Document of

The World Bank

FOR OFFICIAL USE ONLY

Report No. 15323

IMPLEMENTATION COMPLETION REPORT

ARGENTINA

HYDROCARBON ENGINEERING PROJECT(LOAN 3416-AR)

FEBRUARY 2, 1996

Infrastructure Operations DivisionCountry Department ILatin America and the Caribbean Region

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

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Currency Equivalent

Currency Unit = PesoUS$1.00= I Peso

Weights and Measures

Metric System

Fiscal Year of the BorrowerJanuary 1-December 31

Glossary to Acronyms

DLC = Lujan de Cuyo RefineryDLP = La Plata RefineryFHA = Federal Hydrocarbon AgencyGUTA = Gas Utilization & Technical Assistance ProjectMIS = Management Information Systeml'E = Public EnterprisePERAL = Public Enterprise Reform Adjustment LoanPEREL = Public Enterprise Reform Execution LoanSC = Fuel Secretariat (Sub-Secretaria de Combustible),

Ministry of EconomyTA = Technical AssistanceYPF = Yacimientos Petroliferos Fiscales (state-owned corporation)YPFSA = YPF Sociedad Anonima (incorporated entity succeeding YPF)

FOR OFFICIAL USE ONLY

ARGENTINAHYDROCARBON ENGINEERING PROJECT (LOAN 3416-AR)

Table of Contents

Preface .....................................

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

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

A. Background .... .

B. Project Objectives and Definition ............................. ,.,.,.,.,.,.,.,.,.,.2C. Achievement of Project Objectives .3D. Major Factors Affecting Project Implementation .3E. Project Sustainability .6F. Performance .6G. Assessment of Outcome .6H. Future Operations .6I. Key Lessons Learned .6

Appendix: Comments of the YPFSA and the Government .8

PART Il: STATISTICAL INFORMATION

Note: Implementation Completion Reports (ICRs) normally include tables comparing actual and forecastindicators for project implementation/operation and for economic justification. As none appear in theloan documents for the Hydrocarbon Engineering Project, which consisted of studies and other kinds oftechnical assistance, the ICR includes none. The ICR includes no table describing and commenting onnon-adherence by the Bank to its own operating policies as we are not aware of such non-adherence.

Table 1. Summary of Assessments .......................... 10....... , ........... ,........ 10Table 2. Related Bank Loans ..................... ,. , . , .11Table 3. Project Timetable ...................... ........ ,.........,.... 13Table 4. Actual & Forecast Cumulative Disbursements .13Table 5. Actual & Forecast Disbursements by Category .13Table 6. Studies Included in the Project: Timetable & Cost--

Actual, Revised, and Forecast Data. . 14Table 7a Actual & Forecast Project Cost (Adjusted) , ......................................... 20Table 7b Sources of Financing .. 20Table 8. Status of Legal Covenants.............................21......., . ........................ ,.,., 21Table 9. Bank Resources: Staff Inputs....................................,,,,,.,.,.,,.,, .24Table 10. Bank Resources: Missions ........................... 24..,,,,,,,............,., 24

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

IMPLEMENTATION COMPLETION REPORT (ICR)

ARGENTINA

HYDROCARBON ENGINEERING PROJECT (LOAN 3416-AR)

Preface

This is the Implementation Completion Report (ICR) for the Hydrocarbon Engineering Project inArgentina, for which Loan 3416-AR in the amount of US$28.0 million equivalent was approved onNovember 19, 1991 and made effective on June 9, 1992. The borrower was YPF Sociedad An6nima(YPFSA), the former state-owned national oil company.

The last disbursement was on July 5, 1994 and the outstanding balance was prepaid onSeptember 15, 1994. The loan was closed as scheduled on July 31, 1995.

The ICR was prepared by Mr. Andrew Waldrop, LAIIU, under the supervision of Mr. RicardoKlockner, Task Manager, and was reviewed by Mr. AsifFaiz, Chief, LAlIU, and by Mr. Orville Grimes,Project Adviser, LA1DR.

Preparation of this ICR was begun in August 1994. It is based on material in the project file,interviews with Bank staff, and information provided by the borrower.

A draft of this ICR was sent to YPFSA and the Government for their review. Their commentsare included as an appendix to Part I of the ICR.

iiEvaluation Summary

HYDROCARBON ENGINEERING PROJECT(LOAN 3416-AR)

ARGENTINA

Introduction

Hydrocarbon and Adjustment Loans to Argentina. The borrower of Loan 3416-AR(US$28.0 million, 1991) is Y P F Sociedad An6nima (YPFSA), a privately-owned corporate successorto the state-owned oil company (para.. 1). The Bank has loaned Argentina since 1980 US$651million, including Loan 3416-AR for hydrocarbon development, and about US$1.5 billion between1989 and 1993 for adjustment operations to restructure and stabilize the economy. It makes senseto think of Loan 3416-AR as serving both the efficiency objectives of a normal engineering projectand the privatization objectives of adjustment operations.

Project Objectives and Definition

Objectives. To help YPFSA privatize, the project aimed at improving the efficiency of YPFSA.To further mobilize private participation in the newly liberalized hydrocarbon sector, the project aimedat strengthening the capacity of the Fuels Secretariat (Sub-Secretaria de Combustibles-- SC) foroverseeing sector policy and regulatory activities and for negotiating contracts for exploration andproduction. The project also supported SC's efforts to develop and enforce environmental standards inthe sector (para. 6).

Definition. The project consisted of engineering studies (Parts 1-3) and technical assistance(TA--Part 4). The studies were to: improve/enhance recovery of crude oil and natural gas (Part 1);construct natural gas processing plants and define the adequacy of a geological formation for storingnatural gas (Part 2); and enhance the capacity of certain plants and facilities (crude oil processing, exportinfrastructure, and marketing plants--Part 3). Under Part 4, to benefit SC, consultants would: establish ahydrocarbon development promotion unit, and develop a manual setting forth sector-wide environmentalstandards. In connection with the unit, consultants were expected to train staff and transfer fromYPFSA a national data bank on oil acreage in Argentina. To benefit YPFSA, there was also aninstitutional strengthening component (para. 7).

Special Covenants. Except for a timetable governing the execution of the studies, the LoanAgreement did not include special covenants for project execution.

Evaluation. The project objectives were compatible with sector and macroeconomic objectivesand achievements of prior investment and adjustment loans. The loan documents clearly stated theobjectives which were consistent with the country development objectives and the Bank's lendingstrategy (para. 9).

iiiImplementation Experience & Results

Achievement of Objectives. Although the project was reduced in scope, the componentscarried out by YPFSA (Parts 1-3, plus some of Part 4) substantially achieved their privatizationand efficiency objectives, and these achievements appear to be sustainable. Under Part 4, SCachieved part of its environmental objective through the development of standards for developmentdrilling operations. It remains to be seen how the environmental standards will be enforced andwhether additional standards will be developed for other operations (such as exploratory drilling).SC did not establish a hydrocarbon promotion unit and did not transfer the national data bank fromYPFSA. In the opinion of SC, the existing policy framework was achieving satisfactory privateparticipation in the sector; hence, the unit was not really needed. Lack of physical space at the SCwas the reason for not transferring the data bank. The Bank accepts SC's judgment on notestablishing the unit but the wisdom of not transferring the data bank remains to be seen (paras. 10and 12).

Timetable, Cost, and Financing. The project started six months late--June 11, 1992-- dueto bureaucratic delay on the part of the Argentinean authorities; the project ended five monthsearly--July 5, 1994, with the last disbursement. Underlying the early completion date was YPFSA' sgrowing disinterest, following its privatization, with Bank financing which was considered non-competitive with what was available in commercial credit markets. The actual project cost wasUS$19.1 mnillion vs. the forecast cost of US$23.9 million; and Bank financing amounted to US$8.3million vs. the forecast of US$12.8 million. The forecast cost and financing have been adjusted toreflect the reduction in the scope of the project. The original project cost was US$40.1 million,which was to have been financed with a Bank loan (US$28.0 million) and funding from YPFSA andthe Government (US$12.1 million) (paras. 8, 13, and 15).

Factors Affecting Project Implementation. Factors affecting implementation included areduction in project scope (see above); the privatized status of YPFSA, which caused it to end itsrelationship with the Bank and prepay Loan 3416-AR (September 15, 1994); and SC's progressivedisinterest, due to reduced need, in establishing the hydrocarbon promotion unit. These factors affectedthe project timetable, cost, financing, results, and sustainability of achievements under the project (para.11).

Performance. With the objectives of the studies benefiting the YPFSA and SC substantiallyachieved and likely to be sustained, the performances of YPFSA, SC and the Bank should be judged"satisfactory" (para. 20).

Assessment of Outcome. Given the gains of privatization and greater efficiency at YPFSA,satisfactory private participation in the sector, and the establishmnent of partial environmental standardsat the SC, the outcome of the project merits an overall rating of " satisfactory" (para. 21).

iv ,

Future Operations and Lessons to be Learned

No Further Projects. As a private company, YPFSA has access to commercial credit marketsin a way that was not possible in the past. Given such access, the Bank is not planning future operationsin the hydrocarbon sector (para. 22).

Key Lessons. The efficiency gains under this project provide no obvious lessons. Theprivatization of YPFSA demonstrates the importance of commitment on the part of political authoritiesto the objectives of the project. The privatization of YPFSA also demonstrates that, in connection with amulti-loan, economic stabilization and restructuring operation, it is important that the Bank ensure thatthe successive loans properly "link" in order to advance or achieve the final objective(s) of the operation.Another lesson relates to the realities of a privatized sector. The retention of the data bank by YPFSAmay be perceived by other oil companies as a sign of preferential treatment on the part of theGovernment and may lead them to defer needed investment in the sector. In retrospect, the Bank shouldhave impressed on the SC the importance of transferring the data bank from YPFSA to a neutral locationwith open access to all interested parties. This would have the impact of enhancing competition in thesector and would remove concerns of preferential treatment of YPFSA by the Government (para. 23).

ARGENTINA

HYDROCARBON ENGINEERING PROJECT(LOAN 3416-AR)

PART I: FINDINGS AND LESSONS

A. Background

1. The Borrower. The borrower of Loan 3416-AR is Y P F Sociedad An6nima (YPFSA), aprivately owned oil company (since July-September 1993), which became the corporate successor (onJanuary 1, 1991) to the state-owned oil company (Yacimientos Petroliferos Fiscales--YPF).

2. Political and Economic Context. During the 1970s and 1980s, Argentina, a rich country,struggled to reverse a slow economic decline resulting, in part, from its statist economic approach. In1989-1990, the Administration of President Menem initiated reforms to stabilize and restructure theeconomy. The stabilization reform focused on reducing the government deficit. The restructuring reformemphasized market forces, private initiatives, reducing the role of the state, and improving theperformance of public enterprises (PEs) which accounted for about 10% of the GDP and 50% of theannual government deficit. Supporting these reforms was a Bank program of adjustment and technicalassistance (TA) loans which exceeded US$1.5 billion (through 1993).

3. Hydrocarbon Loans. To restructure the economy and to secure future energy needs, theGovernment began preparing the hydrocarbon sector and YPF for, respectively, deregulation andcommercial operations, reorganization, and privatization. Concerning key issues, the Bank provided theGovemment with financing for TA and studies, including: (1) the institutional strengthening componentof the Gas Utilization and Technical Assistance Project--GUTA (Loan 2592-AR, US$70.9 million,1985); (2) the corporate strategy component of the Public Enterprise Reform Project--PEREL (Loan3292-AR, US$23.0 million, 1991); (3) the energy sector reform conditions of the Public EnterpriseReform Adjustment Loan--PERAL (Loan 3291-AR, US$300 million, 1991); and (4) the engineeringstudies and TA of the Hydrocarbon Engineering Project (Loan 3416-AR, US$28.0 million, 1991).

4. GUTA, PEREL, and PERAL. At appraisal, the institutional strengthening component of theGUTA included an organizational review of YPF to streamline decision-making and to improveoperational efficiency; and improvements to its financial management systems. To advance the programof privatizing PEs (para. 3), the objectives of the organizational review were expanded to include theidentification and analysis of key financial and institutional issues, including how to assure a goodreception for YPF shares on local and intemational equity markets. The GUTA studies produced adiagnosis for restructuring and the identification of assets (non-core) to be sold'. Building on the GUTAstudies, the PEREL studies examined the strategic plans of the restructured YPF and defined neededchanges to its legal regime and relationship with the Government. The PERAL extended theachievements of the GUTA and PEREL by conditioning the release of a " floating" (or undated) energy

The study on restructuring led, inter alia, to a reduction of employees from 40,000 to 10,000. Thestudy which assessed and identified core and non-core activities led to the disposal of pipelines,refineries, storage facilitates, etc. Also financed under Loan 2592-AR were the design andimplementation of a new, comprehensive accounting system which became operational in 1993.

2sector tranche (US$75.0 million) to, inter alia, the approval of a new charter providing for financial andoperational autonomy, divestiture and privatization of non-core assets, and increasing private ownershipof YPF.

5. Milestones. On January 1, 1991, YPF was converted into a stock corporation (YPFSA) withthe shares held by the Government. (The same month, work began on the subject engineering project.)Seventeen months after conversion, the Government began to fulfil the conditions for release of theenergy sector tranche. First, it enacted (September 24, 1992) new legislation (Law 24.145) whichestablished YPFSA's new corporate charter, thereby laying the foundation for restructuring andprivatization. Then, it disposed of non-core assets, still leaving YPFSA with a dominant position in thesector2. Finally, at the beginning of February 1993, it commnitted itself to the near-terrn privatization ofYPFSA On February 17, 1993, the Bank, satisfied that the release conditions had been fulfilled,disbursed the tranche and closed Loan 3291-AR. In July 1993, the Government sold 46% of YPFSA'scommon stock (first offering) on domestic and international equity markets, and in mid September 1993,an additional 22% (second offering) with the result that a majority of YPFSA's stock was in privatehands. The privatization of YPFSA resulted directly from TA financed by Loan 3416-AR and the priorachievements of Loans 2592-AR, 3291-AR. and 3292-AR..

B. Project Objectives and Definition

6. Objectives. The proposed project aimed to improve the efficiency of YPFSA's operations,thereby helping YPFSA make an effective transition to its commercial role and eventual privatization;and strengthen the capacity of the Fuel Secretariat (Sub-Secretaria de Combustibles--SC) to regulate thehydrocarbon sector; and support its efforts to develop and enforce environmental standards in thesector. The project was also expected to improve SC's capacity to mobilize private participation in thenewly liberalized hydrocarbon sector.

7. Definition. The project consisted of engineering studies (Parts 1-3) and TA (Part 4). Part Istudies were to improve/enhance crude oil and natural gas recovery. Part 2 included studies to constructnatural gas processing plants and to define the adequacy of underground storage facilities for natural gas.The underground storage study was to be jointly executed by SC and YPFSA. Part 3 studies were toenhance crude oil processing, upgrade export infrastructure, and automate marketing plants. Under Part4, to benefit SC, consultants would help to: establish a hydrocarbon development promotion unit whichwould auction oil acreage and operate an exploration data bank; train staff for the unit; and develop amanual establishing sector-wide environmental standards. To benefit YPFSA, consultants wouldredesign the management information systems (MIS), especially the budgeting and accounting systems,and monitor the environmental impact of projects identified in Parts 1-3. Also benefiting YPFSA was acomponent for overseas management training.

8. Cost, Timing and Mode of Execution. At an expected cost of US$40.1 million, the projectwas to be executed between December 15, 1991 and December 30, 1994. Typically, the engineeringstudies were to be executed in three phases: (i) data collection/system design; (ii) preparing/issuing biddocuments; and (iii) evaluating bids/awarding contracts.

2 After restructuring, YPFSA accounted for 40% of national oil production, 60-70% of refining capacity, 50-60% ofsales of hydrocarbon products, and 60% of the gas production market.

3

9. Evaluation. The project objectives were compatible with sector and macroeconomic objectives(para. 3) and achievements under the GUTA, the PERAL, and the PEREL (paras. 4-5). As set forth inthe loan documents, the objectives were clearly stated; they were also important, appropriate to thedevelopment of Argentina, and consistent with the Bank's lending strategy.

C. Achievement of Project Objectives

10. Assessment. If the achievements of TA/engineering projects are indicated by the actions takenon the basis of consultant recommendations, then YPFSA substantially achieved its objectives (para. 6).For example, based on the results of Part 4, YPFSA introduced its shares on domestic and internationalstock exchanges; and based on the results of Parts 1-3, YPFSA discarded or adopted investmentoptions and installed or planned to install works. Improved efficiency, it is assumed, follows from thecompletion of such works, although the degree of improvement cannot be measured because noindicators were established at appraisal. SC did not establish a hydrocarbon promotion unit and did nottransfer the national data bank from YPFSA, but, by setting a proper policy framework--rules forprivatization and other regulatory norms--it prompted, to its satisfaction, private participation in thesector, which was the result to be expected from establishing the hydrocarbon promotion unit. The Bankaccepts SC's judgment on not establishing the unit, but the wisdom of not transferring the data bankremains to be seen. SC achieved part of the objective of developing environmental standards; and aregulatory unit, the Federal Hydrocarbon Agency (FHA), is contemplated in connection with anamendment to the Hydrocarbon Law (Law 17.319). Economic benefit calculations were not applied tothe project.

D. Major Factors Affecting Project Implementation

11. General. Factors affecting implementation included a reduction in project scope; YPFSA'schanged status as a private company; and SC's progressive disinterest in establishing the hydrocarbonpromotion unit. SC found that a proper policy framework was sufficient to prompt private participationin the sector and that it did not need to create the hydrocarbon promotion unit. Because of their impacton one another, it is convenient to relate the reduced project scope to cost reductions; and the changedstatus of YPFSA to the changed composition of financing and to the early project completion date.

(a) Changes: Project Content and Cost

12. Project Content: As compared with what was planned at appraisal, the completed project wasreduced in scope through the deletion of major items in Parts 2 and 4. The reduced project was thenfurther diminished through the non-completion of studies in Parts 1 and 2 due to altered circumstances.There was a partial offset to the reduction in scope and non-completions by the addition of TA frominvestment bankers (Part 4). As shown later, to compare actual and forecast costs meaningfully, theforecast costs have to be adjusted to reflect the impact of the deletions (see Schedule 1). Set forth beloware details on changes to the project and the actions taken based on the recommendations of theconsultants.

(i) Part 1. Because more was accomplished under existing contracts financed by Loan 2592-AR than had been expected, the Part 1 studies, as completed, involved less work and less cost (-54.5%)

4than anticipated, but, nonetheless, led YPFSA to install telemetric control systems and to continuestudying an implementation plan for tertiary recovery.

(ii) Part 2. YPFSA did not complete the study of the gas treatment facilities at the Lotenafields and the related study of dew point separators. Initial investigation showed that further investmentwas not worthwhile. SC (which excluded YPFSA from participation in the study for underground gasstorage) deleted the study due to considerations of cost and doubts about whether the study might bemore appropriately carried out by private investors. Foregone expenditure on the storage studyamounted to US$9.96 million. Because of the discontinued studies on the Lotena fields, the actual costof Part 2 was 65% less than the expected cost (adjusted for deletion of the storage study) .

(iii) Part 3. These studies focused on improving refinery operations, export facilities, andautomating storage and dispatch plants. Following the completion of feasibility studies on changing thecapacity of certain pipelines, YPFSA took no action because the pipelines were sold to other investors.The other studies resulted in YPFSA's discarding, installing or advancing the preparation of works. Theactual cost was 13.5% less than expected.

(iv) Part 4: SC. Under Part 4, consultants prepared a manual establishing environmentalstandards for development drilling, and completed an initial study of SC's organization. SC is using themanual, but the manual(s) relating to exploratory and production drilling are pending. Since, in theopinion of SC, a proper policy framework was prompting satisfactory private participation in the sector(para. 17), the hydrocarbon promotion unit was not established. Total expenditures were 19.1% greaterthan expected.

(v) Part 4: YPFSA. YPFSA reduced the project scope by deleting the overseas trainingcomponent and the TA to install an improved MIS. With Bank agreement, YPFSA added the advice ofinvestment bankers to advance the introduction of its shares on equity markets. The foregoneexpenditures for training and the MIS amounted to US$4.76 million. Consultants establishedenvironmental monitoring programs related to only a few projects identified in Part 3. As compared withforecast costs adjusted to reflect the deletion of TA for MIS, actual Part 4 expenditures by YPFSAwere 126.3% higher. (In late 1993, YPFSA discontinued discussions about the possibility of Bankfunding for a study of further improvements to the accounting/budgeting system--expected cost: US$4.0million.)

13. Cost. Without adjustment to take account of the reduction in project scope, the forecast cost(US$40.1 million) is not comparable with the actual cost (US$19.1 million). After adjustment forreduction, the actual and forecast projects are reasonably comparable, and, as shown in Schedule 1, theadjusted (reduced) forecast cost (US$23.9 million) is comparable to the actual cost (19.1 million).

5

Schedule 1: Actual and Forecast (Adjusted) Cost(in thousands of US$)

Parts 1 2 3 4 (SC) 4(YPFSA) TotalActual 3,064 572 10,365 3,179 1,946 19,126Forecast (adjusted) 6,740 1,650* 11,980 2,670 860** 23,900%Diff. from Forecast -54.5 -65.3 -13.5 19.1 126.3 -19.97

* Reduction of original forecast: US$9,960 thousands, representing the expected cost of a study (never executed) of theunderground storage capacity (natural gas) of a geological formation known as the Beazeley Canyon.

** Reduction of original forecast: US$4,760 thousands representing the expected cost of TA (never executed) for,respectively, the installation of a modem management information system (US$4,000 thousands) and training(US$760 thousands).

(b) Changes: YPFSA, Financing and Timetable

14. YPFSA as a Private Company. Following the first offering (July 1993--para. 5), YPFSA andthe Bank began to prepare for loan negotiations on a proposed oil industry environment rmitigationproject. In this connection, the Bank sought the agreement of YPFSA to more stringent financialperformance covenants (a quick ratio not less than 1.2:1 and a debt/equity ratio not less than 40:60) thanhad prevailed in earlier loan agreements on the grounds that the more stringent covenants wereappropriate to borrower's changed status as a private company in a competitive world. YPFSA objectedthat the proposed covenants were too onerous and that the terms and conditions of the proposed Bankloan were not competitive with what was available on international credit markets. The Bank andYPFSA did not find common ground on this issue. Accordingly, YPFSA halted (August 1993)preparations for negotiations, and, thereafter, progressively limited its applications for disbursementsfrom Loan 3416-AR. The last disbursement was on July 5, 1994; YPFSA prepaid (September 15,1994) the outstanding balance. How the changed status of YPFSA impacted on project financing andthe project completion date is set forth below.

15. Composition of Financing. While reductions in the scope of the project led to reductions inproject cost, and therefore the level of financing, the composition of such financing reflected the decisionof YPFSA to limit the use of Bank funding. Schedule 2 shows actual Bank financing at US$8.3 million;YPFSA/SC furnished the balance of US$10.8 million. Reduced due to changes to the project, thecorresponding appraisal forecasts were, respectively, US$12.8 million and US$11.1 million. (Atappraisal, the sources of financing were: the Bank, US$28.0 million; YPFSA/SC, US$12.1 million).

Schedule 2: Actual and Forecast (Adjusted) Sources of Financing(in thousands of US$)

Sources Actual Forecast % Diff.(Adjusted)

World Bank 8,273 12,770 -35.2YPFSA/SC 10,853 11,130 -2.5Total 19,126 23,900 -19.9

16. Timetable. At appraisal, the expected period of execution was December 15, 1991 toDecember 30, 1994. Due to bureaucratic delays after loan negotiations, the project actually began six

6months late--June 11, 1992, when the first consulting contraet was signed. The project ended about fivemonths early--July 5, 1994, on the occasion of the last disbursement from Loan 3416-AR (para. 14).

(c) Reduced Need for the Hydrocarbon Promotion Unit

17. SC. Under Part 4, SC employed consultants to study its organizational needs; but did nottransfer the national data bank from the YPFSA and did not establish the hydrocarbon promotion unit.Concerning the national data bank, the transfer was not effected due to lack of space at SC Withoutsuch transfer, SC passes requests of potential bidders for information on available acreage to YPFSA.Concerning the unit, its creation was initially delayed because, in the context of lean governmentbudgets, the SC was obliged to secure reliable funding from non-government sources if the unit were toachieve operational status. This did not happen, with the result that the creation of the unit languished.However, as time passed, it became clear to SC that the unit was not really needed, that the objective ofimproved private participation was being satisfactorily met through the rules for privatization and suchregulation as promoted competition among the natural monopolies of the sector.

E. Project Sustainablity

18. YPFSA. Provided that the works resulting from the project are properly maintained andoperated, there is every reason to believe that the efficiency improvements which they embody shall besustained over the economic lives of the works. YPFSA's status as a private company is also likely to besustained, as its profitability, market standing, and competitive position are strong. Further, a politicaldecision to reintroduce state control seems remote at this juncture. Concerning environmentalprotection, while quantitative data are not available to measure the benefits of avoided environmentaldamage, presumably the benefits remain (or are sustained) since they originated in connection withproject construction and should not disappear as a consequence of project completion.

19. SC. Part 4 led to the preparation of an environmental standards handbook for developmentdrilling. The objective of increased private participation in the sector was achieved to the satisfaction ofSC without establishing the hydrocarbon promotion unit and without the transfer of the national databank from YPFSA. SC's progressive disinterest in the promotional unit seems justified, but the wisdomof leaving the national data bank at YPFSA remains to be seen.

F. Performance

20. The Bank and the Beneficiaries. Results under the project are the starting point for judgingthe performance of parties to the project. As the objectives of the studies benefiting the YPFSA weresubstantially achieved and appear likely to be sustained, so the performances of YPFSA and the Bankshould be judged satisfactory. Since the objectives of the TA benefiting SC also appear to have beenachieved, the performance of the government should be judged satisfactory. The same judgment shouldapply to the Bank.

H. Assessment of Outcome

21. A Good Project. Results with respect to the studies and TA benefiting YPFSA and SC werepositive. Hence, the outcome of the project merits an overall rating of " satisfactory".

7I. Future dperations

22. No Further Projects. As a private company, YPFSA has access to commercial credit marketsin a way that was not possible in the past. Given such access, the Bank is not planning future lendingoperations in the hydrocarbon sector of Argentina.

J. Key Lessons Learned

23. Key Lessons. The efficiency gains under this project provide no obvious lessons. Theprivatization of YPFSA demonstrates the importance of commitment on the part of political authoritiesto the objectives of the project. The privatization of YPFSA also demonstrates that, in connection with amulti-loan, economic stabilization and restructuring operation, it is important that the Bank ensure thatthe successive loans properly "link" together to advance or achieve the final objective(s) of theoperation. Another lesson relates to the realities of a privatized sector. The retention of the data bank byYPFSA may be perceived by othe oil companies as a sign of preferential treatment on the part of theGovernment and may lead them to defer needed investment in the sector. In retrospect, the Bank shouldhave impressed on SC the importance of transferring the data bank from YPFSA to a neutral locationwith open access to all interested parties. This would have the impact of enhancing competition in thesector and would remove concerns of preferential treatment by the Government.

8

Appendix to Part I: Comments of YPFSA and the Government

Note: Respectively dated December 6 and December 14, 1995, the comments of YPFSA and theGovernment have been edited as indicated with brackets to improve their clarity or to achieveeditorial consistency with the rest of Part I. The Government's corrections of Part II (Table 6)concerning the work of consultants have been directly incorporated into Part II and are not setforth below. Also not set forth below is the Government's disclaimer concerning facts andjudgments on that part of the project executed by YPFSA.

Comments of YPFSA: "After examining the above mentioned report, YPFSA has no importantcomments to make about the development of the Project.

"However, we are pleased to express our satisfaction with regards to the Bank'sperformance and to thank [the Bank] as well for the assistance offered every time it wasrequested."

Comments of the Government: "[Set forth below are].. .the comments of the Subsecretaria deEnergia... Obviously, these comments relate only to the component financed by the World Bankand carried out by Subsecretaria de Combustibles (SC).

"The first [comment] is a general [one--namely] that the Federal Hydrocarbon Agency(FHA), which is... cited in the [subject ICR], is an institution contemplated in the [proposed]amendment of Law 17.319, the Hydrocarbon Law. [Currently,] Law 17.319 is being amended byNational Congress. Therefore, pending completion [of] the amendment process by the NationalCongress and its promulgation by the National Executive Power, the FHA [does not exist] andshall not function.

"The consultant ['X'], who carried out part of the study financed by.. .Loan 3416-AR, onlyoutlined the tentative organizational structure of the FHA, assigning a reduced part of its time andresources to [such study]. To implement the FHA, the execution of a deeper [organization] study...shall be necessary; [and] until the amendment [of the Hydrocarbon Law] is approved, the SE shallnot [take action on the study.]

"On various pages of the ICR..., it is stated that the objective of the project was [only]partially achieved or inadequately completed because it was believed that the...the hydrocarbonpromotion unit [was not created] within.. .the SC. Also having not formed the promotion unit, it isdoubted that the objectives of attracting private participation in the petroleum and natural gasindustries can be reached.

"Concerning the [above, the following] should be said:

"a) The authorities of the SC decided, having reevaluated the [concept] of the... unit, that itwould be more useful for energy policy... .to assign the funds for the reorganization of the SC to thetraining of personnel.. through courses [offered locally or abroad].

9"b) It is difficult to believe that the non-creation of the... .unit is going to affect the success of

petroleum policy in the sense that the private sector would not be part of the development of thesector. Energy policy in the developed area of hydrocarbons.. .consists of establishing rules for thederegulation of 'upstream ' petroleum and natural gas activities and [of establishing] regulation [topromote] competition in areas characterized by natural monopolies. [Such rules and regulations]are the unique conditions for success, as has been shown by production increases for natural gasand petroleum and by increments of investments in 'upstream' and 'downstream' [facilities]. Tomaintain that, without the Unit, there [are inadequate] incentives [to attract] the private sector tocomplete investments in exploration and development seems to be a [chancy proposition].

"Another question meriting commentary is that the national data bank, which... contains in-formation on exploration..., belongs to the Secretaria de Energia and not a private company. Thedata bank is located at YPFSA because... the Secretaria... [lacks sufficient physical space]; but it isrequired that other companies interested in [exploration activities] have access to the data bank onconditions equal to that of YPFSA."

10

Part II: Statistical Information

Table 1: Summarv of Assessment

A. Achievement of Obiectives Substantial Partial Neeligible Not ADnlicabieMacroeconomic Policies X

Sector Policies X

Financial Objectives X

Institutional DevelopmentYPFSA XSC-Manual x

-Unit X

Physical Objectives X

Poverty Reduction X

Gender Concerns X

Other Social Objectives X

Environmental Objectives X

Public Sector Management X

Private Sector Development XB. Proiect Sustainability Likelv Unlikelv Uncertain Not Applicable

YPFSA XSC-Manual x

-Unit XC. Bank Performance Hil!hlv Satisfactory Satisfactory Deficient

Identification XPreparation XAppraisal XSupervision X

D. Borrower PerformancePreparation XImplementation XCovenant Compliance X

E. Assessment of Outcome Hinhlv Satisfactory Satisfactory Unsatisfactory Hiehly Unsatisfactory

x

11

Page 1 of 2

Table 2: Related Bank Loans

Loan Number;Year of Approval; AmountProject Name (in US$ millions) Purpose Status

Preceding Operations

2592-AR; 70.9 To rationalize use of and Loan closed 12.31.91.1985; develop hydrocarbon re- two years late. AchievedGas sources by eliminating installation of oil/gas in-Utilization bottlenecks in deliveries frastructure plus impor-and Technical of gas and oil, expand tant institutional streng-Assistance enhanced recovery facili- thening in the form of aProject ties, etc., plus institutional diagnosis of the financial

strengthening. and institutional issuesrelated to the future pri-vatization of YPFSA, theidentification of core andnon-core assets, and thedevelopment and installa-tion of an accounting/budet-ing system appropriate to amajor oil company.

3291-AR; 300 To advance Government Loan closed 12.31.92.1991; objectives of deregulating Achieved dergulation ofPublic Enterprise the economy and privatizing prices of crude and re-Reform Adjustment PEs. Tranche release was refined oil products;(PERAL) conditioned to fulfillment of greater private invest-

macroeconomic and sector ment in crude oil pro-specific conditionalities. duction; privatization

of YPFSA.

3292-AR; 32 Companion loan to 3291-AR. Loan closed 06.30.95;1991; To support deregulating and last disbursement wasPublic Enterprise and privatizing SEs by financing on 12.15.93. Consul-Reform Execution consultant studies re corporate tants proposed successLoan (PEREL) development strategies and pur- ful strategy for YPFSA

chase of related equipment. implementation. led toprivatization.

12

Page 2 of 2

Table 2 (Cont'd.)

Loan Number;Year of Approval; AmountProject Name (in US$ millions) Purpose Status

Subject Loan

3416-AR; 28 TA project consisting of Loan closed, 07.31.95,as1991; studies to improve the effi- scheduled; last disburse-Hydrocarbon Sector ciency of YPFSA's opera- ment, 07.05.94; loan pre-Engineering Project tions and to strengthen the paid, 09.15.94. Project

regulatory capacity of the SC. experienced deletions, sub-stitutions, etc., amountingto a reduction in scope.Studies benefiting YPFSAled to adoption/rejection ofinvestment options, plussuccessful offering of shareson equity markets of BuenosAires and New York City.

Total 430.9 1/

1/ Total does not include investment lending (since 1980) amounting to US$623 million or adjustment operations(from 1989 to 1993) amounting to about US$1.2 billion.

13

Table 3: Project Timetable

Steps in Project Cycle Date Planned Actual Date

Preparation 02/03-15/91Appraisal 06/91 06/18-25/91Negotiations 10/91 10/08/91'Board Presentation 08/91 11/19/91Signing 03/12/92Effectiveness 02/92 06/09/92Project Completion 12/31/94 07/05/94Loan Closing 07/31/95 07/31/95

1/ One minor criticism which applies to all parties pertains to the choice, made during negotiations, of December 15, 1991as the starting date for the project. Given that negotiations began on October 8, 1991, the negotiators allowed only eightweeks for completing the tasks relating to loan processing (Board approval, loan signing, and effectiveness) and the signingof consultancy contracts (agreement on "short" lists, evaluating proposals, negotiating contracts). Clearly, this representedan unrealistic estimate of the efficiency of all parties. Fortunately, the choice of December 15, 1991 was not a major factoraffecting the timetable of project implementation. The late start reflected the fact that after Board approval (November 19,1991) YPFSA and the Govemnment did not move promptly to fulfill their own bureaucratic requirements for loan signing(March 12, 1992) and effectiveness (June 9, 1992).

Table 4: Actual and Forecast Cumulative Disbursements(in millions of US$)

IBRD Fiscal Year 1992 1993 1994 1995

Forecast 10.00 22.00 27.00 28.00Actual 0.00 7.58 8.27 8.27Actual as a percent of forecast 0 34.4 30.6 29.5

Date of Final Disbursement: 07/05/94Amount Canceled: US$19.73 million

Table 5: Actual and Forecast Disbursements by Category(in millions of US$)

Actual as aCateaorv Actual Forecast Percent of

Forecast1. Consultant services

benefitting YPFSA 6.2 14.5 -57.22. Consultant services

benefitting SC 2.1 11.5 -81.73. Unallocated 0.0 2.0 -100.0

Total 8.3 28.0 -70.4

14

Page I of 6

Table 6: Studies Included in the Project: Timetable and Cost-- Forecast, Revised, and Actual Data

Actual Date of Bank'sPart 1: Production Enhancemnent Con- "No Obiection" Date for

(benefiting YPFSA) sul- Short Consultant Starting Work DateCategory Study Description Studv Objective tant List Selection (Contract Signing) for Ending Work Cost Commentary

(in millions US$s)a Design: Teleme- Proper control of Tech- NA* 34/ 04.14.92' Forecast: 12.15..91 Forecast: 07.31.92 Fore: 3.000 Ln. 3416-AR financed phase 1-data collec-

tric Control Sys- field production & nip/Sol- Revised: NA Revised: 12.31.94 Revised: 2.310 tion/systen design based on studies of thetem for Produc- allocation san Actual: 01.07.936 Actual: 04.19.94 Actual: 1.679 Comodoro Rivadavia and Mendoza fields.tion MDF**: 6.5 MDF: 21 (Disbursed, Phase I continuedworkatartedunderLa

Bank In: 0.932') 2592-AR. YPFSA did not use Bank financ-ing for phases 2 & 3-issuing bid documentsand evaluating proposals/awarding contracts.Study was the basis for the development oftelemetric control systems in above fields,plus a list of oil fields where YPFSA willinstall such systems.

1/b. Design: Second- Optimization of Total- NA 04.16.92 Forecast: 12.15.91 Fore: 07.31.92 Fore: 3.740 This study, consistingofadvice for implemen-

ary and Tertiary crude oil produc- Cullen Revised: NA Revised: 12.31.94 Revised: 0.824 ting a pilot project for oil recovery, continuedProjects (Enhan- tion from produc- Valdez Actual: 10.06.93 Actual: NA Actual: 1.367 work started under Loan 2592-AR; howeverced Recovery) ing fields. Rojas MDF: 10.5 MDF: NA (Disbursed, only modest part of Ln. 3416-AR was used

Bank In: 0. 182) due to YPFSA's dissatisfaction with teffsand conditions of Bank fmancing. Implemen-tation of proposed project is being studied.

*NA: Not Applicable or Not Available; MDF: Months Differing from Appraisal Forecast

3 Both the Bank and YPFSA believed that the contract would be an extension of an existing contract financed by another Bank loan (2592-AR).4 On 04.01.93, in an internal memo, the Bank set forth its agreement with the Borrower's decision to continue its relationship (under a new contract) with anexperienced consultant already contracted under another Bank loan.S Bank telexes to YPFSA, dated respectively 04.14.92 and 04.16.92, indicated " no objection" to extension of existing contracts.6 On 04.08.93, Bank informed YPFSA that under Loan 3416-AR it would only finance that portion of the contract covering the field work; and would not finance thestorage and pumping stations. The Bank reconfirmed its position in a communication to YPFSA dated June 21, 1993.7 After YPFSA renegotiated the contract to expand the scope of services, Bank limited its disbursements to apply to only those services defined in the originalcontract.

15

Page 2 of 6

Table 6: Studies Included in the Project: Timetable and Cost-- Forecast, Revised and Actual Data (Cont'd.)

Part 2: Natural Gas Processing & Actual Date of Bank'sUnderground Storage Con- "No Obiection"

sul- Short Consultant Starting Work DateCategory Study Description Study Objective tant List Selection (Contract Signing) for Ending Work Cost Commentary

( in millions USSs)

a.1 Si Design: Gas Treat- Optiniizationof Fish En- 05.04.92 08.21.92 Forecast: 12.15.91 Fore: 07.31.92 Fore: 1.650) Because the initial phase showedthatfur-

ment Facilities, natural gas liquid gineer- Revised: NA Revised: 03.30.94 Revised: 0.5799) ther investment in project was not worthwhile,

Lotena Fields extraction and ring & Actual: 11.09.92 Actual: 10.20.93 Actual: 0.573) YPFSA, after obtaining Bank agreement, didenergy savings. Cons. MDF: 11.5 MDF: 2.5 (Disbursed, not continue with the study1 0 .

Bank In: 0.384)

a(ii) 8/ Detailed Engin- Increased conden- Fish En- SAA*** SAA SAA SAA SAA SAA Fore: 1.650) Study not executed. See above commentary for details.

eering: Dew Point sate production gineer-.Separators ing

b Detailed Geologi- Determining ade- NA'1 NA NA NA NA NA NA Fore: 9.960 Study never executed. Worrying about its cost

cal, Geophysical, quacy of under- Revised: 0.000 plus doubts about whether the study might be

and Laboratory ground storage. Actual: 0.000 more appropriately executed by a private in-

Work for Under- vestor undermined the Government's interestground Storage and delayed its execution.

(SC)

***SAA: Same as above

8 Studies a(i) and a(ii) were companion studies.9 Cost of first phase of study.'1 On 10.06.93, Bank agreed to reduce scope, and therefore the cost, of consultant services.I This study was supposed to determine the security and useability of a geological formation for underground storage of natural gas. The formation was referred toas the Beazley Canyon. If found acceptable, the Beazley Canyon formation would have provided natural gas storage at a location convenient for serving metropolitanBuenos Aires.

16

Page 3 of 6Table 6: Studies Included in the Project: Timetable and Cost-- Forecast, Revised and Actual Data (Cont'd.)

Part 3: Improving Crude Oil Processing, Actual Date of Bank'sMarketing, & Export Facilities Con- "No Obiection" Date for

sul- Short Consultant Starting Work DateCategorv Study Description Study Obiective tant List Selection (Contract Signing) for Ending Work Cost Commentary

(in millions, US$s)

al. 2 Quality Enhancement Improved mar- U.O.P. 05.12.92 03.25.93 Fore: 12.15.91 Fore: 06.30.93 Fore: 9.120) The study was successfully executed, andthe(Isomerization, ketability. Revised: NA Revised: 07.07.93 Revised: 2.889 resulting works have been started. YPFSA didat Refineries La Actual: NA Actual: NA Actual: 2.700 not finance the study with the resources of Ln.Plata--DLP-- and MDF: NA MDF: (Disbursed, 3416-AR.Lujan de Cuyo-- Bank In: 0.000)DLC)

12/a.2 Control Room More efficient ABB- 05.04.92 08.25.92 Fore: 12.15.91 Fore. 06.30.93 Fore: 9.120) Basic engineering fmancedbyBank(Ln.

Instrumentation/ terminal traffic Siincon Revised: NA Revised: 07.07.93 Revised: 0.755 3416-AR). YPFSAfinanced later phases.Revamp (Modemi- for both public Actual: 10.05.92 Actual: 10.20.93 Actual: 0.755 The consultant carried out the basic engin-zation) at DLP and private sec- MDF: 10.5 MDF: 4 (Disbursed, eering for the modemization ofthe facilitiesand DLC tor association. Bank In: 0.406) and the unification of the control rooms, but

YPFSA, after analyzing the results, decidedto discontinue the project.

12/a. 3 Integral Study of Improvedpollu- Badger 05.04.92 09.09.92; Fore: 12.15.91 Fore: 12.31.93 Fore: 9.120) The study was successfully executed, result-

Effluents Treat- tion control. Engin- Revised: NA Revised: 01.15.94 Revised: 4.512 11/ ing in a technical economic proposal corres-ment at )LP eers Actual: 09.23.92, Actual: 05.19.93 Actual: 4.512 pondingto several subprojects. Their impl'>-

08.20.93 '3 (Disbursed, mentation is part of the plan of action of theMDF: 9 MDF: -7 Bank In. 1.700) DLP.

12/a.4 Improved Energy Improved energy Bechtel NA 10.15.92'4 Fore: 12.15.91 Fore: 12.31.93 Fore: 9.120 ) This component consisted of software to con-

Efficiency Costs savings & product Engin- Revised: NA Revised: 01.15.94 Revised: 0.057 trol industrial processes, plus license agree-and Performance efficiency. eering Actual: NA Actual: 03.11.93 Actual: 0.057 ment and start-up supervision. The softwareat DLP. MDF: NA MDF: -9 (Disbursed, was purchased and successfully installed.

Bank In: 0.047)

12 The studies a 1 to a.4 were companion studies, aiming to improve the overall performance of the DLP.3 Bank agreed to YPFSA's request to amend consultant's contract to finance additional services costing US$2.738 millions.

1 On 01.19.93, the Bank agreed to amend the contract to include the study of the rehabilitation of the Topping Unit C at the DLP, but would not finance suchamendment as the study was not part of the project definition.

17

Page 4 of 6

Table 6: Studies Included in the Project: Timetable and Cost-- Forecast, Revised and Actual Data (Cont'd)

Actual Date of Bank'sParts 3 (Cont'd.) Con- "No Objection" Date for

sul- Short Consultant Starting Work DateCatepory Study Description Study Objective tant List Selection (Contract Signinp) for Ending Work Cost Comrentary

(in millions, USSs)b.1 Upgrading Ex- More efficient Williams 01.23.92 06.03.92 Fore: 12.15.91 Fore: 06.30.93 Fore: 1.320) Feasibility study ofTransandeanpipeline to

port Facilities: terminal traffic, Brothers Revised: NA Revised: 07.07.93 Revised: 0.410 Chile (phase 1), plus bid package (phase 2),Feasibility study, etc. Actual: 07.17.92 Actual: 01.06.93 Actual: 0.321 were successfullyexecuted, leadingto con-Oil Pipelines MDF: 7 MDF: -6 (Disbursed, struction and inauguration (02.94) of pipe-

Bank In: 0.263) line.

b.2 Upgrading Ex- More efficient Williams 01.23.92 06.03.92 Fore: 12.15.91 Fore: 06.30.93 Fore: 1.320) Three feasibilitystudieswere reviewed: one toport Facilties: terminal traffic, Brothers Revised: NA Revised: 07.07.93 Revised: 0.654 reduce flow/volume ofthe Puesto Hernandez-Feasibility study, etc. Actual: 07.17.92 Actual: 05.19.93 Actual: 0.654 Puerto Rosalespipeline; andtwoto increaseOil Pipelines MDF: 7 MDF: -1 (Disbursed, the capacities ofthe pipelines Palmar Largo-

Bank In: 0.435) Campo Duran and Allen-Puerto Rosales. YPFSAtook no action based on these studies becausethey were privatized.

c. Automationof Assuranceofaccur- Foster 02.28.92 06.01.92 Fore: 12.15.91 Fore: 06.30.93 Fore: 1.540 Studyconsistingofbasicengineeringforauto-the Storage and acyofproductstocks Wheeler Revised: NA Revised: 11.30.93 Revised: 1.360 mating the dispatch terninals was success-DispatchPlants andsales. Iberia Actual: 06.11.92 Actual: 03.11.93 Actual: 1.365 fullycompleted. Recornmendations wereleum Products MDF: 6 MDF: -3 (Disbursed, judged as appropiate. Implementation is

Bank In: 0.904) at the bidding stage.

18

Page 5 of 6

Table 6: Studies Included in the Project: Timetable and Cost-- Forecast. Revised, and Actual Data (Cont'd)

Actual Date of Bank'sPart 4: Institution Building: SC Con- "No Objection"_ Date for

sul- Short Consultant Starting Work DateCateizory Study Description Study Objective tant List Selection (Contract Simning) for Ending Work Cost Commentary

(in millions USSs)

a.1 Settingupaco- To coordinate, (i)Direc- NA 06.24.92 Fore: 12.15.91 Fore: 06.30.94 Fore: 2.670) Following appliestoPart4.a- I &a2. Theordination unit the work of tor and Revised: NA Revised: 06.30.93 Revised: 0.126 Government did not establish the hydro-withintheSC consulting Technical Actual: 08.15.92 Actual: 07.14.93 Actual: 0.121 carbonpromotionesunit anddidnottransfer

firms in , Economic MDF: 8 MDF: -9 (Disbursed, the national data bank from YPFSA to SCconnection Advisor BankIn: 0.121) According to the Government, there was nowith a.2 & need for the unit because its objective -protnotinga.3 below. private participation in the sector- was being met

by establishing rules for privatization and by(ii)Tech- NA 06.15.93 Fore: 12.15.91 Fore: 06.30.94 Fore: 2.670) establishingappropriateregulationofthose areaspreneurs. nical & Revised: NA Revised: NA Revised: 0.060 of the sector which were natural monopoliesEconomic Actual: NA Actual: 07.14.93 Actual: 0.023 Hence theGovernmentfeltitnmoreusefultore-Advisor MDF: NA MDF: -9 (Disbursed, assign Bank resources to train staff. According

Bank In: 0.023) to the Government, the national data bank has notbeen transferred from YPFSA because SC lacks thespace for the data bank. However, SC requiresYPFSAto permit potential competition to haveaccess to the Bank on equal terms.

a.2 Analyzethe new Studiesthe fanc- IID: NA 06.15.93 Fore: 12.15.91 Fore: 06.30.94 Fore: 2.670)functions to be tions., organization Informa- Revised: NA Revised: NA Revised: 1.790carried out by and personnel of for Invest- Actual: NA Actual: 06.14.94 Actual: 2.213the SC. the SC; studies the ment De- MDF: NA MDF: 0 (Disbursed,

the future structure cisions Bank In: 1.369)of the FHA ; trainingof perssonnel.

a.3 Environmental Identifying effects Ambien- 12.16.92 05.19.93 Fore: 12.15.91 Fore: 12.31.92 Fore: 2.670) Amanual establishingenvironmental stan-Manual (SC) of hydrocarbon tal, SA/ Revised: NA Revised: 06.30.93 Revised: 0.763 dards for development drilling was prepared.

sector project Econosult Actual: 08.12.93 Actual: 06.14.94 Actual: 0.594 The SC is enforcing those standards. Stillcomponents on MDF: 8 MDF: 18 (Disbursed, pending are manuals establishing environ-environment. Bank In: 0.594) mental standards for exploratory and produc-

tion drilling.

19

Page 6 of 6

Table 6: Studies Included in the Project: Timetable and Cost-- Forecast. Revised and Actual Data (Cont'd)

Actual Date of Bank'sPart 4 (Cont'd.): Institutional Strengthening, YPFSA Con- "No Objection" Date for

sul- Short Consultant Starting Work DateCategory StudY Description Study Objective tant List Selection (Contract Siming) for Ending Work Cost Commentary

(in millions USSs)Bank In: 0.053)

b Improvement of Asthe original First 07.24.92 09.08.92 Fore: 12.15.91 Fore: 06.30.93 Fore: 5.510 Consultant advice was useful in helping YPFSAYPFSA's economic objective--facili- Boston Revised: NA Revised: NA Revised: 1.524 to bring its shares successfully to the equity marketdata system for man- tating privatiza- Cor- Actual: 03.18.93 Actual: 01.07.94 Actual: 1.674 of New York City and Buenos Aires. The otheragement of funds, tion through the pora- MDF: 15 MDF: 6 (Disbursed, study objective-installation of an MIS system-funds, tax payments installation of an tion, Bank In: 0.858) was achieved under loan 2592-AR.and stock market. MIS appropriate Merrill

to a private com- Lynch,any-had been Bancosubstantially Generalachieved under de NegociosLn. 2592-AR,a complementaryobjective was sub-stituted: facilita-ting privatizationby obtaining advicefrom investmentbankers on the in-troduction of YPFSAshares on the equitymarkets of BuenosAires & New YorkCity.

c. Enviromnental Improvedpollu- Golden 05.13.92 10.30.92 Fore: 12.15.91 Fore: 12.31.92 Fore: 0.860 Environmentalmonitoringexecutedincon-Impact Studies tion control. Engineer- Revised: NA Revised: 04.15.93 Revised: 0.527 nection with construction of Transandeanof Projects ing/SGS Actual: 12.28.92 Actual: 10.20.93 Revised: 0.383 pipeline and secondary recovery effortL Fur-IdentifiedUnder Argentina MDF: 12 MDF: 10 Actual: 0.272 therworkwasforestalledasaconsequenceParts A and B (Disbursed, of YPFSA's decision to prepay Ln. 3416-AR.

Bank In.: 0.053)

20Table 7(a) and (b): Actual and Forecast (Adjusted) Project Costs and Sources of Financing

(in thousands of US$)% Diff.

Proiect Cost Actual Forecast (Adiusted) fromLocal Frgn. Total Local Frgn. Total Fren.

Part 1: ProductionEnhancement 812 2,252 3,064 2,060 4.680 6,740 -54.5

(a) Primary Production 565 1,132 1,697 840 2,160 3,000 -43.4(b) Tertiary Recovery 247 1,120 1,367 1,220 2,520 3,740 -63.4

Part 2: Natural GasProcessing &UndergroundStorage 104 468 572 520 1.130 1 640 -65.1

(a) Natural GasProcessing 104 468 572 520 1,130 1,640 -65.1(Underground Storage) (--------Deleted------) (2,400) (7,560) (9,960) NA

Part 3: Improving CrudeOil Processing, Ex-port Facilities, &Marketing 3,753 6.612 10365 7,180 4,800 11,90 -13.5

(a) Quality Enhancement 3,375 4,649 8,024 6,260 2,860 9,120 -12.0(Isomerization, modern-izing refinery controlrooms, software forprocess control, efflu-ent treatment)

(b) Upgrading Export 118 858 976 460 860 1,320 -26.1Facilities (Pipelinefeasibility studies)

(c)Automation 260 1,105 1,365 460 1,080 1,540 -11.4

Part 4: InstitutionalStrengthenin 2.678 2.447 5.125 1,370 2 160 3 530 19.4

(a) SC: Promotional 1,685 1,494 3,179 1,370 1,300 2,670 19.1Unit, Manual

(b) YPFSA:Investment Bankers 789 885 1,674 ------ ------ ---- NAEnvironment 204 68 272 0 860 860 -68.4(MIS) ( ------Deleted---------) (2,000 3,510 5,510) NA(Training) (------Deleted---- ( 0 760 760) NATotal 7,347 11,779 19,126 11,130 12,770 23,900 -19.9

Project Financing By SourceWorld Bank 1,416 6,587 8,273 3,400 12,770 16,170 -48.8YPFSA/SC 5.931 4.922 10,853 7 730 0 7 730 40.4

Total 7,347 11,779 19,126 11,130 12,770 23,900 -19.9

21

Page I of 3

Table 8: Status of Legal Covenants

Original RevisedCovenant Present Fulfillment Fulfillment Description of

Agreement Section Type Status Date Date Covenant Comments

LA 3.01(bXi) Subsidiary C Borrower shall enter into subsidiary agreement with No action required.Agreement Guarantor satisfactory to Bank that contains terms and

conditions for onlending to the Guarantor the part of theproceeds allocated from Category 2 for carrying out theGuarantors portion of the project.

LA 3.01(bXii) Subsidiary C Borrower shall enter into subsidiary agreement with No action required.Agreement Guarantor satisfactory to the Bank; such agreement to

contain: provisions for the payment by the Guarantor ofthe fee referred to in Section 5.02.

LA 3.02(a) Project C The Borrower shall for the purpose of carrying out the No action required..Execution Project employ consultants whose selection, experience

and terms of employment and conditions shall besatisfactory to the Bank.

LA 3.02(b) Project C The Borrower shall cooperate fully with the consultants No action required.Execution in the performance of their services and make available

to them all information relevant to the Project.LA 3.02(c) Monitoring/ C The Borrower shall cause the consultants to ftrnish to No action required .

Reviews the Bank copies of documents, including reports, drafts,plans, designs, specifications, work schedules and costestimates.

LA 3.02(dXi) Monitoring/ C Borrower and Bank shall exchange views on No action required.&(ii) Reviews recommendations and conclusions contained in

consultants' reports; upon completion. Borrower shallconsult with Bank on recommendations and conclusionsand initiate implementation program to strengthenoperational capacity.

LA 3.03 Execution C The Borrower, shall not later than June 30 of each No action required.year, beginning in 1992, exchange views with the Bankand Guarantor on the progress in implementing theproject including the implementation schedule in theAnnex to Schedule 2.

22

Page 2 of 3

Table 8 (Cont'd.)

Original Revised Description ofAgreement Section Covenant Present Fulfillment Fulfillment Covenant Comments

Type Status Date DateLA 3.04 C The Borrower shall maintain Project Administrative No action required.

Execution Unit until the Project has been completed.

LA 4.01 C The Borrower shall carry on its operations and conduct No action required.Management its affairs in accordance with sound administrative,

and Operations financial and petroleum engineering practices.

LA 4.02 Management C The Borrower shall at all times operate and maintain its No action requiredand Operations plants, machinery and equipment in accordance with

sound engineering, financial and petroleum mdustrypractices and make all necessary repairs.

LA 4.03 C The Borrower shall take out and maintain with No action required.Management responsible insurers, or make other provisions

and Operations satisfactory to the Bank for insurance against risk andin such amounts as shall be consistent with appropriatepractices.

LA 5.01(a) CD The Borrower shall maintain records and accounts No action required.Accounting/ adequate to reflect in accordance with sound accounting

Audits practice its operations and financial condition, includingrecords and separate accounts for the Parts of theProject.

LA 5.01(bXi) & C Borrower shall: (i) have the records and accounts for No action required(ii) Accounting/ each FY audited by independent auditors acceptable to

Audits Bank; (ii) furnish to Bank as soon as available and notlater than 6 months after the end of FY certified copiesof fin. statement and auditor's reports..

LA 5.01(cXi) C For all expenditures made on the basis of statements of No action required.Accounting/ expenditures, the Borrower shall maintain records and

Audits accounts reflecting such expenditures.

23

Page 3 of 3Table 8 (Cont'd.)

Original RevisedCovenant Present Fulfillment Fulfillment Description of

Agreement Section Type Status Date Date Covenant CommentsLA 5.01(cXiv) Accounting/ C Ensure that records and accounts in 5.01 (c) (I) are No action required.

Audit included in annual audit and that audit contains aseparate opinion as to whether the SOEs together withthe procedures and intemal controls can be relied uponto support the related withdrawals.

LA 5.02 Accounting/ C The Borrower shall pay to the Guarantor a guarantee No action required.Audit fee of 0.80% per annum on the amount outstanding of

the Loan allocated to Category (1) of Schedule 1.

LA 7.01(a) Effectiveness C The following events are specified as additional No action needed.conditions to the effectiveness of the Loan Agreement:(a) that the Guarantor and the Borrower have enteredinto the Subsidiary Agreement.

LA 7.01(b) Effectiveness C The following events are specified as additional No further action needed.conditions to the effectiveness of the Loan Agreement:(b) that all actions have been taken by the Guarantor inorder to permit the procurement of services to befinanced out of the proceeds of the loan.

GA 2.02(b) Provisional C The Guarantor undertakes to provide to the Borrower No action required.Funds funds for carrying out the Project if there is reasonable

cause to believe that the funds available to theBorrower will be inadequate to meet the estimatedexpenditures.

GA 3.02(a) Project C The Guarantor shall for the purpose of carrying part of No action required..Execution the Project employ consultants whose selection,

experience and terms of employment and conditionsshall be satisfactory to the Bank.

GA 3.02(b) Project C The Guarantor shall cooperate fully with the No action required.Execution consultants in the performance of their services and

make available to them all information relevant to theProject.

LA - Loan Agreement; GA Guarantee Agreement. C = Complied with; C = Complied with Delay

24

Table 9: Bank Resources: Staff Inputs

Note: Data on planned and actual expenditures and planned staff weeks are not available.

Stage of ActualProject StaffCycle Weeks

Through appraisal 19.7Appraisal- Board 10.4Board-Effectiveness 4.9Sub-total 35.0

Supervision:1992: 6.91993: 22.21994: 13.9

Table 10: Bank Resources: MissionsPerformance Rating

Imple- TypesStage of Number Days Specialized menta- Develop- ofProject Month/ of in Staff Skills tion ment pro-Cycle Year Persons Field Represented Status Impact blems

Prep-ara-tion 2/91 3 14 2 P-ENGs; 1 FA NA NA NA

Appraisal 06/91 3 7 2 P-NGs: 1 GS NA NA NATotal 63 1/

Implemen tation

Supervision I 06/92 1 4 1 FA I I NA

Supervision II 10-11/92 2 11.5 1 P-ENG; I FA I I NA

Supervision 111 11-12/93 1 15 1 FA 2 1 DLTotal 42 1/

1/ Computed by multiplying number of persons by number of days in the fielld.

Key to Acronyms: P-ENGs Petroleum Engineer; FA: Financail Analyst; GS: Government Specialist; NA: NotApplicable; DL: Disbursement Lag.

IMAGINE;

Report Nlo: 15323

Type: ICR