decentralization Project, entered between CBTU

- Companhia Brasileira de Trens Urbanos, the Government of the State of Sao Paulo and the Federal Government of

Brazil, and representing a US$ 126 million World Bank loan, signed on September 3, 1992.

The loan closed on March 31, 1998, 21 months later the originally agreed completion date on June 30,

1996.

The last loan disbursement was made on June 30, 1998, and all of the initially requested funds were

disbursed.

36

Summary Evaluation

Sao Paulo Metropolitan Transport Decentralization Project

CBTU -Companhia Brasileira de Trens Urbanos

Loan Agreement N° 3457-BR

Brazil

Introduction

The Federal Government, in its capacity as country wide operator and administrative agency for the

existing urban rail transport networks, and in compliance with constitutional rulings establishing that local

authorities are to be responsible for the management and operation of urban transport, developed the Metropolitan

Transport Decentralization Program to implement the transfer of said networks to their respective local

administration authorities. The World Bank was asked to support the program with a loan and has been participating

in the Sao Paulo and Rio de Janeiro projects, and more recently in the projects for Belo Horizonte, Recife and

Salvador.

The Project was submitted to the IBRD in October, 1990, and had its final version approved in March,

1992.

37

Project Objectives

In September, 1992, CBTU, the Government of the State of Sao Paulo and the Brazilian Federal

Government signed a US$ 126 million Loan Agreement LN-3457-BR with the World Bank, with a US$ 155 million

counterpart to be supplied by the Federal Government, for a total project cost of US$ 281 million, for the services of

rehabilitation, construction and acquisition of materials end equipment necessary for the rehabilitation of the Sao

Paulo Urban Rail Network, comprising corridors: (a) Santos-Jundiai, and (b) Linha Leste (Tronco and Variante),

and the preparation of studies aimed at the institutional and managerial development of same.

The program had the following objectives: (a) to support the Federal Government in its efforts to transfer

the CBTU-SP subdivision to the State of Sao Paulo in order to enhance its management and operations; (b) to

introduce institutional, organizational and financial policy reforms to assure its long-term financial sustainability

(including cost-efficiency gains, improved multimodal integration, expanded capacity, and substantial reduction in

subsidies), and (c) to contribute to poverty alleviation and environmental improvement (facilitating access to work,

decreasing their trip time to work, the reduction of congestion, and the reduction of accidents and fatalities through

the provision of safer and more comfortable rail transport). The Program should contribute to the implementation of

a rail mass public transport structural network in the Sao Paulo Metropolitan Area, and would gain a higher share of

participation in the public transport market, by providing high quality services, specially to the low income

population.

The development of the CBTU-SP IBRD Project can be considered of great importance to permit CBTU to

accomplish its mission of promoting the transfer of the urban rail networks. The implementation of this project was

a pilot for the design of other decentralization projects in Rio, Belo Horizonte and Recife.

38

Experience Gained in the Implementation and Results Obtained

The project was developed in two broad components: the physical component, comprising the execution of

a set of works, services and the supply of materials considered vital in order to rehabilitate the Sao Paulo Rail

Transport Network, so that the new operating agency could operate the system, at the same time as said agency

would be in a position to be able to expand the network in the future, and the institutional component, which aim

was that of providing the new operating agency with a set of techniques in the areas of administration, finance,

operation and expansion of urban transport networks that would contribute to the development of the network

operation.

During the initial stages of the Project, institutional activities were developed by the Government of the

State of Sao Paulo, such as the formation of CPTM - Companhia Paulista de Trens Metropolitanos, in May, 1992,

and by the Federal Government, such as the approval and sanction of Federal Law n° 8693/93, authorizing the

transfer of the administration of urban rail transport networks to the states and the convening of the General

Meetings for the transfer of CBTU shares to the Union, and later from the latter to CPTM. This set of institutional

activities resulted in the celebration of the transfer of the Sao Paulo urban rail system from the Union to the State of

S3o Paulo and the beginning of the administration of said network by CPTM, in May, 1994.

The program was expected to be implemented in five years (1992 to 1996), and had its completion date set

for June 30, 1996, which was later extended for one year and finally agreed to be on March 31,1998.

The main reasons for the implementation of the program to have been extended to a further 21 month

period were as follows: +

- institutional issues that resulted in a slow-up for around 9 months between the date set for the beginning

of the services (May 30, 1992) and the effective date of the beginning of the services (February, 1993);

- institutional issues that caused delays to the process of transfer of CBTU to the State. Amongst the latter,

the approval of Federal Law n° 8693/93 for the decentralization of the urban rail transport services which

39

resulted in longer periods of time for the implementation of the necessary "legal/administrative

framework";

issues in respect of the mode of procurement of the supply of track materials, which at the time

established that the supply of materials for the permnanent way upgrading services would be the object of

specific bidding processes other than the bidding processes for the execution of the services themselves.

Despite the managerial planning, said procedure has brought about various encumbrances to the Project

management, such as, for instance, the absence of bidders for certain materials; the inefficacy of the

contract for the supply of spring clips due to the fact that the prototype tests were not approved;

difficulty in obtaining import forms, etc.. These facts were contributing factors to the delay and even

impossibility to carry out some services part of the track rehabilitation sub-program;

legal issues arising out of the approval of the new Bidding Processes Law n° 8666/93, of June 21, 1993,

that led to the review of all existing bidding documents and contracts at the time so that they would be in

accordance with the new law, which was also altered with the issuing of Law no 8883, of June 08, 1994;

legal and commercial issues in respect of the rolling stock sub-program, due to the economic-financial

fragile condition of local suppliers, which compromised the scope of physical and operational targets;

institutional issues that resulted in delayed implementation of the institutional program (studies) due to

successive reviews required by the different administrations to which CPTM was subjected after being

formed;

legal and commercial issues due to the conversion of contracts to the new Brazilian official currency, the

Real, from July, 1994, demanding the extension of deadlines for completion, and even the cancellation

of some contracts.

Besides, the deterioration in the rail network physical-operational conditions due to the absence of

investment since the eighties, the alterations in the urban transport market due to the lack of an intermodel

40

integration policy, and the explosion of the informal transport services (since 1994) compromised full attainment of

the targets set in the Sao Paulo urban rail transport network operational and financial areas.

Some of the program results are that the tariffs charged were substantially adjusted, and reached a higher

level than what was contemplated in the program targets, which resulted in high operational revenue.

The program has permitted the beginning of the reformulation of the management and operation of rail

transport services in the Sao Paulo Metropolitan Area, which is comprised in the object of the Federal Government

metropolitan rail transport decentralization project.

The loan agreement comprised, as the criteria for project performance evaluation, operational and financial

targets to be met following project implementation. The attainment of said targets was based on the intention to

provide greater capacity in terms of passengers carried, which can only be achieved if a higher number of trains are

made available. Yet, the rolling stock sub-program - the rehabilitation and updating of 50 EMUs - was the one

which contemplated object proved to be the most difficult to achieve. Rail industry capacity was, at the time the

project was being implemented, highly shaken by the almost complete absence of investments in this area. It came

to light that this industrial section is finding it very difficult to meet contract commitments in terms of deadlines for

supply, which caused a very long delay in delivering EMUs to service. To that is added the fact that the failure to

increase the offer of transport at the appraised time and the resulting drop in safety and reliability of the services

brought about the failure to meet the higher demand initially contemplated. If we were to make an appraisal of the

program as a whole, we would see that only at this time, with the completion of the civil works and of the systems,

the supply of the equipment and the introduction of new apparatus to the workshops, together with the higher

number of EMUs in service, confidence in the credibility of the system is being regained, and the targets set in the

Agreement are being met. This can already be seen with the reduced fare evasion rates and the increase in the

number of passengers carried, which signal the recovering tendency.

Due to its original characteristics, the program has represented a new policy model for the administration

of mass transport, with the development, during its course, of all methods and procedures to implement the required

41

legal/administrative model required for the development of similar programs being implemented by CBTU in the

other areas currently under its administration, including with the support of the World Bank in several of them.

Bank Performance

This program was the first project in which CBTU and the World Bank acted as partners. This latter entity

has always shown a very high level of interest and desire to cooperate in the development of the Project from the

initial identification mission of the Metropolitan Rail Transport Decentralization Project to the preparation of the

Staff Appraisal Report.

After signing the Loan Agreement and during the course of the program activities and up the its Date of

Completion such interest was made evident by:

- updating courses, seminars, talks and support materials to CBTU and government entities members in all

decision making areas;

- periodic project supervision missions following-up on project development, spotting errors,

recommending corrections, implementing the necessary intervening actions or cooperating in the quest for

solutions, as well as acknowledging what was right, so that it could be adopted as recommended procedures;

- prompt allocation of funds, whenever requested and justified by evidence, fundamental for the company

to be able to meet its financial obligations with suppliers and consultants, which certainly provides the needed

tranquillity for the administration of any type of project.

For all the above support given to CBTU, as shown by effective actions, our appraisal of the World Bank

performance can only be highly satisfactory.

There are three other projects in progress in partnership with the World Bank: Rio de Janeiro, Belo

Horizonte and Recife. Also at the appraisal stage there is the Salvador project, and at the identification stage the

Fortaleza project (2nd stage), and CBTU is of the opinion that, based on the support shown to the Sao Paulo project,

all of these projects have a good chance to succeed.

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Borrower Performance

In the World Bank appraisal, submitted in the SAR, the main risks involved in the program were as

follows:

i - delays in the dialog among the three levels of government;

ii - the political reluctance to increase the fares, compromising the working ratio;

iii - possible delays in bidding processes;

iv - the availability of counterpart funds.

The risks mentioned in ii and iv did not materialize, and the program development rate goes beyond the

contemplated targets. Insofar as i is concerned the integration between the three levels of government, although not

formal due to political reasons, took place in an informal way especially between the State of Sao Paulo, the Sao

Paulo Municipality and the other municipalities of the region. There were several meetings held by these levels with

a pre-announced agenda and with published minutes. This is how Sao Paulo was able to reach decisions on the

integration between modes, the automated ticketing system, and the routes to be used by the Fura-fila, etc. And all

this was due to the CBTU project and by the gentle persuasion of the Bank. Now this consultation between three

levels of government is being formalized through the CAMARAS TEMATICAS. The risks associated with the

bidding processes did materialize in the form of delays - basically in the 1993/1994 period - and were equated after

that.

We must note that the capacity of the train network to start its rehabilitation at the same year as the start of

program implementation (1992) was overestimated. The level of programmed intervening actions was high and, in

order to meet the targets expected, it would have been necessary to implement a larger overall number of program

actions. On the other hand, the unforeseen delays gave rise to an acceleration of the deterioration of the system, the

rehabilitation of which was finally started in 1997, with the investments by the program and by other actions

implemented concurrently by the State administration.

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Program Results Evaluation

An overall evaluation of the program depicts the level of attainment of the object thereof, as follows:

- support to the Transfer of CBTU-SP to the State of Sao Paulo. With the approval of law n° 8693/93

which comprised the rules for the decentralization of urban rail transport in the country, and the development of the

program that has been helping and guiding the implementation of the entire legal/political/administrative set of tools

required, and that has permitted the implementation of the process of decentralization of the entire urban rail

network.

- the effective transfer of the services in a way that had never been seen before in Brazilian public

administration history, without discontinuing the services offered to users.

- the fortnation and merger into one company of the existing passenger rail services in Sao Paulo

Metropolitan Area, originally run by CBTU and Ferrovia Paulista S/A -FEPASA, which measure was recommended

since the late sixties, with a view to upgrading and reorganizing the SPMR urban rail services.

- the implementation of the new operating company - CPTM - with a dynamic and flexible operational

structure designed to meet the needs of the newly created institutional management policy in which the operation of

the services by concessions or in partnership with private enterprise are targets to be met.

- recommendations on the possibilities of concession of the metropolitan rail services in the SPMR, based

on the development of initial studies seeking to establish a new company, commercial and institutional effort

observing the transport section legislation and the prevailing economic conjuncture.

- the massive presence of data processing means implemented into CPTM, with a view to making the

administration more agile and to upgrade the level of efficiency, productivity and results thereof.

- arresting the network deterioration process, with the investments in infrastructure, system and rolling

stock, which permitted the rehabilitation of same to be started, with the offer of better quality transport services.

- the preparation of a plan for the recovery, modernization, reformulation and integration of the rail

networks, as a result of the investments in connection with other actions and intervening external activities

undertaken by the state administration via CPTM.

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Summary of Benefits, Future Actions and Main Lessons Learned with the Project

CBTU believes that, in accordance with the Federal Government guidelines for the implementation of the

new management of decentralized operation proposed for the urban rail services, the CBTU-IBRD program was of

vital importance to permit the development of this proposition in a politically and financially viable way, without

losing sight of the need to provide adequate conditions for the new transferred networks operators to conduct an

economically and financially sustainable operation.

The study of causes and consequences of the errors and of the adequacy of this program are duly

documented, have at times been evaluated to exhaustion, and, therefore, resolved or sometimes shortcut, and the

history thereof has been recorded so that they will not be repeated, at least by this company administration.

The relationship with the Word Bank members was of great importance for the completion of this project.

The experience gained by said personnel in the implementation of large size projects throughout the world was

fundamental for the satisfactory development and completion of the Sao Paulo project.

We have established and are applying some project administration criteria for future projects, which are

lessons learned in the implementation of the Sao Paulo project, as follows:

- the adoption of single lots for the procurement of permanent way services, comprising the supply of

materials and services, with a view to avoiding the delays which occurred in this program,

- the evolution, wherever possible, onto turn-key type contracts, which contemplate all services and

supplies necessary for the commissioning of a railway section (infrastructure, track and systems);

- the adoption, at a.more sophisticated stage, of the networks transfer model, with private enterprise

participation, using the concession of operation and the injection of funds specially in the area of rolling stock,

considering the expected economic viability and financial sustainability which are expected of the urban rail

services decentralization projects. This is the solution, which has been adopted for the Salvador Urban rail services

decentralization project.

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Flavio Mota Monteiro

CBTU/IBRD Project Coordinator

Approved

Luiz Otavio Mota Valadares

President of CBTU

IMPLEMENTATION COMPLETION REPORT BRAZIL SAO ......development of a serious effort to integrate rail...

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