1NAO0S9 THE WORLD BANK POLICY, PLANNING & RESEARCH STAFF Infrastructure & Urban Development Department Report INU 59 IL cop! Institutional Reform in Transport Case Study: Uruguayan Railways Jorge C. Kohon and Louis S. Thompson December 1989 CASE STUDY The viws and hprons hen are tn of the authors and should not be atbibuted to te World Bank, to i affiliated organizatons, orto ay indMdual acdng on ther behaHf f-j~~~~~~~ J, j j '' - lS' :ilii i!ji., ljl'l ... .. . .. ........ .. .. .. .. ...... . .................... ................... ............ .. .. .... ..... ..... .... ..... ..... .... ..... .. ....... ..... ..... ... ..... . .t... ....: . ... .... ... i.'.:..!'' .... ..... 1':!..) I:. ... .... .. i . .. i. '-i.... .... ...... ..... .. ...... zll,;-1.e fiL:;;l-i!iDr .... ......... ..... .... .. .- ............ .... . . .. .. ............ ......... ..... .. ............ ......... ..... .......... ....... .. ... ..... .... .... ... ..... ... ... . 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The World Bank does not accept responsibility for the views expressed herein, which are those of the author and should not be attributed to the World Bank or to its affiliated organizations. The findings, interpretations, and conclusions are the results of research supported by the Bank; they do not necessarily represent official policy of the Bank. The designations employed, the presentation of material, and any maps used in this document are solely for the corvenience of the reader and do not imply the eaxpression of any opinion whatsoever on the part of the World Bank or its affiliates concerning the legal status of any counby, territory, city, area, or of its authorities, or concerning the delimitations of its bousndaries or national affiliation. This report was prepared for the World Bank by Jorge C. Kohon, Consutn, Soler 4929, Codigo Postal 1425, Buenos Aires, Argentuia, and by Louis S. Thompson, Railways Adviser, INUTD, The World Bank. I IL S A -A Acknowledgement: The authors wish to thank Cr. Juan Berchesi for his vision in identifying the need to carry out this study, and for his support in doing so. His assistance in outlining the issues to be covered, in making AFE data available, and in commenting on the numerous drafts was crucial to the completion of the report. The opinions expressed of course, are those of the authors, and do not reflect official positions of either the World Bank, the Uruguyan government, Cr. Berchesi or of AEE. A ( A INSTITUTIONAL REFORM IN TRANSPORT. CASE STUDY: URUGUAYAN RAILWAYS. INDEX I. HISTORY OF PERFORMANCE A. The Transport Sector B. The Railways II. REASONS FOR CHANGE III. DESCRIPTION OF ACTION TAKEN A. Reduction of Passenger Services and Closure of Lines (1985) B. A Medium and Long Term Strategy (1986) C. Tariff Freedom, Freight Priority, Reduced Passenger Services (1987) D. Elimination of Passenger Services (1987-1988) E. Privatization, Contract Plan, and Organizational Changes (1988-1989) IV. LABOR REASSIGNMENT V. EVALUATION OF RESULTS A. Why was Reform Possible? B. Who Paid the Cost of Reform? C. Which Mistakes were Committed? D. Final Reflections ANNEX I: A KEY ATTITUDE SURVEY I ^ * (A $ A 1 CHAPTER I HISTORY OF PERFORMANCE A. The Transport Sector 1.1 Uruguay is a small country of three million people and 176,000 sq. km of mostly level and gently rolling terrain, wedged between Argentina (15 times larger) and Brazil (45 times larger). It has a democratic government and a homogeneous and well educated population with cultural and social values similar to those of Western Europe. Per capita income, about US$ 2,200 in 1987, is relatively high for Latin America. Uruguay's demographic characteristics show an aging, mostly urban population, with a low reproduction rate (1.2%) and even lower population growth rate (about 0.5Z a year over the last 25 years). 1.2 Agriculture is the most important sector driving the economy: about two-thirds of total exports are of agricultural origin and a large proportion of manufacturing activities is linked to the processing of domestic livestock materials (meat, textiles, clothing and leather goods). Agricultural production, however, represents about 13Z of GDP and provides employment to only about 112 of the total labor force. Industry, including construction and power generation, accounts for 31% of GDP and services for the remaining 56Z. 1.3 The transport infrastructure of Uruguay includes about 9,700 km of national roads (of which 6,700 are paved), 40,000 km of mostly unpaved state roads, 3,000 km of railway line, the deep water port of Montevideo and a large number of minor ports, an off-shore tanker mooring buoy and pipelines for petroleum imports and 25 commercial airports. Montevideo, the capital and the main commercial and population center (about one-third of the total population),is the hub of the transport system. Its port accounts for nearly 70% of total import and export traffic by volume. 1.4 Most road infrastructure and services were developed between 1930 and 1950, a time of relative economic prosperity based on agricultural production and exports. Growth in road traffic was also fostered by the relatively dispersed commodity flows and by short travel distances. The general economic policies which favored industrial production for import substitution required responsive, reliable transport services geared to handle frequent, small scale consignments. Private automotiles became an important element of household consumption patterns, and their role in passenger transport grew rapidly. 1.5 Although the coverage of the national highway network is adequate, its principal problems are the advanced age of most 2 pavements, and deteriorated conditions and outdated standards, which are increasingly inadequate to provide safe operation for present traffic volumes and higher speeds. 1.6 Road transport moves about 92Z of total domestic ton-km. Nearly 90Z of trucks are driven by their owners. Entrance to the road freight transport market is essentially unrestricted. The predominant truck configurations are two axle (type 11), 7 tons capacity, diesel powered and the tractor-trailer (type 112), 22 ton load capacity, diesel powered. Most publicly quoted, freely negotiated tariffs are 5.5-6.0 US cents per ton-km for small consignments moved with type 11 trucks and 3.5-4.0 US cents for long distance/bulk flows transported in type 112 units. 1.7 Road transport moves about 95Z of total passenger-km including suburban services. Bus services are regulated by state transport authorities for short distance trips within each state and by national authorities for long distance trips that join two or more states. A process of gradual deregulation of the interurban passenger market, beginning ten years ago, favored the consolidation and growth of small, efficient bus companies and eroded the quasi-monopoly of the Organizacion Nacional de Autobuses (ONDA), the largest Uruguayan bus company. 1.8 A study of road user charges done with 1986 data compared the annual user charge receipts with the actual and budgeted road expenditures. In the case of actual expenditures, light vehicles paid 375Z more than their associated costs, buses 138Z more, medium trucks 73Z and heavy trucks 61X. On average, receipts per vehicle-km exceed actual costs by 164Z. The situation does not change if it is assumed that the budgeted expenditures represent the economically justified highway requirements. In this situation although receipts exceed costs on average by 34Z, and light vehicles and buses pay 133? and 24Z above costs respectively, medium and heavy trucks only cover 84Z and 87? respectively of their associated budget costs. From these data, it would appear that the competitive position of the railway was not severely harmed, especially considering that the general tax component paid on average by all private economic activities (but not by railways) was not considered a user charge and was excluded from the sum of taxes, fees and charges levied on each vehicle. B. The Railways The Economic Context 1.9 Initiating a period of one hundred years of adverse incentives, the Uruguayan railways were administratively created by the "Ley de Trazado General de Ferrocarriles" passed in August of 1884. The law gave to concessionaires, the first of which was the British Central Uruguay Railway Limited, the right to construct railway lines and receive a guaranteed annual return of 7Z on 3 investments of up to 5,000 Pounds Sterling per kilometer of track constructed and operated by the company. Under these contractual conditions the concessionaires extended the railway lines far beyond what was economically justified and used very cheap construction standards; major earth movements and civil works were nearly completely avoided. As a result, the present alignment of the Uruguayan railways has steep gradients and railway distances which average lOZ longer than road. 1.10. In the latter part of the twenties the Government took two actions to limit the extraordinary benefits and monopolistic positions of the concessionaires. The first was the creation of a new, state-owned railways and trams company, the "Ferrocarriles y Tranvias del Estado" that, among other things, constructed the Olmos-Maldonado-Rocha-La Paloma line, 218 km long. The second was to construct new, public roads parallel to the private railway lines. 1.11 The concessionaires' reaction to the changing situation, with roads becoming a competitive transport alternative was, like an iceberg, only partly visible. The visible part was tariff reductions. The invisible part was more harmful: the discontinuation of nearly all capital replacements by the railway. Soon after the end of World War II the Government, consistent with what it saw as a worldwide trend toward nationalization of railways, approved the law which enabled it to buy the private railways. Three years later the railways were bought for less than 10 million Pounds Sterling by forgiving a debt that Britain had accumulated with the Uruguayan government for grain and meat sent during the war. Contemporary newspaper articles were euphoric: 'Railways belong now to the national patrimonium', 'A monopoly has been defeated", "A decisive step for our economic independence', were the claims. Three years later AFE (Administracion de Ferrocarriles del Estado) was created as an autonomous agency to operate all railway lines and services. Unfortunately, just at that time, the result of years of capital investment neglect was gradually becoming evident. 1.12 Uruguay's relative prosperity lasted until the mid-1950' s. Subsequently, inward-looking manufacturing policies and weakening external livestock markets led to stagnation, which lasted about two decades. As exports and GDP stagnated, the commitment to social welfare programs exceeded the country's capacity to pay. Fiscal and balance of payments deficits, rising inflation and unemployment ensued. Social tensions led to urban guerilla warfare. The army took power in 1973, breaking Uruguay's democratic tradition. 1.13. The crisis forced a fundamental change in Uruguay's growth strategy. Reforms encompassed fiscal, monetary, exchange rate, foreign trade and domestic pricing policies, opening the economy and enhancing the role of market forces. Exports were 4 encouraged by means of subsidies, frequent devaluations and duty-free import facilities. Exports and investment grew by leaps and bounds, real GDP increased by about 4.5Z a year during the 1974-80 period and unemployment reached its lowest point (6Z) in decades at the beginning of 1981. Public investment was an important element of the policy adopted: investment in roads alone represented 25Z of gross capital formation between 1977 and 1979. Even so, the budget was in surplus in 1979-1980 and inflation dropped from about 1002 in 1974 to less than half that level in 1980. 1.14 In 1979 the government, in an effort to control inflation, pursued a policy of pre-announcing currency devaluations. That year, while domestic prices increased by 80Z, the exchange rate devaluation was only 20%. The resulting overvaluation discouraged exports and encouraged imports. The resulting balance of trade deficits were financed nearly exclusively by massive capital inflows (bank loans and capital deposits). External debt increased sharply from US$ 0.9 billion in 1979 to US$ 1.7 billion in 1982 and the public sector overall surplus in 1979 deteriorated to a deficit of 18.5% of GDP in 1982. The balance of payments deficit resulted in a large devaluation at the end of that year. This was followed by a severe depression: GDP dropped one-sixth during 1982-1985, unemployment rose to 16% in 1983 and inflation accelerated again. 1.15. Julio Maria Sanguinetti, of the Colorado (Red) Party, took office in early 1985 after being democratically elected with more than 40% of the votes. He confronted a severe recession, external debt service difficulties and a private sector in serious financial troubles. By that time, the situation of AEE closely paralleled that of the country as a whole. The Network 1.16 The entire Uruguayan network of about 3,000 km is standard gauge (1.435 meters), single track except for 11 km of double track near the Montevideo central station. The AFE system connects with the Urquiza railway in Argentina which in turn connects with the Presidente Carlos Antonio L6pez Railway of Paraguay (both are standard gauge). It also connects with the meter gauge RFFSA Railway of Brazil at Rivera, Artigas and Yaguar6n. However, RFFSA has discontinued two of the lines that run to the Uruguayan border and only the Rivera-Santa Ana connection is in operation. 1.17 Most AFE lines were built at the lowest possible construction cost with minimum earthworks, leading to frequent, short 1.5-2Z gradients and numerous curves and reverse curves which cause high operating costs. The permissible axle load is 18 tons except on the lines close to the Uruguay/Rio de la Plata rivers where tracks and bridges were built to 14 ton axle load standards. 5 1.18 In recent years almost the entire network has deteriorated to poor or very poor condition. More and more speed restrictions were imposed on trains, and the quality of track maintenance standards was completely inadequate. In 1985, there were 25 derailments on the open track. The roughness increased the maintenance of locomotives and rolling stock: in 1983, the bogies of the Alsthom locomotives had to be reinforced shortly after commissioning because of the rough track. Traction and Rolling Stock 1.19 AFE had at the end of 1984 a total of 77 main line, all purpose diesel locomotives with an average availability of only 50Z, mainly due to an inadequate supply of spare parts. Fifty two of the locomotives (of which only 41 were part of the active fleet) were GE/Alco (1,500-1,600 hp, 102-117 tons) nearly all procured between 1951 and 1955 with their diesel engines refurbished and modernized in the USA in 1970-1979. The remaining main line units are 29 Alsthom (825 hp, 56 tons). There were 32 shunting locomotives and a few steam units still in operation (Table I-1). 1.20 Passenger services were mostly provided by 16 Ganz Mavag push-pull units comprising 1 diesel electric locomotive and 3 coaches, 11 Brill railcars (50 years old) and 17 Ferrobus railcars (procured second hand in West Germany less than ten years ago; some of them had never been in operation due to their deteriorated condition). There were 76 passenger coaches (42 steel, 34 timber) pulled by main line locomotives. 1.21 Of a total wagon fleet of 2,770 units, about 50Z were more than 50 years old, 35Z were US Army surplus of obsolete design and only 15Z were of modern design. Nearly one quarter of the fleet was 2 wheelers and only about half of the total number of wagons permitted a payload of 30 tons or more. Table I-1 shows the availability per type of wagon. Traffic and Services 1.22 AEE was, by the end of 1984, a typical non-specialized, all type of service, "socially-oriented' railway. It provided freight car-load and less-than-car-load services on all lines and passenger and parcels services on about 2,500 km of the 3,000 km network. 1.23 In 1984 total traffic units (ton-km plus passenger-km) were 603.4 million, a strong recovery after the historic low of 462.1 million transported in 1982. However, the 1984 level was only 64Z of the traffic units moved twenty years earlier (Table I-2). 1.24 During the 1980-1984 period passenger services represented less than 60Z of total traffic units but more than 75Z of train-km (Table I-3). Statistics do not permit the 6 disaggregation of traffic and operational information between suburban and interurban passenger services. In 1984 AFE carried 5.0 million passengers and generated 331 million passenger-km, with an average distance of 66 km (which reflects the weight of suburban services in the total) and a traffic density of 160,000 passengers-km per km of line where passenger services were operated. An on-train survey done by AFE in different services concluded that 35Z of the users paid full fares, 36Z had various fares discounts and the remaining 292 had free passes. 1.25 Suburban services around Montevideo had 11 different destinations, with a maximum frequency of 17 trains per direction in the busiest corridor. They accounted for about 80Z of passenger train-km (about 60Z of total train-km) but only transported 45 Z of passenger-km. The main suburban rail corridors (Montevideo to Progreso, Florida and San Jose) had a daily flow of 3,000 passengers and a one-hour peak of 500, a demand which is far below the levels required to operate an efficient suburban railway service. 1.26 The main interurban passenger services originated in Montevideo and terminated in cities located at distances varying from 560 km (Rivera, on the Brazilian border, 3 overnight services per week) to 160 km (Maldonado, near Punta del Este, one daily service). Arrival delays of 1 to 2 hours were usual. The Montevideo-Rivera corridor, once viewed as a potential "high speed" railway corridor, had a total ridership of 1.1 million passengers per year. The railway share was in the order of 5.5Z, 60,000 passengers a year, or 200 people per service. The potential demand was too low to justify the costly realignments of the line that would be necessary for trains to compete with buses successfully . 1.27 The absence of sufficient bulk freight flows, adaptable to block type trains, contributed to AFE becoming a "social', passenger-oriented railway. Recovering from previous years, AFE moved in 1984 nearly one million tons (967,000, with an average distance of 262 km, totalling 273 million ton-km). Five products (limestone, average distance 116 km; cement, 123 km; fuels, 242 km; rice, 318 km; and sugar, 588 km) represented 75Z of tons and nearly 70Z of ton-km. 1.28 Although virtually all stations (around 200) were open to car-load traffic, the largest 9 stations or groups of adjacent stations each dispatched more than 20,000 tons, providing 81Z of the total tonnage, 3 more stations dispatched between 10,000 and 20,000 tons representing 5Z of total tonnage, and an additional 7 stations dispatched between 5,000 and 10,000 tons providing another 5Z. Nineteen stations, then, originated more than 90% of the tonnage moved. Freight traffic density was 90,000 ton-km per km of line. The busiest line carried 370,000 tons in both directions. Nearly half of the system carried less than 25,000 tons a year, or less than 70 tons a day, a level of traffic that might not even justify the construction of an unpaved feeder road. A study based on 1984 7 data concluded that only lOZ of AFE's freight traffic covered even its incremental cost. Financial Performance 1.29 AFE's financial results reflect the absence of appropriate objectives and incentives. During the 1980-1984 period (Table I-4) working ratios oscillated between 197 and 319, while operating ratios ranged between 210 and 339 (although the revaluation of fixed assets made some years ago and updated by price indices since then has not included workshop machinery and therefore reflects understated figures). 1.30 Several factors contribute to these results. Although the average salary is low even by Uruguayan standards (about US$3,000 a year, including social benefits), staff costs were 64Z of working costs during the 1980-1984 period. In these years, staff numbers varied between 10,545 employees in 1981 (the historical maximum when staff costs reached 69X of total working costs) and 9,083 in 1984. 1.31. During the 1980-84 period staff costs alone exceeded revenues by about 70%. In 1982 they were double revenues. Tariffs, on the other hand, fell continuously. If extremes of the 1973-1984 military government period are taken (Table I-5), suburban passenger tariffs went down 20% in real terms, interurban passengers 16% and freight services 12Z (even though there was a tariff increase of more than 65Z for freight services between 1973 and 1975, gradually decaying thereafter. Freight traffic recovery in 1984 was made possible through a significant tariff reduction of 36Z between that year and 1982). Even so, freight revenue per unit of traffic (US cts 2.2) was nearly twice passenger revenue (US cts 1.2). 1.32 Staff productivity was low even considering that AFE was a labor intensive, passenger-oriented railway. Traffic units per worker averaged 63,000 for the 1980-1984 period with a floor of 51,000 in 1981. Comparable latin american railways (by the size of their network, type of services and intensive use of labor like Peru and Bolivia) are in the range of 150,000-200,000 units of traffic per employee, and even these are somewhat low by international standards. Institutional Aspects 1.33 The present primary definition of AFE's roles and responsibilities is law 14,398, promulgated in July 1975, which provides that: i) AFE is an autonomous and decentralized commercial service; ii) AFE is empowered to provide freight, passenger and 8 parcel services by rail, propose to the 'Executive Power" projects for constructing new lines or to cut out existing ones, and purchase all materials required to accomplish its purposes; iii) AFE's technical and administrative direction is the responsibility of a Board of Directors which must ensure the reliability and efficiency of rail services, formulate an investment plan during the first 12 months after being appointed and present the plan to the Executive for approval, and set tariffs, again with approval of the Executive. Under 'unusual circumstances", it can implement individual transport contracts, informing the Executive afterwards; and, iv) The Board is assisted by a seven member Advisory Commission nominated by the "technical and semi-technical agents" (two), the "administrative personnel" (two), 'workers" (another two) and the Board (one). To be a member of the Commission it is necessary to be an AFE employee, and to have a minimum seniority of 10 years with "good behavior". 1.34 The law says nothing about who may establish or discontinue services and does not even mention the terms "deficit', 'subsidy" or "compensation". This ambiguity of objectives and confusion of authority played a clear role in reducing AFE's ability to respond to changing demands, either of policy or competition. 1.35 AFE's organizational problems and difficulties were similar to those of other public, "socially" oriented railways: i) The four functional managements (Operations, Finance, Way and Works, and Traction and Rolling Stock) each appear to have had a basically sound structure and reporting lines, but communications among them were practically non-existent. "Feudalism" was normal practice; ii) The other 11 departments, offices and divisions, including the medical service, reported directly to the General Manager who was, in practice, an advisor to the Board with no real power for making decisions: in fact, the President of the Board has traditionally acted as General Manager. Consequently, delegation of authority did not exist, an aspect that contributed to the lack of concern about costs and productivity at all management levels; iii) Formally, there was no Planning Department in the organization; what was called the "Planning Office' was in fact a Project Department, dedicated to 9 engineering issues; iv) The Advisory Commission only dealt, in practice, with minor, generally labor-related problems (which was fortunate considering that, if it had exerted its full rights, it would have added further delay in the decision process, further weakening the role of the General Manager). 1.36 Table 1-6 compares the distribution of the work force in 1958 (954 million traffic units, 10,376 employees) and 1984 (603 million traffic units, 9,049 employees). While office-related personnel (Board of Directors and Advisory Commission, General management, Supplies, Finance) grew 69Z, operations-related personnel (Operations itself, Way and Works, Rolling Stock and Traction Maintenance, Signals and Communications) actually fell by 20Z. Operations personnel fell by 27Z reflecting the traffic reduction and the replacement of steam locomotives by diesel. More difficult to explain is the 30Z reduction of Maintenance employees. Overall, AFE apears to have been a typical example of a public enterprise being used as an instrument of income redistribution and employment generation, providing the type of jobs the society wanted, considering the high literacy rate (95Z) and the non-technical, general orientation of the Uruguayan educational system. 10 CHAPTER II REASONS FOR CHANGE 2.1 In 1984, the last year of the military government, the public sector deficit, although reduced in comparison with 1982, was 9.2Z of GDP (Table II). Public enterprises as a whole had a surplus of 0.7Z of GDP with the petroleum and telecommunications companies making profits while AFE, the national airline, the port authority and the water company generated deficits. Meanwhile, GDP had fallen by 16Z in relation to the historic peak of 1981. By the end of 1984, unemployment was 132 and the average of public and private sector wages was 24Z lower than in 1978, and 60Z lower than in 1974. AFE, particularly, had a working deficit of 21 million dollars (0.3Z of GDP) and 9,100 employees, 19.5Z of public enterprises employees and 4.3% of total public sector employment including public financial institutions (Table II-2). Although its salaries were the lowest among all public enterprises, labor costs represented 60Z of AFE's working costs and exceeded revenues by 70Z. 2.2 When the Sanguinetti Administration took office in March 1985, it undertook quick and effective actions within a well-structured program to reverse the adverse trends. The program had a coherent macro-policy framework for achieving self sustained growth and was focused primarily on expanding exports and bringing down inflationary pressures. Basically, it comprised: i) A policy and incentive framework geared to expanding exports of goods and services, particularly tourism; ii) Actions to restore private sector confidence and promote growth and diversification of agriculture and manufacturing; iii) Measures aimed at reducing inflation and maintaining fiscal and monetary discipline with the medium term objective of reducing the public sector deficit to about 3Z of GDP; and iv) A public sector program focussing mainly on providing essential inputs and infrastructure for private productive activities. 2.3 One of the aims of the program was to have a leaner and more efficient public sector, as well as providing enhanced support of reasonably efficient services and infrastructure to serve the market-oriented economy. The declared objectives of public enterprises were to introduce cost-effective changes, reduce overstaffing, reform hiring and promotion policies and improve accounting, administrative and managerial functions. 11 2.4 Juan Berchesi, a 39 year old accountant graduated from the University of Montevideo, with a PhD from the University of California at Berkely, was appointed President of AFE. Berchesi was a member of the Colorado Party. His previous contacts with railways were limited to occasional train rides. Simultaneously, Alejandro Alchugarry, a 35 year old lawyer (also a graduate of the University of Montevideo), became Undersecretary of Transport. Both came from the private sector with very limited previous experience in the public sector (only Berchesi had been a public employee during a short period, at the beginning of his career). As was usual Uruguayan practice under democratically-elected governments, the Board of Directors had, apart from Berchesi, representatives of the predominant political parties: two members from the Colorado Party, one from the "Blanco" (White) Party and one from the "Frente Amplio" (leftist, including among others, the Communist Party of Uruguay). 2.5 From the beginning of the new administration, the railway union, which was controlled by an "ultra-leftist" faction (with a majority membership of 8,000 affiliates out of a total of 9,100), fought for a higher railway salaries in line with those of the other public enterprises. 2.6 Soon, broad "action initiativest aimed at concentrating AFE's efforts on high volume freight services and high density passenger services were approved at the highest political level of the country, and in a few months a diagnosis of the existing railway situation was finished. It concluded that: i) AFE could not be considered a public enterprise, but just an 'administration of services', wich gave no consideration to costs, efficiency and profitability; ii) Its corporate objectives were the same as at the beginning of the century when the railways had a monopolistic position and the main objective was to integrate the country; iii) AFE was "production driven, not market led", and the quality of its services showed a continuous deterioration of reliability and security; iv) AFE's participation in the domestic transport market was less than 8Z for freight and 5Z for passengers. As the market chose other modes of transport and revenues fell, AFE historically reacted with tariff reductions to keep some clients and users, adopting a defensive position based on a self-declared 'social' role to get public opinion support for its ostensible role in favor of low-income sectors. 12 2.7 Another important action in the first months of the new railway administration was taken by the Ministry of Transport to contract, after public bids, with a consultancy group (a joint venture between Uruguayan and British consultants) to analyze five different medium and long term strategies for the railways and recommend one after considering relevant economic and financial issues. The study was financed by a World Bank highway loan. 2.8 In the meantime the negotiations between AFE and the union for salary increases were stalled. The union began to work "by laws". In addition, passenger service departures were delayed by ten minutes for each departure so the union could explain to the passengers the reasons for their action. As the conflict escalated and the unions declared part-time strikes, the Board of Directors announced that those employees who were not working full-time had to leave their work places during unworked hours and that hours not worked would not be paid. The situation continued to deteriorate even further and on July 18th, 1985, 3 months after the new administration arrived at AFE, a 24 hour general railway strike was called. At its conclusion, only passenger services were allowed to be restored. The union continued the strike of freight and parcel services for an 'indefinite" period. 2.9 Nearly one month later, on August 16th, after long negotiations, the government made a final proposal that covered a significant proportion of the union's requests. The proposal was found unacceptable by a union assembly. 2.10 When the Board took notice of the union's decision it immediately withdrew the proposal, which provoked two responses the following day. First, AFE's headquarters in Montevideo and main stations in the interior of the country were occupied by the workers. Second, two passenger trains were operated that same afternoon under "workers' control" without management authorization. AFE authorities responded immediately and the police cleared the buildings without violence. AFE characterized the operation of trains without its authorization as 'collective disobedience and against the laws of the Republic". A general strike was unavoidable, and it occurred. 2.11 It was a long, painful strike. AFE's President and other key management were threatened and needed police protection. The government remained firm in its position despite public demonstrations and the daily irritation of having a public enterprise on strike for such a long period. No wage payments were made to striking employees, an unprecedented action in the history of Uruguay's public sector. 2.12 After 20 days, the strike began to weaken. Slowly, worker returned, one thousand at first, two thousand by September 5th. On September 26th, freight trains began to run again, about one week after the first passenger train departed from Montevideo 13 station. Regular freight trains had not run for 100 days, and passenger services had stopped for more than one month. The union leaders who conducted the strike were defeated, losing an election that took place soon after the end of the strike. The Communist Party, more inclined to dialogue and political negotiation, took control of a damaged organization. 2.13 The collapse of the strike had important consequences. First, it was shown that the country could survive without the railways and that the lack of railway services did not seriously damage the economy. Second, having broken the strike, a good portion of the cost for government of tackling the "railway problem" had already been paid. The opportunity was there: it was time for change. 14 CHAPTER III DESCRIPTION OF ACTION TAKEN A. Reduction of Passenger Services and Closure of Lines (1985) 3.1 Shortly after the end of the conflict, in October 1985, AFE finished the "Proposal for the reorganization of AFE services". The Proposal, prepared basically by Julio Barozzi, then AFE's General Manager, was backed by recommendations from several consultants' studies done for AFE and the Ministry of Transport, starting with one done by Sofrerail 30 years before. 3.2 The Proposal acknowledged that safety conditions were deteriorating and that the number of accidents on the open track (53 in 1984 with many seriously injured passengers) made it unsafe to continue running passenger services with timber coaches. Furthermore, the locomotives that pulled these coaches could be used more efficiently and profitably for freight services. 3.3 The Proposal made clear that none of the actions would be irreversible: not a single km of track would be scrapped and not a single station building or piece of land would be sold. 3.4 Basically the Proposal included: i) The reduction of some passenger services and the strengthening of others, with the net result that 777,000 train-km (nearly 20Z of a total of 4.0 million) would be eliminated. In consequence, 700 km (about one-quarter of the railway network) would be without passenger services; ii) The closure of 59 stations out of a total of 206 for the whole system (about 29Z); 3.5 As a consequence of these decisions, about 250 employees were referred to the Oficina Nacional del Servicio Civil (Office of the National Civil Service) which had the responsibility to reallocate them to other public agencies or public enterprises. Subsequently, AFE declared that the reassigned employees would be helped to find new jobs without requiring a move from the places where they lived. This was relatively easy to accomplish in big and medium size cities but more difficult to achieve in small towns. Another 158 employees were added to the referral list some weeks later. AFE insisted that not a single worker would be fired as a consequence of the decisions taken. Savings to AFE resulting from the reorganization were estimated to be about lOZ of the Government's subsidy, about 2 million dollars. 3.6 The reorganization was approved by all of the Board 15 except the Frente Amplio representative. Although the union was weakened, it reacted by organizing demonstrations and meetings in Montevideo and the main cities of the interior of the country. In some cases the press printed accounts which were sympathetic to the union's viewpoint. The comments below give a flavor of the types of allegations which surfaced: i) The reforms were designed by the International Monetary Fund and were part of a scheme to dismantle AFE and all other public enterprises; ii) The same political party (Colorado) that gave the concessions for constructing the railways and then nationalizing them, was now destroying them; iii) "The sentence of closing stations has been imposed on small towns born at the edge of the railway lines which are the carrier of passengers, freight and the vital link between the world and these isolated communities"; iv) The railways should have a comparative advantage in relation to road transport. The useful life of rail equipment is 30 or 40 years against 5 or 6 years for road equipment; while road transport needs 10 to 12 horsepower (HP) to haul one ton, railways can do it with one HP; the cost of constructing one kilometer of track is two-thirds that of one kilometer of road but the capacity of the railway is 5 times higher; road transport requires 2 to 3 times more fuel to move the same tonnage (an aspect to which the Uruguayans are especially sensitive since all petroleum it imported); the railway is the only transport mode that can use electric energy and in that case its cost would be 80Z of road transport costs. 3.7 AFE denied having a plan for dismantling the railway, pointing out that the acquisition of 1.8 million dollars of spare parts for the Alsthom locomotives was under consideration by Government, that it was purchasing 15,000 hardwood sleepers (in the previous years AFE had only bought soft wood sleepers with bad results), and that a public bid for the purchase of another 120,000 sleepers had been approved. 3.8 The Ministry of Transport and Public Works supported AFE by introducing changes in the bus tariff schedule. Bus companies instituted some of the discounts previously offered by AFE, mainly to retired people, students and teachers (50Z), and to patients (1OOZ discounts when travelling to a medical center with a doctor's order and 50Z for their companion) and also introduced monthly passes for regular users with 30Z discounts. 3.9 AFE's decisions were implemented by the end of the year. 16 Vacation time (January) came and Parliament, the natural sounding board for this type of conflict, was in recess. The union and the opposition parties could not get the critical mass needed to fight back. B. A Medium and Long Term Strategy (1986) 3.10 Almost immediately after the beginning of the year, AFE attempted to reinforce its goal of becoming a more financially viable, freight oriented railway, by increasing freight tariffs 50Z. Several month later, in August, 1986, the Consultants' 'final draft" report was submitted. The report seems to have generated a surprising degree of expectancy, probably because it was heavily promoted by AFE's President. Five broad strategies were identified as being representative of different policies as regards to commercial services, social services, tariffs and employment goals: i) Strategy I was designed to maximize the attainment of social objectives: all lines would be kept in service for passengers and freight, including those recently discontinued. Investments would be made to attract traffic, tariffs would be kept at their existing level in real terms and AFE would be encouraged to employ the maximum possible number of staff. US$ 50 million in operational support would be needed. Government would also provide up to US$ 53 million of annualized capital costs for a total of USS 425 million in investment in the 1987-2004 period; ii) Strategy II represented the continuation of the policy followed during the last thirty years, with little coherence and limited funds. Most of the existing locomotives and passenger units would not be able to continue in operation and the volume of freight and passenger traffic would continue to decline. Government support would total US$ 26 million a year (half for operating subsidy and half for the annualized capital costs of the USS 106 million investment in the 1987-2004 period); iii) Under Strategy III, commercial services would be expected to cover their full share of total railway capital and operating costs. AFE would be free to establish its own tariffs and staffing levels. Government would decide which social services it wished AFE to operate at lower than commercial rates, and AFE would be directly compensated for the loss. The railways would function as a commercial service with the Government as a major client. Notwithstanding the Government compensation for social passenger services, the long term financial result would still be negative (US$ 2.5 million annually). About one third of the 17 investment requirements of US$43 million would still need to be provided from the national budget. The annualized investment would be US$ 16 million, and the long term network size would be about 1,350 km (down from 3000 km); iv) The objectives of Strategy IV were similar to those of Strategy III, the only difference being that the specific government subsidies to particular rail users would be replaced by broader infrastructure subsidies. The net annual financial result would be negative (US$ 7 million) and the annualized investment level would be US$23 million (US$83 million over the 1987-2004 period); v) Strategy V envisioned AFE playing a strictly commercial role, entirely determined by financial considerations in the freight transport market. Compensated social passenger services to some locations near Montevideo were assumed to continue. Any social transport service that the government might want for sound reason would be provided by road transport. The result would have been to limit the network to the line to Minas (181 km) and the only products transported by rail would have been limestone, cement and liquid fuels. The annualized net financial result and investment requirements would be US$1 million and US$3 million (US$22 million over 1987-2004) respectively. 3.11 The Consultants recommended Strategy III. The resulting 1,350 km long-term network (less than half of the network in operation when the reform process started) would carry freight at rates that would cover at least the avoidable costs on each movement and the full costs for all traffic taken together. The parcels and less-than-wagonload traffic would be diverted to roads if unable to earn their costs. 3.12 With regard to Montevideo suburban passenger services, the Consultants recommended a 50 percent reduction in the area of rail service and an increase in fares of 70Z in real terms. To improve the quality of service the study recommended extending the double track section by 16 km and replacing and extending existing color light signalling. Also, an electrified Light Rapid Transit (LRT) System was considered. Under a "Government Passenger Contract" AFE would be compensated for the difference between the cost of operating these services and the revenue from fares. All interurban passenger services would be discontinued except the Montevideo-Rivera service using locomotive hauled coaches. 3.13 Reactions to the proposal were varied. In October 1986, the railway union prepared and published in a Montevideo newspaper, by October 1986, a paper answering the Consultants report. The union supported Strategy I, agreed with the sections on which track 18 rehabilitation should be started (according to that strategy) and supported the creation of an LRT in Montevideo, but it asked an increase in track rehabilitation to a minimum of 100 km a year, an extension of the LRT and a doubling of the recommended increase of double track sections. Even so, the union concluded that the railway problem had been analyzed without considering a national transport policy and that it did not: i) Consider that Uruguay is a "dependent" country, especially in transport; ii) Make a serious cost comparison between a technologically up-to-date railway and road transport: iii) Consider the foreign exchange impact of the actions recommended; and iv) Consider the energy constraints of the country and the potential of electric power generation. C. Tariff Freedom, Freight Priority, Reduced Passenger Services (1987) 3.14 By the beginning of 1987, discussions commenced in the Government about the best strategy to follow. Although Strategy V (that kept less than 200 km of lines in operations) was considered too extreme, several aspects of the Strategy III recommendations (increase suburban passenger services through an electric LRT, establish a "Government Passenger Contract") were seen as too much of a compromise and did not satisfy Government. The unions, with the political support of the Frente Amplio, restated their accusations and the press published nearly daily comments about AFE's imminent demise. 3.15 In March 1987, the President of the Republic signed a Resolution that changed the practice of railway tariff regulation. After two relatively innocuous articles that increased passenger tariffs by 14Z and freight tariffs by 16Z, the President authorized AFE to increase tariffs together or separately, by line or by product, up to 85Z of the "market price of alternative modes for the same traffic,. In no case would the tariffs be permitted to be lower than existing tariffs with existing discounts. 3.16 In practice, the Presidential Resolution created the opportunity for a major tariff increase (before the Resolution AFE tariffs were 50Z of road transport tariffs) and the virtual deregulation of AFE's tariffs. As long as road tariffs are freely negotiated between parties, a sufficiently high road tariff level could always be found to justify AFE's own levels. 3.17 By that time, a (French) consultant hired by the World Bank concluded a paper on the "Rationalization of Uruguay's State 19 Railways" that suggested a revision in the alternative strategies. The main suggestions of the paper were that: i) AFE passenger services, both suburban and interurban should be abandoned entirely and in the shortest possible time. A 3-month notice was deemed sufficient for the bus services to adapt their routes bearing in mind their expected increase in passenger flows; ii) Many of the existing track rehabilitation standards were too high considering existing and projected traffic. A more appropriate definition of cost-effective standards and the elimination of purchases associated with passenger services could reduce investment levels for the 1987-2004 period from US$135 million to US$98 million; and iii) A total work force of 1,230 would be adequate for the restructured AFE (which would eventually raise the staff productivity to about 200,000 traffic units per employee, a level compatible with similar Latin American railways) as compared with the 4,600 staff recommended (with passenger services) by the Consultants. 3.18 In the next sixty days, AFE moved forward with its reforms. Based on the shortage of locomotives, it first declared freight traffic to be of "absolute and total priority" and, second, ordered a monthly reduction of 60,000 train-km of passenger services (720,000 a year, or about 22Z of the passenger train-km at that time). D. Elimination of Passenger Services (1987-1988) 3.19 After two months of discussions the Government concluded that "intermediate' solutions which maintained part of the existing suburban and interurban passenger services, would not result in an efficient, self-supporting, profit-oriented railway. 3.20 One of the British consultants who had taken part in the preparation of the alternative strategies elaborated, with the cooperation of experts of the Ministry of Transport, what was known as Chapter IV of the National Transport Plan. It contained the Government's final position with regards to AFE. It concluded that: i) AFE should concentrate its freight services on running block-type (unit) trains and, the market permitting, general freight trains with a limited number of origins and destinations; ii) Even considering significant improvements in AFE's efficiency, a minimum of 20,000 railway passengers per day would be necessary for a 30 km single track suburban 20 day would be necessary for a 30 km single track suburban corridor to cover its working costs, excluding capital. The most intensively used corridor in Montevideo moves a total of 40,000 passengers a day, but with only a 5Z railway participation; iii) About 350,000 railway passengers annually would be necessary in the Montevideo-Rivera (560 km) corridor, the one with most potential for covering at least its working costs. Its total demand is about 1.1 million passengers per year with only a 5.5Z railway participation; iv) In both cases, the demand needed just to cover working costs would be impossible to reach without introducing major and expensive technological changes, given the quality of existing road transport competition; v) Considering only freight services, a 1,843 km initial network (62Z of the network existing at the beginning of the reform process) and a 1,356 km long term network (46Z) were recommended. Eighty percent of the 1986 freight tonnage ran on that network; vi) The work force required to operate such a railway would be 3,400 employees in 1992 and 2,550 in the year 2002, compared with 8,500 in April 1987; vii) The investment plan for the 1988-2002 period would be US$ 91.4 million (more than 602 in infrastructure, 322 in traction and rolling stock, and 62 in signalling, communications and administration) of which about 50% would be spent in the first five years; and viii) The working subsidy would be reduced from US$ 23.3 million in 1987 to zero by 1996 if revenue per ton-km increased by 901, work force were reduced to 2,870 employees and traffic increased by 50% (table III-1). Even then, only by the year 2001 would revenue be enough to cover operating costs and interest on new investment. 3.21 In mid 1987, the Government confronted a serious problem as the Organizacion Nacional de Autobuses (ONDA), the largest interurban bus company, financially weak since the 1982 economic crisis, stopped most of its payments. ONDA personnel declared a total strike. Pressures on the Government were strong from all directions: the most ambitious wanted ONDA to be nationalized. The Government resisted: it did not intend to replace heavily subsidized railway passenger services with deficit-ridden bus passenger services. Government feared further that a decision of this kind would seriously undermine its moral authority to reform the railway. After some weeks of negotiations, three hundred ONDA employees were 21 fired and given "unemployment insurance": a public financial institution lent ONDA some funds to buy spare parts, routes were rationalized and ONDA restarted operations. 3.22 About two months later, in mid November 1987, the Minister of Transport began convoking the main political parties to inform them of the Government's decision to discontinue all rail passenger services within a short period of time. In the first days of December, the AFE Board approved the recommendations of Chapter IV of the National Transport Plan, but conditioned its implementation on the provision of alternative transport modes 'with at least the same frequency and quality" and on the search for satisfactory alternatives to the dilemma of those AFE passengers who were retired people, all other monthly pass riders and those AFE employees who depended on railway services to go to work. 3.23 Simultaneously, and perhaps a little bit late, a survey was finished for AFE and the Government to better assess the public's reaction to changes that were being implemented. The survey, detailed in Annex I, concluded that: i) There was a strong positive, emotional attachment to the railways that did not exist in relation to buses; ii) The railway was associated with fondly remembered images of childhood trips, vacations during adolescence, security and family. More rationally, however, its current services were considered slow, inefficient and deteriorated. The ambivalence between the emotional and rational levels was striking; iii) AFE was considered the worst of all public enterprises; iv) Only 8Z of the people interviewed responded that the 1985 strike had affected them personally, but when asked if the strike had affected the public in general and the country, the positive answers rose to 802; and v) Only 23X of the answers were in "total agreement' when asked if, in order to strengthen AFE and make it profitable, they would accept the discontinuation of all passenger services. But if the question were asked again given adequate guarantees that present railway users were not going to be left unaided and railway employees were not going to be fired, answers in favor of the action increased to 72Z. 3.24 About ten days later, the President of the Republic signed a Decree requiring bus companies to provide monthly passes to all monthly pass riders of AFE intercity services at AFE's tariff levels, and a Resolution by which he authorized AFE to discontinue its passenger services as soon as the Ministry of Transport informed 22 it that alternative road transport services were available. The Resolution also stated that all redundant AFE employees would be absorbed by other public agencies and enterprises, and that all AFE employee who travelled by train to their jobs would be adequately compensated by AFE (if they continued working there) or by the Government (if they were hired by another public agency or enterprise) so that they would not experience a reduction in their income. 3.25 Finally, on December 30, 1987, with the negative vote of the Blanco and Frente Amplio representatives, the Board of Directors approved (3 votes to 2) the discontinuation of all railway passenger services after January 1988 (3 days later). Whether deliberately or not, the Government again used the summer vacation season to push forward its bold reforms. 3.26 One day earlier, on December 29, the President and the Minister of Transport decided on the creation of a Working Group chaired by the Director of the National Office of the Civil Service and including the Undersecretary of Transport, the President of AFE and one representative of the Office of Planning and Budget. The group had the power "to adopt all the necessary decisions and require the collaboration of all public agencies and enterprises" to reassign AFE employees affected by the discontinuation of passenger services. 3.27 In the meantime, the Government's coherent and sustained efforts to establish a policy framework conducive to growth, particularly the expansion of exports, had succeeded in reinvigorating the economy. The 1986-1987 indicators reflect the achievements of the Sanguinetti Administration: GDP and exports grew by an average of 5.6Z and 18Z per year, respectively; unemployment dropped from 13Z to 9Z; real wages increased by more than 5Z following a 14Z increase in 1985 without placing undue strain on the economy because of improved terms of trade; and the public sector deficit (including Central Bank losses of 2.7Z of GDP) was reduced to 4.1Z of GDP as compared to 9.2Z in 1982. 3.28 The last passenger train arrived at Montevideo's main station on January 2 at 11:40 a.m. Two hundred people were waiting for it including railway union leaders, the Frente Amplio representative on the AFE Board of Directors and one Frente Amplio senator. A newspaper published a photograph of the last family that went into a passenger train. "A slap in the face of the Nation", they proclaimed. 3.29 Pressures, reactions and accusations started before "Dw day and lasted, with some strength, at least 8 months. The main actions were the following: i) On December 29, one day before the AFE Board approved the discontinuation of passenger services, a newspaper 23 earlier from the World Bank to the Minister of Transport, commenting on the draft final report of the British-Uruguayan consultants. At that time the Government and the Bank were identifying the components of a Transport Sector Loan. The Bank's comments in the telex were, among others: a) the purported 1991 US$20 million AFE subsidy was highly undesirable; b) the forecast of cost of personnel at 70Z of working costs was too high; c) the period of time needed to eliminate freight service subsidies was too long. To the opposition, the Bank's interference in Government decisions appeared clear; ii) The Convenci6n Nacional de Trabajadores (CNT, National Confederation of Workers) organized, on January 22, a four-hour general strike simultaneously with a march started from 16 cities of the interior of the country that converged on Montevideo's main railway station; iii) Experts in constitutional law concluded that the decision to eliminate passenger services taken by the Ministry of Transport violated both AFE's autonomy and the AFE objectives established by law (i.e. to transport passengers, freight and parcels). These objectives, it was argued, could not be changed without a modification of the law approved by the Parliament; iv) Several newspaper articles alleged that the alternative services provided were insufficient, because, when it rained, some small towns would be isolated. Stories about a pregnant woman ready for childbirth transported to hospital by a railcar when the local roads were flooded were popular in the press. v) A petition containing about 170,000 signatures asking for the reestablishment of passenger railway services was presented at AFE's headquarters. 3.30 Finally, the opposition got the necessary quorum in Parliament for its main political goal since the discontinuation was implemented: to question the Minister of Transport. Tho National Confederation of Workers asked "the whole nation" to gather in front of the Parliament building the day of the testimony. It also demanded that all unions carry out partial strikes, and join in the demonstration. 3.31 The session started at 5 p.m. on May 19, with less than 1,000 people in front of the Parliament building. The Minister was present along with the Undersecretary of Transport and the President of AFE. The opposition speakers held the floor for three and a half hours. The arguments were familiar: the decision to discontinue AFE passenger services was illegal; the Government was executing the 24 passenger services was illegal; the Government was executing the World Bank's policies in order to get a new loan to rehabilitate highways and the port of Montevideo; AFE was 'at the service of" 6 main companies which account for 80% of the transported tonnage. And, what was not publicly known before, a group of lawyers in the Legal Department of AFE also concluded that the decision to eliminate passenger services was illegal. Actually, the opinions were not homogeneous: two lawyers said the decision was legal, two said it was legal if transitory and another one concluded that it was totally illegal). 3.32 The session finished the following morning at 6.30 a.m., after nearly thirteen hours of discussions. None of the three motions prepared by the different political groups got the minimum number of votes required to be approved. 'The Minister should go", claimed the opposition. "Nothing happened" said the official reporters -- and they were right. E. Some Privatizations, Contract Plan, Organizational Changes (1988- 1989) 3.33 While the political confrontation was taking place, a small but representative event of the reform process came about: the traditional restaurant of the Montevideo main station reopened under the management of a concessionaire and employing 35 people. When it had been closed, managed directly by AFE, it had 170 employees. Paying now a 7.51 fee on its gross income, it generates for AFE an additional income of US$ 25,000 a year. 3.34. In another example of privatization, in August 1988, AFE transferred all parcel services to "Ferrocargo" a recently created private company. Ferrocargo provides parcels services between Montevideo and 33 destinations in the interior of the country with AFE wagons joined to regular freight trains. Ferrocargo appears to be serving the segment of the parcels market that does not require fast, same-day deliveries. Ferrocargo pays about 20Z of its gross income to AFE. 3.35 By the end of 1988, the Ministry of Transport and AFE signed the first Contract Plan in the history of Uruguay's public enterprises to: a) define the corporate objectives for the 1989-1992 period; b) establish quantified operating and financial results; c) agree on AFE's investment plan and its financing; and iv) assure the Central Government's support to AFE's management and financial results. 3.36 The main APE undertakings were to concentrate its efforts on the freight business, applying a commercial approach oriented to maximize income; to provide additional freight services only when marginal revenue was above marginal cost; and to go on reforming its use of human resources. The main Government commitments were to support the rapid reallocation of personnel 25 declared redundant in order to reduce AFE's expenditures, and to provide the operating and investment subsidies and the endorsements needed to go ahead with previously agreed investments (technical-economic studies were required). Among all other Government promises, one was of major political importance: to send to Parliament the changes in law that would permit AFE to remove those sections of track not included in the short term network recommended by the National Transport Plan (paragraph 3.20) and on which AFE had already suspended all railway operations. 3.37 The Contract Plan also had clauses of control, revision and nonfulfillment. When nonfullfilment was grave and attributable to AFE, the Central Government could, among all other actions prescribed by the Constitution, suspend the disbursement of external loans or all other funds endorsed or given to AFE. 3.38 AFE obligations, summarized in Table III-2, are very demanding: to increase freight traffic by 39Z (6.8? compounded annually ) between 1988 and 1993 while train-kms only grow 14Z, to reduce the number of employees from 5,801 at the beginning of 1989 to 2,441 by the end of 1993 (about one-quarter of the existing number of employees as of April 1985 when the reform process started); and to reduce AFE's deficit from US$ 25.8 million in 1988, including depreciation, to less than half that (US$ 11.8 million) in 1993. The total annual government subsidy, including investment and debt service, would fall from US$ 30.5 million in 1988 to US$ 15.4 million in 1993. 3.39 The economic recovery achieved by Uruguay during 1986 and 1987 slowed down in 1988. That year GDP grew only 0.52 due to: a) tightening credit measures by the Central Bank in late 1987 to avoid overheating the economy and further loss of international reserves; b) declines in industrial and fishing activities, partly explained by strikes; c) a drought that affected some agricultural products and the supply of meat; and d) economic developments in Argentina and Brazil that affected Uruguay adversely. Another negative development was rising inflation that reached 70? a year. On the positive side, exports reached a record of US$ 1,400 million and unemployment fell to 8? in July-August, averaging less than 9? for the whole year. 3.40 APE efforts during the last part of 1988 and the first half of 1989 were concentrated on introducing organizational reforms and increasing labor productivity with an intensity that has no precedent in Uruguayan public enterprises. The main changes introduced or under discussion by the end of June 1989 were the reform of the corporate organization, practically unmodified since the creation of AFE 35 years ago, creating five new management units (Planning, Systems, Human Resources, Administration and Auditing), the reduction of the train crew from 3 to 2 employees (under implementation and facing strong union resistance), and the introduction of a new statute for railway employees. 26 3.41 AFE had never had its own employee statute and was using a general one for all public enterprises, basically designed in 1943. On June 17, 1989, the President of the Republic approved the new statute by Decree. Important new elements introducetd were: i) Non-permanent employees incorporated under contract must be hired on a non-renewable basis of no more than six months; ii) An explicitly positive report is needed, after the "probation period" to become a permanent AFE employee (previously only a negative report could prevent someone from becoming a permanent employee); iii) For the first time in the history of Uruguay's public agencies and enterprises, low attendance, low productivity or limited dedication to work are accepted as reasons for punishment or dismissal; iv) The performance of each employee is to be evaluated in absolute terms but also in relative terms, making a performance ranking; iv) All evaluations where the usual smoothing ('all equal") or overevaluation ("all very good") appears will be rejected; and v) Performance, and not seniority is to be the basis for promotion. 3.42 In general, most of the period that started with the elimination of passenger services was dominated by the labor redundancy issue and the personnel reallocation process. This will be discussed in more detail below. 27 CHAPTER IV LABOR REASSIGNMENT 4.1 When the decision to completely eliminate the passenger services began to be implemented (in the last three months of 1987) one conclusion soon became evident: the bureaucratic, slow and impersonal reassignment process of the National Office of the Civil Service was not going to be sufficient to cope with the 3,000 employees to be declared redundant in the next two years. The redeployment of about 400 employees declared redundant at the beginning of 1986 had been difficult and painful: more than one and a half years later only 30 had new jobs. An attempt to retrain employees (mainly engineers) was a complete failure. 4.2 Simultaneously with the creation by the President of the Republic of the Working Group to reassign redundant railway employees (December 1987; paragraph 3.26), a small task force (one senior and one middle level employee lent by the Ministry of Transport, and two AFE employees) was created in AFE to support the process, reporting directly to its President. 4.3 One of the very first decisions was that all employees declared redundant should stay at home "awaiting orders' without coming to work. The experience with the first 400 people already declared redundant had shown that those who stayed in their working places until their new job was found often generated tension and conflict, seriously harming the working environment. 4.4 The via rapida scheme, not provided under existing rules, was then designed. As before, when an employee was declared redundant, he had to stay home 'awaiting orders". But under the new scheme, if another public agency or enterprise required an employee with his background, he could join it with just a letter from the Director or Chief of his new working assignment to the President of AFE and his affirmative response. A new "on loan" status was defined for this situation that could last between 3 and 6 months. During that period, although the railway employee was working in his new job, his salary continued to be paid by AFE. Then, the employee was "incorporated' in his new job. From that moment, he received the same salary as in AFE but paid by his new organization. About three months later he was finally "confirmed" to his new organization, included in its payroll, with a specific position, the same rights as all other employees, and a salary determined by the salary scale of his new job, but by law, not lower than his previous salary. 4.5 An action taken previously, the freezing of new reemployment in the public sector, included in the 1987 Budget Law, 28 supported the reallocation process: redundant AFE employees were an alternative for those agencies and enterprises requiring additional work force. The President of the Republic personally insisted that Ministers and Presidents of public agencies and enterprises give priority to the hiring of AFE employees. 4.6 The redeployment process gave some advantages to AFE employees. Those who worked in Montevideo but lived in other towns (a common situation since AFE employees enjoyed free transport on AFE lines) could ask to be reassigned closer to their homes, avoiding a long commuting trip. Existing laws provided, too, that new positions should consider all previous studies (it was not infrequent that AFE employees with an "intermediate", not university profession, could not make use of their specialization in their AFE jobs), which meant better opportunities elsewhere. Even for the same positions, most other public agencies and enterprises had better final take home salaries. Finally, those with a part-time extra job, were happy to stay formally at home receiving their full salaries, while concentrating on their other activities. 4.7 Two strong feelings coexisted in AFE employees. On the one hand, there was a deep emotional link with the railway. In a large number of cases they were sons and even grandsons of railwaymen. Why shouldn't they continue being railway people? The union's recommendations were supportive: in case of being declared redundant, do what the law allows, reject the redundancy declaration and appeal to the National Office of the Civil Service. 4.8 On the other hand, it was clear that although the redeployment process had a personal cost of accomodation to a new working environment, the conditions of the change were not bad. More seriously, would AFE survive the present reforms or was this the first step towards the complete elimination of not only passenger but also freight services, leading to the complete dismantling of AFE? In that case, would there be a second chance of reemployment in some other public agency or enterprise under the present, favorable conditions? 4.9 Slowly, imperceptibly at the beginning, the tense situation began to ease. The first group of reassigned employees began to tell the others that the experience was not bad; they were reasonably adapted to their new jobs and they were appreciated by their new employers. Simultaneously, the telephone began to ring in the Task Force office in AFE asking for redundant employees, and after checking the records they were sent to talk directly with the managers of the agencies or enterprises that required new personnel. 4.10 The approach adopted to deal with redundant employees was not perfect. First, it embraced all employees directly related to passenger services and stations discontinued. Afterwards, each manager was asked, from time to time, to provide lists with a certain number of redundant employees. In several cases managers 29 were reluctant to do so either because they did not agree with the new corporate objectives or because a large reduction of personnel under their responsibility meant, as well, a reduction in their "in house" power. 4.11 By the beginning of 1989, people actually started to ask to be declared redundant. In all cases the redundancy declaration needed to be approved by the corresponding manager. There were two exceptions prescribed by law: when the living place of the agent was a different state from his working place or when he had a specialization or degree not utilized in AFE. Politicians of the official party also began to lobby for the benefit of redundant employees looking for positions in the best-paid public IL enterprises. The Working Group created by the President of the Republic was only convoked when the reassignment process showed signs of slowing down or faced major conflicts. 4.12 By June 30, 1989, AFE had declared redundant 4,225 employees, 46Z of the 9,109 it had when Cr. Berchesi arrived to be President, nearly accomplishing by that date the Contract Plan target for the whole year. Fifty percent of AFE's employees declared redundant were by their own wish. From that total (4225), 221 had resigned, were dismissed, or died. From the remaining 4004, nearly 3000 (75Z) were already working in their new jobs, won lent', 'incorporated" or 'confirmed". A rough estimate of the income variation of those already confirmed in some other public agency or enterprise concludes that at least 50% of them have increased their salaries by an average of 25Z 30 CHAPTER V EVALUATION OF RESULTS 5.1 This chapter attempts to evaluate the 50 month reform process that took place in AFE between April 1985 and June 1989, when this report was written. 5.2 Looking back, the reform process, while not yet complete, is impressive. Achievements include: i) The restructuring of AFE to be a profit-oriented corporation, concentrated exclusively on the freight business; ii) The elimination of all passenger services, about 4 million train-km annually; iii) The virtual deregulation of freight railway tariffs; iv) The reduction of personnel from 9,109 employees to 4,884 (46Z). Three quarters of the employees declared redundant were already working in some other public agency or enterprise. Fifty percent were declared redundant by their own decision. Not less than 50Z of the redundant employees now working elsewhere in the public sector have a higher final salary than the one they previously had in AFE. Not a single employee was fired because of the reform process; v) The reform of the corporate organization (creating among others, a Planning Manager), and the introduction of a new statute of the railway employee that enhances recognition of merit and individual performance. 5.3 At the same time, AFE is being prepared for a healthier growth. The Peffarol workshop, started many years ago and designed to repair diesel locomotives, was finally finished. Fifteen Alsthom locomotives are under rehabilitation and works are already completed on three of them. Now they can operate in tandem even on the lines close to the Rio de la Plata/Uruguay rivers, where maximum axle load is 14 tons. The rehabilitated locomotives can haul both vacuum and air brake wagons, permitting the use of wagons from the Argentine railway. An agreement was reached with the University of Montevideo and the University of Sheffield, England, to improve bridges in that region as a minimum cost solution. Local consultants were hired, for the first time, to prepare an engineering rehabilitation project for 120 km of track. Several courses and seminars were organized to improve the managerial and operational capabilities of AFE's 31 officials. Most managers and Department Chiefs were sent to France, Spain, the USA, Canada or Brazil. Track gang chiefs were retrained in Argentina. Personal computers were spread through all AFE. 5.4 As of June 1989, it was very difficult to evaluate AFE's operational and financial results because they were still immersed in the cross winds of the reform process, and were changing continually (in the case of the labor component, the heart of the working expenditure), as AFE's employees were confirmed in their new jobs. Nevertheless, if 1989's first semester results are extrapolated to the whole year, and compared with 1984 figures, they show that: i) Tons grew 11X (to 1,069,000 tons) but ton-km fell 7% (to 232 million); ii) Revenue per ton-km increased 432 in real terms (to US cents 3.3) which makes freight revenue 242 higher than in 1984. However, if total revenue including passengers is included in 1984 figures, it fell 21X from 12.4 to 9.8 million dollars; iii) Productivity fell from 66,000 to 48,000 units of traffic per employee (29X) as a consequence of the immediate decrease in total traffic (603 to 232 million) and the (slower) reduction of personnel from 9,083 to 4,884 (excluding those already declared redundant); and iv) With this number of employees, 1989 working costs can be estimated at US$22.2 million, and the working deficit falls from US$21.6 million in 1984 to US$12.4 million (43X). The working ratio is still high (227) but 17% lower than in 1984 (274). As a percentage of GDP, the working deficit fell from 0.34% to 0.17Z. 5.5 AFE's future relies, on the one hand, on the determined continuation of present efforts and, on the other hand, on the attraction of international traffic, in addition to the expected growth of domestic movements. 5.6 Among all potential international traffic, Paraguayan exports of soya grain (about one million tons a year, now exported through the regional port center of Paranagua, in Brazil) are crucial. Although AFE has started to transport some Paraguayan soya, (some 60,000 tons a year) most of it is moved by overloaded Brazilian trucks that make the 1,300 km trip to Paranagua charging about US$ 25 per ton, or about 2 US cents per ton-km. The alternative trip by rail to Montevideo port, through Argentina, is about the same length and a relatively long part of it (600 km) in Uruguayan territory. Soya is a -troubled market affected by fluctuations in exchange rates and promotion policies of the countries involved, but to capture a minimum of one third (about 32 350,000 tons) of this traffic is vital for AFE. 5.7 AFE's salaries remain the lowest among all Uruguay's public enterprises. This aspect contributed to accelerating the reassignment of redundant employees. But salaries will need to be increased, at least in some key areas like traction and rolling stock maintenance, where a new method of salary incentives is presently being tested. The Contract Plan signed between APE and Government does not allow for any salary growth due to productivity increases. Sooner or later this may need to be revised if AFE is going to be managed as a profit-oriented enterprise and its personnel adequately compensated. Unavoidably, this will impact unfavorably AFE's financial situation. A. Why Was Reform Possible? 5.8 Several factors converged to make reform possible and successful. 5.9 Undoubtedly, the major reason for success was the coherent and firm position of the Government supporting the public sector institutional reforms even in the most difficult moments. Both, the President of the Republic, Julio Maria Sanguinetti and the Minister of Transport Jorge Sanguinetti (no relation), politically supported Juan Berchesi, President of AFE, and Alejandro Alchugarry, Undersecretary of Transport, who were directly involved in the reform process as a mutually complementary team. Had these actors been different, the outcome might well have been less favorable. 5.10 The second factor that helped make reform possible was the miscalculations made, mainly before the implementation of reform, by the main beneficiary of the status-quo: the railway union. These were multiple: a) the rejection in August 1985 of the ultimate Government proposal during negotiations to raise railway salaries into line with those of other public enterprises (the union did not realize in time that it was the maximum that Government was prepared to concede); b) the operation, the day after the proposal was rejected, of a passenger train under "workers' control" without AFE management authorization (an attitude characterized by AFE as one of "collective disobedience and against the laws of the Republic" and an action that reinforced Government in opposition to this type of behavior at the beginning of the democratic period); and c) the decision to call a general strike. 5.11 If any major reform process eventually has to face a long and harmful strike, the one that AFE suffered took place at the best possible moment from the point of view of reform. Having occurred at the very beginning, its results molded the behavior of all parties involved and permitted progress, always in the same direction, even with some stops and starts, during the following four years. 33 5.12 The third factor that contributed to success was the way in which the labor problem was tackled and, more specifically, the decisions not to fire any railway employee during the reform process and to implement an expedited, rather informal reassignment process managed directly by AFE. Even in the interpellation in Parliament to the Minister of Transport (May 1988) after the elimination of all passenger services, the labor issue was barely mentioned. The consistency of Government policy that froze new employment in the public sector helped to increase the demand for AFE's redundant employees by all other public agencies and enterprises. 5.13 In general, transport policy formulation can be thought of as a bargaining process by which different interest groups attempt to produce decisions to their own advantage. The resulting policy is essentially a compromise these groups can live with rather than an altruistic solution that satisfies the 'public interest". These interest groups may include: the suppliers of transport themselves (the national railway, airline or trucking industry, etc.); the suppliers of transport inputs (vehicle suppliers, the construction industry, etc.); transport workers concerned about their own employment; politicians seeking either personal votes or national prestige; bureaucrats wanting to perpetuate or expand their influence; and finally, transport users. 5.14 Unlike Argentina, Brazil or Mexico, Uruguay had never had a local railway supply industry. The historical discontinuity in the purchase of traction and rolling stock did not encourage the existence of a lobby of importers of railway equipment. Nor was, the construction industry interested in AFE, since the small annual track rehabilitation was done by AFE itself. It can be concluded that the fourth factor that favored the reform process was the absence of a railway supply lobby, another typical actor in favor of the status-quo. 5.15 The fifth factor helping to achieve reform was that it was very much a locally designed process. Although a British-Uruguayan consultancy consortium and, afterwards, a British and a French consultant contributed to defining the technical alternatives to be considered, no imported prescription was used. The steps taken and their pace and timing were the result of decisions which were locally conceived, designed and taken. 5.16 Last but not least, the Uruguayan society was finally prepared for reform. The survey done at the time of the elimination of all passenger services found that 72Z of the people interviewed approved of service discontinuation as long as users were not left unprotected and AFE employees declared redundant were not fired. B. Who Paid the Cost of Reform? 5.17 Almost by definition, institutional reform means that 34 there will be an adverse impact on those who benefited from the previous way of doing things. Although a reasonable effort was made to cushion the blows, two subgroups were injured by the reform. 5.18 Among railway employees, engineers (train drivers), prestigious and powerful inside the railway organization, did not adapt to change and were difficult to reassign to other public sector jobs. Their specialization and previous rank in AFE did not make the transition easy. Although there are no specific statistics to confirm it, there is no doubt that they represent an important portion of those who remain "awaiting orders, at their home without a new job. The law prescribes that employees declared redundant who are not reassigned within one and a half years, must come back to the public agency or enterprise where they originally belonged. AFE believes, however, that the number of employees in this situation will be minor. 5.19 Railway users also paid part of the cost of reform. Although previous railway monthly pass riders got new passes in buses at the same AFE tariff, 50Z discounts to retired people were limited to those that were older than 60 years, and had an income lower than a "minimum salary" and, more important, were limited to 40 trips per person over a four-month-period (the number of trips in AFE's passenger services was previously unlimited in AFE which permitted employees to hold all sorts of informal jobs). In particular, retired AFE employees who previously travelled by train, with no restriction on the number of trips, completely lost this benefit. C. What Mistakes Were Committed? 5.20 Looking back, Government officials and decision- makers do not recognize major mistakes in the reform process implementation. They prefer to talk about omissions or actions not taken at the right moment. 5.21 An action that should have been initiated earlier was the rehabilitation of the unpaved, marginal state roads with low traffic densities, which were the alternative to railway lines. At the moment when the railway passenger services were eliminated, their condition was in some cases much more precarious than the departmental authorities had informed the Government, and it took some months to restore them to a minimum acceptable standard. 5.22 Another omission was the need for retraining of redundant employees. The unquestioned success of the reassignment process proves that not all the redundant personnel required training. But at least some railway specialists, such as engineers, and perhaps also guards, who readapt with difficulty to the labor market, should have received specific training, according to their needs. Clearly they needed more than just the typing course offered by the National Office of the Civil Service which, 35 of course, ended in frustration. 5.23 Alternative road transport services should have been arranged in advance, too. It must be admitted, however, that its implementation too early might not have permitted keeping the elimination of passenger services confidential up to nearly one month before they were effectively discontinued (for some distant locations servicing less than two hundred people, some unusual, last minute solutions were found: services were provided by an old 1941 Ford car, taxis and even by a police car with fuel paid by the Ministry of Transport). 5.24 Because all battles can not be fought at the same time, marketing was not a high priority area during the reform process. It should have been. The conversion of a supply-oriented railway into a profit-oriented one is not easy or immediate. Additional effort is still required to develop a flexible and vigorous marketing function capable of exploiting the virtual tariff freedom introduced by the Government, exploring new market opportunities and tailoring railway service to the customer needs. D. Final Reflections 5.25 The reforms carried out in the Uruguayan railways were of a depth not foreseen even by those who promoted change. Some final reflections can be made about the reform process.- 5.26 The first is that the changes were carried out by a democratic government, with Parliament working, freedom of the press, and no restrictions on the right to strike or demonstrate. The legitimacy of the reform was enhanced by all these factors and, something uncommon in Latin America, by the fact that no physical violence occurred in any step of the reform process. 5.27 Before reform, AFE personnel were seen from outside as unprepared for change, dominated by mediocrity in most cases and difficult to motivate. Once reform was seen as unavoidable, they indirectly favored change by finding, by themselves in many cases, new jobs in other public agencies or enterprises. Informally it is believed that their general performance in their new positions has been good and few complaints have been registered. 5.28 "If something can go wrong, it will go wrong" says one of the American engineer J.Edsel Murphy's famous laws. Fortunately, this did not happen in Uruguay. The reform process had enough opportunities for disaster but difficulties, considering the dimension of the task undertaken, never came all at the same time. Good luck was, then, an important component of the reform process. 36 ANNEX I A KEY ATTITUDE SURVEY 1. When the elimination of passenger services began to be implemented, the President of AFE and the Ministry of Transport agreed on the necessity of having more information about the possible social reaction to the proposed discontinuation of all passenger services. Two surveys were done in November 1987: a qualitative one, that included AFE employees and users, and a quantitative one, that comprised 480 home interviews in Montevideo. The results of both can be applied well beyond the Uruguayan context. 2. The main conclusions of the qualitative survey were: i) Perceived image of the different intercity passenger services. Although the people interviewed were in general not completely satisfied with any land transport mode, buses were considered the best transport alternative considering costs and benefits. They were seen as quick and quite reliable but uncomfortable and there was no positive link or loyalty to them. On the other hand, there was a strong positive affective relationship with the railway. Although it was in general not currently used, it was associated with favorable images: childhood trips, vacations, security and family. On a more rational level its services were seen as slow, inefficient and deteriorated. The ambivalence between the emotional and rational levels was obvious; ii) Perceived institutional image of buses and AFE. The intercity bus passenger services were associated with ONDA which had a poor public image due to its recent conflicts. At the same time, AFE was considered the worst of all public enterprises. Its situation was attributed to the Government which "abandoned" it, preferring road investments; iii) Image of public enterprises in general. The state was seen as an inefficient, disordered administrator, incapable of managing ambitious projects due to the fact that only the economic and political interests of public employees and politicians prevailed when decisions were taken. Again, ambivalent feelings appeared: when evaluating the performance of public enterprises critics arose, but when changes were discussed resistance to reform was manifested. 37 iv) Reactions of the three subgroups (users, railway employees, others). Railway passengers were a much more cohesive group than in other transport modes, with a high loyalty and fidelity to trains. Their personal profile shows a tendency to privilege, security and affection, with no orientation to power and personal achievements. Railway employees had a high group identification magnified by feelings of persecution. They saw themselves as associated with family, friendship, solidarity, the interior of the country and tradition. They also felt themselves as the weak side of a battle against a cold and rational power. In the Uruguayan context (as in many countries), railwaymen's emotional speech can have a great impact on people resistant to change, especially older people and those with a general profile that coincides with the one of the railway passenger described previously. 3. The quantitative survey complemented the qualitative findings. Topics or questions and answers were: i) Which was the best public enterprise. AFE did not get a single positive answer. ii) Which was the worst public enterprise. AFE was the most frequently chosen (17Z) with a 48Z "no opinion" answer. iii) Performance of AFE and bus passenger services. Answers about AFE were "bad' in 46Z of the cases, 'fairly good" for 15Z of the people interviewed, "goodn for llZ of them, while the remaining 282 had "no opinion". At the same time, opinions about the intercity bus passengers services were the opposite: 63Z agreed that they were "good", 18Z said that they were "fairly good" and 6Z concluded that they were "bad". Thirteen percent had "no opinion". iv) Impact of the 1985 strike. Only 8Z of those interviewed believed the 1985 strike had personnally affected them. Surprisingly, however, when asked about the impact of the strike on the public in general and on the country, 80? responded that both had been harmed by the strike. v) Alternative uses of the subsidy to passenger services. When asked if the Government should dedicate funds to keep railway passenger fares low or whether they should be used for health and education, the latter alternative got 68Z of the answers while the AFE alternative received 12?. The "no opinionw reply got 20Z of the answers. 38 vi) Elimination of passenger services. Two questions were asked about this aspect. The first for an opinion about the elimination of passenger services in order to strengthen AFE and make it profitable. Only 23Z of those interviewed agreed totally with this proposal, 8% agreed partially, 5Z had a partial disagreement and 51Z had a total disagreement. The "no opinion" reply received 1OZ of the answers. But when the question was asked again, assuming that the elimination of passenger services would not affect present railway users and would not imply the firing of railway employees, answers changed completely: 722 agreed with the action, 142 still disagreed and another 142 had no opinion. 4. Shortly afterwards, the quantitative survey was expanded with another 210 home interviews in two cities of the interior of the country (160 in Las Piedras and 50 in Florida). In general, the answers were similar to those obtained in Montevideo, but the initial resistance to the elimination of passenger services was higher (17% in favor and 762 against it). When the question was rephrased giving guarantees that the change would not affect present railway users and railway employees, the resistance in Las Piedras fall to the same level as in Montevideo, but in La Florida (where results must be taken with care because the sample was small) the resistance to change was still higher than 30X. Lack of constraints that users and AFE employees would be effectively protected by the Government was the most quoted reason for this position. TABLE I-1 AFE TRACTION AND ROLLING STOCK FLEET AND AVAILABILITY …------------------------------------------------ (As of December 31, 1984) Equipment Fleet Available Availability I. Traction Main line General Electric 52 22 42Z Alsthom 25 13 52Z Steam 7 6 86Z Ganz Pass. Trains 16 6 38Z Brill Railcars 11 8 73Z Ferrobuses Railcars 28 14 50Z Shunting Diesel Locomotives 32 13 41Z Steam Locomotives 3 3 100Z II. Rolling Stock Freight Open, 2 axles 516 486 94Z Covered, 2 axles 132 118 89Z Tanks, 4 axles 115 107 93Z Platforms, 4 axles 755 451 60Z Hoppers, 4 axles 57 54 95Z Grain Hoppers, 4 axles 20 19 95Z Covered, 4 axles 707 517 73Z Livestock 410 345 84Z Furg6n 57 44 77Z Passengers Steel Cars 42 37 88Z Timber Cars 34 29 85Z Furg6n 14 10 71Z Source: AFE TABLE I-2 AFE TRAFFIC EVOLUTION (Ton in thousands, ton-km in millions, distances in km) Year Freight Livestock Parcels Ton Total Av. Dist. Passenger Total Ton Ton-km Ton Ton-km Ton Ton-km Ton-km Pass Pass-km Av.Dist. T.Units __-_ ------------------ ---------------- ---------------- _____ ______ _____ ------------------ 1955 1,628 345.4 253 81.2 45 6.9 1,926 433.5 225 11,996 513.9 43 947.4 1960 1,385 294.5 345 98.9 42 6.7 1,772 400.2 226 9,767 534.7 55 934.9 1965 1,153 308.4 404 124.0 39 7.1 1,596 439.5 275 9,093 550.7 61 990.2 1970 977 250.1 149 45.3 31 5.8 1,157 301.2 260 7,797 491.2 63 792.4 1975 1,255 260.3 58 17.2 17 3.6 1,330 281.1 211 6,053 357.7 59 638.8 1980 1,296 243.9 53 14.2 17 3.5 1,365 261.6 192 5,435 417.5 77 679.1 1981 1,095 205.3 48 12.9 14 2.9 1,157 221.1 191 3,969 338.6 85 559.7 1982 1,004 178.9 29 7.2 11 2.1 1,044 188.2 180 3,260 273.9 84 462.1 1983 928 200.0 12 4.1 10 2.0 950 206.1 287 3,815 311.7 82 517.8 1984 967 250.8 64 19.8 10 2.1 1,041 272.7 262 5,037 330.7 66 603.4 Source: AFE AXg TABLE I-3 AFE TRAIN-KM PER TYPE OF SERVICE Passenger Freight Total Diesel Loco Diesel Rail Ganz Total Diesel Train Z of Z of Year Loco cars Train Pass Loco Km Pass Freight Z Pass Z Freight 1980 2,750 693 1,673 5,116 1,311 6,427 79.6 20.4 67.7 32.3 1981 2,045 846 1,511 4,402 1,206 5,608 78.5 21.5 62.9 37.1 1982 1,522 1,556 1,454 4,532 1,174 5,706 79.4 20.6 56.5 43.5 1983 1,930 1,236 1,001 4,167 1,328 5,495 75.8 24.2 59.2 40.8 1984 1,944 1,238 807 4,019 1,457 5,476 73.4 26.6 57.2 42.8 TABLE I-4 AFE INCOME STATEMENT (In million N$) Year 1980 1981 1982 1983 1984 Revenues Passenger 69.1 73.6 76.5 104.8 171.8 Parcels 6.1 7.2 6.8 7.4 10.1 Freight & 104.7 125.9 128.9 183.4 267.4 Livestock Other 53.1 59.8 57.8 71.1 107.0 Total 233.0 266.5 270.0 366.7 556.3 Costs Personnel 305.6 433.5 582.7 687.1 924.0 Materials & 104.8 138.5 140.9 208.4 365.4 Spares Other 47.6 65.4 136.9 133.5 237.4 Working Cost 458.0 637.4 860.6 1029.0 1526.8 Depreciation 30.8 42.9 55.7 98.1 141.8 Operating Cost 488.8 680.3 916.3 1127.1 1668.6 Working Deficit 225.0 370.9 590.6 662.3 970.5 Operating Deficit 255.8 413.8 646.3 760.4 1112.3 Working Ratio 197 239 319 281 274 Operating Ratio 210 255 339 307 300 Rate of Exchange 9.1 10.8 13.9 34.4 55.6 (N$/US$) 1/ Estimated. Source: AFE. TABLE I-5 AFE TARIFF EVOLUTION (Index, 1973=100) Year Passengers Freight Livestock Parcels Suburban Interurban 1973 100.0 100.0 100.0 100.0 100.0 1974 97.9 98.1 123.0 122.1 122.1 X 1975 92.2 92.4 166.4 202.8 218.6 1976 76.4 76.5 149.5 182.0 196.3 1977 89.8 90.0 145.8 170.6 183.9 1978 86.4 90.3 130.3 159.0 164.4 1979 80.5 82.9 113.3 138.3 124.4 1980 95.4 97.2 146.8 177.7 138.9 1981 87.3 88.8 137.8 166.6 130.2 1982 89.5 91.2 137.7 166.6 130.2 1983 82.8 84.2 114.1 138.0 107.8 1984 80.0 83.5 87.7 96.5 83.0 Source: National Transport Plan. TABLE 1-6 AFE WORK FORCE DISTRIBUTION August 1958 November 1984 Variation Area No. Z No. Z Z Board of Directors & 25 0.2 58 0.6 +232 Advisory Commission General Management 320 3.1 905 10.0 +283 Supplies 219 2.1 159 1.8 -27 Finance 303 2.9 342 3.8 +13 Operations 3,427 33.0 2,529 27.9 -26 Way & Works 2,517 24.3 2,431 26.9 -3 Traction & Rolling 3,315 32.0 2,306 25.5 -30 Stock Signalling & 250 2.4 319 3.5 +28 Communications Total 10,376 100.0 9,049 9049 -132 Source: AFE and Sofrerail Report (1958). TABLE II-1 URUGUAY: PUBLIC SECTOR DEFICIT (In percentages of GDP) 1980 1982 1984 Nonfinancial Public Sector 0.5 -10.0 -4.4 Central Government a/ 0.1 -8.7 -5.2 Other b/ 0.3 0.1 0.1 Public Enterprises 0.1 -1.5 0.7 Central Bank losses -- -8.3 -4.8 TOTAL PUBLIC SECTOR 0.5 -9.2 -9.2 ------------------------------------------------------------------ a/ Includes transfers to finance the deficit of the Social Security Bank. b/ Municipality of Montevideo, Social Security and National Colonization Institute. Source: The World Bank, Country Economic Memorandum on Uruguay, January 17, 1989. TABLE II-2 URUGUAY: PUBLIC SECTOR EMPLOYMENT (in thousands) 1980 1982 1984 Total Public Sector 197.8 203.0 210.5 Central Government 143.8 148.8 154.8 Public Financial Institutions 8.6 8.4 9.1 Public Enterprises 45.4 45.9 46.6 AFE 9.6 9.9 9.1 AFE 2 Public Enterprises 21.1Z 21.6Z 19.5Z AFE 2 Total Public Sector 4.9Z 4.92 4.3Z ------------------------------------------------------------------ Source: AFE and Contaduria General de la Naci6n, Estadisticas del Sector Pdblico i TABLE III-1 AFE DEMAND AND FINANCIAL PROJECTIONS 1990 1992 1994 1996 1998 2000 2002 TRAFFIC Passenger (m pass-km) - - - - - - - Freight (m ton-km) 240 261 284 309 336 365 397 TARIFFS Freight (US cts/ton-km) 4.8 5.4 5.4 5.4 5.4 5.4 5.4 LABOR Employees (No) 4,406 3,385 3,073 2,867 2,682 2,584 2,553 REVENUE Freight (US$ m) 11.5 14.1 15.3 16.7 18.1 19.7 21.4 EXPENDITURE Personnel (US$ m) 15.8 12.1 11.0 10.2 9.6 9.2 9.1 Fuel (US$ m) 1.0 1.0 1.1 1.2 1.3 1.3 1.4 Materials (US$ m) 5.5 5.5 5.3 5.1 5.3 5.4 5.5 Working expenditure 22.3 18.6 17.4 16.6 16.1 16.0 16.1 (USS m) Working Superavit -10.8 -4.6 -2.0 0.1 2.0 3.7 5.4 (US$ m) Depreciation (US$ m) 2.5 3.0 3.7 4.1 4.2 4.3 4.4 Operational Expenditure 24.7 21.7 21.1 20.7 20.4 20.3 20.4 (US$ m) Operational Superavit -13.2 -7.6 -5.8 -4.0 -2.2 -0.6 1.0 (US$ m) INVESTMENT Annual (US$ m) 9.8 11.0 10.8 4.7 21.2 1.2 1.3 GOVERNMENT SUBSIDY a/ Annual (US$ m) 26.5 8.8 9.2 7.5 5.6 3.2 0.4 a/ Includes the portion of total investment directly paid by Government. Source: National Transport Plan. TABLE III-2 AFE CONTRACT PLAN: MAIN OPERATING AND FINANCIAL INDICATORS --------------------------------__-------------------- 1989 1990 1991 1992 1993 TRAFFIC Freight (ton-km) 306 295 297 298 320 TARIFFS Freight (US cts/ton-km) 3.2 3.2 3.2 3.2 3.2 LABOR No. of employees 5,801 4,751 3,951 3,351 2,841 Traffic units/employee 55,125 64,821 78,759 93,096 116,746 INVESTMENT Annual (US$ m) 14.2 17.3 18.7 10.2 11.8 FINANCIAL RESULTS Revenue (US$ m) 9.8 9.4 9.5 9.5 10.3 Working Expenditure (US$ m) 28.0 23.9 20.3 18.8 17.7 Working Deficit (US$ m) 18.2 14.5 10.8 9.3 7.4 Depreciation (US$ m) 3.2 3.8 4.4 4.4 4.4 Operating Deficit (US$ m) 21.4 18.3 15.2 13.7 11.8 Total Government Subsidy a/ 22.3 23.4 18.9 16.9 15.4 Subsidy a/ (US$ m) Total Government Subsidy 19.5 22.1 18.7 16.9 15.4 attributable to AFE b/ (US$ m) …--------------------------------------------------------------------__- a/ Includes the portion of total investment to be paid by Government. b/ Excluding salaries of redundant employees during the reallocation process Source: AEE's Contract Plan, December 1988. TABLE V-1 UFE PERFORMANCE INDICATORS 1984 1/ 1989 2/ Variation Route in operations (km) 3,001 2,000 -33Z Passenger-km (m) 330.7 -- -- Ton-km (m) 250.8 232 -7Z Ton (m) 967 1,069 +11% Traffic units (m) 603.4 232 -62Z Traffic units/km (000) 201 116 -42Z Revenue/pass-km (US cts) 1.2 -- -- Revenue/ton-km (US cts) 2.25 3.2 +42Z Passenger revenue (US$) 3.8 __ __ Freight revenue (US$) 6.2 7.6 +23% Other revenue (US$) 2.4 1.9 -21% Total revenue (US$) 12.4 9.8 -212 Working costs (US$) 3/ 34.0 22.2 -352 Working deficit (US$) 21.6 12.4 -43Z Working ratio 2.74 2.27 -17% Employees (No) 9,109 4,884 3/ -46% 4 Traffic units/ employee 66,200 47,500 -28% No. of empl./km 3,04 2,44 -202 ------------------------------------------------------------------ 1/ All 1984 values are in December 1988 prices and rate of exchange (1 US$=N$ 454) and may differ from those included in Table I-4. 2/ First half of 1989 figures extrapolated to the whole year. 3/ Does not include employees already declared redundant or in process of reassignment.