|1. Project Data:
ICR Review Date Posted:
|Sao Paulo Metro Line 4 Project
Project Costs(US $M)
Loan/Credit (US $M)
Cofinancing (US $M)
|Japanese Bank for International Cooperation (JBIC)
Board Approval Date
|General transportation sector (100%)|
|Urban services and housing for the poor (40% - P)
Infrastructure services for private sector development (40% - P)
Pollution management and environmental health (20% - S)|
||ICR Review Coordinator:
||Alain A. Barbu
|2. Project Objectives and Components:|
a. Objectives:The statement of objectives in the Project Appraisal Document (PAD) and the Loan Agreement is identical: " (a) to improve the quality and long-term sustainability of urban transport in the São Paulo Metropolitan Region (SPMR) by interconnecting the existing subway, commuter rail and bus networks through the construction of METRO's Line 4; (b) to improve the accessibility of the low-income population of the areas served by Line 4 to employment centers and health and education facilities; and (c) to seek private sector participation in the development of Line 4.
The project development objective (PDO) was not altered during restructuring of the project (upon approval of the additional financing in 2008), while several PDO- related targets were revised, as follows:
- Increasing the target percentage of Line 4 Phase 1 stations integrated with buses to 100%.
- Reduction of average generalized travel costs between Vila Sonia and Luz from 104 to 82 minutes against original target of 51 minutes with Line 4 Phase 1 in operations. The revised target value reflects higher than expected growth in traffic and an updated methodology for value of time.
- Adjustment of the target Metro share of urban transport motorized trips to 17.5% from 23% in 2010 due to a revised methodology to calculate the base mode share for Metro in 2001.
- Clarifying METRO’s working ratio (operating costs over operating revenues) to remain less than one, excluding depreciation, cost of capital and the operations of Line 4.
b. Were the project objectives/key associated outcome targets revised during implementation?
If yes, did the Board approve the revised objectives/key associated outcome targets?
Date of Board Approval: 06/12/2008
c. Components:Component A: Infrastructure and Equipment Investment (appraisal cost US$758.2million; actual cost US$1,509.39million). Construction of, provision of equipment for, and operation and maintenance of, the line of the SP Metro which will link the SP Metro’s Vila Sonia yard facility to the SP Metro’s Luz station (Line 4), consisting of about 12,800 meters of double underground track, 5 stations and 4 station shells, acquisition and installation of system-wide facilities (including fixed installations for electrification), and acquisition and operation of 16 train sets.
Component B: Technical Assistance (appraisal cost US$33.00million; actual cost US$15.84million). Provision of technical assistance for: (1) the management oversight and supervision of the carrying out of Part A of the Project; (2) the carrying out of a financial management and cost recovery review (including recommendations on tariff structure) of the SP Metro operations; and (3) for a follow-up project finance study on alternatives for private sector participation in the carrying out of Part A of the Project .
Revisions were made to the components between approval in 2002 and project restructuring in 2008:
- Inclusion of a sixth station, Faria Lima, in Phase 1;
- Change in the construction method from Shields to NATM in parts of Lot 2 (was done by the project with all risks assumed by the turnkey contractors);
- Delivery of 14 train sets instead of 16 (was done by the operating concessionaire);
- Inclusion of additional works (advanced engineering design) for supply and implementation of platform door system (PSD) for the Phase 1 and Phase 2 stations;
- Inclusion of additional works for the production, supply and implementation of data transmission system (STD);
- Inclusion of additional works for the production, supply and implementation of the passenger fare collection system (SCAP) Line 4, phases 1 and 2, including Vila Sonia yard;
- Inclusion of additional works for the supply and implementation of moving walkways.
The main reasons for revisions were the appreciation of the Brazilian Real against the US dollar, inflation, and implementation delays. The project was restructured during approval of the additional financing in 2008.
d. Comments on Project Cost, Financing, Borrower Contribution, and DatesFinancing: The World Bank Group contribution consisted of a loan in the amount of US$209 million. It was also co-financed by the Japanese Bank for International Cooperation (JBIC) in the same amount as the Bank’s financing (US$209million. In April 2008, the Bank approved an additional loan (IBRD-75360) of US$95.0 million to compensate for the effect of the US$ devaluation against the Brazilian currency and inflation over the turnkey contract costs as well as the respective annual price readjustment clause. The same co-financing ratio for the Bank and JBIC was maintained for the additional financing. At closure, Bank's total financing was US$304million.
Borrower contribution: The contribution of the State of São Paulo was US$308.40million at appraisal, which increased to US$922.03 by the project closure. This variation was primarily due to: (1) changes in the scope or schedule of the project including amendments and change in construction methods; (2) variation in the exchange rate given that the financing was in US Dollars while main contracts were in Brazilian Real; and (3) increase in prices due to the annual readjustment formula (inflation) in the contracts.
In addition, a private consortium, Consórcio Via Amarela, made a contribution to the project in the total amount of US$246.10million (raised from the appraisal amount of US$207.50million). The private consortium was competitively awarded the concession in 2006 to operate the system for 30 years in exchange for the provision of rolling stock and systems.
Dates: The original closing date was June 30, 2007; the actual closing date was March 31, 2011. The closing date of the original loan was extended two times. The first extension was from June 30, 2007 to June 30, 2009 occurred in March 2007. A second extension to June 30, 2010 occurred in conjunction with the approval of the additional loan. The original loan was closed and fully disbursed by June 30, 2010. A delay of three years in the completion of Line A Phase 1 was caused by the implementation problems that included a combination of procurement litigation and a delay in expropriation due to a protracted strike of the official evaluators of property values, the unavailability of counterpart funds in the first year, and a fatal construction accident in 2007 slowing the project schedule and disbursement by almost a year. In May 2010, the Bank approved a 9-month extension of the closing date of the additional financing loan from June 30, 2010 to March 31, 2011 to allow for the completion of civil works and systems for full operations and full disbursement of funds.
|3. Relevance of Objectives & Design:|
a. Relevance of Objectives: The project development objective (PDO) was consistent with the State of São Paulo's development priorities within the Integrated Urban Transport Plan (Plano Integrado de Transporte Urbano ) for the the São Paulo Metropolitan Region. The PDO remained relevant to the World Bank Group's FY08-11 Country Partnership Strategy for Brazil (current at project closure), the key goals of which included competitiveness and equity through improving access to infrastructure/ urban services. The PDO was also in line with the main priorities of the Country Strategies at appraisal and during implementation, which supported targeted interventions (a) to reduce poverty through the provision of urban services to the poor, (b) sustainable fiscal adjustment through reform of public enterprises, and (c) renewed growth through private sector participation in infrastructure provision, among others. Overall, relevance of the project objective is rated high.
b. Relevance of Design:The Project design appropriately targeted the highest priority issues of the urban transport sector in the São Paulo Metropolitan Region: in particular, the need to address an increasing traffic congestion and atmospheric pollution, as well as a lack of access to job opportunities. Despite an existing 270 km rail network, the lack of integration between the Metro and the suburban trains discouraged more rail trips in favor of buses and the automobile, thereby creating heavy congestion during peak hours and significantly increasing travel times.
The project results framework provided a logical link between the activities to be financed by the project and the outputs and outcomes.
The project design was relevant throughout the life of the loan, though it underwent a number of amendments to the project components at the request of the State of São Paulo as a result of the exchange rate appreciation and inflation. The currency risk was not explicitly considered among the causes of potential cost increases; this risk could not have been credibly forecast at preparation. The planned implementation period of 5 years was appropriate given the risks identified during preparation but turned out to be too short given the complexity of the project and unforeseen delays regarding resettlement and the construction accident. The relevance of the project design is rated substantial.
|4. Achievement of Objectives (Efficacy) :|
The objectives of the project for the São Paulo Metropolitan Region were achieved to the following extent:
a) Improved quality of urban transport: High
100% of planned infrastructure was completed: construction, provision of equipment, and operation and maintenance of Phase 1 of Line 4, consisting of double underground track, 6 stations and 4 station shells, acquisition and installation of system-wide facilities (including fixed installations for electrification), and acquisition and operation of 14 train sets (revised from 16).
Line 4 Phase 1 improved travel times, convenience, and reliability: a 30% improvement was achieved in generalized travel costs (travel time plus fare plus reliability) from the baseline value of 104 to 73 minutes, exceeding the revised target.
6 stations of Phase 1 are fully operational. Line 4 is an essential integration line of the São Paulo metropolitan public transport system. The Phase 1 portion of Line 4 was moving over 600,000 passengers per day after 6 months in operation with a strong growth trend. This ridership meets the projections at the time of preparation and during implementation. According to the TTL, the daily ridership is currently approaching 700,000 (as of October 2012). In the last decades, very few new metro lines in the world have achieved this level of ridership, which validates the significant projected benefits.
The target of integrating municipal and inter-municipal bus lines was achieved in all six stations of Phase 1 allowing for the efficiency benefits of transferring passengers from the surface roads to rail-based modes in a new underground line.
The share of Metro trips among motorized trips increased from 16% estimated for 2001 to 19.3% exceeding the revised target value of 17.5%. The increase in metro share of urban transport was achieved despite the rapid growth in motorization during this period. The other rail ridership and mode share of São Paulo Metropolitan Train Company (CPTM) also increased significantly in this period. This positive trend is attributable to a portfolio of investments made by the SSP, including the implementation of Line 4, improved reliability and service frequencies on CPTM lines, and extensions to Lines 1, 2 and 3.
Improved long-term sustainability of urban transport: Substantial
Financial management and cost recovery studies (including recommendations on tariff structure) were completed by 2006. They were designed to propose cost cutting measures and revenue maximization to improve METRO’s working ratio.
A follow up of the project finance studies was also completed. These included a report by financial advisor on private participation in the operation of Line 4, a review of PPP studies developed by METRO, and a study of urban operations (including financial implications).
The financial management and cost recovery studies were concluded and recommendations were implemented. Metro’s working ratio (defined as operating costs divided by operating revenues) improved from the baseline value of 0.98 to 0.79, and below the covenanted 1.0, with the introduction of Line 4. While the financial impact cannot be fully assessed because detailed operating cost data is not publically available from the concessionaire, this result suggests that the public sector’s burden has remained the same or decreased with Line 4.
The review also resulted in the development and introduction of the Single Integrated Fare Ticket (BUI) in 2006.
b) Improved accessibility of the low-income population: High
Transfer stations, platforms, and extension of the network Line 4 were completed. Line 4 is integrated with Lines 1, 2 and 3 of Metro and Lines 7, 9, and 12 of CPTM.
Fare integration was implemented (see above).
At least 50% of Metro users are considered low income and live in the suburbs of the greater São Paulo Metropolitan Region. A long-term study of the travel conditions of the poor population in the areas influenced by the Line 4 project began in 2010 with a survey before the project entered operations. Preliminary results from the initial survey and the Bank’s analysis suggest that low-income commuters from the periphery of the region benefited the most from the combination of the single integrated fare (BUI) and Line 4. The fare integration (Bilhete Único) started in 2006 providing free transfers between Metro, CPTM, municipal buses, and some inter-municipal buses by way of specially branded contactless farecards. The majority of accessibility benefits (proximity to land uses that generate social and economic opportunities) and mobility benefits (generalized travel savings) accrued to low-income families in the periphery of the São Paulo Metropolitan Region who now use Line 4 as one of the legs of journey to cross the city or region.
Line 4 Phase 1 has increased the accessibility of low-income population to public transport and to employment centers, health, education, and leisure facilities. The main beneficiaries of Line 4 were the populations of Embu, Taboão da Serra, Cotia, Embu Guaçu, Itapecerica da Serra, Juquitiba, São Lourenço e Vargem Grande Paulista, whose accessibility to the Central Business District (CBD) and other areas of employment, health and education facilities was greatly enhanced.
c) Private Participation: High
The project sought private participation in the new urban rail project development and operations in Brazil. The objective was achieved. Line 4 was the first Metro project developed under federal and state public-private partnership (PPP) laws.
Metro Line 4 introduced an innovative structure for Brazil including the owner (METRO), operating concessionaire established by a consortium of private companies, and a turnkey contract signed in 2003 for the construction works.
Infrastructure and part of the rolling stock were financed by the State of São Paulo (with the support of loans from the World Bank and JBIC) and by private partners at 80% and 20% respectively. The 30-year concession contract includes the operation of Metro Line 4, as well as the investment and installation for rolling stock, signs, track connections and data transmission with the train networks. The concessionaire’s operations using new technologies such as driverless train operation (Communications- Based Train Control) and station platform doors suggest greater operating efficiencies (lower costs) and improved safety performance.
According to KPMG’s publication “Infrastructure 100 World Cities Edition” issued in July 2012, Line 4 is one of the 100 most innovative infrastructure projects in the world. The selection was made by international specialists based on project scale, feasibility, complexity, innovation, and impact on society.
For the project at closure, the revised Net Present Value (NPV) of benefits is US$364million and an Economic Internal Rate of Return (EIRR) is estimated to be13.8% as compared with an NPV of US$554million and EIRR of 17.7 percent at appraisal. The results are slightly lower primarily due to an increase in costs and updated assumptions.
A conventional cost-benefit analysis for the project was carried out using the latest cost and benefits estimates available. The situation with the project was compared against the situation without the project. The following conservative assumptions were made in the analysis with respect to the situation at appraisal:
1. Updated investment cost stream to reflect the changes to the components and timing.
2. Updated benefits stream to reflect the approximately 4-year delay in the start of Phase 1 operations since the original appraisal.
3. Maintained the reduction in wages and the incremental increase in operating and maintenance cost which were consistent with appraisal.
4. Updated value of time coefficients to account for the differences in time-savings for home to work, business and other trip types.
5. Updated travel purpose distribution based on latest estimates.
The project experienced significant cost increases and delays, however the ex-post assessment still confirms a positive economic efficiency of the project. The project team subsequently stated that the cost overrun and implementation delay were considered in the analysis, and were largely compensated by an increase in travel time savings. As mentioned in Annex 3 of the ICR, updated ‘value of time’ coefficients for different trip types were used in the travel time savings estimate. These new coefficients are from economic analysis done for the Line 4 Phase 2 PAD in 2009/2010. These updated values of time are higher than were projected in 2001 due largely to the economic boom and income growth in Brazil in the past decade.
Overall, the almost 4 year delay due to procurement litigation, unavailability of counterpart funds, accident caused by engineering defects resulting in 7 deaths, and resettlement problems suggesting inadequate social assessment point to Modest efficiency,
a. If available, enter the Economic Rate of Return (ERR)/Financial Rate of Return at appraisal and the re-estimated value at evaluation:
* Refers to percent of total project cost for which ERR/FRR was calculated