Docant of

The World Bank

FOR OMCIAL USE ONLY

Reiput Ne. P-4141-AR

REPORT AND RECONMENDATION

OF THE

PRESIDENT OF THE

INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT

TO THE

EXECUTIVE DIRECTORS

ON A

PROPOSED LOAN

IN AN AM4OUNT EQUIVALENT TO US$60.0 MILLION

TO TIHE

ARGENTINE REPUBLIC

FOR A

WATER SUPPLY PROJECT

November 18, 1985

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CURRENCY EQUIVALENTS

Currency Unit = Austral (A)

US$ 1 = A0.80A 1 = US$1.25 (September 1985)

WEIGETS AND MEASURES

Metric System

FISCAL YEAR

January 1 - December 31

ABBREVIATIONS AND ACRONYMS

BH - Banco Hipotecario (National Mortgage Bank)DIPOS - Direccion Provincial de Obras SanItarias de Santa Fe

(Santa Fe Water Utility)EPOS - Empresa Provincial de Obras Sanitarias de Cordoba

(Cordoba Water Utility)MOSP - Ministerio de Obras y Servicios Publicos

(Ministry of Public Works and Services)OSN - Obras Sanitarias de la Nacion

(National Water Works)PNSB - Plan Nacional de Saneamiento Basico

(National Water and Sanitation Development Plan)SIGEP - Sindicatura de Empresas Publicas

(Comptroller of Public Enterprises)SNAP - Servicio Nacional de Agua Potable Rural

(National Rural Water Service)SRH - Secretaria de Recursos Hidricos

(Secretariat of Hydraulic Resources)UC - Unidad Coordinadora para el Financiamiento Programas

Inversion en Saneamiento Urbano(Coordinating Unit for Sector Investment)

UE - Unidad Ejecutora del Plan Nacional de Saneamiento(Executing Unit of the National Sanitation Plan)

FOR OFFICIAL USE ONLY

ARGENTINA

WATER SUPPLY PROJECT

Loan and Project Summary

Borrower: The Argentine Republic

Beneficiaries: Ministry of Public Works and Services (MOSP), National WaterWorks (OSN) and the water utilities of the Provinces ofCordoba (EPOS) and Santa Fe (DIPOS).

Amount: US$60.0 million equivalent (includes US$8.0 million forinterest during project execution).

Terms: Repayment in 15 years, including 3 years of grace, withinterest at the Bank's standard variable rate.

Relending The Borrower would make available the proceeds of the LoanTerms: to OSN, EPOS and DIPOS on the same terms as those of the

l-an. Both foreign exchange and interest risk would beassumed by the project executing agencies.

ProjectDescription: The project would assist the Government to rehabilitate old,

poorly maintained water and severage installations, extendwater services to new urban areas, and strengthen sectorplanning, management and finances. The project wouldincludes the following components:

(a) national water and sanitation plan preparation;

(b) operational improvements program in Metropolitan BuenosAires and the cities of Cordoba and Rosario, consistingof the first stage of a national program includinginter alia consumption and production metering,rehabilitation of distribution networks, and streng-thening of the water utilities' distribution managementand commercial operations:

(c) rehabilitation and extension of the city of Cordoba'swater system consisting of the construction of a watertreatment plant to replace a rundown plant, upgrading ofanother plant, and water mains and secondary pipes; and

(d) technical assistance to improve the financial planning,accounting and purchasing systems of OSN and EPOS.

The project will directly benefit about 1.4 million people.

This document has a restricted dstnbuton and may be used by recpients only in the performancu of|their offici duties. Its conteast may not otherwise be disdosed without World Bank authorization.

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Risks: The multiplicity of activities to be undertaken under theproposed project would require close cooperation of severalentities. To some extent, the risk associated with the multi-plicity would be minimized by institutional arrangements forproject implementation which include clearly definedresponsibilities for project participants and the services of aninternational organization to undertake administration andcontracting of the technical assistance program. The federal andprovincial governments' commitment to ensure the funds requiredby the project and the strengthening of the utilities' managementsystems minimize any risks related to the availability of localcounterpart funds.

Project Costs:

Local Foreign TotalUS$ Million

National Water andSanitation Plan 0.42 0.41 0.83

Technical AssistanceBuenos Aires 0.52 0.52 1.04Cordoba 0.10 0.11 0.21

Operational ImprovementsBuenos Aires 8.30 12.45 20.75Cordoba 2.78 4.17 6.95Rosario 3.03 4.54 7.57

Cordoba Water SystemRehabilitation and Extension

'Los Molinos Channel'", 5.59 2.50 8.09Water Production, and Distribution 25.35 12.49 37.84

Engineering and administration(7Z of USS45.93 Nillion) 2.16 1.06 3.22

Base Cost (09/85 Prices) 48.25 38.25 86.50

Technical Contingencies 10 4.83 3.82 8.65

Price Contingencies 15.36 9.93 25.29

Total Project Costs 68.44 52.00 120.44

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Financing Plan:Local Foreign Total

USS million-

Bank - 52.00 52.00Government 11.07 - 11.07Domestic Loans 43.30 - 43.30OSN 14.07 - 14.07

TOTAL 68.44 52.00 120.44

Bank (interest during projectexecution) - 8.00 8.00

Estimated Disbursements:

1986 1987 1988 1989 1990 1991 1992 1993 1994Bank Fiscal Year - US$ ilon

Annual 6.00 8.80 13.10 8.00 7.30 7.50 4.80 2.80 1.70Cumulative 6.00 14.80 27.90 35.90 43.20 50.70 55.50 58.30 60.00

Rate of Return: About 15%.

Appraisal Report: Report No. 5783-AR dated November 5, 1985.

IBRD No. 19128

INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT

REPORT AND RECOMMENDATION OF THE PRESIDENTTO THE EXECUTIVE DIRECTORS ON APROPOSED LOAN OF US$60.0 MILLION

TO THE ARGENTINE REPUBLIC FOR AWATER SUPPLY PROJECT

1. I submit the following report and recommendatior. on a proposedloan to the Argentine Republic for the equivalent of US$60.0 million tohelp finance a Water Supply project. The loan would have a term of 15years, including 3 years of grace, at the Bank standard variable interestrate. The Government would make available US$16.0 million, US$29.0 millionand US$6.0 million to Obras Sanitarias de la Nacion (OSN), EmpresaProvincial de Obras Sanitarias (EPOS), and Direccion Provincial de ObrasSanitarias (DIPOS), respectively, on the same terms and conditions as theBank loan.

PART I - THE ECONOMY

2. An economic mission visited Argentina in June/July 1983 and itsreport (4979-AR) was distributed to the Executive Directors in June 1984.This report reflects the major findings of that mission and subsequentupdating missions. Country data sheets are presented in Annex I.

Background

3. Argentina has rich natural resources, a highly literatepopulation, an export-oriented and diversified agricultural sector, and alarge industrial sector. The economic performance of the country hassuffered, however, from policy instability and economic distortionsintroduced by the frequently changing governments. Except for agriculture,public sector participatior, in the economy is high, industrial productionis largely domestic market-oriented, and available resources are notutilized efficiently. A large public sector deficit has contributedsignificantly to the country's recent very high inflation level.

A. Economic Developmerts of the Last Decade

4. Over the last decade, abrupt shifts in economic policies weakenedArgentina's productive capacity and exacerbated structural imbalances.Changes in policies prc,duced large and rapid fluctuations in the realexchange rate, reFl int:erest rates, and real salaries. The rate ofinflation was over 4002' in 1976, fell to 100% in 1980 and accelerated againto about 600% in 1984; the external trade balance as a share of GDP hasfluctuated between positive 4.8% and a negative 4.3%, while annual GDPgrowth has ranged from plus 6.7% to minus 6.2%.

N-

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5. High and rising inflation, physical and technologicaldeterioration of the country's productive capacity, major dislocations inindustrial production and huge external debt service requirements haveresulted in general economic stagnation and recession, such that the real1984 per capita GDP was 14% lower than its 1974 level. Heavy borrowing inthe late 1970s multiplied the country's external debt as a share of GDPsevenfold (from 10% to 68%). Today, interest payments on the external debtabsorb nearly half of gross domestic savings compared to less than 5% inthe early 1970s.

6. The productive sectors, particularly manufacturing, are beset bythorny structural and financial problems. More than 40Z of capacity in theconstruction industry, artificially inflated during a brief constructionboom of the late 1970s, now stands idle. Significant underutilization ofcapacity also exists in many manufacturing industries; and most firms alsolack sufficient working capital. Financial intermediation is costly andinefficient, interest rates are high both in nominal and real terms, andoversized banking institutions are suffering severe difficulties.Argentina's self-sufficiency in oil has deteriorated as the ratio of oilreserves to annual output has declined. Prover reserves of gas haveincreased, but the processing and transport infrastructure to exploit themis deficient.

7. The public sector is simultaneously overstaffed and seriouslyshort of managerial and technical expertise. Ineffective taxadministration, together with inadequate budgeting and investment planningprocesses, contribute significantly to the large public sector deficit.Cuts in investment to curb the public sector deficit have led to adeterioration of social infrastructure and have jeopardized the reliabilityof power supply.

B. Policies for Adjustment

8. Economic mismanagement and the consequences of the 1982 SouthAtlantic crisis hastened the departure of the military Government. Ademocratically elected Government took office at the: end of 1983, facingspiralling inflation and growing balance of payments difficulties. Also,the after-effects of the industrial recession were threatening the solvencyof the financial system.

9. Toward the end of 1984, the Government ent:ered into a 15-monthstand-by agreement with the IMF and rescheduled its external debt withofficial creditors, covering interest and principal up to 1985, and withthe commercial banks, covering principal up to 1985. It also obtained thecommitment of US$4.2 billion in fresh money to finarce the current accountdeficit and to eliminate arrears accumulated throughi 1983-85. The principalobjectives of the stabilization program were to: (a) lower the rate ofinflation from an average of about 20% per month in -the last quarter of1984 to about 8% per month by the end of 1985; and (b) to achieve a balanceof payments position that would enable Argentina to meet its externalobligations while satisfying the needs of domestic recovery.

10. The Government moved to comply with tne cconditions under thestand-by agreement despite a deepening recession. The fiscal deficit was

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reduced to 13% of GDP during the last quarter of 1984 and the real exchangerate was improved by 17Z between September and December. Public utilityprices were raised 9% in real terms. Inflation, however, continued at fullspeed after a brief pause in October and November. Output and employmentand the value of real exports began declining. Monthly wage indexation wasreduced to 90Z of the previous month's inflation from 100% earlier; realwages also fell 17% from July to December. By the end of 1984, shortfallsfrom the agreed targets of the program were observed; during the firstquarter of 1985, the Government's adherence to the program became weaker.Therefore, the IMF suspended the first conditional draw-down under thestand-by agreement until the completion of the 1985 first quarter review ofthe program.

11. A new economic team took office in late February 1985 and beganpreparing a new package to deal with inflation which had already reachedbeyond 20% per month. By the second quarter of 1985, economic conditionshad worsened significantly. The economy was facing spirallinginflation while the recession intensified. The Government then decided toabandon gradualism in favor of shock treatment and set about to prepare thecountry for a major change in economic policy necessary to breakinflationary expectations. In June 1985, the Government devalued the pesoby 18% to improve relative prices, raised the price of meat by almost 100%,and introduced a number of fiscal measures with the purpose of drasticallyreducing the overall fiscal deficit. It increased prices in petroleum andgas products, and tariffs on electricity, telephone, transport and postalservices; a temporary 10% import surcharge and 9 percentage points increasein the export tax were approved; a 12% cut in the 1985 budget expendituretook place; and a hiring freeze was declared in the public sector.Following these measures, the Government announced a very strong adjustmentprogram and initiated its implementation. The program was then supportedby an agreement with the IMF on revised and more stringent targets underthe ongoing stand-by agreement.

12. The Government's economic program was comprised of: (a) a drasticcut in the total public sector deficit (including Central Bank operatinglosses) from 12.5% of GDP in the first half of 1985 to an expected 2.5% onaverage in the second half of 1985 with the deficit to be financed byexternal borrowing, thus eliminating domestic credit expansion to thepublic sector. Further expenditure cuts were to follow the ones undertakenand achievement of lower inflation was to shorten revenue collection lagsand allow for lower nominal interest rates, thus reducing interest servicepayments; (b) a reduction in the balance of payments' current accountdeficit from 3.5% of GDP in 1984 to 2.4% in 1985; (c) a monetary reformthat included the introduction of a new currency unit pegged to tne USdollar and a system for de-indexing peso denominated contracts; and (d) awage-price freeze. The program was supported by an agreement withcommercial bank creditors to: (a) reschedule about US$13.9 billion inprincipal payments during the period of the stand-by (1985/86); (b) provideUS$4.2 billion of new money of which US$2.2 billion were to be disbursed bySeptember 1985; (c) establish a trade credit maintenance facility tomaintain such financing at its 1lvel of September 30, 1984; and (d)establish a stand-by money market facility that maintains creditor banks'deposits with Argentine banks at their level of September 30, 1984.

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13. The Government has been able to stabilize the economy in theshort term, and meet the targets and draw down the first tranche under theIMF stand-by agreement. The monthly rate of inflation, as measured by theconsumer price index has dropped from 30X in June to 2Z in September. Theoverall fiscal deficit has been reduced to about 2.5Z of GDP as a result ofthe revenue and expenditure measures and the sharp drop in inflation. Sofar, no credit expansion to the public sector has been required. Thereserve position of the Central Bank hau also shown some improvement,reflecting increased confidence in the Government's policies. TheGovernment has also received the first disbursement of new money under theagreement with the commercial banks. Almost all political and socialgroups have thus far supported the program despite its austere nature.Since cuts in public spending and high real interest rates will have adampening effect on domestic demand, the Government has been careful not toraise expectations for a quick economic recovery. In this connection, theindustrial and other nonagricultural sectors are experiencing a severerecession which began in late 1984 despite some increase in industrialoutput in September of 1985. Real GDP is estimated to decline by about 1%in 1985. Export response to the program has not yet been significantlypositive although an expected good harvest is likely to facilitate theachievement of the balance of payments target of the program.

14. The program's risks relate to the possibility of a renewal ofinflationary pressures once the wage and price freeze is relaxed. Thus,the Government has indicated that the freeze will continue into 1986 andthen be phased out gradually. The Government's economic program has beenfar more successful than initially expected and augurs well for improvedeconomic performance. A continued effort to maintain the overall fiscaldeficit at current levels will be required to break longer-terminflationary expectations and ensure the program's success. Thus, theGovernment has indicated that it will continue to act in the fiscal area asneeded.

C. Development Prospects and Policy Bequirements

15. Argentina's growth performance in the next five years will dependheavily on the continued success of the present Government's policies.Restoring domestic and overseas confidence in economic management andrenewing private sector investment will require maintaining the recenttrends in price stability. Moreover, given the burden of external interestpayments on Argentina's gross domestic savings, public investment will belimited largely to improving the efficiency of existing capacity andcompleting unfinished projects. The Government has stated its intention togive priority to those projects which alleviate immediate bottlenecks, havea high rate of return and can generate foreign exchange.

16. Argentina's key development objectives are to: (a) strengthen andexpand the growth of exports in order to reduce the country's external debtrelative to GDP and exports; and (b) resume medium-term growth as thestabilization program takes hold. The Government's economic program andpolicies are being designed to achieve these objectives. In particular,special emphasis is being given to the elimination of distortions in orderto produce a rapid output and export response. Faster recovery of percapita consumption can take place only after medium-term growth hasresumed.

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17. The Government has formulated a medium-term strategy that linksthe stabilization and external adjustment programs to development goals.The strategy is based on an improvement of investment climate and therestoration of adequate export incentives. The proposed policy measuresare closely in line with the recommendations of the 1984 Country EconomicMemorandum (CEM), viz., (a) improvement in public sector finances andefficiency; (b) overhaul of the tax system and tax administration;(c) reduction in the number of public enterprises and reform ofgovernment-enterprise relationships; (d) improvements in incentives forprivate industry and agriculture; (e) reform of the financial system andactive support for manufacturing exports; and (f) expansion of petroleumand gas exploration and development activities to increase oil exportsthrough increased private sector participation. Since the strategy aims topromote productive fixed investments, real per capita consumption isprojected to rise only slightly during 1985-90.

Growth and Balance of Payments Prospects

18. Improving Argentina's growth prospects for the rest of the decadewould require a successful implementation of the adjustment program during1985/86, the rescheduling of the country's external debt by its creditorsas it falls due, continued lending at the agreed amounts, and a continuedexpansion in exports. Under those assumptions, the current account deficitof the balance of payments is projected to average about US$1.6 billion peryear during 1985/86, equivalent to 2.2% of GDP, to be financed largely bydisbursements from the IMF stand-by agreement, increasing disbursements ofexisting and projected loans from public sources, and direct foreigninvestment. Although this is not likely to lead to a quick short-termeconomic recovery because of the eifects of stabilization on domesticdemand, real GDP growth, beginning in 1987, could resume at about 3% peryear on average. This growth depends on the projected expansion inexports, and of increasing agricultural production resulting from anintensified use of fertilizer and industrial production resulting fromrenewed private sector investment activities. Under these assumptions, thecurrent account deficit would decline rapidly from 1987 on as a result ofincreasing proceeds from grain and manufacturing exports. Thus, thecurrent account deficit of the balance of payments is projected to amountto only US$20 million by 1990.

Debt Service and Creditworthiness

19. At the end of 1983, the total public sector external debt ofArgentina was US$33.2 billion. From US$11.5 billion at the end of 1978, ithad grown almost three-fold. The structure of the debt also had changedradically during the 1978-1983 period. At the end of 1978, the debt tocommercial banks constituted 38% of the total, but this ratio rose to 60%by the end of 1980, and 87% by the end of 1983. By 1979, total debtservice requirements already had gone beyond the reach of net exports, andsince 1982, the trade surplus, although large, has not been sufficient topay the accrued interest. Thus, when the South Atlantic crisis disruptednormal roll-overs and lending in 1982, Argentina began accumulatingprincipal and interest arrears. The Government provided exchange rateguarantees for the rescheduled private external debt and eventually assumeda large part of the private sector's external obligations. Total external

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debt, including arrears and private sector obligations, reached US$46billion by the end of 1983. Following the agreements with the IMF and itscreditors, Argentina initiated a program to eliminate payment arrears, withcommercial banks contributing US$4.2 billion to the effort. The bankssubsequently released the first tranche of their additional financing inSeptember 1985.

zo. A continued effort by the Government in implementing domesticpolicy reform, including a reduction in protectionism, combined withexternal support from financial sources, should enhance Argentina'sexport potential and thus, improve its prospects of reducing its debtservicing ratio and also its total debt as a percentage of GDP during the1990s. Provided that the arrears are eliminated by the end of March 1986,as the current program calls for, and that the debt amortization paymentsdue in 1986 are restructured with a modest increase in the commercialbanks' exposure, Argentina should be able to meet the servicingrequirements of its external debt, including new borrowing forhigh-yielding projects which would support increased foreign exchangegeneration, efficient import substitution and increased domestic resourcemobilization. At the end of 1983 the Bank's share of Argentina's total debtoutstanding and disbursed was 2.1Z and its share of external debt servicepayments was 2.1Z.

PART II - BANK GROUP OPERATIONS IN ARGENTINA

A. Bank Operations

21. Past Bank lending to Argentina has been sporadic because ofperiodic macroeconomic and sectoral difficulties. In the period 1980-June1985, the Bank made loans for nine projects totalling US$985 million. Banklending since 1980 has focused on major infrastructure projects andprovision of credit for development of the industrial and hydrocarbonsectors. The Yacyreta Hydroelectric Project is intended to channel theenormous potential of the Parana River to provide base-load electric energyfor Argentina in the 1990s. The Second Industrial Credit project supportsthe modernization andf expansion of export-oriented industries. A highwaysector project is helping to augment and maintain the road network. Inparallel to the above projects, the Bank has supported the Government'sefforts to exploit Argentina's energy resources; for this purpose fiveloans were approved during the above-mentioned period to: (a) helpArgentina assess its hydrocarbon reserves; (b) improve the basis forrational exploitation of coal resources; (c) facilitate private sectorparticipation in exploration and production of oil and gas; (d) alter thecountry's two major refineries in order to meet changing demand patterns;and (e) expand Argentina's capacity to make effective use of itshydrocarbon resources and increase the utilization of natural gas and itsby-products.

22. Execution of Bank-assisted projects in Argentina has suffered inrecent years from policy reversals, cumbersome bureaucratic procedures,curbs on public investments stemming from the need for fiscal austerity,and from the private sector's reluctance to invest in an uncertain

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environment. The authorities share the Bank's concern about thissituation, which has resulted in unexpectedly slow disbursements andconsequent negative resource transfers. In response, several existingprojects have been restructured to improve their execution, such as theGrain Storage Project first approvsd for Bank financing in 1978. The Bankalso has instituted procedures for monitoring monthly disbursements and forperiodic project implementation reviews with the Government. Disbursementsof Bank loans in 1985 were more than double the 1984 cate.

23. Promising prospects for political stability and serious effortsby this Government to tackle Argentina's thorny economic problems providethe Bank with an opportunity to play a key role in the country's economicrecovery and future development. The Government has requested the Bank'shelp in implementing a stabilization program and in preparing the way forrenewed long-term economic growth. Over the short-term, the Government isseeking help with economic analyses and expanded lending operationsdesigned to enhance domestic resource mobilization and increase theavailability of foreign exchange. Economic and sector work include a majorpublic sector investment review and comprehensive export-orientedagricultural and industrial studies which are being completed. The Bankhas appraised an Agricultural Sector Loan which would assist the Governmentin improving the incentives necessary for a more intensive use ofagricultural resources to increase production and exports; policy reformsincluded under the proposed loan would contribute to both short- andlong-term sectoral development. The Bank has also appraised a proposedBahia Blanca Port project, which would reduce shipping costs for grainexports. The Bank is also processing a technical assistance loan forreforming public sector management and strengthening the internationalcompetitiveness of the economy. Preparations are underway for furthersupport of the industrial sector to assist in the economic recovery ofArgentina; of the energy sector directed at distribution and transmissionrequirements and supporting the substitution of abundant natural gas foroil; and of policy-based lending to support structural reform.

B. IFC Operations

24. IFC has made 25 investments in Argentina, totalling US$236million, of which US$126 million has been repaid, cancelled or sold. Asummary of its investments is shown in Annex II. Promotional efforts aregeared to export or import substitution-oriented projects with emphasis onoil, petro-chemicals, and related sectors. IFC will also continue to seekinvestments in projects where its presence would facilitate the formationof joint ventures with foreign participation, and act as a catalyst toattract higher levels of commercial financing.

PART III - THE SECTOR

Sector Organization

25. Until 1980, national responsibilities for most of the water andsewerage systems in urban areas were concentrated in the National WaterWorks Company (Obras Sanitarias de la Nacion - OSN). The Governmentthen began to decentralize most of these responsibilities to the

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provinces. The Goverument's action was part of an overall strategy toimprove quality of services by inducing efficiency and dynamism in astagnated and overcentralized sector.

26. The Secretariat of Hydraulic Resources (SRH) of the Ministry ofPublic Works and Services (MOSP) was made responsible for planning, andoverall supervision of sector activities. All other responsibilities weredivided among: (a) OSN for water and sewerage services in the Buenos AiresMetropolitan Area; (b) a water utility in each of the 23 provinces; and (c)the National Rural Water Services (Servicio Nacional de Agua Potable Rural- SNAP) for services in rural areas and urban communities with less than10,000 inhabitants. Other agencies active in the sector include theMinistry of Health and Social Welfare (Ministerio de Salud Publica y AccionSocial - MSAS) and the National Mortgage Bank (Banco Hipotecario - BH).

27. SRH oversees the operations of the sectoral agencies and isresponsible for making the decentralized arrangements operative, inaddition to coordinating water resources management. SRH created in 1980the Executing Unit (UE) of the National Sanitatior. Plan for developingsector technical, financial, and managerial policies and assisting theprovincial utilities develop their capabilities; and in 1985, a unit (UC)for coordinating Government funds and external financing for investmentprojects.

28. OSN, although being a national government enterprise, provideswater and sewerage services to fourteen municipalities of the Buenos AiresMetropol-itac Area with ar. aggregate population of 10 million. It alsogives technical assistance to the provincial entities in coordination withUE.

29. The provincial entities created, under the decentralizationprocess, received from OSN the existing infrastructure in their areas andthe current financial assets. These entities vary from provincialenterprises to departments of provincial governments. The responsibilityfor setting tariffs rests with provincial governments. The provincialutilities under the proposed project are: Cordoba Provincial Water Works(Empresa Provincial de Obras Sanitarias - EPOS) and Santa Fe ProvincialWater Works (Direccion Provincial de Obras Sanitarias - DIPOS).

Population, Service Levels, and Quality

30. During the 1970s, Argentina's total population grew at 1.6X perannum, from 24 to 28 million, while the urban population grew at a rate of2.5% per annum, from 18 to 23 million. In 1980, 83% of the populationlived in urban areas, 75% lived in 198 communities with populations greaterthan 10,000, and 35Z was concentrated in the Buenos Aires MetropolitanArea.

31. The percentage of total population connected to public watersupply systems increased from 45Z in 1970 to 60% in 1980. In urban areas,the increase was from 56% to 69X. Population service coverage for seweragein urban areas is lower than that for water supply: 31% in 1970 and 37% in1980. In rural areas, 71Z of the population living in communities between100 to 2000 inhabitants received water services through house connections.About 38Z of the rural population had excreta disposal systems. Water

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supply and sewerage service coverage is not in line with the per capitaincome rank of Argentina (6th) in Latin America. The country ranks 9th inservice levels.

32. Public water supplies throughout the country are chlorinated andquality is adequate. A large portion of the population not connected topublic systems, however, relies on individual water sources which often arecontaminated. In parts of the Buenos Aires Metropolitan Area and inprovinces (especially in the northeast and north) where services have notbeen extended and bad sanitary conditions are prevalent, infant mortalityrates are more than twice the national average.

33. Population and service coverage in the proposed project area areas follows: (a) Metropolitan Buenos Aires has a population of 10 millionand water and sewerage service coverages of 64% and 40%, respectively (thislow coverage results from some distant municipalities lacking connectionsto the public systems); (b) the city of Cordoba has 1 million inhabitantsand service coverages of 78% and 25%; and (c) the city of Rosario has 1million population and service coverages of 89% and 45Z.

Sector Perfcrmance, Policies, and Constraints

34. JSN led the development of the water supply and sewerage sectorin Argentina for more than a century, building and operating systemswhich the Government mostly financed. The sector grew rapidly in thisperiod and Argentina attained a leading position with regard to sectoractivities in Latin America. Installed water production and maindistribution capacity were often over-designed. As long as the real costof capital was low, OSN chose to build large infrastructure rather thanoperate sophisticated systems which could reduce demand. In time, however,the deterioration of the national economic conditions prevented theGovernment from continuing to provide large subsidies for sector activitiesand OSN was unable to adjust to the resulting financial constraints. Until1976, OSN was not generating enough revenues to cover even operatingexpenses. In 1977, the Government pressed public enterprises towardgreater financial self-reliance and required OSN to generate its firstoperating surplus. Government subsidies were curtailed, and OSN wasdirected to borrow on the internal and external credit markets. Grantfinancing of investment was reduced to limited funds obtained fromprovincial and municipal budgets. The result was a sharp reduction ininvestment and an increasing inability to satisfy services demand and tomaintain existing installations adequately.

35. The 1980 decentralization reflected the Government's belief thatthe sector could be more effectively managed by the provinces. Thedecision to decentralize was taken, however, without adequate considerationof the limited institutional capabilities at the provincial level. TheGovernment failed to provide the necessary assistance to prepare theprovinces for their new responsibilities. It is now attempting to overcomethese deficiencies by defining and implementing a set of policies andassistance programs which would be included in a national water andsanitation development plan, to be prepared under the proposed project.

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Sector Objectives and Strategy

36. The Government has established as service goals, to provide by1990, 80% of the population with water supply and 70% with sewerage oralternative excreta disposal systems. This would entail serving anadditional 6.1 million inhabitants with public water supplies at a costestimated at about US$1.6 billion, and 10.4 million inhabitants withsewerage at a cost of about US$2.4 billion. The annual investment required(US$700 million) would be several times the annual investment levels of the1970s and the 1980s (US$114 million and US$78 million in current prices).However, it is unlikely that this level of investment will be achievedsince: (a) the country's public investment programs is being sharplycurtailed; (b) the financial intermediaries and resources for the sectorhave yet to be determined; and (c) the water entities would need sufficientlead time to implement operational and financial policies which allow themto internally generate sufficient funds for investment and for servicingdebts. Argentina's sector development will have, therefore, to stressmaximizing service coverage and quality under a severely limited investmentbudget. This approach entails the rehabilitation and expanded use ofexisting infrastructure, reduction of per capita investment costs, waterconservation and improvement of operational and commercial practices.

37. The Government has agreed to this approach. The National Waterand Sanitation Development Plan (PNSB) to be developed under the proposedproject would update the demand for services and evaluate the requiredinvestments. It would define sources of and intermediaries for financingfor the sector and propose a tariff policy to reflect the economic cost ofservices, the users' capacity to pay, and enhance the water utilities'self-financing capacity. The plan would also provide for the least costanalysis of projects, which takes into account rehabilitation of existinginfrastructure, and the promotion of water conservation measures consistentwith the efficient use of sector resources. The plan would also supportthe Government's domestic resource mobilization efforts which call for afinancial strengthening of government enterprises and improvements inpublic sector management.

38. The Bank's strategy calls for the Bank to act as a catalyst tospeed the formulation and implementation of new sector policies andpractices conducive to more cost-effective and less capital-intensiveinvestments. An important element of this strategy is to assist theauthorities in the preparation of the PNSB plan. At the same time the Bankwould focus its assistance on the rehabilitation of existing installationsto prevent a collapse of service in major cities and improvement of theoperational, managerial, and financial capabilities of the provincialutilities. With this assistance the provincial utilities would be preparedto introduce improved cost recovery policies and to undertake the necessaryexpansion of the systems.

- It -

PART IV - THE PROJECT

Background

39. In late 1983, the Government requested Bank assistance to assessprogress made in sector reorganization and assist with projectpreparation. The project was appraised in February-March 1985 andnegotiations were held in Washington in October 1985. The Argentinedelegation was led by Mr. Carlos Rivas Roche, Undersecretary of HydraulicResources, MOSP. A Staff Appraisal Report entitled Argentina - WaterSupply Project (No. 5783-AR, dated November 5, 1985) is being distributedseparately to the Executive Directors. Special conditions of the projectare listed in Section III of Annex III.

Project Objectives and Rationale for Bank Involvement

40. The proposed project would be the first Bank-financed project inthe sector. Its main objectives are to: (a) rehabilitate deterioratinginfrastructure, replace rundown facilities, and extend water services tonew urban areas; (b) prepare a national plan to provide the necessaryinstitutional framework to permit the newly decentralized system tofunction in a more efficient manner; and (c) initiate a nationaloperational improvements program which promotes water conservation throughphysical rehabilitation of water systems, production and consumptionmetering, and institutional strengthening of the water utilities. Theoperational improvements program would cover in this first stage the BuenosAires Metropolitan Area, and the cities of Cordoba and Rosario de Santa Fethat represent 60X of the urban population of the country. The waterutilities of these cities intend to introduce new technologies which couldbe replicated in other area of Argentina.

41. The above objectives are consistent with the Bank's strategy toassist the Government in the improvement of public sector management bothat the national and provincial levels; the inducement of greater efficiencyin the use of resources; and the rehabilitation of the nation's valuablesocial infrastructure.

Project Description

42. The proposed project includes the preparation of a national watersupply and sanitation plan (US$1.1 million or 1% of the project cost), anoperational improvements component (US$47.0 million or 39%), andrehabilitation and extension of the water system in the city of Cordoba(US$70.7 million or 59Z). The proposed project would be complemented bytechnical assistance to OSN and EPOS (US$1.6 million or 1% of the projectcost).

43. The preparation of the national water supply and sanitation planwould include: (a) formulation of Government objectives in the sector,service targets and investment alternatives for the decade; (b) developmentof project evaluation criteria to foster adequate technical standards forproject design with special emphasis on least cost analysis; (c)preparation of financial policies, including definition of financial

- 12 -

criteria for setting investment priorities; Cd) definition of tariffstructures and levels to achieve acceptable rates of return on sectorassets and enable the sector to contribute significantly to newinvestments; (e) evaluation of the existing organizational framework andresponsibilities at federal and provincial levels; (f) recommendationsfor the establishment of the organizational and institutionalstructures to effectively implement the sanitation plan; (g)recommendations on strategies directed at improving the efficiency ofthe present sector organization; (h) definition of responsibilities insector financing and alternative funding; Ci) identification of manpowerresources and staff training needs; and, (j) evaluation of existingresearch facilities and their funding and recommendations for furtherdevelopment.

44. The operational improvements component would be carried out inthe Metropolitan Buenos Aires and the cities of Cordoba and Rosario deSanta Fe, and would include : (a) water consumption metering; (b)production and main distribution metering; (c) water distribution flowsurvey; (d) mapping of the water distribution and sewerage systems; (e)water distribution network rehabilitation; (f) distribution systemmanagement; and (g) upgrading of commercial systems. The component, mostlyequipment, is designed to cut water wastage, in order to cut operatingcosts and defer new investments.

45. The rehabilitation and extension of the Cordoba water systemwould include the following: (a) construction of "Los Molinos- watertreatment plant (2 m3/s); (b) upgrading of 'Suquia' water treatment plant;(c) completion of the multi-purpose -Los Molinos- raw water channel; (d)installation of four booster pumping stations; and (e) construction ofmains and distribution pipelines.

46. Finally, the proposed project would include: (a) studies andtechnical assistance for the improvement of financial planning, accounting,and purchasing systems for OSN and EPOS; and (b, preparatioa by OSN, EPOSand DIPOS of investment, operational and financial recovery plans includingannual targets in the areas of water production and sales, service levelsand quality as well as financial improvements.

Project Implementation

47. MOSP would act as technical agent for the project, beingresponsible for overall project supervision and coordination, servingthrough SRH, as the liaison among the Bank, the Government and the projectbeneficiaries. MOSP, with assistance of consultants, would prepare thenational water and sanitation plan (para. 43 above). OSN, EPOS, and DIPOSwould be responsible for the execution of works and institutional programsin their respective areas. Each of these agencies have appointed acoordinator for the project. The project would be completed at the end of1993.

48. Project execution would require extensive use of consultantsestimated to total 410 man-months of foreign consultants and 300 man-monthsof local consultants. MOSP and OSN would enter into master contracts withconsultants for the preparation of the National Water and Sanitation Plan,

- 13 -

and for the operational improvement program in Buenos Aires. EPOS andDIPOS would retain consultants for their project activities.

Project Executing Agencies

49. OSN, the executing agency for the Metropolitan Buenos Airesproject subcomponent, is managed by an administrator appointed by MOSP.The administrator d'rects the operations, engineering, and finances andadministration departments and their second-level units. With 9,400employees, OSN, provides water and sewerage services through 1.0 millionand 0.5 million house connections respectively. OSN's annual budget isapproved by the Congress; charges for services are approved by aninterministerial committee comprising Public Works, Economy and Labour.OSN is required to get prior approval from the Ministry of Economy and thePlanning Secretariat for major multi-year investment projects. OSN'splanning and budgeting have been weak. Accounting reports are not issuedon time and are often based on unreliable and poorly coordinated data. OSNstaff prepares most engineering designs and supervises most works andoperations. Its operation of systems needs substantial improvements. Withthe exception of limited areas of Buenos Aires for which services werepartially financed by the Inter-American Development Bank, systems lackproduction and consumption metering. Most of the instrumentation in theold production and distribution systems are in disrepair. In addition tothese physical deficiencies of the system, water distribution managementneeds upgrading. The commercial system needs to be strengthened in theareas of installations, mapping, customer register, tariff structure, andbilling and collection (see para. 59).

50. EPOS, the executing agency for the Cordoba project subcomponent,is governed by a board composed of a president and four directors. Thereare departments for planning, engineering, operations, finances andadministration, and small communities administration. With 2,030employees, EPOS, provides water and sewerage services through 260,000 and92,000 house connections respectively. Its budget is approved by theprovincial congress and tariffs by the provincial government. Engineeringplanning is quite adequate to needs and financial planning has improvedrecently. Engineering design and project supervision are carried out inmost cases by EPOS' staff. Its problems in operations, commercial andaccounting are similar to OSN's (para. 59).

51. DIPOS, the executing agency for the Rosario project subcomponent,is managed by an administrator appointed by the provincial Governor.Activities are carried out by five departments: planning, operations,commercial, finances, and administration. With 1,400 employees, DIPOSprovides water and sewerage services through 299,000 and 148,000 houseconnections respectively. Accounting is satisfactory. Engineering ismostly carried out by DIPOS's staff. Problems in operational andcommercial areas are similar to those of OSN and EPOS (para. 59).

52. SRH, the executing agency for the national sanitation plan, isresponsible for overseeing the activities of UC and UE. SRE staffcomprises about 30 professionals. For its increased activities under theproject, SRH would rely heavily on the consultants assisting UE and UC.

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Project Monitoring

53. Agreement on the monitoring indicators as well as on a plan forproject progress reporting was reached during loan negotiations. Twoproject implementation reviews will be carried out by June 30, 1987 andDecember 31, 1989, respectively. These reviews, which would includediscussions with the Bank of the findings and recommendations of the waterand sanitation plan, operational improvement program, and technicalassistance for OSN and EPOS, would also provide the basis for thecorrective measures which may be required on project execution.

Project Cost

54. The total cost of the project excluding interest duringconstruction is estimated at US$120.4 million equivalent. The foreignexchange component is estimated at US$52.0 million or 432 of the projectcost. Costs are based on September 1985 prices and include physicalcontingencies of 10%. Price contingencies of US$25.3 million or 27Z of1985 project cost are based on estimated international inflation of 5% in1985, 7.5% in 1986, and 8%, thereafter. Technical assistance andconsultant costs (US$5.7 million) are based on those of similarinternationally and locally recruited experts in Argentina. Constructioncosts are based on unit costs developed by OSN and EPOS duringimplementation of ongoing projects. Costs do not include direct taxes fromthe provincial governments.

Project Financing Plan

55. The Bank loan of US$60.0 million to the Government of Argentinawould finance total foreign costs and USS8.0 million to finance interestduring the grace period to help reduce the financial pressures on theGovernment and on the executing agencies. The local counterpart of US$68.4million is expected to be financed by a combination of domestic loans toEPOS and DIPOS (US$39.5 and USM3.8 million respectivelv), OSN internal cashgeneration (US$14.0 million), and a federal government contribution to theprovince of Cordoba for the multipurpose 'Los Molinos' channel (US$11.1million). Assurances from the federal and provincial governments wereobtained during loan negotiations on the timely availability of localcounterpart funds. Both Bank loan proceeds and counterpart financing wouldbe on-lent to OSN, EPOS and DIPOS, at the same interest as the Bank loan,and with similar grace and repayment periods. The Borrower would onlendUS$16.0 milliou, US$29.0 and US$6.0 million to OSN, EPOS and DIPOS,respectively. Foreign exchange and interest risk would be assumed by theproject executing agencies. The signing of at least two subsidiary loanagreements between the Government, the executing agencies and therespective provincial governments would be a condition of effectiveness ofthe proposed loan.

Past and Current Financial Performance

56. OSN's financial situation was highly satisfactory in 1980. Inboth 1981 and 1982 the company experienced substantial operating surpluses(income before depreciation amounted to US$154 and US$67 millionrespectively) which resulted in a high liquidity position. OSN's favorable

- 15 -

condition deteriorated rapidly, however, mostly as a result of decliningtariffs which, by the end of 1982 through 1984, were equivalent to 34-40%of early 1981 tariffs in real terms. OSN revenues in 1983-84 were onlysufficient to finance operation and maintenance budgets which lackedprograms of preventive maintenance and of replacement and improvement ofworn out or deficient facilities. There was an operating deficit in 1984.OSN's investment which in 1981 and 1982 amounted to US$68 million and US$85million, respectively, declined to US$28/38 million in 1983/84. OSN'sfinancial performance in 1985 is improving as a result of substantialtariff increases during the first semester (22Z cumulative in real terms).These increases were approved before the present temporary freeze imposedon prices and wages. The Government has indicated its willingness toconsider further tariff increases when the wage and price freeze is relaxed(paras. 12-14).

57. EPOS and DIPOS started operations with sufficient funds tosupport gradually improved service coverage and quality. They receivedfrom OSN a large asset base and had no debt. Their tariffs generatedenough revenues to cover operation and maintenance budgets and to financesome investments. Since then, their financial conditions, especiallyEPOS's have deteriorated. DIPOS' revenues continued being sufficient tocover its limited operation and maintenance budget and to finance a modestaverage annual investment of US$6.0 million during 1982-84. This wasmainly the result of the periodic tariff adjustments implemented in 1983based on a formula which takes into consideration cost increases. Thispolicy allowed the company to rapidly recover its 1981 tariff level in realterms after the sharp decline of 1982. EPOS, which also experienced atariff deterioration delayed the recovery process until mid-1984. Tariffsduring 1982-84 were equivalent to 31-39Z of early 1981 tariffs, in realterms. As a result, EPOS' revenues were barely sufficient to finance thealready inadequate operations and maintenance budget. EPOS' investmentssince its creation have therefore been negligible: US$2.0 million in 1983and US$2.7 million in 1984. This trend is however, being reversed by arecent provincial government and EPOS' management decision to implement atariff recovery plan. Tariffs were increased by 45% in real terms betweenJune 1984 and April 1985. Further tariff increases scheduled for 1985 werepostponed in compliance with the Government's austerity plan. The netresult of the current tariff freeze would be a 1985 real average tariff 8%above the 1984 tariff level. This would provide EPOS with a posi':iveinceme before depreciation despite excessive maintenance expenditures forthe water plant to be replaced under the proposed project. In addition,the Government and EPOS have agreed to continue gradually i-creasingtariffs during the propob.i project execution period as soon as the pricefreeze is lifted. This policy is consistent with EPOS' charter whichprovides that tariff levels should be sufficient to generate enoughrevenues to cover current expenditures and debt service, and also tocontribute with an unspecified amount to finance investments in systemexpansion and improvement.

Future Financial Performance and Financial Covenants

58. There is an increasing awareness at federal and provincial levelsin Argentina of the need to improve the self-financing capabilities of thewater and sewerage companies. The provisions in the project which involve

- 16 -

the revision and updating of ingrained institutional, financial, andengineering policies and practices will help the project beneficiaries inthis endeavor. These revisions combined with the results of the technicalassistauce, metering and other operational improvements to be financedunder the loan, would provide the basis for financial recovery, investmentand managerial improvement of the agencies participating in the project.These programs would be expected, inter alia, to set specific targets forfuture financial improvements in the forms of rates of return or internalcontribution to investment, which the Bank would review in detail inconjunction with the preparation of further operations in the sector.During negotiations: (a) agreement was reached on the terms of referencefor the above financial recovery plans for OSN, EPOS, and DIPOS, and (b)assurances were obtained that these plans and schedules for theirimplementation would be completed by June 30, 1987, and that the Bank willbe given an opportunity to comment on the provisions of the plans.Assurances were also obtained during negotiations that: (a) beginning in1986, OSN, EPOS, and DIPOS will generate sufficient revenues to cover theiroperating expenses, adequate maintenance, taxes, and debt servicerequirements; (b) OSN, EPOS and DIPOS will submit to the Bank by Septemberof each fiscal year an update of the financial projections for the currentand the following three years, specifying the measures to be taken to meetthe aforementioned requirement.

Future Operational Performance and Covenants

59. The operational improvements project component is designed todramatically c-ange the operations of the three water utilities involved,by addressing, inter alia, their major weaknesses discussed above (paras.49, 50 and 51). There would be a tightened control of water produced andsold. Clandestine connections and leakages would be minimized. Meteringthe largest water consumers (the top 10-25%) which account for the bulk ofwater consumed C40-60Z), would permit the introduction of tariffsstructures related to the marginal cost of water and would promote waterconservation. Thus, as water demand decreases, investments could bepostponed. The increased efficiency in the water utilities would beclosely monitored by the monitoring indicators and project implementationreviews (para. 53); and through investment, operational and financialrecovery plans (paras. 57 and 58). In addition, agreement has been reachedwith OSN, EPOS, and DIPOS on the following: (a) metered connections aspercentage of total connections would increase in Buenos Aires from 10% in1986 to 22% in 1991; in Cordoba, from 6% to 24%; and in Rosario, from 5% to8%; and (b) revenues collected to amounts billed by OSN, EPOS and DIPOSwould increase from 86% in 1986 to 96% in 1991 and thereafter.

Audit

60. Audit of the project executing agencies is carried out asfollows: (a) MOSP, by the Comptroller General; (b) OSN, by the Comptrollerof Public Enterprises (Sindicatura General de Empresas Publicas - SIGEP);(c) EPOS by the Contaduria General de la Provincia; and (d) DIPOS, by theTribunal de Cuentas de Santa Fe. In addition, assurances were obtainedthat OSN, EPOS, and DIPOS would have their financial statements for eachfiscal year starting with fiscal year 1985 and statement of expenditures,audited by independent auditors satisfactory to the Bank, and in accordance

- 17 -

with generally accepted accounting principles; MOSP would have the accountsof its project component and the project's operating account audited byindependent auditors satisfactory to the Bank and in accordance withgenerally accepted accounting principles; and starting in June 30, 1986,but not later than April 30 of each following years, the project executingagencies would submit to the Bank certified copies of the audited financialstatement and reports.

Procurement

61. Procurement under the proposed project would be carried outfollowing Bank guidelines. Assurance of an exemption for project-financedprocurement from legislation mandating the use of domestic goods andservices would be a condition of effectiveness. All contracts forequipment and materials exceeding US$100,000 and for civil works exceedingUS$1,000,000 would be awarded on the basis of international competitivebidding. Equipment and materials would be grouped to obtain packages inexcess of US$100,000 with the exception of contracts amounting to Less thanUS$130,000 under the MOSP water supply and sanitation plan component,US$1,000,000 for OSN's component, US$2,800,000 for EPOS' components, andUS$370,000 for DIPOS' components. The nature for works under theoperational improvements components precludes the efficient packaging ofservices to be bid as works will be carrried out in operating installationsspread over the project cities. These works, amounting to approximatelyUS$9.0 million or 11% of the project cost, will be carried out underprocedures satisfactory to the Bank by: (i) local contractors:US$2,600,000 under OSN's subproject, US$900,000 under EPOS' subproject, andUS$1,000,000 under DIPOS' subproject; and (ii) by force account:US$2,600,000 unde- OSN's subproject, US$900,000 under EPOS' subproject, andUS$1,000,000 under DIPOS' subproject. Standard bidding documents and apurchase program for 1986 were agreed to during loan negotiations togetherwith assurances of an updating of the purchase program by October 31, ofeach year starting in 1986.

62. Technical assistance and consultants' services will be procuredin accordance with Bank's Guidelines for the Use of Consultants. Acontract with the Pan American Health Organization (PAHO) under terms andconditions satisfactory to the Bank would be awarded to ease theadministrative burden on MOSP for the preparation of the water supply andsanitation plan.

Disbursements

63. The Bank would disburse as follows: (a) 100% of foreignexpenditures for direct imports; (b) 44% of local expenditures for importedequipment and materials procured locally and ex-factory cost of locallymanufactured goods; (c) 44% of total expenditures of civil works; (d) 100%of total expenditures for consulting services and training; and (e) againstamounts due for interest and other charges on the Bank's loan until thedate of the first principal payment to the Bank up to a maximum of US$8million. A special account for the project in the amount of US$5.0 million(estimated four month's peak disbursements) would be established in theCentral or other bank acceptable to the IBRD.

- 18 -

Status of Project Preparation

64. Project preparation conforms to the agreed implementationschedule. The project coordinating unit in MOSP (UC) has been created andstaffed. UC has prepared and submitted to the Bank model onlendingcontracts between MOSP, and OSN, EPOS, and DIPOS. UC has also prepareddraft terms of reference for a master contract for consulting servicesunder the preparation of the national plan. "Los Molinos" treatment plantdesign preparation is completed. The land for the plant is already in theexpropriation process and the law allows EPOS to take immediate possessionof it. OSN, EPOS, and DIPOS, have created and staffed units for theexecution of the operational improvements components. Agreements werereached during loan negotiations between the Bank and MOSP and theexecuting agencies on on-lending contracts; and between the Bank and MOSPon terms of reference for a master contract for the preparation of anational water and sanitation plan.

Project Justification and Economic Benefits

65. The project would enable OSN and DIPOS to satisfy short-termdemand from existing facilities and to prepare them to adequately undertakesystem expansions which will be needed in the future. The project yieldssatisfactory returns and has a high social i pact. In Cordoba, nearly 30Zof the beneficiazies are urban poor who would be provided a dependablewater supply at affordable rates. Failure to execute the project wouldmean that: (a) in the near future EPOS would become incapable of providingeven a minimal level of services to Cordoba's population; and (b) OSN, EPOSand DIPOS would experience increasing losses with the consequent need forlarger subsidies and investments. Furthermore, the project would beinstrumental for assuring the necessary sector-wide institutional,financial and operational policy adjustments.

66. Least Cost Solution. The project finances only items of highpriority and immediate impact which are consistent with long-termobjectives. Project components represent the least-cost solution forachieving the project's objectives and do not involve the use of unusual orunproven technologies. The investment in most significant physicalcomponent (Cordoba) which was selected on the basis of the analyses ofeight alternatives and is consistent with the future reorientation ofCordoba's water system.

67. Economic Analysis. Internal rates of return (IRRs) have beencalculated for the two key components of the Cordoba sub-project (65% oftotal project cost). The estimated IRR for the plant construction andexpansion component is 10, and for the operational improvement componentis 44Z, yielding a weighted IRR of 152. The Buenos Aires operationalimprovement component (24Z of total project cost) and the Rosariooperational improvement component (9% of total project cost) could beexpected to yield similar high results. An IRR was not computed for theCordoba technical assistance component because benefits of the componentcannot be quantified reliably.

68. The IRRs were calculated using revenues from consumer charges asthe minimum measure for economic benefits of the project. Many benefits

- 19 -

such as improvement of public health and hygiene, enhanced property values,employment generation, greater well-being of the population, etc., cannotbe quantified reliably and therefore, are excluded from the calculations.The consumer surplus is also excluded. As a result, the IRRs areunderstated. Revenues were calculated using 1987 projected tariffs heldconstant in September 1985 prices. The IRRs indicate that the project isfully justified.

69. Long-run marginal costs for the Cordoba subproject werecalculated using the Average Incremental Cost (AIC) method with an 12%discount rate. All costs are expressed in September 1985 prices. The AICfor the subproject is US$0.17/m3 which is higher than present (1985) tariffexpressed in September 1985 prices of about US$0.14/m3. (The US$0.17/m3represents the weighted average of the components: US$0.25/m3 for plantand US$0.06/m3 for the operational improvements).

70. Beneficiaries, Urban Poverty Impact and Affordability. Benefitsof the Cordoba subproject would accrue to virtually the entire populationserved by EPOS as a result of the replacement of rundown productionfacilities which break down with increasing frequency and that could becomeinoperative. Direct beneficiaries of Cordoba construction and expansioncomponent would include about 0.4 million people by the end of 1993 whowould have either lost or had the volume of their water supply curtailed ifthe new facilities were not constructed. The operational improvementcomponent would directly benefit 0.35 million new users by 1993 throughmore reliable services. This component would also benefit the entirepopulation presently served by EPOS through more reliable and fairbillings and safer and less expensive supply. The operational improvementsin Buenos Aires would generate considerable water savings through theprometion of conservation and reduction of leakages, which should permitOSN to serve an additional 0.8 million consumers by 1990. The Rosariocomponent would benefit about 0.25 million people whose services would beupgraded in quality and quantity. In addition, the entire populationserved by DIPOS would benefit through more accurate and timely billing.The operational improvements in the three cities would benefit 1.4 millionpeople by the end of 1990.

71. The direct impact of the project on the poverty group, defined asfamilies with a monthly monetary income of less than US$160 in September1985 prices (on an annual basis, this corresponds to approximately onefourth of the national per capita income) was estimated for the Cordobasubproject by calculating the proportion of urban poor in the projected(1993) incremental population served by each project component. About 22Zof the direct beneficiaries of the construction and expansion component and37% of the direct beneficiaries of the operational improvements componentwill be the urban poor. An estimated 23% of the subproject investmentswill directly benefit the poor. An evaluation of the affordability ofservices was made based on 1985 tariffs. In 1985, a family with a monthlyincome at the poverty threshold would pay about an acceptable 2.6% of itsincome for a 'lifeline water supply of 12m3.

Project Sensitivity, Risks and Safeguards

72. There is a high degree of certainty that the project will providethe desired benefits. The effect of variations in costs, benefits and

- 20 -

implementation delays on the project's rates of returns has been analyzedand the IRRs are not highly sensitive to changes in costs and benefits.The construction components of the project as the works are of conventionaldesign and well within the capability of local civil works contractors andconsultants. The multiplicity of activities to be undertaken under theproject, including the introduction of new technologies in Argentina, wouldrequire the close cooperation of the utilities. To some extent the riskassociated with the multiple activities would be minimized by theinstitutional arrangements for project implementation and the retention ofan experienced organization to undertake the administration andcontracting for the technical assistance and studies. These measures wouldbe supplemented by intensive supervision by Bank staff and by reporting andmonitoring provisions which will allow the Bank to regularly check onproject progress.

73. The federal and provincial governments have committed themselvesto ensure the funds required for the project. Moreover, by strengtheningthe utilities' management systems and improving the quality and efficiencyof its services, the project would enhance the utilities' finances, theiracceptance in the communities and thus their ability to implement tariffincreases when necessary. These project features minimize any possiblerisk related to the availability of local counterpart funds.

PART V - RECOMMENDATION

74. I am satisfied that the proposed loan would comply with theArticles of Agreement of the Bank and recommend that the ExecutiveDirectors approve the proposed loan.

A. W. ClausenPresident

Attachments

November 18, 1985Washington, D.C.

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TAJILk IA AN E IAmnICI=HA - bCAcL INdICATORS DTWA gst Page 1 of 6

M g",13 WSW=jj GRO's iWRaGWmD AVERAGE) LaMST O1ST RUINS LSWIAIL) lbmcgw momL trCO. nouuz IiiC-z

I196 197aLb _ IA T. MMUA 4 C UILP

ADJUSn ENROLJENT RALTIOSPRDIA TOTAL 9S.0 lub.' 119.0 106.7 101.9

WALZ 93.0 104.0 120.0 104.5 106.2rFNALE 99.0 107.0 119.0 1u4.6 97.5

SECONDAT: TOTAL 23.0 45.0 59.0 44.2 57.5mLE 23.0 42.0 56.9 42.7 64.9FiNALE 24.0 48.0 63.0 ".9 50.0

VOCA,ISAL CZ OV SECONDARY) 50.3 58.6 61.3 13.3 21.0

C ~~~PUPIL-TEACRZRL RATOPRDWM 22.0 19.0 20.0 29.9 25.1SECONDhr 7.0 7.0 7.0 /f 16.7 19.1

amuPASSENIUR CASITUSIND POP 23.0 60.1 .. 46.0 54.2RADIO RECEIVERSITUOUSAB0 POP 169.3 375.6 727.1 328.3 17u.7TV MCEIVERS/T0USAUD POP 21.3 146.1 202.3 112.4 149.3

VSPAPU ("DAILT GENUALTEREST") CfLOCLAXION

PER TUOUSMID POPUlNATI 154.5 177.2 114.7 nl.1 97.0CIRAU A1NUAL ,.TTNDACCAPTA 7.0 2.2 1.5 2. 2.7

TOTAL LaROR FORCE (TOUS) 11133.0 12700.0 14539.010A3Z (PERCENT) 21.6 26.7 27.1 23A 36.3AG!5ILTIM (PERCET) 20.0 16.4 13.1 /d 31.4 40.8IzLuuT (PERCENT) 35.9 32.1 34.0 7 24.3 23.3

PAtICOPATION RATE (PERCENT)TOTAL 54.0 53.0 47.7 33.5 43.1

ALE 86.0 81.0 75.0 /d 51.3 55.1FiNLC 23.0 27.0 27.0 Id 15.9 3L.6

CONOMIC DUEPUSD1t RATIO 0.7 0.7 1.0 1.3 0.9

:1CN DISTIBUIOPrE1 or F ?VATE INCON

RISES 5S 0F ROUSCROLDS 27.5 .. .. ..BlEaT Z2C OF OUSEN1oLIS 50.9 .3LOWEST 2Z0 OOUSFUIOLDS a.9 4.4-WEST 4*o0 OIOUSr OLDS 16.6 14.L

ESTIXATD ABS- POVER EICUSLEVEL (CSS PS CAPITA)

U .. .. .. 206.3DUAL .. .. .. 185.3

ESTINAM RElXATVE POvER!? INCULEVEL CUSS PER CAPITA)

URN .. . .. 519.3RURAL .. . .. 359.7

ESTIMATD POP. BELOW ABSOLUTEPOVERTY INa LEVEL (I)

Uxas .. .. . ..URL .. ...

NOr AVAILABLMr APPLICAUE

NOT TS

/a The grnup evre for each laicator are populatiou.el*ted arltatc _cns. Avarere of councriso rg the tudLatore depend. - avallability of data ad I not miforu.

/b Unles otbanDwse noted, "Da for 1960" refer to aqy year betuea 1959 and 1961; "Dta for 197?F beaen1969 ad 1971; ed data far "fot Eacet Eitiate' baea 1981 sd 1983.

/c 1977; /d 1980; /a 1962; If 1979.

JUNE. 1985

- 22 - ANNE I

TABLE C 34 Page 2 of 6

AErTNA - SOCIAL lbuICATIAh ODATA slIErA;vIIINrSlA ReftAbNG; GIS CUEICITW AVE MAR) I-

15 CST wsC UuT SrL'A) lbReCENT 1110ULC IWAM tiDuLS INCE

I,t..I 197.Lk. EISrIMATlb LAI. 415LRtC8 A GMt * oft

An (THOUSAND Sl. m)TOTAL 27bb.9 i7...9 27b6.9ACRICULT0RAL 17411.2 1777.0 1788.0

my n CAPIrA CUSO) .. .. 207U.0 0715. 9 214.3

eUrr wmeuflu MR CAPIrA(KRLOORAIS uF OIL EQUIVILF.UT) 608.0 1211.0 t41s.0 993.6 1119.8

POPUIATEOII AD AL SnTsTCSPOPULATION 'ED-YYEAR (THNOSANDS) 2061h.0 23962.0 29b27.0URUS POPULATION (Z OF TWrAL) 73.6 7.4 S3.8 67.7 47.5

POPULATINM PRCrIONSPOPUIATUON 1I YEAR 2000 jflLL) .. .. b.5STATIONARY POPULATION (OLL) .. .. 54.0POPUATION NOENT .. .. 1.5

POPULATION OENSInPER SQ. It. 7.5 8.7 10.7 48.0 84.7PER Sq. MS. AGRI. LAbiD 11.8 13.5 10.3 91.1 166.1

POFULATION AGE STrUCTUE (X)0-14 IRS 30.7 29.1 3U.6 38.5 31.2

15-4 YRS b3.0 03.0 01.1 57.1 61.56s D AI AE S5S 7.1 8.2 4.2 7.2

PopuLAT101 CR011w RATE (l)TOTAL 1.8 1.5 1.6 2.4 1.0URBAN 3.0 2.1 2.1 3.0 3.7

CRUDE 3NM RSATE (PER nUS) 23.0 22.9 24.3 30.9 23.4CUDE DEAt RATE (PER THOtS) 8.7 9.4 9.0 6.0 8.9CROSS REPROCUCTM RATE 1.5 1.5 1.6 2.0 1.5

FAMILt PLANINGACCEPTORS. ANNUAL (T11101)USERS C OF FAARRED Ul1) .. .. .. 4S.3

WMAND0 - D mniaIbDEX OF FOD PROD. MRI CAPITA(1969-71-100) 96.0 101.0 116.0 1e9.s 109.1

PER CAPITA SUPPLY OFCALORIES CZ OF HRUIWINTS) 124.0 128.0 121.0 113.2 131.5PROTEINS (CAMS PER DAY) 110.D 107.0 106.0 194 92.4OF UIOI ANIMAL AND PULSE o6.0 08.0 69.0 Ic 34.2 34.5

CHILD (ACES 1-4) AMAH RATE 4.B 3.2 1.0 4.8 4.7

MALILIFE EXPECr. AT 51X111 (YTEAR) 65.1 06.b b9.5 64.b 87.2IMPFAur miRr. RATE (PER Tfl'OS) 60.0 53.0 36.u 59.7 53.3

ACCESS TO SAFE MATER (%PD7PTOTAL 47.3 5b.0 57.0 /4 65.3 70.2URBAFN 58.9 69.0 65.0 Id 76.5 59.4RURAL 9.6 12.0 17.0 IC 44.2 57.u

ACCESS TO ERCRErA DISPOSAL(2 OF POPULATION)

TOTAL 62.0 S5.0 79.0 Id 56.3 S9.6URBAIN , 87.0 59.0 7i 73.4 65.9RURAL .. 79.0 32.0 Ii 25.5 47.8

POPULATION PER PHYStClA!t 740.0 520.0 430.0 Ic 1909.7 1070.6POP. PER NLRISLItC PERSON 760.0 Ie 590.0 .. 08.2 769.5POP. PER HOSPITAL BED

TOTAL 160.0 180.0 _. 302.0 325.3URBAN 190.0 le 200.0 .. 422.0 201.9RUMA 4490.0 7; 1010.0 ,, 2716.7 0519.7

ADUISSIONS PER HOSPITAL BE .. . .. 27.5 20.0

-ISISAVERaGE SIZE OF UhOUSEHOLD

TOTAL 3_7 3.8Ulta 3.5RURAL 4.3

AVERSE NO. OF FERSONS/IOPIRTOTAL 1.4 1.4URBAN 1.3RURAL 1.7

PERCENTACE OF DIELLINCS WITH LECT.TOTAL h9.2 76.0 87.0 IdURSBA 54.7RURAL I..6

- 23 - ANNEX IPage 3 of 6

DEFINITIONS OF SOCIAL INDICATORS

Notes Although the data are drawn from sources genemlly judged the most authoritative and reliable. it should also be noted thai they may not be intentionallycomparable because of the lack of standardized deintiuons and concepts used by different countries in collecting the data. The data am nonethekss useful todescribe ordes Of mougnitude. indicate trends. and characterize cerutin major differences between countries.

The reference groups are (1) the same country group of the subject country and (21 a country group with sormcwhat higher average income than the countrygroup of the subjec country lecept for -High Income Oi Exporers- group whre -Middle Income North Afria and Middle East- is chosen because of strongersocio-cultural affinitiel. In the reference group data the averages are population waighted arithmentc seam for each indicator and shown only wben majorityor the countries in s group has data for that indicator. Since the coverage of countries among the indicators depends on the availability of data and is not uniform.caution must be excrixd in elating averages of one indicator to another. Thse averages are only useful in comparing the value ofone indicator at a time amongthe country and reference groups

AREA (thousand sq.km.) Crude Birth Rate (per thousmad)-Number of live births in the ycar

Total-Total surface area comprising land area and inland watcrs' per thousand of mid-year population; 1960, 1970. and 1983 data.

1960. 1970 and 1983 data. Cude Death Rate (per thoand)-Number of dcaths in the year

Agriculnral-Estimate of agricultural area uscd temporarily or per thousand or mid-year population; 1960. 1970. and 1983 data.

permanently for crops, pasture market and kitchen gardens or to Gross Reprodection Rate-Average number of daughters a woman

lie fallow. 1960. 1970 and 1982 data, will bear in her normal reproductivc period if she experences

present age-specific fertility rates; usually five-year averages ending

GNP PER CAPITA (USS)-GNP per capita estimates at current in 1960. 1970. and 1983.market prices, calculated by same conversion method as World Fedy Pfrlani-Acceporsn Annal (th_ rads,-Annual naun-Rank Arkas (19B81-83 basis): 1983 data. herofacceptors of birth-control devices under auspices of national

ENERGY CONSUMPTION PER CAPITA-Annual apparent family plaraing program.consumption of commercial primary energy (coal and lignite. Fail Phlanig-Users (perenw ofamwff munmen)-The percen-petroleum. natural gas and hydro-. nuclear and geothermal edec- tapc of married women of child-beaing age who are practicing ortricity) in kilograms of oil equivalent per capita: 1960. 1970. and whose husbands are praeticing any form of contraception Women1982 data. of child-bearing age are genly women aged 1549, although for

some countries contraceptive usage is measured. for other agePOPULATlON AND VffAL STATISTCS groups.

Torta Populaio, Mid-Year (thowesnds-As of July 1: 1960. 1970. FOOD AND NUlltRlONand 1983 data.Urban Popultion (percent of total) Ratio LO' urban to total Index ofaFed Prodwtion Per Capita (1969-71 = lt0)-ndex of perpopulation: different definitions of urban areas may affect compar- ecaude aniual feeduand seed foood commoditie sability of dtau among countries. 1960. 1970. and 1983 data. excludes animnal feed and seed for agricultumc Food comnmodities

include primary commodities (e.g. sugarcane instead of sugar)Poplation f4ojecrios which are edible and contain nutrients (eg. coffee and tea arePopulation in year 2000-The projection of population for 2000. excluded): they comprise creals, root crops. puls, oil seeds,made for each economy separately. Starting with information on vegetables. fruits. nuts. sugarcane and sugar b, livestock, andtotal population by age and sex. fertility rates. mortality rates, and livestock products. Aggregate production of each country is basedinternational migration in the base year 1980. these parameters on national average producer price weights; 1961-65. 1970, andwere projected at five-year intervals on the basis of generalized 1982 data.assumptions until the populatioa became stationary. Per Capit Supply ofCalries (pet efreq remem)j-Comnput-Stationary population-Is one in which age- a n -sexspecific mor- ed from calorie equivalent of net food supplies available in countrytality rates have not changed over 3 long period. while age-specific per capita per day. Available suppLies comprise domestic produc-fertility rates have simultaneously -emained at reptacement level tion. imports less exports. and changes in stock. Net supplies(net reproduction rate= I . In such a population. the birth rate is exclude animal feed. seeds for use in agriculture, quantities used inconstant and equal to the death rate. the age structure is also food p-'oessing. and losses in distribution. Requirements wereconstanL and the growth rate is zero. The stationary population estimated by FAO based on physiological needs for normal activitysize was estimated on the basis of the projected characteristics of and health considering environmental temperature, body weights,the population in the year 20W00 and the rate of dedine of fertility age and sex distribution of population. and allowing 10 peaet forrate to replacement level. waste at household level: 1961. 1970 and 1982 data.Population Momentus-ls the tendency for population growth to Per Capta Supply of Proten (grs per day)-Protein content ofcontinue beyond the time that replacement-level fertility has been per capita net supply of food per day. Net supply of food is definedachieved. that is. even after the net reproduction rate has reached as above. Requirements for all countries established by USDAunity. The momentum of a population in the year r is measured as provide for minimum allowances of 60 grams of total protein pera ratio of the ultimate stationary population to the population in day and 20 grams of animal and pulse protein. of which 10 gramsthe year t. given the assumption that fertility remains at replace- should be animal protein. These standards.are lower tham those ofment level from year t onward. 1985 data. 75 grams of total protein and 23 grams of animal protein as an

Pbpul_tion De& -j average for the world. proposed by FAO in the Third World FoodPer sqJa.m-Mid-year population per square kilometer (100 hec- Supply: 1961. 1970 and 1982 data.tares) of total area: 1960. 1970. and 1983 data. Per Capita hnoel Supply fom Aimal and Pe-Protein supplyPer sqJbn. agricultural land-Computed as above for agricultural of food derived from animals and pulses in grams per day, 1961-65,land only. 1960. 1970. and 1982 data. 1970 and 1977 data.

Popation Age Structure (percent)-Children (0-14 years). work- Chil (ages I-4) Death Rate (per thousand)-Number of deaths ofing age (15-64 years) and retired (65 years and over) as percentage children aged 1-4 years per thousand children in the same ageof mid-year population; 1960. 1970. and 1983 data. group in a given year. For most developing countries data derived

Popation Growth Rate (percentt-toral-Annual growth rates of from life tables: 1960. 1970 and 1983 data.total mid-year population for 1950-60. 1960-70. and 1970-83. HEALTH

Populwian CGrowth Rare (percent)-urban-Annual growth rates Life Expecrany at irth (yearrs)-Number of years a newbornof urban population for 1950-60. 1960-70. and 1970-83 data. infant wvould live if prevailing pattsns of mortality for all people

- 24 - ANNEX IPage 4 of 6

at the time of of its birth were to stay the sme throughout its life. Pipd-reacher Ratio - primary. acd secotidry-Total students en-1960. 1970 and 1983 data. rolled in primry and secondary levds divided by numbers of/4f_a Metuisy RE (per shesmd)-Nunmber of infants who die teachers in the corresponding levds.before reaching one year of age per thousand live births in a givenyear; 1960. 1970 and 1983 data. CONSUMPTIONAccem oSo WSf er (pe ef c pp.futou)-tetal, mhm. End Pauagr Curs (per thesad pe Passgr can comn-rmsIl-Number of people (total, urba and rual) with eiotible prise motor cars seating less than eight persons excludes armbul-aoss to safe water supply (indudes treated surface waters or ances hearses and military vehides.untreated but uncontaminated water such as that from protected Rai& Rwemt (per teh.uaadpoepuhi)-AI types of receiversborchoks, springs and sanitary wels) as pe=ntages of their respec- for radio broadcasts to genl public per thousand of population.tive populations. In an urban area a public fountain or smndpost excudes un-licensed receivers in countries and in years whenlcated not more than 200 meters from a house may b considered registration of radio sets was in fect dau for ct yers mayas being within reasonable access of that bouse. In mrAl areas ritrtion ofpradio sets was inteic; ator recsnt rmasonabc acoass would imply that the housewife or members of the not be comparable sicc most counties abolshed lnsing.housdibold do not have to spcnd a disproportionate part of the day TVReceRs (pgr t_Mul'paps n)-TV receivers for bmadcastin fetching the family's water needs. to genl public per thousand population exludes unlicensed TVAcens to Er Dispal (pereeut ofh recrs in con and in yeas when retation of T sets wasad rmrl-Number of people (total. urba and rural) served bycxcrcta disposal as percentages of their respective populations. Akp- CGcaftm (per rhomudpop.oiu-Shows the aver-Excreta disposal may include the collecion and disposaL with or age cirulation of -daily general interest newspaper.- dcfined as awithout treatment. of human excreta and waste-water by water- pcnodEn publication devoted primarily to recordig geal news.borne systems or the use of pit privies and similar instadlations. It is consiered w be dadir if it appears at least four imres a week.Popularic per Phjwkuu-Fbpulation divided by number of prac- CG Aumnl Ane,auce pff Caipb per Yew-Based on thetsing physicians qualified from a medical school at university kvel. number of tickets sold during the year. including admissions toPepufatieu per NV_rsn P_rse.-FPopulation divided by number of drive-in cinanas and mobile units.2racitcing mak and fanale graduate nurses, assistant nunesFprcacical nurses and nursing auxiLaries. LABR FORCEPepusA- pe Hespal Bed-totl . and rmnl-Ptpulation Tel Labor Force (thairs mus-Economically active persons. in-(total urban, and nrual) divided by their respective number of duding armed forces and unemployed but exduding housewives.

beds available in public and private. general students. etc.. coverng population of all ages. Definitions inhospitals and rehabilitation enters. Hospitals arestblishmets various countries are not comparable 1960. 1970 and 1983 datapen ently staffed by at least one physician, Establshments prov- Feaigl (percar)--Ftmale labor forxe as percentage of total Laboriding principally custodial care are not included. Rural hospitak. force.however. include health and metical centers not penanenly staffed Asrwa:brr (perFeent-Labor force in famung. forestry, huntingby a physician (but by a medical assistant, nurse, midwife. etc.) and fishing as percentage of total labor force; 1960. 1970 and 1980which offer in-patient accommodation and provide a limited range data.of medical facilit3es. Induitry (percmu)-Labor force in mining, construction. manu-Adxrssion per H ospitl Red-Total number of admissions to or facturing and elecricity. water and gas as percentage of total labordischarges from hospitals divided by the number of beds. orce; 1960. 1970 and 1980 data.

Pmirwasiou RAt (p )-wal, met. anemeli-ParticipationHOUSING or activity rates ar computed as total, male and female labor forceAverage 5re of H Aewehil (p- per A-ebf-di-toal. whim. as percentags of total, male and female population of al agesaadiral-A housebold consists of a group of individuals who share respecively. 1960. 1970. and 1933 data. These are based on ILO's

vnng quartcrs and their main meals A boarder or lodger may or participation rates relecting age-sex structure of the popultion, andmay nor be included in the household for statistical purposes long time trend. A few estimates are from national sourcs.Average Nawhier of Perwis per Rume-oteal, wham, and r1ura- memic Dependec Ride-Ratio of population under 15. andAverage ncmber of person' per room in all urban. and rural 65 and over. to the working age population Ithose aged 15-64).occupied conventional dwellings. respectdvely. Dwellings excludenon-permanent structures and unoccupied parts. INCOME DISIRIBUTIONPercenae of Duelibgs -irt ElcbiciV--4otal. am. and rural- Pffcete of Trod Dsposablc 1mm (had in cMh ad kinds-Conventional dwellings with electricity in living quarters as percen- Accning to percentile groups of households ranked by total house-tage of total. urban, and rural dwellings respectively, hold income.

EDUCATION POVERTY TARGET GROUPSA4sted Ewollrnext Rats The folowing estimates are very approximate measures of povertyJrv sdwol - toml mk af Gss total. male and keves and should be interpreted with considerable caution.female enroUlmen of all ages at the primary kevl as pcntages of Est fed Ahstle Povety luerne Lene (S$ per capita)-arbanrespective primary school-age populations. Wbile many countries d rul-Absolute poverty income lvd is that income levelconsider primary school age to be 6-11 years, others do not. The below which a minimal nutritionaly adequate diet plus essentialdiffereners in country practices in the ages and duration of school non-food requirements is not affordable.are reflected in the ratios given. For some countries with universal FEin.faed Relte Pfbty Incame Lev (1U1 pr p pir c -wheducation, gross cnrodlmcnt may exceed 100 percent since some and rural-Rural relative poverty income kvd is one-third ofpupils are below or above the country's standard primary-school averag per capita personal income of the country. Urban level isage- dcrived from the rural level with adjustment for higher cost ofSecondary school - otal, male andfenml-Computed as above; living in urban areas.secondary education requires at least four years of approved pri- Emirpmtde Popsaua Rebw Absolnee Poverty luceiw Level (per-mary instrcion provides generaL vocationaL or teacher training ceme)-uran and rurl - Paecent of population (urban and ruralinsructions for pupils usually of 12 to 17 years of age: corrcspond- who are -absolute poor.cnce courses are generaly exduded.Vocancoal Eraro&lmnri (percent of secondary)-Vocadional institu- Comparative Analysis and Data Divisiontion include technical industriaL or other programs which operate Economic Analysis and Projections Departmentindependently or as departments of secondary institutions. June 1985

- 25 -UlEEU Ila. 3 of 6

mis SSO 373

am Ae. ut frS trtus Is Prce d mIlt

Oulasti 4cebIS 170w74 1 3 £31m 1936 l37£ 5932 1 `1 105

mlli of1 3M 1 Prcmtapul I

6ros h_tic Prot.t 7lt LO7 1.3 -1.12 LO Li 9.12 1oLoo 200.541un d Trall EHfect I L. 0.00 0.

fru bu.tictIsa 70749 LOS 1.70 -2.47 -L4 L .4 I2L60 lO.AD 200.0

loqrtsofSut ul 5 91 1.3 2330 -27.79 -5.41 Li 15.14 9.32 L41Eum hs f s ba W J FS99 L4 14.09 4.21 *.01 4.5 I06 11.43 ILKswts MistEd by Term d Trate 93 Llb 11.3 -5.25 I.10 2.9 1194 13.43 1.

harct Su -2t LO -4.11 -5.44

EmesiUM 579 4.51 1.45 -3.40 0.50 2.2 LD9 31.5 1 0.24

lnvnt_t N101t0 1.3 4.44 -1344 -70 4J.3 1.61 14.31 9.4

_inti Savin u3s 2.47 2.7 1.75 L.U 4.1 17.41 1.45 14.74

atins Sunrp 74 3.04 L04 -7.13 -. 40 9.5 1L. 10.3 7.21

ttEl3iO UIKE 131 192 13 i914 1m thm Pondt Total)

IOilliomuuf CwrudE bluus)

Imrts (ci.4.I 9430 S7 450 4713 W45 u.3 100.0 oL..capital Sids 2059 90 79 2 s52 2.A 17.1 144Itrtiabt Sin 4r7 3320 307 32 339 5L. 3LZ 72Pstnema FWe 1011 112 453 47e 39 I.7 10.1 LC u m Suos ib 132 3s 20 220 15 17.3 L 4.0

Epet S(...) 8141 477 7106 73 339 50L0 100.0 100.0Friary Pr s I055 441£ 525 A54 A34 74.3 90.7 61.3Oafstrut Go29s 249 2191 13 1413 19 7 11.3 102

glu jist Trt lniten labrags 1910ke 100

EFptrice Jun 319.4 270.0 241.9 254.7 754Insrt Parim Idos 29.3 29L2 27s9 2719 294.4Term of Trte Ut 104.7 IL4 E. 93.0 ID.0

VUJUE n11 SE1 ItlUilitaf tSS at 13 Mrmt I sth gu l1bt ILofon

tIricte 925 V7 104 1112 1340 1u 1L2 15lntry 25s 23715 2.9 DI 2335 35J 39 3L5Sevis 37147 3437 3 349 353 341 51 4U.9 40.9lutz! 711S O7M 719 1247 71474 13. ttLtt Il0.0

MRLIC FINLCE (1111amn of hgutius m Pine)wcm rts of EPI

Mtmsuatatd Public Setrs

ternft Macipht 1903 47447 329 1713135 31.7 31.7Cerut Ezyditu 2I9 I 14U 31139 394304 4t1.7 33.Seitp -331t -1ltl1 -4130 -P6171 -7.0 -i3lastmts 4746 1147 413 3613 L7 LSserpWu icidt -2 -25126 -102 -124113 -IL5 -24.4

NUEo, CEDIT _ Pt0IS Itilia of.a hfttat1s* End PIwitd

tu at 1anu 1n0 tLO 3D3 9.i 1193.1Crdt to Puic Sutsr IL2 34J 21223 9Crntit to Mtrivts Stswtw 22 t .7 293 Ili33.4

NMI U Geui lky a1 ol0 29.l'M 25.41 2LIS ZL2.

lusmde Prim Into21970 2.00) 43Y 15411 71154 43

tulmul Wricne Id 103.9 257.3 340.9 57L3Ink Cretit to Public Setsr 29.7 222.2 SLI 343.Bak erstt to Prints Suckr 17.5 210.4 T23L 543

ui Fmt ANR trecmm ins T m Va mPutr Per kbr

AgtiStun 1194 57.1 tlO7loub,tr 22 34.5 995frics 345 46.4 1O044

Ttsl/U 499 10. Itilt

-26 - AN= rPap 6 of 6

Eatiwte Pajactedrm s, Iwo 1 u` un ItU ni am 191 It7 3 99

EULE F PIIETS

Euparta iad. WS) 7714 %901 3765 115 525 9512 91 1063 11133 1243 17270larts lied. IfS -24 -T2Z -14024 -1237 7195 -51 -63 - -62 -7051 -1029h ear. DlaI. 246 341 -IZ -m 2330 2m 3211 3749 U12 442 6741

Net Facter Sevice lm -all -920 -3ot -3700 -4719 -mm -5712 - -515 -T9 -6761llt Crrt Trasers 41 35 23 -3 32 36 3 0 I I 0Deluce - Carrat kDcet 1833 -7 -4767 -4734 -2357 -2461 -92 -707 -140 -1047 -20

Direct Inetuet 274 265 7i 927 257 I3U 269 3I0 259 36 mkNt Public ILT orrerir -n2 11 2511 MNU 5122 197 4307 "00 300 60 414let Private ILT rrmiq 13239 3I5 1 1469 2219 613 -30 151 10s m7 -336UNr of 1 o er 1173 0 0 U -300 -40Short Ire Capital Tram ctien -1215 IUS -171 -109 -44 -35 1670 0 0 0 0Capital Trauactioe a.ei. I3 431 -437 -44 0 -331 -10_ 0 0 0 0Ca in t elrven l- * inmr ) -199S -U42 2796 3307 t 51 -244 -39 -19 -5 -150 -50

CWUT Mm -I Tll1EIIS

Public NILT Lons 2419 3312 27 3703 1012 2030 609 4w 5500IID IU 306 27 3n 100 IOD 0 175 oilOther rhltilataral 231 323 44 321 in 200 400 55R 756lilat ral 91 52 115 9 42 200 300 1350 "I5Suppliers 372 535 216 3637 L13 30 300 500 600Faseecial Inutitmtios 1560 2091 240 1336 49 ISM 5290 2225 20

DBDT AND IET SEIVIE

Total eet isteanine and Ihsbrs es 1246 19036 27162 35671 433 66035 43420

Total MILT f et 9946 14013 16770 2270 27135 M7 3200Public OLT Debt 6743 57 10177 1045 15_7 24957 2700

Interest an Plic DIebt 5u3 lll 1063 1060 U33 2L37 2595Rapaymts sm Pclic Bit 195 1146 I9 IN5 1036 1000 400Total Public Debt Sermien 1663 1997 215b 2155 2347 7 2995

Privete ILT Det 3103 5431 6 12136 11227 10421 500Itrwest m Private Debt n5o 138 140 915 1123 1436 1325Repaymts en Pnvatp Sltt 1230 1700 1500 57 234 400 32Total Private Det Servics 2050 306D 3040 1142 1407 136 13654

Total tart-Ta r etPublic Skort-Tn Debt 1614 1363 4292 9430 12731 9219 122Privat. Sort-Term Dbt 1036 3635 6lle 331 3791 2400 2000

Total lLT Debt Srwvice 3513 5047 519 3ff7 34 5523 4649

BREIM I1I E1PIPT RRMIN115 121

Total beit Service 45.5 52.6 43.3 34.6 39.4 53.1 47.2Public Dbt Service 19.0 20.7 20.0 IB.7 24.6 33.5 30.4Private t Srvice 26.6 31. 29.2 16.0 34.3 19.3 16.3

AVEMUE TEIIS F PULIC EST

Intwrest as 2 Prier Var NO 11.3 12.5 12.4 10.4 12. 16.9 10.4hortizabm as I Prier ter 0010 17.9 17.0 32.7 10.L 9.3 6. 1.

1TERI. EBUT liY CEDITlf dishurse mlyi 1B3

Total 1 I LY Debt 3533300 m

Other Multilateral 1134Dilatral 711Suppliers 22Fnamcial halts 30791

IhstlutnlIWS LIPISE lecne 31. 1993 ecen r 31, 15

END Debt MID us 53IIRD et as Z of PFblic lO 2.1 2.1IED Debt Servic 77.0 IB2INS Debt Swevice as I of Det Services 2.1 2.3

* Froa 1992 onnards inclcdes rescheduling mu natuinali:atin of sirt tare debt.

November 4. 1985

- 27 -iiW -IIP 1 of 2

19E SAU OF BANK GXI OMATI

A. SrTMr OF BAl WDAN AND) MA, CR)DIS(As of Septer 30, 1985)

Amout Ju unleLAm No. Year BorPier Papee - Iatiox buried

Fuly dishrsed l1 596.0

1384 1977 Aktm g 104.7 22.81463 1978 B aciaal IrAstrial

de Desraro credit IOD.O 1.31521 1978 Aenti Grain Storae 87.0 70.71677 1979

Argentinos SA. 960 37.51761 1979 Arg h Yacyrteta Pom 210.0 179.1L880 L.980D YadIeas

NetroliEeros Oil and GasFiscales aas:u 27.0 2.1

1905 198D ArRnmrn Vocatoalfming 58.0 57.3

S-02 1980 AngtEin E Coal Exploratio 10.0 3.62031 1981 Rm Nacioa 1 ad G-s

de Deanrrollo redit 100.0 79.72032 1981 YacizLentos

Petroliferos RefineryFlhcales 9 nversi 200.0 81.9

2063 1981 Banco Nacimaal Iutriade DIsarrollo Cedit II 100.0 100.0

2296 1983 Ak stim HigIiy 100.0 84.1259251 Yacim!entos Gas Utflization 180.0

Petroliferos and TedxicalFPIaUle Asistaxm

Total 1,968.7Of hdiidi has bean repaId 459.3

1,509.4Amouot sold 12.8Of idt.sb F Wmpaid 12.8 -Total now beld by Bank 1,509.4

Total udidsbursed 720.1

i1 This lon Is not yet effective.

- 28 -

AIM:Pa 2 of 2

B. SEMM CF'IC IV ESJNNJ(As of Septieber 3D, 19Ew)

A~G~

Fiscal Ammut in USS millmYewr O bWof d iy Tota

1960 Acin3ar Industrla Steel ProdLuct 3.7 - 3.7Agentim de Acerks, S.A.

1960 apelLem Ro Par, S.A. Pulp and Paper 3.0 - 3.0ljgmnajes, S.A.I.C.

1961 abrica Aget7l de Autobtve 1.5 - 1.51962 PASA, Pot ddmi Petnx 3.0 - 3.0

Azgent.na, S.A.I.C.1965/72 Cernlloa Argentina, S.A. Palp and Paper 12.5 - 12.5

1969/75 1-Jmie Siderea, S.A. Stel Pw&cts 17.0 - 17.0

1969 EditOrlal Codez, S.A. Printing andabliabig 5.0 2.0 7.0

73 Calera AveUlaeda, S.A. Ce.t 5.5 - 5.51977T/ SAlpargtasS.A.I.C. les& Fibres 14.5 2.0 16.51917 Soye S.A. Soybea Ptvoeass

Plant 25.0 - 25.01978 -Yssuh, S. Eblp and Paper 13.5 2.0 15.5l1 B/ Juan Nnetti, S.A. Cement and81 /82n

mterials 74.0 - 74.019EY Ipako-rndimtrlza Ihieica3l and79/92 Patruqulifias Ntivdxscb ]sal

Argantm S.A 20.0 - 20.01979/ Alpesca SA. EL9eries 5.2 1.6 6.883/84

1984 Petragiimics Cqio SAIC ehelsn andPetvdr icals 21.0 4.0 25.0

Total Groes aommit aerAs 224.4 11.6 236.0

Lem llsttem, TinEatREpawynstI and Sales 124.2 2.0 126.2

Total CaomitEnts ow Hekld ty IFC 100.2 9.6 109.8

Total Urdisbirsed 23.6 4.0 27.6

- 29 -

ANNEX IIIPage 1

ARGENTINA

WATER SUPPLY PROJECT

Supplementary Project Data Sheet

Section I - Timetable of Key Events

(X) Time taken by the Country to Prepare Project: One year

(b) Preparation by: MOSP/OSN/EPOS/DIPOS

(c) First Presentation to the Bank: December 1983

(d) First Bank Mission: February 1984

Ce) Appraisal Mission Departure: February 23, 1985

(f) Negotiations: October 1985

(g) Planned Date of Effectiveness: April 1986

Section II - Special Bank Implementing Action

None

Section III - Special Conditions

Ca) The federal government would contribute to the Province of Cordobaamounts required for the multipurpose -Los Molinos' channeland the federal and provincial governments would make availablelocal counterpart funds for the project (para. 55);

(b) financial recovery plans for OSN, EPOS and DIPOS and schedules fortheir implementation would be completed by June 30, 1987 and theBank will be given the opportunity to comment on the provisions ofthe plan (para. 58);

(c) OSN, EPOS and DIPOS would submit to the Bank by September in eachyear an update of the financial plan and projections for the

- current and the following three years (para. 58);

(d) metered connections as percentage of total connections wouldincrease in Buenos Aires from 10% in 1986 to 22% in 1991; inCordoba, from 6Z to 24%, and in Rosario, from 5% to 8%; andrevenues collected to amounts billed by OSN, EPOS and DIPOS wouldincrease from 86% in 1986 to 96% in 1991 and thereafter (para. 59);and

(e) a Special Account for the project in the amount of US$5.0 millionwould be established in the Central or other bank (para. 63).

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