ILE OurPY The World Bank

Transcription

1 Public Disclosure Authorized i o s n a r n v Document of ILE OurPY The World Bank FOR OFFICIAL USE ONLY Report No. P-2254-BR Public Disclosure Authorized REPORT AND RECOMMENDATION OF THE PRESIDENT OF THE INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT Public Disclosure Authorized TO THE EXECUTIVE DIRECTORS ON A PROPOSED LOAN TO THE FEDERATIVE REPUBLIC OF BRAZIL FOR AN Public Disclosure Authorized URBAN TRANSPORT PROJECT April 24, 1978 This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.

2 CURRENCY EQUIVALENTS Calendar 1977 March 20, 1978 Currency Unit - Cruzeiro (Cr$) Cr$ US$1 - Cr$ Cr$1 - US$0.07 US$0.06 ABBREVIATIONS AND ACRONYMS CNPU = Comissao Nacional de Regioes Metropolitanas e Politica Urbana EBTU = Empresa Brasileira dos Transportes Urbanos FDTU = Fundo de Desenvolvimento de Transportes Urbanos FNDU = Fundo Nacional de Apoio do Desenvolvimento Urbano GEIPOT = Empresa Brasileira do Planejamento dos Transportes Urbanos TOPICS = Traffic Operations Programs to Increase Capacity and Safety kph -Kilometers per hour FISCAL YEAR January 1 to December 31

3 FOR OFFICIAL USE ONLY BRAZIL URBAN TRANSPORT PROJECT LOAN AND PROJECT SUMMARY Borrower: Amount: Federative Republic of Brazil US$88 million equivalent Terms: Repayment in 15 years, including 3 years of grace, at 7.5% per annum. Prolect Description: The project would improve urban transport services in five metropolitan areas: Belo Horizonte, Curitiba, Porto Alegre, Recife and Salvador, giving special emphasis to the provision of public transport to the urban poor. It would include traffic engineering measures to improve circulation in central areas; introduction of exclusive bus lanes; traffic operations programs to improve capacity and safety (TOPICS) to alleviate critical congestion points; widening or construction of missing links in the urban road networks; reorganization and construction of bus terminals; and paving of bus routes in low-income areas. The project would also include an extensive technical assistance program for the sector. Seventy three percent of the investments in Curitiba, Recife and Salvador would directly benefit people with per capita incomes below one-third the national average and sixty seven percent in Porto Alegre. A similar percentage is expected to apply to the investments in Belo Horizonte. The main risk faced by the project is that local authorities might fail to take or delay in taking actions, such as new parking regulations and modification of bus routes, which are necessary to complement the construction and equipment to be financed under the project. This risk would be brought to acceptable proportions through the agreements to be obtained from the authorities concerned that they would take these actions, and through the monitoring system to be established. This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.

4 - ii - Estimated Cost: ---- US$ millions Local Foreign Total % Land Acquisition Civil Works TOPICs Bus Terminals Bus Routes Paving Traffic Control Equipment Bus Maintenance Facilities and others Technical Assistance and Training Design and Supervision Physical Contingencies Price contingencies Total Project Cost Financing Plan: US$ million Belo Porto Technical Horizonte Curitiba Alegre Recife Salvador Assistance Total Proposed IBRD Loan EBTU States and municipalities Estimated Disbursements: US$ millions Bank FY Annual Cumulative Rate of Return: The average economic rate of return on the components evaluated for the sub-projects in Curitiba, Recife and Salvador, which account for 92% of total project costs in those cities, would be 31%. The corresponding percentages for Porto Alegre would be 83% and 53%. It is expected that the sub-project in Belo Horizonte would have a similar rate of return. Appraisal Report: Report No BR, dated April 3, 1978.

5 REPORT AND RECOMMENDATION OF THE PRESIDENT OF THIE IBRD TO THE EXECUTIVE DIRECTORS ON A PROPOSED LOAN TO THE FEDERATIVE REPUBLIC OF BRAZIL FOR AN URBAN TRANSPORT PROJECT 1. I su 1.rit the following report and recommendation on a proposed loan to the Federative RepublLc of Brazil for the equivalent of US$88 million to help finance an urban transport project in the metropolitan areas of Belo Horizonte, Curitiba, PortLo Alegre, Recife and Salvador. The loan would have a term of 15 years, including 3 years of grace, with interest at 7.5% per annum. PART I - THE ECONOMY 1/ 2. A report, entitlled "Economic Memorandum on Brazil" (1665a-BR), dated October 13, 1977, was distributed to the Executive Directors on October 21, Country data sheelts are attached as Annex I to this report. 3. The late 1960s and early 1970s were years of remarkable economic growth and development for Brazil. The 10% average annual rate of growth in GDP during this period was accompanied by a strong balance-of-payments performance. The dollar value of exports rose by 300% from 1967 to 1973 and a process of export diversification significantly reduced Brazil's dependence upon coffee as the single primary source of foreign exchange earnings. At the same time, inflation was brought progressively under control. During the early 1970s prices rose at less than 20% per annum on average -- a considerable improvement upon the inflation of a decade earlier. The crawling peg exchange rate combined with widespread monetary correction and indexation of financial instruments helped to minimize the distortions which often accompany inflation (although indexing makes it more difficult to reduce the level of inflation). 4. The world economic crisis of 1974 marked a turning point in the recent economic performance of Brazil. Although growth continued at 9.5% in that year, it proved impossible to maintain the good balance-of-payments performance that had accompanied growth in previous years. The continuation of expansionary policies during 1974 in the context of a sharp deterioration in the terms of trade resulted in a trade deficit amounting to US$4.7 billion. The elimination of that deficit has been a major objective of economic policy since that time. To this end the Government fortified simultaneously its policies of export promotion and of import substitution. As a result of these policies, the trade gap closed progressively year by year. In 1977 exceptionally high coffee prices contributed towards a strong increase of export revenues and the trade gap was eliminated entirely in that year. It is projected that the trade gap will remain closed even though coffee prices have already rolled back significantly from the high levels prevailing in early This expectation is predicated on a major effort to expand other exports, particularly of manufactured goods. 1/ This section has been reprinted from the President's Report on the Sixth Highway Project (P-2233-BR) dated April 11, 1978 and distributed to the Executive Directors on April 13, 1978.

6 -2-5. Inflation is another problem that has become a focus of attention in recent years. Sharp rises in the prices of petroleum and other imported goods in 1974 gave an added impetus to inflationary pressures which were already building up in the Brazilian economy even prior to the world economic crisis. Inflation increased in 1974 and continued to accelerate in the subsequent two years reaching a peak of 46% in The Government has employed a wide range of monetary and fiscal instruments to combat inflation. Interest rate policy has in general been realistic, except in the agricultural sector where systematic subsidization of interest rates has complicated monetary management. Particularly significant is the much greater control now exercised by the Federal Government over the investment programs of public sector decentralized agencies. There is evidence that these policies are having effect. Inflation for 1977 was some 39%, and in the second half of 1977 inflation slowed to a rate of some 30% on an annual basis. If the Government continues to exercise careful control over monetary and fiscal policy, further headway against inflation is likely. 6. Brazil's economic performance since 1974 has been deeply affected by balance-of-payments constraints. Growth fluctuated sharply from 4.2% in 1975 to 8.7% in 1976 and down again to 6% in 1977 as the Government searched for an appropriate balance between expansion on the one hand and, on the other hand, the need to resolve difficulties in the balance of payments and in the domestic inflationary situation. The Government recognizes the need for continued moderation in growth during the next two or three years if inflation is to be kept under control, the balance of payments is to be further improved and a sound basis for longer term development is to be preserved. It is projected that growth may average little more than 6% during the remaining years of the decade. Beyond that, however, there is every indication that Brazil has the potential to sustain higher levels of growth provided (a) that reasonable expansion of output and trade takes place in the industrial countries, and (b) that sound economic policies are consistently pursued in Brazil. In this respect the Government's development strategy provides a sound framework for future development. 7. The second National Development Plan ( ) was published in the wake of the world petroleum crisis and incorporates a sectoral development strategy which focuses sharply upon relieving Brazil's balance-of-payments constraints in the longer term. The export potential of agriculture received explicit recognition in the development plan and the results achieved over the past several years (particularly in soya production) justify the priority given to this sector. Agriculture constitutes a vehicle for raising the living standards of the rural poor and for developing the vast frontier lands of Brazil's interior. In the case of industry, sophisticated incentive schemes have been introduced to encourage exports. However, Brazil's industrial development strategy now concentrates upon import-substitution programs in steel, non-ferrous metals, petrochemicals, fertilizers and capital goods. Brazil aims at self-sufficiency in many of these products by the early 1980s. Beyond that point these same industries may develop a good export potential. 8. Public sector investment accounts for more than half of total fixed investment in the Brazilian economy. It is heavily concentrated in infrastructure and basic industry. These two areas together account for

7 -3- about 70% of total investrment by federal Government agencies and enterprises. Regional development and social programs absorb most of the remaining 30%. Until 1975, the rapid expansion of public investment reflected a heavy emphasis on road construction and regional development. The Second National Development Plan ( ) added a massive program of import substitution in basic industrial inputs, and an acceleration in the pace of socidal programs. Since 1977, however, severe restraints have been placed on public investment, in order to reduce a growing public sector savings gap and the accompanying balance-of-payments defic:it. The sectors most affected are road and rail transport, whose ambitious expansion plans have been cut back sharply. Investments in electric power, on the other hand, are maintained at a high level, and in basic industries such as steel, non-ferrous metals and petroleum, are being stepped up considerably. The share of regional development programs in total federal investment has now stabilized at about 7%. The percentage allocated to social investment is increasing gradually, reflecting continued expansion of public investment in housing, water supply and sewerage, and other urban development programs. 9. Despite its impressive growth performance and vast future potential, Brazil is still a country with extensive poverty. The present Government acknowledges the country'is poverty problem and accepts responsibility for its alleviation. While, like the previous Government, it believes that a high rate of growth is necessary to increase the incomes of the poor, it does not believe that the "trickle down" effects cf rapid growth are enough and has formulated a new policy which could be labeled as "redistribution with growth." To implement this policy, in addition to pursuing some of the social programs initiated by its predecessor, the Government is taking new measures in three broad areas: (a) regional development; (b) provision of social services; and (c) wage policy. In addition, recent tax changes have tended to have a favorable, albeit marginal, impact on income distribution. 10. As one of its measures to help promote development in poorer regions, the Government has formulated a program known as POLONORDESTE for rural development in the Northeast. The program which covers the period is designed to raise the productivity and incomes of small farmers through inter alia, formulation and execution of integrated rural development projects, which in some cases include changes in land tenure. POLONORDESTE is based on the assumption that the rural Northeast cannot be regarded as a homogeneous whole. Therefore, the Government has identified 31 sub-regions covering large portions of the Northeast on which POLONORDESTE funds would be used initially. The Bank has made loans for integrated rural development in four of these subregions, and various others are in preparation. 11. In the area of social services, the Government has created a new Ministry of Social Security in order to consolidate its social benefit programs and to extend these programs to a larger share of the population. The Government is also strengthening the nutrition program which, under the previous Government, got off to a slow start. Greater emphasis is being given by the National Housing Bank to low-income housing, the beneficiaries of which will enjoy better financial terms than in the past. The Housing Bank is also

8 - 4 - developing a site and services program to encourage construction of self-help housing by families that cannot afford builder-constructed units. In agriculture, the recently reorganized rural extension agency will expand and strengthen its activities directed specifically toward the small-scale farmer; and the new federal agriculture research institution is defining its program to include a selection of crops and farming systems which will ensure that small-scale farms benefit from research efforts. In November 1974, the Government revised the formula governing the adjustment of the union wage scale and the real minimum wage was increased in 1975 and again in While in 1977 the Government restricted wage increases as part of a policy package designed to control overall demand and to combat inflation, this does not signify any basic change in its longer term goal of improving income distribution. 12. In order to achieve the twin goals of high growth and an improved distribution of income, Brazil will continue to require large inflows of capital in the medium-term future. These inflows should be less than in the recent past, however. Compared with a US$6 billion annual average for , it is estimated that the annual net inflow of medium- and long-term capital (that is, direct foreign investment and net disbursements from official and private sources) may be in the order of US$4.5 billion for This projection assumes that it will be possible to sustain and subsequently improve upon the trade balance achieved in 1977, with export volume rising at an average rate of 11.5% annually in , and import growth held down to only 2.8% a year in real terms during this period. The outlook for Brazil's principal export commodities is quite favorable for the next several years, and it is expected that the good overall export performance projected here can be achieved, provided that the country continues to follow present exchange rate policies to ensure the competitiveness of manufactured exports. On the import side, several major import-substitution programs are already having a notable impact. The further development of these programs should enable Brazil to continue to restrain imports without jeopardizing growth. 13. On December 31, 1977, Brazil's estimated public external debt amounted to about US$16.6 billion and the public debt service ratio for 1977 is estimated at some 19%. This is somewhat higher than the 15% average public debt service ratio estimated for the first half of the 1970s and reflects a higher proportion of medium-term financial credits within the overall debt structure. Total external debt (both public and private) registered by the Central Bank at end-1977 is estimated at US$29.5 billion and somewhat over two-thirds of this debt (some US$20 billion) is in the form of financial credits. The net debt service ratio on total external debt during 1977 was about 41% compared with an average of 38% during the early 1970s. However, net foreign exchange reserves at the end of 1977 were about US$7.0 billion, equivalent to some six months' imports of goods and non-factor services and sufficient to cover nearly one quarter of the total outstanding external debt. Despite Brazil's heavy debt service burden the substantial level of foreign exchange reserves ensures that the country will have the liquidity to meet its debt service obligations in the short term. The breakdown between public and private debt in the longer run can be projected only tentatively. Much will

9 -5- depend upon the extent to which the Government will extend its guarantee to loans contracted externally by non-government entities. Even assuming that a government guarantee will be granted in an increasing number of cases, it is projected tentatively that the public debt service ratio will peak in the late 1970s at shout 20%. Subsequently, a fall to about 16% by 1985 is projected, assuming that Brazil can increase the values of its exports by an average of 17% per annum and that the average maturities of new financial credits gradually improve from six to eight years. The country's record of financial and economic mainagement provides grounds for confidence in the maintenance of creditworthiness over the longer run. Nevertheless, there can be no doubt that very careful management of the external accounts will continue to be necessary. PARI' II - BANK OPERATIONS IN BRAZIL 14. By February 28, 1978, the Bank had made 74 loans to Brazil, amounting to US$3,199.4 million, of which 36 were not yet fully disbursed. During FY65-69, disbursements averaged only US$10 million per year, increasing to an average of US$150 million per year during FY70-75, reaching US$248 million in FY75, US$202 million in FY76 and US$267 million in FY77. During the first half of FY78, US$129 million was disbursed. The decline in disbursements in FY76 was due primarily to the reduced level of lending in FY Disbursements are expected to increase during the next few years. Annex II contains a summary statement of Bank loans as of February 28, 1978 and notes on the execution of ongoing projects. 15. Since FY75, Ban,k lending to Brazil has amounted to between US$400 and US$500 million per year. In FY75, five loans were made totalling US$426.5 million; in FY76 ten loans totalling US$498 million and in FY77, seven loans totalling US$425 million. So far in FY78, five loans have been approved: US$17 million for an integrated rural development project in Ceara, US$110 million for a sewage collection and treatment project in Greater Sao Paulo, US$24 million for an integrated rural development project in Paraiba, US$130 for a power distribution project in the South and Southeast and US$114 million for a highway maintenance and rehabilitation project in Parana. Work is relatively advanced on the preparation of an agricultural extension project; another rural development project in the Northeast; an aluminum project; and an industrial pollution control project in Sao Paulo. 16. Of Brazil's external public debt outstanding and disbursed at the end of 1977, amounting to nearly US$16.6 billion, the Bank held about 8.5%. The Bank's share of the service on this debt was about 4.5%. If present trends continue as expected, the Bank's share in total external public debt outstanding would increase to 12% by The Bank's share of public debt service would rise in 1980 to about 6% while its share of Brazil's total (public and private) external debt service would remain at the present level of 2.8%.

10 IFC has committed more financial resources to Brazil than to any other country. As of February 28, 1978, IFC had made commitments to Brazil, totalling US$332 million, of which US$203 million had been cancelled, repaid or sold. Of the balance of US$129 million, US$102 million represent loans and US$27 million equity. A summary of IFC's investments up to February 28, 1978, is given in Annex II. Lending Strategy 18. In its lending to Brazil, the Bank has sought to help the Government achieve a number of important development objectives which are interdependent and complementary. An important lending objective is to help to intensify the efforts of the Government to identify and develop projects that will increase productivity and incomes of the lowest income segments of the population, broaden the economic opportunities open to those groups, and improve their living conditions. The proposed urban transport project is addressed to this objective. It has been designed to benefit public transport users in urban areas most of whom are below the relative poverty level. It would expand the range of employment opportunities open to low income segments of the population by reducing their travel time to work and by providing all-weather access for public transport in the peripheral areas of the large cities. The recently approved loans for the nutrition research and development, vocational training, agricultural research, Lower Sao Francisco polders and Greater Sao Paulo sewage collection and treatment projects, and for the integrated rural development projects in the states of Rio Grande do Norte, Minas Gerais, Ceara and Paraiba were all designed to assist low-income groups. Additional projects to reach low-income groups in urban areas are in preparation, including a sites and services project, sewerage and water supply projects in several northeastern states and a medium-sized cities development project. Additional integrated rural development projects directed at low-income farmers are also in preparation. 19. A second Bank lending objective in Brazil is to support institutional development and policy reform designed to develop rational policies and procedures, establish adequate coordination and control, and help maximize public savings and ensure that they are used economically. The institutionbuilding objective has been important in Bank assistance for vocational training, and for the transport sector where emphasis has been given to the rational selection of investments, the strengthening of railway operations, and the improvement of the railways' financial performance. Loans for electric power, industrial finance, highways, agricultural research and extension, and urban development also have important institution-building objectives. The proposed project would strengthen the federal institution responsible for urban transport in Brazil technically and operationally. 20. Another lending objective is to ease the foreign exchange constraint on development, a constraint that has become more critical since the increase in petroleum prices, by supporting projects designed to increase Brazil's export capacity and, where economical, to substitute domestic production for imports. As a result of the deterioration in Brazil's terms of trade and balance of payments which took place at the time of the 1974 energy crisis, this objective was placed in the forefront of the Government's economic policy.

11 -7- Bank support of fertilizer projects is assisting Brazil to substitute imports with large-scale efficient domestic production and aid its balance-of-payments position. Bank lending for agro-industries in the Center and South of Brazil is also supporting this objective and much of the Bank-assisted investment in the transport sector -- railways, ports and highways -- is designed to facilitate the smooth and economical flow of exports. Support of the s;;eel expansion program is helping Brazil to expand domestic output of a traditional import commodity which can be produced efficiently in Brazil due to the country's ample supply of high-grade iron ore and the scale of its internal markets. A similar objective would be achieved through the aluminum project now being prepared. 21. A final objective which applies to all Bank lending to Brazil is to provide part of the very large volume of medium- and long-term capital inflows that Brazil has needed and will continue for some years to need in order to sustain rapid growth and achieve its employment creation and regional development objectives. Continued active lending by the Bank in Brazil is regarded by the international financial community as an important sign of confidence in Brazil and encourages them to continue their own programs there. In some sectors, especially in electric power and industry, Bank participation is helping Brazil obtain additional resources in greater amounts and on more favorable terms from bilateral credit agencies and private financial institutions. Since 1976, five co-financing operations totalling US$204 million have been concluded with private financial institutions and several others are in preparation. PART III - THE URBAN SECTOR Urbanization 22. Rapid urban growth has been one of the most striking characteristics of Brazil's recent evolution. In 1950, cities with more than 20,000 inhabitants accounted for less than 25 percent of the total population; by 1970, their share of the total had risen to 40 percent. During the sixties, the rate of growth of the urban population was 5.6% p.a., compared to 2.9% p.a. for the overall population of the country. The bulk of the increase in the urban population occured in cities with more than 250,000 inhabitants. At present, there are nine metropolitan areas with more than one million inhabitants: Belem in the north; Salvador, Recife, and Fortaleza in the northeast; Sao Paulo and Rio de Janeiro in the southeast; Belo Horizonte in the centerwest; and Curitiba and Porto Alegre in the south. 23. The population of Brazil is concentrated in the northeast and southeast regions, and within these areas, mostly along the coastal sections. Between 1940 and 1970, however, these two regions grew less than the centerwest region which experienced the creation of Brasilia together with the rapid growth of Belo Horizonte. Nevertheless, this trend only diminished slightly the preeminence of the southeast over the other regions.

12 24. Urban services are inadequate in most Brazilian cities. The rapid growth of the urban population has put great pressure on the financial resources of local institutions at the state and municipal levels and investment in infrastructure has fallen behind. The situation in southern and southeastern cities is somewhat better than in the rest of the country with noticeable exceptions in the peripheral areas of the large metropolis where most of the recent migrants from rural areas live. The north and northeastern parts of Brazil are very poorly served especially in the peripheries of the large cities and in the small cities. It is not uncommon to find that more than 40% of the population has inadequate water supply and more than 70% inadequate sewerage facilities. Many cities are even less well served. Urban Poverty 25. In 1976, US$450 (i.e. one third of the per capita national disposable income, adjusted for rural-urban differences) was the estimated income threshold below which an individual living in an urban area was in relative poverty. By this criterion in 1970, the latest year for which detailed income distribution data are available, the proportion of the households in relative poverty amounted to 55% in Curitiba, 54% in Porto Alegre, 77% in Recife and 69% in Salvador -- more than 3.5 million people altogether in these four metropolitan regions. It is clear, therefore, that poverty is widespread in Brazil, even in apparently prosperous southern cities like Curitiba and Porto Alegre. Moreover, within that portion of the metropolitan population which falls below the relative poverty threshold, there are significant numbers in even more severe conditions of poverty. In Recife, for example, fully 16% of the households must live as best they can on a per capita income less than one fifth of the relative poverty level. The corresponding proportion of the population in Curitiba, Porto Alegre and Salvador falling into this category are 4%, 5% and 11% respectively. This is a telling indicator of the extent to which a significant proportion of the urban population in Brazil is afflicted by poverty. The lowest income groups are particularly prone to conditions of malnutrition, squalid housing and inadequate urban services. Urban Policies and Institutions 26. Formulation of an explicit urban policy and development of federal institutions to deal with urban problems began with the preparation of the second National Development Plan ( ) and are still in their early stages. Current policy places primary emphasis on the problems caused by the concentration of activities in the Rio de Janeiro/Sao Paulo axis, and by the disparities in the provision of economic and social infrastructure, both between and within regions. Detailed urban strategies have been formulated for Brazil's five macro-regions to consolidate the urban structure of Sao Paulo and Rio de Janeiro, promote orderly expansion of the metropolitan areas of the south and center-west, strengthen and diversify the urban economies of the metropolitan areas of the northeast, and consolidate the position of cities in the north and new cities in the center-west. At the same time, the Government intends to promote the growth of medium-sized cities in all regions to achieve a more balanced urban hierarchy and attract an

13 - 9 - increasing share of migratory flows away from the larger metropolitan centers. As part of this effort, the Government is actively preparing a project in support of selected medium-sized cities for which it has requested the assistance of the Bank. 27. To coutdinate and oversee the development of plans for and the flow of funds to the urban sector, the Government created in June 1974 the Comisao Nacional de Regioes Metropolitanas e Politica Urbana (CNPU) -- an interministerial commission with advisory and prescriptive functions. The main responsibilities of CNPU are to supervise the urban planning mechanism established in the nine metropolitan areas mentioned in para. 22; propose guidelines for national urban development policy and formulate a strategy to ensure its implementation; and propose regulations and operational instruments required for urban development. Metropolitan regions and cities seeking access to federal urban development funds are required to submit their proposed investment plans to CNPU for approval. 28. In 1975, the Government created the National Urban Development Fund (FNDU: Fundo Nacional de Apoio ao Desenvolvimento Urbano) to finance urban development projects prepared in accordance with the general policy guidelines proposed by CNPU and approved by the Government. FNDU is an account that receives part of the proceeds of the vehicle registration tax and the fuel and lubricants tax. Total resources allocated by the federal government for urban development are estimated at US$5 billion equivalent for the period , with about US$1.5 billion to FNDU. The National Housing Bank is responsible for the administration of most of the balance of those resources. Approximately 75% of FNDU's resources are channeled into a subaccount destined for urban transport investment -- tble Urban Transport Development Fund (FDTU: Fundo de Desenvolvimento de Transportes Urbanos). FDTU resources are administered by EBTU (see para. 31) within the policy framework established by CNPU. Urban Transport Policies alnd Institutions 29. The rapid pace of urbanization triggered an even faster growth of demand (up to 9%) for transport in urban areas. While the bulk of the traffic (60%) is carried by buses, their share has been falling at the expense of the private car. Since 1965, the automobile fleet has grown at an average rate of 11% per annum, twice the rate of growth of the urban population. The provisiorl of urban transport infrastructure, in particular construction and paving of roads, has lagged behind the growth of demand. The gap is most striking on the outer edges of metropolitan regions where the majority of rural-urban migrants settle. In some metropolitan regions such as Recife, as many as 30% of the urban dwellers lack adequate public transportation and walk an average of 5 km to work. In the central areas of metropolitan regions, an increasing number of vehicles competing for limited road space has resulted in increased congestion. This is particularly detrimental to bus operating speeds that frequently are as low as 5-8 kph. Journey times irk most metropolitan areas average around one hour for the journey to work arld much longer for the urban poor who mostly live in the outskirts of the large cities. As a result their range of employment opportunities is severely restricted. Under the project EBTU

14 would carry out a study to determine the effects of transport deficiencies on the low-income population. 30. Until the mid-1970s, there was no explicit national policy on urbani transport. The major public investments in public transport in the early seventies were ambitious and costly underground rail systems in Sao Paulo and Rio de Janeiro. In recent years, a more comprehensive urban transport policy began to evolve, with four main objectives: to make more efficient use of existing infrastructure and transport systems, especially bus systems; to slow down gasoline consumption and reduce the use of automobiles; to promote actively the use of public transport, through measures and investments to improve its quality; and to plan and coordinate urban transport investments with other urban planning activities. 31. In 1976 the federal government established the Empresa Brasileira dos Transportes Urbanos - EBTU (Brazilian Urban Transport Company) to develop and promote a national urban transport policy and control federal investment in urban transport. EBTU is a government-owned corporation within the overall responsibility of the Ministry of Transport with administrative and financial autonomy and juridical personality. Its principal operation is the allocation of funds from the FDTU in accordance with general policy guidelines elaborated by CNPU. To channel FDTU funds, EBTU enters into a special agreement with the state and municipality concerned, as applicable. CNPU is also a party to that agreement to ensure the consistency of EBTU's programs with the general policies of the Government for the urban sector. Over the period EBTU expects to participate in the financing of projects in the urban transport sector with a total cost of about US$4 billion equivalent. FDTU revenues over the same period are expected to reach US$1 billion equivalent. 32. Since its creation, EBTU has promoted and financed a wide range of activities, including long-term urban transport plans and medium-term public transport improvement programs; immediate action traffic and transportation programs, emphasizing optimal use of existing infrastructure through traffic engineering; improvements in the urban road system and equipment; equity participation in public bus and metro companies; lines of credit for fleet renewal; graduate training and research programs in urban transport in leading Brazilian universities; research and development for new vehicle fuel such as alcohol and for electrically propelled vehicles; and standardization of bus equipment. 33. EBTU is a young institution and its staff and operations reflect the learning process that it is going through. Because of the early need to establish its presence, EBTU committed FDTU funds to projects with less technical background, economic preparation, and attention to complementary policies and measures than would have been desirable. These problems are being overcome. The quality of technical and economic evaluation work has improved markedly. Standards and procedures have been developed and utilized for project supervision. Guidelines for project evaluation have been developed and are being tested. Internally, there is evidence of increasing cohesion and coordination among the various directorates of the institution. By end 1977, EBTU's professional staff numbered 72. Despite the considerable progress already made, EBTU still needs to articulate an overall investment

15 allocation strategy, define its functional and geographical priorities, and establish explicit criteria for accepting projects. Under the project, EBTU would engage consultancy services to strengthen its project evaluation and supervision capabilities. It would also carry out a study to evaluate the concept and development of urban transport companies to plan and coordinate urban transport in each metropolitan region. Also, EBTU would rexiew its guidelines for the preparation and evaluation of urban transport projects, in consultation with the Bank and with the assistance of consultants (Section 3.03 of draft EBTU Project Agreement). 34. An important complementary institution is the Empresa Brasileira do Planejamento de Transportes (GEIPOT) which is a consulting agency carrying out studies of general transport problems, including urban transport problems, under the responsibility of the Ministry of Transport. GEIPOT provides technical support to EBTU, metropolitan regions, and cities in carrying out studies and formulating plans for urban transport. The close institutional relationship between GEIPOT and EBTU, both under the responsibility of the Ministry of Transport, means that government policies on urban transport become quickly integrated into studies and plans at the local level. PART IV - THE PROJECT 35. A report entitled "Staff Appraisal Report of an Urban Transport Project" (No BR, dated April 3, 1978) is being circulated separately to the Executive Directors. The project was prepared by EBTU and various local entities in the five project cities with the assistance of GEIPOT and consultants. The project was identified in January 1977 by the Bank urban sector mission. It was appraised by a mission which visited Brazil in October Negotiations with the Government, EBTU and the cities were held in Washington from March 21 to April 5, EBTU was represented by a team headed by Mr. Gil Cesar Moreira de Abreu. 36. Stress is placed on developing as rapidly as possible the capability of EBTU to appraise projects. Consistent with this emphasis on institution building, Bank staff have fully appraised, with the active participation of EBTU, the sub-projects in Curitiba, Recife and Salvador. EBTU has appraised the sub-project in Porto ALlegre and would appraise the sub-project in Belo Horizonte in accordance wiith an established set of guidelines (Sections 2.01(b), 2.02(a) and Schedule 3 of the draft EBTU Project Agreement). EBTU's draft appraisal report for the sub-project in Porto Alegre has been reviewed by Bank staff and found satisfactory. The sub-project is well designed and justified. Disbursements for this sub-project would be conditional upon EBTU submitting to the Bank a 1-inal version of its appraisal report satisfactory to the Bank (para. 4(c) of Schedule 1 to the draft Loan Agreement). Disbursements for the sub-project in Be:Lo Horizonte would be conditional upon the completion by EBTU of an appraisal report satisfactory to the Bank and the signing by the State of Minas Gerais, PLAMBEL, the Municipality of Belo Horizonte and EBTU of a supplementary letter specifying the details of the project components, their costs, an implementation schedule, and a statement of and timetable for the introduction of complemenitary policies (para. 4(b) of Schedule I to the draft Loan Agreement). The draft Belo Horizonte Project Agreement provides the general legal framework for the execution of the sub-project in that metropolitan region.

16 The Project Cities 37. The proposed project would have components to improve urban transport services in five metropolitan regions--belo Horizonte, Curitiba, Porto Alegre, Recife, and Salvador. These cities were chosen because they experience the whole range of urban transport problems in Brazil, covering the extreme poverty of Salvador and Recife, the explosive growth of Belo Horizonte and the growing regional industrial bases of Porto Alegre and Curitiba. 38. The three cities whose projects have been appraised by Bank staff, have experienced very rapid population growth in the last two decades and employment creation in the formal sector has lagged behind population growth. In Salvador and Recife, investment incentives for industries to locate in the Northeast have attracted capital-intensive industries which have provided limited direct employment. By contrast, Curitiba has suceeded in attracting to its new industrial city light and medium-scale industries with capacity to absorb manpower. Basic data on population, employment, urban poverty, and access to basic services are presented in the following table: Population Porto Belo Horizonte Curitiba Alegre Recife Salvador Census 1,600, ,000 1,531,000 1,791,000 1,148, Estimate 2,157,000 1,013,000 1,836,000 2,150,000 1,400,000 - Growth (% p.a.) Labor Force (1970) - Size n.a. 278, , , ,100 - Unemployment n.a. 1.8% 5.7% 6.4% 3.7% Poverty (1970) - Families below relative poverty level /1 n.a. 55% 54% 77% 69% - Families with per capita income below one fifth of relative poverty level n.a. 4% 5% 16% 11% Access to Services (%) - housing / water supply sewerage electricity /1 Defined as families with per capita income below one third of the national per capita disposable income, adjusted for rural-urban differences. /2 Excludes improvised shelter.

17 Transport Characteristics of the Project Cities 39. The project cities share many transport characteristics. Up to 60% of all trips have destinations in central areas where growing traffic volumes have resulted in increasing congestion. In general, cars, buses, trucks and pedestrians ali use the same road space which cause delays, accidents, and pollution. Outside the central area, each city has critical bottlenecks that hold up traffic. Major problems lie in the peripheral areas where most of the poor live. In these areas, most roads are unpaved, which creates very difficult and slow operating conditions for buses. In some areas, these roads are subject to flooding, resulting in prolonged interruptions in bus services. 40. The characteristics of the urban transport system in Curitiba deserves special mention since it is regarded as a model for other Brazilian cities. Curitiba has carried out a well-defined policy in favor of the development of an efficient public transport system. The salient feature of this policy is the development of structural axes establishing a relationship between land use and transport. The basic element of a structural axis is a trinary road system constituted by three parallel roads located one block apart. The land fronting onto the central road is zoned for high-density commercial and residential development. The central two lanes of the central road form an exclusive busway, designed for a high-capacity bus mass transport system. On each side of the busway there are service lanes for local traffic. The central lanes could be used for a more sophisticated mass transport system should future demand require it. The land fronting the lateral roads is zoned for medium-density residential and commercial development on the inner side of the road and for low-density residential development on the outer side. Thus, the pattern of urban development is oriented towards a system of high density corridors which are a prerequisite of a good mass transport system. Since 1974, three structural axes have been brought into operation in Curitiba. The system has facilitated the provision of adequate transport services at reasonable cost and substantially diminished congestion in the central area. At the same time the high level of accessibility provided by the transport system has induced development to concentrate along the corridors. 41. The regulation of bus operations in urban areas is the constitutional prerogative of the municipalities. As a result, the number of bus companies in each city, the specific form of regulation, and conditions of entry vary widely from city to city. Although Salvador and Recife each have a municipal bus company, the majority of the passenger traffic is carried by private companies. In each of the five cities there is some degree of competition and a generally satisfactory profit picture, as indicated by the backlog of franchise requests in all of the cities. Bus fares are controlled at the federal level by the Interministerial Price Council (CIP). CIP has defined formulae for fare computaltion (with different coefficients for each metropolitan area and vehicle category) which take into account operating and administrative costs, depreciation, load factor, and allows for a reasonable rate of return (12%) on companies' investment. Fares are recomputed twice a year. There are no operating subsidies for any bus company, public or private, in the metropolitan regions.

18 Project Concept 42. The proposed project would improve urban transport services in the five project cities giving emphasis to the provision of public transport, especlally to the poor; promote and support the development and execution of appropriate urban transport policies; and strengthen municipal, state, and federal capacity to prepare, appraise, and execute urban transport projects. In each city, the project components have been designed in accordance with regional and urban development strategies. Each sub-project gives priority to traffic management and traffic engineering measures designed to increase the effective capacity and performance of the existing road network, together with organization measures to improve the efficiency of bus fleet operations. Only in cases when sufficient capacity cannot be created by such measures have the construction of urban roads been considered for inclusion under the project. All sub-projects would improve public transport services, especially those in, or used by people from, low-income areas. In many cases, project components that give priority to public transport or other high-occupancy vehicles would also tend to discourage car use. Complementary parking policies would reinforce this tendency by reducing the number of spaces available in central areas and penalizing long-term parking. Together with measures already taken to increase the price of gasoline (the current gasoline price is US$1.77 equivalent per gallon) these actions are expected to have a significant effect on car use. 43. Although details of sub-projects differ among cities, the following components reflect the overall approach of the project: traffic engineering measures to improve circulation in central areas; introduction of exclusive bus lanes; TOPICS I/ programs to alleviate critical congestion points; widening or construction of missing road links in the network; reorganization or construction of bus terminals; and paving of bus routes in low-income areas. As car ownership grows, the effectiveness of this type of measure will be gradually eroded and in the long term it will be necessary to directly reduce the demand for car use in congested areas. To ensure that such measures are ready when the time comes, EBTU would carry out a study on the potential for applying economic disincentives for the use of private cars in Brazilian cities as done in Singapore (Schedule I to the draft EBTU Project Agreement). Project Description 44. In Curitiba, where the salient feature of the transport situation is the development of structural axes (see para. 40), the project would consist of the construction of a fourth structural axis and eight passenger interchange terminals along the existing and proposed structural axes; and of the improvement of 80 km of roads to be used by feeder buses to connect lowincome residential areas to the structural axes. The Municipality of Curitiba would build additional service lanes along the fourth structural axis only after providing economic justification satisfactory to the Bank (Section 2.01(b) of the draft Curitiba Project Agreement). 1/ Traffic Operations Programs to Increase Capacity and Safety.

19 In Salvador the project would include the execution of exclusive bus facilities in six corridors; modifications to three major bus terminals; TOPICS improvements in the central area and at other critical points; paving and resurfacing of 42.9 km and construction of 84 neighborhood bus terminals in low income areas; equipment for traffic engineering and control; a bus penetration road in a low-income district; an integrated basic traasport infrastructure program in Nordeste de Amaralina including a bus penetration road; and the reconstruction of a 2.5 km critical road link. To complement these works the Municipality of Salvador would implement changes in bus lines, routes, and frequencies; and undertake a program for removing long-term parking from the center and enforcing parking regulations (Schedule 1 to the draft Salvador Project Agreement). 46. The comprehensive basic transport infrastructure program in the low-income neighborhood of Nordeste de Amaralina is of special interest. A 2.85 km bus penetration road would be built and over 4 km of existing dirt roads would be paved as access roads for service vehicles. To improve pedestrian access to public transport, 18 km of other tracks would be provided with paving and drainage and a series of stairs would be built. The introduction of transport infrastructure would be coordinated with a municipal program to provide water and sewerage, schools, a market, and a recreation ground. The municipality has set aside land for families that would have to be relocated and would provide assistance to help them move. The standards of the facilities have been designed so that they constitute a significant improvement for the current poor residents, while remaining unattractive to people with 'higher incomes. As an additional measure to ensure that the benefits of the project go to the current residents, the Municipality of Salvador would pass a new zoning law establishing maximum lot sizes and densities for the area. It would also take the measures necessary to coordinate the execution of water supply and sewerage works in the area with the transport infrastructure program (Section 4.02 of the draft Salvador Project Agreement). 47. The sub-project in Recife aims at improving the operation of the bus system so that it may be able to meet the transport needs of the city's large low-income population (see para. 38). A second perimetrical road included in the sub-project would facilitate the access to fast-growingperipheral areas that have been receiving a high proportion of recent migrants from rural areas in the northeast. The sub-project would include improvements in the central area, comprising exclusive bus facilities, reorganization and reconstruction of bus terminals, and traffic engineering measures; improvements in radial bus corridors consisting of traffic engineering measures and physical works at critical bottlenecks; paving of 43 km of feeder roads used by buses in low-income areas; rehabilitation, widening, and construction of a second perimetrical road; a program of TOPICS improvements on secondary roads serving peripheral municipalities; and new maintenance facilities and equipment for the 433 bus fleet of the municipal bus company. The Municipality of Recife would construct and operate five fringe car parking areas; undertake a program for the removal of long-term parking spaces from the central area; expand the system of high-turn-over parking to discourage long-term parking

20 in the center; provide for adequate measures to enforce parking regulations; and carry out the works required to operate cross-town bus lines prior to the introduction of exclusive bus facilities. The Municipality would also introduce changes in bus lines, routes and frequencies (Sections 5.01 and 5.02 of the draft Recife Project Agreement). The metropolitan development agency (FIDEM), with the participation of the municipality, would conduct a study of the operation and regulation of bus services (Schedule 1 to the draft Recife Project Agreement). The results of this study should provide EBTU with a sound basis to define policies to support the improvement of bus services in other urban areas of the country. 48. The sub-project in Porto Alegre would assist public transport operations by the introduction of bus priority schemes; fill in some gaps in the road network; and improve bus access to low-income areas in the outskirts of the city. The sub-project would include the construction of 26.4 km of express bus lanes in five main transport corridors; 5 main bus terminals and feeder bus terminals on those corridors; an overpass which would constitute the final link of an existing perimetrical road; improvement of 5.6 km of an important road; and the paving of about 58 km of feeder roads in low-income peripheral districts. Complementary to the project the Municipality of Porto Alegre would develop and introduce a system to discourage long-term parking in the center of the city, and adopt measures to reduce illegal parking and keep the exclusive bus lanes free of both moving and parked cars. It would also carry out various institutional reforms, including changes in bus lines, routes and frequencies required to complement the introduction of the public transport corridors and of the feeder and transversal bus lines (Sections 4.02 and 4.03 of the draft Porto Alegre Project Agreement). 49. The sub-project in Belo Horizonte would include TOPICS improvements in two major transport corridors; an area traffic control system for the central business district; paving of about 280 km of bus feeder roads in low income areas; and improvements in a key urban road. The area traffic control system would give priority to buses and thus facilitate their circulation through the central district. The feeder roads would provide all-weather access to buses in low-income areas as well as fulfill the function of neighborhood arterials. EBTU would appraise these components and analyze with local authorities the measures that would be necessary to complement the installation of the traffic control equipment and construction of civil works. Cost Estimate and Financing Plan 50. The total estimated cost of the project is US$248.9 million with an estimated foreign exchange component of US$66.2 million equivalent. The cost estimates for the five sub-projects include physical contingencies of 10% and 15% for those components for which final designs and preliminary designs have been completed respectively. Price contingencies, for 1978 and 1979 in dollar terms amount to 9% and 7.5% p.a. for civil works and equipment, respectively. For 1980 and 1981 the rates are 8% and 7% p.a. for the respective categories. For technical assistance, price contingencies total 10%.

21 The proposed USDi88 million Bank loan would finance the foreign exchange cost of the project (US$66.2 million) as well as US$21.8 million of its local costs. The proposed Bank contribution would represent 35% of the total cost of the project.. In a country like Brazil, which is making a vigorous effort to mobilize domestic resources, it is appropriate for the Bank to give sc-ž assistance in the financing of local currency expenditures for projects which, like t:he present one, have very high priority, are oriented to satisfy the needs of low-income groups but do not have a high foreign exchange content. If the Bank is to be effective in supporting projects of this kind, it seems reasonable for it to contribute at least 35% of the costs even though this entails financing some local currency expenditures. EBTU would match the Bank contribution using resources from the FDTU. The balance would be provided by the states and municipalites. Belo Porto Technical Horizonte Curitiba Alegre Recife Salvador Assistance Total US$ Millions IBRD EBTU States and municipalities The Federative Republic of Brazil would be the Borrower and make the proceeds available to EBTIJ who will act as its agent. Proceeds from the Bank loan would be passed by EB3TU to the project cities as grants. The municipality in Porto Alegre, the municipal secretariat of finance in Curitiba, and the metropolitan development agencies in Belo Horizonte, Recife, and Salvador would be responsible for channeling funds in their respective cities. The Federal Government would lbe responsible for loan repayments using funds from either FDTU or general revenues. Procurement and Disbursement 53. The civil works and equipment for the project, with an estimated total cost of US$130 million and US$6 million equivalent, respectively (excluding contingencies), would be procured under international competitive bidding in accordance with the Bank's guidelines. Where possible, contracts would be packaged so as to make bidding attractive to both large and small contractors. EBTU would issue twice yearly international notification of forthcoming contracts. Manufacturers whose bids contained components manufactured in Brazil equal to at least 50% of the value of the bid would be given a margin of preference equal to 15% or the applicable import duty, whichever is less. Brazilian suppliers of the items included in the project are competitive and are expected to win most of the goods procured through international competitive bidding. The municipality of Curitiba would use force account to execute minor paving jobs. It is not expected that foreign contractors would bid for civil works. The project would include a total of 434 man-months of consultancy services with a unit cost of US$7,000 equivalent.

22 Retroactive financing of up to US$1.7 million would be allowed to cover expenditures incurred after January 1, 1978 to permit the completion of the preliminary designs and implementation programs for Salvador and Recife, and of the construction of one bus terminal in Curitiba in accordance with a satisfactory schedule and of the drainge works in Salvador before the next rainy season. 55. Disbursements from the Bank loan would be made against appropriate documentation for 100% of foreign expenditures on imported goods or 100% of the ex-factory cost of locally manufactured goods; for 100% of the foreign exchange cost of the technical assistance and training programs; and for 30% of the cost of civil works in Belo Horizonte; 59% in Curitiba; 56% in Porto Alegre; 39% in Recife; and 37% in Salvador. The Bank loan would not be disbursed against land acquisition costs. Project Execution and Monitoring 56. Implementation arrangements for the project would be similar to those that EBTU has used in other projects. EBTU would maintain a qualified and experienced project coordinator to supervise the execution of the project. Actual project execution would be the responsibility of state, metropolitan and municipal entities. To handle the increased administrative work load, EBTU would create a unit to handle procurement matters under the project. In each project city, a local coordinator has been designated to monitor the progress of project execution and facilitate the communication between different agencies at the local level and EBTU. Arrangements for project execution at the local level are satisfactory. 57. EBTU would design and carry out a program satisfactory to the Bank to monitor urban transport conditions in the project cities during the execution of the project. This program would provide a basis for making adjustments to the works financed under the project; improve local understanding of the programs; provide a basis for designing follow-up programs; and evaluate the operational performance of the programs (Section 3.06 of draft EBTU Project Agreement). Project Benefits 58. The average economic rate of return on the components evaluated by Bank staff for sub-projects in Curitiba, Recife and Salvador, which account for 92% of total project cost in those cities, would be 31% (13% if only vehicle operating cost savings are taken into account). The economic rate of return on the components evaluated by EBTU for the sub-project in Porto Alegre, which account for 83% of total project cost in that city would be 53%. The project would bring major benefits to the urban poor. Seventy three percent of investments included in the sub-projects evaluated by Bank staff would generate benefits directly to people with per capita incomes below the relative poverty level (87% in Salvador, 69% in Curitiba and 64% in Recife). The corresponding percentage for the sub-project in Porto Alegre would be 67%. Similar percentages are expected to apply to the sub-project in Belo Horizonte.

23 The evaluation approach adopted reflects the two key objectives of the project: (i) to bring about urban transport improvements as economically as possible, and (ii) to channel as many of the benefits as possible to public transport users, especially those falling into the category of the urban poor. The first objective resuited in alternatives being scrutinized to ensure that the benefits could not have been obtained at a lower cost. Tne second led to the evaluation effort being concentrated on identifying benefits to public transport users. In general, estimation methods or models have been limited to an examination of public transport networks. However, benefits (or disbenefits) to car users have been introduced where appropriate even though at a more aggregate level. The economic evaluation is based on quantified savings in vehicle operating costs, maintenance costs, and travel times. Given the objective of creating benefits for public transport users, savings in travel times, have been measured and quantified and the results incorporated in the economic analysis. These savings constitute an important indicator of the extent to which benefits are actually realized by bus riders. Other elements, such as the contribution the project would make to a selected urban development strategy or to reductions in accidents, have been taken into account in the broader project justification. 60. To recover through taxation the increase in value that urban properties would derive from improved transport services the municipalitaties would take appropriate steps to revise the valuation for tax purposes of those properties whose value shall have been affected by the project (Sections 5.01, 2.02, 4.04, 5.03, and 4.04 of the draft Belo Horizonte, Curitiba, Porto Alegre, Recife and Salvador Project Agreements, respectively). The regular bus fare adjustments made by the Interministerial Price Council would ensure that the reductions in bus operating costs that would result from the project would be passed on to bus riders (see para. 41). Project Risks 61. Two main risks exist that might reduce the project's effectiveness in meeting its objectives: the risk associated with the preparation and appraisal of the sub-project in Belo Horizonte and the risk associated with the execution and operation of project components. Given the basic technical competence of EBTU and the sequential appraisal program, the probability that EBTU would not be able to appraise the project in Belo Horizonte is small. The project elements proposed for Belo Horizonte were screened by the appraisal mission, which concluded that, in general terms, they were likely to meet Bank criteria on economic and technical justification. The second risk is that local authorities might fail to undertake actions which are necessary to complement the physical measures. These actions include new parking regulations and modification of bus routes. To reduce this risk, the state and local authorities would agree to take the complementary actions required for the success of the project. In addition, the monitoring program mention in paragraph 57 would provide early warning of problems and enable EBTU to take corrective action promptly.

24 PART V - LEGAL INSTRUMENTS AND AUTHORITY 62. The draft Loan Agreement between the Federative Republic of Brazil and the Bank, the draft Projects Agreements between the Bank and EBTU; the Bank and the State of Minas Gerais, PLAMBEL, the Municipality of Belo Horizonte and EBTU; the Bank and the Municipality of Curitiba and EBTU; the Bank and the State of Rio Grande do Sul, METROPLAN, the Municipality of Porto Alegre and EBTU; the Bank and the State of Pernambuco, FIDEM, the Municipality of Recife and EBTU and the Bank and the State of Bahia, CONDER, the Municipality of Salvador and EBTU; and the draft Report of the Committee provided for in Article III Section 4(iii) of the Articles of Agreement are being distributed to the Executive Directors separately. Special conditions of the project are listed in Section III of Annex III. PART VI - RECOMMENDATION 63. I recommend that the Executive Directors approve the proposed loan. Robert S. McNamara President Attachments April 24, 1978 Washington, D.C.

25 ANNEX 1 TABLE 3A Page 1 EIRAZIL - SOCIAL INDICATORS DATA SHEET LAND AREA (THOU KM2) BRAZIL REFERENCE COUNTRIES (19701 TOTAL MOST RECENT AGRIC ESTIMATE MEXICO URUGUAY JAPAt* GNP PER CAPITA (US$ * 550.0* */a 690.0* 940.0* * POPULATION AND VITAL STATISTICS POPULATION (hid-yr "ILLION) /a 5u POPULATION DENSITY PER SQUARE KM /a PER SO. KM. AGRICULTURAL LAND /a VITAL STATISTICS CRUDE BIRTH RATE (/THOU. AV) CRUDE DEATH RATE (/THOU,AV) INFANT MORTALITY RATE (/THOU) ,, 13.1 LIFE EXPECTANCY AT BSITH (YRS) GROSS REPRODUCTION RATE POPULATION GROWTH RATE (X) TOTAL URBAN URBAN POPULATION (X OF TOTAL) AGE STRUCTURE (PERCENT) 0 TO 14 YEARS TO 64 YEARS YEARS AND OVER AGE DEPENDENCY RATIO ECONOMIC DEPENDENCY RATIO /b FAMILY PLANNING ACCEPTORS (CUMULATIVE. THOU) USERS (X OF MARRIED WOMEN) EMPLOYNTENT TOTAL LABOR FORCE (THOUSAND) LABOR FORCE IN AGRICULTURE (X) UNEMPLOYED (X OF LABOR FORCE) /a 1.2 INCOME DISTRIBUTION ' OF PRIVATE INCOME REC'D 8Y- HIGHEST 5% OF HOUSEHOLDS 39,9 /a 35.0 /a 37.8 ig.o/b 14.2 HIGHEST 20% OF HOUSEHOLDS a a F 37.6 LOWEST 20% OF HOUSEHOLDS 3.5 7a * F LOWEST 40% OF HOUSEHOLDS 10.3 T * DISTRIBUTION CF LAND OWNERSHIP % OhNED BY TOP 10% OF OWNERS % OWNED BY SMALLEST 10% OWNERS HEALTH AND NUTRITION POPULATION PER PHYSICIAN /C POPULATION PER NURSING PERSON /b Z /a I POPULATION PER HOSPITAL BED PER CAPITA SUPPLY OF - CALORIES (% OF REQUIREMENTS) PROTEIN (GRAMS PER DAY) OF WHICH ANIMAL AND PULSE /b DEATH RATE (/THOU) AGES EDUCATION ADJUSTED ENROLLMENT RATIO PRIMARY SCHOOL SECONDARY SCHOOL YEARS OF SCHOOLING PROVIDED (FIRST AND SECOND LEVEL) VOCATIONAL ENROLLMENT (X OF SECONDARY) i8.0/d ADULT LITERACY RATE (X) HOUS I NG PERSONS PER ROOM (URBAN) /c OCCUPIED DWELLINGS WITHOUT PIPED WATER (%) 73.0/C 66.2 /e 61,_/_C, 5.0 ACCESS TO ELECTRICITY (X OF ALL DWELLINGS) RURAL DWELLINGS CONNECTED TO ELECTRICITY (X) CONSUMPTION RADIO RECEIVERS (PER THOU POP) PASSENGER CARS (PER THCU POP) ELECTRICITY (KWH/YR PER CAP) NEWSPRINT (KG/YR PER CAP) SEE NOTES AND DEFINITIONS ON REVERSIE

26 ANDEX I Page 2 NOTES Unless otherwise noted, data for 1960 refer to any year between 1959 and 1961, for 1970 between 1968 and 1970 and for Most Racent Estimate between 193 and * CX? per capita data are based on World Bank Atlas methodology ( basis). a* Japan has been selected as an objective country since the Brazilian Government has shown particular interest in Japan's development experience, ales the two governments have conducted joint studies to identify possible future econonic problems of Brazil on the basis of the experience in Japanp BRAZIL 1960 /a Economically active population /a Economically active population; /b Hospital personnel: Ic Inside only. MOST RECENT ESTATE ' 1976; /b Ratio of population under 15 and 65 and over to total labor force; /c 1972; /d 1971; ea Inside only. MEXICO 1970 /a Including assistant nurses; /b ; /c Inside only. RiUG,Ai 1970 /a Montevideo only; /b R13, August 2, 1977 DFFINITIONS OF SOCIAL 2NDICATOBS Land Area (thou km 2 ) P.pul.tion per nnrsing p.rson - Population dioided by nunber of practicing Total - Total surface ares comprising land area and inland waters male and female graduate nurses, "trained" or "certified" nurses, and Agric - Most recent estimate of agricultural area used temporarily or permo- auxiliary personnel with training or eoperiece. ne-tly for crops, pastures, market & kitoben gardens or to lie fallow. Population per hospital bed - Pnpuiation divided by swbser of hospital beds available in public and private general and specialised hospital and GNP per capita (US$) - GNP per capita estimates at current narket prices, rehabilitation centers; excludes nursing homes and establiahmento for calculated by same conversior method as World Bank 4tlaa ( basis); cu todial and preventive care. 1960; 1970 and 1975 data. Per capit. aupply of calories (f of re.qir-mta ) - Computed frca energy equivalent of net toad supplies available in country per capita P per dsy; lion nd ital statistic available supplies coprie domestic production, imports less exports, and Population (oid-year million) As of July first: if not available, average changes in stock; net supplies exclude animal feed, seeds, quantities used of two nd-year estimates; 1160, 1970 and 1975 data, in food procea.sing and losses in distribution; requirements were estima ted by FAO based on physiological needs for normal activity and health consid- Populotion density per Square ks - Mid-year population per square kilometer ering enviroaenstal temperature, body weights, age and sex distributions of (100 hen tares) of total rea. population, and allowing 10% for waste at household level..pclation density - per Square ko of agric. land - Computed as above for Per capita supply of proteis igrama per day) - Protein content of per capita apnicolt,iral land only. net aupply of food per day; net supply of food is defined as above; requiremennt for all countries established by LSDA Economic Research Services vital uratintics providn for a inimiuo allowance of 60 gras of total protein per day, and -rude hirth rate par thousand, average - Annual live births per thousand of 20 gra-s of animal and pulse protein, of which 10 grams should be animal old-neon population; ten-year arithmetic averages ending in 1960 and 1970, protein; these standards are lower than those of 75 grasa of total protein and five-yvnr average ending in 1975 for most recent eatioate. and 23 grams of animal protein *s an overage for the world, proposed by FAO _ude death rate per thousand, avarass-sannu-l deaths per thousand of mid-year in the Third World Food Suvey. population; ten-year arithmetic averages ending in 1960 and 1970 and five- Per capita protein supply from animal and pulse - Protein supply of food ycar average ending in 1975 for mast recent estimate, derived from animeala and pulses in grams per day. Infant nortalitv rate (/thou) - Annual deaths of infants under one year of age Death rate (/thou) ares Annusl deaths per thout-nd in age group 1-4 per thousand live births. years, to children in this age group; suggested as an indisctor of Life expectancy at birth (yre) - Average nssber of years of life remaining at malnutrition. birth; usually five-year averages ending in 1960, 1970 and 1975 for developing countries. Eduation Gross r-production rate - Average number of live daughters a women will bear Ad1usted enrollment ratio - prisary school - Enrollment ci.11 ages as peris her normal reproductive period if she experiences present age-specific centage of primary school-age population; includes children aged 6-11 years fertility rates; usually five-year averages ending in 1960, 1970 and 1975 but adjusted for different lengths of primary education; for countries with fur developing countries, universal education, enrollment may emceed 1007, since some pupils are below Population growth rote (%) - total - Composed annual growth rates of mid-year or above the official school age. vopalation for , and Adjusted enrollment ratio - secondary school - Computed as above; seondary opulcior growth rate (7,) - urban - Computed like growth rate of total education requires at least four years of approved primary instruction; -=latiot< different definitions of orban areas may affect.omparability of provides general, vocational or teacher training i-stractltna for pupils data among countries, of 12 to 17 years of age; correspondence co-rses are generally excluded. nrb.un population (% of total) - Ratio of urban to total population; different Years of schooling provided (first and second levels) - Total years of definitions of urban areas may effect comparability of data ammng countries. choeling; at secondary level, vocational instruction msy be partially or completely secluded. Age structure (percent) - Children (0-14 years), working-age (15-64 years), V.ctiamal enrsll.ent (=% of secpndary) - Vo-ational ijotitutions in-iude and retired (65 years and over) as percentages of mid-year population. technical, industrial or other programs which operate independently r A.o dependency ratio - Ratio of population under 15 and 65 and over to those departmenna of senondary institutions. of ages 15 through 64. Adult literacy rate (%) - Literate adulcs (able to read and write) as pe- Econonic depeodency ratio- Ratio of population under 15 and 65 and over to centage of total adult population aged 15 vears and over. the labor force in age group of years. Fnmilo planning - acceptors (cumulative thou) - Cumulative nunber of acceptors Housing of birth-control devices under auspices of national family planning program Persona per room (urban) - Average comber of persons per roum in occupied since inception conventional dwellings in urban areas; drllings exclude non-permanent faily planning - cotta (7. cf married women) - Percentages of married women of structures and unocnupied parts c-ild-voaring age (15-44 years) who use birth-control deoices to all narried Occupied dwellings without piped wa.nt (. ) - Occupied convectional dwellings women :r' sane age group. in urban and rural areas without inside or outside piped water facilities as :percentge ualocpidwellings. mpl;oyment Access to electriclty (% of all dwellings) - Conventional dwellings with otat labor force (thousand) - Economically active persona, including armed electricity in living quarters as percent of total dwellings in uban ad fo-s and unemployed but eocluding housewives, students, etc.; definitions rural areas. sn various countries are not comparable. Rfal dwellings connected to electricity (/. - Computed as aboue for rural abor force in agriculture (f,) - Agricultural labor force (in farming, forestry, dwellings only. huotiog and fishing) as percentage of total Iabor force. I'n-vployed (7 of labor force) - Unemployed are usually defined as persons who Consumption are able and willing to take a job, out of a job on a given day, remained out Radio receivers (per thou pop) - All types of recei-ers for radio broadcasts of a job, and seeking work for a specified nismim period not exceeding one to general public per thousand of population; esciudes unlicensed enetineek; may not be comparable between countries due to different definitions in ountcries and in yours when registration of radio sets was in effect; of unmployed and spurct of data, e.g., employment office statistics, sample data for recent years may not be comparable since most countries abolished surveys, compulsory unemployment inutrance. licensing. n t%~~~~~~~~~~~~~~~~pssne ars font~2 thou pop) - P.asenger cars comprise ncome distributio motor cars seating - Percencage of private iscome (both in cash and kind) less then eight persons; excl des amb,lae hs he amotord ilitary received by richest 5%, richest 20%, poorest 207, and poorest 40% of house- vehicles. holds. Electricity (kwh/yr per cap) - Annual consumption of industrial, c-omercial public and private electricity in kilowatt hours per capita, generally Diutribstion of land ownsetship - Percentages of land owned by wealthiest 10% based on production data, ithout aliloane for loses in gdid n hot alloand poorest 102 of land owners. Lig for imports and exports of electricity. N-psrint (hg/yr per cap) - Pet capita annual -- ncaprion in kilagree (talth and Natrition estimated frm domestic production plus net imports of newsprint. Population per physician - Population divided by nusber of practicing physicians qualified from a medical school at university level.

27 ANNEX I Page 3 ECONOMIC DEVELOPMEIT DATA SREETT Prelimiry Acr-a ta-inst Ptrojeted Ps-jected Ca-,a-e Averase Growth Rate 7t _ A. NATIONAL ACCOUNTS Million. US$ at 1973 Pricea aed ENnha-e Rate As Perent af GDY 1. GUP (Market Priest) 77,891 85,361 88,934 96, , , , GatDS frln SrrN of Trade ,794-1, ,746-4, Greos Doe*etit Inteme 77,891 84,570 87,140 95, , , U InpI rt- 7,577 9,757 8,706 8,239 8,097 0,205 14, S. Enperte - ODloot 6, ,305 7,313 7,953 11,286 18, D Exporte - TT AdjasRed 6,596 5,515 5,511 5,904 7,187 8,557 14, teseooce Gap (4-6) 981 4,242 3,196 2, Cosoeptlen 61,529 66, , , , Ioeest%eeo 17,343 21,946 20,501 21,423 23,010 28,385 45, NatIonal OavltNs ,953 16,042 17,458 20,366 25,718 43, DoNectic Sa-iegs 16,362 17,704 17,310 19,087 22,100 27,736 45, I, MRRRKINDRSE '1%AD5 Millions US at current Pricts A. Perre-t of Totel e rt 1. Imparts censomar GReds 1,125 1,620 1,358 1,510 1,385 2,036 4, Parreleon and Seriestr-es 711 2,840 2,873 3,585 3,853 5,230 8, Ittermedite Goods 2,214 5,073 4,006 3,664 3,855 5,024 11, , Capital Goeds 2,143 3,108 3,932 3,517 3,096 3,840 14, Total (FOB) 6,192 12,641 12,169 12,277 12,690 18,151 38, IG As Percent of Tetmi Errta 2. Eparta Coffee 1, ,398 3,492 2,736 2, Other Arirtultural Geds 2,490 3,415 3,481 3,029 3,948 6,315 14, , Minerals ,022 1,085 1,082 2,433 5, Seni-Pr eassed Gleds ,269 2, Mansfact leads dred 1,328 2,086 2,379 2,449 2,948 5,574 15, Other , Total 6,199 7,951 8,670 10,130 12,936 18,922 43, IC i C. 8ECTOR OUTPUT Partet E NRDP et FPaceot Coat at 1973 Price- and Excha.ee Rate 1. Agricaltnre ,0 14, Indeatey ,8 32, , Ser.-ces , D. PRICES ( ) 1. txpeo Price laden Import Price Ide' , , Teema af Trade Inden General P"-cc Index _ - ' 5. Aeesag Exchange Rate IDO E. SELECTED INICATORS F. EePLOYENT I0OR LEbnr Farce (nillian) 29,4 34, Impact Elnetleity Une=yloy.eet Average Nst1i-l Saviega Rate , (g ef F.R,) 4. -grginal Mati-att Sn-tngs Rate Emplyapa-t (million) ITmcrta/GDP 0807c (% Sh-ee) 6. Invla= tlat/csp Agri-altora Rescare. Gap/GDP ,01-0, Indosers iarsman PDBLIC FINGASCb 1. C-rreet ie enon ,1. Tan Revenne , Carrent ependinttre 6, C.rent SeeRags , Capital Rxpenditorc GIe-r-ent Pined Capital PorFeatio S/ H, CURRENT FEDERAL GO.VE.RNMENT EXPENDIIUkE Percent of Total Edoatiec , Other Seelol Sereires Agrienl--re Other E.c.E-L SIncmes 5. Admicistration and Defenee Other Tete1 Crant Eapeedit-ra */ Dtetile -y eat -nn to iotals be-aooe of -nding. Joney / FederalI Coeroment, ci I.eIcding elate ard -oiripal goveset-nta.

28 ANNEX I BALANCE OF PAMI:ICNTS AND EXTERNAL ASSIilAN4CF. Page 4 (Million US$) A C T U A L PreliminaryEstimate P R O J E C T E D A. Summary of Balance of Payments 1. Exports (inel. NFS) 6,596 8,471 9,255 IC,657 13,583 15,464 17,374 20,232 46, Imports (incl. NFS) 7,577 14,678 14,296 14,435 14,902 16,829 18,948 21,276 44, Resource Balance ,207-5,037-3,778-1,319-1,365-1,574-1,043 1, Net Factor Service Income ,735-2,288-2,624-3,051-3,383-3,791-5, Net Interest Payments _ 652-1,463-1, 758-2,159-2,533-2,810-3,155-4, Direct Investment Income _ , Other Factor Service Income - 22 _ Current Transfers (Net) Balance on Current Account -1,688-7,122-6,772-6,062-3,933-4,407-4,948-4,825-3, Private Direct Investment ,010 1,050 1,100 1,265 1,455 2,340 Medium and Long Term Loans * a. Official Sources 8. Disbursements ,024 1,234 1,404 1,585 2, Amortization , Net Disbursements ,203 b. Private Sources 11, Disbursements 3,993 6,080 5, ,218 6,354 7,416 7,370 9, Amortizationi -1,455-1,716-1,868-2,488-2,992-3,892-4,649-4,989-7, Net Disbursements 2,538 4,364 4,106 4,900 2,226 2,462 2,767 2,381 2, Use of IMF Resources Short-teru, Capital and Capital NEI , Change in Reserves (- - increase) -2, ,046-2, , Foreign Exchange Reserves 6,551 5,598 4,552 6,745 7,000 7,000 7,000 7,000 11,202 (End of Period) B. Grant and Loan Commitments 1, Total M&LT Loen 4,770. 7,034 6,946 8, IBRD IDB Governments , Suppliers 857 1,088 1,376 1,300 * 1.5. Bonds ,6. Finiancial Credits 3,146 5,103 4,515 6,076 C. Memorandum I tenis 1. Granr Fl e`1"ent of Total Coumiitmenrs ,5 2. Avc-rage I, (erest (Pe-cenit) Avcrnage Mniterity (Years) January.1978

29 DEBT AND CREDITWORTITIIESS S, a/ ANNEX I Page A. Mediutw-and long-term Debt (Disbursed only) 1. Total Debt Outstanding (end of period) 12,571 17,166 21,171 25, Financial Credits, 7,84s 11,211 14,561 18, Others (Bit., Multi., Bonds, Suppliers) 4,723 5,955 6,610 7,79' 3. Public and Publicly Guaranteed 6,496 8,533 11,461 14, Private 6,075 8,633 9,710 11, Net Debt Service 2,186 2,572 3,583 4, Total Interest 840 1,370 1,o28 2, Net Interest ,463 1, Public Debt Service -- 1,287 1,550 1,990 B. Debt Burden 1. Net Debt Service Ratio Total Net Debt Service Ratio b/ , Public Debt Service Ratio , Liquidity Ratio c/ Net Debt Service/GDP d/ Public Debt Service/GDP d/ Total DOD/GDP d C. Terms 1. Interest on Total DOD/Total DOD Net Debt Service/Total DOD ls.o D. De?endency Ratios for M&LT Debt 1. Gross DisbursementsfImports (ind. NFS) i, Net Transfer/Imports (ind. NFS) N,t Transfer/Gross Disbursements E. Exposure 1. IBRD Disb./Gross Total Disb IBRD DOD/Total DOD IBRD Debt Service/Net Debt Service F. External Debt (Disbursed Only) Outstanding December 31, IBRD Amount Percent 1, , Other Mul.ilateral Governments 2, Suppliers 2, Bonds Financial Credits 18, Other Total M&LT Debt 25, Total Public M&LT Debt 14, G. Debt Profile 1. Net Debt Service /Total DOD end of a/ Details of debt for end 1977 are not vet available; 1977 figures quoted in text are preliinnarv estimare=. - b/ Including Net Direct Investment Income. c/ Net Debt Service as a percent of exports plus reserves in excess of 3 months imports. d/ In constant 1973 Prices. January Not Available

30 ANNEX II Page 1 THE STATUS OF BANK GROUP OPERATIONS IN BRAZIL A. SUMMARY STATEMENT OF LOANS (As of February 28, 1978) Loan # Year Borrower Amount less Purpose Cancellations Undisbursed (US$ Million) Thirty-eight loans fully disbursed 1, Furnas - Centrais Eletricas Marimbondo Power Centrais Eletricas do Sol do Brasil - Salto Osorio Power Brazil Education Brazil Ports Rede Ferroviaria Federal Railways Companhia Siderurgica Nacional Industry Companhia Siderurgica Industry Paulista Centrais Eletricas de Minas Power Gerais - Sao Simao Brazil Land Settlement Furnas Centrais Eletricas - Power Itumbiara Brazil Agro-Industry Cia. Hidro Eletrica do Sao Power Francisco-Paulo Afonso IV Banco Nacional de Habitacao Water Supply Brazil Education Rede Ferroviaria Federal Railways Brazil Roads Companhia Siderurgica Nacional Industry Companhia Siderurgica Paulista Industry Brazil Agriculture FEPASA - Ferrovia Paulista Railways Brazil Rural Development

31 ANNEX II Page 2 A. SUMMARY STATEMENT OF LOANS (Continued) (As of February 28, 1978) Amount less Loan # Year Borrower Purpose Cancellations Undisbursed (US$ Million) Brazil Develop. Bank Brazil Feeder Roads Brazil Agriculture Petrobras Fertilizantes Fertilizer Companhia Paraense de Power Energia Eletrica - COPEL Eletrobras Power Brazil Nutrition Banco Nacional de Habitacao Water Supply Brazil Agro-Industry ELETROSUL Power State of Minas Gerais Rural Develop Petrobras Fertilizantes Fertilizer Fertilizantes Vale do Fertilizer Rio Grande S.A.-VALEFERTIL 1452/ Brazil Education / Brazil Rural Develop Total 3,199.4 /3 Of which has been repaid to the Bank Total now outstanding 2,755.4 Amount sold 45.6 of which has been repaid Total now held by Bank 2,738.4 Total undisbursed 1,315.2 /1 Became effective on April 5, /2 Became effective on March 28, /3 No IDA credits have been made to Brazil. In addition, a loan of $110 million for the Sao Paulo sewage collection and treatment project was approved on February 28, 1978 and signed on March 10, 1978, and two loans totalling $154 million for a power distribution project in the south and southeast and for a rural development project in Paraiba were approved by the Executive Directors on March 28, 1978.

32 ANNEX II PFge 3 B. STATEMENT OF IFC INVESTMENTS (As of February 2bi. 19/d) Fiscal Year obligor Type of Eusiness Amount in USS million Loans Equity Total 1957 Siemens do Brasil Cia. de Eletricidade Electrical Equipment Olinkraft, S.A. Celulose e Papel Pulp and Paper D.L.R. Plasticos do Brasil, S.A. Automotive Parts Willys-Overland do Brasil, S.A. Industria e Comercio Motor Vehicles Companhia Mineira de Cimento Portland, S.A. Cement Champion Celulose, S.A. Pulp /1968/ 1972 Acos Villares, S.A. Steel /1969 Papel e Celulose Catarinense, S.A. Pulp and Paper /1972 Ultrafertil, S.A. - Industria e Comercio de Fertilizantes Fertilizers Petroquimica Uniao, S.A. Petrochemnicals 5., Poliolefinas, S.A. Industria e Comercio Petrochemticals Oxiteno, S.A. Indastria e Comercio Petrochemicals Industria de Celulose Borregaard, S.A. Pulp /1975 Companhia de Cimento Nacional de Minas Cement /1974/1977 Companhia Siderurgica da Guanabara - COSIGUA Steel 76.5j S Capital Market Development Fund - FUMCAP Capital Market Development Empresa de Desenvolvimento de Recursos Minerais - CODENEN, S.A. Nickel Mining md Refining Industrias Villares, S.A. Elevatork and ladustrial Equipment Fabrica de Tecidos Tastuape, S.A. Textiles Capuava Carbonos Indastriais Ltd. Carbon Black Oxiteno Nordeste, S.A. Petrochemicals Santista lndastria - Textil do Nordeste, S.A. Textiles ;976 Tecanor S.A. - Textil Cararinense do Nordeste Textiles FM1B S. A. Productos Metalurgicos Iron and AlumiKum Castings Mineracao Rio do Nortes,9A, Mining Cimetal Siderurgia S.A. Iron and Steel Total Gross Comsitments Less Cancellations, Terminations, Repayments and Sales Total Commitments Now Held by IFC Total Undisbursed

33 ANNEX II Page 4 C. PROJECTS IN EXECUTION I/ There are now 36 effective Bank loans under disbursement: Loan No. 677 Marimbondo Hydroelectric Project: US$80 million loan of May 25, 1970; Effective Date: September 29, 1970; Closing Date: August 31, The Marimbondo hydroelectric station and the bulk of the related transmission lines were completed on schedule, and the Marimbondo power plant (1440 MW) was inaugurated on May 28, The project has been successfully implemented by FURNAS, the consultants and the contractors, in spite of a cost overrun of about 43%. In part, the cost overrun resulted from an increase in the scope of the transmission system component to allow for the construction of- a more economical and reliable system, and from larger civil works as a result of unforeseen geological problems. The cost overrun, however, does not affect the economic justification of the project. 728 Salto Osorio Hydroelectric Project: US$70 million loan of April 5, 1971; Effective Date: July 19, 1971; Closing Date: May 31, The physical component of the project has been successfully completed. Two oe the four generating units are now in commercial operation. A cost overrun of about US$120 million, 79% of the original cost estimate, has not significantly affected the economic justification of the project. This cost overrun was financed by loans from ELETROBRAS and a commercial bank. 1/ These notes are designed to inform the Executive Directors regarding the progress of projects in execution, and in particular to report any problems which are being encountered, and the action being taken to remedy them. They should be read in this sense, and with the understanding that they do not purport to present a balanced evaluation of strengths and weaknesses in project execution.

34 ANNEX II Page 5 Loan No. 755 Education Project: US$8.4 million loan of June 21, 1971; Effective Date: October 28, 1971; Closing Date: June 30, Progress on the construction and equipping of the project schools is now proceeding satisfactorily, and 80% of the project has been completed. A 20% cost overrun, mainly for civil works, is being financed by the Government. Project implementation is behind the original schedule due to initial delays in establishing and staffing the project unit and because of subsequent changes in project content. 756 Santos Port Project: US$45 million loan of June 21, 1971; Effective Date: October 29, 1971; Closing Date: June 30, After long delays, project execution is now proceeding satisfactorily. Construction of the railway access Paratinga-Pereque by FEPASA is completed. The inability of RFFSA to pay its share of the costs for the left bank rail access was overcome by PORTOBRAS which obtained a loan from Banco do Brasil for this purpose. Because of insufficient increases in tariffs to compensate for inflation, Santos port is experiencing financial difficulties. 786 Railway Project - MBR: US$46 million loan of August 25, 1971; Effective Date: February 4, 1972; Closing Date: March 31, The project is now completed. Final payments on contracts are being carried out. 797 CSN Steel Expansion Project, Stage II: US$64.5 million loan of February 8, 1972; Effective Date: August 31, 1972; Closing Date: March 31, Although one year behind schedule and with a significant increase in cost, the project is now physically complete. Final payments on equipment contracts are being completed. 828 COSIPA Steel Expansion Project, Stage II: US$64.5 million loan of June 14, 1972; Effective Date: October 5, 1972; Closing Date: June 15, The Stage II project will be essentially complete by December 1978 at a total project cost of US$970 million. This is thirty (30) months behind the appraisal schedule and US$593 million (157%) higher than anticipated at the time of appraisal. Production reached 1.54 million tons of raw steel equivalent in 1977, compared with.79 million tons in 1976 and the 1.74 million tons forecast for COSIPA has confirmed that the project's design capacity of 2.3 million tons of raw steel capacity will be achieved at the completion of the production build-up phase. With the pending completion of the construction phase, management has placed considerable emphasis on production and internal cash generation.

35 ANNEX II Page 6 Loan No. 829 Sao Simao Hydroelectric Project: US$60 million loan of June 14, 1972; Effective Date: September 20, 1972; Closing Date: September 30, Construction of the project is proceeding according to schedule. An anticipated 50% cost overrun, which does not affect the economic justification of the project, is being covered by loca'l and foreign borrowing. 853 Alto Turi Land Settlement Project: US$6.7 million loan of July 24, 1972; Effective Date: February 15, 1973; Closing Date: December 1, The settlement agency, COLONE, has prepared revised farm development plans whose credit component, to be financed by public financial institutions, will be significantly higher than originally estimated, although still low in comparison to other settlement projects. Administrative delays in the release of public funds for farm credit, road construction and COLONE working capital requirements and difficulties in recruiting project staff delayed the start of project execution. COLONE continues to be hampered by lack of assured financing, and this problem is compounded by cost overruns presently amounting to 130%. 923 Itumbiara Hydroelectric Project; US$125 million loan of August 1, 1973; Effective Date: October 30, 1973; Closing Date: December 31, Construction of the earth-fill dam was delayed by about nine months due to very heavy rains. However, construction of the concrete dam and power house is ahead of schedule. FURNAS expects to complete the power plant in December 1981, about four months behind schedule. The present cost estimate is about 88% over the appraisal cost estimate, 13% of which is due to the need for increased physical quantities due to geological problems. The rest of the increase is due to a substantial increase in the size of the transmission works and to an increase in the cost of civil works. However, the project remains economically justified. 924 Agro-Industries Credit Project: US$54 million loan of August 1, 1973; Effective Date: March 11, 1974; Closing Date: December 31, Disbursements for sub-loans totalling US$14.7 million were made during under procedures which were not in accordance with the Loan Agreement. These funds have now been prepaid by the Government, reducing the effective loan amount to US$39.3 million. During the second half of 1977, the Government restricted the funds available for sub-loans under this project in line with its policy of restricting credit expansion to control inflation. However, budgetary allocations for 1978 will allow commitments to continue at the rate envisaged in earlier forecasts.

36 ANNEX II Page 7 Loan No Paulo Afonso IV Hydroelectric Power Project: US$81 million loan of June 17, 1974; Effective Date: April 15, 1975; Closing Date: December 31, Resettlement of the 9,700 families to be displaced by the Sobradinho reservoir is underway, and new towns to house the urban portion of the population have been constructed. The rural population is being offered the opportunity of resettlement in a promising new agricultural area in the Corrente River region in the western part of the State of Bahia. Those who prefer to remain near their present houses are being resettled in new villages on the edge of the future reservoir. The construction of the underground power station and Sobradinho Dam is proceeding on schedule. Construction of the transmission lines and sub-stations is about 12 months behind schedule Minas Gerais Water Supply Project: US$36 million loan of June 17, 1974; Effective Date: January 9, 1975; Closing Date: August 15, Difficulties in subproject preparation, which are now resolved, caused disbursements to fall behind schedule. However, the loan is now fully committed to 41 subprojects of which 29 are under construction and 12 completed Second Education Project: US$23.5 million loan of December 27, 1974; Effective Date: April 17, 1975; Closing Date: December 31, Project execution is proceeding reasonably well, and is expected to be completed by the target date. Project implementation units have been established in all eight project states and these, together with the main project unit, PREMEN, are working well. The pre-investment studies in the Northeast, financed under the loan, have been completed and have yielded useful information for future sector investment planning Second Railway Project: US$175 million loan of January 17, 1975; Effective Date: June 17, 1975; Closing Date: December 31, Project execution is progressing satisfactorily and appropriate steps are being taken to strengthen project management and control. Cost estimates for the Investment Plan, of which the project is a part, have increased substantially on several items. Therefore, the Plan has been revised and several items have been deleted or postponed. This revision is not expected to affect significantly the items included under Bank financing. Although the financial situation of the borrower improved in 1977, further improvement is necessary for it to be able to effectively carry out its investment program. The Covernment recently decided to deregulate most freight tariffs. Beginning in 1978, it will make payments to the railways to meet deficits on uneconomic services which it wishes to remain in operation. These actions should significantly improve the borrower's financial position.

37 ANNEX II Page 8 Loan No Fifth Highway Project: US$110 million loan of January 17, 1975; Effective Date: May 15, 1975; Closing Date: December 31, Project execution is proceeding satisfactorily. Roadworks are progressing well, and detailed engineering studies for road construction and road rehabilitation are now completed. Implementation of the road maintenance component is making progress CSN Steel Expansion Project - Stage III: US$95.0 million loan of August 4, 1975; Effective Date: April 30, 1976; Closing Date: December 31, The latest cost estimate is US$3,530 million, an increase of about 67% over the appraisal estimate due to a slower than expected start of project implementation, higher than expected construction costs, difficulties in holding the scope of the project to its essentials and some problems in the management of the expansion program. At the request of the Bank, a thorough review of the project was made. Substantial changes were made resulting in better management and control of the project. The project is now progressing satisfactorily in line with the revised cost estimate and schedule COSIPA Steel Expansion Project - Stage III: US$60.0 million loan of August 4, 1975; Effective Date: March 4, 1976; Closing Date: June 30, The project is about two years behind schedule. The cold mill has been deleted from the project due to changes in forecast demand. The effect of this change on the economic justification of the project and its financial implications is presently being investigated Lower Sao Francisco Polders Project: US$23.0 million loan of August 4, 1975; Effective Date: November 25, 1975; Closing Date: December 31, CODEVASF made only limited progress on construction for this project during 1977 because of heavy rains in the project area. Physical completion of the project will probably extend to 1980, and postponement of the closing date may be required. Current cost estimates show an 80% increase over the appraisal estimate of US$56.5 million. These increases have resulted from design changes, rapid increases in the costs of civil works and equipment, and in the cost of land expropriation. Modifications in the design of emergency and irrigation works are being studied by CODEVASF and its consultants with a view to limiting further cost increases. Project implementation has encountered certain opposition from the population of the project area, which disagreed with the principles and procedures for land expropriation, settlement, future land tenure and the structure of the proposed cooperative system. The implementing agency CODEVASF is revising the social strategy to be followed under the project by improving communication and relations with the area population.

38 - 34 ~ ANNEX II Page 9 Loan No Third Railway Project (FEPASA): US$75.0 million loan of November 12, 1975; Effective Date: March 24, 1976; Closing Date: June 30, Project execution is proceeding satisfactorily. The Transport Master Plan Study for Sao Paulo is presently under way and the first results are expected shortly. The technical assistance program which is intended to improve FEPASA's operations, marketing and data processing systems is showing results. Although FEPASA's financial position has improved, it is still not satisfactory. The Government recently deregulated most freight tariffs. Beginning in 1978, the state government has undertaken to make payments to the railways to meet deficits on uneconomic services which it wishes to remain in operation. These actions should assist in significantly improving FEPASA's financial position Rio Grande do Norte Rural Development Project: US$12.0 million loan of March 1, 1976; Effective Date: July 30, 1976; Closing Date: June 30, Progress is being adversely affected by funding delays and marketing problems in the principal project crop, perennial cotton. Means of resolving the problem are under discussion. Implementation of the research and credit components of the project has been particularly successful. Disbursements are behind the original appraisal schedule, partially because of funding delays Development Banking Project: US$85.0 million loan of March 1, 1976; Effective Date: August 26, 1976; Closing Date: March 31, Project implementation is behind schedule. The major reasons are: (i) an initial delay in the commitment of funds under this project because of differences between the relending terms of the agencies concerned and those required under the Loan Agreement. These differences are now resolved; (ii) a leveling off of the industry's demand for investment financing; and (iii) resource constraints of the National Development Bank (BNDE). To accelerate commitment of the loan, the Loan Agreement has been amended to permit withdrawals up to the full estimated foreign exchange content of subprojects Secondary and Feeder Roads Project: US$55.0 million loan of March 1, 1976; Effective Date: July 13, 1976; Closing Date: December 31, After some initial delays, project execution is now progressing more satisfactorily if still rather slowly. Three sub-loans totalling US$12.6 million of Bank financing have been approved and two more are expected to be approved soon Agricultural Research Project: US$40.0 million loan of April 27, 1976; Effective Date: September 21, 1976; Closing Date: December 31, The project is progressing well and in some areas ahead of schedule. Implementation of the civil works program is actively in progress at the 21 stations. Facilities and research programs at seven experiment stations in the three priority regions (North, Northeast and Central-West) are proceeding in accordance with project goals. Staffing is in advance of project goals.

39 ANNEX II Page 10 Loan No Araucaria Fertilizer Project: US$52.0 million loan of May 19, 1976; Effective Date: July 20, 1976; Closing Date: December 31, The project is proceeding according to schedule COPEL Power Distribution Project: US$52.0 million loan of May 19, 1976; Effective Date: August 17, 1976; Closing Date: December 31, Project execution is on schedule and about 30% completed. Disbursements are considerably behind appraisal forecast, mainly because of delays in procurement of major subtransmission equipment. The Borrower is updating distribution expansion program, and the adjusted program should bring disbursements closer to the original schedule by year-end Northeast Power Distribution: US$50.0 million loan of August 27, 1976; Effective Date: January 31, 1977; Closing Date: June 30, Project!Lmplementation is about 12 months behind schedule due to initial clifficulties in obtaining a Government definition regarding participation by Brazilian suppliers. Procurement is now progressing satisfactorily Nutrition Research and Development: US$19.0 million loan of October 1, 1976; Effective Date: December 30, 1976; Closing Date: December 31, Disagreements, now resolved, on nutritional and techinical criteria have delayed BNDE participation in the project. The INAN project unit is staffed with seven professionals out of the ten needed. The nutrition delivery system's field tests are proceeding reasonably well. The other components of the project are proceeding on schedule Second Minas Gerais Water Supply and Sewerage Project: US$40.0 million loan of August 27, 1976; Effective Date: January 31, 1977; Closing Date: September 30, The Bank has approved sub-loans for 75 projects in cities of less than 5,000 inhabitants, 14 projects in cities of between 5,000 and 20,000 inhabitants and 3 projects in cities of more than 20,000 inhabitants. Several additional subprojects are being reviewed Second Agro-Industries Credit Project: US$83.0 million loan of September 22, 1976; Effective Date: March 25, 1977; Closing Date: December 31, Because of commitment delays under the First Agro-Industries Credit Project, commitments for the second loan are not expected to begin until later in Budgetary allocations for 1978 will allow commitments to continue at the rate envisaged in earlier forecast.

40 ANNEX II Page 11 Loan No ELETROSUL Transmission Project: US$82.0 million loan of February 23, 1977; Effective Date: June 13, 1977; Closing Date: December 31, Procurement and construction are now underway and proceeding according to schedule, with no major problems encountered. Disbursements are lagging behind the appraisal forecast because of delays in preparing bidding documents which resulted in delays of contract awards. However, disbursements are expected to be on schedule by year-end Minas Gerais Rural Development Project: US$42.0 million loan of February ; Effective Date: June 29, 1977; Closing Date: December 31, Organization of this project is progressing well. However, because of the agricultural credit restrictions imposed by the Government during the second half of 1976 and in early 1977, as part of its program to control inflation, credit for this project was delayed. However, Banco do Brasil has recently agreed to release the necessary funds, and the credit program is expected to resume according to the agreed schedule. Due mainly to administrative difficulties, participation in this project by landless producers is significantly lower than originally envisaged, but the Government and the participating banks have given assurances that this would be corrected in the future. Both the health and education components have advanced significantly Sergipe Fertilizer Project: US$64.0 million loan of April 29, 1977; Effective Date: August 31, 1977; Closing Date: November 30, The project is proceeding according to schedule VALEFERTIL Phosphate Fertilizer Project: US$82.0 million loan of April 29, 1977; Effective Date: July 29, 1977; Closing Date: May 31, The project is proceeding according to schedule Vocational Training Project: US$32.0 million loan of September 7, 1977; Effective Date: April 5, 1978; Closing Date: December 31, The project is proceeding according to schedule CEARA Rural Development Project: US$17.0 million loan of September 13, 1977; Effective Date: March 28, 1978, Closing Date: December 31, The project is proceeding according to schedule.

41 ANNEX III Page 1 BRAZIL URBAN TRANSPORT PROJECT SUPPLEMENTARY PROJECT DATA SHEET Section I - Timetable of Key Events. (a) Time taken by country to prepare project: approximately one year. (b) Project prepared by: EBTU and various local entities with the assistance of GEIPOT and consultants. (c) First presentatilon to the Bank: January (d) Departure of Appraisal Mission: October (e) Completion of Negotiations: April 5, (f) Planned Deadline for Effectiveness: August 15, Section II - Special Bank Implementing Actions None. Section III - Special Conditions (a) EBTU to review its guidelines for the preparation and evaluation of urban transport projects (para. 33). (b) EBTU to appraise the sub-project in Belo Horizonte in accordance with an established set of guidelines (para. 36). (c) EBTU to carry out a study of the potential for applying economic disincentives for the use of private cars in Brazilian cities (para. 43). (d) The Municipality of Curitiba to provide economic justification satisfactory to the Bank before building additional service lanes along the fourth structural axis (para. 44). (e) The Municipality of Salvador to undertake various measures to complement the construction and equipment to be financed under the project (palra. 45). (f) The Municipality of Salvador to take various measures to ensure that benefits from the project accrue fully to current residents of a low-income neighborhood (para. 46).

42 ANNEX III Page 2 (g) The Municipality of Recife to undertake various measures to complement the construction and equipment to be financed under the project (para. 47). (h) The metropolitan development agency of Recife to carry out a study of the operation and regulation of bus services (para. 47). (i) The Municipality of Porto Alegre to undertake various measures to complement the construction and equipment to be financed under the project (para. 48). (j) EBTU to design and carry out a program satisfactory to the Bank to monitor urban transport conditions in the project cities (para. 57). (k) Municipalities to revise for taxation purposes the valuation of property affected by the project (para. 60).

43 T, of C t T L.trcl Ar.d SOUTH AMERICA BAZIL 0-~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ -5,~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~o VPO O IOEEST, FXSTNGComeria ~~vsjis~~ B-~ ~ ~ ~ ~ ~ ~ ~ ~~~~~~~~~~- 025Hh=scdAcesRcs IL F-ComrllSrle A.~~~~~~~~~~~~~~~~~~~~~~~~~~~~F...d OE ~ ~ ~ ~ ~ ~ ~ ~ ~~~~~~~~13~T.L.1 C-,. rc,,.piao Sm mourn so~ a~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ - Fo, ~ do/guu ~ ~ ~ ~ ~ ~ ~~~~~~~~~~ML,Hgh.~-dA,.d Citro Criib RridaR,., URBAN TRANSPORTATION ~~~~ ~ ~~~~~~PROJECT resnavus GenAeo

44

45 2~~~~~~~~~~~~~Z SIP A IBRD CITY OF RECIFE - \ r DETAIL OF EXPANDED CENTER AREA APRIL 1978 CITY OF KLt.lrt ' C~~~~~~~~~~~~~~~~~~~T.' /<27,. ~ ~ ~ ~ ~ ~ ~~~~~~ / 9 wf;.~~~~~~~~~~~oswa 06 ^*;;;-''-/1< O L I N D A!R1 COWA~~~~~~~~~~~A -ov Xcr I f NOV% /- ;4~ FIRMA. 71~ ~ Inc ~ ~ ~ ~~~~~~~~~~~J ~~~~~~~~A AARQ4 0~~~~~~~P H G Ac f l;ibt CU Q l tar 0!,> 9 <~~~~~~~~~~~o ==: _ "a K WlA HFtr/1.rgog!t BARES IES B 2 ed t S _t r v < if0- \]&* &<(W } WA e - Sot fc //;t t~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~f r ~ * t ri, A' 0 A/. 1.0i- C - AA U rb a n BRAZIL ns p ortatio n. Project74 kis 55c!>ffn1 o i27 Unj2,vS;; s % EE j5ncj2!1i:1.t gtra, ::: > : ) \ ; _SK i~~~~~~~~psp i;:12d;;g<,~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ 5\6 ; D S e c o n p e n m t o C o tro n: rl n~ 0 :"::E7R : IIt lgs:-,-.,l;r 1r i31~~ ~ ~ ~~~~~~~~~~~~~~~~~~~~~~Cn t 10~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ i* ai nocac q by- ass reac t Socsoy ces cos sisst 'ts t j ;X z _ R~~ jrt m; te - ;Tr= itc ;rai ~Urban TransipOortRaEtioFn Project~> j"- -Mjcpabnco Gi4A i.s j,lras} 1{ kji'i. S\~~~~~~M81RIP lxa i/ le f g i; -eodermro erlnues > 0 U T H -- ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~T p - m p t E.p. trm nd. - et.ro or e sree A t Z Brs L eu ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~C f. 1-1 b y -p /. j -u n =.. c p S -b n d.,y - t -s i - d, o -!t >{ -...rspnra.u... p-ng /, t.- 5t

46

47 IBRD APRIL 1978 BRAZIL =; \.URBAN TRANSPORTATIO PROJECT City of Porto Alegre PROJECT R~~~~~~~LcC, ~~~~~~~~~~~~~Pre Corridor Bus Priority Measures Roadl Imnprovements C A, Bus. Terminals Jl J2wXXt J'l;!SiLS 7 EXISTING r'do t -./. Major Access Roads and Streets -t----railroadis /0/ < 7 f I Rivers =;, Secondary Access Roads and Streets tocentra:l Business Area ~~~Built -up Areas Green Areas METERS j lt:~~~~~~~~~~~~~~~~~~~~~~~iesity, BR {VJ rz I4A/ /8ODQ 1 :1i;i.0 :;7 BRAZIL[ T/,, -p h} b-^y pt k tff -R A LAN TIC of 'thel_d.r of thn onpo to -6,rh tie att-had r den [ sed a t bo\onrat ho -on.h,s nap do not imply. on he part o the Wr,d ank -d, Ban OCEAN af ititnay ydgn_, on th igal,ttato A yn teritny or any end---mn1o LER ap- of no boor- darie

48

49 BRD ~~~~~~~~~~~~~~~~~~~~~~~9':731 t0g> t DU j;; z= A hq 5 V Ak X '< ]S ui A i; V7 a- oct Ldo z 2 t 0r \ 0 9 \ rnjs z 60b/ P S i>fw4 M5 _ n 7= 00:'i0 ''. '' o'- ''... c://=tt. Oaf ^F A AO CA wo-'t E - < zo B7AA/ A> 4 / aw> w ; N., ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~.m,x _C EX F XS< 9 XWS d n a u p 7 S = m j b /< / 4 / _//..i ZO. g g 3~~~~~~~~~~~~~~~~~~~~~~~~ usu 4r 7, rn atg;5 E S > *'' E 7 X A SAAs IoS 70 7 'A // < 1 _\; \ >. rf3sg tt~~~~~~~q % t/> rv y > i,9x7 7JX gji,ijx om u7 e1 r1 in Y ss'so -0 // /,/~~~X _ /ti ort1,; ] 7rNaa2B@ir 7~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~t zr ;0 J> tg Wrqvs M gm.wn *l:7. U Y ;W PA EOLANDE AV g,: > 87 < ia SLUAWj - 77i E~~~~~~~~~dUS=7 7A 1 //