Document of The World Bank. IMPLEMENTATION COMPLETION AND RESULTS REPORT (IBRD Loans BR and BR) ON A LOAN

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1 Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Document of The World Bank IMPLEMENTATION COMPLETION AND RESULTS REPORT (IBRD Loans BR and BR) Sustainable Development Department Brazil Country Management Unit Latin America and the Caribbean Region ON A LOAN IN THE AMOUNT OF US$ MILLION TO THE FEDERATIVE REPUBLIC OF BRAZIL FOR THE RIO DE JANEIRO MASS TRANSIT PROJECT December 24, 2009 Report No: ICR

2 CURRENCY EQUIVALENTS (Exchange Rate Effective November 30, 2009) Currency Unit = Brazilian Real (R$) R$1 = US$0.40 US$1 = R$1.80 FISCAL YEAR January 1 December 31 ABBREVIATIONS AND ACRONYMS AF AGETRANSP AMTU-RJ BoP CAS CBTU Central Flumitrens FGV GDP Metro MRJ O&M PDTU PIU QSA RJMR RTCC SRJ SuperVia TUE Additional Financing loan Municipal Transport Regulatory Agency formerly known as ASEP-RJ, Agencia Reguladora de Serviços Publicos Concedidos do Estado do Rio de Janeiro Metropolitan Urban transport Agency of Rio de Janeiro, Agencia Metropolitana de Transporte Urbano do Estado do Rio de Janeiro Balance of Payments Country Assistantship Strategy, also known as Country Partnership Strategy (CPS) Companhia Brasileira de Trens Urbanos State-owned company of the suburban rail system, Companhia Estadual de Engenharia de Transportes e Logística Former name of the suburban rail system in Rio de Janeiro Fundação Getúlio Vargas Gross Domestic Product Subway of Rio de Janeiro (also known as Metrorio) Municipality of Rio de Janeiro Operations and Maintenance Urban Transport Master Plan for Rio de Janeiro, Plano Diretor de Transporte Urbano Project Implementation Unit Quality of Supervision Assessment Rio de Janeiro Metropolitan Region Regional Transport Coordination Commission State of Rio de Janeiro Private operating concessionaire of the Central System Trem Unidade Elétrico or Electric Train Unit Vice President: Pamela Cox Shahid Javed Burki Country Director: Makhtar Diop; Mauro Azeredo (Acting) Gobind Nankani Sector Manager: Aurelio Menendez Asif Faiz Project Team Leader: Georges Darido Jorge M. Rebelo ICR Team Leader: Georges Darido ICR Main Author: Georges Darido/Ralf Kaltheier 2

3 Data Sheet A. Basic Information B. Key Dates C. Ratings Summary D. Sector and Theme Codes E. Bank Staff F. Results Framework Analysis G. Ratings of Project Performance in ISRs H. Restructuring I. Disbursement Graph Brazil Rio de Janeiro Mass Transit Project CONTENTS 1. Project Context, Development Objectives and Design Key Factors Affecting Implementation and Outcomes Assessment of Outcomes Assessment of Risk to Development Outcome Assessment of Bank and Borrower Performance Lessons Learned Comments on Issues Raised by Borrower/Implementing Agencies/Partners Annex 1. Project Costs and Financing Annex 2. Outputs by Component Annex 3. Economic Analysis Annex 4. Bank Lending and Implementation Support/Supervision Processes Annex 5. Beneficiary Survey Results Annex 6. Stakeholder Workshop Report and Results Annex 7. Summary of Borrower s ICR and/or Comments on Draft ICR Annex 8. Comments of Cofinanciers and Other Partners/Stakeholders Annex 9. List of Supporting Documents Annex 10. Maps

4 A. Basic Information Country: Brazil Project Name: BR RJ M.TRANSIT PRJ. Project ID: P L/C/TF Number(s): IBRD-42910,IBRD ICR Date: 12/28/2009 ICR Type: Core ICR Lending Instrument: SIL Borrower: Original Total Commitment: Revised Amount: USD 230.0M Environmental Category: B STATE OF RIO DE JANEIRO USD 186.0M Disbursed Amount: USD 230.0M Implementing Agencies: Central-Companhia Estadual de Engenharia e Log Cofinanciers and Other External Partners: B. Key Dates Process Date Process Original Date Revised / Actual Date(s) Concept Review: 11/03/1995 Effectiveness: 08/03/ /03/1999 Appraisal: 06/02/1997 Restructuring(s): 12/04/2001 Approval: 03/05/1998 Mid-term Review: 12/20/ /10/1999 Closing: 06/30/ /30/2009 C. Ratings Summary C.1 Performance Rating by ICR Outcomes: Risk to Development Outcome: Bank Performance: Borrower Performance: Moderately Satisfactory Moderate Satisfactory Moderately Satisfactory C.2 Detailed Ratings of Bank and Borrower Performance (by ICR) Bank Ratings Borrower Ratings Quality at Entry: Satisfactory Government: Moderately Satisfactory Quality of Supervision: Satisfactory Implementing Agency/Agencies: Moderately Satisfactory Overall Bank Performance: Satisfactory Overall Borrower Performance: Moderately Satisfactory i

5 C.3 Quality at Entry and Implementation Performance Indicators Implementation QAG Assessments Indicators Performance (if any) Potential Problem Project Yes at any time (Yes/No): Problem Project at any time (Yes/No): DO rating before Closing/Inactive status: Yes Satisfactory Quality at Entry (QEA): Quality of Supervision (QSA): None Satisfactory Rating D. Sector and Theme Codes Original Actual Sector Code (as % of total Bank financing) Central government administration 2 2 General transportation sector Theme Code (as % of total Bank financing) Other urban development State enterprise/bank restructuring and privatization E. Bank Staff Positions At ICR At Approval Vice President: Pamela Cox Shahid Javed Burki Country Director: Makhtar Diop Gobind T. Nankani Sector Manager: Aurelio Menendez Asif Faiz Project Team Leader: Georges Bianco Darido Jorge M. Rebelo ICR Team Leader: ICR Primary Author: Georges Bianco Darido Georges Bianco Darido Ralf-Michael Kaltheier F. Results Framework Analysis Project Development Objectives (from Project Appraisal Document) 1. Improve the quality of urban transport services in the RJMR by enhancing the development of a fully integrated urban transport system. 2. To substantially improve the level of service provided by Flumitrens while reducing the operating subsidies it receives from the State through the susbstantial participation of the private sector in its operation and management. ii

6 Revised Project Development Objectives (as approved by original approving authority) (a) PDO Indicator(s) Indicator Baseline Value Original Target Values (from approval documents) Formally Revised Target Values Actual Value Achieved at Completion or Target Years Indicator 1 : Percentage of stations with integrated bus/rail and metro/rail lines Value quantitative or Qualitative) 0% 20% 20% Date achieved 01/01/ /31/ /30/2008 Comments (incl. % achievement) The target number of stations in Central#s system that are physically integrated with bus and metro services was fully achieved, although several years after originally planned due to delays in project implementation. Indicator 2 : Share of total urban transport trips Value quantitative or Qualitative) 4% 10% 5% Date achieved 01/01/ /31/ /30/2009 Comments (incl. % achievement) SuperVia#s mode share among all RJMR trips increased in the early years and remains around 5% today, representing half of original target primarily due to: a lack of rolling stock, lack of integrated modal tariffs, and competition from buses and vans. Average interval between trains at peak hour (headway) Indicator 3 : Value quantitative or 13 minutes 6 minutes 7 minutes Qualitative) Date achieved 01/01/ /31/ /30/2009 Comments The average headway of Supervia services has improved steadily, reaching about (incl. % 80% of the target value in 2002 and 85% of the target value since achievement) Indicator 4 : Total number of paying passengers carried per day (linked trips) Value quantitative or Qualitative) 124,000 1,288, ,000 Date achieved 01/01/ /31/ /30/2009 Comments (incl. % achievement) Although Supervia#s ridership has more than tripled during project implementation and continues to increase, it has achieved less than 40% of the original target for the many reasons described in indicator #2 and the main text. Indicator 5 : Availability of rolling stock (trains in operation/total train fleet) Value quantitative or Qualitative) 58% 90% 90% Date achieved 01/01/ /31/ /30/2009 iii

7 Comments (incl. % achievement) Indicator 6 : Value quantitative or Qualitative) The original target was fully achieved in 2002 and has remained steady around 90% since then. Staff costs (US$ millions) Date achieved 01/01/ /31/ /31/2006 Comments (incl. % achievement) The direct labor costs borne by the State under the Central System (not including the concessionaire) has declined substantially, achieving its target in 2001 and remaining steady. Indicator 7 : Operating subsidy (US$ millions) Value quantitative or Qualitative) Date achieved 01/01/ /31/ /31/2006 Comments (incl. % achievement) Indicator 8 : Value quantitative or Qualitative) The subsidy provided by the State (including the costs associated with the stateowned Central) achieved its target in 2001 and has remained steady until the last year recorded (2006). Concession of the system to the private sector Public operated system with high operating subsidy Concession sustained and level-of-service offered acceptable to users without operating subsidy Concession sustained and levelof-service offered acceptable to users with minimal operating subsidy Date achieved 01/01/ /31/ /30/2009 Comments This qualitative target indicator (as reported in the ISRs) has been largely (incl. % achieved. achievement) (b) Intermediate Outcome Indicator(s) Indicator Original Target Values (from Baseline Value approval documents) Infrastructure and Equipment Component Formally Revised Target Values Actual Value Achieved at Completion or Target Years Indicator 1 : Value (quantitative 0% 100% 95% or Qualitative) Date achieved 12/01/ /31/ /30/2009 The vast majority of the original loan#s Part A components were delivered at the Comments conclusion of the project with the exception of 7 ongoing contracts primarily for (incl. % trains to be delivered in 2010 and a few works that were replaced by other achievement) projects. Indicator 2 : Institutional and Policy Development Component Value 0% 100% 100% iv

8 (quantitative or Qualitative) Date achieved 12/01/ /31/ /30/2009 Comments (incl. % achievement) The vast majority of studies and consulting contracts were completed at the conclusion of the project, with the exception of the Line 6 study (which was replaced by other Government projects as detailed in Annex 2). G. Ratings of Project Performance in ISRs No. Date ISR Archived DO IP Actual Disbursements (USD millions) 1 04/02/1998 Satisfactory Satisfactory /14/1998 Satisfactory Satisfactory /28/1998 Satisfactory Satisfactory /25/1999 Satisfactory Satisfactory /02/1999 Satisfactory Satisfactory /14/1999 Satisfactory Satisfactory /14/1999 Satisfactory Satisfactory /21/1999 Satisfactory Satisfactory /29/1999 Satisfactory Satisfactory /01/2000 Satisfactory Satisfactory /20/2000 Satisfactory Satisfactory /20/2000 Satisfactory Satisfactory /20/2000 Satisfactory Satisfactory /05/2001 Satisfactory Satisfactory /26/2001 Satisfactory Satisfactory /15/2002 Satisfactory Satisfactory /19/2002 Satisfactory Satisfactory /09/2002 Satisfactory Satisfactory /23/2002 Satisfactory Satisfactory /21/2003 Satisfactory Satisfactory /10/2003 Satisfactory Satisfactory /28/2003 Satisfactory Satisfactory /10/2003 Satisfactory Satisfactory /09/2003 Satisfactory Satisfactory /12/2004 Satisfactory Unsatisfactory /23/2004 Satisfactory Satisfactory /26/2004 Satisfactory Satisfactory /12/2004 Satisfactory Satisfactory /09/2004 Satisfactory Satisfactory /07/2005 Satisfactory Satisfactory /22/2005 Satisfactory Satisfactory /18/2006 Satisfactory Satisfactory /10/2006 Satisfactory Satisfactory /08/2007 Satisfactory Satisfactory v

9 /shared/siteresources/icr/dis B_CHART/P png 35 03/16/2007 Satisfactory Satisfactory /21/2008 Satisfactory Satisfactory /19/2008 Satisfactory Satisfactory /09/2009 Satisfactory Satisfactory H. Restructuring (if any) Restructuring Date(s) Board Approved PDO Change ISR Ratings at Restructuring DO Amount Disbursed at Restructuring in USD millions 12/04/2001 N S S IP Reason for Restructuring & Key Changes Made Change of project description to replace the financing for some rehabilitation of rolling stock with the acquisition of new trains, and the replacement of Flumitrens by Central as the Project implementing entity. I. Disbursement Profile vi

10 1. Project Context, Development Objectives and Design 1.1 Context at Appraisal Brazil s Economy By 1997, when the appraisal was finalized, the economic climate in Brazil was uncertain. Although inflation had dropped to 6.9% from almost 16% a year earlier, fiscal austerity measures announced by the government to shore up the Brazilian Real in the wake of the financial turmoil in Asia brought a drop in economic activity. Of the 27 Brazilian states, 18 states, including the State of Rio de Janeiro (SRJ), promised the federal government to slash their budgets. Public spending began a downward trend in 1997 as fiscal discipline became a mantra for the government. Primary fiscal balances began going up steadily in While these risks were considered at appraisal, an unpredictable macro-economic environment in Rio de Janeiro eventually affected infrastructure investments in general, including the availability of counterpart funding from the State and the implementation of the project as further described in Section 2. The Argentine macroeconomic crisis, which peaked in , also negatively affected Brazil s trade and growth rates through Table 1. Key Economic Indicators for Brazil Sources: World Bank s World Development Indicators; Brazilian Central Bank; Deutsche Bank. Item/Year Inflation Consumer Prices (annual %) GDP growth (annual %) Foreign Direct Investment - Net BoP (current US$ millions) Exchange rate R$ per US Dollar (in June of each year) Primary Fiscal Balance (% of GDP) ,667 18,608 29,192 26,886 30,497 24,714 14,108 9,894 8,694 12,549 9,420 27, Urban Transport in the Rio de Janeiro Metropolitan Region (RJMR) Demand: In 1997, the Rio de Janeiro Metropolitan Region (RJMR) had 9.8 million inhabitants spread irregularly over 18 individual municipalities, dominated by the Rio de Janeiro Municipality (RJM) with 5.7 million inhabitants. The RJMR concentrated roughly 76 percent of the State s population. Each day, 13 million person-trips took place in the RJMR, 5

11 of which 40 percent were work trips. Of the total trips, 67 percent were by public transport, 11 percent by auto, 20 percent on foot, and the remaining 2 percent by other modes. Of the public transport trips, 77 percent were by bus (mostly private operators), 4.5 percent by auto (taxis, kombis), 4 percent by suburban train (Flumitrens, now the Central system operated by SuperVia), 3 percent by subway (Metro), 1 percent by ferry, and 0.5 percent by other modes. Of the 8.7 million trips by public transport, about half used more than one mode requiring some sort of modal transfer. About 37 percent of all Metro trips, 47 percent of all train trips, and 41 percent of all bus trips required one or more transfers to be completed. It is worth noting that, at the time of appraisal, the suburban rail system s daily ridership had been decreasing precipitously due to degrading infrastructure and services, from a high of over 1 million passengers per day in the mid 1980s to less than 200,000 by Supply: Urban transport activity was dominated by road-based motorized modes, including cars and buses, which had a significantly negative impact on the air quality of RJMR'. Despite an expansive existing rail network, the lack of integration between the Metro (2 lines, only 23, km) and the Flumitrens system (241 km) discouraged more rail trips in favor of buses and automobiles, creating heavy congestion during peak hours and significantly increasing work trip times. RJMR s topography, with hills and tunnels, makes it prone to traffic congestion, especially when accidents and/or cars break down on major arteries. There is also limited space for fully segregated busways. The average carioca (resident of Rio de Janeiro), therefore, wasted considerable time each day stopped in traffic. The main users of the public transport system were and continue to be the poor on the periphery of RJMR, who also bear the brunt of the system's problems: (a) shortage of capacity at peak hours resulting in overcrowded trains (>10 passengers/m 2 ), (b) long work journeys ( hours/day for a round trip) from the metropolitan periphery to the urban centers, often with more than two modal transfers; and (c) paying one-quarter or more of their income towards fares. The lack of coordination and oversight from the three levels of government involved in urban transport, particularly between the SRJ and the RJM, resulting in poor modal integration, no tariff integration, lack of prioritization in urban transport investments, and no common policy on pricing and subsidies. Rationale for project: The Rio Mass Transit Project had its origins in the decision of the Government of Brazil to transfer the Rio de Janeiro subdivision of the Brazilian Urban Train Company (CBTU) to the State Government (supported by an earlier Bank loan 3633-BR, Rio de Janeiro Metropolitan Transport Decentralization Project, US$128 million), and the interest of SRJ to improve the modal and tariff integration 1 of urban trains with the state-owned subway, the ferry system, and the bus transport system. In addition, faced with huge subsidies to urban transport agencies (estimated at 8-10 percent of State revenues), SRJ embarked on a far-reaching staff rationalization and concession program which was supported by a Bank loan for State Reform. The Rio Mass Transit Project was fully consistent with the Bank s 1 An integrated tariff allows passengers to pay one price for a journey requiring one or more transfers between modes or operators involving a common (usually electronic) fare instrument. The price is usually less than the sum of individual tariffs, which encourages trip-making. In São Paulo in recent years, the integrated modal tariff (Bilhete Único) has substantially increased rail ridership. However, the companies that operate most bus services in RJMR have generally opposed intermodal integration for fear it would hurt their business. 6

12 Country Assistance Strategy (CAS) of the time, as it was designed to: (a) promote reforms and financial viability of public enterprises, including concessions or sale of state-owned urban transport agencies to the private sector; (b) foster private sector participation in the development of new infrastructure and its operation; (c) increase the efficiency of infrastructure investments; (d) contribute to poverty alleviation; and (e) reduce Government subsidies through improved tariff policies and financial management Institutional Issues Three main government bodies were, and continue to be, responsible for overseeing the urban transport sector in the RJMR: (a) the State Secretary of Transport (SETRANS) which regulates all the inter-municipal bus, rail and ferry services of the region; (b) the Secretary of Transport of the Municipality of Rio de Janeiro which regulates municipal bus services and is also responsible for traffic management and control in the RJM; and (c) the State Directorate for Roads. Since the different levels of government had been formulating policies and regulating urban transport without a formal coordinating arrangement, there was a lack of consistency in the fares charged by similar or competing modes, a chronic lack of investment in the rail system, and only embryonic modal integration. In 1998, in an attempt to improve the deteriorating conditions of the suburban rail system, the State of Rio de Janeiro transferred the vast majority of the system (5 lines, 225 km previously operated by the State-owned company Flumitrens and now managed by the State-owned company Central) to a private concessionaire (SuperVia) in the form of a concession without the direct transfer of operating subsidies from public accounts. 1.2 Original Project Development Objectives (PDO) and Key Indicators (as approved) The original PDOs were: (a) to improve the quality of urban transport services in the RJMR by enhancing the development of a fully integrated urban transport system; and (b) to substantially improve the level of service provided by CENTRAL/Flumitrens while reducing the operating subsidies it receives from the State through the substantial participation of the private sector in its operations and management. At the time of Appraisal, a formal results framework was not required by the Bank, but SRJ did adopt the following performance indicators for the Flumitrens system (later known as CENTRAL) in a monitoring letter dated March 24, These performance indicators are described in more detail in Section F of the Datasheet, and their appropriateness is discussed in section Percentage of stations with integrated bus/rail and metro/rail lines 2. Share of total urban transport trips 3. Average interval between trains at peak hour (headway) 4. Total number of paying passengers carried per day (linked trips) 5. Availability of rolling stock (trains in operation/total train fleet) 6. Staff costs 7. Operating subsidy 7

13 1.3 Revised PDO (as approved by original approving authority) and Key Indicators, and reasons/justification There were no changes to the PDOs. 1.4 Main Beneficiaries The main beneficiaries of the project are the residents of the RJMR as a result of the creation of an integrated mass transit system. Low-income populations benefit the most because they are the main users of public transportation and directly benefit from physical and tariff integration. Car users also benefit given the reduced number of buses in the streets replaced by trains. Real estate interests also benefit because properties around the stations increase in value. Finally, privatization of operations and the gradual decrease in operational subsidies benefit the State government. 1.5 Original Components (as approved) The components of the projects per the original loan agreement (dated June 1, 1999) were: Part A: Institutional and Policy Reforms Provision of technical assistance in the implementation of the institutional and policy reforms undertaken in connection with the RJMR s transportation sector, including activities related to concession and management of such public services, as follows: 1. In respect of FLUMITRENS: (a) provision of assistance in the preparation of the bidding documents, including concession contracts, to be used in the concession process, such documentation to cover the following areas: (i) institutional and organizational arrangements; (ii) preparation of an investment plan; (iii) evaluation and determination of operating subsidies; (iv) valuation and identification of the assets to be included in the concession; (v) human resource-related issues such as transfer of personnel and pension benefits; and (vi) legal and administrative aspects of the concession; and (b) provision of assistance, until the Concession Contract enters into effect, to further rationalize and streamline FLUMITRENS operations and maintenance, in the following areas: (i) rolling stock maintenance and railways operations management; (ii) management accounting; (iii) installation of payroll software; and (iv) installation of a human resources data-base; (c) carrying out of technical engineering studies in railway signaling and telecommunications; and (d) provision of consultants services to support the supervision of the investments described in Part B of the Project. 2. Carrying out of studies to support the adoption of a modal integration policy framework for the AMTU-RJ, such studies to consist of: (a) updating of the transport, land use and air quality sections of the master plans of the RJMR with emphasis on route rationalization and modal and tariff integration; (b) inter-municipal route management and rationalization; and (c) preparation of feasibility and bidding documents for the Niterói-São Gonçalo mass transportation system. 3. Training of FLUMITRENS staff in the management of the investments described in Part B of the Project and of assets not included in the concession and in the monitoring of the Concessionaire on behalf of ASEP-RJ. 8

14 4. Review of the Borrower s environmental program related to urban traffic issues, consisting of an inspection and maintenance strategy for vehicle emissions and noise. 5. Design of a more reliable system to collect traffic violation fines with emphasis on ways of enforcing them as a deterrent to traffic accidents. Part B: Infrastructure and Equipment Improvement of the infrastructure and equipment of FLUMITRENS System through: 1. (a) rehabilitation and modernization of twelve passenger stations; (b) construction of one passenger station; (c) construction of five pedestrian over/underpasses; and (d) installation of nine Kilometers of fences in areas adjacent to passenger stations to reduce tariff evasion. 2. (a) replacement of 50,000 sleepers; and (b) conversion of one track of the Gramacho- Saracuruna segment into broad gauge. 3. (a) installation and repair of transmission lines in the Leopoldina corridor; (b) rehabilitation or construction of electric substations; (c) installation of a central traffic control in D. Pedro II and Deodoro yards and Sta. Cruz and Japeri corridors; (d) installation of an automatic train control system in the Deodoro, Sta. Cruz and Japeri corridors; (e) installation of automatic fare collection; (f) installation of fiber optic cable links in the Japeri corridor, provision of a central telephonic exchange station and an integrated telecommunication system in the operations control center. 4. Rehabilitation of about 139 electrical multiple units. 1.6 Revised Components Revisions were made to the project components at the request of the Borrower and upon the approval of the Bank s Country Director on two occasions: Components Revised on December 18, 2001: Part B: Improvement of the infrastructure and equipment of Central s System through: 1. (a) rehabilitation and modernization of seven passenger stations with escalators; (b) construction of elevated pedestrian ways access to 15 stations (c) construction of four pedestrian over/underpasses; (d) installation of 9,600 meters of fences in areas adjacent to passenger stations to reduce tariff evasion; (e) construction of a bus terminal located at the Deodoro and São Cristóvão stations; (f) construction of six passenger stations; and (g) construction of bus system corridors. 2. Replacement of 50,000 sleepers. 3. Installation and repair of transmission lines. 4. Rehabilitation of 48 electrical multiple units. 5. Installation of air conditioner systems in 18 electrical multiple units. 6. Rehabilitation of nine diesel multiple units. 7. Acquisition of 20 electrical multiple units with air conditioner system. Components Revised on June 16, 2004: Part A.2 added: (d) economic, financial and technical feasibility analyses, as well as the respective basic project, for a transport system, known as Line 6, connecting the city of Rio de Janeiro (Barra da Tijuca - Rio de Janeiro International Airport) to the city of 9

15 Duque de Caxias, including development of a model of transfer to the private sector of such system, the corresponding implementation process and the operation of the resulting project, and preparation of all legal documentation required for such transfer." Part A.5 (traffic enforcement system) was eliminated and this part of loan was cancelled Part B: Improvement of the infrastructure and equipment of Central s System through: 1. (a) rehabilitation and modernization of passenger stations, including public services known as "Estações da Cidadania" (community hubs) and escalators in some of them; (b) construction of four pedestrian over/underpasses; (c) installation of 9,600 meters of fences in areas adjacent to passenger stations to reduce tariff evasion; (d) bicycle parking racks construction near the railway systems; (e) construction of public bikeways; (f) improvement of workshops; (g) rehabilitation of the Barão de Mauá station complex; and (h) construction of bus system corridors. 2. (a) Replacement of 50,000 sleepers; (b) rehabilitation of the Santa Teresa tramway system; (c) improvement of the Saracuruna-Guapimirim rail track; and (d) construction of the Caxias station underpass road. 3. Installation and repair of transmission lines. 4. (a) Rehabilitation of 50 electrical multiple units; (b) rehabilitation of diesel-electric locomotives; (c) rehabilitation of passenger cars; (d) rehabilitation of light rails cars of the Santa Teresa tramway system; and (e) installation of air conditioner equipment on electric multiple units. 5. Installation of air conditioner systems in 18 electrical multiple units 6. Rehabilitation of diesel multiple units. 7. Acquisition of 20 electrical multiple units with air conditioner system. 1.7 Other significant changes The original loan agreement was amended several times to facilitate project implementation given unfavorable macroeconomic and fiscal conditions, as explained further in Section 2. Most of the amendments involved minor changes to the project components, loan categories, disbursement percentages or extensions of the closing date to allow the Borrower to fully implement the project. One restructuring of the project occurred in December 2001, following a mid-term review, to replace Flumitrens (Companhia Fluminense de Trens Urbanos) with Central (Companhia Estadual de Engenharia de Transportes e Logística) as the Borrower s project implementing entity after the concession of the suburban rail system was completed in The restructuring did not require Board approval since the project objectives were unchanged. Two cancellations of part of the loan were made primarily due to the Borrower s fiscal restrictions, one for US$17.1 million on October 23, 2000 and another US$10.6 million on June 16, However, the total cancelled loan amount (US$27.7 million) was reinstated on November 7, 2006 at the request of the Borrower. An additional financing for US$44 million was approved by the Board on December 28, 2007 to help finance the costs associated with the devaluation of the US Dollar and Korean Won (currency of one of the biggest contracts financed by the loan) in relation to the Brazilian Real and shortages in counterpart funds, which caused a financing gap. The project closing date was extended by 18 months to allow the new loan to be fully disbursed. 10

16 2. Key Factors Affecting Implementation and Outcomes 2.1 Project Preparation, Design and Quality at Entry Project quality at entry was satisfactory for the reasons described below: a. The background analysis that supported the project design was solid as it was fully aligned with the main pillars of the CAS: equity, sustainability, competitiveness, and sound macro-economic management. The project was designed to advance the Bank s four-pillar metropolitan transport strategy in RJMR (described in Section 3.5(b)), which is still relevant today. More specifically, the project supported the reform and financial viability of public enterprises, including the concession of State-owned suburban rail system (Flumitrens) to the private sector; improving the efficiency of infrastructure investments; and contributing to economic growth and poverty alleviation by improving accessibility of low-income segments of the population to jobs, educational and health facilities. b. The project incorporated in its design the lessons from several Bank-financed projects in urban transport in Brazil and elsewhere, such as the need to: include institutional strengthening, ensure adequate counterpart funds by all levels of government involved, and involve the private sector through operational concessions. c. During preparation, the different levels of government were committed to the project, which had its origins in two major developments at the federal and state level: (i) the decentralization of the Rio de Janeiro Urban Trains from the Federal Government to the State of Rio de Janeiro in December 1994 (supported by Bank loan 3633-BR); and (ii) the decision of the new State administration which took office in January 1995 to achieve a more effective integration of all modes in the RJMR, with an aim of reducing subsidies to urban transportation agencies and substantially increasing the participation of the privates sector. d. The project was solidly conceived from a technical standpoint. A Bank-financed mass transportation plan was completed in 1995 that selected the corridors served by the Flumitrens system as the most cost-effective alternatives for an investment program. Alternatives to improving the level of service on the Flumitrens corridors using buses and busways were considered infeasible given the amount of expropriation and resettlement required to achieve the planned transport capacity. Thus, the project was designed to minimize total costs, including resettlement and environmental impacts, while improving major existing corridors, key multi-modal stations, supporting infrastructure, and increasing the rolling stock A range of risks were evaluated during project preparation and appropriate mitigation measures were considered, among the most important: a. Project costs and time overruns: This was mitigated by the use of well-known technology available from many sources. Delays in the procurement process and in the rehabilitation of rolling stock were minimized by starting the pre-qualification of works in the critical path of project implementation at pre-appraisal, by the use of standard bidding documents, and by requiring the borrower to produce the major tender documents by negotiations. Nevertheless, delays persisted during 11

17 implementation, but mostly due to factors outside the control of the project (as described in Section 3). b. Timely availability of counterpart funds: A major effort was made to mitigate this risk at entry by requiring the State to give assurances of adequate budgetary provisions. Counterpart funds were included in the State s budget for 1997, 1998, and in future projections. However, this mitigation measure turned out to be ineffective after 1999 as the project began suffering from counterpart shortfalls due to external factors. c. Delays in the actual award or failure to concession out Flumitrens: The risk of an unsuccessful concession was lessened by signing the Bank s loan agreement after the concession agreement for Flumitrens was signed in A concession study was completed and the concession bidding documents were prepared before the project went to the Board. Several procurement alternatives were evaluated settling for one that promoted efficiency, reduced implementation time and mitigated risks. d. Physical and tariff integration: Project preparation appropriately recognized the importance of expanding integration to increase efficiency and sustainability of urban transport in the region. As such, the project included targeted investments to improve physical integration between the suburban rail, metro and bus networks, and technical assistance to support analysis and policy dialogue on the tariff structure and systems. e. Establishment and sustainability of regional coordination: At the suggestion of the Bank, the State of Rio de Janeiro signed an implementation agreement together with 20 municipalities to create a regional transportation coordination commission known as AMTU-RJ, and initiated studies to define its role. The existence of AMTU-RJ was also a mitigating measure to ensure the planned expansion of physical and tariff integration. 2.2 Implementation The Board approved the original loan for the Rio de Janeiro Mass Transit Project for US$186 million on March 5, 1998 and an additional financing for US$44 million on December 28, The original loan was signed on June 1, 1999 and became effective on August 3, The extended period between approval and effectiveness was due to a change in the State government and issues related to the debt of the SRJ with the Government of Brazil. By the time the project became effective, some of the trains that were supposed to be rehabilitated were cannibalized for spare parts, which made rehabilitation a less viable option. Therefore, after a mid-term review in 2001, the Bank agreed to restructure the project to finance the purchase of 20 new trains in lieu of rehabilitating some 55 existing trains. Also, the planned Systems subcomponent (primarily transmission lines) was greatly reduced in part because of delays in the rolling stock program and because of design changes that still allowed the project objectives to be reached. Annex 1 and 2 provide a summary of the changes since appraisal by cost category. A Quality of Supervision Assessment (QSA) undertaken by QAG (dated July 28, 2004) resulted in a rating of Satisfactory for the Bank s supervision of the project. The project was originally scheduled to close on June 30, 2002, but the final closing date was extended 12

18 five times until June 30, Overall, the implementation of the project can be described as moderately satisfactory as most of the factors that influenced the project were outside the direct control of the Borrower and implementing agency, including: Changes in macroeconomic condition: Starting around the year 2000, the project suffered from a perennial lack of counterpart funding, which caused considerable delays in project implementation. This problem had its origin in the rapid degradation of State finances from early 2002 to end of 2003 due to the impact of the financial crisis in Argentina and the devaluation of the Brazilian Real (increasing the US Dollar denominated debt of the State). The strict budgetary target set for the Government of Brazil in their agreement with the IMF was also an indirect contributor to fiscal restrictions of the State. Two cancellations of part of the loan were made due to the worsening fiscal situation of the Borrower and changed priorities for the components. However, the total cancelled loan amount (US$27.7 million) was reinstated on November 7, 2006 at the request of the Borrower because the State had improved its fiscal situation and the Brazilian Real had recovered. Availability of counterpart funds: The project experienced major delays and considerable changes to its original rolling stock rehabilitation program due to delays in counterpart funding by the State and Federal Governments (investments supported with Bank loans 3633-BR and 4291-BR). As a result, SuperVia rehabilitated only about half the number of trains that were expected at appraisal. After 2004, the State s fiscal condition improved. Particularly since 2007, the project has received the appropriate support and counterpart funding from the State to complete most of the project implementation including the rehabilitation of 50 suburban trains (including 18 with air conditioning), acquisition of 20 new suburban trains with many modern features such as regenerative braking, and various station upgrades and system modernization investments. Currency fluctuations: The continuous devaluation of the US Dollar vis-à-vis the Brazilian Real (the currency in which work contracts were signed) that started in early 2004 put a major strain on the implementation process along with the simultaneous devaluation of the US Dollar against the South Korean Won (KRW). The Korean Won was the currency in which the contract for the acquisition of 20 new trains was signed (around 55% of the original loan). The overall financial gap due to the devaluation of the USD was estimated at US$64 million. An additional financing for US$44 million was approved by the Board on December 28, 2007 to help finance the costs associated with the devaluation and shortages in counterpart funds. As a requirement for the additional financing, the State assured the Bank that it was going to fulfill its commitment to provide US$20 million in counterpart funds. By the end of the project, the Bank had financed approximately 60% of the total project cost instead of the original 53%. Growth in tariffs and explosion of informal transport: The concession contract allows the regulating agency (AGETRANSP) to adjust the suburban rail tariff, in addition to the yearly inflation adjustments based on the Brazilian index of market prices (IGP-M). The financial-economic equilibrium clause of the concession agreement permitted extraordinary tariff adjustments ensuring the concessionaire a financial rate of return of 12% on its own investments. Under this arrangement, the base suburban rail tariff increased four-fold during the first ten years of the concession, from R$0.6 in 1998 to 13

19 R$2.5 in Municipal bus tariffs, which compete with SuperVia, also increased by around the same rate in this time period and are traditionally about 10% more expensive than rail tariffs. The tariffs on inter-municipal buses that compete with SuperVia in general are much higher than SuperVia. Meanwhile, informal public transport services proliferated, offering door-to-door service for a lower price than the combined (unintegrated) tickets of the formal public transport providers. Other factors that were partially or entirely within the control of the Borrower or implementing agency that also affected implementation included: Delays in loan effectiveness: The Federal and State Governments were responsible for the initial delay in signing of loan agreements that lasted more than one year. As a result, the first extension of the loan for two years was done in conjunction with the project restructuring in December Delays in the delivery of trains: The procurement process for the rehabilitation and acquisition of new trains was lengthy due primarily to delays by the implementing agency to comply with the Bank s procurement recommendations. Problems during the prequalification process for the new trains delayed the delivery of the trains by two years. A prolonged procurement dispute over the pre-qualification of one of the bidders delayed the awarding of the contract and the closing date was extended for a second time by two years. In addition, some companies contracted for the rehabilitation of the existing trains did not deliver on time. The train delivery contracts included penalty clauses for delays but these were not triggered because the State was late in making progress payments. The consequence was a lack of rolling stock for SuperVia, constraining operating capacity and lowering demand in the long-run. Lack of integration: The poor level of services offered by the bus system and Flumitrens before the project s implementation, the lack of an integrated public transport system, and lax enforcement of regulations allowed for the massive proliferation of vans and other informal services that compete with bus and rail modes, beginning in about the year Despite the best efforts by the Bank in providing policy support and dialogue with all stakeholders, the State and local Governments were not able to fully comply with their commitments to integrate the bus networks with the suburban rail system. The project did achieve the level of physical integration with Metro and inter-municipal buses (modes overseen by the State), but the physical and tariff integration with municipal bus services was less than expected. In response, SuperVia began operating limited feeder bus services to its principal stations. 2.3 Monitoring and Evaluation (M&E) Design, Implementation and Utilization M&E Design: While a results framework was not required when the project was presented to the Board, the project was monitored through a series of indicators adopted by the Borrower to reflect the achievements of the PDOs (see Section F of Datasheet). Two indicators (percentage of integrated stations and mode share of suburban rail) adequately address the first part of the PDO, which is related to the integration and quality of services in the region. The five other indicators (average headway in the peak hour, number of paying 14

20 passengers, availability of rolling stock, staff costs, and operating subsidy) adequately addressed the financial and operating performance of suburban rail in the second part of the PDO. The outcome indicators were easily measurable either directly or through standard transport or operational models that incorporate regular observations. In addition, as described in the PAD, the project also had subsidiary objectives of improving the mobility of the low-income population (who are the main user of Flumitrens and public transport), and the reduction of the environmental impacts (mainly air quality and noise) on the RJMR due to road-based vehicle use. However, no specific indicators were established for these subsidiary objectives of the project. Nevertheless, the concessionaire (SuperVia) provided, at the Bank s request, supplemental information on the environmental aspects of its operations and the profile of its users in the last few years of the project. Regarding the M&E of outputs, since specific indicators were not defined during project preparation, monitoring of these aspects relied on very detailed monthly and semi-annual reports of physical, financial, and institutional progress by subcomponent. Annex 2 provides a summary of these output indicators by subcomponent and Section F of the Datasheet aggregates them into the two components of the project M&E Implementation and Utilization: The Project team appropriately used the physical and financial output indicators to supervise the progress of the works and the delivery of equipment. To measure the progress in institutional development and compliance with related covenants, the semi-annual monitoring reports included useful updates on integrated modal tariffs (Bilhete Único), creation and maintenance of the AMTU-RJ, responsibilities of the regulatory agency ASEP-RJ (later known as AGETRANSP), and the concessionaire s environmental management programs. The ISRs were timely and usually included a comprehensive Aide Memoire as an attachment, The ISRs reported on two output indicators: concession of the system to the private sector and concession sustainable and modal integration with buses and metro in progress but these may have been to general and qualitative to inform management decisions. 2.4 Safeguard and Fiduciary Compliance Procurement The procurement component was well designed and supervised. The implementing agency had good capacity, as assessed during preparation, and became more knowledgeable with Bank procurement procedures. There were no post reviews as the borrower insisted on prior reviews, even for small contracts. The QAG Assessment in 2004 concluded that the quality and timeliness of procurement actions were satisfactory Financial Management Financial Management (FM) of the project was in compliance with Bank procedures. Audited copies of the accounting records had to be submitted semi-annually until loan closure. Central has submitted all reports detailing expenses as required, but often one to three months late. In April 2001, an issue was raised regarding to the incorrect use of the Special Account (SA) according to Section 4.01 of the Legal Agreement since the beginning of the project. 15

21 The client s non-compliance issue was resolved in early 2003 and noted in the semi-annual monitoring report. There were no other significant FM system weaknesses. No other major issues were found in the auditor s reports and the FM ratings remained moderately satisfactory and satisfactory throughout project implementation Environmental and Social Aspects The project was rated Category B and triggered the Environmental Assessment policy of the Bank. The concession of Flumitrens was preceded by an environmental and safety audit carried out by independent consultants, following the terms of reference provided by the Bank. Consultants monitored compliance with the recommendations of the audit for the Bank and, in parallel, the State environmental agency verified the performance of the supervision consultants. Significant positive environmental and social impacts were expected from reductions in traffic congestion and bus services (given their more pronounced relative impact on the air quality, noise levels, traffic congestion, and road accidents) but verification of these savings were not quantified. The review of the Borrower s environmental program related to urban traffic issues, consisting of an inspection and maintenance strategy for vehicle emissions and noise, as called for by the original project subcomponent A.4, became a regular reporting of environmental management programs by the concessionaire. Population resettlement was not necessary given that works were in existing right-of-ways, and these were never invaded. Independent consultants physically inspected the right-of-ways and confirmed that no resettlement was needed. 2.5 Post-completion Operation/Next Phase The vast majority of the components financed by the Project were successfully completed. As detailed in Annex 2, seven contracts of the original loan were not concluded at the closing of the project but are very likely to be completed by the end of 2010 using local funds because they are underway and the Borrower is fully committed. A new Rio de Janeiro Mass Transit Project 2 (US$211.7 million, Loan 7719-BR) to finance the purchase of 30 additional new suburban trains was approved by the Bank on June 2, 2009 and became effective on December 3, In addition, and as part of plans to host event for the 2014 World Cup and 2016 Olympics in Rio de Janeiro, the State is interested in acquiring at least 60 additional new suburban trains. RJM is also interested in renovating and rationalizing the municipal bus fleet owned by private operators under a reform and renewal of concessions in the coming years. The legislative assembly for the SRJ on December 22, 2009 formally approved to implement an integrated modal tariff (Bilhete Único) in 2010 for inter-municipal transport over which the State has jurisdiction (including buses, ferries, Metrorio and SuperVia). Once implemented successfully, it should greatly benefit poor passengers who currently make the longest trips from the periphery of RJMR on multiple modes. The Project financed the studies that provided the basis for this very promising political decision. The MRJ is currently studying a similar proposal. Moreover, there are at least two electronic smartcard systems in operation in the RJMR and there are ongoing discussions to create a single, interoperable fare card system. This development would help expand tariff integration and ensure the long-term sustainability of the development objectives. The recently-approved Rio Mass Transit 2 16

22 Project follows on these efforts with technical assistance to support the implementation of integrated modal tariffs and specific targets for bus-rail tariff integration in all five of SuperVia s lines. 3. Assessment of Outcomes 3.1 Relevance of Objectives, Design and Implementation The PDOs remained relevant throughout the life of the two loans and did not require any changes in response to changing government priorities or external conditions. The objectives also stayed relevant in light of Bank s priorities regarding Brazil. For example, the objective of improving quality of urban transport by developing an integrated mass transport system was in line with the CAS (Report no ) priority of Investing in growth, including enhanced emphasis on improving competitiveness and investing in infrastructure. A high-quality integrated transit system is an investment in infrastructure that promotes urban competitiveness and efficiency by requiring fewer resources to move passengers, hence also promoting growth. The PDOs are also in line with the current Country Partnership Strategy (CPS, Report no ) which identifies as Brazil s country goals: (i) to improve competitiveness by investing in the transport system, and (ii) to reduce inequality by providing, among others, job opportunities for the poor. The improvements to the integrated system benefit mainly the poor residing in the periphery of RJMR. The project amendments were requested by the Borrower primarily to facilitate implementation under unfavorable fiscal conditions and mostly involved minor changes to the project components, loan categories, disbursement percentages and extensions of the closing date to complete implementation. These changes reflected close supervision and an appropriate level of flexibility by the Bank. The 2004 QSA report affirms that the original implementation period of four years turned out to be too short given the change in administration, complexity of the project, counterpart funding issues, and other delay risks that had been identified during project preparation. The Bank could have adopted a somewhat more realistic implementation period at entry, but it was not possible to mitigate all the factors that contributed to the implementation delays (described in Section 2.2). Therefore, a combination of factors including a lack of rolling stock, a lack of intermodal integration (particularly with buses), and growing competition from informal modes resulted in less than half the ridership growth that was expected for SuperVia. For lower-income people, the increase in tariffs for rail and buses may have been a contributing factor to the lower than expected growth in ridership despite a decrease in the generalized cost of travel (including travel times, wait times, reliability, etc.). The lower than expected demand combined with delays by the State in compensating operators for discounted fares (i.e., for schoolchildren, elderly) may have also contributed to SuperVia s critical financial position during the first eight years of the concession and hindered its ability to make additional capital investments in the system as planned. The original concession agreement envisioned some US$240 million in capital investment from the private sector. Despite a strong start in capital investments, only about one-third of this planned total has been realized to date. SuperVia s 17

23 balance sheet showed negative equity from 2002 to 2006, but has turned positive since 2007 due in large part to the efficiency of its operations, described further below. 3.2 Achievement of Project Development Objectives The achievement of the first PDO, to improve the quality of urban transport services in the RJMR by enhancing the development of a fully integrated urban transport system, is considered Moderately Satisfactory based on the following evidence: 1. The project supported the creation of the AMTU-RJ in 1997, which coordinates the planning and implementation of the multi-jurisdictional transportation systems in the RJMR. It continues to be in operation, but its efficacy would be greater if it were to be provided with more authority for regional priority-setting. 2. The project supported the creation of the Urban Transportation Master Plan (PDTU) for the RJMR, including a detailed origin-destination study completed in The PDTU, the first in Rio in 28 years, was an important result of the project because it mapped out and prioritized the medium and long-term options for the RJMR in the context of land use, urban transport and air quality considerations. All operators in the region use the PDTU for transport planning and the new Rio de Janeiro Mass Transit Project 2 is expected to finance an update of it. 3. The key outcome indicator Percentage of stations with integrated bus/rail and metro/rail lines was fully achieved at the closing of the AF. The target for number of stations in Central s system physically integrated with bus and metro services (20%) was reached in SuperVia services were physically integrated with Metro services in 4 stations and with bus services in 18 stations. This is a significant achievement considering that there was essentially no such integration before the Project. 4. Another important aspect of integration supported by the Project was the intermodal tariff integration with a discounted fare. Tariff integration between SuperVia and bus services reached 120 municipal bus lines and 20 inter-municipal bus lines in The State and Municipal Governments are continuing to work hard to further integrate the transport system. 5. The key outcome indicator Share of total urban transport trips was partially achieved. The mode share of Central s system among all trips in the RJMR increased slightly during project implementation and remains around 5% today. This indicator has fallen short of the 10% target for a number of reasons described above, including the lack of rolling stock, higher than anticipated fares due in part to a lack of integrated modal tariffs, and competition from buses and informal public transport services. The achievement of the second PDO, to substantially improve the level of service provided by Central/Flumitrens while reducing the operating subsidies it receives from the State through the substantial participation of the private sector in its operations and management, is considered Moderately Satisfactory based on the following evidence: 1. The level of service provided on Central s system has improved substantially as measured by operating performance and user surveys. The key indicator of this, Average interval between trains at peak hour (headway), was substantially achieved, although several 18

24 years after the original target date because of a lack of rolling stock. Average headways in the peak hour in 1997 were around 13 minutes while the target was 6 minute by project completion. Through good management and maintenance practices, SuperVia achieved an average peak-hour headway of 7 minutes in 2008 which was maintained in The quality of services has also greatly improved with higher punctuality (92%) and reliability (99%) for rail operations. User satisfaction surveys have shown significant improvements in the perception of various aspects of SuperVia s service quality and 91% of those interviewed said services had improved after the concession. 3. There were major improvements at stations as a result of the project, including improved accessibility features (bridges, crossings, and escalators), illumination, security, bicycle parking, and government service offices. These station improvements in poor areas on the periphery also had a large positive impact on their surrounding neighborhoods, for example the Citizenship Station in Duque de Caxias. 4. The key outcome indicator Availability of rolling stock (trains in operation/total train fleet) was fully achieved. At the start of the project, this indicator was around 58% and was improved greatly in only a few years. The original target was achieved in 2002 and has remained steady at around 90%, which is a good benchmark for the industry. 5. The key outcome indicator for Total number of paying passengers carried per day (linked trips) was partially achieved. Although SuperVia s daily ridership has more than tripled during project implementation (from around 150,000 in 2008 to 465,000 in 2009) and continues to increase, it has achieved less than 40% of the original target at project completion (1.288 million) for the many reasons previously described. In 2005, Central revised the target to 800,000 but it has still not been achieved in part because of a lack of rolling stock. Currently, as system capacity and the level of service continue to increase, ridership is expected to reach 1 million passengers per day around The key outcome indicator for Operating subsidy was fully achieved. The subsidy provided by the State achieved its target in 2001 and has remained steady until the last year recorded (2006). The remaining State subsidy corresponds directly with the staff costs associated with the state-owned Central. If only the concessionaire is considered, the operating subsidy is essentially zero. 7. The project successfully supported and sustained the concession of the Flumitrens system to the private sector in 1998, and today it is operated by SuperVia without operating subsidies from government. This has saved the State as much as US$l80 million per year, which the State has then been able to reinvest in capital improvements to the transport system. The Bank loans allowed the State to fulfill its short-term capital investment obligations included in the concession contract, albeit with significant delays. 8. The project supported the creation of ASEP-RJ in 1997 as the Borrower's regulatory agency for public services under concession. ASEP-RJ was then re-organized into AGETRANSP as a means to have a specific agency able to focus on regulation of the transport sector. The creation of AGETRANSP was a necessary step for ensuring the quality of privately-operated services in the transport sector, but it requires continuous support and strengthening. 19

25 9. The key outcome indicator for Staff costs was fully achieved. The direct labor costs borne by the State under the Central System (not including the concessionaire) has declined substantially, achieving its target in 2001 and remaining steady until the last year recorded (2006). A large part of the reductions in SuperVia s operational costs (reduced by around 50% from 1999 to 2008 in constant prices) was realized through significant staff cuts (2,500 staff were laid off and the respective severance payments were taken over by the State at the beginning of the concession). SuperVia s productivity ratio (operating costs per car-km) improved significantly from 4 to 1.4 in constant prices and from 4.4 to 3.4 in nominal prices in the same time period. Therefore, the overall achievement of PDOs is considered Moderately Satisfactory. 3.3 Efficiency A conventional cost-benefit analysis was carried out using the latest cost estimates to assess the effectiveness of the project through its closing. The situation with the project was compared against the situation without the project. The model used was the same one used during appraisal to ensure comparability of results. The revised Economic Internal Rate of Return (EIRR) calculated for this report is 14%. This is significantly lower than the one calculated at appraisal (64%) but still confirms the positive economic efficiency of the project. The following conservative assumptions were made in this analysis with respect to the situation at appraisal: 1. All benefits were reduced by 66% to reflect the fact that the actual demand is about one-third the demand projected at appraisal 2. Included a two year delay in the start of benefits 3. Updated investment cost stream to reflect the changes to the components and timing 4. Maintained the reduction in wages and the incremental increase in operating and maintenance cost which were consistent with appraisal 3.4 Justification of Overall Outcome Rating Rating: Moderately Satisfactory The rating of Moderately Satisfactory is based on: (i) the relevance of the project objectives and design; (ii) the substantial achievement of the two development objectives; and (iii) a reasonable but lower economic efficiency of the project-financed investments. 3.5 Overarching Themes, Other Outcomes and Impacts (a) Poverty Impacts, Gender Aspects, and Social Development The project had a subsidiary objective of improving the mobility of the low-income population (who are the main users of SuperVia and the public transport system), but indicators were not required at the time of project preparation and a thorough analysis was not possible because of the lack of comparable data. Nevertheless, SuperVia reported that its ridership increased in all income classes (including the poor) from 1999 to Specifically, it recorded a 36% increase in the number of passengers per day earning less than 20

26 5 minimum salaries (generally considered poor). Therefore, the quality and availability of rail services to the poor has improved. Accessibility for mobility-impaired passengers has also improved considerably as the project helped finance escalators, elevators, and special signage in a number of SuperVia stations. In addition, SuperVia periodically reported the percentage of passengers by socio-economic class; however, these data may not be directly comparable between years because they do not measure inflation-adjusted incomes. 2 In 2007, 74% of passengers were from the lowest socio-economic classes (C, D and E), while this figure was 76% in 2004 and 89% in It is apparent that SuperVia s ridership has slowly migrated upwards in socio-economic classes as economic conditions and opportunities in RJMR have improved in recent years. (b) Institutional Change/Strengthening The Bank s support in the creation of AMTU-RJ, PDTU, and AGETRANSP through this and previous operations has had a lasting institutional impact in the region. Specifically, the Project allowed significant progress to occur in accordance with the Bank s overarching 4- pillar strategy for urban transport: 1. A regional transportation coordination commission to help set priorities for major urban transportation investments between levels of governments and jurisdictions, and promote integration: AMTU-RJ was envisioned for this and continues to be strengthened. 2. A plan for integrated land use, urban transportation, and air quality that provides a framework for decision makers to evaluate future urban transportation investments and policies: PDTU was envisioned for this and continues to be used and updated. 3. Financing mechanisms to ensure that long-run variable costs are covered by operating and non-operating revenues and with appropriate user charges: This has been explored by authorities in Rio de Janeiro and work remains to be done to fully capture the value of the massive infrastructure investments planned. 4. Private sector participation in the operation, maintenance, and construction of urban transportation systems to lessen the financial burden on government: This was accomplished for rail with the SuperVia and Metrorio concessions and the creation of AGETRANSP. (c) Other Unintended Outcomes and Impacts (positive or negative) Not Applicable. 3.6 Summary of Findings of Beneficiary Survey and/or Stakeholder Workshops Not Applicable. 4. Assessment of Risk to Development Outcome 2 Socio-economic classes as defined by the ABIPEME (Brazilian Market Research Association) based on ownership of essential household items by families. 21

27 Rating: Moderate The risk to development outcome of this operation is moderate for the following reasons: There is a moderate risk of SuperVia s tariff structure growing above inflation and adversely impacting demand growth. The regulatory agency authorizes additional extraordinary tariff adjustments based on the financial-economic equilibrium clause of the concession contract. Thus, shortfalls in the projected ridership can be compensated by tariff increases if justified. However, a tariff elasticity analysis by Fundação Getúlio Vargas (FGV) and commissioned by SuperVia for a proposed tariff adjustment in 2008 showed that an increase in real terms of the current base tariff may result in a decline of operating revenues because of lower demand. Very low income riders may not afford tariff increases and may be forced to use cheaper, lower-quality alternatives such as informal vans. The State is currently negotiating a 25-year extension of SuperVia s concession (from 2023 to 2048) and is considering this risk. Some ways to possibly mitigate this are by: (i) greatly expanding intermodal tariff integration to lower general travel costs, (ii) direct subsidies to the lowest income riders who do not benefit from the current employer-based subsidy program (i.e., vale transporte) because they lack formal employment, and (iii) enforcement of regulations against informal modes that operate unfairly and sometimes unsafely. There is a moderate risk of SuperVia deferring maintenance of the fleet and facilities, thereby affecting the long-term sustainability of the rail system. SuperVia significantly improved the overall efficiency and productivity of the system, as well as the quality of services. However, it was able to do this by aggressively cutting costs. According to a report commissioned by SuperVia for a proposed tariff adjustment in 2008 and conducted by FGV, maintenance expenditures experienced the largest reductions in real or nominal terms from 1999 to The data in the report shows that maintenance costs per car-km in 2007 were a fraction of what they were in However, it is not possible to determine if any of this reduction was driven by deferred maintenance because the train fleet has become considerably newer in this time period (requiring less essential maintenance), and worker productivity has also significantly increased (as described earlier). The current high ratio of fleet availability (90%) also suggests that there is no maintenance issue with the rolling stock. The current risk of macroeconomic or fiscal conditions adversely affecting planned investments is low. Significant investment in rolling stock, stations, and system upgrades are needed to increase operating capacity in anticipation of the 2014 World Cup and 2016 Olympics. These investments in transport infrastructure are among the highest priorities for all levels of government and have the financial backing of the Federal government. Current projections by SuperVia are for 1 million riders per day by 2015 (roughly double the current ridership). The State has already expressed its intention to acquire more trains and make other improvements. 22

28 5. Assessment of Bank and Borrower Performance 5.1 Bank Performance (a) Bank Performance in Ensuring Quality at Entry Rating: Satisfactory At entry, the Task Team designed an urban transport operation that entailed sound and innovative features that are still very much valid and appropriate today. These included: (i) capacity building and support for the concession process of a large but degraded suburban rail network to private sector operators without operating subsidy; (ii) targeted investments in rolling stock and infrastructure to support improved services, integration, and streamlined operations; and (iii) institutional development to promote metropolitan transport coordination and integration. In this context, the Bank and the Borrower prepared the project by (see also section 2.1): (i) carrying out a solid background analysis; (ii) evaluating lessons learned from previous operations and appropriate alternatives; (iii) holding detailed missions with specialized teams of consultants; (iv) designing a technically well-conceived project; (v) evaluating a range of risks and proposing appropriate mitigation measures; (vi) paying attention to institutional aspects, such as the need to create a coordination body and regulatory agency; and (vii) gathering support from all levels of government governments and asking them to show commitment (for example, by including counterpart funds in budget projections). There were minor shortcomings involving the overly optimistic projection of ridership growth and the implementation period that were influenced by a combination of factors (as described in Sections 2.2 and 3.1). Most of these factors were external to the project design or very difficult to mitigate, such as future macro-economic conditions. The basic premises of the demand analysis were discussed and agreed with the Government during preparation but a change of administration plus the fiscal crisis affected those premises. The demand in the suburban rail network is in part supply-driven (i.e. availability of trains or operating capacity) and depends on integration with buses. The State failed to provide both of these in a timely manner. The trains were all rehabilitated in the end but were delivered late and some new trains took longer than expected. Finally, the project development objectives were comprehensive and flexible enough to remain valid throughout the life of the decade-long project that saw numerous amendments. In sum, the rating of Satisfactory reflects the absence of significant shortcomings in identification, preparation, and appraisal. (b) Quality of Supervision Rating: Satisfactory Bank supervision is rated Satisfactory on the following basis (please also see Section 2): (i) frequent supervision missions (38 ISRs filed between April 1998 and April 2009, or more than 3 per year, not including FM and Procurement supervision missions which took place at least once every year); (ii) prompt and sound identification of implementation problems such 23

29 as delays; (iii) high-quality advice and proposed solutions to the Borrower to address the implementation problems, for example by agreeing to increase Bank financing percentages in some categories to make up for lack in counterpart funds; (iv) the hiring of local consultants to help supervise technical or procurement issues; and (vi) appropriate and prompt Bank follow-up actions. Overall, the Task Team showed profound knowledge of the client s needs, excellent engagement, and appropriately adapted the project to ensure maximum relevancy and achievement of PDOs in light of changing macroeconomic conditions and local priorities. A Quality of Supervision Assessment in 2004 resulted in an overall rating of Satisfactory having encountered no significant issues and commending the Project Team for its understanding of the client s needs. The QSA report, however, noted that on the Borrower's counterpart funding, it might have been useful to elevate this issue to a higher level of Bank management and to involve the IMF (International Monetary Fund) in the discussions as this issue also affects other projects in the portfolio. The QSA report also noted that although the project reporting was satisfactory, the ISRs could have been more useful as a management instrument if they highlighted the performance indicators and more realistic implementation and risk ratings to reflect ongoing delays (only one of 38 IP ratings in the ISRs was less than satisfactory). The Project Team made great efforts to promote intermodal tariff integration through dialogue with stakeholders (including bus operators), policy advice, and reports on the implications and status of integration in the region. Significant progress was made in achieving the key performance indicators but the full implication for the subsidiary objective of reducing poverty by improving transport services to the poor was not fully assessed. Finally, the Task Team provided outstanding support to the client and was very responsive in processing an AF in (c) Justification of Rating for Overall Bank Performance Rating: Satisfactory The Bank helped the Borrower in the adequate preparation of the project. The Bank also actively addressed implementation problems thanks to a careful and proactive supervision. This helped adapt the project to changing circumstances and resulted in the substantial achievement of the PDOs. 5.2 Borrower Performance (a) Government Performance Rating: Moderately Satisfactory During project preparation, the State of Rio de Janeiro performed well by supporting the necessary studies, estimating the investment needs, recognizing institutional weaknesses based on previous experiences with Bank operations, and initiating reforms such as the creation of AMTU-RJ and AGETRANSP in However, during implementation and beginning in 2000, there were significant delays related to the availability counterpart funds due to fiscal restriction which significantly impacted the project implementation. This, in turn, created delays in some contracts. Furthermore, the State could have been more effective in promoting additional integration with buses. Since January 2007, the Government of SRJ has improved its performance greatly by supporting the project with counterpart funds that 24

30 have helped make up the funding gap. With the Bank s AF loan and the Borrower s counterpart funds, virtually all contracts were completed at conclusion of the loan. Significant institutional reforms were made and work is still ongoing (including under the follow-on Rio Mass Transit 2 Project) to achieve the ultimate mandate for AMTU-RJ and AGETRANSP of multi-modal integration and regulation of urban transport modes. Considering the positive outcomes and moderate shortcomings, the performance of the State is rated Moderately Satisfactory. (b) Implementing Agency or Agencies Performance Rating: Moderately Satisfactory The State Secretary of Transport and its implementing agency, Central, were able to successfully plan and execute the vast majority of a large investment program of works, goods, and services, although with significant delays mostly caused by factors beyond their control. The program to rehabilitate trains in particular experienced numerous changes and delays due to procurement issues and interdependencies between contracts. Central adequately performed detailed implementation planning to ensure that civil works did not interrupt regular rail services and caused minimal disturbance to traffic and station surroundings. Central s Project Implementation Unit was adequately staffed, its management was stable, and generally produced detailed and timely reports. Its institutional capacity and knowledge of Bank requirements increased throughout the project implementation period, particularly regarding financial management and procurement. (c) Justification of Rating for Overall Borrower Performance Rating: Moderately Satisfactory The overall Borrower performance is Moderately Satisfactory based on the performance of the Government and implementing agency. 6. Lessons Learned The following lessons emerge from the analysis of the project: Designing a more comprehensive Monitoring and Evaluation framework: While the project monitored the quality of services and operating subsidy in accordance with the stated PDOs, this M&E framework did not allow for an assessment of the general benefit to public welfare or the impact on the poor. It is recommended that projects with similar objectives also monitor ridership classified by income class (as is the case with the Rio Mass Transit 2 Project) and the affordability of services (including the tariffs of alternative modes). Enhancing the risk assessment based on cumulative factors: Despite impressive efficiency gains, quality improvements, and significant investments, the original ridership projections for SuperVia have not materialized or were overly optimistic. Among the risks that explain the overly optimistic ridership projection and that were realized to one degree or another were: (i) the non-compliance of the Government regarding the expansion of tariff integration, (ii) a lack of investment from counterpart funds in rolling stock to increase 25

31 operating capacity to planned levels, (iii) the negative impact of increasing tariff levels on demand, and (iv) competing lower-cost transportation by the informal sector. Therefore, investment plans and demand forecasts should be carefully scrutinized by considering all relevant, mutually non-exclusive risks together and their cumulative impact through a sensitivity analysis. Analyzing rolling stock investment decisions to include economic, technical and institutional aspects: The periodic rehabilitation of existing trains can be a cost-effective option if a system has spare operating capacity. However, it can be unexpectedly costly and complicated if the implementing agency does not have very specialized technical and management capacity. It often takes longer and costs more than planned because it is difficult to assess all of the rehabilitation costs without disassembling the cars. Also, rehabilitation does not allow for the easy installation of some modern features including signaling, telecommunications, air conditioning and energy-efficiency improvements such as regenerative braking. Special attention should be paid to the interdependency of parts and sequencing of contracts, which often cause delays. Therefore, the decision to purchase new trains or rehabilitate existing trains should be carefully analyzed from an economic, technical and institutional sense. Enhancing project implementation through financing flexibility: As shown in this and previous operations, reducing counterpart funds for certain critical components (such as some works and rolling stock) and ensuring that the Borrower (to the extent possible) gives budgetary priority for the project in times of fiscal restriction can avoid costly delays. However, these mitigating measures are not always possible or sufficient to eliminate the risks from a lack of counterpart funds. In the case of Rio de Janeiro, the success of the longstanding partnership between the Bank and the Borrower through multiple loans was facilitated by the adjustment of financing percentages, loan categories, and extension of closing dates. At the same time, strong financial commitment and agreement between state and municipal governments is needed to forge fundamental institutional changes that have a real impact on the sustainability of rail investments, such as integration with buses and preventing unfair competition. Importance for Bank to be engaged for the long-term: The Project was able to achieve its successful outcome because the Bank was also committed to supporting the Borrower through a difficult macro-economic situation and changes in administration. Because of its belief in the importance of the Project, the Bank accepted all of the Borrower s requests for closing date extensions as well as eventually agreeing to an AF. This approach has paid off and a very trusting relationship exists with the State, as evidenced by the recent approval of a follow-up project and new requests to continue to support improvements to their metropolitan public transport system in the face of the World Cup and Olympics. 26

32 7. Comments on Issues Raised by Borrower/Implementing Agencies/Partners (a) Borrower/implementing agencies A summary of the translated Borrower s report is included in Annex 7. The Borrower, through Central, describes the project, its changes, and explains the factors that led to delays in the completion of the project. These factors are similar to the ones explained in this report. The Borrower s report assesses the Bank s role and rates it as highly satisfactory. The Borrower also comments on the low risk to sustainability of development outcomes, the importance of pushing forward the integration agenda through the AMTU-RJ, and the inclusion of buses and other regulated modes in a future integrated system. Finally, the borrower evaluates its own role by highlighting some of the problems faced during implementation and the actions taken. The Borrower states the project fully achieved its objectives. (b) Cofinanciers None. (c) Other partners and stakeholders (e.g. NGOs/private sector/civil society) 27

33 Annex 1. Project Costs and Financing (a) Project Cost by Component US Dollars IBRD Loans Appraisal Estimate Final Estimate (as of October 2009) State of RJ Total IBRD Loans State of RJ Concessionaire Total Percentage of Appraisal IBRD Loans 1.INFRASTRUCTURE AND EQUIPMENT 207,544, ,667, ,212, ,606,426 60,194,264 78,690, ,491,134 57% Stations 23,095,800 14,990,000 38,085,800 21,856,063 28,280,153 6,462,655 56,598,872 95% Permanent Way 7,791,600 2,620,000 10,411,600 7,973,168 1,970,098 33,802,627 43,745, % Systems 19,790,000 58,020,000 77,810,000 1,172,503 2,223,007 7,350,811 10,746,321 6% Rolling Stock (Train Rehabilitation) 156,867, ,037, ,904,700 86,604,692 27,721,006 31,074, ,400,048 55% 2. GOODS 14,136,900 15,400,000 29,536, ,667,158 25,886, ,553, % Rolling Stock (Acquisition) 3.CONSULTING SERVICES 14,136,900 15,400,000 29,536, ,667,158 25,886, ,553, % 8,318,700 11,432,300 19,751,000 7,726,416 30,549,497 1,309,556 39,585,469 93% Technical Assistance 0 2,900,000 2,900,000 3,656 3, ,330 n/a Consultants 3,510,000 3,870,000 7,380,000 2,827,571 28,685, ,513,434 81% Supervision 4,698,700 4,662,300 9,361,000 4,785,189 1,859,960 1,309,556 7,954, % 4.FRONT END FEES 110, , , , % TOTAL 230,000, ,500, ,500, ,000, ,629,807 80,000, ,629, % Notes: The latest estimate incorporates all of the changes in project components and scope, which explains the variation from appraisal. The reduction in the rolling stock rehabilitation program is explained by a large increase in new rolling stock acquisition, as described in the text. The planned Systems subcomponent was greatly reduced in part because of delays in the rolling stock program and design changes that still allowed the project objectives to be achieved. (b) Financing Source of Funds IBRD Loans (4291-BR, 7508-BR) Borrower and Concessionaire Type of Cofinancing Counterpart funds Appraisal Estimate (USD millions) Actual/Latest Estimate (USD millions) Percentage of Appraisal % % 28

34 Annex 2. Outputs by Component Part A: Institutional and Policy Reforms (revised in 2004) Provision of technical assistance in the implementation of the institutional and policy reforms undertaken in connection with the RJMR s transportation sector, including activities related to concession and management of such public services, as follows: 1. In respect of FLUMITRENS: (a) provision of assistance in the preparation of the bidding documents, including concession contracts, to be used in the concession process, such documentation to cover the following areas: (i) institutional and organizational arrangements; (ii) preparation of an investment plan; (iii) evaluation and determination of operating subsidies; (iv) valuation and identification of the assets to be included in the concession; (v) human resource-related issues such as transfer of personnel and pension benefits; and (vi) legal and administrative aspects of the concession; and (b) provision of assistance, until the Concession Contract enters into effect, to further rationalize and streamline FLUMITRENS operations and maintenance, in the following areas: (i) rolling stock maintenance and railways operations management; (ii) management accounting; (iii) installation of payroll software; and (iv) installation of a human resources data-base; (c) carrying out of technical engineering studies in railway signaling and telecommunications; and (d) provision of consultants services to support the supervision of the investments described in Part B of the Project. 2. Carrying out of studies to support the adoption of a modal integration policy framework for the AMTU-RJ, such studies to consist of: (a) updating of the transport, land use and air quality sections of the master plans of the RJMR with emphasis on route rationalization and modal and tariff integration; (b) inter-municipal route management and rationalization; (c) preparation of feasibility and bidding documents for the Niterói-São Gonçalo mass transportation system; and (d) economic, financial and technical feasibility analyses, as well as the respective basic project, for a transport system, known as Line 6, connecting the city of Rio de Janeiro (Barra da Tijuca - Rio de Janeiro International Airport) to the city of Duque de Caxias, including development of a model of transfer to the private sector of such system, the corresponding implementation process and the operation of the resulting project, and preparation of all legal documentation required for such transfer. 3. Training of FLUMITRENS staff in the management of the investments described in Part B of the Project and of assets not included in the concession and in the monitoring of the Concessionaire on behalf of ASEP-RJ. 4. Review of the Borrower s environmental program related to urban traffic issues, consisting of an inspection and maintenance strategy for vehicle emissions and noise. Part B: Infrastructure and Equipment (revised in 2004) Improvement of the infrastructure and equipment of Central s System through: 1. (a) rehabilitation and modernization of passenger stations, including public services known as "Estações da Cidadania" (community hubs) and escalators in some of them; (b) construction of four pedestrian over/underpasses; (c) installation of 9,600 meters of fences in areas adjacent to passenger stations to reduce tariff evasion; (d) bicycle 29

35 parking racks construction near the railway systems; (e) construction of public bikeways; (f) improvement of workshops; (g) rehabilitation of the Barão de Mauá station complex; and (h) construction of bus system corridors. 2. (a) Replacement of 50,000 sleepers; (b) rehabilitation of the Santa Teresa tramway system; (c) improvement of the Saracuruna-Guapimirim rail track; and (d) construction of the Caxias station underpass road. 3. Installation and repair of transmission lines. 4. (a) Rehabilitation of 50 electrical multiple units; (b) rehabilitation of diesel-electric locomotives; (c) rehabilitation of passenger cars; (d) rehabilitation of light rails cars of the Santa Teresa tramway system; and (e) installation of air conditioner equipment on electric multiple units. 5. Installation of air conditioner systems in 18 electrical multiple units 6. Rehabilitation of diesel multiple units. 7. Acquisition of 20 electrical multiple units with air conditioner system. Ref.# Description Status Comments 6 Reform of station and yard at D. Pedro II 100% Completed 8 Construction of 8 Km of security walls and 4 pedestrian walkways 100% Completed 9 Rehabilitation of the right-of-way superstructure 72% - Construction of bicycle parking near the railway system (*) Ongoing using local funds, expected completion in 2010 Replaced by other programs, see footnote - Construction of public bikeways (*) Replaced by other programs, see footnote 14 Upgrade of the aerial electrical system (catenary) of 3 KVcc 100% Completed 15 Construction of second circuit 44 KV -SE D.Pedro II - Mangueira 100% Completed 22 Project management contract 100% Completed 24 General rehabilitation of pneumatic system for 18 TUES Series % Completed 25 General rehabilitation of pneumatic system for 14 TUES Series % Completed 26 General rehabilitation of pneumatic system for 16 TUES Series % Completed 27 General rehabilitation of bogies for 16 TUES Series % Completed 28 General rehabilitation of bogies for 14 TUES Series % Completed 29 General rehabilitation of bogies for 16 TUES Series % Completed 30 Rehabilitation of 18 TUES Series % Completed 33 Rehabilitation of 16 TUES Series 700 (8 with air conditioning) 100% Completed 36 Rehabilitation of 16 TUES Series 900 (10 with air conditioning) 94% Ongoing using local funds, expected completion in Installation of air conditioning equipment in 18 Electrical Multiple Units 98% - Rehabilitation of diesel-electric locomotives - Replaced by #55 - Rehabilitation of passenger cars - Replaced by #55 - Rehabilitation of Diesel Multiple Units - Replaced by #55 - Training course on privatization and regulation of transport infrastructure services 100% Completed 50 Purchase of support signs 100% Completed 51 Survey plan for origin-destination study for RJMR 100% Completed 52 Zoning plan for RMRJ 100% Completed 54 Purchase of sleepers and support beams 26% Ongoing using local funds, expected completion in 2010 Ongoing using local funds, expected completion in

36 55 Purchase of 20 new Electrical Train Units with air conditioning 100% Completed - External auditing for the Project in years 1999 / % Completed 57 External auditing for the Project in year % Completed 58 Consulting services for implementation of RIO TRILHOS 100% Completed 59 Study for the application of Smartcards and government measures to implement the RIOCARD system 100% Completed 61 Improvements to accessibility, visibility and surrounds of stations in the Deodoro line (Deodoro,Cascadura e Maracanã) - Replaced by #62 62 Improvements to accessibility, visibility and surrounds of stations in the D.Pedro II Deodoro corridor 100% Completed 64 Urban renewal around the station Duque de Caxias 100% Completed 67 Development of Urban Transport Master Plan (PDTU) for RJMR 100% Completed 70 Consulting services for the physical inventory of suburban rail system assets for the Government of the SRJ 100% Completed 72 External auditing for the Project in years 2001/2002/ % Completed 74 Study for the implementation of Line 6 in the metropolitan system of Rio de Janeiro (**) 78 Evaluation of the Urban Transport Master Plan for RMRJ 100% Completed 83 Rehabilitation of the station complex at Barão de Mauá - Improvements to the right-of-way for the Santa Teresa tram 84 system 100% Completed 85 Improvements to the right-of-way for the Saracuruna/Guapimirim 100% Completed Replaced by other studies, see footnote Replaced by #102 and no longer being implemented because of changed priorities in PDTU Ongoing using local funds, expected completion in Modernization of 14 trams for Santa Teresa tram line 56% 91 External auditing for the Project in years 2004/ % Completed 92 Project management (second contract) 100% Completed Improvements to accessibility, visibility and surrounds of stations 94 in the Leopoldina line (Penha e Bonsucesso) - Replaced by #62 Management support to CENTRAL for the implementation of the 95 continuous planning process for RMRJ 100% Completed 102 Rehabilitation to the railway station at Engenho de Dentro and Olympic Stadium João Havelange 100% Completed 107 Upgrade of workshops for the Santa Teresa tram line - Work was completed as part of #84 or no longer needed - Upgrade of workshops at Saracuruna/Guapimirim - Work was completed as part of #84 or no longer needed 121 External auditing for the Project in year % Completed 122 Construction of the metropolitan corridor at Alameda São Boaventura and Av. Feliciano Sodré 90% Ongoing using local funds, expected completion in Monitoring and signaling systems for the metropolitan corridor at Alameda São Boaventura and Av. Feliciano Sodré 0% Ongoing using local funds, expected completion in External auditing for the Project in years 2007/ % Completed Additional Financing AF1 Purchase of 30 new Electrical Train Units Ongoing Contract awarded and work on target for 2012 completion Expected in 2010 when first train is delivered AF2 Warehousing, Insurance, and Forwarding of Trains Ongoing AF3 Project management and supervision of AF1 Ongoing Ongoing in 2010 Institutional and Policy component - studies, PDTU, integrated AF4 modal tariffs, others Ongoing Expected award of contracts in 2010 Notes: (*) Being fully implemented by more comprehensive City and State Government programs, such as "Rio - Estado da Bicicleta" (**) Replaced by other studies and corridors as part of recent Olympic Transport Plan, such as the T-5 BRT corridor 31

37 Annex 3. Economic Analysis A conventional cost-benefit analysis was carried out using the latest cost estimates to assess the effectiveness of the project at the time of this writing. The situation with the project was compared against the situation without the project. The model used was the same one used during appraisal to ensure comparability of results. The following were conservative assumptions made in the evaluation model with respect to the situation at appraisal: 5. All benefits were reduced by 66% to reflect the fact that the actual demand is about one-third the demand projected at appraisal 6. Included a two year delay in the start of benefits 7. Updated investment cost stream to reflect the changes to the components and timing 8. Maintained the reduction in wages and the incremental increase in operating and maintenance cost which were consistent with appraisal Benefits The evaluation considered the same benefits as for the evaluation at appraisal. These are: 1. Travel time savings: These are estimated by determining the passenger-hours saved, by type of trip (home to work, business or other) and multiplied by the value of time for each type of trip. The demand model estimates passenger hours with and without the project mode. Value of time was kept at the appraisal level to be conservative and because of lack of updated values. 2. Operating cost savings: These are savings resulting from the lower costs of operating all modes with and without the project. The demand model estimates the passengerkms with and without the project and these are multiplied by the respective estimated unit operating costs. The project decreases the number of bus-kms traveled on the urban bus network through the re-routing of the buses to the main stations. The buskms saved per year are estimated by the demand model. The costs of operating the metro are included. The result is the net savings. 3. Reduction in road maintenance costs due to the reduction of bus-kms with the project (minor). 4. Reduction of accidents: These are estimated by multiplying the average cost per accident per 1000 passenger-kms with and without the project. This reduction of accidents is normally a function of the number of bus-kms saved (minor). 5. Reduction of air pollution costs due to reduction in bus-kms with project (minor). The resultant EIRR is about 14%. 32

38 Table A3.1 Cost-Benefit Analysis DIRECT BENEFITS EXTERNALITIES OPERATING COST Road Bus TOTAL Investments Operating TOTAL BENEFITS CALENDAR Travel Operating Maintenance System Air BENEFITS Costs Wages & and Others COSTS minus YEAR Time Cost Cost Cost Accident Pollution (B) Salaries Maintenance Cost (C) COSTS Savings Savings Savings Savings Savings Savings Cost (B-C) , (23) 2,777 (2,777) ,000 (18,000) 1,170 12,889 56,059 (56,059) ,042 9, ,082 60,000 (36,630) 16,379 13,557 53,306 (37,224) ,907 16, , ,497 31, ,000 (31,590) 19,529 13, ,856 (70,731) ,772 22, , ,380 46,167 60,000 (26,370) 24,029 14,997 72,656 (26,489) ,636 29, , ,264 61,210 20,000 (23,040) 24,389 16,257 37,606 23, ,863 29, , ,327 61,822 10,000 (19,620) 24,389 16,617 31,386 30, ,091 29, , ,390 62,440 10,000 (19,816) 24,633 16,783 31,600 30, ,322 30, , ,454 63,064 10,000 (20,014) 24,880 16,951 31,816 31, ,556 30, , ,519 63,695 2,000 (20,215) 25,128 17,120 24,034 39, ,791 30, , ,584 64,332 - (20,417) 25,380 17,292 22,255 42, ,029 30, , ,650 64,975 - (20,621) 25,634 17,464 22,477 42, ,269 31, , ,716 65,625 - (20,827) 25,890 17,639 22,702 42, ,512 31, , ,783 66,281 - (21,035) 26,149 17,815 22,929 43, ,757 31, , ,851 66,944 - (21,246) 26,410 17,994 23,158 43, ,005 32, , ,920 67,613 - (21,458) 26,674 18,174 23,390 44, ,255 32, , ,989 68,290 - (21,673) 26,941 18,355 23,624 44, ,507 32, , ,059 68,973 - (21,889) 27,211 18,539 23,860 45, ,762 33, , ,129 69,662 - (22,108) 27,483 18,724 24,099 45, ,020 33, , ,201 70,359 - (22,329) 27,757 18,911 24,340 46, ,280 33, , ,273 71,062 - (22,553) 28,035 19,101 24,583 46, ,543 34, , ,345 71,773 - (22,778) 28,315 19,292 24,829 46, ,808 34, , ,419 72,491 - (23,006) 28,599 19,485 25,077 47, ,077 34, , ,493 73,216 - (23,236) 28,885 19,679 25,328 47, ,347 35, , ,568 73,948 (600) (23,468) 29,173 19,876 24,981 48,967 EIRR= 14.08% 10% 60,503 10% 1.17 Ben 10% 407,708 Cos 10% 347,205 33

39

40 Annex 4. Bank Lending and Implementation Support/Supervision Processes (a) Task Team members Names Title Unit Responsibility/ Specialty Lending Jorge M. Rebelo Lead Transport Specialist LCSTR TTL David Hughart Principal Transport Economist LCRVP Economist Armando Ribeiro Araujo Regional Procurement Adviser LAC Procurement Jose Carvalho Senior Counsel LEGLA Legal Tulio Henrique Lima Correa Financial Management Specialist LCSFM Financial Oliver S. de Lima Consultant Metro Systems Kenneth Knight Consultant Metro Civil Works Infrastructure Pedro Benvenuto Consultant Institutional Framework Benjamin Darche Consultant Project Finance Higesa Consultants Environmental Specialists Environmental Assessment Avante Consultants Resettlement Specialists Resettlement Systra Consultants Project Reviewers Overall Design Daniel R. Gross Consultant ENV Social Safeguards Fundação Getúlio Vargas Consultant Project Finance Kenneth Gwilliam Urban Transport Adviser TWUTD Peer Reviewer John Flora Lead Transport Specialist TWUTD Peer Reviewer Antonio Estache Lead Infrastructure Economist LCSTR Peer Reviewer Isaac Popoutchi Consultant External Peer Reviewer Pedro Benvenuto Consultant Institutional Specialist Institutional Framework Supervision Jorge M. Rebelo Lead Transport Specialist/TTL LCSTR TTL through June 2009 Georges Bianco Darido Transport Specialist and TTL LCSTR TTL after June 2009 Armando Ribeiro Araujo Consultant Procurement Alberto Figueiredo-Nunes Consultant LCSTR Procurement Daniel R. Gross Consultant ENV Social Safeguards Solange P. Van Veldhuizen Language Program Assistant LCSTR Program Elisabeth Goller Transport Specialist LCSTR Institutional Geise B. Santos Program Assistant LCSTR Program Joao Vicente Campos Financial Management Specialist LCSFM Financial 35

41 Jorge Yamashita Consultant Infrastructure Sabina Augusta Kauark Leite Consultant Institutional Projob Consultants Metro System Design Specialist Infrastructure and Systems Higesa Consultants Environmental Specialists Environmental Janary Castro Consultant Infrastructure Civil Works Tulio Henrique Lima Correa Financial Management Specialist LCSFM Financial Alberto Figueiredo-Nunes Consultant LCSTR (b) Staff Time and Cost Staff Time and Cost (Bank Budget Only) Stage of Project Cycle USD Thousands (including No. of staff weeks travel and consultant costs) Lending FY FY FY FY FY FY FY FY FY FY FY Total: Supervision/ICR FY FY FY FY FY FY FY FY FY FY FY Total:

42 37

43 Annex 5. Beneficiary Survey Results (if any) Not Applicable. 38

44 Annex 6. Stakeholder Workshop Report and Results (if any) Not Applicable. 39

45 Annex 7. Summary of Borrower s ICR and/or Comments on Draft ICR Borrower s Evaluation Report State of Rio de Janeiro Rio de Janeiro Mass Transit Project Loan Agreements No BR and No BR Preface This is the final report relating to the Rio de Janeiro Mass Transit Project undertaken with the participation of Rio de Janeiro s Urban Transport Company (SETRANS), the Rio De Janeiro State Transport Engineering and Logistics Company (CENTRAL), the State of Rio de Janeiro Government and Brazil s Federal Government. The Project was supported with the total sum of US$230 million of IBRD financing under the terms of a first Loan Agreement signed on June 1999, amended on May Introduction This project had its origins in the decision of the Government of Brazil to transfer the Rio de Janeiro subdivision of the Brazilian Urban Train Company to the State Government, and the willingness of the State of Rio de Janeiro to better integrate urban trains with the State-owned subway and the bus transport system. The project is fully consistent with the Bank s Country Assistance Strategy of supporting policies and investments that will encourage economic growth and social development in a context of macroeconomic stability. This project is also a follow-up to the efforts started with the Rio de Janeiro Metropolitan Transport Decentralization Project (Loan 3633-BR), which decentralized the federally-owned CBTU to the State of Rio de Janeiro to allow for more effective modal and tariff integration. Project Objectives Loan agreement No BR between the State of Rio de Janeiro and the IBRD became effective on March 5, The original Loan Agreement signed with the IBRD was in the sum of US$186 million. The State of Rio De Janeiro provided counterpart funds totaling US$186.5 million. This created a total project value of US$ million. An additional loan of US$ 44 million was signed on May 20, 2008 to help finance the costs associated with the devaluation o f the US$ and Korean Won (currency of one o f the biggest contracts financed by the loan) in relation to the Brazilian Real and shortages in counterpart funds, which caused a financing gap. Counterpart funds by the State of Rio de Janeiro were US$ 20 million. The additional loan brought the total project value to US$ million. The main project objectives were (a) to improve the quality of urban transport services in the RJMR by enhancing the development of a fully integrated urban transport system; and (b) to substantially improve the level of service provided by the operating agency, CENTRAL, previously Flumitrens, while reducing the operating subsidies it receives from the State through the substantial participation of the private sector in its operations and management. 40

46 Objective (a) would be reached through the rehabilitation/construction of transfer stations between different transport modes (metro, buses, ferries); the introduction of multi-modal tariffs and the establishment of a Regional Transport Commission in charge of the coordination and recommendation of common policies regarding prices, financing and evaluation of projects in the RJMR. Objective (b) would be reached through an investment program for the rehabilitation/modernization of assets and the full or partial concession of rail operations and management to the private sector as a means to reduce subsidies from the State. Project Description Infrastructure and Equipment: Rehabilitating/ refurbishing of CENTRAL/Flumitrens rolling stock and infrastructure and rehabilitating or building transfer stations between the trains and other modes (Metro, buses and ferries); Institutional and Policy Development: Supporting the process of concessioning Flumitrens to the private sector through technical assistance for the preparation and evaluation of bids; operating the RTCC for the RJMR; preparing an Integrated Transport Policy, Land Use and Air Quality Management strategy for The RJMR to meet both transport and air quality targets and to introduce sound Cost-recovery, tariff, regulatory and subsidy policies; a comprehensive Retraining program for CENTRAL/Flumitrens staff in view of the planned restructuring of the company; preparing feasibility studies and bidding documents for the proposed Niteroi- S.Goncalo extension and other priorities of the mass transit system and implementing an Environmental and Traffic subcomponent including a study to review the ongoing vehicle inspection/maintenance program; and a comprehensive review of traffic violations with emphasis on a more reliable system to collect traffic violation fines and enforce them as a Deterrent to traffic accidents. Revised Components Some components were dropped as reflected in Annex 2. A few others were introduced: Modernization of São Francisco Xavier, Méier, Madureira and Duque De Caxias Stations; refitting of Engenho de Dentro Station to service PAN Olimpic Stadium and construction of Metropolitano da Alameda São Boaventura e Avenida Feliciano Sodré Corridor; improvements in the Santa Teresa line; improvements in the Saracuruna-Guapimirim line; rehabilitation of 14 Santa Teresa line trams and acquisition of 20 EMUs. Experience acquired in the implementation of the project and results achieved The results obtained from the implementation of this Mass Transit Project in Rio de Janeiro have been highly satisfactory. The objectives have been reached steadily and steadfastly and the strategic importance of this project to the RJMR is without precedent due to the level of integration it promotes, particularly in the busy downtown area, through roughly 264 km of urban and suburban rail systems that benefit 450 thousand passengers a day. Some significant 41

47 results from this project are fully in line with objectives (a) and (b) previously described in this document are: Improvement in the quality of urban transport services in the RMRJ due to the development of an integrated urban transport system (objective A): This objective has been reached satisfactorily, with a full physical integration as well as tariff integration between the suburban rail system and the subway system. Physical integration: the current rail system, roughly 264km long, operated by SUPERVIA and the subway system, which is now around 42km long, are now fully integrated inside Rio de Janeiro and carry almost 900 thousand passengers per day. The passengers, mostly coming from low-income areas are now able to travel through the five rail lines and the two subway lines. Tariff integration was obtained in all 4 main stations involved in this project with the subway system, which contributed to create a more effective and reliable system with significant time and cost savings for users. The success of these measures and the results obtained by the integration can be quantified by the roughly 190% growth in number of passengers computed by the concessionaire SuperVia between 1999 and Improvement in the quality of service and reduction of operational subsidies by increasing the participation of the private sector in system operation and management (Objective B): This objective has been satisfactorily obtained judging by the following results: After an initial reduction of rolling stock availability between 1996 and 1998 (beginning of private sector participation), there was a significant increase that reached close to 89% in 2004 and 91% in The main factor that led to this improvement was the rehabilitation of 50 trains (18 are air-conditioned) and the acquisition of 20 new trains. The rehabilitation/modernization and acquisition of rolling stock was an important factor in the privatization proposal. The privatization to SuperVia reduced operational subsidies from US$96 million to US$25 million between 1996 and 2006, a total reduction of 74%. Another indicator of quality of service and user satisfaction is the significant increase in the number of passengers, which went from 156 thousand per weekday to 387 thousand per weekday in 2006 (148% increase) and reached 450 thousand in 2008 (190% increase). It is also worth noting that these results were obtained with a simultaneous 70.21% reduction in the number of public workers involved in operations and management. Institutional aspects: The results, which totaled less than 4% of the project cost, were considered very satisfactory. The Transport Master Plan was concluded in April 2005 and is currently undergoing some finetuning. Consulting services were quite valuable and are still in progress. Due diligence and valuation of assets under the CENTRAL/Flumitrens system was key due all the institutional changes over the years prior to privatization. Consulting services rendered were very important to come up with a current valuation of assets under concession. The concession was contracted for 25 years (until 2023) and can be renewed for another 25-year period (2048). Additionally, consultants are currently looking into the possibility of gradually introducing Integrated Modal Tariffs (IMT), which would allow the user to buy a single ticket to use 42

48 different modes of transport within a given period of time. It would cost less than the sum of individual tickets, thereby creating inclusion by benefiting the lower income segments of the population. Implementation and results: The World Bank Loan Agreement was signed on March 5, 1998 and became effective on August 3, Implementation of the project was tentatively scheduled for a period of 5 years, with an estimated completion date of December 31, Main factors causing implementation delays were delays in the acquisition and delivery of 20 new trains; devaluation of the US Dollar vis a vis the Brazilian Real and the South Korean Won, which was the currency the twenty new trains were contracted in. For this reason the Government of the State of Rio contracted an additional loan No. 7508, signed on the 5 th of May, 2008, in the amount of US$44 million. Additionally, delays in the signing of the loan agreement by the Federal and State governments led to major delays in the implementation of the project, being one of the major reasons for the five and a half years delay in the project. Insufficient counterpart funds from 2000 to 2003 and regulatory and overseeing agency issues also contributed to the delay. World Bank Participation The Bank held a key role throughout the whole process, in the diagnostic, design and evaluation of the project. The Bank was particularly helpful in identifying and designing the best project to fit the needs of, and significantly improve mobility in the Rio de Janeiro Metropolitan Region. The level of oversight and supervision was intense, particularly in the beginning of the implementation phase and also later on in the process when the works were at a more advanced stage. The support given by the Bank extended to every stakeholder in the project and every level during each decision making process. The frequent missions allowed the Bank team to follow the developments closely on the field. The Bank team worked as a partner and mediator along the way and gave their input, and proposed alternative solutions where they saw fit. Consequently the Bank s performance and level involvement was considered highly satisfactory. Borrower Participation The Borrower properly identified the city s transport needs and priorities and detailed the necessary civil works, adequately evaluated the infrastructure previous to the project, systems, estimated the investment needs and recognized the weakness in the institutional leadership and lack of leadership in terms of coordination of the public transport system. The borrower also came up with the equivalent of what is the current implementation project and helped the Bank in its economic and financial analysis of the project. SETRANS was in charge of general oversight and project coordination and CENTRAL was responsible for project implementation. In sum, they both worked satisfactorily during the design of the project, offering logistic support and all the necessary information for proper project evaluation. Implementation was a big challenge for CENTRAL from a technical standpoint. However, it was capable of implementing the necessary works with minimal impact to normal train service and traffic in general. 43

49 CENTRAL at times applied advanced engineering solutions which resulted in above average results, such as in modernization works of stations and the great effort made to connect each station with the adjacent areas, creating community centers, thereby positively affecting the quality of life of passengers and the local community. Due to disputes between the State and Federal Government, which were unrelated to the project, implementation was delayed for 10 months after signing with the Bank. Though, once the project implementation process started the State Government offered its full support and collaboration. The private concession process was concluded in November The current administration classified the project as a top priority and gave its full financial support. 44

50 Annex 8. Comments of Cofinanciers and Other Partners/Stakeholders Not Applicable. 45

51 Annex 9. List of Supporting Documents Central. Monthly and Semi-Annual Progress Reports from Report by Fundação Getúlio Vargas for Tariff Review, 2008 (publicly available from AGETRANSP). State Secretariat of Transport, Rio de Janeiro. Relatório de Encerramento: Programa Estadual de Transportes: Contratos de Empréstimos Nº 4291-BR e 7508-BR June SuperVia Rail Transport Concessionaire. Financial Statement, September Rebelo, Jorge. Poverty and Suburban Rail Systems in Brazil, World Bank presentation in World Bank. Status of Public Transport Integration in Rio de Janeiro. October 2008, in Project File. World Bank, Loan Agreements, ISRs and Aide-Memoires in Project File,

52 Annex 10. Maps RJMR s Central Suburban Rail System 47

53 RJMR s Suburban Rail Network (Operated by SuperVia) and Integration Points 1