Document of

The World Bank

FOR OFFICIAL USE ONLY

Report No. 14984

IMPLEMENTATION COMPLETION REPORT

URUGUAY

REFINERY MODERNIZATION PROJECT(LOAN 2802-UR)

SEPTEMBER 18, 1995

Infrastructure & Urban Development DivisionCountry Department ILatin America and the Caribbean Region

This document has a restricted distribution and may be used by recipients only in the performance oftheir official duties. Its contents may not otherwise be disclosed without World Bank authorization.

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CURRENCY EOUIVALENTS

Currency Unit = Uruguayan New Peso (N$)

Average Annual

Rates of Exchange

1986: US$1.00 = N$ 0.15201987: US$1.00 = N$ 0.2267

1988: US$1.00 = N$ 0.3594

1989: US$1.00 = N$ 0.6055

1990: US$1.00 = N$ 1.17101991: US$1.00 = N$ 2.0188

1992: US$1.00 = N$ 3.02701993: US$1.00 = N$ 3.9484

1994: US$1.00 = N$ 5.0453

Wholesale Price Index

1986: 10.8

1987: 17.7

1988: 27.8

1989: 48.2

1990: 100.0

1991: 187.6

1992: 297.0

1993: 396.1

1994: 573.3

FISCAL YEAR OF THE BORROWER

January 1 - December 31

WEIGHTS AND MEASURES

1 Metric ton (ton, t) = 1000 kilogram (kg) = 2204 Pounds (lb)1 Kilometer (km) = 0.62 Miles1 Hectare (ha) = 2.47 Acres1 Cubic Meter, liquid measure (m3 ) = 6.3 Barrels (bbl)

GLOSSARY TO ACRONYMS

ANCAP Administracion Nacional de Combustibles,Alcohol y Portland (state oil monopoly)

BPSD Barrels per dayESW Economic Sector WorkFCC Fluid Catalytic CrackingOPP = Oficina de Planeamiento y Presupuesto

(Office of Planning and Budget)

MERCOSUR Mercado Commun del Sur(Common Market of the South)

SAR Staff Appraisal ReportSOE = Statement of Expenses

FOR OFFICIAL USE ONLY

URUGUAY

REFINERY MODERNIZATION PROJECT (LOAN 2802-UR)

Table of Contents

Preface . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .i

Evaluation Summary ... . . . . . . . . . . . . . . . . . . . . . ii

PART I: FINDINGS AND LESSONS . . . . . . . . . . . . . . . . . . . . . . 1

A. Background .1.. . . . . . . . . . . . . . . . . . . . . . . . .B. Project Objectives and Definition . . . . . . . . . . . . . . . . 1

C. Achievement of Project Objectives . . . . . . . . . . . . . . . 3

D. Major Factors Affecting the Project . . . . . . . . . . . . . . 5

E. Project Sustainability ... . . . . . . . . . . . . . . . . . . 8F. Bank Performance ... . . . . . . . . . . . . . . . . . . . . . 8G. Borrower Performance .9.. . . . . . . . . . . . . . . . . . . . 9H. Performance of Consultants and General Contractor . . . . . . . 9

I. Follow-on Projects . . . . . . . . . . . . . . . . . . . . . . . 9

J. Assessment of Outcome. . . . . . . . . . . . . . . . . . . . . . 10

K. Key Lessons Learned. . . . . . . . . . . . . . . . . . . . . . . 10

Appendix 1: Comments of the Consultant re the Feasibility Study. 11

Appendix 2: Comments of the Borrower on Part 1. . . . . . . . . . . 12

Appendix 3: Comments of the Guarantor on Part 1. . . . . . . . . . 14

PART II: STATISTICAL INFORMATION . . . . . . . . . . . . . . . . . . . . 16

Note: Normally, ICRs include a table comparing actual and forecast indicators

for project operation. Since no such indicators were defined in any of the

loan documents, this report includes no table of comparative indicators.

Table 1. Summary of Assessments .16

Table 2. Bank Loans for Energy Projects in Uruguay . . . . . . . 17

Table 3. Project Timetable ...... .. .. .. .. . .. .. . 19Table 4a. Cumulative Loan Disbursements . . . . . . . . . . . . . 20

Table 4b. Disbursements by Category: Actual, Revised, Original . . 20

Table 5. Key Indicators for Project Implementation . . . . . . . . 21

Table 6. Studies Included in Project . . . . . . . . . . . . . . . 22Table 7a. Project Cost: Forecast, Revised, and Actual . . . . . . . 23Table 7b. Project Financing: Forecast, Revised, and Actual . . . 23

Table 8. Compliance with Major Covenants . . . . . . . . . . . . . 24

Table 9. Economic Justification:

Equalizing Discount Rate ... . . . . . . . . . . . . . 28

Table 10. Bank Resources: Staff Inputs . . . . . . . . . . . . . . 29

Table 11. Bank Missions .30

This document has a restricted distribution and may be used by recipients only in the performance of theirofficial duties. Its contents may not otherwise be disclosed wiihout World Bank authorization.

IMPLEMENTATION COMPLETION REPORT (ICR)

URUGUAY

REFINERY MODERNIZATION PROJECT (LOAN 2802-UR)

Preface

This is the Implementation Completion Report (ICR) for the Refinery

Modernization Project in Uruguay, for which Loan 2802-UR in the amount of US$24.4

million equivalent was approved on April 28, 1987 and made effective on December

1, 1987.

The loan was closed on December 31, 1994 as compared with the originalClosing Date of January 31, 1992, and the last disbursement was on January 5,

1995. The Borrower, the Administracion de Combustibles, Alcohol, y Portland

(ANCAP), provided counterpart financing.

The ICR was prepared by Mr. Andrew Waldrop, LAlIU, under the supervision

of Mr. Armando Araujo, Task Manager, LAlIU. and was reviewed by Mr. Alfonso

Sanchez, formerly Chief, LAlIN, and by Mr. Orville Grimes, Project Adviser,

LA1DR. Mr. Asif Faiz, Chief, LAlIU, authorized released of the ICR.

Preparation of this ICR was begun during the Bank's final supervision/

completion mission, October 18 to 25, 1994. It is based on material in the

project file.

The Borrower, the Government, and a consultant supplied comments on the

draft ICR. These are set forth in the appendices to Part I of the report.

ii

Evaluation Summary

REFINERY MODERNIZATION PROJECT(LOAN 2802-UR)

URUGUAY

Background

Energy Loans to Uruguay. Since 1979, the Bank has made one petroleum loan(2802-UR, US$24.4 million, 1987) and four electric loans (totalling US$135.7million) to Uruguay. Two electric loans, 2622-UR (US$45.2 million, 1985) and3221-UR (US$62.5 million, 1990), are still being disbursed. The projectsfinanced by the other three loans were completed and their objectives weresubstantially achieved, notwithstanding delays and cost and time increases.

Borrower. The Borrower of Loan 2802-UR is the Administracion deCombustibles, Alcohol, y Portland (ANCAP), the state oil monopoly which operatesthe only refinery in Uruguay. Besides its refining and commercial functions,ANCAP plays an important fiscal role: its tax collections on petroleum productsare a major source of Government revenue (para. 1).

Project Preparation. It is convenient to think of project preparation asbeing carried out in two phases. Phase I covers the period 1985 to 1987 andincludes the activities normal to project preparation and loan processing. OnMarch 27, 1991, more than three years after Loan 2802-UR was declared effective(December 1, 1987), the Bank, at the request of ANCAP, completely redefined Part

A (Refinery Conversion) of Schedule 2 of the Loan Agreement (Project Definition).Phase II covers the period 1988-1990 and includes the activities related toproject redefinition and the discussions of supplementary financing (para. 2).

Phase I, 1985-1987

Project Objectives, Scope, Justification, and Approach. The projectobjective was to reduce the overall economic cost of supply of petroleum productsin Uruguay to levels comparable to international prices (para. 3). This impor-tant objective was compatible with national energy and development policies, andwas consistent with the Bank's lending strategy (para. 4).

Besides improving refinery efficiency, Part A aimed at providing a closermatch between supply and demand, particularly with respect to the range ofrefined products. It consisted of the: modification of existing facilities byinstalling new, efficient equipment in place of old, obsolete equipment; conver-sion of technology; and introduction of modern controls. Part B consisted ofstudies to correct the inefficiencies resulting from a matrix of institutionalpolicies and practices. In recent years, the Bank has restructured its operationsto "delink" investment lending and sector issues. The latter are to be addressedas part of the program of Sector Economic Work (ESW) (para. 5). Part A wasjudged to be least-cost as compared to the options of relying on importedproducts or operating the refinery without the project (para. 13). Except fora timetable to complete and implement the pricing study, there were no specialcovenants to accomplish the project objectives.

Instead of expanding capacity, the original project approach was to removeoperational "bottlenecks", i.e., partial modernization through equipment replace-ment. Underlying this approach were a positive assessment of the physical state

iii

and useability of existing facilities and a slow-growth demand forecast. Partialmodernization would accomplish the project objective at minimum cost, US$28.2million, and was compatible with the Government's objectives of minimizingdeferrable capital investments and of conserving resources to meet debt serviceobligations (para. 6).

Phase II, 1988-1990

Project Scope Redefined. The redefined Part A consisted of increasingrefining capacity by reconstructing the atmospheric distillation unit Topping III(from 30,000 BSPD to 37,000 BSPD) and the fluid catalytic cracking unit (from8,700 BSPD to 8,900 BSPD) based on a new technology, and adding components todiminish environmental contamination and reduce operating costs (para. 8). Theredefinition was required because of the deteriorated state of existing facili-ties and because of an unexpected surge in petroleum demand (para. 9). Therevised cost estimate was US$62.9 million.

Privatization. In 1990, ANCAP sought supplementary Bank financing for theredefined project to help meet the higher cost estimate. After extended internalconsideration, the Bank declined to provide any additional funds on the groundsthat ANCAP was a suitable candidate for privatization-type initiatives. For itspart, the Government was not ready to consider altering the status of ANCAP asa state-owned company or to dispense with its tax gathering services. The Bankalso justified its decision on the grounds that ANCAP had enough internalfinancial resources to finish the project (para. 32).

Implementation EXperience and Results

Part A. The revamped refinery resumed operations in February/March 1995.Resumption means (or should mean) the substantial achievement of the projectobjective of reducing the overall economic cost of supply of petroleum productsin Uruguay to levels comparable to international prices. To determine reliablythe level of benefits will probably require operation of the refinery during a"shake-down" or test period (para. 10) . The redefined project was economicallyjustified based on a least-cost calculation; no estimate of the internal rate ofreturn was prepared. Based on actual cost data and expected lower operatingcosts, the project is still least-cost. No internal rate-of-return has been pre-pared using actual data (paras. 14 & 15). As ANCAP and the Government understandthe importance of the refinery to the economy, it is reasonable to expect thatthey will ensure the sustained achievement of the project objective (para. 28).This positive assessment of Part A notwithstanding, a prudent and conservativeapproach ought to prevail in rating the overall outcome of the project. Ascompared with the appraisal fore-casts, the project experienced significant timeand cost increases; hence, the overall outcome of the project should only berated as satisfactory (para. 39).

Part B. Achievements with respect to the studies under Part B range fromsubstantial (if problematic) to partial to validation of existing systems (paras.11-12 and 22-27). For example, the value of the study of control systems willdepend on how well the new controls respond under normal operating conditions,but ANCAP is expected to ensure their full and effective operation. Achievementswith respect to the studies of the financial systems are partial. The Bankaccepted the findings of the price reform study which validated ANCAP' s existingpolicies and practices with respect to imports (procuring crude oil) and pricing;the study did not recommend price deregulation.

iv

Scope, Cost and Timetable: Completed and Redefined. Due to the additionof works--including construction of a substation and transmission line linkingthe power facilities of the refinery with those of the national power company--the scope of the completed project was increased over that of the redefinedproject. Nevertheless the scopes of the completed and redefined projects remaincomparable, as are their costs and timetables (paras. 16-20).

Stated in current prices, reflecting current rates of exchange, and exclud-ing interest during construction, the final project cost was US$95.8 million ascompared with the revised cost of US$62.9 million--an increase of US$32.9 million(or +52.4%). The cost increase breaks down as follows: construction, US$29.9million; all other factors, US$3.0 million. However, the magnitude of thesefigures may be misleading. If actual construction expenditures (US$41.5 million)are restated in average 1989 prices and are further adjusted for appreciation inthe real rate of exchange, the cost of construction amounts to US$15.6 millionor US$5.0 more than the expected base price plus physical contingency (US$10.6million). Most, if not all of the US$5.0 million, was due to increases in thescope of the project (including a new substation and transmission line tointerconnect the electric power facilities of the refinery with those of thenational power company).

The actual project completion date was February 1995; the revised date,June-July 1994; the original date, June 1991. The revised date reflected theimpact of Phase II. The final date reflected the impact of strikes and otherdelays normal to civil construction. ANCAP alleges that the contractorcontributed to late project completion by not reacting promptly and strongly tocounter adverse developments (para. 21). The Bank has not been able to confirmthis allegation (paras. 37).

Performance of the Borrower and the Bank

Phase I. For budgetary reasons, ANCAP reduced the scope of the consul-tants' work on the feasibility study by deleting a review or report on the condi-tion of the existing refinery facilities and substituting its own data; and theBank did not object to this arrangement. The deletion of this review was a majorcontributing cause to the subsequent redefinition of the project. If the reviewhad been included, it is exceedingly unlikely that its findings would have ledto the adoption of the original project approach (para. 7). The fact of redefi-nition suggests strongly that during project preparation ANCAP was, with Bankacquiescence, "penny wise and pound foolish"; hence, their performances in thisrespect should be rated unsatisfactory during Phase I (paras. 29 & 35).

On the basis of the feasibility study, the Bank appraised the project inSeptember 1986. Subsequently, events showed that the original project approachwas inappropriate. At the time of appraisal, it was common Bank practice toappraise before completing the preparation of detailed designs and more refinedcost estimates. While this is still the case, the Bank normally defers Boardpresentation until firmer cost estimates are available from the completion ofdetailed design (para. 30).

Given the positive study findings on policies and practices for imports(oil procurement) and pricing, it appears that during appraisal the Bank either

v

misassessed such practices and policies as needing reform when such was not thecase or it lacked sufficient information to carry out a proper assessment (para.34).

Phase II and Implementation. The Bank's lengthy examination of theredefined project extended Phase II by about six to eight months longer thannecessary. Nevertheless, given the satisfactory assessment of the outcome of theproject, the performances of the Bank and ANCAP during Phase II and implementa-tion deserve "satisfactory" ratings (paras. 31-36).

Future Operations, Findings, and Lessons Learned

Operations. No future operations are planned for the petroleum sector inUruguay (para. 38).

Findings. By substituting its data on plant and equipment for that whichwould have been generated by the consultants review, ANCAP biased the results ofthe feasibility study during Phase I with the result that three years wereconsumed in correcting avoidable errors. Nevertheless, given the substantialachievement of the project objectives and the likely sustainability of suchachievement, the project outcome merits a "satisfactory" rating (para. 39).

Lessons. As for project lessons, there are four: (1) To minimize the riskof surprise during implementation, it is important that during the planning stagethe scope of key studies (such as the feasibility study) not be reduced forbudgetary reasons; (2) The delays associated with Phase II underscore the wisdomof the Bank's current policy of substantially completing preliminary or finaldesign before scheduling Board presentation; (3) Instead of buying an accountingsystem, the financial systems study should have embraced a total modernizationof management's internal information system; (4) The "half-a-loaf" results onprice deregulation and crude-oil procurement (paras. 25-27) show why the Bank hasdecided to "delink" investment loans and the resolution of sector issues. Thelatter are now to be addressed in the Bank's ESW program and their resolution isexpected to preceed Bank investment lending (para. 40).

IMPLEMENTATION COMPLETION REPORT (ICR)

URUGUAYREFINERY MODERNIZATION PROJECT

(LOAN 2802-UR)

PART I: FINDINGS AND LESSONS

A. Background

1. The Borrower. The Borrower of Loan 2802-UR (US$24.4 million; 1987) is theAdministracion de Combustibles, Alcohol, y Portland (ANCAP), the state oilmonopoly which operates the only refinery in Uruguay. ANCAP imports and refinescrude oil and markets gasoline and other petroleum products under a system ofGovernment-administered prices. Besides its refining and commercial functions,ANCAP has important fiscal duties: the gasoline and petroleum taxes which itcollects are a major source of Government revenue. Indeed, the Government placesa high priority on the tax collection services of ANCAP.

2. Project Preparation: It is convenient to think of project preparation asbeing carried out in two phases. Phase I covers the period 1985 to 1987 andincludes the activities normal to project preparation and loan processing. OnMarch 27, 1991, more than three years after Loan 2802-UR was declared effective(December 1, 1987), the Bank, at the request of ANCAP, completely redefined Part

A (Refinery Conversion) of Schedule 2 of the Loan Agreement (Project Definition)to correct initial project design shortcomings and to adapt it to the newrealities of petroleum demand. Phase II covers the period 1988-1990 and includesthe activities related to project redefinition and the unsuccessful request ofthe Government for supplementary financing.

B. Project Objectives and Definition

Project Preparation: Phase I, 1985-1987

3. Project Objective. In the mid-1980s, some of the processing units at therefinery were old and inefficient; moreover, the mismatch in their refining capa-cities led to a mismatch in the supply of petroleum products (quantity and rangeof production) as compared with demand. Contributing to inefficiency at therefinery were its complicated layout and sub-optimal process and operationalcontrols. According to the Bank, a matrix of poor policies and practices alsocontributed to inefficiency--outdated procurement practices, ineffective finan-cial systems (budgeting, accounting, and internal information), and a Government-administered, cost-plus petroleum pricing and taxation system which providedinsufficient incentive for efficiency improvements. To address these problems,ANCAP obtained Bank financing (Loan 2802-UR) for the Refinery ModernizationProject, the main objective of which was to reduce the overall economic cost ofsupply of petroleum products in Uruguay to levels comparable to internationalprices. A secondary objective was to eliminate the mismatch in the supply ofpetroleum products.

4. Evaluation. The main project objective was compatible with the largerobjective of Uruguayan energy policy: to reduce the supply cost of energy demandwithout impairing economic growth through enhanced efficiency in energy use,increased use of domestic hydro-electricity, and appropriate resource allocationthrough adequate pricing and taxation policies. As set forth in the loandocuments, the objective was clearly stated; it was also important, appropriateto the development of Uruguay, and consistent with the Bank's lending strategy

2

through 1987. However, if the project had been carried out as initially con-ceived and appraised, it would have been unresponsive to substantially alteredBorrower circumstances and therefore wrong. Fortunately, by agreeing on andimplementing a new, fundamentally redefined project, ANCAP and the Bank avoideda perpetuation of the problems related to the initial design.

5. Project Scope Defined. Besides improving operational efficiency, Part Aof the project (Refinery Conversion) aimed at providing a closer match betweensupply and demand--and at a lower cost. It consisted of: installing new,efficient equipment ("debottlenecking"); converting the technology and increasingthe capacity of the fluid catalytic cracking (FCC) unit; partial modernizationof the largest vacuum distillation unit by replacing old equipment; convertingone of the smaller distillation trains into vis-breaking service; and introducingmodern controls. Part B (Institutional Improvement) aimed at correcting ineffi-ciencies resulting from the policy/practice matrix. It consisted of technicalassistance (TA), including studies on important sector issues: deregulation ofprices, import tariffs, and procurement practices. It is worth noting thatcurrent Bank practice "delinks" investment lending and important sector issueswhich are to be addressed as part of the program of Economic Sector Work (ESW)(paras. 11, 25, 26, & 40).

6. Project Approach. The initial project approach was to upgrade theprocessing units by removing operational "bottlenecks", i.e., partial moderniza-tion through the modification of existing facilities by replacing old, obsoleteparts with new, efficient parts. This would accomplish the project objective atminimum cost, US$28.2 million, and was consistent with the Government's objec-tives of minimizing deferrable capital investments and of conserving resourcesto meet debt-service obligations. Underlying this approach were: (i) a positiveassessment (or assumption) of the physical condition and useability of existingfacilities; and (ii) a slow-growth demand forecast for the period 1985-1995--under 2% p.a. The demand forecast was based on the falling rate of energy andpetroleum consumption during the years 1981-1984 and the expectation of a meagerpace of economic growth during the balance of the decade. The least-cost validityof this approach was confirmed in a consultant's feasibility report.

7. Feasibility Study. During the long discussions (1981-1985) with ANCAPbefore appraisal, the Bank had strongly recommended examination of the "debottle-necking" approach as compared with a costly rebuilding of the refinery--the firstproposal of ANCAP. Given their importance to the success of this approach, thephysical state and useability of the processing units were to be reviewed by theconsultants as the first step of the least-cost exercise. However, in the courseof negotiating with the consultant, ANCAP, for budgetary reasons, reduced thescope of the feasibility study by deleting the review and substituting its owndata; and the Bank did not object to this arrangement (see Appendix 1). Com-pleted in July 1986, the feasibility study makes no reference to the physicalstate of the facilities. Instead, it concentrates on showing the least-costcalculations under different sets of assumptions. The deletion of this reviewwas a major contributing cause to the subsequent redefinition of the project.If the review had been included, it is exceedingly unlikely that its findingswould have led to the adoption of the original project approach. The Bankappraised the project in September-October 1986.

3

Project Preparation: Phase II, 1988-1990

8. Project Scope Redefined. As already stated (para. 2), the Bank, at therequest of ANCAP, completely redefined (March 27, 1991) Part A in the loandocuments to consist of increased refining capacity and of new components toreduce/eliminate environmental contamination and to lower operating costs. Theincreased capacity was to be achieved by revamping (or reconstructing) theatmospheric distillation unit, Topping III (from 30,000 BPSD to 37,000 BPSD) andthe FCC unit (from 8,700 BPSD to about 8,900 BPSD) based on a new technology.As redefined, the project would enable the refinery to process more kinds ofcrude oil and to expand the quantity and range of refined products. Set forthbelow are the factors underlying the redefinition.

9. Rationale for Redefinition. After new consultants began preparing basicdesigns in July 1988, they found that the original project scope did not addressthe deteriorated state of the facilities at the refinery and did not accommodatethe surge in demand for refined petroleum products in Uruguay. Concerning theprocessing units and their physical state, some were in such disrepair that theywere not useable for the purposes of the original project. Further, the locationof proposed replacements had to be revised. Concerning demand, by 1989, consump-tion of gasoline (284,000 m3 ) had surpassed levels (275,000 m3) forecast for1993--a reflection of the resurgence of the Uruguayan economy in the late 1980s(at about 10t p.a.) and lower prices in world petroleum markets, the benefits ofwhich the Government passed on to consumers. The Government might have restraineddemand by raising taxes on petroleum products as necessary; but such action wouldhave run counter to its interest in promoting rising employment, production, andincome. Given that these market and technical factors undermined the originalproject approach, the consultants convinced ANCAP to adopt a new approach basedon the major rebuilding and expansion of the refinery. Thereafter, in 1989-1990,the Bank and ANCAP engaged in extended discussions on the redefinition and itsfinancing (paras. 32 and 33).

C. Achievement of Project Objectives

10. Part A. The revamped refinery resumed operations in February/March 1995.Resumption means (or should mean) the substantial achievement of the physical,operational, and economic objectives of more closely matching supply and demand,improving efficiency at the refinery, and reducing the over-all economic cost ofsupply of petroleum products in Uruguay to levels comparable to internationalprices. To determine reliably the level of benefits will probably requireoperation of the refinery during a "shake-down" or test period. Unfortunately,neither at appraisal nor later were quantitative efficiency targets establishedto measure the impact of the project on, for example, staffing levels orelectricity consumption. It should be understood that the beneficiary of thereduced cost of supply need not be the consumer; the Government (or ANCAP) maybe the sole beneficiary of such reduction. Such restriction of benefits may wellmaterialize, as the Government continues to use the oil sector as a major taxcollection device and to administer petroleum prices with a view to meeting itsfiscal needs and the financing requirements of ANCAP.

11. Part B. Between 1988 and 1991, the studies under this project werecarried out. ANCAP was responsible for three of the studies--operational con-trols at the refinery, improvements to accounting and budgeting, and procurementof crude oil; the Oficina de Planeamiento y Presupuesto (OPP-Office of Planningand Budget) of the Government was responsible for the study of ex-refinery prices

4

and import tariffs. Achievements were substantial (if problematic) for the studyof the operational control system and partial for the study of the accounting/budgeting systems (paras. 24 & 25). As shown below, the study of ANCAP's pricingpolicies and practices did not lead to changes, as expected, for either pricingor oil procurement.

12. Delivered to the Bank on April 14, 1990, the study of prices and petroleumtaxes validated ANCAP's import and pricing practices and policies and did notinclude recommendations for the deregulation of refined petroleum product prices.Given the positive finding on import practices, ANCAP, with Bank agreement,substituted and financed a computer training program for personnel involved withoil procurement. The Bank strongly pressed the OPP to furnish a timetable on astudy leading to price deregulation. This never happened and prices were neverderegulated. Instead, in connection with Mercado Commun del Sur (MERCOSUR--Common Market of the South), the Government abolished the 20% import tax on crudeoil and aligned its tax rate on refined products with Argentina. Abolition ofthe import tax brought ANCAP' s pre-tax price structure in line with internationalprices. The Bank accepted this in place of deregulation, its real objective, onthe grounds that ANCAP was a relatively efficient monopoly, providing good ser-vice at a fair price to a market which was too small to attract competitors.Left undisturbed were the Government-administered, cost-plus pricing and taxationregime and the monopoly status of ANCAP. This result is consistent with the im-portance which the Government accords to ANCAP's tax gathering services. Detailson these studies and their achievements are provided later (paras. 22-27).

13. Phase I: Economic Justification. At appraisal, the original project: (1)

was least-cost as compared to the options of: (i) relying totally on imports and(ii) operating the refinery without the project; and (2) generated a financialrate of return of about 230 percent based on then current ex-refinery prices.Since the actual market scenario and completed project are not comparable to whatwere contemplated at appraisal, this report will not make further effort tocompare the economic justification of the completed project with the optionsconsidered at appraisal. It is worth noting that the SAR did not include annexesshowing least-cost calculations or the calculations related to the financial rateof return on the project.

14. Phase II: Economic Justification. A revised market forecast was prepared

to take account of the surge in demand during the late 1980s. In connection withthis forecast, the revised project was again found to be least-cost as comparedto updated versions of options (i) and (ii) above--updated to reflect more recentcost information. Using the revised investment and updated operating costs of theproject, the least-cost exercises determined, first, the difference valuesresulting by subtracting the project cost stream (investment and operating costs)and from the cost streams (operating) of the respective options; and, second, thediscount rates equalizing at zero the positive and negative values of the twodifference streams. As compared to relying totally on imports, the project wasleast-cost with an equalizing discount rate of 33%. As compared to operating therefinery without the project, the project was least-cost with an equalizing rateof 20%. No calculation for the financial rate of return was prepared.

15. Actual Equalizing Discount Rate. Based on actual investment cost data and

a new (updated) stream of operational costs, the project is least-cost as com-pared with option (ii). The equalizing discount rate is almost 22%. Data arenot available for option Ci).

5

D. Major Factors Affecting the Project

16. Part A: Scope, Cost, and Timetable. As described below, the scope of thecompleted project was increased over that of the redefined project. Neverthe-less, scopes of the completed and redefined projects remain comparable, as aretheir costs and timetables. The scope, cost, and timetable of the originalproject are not comparable with what followed and the factors accounting forthose changes have already been described (paras. 5-9) . The factors accountingfor the changes between the completed and redefined projects were subject to thecontrol of ANCAP.

17. Scope. The scope of the completed project was extended due to newconcepts. The additional works included: extending the electronic control systemto all process units to avoid problems with the existing pneumatic control sys-tem; increasing the diameter of certain pipelines for the sake of added security;encasing underground electrical cables to avoid damage; and building small trans-mission works to permit the ANCAP generator to work in parallel with the nationalelectrical system. ANCAP sought (and obtained) the Bank's agreement on the lastitem. According to ANCAP, these additional works represented an increase ofabout 30% in the volume of work carried out by the general contractor.

18. Cost. Stated in current prices, reflecting current rates of exchange, andexcluding interest during construction, the final project cost was US$95.8million as compared with the revised cost of US$62.9 million--an increase ofUS$32.9 million. (The original cost forecast was US$28.2 million) . The costincrease breaks down as follows: extra construction costs, US$29.9 million; andall other factors, US$3.0 million (see Schedule 1). However, the magnitude ofthese figures may be misleading. If actual construction expenditures (US$41.5million) are restated in average 1989 prices and are further adjusted forappreciation in the real rate of exchange, the cost of construction amounts toUS$15.6 million or US$5.0 more than the expected base price plus physicalcontingency (US$10.6 million) . Most, if not all of the US$5.0 million, was dueto increases in the scope of the project, including a new substation andtransmission line to interconnect the electric power facilities of the refinerywith those of the national power company. Lack of counterpart financing was nota source of delay.

Schedule 1: Actual and Revised Project Costs(in millions of US$'s, stated in current prices)

Part A Part B Total

Sub-Component EMI* Const. Eng. Total TA

Actual 38.7 41.5 13.7 93.9 1.9 95.8Revised 38.1 11.6 12.1 61.8 1.1 62.9Base, inc. Physical Contingency 35.6 10.6 11.3 57.5 1.1 58.6Price Contingency 2.5 1.0 0.8 4.3 0.0 4.3

Difference: Actual Less Revised 0.6 29.9 1.6 32.1 0.8 32.9

% Dif. from Revised (net) 1.5 257.7 13.4 51.9 80.9 52.4

*EMI: Equipment, materiaLs, and insurance

19. Timing. The general contractor began work at the end of March 1991.Construction of civil works began in September 1992. The refinery stopped opera-tions in April 1993 to allow installation to begin but normal work speed was

6

interrupted by a national strike of construction workers (May-August 1993).There was a second, local strike in February 1994. The project completion datewas revised from June 1994 to September 1994 to January 1995. The project wascompleted in February 1995.

20. As compared with the original completion date of July 1991, the actualcompletion date reflected, first, the delays attending the redefinition of theproject scope (paras. 8 and 9) and, second, problems and delays encountered bythe general contractor (para. 21). The responsibilities of the generalcontractor included: preparing detailed engineering plans and budgets, assistingANCAP in the procurement process, and constructing and commissioning therefinery.

21. ANCAP was critical of the contractor's work (see Appendix 2). Accordingto ANCAP, during the design and procurement phases, the contractor did not.complete the detailed designs on time, promptly overcome procurement problems,and properly coordinate his (the contractor's) activities. While acknowledgingthat increases to the scope of the project (para. 17) and strikes (para. 19) weresources of delay outside the control of the contractor, ANCAP alleges that duringconstruction the contractor contributed to late project completion by notreacting promptly and strongly to counter adverse developments (para. 37).

22. Part B: Objectives and Results. As already stated (para. 11), achievementsunder the studies ranged from substantial (if problematic) to partial tovalidation of existing system. The timing of their contracting and completiondid not reflect the problems of redefining the scope of Part A. Details on theachievement of objectives under these studies are set forth below.

23. Control Systems: To improve efficiency at the refinery, Part B includedconsultant services to develop a modern control system. On October 2, 1990, theconsultants delivered their final report. During 1991, under the consultants'supervision, ANCAP installed the systems. The cost of the consultants' serviceswas Us$627,000 and their performance was considered to be satisfactory. Whilea final judgement on the worth of these systems (and the study which led to theirinstallation) can only be made after they have been tested for a sufficient time,it is reasonable to expect that because of their importance to refineryoperations, ANCAP will ensure their full and effective operation and that in duecourse ANCAP will be able to provide data indicating that the efficiencyobjective of the new controls has been substantially achieved.

24. Financial Systems: To enhance management control, Part B includedconsultants' services to improve ANCAP's accounting, budgeting, and managementinformation systems. The consultants completed their report in October 1989 andthereafter installed a purchased software package for accounting and budgeting.The cost of the consultants' services was US$1,195,000. While most objectiveswere achieved with respect to costing and budgeting, valuing fixed assets toreflect inflation and devaluation, and implementing a decentralized managementsystem, ANCAP continues to face serious difficulties in issuing its financialstatements on a timely basis due to: (i) the high turn-over of personnel wholeave for higher salaries in the private sector; and (ii) the lack of fullcompatibility between the peripheral (stocks, personnel, etc.) and main systems.These difficulties mean that the objectives of the study were only partiallyachieved. It is not certain that ANCAP will, in the near term, invest the

7

resources to eliminate the delays plaguing the timely production of financialstatements. The performance of the consultants was considered adequate, but thedesign of the system seems inadequate.

25. Petroleum Pricing: To correct the shortcomings of Government-administeredcost-plus petroleum pricing and taxation, Part B included a study which wouldestablish an ex-refinery pricing system and an import tariff system, geared toencouraging operational efficiency. The OPP sent to the Bank the price reformstudy on April 14, 1990. The study affirmed ANCAP's pricing and oil procurementpractices--that is, ANCAP maintained petroleum prices at appropriate levels inrelation to crude oil import parity prices, and obtained crude oil at optimumprices in the international markets. The study did not include recommendationsfor deregulating the prices of refined products. The cost of the consultant'sservices was US$80,000; their performance was satisfactory.

26. After ANCAP missed the revised deadline (December 14, 1990) for sending thetimetable for expanding on the consultants' findings, the Bank began to stronglypress OPP to provide the Bank by the first week of March 1991 with an Aide Memoirsetting forth the steps and timing of a study which would lead to pricederegulation. This never happened; and retail prices were not deregulated.Instead, as a result of the advent of MERCOSUR, the Government abolished the 20%tax on crude oil imports, thereby bringing ANCAP's pre-tax price structure inline with international comparators, and Argentina and Uruguay aligned their taxrates on gasoline (see Schedule 2). As already stated, the Bank accepted this"half-a-loaf" result in place of deregulation, its real objective, on the groundsthat ANCAP was an efficient monopoly providing good service at a fair price toa market too small to attract competitors (para. 12) . The Bank's acceptance ofthe study and what followed was a reasonable response to the reality of itshaving to operate in this context.

Schedule 2. Gasoline Tax Rates(as a % of the unit retail price)

Uruguay Argentina Brazil ParaguayDate01/92 55 59 34 4206/92 53 60 39 4301/93 54 55 37 4006/93 52 53 37 4301/94 54 56 36 3306/94 55 56 36 3912/94 55 55 36 4103/95 55 NA NA NA

27. Crude Oil Procurement and Trading: Part B included consultant services toimprove ANCAP's oil procurement and trading systems--the object being to reduceprocurement costs through the rapid adjustment of inventories to price swings andmarket developments. Since the pricing study validated ANCAP's import (procure-ment) policies and practices, the Bank (correctly) did not insist on the execu-tion of a procurement study which, presumably, would have duplicated the findingsof the pricing study. Instead, the Bank agreed that ANCAP could upgrade its pro-curement and trading practices by introducing a computerized system to follow themarket and by replacing consultant services with a training program for staff.ANCAP funded the program. All proceeds of this loan allocated to Part B were usedto finance other studies included in the project. While ANCAP provided, asagreed, a report on the training program, there is insufficient information tojudge the improvement to ANCAP's procurement and trading systems.

8

E. Project Sustainability

28. The sustainability of Part A is likely, as the Government and ANCAP'smanagement recognize the importance of the refinery to the economy. ConcerningPart B, if it is reasonable to expect that ANCAP will ensure effective operationof the control system, it is equally reasonable to expect the substantial andsustained achievement of the objective of improved refinery efficiency asmeasured in reduced unit costs. Concerning the sustainability of improvementsto the accounting/budgeting system, judgment must be deferred, pending thereceipt of information on future developments. Given the consultant's positivefinding on its practices and policies with respect to imports and pricing, itdoes not appear likely that ANCAP is planning major changes; and given theGovernment's interest in ANCAP's tax collection services, it does not appearlikely that in the next few years the Government is going to take actionssupporting deregulated prices or altering the monopoly status of ANCAP.

F. Bank Performance

29. Preparation: Phase I, Part A. Technical deficiencies in the feasibilitystudy and unexpected market growth undermined the original project approach. Thetechnical deficiencies had their origin in ANCAP's unfortunate decision to reducethe scope of the feasibility study, for budgetary reasons, by requiring theconsultant to use its (ANCAP's) data on physical state of plant and equipment forthat which would have been generated as a result of the consultant's review(para. 7). Presumably, such review would have demonstrated that existingfacilities were too deteriorated for purposes of the project and thatreconstruction, even without capacity additions, was the correct approach. Toa lesser degree, the Bank must share in the negative judgement on the performanceof ANCAP, as it did not object to ANCAP's reducing the scope of the project.

30. Under current Bank procedures, appraisals are carried out based on, interalia, the cost estimates appearing in feasibility studies, and Board presenta-tions are scheduled only after the substantial completion of final design, whenfirmer cost estimates are available. However, as it used to be standard practicenot to condition Board presentation to the substantial completion final designand the preparation of firmer cost estimates, the Bank did not err under thencurrent procedures.

31. Preparation: Phase II, Part A. Even though the Bank fully participated inthe evaluation and approval of a redefined Part A (paras. 7 & 8) --which substan-tially achieved its objectives--the performance of the Bank during Phase IIshould be rated as only marginally satisfactory because it took 21 months toevaluate the redefinition and answer the ANCAP's request for supplementaryfinancing.

32. In 1989, the Bank spent about nine (9) months checking and rechecking,with the aid of a consultant, the data supporting the redefinition of Part Abefore approving the proposed change. It is the opinion of ANCAP that the Banktook an excessive amount of time to take this decision. At the beginning of1990, to help meet the new increased cost estimate, ANCAP requested supplementaryBank financing for the redefined project. After extended internal considerationof the strong project-specific arguments supporting the Borrower's request, theBank declined to provide any additional funds (December 13, 1990). The Bank'sdenial reflected its new policy of emphasizing the role of private capital and

9

its positive assessment of ANCAP's capacity to bear the cost increase. For itspart, the Government was not interested in altering ANCAP's status as a statecompany or in dispensing with its tax-collection services. Discussions on theseissues were lengthy. It does not seem possible that the Bank and ANCAP, giventheir respective differences, could have resolved the financing issue morequickly.

33. Implementation: Part A. Once implementation began (March 1991), theprofessional supervision effort of the Bank materially improved working relationswith ANCAP, and its performance should be rated as satisfactory.

34. Preparation and Implementation: Part B. As with Part A, the Bank playeda key role in identifying the studies for institutional improvement. Given thatthe achievements with respect to the objectives of the studies range fromsubstantial (if problematic) to partial to validation of existing systems, theperformance of the Bank should be rated no more than satisfactory. Since thepricing study validated ANCAP's policies and practices with respect to imports(procurement) and prices, this finding, together with the Bank's acceptance,implies that at appraisal the Bank either misassessed those practices andpolicies as needing reform when such was not the case; or it lacked sufficientinformation for a proper assessment.

G. Borrower Performance

35. Preparation and Implementation: Part A. During Phase I, ANCAP'sperformance was unsatisfactory (para. 29) . Eliminating the consultants' reviewof ANCAP's plant and equipment was an example of being "...penny wise and poundfoolish." Nevertheless, ANCAP should have been fully familiar with the physicalstate of its existing plant and should have anticipated that, even with a low-growth demand scenario, a project based on the partial modernization ofdeteriorated plant was not possible. As for Phase II, ANCAP's performance wassatisfactory; and its performance during implementation was also satisfactory.

36. Preparation and Implementation: Part B. Like the performance of the Bankwith respect to Part B, the performance of ANCAP should be rated satisfactory.

H. Performance of Consultants and General Contractor

37. The performance of the consultants who prepared the feasibility study wasadequate. Although the consultant was not responsible for the decision to omita "review" of ANCAP's facilities, his report does not make a disclaimer on thisissue and does not recommend that such review should be performed. The perform-ance of the consultants who prepared the basic designs and who acted with ANCAPas supervising engineer was satisfactory. ANCAP alleges that the contractorcontributed to late project completion by not reacting promptly and strongly tocounter adverse developments (para. 21) . The Bank has not been able to confirmthis allegation. As already stated (paras. 23-27), the performances of theconsultants who prepared the various studies constituting Part B were eithersatisfactory or adequate.

I. Follow-on Projects

38. Since 1987, the Bank processed no additional loans benefitting thepetroleum sector of Uruguay. In 1990, the Bank approved Loan 3221-UR (US$62.5

10

million) to help modernize the electric power sector. Another power loan(US$125.0 million) is about to be negotiated.

J. Assessment of Outcome

39. There has been substantial achievement of Part A's physical, operational,and economic objectives (para. 10); the sustainability of such achievement islikely (para. 28). Achievements under part B range from substantial to partialto validation of existing systems (para. 11). The positive assessment of PartA notwithstanding, a prudent and conservative approach ought to prevail in ratingthe overall outcome of the project. As compared with the appraisal forecasts,the project experienced significant time and cost increases; hence, the overalloutcome of the project should only be rated as satisfactory.

K. Key Lessons Learned

40. Four lessons emerge from this project: (1) To minimize the risk of surpriseduring implementation, it is important that during the planning stage the scopeof key studies (such as the feasibility study) not be reduced for budgetaryreasons; (2) The redesign, delays, and cost increases associated with thisproject underscore the wisdom of substantially completing preliminary or finaldesign before scheduling Board approval (see Appendix 3); (3) Instead of buyingan accounting system, the study should have embraced a total modernization ofmanagement's internal information systems; (4) The "half-a-loaf" results on pricederegulation and crude-oil procurement (paras. 25-27) show why the Bank hasdecided to "delink" investment loans and the resolution of sector issues. Thelatter are now to be addressed in the Bank's ESW program and their resolution isexpected to preceed Bank investment lending.

11

Appendix 1Page 1 of 1

Comments of Consultant Re Feasibility Studv

Note: The following was excerpted from a letter dated August 1, 1995 addressedto Mr. Alfonso Sanchez, formerly Chief, LAlIN:

"As a matter of background, we submitted our first lump-sum proposal forthe feasibility study in August 1985. After review and comments by the Bank andANCAP, we submitted our second lump-sum proposal for a reduced scope in October1985. The scope of the second proposal was selected to correspond to the budgetavailable from ANCAP for the study. Due to the reduced scope of work (5,000hours), we neither confirmed nor investigated the condition of the existingequipment. Instead, and in agreement with our client, we relied on informationabout existing facilities that had been given to us by ANCAP management andoperations personnel during a site visit and various conversations.

"This was stated in our October proposal as follows: ' ... (ANCAP) intendsto improve the process and operating efficiencies as well as the economies ofrefinery operations at minimum additional investment and other costs. Consistentwith this approach and project objectives, the study orientation will emphasizemaximization of benefits that can be derived from existing assets, and thereafterinvestigate fully appropriate low-cost plant modification or debottleneckingoptions...'

"Also stated in this proposal: 'Except where ANCAP specifies otherwise,[the consultant] will assume all equipment operates as indicated in the Final JobSpecifications Book for [ ..... I Job No. 5369.' Satisfying these instruction wasour driving force while conduction (sic) the feasibility study.

"Our feasibility report, based on our October 1985 proposal, recommendsthat 10 existing equipment items be revamped, 21 be deleted and 66 new items beadded to carry our (sic) the reduced scope of work. Any existing equipment notmodified or deleted was assumed to operate in accordance with its original designspecification or in a manner acceptable to ANCAP refinery personnel."

12

Appendix 2Page 1 of 3

Comments of the Borrower on Part I

Note: The following, which has been translated from Spanish, was addressed to Mr.Alfonso Sanchez, formerly Chief, LAlIN. It was dated August 31, 1995 and wassigned by Messrs. Andres Tierno Abreu, President, ANCAP, and Juan FranciscoBaldomir Terra, General Secretary, ANCAP. The brackets signify words or phrasesor other changes which clarify the meaning of ANCAP's reply.

"This Administration has analyzed the [draft version] of ICR on theRefinery Modernization Project (Loan 2802-UR), dated June 27, 1995. Set forthbelow are our comments.

"Point one: the division of project preparation into two phases, 1985-1987and 1988-1990. This division was due, according to the Bank, to the consultants'finding, while preparing the basic engineering designs, a very important increasein the estimated cost of the project.

"It is the opinion of the Bank that this increase in the estimated cost ofthe project is due to two factors related to the feasibility study: the physicalstate and useability of the processing units were not verified; and the increasein the demand for refined products, which changed the originally foreseencapacities of the units. The increase in demand materialized between thepreparation of the feasibility study and the preparation of the basicengineering.

"Even though the feasibility study was deficient regarding the correctestimate of the physical state of the installations, the capacity of someequipment and the analysis of most of the facilities were revised during thephase of basic engineering when the project was revised [to make] the refineryprofitable, competitive, and capable of meeting expected demand. Further, it wasnecessary to redefine the systems of instrumentation and control, safety and fireprevention, and electricity co-generation...

"The revision raised the estimated cost of the project from US$30.0 millionto US$65.0 million. But we do not agree that the completed project is verydifferent from the original project, as the Bank maintains (see Part II, Table2) because, in substance, the solutions.. .set forth in the processing diagramsare essentially the same, even though there are some variations with respect tocapacities, technologies, and some services.

"Point two: Factual errors in paragraph 8. Topping III was defined in thefeasibility study at 30,000 BPSD and redefined at 37,000 BPSD, rather than 40,000as stated by the Bank. The FCC unit was defined at feasibility for maximumproduction at 8,900 BPSD... and was redefined at 9,000 BPSD rather than 18,000BPSD as stated by the Bank....

"Point three: Performance of the contractor. Notwithstanding that weacknowledge the judgement [of the ICR], we note the following:

"When the contract was signed, the project completion date was set forJanuary 31, 1994.'

13

ApDendix 2Page 2 of 3

"In September 1993, the detailed engineering having been completed, 95t ofthe purchases having been made, and the construction strike being over, a newconstruction timetable was agreed which fixed the project completion date atSeptember 30, 1994, including 26 days for possible stoppages.

"The date for provisional acceptance was set for February 3, 1995.

"This company acknowledged the above mentioned extension of the completiondate (September 30, 1994), given that: there existed added works (21 days), dayslost due to force majeure (54 days) and strikes (22 days), which extended thecompletion date to December 18, 1994.

"As has been said, ANCAP delayed the completion of the works by six months,taking into consideration the strike and non-measurable impact of the added worksto the scope of the project from January 1994 to September 30, 1994, including26 days lost to non-production.

"The increase in the detailed engineering and the purchase of servicesamounts to about 5% of these concepts, which we judge to have had a small impacton the project timetable.

"Notwithstanding the above, the work was delayed almost four months more.

"When we judge the performance of the contractor, we do so based on causeswhich in our opinion affected the development of the project:

a) a lack of coordination amount the members of the consortium, in theexecution of the detailed engineering;

b) an inadequate system of materials estimation in order to prepare thebidding documents;

c) the delay in the prior stages was reflected in their not having designsand materials in time and form at the construction stage;

d) a ragged development of construction with deficiencies in planning andcontrol. Although ANCAP agreed to update the original timetable, increasing theexecution period to 46 months instead of the 34 months which had beencontractually agreed;

"As a consequence and contrary to the opinion of the Bank in its report,ANCAP judges the performance of the contractor, in this respect, to beunsatisfactory.

"On the other hand, on several occasions, the report says that there wasa "redesign" of the project, when in reality what happened was an updating of thefeasibility concept during the completion of final design. At that time, processlicenses were defined, as were flows, utilities, and the form of construction.

"Finally, it is necessary to say that ANCAP is not a parastatal, as isstated in the ICR (para. 33), but is a state company."

14

Appendix 3Page 1 of 2

Comments of the Guarantor on Part I

Note: The following, which has been translated from Spanish, was attached to acover letter, dated July 19, 1995, from Cr. Ariel Davrieux, Director, Oficina dePlaneamiento y Presupuesto, to Mr. Alfonso Sanchez, formerly Chief, LAIIN.

"The Infrastructure Division (Department 1) of the Bank sent a copy of theImplementation Completion Report for Loan 2802-YR, Refinery ModernizationProject, in order to obtain our comments.

"In general terms we share the conclusions of the report which was preparedby Bank staff.

"It is worth pointing out that one of the principal problems of the projectis related to the preparation phase and originates in the inadequate level of thestudies. Said analyses, which were at the feasibility stage, did not identifythe real state of existing physical infrastructure at the refinery.

"Based on the initial economic feasibility study carried out in 1985, ANCAPsought and obtained a loan from the World Bank for US$24.4 million. The loanagreement was signed on July 29, 1987.

"At that time, the cost of the project was estimated at US$28.4 millions.

"Once the loan had been obtained, basic engineering studies were carriedout. These studies sensibly changed the original project and raised the cost toUS$62.856 million. Besides technical adjustments derived from the differencesin the depth of analysis of the two studies--feasibility and basic engineering,the changes in the project were due to:

(i) the choice of an oven with a larger capacity forprocessing than was chosen for the original project.The new choice was to meet a revised demand forecastand to supply a larger production of distillates.

(ii) the modification of the technology for catalyticcracking. This impacted on costs.

(iii) the addition of two new subprojects: a plant forthe treatment of residual waters; and a stabilizer forcatalytic reforming.

"Another aspect worth pointing out it the grace period of the loan whichwas shorter than the period of execution. The grace period was three yearsbeginning with effectiveness of the loan which the project execution period wasexpected to be four years.

"In conclusion, the aspects worth pointing out from the foregoing are, inthe opinion of this division, the following:

"For this type of project, it should be required that, prior to thecontracting of the loan, studies at the level of final design be completed and

15

Appendix 3Page 2 of 2

that the Borrower should have fully examined those studies.

"There should be no agreement to grace periods which are shorter than theperiod of project execution.

"It is important that projects be subjected to continuous monitoring duringthe preparation period and during the execution period, in order that eventualproblems might be detected and corrective measures be devised and implemented ina timely manner."

16

PART II: STATISTICAL INFORMATION

Table 1. Summary of Assessments

A. Achievement of Substantial Partial NeEli Notobjectives gible A1DI-

cable

Macroeconomic policies X

Sector tariff policies X

Financial Objectives X

Institutional Development X

Physical Objectives X

Poverty Reduction X

Gender Concerns X

Other social objectives X

Environmental objectives X

Public sector management X

Private sector Xdevelopment

Other (specify) X

B. Project Sustainabili_ Likelv Unlikely Uncertain

x

C. Bank Performance Highly HighlySatis- Satis- Unsatis- Unsatis-factory factorv factory factory

Identification X

Preparation/Appraisal

Phase I X

Phase 11 X

Supervision X

D. Borrower Performance

PreparationlAppraisal

Phase I X

Phase 11 X

Implementation X

Covenant compliance X

E. Assessrnent of Xoutcome

17

TabLe 2. Bank Loans for Energy Projects in UruguayPage 1 of 2

AmountLoan Number (in US$ Year of& Project millions) Purpose Approval Status

Preceding Operations l

1779-UR; 24.0 To expand and re- 1979 Project completed inFifth Power novate the dis- Dec. 1985, four years

tribution sys- late due to delayedtem; and to carry effectiveness andout various complex procure-studies (planning, ment procedures.tariffs, manage- Actual and forecastment improvement-- costs were close:finance, audit, US$52.4 million.management in- Management improve-formation sys- ment studies weretem. carried out and im-

plemented. Least-cost expansion plandefined and used.Marginal cost tariffstudy not fully imple-mented; compliancewith rate-of-returncovenant poor. Exceptfor tariff study, pro-ject substantially metits original objectives.

2484-UR; 4.0 To carry out studies 1984 Project completedPower Engi- and training which in 1990, about 3.5neering would: strengthen- years late, due to

UTE's management; late loan effec-promote operational tiveness and com-efficiency; improve plex contractingthe quality of ser- procedures. Finalvice; and stimulate cost was US$7.1rational use of million--26Xelectricity by over appraisalconsumers. appraisal forecast.

Cost increase wasprimarily due topurchase of computerequipment not partof origin project.Completed projectsubstantially metoriginal objectives.

Not Listed are power loans totalling US$82.0 million (0030-UR, US$33.0 million; 0132-UR, US$5.5 million;0512-UR, US$25.5 million; and 0712-UR, Us$18.0 million) made to UTE between 1950 and 1970. Except for a smallpart of Loan 0030-UR, which helped to finance expansion of the telephone system formerly administered by UTE,these loans financed generation projects and transmission/distribution projects, all of which were successfuLlycompleted, notwithstanding cost and time overruns. Following approval of Loan 0152-UR in 1956, the Bank didnot make another loan to UTE for 14 years due to poor macroeconomic conditions, poor institutional performance,and adverse regulation, including low tariffs, government interference and reduced management autonomy.Following approval of Loan 0712-UR in 1970, the Bank and the Goverrrient, in circumstances of severe socialconflict, internal economic difficulties, and deteriorating financial and technical performance on the part ofUTE, engaged in an extended dialogue on measures to restructure the sector and restore the technical andfinancial performances of UTE. Agreement on these measures was achieved in connection with Loan 1779-UR.

18

Table 2 (Cont'd.)Amount Page 2 of 2

Loan Number (in USS Year of& Project millions) Purpose Approval Status

2622-UR; 45.2 To strengthen UTE's 1985 Project completionPower Sec- hydro generation delayed to 1997,tor Reha- capacity by rehabili- about 5 yearsbilita- tating the Gabriel late, due to longtion Terra hydro plant; negotiations with

to improve service other lenders forreliability by expand- additional loans,ing the transmission delays in preparingand distribution sys- bidding documents,tems; to ensure sound and technical com-financial and managerial plexity of renovat-practices through the ing an operatingcontracting of consult- power plant.ing services for projectmanagement.

2802-UR; 24.4 To improve the tech- 1985 Project completedRefin- capabilities ("flexi- in Nov., 1994, 3.5ery bility") of national years late, due toModerni- refinery operated by major post-appraisalzation ANCAP; to improve in- design changes re-

stitutional capacities quired to accomo-at ANCAP (procurement, date increased demandoperations, financial for petroleum products& MIS); to improve the and shortcomings inGovernment's methodology existing facilities.for setting petroleum Completed project signi-prices, the object being ficantly different fromto align domestic petro- the original project.leum prices with inter- Final cost of US$95.8national prices. million almost 53X

greater than revisedSub-total 97.6 2 cost of USS62.9 mitlion.

Following Operations

3221-UR 62.5 To improve the reli- 1990 Project underPower Moderni- ability of supply by execution. Ex-zation installing 113.5 MW pected comple-

of thermal capacity; tion in 1997, asto reduce losses by originallyrehabilitating dis- scheduled.tribution system; toupgrade mgmt. capabilities.

Sub-total 62.5 3

Total 160.1 2/ 3/

2 Total does not include four Loans totalling US$82.0 million made to UTE between 1950 and 1970.

3 Does not include Loan 3517-UR (US$11.0 million, 1992), a Public Enterprize and Reform Loan (PERL), whichis helping to finance a group of studies to identify the steps for privatizing a number of state-ownedcompanies, including UTE. In December 1993, a majority of the electorate rejected the option of privatizingUTE and some other state-owned companies.

4 Total does not include pending loan of US$125.0 million to UTE to rehabilitate, expand, and upgradetransmission and distribution systems. Bank approval is expected in 1995.

19

Table 3. Project TimetabLe

Event Date PLanned Date Revised Actual Date

Identification 12/811

Preparation: Phase 12 07-09/853 01-04/864 01-07/865

Appraisal 10-11/85 3/ 06/86 4/ 09/15-10/02/8609/866

Negotiations 03/86 3/ 11/86 4/ 03/23-27/8703/87 6/

Board Approval 05/86 3/ 01/87 4/ 04/28/8704/87 6/

Signature --- --- 07/29/87

Effectiveness 10/27/87 12/01/877 12/01/87

Preparation: Phase 11 2/ --- --- 12/87-03/91

Implementation 12/87-07/91' 03/91-06/949 03/91-12/94'°

Loan Closing 01/31/9211 12/31/9412 12/31/94

Last Disbursement 01/05/95

Project Completion 07/31/91 12/31/94 02/03/95

1 In 1981, ANCAP initiated talks to install conversion units costing USS100-200 million. In 1982, takingaccount of country and sector problems, the Bank recommended replacing old, obsolete equipment with new,efficient equipment. This approach would reduce costs and defer investment. In 1984, ANCAP studied a projectbased on this approach.

2 Because of the complete redefinition of Part A, it is convenient to think of project preparation asbeing carried out in two phases. Phase I covers the period 1985-1987 and incLudes the activities normal toproject preparation and loan processing. Phase II covers the period 1988-1990 and incLudes the activitiesrelated to project redefinition and the discussions of supplementary financing.

3Source: World Bank, Back-to-Office Report, dated 07.01.85.

4Source: Idem., Draft Initial Project Brief, dated 01.15.86.

5 The Bank received the feasibility study on 07.23.86.

6 Source: Idem., Project Brief, dated 07.22.86.

7 The Bank extended the effectiveness deadLine because the original period was too short; and (2) ANCAPwas working hard to execute a satisfactory Subsidiary Agreement with the Planning Office for the execution ofthe petroleun pricing study and provide a LegaL opinion on the validity of the Subsidiary Agreement.

B Source: World Bank, Staff Appraisal Report, Uruguay: Refinery Modernization Proiect, dated April 6, 1987(Report. No. 6625-UR), p. 64, Annex 4.2.

9 Period covers work to be carried out by general contractor after end of Phase II.

IO Extra months reflect impact of strike of construction workers and increase in project scope.

II As per Section 2.03 of the Loan Agreement for the Refinery Modernization Project, dated July 29, 1987.

12 Bank agreed to amend loan closing date in its letter to ANCAP dated March 27, 1991.

20

Table 4a. Cumulative Loan Disbursements(US millions)

Cal. Yr. 1987 1988 1989 1990 1991 1992 1993 1994

Appraisal 1/ 0.45 2.93 11.34 20.99 24.32 24.40 24.40 24.4

Actual 0.0 1.96 5.13 5.60 6.73 8.06 19.30 24.4

Actual as 0.0 66.9 45.2 26.7 27.7 33.0 79.1 100.0% of Appraisal

1/ Adapted from President's Report, dated April 6, 1987 (Report No. P-4508-UR), Schedule B, p. 6. Thecorresponding annex was omitted from the Staff AppraisaL Report, although reference to such annex appears inthe text of the SAR.

Table 4b. Disbursements by Category: Actual, Revised, and Original

(US$ million)

Actual Revised Revised Revised Original

(01.12.95) (11.30.94) (01.01.92) (03.27.91) (07.29.87)

Category

1. Goods 15.87 15.86 15.16 15.00 12.78

2. Licenses, 4.26 4.26 4.85 4.85 4.15

engineering

fees

3. Works 2.20 2.20 2.30 2.30 0.88

4.(a) Consul- 0.66 0.67 0.67 0.67 0.67

tancy Service

4.(b) Consul- 0.08 0.08 0.08 0.08 0.08

tancy Service

5. Interest & 1.33 1.34 1.34 1.50 3.48

Other Charges

through 05.31.91

6. Unallocated 0.00 0.00 0.00 0.00 2.00

Total 24.40 24.40 24.40 24.40 24.40

21

Table 5. Key Indicators for Project Implementation

Note: The closest analogue to a key indicator (or set of indicators) forproject implementation is the expected timetable for important activities.

Mos.Activity Expected Dates Actual Dates Diff. Comment

1. Basic Start: 12/87 Start: 07/88 7 Late start and delayed completion of basic engineering by con-Engineering Finish: 06/88 Finish: 03/89 9 sultants reflected late loan effectiveness and additional time

No. of Mos.: 6 No. of Mos.: 8 2 required to carry out project redesign to address equipment deficiencies and surge in petroleum demand. The increase in theproject scope led to the Bank's amending Schedules I and 2 ofthe Loan Agreement, dated March 27, 1991--the allocation of loanproceeds and the definition of the project. The redesigned projectwas expected to cost US$62.9 million (excluding interestduring construction) as compared with the appraisal forecast ofUS$28.2 million.

2. Selection Start: 06/88 Start: 07/90 21 Late start and delayed completion of the contractor selection pro-of contractor Finish: 12/88 Finish: 03/91 27 cess reflected extra time required by ANCAP to consider problems

No. of Mos.: 6 No. of Mos.: 8 2 of identifying sources for additional project financing, plus impactof prior delays. In December 1990, the Bank officially declinedANCAP's request to provide supplementary financing on thegrounds that such financing was not appropriate in the light of theBank's interest in promoting private ownership of (or participationin) such facilities as refineries; and ANCAP's capacity to financethe additional costs with its own resources.

3. Procure- Start: 01/89 Start: 04/91 '/ 27 Late start and delayed completion of the procurement processment Finish: 04/89 Finish: 12/93 reflected impact of prior delays and increased project scope.

No. of Mos.: 3 No. of Mos.: 20

4. Civil Start: 05/89 Start: 09/92 40 Late start and delayed completion of civil works and installationWorks, Finish: 02/91 Finish: 09/94 44 reflect prior delays, plus impact of strikes (June-August 1993).Installation No. of Mos.: 21 No. of Mos.: 24 3

5. Pre-com- Start: 02/91 Start: 10/94 42 Late start and delayed completion reflect impact of all factorsmissioning Finish: 07/91 Finish: 12/94 41 cited above.

No. of Mos.: 6 No. of Mos.: 3 -3

1 Represents date when Bank provided its "no objection" to for the issue of pre-qualification documents.During week of JuLy 22, 1991, Bank and ANCAP reached agreement on (i) list of pre-qualified bidders; and (ii)procurement procedures, instruction to bidders, and generaL purchasing conditions.

22

Table 6. Studies Included in Project

Purpose as definedStudy at appraisal/redefined Status Impact

1. PLanning To improve efficiency of Having received consuL- Final assessment of theseand Con- refinery operations using tants' final report on systems can only be madetroL of computers. 10.02.90, ANCAP after they have beenProduction instalLed controL sys- properLy tested. However,Operations tems compatible with the it is reasonabLe to expectUsing redesigned project--com- that because of theirOptimiza- puter-based systems us- importance, ANCAP wilLtion Tech- ing optimizing linear assure their full, effec-niques programming techniques. tive, and sustained oper-

ation and in due courseprovide supporting data.

2. Accounting, To improve management controL After consultants issued Achievements are partial.Budgeting of financial functions: their report in 10.89, There continue to beand Manage- accounting, budgeting, and ANCAP purchased & imple- difficulties in issuing on-ment Infor- management information. mented computer software time financial statementsmation Sys- for accounting/budget- due to: (i) high turnovertems ing. ANCAP continues to of computer staff who leave

face difficulties in for higher saLaries; andissuing financial (ii) less-than-completestatements on time. compatibility of peripheral

systems (personnel, stock)with accounting system. Itis not certain that ANCAPwiLl in the near terminvest the resources toeliminate delays.

To improve the petroleum Consultants issued their Having accepted results of3. Ex-Refinery pricing and taxation system, final report, 04.14.90, study validating ANCAP's

Petroleum the objects being to: (i) which validated ANCAP's pricing policies and prac-Product ensure adequate levels of import and pricing tices, the Bank acceptedPricing & Government tax revenues on practices and policies. price structure reflectingCrude Oil petroleum products; (ii) OPB was supposed to treaty obLigations underImport maintain the financial discuss with the Bank a MERCOSUR on the groundsTaxes viabiLity of ANCAP; and (iii) timetable for a study that ANCAP was an efficient

remedy the lack of efficiency which would lead to monopoLy, providing goodincentives in Government- price deregulation, but service at a fair price toadministered, cost-plus this did not happen due a market which was toopricing principles. to the advent of MERCO- small to attract

SUR and the aLigrnent of competitors.petroLeum tax structureby Uruguay and Argen-tina.

4. Procurement To improve ANCAP's crude oil Given the validation of Bank accepted results ofand Product procurement and trading ANCAP's import practices study validating existingTrading procedures--the object being (see above), no study procurement practices. AsSystem to reduce procurement costs. was ever carried out. for staff training program,

Instead, Bank agreed the data are insufficientthat ANCAP, using its to make a judgement.resources, couLd sub-stitute training programfor operation of com-puters to follow marketfor consultant services.Proceeds of TA componentwere applied to otherstudies. ANCAP suppliedreport on trainingprogram in 04.95.

23

Tables 7a. & 7b.Project Cost: Forecast, Revised, and Actual

Sources of Financirg: Forecast, Revised, and Actual(in miLlions of US$ stated in current prices)

Forecast Revised Actual

Proiect Cost Local Foreign Total Local Foreign Total Local Foreign Total % Diff. FromRevised.

1. Equip., Mat. (FOB) 1.41 12.98 14.39 7.35 28.74 36.09 0.00 38.69 38.69 1.5'

2. Transport & Ins: 0.20 1.79 1.99 0.00 2.03 2.03 (part of 1)

3. Construction 5.31 0.88 6.19 9.93 1.68 11.61 41.53 0.00 41.53 257.7

4. Overhead20.37 4.54 4.91 0.52 11.55 12.07 0.00 13.69 13.69 13.4

5. Institutional 0.00 0.75 0.75 0.00 1.05 1.05 0.00 1.90 1.90 80.9Improvements

Total 7.29 20.94 28.23 17.80 45.06 62.86 41.53 54.28 95.81 52.4

Sources of Financing

World Bank 0.00 20.94 20.94 0.00 20.94 20.94 0.00 23.06 23.06 10.1'

ANCAP 7.29 0.00 7.29 17.80 3.35 22.79 41.53 31.22 72.75 52.5'

Supplemental Loan 0.00 0.00 0.00 0.00 20.77 24.92 0.00 0.00 0.00 0.0

Total: 7.29 20.94 28.23 17.80 45.06 62.86 41.53 54.28 95.81 52.4

1. Percentage computed after adding revised forecast of costs of material, etc., to revised forecast of costof transport and insurance.

2 Consists of expenditures on licenses, detailed engineering, preparation of procurement documents, andstart-up expenses.

3 Reflects agreed reaLlocation of loan proceeds to reduce aLlocation for interest during construction andother finance charges.

4Percentage computed after adding revised forecast of supplemental Lending to revised forecast of ANCAPfinancing.

24

Table 8. Compliance with Major Covenants

Type of Present Original Revised | lSection Compli- status fulfillment fulfillment Description Remarks

ance date date

A. LOANAGREE-

MENT

3.01(a) Project CD ANCAP to carry the project, except for theImplemen- petroleum pricing study--Part B(iv) of the

tation Project--with due diligence.

3.01(b) Project C ANCAP to make available to the Govern-Implemen- ment funds allocated from Loan 2802-UR

tation for the execution of the Government'spricing study.

3.02 Procure- C ANCAP to procure goods and consultantsment in accordance with Bank guidelines.

4.01 Manage- C ANCAP to conduct its affairs in accordancement & with sound administrative and financialOpera- practices appropriate to the public utilitytions and petroleum sectors and under the

supervision of qualified management andstaff.

4.02 Manage- C ANCAP to operate (and repair as neces-ment & sary) its plant and equipment in accordanceOpera- with sound engineering and financial prac-tions tices appropriate to the public utility and

petroleum sectors.

4 04 Project C 06.30.89 12.31.94 ANCAP to complete Part A of the Project After effective-Implemen- (Refinery Conversion) and thereafter inform ness, project was

tation the Bank quarterly on the base line meas- completely re-urements. designed due to

shortcomings oforiginal projectapproach. Re-design delayedinitial implemen-tation to 03.91--3months short ofinitial projectcompletion date:06.91. Projectcost rose toUS$95.8 mill-ion, or almost239% over ori-ginal forecast ofUS$28.2 million.

25

Type of Present Original RevisedSection Compli- status fulfillment fulfillment Description Remarks

ance date date

5.01(a) Accounts/ C ANCAP to maintain records and accountsaudits of the utility and of the project; and to

maintain separate accounting records for itsfuel division.

5.01(b)(i) Accounts/ C 06.30.89 12.31.94 ANCAP to have its records, accounts, andaudits financial statements audited annually in

accordance with appropriate auditingprinciples by independent auditorsacceptable to the Bank.

5.01(b)(ii) Accounts/ CD ANCAP to furnish to the Bank, not later Receipt ofaudits than six months after the end of each year: audited financial

(a) certified copies of its financial delays was oftenstatements for each year properly audited delayed. Forand (b) the auditor's report. example, audited

statements for1993 were notreceived untilDecember 1994.

5.01(b)(iii) Accounts/ C ANCAP to provide unaudited reports afteraudits completion of Part B (iii) not later than 3

months after the end of each year.

5.01(c) Accounts/ C ANCAP to maintain records and accountsaudits of Statement of Expenditure (SOE), and

provide audited reports to the Bank.

5.02 (a) Financial C ANCAP to incur no debt, if, after theincurrence of such debt, the debt to equityratio is greater than 60/40.

5.03 Financial C ANCAP to incur no debt, if, after theincurrence of such debt, the debt servicecoverage ratio is lower than 1.3.

5.04(a,b,c) Financial C ANCAP to: maintain a current ratio of notless than 1.3; review financial forecastswith the Bank before June 30 of each yearto determine if such ratio shall be met inthe current year and next succeeding year;take the required measures if the forecastsshow that such ratio shall not be met.

5.05 Financial C ANCAP to inform the Bank promptly onany preliminary decision to undertake anycapital expenditure estimated to cost morethan US$15 million.

26

Type of Present Original RevisedSection Compli- status fulfillment fulfillment Description Remarks

ance date date

B. GUAR-AN-

TEEAGREE-MENT

2.02 Counterpart C Government to take the take the necessaryFunding action to provide ANCAP with adequate

funds to meet expenditures.

2.03 Project C Government to take all necessary measuresImplemen- to expedite the import of goods or servicestation required by ANCAP to execute the Project.

3.01(a) Project C Government to carry out the petroleum Study wasImplemen- pricing study--Part B(iv) of the Project-- completed

tation with due diligence and efficiency and in satisfactorily;conformity with appropriate administrative final report waspractices, and shall provide the funds and delivered to theother resources required for its execution. Bank (see

comment onSection 3.02(b).

3.01(b) Project C Government to enter into a subsidiaryImplemen- relending agreement with ANCAP.

tation

3.02(a) Procurement C Government to procure consultant servicesfor petroleum pricing study--Part B(iv) ofthe Project--in accordance with Bank

l ___________ ___________ guidelines.

3.02(b) Project CD 04.30.88 08.30.88; Government to submit petroleum pricing Government sub-Implemen- 06.17.89 study to Bank and thereafter exchange mitted report to

tation views with the Bank on its findings and Bank on 4/16/90recommendations. --almost a year

after amendeddate of 06/17/89.

3.02(c) Project CD 09.30.88 01.30.89; Government to submit to the Bank a datedImplemen- 11.17.89 plan of action based on the exchange of

tation views with the Bank on the findings of thel___________ petroleum pricing study.

3.03(a,b,c) Accounts! C Government to: maintain separate records Provision ofaudits and accounts on Petroleum pricing study-- audit reports on

Part B(iv) of the Project; furnish and audit study and SOEsreport not later than four months after the no longerend of each year up to completion of the required.study; and provide an audited Statement of

l__________ _________ Expense up to completion of the study.

27

Type of Present Original RevisedSection Compli- status fulfillment fulfillment Description Remarks

ance date date

4.01 Project C Government to provide to the Bank forImplemen- comment the report on Forestry

tation Management not later than three monthsafter its completion.

Key: C = Covenant Complied WithCD Complied With After Delay

28

Table 9.

Economic Justification: EquaLizing Discount Rate

Comparison: Operating the Refinery with and without the Project (Using ActuaL Investment Costs and Expected Operating Costs)

_ (in | 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2025 2006 2007 2008 2009 20101995i Pn6cn

ale 69 Redi-ry d.o .69 ___===

P-1, Nel 000 0I00 000 0I0 -171.70 -17483 -179 16 -182.46 -1868 -189 13 196 -19627 -19994 -20390 -207.9 .2120 -216.25 .2319 -23570 -239.58

fliiuc 0.00 000 0.0 007 318 -3.18 -3.18 -3.18 -3.18 -3.18 -3.18 -318 -318 -318 -3 -3.1 318 -3.18 -3.18 -3.18

Opera- 0.07 0 .07 0 .0 -7 069 791 -7.69 70 79 7 60 7 0 76 0 0 769 6 70 o 76760 070 7*60 -7.60

To71 0.07 0.07 0.07 00 -182.48 -185.61 189.94 193.24 -196.46 199.93 -20146 2070 -210.72 214.58 -218.72 -272983 -227.03 242.69 -246.48 -2YiO36

F-1,Nel = 0.0 0.0 0. 00 1302 1320 15729 1926 16205 16328 16613 16922 172.29 175099 1798 18376 07.72 20679 210.4 .21426

Ul9li9ie4 0.07 007 000 000 I 1 13 13 I 113 I 13 -1.13 -1.13 1.13 1 13 I 13 .1 13 -I 113 -1.13 -1.13 -1 13 -1.13

opwmig D=0 0 0.000007 0.00 760 760 7.60 760 -7 .76 760 760 760 760 760 760 760 -760 -760 -7.60

0.07 1307 .3600 0707 007 000 007 007 0.07 0.07 07 00 0O00 00 007 00 0O07 0 0.007 007

Toe = 0.07 15.00 .36.00 -57.00 -153.9f -161 93 -166937 -167.99 -170.78 -172.01 -174.86 -17799 -181 02 -194 72 -188061 192.49 -196I45 -215.51 -219.21 -222.99

Diffenrc= 0.00 .1500 3600 -57.00 23 53 23.69 2357 25225 25.63 D.92 28059 29.10 29.71 29.86 30.10 30.34 30.58 27 18 27 27 27 37

EqiWuing Disu Rlc 21 98%

29

Table 10.

Bank Resources: Staff Inputs

Stage of Planned Actual

Project Weeks US$s Weeks US$s

Cycle (in ths.) (in ths.)

Preparation/Appraisal

Phase I 1

FY1984 NA NA 8.4 NA

FY1985 NA NA 5.4 NA

FY1986 NA NA 35.3 NA

FY1987 NA NA 48.32 NA

Phase II

FY1987 NA NA 3.3 NA

FY1988 NA NA 4.7 NA

FY1989 NA NA 6.2 NA

FY1990 NA NA 21.6 NA

Supervision

FY1991 12 18.9 17.7 NA

FY1992 5.8 9.1 9.0 NA

FY1993 4.0 8.0 8.0 NA

FY1994 15.0 25.6 10.6 3.9

Completion

FY1995 5.0 14.8 NA NA

178.5

1. As explained earlier (see Part II, Table 3), because the project had to be completely redesigned after the Bank approved Loan2802-UR (April 28, 1987), it is convenient to think of project preparation as being carried out in two phases. Phase I endedwhen Loan 2802-UR was declared effective (December 1,1987). Phase II ended in March 1991 when the Bank, as requested, redefinedthe scope of the project.

2. Includes 37.2 staff weeks devoted to appraisal, Loan processing, etc.

30

Table 1 .Bank Missions

-- ;t----fT -4utbAr ----- -- -T--Days- ------------ T-------------------------------------------Number j p [lly ays Overall

MW'sior |Dte of 5pe-alty in Performance Problem… .2LSta j. … _Field j Rating j

Pr''p.r It on 1 06/85 3 ENGLFA;ECON 15 NA NA

rs "par lf ionl 2 i'rJ'5. 2 t-N(;" A 4 NA NA

<rannt'.on 2 u2/86 3 EtNG;F4 6 NA NA

P.rrai ;aL 9/96 s ENG;FA;CON 51 NA NA

trJtA-PR. 11 ' 8Er 5 NA NA

otto 81

'I yj 0.I / 88 2 Ehu;;A 10 3 Major increase in scope of the project due tounanticipated surge in demand for petroleumproducts, leading to: (i) longer implementationperiod; (ii) major design changes; and (iii)cost increases due to (ii) and serious compli-catioris concerning the source of additionaLfunding.

Nt,r,&rv'si.i n2 1 I/88 . LNU:FA 10 -- -- 1/

s *-rvi•-ou3 4 j/89 2 NCG;FA 10 3 Same as Supervision 1.

Rc reri i-. ; *7' 921 1 3 Et-OG 15 2 All rating subcategories awarded 1" due toresoLution of problems (ii) and (iii) above.Overoll rating of "2" reflects two-yeardeferral of project completion date to June1994- the result of tne longer implementationperiod, design changes, and increased projectscope. Bank accepted design changes andincreased project scope; but did not agree toANCAP's request for supplementary financing.(ANCAP successfully undertook to provideadditional funding from its own resources.)

t)reL.onuS G;5 3/9 * ENC;FA 8 2 Same as above.

sup rvis:frn e 10 93 .2 ENG;FA 14 2 All rating sub-categories awarded ''1, exceptthose relating to compliance with legalcovenants and progress with respect to techni-cal assistance. ANCAP was late in supplyingaudited financiaL statements; Government was.tow in implementing recommendations ofpetroleum pricirg study.

',,,, si ' ^ E9 ,-A 16 Satis- Same-as above.factory

I. tt 73

1. Bank iles do onut contain supervision report resulting from mission of 11/88.