IN THE AMOUNT OF US US $151.52 MILLION

Public Disclosure Authorized
Public Disclosure Authorized
DOCUMENT OF
THE WORLD BANK
REPORT No. 25012-UR
INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT
PROGRAM DOCUMENT
FOR A PROPOSED
Public Disclosure Authorized
PUBLIC SERVICES AND SOCIAL SECTORS
STRUCTURAL ADJUSTMENT LOAN
IN THE AMOUNT OF US US$151.52 MILLION
AND
SPECIAL STRUCTURAL ADJUSTMENT LOAN
IN THE AMOUNT OF US$101.02 MILLION
TO THE
Public Disclosure Authorized
ORIENTAL REPUBLIC OF URUGUAY
MARCH 25, 2003
FINANCE, PRIVATE SECTOR AND INFRASTRUCTURE
ARGENTINA, CHILE, PARAGUAY, URUGUAY COUNTRY MANAGEMENT UNIT
LATIN AMERICA AND THE CARIBBEAN REGION
Currency Equivallenfts
CU1RRENCY EQUIIALENTS
Currency Unit: The Uruguayan Peso
EXCHEANGE IRATE
1999 Uruguay $11.38 = US$1
2000 Uruguay $11.38 = US$1
2001 Uruguay $13.93 = US$1
2002 Uruguay $26.65 = US$1
WREIIGITS ANID MiEASURES
Metric System
FEISCAL YEAR
January 1 - December 31
ABFBlREVEATIRBNS AND ACIRONYMS
ADME
AFE
ANC
ANCAP
ANCEL
ANTEL
ANEP
ANP
ASSE
BHU
BROU
CAS
CCC
CODICEN
CPI
CREMA
FNR
GDP
GOU
LMCS
IDB
IFI
Administraci6n del Mercado Electrico
Adniinistraci6n de Ferrocarriles del Estado
Administraci6n Nacional de Correos
Administraci6n Nacional de Combustibles, Alcohol y Portland
ANTEL's subsidiary for cellular telephones
Administraci6n Nacional de Telecomunicaciones
Administraci6n Nacional de Educaci6n Piblica
Administraci6n Nacional de Puertos
Administraci6n de Servicios de Salud del Estado
Banco Hipotecario del Uruguay
Banco Repuiblica Oriental del Uruguay
Country Assistance Strategy
Comisi6n de Control de la Concesi6n
Consejo Directivo Central
Consumer Price Index
Contract for Rehabilitation and Maintenance
Fondo Nacional de Recursos
Gross Domestic Product
Government of Uruguay
Instituciones de Asistencia M6dica Colectiva
Inter-American Development Bank
International Finance Institutions
Vice President
Country Director
Sector Directors
Sector Leaders
Lead Economist
Task Manager
David de Ferranti
Axel van Trotsenburg
Danny Leipziger / Ana Maria Arriagada
Juan Gaviria / Aiel Fiszbein
Paul Levy
Carlos E. Velez / Anna Wellenstein
ILD
IMAES
IMF
INE
IPC
IVA
LPG
MDGs
MEF
MSP
MTOP
MVOTMA
NLD
OECD
OPP
OSE
PSP
RUCAF
SAL
SSAL
TAL
UFW
URAGUA
UREE
URSEA
URSEC
USO
UTE
VAT
International Long Distance
Institutos de Medicina Altamente Especializados
International Monetary Fund
Instituto Nacional de Estadistica
Indice de Precios al Consumidor
Impuesto al Valor Agregado
Liquid Propane Gas
Millennium Development Goals
Ministerio de Economia y Finanzas
Ministerio de Salud Publica
Ministerio de Transporte y Obras Publicas
Ministerio de Vivienda, Ordenamiento Territorial y Medio Ambiente
National Long Distance
Organization of Economic Cooperation and Development
Oficina Planeamiento y Presupuesto
Obras Sanitarias del Estado
Private Sector Participation
Registro Unico de Cobertura Formal de Asistencia
Structural Adjustment Loan
Special Structural Adjustment Loan
Technical Assistance Loan
Unaccounted-for-water
Private Water Concessionaire in the Department of Maldonado
Unidad Reguladora de Energia Electrica
Unidad Reguladora de los Servicios de Energia y Agua
Unidad Reguladora de Servicios de Comunicaciones
Universal Service Obligation
Administraci6n Nacional de Usinas y Transmnisiones Electricas
Value Added Tax
Page i
TABLE OF CONTENTS
PAGE
LOAN AND PROGRAM SUMMARY
V
I.
INTRODUCTION & RATIONAL
A. OBJECTIVES AND COVERAGE OF THE PROGRAM
B. RECENT ECONOMIC DEVELOPMENTS
C. ECONOMIC GROWTH AND PUBLIC SERVICES AND INFRASTRUCTURE
1
I
2
9
II.
LINKS TO POVERTY REDUCTION
11
III.
CURRENT STATUS AND ISSUES IN PUBLIC SERVICES, INFRASTRUCTURE
AND SOCIAL SECTORS
A. ENERGY SECTOR
B. TELECOMMUNICATIONS SECTOR
C. POSTAL SERVICES SECTOR
D. WATER AND SANITATION SECTOR
E. TRANSPORTATION SECTOR
F. HEALTH SECTOR
G. EDUCATION SECTOR
14
15
20
21
22
24
25
27
IV.
THE GOVERNMENT'S REFORM PROGRAM
A. ENERGY SECTOR
B. TELECOMMUNICATIONS SECTOR
C. POSTAL SERVICES SECTOR
D. WATER AND SANITATION SECTOR
E. TRANSPORT SECTOR
F. HEALTH SECTOR
G. EDUCATION SECTOR
28
28
31
32
33
34
35
36
V.
THE PROPOSED LOANS
A. OBJECTIVES OF THE PROPOSED LOANS
B. DESCRIPTION OF FINANCIAL ASSISTANCE
C. REFORM PROGRAM SUPPORTED BY THE BANK
D. INSTITUTIONAL AND IMPLEMENTATION ARRANGEMENTS
E. ENVIRONMENT AND CONSULTATION WITH STAKEHOLDERS
F. BENEFITS
G. RISKS AND MITIGATION
38
38
39
40
48
49
50
51
Table
Table
Table
Table
Table
Table
Table
Table
Table
Table
Table
1:
2:
3:
4:
5:
6:
7:
8:
9:
10:
I 1:
7
8
18
18
22
23
24
39
41
42
43
Non-financial Public Sector Finances
Public Sector Debt (in millions of US dollars)
Ex-refinery and import parity prices for petroleum products in Uruguay
Gasoline and diesel pump prices in Uruguay (US$/liter)
Mail volumes in Uruguay in 2000
Average water and sanitation tariff (US$m3; all consumers
Operating costs and annual investments of water and sanitation utilities
SAL and SSAL tranche timing and amounts
Major reforms supported by Tranche 1
Major reforms supported by Tranche 2
Major reforms supported by Tranche 3
Page iii
Figure 1: Regional comparison of retail prices for electricity (without tax)
Figure 2: Sewerage coverage vs. GNI (Gross income)
16
23
ANINEXES
53
Annex l:
Annex 2:
Annex 3:
Annex 4:
Annex 5:
Annex 6:
Annex 7:
Annex 8:
Annex 9:
Annex 10:
Annex 11:
Matrix of Conditionalities and Monitoring Indicators
Letter of Development Policy
Implementation Performance of SAL I/SSAL 1
Social Impact Assessment of Public Utilities Reform
Fiscal Impacts of the Reform Program
Key Economic Indicators
Key Exposure Indicators
Uruguay - Fund Relations
Status of Bank Group Operations
Statement of IFCs Held and Disbursed Portfolio
Uruguay at a Glance
53
64
79
82
90
94
96
97
99
100
101
This operation was prepared by a World Bank team composed of: Vivien Foster and
Luis Guasch (LCSFP), Eleodoro Mayorga (COCPO), Paulo Correa and Nelson de
Franco (LCSFP), Franz Drees (LCSFW), Juan Ianni (CITPO), Juan Pablo Uribe
(LCSHH), Suhas Parandekar (LCSHE), Jorge Rebelo (LCSFT), Pilar Gonzalez
(LEGLA), Daniel Oks (LCSPE), Lourdes Herrell (LCSFU), and Marcelo Celani, Luis
Vaca-Soto, Luis Perez, Jorge Kogan, and Juan Pablo Martinez (consultants). The
team was led by Carlos E. Velez (LCSFW) and Anna Wellenstein (LCSFU). The
sector leaders are Juan Gaviria (FPSI) and Ariel Fiszbein (HD).
Page iv
URUGUAY
PUBLIC SERVICES AND SOCIAL SECTORS
LOANS AND PROGRAM SUMMARY
Borrower
Oriental Republic of Uruguay
Implementing
Agency
Office of Planning and Budget
Poverty Category
Not applicable
Amount
SAL: US$151,520,000
SSAL: US$101,020,000
Terms
SAL: US Dollar Fixed Spread Loan, 15 year maturity including five
years grace, commitment linked, level principal repayment.
SSAL: US Dollar Fixed Spread Loan, five years maturity, including
three years of grace, commitment linked, level principal repayment.
Commitment
Charge
SAL: The Borrower shall pay to the Bank a commnitment charge on the
principal amount of the Loan not withdrawn from time to time, at a rate
equal to: (i) eighty five one-hundredths of one per cent (0.85%) per
annum from the date on which such charge commences to accrue in
accordance with the provisions of Section 3.02 of the General Conditions
to but not including the fourth anniversary of such date; and (ii) seventy
five one-hundredths of one per cent (0.75%) per annum thereafter.
SSAL: The Borrower shall pay to the Bank a commitment charge at the
rate of three-fourths of one percent (3/4 of 1%) per annum on the principal
amount of the Loan not withdrawn from time to time.
Front-End Fee
SAL: One percent (1%) of the amount of the Loan
SSAL: One percent (1%) of the amount of the Loan
Objective
The proposed adjustment loans would support reforms to restore
economic growth, improve competitiveness of the Uruguayan economy,
and improve the general welfare of the population through greater
efficiency in the provision of public services and infrastructure, and
through increasing the impact of public expenditures in the education and
health sectors. These loans follow up on two earlier World Bank loans
approved in August of 2002, which focus on fiscal, financial and social
protection reforms. The proposed adjustment operation is part of a
concerted effort by multilateral institutions to help Uruguay withstand the
Page v
impact of strong external shocks and set the stage for recovery of
sustained economic growth.
Description
In the energy, telecommunications, postal services, water and sanitation,
and transport sectors, the loan supports measures to reduce prices,
increase quality and coverage, and improve the efficiency of investment,
production and distribution of services and infrastructure through: (i)
increasing competition by liberalizing the wholesale power market and
mobile phone services and restructuring the petroleum, water and
sanitation and transport sectors; (ii) upgrading regulation by strengthening
regulatory frameworks in all of the above named sectors and
strengthening sector planning, management and service delivery; and (iii)
improving the efficiency of public expenditure by increasing transparency
and accountability and by reducing tax distortions.
In the health and education sectors, the loan will also support measures to
improve the efficiency of public expenditure while maintaining or
improving services in key priority areas through: (i) restructuring national
health funding instruments; (ii) reducing cross subsidies in the public
hospital network; (iii) protecting priority educations programs; and (iv)
improving the management of the education sector.
]Benefits
The Reform Program will contribute to growth, poverty reduction, and
long run sustainability. First, improved regulation will directly contribute
to growth by increasing the efficiency and impact of public services, and
supporting an increase in private sector investment through the reduction
of service and logistic costs, and the creation of a more market friendly
environment. Making the provision of public services more competitive
and better regulated will also support the continuation of Uruguay's near
universal coverage levels and high quality standards. Second, increasing
the efficiency and impact of public expenditure in the health and
education sectors will support the continuation of Uruguay's high social
indicators during the period of fiscal stress and changing needs among the
poor. Efforts in health and education will also help maintain the current
level of support and assure the continual building of human capital, which
along with institutional refonn for more effective service and
infrastructure support, are necessary for sustained growth.
Risks
Macroeconomicrisks. Further deterioration in the economic situation in
Argentina, and the risk of further complications in Brazil's economic
situation could undermine measures to stabilize the Uruguayan economy
by thwarting efforts to reduce bank deposit withdrawals and exacerbating
fiscal problems. Continued economic slow down would in turn present
serious risks to banks and the sustainability of the fiscal deficit. Attaining
high primary fiscal surpluses - as required for debt sustainability - will
demand political cohesion. The social depth of the crisis - unemployment
Page vi
and poverty - and the rapidity of the required reforms may challenge the
country's careful consensus building approach to policy making.
Heavy amortization of sovereign bonds has raised debt sustainability
concerns as reflected in a high country risk premium. Uruguay has taken
important steps to strengthen its fiscal situation and to simultaneously
restructure its debt. Another potential risk is that the proposed debt
restructuring may not get the level of market participation anticipated by
the Government. In the unlikely event that debt restructuring fails, the
macro framework would need to be adjusted.
If one or more of these risks materialize, or if new macroeconomic shocks
impact the economy, the implementation of the proposed reform program
could be impaired. An increase in the country risk premium will follow
thus raising the cost of capital for private investors and reducing the flow
investment and foreign direct investment in particular. Interest in private
sector participation - as envisaged in this project - will then also
diminish.
Overall macro and debt sustainability risks are high; satisfactory
macroeconomic performance, as assessed, for example, in the context of
reviews of the ongoing IMF program (second revision approved on March
17, 2003) will be closely monitored.
Risk of Weakening of Reform Consensus. The comprehensiveness and
pace of the reform program requires continued credibility of the policy
approach of the current team in OPP, working collaboratively with the
Ministry of Economy and Finance (MEF), the line ministries, the public
utilities and the regulators. Credibility and support of the MEF strengthen
the prospects that the reform program can be sustained.
Since its return to democracy more than two decades ago, Uruguay's
political process has been dominated by a careful, consensus building
approach. The economy is currently rocked by events in neighboring
countries which challenge this style and pace of policy reform. While
events may present a political opening for reforms to proceed quickly,
continued economic decline could yield increasing public opposition to
the Government's reform program. The measures taken so far indicate
considerable political commitment to implement the required reforms.
The PartidoBlanco has recently left the Government ruling coalition, but
has not blocked major reform proposals in Congress. Similarly, the
Frente Amplio (the opposition party) has not opposed fiscal adjustment,
which is needed in light of the economic problem facing the country.
Risk of Institutional Weakness. Another risk is institutional as several
institutions will be contributing to the pace of reform and not all are at the
same level of development. OPP is the strongest institution and few set
Page vii
backs are expected. However, the regulatory agencies are new and their
progress in taking up new tasks may be punctuated by set-backs. The
Bank's ongoing technical assistance loan will provide support to mitigate
technical and human resource constraints.
Financing Plan
Not Applicable
Net 1Present Value Not Applicable
IProject
l[dentification
Number
P078726 (SAL)
P081495 (SSAL)
Page viii
INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT
PROGRAM DOCUMENT FOR A PROPOSED PUBLIC SERVICES AND SOCIAL
SECTORS STRUCTURAL ADJUSTMENT LOAN
AND SPECIAL STRUCTURAL ADJUSTMENT LOAN
TO THE ORIENTAL REPUBLIC OF URUGUAY
I.
INTRODUCTION AND RATIONALE
1.
This memorandum proposes a Structural Adjustment Loan (SAL) for US$151.52 million
and a Special Structural Adjustment Loan (SSAL) for US$101.02 million to Uruguay. The loans
would support an ongoing and broad program of reforms in the infrastructure, public utilities,
and social sectors. The loans are supported by an ongoing technical assistance loan (Project
070058, Loan 4598) approved on March 22, 2001 that could help facilitate the achievement of
reforms targeted for second and third tranche disbursements. These loans follow up on two
earlier Bank adjustment loans approved in August 2002, which focused on fiscal, financial and
additional social protection reforms, and are part of a concerted international effort to help
Uruguay withstand the impact of strong external shocks and set the stage for medium and longer
term fiscal sustainability.
A.
Objectives and Coverage of the Program
2.
The Government of Uruguay (GoU) has requested an economic and social reform
operation from the Bank to support reforms to boost economic growth, improve the
competitiveness of the Uruguayan economy, and improve the general welfare of the population
through better provision of public and social services and infrastructure (rationale further
elaborated in paragraphs 28 to 33). Though coverage and quality of public services and
infrastructure are high relative to the region, their operating costs are also high and their delivery
inefficient. This, together with a tightly regulated economy, are creating a drag on the economy
and an overall loss of competitiveness. Progress on reforms has been made, most notably in
ports and in some key transport services (the airport in Punta del Este and highway concessions).
Electricity generation has been opened up for private participation. Water and sanitation services
in the Department of Maldonado and natural gas distribution have been concessioned to private
operators. Yet considerable challenges remain in further liberalizing key services and
infrastructure sectors, strengthening regulatory frameworks, and increasing competitiveness of
service provision. Addressing competitiveness and efficiency issues will allow Uruguay to more
swiftly return to a path of sustained growth. In addition, efficiency in the health and education
sectors, although high by regional standards, also offers opportunities to increase the impact of
increasingly scarce fiscal resources. Efficient and effective social services are even more
important in the current environment of protracted recession and economic uncertainty. They are
also critical to mitigating possible negative impacts of structural reform.
3.
While important reforms have been undertaken, there is great need for consolidation,
partly because the pace of reform has not been homogenous across sectors. Failing to implement
these pending reforms could put at risk the long term gains already made. Among the most
important issues to be supported by the proposed loans are the following:
o Consolidate regulation and accountability through the establishment of: appropriate legal
and regulatory frameworks in natural gas, petroleum products, water and sanitation,
postal services, and transport; a multisector (power, natural gas, petroleum products, and
water and sanitation) regulator, Unidad Reguladora de Servicios de Energia y Agua
O
o
o
u
o
o
o
(URSEA), l and a system of public performance indicators.
Rationalize public intervention and bring coherence to reforms in the electricity,
petroleum and natural gas sectors through the development of a national energy policy.
Establish a competitive wholesale power market.
Move toward import parity prices for petroleum products and increase competition in
retail activities.
Facilitate access of private mobile telephone service providers to the market and
consolidate the nascent competition in international long distance services.
Strengthen the framework for private sector participation (PSP) in the water and
sanitation sector by approving a sector law and grant a management contract for the
Montevideo water supply system.
Reduce cross subsidies in the public hospital system and bring the Fondo Nacional de
Recursos to financial equilibrium.
Protect key education programs from further budget cuts and improve sector
management.
4.
This project document provides an overview of the challenges to be addressed under
these loans, the Government's policies and the actions to be included as loan conditions. The
document begins with a review of recent economic developments in Uruguay, and a description
of the linkages between infrastructure and economic growth and poverty reduction. Cross sector
issues are then presented, followed by more detailed discussions of key sectors to be addressed.
The Governments policies are summarized, and finally, the proposed loans are described.
B.
Recent Economic Developments
5.
While Uruguay made considerable progress in achieving macroeconomic stability during
the 1990's and the country's tradition of consensus based policy making generated substantial
reforms, the country's approach and pace of reform did not provide sufficiently prudent fiscal
scope to absorb external shocks (primary fiscal deficits averaged 1.5 percent of Gross Domestic
Product (GDP) in 1999-2001), nor insulate the financial system and the economy at large from
regional contagion. As a result and following four years of economic stagnation, the economy is
now challenged by its most severe economic crisis in decades.
6.
The close correlation between Uruguay's economic performance and its neighbors
implies that contagion from Argentina has been the main driver in the deterioration of economic
conditions which included a 10 percent contraction in output and a sharp increase in
unemployment in 2002. Since 1998 the country has been hit by a series of internal and external
shocks that have resulted in significant loss to competitiveness. These shocks included low
agricultural commodity prices, an outbreak of Foot and Mouth disease in 2001, the sharp
contraction in tourism (about one-fourth of export revenues) following the abandonment of the
1 Communications (telecom and postal services) will continue under the communications regulator, Unidad
Reguladora de Servicios de Comunicacion (URSEC).
Page 2
fixed-exchange rate regime in Argentina, the strong real peso appreciation vis-a-vis Brazil and
Argentina, and most important, the freezing of bank deposits in Argentina, which fostered a
massive run on deposits of Uruguayan banks - a 60 percent decline from mid-2001. The impacts
of the crisis have magnified underlying weaknesses in the Uruguay economic system, including:
(i) a relatively closed economy; (ii) pro-cyclical fiscal policies leading to high deficits during the
downturn; (iii) deteriorating competitiveness linked to the provision of public services and
infrastructure; (iv) inadequate bank supervision; (v) financial sector vulnerabilities stemming
from a high share of volatile non-resident (specially Argentine) deposits; (vi) private liability
dollarization; and (vii) high public debt denominated in foreign currency with short-to-medium
term repayment peaks.
7.
The resulting crisis of confidence has been reflected in: (i) increasing sovereign debt
spreads, country risk premia over 2000 b.p.; (ii) a close to 50 percent reduction in the dollar
value of the nominal peso following the flexibilization of its exchange rate band regime and
adoption of a floating regime in June, 2002; (iii) a steep increase in unemployment to around 20
percent; and (iv) a 50 percent loss in bank deposits during 2002. The liquidity support provided
to banks to finance the deposit run contributed to the sharp fall in international reserves - over
US$ 2 billion (after factoring in IPI support, see further details in paragraphs 8 and 9) - bringing
down reserves to critical levels and raising concerns regarding Uruguay's ability to service its
external debt and to absorb additional pressures on its financial system. Fiscal revenues were
hampered by the sharp contraction of GDP.
8.
In this context, the IFIs in early August provided an unprecedented financial package to
support the Uruguay economy, to help stem the run on banks, to insulate the economy from
regional contagion, and to provide the basis for sustained economic recovery. The US$3.9
billion package was tied to deep structural reforms including a drastic expenditure restraint and
fiscal adjustment effort - aiming to turn a primary balance deficit of 1.2 percent of GDP in 2001
into a three to four percent of GDP surplus in 2003. The Government's economic strategy also
entails the liquidation and/or recapitalization of insolvent banks, the restructuring of the National
Mortgage Bank (Banco Hipotecario del Uruguay (BHU)), extending the maturity of dollar time
deposits of public banks, and full backing of sight and saving deposits in public and intervened
banks supported by a US$1.5 billion facility funded by IFIs (Bank Stability Fund).2
9.
As part of the IFI package, in August 2002 the World Bank approved a Structural
Adjustment Loan and a Special Structural Adjustment Loan totaling US$300 million for the
GoU. The Adjustment loans address issues of: (i) fiscal policy; (ii) BHU restructuring; and (iii)
social protection programs, including unemployment insurance. Fiscal measures included efforts
to reduce expenditures - particularly wages and pensions - and increasing tax revenues through a
comprehensive reform of income taxes, as well as VAT, excise and customs duties aimed at
reducing exemptions and loopholes. Reforms to the BHU aim to transform the entity into a,
mortgage "generator", with its main source of funding coming from the sale of securitized
mortgages in the secondary market. Support to the social sector aims to improve efficiency of
expenditures and assure protection of the most vulnerable during the crisis through the
development of an integrated beneficiary registration system and protecting key programs from
budget cuts. The next tranche release (the second tranche of the SSAL) was originally scheduled
2 This
facility does not form part of international reserves.
Page 3
for the end of 2002, but will likely take place in the second quarter of 2003 due to delays in BHU
restructuring which depended on passage of key legislation (particularly the Law that provides
the framework for restructuring BHU, but also a law that enhances supervisory role of the central
bank vis-a-vis public banks). In December, 2002, the Congress approved all the required
legislation, and the Government has already transferred most deposits to the National Bank
(13ROU) and begun the restructuring of BHU (a more detailed update of the implementation of
this operation is in Annex 3).
10.
GoU's adjustment program has already achieved positive results. Through a combination
of growing revenues and virtually no wage increases (neither public nor private) the primary
fiscal deficit turned into a surplus during the third quarter averaging around two percent of GDP
during the second half - a primary surplus close to 0.5 percent of GDP is estimated for 2002.
Tight monetary policy and the credit crunch that resulted from the banking crisis has contributed
to keeping retail inflation under control and to stabilizing the exchange rate. The peso
strengthened approximately 25 percent with respect to its low point and as a result inflation has
been far lower than anticipated. Monetary and fiscal prudence contributed to this improvement.
In spite of an almost 50 percent peso depreciation, the annual (end of period) Consumer Price
Index (CPI) ended up at 25.9 percent, up from 3.6 percent in 2001, but less than the 30 percent
plus figures forecasted in August-September of 2002.
11.
Several short-term financial indicators have improved during the last quarter and up to
the first half of January, 2003. International reserves rose to over UR$700 million, country risk
premia declined to under 1500 basis points and bank deposits have risen four percent between
September and mid-January. The exchange rate stabilized at around 27-28 pesos per dollar.
12.
However, concerns on the Government's capacity to service its 2003 debt obligations,
combined with adverse rumors in the financial system and hefty debt service obligations in
February, led to a deterioration of key financial indicators in late January and February, 2003:
international reserves declined to US$514 million in late February, over US$100 million of
deposits left the banking system during the last days of January, and country risk premia rose
back to over 2000 basis points. The amount of funds left in the Bank Stabilization Fund are
estimated to be around US$ 380 million, down from around US$ 500 million in December 2003.
The exchange rate depreciated, though only moderately, during the January-February period of
financial turbulence to between 28 and 29 pesos per dollar.
13.
During February, the Government developed a strategy for voluntary debt restructuring
of its bond debt. The strategy is aimed at lengthening the maturity of bonds, avoiding peak
repayments, and maintaining the interest rate cost of debt. The combination of this strategy with
continued engagement by the IFIs will significantly reduce concerns on the fiscal financing gap
and could pave the way for a stronger economic recovery.
Macroeconomicprospects
14.
Maintaining primary fiscal surpluses of between three and four percent of GDP will be a
necessary condition for any desirable medium-term macroeconomic outcome; without it, access
to markets and the opportunity cost of capital would not support a recovery. The scope for
deepening and sustaining fiscal adjustment and refinancing debt is discussed below. The
Page 4
financing strategy pursued by the Government will have to account for a complex international
environment, particularly with reference to synchronized slowdown pressures in the
industrialized countries and contracting capital flows to emerging markets.
15.
Output recovery will remain closely tied to economic performance in Argentina and,
more indirectly, Brazil. Over the next 2-3 years, the most likely sources of the recovery in
aggregate demand are expected to be import substitution in the short term (imports contracted 36
percent in 2002) and exports over the medium term. The key to a strong recovery is investment,
the aggregate demand component that declined most. It will however take time for even drastic
structural reforms - infrastructure deregulation, trade agreements, banking reform - to provide a
favorable business/investment environment.
16.
While higher prices on agricultural commodities may help and some sub-sectors of
industry and tourism may benefit from the weak peso, this will not be enough to achieve
significant growth over the short term. About half of Uruguay's trade is with Mercosur countries
in which their own currencies have been more heavily depreciated than the Uruguayan peso.
The export potential, which in 2002 was been severely hampered by the crisis in Argentina and
economic uncertainty in Brazil, may improve over coming years as Uruguay continues to reorient its commodity exports to countries outside Mercosur, or if the economic conditions in
Argentina improve. Exports should also be favored as export credit lines recover. Advances in
trade negotiations with the European Union and the U.S., through Mercosur, could play an
important role in improving access of Uruguay's goods to developed countries.
17.
The public finance and debt sustainability scenario outlined below assumes a modest
output recovery - dollar GDP is expected to stay 20 percent below its 2001 level in 2008. A
number of policies could lead to more favorable scenarios, depending on how well the policies
are designed and implemented. The Government already has a strong commitment to many of
these policies, which include:
i)
ii)
iii)
iv)
Fiscal discipline is crucial to maintaining a stable and relatively depreciated real
exchange rate; this will help boosting external competitiveness of tradable and
selective service sectors including investment in those sectors. Recovery in
agriculture, forestry, meat production, agro-businesses and tourism and several
industrial sub-sectors could help to gradually offset the contractionary effects of
the devaluation on domestic absorption.
While sustainable growth needs to be export-driven and simultaneous with a
greater opening of the economy, investment could play an important role during
the recovery. Respect of property rights, preserving the integrity of private banks,
institutional stability, modernization of the state, and fiscal prudence are all key
ingredients of a favorable investment climate.
The opening of areas currently dominated by the State - namely all the
infrastructure services - to the private sector would facilitate private sector-led
investment over the medium term.
Improved efficiency in the delivery and price of infrastructure services is also
crucial to increase productivity of the private sector and to consolidate
competitiveness gains of Uruguay's products and services.
Page 5
v)
vi)
vii)
The scope of regional integration initiatives should not be limited to Mercosur. A
possible though still remote Free Trade Agreement with the U.S. or with the EU
could help to open industrial country markets even before negotiations begin. An
inward looking public administration needs to be re-oriented to negotiate trade
agreements, reduce red-tape for business, and promote exports with a view to
integrate Uruguay with stable industrialized markets. This could mobilize foreign
direct investment towards export and tradable service activities and
simultaneously reduce Uruguay's exposure to regional macroeconornic volatility.
The recovery of Argentina will be under almost any circumstance a strong factor
of recovery in Uruguay.
Structural determinants of the social security deficit will have to be addressed in
order to sustain fiscal adjustment over the medium term.
Debt and Public Finances- Background
18.
The difficulties that the Government faced in cutting public expenditures resulted over
the past three years in public sector deficits of around 3.8 percent of GDP - 4.1 percent of GDP
is estimated for 2002. Primary fiscal deficits of on average 1.4 percent of GDP in 1999-2001,
compared to primary surpluses of 0.5 percent of GDP in previous years, were the main factor
behind rising fiscal deficits. The interest service also rose. In 2002, the improvement in the
primary balance was more than offset by the rising interest service as a result of the real peso
depreciation.
19.
Table 1 portrays the evolution of public sector accounts. Consistent increases in wages
and salaries, current transfers (pensions) and consumption of goods and services (excluding
wages) have been the main sources of the increase in primary real expenditures through 2001
and the main cause of their decline in 2002. Since the recession began in 1999, the decline in
real revenues was followed by a decline in real public expenditures at a slower pace. The
widening of the social security deficit is the single most important factor behind rising budget
deficits in the mid 1990s (it coincided with the introduction of a mnixed capitalization and pay-asyou-go-system). Social security transfers account for half of public expenditures. The capital
account - capital revenues less capital expenditures - contributed to attenuate the increase in the
deficit.
20.
The deterioration in public finances led to increases in public sector indebtedness (see
Table 2). Total public debt increased from under 40 percent of GDP in 1997 to 54 percent of
GDP in 2001. As most debt was denominated in foreign currency, the large real exchange rate
depreciation led to a rapid surge in the debt ratio to 89 percent in 2002. The increase in debt is
principally explained by IFI's loans to build up central bank reserves following the massive run
on deposits and re-capitalization needs of the banking system. A further increase to around 110
percent is expected in 2003 mostly as a result of the average exchange rate depreciation vis-a-vis
the average of 2002 (no significant change with respect to the second half of 2002).
Page 6
Table 1: Non Financial Public Sector Finances* (in billion of US dollars)
Overall Surplus/Deficit
Total Revenues, inci current Grants
Expenditures and Net Lending
Overall Surplus/Deficit, excl. current Grants
Primary Surplus
1998
-0.9
329
33 8
-0.9
1.0
1999
-4.0
32.3
36.3
-4 0
-2.0
2000
-3.9
31 4
35.3
-3.9
-1.3
2001
-4.0
32.1
36.1
-4.0
-1.1
est.
2002
-4.0
31.7
35.7
-4.0
0.5
proj.
2003
-1.4
31 8
33.1
-1.4
3.4
Current Budget Balance
Current Revenues
Direct Taxes
Indirect Taxes
On domestic goods & services
On intemational trade
Non-tax Receipts
Social Security Contributions
Grants, current (current LCU)
Current Expenditures
Interest Payments
Interest on Extemal Debt
Interest on Domestic Debt
Other Current Transfers
o.w. Social Secunty Transfers
Consumption
Wages and Salanes
0.8
30.4
8.7
12.8
11.7
1.1
27
6.1
0.0
29.6
1.9
1.1
0.8
16 0
15.2
11.7
6.8
-1.8
30.3
8.9
12.3
11.4
0.9
2.7
6.3
0.0
32.0
2.1
1.2
08
17 3
16.7
12.7
7.2
-2.4
29.4
8.8
12.1
11.3
0.8
2.4
6.1
0.0
31.8
2.6
1.6
1.0
17.5
16.9
11.7
7.1
-3.3
29.2
8.8
12.8
11.8
1.0
2.1
5.5
0.0
32.4
2.9
1.7
1.2
17.1
16.6
12.4
7.3
-4.2
29.1
10.1
12.4
11.5
1.0
1.8
4.7
0.0
33.3
4.5
2.5
2.0
17.1
16.6
11.7
7.0
-1.5
29.2
10.1
12.6
11.5
1.1
1.8
47
0.0
30.7
4.7
2.8
1.9
15.1
14.7
109
6.2
Total Capital Revenues
2.5
2 1
2.0
2.9
2.6
2.6
Total Capital Expenditures
* Excludes Central Bank
42
4.3
3.5
3.7
2.4
24
21.
The increased debt and exchange rate depreciation also led to an increase in the interest
service-GDP ratio from 2.9 percent to almost 5 percent in 2002 and 2003. On top, with virtually
no access to international financial markets, large contractual debt repayment obligations will
lead to a large fiscal financing gap in 2003-2006. The financing gap is the result of repayment
peaks with private bond holders in 2003. Contractual debt service obligations falling due in
2003 were around US$900 million towards the end of 2002 (before the Government repurchased
or cancelled part of its debt with institutional investors). Also, about US$2.6 billion of
amortizations with IFI's are due in 2005-2006, mostly with the IMF. The resulting financing gap
is based on contractual arrangements at the end of 2002 based on IMF projected disbursements
according to the August, 2002 package.
Page 7
Table 2 - Public Sector Debts (in million of US doglars)
Consolidated Public Debt by Creditor
Official Creditors
Multilateral
Bilateral
Private Creditors
Commercial Banks
Other Financial Institutions
Non-Financial Sector
1999
8,525
2,387
1,919
468
6,138
2,129
3,635
374
2000
9,158
2,511
2,108
403
6,647
2,103
4,168
376
2001
110,072
2,525
2,218
307
7,547
2,142
4,478
927
2002
10,989
4,696
4,440
256
6,293
1,786
3,734
773
Consolidated Public Debt by Instrument
Bonds (incl.Bradys)
International Loans
Multilateral
Bilateral
Other International Loans
Suppliers
Net Deposits
Other (incl. Assistance to Fin. System and Fin. Gap
8,526
4,465
2,470
1,919
468
83
96
1,282
213
9,133
5,073
2,579
2,108
403
68
73
1,240
168
10,072
5,677
2,661
2,218
307
136
80
1,459
195
10,989
5,000
4,805
4,440
256
109
120
869
195
*Sourcei World Bank
Debt sustairability
22.
In view of its potential debt servicing difficulties, the Government has explored options
to improve the amortization schedule of its debt obligations with private bond holders and has
sought continued engagement from the IFIs aimed at spreading more evenly net repayments over
time. The Government is poised to reach an agreement with its private creditors for a debt
exchange that will extend the profile of amortizations to at least five years.
23.
The base case scenario for debt sustainability analysis assumes average GDP growth of
2.7 percent over 2003-2012, primary surpluses of 3.4 to 4.0 percent of GDP, and only a slight
real peso appreciation over the period (around two percent between 2002 and the average 200312). Under these assumptions, the debt-GDP ratio is projected to decline to the 70 percent range
over the next five years and to the 60 percent range over the next 10 years.
24.
Over the short term, meeting fiscal targets will depend critically on the ability to restrain
nominal expenditure in wages and pensions in the face of inflation. Over the medium term,
sustaining adjustment will possibly require adjustments to the social security regime,
deregulation and privatization, and increased efficiency of social spending. The feasibility of the
public finance challenge has to be understood taking into account the following key facts:
i)
ii)
While seigniorage from inflation is unlikely to reach the levels of the 1980s,
there is an opportunity to lower real public expenditure through transitory
inflation in 2002-2003;
A regional trend towards larger primary fiscal balances - Brazil is close to a
four percent of GDP surplus and likely to go beyond that target even under the
Page 8
iii)
new government. Outside the region, Korea, Thailand, Turkey and Russia have
attained primary surpluses of around four percent in 2000-2002; and
Since the IFI's aid package in August, 2002, monetary targets have been met,
and tangible and sizable fiscal efforts have been demonstrated - an average
primary deficit of 1.2 percent of GDP in the first half of 2002 turned into an
average primary surplus of over two percent of GDP in the second half of that
year; the primary surplus target for 2003 is 3.4 percent of GDP.
25.
The combination of inflation and fiscal discipline can lead to a sizable reduction in noninterest current public expenditures in 2003. Based on some simulations current expenditures are
estimated to drop 3.7 percentage points (p.p.) of GDP in 2003. Even assuming that taxes decline
as a share of GDP by 1.2 p.p., there would be an improvement in the primary fiscal balance of
2.5 p.p. in 2003. Thus, a primary fiscal surplus of three percent in 2003 appears feasible.
26.
Other factors of the fiscal balance - capital expenditures and assistance to the financial
sector - while difficult to predict are unlikely to be burdensome at least over the next couple of
years. Real capital expenditure cuts have been drastic, over 40 percent since 1999; however, the
deep recession is likely to temporarily alleviate pressures from this source due to low levels of
activity. On the financial sector, the Government's decision to liquidate the four intervened
banks is critical for cutting possible future losses derived from further bank re-capitalization
programs. The new bank created in December out of the best assets of the liquidated banks,
called the Nuevo Banco Comercial, is well capitalized - over 15 percent of risk weighted assets and liquid. At least over the next couple of years, a re-capitalization of such bank is unlikely.
Similarly, important decisions to cut future losses of BHU have been taken, including transfer of
deposits to BROU, a cap on the stock of mortgages that the new bank can hold in its balance
sheet, and an acceleration in the process of loan collection.
27.
In short, despite a likely further deterioration in social indicators, Uruguay's good track
record and consensus-based institutional stability make it unlikely that social and political
tensions will erode the working of institutions to find constructive solutions to its economic
difficulties. Uruguay's performance will remain very sensitive to regional macroeconomic
developments. In that regard, at least from a historical perspective, the current situation in
Argentina appears to have more upside than downside. This must be taken into account not just
in choosing the more likely real exchange rate path but also with regard to the scope for
economic recovery. Even if long-term growth remains low in Argentina, a sizable recovery from
the 20 percent output collapse in Uruguay can be expected.
C.
Economic Growth, Infrastructure and the Social Sectors
28.
As mentioned above, over the medium term debt sustainability hinges on prospects for
restoring economic growth. The reforms supported by the proposed loans will be key factors for
Uruguay's economic recovery over the medium term. Factors contributing toward the return to
growth and addressed under the proposed operation include the opening of telecommunications,
water and sanitation, transport, and energy - areas currently dominated by the State - to the
private sector. These reforms would facilitate private sector-led investment, as well as
restructuring the state to increase productivity of the private sector. Improved efficiency in the
Page 9
delivery and price of infrastructure services will also be crucial to consolidate the
competitiveness of Uruguay's products and services.
29.
Numerous studies have demonstrated the large impact of infrastructure on economic
growth and general welfare. Between 1980 and 1998, the gap between economic growth in East
Asia and Uruguay increased by 76 percent, with infrastructure sectors being responsible for 21
percent of this gap.3 Moreover, services and infrastructure of excellent quality and optimal
provision are of particular importance for Uruguay given the country's future as a provider of
services, its primary sector production distributed throughout the country, and its strategic
location between Argentina and Brazil. The provision of public services can be measured by the
coverage and quality of the services offered, the efficiency with which resources are used and
produced, and the prices at which the services are offered to the final consumers. With the
exception of sanitation, the coverage and quality of services in Uruguay are among the best in
Latin America. Though there is room for improvement, this is not a priority. The key in
Uruguay centers on the efficient production of these services and the corresponding high prices
of some services relative to other countries in the region.
30.
The success of Uruguay in increasing exports and providing services to its neighbors as
primary motors of economic growth depends in large part on the existence of adequate
infrastructure. In particular, appropriate and efficient communications and transportation
networks are crucial to these goals. Production centers for export products, in particularly those
from the primary sector, are dispersed throughout the country and are particularly sensitive to the
high logistics costs of existing infrastructure (overall generalized transport cost to move goods
and passengers from their origins to their destinations). In Uruguay, these logistics costs reach
up to 20 percent of the product value. These figures are less than Argentina and Brazil, but
higher than both Chile and Mexico and much higher than the average of OECD countries where
they are at about 9 percent. 4
31.
Infrastructure is a key factor in these costs. Inventory levels in Uruguay are three times
higher than in the United States. These costs, added to the high costs of finance in Uruguay,
significantly reduce the country's competitiveness. Deficiencies in the transport sector and
associated services (freight, containers, insurance, intermediaries and multimodal operators) and
the high costs of telecommunications are key factors in determining these logistic costs. While
the coverage of the road and rail networks are extensive, their operation is questionable, and in
particular that of the rail system as demonstrated by their scarce participation in freight (less than
five percent). The integration of rail, roads and port access is essential and working toward an
integrated vision of the sector is a priority. To achieve this objective and in particular during this
period of scarce public resources, priorities for public sector investment must be established.
Reducing the high logistic costs, a condition essential for growth of exports, also requires
improved port operations and procedures and monitoring for anticompetitive actions.
32.
The best way to improve service provision in Uruguay is facilitating competition and
implementing an effective regulatory structure in the sectors where competition is not possible,
3Calderon,
C. and Serven, L. (forthcoming): "The Output Cost of Latin America's Infrastructure Gap". The World
Bank.
4Guasch, J. and J. Kogan (2001): "Inventories in Developing Countries: Levels and Determinants, A Red Flag on
Competitiveness And Growth" World Bank Policy Research Discussion Paper 2552.
Page 10
as in the case of natural monopolies. Increasing competitiveness can be achieved by opening or
liberalizing sectors, the entrance of new operators (public or private), and reforms of the sector
structures. The Government has advanced in establishing transparent legal and regulatory
frameworks, which are particularly important due to the coexistence and growing competition of
public and private companies in Uruguay. Coexistences and competition may create incentives
that require permanent and specialized oversight and in whose absence the cost of capital may
increase in general around three to six percent, equivalent to tariff increases of 20 to 30 percent,
due to increased regulatory risk.
33.
Beyond infrastructure and services, Uruguay's growth has been supported by high levels
of human capital which have contributed to the country's history of high per capita income and
to one of the most equitable income distributions in the developing world. Primary school
completion rates are at 98 percent and Uruguay is ranked 40 th on the United Nations Human
Development Index (five slots ahead of Costa Rica and 10 slots ahead of Mexico). Access to
basic health care is close to universal, primary school enrollment is universal and completion
rates reach 98 percent. The country's history of social protection programs and investment in
human capital contributed to the broad sharing of the benefits of economic growth among its
population. The large reduction in fiscal spending necessitates a fine-tuning of Uruguay's
traditionally successful, generous and broadly targeted welfare policies. Reforms to support
fiscal savings, increase efficiency, and improve targeting will be necessary to ensure that the
high levels of human capital are sustainable during the period of increasing demand due to the
economic downturn and fiscal restraint.
II.
LINKS TO POVERTY REDUCTION
Country Assistance Strategy
34.
The proposed operation is an important part of the Uruguay Country Assistance Strategy
(CAS) and CAS Progress Report poverty reduction strategy (discussed by the Board on August
8, 2002), and in line with the issues identified in the 2000 Poverty Assessment (an update to the
Poverty Assessment is currently under preparation). The strategy considers renewal of broadbased growth, based on macroeconomic stability and fiscal adjustment, necessary to sustain
progress on social issues. Beyond macroeconomic stability, the program calls for fine tuning of
social programs. The current crisis has proved to be very sharp and deep and is leading to a
worsening of social conditions. The most immediate impacts of the crisis appear to be an
increase in unemployment, from 11.4 percent in 1999 to 19.8 percent by the end of 2002
(Instituto Nacional de Estadistica, INE). Data on poverty impacts since the onset of the recent
crisis indicate deterioration as well. Using the Bank's methodology5 , it is estimated that poverty
grew from 21.6 percent in 1998 to 23.6 percent at the end of 2001. Income inequality has also
worsened, as shown by an increase of over a percentage point in the Gini coefficient. These
developments result from a deterioration of real household income of about 10 percent during the
last two years. Given the experiences of countries such as Korea, Thailand and Argentina during
economic crisis, the expected continued decline of economic activity in Uruguay through 2002
and the effects of fiscal adjustment, it is likely that both poverty and inequality will continue to
5 Described in detail in the Uruguay Poverty Assessment: Uruguay, Maintaining Social Equity in a Changing
Economy (Report No 21262)
Page I I
deteriorate at least for one more year. The large reduction in fiscal spending, combined with
these impacts of the crisis, and the changing needs of vulnerable groups, particularly children,
necessitate adjustments to Uruguay's welfare policies. The focus on enhancing the efficiency
and productivity of social spending will help to provide for growing needs during the current
period of fiscal tightening.
35.
The proposed operations provide a comprehensive approach that attacks two key
constraints faced by the country in its fight against poverty: (i) poor perfornance in terms of
output growth; and (ii) scarce resources to provide social assistance in times of growing needs
and changing vulnerabilities. The instruments used aim to increase productivity of the economy
as a whole, to enhance quality of key services, to free-up resources currently used in nonproductive uses, and to protect the main social programs from budget cuts.
Increasing lnfrastructureand Long Term Growth
36.
Economic growth is the main proven engine for poverty reduction. As outlined above,
infrastructure investments are an important factor for economic growth. Evidence from Bolivia,
Colombia, Mexico and Venezuela indicates that a 10 percent increase in infrastructure stocks and
quality has led to a 1.5 percent increase in GDP. Additional evidence shows that in Latin
America as a whole, a single percentage point of growth reduces the number of people living in
poverty by half a percentage point, although with some lag. Chile, the only country to
dramatically reduce poverty in the Southern Cone, managed a 33 percent decline in poverty with
a decade of seven percent growth per year (1987-1998).
37.
Sector reform and private sector participation offer the opportunity to make the public
utilities, infrastructure and social sectors more efficient. This will reduce costs and free up
private resources for further private sector investment and job creation, as well as free up
government resources for targeted investments and social programs. Uruguay's infrastructure
and social sectors have traditionally absorbed large volumes of resources to cover inefficient
operations and less than optimal investment programs. Uruguay's public utilities have
approximately 30,000 employees, and the public sector overall employs about one out of every
five workers in the country.
Assuring the Delivery of Services to the Poor
38.
In addition to freeing up resources due to efficiency gains, sector reform is designed to
sustain and in some cases increase infrastructure assets of the poor. Efficiency gains from sector
reform can support much delayed investment, as is the case of sanitation investments in the
interior of Uruguay. However, in terms of the majority of services, reform design will help
assure continuation of the current high levels of coverage and quality. Overall, public services
coverage has been extensive and affordable to the poor. Coverage of basic telephone services is
the highest in the region (28.1 lines per 100 inhabitants in 2001), energy access is universal, and
water supply coverage is almost universal (98 percent) when public standpipes and improved
6
point sources in rural areas are considered (90 percent when only pipe water is considered) .
According to the United Nations, sustainable access to an improved water source refers to population with
"reasonable access to an adequate amount of water from an improved source, such as a household connection, public
standpipe, borehole, protected well or spring, and rainwater collection." Reasonable access is, in turn, defined as
6
Page 12
Household expenditure surveys indicate that in Montevideo, the poorest 10 percent of
households were spending between 7.1 and 9.4 percent on water and energy. This is well below
the normative threshold of 10 percent for these services. Past achievements were accomplished
through the public utilities, which took on business as well as social responsibilities, and
financed investment and consumption for low income populations through cross subsidies. In
particular potential increases in electricity and LPG tariffs, may call for a more explicit
government policy to assure continued affordability and broad coverage, particularly in light of
potential impacts of the current economic crisis. The Government is keenly aware of these needs
and has included the development of policies and instruments to sustain, and in some cases to
improve affordability, coverage and quality of services to the poor as part of their reform agenda
(see Annex 4: Social Impacts of Public Utilities Reform for further details).
Strengthening the Provision of Health and Education Services
39.
The reforms supported in the health and education sectors will bring greater pro-poor
allocation and internal efficiency, key to maintaining crucial services during the fiscal crisis and
assuring their sustainability in future years. Reforms being supported in the health sector will
generate efficiency gains that will allow the Government to protect the financing of health
services for the poorest. By better focusing expenditures and correcting current subsidies from
the public hospitals' budget toward private insurers (Instituciones de Asistencia Me'dica
Colectiva, LAMCs), as further explained in 88) and by advancing innovative managerial
arrangements, the proposed program will strengthen the capacity of the public hospital network
to serve the poor while supporting fiscal restraint.
40.
The protection of key education sector reforms would serve the interests of the poor by
ensuring that existing programs targeted towards the poor are maintained, and that the education
system continues to provide the minimum level of basic inputs such as textbooks and school
maintenance. The existing educational program is already quite equitable, with nearly 60
percent of public subsidies going to the poorest two quintiles of the household income
distribution, so the maintenance of the existing program would reinforce the poverty alleviation
effect of educational spending. The management reforms at the Administraci6n Nacional de
Educacion Puiblica (ANEP) supported under this operation will serve to improve the education
system's ability to respond to growing needs under tighter fiscal constraints.
41.
The reforms supported under this operation are complementary to Inter-American
Development Bank (IDB) and World Bank lending. The IDB recently approved a US$500
million emergency loan to help Uruguay deal with the consequences of the current crisis. This is
in addition to ongoing projects in secondary education and upgrading of marginal
neighborhoods. The World Bank loans approved in August of this year provide support for
measures to increase the focus of social spending on programs to offset the potential adverse
effects of the fiscal adjustment, including protecting the budgets of priority social safety net
programs, mechanisms to improve beneficiary registry, and strengthening of unemployment
insurance. These loans are in addition to ongoing loans supporting pre-school and primary
"the availability of at least 20 liters a person a day from a source within a one kilometer of the dwelling". World
Heath Organization and United Nations Children's Fund , Global Water Supply and Sanitation Assessment 2000
Report.
Page 13
school education. In addition, the Bank is carrying out an update of its country poverty
assessment, seeking to shed light on two main points: (i) identifying the most noticeable and
severe effects of the ongoing recession on the welfare of the Uruguayan population (along the
entire income distribution); and (ii) outlining the strategies that Uruguayan families and
individuals have used to cope with the crisis. This work will be based on existing information
(household surveys) and additional information, whose collection may be funded by the Bank. It
will provide the analytical underpinning for future Bank poverty related operations in the
country.
ERE.
CURRENT STATUS AND JISSUES IEN PUBLIC SEICES, NIFRASTRUCTURE AND SOCIAL
SECTORS
42.
Considering the strong links between public and social services, growth, and poverty
reduction, and the need to address Uruguay's financial requirements, the proposed project will
support the Government's plans to tackle key challenges in these sectors. The country's deep
recession and high debt levels have made urgent the need for efficiency gains in the economy.
Greater competition requires fundamental rethinking of the state of service provision and a major
new regulatory effort.
Competition and Regulation
43.
Though the Government is gradually introducing competition and improving regulation
into the infrastructure sectors, considerable work remains. The success of fostering competition
through liberalization of service provision depends on controlling the market power of the
dominant companies. In Uruguay, the sectors in which this occurs or could occur include the
power sector where the public company Administracion Nacional de Usinas y Transmisiones
Electricas (UTE) controls transmission; the petroleum sector where the public company
Administraci6n Nacional de Combustibles, Alcohol y Portland (ANCAP) controls the storage
and importing infrastructure; and the telecommunications sector where the public company
Administraci6n Nacional de Telecomunicaciones (ANTEL) controls the fixed lines. In the rail
sector, although the MTOP owns the networks and its usage is open to any operator since June
2002, the sector does not have clear rules to ensure competition.
44.
The current allocation of responsibilities in the public sector does not facilitate efficient
delivery of services since the roles of regulation and service provision have been traditionally
vested in the same company. In the water and sanitation sector, the public utility regulates its
own service provision. The cases of the rail and petroleum sectors are similar, though there has
been progress on reform during the last year. Moreover, most public utilities enjoy a political
power larger than most other Latin American countries because of their position as national
monopolies. Due to this situation, the progress made by the Government in regulating these
industries has been slow. A multisector regulator, URSEA, was recently created for water and
sanitation, power, natural gas and petroleum products (URSEA took over UREE's
responsibilities for regulating the power sector). A regulatory agency, URSEC, has also been
established for the communications sectors. While having a large degree of autonomy, some of
the functions of these agencies are restricted. Most notably, the agencies have the capacity to
only recommend tariff changes while the ultimate say on tariffs remains with the Executive - a
restriction established in the Uruguayan Constitution.
Page 14
45.
The quasi level playing field for competing public and private operators may limit
competition on both sides. Legal and regulatory frameworks differ for public and private
companies on issues such as labor practices, procurement rules, taxation and dividends, and
imposition of investment obligations to fulfill social policies. Public utilities claim that their
status as public sector companies significantly increases their costs of doing business relative to
what an efficient power company could achieve.
A.
Energy Sector
46.
Uruguay is facing strategic decisions in meeting its energy needs. The country is entirely
reliant on imports for all fuel needs, as well as marginal increments in electricity supply. Until
now, electricity demand growth has been met almost entirely by imports from Argentina; while
the potential to import cheap surplus electricity from Brazil has been largely overlooked due to
transmission constraints and the different characteristics of electricity on both sides of the border.
The completion of a major natural gas pipeline from Buenos Aires to Montevideo, will soon
make it possible to replace electricity imports with domestic gas-fired generation, as well as to
substitute natural gas directly for a variety of domestic and industrial applications.
47.
At present, it is not clear that Uruguay has found the most efficient or secure balance of
energy imports. Moreover there is an absence of publicly available, rigorous analysis to support
key government decisions. The existence of various price and tax distortions in the petroleum
products sector are likely to limit the efficient penetration of natural gas, since industrial
consumers of fuel oil as well as domestic consumers of LPG, do not currently perceive the true
economic benefit of the new fuel. Furthermore, there are a number of provisions in the recently
approved regulations that may interfere with the objective of regional integration and fair
competition between Uruguayan generators and those in neighboring countries.
a
First, the regulations make it unlikely that further interconnection capacity with Brazil will
ever be developed because international interconnections are not treated as a public interest
question for the purposes of developing the transmission network. As a result, international
connections will not be centrally planned or financed, but left to independent private
initiative. At the same time, the regulations do not allow a private operator of an
international interconnection to benefit from arbitraging differences between the spot markets
in Brazil and Uruguay. Such differences are required to be "socialized" across the market.
Thus effectively, private investors must assume the cost of developing international
interconnection capacity but are not able to capture the full benefits of the infrastructure.
a
Second, the regulations give the Ministry of Industry, Energy and Mines (MIEM)
considerable discretion in setting and modifying the size of the strategic national reserve of
generation capacity. By these means, the Minister could effectively change the balance
between imports of gas and electricity, without an economic justification. The absence of
objective criteria to govern the size of the national reserve creates the possibility that it could
be used to protect domestic generation from international competition, with disregard from
economic considerations.
u Third, the regulations create an asymmetry between Argentine and Uruguayan generators in
the competitive market, given that the former can participate on both the Argentine and
Page 15
Uruguayan spot markets, whereas the latter can participate only in the Uruguayan spot
market. UTE argues that this puts Uruguayan generators at a disadvantage because they are
not able to take advantage of price differences between the two markets in discharging their
contractual obligations to supply energy.
Power
48.
At present, there is very little competition in the Uruguayan power sector and the current
regulatory framework is not yet fully functioning. The electricity sector in Uruguay has
traditionally been dominated by UTE, an integrated public utility responsible for generation,
transmission and distribution throughout the country, which currently serves all residential and
non-residential customers. A sector regulator, Unidad Reguladora de Energia ElMctrica
(UREE), was established in 1997 to oversee the power sector and made strides in developing the
regulatory framework, though considerable work remains. In December 2002, URSEA, the new
multisector regulator took over UREE's responsibilities for regulating the power sector.
UTE has taken significant measures to improve its performance during the last decade.
Since 1995, UTE has improved labor productivity by 70 percent, increased billing by 30 percent,
reduced outages by 40 percent, and reduced tariffs by 27 percent.
49.
Although, Uruguayan pre-tax retail electricity prices are about average for non residential
50.
customers in the region, its residential prices are among the most expensive. In both cases, the
prices are comparable to those in Argentina. Countries such as Brazil, Chile and Paraguay have
lower prices than Uruguay for both residential and non-residential customers, while other
regional comparators have lower prices than Uruguay for one group but higher prices for the
other.
Figure 1: Regional comparison of retail prices for electricity (without taxes)
Argentrna
Uruguiay
Peru
Bollsla
Colombia
Ecuador
Brazil
Chle
Colombia
Peru
Argentina
Uruguay
Venezuela
Brazil
Boliva
Paraguay
Ecuador
Chile
Paraguay
Venezuela
0
100
50
Pnce before tax (US$/MWh) 2001
(a) Residential Customers
0
150
100
50
Pnce before tax (US$/ltAWh) 2001
150
(b) Non-residenitial Customers
51.
Competition is limited to bidding by Argentine generators to supply the Uruguay
electricity deficit. Large industrial customers which previously had no option but to buy their
energy from UTE, can now negotiate their own power purchase agreements. Industrial
customers state that they would prefer to buy their energy directly from Argentina, or would in
some cases engage in co-generation if they had the possibility of selling surplus power to the
Page 16
grid. Until recently, UTE has been self-regulating, subject to tariffs determined by its major
shareholder the government. However, given that until 2002 UTE has consistently generated an
annual dividend to the state (US$75 million in 2001), conflicts clearly arise between consumer
and shareholder interests.
Regarding the recently designed set of sector regulations (general dispositions, wholesale
52.
market, transmission, and distribution), there are a number of concerns with the design of the
reforms that may potentially limit their impact. The first concern relates to the absence of any
vertical disintegration between UTE's generating assets that will be competing in the wholesale
market, and UTE's transmission and distribution assets that will remain a natural monopoly.
This raises concerns about potential cross-subsidization between natural monopoly activities
(transmission and distribution) and competitive activities (generation). The remedy currently
contemplated is that of vertical accounting separation between the generation, transmission and
distribution activities of UTE. Although international experience demonstrates that accounting
separation is a weak remedy, it does represent an important first step in the right direction.
53.
The second concern relates to the relationship between UTE, the regulatory agency, and
the Executive Branch. The Government is both the sole shareholder of UTE, and the final
authority for approving tariffs. This raises conflicts of interest in the tariff determination
process. There is also potential tension between the new pluri-annual regulatory process of tariff
determination, and the traditional annual financial framework of the companies based on a
negotiation with the Office of Planning and Budget (OPP). The new regulatory framework does
not provide consistency between the two. Hence, for example, UTE may find that it is
committed in regulatory terms to meeting a certain quality of service target, but due to public
sector borrowing constraints may not be given access to the necessary investment resources.
Problems could also potentially arise surrounding the consistency of the government's dividend
policy and the financial framework set by the regulator.
Petroleum Products
The petroleum sector suffers from very limited competition, high ex-refinery prices and
54.
tax distortions impacting the relative prices of gas and gas oil. Lacking natural resources, the
main activities of the petroleum sector in Uruguay are the importation of crude oil and refined
products, the operation of a refinery, and the transport, storage and commercialization of
petroleum products. In this context, best practice would be regulation of the main storage and
transportation system and open competition in the rest of the supply chain. In the case of
Uruguay, this strategy is not possible because of the overarching dominant position of ANCAP,
the state administered company. The company, which reports to MIEM, holds a monopoly on
refining and the import of crude oil and petroleum products, which result in no market
7
competition in up-stream activities7.
55.
There is only very limited competition in the retail segment of the sector. Private
companies participate in commercialization under contracts signed with ANCAP, including
Shell, Esso, Texaco, Distribuidora ANCAP, Acodike, Roigas and Gasur. These contracts are
regulated by ANCAP, who determines the location and number of retail stations and also
7
Law 17,448 of January 2002 ends ANCAP's monopoly on the refining and import of crude oil in January 1, 2006.
Page 17
competes in the retail market through its own distributor, Distribuidora ANCAP. Lacking a clear
regulatory framework, ANCAP defacto assumes regulatory functions in terms of product quality,
distribution margins, and conditions for the entrance of newcomers into the supply chain.
56.
Prices for petroleum products - at the refinery level and at the consumer level - are well
beyond import parity due to taxes, inefficiencies in ANCAP, and rent seeking by the monopoly
company. At the refinery level, until the year 2000, taxes on petroleum products were a
percentage of the product ex-refinery price. As a result, Uruguay now has the highest gasoline
prices in the region. To partially compensate for the high gasoline prices, fuel oil and LPG
prices have been maintained below import parity levels. Moreover, the sector lacks a clear
framework for regulatory accounting. As a result, there are no measures in place to guard
against transfer pricing by ANCAP between their retail, trading, wholesale, refining and nonpetroleum operations.
57.
Using ex-refinery prices provided by ANCAP in September 2002, the difference between
the ex-refinery prices and import parity is shown in Table 3. According to this table, the extra
price paid by the Uruguayan consumers in 2002 would amount to about US$70 million. Other
estimates using different ex-refinery prices and import parities give a much higher annual
difference.
Table 3: Ex-refinery and import parity prices for petroleum products in Uruguay
(Prices are in US$ as of August 2002)
GasolinaSupra95
Gasolina Especial 85
Ecosupra 95
Diesel
Fuel Oil
LPG
Source ANCAP
Consumption
(m3)
2166
59.8
68 4
7764
141 2
172 3
Estimated Import
Parity Pnce
25634
240 25
259 46
22423
190 31
196.14
Ex-refinery Price
40121
377.34
416 89
269.33
104 98
183.26
Absolute pnce
differences
+141 87
+137 09
+156 63
+45 10
-85.33
-12.88
Percentage difference
mnpnces
+36%
+36%
+38%
+17%
-81%
-7%
58.
At the consumer level, as shown in Table 4, taxes on diesel are more than five times
lower than taxes on gasoline. This lack of homogeneity in taxing petroleum products
accentuates the distortion in relative prices, which provides a wrong signal to consumers and
induces unnecessary investments in refinery units to obtain a higher yield of diesel. Measures
should be taken to reduce this distortion.
Table 4: Gasoline and diesel pump prices in Uruguay (US$/liter)
(August 23, 2002)
Gasoline Supra 95
Diesel
Pump Price
0 787
0 366
Tax
0.346
0 065
ANCAP
0.441
0.301
59.
Continued ANCAP control of logistic facilities, the small size and concentration of the
market in the Montevideo area limit opportunities for the development of market competition.
Incentives to competition in the region are further dampened by the fact that privatized coastal
refineries in Argentina are not subject to open access regulations, each maintaining logistic
installations reserved exclusively for their own operations. As a result, the committee currently
working on the association of ANCAP with a private partner does not foresee the need to provide
for open access to existing logistic facilities in Uruguay.
Page 18
Without open access, competition in the Uruguayan market would likely be limited to
60.
retail as importers of petroleum products could not cost effectively duplicate ANCAP's logistic
facilities. Lacking a clear open access framework to ANCAP's port and warehouse facilities,
there is a serious risk of limiting the benefits of private sector participation (PSP), as the result
may be simply changing the monopoly of the supply chain from ANCAP to the joint publicprivate partnership. Even if the current law provides for the open importation of refined
petroleum products by all interested companies by January 2006, if there is no access to
ANCAP's port and storage facilities, competition will be limited to possible importations by road
tankers and to the eventual decision of the distribution companies to build new wholesale
facilities. The opportunities for the entrance of new players in the downstream supply chain of
Uruguay would therefore in the short term be restricted to the retail business.
Natural Gas
61.
The Natural Gas sector, one of the most competitive sectors in Uruguay, lacks a
regulatory framework to oversee the competition of private operators, and has very limited
penetration due to pricing distortions and associated up-front infrastructure costs. Although,
natural gas has been available in the interior of the country since 1999, the impact has been
limited due to the modest distribution network. At present, the private utility that distributes
natural gas in the interior serves only 3,000 residential customers and ANCAP supplies natural
gas to a handful of industrial customers. The real shift in Uruguay's energy portfolio will come
about with the completion of the Cruz del Sur pipeline that will bring natural gas to the major
population center, Montevideo.
62.
There is currently no regulatory framework for the natural gas industry, with both
distributors operating under the terms of their concession contracts. However, a new natural gas
law is presently under consideration by Congress. The new law and the recent creation of the
multisector regulator, URSEA are viewed positively from an industry perspective as they help to
resolve many areas of legal ambiguity.
63.
At first glance, the Uruguayan market appears to offer significant potential for take-up of
natural gas. The gas distribution industry estimates that, under normal economic conditions,
about a third of residential customers could be expected to switch to natural gas. This suggests a
best case scenario of 150,000 potential residential clients, each with a typical consumption of
700 cubic meters per year, implying that total residential demand would be no more than 0.3
million cubic meters per day. The main competitors for natural gas are electricity for water
heating, Liquid Propane Gas (LPG) for cooking, and a mixture of electricity, LPG and wood for
space heating (which alone accounts for 50 percent of household energy use).
64.
In practice, the take-up of natural gas is likely to be circumscribed by a number of
important barriers. First, distortions in the price regime for petroleum derivatives mean that
consumers do not fully perceive the economic benefits of switching to natural gas. Thus, in the
industrial market, fuel oil (which is the main competitor to natural gas) is cross-subsidized to the
tune of 45 percent, while in the residential market, LPG (which is an important competitor to
natural gas for cooking and space heating purposes) is cross-subsidized to the tune of seven
percent.
Page 19
65.
Second, the conversion to natural gas entails substantial switching costs for the
residential customer. These are estimated to be around US$2,000, and comprise not only the
connection to the natural gas network (barely 10 percent of the total cost), but also internal
plumbing as well as the conversion of the cooker, water heater, and space heating system to
natural gas. Although the payback period is less than five years, the depressed condition of the
economy combined with the absence of consumer credit makes it unlikely that households will
be able to support this cost.
66.
Third, the precarious position of the Uruguayan industrial sector means that there are
only a handful of potential industrial clients who could credibly enter into long-run gas supply
contracts. In addition, the recent dollarization of Argentine gas export contracts, makes it much
more attractive for energy intensive industries to locate on the other side of the border in
Argentina.
B.
TeDecomnDmunications
67.
Uruguay has managed to develop the most extensive telecommunications sector in the
region, despite only a minimum level of sector reform. Uruguay enjoys the highest fixed
subscriber penetration rate in Latin America, reaching almost 28 lines per 100 inhabitants in
terms of lines under service. This figure rises to almost 35 lines per 100 inhabitants if installed
lines are considered 8 and represents considerable progress in coverage, up from 13.3 lines per
100 inhabitants in 1990 - a level more consistent with other countries in the region. The fixed
network is 100 percent digitalized and there is no waiting time to acquire a fixed phone. This
excellent coverage and quality of service has come at the cost of less than optimal efficiency in
service delivery and associated high costs. For dealing with these two issues, increased
competition and improved regulation are needed.
68.
A new regulator, the Unidad Reguladora de Servicios de Comunicaciones (URSEC), was
established in 2001 as a decentralized and technically autonomous agency dependent of OPP.
URSEC is staffed largely with transfers from the now disbanded National Directorate for
Communications and needs reinforcement with first class sector specialists. To provide greater
financial autonomy, the financing of URSEC has been shifted from an allocation from the
national budget to a system based on taxes levied on sector operations, sanctions and penalties.
69.
The telecom sector continues to be dominated by the public company, ANTEL, though
private providers have entered the market in recent years. ANTEL, which falls under the
direction of the Ministry of Defense, maintains exclusive rights to provide local and domestic
long distance telephone service. It is authorized to create subsidiaries open to private sector
participation and provides cellar services through its subsidiary, ANCEL. Bell South currently
operates one of the cellular bands through a leasing arrangement with ANTEL, allowing Bell
South to provide cellular services under the name of Movicom, in competition with ANTEL's
subsidiary ANCEL. Bell South recently bought an additional cellular band from the state. The
Government granted 18 permits to private companies to provide international long distance
services.
8
Installed lines include lines in service plus lines not already assigned to any customer but technically ready.
Page 20
70.
Basic telephony tariffs are fixed by the Executive and are lower than the regional
average. The monthly subscription charge is US$4.50 compared to US$6.00 for the region (by
December 2001, before devaluation, the monthly subscription charge was near US$7.30, vis-avis a regional average of US$7.00). While the general population finds ANTEL's services
adequate, regional comparisons reveal the entity's weaknesses. For example, ANTEL has only
166 lines per worker in comparison to a Latin American and Caribbean average of 202 lines or
an Argentinean (Telecom and Telef6nica) average of 417 lines.
71.
Tariffs are relatively high in the International Long Distance (ILD) segment in
comparison with markets like Argentina, Chile and Brazil, despite recent reductions due to
competition in the corporate market. One possible reason for the pricing difference is that HLD
competition is consolidated in neighboring counties, while Uruguay is just taking the first steps
toward opening these services. It is expected that tariffs will converge to the regional average
next year.
72.
Uruguay may remain one of the few countries where mobile does not surpass fixed
telephony penetration before 2006. This is largely due to the extensive coverage of basic
telephony services. In the mobile market, there were 520,000 subscribers in December 2001, or
almost 16 lines per 100 inhabitants. In 1996, the number of subscribers reached only 79,000.
While mobile market penetration may increase due to competition in the next years, it may
increase more slowly than in other countries in the region.
C.
Postal Services
73.
The national postal company, Administraci6n Nacional de Correos (ANC), established in
1996 as a decentralized service, is charged with universal postal service delivery countrywide.
Other mail service providers include private postal operators, international couriers,
transportation companies (e.g. bus and truck lines), government service and utility companies
delivering their own bills and accounts, and informal services provided by individuals
"commissioned" by others to deliver their mail. The sector is regulated by URSEC and policy is
set by the Ministry of Education and Culture. Although the postal services sector has a very high
level of private sector participation compared to other sectors, it suffers from cherry picking by
the private operators. About a hundred authorized private postal operators serve every segment
of a market that lacks a strategy and a regulatory framework. The result has been increased
competition in the more profitable market segments - the business segment in which the
concentration of logistical networks allows lower transportation costs and volume discounts and the public operator left with the responsibilities related to universal service obligations and
in constant need of central government subsidies to support its operations.
74.
Critical issues in the sector include improving the efficiency of ANC and assessing the
necessity and possible amount of continued transfers from the central government budget to
sustain ANC operations. This situation is partially explained by the small size of the postal
market in Uruguay. As shown in the table below, an annual average of 8.8 letters per person per
year is significantly below the average for countries with similar GDPs.9 Even if the
9Croatia, Russian Federation, Costa Rica, Trinidad and Tobago, Mexico, Poland, Malaysia, South Africa, Chile, and
Mauritius.
Page 21
approximately 20 million pieces carried by private postal operators are added to the 30 million
carried by ANC, the average letters per inhabitant only increases to 14.7.
Table 5: Mail volumes in Uruguay in 2000
Indicator
GDP per capita, PPP (current US$)
Letters/Staff
Average letter per inhabitant, 2000
Income Comparators
Average Below
Average Above
US$8,621
27,580
21 6
US$9,391
52,914
40.1
Uruguay
US$9,035
15,625
8.8
The small size of the Uruguayan market is partly explained by the fact that 40 to 50
75.
million pieces per year, the public utilities' bills and statements of account, are delivered by the
utilities' own staff and not accounted for as part of the market. This practice was originally
initiated in response to the operational inefficiency of the public operator before the
establishment of ANC. This portion of the market nearly equals the portion that is legally
defined as mail. Adding the low estimate of these volumes to the existing mail market would
increase average letters per inhabitant figure to 26.4, falling between the two averages shown in
the table above. Though more detailed cost information is needed, it is possible to assert that it is
not effective to have multiple networks delivering reduced mail volumes to identical delivery
points.
Several other issues effect the sector. First, differing labor practices, procurement rules
76.
and service obligations between public and private operators may inhibit competition. Second,
ANC continues to run significant deficits despite recent improvements in its operational
performance (2002 deficit will result in a subsidy of about UR$133 million). The most
significant cause for this deficit is overstaffing of perhaps as much as 25 percent. Finally, the
existing regulatory framework fails to provide details concerning the definition of universal
service, nor does it specify a method (e.g., a reserved area for the public operator) for financing
these services. This lack of definition makes it impossible to specify obligations in terms of
level of service and financing mechanisms.
1D.
Water and Sanitation Sector
77.
While quality and coverage of water and sanitation services are high in Uruguay, this has
been at a very high cost - notably the highest tariffs in the region. Uruguay's water and
sanitation sector is dominated by a single actor, the Obras Sanitarias del Estado (OSE). The
state-owned utility was established under a 1952 Sector Law, to provide water and sanitation
services for the entire country, except for Montevideo where sewerage is provided by the
municipality. Today, OSE reports to the Ministry of Housing, Land Management, and
Environment (MVOTMA) and in practice defines policy, and regulates, controls and operates
potable water services country-wide and sanitation services outside of Montevideo. One
medium-sized operator (URAGUA, the private concessionaire in charge of providing water
supply and sanitation services in the Department of Maldonado) serves 48,000 water connections
in Maldonado, Punta del Este and other small towns, and several small operators provide water
and sanitation services under sub-concessions awarded by OSE with prior authorization from the
executive branch. Until the creation of URSEA, all these concessions were controlled by OSE.
Page 22
78.
OSE was not been subject to external regulation or accountable to the general public for
its services, until the recent establishment of URSEA. This lack of competition and
accountability has given OSE little reason to reduce costs, and as a result its tariffs are higher
than in any other Latin American company (see Table 6). Its performance is not benchmarked
against other water and sewerage utilities in the region, and, until very recently, the company
avoided publishing the results of its own internal performance benchmarking system and
committing publicly to improved service targets. Instead, OSE has hidden behind its high water
supply coverage and relatively high service standards to justify costs supposedly inherent to
providing a critical social good. Moreover, through its majority control of the Comisi6n de
Control de la Concesi6n (CCC) - a Commission created to supervise the URAGUA concession
in Maldonado - and until the recent creation of URSEA, OSE assumed the role of defacto
regulator of URAGUA.
Table 6: 2001 average water and sanitation tariff (US$/m3)
Uruguay
Brazll*
Company
OSE
Sao Paulo/SABESP
Parana/SANEPAR
Water
1.13
0.56
0.56
Sanitation
0 62
0.56
0.44
Water& Sanitation
1.75
1.12
1.00
*US$ I .00=R$2.36
National Average
0.47
0.49
0.96
Argentina
Buenos Aires/AA
0.60
0 60
1 20
79.
OSE is one of the most inefficient major water and sewerage companies in the region.
Contributing factors have included the absence of a sector law and a regulatory framework and
effective pressure to cut costs, as well as legal constraints on public sector lay-offs in Uruguay.
High numbers of permanent staff and general operational inefficiency mean that despite very
high aggregate tariffs, not enough revenue is actually available for needed investments. One
result of OSE's inability to mobilize funds for needed investments is Uruguay's low sewerage
coverage numbers (see figure 2).
80.
Uruguay's
weak
regulatory
Figure2: Sewerage Coveragevs. GNI (Gross
framework has limited the benefits of
competition in the water sector. Given
Incorme)
that OSE and other (private) water
companies
have
thus far not been
required to report customer service
indicators in a standardized format,
10000
°
IL
10000
80.00 -
_______
@
,
7000
consumers have been left in the dark
about
OSE,
8
URAGUA and other smaller providers
relative to each other and relative to
D)
40.00-L
3000 .JUu
B
10100 tVdr_ag
the
performance
of
0.00
Ea_dor
a
i
_
other providers in the region. In the
%
o.o
absence of such information, public
0
2OOO 4,000 6,000 8,000 10,000 12,000 14,000
perceptions are shaped by occasionally
GM at PPP (Purchasing Power Parity), 2000
slanted information made public by
OSE about the performance of its sub-concessionaires.
The current situation therefore
undermines what should be one of the key benefits of competition in the water sector: the ability
of users to compare between service providers and to demand improvements in service quality
based on objective information about their relative performance.
Page 23
Table 7: 2001 operating costs and annual investments of water and sanitation utilities
Uruguay
Brazil
Company
OSE
Sao Paulo/
Paranf/
SABESP
SANEPAR
Number of permanent employees per 1000 water
6.3
3.6
2.4
connections
Personnel costs / total operating costs (without
56%
46%
41%
depreciation)
Operating costs (without depreciation) /
67%
47%
51%
operating income
Operating costs (excluding depreciation) per m3
0.90
0.25
0.27
billed (in 2001 US$)
Annual investment per existing water connection
59
55
67
(in 2001 US$)
E.
National
Average
3.5
Argentina
Buenos
Aires/AA
2.3
46%
49%
66%
43%
0.31
0.25
41
78
Transportation Sector
81.
The coverage of transport infrastructure is appropriate for the conditions of a country
where the distribution of production, particularly from the primary sector, are dispersed
throughout the country. On the other hand, the quality and efficiency of transport operations and
maintenance - particularly in the railway sector - are less than adequate, negatively affecting the
reliability of transport operations and increasing the generalized cost of transport and hence the
competitiveness of the country's products.
82.
Between 1995 and 2000, the Uruguayan transport sector witnessed significant changes in
its institutional, regulatory and operational framework, which have led to the redefinition of the
role of the public sector. These reforms were part of a broader Government effort to reduce the
size of the central administration, redefine the areas where Government participation is required,
rationalize public expenditures, eliminate monopolies, and enhance the competitiveness of the
national economy. For the transport sector, the actions under those reforms consisted of: (i)
reorganizing transport agencies by reorienting their functions towards policy making, planning,
regulation and control rather than execution activities; (ii) improving regulatory, institutional and
financial frameworks to allow for increased private sector participation and better access to
sustainable sources of funding; and (iii) incorporating greater private participation through
outsourcing and long-term concessions to improve efficiency and quality in the delivery of
transport services. Progress in the implementation of these actions has varied among the
transport sub-sectors but in all has led to improvements to the management of the road assets and
increased efficiencies in the road and port sub-sectors, allowing for better integration of the
country into the Mercosur regional trade bloc and an enhanced competitiveness of the
Uruguayan economy in the global markets.
83.
These efforts however have been stalled since 2000 as a consequence of drastic
budgetary restrains and fiscal adjustment. These constraints have limited the space for
maneuvering by the sector entities and have slowed implementation of the reform efforts and
institutional strengthening activities that were initiated in 1995 and consequently halted the
steady progress toward the efficiency targets. For instance, the portion road network in at least
good condition decreased by eight percent between 2000 and 2001 and the number of
maintenance contracts with participation of the private sector under various mechanisms (micro-
Page 24
enterprises, CREMA, performance-based), reached only 42 percent rather than the 50 percent
projected.
84.
In spite of the advances in the 1995-2000 period, inefficiencies in transport operations in
Uruguay are still creating a drag on the economy. In railways overstaffing of AFE is high and
financial performance remains rather poor. AFE's operating ratio (expenses per revenue,
including amortizations) is above three and the entity receives an annual subsidy of US$12
million from the central Government. The ensuing effect is high logistics costs, when compared
to countries like Chile and Mexico.
85.
The reform of the railways sector has suffered from protracted policy decisions that in the
past have delayed the incorporation of competitive practices. Recent approval of legislation
(Laws 17243 of June 2000 and Rendicion de Cuentas of September 2002) represents an
important step in breaking with the past impasse, but the effective implementation of the actions
outlined in the law remains a challenge to be confronted in order to fully achieve the expected
efficiencies within this sub-sector.
86.
The sector lacks a proper user charge policy that would allow it to better weather the
current budgetary downturn and allow continuity in strategy implementation and the
establishment of a more equal playing field for all the sub-sectors to encourage an integrated
overall transport policy. This issue has become ever more important given that current
possibilities for private sector investment have drastically diminished due to the economic crisis
and will remain low in the foreseeable future. The road sector has been particularly effected including investment, maintenance and institutional activities - due to its large proportion of the
fiscal budget and its lack of a continuous stream of revenues across all road segments.
Furthermore, road sector activities contracted out with the private sector (through CREMA and
other performance-based contracts) are treated as investment within the central government's
budget and have been hard hit with budgetary restrictions as investment budgets have been
subject to early fiscal reductions.
F.
Health Sector
87.
Overall, Uruguay has good health indicators, some of them among the best in the region.
By the year 2000, life expectancy reached 75 years (71 for men and 79 for women) and the
infant mortality rate reached a low 14.1 per 1,000 live births. Access to health care is almost
universal. In 1999, the rate of institutional births (deliveries in hospitals and clinics) was 99
percent and basic vaccine coverage surpassed 90 percent.' 0 Improvements in sectors other than
health (e.g. income distribution, education, and water and sanitation) share responsibility for
these accomplishments.
88.
Despite the above accomplishments, Uruguay's health sector still has important
challenges to resolve. As of 2001, total health expenditures in the country accounted for
approximately 10.5 percent of GDP, the highest in the region. Total sector expenditures are
being pushed up by the country's advanced epidemiological transition, added to a fragmented
and poorly articulated health sector with a significant oversupply of physicians (37 per 1,000
10 "La Salud de Uruguay en Cifras", Ministry of Public Health, Uruguay, 2001 edition.
Page 25
habitants) and with a high complexity of technology. Various public and private sub-sectors
coexist, that finance and provide health services. Public hospitals, funded through general
revenues and managed by the State Health Services Administration (Administraci6n de Servicios
de Salud del Estado, ASSE) - an agency under the scope of the Ministry of Health (Ministeriode
Salud Publica, MSP) - provide health care to approximately 45 percent of the population.
Mandatory payroll contributions finance explicit insurance coverage for roughly 52 percent of
citizens, most of them affiliated with private mutual-based insurers (Instituciones de Asistencia
Medica Colectiva, IAMCs).
89.
The ongoing fiscal crisis has brought to the fore three chronic problems in Uruguay's
health sector. First, there is the need to further increase the efficiency level of the public hospital
network, responsible in 2001 for expenditures totaling US$273 million. Despite recent reforms,
public hospitals throughout the country are still characterized by weak governance and
accountability, conflicting budget processes, and poor managerial and information systems.
Following two consecutive years of budget cuts, ASSE's hospitals are experiencing shortages in
basic supplies while payment delays to providers have mounted to unsustainable levels. This is
happening precisely when the demand for public services is expected to increase as a
consequence of people becoming unemployed and falling out of the various formal health
insurance schemes. As a result, the administration is under great pressure to implement changes
to increase overall efficiency levels. Second, in the midst of fiscal retrenchment, chronic crosssubsidies from public hospitals to health insurers acquire increased relevance for the Ministries
of Health and Economy and Finance. Overall, health expenditures by MSP are progressive. In
1998, over 40 percent of the MSP's operational budget was allocated to the poorest quintile of
the population; however, 11.3 percent went to the richest two quintiles." In addition, recent
pilot efforts by the MSP show that between 12 percent and 18 percent of all health identification
cards intended for the uninsured poor (the so-called carnets de salud that prove entitlement to
free health services at the public hospitals) are in the hands of insured individuals, causing a
significant leakage of public resources. Cost recovery at public hospitals remains marginal: for
2002 it is estimated that fees represent only 5.5 percent of ASSE's total operational budget (of
UR$2,200 million).
90.
Lastly, the recurrent operational deficit of the National Resource Fund (Fondo Nacional
de Recursos, FNR) has become unsustainable for the national authorities. With a total annual
budget close to US$150 million, the FNR is responsible for high-cost, high-complexity medical
care nationwide. Financed through contributions from the Government and insured citizens, the
FNR contracts the provision of a pre-defined menu of medical interventions with specialized
medical centers (Institutos de Medicina Altamente Especializados, IMAEs) on a fee-for-service
basis. 12
91.
An incomplete regulatory framework, distortions in payment systems and weak controls
allowing for high levels of induced demand have made the FNR operate under increasing deficits
since 1995. These deficits have been covered via periodic bailouts and/or increases in citizens'
contributions. During the past two years, recurrent operational losses accounted for 27 percent
"1"Uruguay: Maintaining Social Equity in a Changing Economy"; The World Bank, October 2000.
Fourteen medical procedures are financed through the FNR, including cardio-vascular procedures and surgeries,
treatment for chronic kidney failure, hip and knee replacements, and various organ transplants. Close to 50 IMAES
exist, most of them private and many belonging to the same owners of the lAMCs.
12
Page 26
of the Fund's total revenues. As of today, the FNR has an accumulated debt of UR$740 million
(representing 70 percent of its total annual revenues). Of this debt, the MEF is responsible for
UR$207.3 million, mostly from unpaid contributions since June 2002. It is clear that, under the
current fiscal scenario, reforming the FNR and bringing it into a sustainable financial equilibrium
is a national priority.
G.
Education Sector
92.
Uruguay attained universal primary education in the 1960s. The early success in
achieving access to primary education has enabled Uruguay to devote its attention to pre-school
education and to secondary education. Universal enrollment for pre-school was attained in
Uruguay in 2001, making Uruguay one of the first middle-income countries to reach this
milestone. Secondary enrollment is not yet universal, though enrollment has increased
significantly (by 39 percent from 1995 to 2002). Uruguay also has a thriving tertiary education
sector, with one National University enrolling over 50,000 students, and a number of accredited
private sector universities. The educational reform program in Uruguay has ensured the
availability of textbooks to students, accompanied by teacher training and curriculum redesign.
While a number of other countries in the region have since introduced student assessments,
Uruguay is the most advanced in terms of the use of student learning to inform the educational
processes. The greatest challenge now in the sector is to maintain these achievements during this
period of fiscal restraint.
93.
Public education in Uruguay is the responsibility of autonomous public entities, and not
the Ministry of Education and Culture, which is mainly responsible for cultural activities.
Primary and Secondary education is managed by the National Administration for Public
Education (Administraci6n Nacional de Educacion Publica, ANEP), which receives guidance
and support from the Central Directive Council (CODICEN) of ANEP. The National University
is also run autonomously by a Consejo Directivo Central. CODICEN is constituted of five
members appointed by the President and confirmed by Congress. There also exist councils for
Primary Education, Secondary and Vocational Education and a Directorate of Teacher Training.
The structure of educational policy making in Uruguay is rooted in the principle of consensusbuilding and participative decision-making. The reporting of CODICEN directly to Congress
creates strong principles of political accountability. The impressive educational outcomes in
Uruguay are in part a result of an institutional structure that lends considerable stability to the
educational reform program.
94.
The same institutional structure that has performed so well in a period of economic
stability is now under considerable strain. When decisions need to be taken quickly, the need for
consensus-building limits the ability of the system to adapt to changing situations. The need for
the educational system to become more efficient is evident in various problems. First, the
complex institutional structure has resulted from accretions over time of different administrative
units - the administrative processes of different units are not synchronized, as manifested in long
delays in implementing decisions. Second, the absence of a system of priorities and norms
regarding information required to support decisions leads to further 'delays, as information
requests are recycled through the system at every step of decision-making. Finally, the absence
of a system of internal monitoring regarding expenditures implies that problems of inefficiency
are not detected early on. Clearly, the educational establishment in Uruguay has a need to
Page 27
change, retaining the benefits of institutional stability, without losing its ability for flexible
response.
95.
Another challenge for the education sector has emerged as an effect of the fiscal crisis the risk to timely execution of programs directed towards the poor. Contrary to the health sector,
achievements in the education sector have not come about due to a massive infusion of public
resources. Public educational expenditures account for approximately 3.3 percent of GDP,
which is much lower than the five percent regional average for Latin America. The absolute
level of public educational expenditures is not the central problem; however, the issue of timely
expenditures has become an important concern as ANEP suffers from the same pressures
regarding flow of fiscal resources as other public entities in Uruguay. Importantly, because of
the special nature of the education sector, the presence of small delays in expenditures has a
snowballing and potentially devastating effect on both quantitative and qualitative aspects of
service delivery. The harmful effect on the provision of services would then impact the quality
of learning outcomes, and problems such as repetition and dropout of children, with poor
families being more affected. A clear example of such an effect lies in the provision of
textbooks to the approximately 721,000 students in the public system. The value of textbooks is
greatly diminished if they are acquired late into the school year, or just as the temporary
cessation of expenditures on school maintenance and cleaning have damaging effects on school
climate and teacher and student morale. Even as the fiscal imprint of such activities may be very
small, the consequences are of very high importance to the educational process. The GoU needs
to make sure that the fiscal constraints do not lead to avoidable damage on the long term
formation of human capital crucial to policies for growth and poverty reduction.
1IV.
THE GOVERNMENT'S IREFORM PROGRAM
96.
The GoU is undertaking a broad program of reforms in the public sector as part of the
overall country strategy. The reform supports the general goals of: (i) returning to fiscal
stability; (ii) promoting greater market discipline, reducing customs tariffs, eliminating
restrictions on private investment, and reducing bureaucracy; and (iii) reforming the public
sector so as to reduce its economic weight, and focus its role on key social issues, regulation and
promotion of private investment and service delivery. To achieve these goals, the Government
has initiated a process of demonopolization, improving regulation, and fostering of private sector
participation in service delivery. Most of the immediate actions focus on setting the institutional
base for progressive demonopolization and sector liberalization. Establishing sound regulatory
institutions (law and bodies) before advancing privatization programs seems to be a particularly
promising country strategy. Recent empirical evidence indicates that the outcome of structural
reforms depends on the sequencing adopted, with larger increases in economic welfare when
privatization follows the establishment of a comprehensive regulatory framework.
A.
Energy
97.
The Government is following an energy strategy of: (i) separating the distinct roles of the
state as policy maker, regulator and service provider; (ii) ensuring an adequate supply of quality
energy at minimum economic cost; and (iii) providing customers with alternative choices of
energy supply. In practice, this entails the creation of a new regulatory agency, and the
Page 28
promotion of public private partnerships for UTE and ANCAP, as well as the integration of
regional electricity and gas networks and the move for greater alignment between domestic and
regional relative price structures for alternative fuels. Notwithstanding the importance of these
general directions, the strategy needs to be based on a formal energy policy. The GoU has
decided to formulate such a policy to address the critical challenges facing Uruguay, as described
in the diagnosis of the sector (see paragraph 47).
Power
98.
The GoU aims to increase competition in the sector through opening the wholesale
market and liberalizing large industrial customers from UTE's retail monopoly, and to strengthen
the regulatory structure. The 1997 electricity law, which supports these moves towards
competitiveness, created a regulatory agency, UREE, to oversee UTE's transmission and
distribution activities, to monitor quality of service, and to advise the government as to an
economically efficient tariff level. In December 2002, UREE's functions were taken over by
URSEA, the recently created multisector regulator.
99.
The Government recently issued a set of regulations that describe in detail the
implementation of the new law. The regulations cover general dispositions, the wholesale
market, the transmission service, and the distribution service. URSEA is also well advanced in
the preparation of quality of service regulation for electricity distribution. The new regulatory
framework has many positive features, that offer the potential to improve the functioning of the
electricity sector.
o First, the new regulations provide for increasing competition in the electricity sector through
the establishment of an electricity wholesale market (Administrador del Mercado Electrico,
ADME), which will introduce spot trading of electricity for the first time. In addition, all
long term energy supply contracts must be competitively bid, including the energy supplied
by UTE from its own generating plant, which will be subjected to a market test against
electricity imports. Moreover, large industrial consumers will be free to negotiate their own
power purchase arrangements, and no longer obliged to be customers of UTE.
o Second, the regulatory framework introduces a system of tariff regulation. This will mean
that tariffs are no longer set on the basis of the annual financial requirements of the public
sector, but rather according to a pluri-annual economic basis that explicitly seeks to eliminate
inefficiencies in the cost structure. In order to do this, UTE's cost structure will be compared
to that of a model efficient company, and tariff levels adjusted accordingly.
o Third, for the first time UTE will be accountable to the regulator for its performance on a
range of quality of service parameters, while consumers will have the opportunity to file
complaints with the regulatory agency.
Petroleum Products
100. The Government aims to open the hydrocarbon sector through moving post-refinery
prices to import parity, eventually allowing the open import of refined petroleum products, and
matching ANCAP with a private partner. In January 2002, a new sector law was approved
Page 29
linking the gradual phase out
company. The law calls for:
31, 2004; (ii) opening of the
regulating prices and margins
a private company.
of ANCAP's monopoly and ANCAP's partnering with a private
(i) capping ex-refinery prices at import parities starting in March
sector to import of petroleum products by January 1, 2006; (iii)
at all stages of the supply chain; and (iv) ANCAP partnering with
101. Considering the long lasting economic recession in the region and the prevailing
opposition, conditions for outright privatization of ANCAP are not in place. Though the reforms
outlined in the new law are gradual in nature, the proposal has brought strong opposition and
sufficient signatures have been gathered to call a referendum to repeal the law. The
Government, however, is very committed to defend the law and confident that the it will not be
overturned. The strongest criticism launched as part of the referendum movement is to
ANCAP's association with a private partner, while demonopolization of the downstream
activities is the most critical aspect of the reforms to the country's economic prospects. As a
result, the Government intends continue supporting, at the least the downstream liberalization,
including moving to import parity pricing, improving regulation of retail activities, and eventual
liberalization of the import of petroleum derivatives.
102. The GoU is taking steps to develop a regulatory framework for the sector by passing
regulatory authority to the recently established multisector regulator, URSEA. Following the
approval of the law that created URSEA, the Government intends to issue a decree establishing
downstream petroleum sector regulation that will substitute the de-facto regulations established
by the present contracts of ANCAP with the private companies in retail activities. The
regulation would address the following issues:
o Rules for entering the refinery, import and export petroleum and petroleum products as well
as wholesale and retail distribution activities.
o Monitoring of technical, economic, safety, security and environmental standards.
O Clarifying the pricing regime, freeing as much as possible all prices and margins and limiting
the responsibility of the new regulatory entity to the publication of maximum consumer
prices.
o Clear rules for facilitating the entrance of new companies in the sector and, in coordination
with other agencies, make all efforts to achieve a competitive environment, avoiding
collusion and product dumping practices.
103. The Government is taking steps to implement an import parity pricing regime. The
current sector law indicates that the new regulatory entity should enforce the application of an
import-export parity base formula to cap ex-refinery prices starting March 2004. If the
association of ANCAP takes place prior to that time, it will convenient to accelerate the
implementation of a parity pricing system.
104. The Government is aware of the need to closely monitor external factors influencing
tariff regulation, including the introduction of natural gas, and the taxes and prices of competing
fuels such as fuel oil, diesel and LPG. The speed at which correcting measures are implemented
will depend on the determination of the current administration to eliminate the tax distortions.
The changes, however, would have to be implemented with regard to the evolution in the prices
in neighbor countries, Brazil and Argentina, that are suffering from the same problem.
Page 30
105. ANCAP's non-petroleum activities have been separated from its petroleum activities.
The pending sector law provides for unbundling of ANCAP operations. The immediate goal is
certainly not the association of ANCAP, which depends to a large extent on finding a private
partner, but to create conditions for market competition to the greatest extent possible.
106. ANCAP's port and storage facilities are to be separated from the activities to be passed to
the private partnership. The sector law calls for separating the admninistration of ANCAP's port
termrinal facilities from its refinery, distribution and marketing activities. Since only the refinery,
distribution and marketing activities will be dedicated to the association with a private partner,
ANCAP will preserve its access to port and storage facilities. The idea is that should the
proposed ANCAP-private partnership controlling the refinery fail to deliver products in the
volumes and prices required, the Government could import refined crude to be distributed via
current port and storage facilities. This will require the separation of accounts and the review of
limitations on the physical infrastructure. Both tasks are currently underway.
107. ANCAP is undertaking refinery investments to improve its competitive position in a
more open market. In assessing the future opportunities in the sector, it is important to take into
consideration the on-going investments for the upgrading of the refinery. In addition to the crude
buoying system modernized in the 1980's and the expansion of the primary distillation capacity
completed in the mid-1990's, the refinery is undergoing additional improvements. These
investments will allow ANCAP to produce and sell products of improved technical specifications
on local and export markets, in particular unleaded gasoline.' 3
Natural Gas
108. The GoU aims to maximize the introduction of natural gas in all economic efficient
applications, in particular in the industrial sector and in power generation. Given that natural gas
transportation and distribution is entirely undertaken by the private sector under a number of
exclusive concession contracts, the Government's strategy is focused on strengthening the
regulatory framework to prevent monopoly abuse and protect consumer interests. Congress is
currently considering a sector law for natural gas. Regulation of the sector is to be taken over by
the new multi-sector regulator, URSEA, who should also ultimately take over the monitoring of
the concession contracts from the MIEM.
B.
Telecommunications
109. The GoU supports greater competition in the telecom industry and to this effect is
following a strategy of partial sector opening and strengthening of regulatory frameworks. The
Government will maintain ANTEL's monopoly on local and national long distance services, but
move toward greater liberalization in other telephony services. During 2001, the Government
opened up the country's international long distance market to competition from private
providers. Since that time, 18 new operators have entered, and 16 of these have been authorized
to operate by URSEC based on the presentation of their operations plans.
13
Given its size and configuration, the refinery would be capable of producing gasoline for export; however, if
economic recovery takes place in Uruguay and diesel prices remain comparatively low, the deficit of diesel will tend
to increase and the business opportunities of expanding exports will not materialize.
Page 31
110. Early in 2002, the Government issued a number of critical norms and decrees in support
of greater competition. These include the rules for interconnection and the mobile auction
framework. Currently, URSEC is studying a new licensing scheme for all telecommunications
services and the corresponding norms should be issued by April 2003. These norms will be
critical to providing current and potential operators a consistent legal framework with clearly
defined rights and obligations. The GoU intends to better align and strengthen reforms by
updating sector policy through additional regulations. Sector policy, including the definition of
universal service obligations, is partially expressed in the Law that created URSEC, but it lacks
some relevant definitions that can be handled in specific sector regulations. These include
operators' responsibilities, convergence between media and telecom, a long run strategy, and
universal service obligations. Moreover, the GoU is moving to strengthen URSEC though
establishment of a clearly defined administrative structure, functional planning, better qualified
specialist and new financing mechanisms.
111. The Government carried out an auction of mobile service licenses in October 18, 2002 to
open bands for 1.800, 1.900, and 2.100 MHz. Unlike the majority of auctions where only one
type of band is auctioned, the Government decided to speed up the process of liberalization by
simultaneously auctioning multiple bands. Movicom, up to this point operating under a lease
agreement with ANTEL, presented two successful bids.
C.
Postal Services
112. The GoU objectives in the postal sector include: (i) the adoption of a comprehensive legal
and regulatory framework; (ii) building capacity of URSEC to monitor the performance of
individual service providers as well as the sector as a whole; (iii) improving efficiency of service
delivery in the sector by both private operators and ANC; and (iv) rationalization of the current
subsidy paid to ANC. Through the legal and regulatory framework under preparation, the GoU
expects to define the Government's obligation to provide universal postal services and the
method for financing these services, support commercialization of ANC, and provide effective
sector oversight by URSEC.
113. While there is a general consensus on these goals, the sector is in urgent need of a sector
policy explicitly defining strategy and vision, and an accompanying postal sector law. The
current 1996 postal sector law is not in conformance with the 2001 Law that established URSEC
and does not support the current postal marketplace's competitive environment or the future
development of the sector. The proposed postal sector law should improve on several
deficiencies of the 1996 Law, including the definition of universal service, financing method to
assure universal service, and a definition of mail. A draft law is under review by the GoU.
114. ANC's long-range strategy to achieve financial equilibrium is based on simultaneously
increasing volumes while decreasing costs. However, despite an increase in both volume (from
seven million pieces to 30 million pieces) and productivity (165 percent) between 1995 and
2000, ANC financial performance has not kept pace. In addition to the need for a voluntary
retirement program, ANC would like to manage the large volume of items handled today by
government services and utilities. ANC believes that the incorporation of these items into its
mail stream would allow it to achieve economies of scale and significantly increase productivity
and profitability. It also notes that, unlike nearly all other postal administrations, it does not have
Page 32
the protection of a reserved area to help finance its universal service obligations. Moreover, the
2000 Competition Law would suggest that distribution of those pieces by ANC cannot be
decided in absence of a bidding process. To evaluate the benefit of this and other strategies for
the country as a whole, more detailed knowledge of the postal market is needed.
D.
Water and Sanitation
115. In the water and sanitation sector, the Uruguayan Government has given priority to
addressing; (i) the absence of regulation and public accountability, and (ii) low sewerage
coverage as the twin pillars of its water sector policy. The aim is to consolidate gains from
nascent PSP in the sector and bring greater accountability for operational and financial
performance of both OSE and the private operators to the proposed regulator and clients.
Improved performance by OSE should free financing for the backlog of sanitation system
investments.
116. Two major pieces of legislation should significantly alter the balance of power in
Uruguay's water sector. The first is the previously mentioned law which recently created an
autonomous regulator for the water and energy sectors (URSEA). Among its key provisions is
one that effectively transfers control of OSE's existing sub-concessions (URAGUA and others)
to the new regulatory agency. A second piece of legislation (the Water and Sanitation Sector
Law) has been drafted and would, among other things, give the central Government title over
water and sanitation services nationwide. In addition, as part of the existing Bank-financed
public utilities technical assistance loan (4598-UR), OPP has carried out a regulatory accounting
study that sets out uniform regulatory accounting standards for the water sector. These
instruments should foster efficiency gains from nascent sector competition as they limit the
ability of the dominant provider, OSE, to control new entrants.
117. The Government proposes to contract out unaccounted-for-water reduction in
Montevideo on a performance basis. This should bring both greater efficiency to operations in
the capital city and increased funds to support needed sewerage investments in the interior of the
country. Given severe restrictions on OSE's ability to finance new investments because of high
debt-service obligations through at least 2005, the Government has looked to new sources for
financing sewerage expansion in the interior. A high-level commission comprising the Minister
of Economy and Finance, the Minister of Housing, Land Planning and the Environment, and the
Minister of Transport and Public Works (MTOP), as well as the Director of OPP and the
President of OSE was formed in August, 2002 to study ways in which a private investor could be
contracted to reduce unaccounted-for-water (UFW) in Montevideo in exchange for a portion of
the incremental billings that result from UFW reduction. Incremental billings not paid out to the
private investor would be used to finance sewerage investments in the interior. The GoU is now
assessing the remaining design issues for a sewerage expansion program, including the scope of
tasks to be required of contractors (design and build only or operational and/or commercial
responsibilities as well), prioritization of investments, packaging of works, and financing
requirements.
Page 33
E.
Transport
118. The Government strategy for the transport sector focuses on increasing the efficiency of
the operations for the various sub-sectors in order to reduce overall transport costs. Key
instruments to implement this strategy include actions geared towards the proper participation of
the private sector in the road, railway, port and aviation sub-sectors and establishing regulatory
mechanisms and institutions for facilitating and supervising PSP.
119. In the roadsector, the main tenets of the government strategy follow those established in
1995, namely: (i) reversing the deterioration of road infrastructure by increasing investment in
the rehabilitation and maintenance of the core road network; (ii) supporting growth of regional
trade by removing physical, operational and regulatory constraints to international transport; (iii)
expanding the role of the private sector by outsourcing road operations and concessioning the
finance and management of road projects under long-term contracts; and (iv) gradually
developing a system of road-user charges that could assure more stable sources of funding.
120. Given the current pressures resulting from the economic crisis, the sector entities have
exercised good judgment in strategically allocating the available resources to keeping the road
network in acceptable condition rather than concentrating funds on the rehabilitation of a few
short sections. Sector authorities have also continued to fully support the ongoing performancebased contracts with the private sector, and are exploring innovative public-private partnerships
and more autonomous arrangements for managing and financing a sizeable portion of the road
network.
121. As part of the latter, in December of last year the Government granted a 15-year
concession for the management of approximately 1,270 km of roads (about 15 percent of the
national network) to a newly created public corporation (the Corporaci6n Vial de Uruguay).
The contract, named the Mega-concession, includes only one self financing - via tolls - route.
The remainder of the concessioned segments require cross-subsidies. The public corporation can
raise revenues through bond issues and loans and out-source the necessary works and services
for concessioned routes. To further bolster revenues, the GoU is implementing a program of
construction of additional toll facilities.
122. On the institutional side, the GoU continues to support the Road Agency's (Direcci6n
Nacional de Vialidad) efforts to progress in the application of maintenance management systems
to track costs and monitor the performance of its own force account activities and those carried
out under performance based contracts. The gradual implementation of a road users' charges
policy is another objective of the strategy for strengthening the institutional framework. Its
application, however, has been delayed due to budget restrictions and the final implementation of
a modern traffic counting system that would allow more reliable data on which to base the level
and structure of the road users' charges policy.
123. In the railway sector, the deterioration of the infrastructure has been affected by an
almost steady decline in traffic and revenues over the last twenty years, poor maintenance, and
diminishing level of service. The GoU strategy focuses on improving efficiency through private
sector participation. The reform however has been slower than expected because of opposition
to major structural changes in AFE. The company has been separated into infrastructure and
Page 34
operations units. In September 2002, legislation was approved which authorizes MTOP to allow
private operators to operate on AFE's lines. In 2003, the MTOP took ownership of the
infrastructure and became responsible for the rehabilitation and maintenance of AFE's network.
These activities would be financed by the subsidy that is being presently paid to AFE. The AFE
will continue operating services as planned in its business plan, but will have to do so based on
traffic revenues as subsidies (50% in the first year and almost 100% in the following years) will
be phased out.
124. In the ports sector, the Government strategy focuses on the consolidation of the advances
initiated with 1992 reforms to improve the efficiency of port operations. One of the key
elements of this strategy is the restructuring of the Adminstraci6n Nacional de Puertos (ANP),
the public entity that is in charge of port activities and responsible for the management and
development of the Port of Montevideo. This restructuring aims to attract private investment in
the modernization and upkeep of port facilities. This strategy seeks to improve the
competitiveness of the import/export trade, and increase the efficiency of the port of Montevideo
to position it as a regional hub and as a key segment in most logistic chains for goods entering or
exiting the country.
125. In aviation, the GoU has continued with efforts to concession airport operations as a
mechanism to achieve efficiencies in the management of airports. A recently approved law has
authorized the Government to concession the Carrasco Airport for a period of 30 years. Another
law has authorized the GoU to sell shares in the state flag carrier, Pluna.
F.
Health
126. The GoU is committed to responding to the current fiscal crisis by increasing the health
sector's overall efficiency while maintaining, or even improving, the quality and equity of its
services. Important steps in this direction have already been taken, including budgetary
protection for priority health programs under an IDB operation. These efforts have been led by
the MSP and target the three major determinants of health expenditures in Uruguay; the public
hospital network, the FNR, and the IAMCs.14
127. The MSP's budget has fallen 12 percent in nominal terms (UR$500 million) over the past
two years, while public hospitals have maintained the volume of services delivered.' 5 In real
terms, the budgetary reduction is much higher. Important savings in the MSP and ASSE have
been achieved through a set of actions that include, among others, the following: (i)
incorporation of performance agreements between the central level of ASSE and the public
hospitals' management teams; (ii) explicit definition of pharmaceutical prescription catalogues
for the different health care complexity levels; (iii) staffing of all major hospitals with
professional accountants responsible for financial management; (iv) renegotiation with providers
of hospital supplies; and, (v) new procurement arrangements for pharmaceuticals, securing
economies of scale.
128. More structural reforms will complement these partial results. Efforts underway will
enable ASSE to fully identify all beneficiaries and, hence, implement actions that will lead to
14
The lAMCs are being addressed through an adjustment operation funded by the IDB (loan UR-0133).
t5
The total MSP budget for the year 2000 was UR$4.2 billion and UR$3.7 billion for 2002.
Page 35
important efficiency and equity gains. With support from a previous WB project (loan 3855UJR), an information system including a database of insured citizens is now available in most
major public hospitals. This system (Registro Unico de Cobertura Formal de Asistencia,
RUCAF) enables the identification of insured citizens who demand services in the public
network and the subsequent billing of these services to the corresponding insurer. RUCAF is
now being complemented by an information system that classifies uninsured patients according
to their ability to pay, making it possible to charge differentiated co-payments for ambulatory
services (and introducing a rationalization element for demand utilization). In the medium term,
a complete health sector beneficiary database will be available, allowing ASSE to further adjust
The budgeting
its budgeting systems (for example, introducing prospective formulas).
framework for public hospitals will be reformed in order to guarantee the existence of a positive
incentive for cost recovery.
129. The MSP is also considering the implementation of innovative arrangements for
contracting out ancillary services for public hospitals. Services being analyzed by task forces
from ASSE and the MSP include ambulances in the city of Montevideo, the national
pharmaceutical laboratory, support services such as catering and cleaning, waste management
and security, and other special services for MSP's staff (e.g., medical certificates). While final
cost-saving estimates of these initiatives will greatly depend on the selection of participating
hospitals, and most important on how the personnel-related issues are addressed, progress here
will represent a major opportunity for innovation and quality and efficiency improvements in
health service delivery in the country.
130. The current administration is implementing a comprehensive restructuring process of
FNR. This restructuring, previously assisted by Bank and 1DB loans, effectively addresses the
major dimensions of the Fund, including: (i) governance and management structures; (ii)
financial equilibrium; (iii) menu of eligible medical procedures; (iv) contracting arrangements
and payment mechanisms; and, (v) renegotiation of the accumulated debt to providers. Key
steps have already been taken in various of these dimensions improving the overall performance
of the Fund, including a reduction in its operational deficit. Last year, through a Presidential
decree, the Government retook control of the Funds' board of directors, which until then was
subject to the decisional power of the LAMCs. Subsequently, the IMAEs' tariffs were cut by 13
percent, moving closer to benchmark prices. Medical opinions are now being used as controls to
avert induced demand by providers. Lastly, improvements in information systems are underway,
enabling management of the Fund to better control the quality, effectiveness and efficiency of
the services delivered to the population.
G.
Education
131. The GoU has successfully used the education sector as a key policy tool for increasing
equity and growth. In addition to the increased availability of pre-school that frees up the time of
mothers from poor households to seek gainful employment, a series of programs focused on
disadvantaged groups underline the resolve of the Uruguayan Government to maintain and
advance its quest for equality. Three of the priority programs of the Government are: the full day school program (Escuela de Tiempo Completo); the school feeding program (Programa de
Alimentaci6n); and the bilingual education program. The value added of having a longer school
day is especially higher in urban marginal neighborhoods, where children are faced with dangers
Page 36
to their personal safety, and where parents from disadvantaged socio-economic backgrounds are
less able to provide supplemental learning assistance. In addition to the educational effects, the
program lowers the opportunity cost of the time of mothers, which enables them to earn labor
income. The school feeding program now caters to roughly 200,000 of the 400,000 children
enrolled at the pre-school and primary levels, a figure that matches the approximate 50 percent
poverty rate for children. Lastly, education research shows early introduction of foreign
languages has important implications for the child's overall academic development, as well as
providing future economic opportunities in areas where foreign language is an important asset.
Budget protection for these priority programs forms part of the Government's strategy to
minimize the social impact of the fiscal situation.
132. Even though the GoU is committed to maintaining the quality and quantity of public
educational services, practicalities regarding cash flows impose certain restrictions on the ability
of the Government to maintain an adequate level of service provision. The comparative
efficiency of public educational expenditures in Uruguay is in part a result of a judicious mix
regarding the use of line staff of ANEP and outsourcing to private providers. Problems in flow
of funds to ANEP staff would result in a deterioration of the motivation of staff, most of whom
are frontline workers interacting with students. Private providers to ANEP may simply run out
of funds to continue their business if payments are delayed inordinately. Accordingly, the GoU
has made as part of the planning cycle of ANEP, a firm decision that the fiscal restrictions would
not lead to a quantitative cut-back in service provision. The budgetary requirements for the
priority educational programs have been identified so that these programs do not suffer cutbacks,
even as the ability of the Government to embark on any new programs is severely curtailed. The
GoU has undertaken to enhance its planning process regarding educational expenditures, and
monitor the expenditures on a monthly basis, integrated with the financial information system so
that the pace of service provision can be maintained.
133. The Government has developed a plan of action to improve sector management that seeks
to make the education sector more responsive to the changed fiscal context. The action plan
consists of measures to modernize sector management by removing the main obstacles to
management efficiency and has three principal components. First, measures would be
undertaken to improve the administrative structure and processes of ANEP, that currently
functions with antiquated, bureaucratic procedures. A program of streamlining administrative
procedures would be backed up by the implementation of an internal auditing system to monitor
inefficiencies and take corrective action. A second area is to improve the management of human
resources, which constitutes the core asset of the educational system with more than 50,000
teachers. The most urgent area of improvement within human resource management is to
integrate the payroll system used to remit teacher salaries and benefits with the system that
allocates teachers and support personnel. The installation of an integrated human resource
management system would greatly facilitate the task of allocating human resources where they
are needed, at the times they are needed. Finally, an integration of the financial management
system across the various administrative units would align the availability of timely information
with decision-making, so that financial resources get to their end-uses rather than being stuck
due to administrative incompatibilities. The task of modernizing sector management is an
extremely challenging assignment for ANEP, especially as the modernization program needs to
be implemented quickly in context of severe fiscal constraint.
Page 37
V.
THFL ]PROPOSED LoANs
Objectives of the IP'roposed Loans
A.
134. The proposed adjustment loans were included in the CAS Progress Report discussed by
the Board on August 8, 2002, and their competitiveness, economic growth, and social support
objectives are an essential part of Bank assistance for renewed broad-based economic growth
and social protection. Specifically, the CAS identified the high cost of public services and the
risk of deteriorating social conditions resulting from the crisis as obstacles to growth and
improved welfare of the population. On the basis of their importance for growth and welfare, the
Government and the Bank have confirmed the public services and social sectors as priority areas
for assistance through adjustment lending. The proposed SAL and Special SAL total US$252.54
million and entail three tranches (see paragraph 138 for discussion of tranche amounts).
135.
In particular, the loans aim to:
o Reduce prices, increase quality and coverage, and improve the efficiency of investment,
production and distribution of services, and infrastructure through: (i) upgrading
regulation by strengthening regulatory frameworks in all sectors; (ii) increasing
competition by liberalization in the wholesale power market and mobile phone services
and sector restructuring of the petroleum, water and sanitation and transport sectors; (iii)
improve the efficiency of public expenditure by increasing transparency and
accountability and by reducing tax distortions; and (iv) strengthening institutions to carry
out functions of regulation, market oversight, sector planning and management.
o
Improve the efficiency of public expenditures in health and education while maintaining
or improving services in key priority areas through: (i) restructuring national health
funding instruments; (ii) reducing cross subsidies in the public hospital network; (iii)
protecting priority educations programs; and (iv) improving the management of the
education sector.
136. The operation will be based on a subset of the actions the Government is taking in each
sector, as outlined above and in the Government's Letter of Development Policy (Annex 2). The
commitments under the adjustment program are listed in Annex 1. The Bank will broadly
monitor the implementation of the Government's overall program (monitoring indicators are also
shown in Annex 1), and support will be provided through the ongoing Public Services
Modernization Technical Assistance Project (Loan 4598-UR).
137. The proposed operation has its underpinnings in detailed analytical work, lending and
policy dialogue. Building on a history of sector projects in power, transport and water and
sanitation, dialogue of public service reform expanded in 1996 and 1997 with analytical and
advisory activities (A Reform Agenda for the Uruguay Transport Sector, Report No. 1741 1-UY,
August 1996, and Uruguay, Towards a New Role for the State in Uruguay's Utilities, Report No.
16154-UY, June 1997), and then further with the work carried out under the above mentioned
Technical Assistance Loan. Reforms in the education and health sector are built on successful
bank lending and in analytical work on health policy (Health Sector Policy Note for Uruguay,
1999), education and a public expenditure review of social programs (Social Sector Expenditures
in Uruguay, 2000). In addition, as part of the regional flagship project, a detailed study has been
Page 38
completed on education and technology (Closing the Gap in Education and Technology, 2002).
Government support is strong and coordination with the IMF and IDB has been consistent. Bank
discussions with the Government are at the most senior level and the quality of the dialogue is
unusually high.
B.
Description of Financial Assistance
138. The proposed Project would be supported by two loans totaling US$252.54 million, of
which US$151.52 million is a regular Structural Adjustment Loan (SAL) and US$101.02 million
is a Special Structural Adjustment Loan (SSAL). Each loan will be disbursed in three tranches:
(i) an initial tranche based on actions already taken or expected to be taken by the time of Board
presentation, which would be disbursed upon effectiveness; (ii) additional tranches estimated for
September of 2003 and June of 2004 based on the implementation progress of loan conditions.
The SAL will support measures for reform of public services and infrastructure, which align with
more medium term reforms. The SSAL will support measures in the health and education
sectors that focus on assuring continuation of strong social support throughout the crisis and
mitigation of its negative social impacts. The tranching of both loans reflects the reforms
advanced in the last year and the back loading of future reforms (see table below).
Table 8: SAL and SSAL Tranche Timing and Approximate Amounts (amounts in US$ millions)
Est. Disbursement Date
SAL
SSAL
Total
Tranche 1
April 2003
US$51.52
US$26.02
US$77.545
Tranche 2
November 2003
US$50
US$25
US$75
Tranche 3
June 2004
US$50
US$50
US$100
Total
US$151.52
US$101.02
US$252.54
139. The Bank's financial assistance will help support Uruguay's external financing and
public sector borrowing requirements. Overall financing needs are estimated to be around
US$1.6 billion over 2003-04 - assuming the Government debt re-financing plan and new IMF
agreement are implemented. This includes central Government's financing requirements of
about US$0.4 billion over 2003-04 and IFI's amortizations of nearly US$900 million. Financing
sources would be: IFIs US$2.3 billion - of which US$1.2 billion will be allocated to build-up
international reserves and US$0.3 billion for asset recovery and privatization - and bilaterals
around US$0.1 billion.
140. The proposed support for Uruguay meets the criteria set out for structural adjustment and
special structural adjustment lending. First, in terms of structural dimensions, the monopoly
service provision by the public utilities and weak regulatory frameworks have historically
contributed to service lags and high costs, adversely affecting competitiveness and bringing an
additional source of inflexibility to the economy. The loans support the Government's efforts to
open areas currently dominated by the State to the private sector, reducing pressure on public
expenditures and facilitating a private sector-led economic recovery. Moreover, the GoU's
tradition of generous and broadly targeted social programs are now being tested and efforts are
underway to enhance the efficiency and productivity of social spending to provide for growing
needs during fiscal tightening. The loans address these challenges through support for reforms in
health and education. Uruguay also satisfies the second main criteria for special structural
adjustment support, a strong policy program as demonstrated by its track record and its intended
reform measures. The proposed program, as set out in the Government's letter of development
Page 39
policy, provides the content of the continuing reform program and specifies the measures that the
Government intends to take to address some of the remaining key structural issues. Third, the
proposed program is part of a concerted international support package which includes the
International Monetary Fund and the Inter-American Development Bank, (as described in
paragraphs 8 and 9).
C.
lReformn Progran Supported by the Bank
141. The Adjustment Loans covering both completed actions and expected future actions for
the second and third tranche disbursements are shown in Annex 1. Tables 9, 10, and 11 show the
reforms supported under each tranche, and following paragraphs offer a short description of each
reform.
StructuralAdjustment ILoan
Regulatory Reform
142. Multisector reguDltor. Establishment of regulation in Uruguay is the most important
building block to improve efficiency and competition in and for the markets providing basic
services. Given the size and structure of the Uruguayan markets and the strength of the public
utilities, a multisector regulatory will provide the necessary scale to assure technical capacity and
foster the independence necessary to assure enforcement of regulatory frameworks. The
Government of Uruguay has established URSEA to regulate power, natural gas, petroleum and
water and sanitation services, and URSEC to continue regulation of the communications sectors.
Critical steps for having URSEA functioning include, first, the recently approved law creating
URSEA and appointment of URSEA Directors. Next steps include GoU hiring of staff based on
a transparent and competitive process, followed by the establishment of detailed operating
procedures.
143. Regulatory accounting. A system of regulatory accounting procedures would provide
the basis for vertical or horizontal separation of the accounts of the utilities and minimize the
scope for strategic manipulation of accounting data, and as such will be an important tool for
URSEA to oversee competition between private and public operators. Regulatory accounting
has been developed for the water sector, is under preparation for the power sector and is
expected to be available by the second trimester of 2003. GoU is planning similar measures for
the remaining sectors. Since the financial year in Uruguay runs with the calendar year, 2004 will
be the first full year for which audited accounts compliant with new regulatory procedures will
be available.
144. Deteirmination of target distribution tariffls for electricity. The regulatory agency is in
the process of completing studies to establish the efficient benchmark tariff for UTE. Thereafter
the MIEM will issue a decree announcing the target tariff for electricity distribution and
establishing a convergence path towards the target tariff. As well as seeking to phase out any
inefficiencies built into the current tariff, the target tariff will need to reflect changes in UTE's
cost structure brought about by the recent devaluation of the Uruguayan peso.
145. Regulato0ry fframework for downstream petroleum piroducts. A clear regulatory
framework independent from ANCAP is critical to increasing competition. A downstream
hydrocarbon regulatory decree should be formulated in the coming months and include definition
Page 40
of import parity pricing, as further outlined in the next paragraph. The decree should be issued
before disbursement of the second tranche. The new regulation is an essential document to allow
proponents for the association of ANCAP to complete their economic offers.
Table 9: Major reforms supported by Tranche 1
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
SAL and SSAL
Maintenance of a satisfactory macroeconomic framework as evidenced by the IMF program.
SAL
Law creating URSEA, a regulatory agency for water and sanitation, power, gas and petroleum products
approved. URSEA Board of Directors appointment and the water private concessions in the Department
of Maldonado put under its jurisdiction.
Technical norms and regulations for transmission and distribution approved and issued.
Law eliminating ANCAP's monopoly and allowing free import of oil and derivatives starting in 2006
approved.
Law establishing new natural gas legal and regulatory framework submitted to Congress.
Water sector law presented to Congress.
Service quality and performance indicators for 2003 and 2002 results for OSE agreed and published in
daily newspapers.
Decision to undertake a tax reform, including the review of taxes applied to the energy product.
Specific norms and regulations for generation and transmission issued in June 2002 and for the wholesale
market in August 2002.
Government granted ILD licenses to 18 operators and approved interconnection regulation.
Government awarded new mobile license.
OSE created a special unit to manage unaccounted for water activities.
Laws approved in 2002 (i) created "Mega-concession" and allowed further concession in ports and
airport management, and selling of stake in former state carrier (Pluna), and (ni) separated AFE rail
infrastructure from operations and transferred AFE rail infrastructure to MTOP.
Law approved in June 2000 providing open access of private operators to public rail infrastructure.
SSAL
Satisfactory execution of 2002 budget at agreed levels and agreement on 2003 budget commitments on
expenditures for basic school supplies, bilingual education, textbooks for primary schools.
The MOH construction of a beneficiary database for ASSE underway and will be used for cost recovery
and to implement new budget allocation formulas. The comprehensive beneficiary identification system
implemented in hospitals that account for at least 70% of ASSE's total budget, making possible cost
recovery; the executive has issued a decree establishing the legal framework for providing incentives for
public hospitals to cost recover.
The national government has re-gained control of the FNR board and has launched a comprehensive
reform to bring the Fund back to equilibrium.
Changes in the regulatory framework that guarantee proper accreditation of eligible providers (IMAEs)
and minimum information flows for receiving funding from the FNR have been identified.
146. Convergence to import parity prices. The move to import parity of the ex-refinery
petroleum products will imply an important adjustment to the actual pricing system. Once the
formula for establishing import parity is agreed upon by the GoU, the Government must then set
a trajectory for closing the gap between the ex-refinery prices and the estimated import parities.
A proposed first reduction that could be achieved by July 2003 includes the following:
o explicitly identifying the extra-costs and taxes that ANCAP is paying due to its status as a
public entity (estimated at US$30 million per year) as a surcharge over and above import
parity prices. Further reductions are likely to be possible as a result of the separation of
the ANCAP non-petroleum businesses from the petroleum-based activities; and
Page 41
o
eliminating the current subsidies (estimated at US$15 million per year) to fuel oil and
LPG which are cuffently sold below import parity prices.
The second reduction should take place before disbursement of the third tranche and constitutes
the final transition of ex-refinery prices to estimated import parity levels.
Table 10: Major reforns supported by Tranche 2
SAL and SSAL
o
Maintenance of a satisfactory macroeconomic framework as evidenced by the IMF program.
SAL
o
MIEM has issued a decree announcing the target tariff for electricity distribution and establishing a
convergence path towards the target tariff (consistent with URSEA's recommendation and the benchmarking
studies carried out by URSEA).
o
MIEM has issued a decree establishing the regulatory framework for the importation, production and
commercialization of petroleum products.
o
The Executive has issued a decree approving two divisions within ANCAP with separate accounts,
management and finances for its petroleum business and its port and logistic facilities.
O The Borrower has complied with a new natural gas law, which includes provisions to: (a) eliminate legal
ambiguities, including with respect to the attributions of the public and private sector; (b) establish a tariff
regime; and (c) define right of way issues.
o
The Executive has issued a decree establishing the regulatory framework for the Borrower's postal services
sub-sector.
o
Congress has approved and the Executive has promulgated a law establishing the legal and regulatory
framework for the water supply and sanitation sector, which includes, inter alia, provisions to shift the
authority to carry out feasibility studies and grant concessions from OSE to the Executive.
O
ADME has approved a first set of PPAs and has requested proposals for three ongoing energy contracts to be
replaced by PPAs.
o
The Executive has approved unit tariffs and URSEA has approved conditions for open access to ANCAP's
port, wholesale oil import, and storage facilities.
O
OSE has offered to award a performance-based contract to a private operator for the management of the UFW
reduction program in Montevideo, as evidenced by the public offer issued for the award of the contract.
O The Borrower has brought to the point of concession the management of the Carrasco International Airport, as
evidenced by the issuance of invitations to bid for the award of the concession.
O The Borrower, through MIEM, has published and complied with a national energy policy which addresses
issues relating to: (a) the relative price of fuels; (b) the economics of gas and electricity importation from
Argentina and Brazil; (c) the economics and politics of a strategic national reserve of generating capacity; (d)
the environmental impact of changes in the country's energy portfolio; (e) the consistency of the new
electricity, gas and petroleum regulations with the national energy policy; and (f) the institutional capacity
required to implement and monitor a national energy policy.
SSAL
o
o
o
For the period from January 1, 2003 to the to the date falling two months prior to the Second Tranche Release
Date, the Borrower has timely executed its budget at least at levels of expenditure specified in its monthly
budget execution schedules and satisfactory to the Bank for each of the following programs: (a) basic school
supplies and maintenance program; (b) the bilingual education program; and (c) the textbook program for
primary schools.
(a) ASSE's beneficiary database identifies at least 40% of the uninsured population of the Borrower; and (b)
the MSP, through ASSE, has completed initial simulations of new budget allocation formulas based on the
database referred to in (a).
The FNR has been in financial equilibrium (regular revenues, not including any amounts attributable to the
increase in contribution rates mandated by a decree of the Executive, have been equal to or greater than regular
expenditures -any extraordinary, not operationally-related revenues and expenditures excluded) for the 12
month period immediately preceding the Second Tranche Release Date, ); and the FNR has determined unitary
costs and utilization rates for medical procedures that account for no less than 60% of its expenditures.
Page 42
147. Approval of new natural gas law. There is at present no regulatory framework for the
natural gas sector, beyond the specific provisions included in each of the existing three
concession contracts. A new natural gas law was submitted to Congress in May 2002. The new
law should eliminate legal ambiguities including the attributions of the public and private sector,
establish a tariff regime, define right of way issues, and transfer the oversight of the three natural
gas concessions from the MLEM to the new regulatory agency URSEA. To further strengthen
sector regulation, oversight of the contracts has been passed to URSEA and existing contracts
will be published.
Table 11: Major reforms supported by Tranche 3
SAL and SSAL
* Maintenance of a satisfactory macroeconomic framework as evidenced by the IMF program.
SAL
* Private and public utilities under URSEA's and URSEC's jurisdiction have implemented regulatory
accounting, as certified by independent auditors; and private and public utilities under URSEA's and URSEC's
jurisdiction have published performance indicators for the fourth quarter of 2003.
* The Borrower has fully closed the gap between the ex-refinery and the estimated import parity prices of
petroleum derivatives.
* The Borrower has reduced relative price distortions in the structure of fuel taxation, through the enactment of
any necessary amendments to existing tax laws, to the extent necessary to reach equilibrium with the major
neighboring countries.
* First spot transactions for electricity have been completed under the framework of the ADME
* URSEC has: (a) set up an independent telephone numbering management system; (b) adopted a customer
database administrator; and (c) defined precise rules for signaling (i.e., identifying the origin and destination of
a telephone call).
* The Borrower has brought to the point of concession the management of the Montevideo port multipurpose
terminal (puerto polivalente), as evidenced by the issuance of invitations to bid for the award of the
concession; and the Borrower has offered to award contracts to pnvate companies to operate in former AFE
rail network, as evidenced by the public offer issued for the award of the contracts.
SSAL
* For the period from January 1, 2003 to the date falling two months prior to the Third Tranche Release Date, the
Borrower has timely executed its budget at least at levels of expenditure specified in its monthly budget
execution schedules and satisfactory to the Bank for each of the following programs: (a) basic school supplies
and maintenance program; (b) the bilingual education program; and (c) the textbook program for primary
schools.
* The Borrower has included in its 2004 budget agreed minimum levels of expenditures for each of the following
programs: (a) basic school supplies and maintenance program; (b) the bilingual education program; and (c) the
textbook program for primary schools.
*
*
*
ASSE has completed its beneficiary database; at least 30% of ASSE's 2004 hospital budget is allocated based
on per capita critena; and dunng the quarter immediately preceding the Third Tranche Release Date, seven
public hospitals of the Borrower have billed at least 20% of in-patients (patients who need to stay overnight at
the hospitals), provided, however, that bills issued to uninsured patients may be for information purposes only.
The FNR has been in financial equilibrium (regular revenues, not including any amounts attributable to the
increase in contribution rates mandated by a decree of the Executive, have been equal to or greater than regular
expenditures -any extraordinary, not operationally-related revenues and expenditures excluded) for the 12
month period immediately preceding the Third Tranche Release Date.
The menu of eligible procedures to be financed by FNR has been redefined to eliminate the procedures that do
not involve high costs or are not highly complex; and new tariffs have been put into effect for the procedures
financed by FNR, and utilization rates are being used to control the volume of procedures being financed by
FNR.
Page 43
148. Postal servfices legal and regulatory framework. As previously mentioned, the
Government has prepared a new postal sector decree to update the original 1996 law. The new
decree will support the competitive sector environment by recognizing the role of URSEC and
entail provisions regarding universal service and a definition of mail.
149. Establishing sector regulatory framework for the water and sanitation sector.
Approval of the URSEA law transfers effective control of OSE's existing sub-concessions to
URSEA, and allows disbanding of the now dysfunctional CCC. In parallel, the draft of a Water
and Sanitation Sector Law has been finalized and presented to Congress for its consideration.
The law will transfer the responsibility for studying and granting future concessions to the
Government, a key milestone on the road to an effective regulatory system for the sector.
Efficiency and Competition
150. llncreasing market disciplne thDrough quaJity of service and performance
information. Beyond establishing regulations, efficiency will be supported when regulators and
the Executive have performance information on which to base tariff decisions and when
consumers can make informed decisions about the services they purchase, whether that is the
ability to choose between providers or the ability to hold monopoly providers accountable for
their quality and price commitments. Crucial to achieve these goals will be to provide regular
information to regulators, the Executive and consumers on the performance of both public and
private operators. The benchmarking of operators entails the following actions: (i) define
protocol for periodic publication of service quality and performance indicators for water and
sanitation, power and communications utilities; and (ii) publish initial set of performance
indicators and international benchmarks in daily newspapers both in the form of ex ante targets
and ex post evaluations. URSEA and URSEC will create systematic sources of information on
public and private utilities, and regulate the semiannual publication of service quality and
performance indicators, bringing proper external comparators.
151. Eight quality-of-service indicators that measure the commercial and operational
performance of OSE from a public perspective have already been developed under the Bank's
ongoing "OSE Modernization and Systems Rehabilitation Project' (4556-UR) and after much
delay, recently published. Once URSEA is legally established and adequately staffed, both
URSEA and URSEC could begin to work with all public and private utilities under their
jurisdiction to define a set of indicators for each sector and to propose a uniform protocol for
their calculation. Since many indicators are expected to be moving averages across several
months, an initial publication can reasonably be expected in time for release of the third tranche.
Moreover, these indicators should become part of the formal evaluation process by which
URSEA and URSEC review tariffs.
152. EDiminate fuel tax distortions. A comprehensive review of energy taxes, including
power, petroleum products and natural gas, should be undertaken in coordination with the
national energy policy. The MEF has prepared a proposal for modifying energy taxes, as part of
a broader tax reform agenda. The proposal attempts to provide appropriate relative price signals
to consumers across all competing forms of energy, while maintaining adequate fiscal resources
from energy taxation. The tax reform has been presented to Congress.
Page 44
153. Signature of initial power purchase agreements. A key feature of the transition to the
new model is to establish initial power purchase agreements between UTE generation and UTE
distribution, and to determine a timetable for gradual expiration of these agreements and
movement towards competitive procurement of power to avoid the risk of self-dealing. The
central issue in establishing these initial agreements relates to the price at which power will be
transferred from one division of UTE to the other. The regulations establish that the price should
take into account market benchmarks and ensure the sustainability of generation plant. UTE is in
the process of determining a price proposal, which will be reviewed by the regulatory agency and
passed on the Executive for a final decision.
154. Establish a spot market in the power sector. In order for the ADME to become a
reality, it will be essential to make rapid progress with the appointment of the five Directors
(representing Government, UTE, Salto Grande, large industrial customers, and any eventual
private generators). The process of establishing ADME's Board will be coordinated by the
MIEM. Once the Board is in place, the next step will be to appoint a General Manager following
a transparent and competitive process as required by the regulations. In order to begin
functioning, ADME will need to hire staff both to manage the dispatch and the financial
transactions, as well as develop a Manual of Internal procedures to ensure that its decisions are
undertaken in a consistent and transparent way, thereby securing the confidence of market
participants. Once these new structures are in place, spot market trading will be set to
commence.
155. Open access to ANCAP port and warehouse facilities. A new sector law calls for
separating the administration of the port terminal facilities and preserving ANCAP's access to
wholesale distribution facilities. This will require separation of ANCAP port and distribution
facilities' accounts and a review of wholesale logistic infrastructure capacity limitations. As part
of the process of developing new sector regulations, the GoU will assess all opportunities for
increasing the chances to have newcomers in the market, at all segments of the supply chain,
including open access to port and storage facilities. The assessment will be conducted by a
Government group including MEF and OPP and will be the first step to establishing unit tariffs
and conditions for open access.
156. Tools to manage open telecommunications market. Sustained competition in both
ILD and mobile services requires sector management tools, in addition to the granting of
licenses. As previously mentioned, the GoU this year approved the critical interconnection
norms. Pending activities include the following:
o Numbering plan. To remove barriers to entree, ensure that entrants have access to
numbers on an equal footing, and avoid unnecessary disputes on number issues between
new entrants and the incumbent, an independent numbering management system will be
set up.
o Customer database administrator. Most numbering schemes give customers the option of
selecting an operator on a pre-subscription basis and using an access code to override presubscription in order to access other networks on a call-by-call basis. URSEC has
decided to adopt this scheme, which requires a customer database administrator.
u Signaling. Signaling, the capacity to identify the origin and destination of a call, must be
provided by incumbents - alternatives to the incumbents' signaling networks are more
Page 45
costly, have lower quality, and do not provide the coverage of the incumbents' networks.
The GoU will define precise rules for signaling.
157. Mobile operator licenses. Bringing independent players to the mobile market will
depend on completing the ongoing auction of radio-electric spectrum. It is expected that the
entrke of new providers will lower tariffs and expand coverage. In March 2003, two new mobile
licenses were awarded.
158. Unaccounted-for-Water (UFW) Reduction IProgram for Montevideo. The GoU will
grant a performance-based contract to a private operator for UFW reduction in the Montevideo
system as a tool for efficiency improvements and as a revenue source for financing sewerage
expansion in the interior of the country.
159. PSIP in the roads sector. The GOU envisions a continued effort to incorporate the
private sector in the maintenance and rehabilitation of the road network. Current market
conditions, however, may not be the most conducive to attract private entrepreneurs on a nonrecourse basis. The approach being advanced with the "Mega-concession" requires close
monitoring and analysis in order to ensure the appropriate gradual incorporation of private
financing, clear definition of future risks and liabilities to the Government, and the establishment
of an adequate regulatory framework. Specialized consultants are to be hired to develop
benchmarking mechanisms for these initiatives and support the adequate implementation of the
"Mega-concession", including the analysis of options to enhance its credit rating. As part of this
strategy, the Government will award the concessions for Carrasco International Airport, and
Montevideo port multipurpose terminal, as well as allow private operators to operate on AFE's
lines.
InstitutionalDevelopment
160. NationaD Energy Policy. The key objective of the operation for the energy sector as a
whole is to support the establishment of an explicit and participatory national energy policy. The
formulation of the national energy policy will be led by the MIEM, and undertaken in a
consultative fashion by means of a national committee of stakeholders comprising
representatives of other ministries, regulatory agencies, and public and private operators in the
energy sector as well as OPP. The energy policy will address issues relating to: the relative price
of fuels; the economics of gas and electricity importation from Argentina and Brazil; the
economics and politics of a strategic national reserve of generating capacity; the environmental
impact of changes in the country's energy portfolio; the consistency of the new electricity, gas
and petroleum regulations with the national energy policy; and the institutional capacity required
to implement and monitor a national energy policy.
Special StructuralAdjustment Loan
Education Sector
161. Protect key education programs from budget cuts. The GoU already has an
agreement with an earlier World Bank adjustment operation approved in August 2002 and with
the IDB to protect some of the key elements of the education budget. The proposed SAL/SSAL
conditions are meant to complement those of the 1DB and the earlier World Bank loan by
Page 46
protecting: (i) the textbook prograrn; (ii) the bilingual education program; and (iii) basic school
supplies and maintenance. The levels of budget protection have been determined so that there
would be no cutback in the quantity and quality of provision of core educational services,
especially for those services which provide greater benefits to the poorer segments of the
population. Protection of the budget for priority programs extends to timely execution of the
budget and to the amounts budgeted at the beginning of the year. The GoU is committed to
ensuring that resources reach the end beneficiaries in schools and communities within the
appropriate time and is strengthening the monitoring processes.
162. Management Improvement Program for ANEP. CODICEN has approved an action
plan to improve the efficiency and effectiveness of the management of ANEP (Resoluci6n 4 Acta
Extraordinaria 2, January 13, 2003). As the autonomous public entity responsible for the
provision of public education, the CODICEN resolution demonstrates a high level of political
commitment to undertake a reform that seeks to improve systemic management. The lines of
action in the management improvement program build on a detailed analysis of efficiency gaps
that was carried out by ANEP and which has been discussed with the Bank. Four specific
products identified in the CODICEN resolution are: (i) a system of monitoring and archival to
speed up the flow of decision-making across the organization, with the specific aim of reducing
the time it takes for action to be taken through the bureaucratic process; (ii) an integrated human
resources information system to ensure better control of spending on personnel; (iii) an
integrated management informnation system to make it possible to use existing information for
better policy planning and implementation; and (iv) an internal audit to track the use of financial
resources and identify and eliminate sources of wastage or inefficiency. Through the period of
the SSAL operation, the Bank team will be engaged in an active policy dialogue with the GoU to
ensure that the implementation of the management improvement program leads to measurable
and sustainable results.
Health Sector
163. Reduce cross subsidies and increase cost recovery in public hospitals. The ongoing
fiscal crisis and the subsequent budgetary constraints on public hospitals have re-enforced the
need to aggressively reduce cross-subsidies and increase cost recovery at the public hospital
level. To this regard, this operation will recognize the MSP's and ASSE's efforts to:
o gradually expand the implementation of a beneficiary database throughout the public hospital
network (initially covering, by the end of 2002, hospitals that account for more than 80
percent of ASSE's total budget);
o further complement this beneficiary database (at present based on the database of insured
citizens, RUCAF) with the positive identification of uninsured patients;
o define and apply a clear incentive for public hospitals teams to recover costs in a sustainable
way
o effectively utilize such beneficiary database for: (a) cost-recovering from third-party payers
(e.g., IAMCs and other insurers); (b) applying co-payments for ambulatory services
according to ability to pay, as defined by the Decree 179 of 2002; and (c) introduce gradual
per capita adjustments to budgetary allocations to public hospitals; and
o incorporate actions and expected results (targets) in this area to the annual performance
agreements to be signed between the central level of ASSE and its public hospitals, starting
2003.
Page 47
164. Reform FNR. The FNR needs to introduce structural reforms to enable it to regain its
financial equilibrium and, hence, be able to sustain its social mandate of financing high-cost,
high-complexity health care throughout the nation. The restructuring plan for the FNR set forth
by the national Government includes, among others, the following key actions:
o utilizing the same beneficiary database developed by the MSP (for the public health sector)
as a means to verify ex-ante its own revenues and services;
o reviewing and reforming, as needed, the regulatory framework that defines: (a) the
information flows in the system (mainly from the IAMCs), and (b) the quality assurance
requirements for eligible providers (IMAE's);
o concluding cost and utilization rate studies for a subset of interventions that account, at least,
for 60 percent of its total expenditures and consequently renegotiating tariffs and contracts
with providers and insurers;
o reforming the menu of eligible interventions in accordance with technical criteria; and lastly,
o maintaining the FNR in (operational) financial equilibrium.
11).
llnstitutional and ImpRementation Arrangements
Program Managementand Loan Administration
165. The Oriental Republic of Uruguay would be the Borrower of the proposed loans. The
OPP will be the principal executing agency and would have overall responsibility for
coordinating and overseeing all aspects of the program. The MEF, MIEM, MTOP, MSP, ANEP,
and the regulatory agencies URSEA and URSEC will also have key roles in executing the
program and would work closely with OPP in executing program components under its
jurisdiction. The closing date of the loans would be December 31, 2004.
Disbursement and Audit Arrangements
166. Disbursement arrangements would follow the simplified procedures for SALJSECALs
approved by the Board on February 1, 1996. The Borrower would open an account in the
Central Bank of Uruguay (Banco Central del Uruguay). Once the Bank formally notifies the
borrower that a tranche is available for withdrawal, the borrower may submit a simplified
withdrawal application so that the proceeds of the tranche are deposited by the Bank in this
account for use in accordance with the Loan Agreements. Disbursements would not be linked to
specific purchases, and supporting evidence for disbursements is therefore not required. The
proceeds of the loan would not be used to finance expenditures typically excluded under the
Loan Agreement. Although a routine audit of the deposit account would not be required, the
Bank would reserve the right to conduct one.
Implementation and Monitoring
167. Uruguay is strongly committed to move ahead with the broad program of reforms. This
contains several actions already undertaken, particularly in terms of establishing sector laws and
regulatory entities. The loans' design incorporates lessons learned from previous adjustment
operations. Implementation will be monitored through regular reviews (for monitoring
indicators, see Annex 1), and would be supported by technical assistance through the ongoing
Page 48
TAL and through the supervision of investment operations in the water and sanitation, power,
transport, health and education sectors.
FinancialManagement and Accountability
168. Past and current lending experience in Uruguay and regional assessments from
specialized agencies indicates that there is no undue risk to the proceeds of the proposed Bank
loans. The Bank's CPIA rating for Uruguay is 4.0, one of the highest ratings in the region. The
Transparency International Corruption Index rating in 2002 for Uruguay was 5.1, making it the
second best in the region after Chile. The accounting profession in Uruguay is extremely well
developed and produces many of the accounting consultants used throughout the region, as well
as top Government officials in Uruguay. Lastly, the performance of the Bank's portfolio has
been good and no major financial management issues have arisen. Moreover, procurement has
been of acceptable quality, though delays have been a source of contention in project
implementation. A Country Procurement Assessment Report was completed in July 1999 and
highlights the strengths and weaknesses of the Uruguayan public procurement systems and
provides recommendations for improvement. The Government has requested the Bank's
assistance to implement the report's findings, for which the Bank recently approved and is
implementing an Institutional Development Fund Grant and complementary support is being
provided by IDB.
169. Beyond these fiduciary responsibilities, the GoU is taking steps to increase the efficiency
of public expenditure by increasing transparency and accountability. First, the GoU intends to
establish a system of regulatory accounting that will provide the basis for vertical and horizontal
separation of the accounts of the utilities and minimize the scope for strategic manipulation of
accounting data, and as such will be an important tool to support competition (see paragraph
143). Second, the GoU intends to establish the periodical publication of quality of service and
performance indicators providing the Executive performance information on which to base tariff
decisions and allowing consumers to make informed decisions about the services they purchase
(see paragraph 150). Third, the GoU aims to address the efficiency of the public hospitals,
chronic cross subsidies from public hospitals to health insurers and the recurrent operational
deficit of the FNR (see paragraph 90 - 91) through development of a beneficiary data base,
contracting out of ancillary services, and a restructuring of FNR (see paragraphs 128 - 130).
Lastly, the GoU intends to increase efficiency in the education system (see paragraphs 94 - 95)
through: streamlining ANEP operating procedures; establishing an internal auditing system in
ANEP; integrating human resource management systems; and integrating financial management
across administrative units (see paragraph 133). These efficiency improvement measures should
be complemented by the Country Financial Accountability Assessment recently initiated in
coordination with the IDB, which also focuses on increasing the Government's financial
management technology and efficiency in the parastatal sectors.
E.
Environment and Consultation with Stakeholders
170. A very detailed analysis of the environmental regulation in the country covering all
infrastructure sectors, water resources and irrigation, was recently completed in the context of
the ongoing TAL. This analysis includes the state of the environment today, a broad description
of the treatment of environmental matters, and a set of reform proposals supported by a
Page 49
comprehensive database of all environmental norms and regulations, a comparative legal
analysis with Mercosur members, an identification of responsibilities and capacity in the public
agencies in charge of environmental management, and suggestions of model environmental
clauses to add in new concession contracts specifying concessionaires responsibilities in
accordance with the environmental regulation and existing environmental liabilities. The next
step in the rich dialogue that the Bank and the country have in the environmental area involves
the preparation of a country environmental analysis focused on strengthening management
capacity in the infrastructure sectors. Initial drafts of the terms of reference for this task have
already been prepared. The Environmental Assessment Category of the proposed project is U.
171. The proposed reform program includes four key activities involving stakeholders in
monitoring reform progress, in soliciting stakeholder input to inform design, and to assess
potential impacts of the changes. First, as described above, the program supports the
establishment of a system of performance indicators for all public services. Companies
providing services will be obligated to regularly publish performance information and targets.
This information will allow clients to monitor and compare performance and hold these
companies accountable. Second, the Government is keenly aware of potential impacts the
reform and the economic crisis could have on the most vulnerable populations and is committed
to not loose ground in terms of service coverage and affordability for the poorest. The
Government plans to carryout a study to measure current impacts of the economic crisis on
services and potential impacts of the reform and, if necessary, to develop a new policy of
services to the poor. The study methodology will include focus group discussions as well as
household surveys, and the study should provided the basis for a permanent framework by which
the GoU can monitor the impact of public service coverage, quality, and prices on the poor, as
well as inform tariff design. Third, the GoU plans to develop a model to assess the overall
impacts of the reform program, and identify possible winners and losers, as a first step toward
mitigating negative effects. The study is in the process of being contracted. Lastly, the GoU
intends to develop and implement a public information campaign on the public services reform
measures. The campaign will be supported by the ongoing TAL and provide educational
information to the public as well as provide a forum for feedback on the reform program.
172. In addition to these planned steps, the Government has involved the sector ministries,
utilities and regulators in the design of the proposed reform agenda. Over the last two years and
as part of the Bank funded Technical Assistance Loan, the Government has held a series of
workshops led by top international specialists on the fundamentals of regulation, competition and
institutional design with a wide range of participants from the public sector and academia. These
workshops have to provide a basis dialogue and consensus building on the reform program.
1F.
Benefts
173. In broad terms, the Reform program will contribute to growth, poverty reduction, and
long term economic sustainability. The program will enhance economic growth prospects by
increasing the efficiency of infrastructure and service allocation and reducing prices of services.
These will contribute to reducing logistic costs key to boosting exports.
Energy,
communications, and transport are key inputs into most production processes, and hence
inefficient, unreliable, and high costs supplies affect overall economic performance. The
proposed operation will address several problems that are hindering better performance in these
Page 50
sectors, including sector restructuring and liberalization, establishment of regulatory frameworks,
and the establishment of clear sector policy to guide public intervention.
174. The project will also support growth by mitigating fiscal constraints through gains from
sector reform. Based on a conservative estimate, the proposed operation is expected to produce a
net fiscal gain of US$168.6 million in the next five years, an amount equal to about two-thirds of
the approximately US$250 million that will be lent through the loans. This figure includes
auction payments in the concessions of mobile telephones, Montevideo airport, containers, and
road concessions (US$52 million); the payment that would be made by the private company
associating with ANCAP (US$58.8 million); reductions in subsidies to AFE and ANC (US$11.4
million); a net gain in the dividends paid by ANCAP, ANTEL and UTE (US$2 million); and a
net loss of taxes and social security contributions paid by ANTEL, UTE, OSE, ANCAP, AFE,
and ANC (US$44.4).
Assumptions and detailed calculations were prepared with the
Government team from OPP. These benefits are in addition to overall economic benefits from
increased private sector investment and improvements to general welfare supported by the
reform program (see Annex 5: Fiscal Impacts of the Reform Program for further details).
175. As well as contributing to poverty reduction via economic growth, the program will
address specific needs of the poor through reforms in the health and education sectors.
Specifically, in the health sector, it will enable the national Government to secure resources
needed for maintaining proper access to health services. Such will be the case for general health
care through ASSE, as well as for high complexity attention via the FNR. The protection of key
education sector reforms would serve the interests of the poor by ensuring that programs targeted
towards the poor are maintained, and that the education system continues to provide the
minimum level of basic inputs such as textbooks and school maintenance. It is anticipated that
these measures will assure continued strong support to these sectors through the period of fiscal
tightening and possible changes in the needs of the Uruguayan population.
176. The program will also address issues of long term sustainability and social impacts in
public utilities and the infrastructure sectors. The loan will support strengthening of sector
institutions in terms of policy making and regulation which will, as the sectors are liberalized,
help assure fair and even competition in the best interest of the general population. Through
health and education sector investments, the loan will also support continued development of
human capital necessary for sustained growth.
G.
Risks and Mitigation
177. Macroeconomic risks. Further deterioration in the economic situation in Argentina, and
the risk of further complications in Brazil's economic situation could undermine measures to
stabilize the Uruguayan economy by thwarting efforts to reduce bank deposit withdrawals and
exacerbating fiscal problems. Continued economic slow down would in turn present serious
risks to banks and the sustainability of the fiscal deficit. Attaining high primary fiscal surpluses
- as required for debt sustainability - will demand political cohesion. The social depth of the
crisis - unemployment and poverty - and the rapidity of the required reforms may challenge the
country's careful consensus building approach to policy making.
Page 51
178. Heavy amortization of sovereign bonds has raised debt sustainability concerns as
reflected in high country risk premia. Uruguay has taken important steps to strengthen its fiscal
situation and to simultaneously restructure its debt. Another potential risk is that the proposed
debt restructuring may not get the level of market participation anticipated by the Government.
In the unlikely event that debt restructuring fails, the macro framework would need to be
adjusted.
179. If one or more of these risks materialize, or if new macroeconomic shocks impact the
economy, the implementation of the proposed reform program could be impaired. An increase in
the country risk premium will follow thus raising the cost of capital for private investors and
reducing the flow investment and foreign direct investment in particular. Interest in private
sector participation - as envisaged in this project - will then also diminish.
180. Overall macro and debt sustainability risks are high; satisfactory macroeconomic
performance, as assessed, for example, in the context of reviews of the ongoing IMF program
(second revision approved on March 17, 2003) will be closely monitored.
181. EIsk of Weakening of Reform Consensus. Since its return to democracy more than two
decades ago, Uruguay's political process has been dominated by a careful, consensus building
approach. The consensus-based approach was given legal power in the Referendum Law. In the
past, this law has been used to stop reforms, most notably in the area of privatization. Currently,
the reform laws for the petroleum and railways sectors are challenged, and a Constitutional
Amendment to forbid future PSP in the water supply and sanitation sector is being promoted by
interest groups in the sector. The economy is currently rocked by events in neighboring
countries which challenge this style and pace of policy and reform and present a political
opening for reforms to proceed more rapidly than in the past, however continued economic
decline could result in increasing public opposition to the Government's program. The
comprehensiveness and pace of the reform program will be sustained by the continued credibility
of the policy approach of the current team in OPP, working collaboratively with MEF, the line
ministries, the regulators, and the public utilities. Credibility and the support of MEF strengthen
the prospects that the reform program can be sustained.
182.
Risk of Enstitutional Weakness. Another risk is institutional as several institutions will
be contributing to the pace of reform and not all are at the same level of development. OPP is
the strongest institution and few set backs are expected. However, the multisector and
communications regulatory institutions are at a far lesser stage of institutional development and
their progress in taking up new tasks may be punctuated by set-backs. The Bank's ongoing
technical assistance loan will provide support to mitigate technical and human resource
constraints. The ongoing technical assistance loan will continue to support the key policymaking and regulatory agencies with the implementation of the Govermment's reform program.
Page 52
Annex 1: MATRIX OF CONDITIONALITIES AND MONITORING INDICATORS
(disbursement conditions in bold, monitoring indicators in normal font)
Objectives
Achievements to Dale
Second Tranche
__ __ __ __ _ __ __ __ __ __ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _'__
Maintenance of a satisfactory
macroeconomic framework as
evidenced by the IMF program.
_ _
StriucturhilAdjustment,Loan
PuEi
b lic sServir5es' ._._
Regulatory Reform
CD
Across Sectors
Improve utilities
performance,
transparency, and
accountability, and
facilitate competition.
Results
--,.;-:'rs'.0
;-.a '
.,Maintenance of a satisfactory
macroeconomic framework as
evidenced by the IMF program.
Macroeconomic
stability.
Third Tranche
-
Maintenance of a satisfactory
macroeconomic framework as
evidenced by the IMF program.
_
_
_
_
_
_ _
_
..
Law creating URSEA, a regulatory
agency for water and sanitation,
power, gas and petroleum products
approved. URSEA Board of
Directors appointment and the
water private concessions in the
Department of Maldonado put
under its jurisdiction.
Design of a new regulatory
accounting system under preparation
for the water and sanitation and
power sectors.
URSEA organization structure defined
and staff appointed.
New regulatory accounting guidelines
for all sectors under URSEA control
issued and approved.
Agree on set, definition, and protocol
for estimation and publication of
energy and communication sectors
performance indicators.
_
_
_
Targets agreed
with IMF have
been met
_
,
Private and public utilities under
URSEA's and URSEC's
jurisdiction have implemented
regulatory accounting, as
certified by independent
auditors; and private and public
utilities under URSEA's and
URSEC's jurisdiction have
published performance
indicators for the fourth quarter
of 2003.
__'_
__x
._,_
.
Public services
effectively
regulated as
demonstrated by
the establishment
of detailed
operating
procedures by
the regulatory
entities and
implemented by
the operators;
including tariff
setting,
accounting and
public
information
norms, rules and
procedures.
(continued)
Objectives
Energy
Strengthen and
consolidate
regulation in
transmission and
distribution of
electricity.
Achievements to Date
Technical norms and regulations
for transmiission and distribution
approved and issued.
Technical norms for quality of
service in distribution approved after
public consultation completed.
Second benchmarking study under
preparation
Second Tranche
Third Tranche
MIEM has issued a decree
announcing the target tariff for
electricity distribution and
establishing a convergence path
towards the target tariff (consistent
with URSEA's recommendation and
the benchmarking studies carried out
by URSEA).
Performance review of regulatory
framework completed and
adjustment proposal made
considering the new National
Energy Policy.
Results
URSEA has completed first round of
quality of service inspections.
Establish appropriate
regulation and
promote competition
in the petroleum
sector.
Law eliminating ANCAP's
monopoly and allowing free import
of oil and derivatives starting in
2006 approved.
MIEM has issued a decree
establishing the regulatory
framework for the importation,
production and commercialization of
petroleum products.
Reduce costs and
promote competition
in the petroleum
sector.
A project of law establishing new
legal and regulatory framework
prepared by ANCAP.
The Executive has issued a decree
approving two divisions within
ANCAP with separate accounts,
management and fimances for its
petroleum business and its port and
logistic facilities.
The Borrower has fully closed
the gap between the ex-refinery
and the estimated import parity
prices of petroleum derivatives.
New law defining specific regulatory
framework for downstream petroleum
products approved by Congress.
Definition of an import parity pricing
formula for petroleum products and
removal of ANCAP regulatory and
licensing responsibilities approved.
(continued)
Objectives
Consolidate
competition,
regulation and PSP in
the natural gas sector.
Telecommunications
Strengthen and
consolidate
regulation and
competition, and
promote PSP in
telecommunications.
PostalServices
Consolidate
competition,
regulation and PSP in
the postal services
sector.
Achievements to Date
Law establishing new natural gas
legal and regulatory framework
submitted to Congress.
Second Tranche
The Borrower has complied with a
new natural gas law, which includes
provisions to: (a) eliminate legal
ambiguities, including with respect to
the attributions of the public and
private sector; (b) establish a tariff
regime; and (c) define right of way
issues.
Third Tranche
Results
Draft legal framework for licensing
operators completed in June 2002.
Legal framework for licensing
operators approved.
The Executive has issued a decree
establishing the regulatory
framework for the Borrower's postal
services sub-sector.
System for monitoring sector
performance including quality of
service, mail volumes and delivery
coverage implemented.
Waterand
Sanitation
Establish appropriate
legal and regulatory
framework for water
and sanitation.
Water sector law presented to
Congress.
Congress has approved and the
Executive has promulgated a law
establishing the legal and regulatory
framework for the water supply and
sanitation sector, which includes,
inter alia, provisions to shift the
authority to carry out feasibility
studies and grant concessions from
OSE to the Executive.
(continued)
Objectives
Transport
Strengthen regulatory
framework in
transport.
Achievements to Date
Efficiency and Comretition
sp,e-_
Across Sectors
Improve public
Service quality and performance
utilities performance
indicators for 2003 and 2092
and service quality.
results for OSE agreed and
published in daily newspapers.
Second Tranche
Sector legal and regulatory framework
approved.
___
Third Tranche
____
Real prices
reduced, quality
and coverage
increased, and
the efficiency of
investment,
production and
distribution of
services, and
infrastructure
improved.
Service quality and performance
indicators for UTE agreed with the
Bank for ongoing operations.
toIV
v;
oE
Energy
Remove tax
distortions in relative
prices of competing
fuels.
Decision to undertake a Tax
Reform, including the review of
taxes applied to the energy
products.
Establish the basis for
a competitive
wholesale electricity
market.
Specific norrms and regulations for
generation and transmission issued
in June 2002 and for the wholesale
market in August 2002.
Results
The Borrower has reduced
relative price distortions in the
structure of fuel taxation,
through the enactment of any
necessary amendments to
existing tax laws, to the extent
necessary to reach equilibrium
with the major neighborring
countries.
ADME has approved a first set of
PPAs and has requested proposals
for thlree ongoing energy contracts to
be replaced by PPAs.
First spot transactions for
electricity have been completed
under the framework of the
ADME.
Framework for signing Power
Purchase Agreements (PPAs)
approved.
(continued)
*~' -. ; .Achieveniens tothite t'.Objectives~ .
Timetable approved for lowering the
Promote competition
threshold for large customers to
in electricity.
freely choose energy provider.
GoU to have prepared a proposal for
Guarantee open
open access to ANCAP's port and
access to ANCAP
warehouse facilities.
port and storage
infrastructure.
Second Tranche
Third Tranche
Results
The Executive has approved unit
tariffs and URSEA has approved
conditions for open access to
ANCAP's port, wholesale oil import,
and storage facilities.
ANCAP port and warehouse facilities
effectively open to third parties.
Telecommunications
Promote competition
in the International
Long Distance (ILD)
market through
creation of an even
playing field for new
operators as well as
through open access
to new entrants to the
market.
Strengthen
competition in the
mobile telecom
market.
Water and
Sanitation
Promote PSP,
modernize OSE and
optimuze water
distribution in
Montevideo.
Government granted ILD licenses
to 18 operators and approved
interconnection regulation.
New signaling scheme, customer data
base administrator, and numbering plan
approved.
URSEC has: (a) set up an
independent telephone
numbering management system;
(b) adopted a customer database
administrator; and (c) defined
precise rules for signaling (i.e.,
identifying the origin and
destination of a telephone call).
OSE has offered to award a
performance-based contract to a
private operator for the management
of the UFW reduction program in
Montevideo, as evidenced by the
public offer issued for the award of
the contract.
Commercial cadastre updated and
initial package of goods and works
for UFW reduction under
implementation.
Numbering plan, customer database
administrator, and signaling scheme
under preparation.
Government awarded new mobile
license.
OSE created special Unit to
manage UfW activities.
Specialized consultants hired and
scope of and pre-qualification criteria
for a performance based contract to
manage UFW reduction program for
the Montevideo water supply system
defined.
(continued)
Objectives
Transportation
Improve efficiency
and promote PSP in
transport.
Achievements to Date
Second Tranche
Third Tranche
Laws approved in 2002 (i) created
"Mega-concession" and allowed
further concession in ports and
airport management, and selling of
stake in former state carrier
(Pluna), and (ii) separated AFE
rail infrastructure from operations
and transferred AIFE rail
infrastructure to MTOP.
The Borrower has brought to the
point of concession the management
of the Carrasco International
Airport, as evidenced by the issuance
of invitations to bid for the award of
the concession.
Law approved in June 200)
providing open access of private
operators to public rail
infrastructure.
Borrower has brought to the
point of concession the
management of the Montevideo
port multipurpose termiinal
(puerto polivalente), as evidenced
by the issuance of invitations to
bid for the award of the
concession; and the Borrower
has offered to award contracts to
private companies to operate in
former AFE rail network, as
evidenced by the public offer
issued for the award of the
contracts.
Efficiency gains through alternative
mechanisms for roads maintenance
and rehabilitation underway.
Compliance with maintenance and
rehabilitation plan and sectoral
allocation of budget.
Compliance with maintenance and
rehabilitation plan and sectoral
allocation of budget.
Results
Definition of maintenance and
rehabilitation plan for the upkeep of
road assets in order to preserve
critical road links.
InstitutionalDevelopment
Energy
Define a National
National Energy Policy under
Energy Policy.
preparation with the coordination of
an Advisory Committee.
The Borrower, through MIEM, has
published and complied with a
national energy policy which
addresses issues relating to: (a) the
relative price of fuels; (b) the
economiies of gas and electricity
importation from Argentina and
Brazil; (c) the economics and politics
of a strategic national reserve of
generating capacity; (d) the
environmental impact of changes in
Explicit and
participatory
national energy
and
communications
policies
established, and
regulators with
adequate
capacity to
properly carry
out their
(continued)
Objeclives
Achievements to Date
Establish the basis for
a competitive
wholesale electricity
market.
Ensure URSEA
capacity to properly
regulate petroleum
sector activities.
Telecommunications
Define sector policy,
and update legal and
regulatory framework
for
telecommunications.
Ensure
URSEC's
capacity to carryout
proposed reforms,
Second Tranche
the country's energy portfolio; (e)
the consistency of the new electricity,
gas and petroleum regulations with
the national energy policy; and (f)
the institutional capacity required to
implement and monitor a national
energy policy.
-
Third Tranche
Results
responsibilities
and functions.
ADME's General Manager appointed,
and following competitive process,
ADME staff for dispatch and financial
transactions appointed; assets and
equipment transferred and manual of
procedures completed and published.
January 2002 law eliminates
ANCAP's monopoly, and allows free
import of oil and derivatives starting
in 2006, linking these measures to
finding a private partner for ANCAP.
Law threaten by a referendum.
URSEA to have established a
Petroleum products unit, defined its
functions and hired its staff.
Congress approved legal and
regulatory framework in February
2001.
Sector policy and updating of legal and
regulatory framework approved.
URSEC was created on February
2001.
URSEC's administrative and labor
structure, and autonomous financing
mechanism approved.
Satisfactory implementation of
financing mechanism for UJRSEC.
Proposal prepared defining
administrative and labor structure,
and an autonomous financing
mechanism for URSEC.
(continued)
Objtectives
Transport
Consolidate sector
reforms to enhance
efficiency in the
provision of transport
infrastructure
services.
Achievements to Date
Law approved allowing the
separation of railway infrastructure
from operations and transfer of
railway infrastructure assets to
MTPO (with its responsibilities and
right to charge tolls received
subsidies) and authorizing the use of
infrastructure by any operating
company.
Second Tramnche'
Third Trance
Results
IFor the period from January 1,
2003 to the date falling two
months prior to the Third
Tranche Release Date, the
Borrower has timely executed its
budget at least at levels of
expenditure specified in its
monthly budget execution
schedules and satisfactory to the
Bank (including without
limnitations the monthly levels of
expenditure for 2003 included in
the Borrower's integrated
fimancial information system
(Sistema Integrado de
Informacidn Financiera- StIE))
for each of the following
programs: (a) basic school
supplies and maintenance
Key education
programs
protected from
budget cuts, and
an internal
auditing system
and integrated
information
systems for
legal, accounting
and human
resources matters
established.
Institutional reorganization for AFE,
MTOP, and ANP implemented.
Enactment of specific legislation to
facilitate comprehensive insurance for
multimodal transport chains.
Institutional reorganization plan for
AFE and MTOP (for its newly
acquired responsibilities in the
railways sector and ANP) completed
and approved.
Education Sector
nsEducahon Sector
Consolidate and
reinforce equity
within education
programs.
Special StructuralAdjustment Loan
Social Sectors
Satisfactory execution of 2002
budget at agreed levels and
agreement on 2003 budget
comimitments on expenditures for
basic school supplies, bilingual
education, textbooks for primary
schools.
Execution of the 2002 Budget at the
minimum level of expenditures
indicate in US$:
o Basic School supplies (300,000)
o Bilingual educations (100,000)
For the period from J1anuary 1, 2003
to the to the date fatling two months
prior to the Second Tlranche Release
Date, the Borrower has timely
executed its budget at least at levels
of expenditure specified in its
monthly budget execution schedlules
and satisfactory to the Bank
(including without limitations the
monthly levels of expenditure for
2003 included in the Borrower's
integrated fimancial information
system (Sistema Integrado de
Informaci4n Financiera- SIIF)) for
each of the following programs: (a)
basic school supplies and
maintenance program; (b) the
bilingual education program; and (c)
the textbook program for primary
(continued)
*Objectives
Achie%ernents to Dale
Second Tranche
schools.
Budget for the year 2003 at the
minimum level of expenditures
indicated in US$ and timely execution
of corresponding budget up to date of
tranche release
* Basic school supplies (900,000)
* Bilingual Education (250,000)
* Textbooks for primary Schools
(800,000)
Third Tranche
program; (b) the bilingual
education program; and (c) the
textbook program for primary
schools.
Results
The Borrower has included in its
2004 budget agreed minimum
levels of expenditures for each of
the following programs: (a) basic
school supplies and maintenance
program; (b) the bilingual
education program; and (c) the
textbook program for primiary
schools.
Full execution of 2003 budget and
inclusion in Budget for 2004 at the
minimum level of expenditures
indicated in US$;
* Basic school supplies (900,000)
* Bilingual Education (400,000)
* Textbooks for primary Schools
(300,000)
Improvement of
sector efficiency.
GoU has restructured ANEP to
improve coordination. Productivity
study to improve functioning of
ANEP completed.
CODICEN's new system of followingup working files implemented and
supporting system of filing legal
information designed.
Design and implementation of a
system to follow-up CODICEN's
working files and a database
initiated.
Internal Auditing structure, number and
description of jobs, procedure to fill
positions, and general operating manual
approved by ANEP.
Proposal to set up an Internal
Auditing unit of ANEP, including a
definition of job positions prepared.
Implementation of database of human
resources admiinistration advanced.
I
_I_I_(continued)
< . . .
Implementation of supporting
system of filing legal information
advanced.
Jobs in the Internal Auditing unit
filled and auditing procedures
approved.
Personnel and financial
management systems designed and
in advanced state of
implementation.
~~~~~~~~~~~~~~~~
Obpectives
Achievements to Date
Second Tranche i
ANEP's existing information systems
accounted, development needs
identified and integrated management
system designed.
Third Tranche
Implementation of integrated
management system advanced.
Results
Health Sector
Improve the efficiency
of public spending in
the health sector,
maintaining or even
improving the quality
of services delivered.
The MOH has defined the overall
policy framework for contracting out
ancillary services in public hospitals.
A comprehensive evaluation of
specific services considered initial
candidates for contracting out has
been concluded.
The contracting out of those services
recommended by the initial evaluation is
underway. For those services where
contracting out was deemed not
convenient, the MOH has approved and
begun implementation of an internal
optimization plan.
A thorough evaluation is available
for those services contracted out
(including financial and quality
results). Similar evaluations are
available for those services not
contracted out. In the latter, results
show efficiency gains compared to
the previous year.
Improve the efficiency
and equity of public
hospital expenditure
through the
elimination of
regressive subsidies.
The MOH construction of a
beneficiary database for ASSE
underway and wil be used for cost
recovery and to implement new
budget allocation formulas. The
comprehensive beneficiary
identification system implemented
in hospitals that account for at least
70% of ASSE's total budget,
making possible cost recovery; the
Executive has issued a decree
establishing the legal framework for
providing incentives for public
hospitals to cost recover.
(a) ASSE's beneficiary database
identifies at least 40% of the
uninsured population of the
Borrower; and (b) the MSP, through
ASSE, has completed initial
simiuations of new budget allocation
formulas based on the database
referred to in (a).
ASSE has completed its
financial
beneficiary database; at least
management and
30% of ASSE's 2004 hospital
governance.
budget is allocated based on per
capita criteria; and during the
quarter immediately preceding
the Third Tranche Release Date,
seven public hospitals of the
Borrower have billed at least 20%
of in-patients (patients who need
to stay overnight at the hospitals),
provided, however, that bilRs
issued to uninsured patients may
be for iformation purposes only.
Decree 179/2002 (for charging copayments) is still in effect and is being
applied.
ASSE is tracking progress made in the
implementation of the beneficiary
database according to an action plan;
progress reports are available.
Cross subsidies
reduced and cost
recovery
increased in
public hospitals,
and the Fondo
Nacionalde
Recursos (FNR)
reform for better
A methodology for periodically
updating the beneficiary database
has been defined.
Performance agreements for 2003
include specific targets in beneficiary
identification and cost recovery.
(continued)
Objectives
:$
ch eve ijent'stoDute
Second Tranche
-';hird
Traiche
.e
Personnel/equipment needs for
expanding the beneficiary database
have been addressed.
Improve the efficiency
and strengthen the
sustainability of public
expenditures in high
complexity medical
care.
The national government has regained control of the FNR board
and has launched a comprehensive
reform to bring the Fund back to
equilibrium.
The FNR has been in financial
equilibrium (regular revenues, not
including any amounts attributable to
the increase in contribution rates
mandated by a decree of the
Executive, have been equal to or
Changes in the regulatory
greater than regular expenditures framework that guarantee proper
any extraordinary, not operationallyaccreditation of eligible providers
related revenues and expenditures
(IMAEs) and miinimum information excluded) for the 12 month period
flows for receiving funding from the immediately preceding the Second
FNR have been identified.
Tranche Release Date,); and the FNR
has determined unitary costs and
The FNR has been in financial
utilization rates for medical
equilibrium during the last 6 months
procedures that account for no less
than 60% of its expenditures.
The FNR incorporates the beneficiary
database developed by ASSE in its
All service authorizations in the FNR
procedures and verifies ex-ante
are previously validated against the
services to fund.
beneficiary database.
New regulatory changes previously
identified are in effect.
Legal actions to lower tariffs are
underway, including a formal request to
the MOF and the initiation of
negotiations.
The FNR has been in financial
equilibrium (regular revenues,
not including any amounts
attributable to the increase in
contribution rates mandated by a
decree of the Executive, have
been equal to or greater than
regular expenditures -any
extraordinary, not operationallyrelated revenues and
expenditures excluded) for the 12
month period immediately
preceding the Third Tranche
Release Date.
The menu of eligible procedures
to be financed by FNR has been
redefined to eliminate the
procedures that do not involve
high costs or are not highly
complex; and new tariffs have
been put into effect for the
procedures financed by FNR, and
utilization rates are being used to
control the volume of procedures
being financed by FNR.
All service authorizations in the
FNR are previously validated
against the beneficiary database.
New projections of the financial
equilibrium of the FNR are
available based in its new policies.
Results
Annex 2: LETTER OlF DEVELOPMENT POLIRCY (LIDP)
OriginalLDP was presented by the Government to the Bank in Spanish
Office of the Presidentof the Oriental Republic of Uruguay
Planningand Budget Office
Note No.
024/A/03
Montevideo, March 7, 2003
Mr. James D. Wolfensohn
President
The World Bank Group
Washington, D.C.
I.
Country Strategy
A.
As stated in its letter of March 9, 2001, the Government of the Oriental Republic of
Uruguay ratifies its intention to promote a reform of the commercial and industrial public
sector within the overall framework of the country's development strategy, based on
three clearly defined policies:
o
o
o
B.
Restoring stability by balancing fiscal accounts and through appropriate monetary
policy management;
Promoting greater market discipline, by lowering external tariffs and eliminating
barriers to private investment, public sector legal monopolies, and unnecessary red
tape; and
A far-reaching reform of the State, aimed at trimming its share of the economy,
emphasizing fulfilling its substantive mandates and those considered socially
important, and seeking to structure utilities from the perspective of the user. The
State would play a regulatory and promotional role vis-a-vis private enterprise.
At the same time, and in respect to the social sectors, the Government is committed to
enhancing the efficiency of public expenditure on health and education, maintaining and
improving services in both sectors.
In this context, the Government's strategy for these sectors centers on the following
points:
In the Education Sector:
o To strengthen information systems
o To streamline administrative procedures
o To implement internal control and monitoring mechanisms.
Page 64
In the Health Sector:
* To ensure universal access to integral care
* To improve the quality of health care services
* To achieve equity in the financing of health care.
The current situation in the areas of commercial and industrial activities of the
State.
Public enterprises in Uruguay have played a dual role: providing services and regulating
the sector. This dual function has led to inefficiencies, inasmuch as public enterprises
regulate themselves and have few incentives to ensure that the regulations effectively
protect the interests of consumers; or else concern for regulation has been such that
meeting commercial targets have been relegated to second place.
The advent of competition at the global market, product line, or regional level,
exacerbates conflicts of interest. The contradiction between fair regulation and the
defense of the interests of the dominant enterprise, as we as discrimination between
profitable and non-profitable activities discourages participation by new firms fearful that
the regulators might favor public enterprises.
1. Beginnings of the process. Against this backdrop, for commercial, industrial, and
services activities, Uruguay has embarked on a process of demonopolization and of
incentives for private sector participation in basic areas such as potable water and
sanitation, gas, electricity, telecommunications, postal services, insurance, rail
transportation, and petroleum products. It has also continued to strengthen the
presence of private sector operators in port infrastructure - the Montevideo container
port and private ports along the coast - and in road infrastructure, by offering
concessions for 1,270 kilometers of roads and 38 bridges, that will eventually be
auctioned (Articles 28-33 of Law No. 17.555 of September 18, 2002). The
government has also completed the legal groundwork for a concession covering
integral operation of the Carrasco International Airport, which has been declared a
free port (Articles 21, 22, and 23 of Law No. 17.555), as well as for the sale of the
State's share in the Uruguayan flagship airline (Article 152 of Law No. 17.556 of
September 18, 2002).
2. Means. To obtain maximum benefits from this process, the Government intends:
2.1 To foster competition, either "in" the market - wherever possible - or "for" the
market, via concessions or by yardstick competition. This may be done through
general laws governing concessions - an option currently being studied, and by
restructuring enterprises and negotiating well-publicized program agreements.
2.2 To introduce competitive discipline through:
Page 65
Norms safeguarding competition and open access to markets, as well as
prohibiting closed-shop agreements or practices designed to take unfair advantage
of dominant positions;
o Gradual equalization of taxes levied on public and private operators;
o Separation of operational, regulatory, and policy-making functions; and
o Management audits.
o
2.3 To regulate public utilities to protect consumers from possible abuse; ensure that the
providers are financially viable; and to encourage economic efficiency.
3. Regulatoiry framewoirks. One of the challenges facing the Uruguayan State is to
establish standards and institutions regulating the provision of public services. The
regulatory frameworks have to strike a balance between strictness and flexibility;
provide guarantees for new providers; and, at the same time, balance the interests of
clients, operators, and the State (as the representative of society as a whole) in such a
way that they are sustainable over time. So far, the State has an approved regulatory
framework for the electricity subsector (Law No. 16.832 of June 17, 1997), and
studies and drafts are being prepared for the petroleum products, telecommunications,
postal services, and potable water and sanitation sectors. The regulatory framework
bill for gas delivered through networks has been presented to parliament.
4. Regulatory Units. Regulations regarding exclusive rights, service obligations,
quality and investment; pricing; tolls for access to infrastructure; and sanctions for
noncompliance must be accompanied by measures to ensure their enforcement. The
only way to achieve compliance is through regulatory bodies that issue and enforce
regulations.
Thus, Articles 70 to 97 of Law No. 17.296 - the National Budget Law for the current
Government's term, approved on February 21, 2001 - established the Regulatory
Unit for Communication Services (Unidad Reguladora de Servicios de
Comunicaciones, URSEC) as a decentralized entity within the Planning and Budget
Committee (Comision de Planeamiento y Presupuesto), while Article 98 stipulated
that the Regulatory Unit for Electricity should have the same resources and powers to
impose sanctions as the aforementioned unit. Later on, through Law No. 17.598 of
December 13, 2002, the Government established the Energy and Water Services
Regulatory Unit, URSEA, which comprises petroleum products, and other network
services, including electricity, and ordered the transfer of the oversight tasks of the
state-owned public corporations currently performing them. Likewise, the transfer of
railroad infrastructure to the Ministry of Transportation and Public Works - through
Article 150 of Law 17566 - as well as the decision to allow any operator use of the
infrastructure (see Article 21 of Law 17.243 of June 29, 2000) indicate the need to
study a far-reaching reform of the railway system and the establishment of a
regulatory unit to boost competition and act as the guarantor of the general ground
rules.
These units shall perform the following basic functions:
Page 66
Uphold the independence of the regulated enterprises and their technical
autonomy vis-a-vis sectoral policies;
* Have high technical standards in order to be able to safeguard private interests;
* Be transparent and open in their activities, by publishing their decisions, holding
public audiences, and other alternative means; and
* Be financially independent in their source of funding.
*
5. Reform strategy. Accomplishing the above-mentioned reforms will require
strategies that take each public services sector's particular characteristics and
conditions into account. The strategies will also have the following features in
common:
*
*
*
*
*
*
Differentiation of policy-making, operating, and regulatory responsibilities;
Elimination of legal barriers to entry;
Fostering of competition;
Gradual establishment of the same rules for government and private enterprises;
Design of efficient rate structures; and
Active private sector participation in infrastructure areas.
6. Institutional framework. The above strategy requires a series of sector studies
overseen by a "unit" to coordinate the institutional reform and regulatory studies in
close collaboration with sectoral policy-makers and any regulatory units launched
during this first phase and to lead a process of training on regulatory issues in
Uruguay. This unit will be responsible for conducting intersectoral reform studies;
administering the training prograrn; disseminating information on gains resulting
from reform; and paving the way for both multisectoral regulatory agencies.
The Planning and Budget Office, which reports directly to the Office of the President
of the Republic, is therefore empowered to perform these tasks inasmuch as Decree
No. 91/97 of March 19, 1997 added the review of regulatory instruments and
mechanisms to its list of strategic objectives.
In addition to being legally empowered to perform these tasks, there is also sufficient
experience in this field given that, on August 14, 1997, the Government received a
Japanese grant (Trust Fund No. 027.092), administered by the World Bank, to begin
studies on a reform of the potable water and sanitation sector to be conducted by the
Planning and Budget Office. Funded by that grant, studies have been carried out on a
regulatory framework; a financial model for a water and sewerage concession in the
Department of Maldonado; an overall financial model for studying concessions;
model for management and regulatory accounting indicators; and a regulatory
accounting system for the potable water and sanitation sector.
In addition, and as a corollary to the grant mentioned in the foregoing paragraph,
agreement was reached with the World Bank on August 22, 2001 regarding technical
Page 67
assistance loan No. 4598-UR, the basic objectives of which are set forth in section 7
below. So far, the following studies have been completed:
In the telecommunication sector: studies of the licensing regime; interconnection
regulations; regulations on the use of the radio spectrum; and a policy paper for
the sector;
o With respect to the environment, a compendium of legal and contractual
instruments has been drawn up, along with a comprehensive database of all
environmental norms; a study identifying areas of responsibility for and
management of environmental issues in the different government departments; a
comparative legal analysis with the other Mercosur member countries; and model
clauses to be incorporated into concession contracts, specifying the
concessionaire's responsibilities under national environmental laws and existing
environmental liabilities;
o In the electricity sector, bids have been called for consulting services in
Regulatory Accounting and Comparative Efficiency Analysis and a second report
is being prepared on the revision of Standard Value Added in Distribution;
o Finally, with a view to putting together a comprehensive analysis of the fiscal,
social, and macroeconomic impacts of the proposed reforms, an evaluation is
underway of bids presented on November 11, 2002 for drawing up a General
Equilibrium Model that will provide an integrated and consistent framework for
analysis.
o
In that context, as you know, the Government as a whole is preparing a Sectoral
Adjustment Project related to regulation, competition, and competitiveness in the
public utilities and infrastructure sectors. It will cover the following aspects:
a. Institutional and legal structure of the public utilities' commercial and industrial
sectors;
b. The establishment, strengthening, and consolidation of the regulatory frameworks
for each of the sectors;
c. Corporate governance in public operators;
d. Strengthening competition among the different sectors and within operators;
e. Review and strengthening of social policies in connection with the provision of
public services for low-income individuals;
f. Development of tools for comparing the performance of the operators;
g. An information and awareness campaign directed at public opinion, and in
particular customers of the enterprises regarding the goals, commitments, and
performance of each enterprise; and, finally
h. Strengthening competition within infrastructure sectors and optimization of
investment, operation, and maintenance programs.
7. A brief gRance at specific cases
7.1 Potable water and sanitation. This sector comprises all public and private
institutions and resources in the country that have to do with the supply of potable
Page 68
water, including catchment, treatment, storage, and distribution of water, and with
sewer services, waste water treatment, and final disposition in urban, shanty-town,
and rural areas.
There are numerous players in this sector, including five operators and several
government bodies. These are:
*
*
*
*
*
*
The State Public Sanitary Works Administration (Administraci6n de Obras
Sanitarias del Estado, O.S.E.), a decentralized provider of potable water
throughout the country (Montevideo and 324 localities in the Interior) and of
sewer systems in the provinces (42 localities). Current legislation allows, with
prior approval by the Executive, outsourcing of service provision via concession
(Article 750 of Law 16.736 of February 5, 1996). The enterprise has already
granted two concessions in the Department of Maldonado and others are currently
being studied.
The Intendencia de Montevideo, which provides sewer services to 80 percent of
the city;
The Municipal Intendencias in the Interior, which are responsible for latrines final
disposition;
Aguas de la Costa, an O.S.E. concessionaire, which provides potable water and
sanitation services east of the Maldonado Stream;
Uragua, an O.S.E. concessionaire, which provides potable water and sewer
services in most of the towns and villages in the Department of Maldonado; and
Small private enterprises providing services to beach resorts that act outside of
any government regulation.
In addition to the above enterprises, the following bodies are also involyed: the
Ministry of Housing, Regional Planning, and the Environment, through the
Environment Directorate (Direcci6n de Medio Ambiente, DI.NA.MA), which is
responsible for verifying water and discharge quality and acting as the liaison
ministry for the O.S.E.; the Ministry of Transportation and Public Works, through the
National Hydrography Directorate (Direcci6n Nacional de Hidrografla,D.N.H.), which
is in charge of water resource usage; the Ministry of Health, and the Planning and
Budget Office.
The core problems in this sector may be summarized as follows:
* Numerous agencies with overlapping functions;
* Lack of separation in the utility enterprise and in the Intendencia of Montevideo
between policy-making, regulatory, and operating functions; and
* Lack of an entrepreneurial approach to management.
To overcome these shortcomings, the Government is designing a Regulatory
Framework for the Sector (complementary to the creation of the URSEA, the
regulatory unit with jurisdiction over all the public and private operators);
implementing the regulatory accounting system already prepared; periodically
Page 69
publishing performance indicators. The Government is also increasing sanitation
coverage in the Interior, financed through an O.S.E. canon levied on the private sector
for its participation in a risk contract aimed at reducing the amount of unaccounted
for water in the Metropolitan Region.
7.2 Electricity. Prior to reorganization, this sector consisted, on the operator side, of a
vertically integrated enterprise called Administration of State Power Stations
(Administraci6n de Usinas Electricas del Estado, U.T.E.), which generated,
transmitted, and distributed electricity, and of the Salto Grande Joint Technical
Commission, a binational power company owned jointly by the Republics of
Argentina and of Uruguay. On the administrative side, the sector comprised the
Ministry of Industry, Energy, and Mines and the Planning and Budget Office. Law
No. 16.832 of June 17, 1997 and its regulating decree of January 26, 1999 established
the new regulatory framework for the electricity sector. It separated policy making
activities from regulatory and operational activities by institutionalizing the
Electricity Regulatory Unit (Unidad Regulatoria de la Energia Electrica, UREE)';
the Electricity Wholesale Market Administrator (Administradora del Mercado
Electrico, ADME) - a nongovernmental public corporation responsible for
administering the wholesale electricity market; and the Electricity Wholesale Market
(Mercado Mayorista de Energia Electrica, MMEE), a competitive market for
generators and consumers with shared and free access to the transmission grid and
distribution network capacity not already committed via contracts.
The new rules signified a step forward in terms of redefining the State's role as
regulator, but left open the implementation of the reforms. There, key aspects
include:
Specification of which U.T.E. activities should be transferred to other government
entities;
o The overall plan for implementing the UREE (now URSEA) and the ADME; and
o Preparation of the operating regulations and technical and commercial
coordination norms; access regulations; use, expansion, and service quality of the
domestic grid and international interconnection regulations; and distribution
regulations.
o
So far, General Regulations have been adopted for the Regulatory Framework for the
Electricity Sector (Decree No. 276/02 of June 28, 2002); Distribution of Electricity
(Decree No. 277/02 of June 28, 2002); Transmission of Electricity (Decree No.
278/02 of June 28, 2002), and Wholesale Market (Decree No. 360/02 of September
11, 2002). Still pending are: review of the market after one year of operation;
Its specific
1.
2.
3.
4.
functions are to:
Oversee compliance with the Law and its regulations;
Issue regulations regarding safety and quality;
Issue norms and establish technical procedures for metering and billing; and
Advise the Executive in relation to the granting of concessions, authorizations, and permits and in
relation to the rates for sale of electricity to third parties by public service providers.
Page 70
establishment of the Electricity Market Administrator (ADME); preparation and
implementation of regulatory accounting; determination of standard value added in
distribution and its simulation of final rates; and the establishment of a Service
Quality Control System.
7.3 Gas. This sector can be broken down into four segments: (a.) the gas pipeline
between Buenos Aires and Montevideo (under construction). This project will be
executed by the Gasoducto Cruz del Sur consortium; (b.) the Costal Gas Pipeline built
and operated since 1999 by the National Administration of Fuels, Alcohol, and
Cement; (c.) distribution of gas in the Montevideo network run since 1995 by
GASEBA S.A., a private corporation; and (d.) distribution of gas in the provinces to
be operated by the Conecta S.A. consortium. As regards regulations, there are several
Executive Decrees, which, together with the concession contracts, constitute the
current regulatory framework for the sector. Particularly noteworthy is Decree No.
324/97 of September 3, 1997, which regulated national services for importing,
transporting, storing, and distributing natural gas, including the construction and
operation of gas pipelines, distribution networks, and natural underground storage
systems.
The following guiding principles were established:
*
*
*
*
*
Ensure as much competition in the market as possible and encourage investment
in long term supply;
Guarantee optimum operation, reliability, equality, free access, nondiscrimination,
and generalized use of natural gas transportation and distribution services and
facilities;
Regulate natural gas transportation and distribution activities to ensure fair rates
compatible with the national energy policy;
Provide incentives for efficiency in the transportation, distribution, and rational
use of natural gas, while ensuring adequate protection of the environment; and
Attempt to achieve a natural gas price equivalent to international prices in
countries with similar conditions.
The new regulations and adoption of the URSEA have paved the way for
implementation of the reform. Chief aspects of that reform include:
*
*
Differentiation of regulation from sectoral policy-making activities;
A diagnostic assessment of the sector in gas transportation and distribution
activities; and
* Definition of the operating regulations and technical and commercial coordination
norms; access regulations; transportation use, expansion, and service quality; and
distribution regulations.
7.4 Petroleum products. This sector is characterized by the presence of a public
company - National Administration of Fuels, Alcohol, and Cement (Administraci6n
Nacionalde Combustibles, Alcohol y Portland)- which has had a monopoly on crude
Page 71
oil imports and refining since it was founded in 1931. Several private enterprises do,
however, participate in commercialization through concession contracts, under which
the public enterprise itself is responsible for regulation.
The Government intends to lower prices for end-users by eliminating operating
inefficiencies and improving the competitiveness of the enterprise sufficiently to let it
play a part in the regional context. This will be done by clearly distinguishing
between regulatory and business functions with the establishment of the URSEA;
through a strategic partnership with an international corporation; and by liberalizing
the import of petroleum derivatives and crude oil refining (Law No. 17.448 of
January 4, 2002).
To achieve those goals, it will be necessary to:
o
o
o
o
Strengthen policy-making skills in this sector, taking into account the
complementary and substitutable nature of the various energy products;
Study a reform of the state-owned enterprise, in order to make it more
competitive;
Analyze existing legal instruments and create a regulatory framework for the
sector; and
Evaluate implementation of that framework with respect to streamlining the
enterprise; integration of a regulatory body; product quality control; price
regulation by determining the import parity price; the program for closing the gap
between current prices and those that will be in affect once the market is opened
up; analysis of free access to logistic facilities; and distribution regulations.
7.5 Telecommunicatinons.
The
National
Telecommunication
Administration
(Administraci6n Nacional de Telecomunicaciones, A.N.TEL) is the public enterprise
responsible for providing urban and national and international long distance
telecommunication services. Article 6 of Decree Law No. 14.235 of July 23, 1974
granted it a monopoly in the aforementioned services, although a private company
has been operating cellular phone services since 1992 and, since late 1994, A.N.TEL
itself has been operating the second cellular band.
This situation was modified by Article 613 of Law No. 17.296 of February 21, 2000,
which stipulated that the monopoly would be maintained for basic telephony, defined
as fixed, switchboard, and national telephone services and that the market for
international, cellular, and all value-added telephone services would be liberalized.
Although. that Article was repealed by Law No. 17.524 of August 5, 2002, the
licenses granted while it was still in force remain valid.
That same law (No. 17.296) established the Regulatory Unit for Communications
(URSEC), as a decentralized agency reporting to the Planning and Budget
Commission. Its functions are to regulate and oversee telecommunication and postal
service activities. The Executive has direct responsibility for - inter alia - licensing
radio stations; granting generic authorization for the allocation of frequencies by the
Page 72
URSEC; and establishing the rates the licensees shall pay for the use of radio
frequencies and other scarce assets.
Generally speaking, this sector is characterized by a de facto partial monopoly, given
that the state company controls a large part of the market, accompanied by a private
firm with a license to use one cellular phone band. In addition, the forner National
Directorate of Communications used to license private firms to use wireless networks
for data transmission; mobile telecommunication systems via satellite for two-way
transmission and reception of alphanumeric data; country-wide trunking services; and
a teleport. Later on, subsequent to the period in which Law No. 17.296 was in force,
38 operators competed in international long distance telephony, services offering
access to satellite facilities, services offering access to providers of subscriptionbased satellite connections to the Internet, and national and international data
transmission.
Technological changes and the increased competition in certain services make it
necessary to:
*
*
*
Study the granting of licenses, permits, and concessions -- including numbering,
the signaling plan, and the Database Administrator - in such a way that the
licensees with access to scarce resources or exclusive privileges pay the best price
or provide the best service, or some combination of the two;
Analyze existing legal instruments and establish a regulatory framework for the
sector;
Evaluate implementation of that framework, which involves streamlining the
enterprise; incorporating, funding, and strengthening the regulatory body;
regulations governing interconnection, quality control, price, contributions to
universal service, and customer service.
7.6 Postal services. Article 747 of Law No. 16.736 of January 5, 1999 established the
National Postal Administration (Administraci6n Nacional de Correos), as a
decentralized service with the powers and organization of the former Directorate of
Mail (an executing unit of the Ministry of Education and Culture) responsible for the
provision of postal services; that is, the reception, transportation or distribution and
delivery of correspondence, money orders, and mail products in general. 2
The National Post Office was empowered to grant temporary permits - subject to
price - to private enterprises, of which there are currently over 100. That arrangement
led to confusion between the operating and regulatory functions of postal services in a
public enterprise. That confusion was cleared up by the above-mentioned Law No.
17.296, which created the URSEC with specific postal service-related functions, such
as establishing regulations governing the services and authorizing the outsourcing of
postal services to third parties. Future tasks will be to strengthen that unit; prepare
regulations governing the granting of permit and oversight of licensee activities,
Law No. 5.356 of December 16, 1916 established a state monopoly over mail services, without prejudice to certain
rights granted to private enterprises.
2
Page 73
together with a market study clearly indicating the best operational strategy for
meeting the obligation to provide universal service and its financing.
7.7 Rail transportation.
This is run by the State Railways Administration
(Administraci6n de Ferrocarrilesdel Estado, A.F.E.), a government enterprise legally
empowered to provide freight and passenger transportation services. As of January 1,
1988, passenger services were suspended due to the poor quality of the service, the
low number of paying customers, and high subsidies, with only two short-distance
routes still operating. While no intramodal competition exists, the sector faces strong
compete in intermodal transportation (with transport by road).
The Government has begun studying a far-reaching restructuring of the A.F.E. including opening it up to competition, as stipulated in Article 21 of the
aforementioned Law No. 17.243. This review will look at models applied in other
parts of the world, the particular features of the Uruguayan case, the objectives and
technical considerations to be taken into account, and the assignment of the assets and
functions associated with railroad infrastructure to the Ministry of Transportation and
Public Works (Article 150 of Law No. 17.556).
With this in mind and given the nature of rail transportation, regulation is clearly
required, especially since there is free access to installations and/or differentiation by
line of business, which could give rise to conflicts. It will therefore be necessary to:
Study the reform of the raikoad sector, emphasizing a commercial approach and
distinguishing between regulatory aspects and infrastructure maintenance;
o Analyze existing legal instruments and define a regulatory framework for the
sector; and
o Evaluate implementation of that framework, which involves streamlining the
enterprise, locating, incorporating, and funding, the regulatory body; regulations
governing interconnection; quality control, price regulation, and customer service.
o
7.8 Tiransporiation inTirastructure. The Government has embarked on a process of
strengthening the program of reforms in the transportation sector with the aim of
improving service management, cutting costs, and enhancing the efficiency of
intermodal transportation. In that context, milestones so far include the concession to
Corporaci6n Vial del Uruguay of 1,270 kilometers of highway and 38 bridges, and
their subsequent sale via auction; the concession for operation of airport services at
the Carrasco International Airport; the sale of the State's equity in the Uruguay's
flagship airline; the container port concession; and authorization of private ports.
L
1[The Current Situation in the Education Sector
Educational reform in Uruguay has proven highly successful, with major achievements in
terms of access, equity, and efficiency. Primary education became universal in the 1960s.
In the mid-1990s, an effort was made to achieve universal coverage in pre-school
Page 74
education and by March of this year net coverage (of children of 4 and 5 years of age)
was 92 percent, making Uruguay the regional leader in those two areas.
Although secondary education coverage is not universal, enrollment has increased
markedly in recent years, from 166,000 students in 1995 to 230,000 in 2002.
One of the most important aspects of the educational reform is that reform policies have
been introduced without massive injections of funds. Estimated expenditure on education
is approximately 3 percent of GDP, which is below the Latin American average (5
percent). There has been no significant increase in private sector financing, which means
that the reforms were achieved through better distribution of the funds available.
1. Reforms under way
Targeted programs have been stepped up in order to further reduce inequalities:
* Full-time schools
Keeping children at school longer helps mothers to enter the labor market.
* School meals program
Feeding schoolchildren has a strong impact on academic performance.
* Bilingual schools program
Introducing a foreign language (English and Portuguese) at an early age has a
major impact on the subsequent integral development of the child, both
academically and economically.
2. Courses of action
Two broad courses of action are being pursued:
*
Protection of certain programs, in terms of budget share and schedule.
Thus, priority areas for protection in the education budget are:
a) The Program providing educational books for primary school children in the
amount of US$800,000 for 2003 and US$300,000 for 2004;
b) The Bilingual Education Program in Full-time Schools in the amount of
US$250,000 in 2003 and US$400,000 in 2004;
c) Safety and environment in education centers, ensuring appropriate levels of
safety, cleanliness, and sanitation, with supplies costing approximately
US$900,000 for 2003 and 2004.
*
Development of a Plan to Improve ANEP Management, as set forth in the
document entitled "Plan de Acci6n para Mejorar la Gesti6n en el Sector
Educativo Uruguayo" (Action Plan to Improve Management in the Uruguayan
Education Sector).
This document points to three priority areas:
a) Functional and administrative organization of the ANEP
b) Human Resources Management
Page 75
c) Integrated Financial and Accounting Management System
In general, the activities envisage strengthening information systems through a System
for Monitoring Files and a Legal Database; streamlining administrative procedures by
creating guidelines for processes and functions, particularly in human resources;
implementing an Integrated Management and Accounting System; and, finally,
introducing stricter internal control and monitoring mechanisms - by installing an
Internal Audit unit - to detect the principal sources of inefficiencies.
RPV.
The Current Situation in the Hl[ealth Sector
The organizational structure of the health system in Uruguay is based on a complex and
fragmented set of regulations and financing mechanisms, involving a series of private
institutions and several government agencies. In simplified terms, the population has
access to two health care subsystems; the public and the private.
Total expenditure on health in Uruguay represents a little over 10 percent of GDP.
According to the World Health Organization (Report for 2000), Uruguay is in fourth
place in the world in terms of expenditure on health as a percentage of GDP, but it ranks
65 in terms of overall performance.
The private subsystem covers approximately 52 percent of the population and comprises
the Collective Medical Care Institutions (Instituciones de Asistencia Me'dica Colectiva,
IAMC): private not-for-profit entities that insure and provide pre-paid medical care for
formal sector workers. The public health subsystem operates through the State Health
Services Administration (Administraci6n de Servicios de Salud del Estado, ASSE) of the
Ministry of Public Health (Ministerio de Salud Publico, MSP), which has a network of
hospitals and health posts providing medical care to approximately 45 percent of the
population, mainly informal sector workers and low-income individuals without social
security coverage. In addition, health care is provided by the military and police health
units and the Hospitalde Clinicas.
Complementing that structure, the National Resources Fund is a nongovernmental public
institution responsible for financing treatment of high-cost and low-incidence diseases for
the whole of the Uruguayan population. It is administered jointly by the MSP, the
Ministry of the Economy and Finance (MEF), and representatives of the private sector.
1. Sector objectives
The Government's objectives for the health sector are geared to implementing a system
that will ensure universal access, integral care, high quality services, and equitable
financing for the whole population, within the limits of the country's resources.
Accordingly, the MSP is striving to overcome inequalities in the sector by promoting
greater efficiency in both the public and the private subsystems, thereby ensuring
sustainable effective protection of citizens' rights.
Page 76
2. Courses of action
a) Strengthening the role of the public subsector in setting guidelines
Through the Directorate General of Health (Direcci6n General de la Salud, DIGESA),
the MSP has devoted much effort to improving and strengthening the regulatory
framework for the health sector, aiming to guarantee the same rules for all health
institutions in order to ensure high quality care. These attempts to improve the rules have
focused on three key aspects: the oversight functions of the Ministry, the terms governing
authorization of private health providers, and the establishment of users' rights. To take
these areas further, one proposal is to design and develop a superintendency responsible
for aspects related to both public and private health care and an agency specializing in
overseeing and ensuring quality in the areas of food, medicine, and medical supplies.
b) Strengthening the private health subsystem
The expected outcome of promoting a more efficient management model in the private
subsector is enhanced financial stability for the IAMC and guarantees that it will continue
providing low-cost care for its users. To that end, agreements are being reached with the
MSP, the OPP, and the MEF on implementing restructuring plans, including economic
and financial, medical, and organizational aspects of the IAMC, that are designed to
make them viable and stable over the long term.
The National Government also plans to shift from a system of administered prices to a
more flexible price-fixing system, while maintaining government surveillance to ensure
that no unwarranted price increases occur. In addition, without prejudice to maintenance
of the private health sector, it will examine the possibilities of working toward a common
policy on payments for supplies and medicines that might yield savings for the health
sector as a whole.
c) Redirecting the health care model toward primary health care
For a new, more preventive and integral health care model to materialize, the current
model based on welfare and hospital-based treatment needs to be redirected toward
continuous, integral, and easily accessible health care, with adequate health surveillance
aimed at reducing and controlling the risk of falling ill and encouraging health life styles.
To achieve these goals, the Government proposes setting up Primary Health Care
Development Offices (Desarrollo de la Atenci6n Primaria de Salud, DAPS) in each
departmental center, to work in coordination with the DIGESSA and ASSE, with the
participation of the community, departmental governments, and organizations and
institutions representing different social groups.
d) Increasing public hospital efficiency
The Government is pursuing several strategies to enhance the efficiency and response
capability of public hospitals. These include signed management commitments, the
Page 77
introduction of new computerized information tools to register beneficiaries, and the
exploring of innovative arrangements for the provision of hospital support services. A
key strategy is to identify users. The Government will go beyond the Negative User
Identification Program (Programa de Identificaci6n Negativa de Usuarios, RUCAF),
which is currently applied in all ASSE medical care units and start positive identification
procedures. This will further increase the chances of accurately targeting persons not
covered by health insurance in the ASSE network; regulating the provision of services to
individuals who are insured or are in a position to pay; refining budget allocation
mechanisms in the public health network; and achieving greater precision in developing
health promotion and disease prevention plans. Payments for medicines and doctor visits
will henceforth be issued on the basis of regulation, but not collection-oriented, criteria.
e) Consolidafing tne restructuring of tne NatAonal
Nacionalde Recursos, FNR)
Resources IFund (Fondo
Finally, as part of its effort to achieve greater efficiency in the health sector, maintaining
or improving the services provided, the Government envisages taking the restructuring of
the FNR a step further. Already tariffs have been reduced by 13 percent and tighter
control and service audit mechanisms have been put in place. The national authorities
trust that these and other measures will contribute to a stable financial position in the
FNR in the first half of 2003.
Sincerely,
Office of the President of the Republic
Planning and Budget Office
Cr. Ariel Davrieux
Page 78
Presidenciade la Republica Orientaldel Uruguay
Oficina de Planeamientoy Presupuesto
n
Nota N°
0241A103
KJ
Montevideo, 7 de Marzo de 2003.
Sentor James D. Wolfensohn.
Presidente
The World Bank Group.
Washington D.C.
De mi consideraci6n:
I.
Estrategia del Pais.
A.-
Ratificando lo ya expuesto por carta de fecha 9 de marzo de 2001, el
Gobierno de la Republica Oriental del Uruguay esta abocado a la
promoci6n de una reforma del sector publico comercial e industrial en
el marco general de la estrategia de desarrollo del pais dentro de la que
cabe distinguir tres politicas claramente definidas:
El restablecimiento de la estabilidad mediante el equilibrio de las
cuentas fiscales y una administraci6n ordenada de la politica
monetaria;
* La promoci6n de una mayor disciplina del mercado, reduciendo el
arancel externo, eliminando restricciones a la inversi6n privada y los
monopolios legales publicos, asi como disminuyendo los controles
burocraticos; y
* Una profunda reforma del Estado abocada a reducir su incidencia
econ6mica, priorizar el cumplimiento de sus cometidos sustantivos
y aquellos considerados de importancia social y tendientes a la
estructuraci6n del servicio publico desde la perspectiva del usuario
y asumir un papel regulador y promotor de la empresa privada.
*
B.-
Paralelamente y en lo que tiene que ver con las areas sociales, el
Gobierno esta abocado a un proceso tendiente a mejorar la eficiencia
del gasto puiblico en los sectores de salud y educaci6n, manteniendo
y mejorando los servicios en ambos sectores.
En el contexto de esta estrategia las politicas definidas por el Gobiemo
para estos sectores se centran en los siguientes puntos:
Sector Educac!6n:
o
o
o
Fortalecimiento de los sistemas de informaci6n
Racionalizaci6n de los procesos administrativos
Implementaci6n de mecanismos de control interno y monitoreo
SectoFr &Wud:
o
Garantizar el acceso universal a una atenci6n integral
o Mejora en la calidad de los servicios
o
00.-
Equidad en el financiamiento de los servicios
Wumd6n WdAcd5D an M Am
wDustEif dieD Izudo.
d
h
mcU
d comemM a
En el Uruguay los operadores publicos han cumplido un doble papel
prestando los servicios y ejerciendo la regulaci6n del sector. Esta doble
funci6n ha llevado a ineficiencias en cuanto las empresas publicas se
uauto - regulan" generando escasos incentivos para que la regulaci6n
efectivamente proteja los intereses de los consumidores; o bien el
interes por la regulaci6n ha rebajado a un segundo piano el objetivo del
cumplimiento de las metas comerciales.
La aparici6n de la competencia, a nivel del mercado global, linea de
productos o regional, acent6a los conflictos de intereses. La oposici6n
entre una justa regulacion y la defensa de los intereses de la empresa
dominante asi como la discriminaci6n entre actividades rentables y las
que no lo son, afecta la participaci6n de nuevas empresas, inseguras de
que la funci6n reguladora pueda ser ejercida a favor del operador
publico.
I. DOncDo deD Proesso. En tal contexto, y para las actividades
comerciales, industriales y de servicios, el Uruguay ha iniciado un
proceso de desmonopolizaci6n y fomento de la participaci6n del
sector privado en areas basicas como el agua potable y
saneamiento, el gas, la energia electrica, las telecomunicaciones, los
servicios postales, los seguros, el transporte ferroviario y los
hidrocarburos. De igual manera, se ha continuado en el proceso de
fortalecimiento de la presencia de operadores privados en el area
de la infraestructura portuaria - playa de contenedores en el puerto
Presideniciade la Repulblica Orienttal del Uruguay
Oficina de Planea,lientoy Presupuesto
de Montevideo y puertos privados en el litoral - y en la vial a traves
de la concesi6n de 1.270 kil6metros de carreteras y 38 puentes y su
posterior subasta (articulos 280 a 330 de la Ley N0 17.555 de 18 de
setiembre de 2002) y se esta en condiciones legales de concesionar
la operaci6n integral del Aeropuerto Internacional de Carrasco
declarado puerto libre (articulos 210, 220 y 230 de la Ley No 17.555)
asi como vender la participaci6n accionaria del Estado en la
empresa de aeronavegaci6n de bandera uruguaya (articulo 1520 de
la Ley No 17.556 de 18 de setiembre de 2002).
2. Medios. Para obtener los maximos beneficios de dicho proceso, el
Gobierno se ha propuesto:
2.1.Fomentar la competencia, ya "en el mercado" - en aquellos
casos en que sea posible - como upor el mercado" a traves del
regimen de la concesi6n asi como de la comparaci6n de
rendimientos. Ello podra Ilevarse a cabo a traves de una legislaci6n
general para las Concesiones - actualmente a estudio - y de la
reestructuraci6n de las empresas y concertacion de acuerdos
programaticos de amplia difusi6n publica.
2.2.1ntroducir la disciplina competitiva mediante:
*
*
*
*
Normas que aseguren la defensa de la competencia y el libre
acceso al mercado asi como la prohibici6n de acuerdos o
practicas concertadas que permitan el abuso de posiciones
dominantes;
Igualaci6n gradual del tratamiento impositivo entre operadores
publicos y privados;
Separaci6n de las responsabilidades operativas, de regulaci6n
y de decisi6n de politicas; y
Auditorias de gesti6n.
2.3.
Regular los servicios publicos de forma de proteger a los
consumidores de posibles abusos; asegurar la viabilidad
financiera de los operadores y promover la eficiencia
econ6mica.
3. Marcos Regulatorios. La elaboraci6n de normas asi como la presencia de
instituciones que regulen la prestaci6n de los servicios publicos constituye
un desaflo para el Estado uruguayo. Los marcos regulatorios deben
establecer un equilibrio entre la rigidez y la flexibilidad; proporcionar
garantias a los nuevos oferentes, y a la vez, equilibrar los intereses de los
clientes, operadores y el Estado - como representante de la sociedad toda
- de forma que sean sostenibles en el tiempo. A la fecha el Estado cuenta
con Marco Regulatorio aprobado para el subsector de energia electrica
(Ley N0 16.832 de 17 de junio de 1997) y se encuentra en proceso de
estudio y definici6n de borradores para los sectores de hidrocarburos;
telecomunicaciones; postales y agua potable y saneamiento habiendo sido
elevado al Parlamento el correspondiente al gas destinado a ser distribuido
por red.
4. Unidades ReguDatoifr.
A las consideraciones de derechos de
exclusividad; obligaciones de servicio, calidad e inversi6n; regulaci6n de los
precios; peajes por acceso a infraestructura y sanciones por
incumplimiento; se suma la necesidad de asegurar el cumplimiento efectivo
de dichas normas. Dicho cumplimiento s6lo puede asegurarse a traves de
instituciones reguladoras que dicten y hagan cumplir dichas normas.
Es asi que la Ley No 17.296 - Ley de Presupuesto Nacional para el actual
periodo de gobierno - aprobada el 21 de febrero de 2001, en sus articulos
700 a 970 cre6 la Unidad Reguladora de los Servicios de Comunicaciones
(URSEC) como 6rgano desconcentrado en el ambito de la Comisi6n de
Planeamiento y Presupuesto, y el articulo 98 dispuso otorgar a la Unidad
Reguladora de la Energia ElIctrica de los mismos recursos y potestad
sancionatoria que la anterior. Con posterioridad, el Gobierno aprob6 - Ley
No 17.598 de 13 de diciembre de 2002 - la Unidad Reguladora de los
Servicios de Energia y Agua: URSEA - que comprende los hidrocarburos
y restantes servicios de red incluida la energia electrica disponiendo la
transferencia de los cometidos de control de las actuales personas publicas
estatales que actualmente las ejercen. De igual manera el traspaso de la
infraestructura ferroviaria al Ministerio de Transporte y Obras Publicas dispuesto en el articulo 150° de la Ley No 17.556 - asi como la decisi6n de
liberar el uso de la misma a cualquier operador - dispuesto en el articulo
210 de la Ley N0 17.243 de 29 de junio de 2000 - plantea la necesidad de
analizar una profunda reforma del modo ferroviario y la constituci6n de una
unidad reguladora fortalecedora de la competencia y garante de reglas de
juego de aplicaci6n generica.
Las mismas cumpliran con tres atributos basicos:
Presideniciade la Reptiblica Oriettaldel Uruguay
Oficina de Plaiteamlientoy Presupuesto
*
.
.
*
5.
Estrategia de Reforma. El establecimiento de las reformas - en el
sentido expuesto - requerira estrategias que deberan tener en cuenta
las caracteristicas y condiciones de cada uno de los sectores de los
servicios publicos. Dichas estrategias contaran con los siguientes
elementos comunes:
.
*
*
*
*
*
6.
Mantener la independencia de a las empresas reguladas y la
autonomia tecnica respecto de las politicas sectoriales;
Poseer una elevado nivel tecnico con protecci6n de los
intereses particulares;
Ser transparente y abierta en su gesti6n mediante la
publicaci6n de sus decisiones, audiencias publicas y otros
medios alternativos;
Contar con independencia financiera en cuanto al origen de
los recursos.
La diferenciaci6n de las responsabilidades politicas,
operativas y de regulaci6n;
La eliminaci6n de las barreras legales al ingreso;
El fomento de la competencia;
El establecimiento gradual de la igualdad en las reglas de
actuaci6n entre empresas publicas y privadas;
El diseno de estructuras tarifarias eficientes; y
La activa participaci6n del sector privado en las areas de
infraestructura.
Marco Institucional. La estrategia anterior exige la realizaci6n de una
serie de analisis a nivel sectorial, comandados por una " unidad " que
coordine los estudios de reforma institucional y de regulaci6n en
estrecha coordinaci6n con los definidores de las politicas sectoriales y
con aquellas unidades reguladoras que se pongan en funcionamiento
en esta primera etapa y que lidere un proceso de capacitaci6n en
materia de regulaci6n en el Uruguay. Esta unidad sera responsable de
la preparaci6n de estudios intersectoriales de reforma; de administrar el
programa de formaci6n; de difundir los logros de la reforma y de
proporcionar la genesis de ambas agencias reguladoras
multisectoriales.
En tal sentido, la Oficina de Planeamiento y Presupuesto, oficina
dependiente directamente de la Presidencia de la Republica, cuenta con
las potestades para ello en cuanto el Decreto N 091/97 de 19 de marzo
de 1997 agreg6 a sus objetivos estrategicos, la revisi6n de los
instrumentos y mecanismos de regulaci6n.
A los cometidos legalmente establecidos, debe aniadirse la experiencia
suficiente por cuanto con fecha 14 de agosto de 1997, el Gobierno fue
beneficiario de una donaci6n japonesa (Trust Fund N 0027.092)
administrada a traves del Banco Mundial, a efectos de iniciar los
estudios de reforma del sector agua potable y saneamiento a llevar a
cabo por la Oficina de Planeamiento y Presupuesto. En el marco de
dicha donaci6n, se han completado los estudios de un marco
regulatorio; un modelo financiero para la concesi6n de agua y
alcantarillado del Departamento de Maldonado; un modelo financiero
global de estudio de concesiones; un modelo de indicadores de gesti6n
y la contabilidad regulatoria para el sector agua potable y saneamiento.
De igual manera con fecha 22 de agosto de 2001 - y como corolario de
la donaci6n explicitada en el pirrafo anterior - se acord6 con el Banco
Mundial el prestamo de asistencia tecnica No 4598- UR, el cual tiene
como objetivos basicos los expuestos en el numeral 7. A la fecha se han
completado:
o En el area de las telecomunicaciones, los estudios del regimen de
licencias; reglamento de interconexi6n; reglamento de uso del
espectro radioelectrico y documento de politica para el sector;
o En medio ambiente se cuenta con una compilaci6n de los
instrumentos legales y contractuales; una Base de Datos
comprehensiva de la totalidad de las normas ambientales; un
estudio identificatorio de las areas de responsabilidad y gesti6n
ambiental en los distintos organismos publicos; un analisis legal
comparado con los restantes paises miembros del Mercosur y un
modelo de clausulas a incorporar en los contratos de concesi6n que
especifican las responsabilidades del concesionario de acuerdo con
la legislaci6n ambiental nacional y pasivos ambientales existentes;
o En el sector de energia electrica, se ha procedido a los Ilamados a
consultoria en Contabilidad Regulatoria y An6lisis de Eficiencia por
Comparaci6n estando en elaboraci6n el segundo informe sobre la
revisi6n del Valor Agregado Estandar de Distribuci6n;
o Finalmente, y a fin de integrar un analisis global de los impactos
fiscales, sociales y macroecon6micos de las reformas propuestas,
Presidentciade la Republica Orientaldel Uruguay
Oficina de Planeamlientoy Presupuesto
se esta en la etapa de analisis de ofertas - la presentaci6n se
realiz6 el 11 de noviembre de 2002 - para la elaboraci6n de un
Modelo de Equilibrio General Computado que permitira integrar y
brindar un marco de consistencia al analisis de los mismos.
En tal contexto, y como es de su conocimiento, el Gobierno esta
preparando en conjunto, un Proyecto de Ajuste Sectorial relacionado
con la regulaci6n, la competencia y la competitividad en los sectores de
servicios publicos e infraestructura el que incluira los siguientes
aspectos:
a.
b.
c.
d.
e.
f.
g.
h.
La organizaci6n institucional y legal de los sectores comerciales
e industriales de servicios publicos;
La creaci6n, fortalecimiento y consolidaci6n de los marcos
regulatorios referentes a cada uno de los sectores;
La gobernabilidad corporativa de los operadores publicos;
El fortalecimiento de la competencia en los distintos sectores y al
interior de los operadores;
La revisi6n y fortalecimiento de las politicas sociales en cuanto
a la prestaci6n de servicios publicos a personas de bajos
ingresos;
El desarrollo de herramientas de comparaci6n de desempefio
entre operadores;
Una campatia de informaci6n y difusi6n a la opini6n publica y, en
particular a los clientes de las empresas, de las metas,
compromisos y resultados de cada operador; y finalmente
El fortalecimiento de la competencia al interior de los sectores de
infraestructura y la optimizaci6n de los programas de inversi6n,
operaci6n y mantenimiento.
7.
Casos Particulares. Breve Resefna.
7.1
Agua Potable y Saneamiento. El sector comprende al conjunto de
Instituciones publicas y privadas y recursos existentes en el pais
relacionados con el suministro de agua potable, incluyendo la captaci6n,
tratamiento, almacenamiento y distribuci6n de agua,. asi como los
servicios de alcantarillado sanitario, depuraci6n de efluentes y
disposici6n de excretas, tanto en areas urbanas y urbano marginales
como rurales.
Existe una multiplicidad de actores involucrados en el sector, entre los
que cabe distinguir cinco operadores y diversos organismos publicos,
a saber:
• La Administraci6n de Obras Sanitarias del Estado (O.S.E.), servicio
descentralizado que presta servicios de agua potable en todo el pais
(Montevideo y 324 localidades en el Interior) y de saneamiento en el
interior (42 localidades). La legislaci6n actual le posibilita, con la
previa aprobaci6n del Poder Ejecutivo, otorgar servicios en
concesi6n (articulo 750 de la Ley 16.736 de 5 de febrero de 1996).
La empresa ya otorg6 dos concesiones en el departamento de
Maldonado estando en estudio otras adicionales.
o La Intendencia Municipal de Montevideo que presta los servicios de
saneamiento en Montevideo con una cobertura del 80%;
o Las Intendencias Municipales del Interior con competencia en la
disposici6n de excretas individuales;
o Aguas de la Costa, empresa concesionaria de O.S.E., prestadora de
servicios de agua potable y saneamiento al este del arroyo
Maldonado;
o Uragua, empresa concesionaria de O.S.E., prestadora de servicios
de agua potable y alcantarillado en la mayor parte de los centros
poblados del Departamento de Maldonado; y
o Pequenas empresas privadas que prestan servicios en localidades
balnearias actividad que se lleva a cabo ajena a toda regulaci6n
estatal.
Adicionalmente a los operadores, participan el Ministerio de Vivienda,
Ordenamiento Territonal y Medio Ambiente a trav6s de la Direcci6n de
Medio Ambiente (DI.NA.MA) la que ejerce la competencia en el control
de la calidad de las aguas y vertimientos y como ministerio de enlace de
la O.S.E.; el Ministerio de Transporte y Obras Publicas a trav6s de la
Direcci6n Nacional de Hidrografia (D.N.H.) la que ejerce la
administraci6n del uso de las aguas en tanto recurso hidrico; el
Ministerio de Salud Publica y Ia Oficina de Planeamiento y Presupuesto.
Los problemas basicos del sector se resumen en:
o Multiplicidad de organismos con funciones superpuestas;
o Identificaci6n en la empresa operadora e Intendencia Municipal de
Montevideo de las funciones de politica, regulatorias y operativas;
o Escasez de enfoque empresarial en la gesti6n.
Presideniciade la Repulblica Orientaldel Uruguay
Oficina de Planeamiiiento y Presupuesto
A efectos de subsanar los mismos, el Gobierno se encuentra abocado
al diseno de un Marco Regulatorio del Sector (complementario de ia
creaci6n de la URSEA , unidad reguladora con jurisdicci6n sobre la
totalidad de los operadores sean estos publicos o privados ); a la
implementaci6n de la contabilidad regulatoria ya elaborada; a la
publicaci6n peri6dica de indicadores de desempeno y al incremento de
ia cobertura del servicio de saneamiento en el interior del pais a traves
de la percepci6n por parte de OSE de un canon a pagar por el sector
privado por su participaci6n en un contrato de riesgo con el objeto de
reducir el agua no contabilizada en la Regi6n Metropolitana.
7.2.
Energia El6ctrica. Con anterioridad a la redefinici6n del sector, el
mismo se conformaba en el ambito empresario por una empresa
integrada verticalmente, la Administraci6n de Usinas Electricas del
Estado (U.T.E.) prestadora de la generaci6n, trasmisi6n y distribuci6n
y de la Comisi6n Tecnica Mixta de Salto Grande, ente energetico
binacional de propiedad conjunta de la Republica Argentina y del
Uruguay; y en el ambito administrativo por el Ministerio de Industria,
Energia y Mineria y la Oficina de Planeamiento y Presupuesto. La Ley
N° 16.832 de 17 de junio de 1997 y su Decreto Reglamentario del 26 de
enero de 1999, establecieron un nuevo marco normativo para el sector
electrico. El mismo diferenci6 las actividades decisorias de politica, de
las regulatorias y las operativas a traves de la institucionalizacion de la
Unidad Regulatoria de la Energia Elbctrica (UREE)1; de la
Administradora del Mercado El6ctrico (ADME) - persona publica no
estatal a cargo de ia administraci6n del mercado mayorista de energia
electrica -; y del Mercado Mayorista de Energia Electrica (MMEE),
mercado competitivo para generadores y consumidores y con uso
compartido de, y acceso libre a, la capacidad de las redes de trasmisi6n
y distribuci6n no comprometida por contratos.
I Sus cometidos especificos son:
I. Controlar el cumplimiento de la Ley y su reglamentaci6n;
2. Dictar reglamentos en materia de seguridad y calidad;
3. Dictar normas y procedimientos tdcnicos de medici6n y facturaci6n; y
4. Asesorar al Poder Ejecutivo en materia de otorgamiento de concesiones, autorizaciones y
permisos y en la fijaci6n de tarifas de venta de energia a terceros por parte de los
suministradores del servicio puiblico de electricidad.
La nueva normativa signific6 un avance en la redefinici6n del papel
regulador del Estado, pero dej6 abierta la implementaci6n de la reforma,
entre cuyos aspectos cabe resaltar:
Especificaci6n de las actividades que U.T.E. debera transferir
a otras dependencias estatales;
o
Diseno general de la implementaci6n de la UREE (hoy
URSEA) y de la ADME; y
o Elaboraci6n de los reglamentos operativos y normas de
coordinaci6n tecnica y comercial; reglamentos de acceso, uso
y expansi6n y calidad de servicio de transporte domestico y
de interconexi6n internacional; y reglamentos de distribuci6n.
o
A la fecha se han aprobado los Reglamentos General del Marco
Regulatorio del Sector Electrico (Decreto N0 276/02 de 28 de junio de
2002), Distribuci6n de Energia Electrica (Decreto No 277/02 de 28 de
junio de 2002), Trasmisi6n de Energia Electrica (Decreto N° 278/02 de
28 de junio de 2002) y Mercado Mayorista (decreto N° 360/02 de 11 de
setiembre de 2002). Las tareas pendientes incluyen la revisi6n al afo
del funcionamiento del mercado; el establecimiento de la Administradora
del Mercado El6ctrico (ADME); la elaboraci6n e implementaci6n de la
contabilidad regulatoria; la determinaci6n del valor agregado est6ndar
de distribucion y su simulacion de las tarifas finales y el establecimiento
del Sistema de Calidad de Servicio.
7.3.
Gas. El sector se conforma con cuatro situaciones diferenciadas: a. El
gasoducto Buenos Aires - Montevideo (en etapa de construcci6n)
proyecto a ejecutar por el consorcio Gasoducto Cruz del Sur; b. el
Gasoducto del Litoral construido y operado desde 1999 por la
Administraci6n Nacional de Combustibles, Alcohol y Portland; c. La
distribuci6n de gas por red en Montevideo llevada a cabo a partir de
1995 por la empresa privada GASEBA S.A; y d. La distribuci6n de gas
en el Interior de la Republica a ser operada por el consorcio Conecta
SA. Desde el punto de vista normativo, existen varios decretos del
Poder Ejecutivo que constituyen junto a los contratos de concesi6n, el
actual marco regulatorio del sector. Cabe destacar el Decreto N 0324/97
de 3 de setiembre de 1997, que reglament6 el servicio nacional de
importaci6n, transporte, almacenamiento y distribuci6n de gas natural,
incluida la construcci6n y explotaci6n de gasoductos, redes de
distribuci6n y almacenamniento naturales subterr6neos.
Presidenciade la Repulblica Orientaldel Uruguay
Oficina de Planteamientoy Presupuesto
El mismo estableci6 como principios rectores:
*
*
*
.
.
Asegurar la mas amplia competencia en el mercado y alentar de
inversiones para el suministro de largo plazo;
Garantizar la mejor operaci6n, confiabilidad, igualdad, libre acceso,
no discriminaci6n y uso generalizado de los servicios e instalaciones
de transporte y distribuci6n de gas natural;
Regular las actividades de transporte y distribuci6n de gas natural
asegurando tarifas justas y adecuadas a la politica energetica
nacional;
Incentivar la eficiencia en el transporte, la distribuci6n y el uso
racional del gas natural, velando por la adecuada protecci6n del
medio ambiente;
Propender a que el precio de suministro de gas natural sea
equivalente al que rige intemacionalmente, en paises en condiciones
similares.
La nueva normativa y la aprobacion de la URSEA, ha dejado abierta la
implementaci6n de la reforma, entre cuyos aspectos cabe resaltar:
*
*
*
7.4.
Diferenciaci6n de las actividades de regulaci6n de aquellas
correspondientes a la definici6n de las politicas sectoriales;
Diagn6stico del sector en las actividades relacionadas con el
transporte y distribuci6n de gas;
Definici6n de los reglamentos operativos y normas de
coordinaci6n tecnica y comercial; reglamentos de acceso, uso
y expansi6n y calidad de servicio de transporte;
y
reglamentos de distribuci6n.
Hidrocarburos derivados del Petr6leo. El sector se caracteriza por la
presencia de una empresa estatal - la Administraci6n Nacional de
Combustibles, Alcohol y Portland - monop6lica desde su creacion en
1931 en las etapas de importaci6n y refinaci6n de crudo. En la etapa de
comiercializaci6n participan empresas privadas a traves de contratos de
concesi6n donde la regulacion es ejercida por la propia empresa
puiblica.
Es intenci6n del Gobierno reducir las tarifas al consumidor final
disminuyendo las ineficiencias operativas, mejorando la competitividad
de la empresa de forma de insertarla en el contexto regional a traves de
una clara diferenciacion de los roles de regulaci6n de los empresariales
a trav6s de la creaci6n de la URSEA; de su asociaci6n estrategica con
una empresa de nivel internacional y liberalizando la importacicn de
derivados y la refinaci6n de crudo ( Ley No 17.448 de 4 de enero de
2002).
Teniendo en cuenta lo expuesto, es que se entiende necesario:
o Fortalecer la capacidad de formulaci6n de las politicas
sectoriales habida cuenta de la complementariedad y
sustituibilidad de los distintos productos energeticos;
o Estudiar la reforma de la empresa estatal de manera de
mejorar su competitividad;
o Analizar los antecedentes legales existentes y definir un
marco regulatorio para el sector;
o Evaluar el proceso de implementaci6n de dicho marco
incluyendo la adecuaci6n de la empresa; integraci6n del
organismo regulador; control de la calidad de los productos;
regulaci6n de los precios mediante la definici6n del precio de
paridad de importaci6n; definici6n de la trayectoria de cierre
de la brecha existente entre los precios actuales y los a regir
con la apertura del mercado; analisis del libre acceso a la
logistica y reglamentos de distribuci6n.
7.5.
TWecomunicaclones.
La
Administraci6n
Nacional
de
Telecomunicaciones (A.N.TEL) es la empresa publica encargada de la
prestaci6n de los servicios de telecomunicaciones urbanas y de larga
distancia nacionales e internacionales. El articulo 6° del Decreto Ley
N°14.235 de 23 de julio de 1974 le otorg6 el monopolio de los servicios
cuya prestaci6n se le asigna por la referida norma aunque desde 1992
opera una empresa privada en los servicios de telefonia celular y desde
fines de 1994, la propia A.N.TEL opera la segunda banda celular.
Dicha situaci6n fue modificada por la Ley No 17.296 de 21 de febrero
de 2000 que dispuso en su articulo 613 mantener exclusivamente el
monopolio en la telefonia basica definida como aquellos servicios
telef6nicos que reunen las caracteristicas de fija, conmutada y referida
al trafico nacional, liberalizando la telefonia internacional, la celular y
la totalidad de los servicios de valor agregado. Si bien dicho articulo fue
derogado por la Ley No 17.524 del 5 de agosto de 2002, las licencias
concedidas durante el perlodo de vigencia de la anterior contin6an
vigentes.
Presidenciade la Repu7blica Orientaldel Uruguay
Oficiua de Planeamientoy Presupuesto
La misma Ley N° 17.296 dispuso la creaci6n de la Unidad Reguladora
de las Comunicaciones (URSEC) en tanto 6rgano desconcentrado en el
ambito de la Comisi6n de Planeamiento y Presupuesto con las funciones
de regulaci6n y control de las actividades referidas a las
telecomunicaciones y servicios postales. Es competencia directa del
Poder Ejecutivo - entre otros - autorizar el funcionamiento de las
estaciones de radiodifusi6n; autorizar genericamente la asignaci6n de
frecuencias por parte de la URSEC y fijar los precios que deberan
abonar los concesionarios por la utilizacion de frecuencias
radioelectricas y demas bienes escasos.
En general, el sector se caracteriza por la presencia de un monopolio
parcial de hecho de propiedad estatal que controla gran parte del
mercado acomparlado de una empresa privada concesionaria de una
banda de telefonfa celular. A tal situaci6n se le agrega, en el pasado, la
concesi6n a privados por parte de la ex-Direcci6n Nacional de
Comunicaciones, de redes inalambricas para la trasmisi6n de datos
(LMDS), sistemas de telecomunicaciones m6viles por satelite para la
trasmisi6n y recepci6n de datos alfanumericos en forma bidireccional;
sistemas de radioenlaces troncalizados con caracter nacional y un
telepuerto y con posterioridad a la vigencia de la Ley N° 17.296, la
competencia de 38 operadores en las areas de larga distancia
internacional, servicio de acceso a facilidades satelitales, servicio de
acceso a sistemas proveedores de conexi6n via satelite por suscripci6n
a la red internet y servicio de trasmisi6n de datos nacional e
internacional.
Los cambios tecnol6gicos y la apertura a la competencia en
determinados servicios implican la necesidad de:
*
.
*
Estudiar el otorgamiento de licencias, permisos y concesiones
- incluyendo la numeraci6n, plan de senalizaci6n y
Administrador de Base de Datos - de forma que, en la medida
que involucren recursos escasos o privilegios de exclusividad,
aseguren que los beneficiarios hayan pagado el mayor precio,
ofrecido el mejor servicio o una combinaci6n de ambos;
Analizar los antecedentes legales existentes y definir un
marco regulatorio para el sector;
Evaluar el proceso de implementaci6n de dicho marco
incluyendo la adecuaci6n de la empresa; integraci6n,
financiaci6n y fortalecimiento del organismo regulador;
reglamentos de interconexi6n, calidad del servicio, regulaci6n
de los precios, contribuci6n al servicio universal y atenci6n al
cliente.
7.6
Servacios Posallea. La Ley N° 16.736 de 5 de enero de 1996 en su
articulo 747, dispuso la creaci6n de la Administraci6n Nacional de
Correos como servicio descentralizado con la competencia y
organizacion de la ex Direcci6n de Correos (unidad ejecutora del
Ministerio de Educaci6n y Cultura) con el cometido de la prestaci6n de
los servicios postales; esto es, la admisi6n, transporte o distribuci6n y
entrega de envios de correspondencia, giros postales y productos
postales en general. 2
La empresa estaba facultada para autorizar permisos precarios sujetos a un precio - a empresas privadas, los que en la actualidad son
mas de 100. Lo expuesto llevaba a una confusi6n entre las funciones
operativas y regulatorias de los servicios postales en una empresa
puiblica. Dicha confusi6n fue clarificada con lo dispuesto en la ya citada
Ley No 17.296 al crear la URSEC con cometidos especificos en matena
de servicios postales tales como establecer normas regulatorias de los
servicios y autorizar la prestaci6n de servicios postales a terceros. Las
tareas a cumplir en el futuro consistiran en el fortalecimiento de dicha
Unidad; la elaboraci6n de los reglamentos relativos al otorgamiento de
los permisos y control de la actividad de los permisarios asi como un
estudio de mercado que identifique claramente la mejor operativa para
el cumplimiento de la prestaci6n de la obligaci6n de servicio universal
asi como su financiamiento.
7.7.
Transports Feorrov&ilo. El mismo se cumple por la Administraci6n de
Ferrocarriles del Estado (A.F.E.), empresa publica facultada legalmente
para la prestaci6n de los servicios de transporte de carga y pasajeros.
A partir del 10 de enero de 1988, los servicios de pasajeros se
suspendieron - dados la baja calidad del servicio, escaso numero de
clientes pagos y altos subsidios -, manteniendose en la actualidad dos
lineas de corta distancia. Si bien no existe competencia intramodal,
experimenta una fuerte competencia intermodal (transporte por
carretera).
2 La Ley No 5.356 de 16 de diciembre de 1916 estableci6 el monopolio del servicio del correo a favor
del Estado sin perjuicio de los derechos concedidos a empresas privadas.
Presidenciade la RepWiblica Oreittal del Uruguay
Oficina de Planeamnientoy Presupuesto
El Gobierno esta iniciando el analisis de una profunda reestructuraci6n
de A.F.E. - incluida la apertura a la competencia ya dispuesta por el
articulo 21 de la Ley N° 17.243 citada - habida cuenta de los modelos
aplicados en otras partes del mundo, las caracteristicas de modo
uruguayo, los objetivos y consideraciones tecnicas a cumplir y la
asignaci6n de los bienes y cometidos de la infraestructura ferroviaria al
Ministerio de Transporte y Obras Publicas (articulo 1500 de la Ley No
17.556).
Teniendo en cuenta lo expuesto y las caracteristicas propias del modo
ferroviario, se hace necesaria la regulaci6n toda vez que se permite el
libre acceso a las instalaciones y/o se diferencia por linea de negocio y
aparece la posibilidad de conflictos. En tal contexto se entiende
necesario:
*
.
.
7.8.
Estudiar la reforma de la empresa ferroviaria de manera de
acentuar el enfoque comercial y distinguir los aspectos
regulatorios y de mantenimiento de la infraestructura;
Analizar los antecedentes legales existentes y definir un
marco regulatorio para el sector;
Evaluar el proceso de implementaci6n de dicho marco
incluyendo la adecuaci6n de la empresa; ubicaci6n,
integraci6n y financiaci6n- del organismo regulador;
reglamentos de interconexi6n, calidad del servicio, regulacion
de los precios, y atenci6n al cliente.
lnfraestructura de Transporte. El Gobierno se encuentra en un
proceso de fortalecimiento del programa de reformas del sector
transporte con el objetivo de mejorar la gesti6n de los servicios, reducir
costos y mejorar la eficiencia del transporte intermodal. En tal contexto,
la concesi6n a la Corporaci6n Vial del Uruguay de 1.270 kil6metros de
carretera y 38 puentes y su posterior venta en subasta; la concesi6n de
la operaci6n integral del Aeropuerto Intemacional de Carrasco; la venta
de la participaci6n accionaria del Estado en la empresa de
aeronavegaci6n de bandera uruguaya, la concesi6n de una playa de
contenedores y la operaci6n de puertos privados son hitos importantes
en dicho proceso.
La reforma educativa en el Uruguay ha sido muy exitosa, alcanzando
importantes resultados en tdrminos de acceso, equidad y eficiencia. La
enselanza primaria se ha caracterizado por haber logrado la
universalizaci6n en los anios sesenta. Hacia mrdiados de los noventa
se impuls6 la universalizaci6n de la enseflanza pre-escolar, alcanzando
a marzo del presente aflo una cobertura neta del 92 % (nifios de 4 y 5
alios), lo cual convierte al pals en el primero de la regi6n en alcanzar
estos niveles.
Si bien el nivel Secundario no se ha universalizado, ha tenido un
notable crecimiento en los iltimos affos, pasando de 166.000
estudiantes en el aflo 1995 a 230.000 en el afo 2002.
Uno de los aspectos mcs importantes de la reforma educativa es que
las politicas se han incorporado sin inyecciones masivas de recursos.
El gasto estimado en el sector es aproximadamente del 3 % del PBI, el
cual est6 por debajo del gasto promedio de America Latina (5 %). No
se registra un crecimiento significativo del financiamiento sector
privado, lo cual seffala que las reformas se han logrado con una mejor
distribuci6n de los recursos disponibles.
1.-
Refformas iniciadas
Se han impulsado programas focalizados a efectos de reducir
aun mas los niveles de inequidad:
o Escuelas de Tiempo Completo
La retenci6n de mayor tiempo de los nifios en las escuelas
habilita a las madres a ingresar en el mercado laboral.
o Programa de Alimentaci6n Escolar
El darles alimentaci6n tiene un alto impacto en el rendimiento
educativo.
o Programa de Escuelas Bilingue
La introducci6n de un lenguaje extranjero (inglds y portugu6s)
en edades tempranas tiene importantes impactos en el
desarrollo integral posterior del nifio, tanto desde el punto de
vista educativo como econ6mico.
Presidenciade la Repziblica Oriental del Uruguay
Oficina de Planeanmientoy Presupuesto
2.-
Lineas de acci6n
Las lineas de acci6n se pueden sintetizar en dos:
Protecci6n de determinados Programas desde el punto de
vista presupuestal y de la ejecuci6n en tiempo de los
programas seleccionados.
En este sentido las areas prioritarias identificadas para un
respaldo en el presupuesto educativo son:
a) El Programa de libros didacticos destinados a ninos de
educaci6n primaria por importes de d6lares
estadounidenses u$s 800.000 para el 2003 y u$s
300.000 para el 2004;
b) El Programa de Educaci6n BilingUe en Escuelas de
Tiempo Completo por importes de d6lares
estadounidenses u$s 250.000 y u$s 400.000 para los
ahos 2003 y 2004;
c) Seguridad y medio ambiente en los centros educativos,
que garantice los niveles adecuados de seguridad,
limpieza y saneamiento de los locales con niveles de
gastos en suministros del orden de d6lares
estadounidenses u$s 900.000 para los afios 2003 y
2004.
Desarrollar un Plan de Mejora de Gesti6n de ANEP expresado
en el documento "Plan de Acci6n para Mejorar la Gesti6n en
el Sector Educativo Uruguayo".
En el mismo se seffalan tres areas prioritarias:
a) Organizaci6n funcional y administrativa de la ANEP
b) Gesti6n de Recursos Humanos
c) Sistema de Gestion Integrado Financiero Contable
En general las acciones se orientan al fortalecimiento de los
sistemas de informaci6n a traves de un Sistema de Seguimiento
de Expedientes y una Base de Datos Juridicos; a la
racionalizaci6n de procesos administrativos a traves de la
creaci6n de pautas de referencia para los procesos y funciones
en particular para las areas de Recursos Humanos y la
implementaci6n de un Sistema Integrado de Gesti6n y
Contabilidad; y finalmente la implantaci6n de mecanismos de
control interno y de monitoreo - mediante la implementaci6n de
una unidad de Auditoria Interna - mas estrictos que permitan
identificar las principales fuentes de ineficiencias.
M3uaCd6n
ctCueP Gn M0 SecC $&0ud
La organizaci6n del sistema de salud en el Uruguay se basa en
un complejo y fragmentado esquema de regulaciones y
mecanismos de financiamiento, donde intervienen un conjunto de
instituciones de derecho privado y varios organismos publicos.
En tFrminos simplificados, la poblaci6n accede a los servicios de
dos tipos de subsistemas: el puiblico y el privado.
El gasto total en salud en Uruguay representa un poco mas del
10 % del PBI. De acuerdo a la Organizaci6n Mundial de la Salud
(Informe 2000), el pais ocupa el cuarto lugar del mundo en
t6rminos de gasto en salud como porcentaje del PBI, pero se
ubica en el puesto 65 en t6rminos de desempeno general.
El subsistema privado cubre aproximadamente el 52 % de la
poblaci6n y est6 integrado por las Instituciones de Asistencia
MWdica Colectiva (IAMC), entidades privadas sin fines de lucro
que aseguran y proveen atenci6n m6dica prepaga a trabajadores
de la economia formal. El subsistema publico de salud opera a
travbs de la Administraci6n de Servicios de Salud del Estado
(ASSE) del Ministerio de Salud Publica (MSP), que cuenta con
una red de hospitales y puestos de salud que brinda atenci6n
medica a aproximadamente el 45 % de la poblaci6n,
principalmente trabajadores del sector informal y personas de
bajos recursos sin cobertura de seguridad social. A estos se
agregan los servicios de salud de Sanidad Militar, Policial y
Hospital de Clinicas.
Como complemento se suma el Fondo Nacional de Recursos
(FNR), entidad de derecho publico no estatal responsable de la
financiaci6n, para toda la poblaci6n uruguaya, de las
enfermedades de alto costo y baja incidencia y cuya
administraci6n es responsabilidad de conjunta del MSP, el
Presidentciade la Repablica Orieitaldel Uruguay
Oficina de Planeamientoy Presupuesto
Ministerio de Economia y Finanzas (MEF) y representantes del
sector privado.
1.-
Objetivos del Sector
Los objetivos del gobierno para el sector se orientan hacia la
implementaci6n de un sistema que asegure el acceso universal,
una atenci6n integral y garantice la calidad de los servicios y la
equidad en el financiamiento para toda la poblaci6n en funci6n de
las posibilidades del pais. En este sentido, el MSP busca superar
las inequidades presentes en el sector promoviendo un mayor
nivel de eficiencia en los subsectores publico y privado, y
garantizando, de esta manera, la sostenibilidad de una efectiva
protecci6n de los derechos de los ciudadanos.
2.-
Lineas de acci6n
a) Fortalecer la funci6n rectora del subsector publico.
El mejoramiento y fortalecimiento del marco regulatorio del sector
salud ha sido una acci6n central del MSP a traves de la Direcci6n
General de la Salud (DIGESA), buscando garantizar un marco de
reglas comunes para todas las instituciones de salud que
garantice la debida calidad de los servicios. El perfeccionamiento
de la estructura normativa ha tenido en cuenta tres aspectos
fundamentales: funci6n fiscalizadora del propio Ministerio,
condiciones de habilitaci6n de los prestadores privados y
establecimiento de derechos de los usuarios. Para profundizar
estos aspectos a futuro, se plantea el diseffo y desarrollo de una
superintendencia con competencia en aspectos vinculados con
los servicios publicos y privados, y de una agencia especializada
para el control y garantia de la calidad en las areas de alimentos,
medicamentos e insumos para la salud.
b) Fortalecer el subsistema privado de salud.
El resultado esperado al impulsar un modelo de gesti6n mas
eficiente del subsector privado es estabilizar financieramente a
las IAMC y asegurar la continuidad de la atenci6n para sus
usuarios con criterio solidario. Para ello se ha avanzado en
acuerdos con el MSP, la OPP y el MEF para implementar planes
de reconversi6n que incluyan los aspectos econ6micofinancieros, asistenciales y organizacionales de las IAMC, y den
viabilidad y estabilidad de largo plazo.
El Gobierno Nacional tambi6n plantea cambiar un sistema de
precios administrados a un sistema con mayor libertad de fijaci6n
de los mismos, aunque manteniendo un proceso de vigilancia por
parte del Estado para evitar aumentos injustificados. Y, sin
perjuicio del mantenimiento de las caracteristicas del sector
privado, estudiara las posibilidades de avanzar en una politica
comun de pagos de insumos y medicamentos que permita
ahorros en el sector.
all mod@o de aftncDt fonadeOndo lla aXendfn
pnrmaurs do sailud.
C) RoientF
A los efectos de concretar un nuevo modelo de atenci6n que sea
mSs preventivo e integral, se necesita reorientar el actual desde
una tendencia asistencial y hospitalaria hacia una atenci6n
medica continua, integral y accesible con una adecuada
vigilancia sanitaria en lo relacionado a la disminuci6n y control de
los riesgos de enfermar y fomentando estilos de vida saludables.
A esos efectos, se propone la creaci6n de oficinas de Desarrollo
de la Atenci6n Primaria de Salud (DAPS) en cada uno de los
centros departamentales para realizar un trabajo coordinado
entre la DIGESA y ASSE con la integraci6n de la comunidad, los
gobiernos departamentales y las organizaciones e instituciones
representativas de distintos grupos sociales.
d) ElOvaFr Da ogiGncia dk0I hlt@0
apD ptflico.
El Gobierno viene impulsando distintas estrategias encaminadas
a elevar la eficiencia y capacidad de respuesta del hospital
publico. Entre ellas se destacan la firma de compromisos' de
gesti6n, la introducci6n de nuevas herramientas informaticas para
el registro de beneficiarios, y la exploraci6n de arreglos
innovadores en la prestaci6n de servicios de apoyo a la gesti6n
hospitalaria. Una estrategia central es la identificaci6n de
usuarios: el Gobierno sumarci al Programa de Identificaci6n
Negativa de Usuarios (RUCAF) que ya estd siendo aplicado en
la totalidad de las unidades asistenciales de ASSE, la
Presideniciade la Republica Orientaldel Uruguay
Oficina de Planeanizientoy Presupuesto
identificaci6n positiva de los mismos. Con ello se lograra mejorar
aun mas la focalizaci6n de los servicios asistenciales en las
personas sin cobertura de seguro de salud en la red de ASSE,
regular la prestaci6n de servicios a individuos asegurados o con
capacidad de pago, mejorar los mecanismos de asignaci6n
presupuestal en la red publica y avanzar con mas precisi6n en la
formulaci6n de planes de promoci6n de la salud y prevenci6n de
la enfermedad. Los tickets y 6rdenes se fijaran con criterio
regulador mas no recaudador.
e) Consolidar la reestructura del Fondo Nacional de
Recursos (FNR)
Finalmente, dentro del contexto de buscar mayor eficiencia
sectorial manteniendo o incluso mejorando los servicios
brindados, el Gobierno preve profundizar las acciones ya en
curso tendientes a reestructurar el FNR. De hecho, ya se ha
logrado una reducci6n de los aranceles en un 13% y se han
introducido mecanismos de mayor control y auditoria de servicios.
Las autoridades nacionales esperan que estas y otras medidas
contribuyan a llevar al FNR a un equilibrio operativo en el primer
semestre del ah'o 2003.
Sin mas lo saluda a Usted muy atentamente
PtRESIDIENCIA,tP LA REPUBLICA
Oticona_d NxDeesto
Director
Annex 3: KMPLEMEENTATION IPElRIFORMANCE OF 11TIRE ]FJIIRST WOIRLD BIAN
ADJUSTMENT OPEIRATWEN UNDER ]RIEVFSED CAS STRATEGY
(SAL and SSAL approved August 8, 202)
SAL I and SSAL I
The US$ 300 million World Bank Structural Adjustment and Special Structural Adjustment
Loans to the GoU, approved in August of 2002, address issues of: (i) fiscal policy, including
revenues, expenditures, and reforms in productivity bonuses for public enterprise employees; (ii)
the restructuring of BHU; and (iii) social protection programs, including unemployment
insurance, which absorbs a large chunk of expenditures and faces increasing demand due to the
crisis.
Fiscal measures included efforts to reduce expenditures - particularly wages and pensions - and
increasing tax revenues through a comprehensive reform of income taxes, as well as VAT, excise
and customs duties aimed at reducing exemptions and loopholes. Reforms to the BHU include
the phasing out of the stock of deposits - transferred to the Banco Repliblica Oriental del
Uruguay (BROU) - thereby eliminating deposits as a source of financing for mortgage lending
activities, and professionalizing the bank's management including more rigorous credit risks
evaluation and portfolio management practices. In the future, BHU will act primarily as a
mortgage "generator" and its main source of funding will be the sale of securitized mortgages in
the secondary market.
Support to the social sector aims to improve efficiency of expenditures and assure protection of
the most vulnerable during the crisis through the development of an integrated beneficiary
registration system and protecting key programs from budget cuts.
The first tranche release of the SAL and SSAL were approved at the time of Board presentation.
The next scheduled tranche release is the second and final tranche of the SSAL.
Progressin the implementation of SSAL
Second tranche release of the Uruguay-SSAL is focused on legislative initiatives and concrete
actions to advance on the effective restructuring of Banco Hipotecario del Uruguay (BHU, the
National Mortgage Bank).
Overall assessment. The two key legislative requirements were met in late 2002. The first one is
the Law that modifies the Charter of BHU and limits its capacity to take deposits from the
public. The other is the Law that empowers the Superintendency to properly supervise public
banks and apply sanctions to the board and management. In addition, in October, 2002 GoU
reached an agreement between BHU, BROU, OPP and the Central Bank (BCU) whereby the
bulk of BHU reprogrammed deposits were transferred to BROU; and at the same time, BHU
issued a bond (guaranteed by BHU assets and the State for an equal amount of deposits
transferred) to back the deposits transferred to BROU.
Page 79
There has also been progress in loan recovery, closure of branches and approval of a law
limiting the maximum age of staff, which will reduce staff by about 200 people. There has also
been progress in the implementation of a number of other actions aimed at bank restructuring
and divestment - such as the due diligence process for valuation of assets, which is expected to
be completed in May, 2003 (preliminary results in March).
However, many of the measures and decisions taken do not conform an integrated and coherent
medium-term restructuring plan. In particular, the reorganization of the asset recovery function
to perform credibly and effectively its role is a critical interface for fiscal discipline. The BHUBROU agreement contemplates - at the discretion of Government - transfer of this function to
BROU as a means of ensuring better loan collection to be able to service the new BHU bond.
The status of the individual components of the conditionality matrix is as follows:
Law to change BHU's charter. After various iterations with Bank staff, GoU drafted a Law
which was acceptable to both parties. With some modifications, the Law was discussed and
approved by Congress in November, 2002. The Law limits financial activities of the new BHU its core activity will be mortgage generation and securitization; the stock of new mortgages that
BHU can hold at any time may not exceed the equivalent of US$50 million. BHU's sources of
funds will be the sale of securitized mortgages and dep6sitos de ahorroprevio.
Agreement to ensure the transfer of BHU deposits to BROU. The Agreement ensures the
transfer of all BHU dollar deposits (except existing "ahorroprevio" deposits) to BROU. Under
the agreement, BROU receives the US$776 million bond issued by BHU; servicing of this 10
year bond allows BROU in turn to service monthly interest and amortizations of reprogrammed
deposits (25 percent in 2003, 35 percent in 2004 and 40 percent in 2005). The state guaranteed
bond carries a 6.5 percent yield. Two bonds were issued - one for US$506 million to cover all
debts on which interest was due until the end of November, and a US$270 million bond to cover
the rest. Loan and asset recovery and interest collected by BHU will be allocated exclusively to
service the bond and to cover BHU operational expenses and previously committed investment
plans.
Due diligence for the valuation of BHU's investment and loan portfolio. A consultant has been
selected (KPMG) and the contract signed. Preliminary results - based on samples - will be
available in May, 2003. The study is expected to be finalized in May 2003.
Divestment plan. There is so far no divestment plan with semi-annual targets (as required by the
conditionality matrix) approved by the Board. According to BHU authorities, it awaits
completion of the valuation study, which would allow assessment of the quality of guarantees
and repayment capacity of borrowers. However, various concrete actions have been taken to de
facto initiate the divestment process: loan cancellations with discount incentives (about US$90
million) was retired between March and September (US$58 million was actually collected in
cash); a concession was granted to create a call-center to recover non-performing loans in risk
category 2; visible foreclosures in key developments which has led to various, previously nonperforming loans becoming regular. BHU's loan collection capacity has been enhanced by the
Page 80
approved BHU Law, which concedes BHU the privilege to collect mortgage debt service from
salary accounts.
New Credit Manual. An operating manual to grant loans was finalized in August, 2002.
IT. Terms of reference have been prepared but have to be narrowed down once final scope of
activities of the new BHU is decided based on the new BHU Charter as well as the restructuring
plan.
Restructuring Plan. A comprehensive restructuring plan for the new BHU is yet to be developed
and presented to the 1BRD. However, isolated actions which can be conceived as part of a
restructuring plan have already been implemented or are planned to be implemented in the short
tenn: closure of various branches, absorption of other branches by BROU, appointment of a new
general manager, etc. Plans to get rid of excess staff are also in the making: about 200 staff will
be made redundant following passage of a decree that reduces the retirement age. This will
reduce staff to about 1200. An unspecified number will be transferred to several public offices possibly the Housing Ministry and the Revenue Service. Some will possibly be absorbed by
BROU. The following other actions with restructuring implications have also been taken:
i)
ii)
BHU claims that no new loan commitments have been issued since August 2002.
Loan commitments as submitted in the draft Law are UR$1,680 million - these
exclude all the loans approved until mid-2002 and some of the commitments.
The creation of two key Departments with the managers (reportedly) to be
recruited from outside the bank: Financial Manager (Gerencia Financiera) and
Human Resources Manager (Gerencia de Recursos Humanos).
Law to enhance BCU's supervisory powers. This Law was part of the Banking Law passed last
December that concedes BCU attributions to liquidate banks and transfer assets and liabilities to
Fiduciary Funds (a Law on such Funds was also approved recently). Under the new Law, BCU
has the capacity to sanction public banks and/or the members of their board.
Page 81
Annex 4: SOCIAL IMPACT ASSESSMENT OF PUBLIC UTILITIES REFORM
An assessment of possible impacts of public services reform was carried out as part of project
preparation. The analysis began by reviewing current service coverage, quality and access
indicators to identify possible weaknesses in the system. The possible impacts of the current
economic crisis and the reform program are then discussed. The annex concludes with a
description of ongoing and planned Government actions to support services to the poor.
Service Coverage
The coverage of basic services and infrastructure is relatively high in Uruguay compared to other
countries in the region. The following table shows high levels of sanitation, water, electricity
and telephone coverage compared to other high per capita GDP countries in Latin America.
Paved roads per 1000 population is lower than that of regional peers, but sufficient to support
economic activity as shown by the high level of paved roads per worker (and also reflecting
Uruguay's large population of retirees). Moreover, Uruguay has one of the lowest levels of
infant mortality, likely supported by broad access to services and infrastructure.
Table 1: Access to Public Services(% of total population)
GDP per
Sanitation* Improved water Electricity Telephone Kms of
(% of
source (% of
(% of
mainlines Roads per Paved
Infant
capita, PPP
population population with population (per 1,000
1000 roads per Mortality
(current
Country with access)
access)
with access) people)
people worker**
Rate international
Argentina
Brazil
Chile
Mexico
Uruguay
85.0
77.0
97.0
73.0
99.0
79.0
87.0
94.0
86.0
98.0
90.0
90.0
98.0
95.0
100.0
175.9
111.6
164.4
99.9
223.7
6.1
10.8
5.5
3.3
2.7
5.8
2.4
2.3
2.9
5.5
18.0
32.0
10.0
25.0
15.0
11,703
6,869
8,163
7,839
8,486
Source: World Development Indicators, 2002; UNICEF; Multitopic household surveys (LSMS); World Bank Private Sector and
Infrastructure Latin American Department calculations.
* Share of the population with at least adequate excreta disposal facilities (private or shared, but not public). Suitable
facilities range from simple but protected pit latrines to flush toilets with sewerage.
** Refers to total work force.
Water coverage is at 98 percent overall, and coverage by private taps exceeds 90 percent on
average and 76 percent in the first income decile. Sewerage coverage overall is also fairly
extensive, at about 61 percent. While sewerage coverage is slightly lower in first income decile,
virtually all households without sewers make use of a septic tank. Only 3 percent of households
in the first income decile do not have access to either form of sanitation. OSE has no specific
tariff policy to support the poor.3
Universal access to electricity is almost a reality in Uruguay, with coverage of around 95 percent
for the first decile and almost 100 percent thereafter. UTE operates a social connection policy
3In fact,
some of OSE's tariff policy may be regressive. Inaddition to regular tariffs, the company has the option of
charging an aportefrentista, representing the cost of expanding distribution and collection networks, to households
adjacent to network extensions. However, the regular tariff also includes an asset base, so in effect clients currently
without services - most likely lower income households - are charged twice for the network extension.
Page 82
whereby low income households with small loads are connected free of charge, subject to
accepting a load limniter of 2.2 kW.
Graph 1: Access to water and' sanitation
income decile
income decile
Graph 2: Access to energy services by services by
100%
-6-Pnvatetap
100%
___
80%
70% -v
6 0% -pubbc
EDS0%
05%
40% 30%
20%
t0% 1
0%
1 2
Pnvate tap or
starndpost
K
CD
-0-Sewerage
f
r
0
10%~~~~~~~~~~~0
3
4
5 6
7
8 9
10
-,- Sewerage or
septictarik
ticome deale
Electric lighbtng
90%0%
80%
7
60%
-- Cooking wilh
0%
-Cokn
t
electicity
50%40%Cookirg wth
n
30% -electncity or
20% piped gas
10%/0
0% -=o-Cookingwth
1 2 3 4 5 6 7 8 9 1
electncty, piped
gasorLPG
bncome decile
Source: INE 1998 Household Survey
Source: INE 1998 Household Survey
The distribution of piped gas networks is currently very low at less than 5 percent, and does not
even reach 15 percent in the top income decile. Nevertheless, LPG is in widespread use for
cooking purposes, covering almost 85 percent of the population, and 80 percent of the bottom
income decile.
Regarding the patterns of energy consumption by final use, it is noteworthy that more than 80
percent of households use electricity for water heating and liquid fuels (primarily LPG) for
cooking. A wide range of different fuels are in use for space heating. Almost a third of
households (primarily in the Interior) use wood or coal, another third (primarily in Montevideo)
use electric heaters, and 20 percent use liquid fuels (primarily LPG). About 15 percent make do
without heating.
GlraDh 3: Pattern of enermv consumiStion by inal use
100.00%
0
80.00% -
.
~~~
:
_
0~~~~~~~~~~0Ot
0
°
60.00% - ;2
2
Other
~~~~~~~~~~~~0
Electncity
0
om 40.00% -0_
fiOg
Ct
20
20.00%
Space
heating
Cooking
Water
heabing
Source: INE 1998 Household Survey
Page 83
Q Liquid fuels
Traditional
Prices and Income Trends
Prices of infrastructure services in Uruguay have in general kept pace with inflation during the
last five years. Prices of gas, liquid fuels and ground transportation have grown at about 20
percent in real terms over the period, while prices of electricity and telephony have fallen by
about 10 percent in real terms. The price of water has remained more or less constant in real
terms.
Graph 4: Real prices for Services from 1997 to 2002
x
Electricity
130 00
-~~~
110.00
o
CL
~ ~~
100.00
~
~
f
Aam-AL.
%m4ft*.
~
~i
~
I
~~~~
~ ~9000~
90
.- ~~~~~~~Gas
12000
~~~~~~Al
~
~~~~~~~~Fuel
~~~-a-Water
A-
-a--Telephone
_________-_____________________
-Transport
80.00
CD
CD0)0 0)
000
0)000
Source: INE 1998 Household Survey
Real average household incomes have been relatively steady over the last ten years, both in
Montevideo and in the interior, although a decline is evidence from miid-2001. Families at the
second decile are living on around to UR$5,000 per month, and have seen their real incomes fall
by 5 percent in Montevideo and 8 percent in the Interior during the first semester of 2002. While
families at the eight decile of the income distribution are living on around UR$15,000-20,000 per
month, and have seen their real incomes fall by 6 percent in the first semester of 2002.
35000
Graph 5: Evolution of Real Average Monthly Household Income
(Constant Uruguayan Pesos, May 2002)
-20% mdanco - MontevAdoo
-0-20% mas nco - Intenor Urb.
-20% mas pobre-Montevldeo
-4-m20% m6s pobre - Inteilor Urb.
350000-
Junio/92
Junlro'94
Junio/96
Junio/98
Page 84
Junia'O0
Junio(02
Affordability of Services
Household expenditure surveys are not frequently performed in Uruguay. The most recently
available data on actual household expenditure on utilities dates back to 1994. The evidence
from this survey indicates that in Montevideo, first decile households were spending 7.1 to 9.4
percent on water and energy (depending on the type of gas they use). This is well below an
indicative affordability threshold of 10 to 15 percent for these services - as well as the World
Health Organization 3.5 to 5.0 percent threshold for water - and is comparable to the levels of 8
to 9 percent that first quintile households in Buenos Aires were spending in the mid-1990s.
Due to lower income levels in the interior, all services weigh more heavily on household
budgets. Unfortunately, the data for gas expenditure in the interior is sparse, but suggests that
the overall budget share for water and energy could be as high as 13.7 percent. This is above the
indicative affordability threshold of 10 to 15 percent, and slightly more than the 11-12 percent of
budget spent on these services by households in the Argentine interior.
Table 2: Utility expenditures as a percentage
Montevideo
Electricity Piped
Cylinder
gas
gas
Deciles
1
3.5%
2.0%
4.3%
2
2.7%
0.8%
0.0%
3
2.9%
1.0%
1.8%
4
2.2%
1.4%
1.3%
5
2.2%
1.0%
1.1%
6
2.4%
1.1%
1.1%
7
1.9%
1.6%
1.0%
8
1 7%
0.9%
0.0%
9
1.6%
1.0%
1.4%
10
1.5%
0.5%
0.0%
of income (EYGH, 1994)
Average
2.1%
1.2%
1.2%
Interior
Piped
Cylinder
gas
gas
Water
4.2%
3.7%
3.0%
3.0%
2.6%
2.7%
2.4%
2.3%
2.1%
1.7%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.9%
7.4%
0.0%
5.7%
0.0%
0.0%
0.0%
0.0%
1.6%
1.3%
0.4%
2.1%
1.6%
1.5%
1.3%
1.3%
1.1%
1.0%
1.0%
0.9%
0.8%
2.5%
1.9%
2.5%
1.1%
Water
Electricity
1.6%
1.0%
0.9%
0.7%
0.8%
0.6%
0.5%
0.5%
0.5%
0.6%
0.6%
Unfortunately, this household survey data is now almost 10 years out of date. Given intervening
changes in prices, incomes and consumption patterns, it may not provide a reliable indication of
the affordability of services today. An alternative approach to affordability analysis is to
calculate the cost of purchasing a subsistence basket of utility services at today's prices, and to
divide this by the average monthly household income of those in the bottom income quintile.
According to INE figures, this amounts to UR$6,000 in Montevideo, and UR$3,904 in the
interior.
The table below shows that a subsistence basket of water and energy for a modest household in
Uruguay would comprise lOOkWh of electricity, 18 kg of Supergas, and 10 cubic meters of
water. The cost of such a basket immediately prior to the devaluation was UR$428, which
represented 7 percent of the budget of a household in the second decile of the income distribution
in Montevideo, and 10 percent for a comparable household in the interior.
Page 85
Table 3: Assumptions underlying subsistence basket
Gas
Electricity
Subsistence
l00kWh/month
1.5 12kg cylinders per
consumption
month
(I per month in summer, 2
level
per month in winter)
Tariff
structure
Water
10m'/month
(two thirds of consumers are
below this level)
UTE:
Supergas:
OSE:
Pre-devaluation tariff
involved a fixed charge
of UR$46 per month,
plus a charge of UR$ 1.1
per kWh, and a charge of
UR$15.9 per kW.
Pre-devaluation tariff was
UR$8.3/kg.
Pre-devaluation tariff involved
a fixed charge of UR$37 per
month, plus a second fixed
charge of UR$58 per month for
consumption in the range 5 to
10 cubic meters per month.
A tariff increase of 50% to
UR$12.8/kg was approved
in September 2002.
A tariff increase of 14%
was approved in August
2002, and a further 8%
tariff increase was
approved in November
2002.
A tariff increase of 13% was
approved in August 2002, and a
further 8% tariff increase was
approved in November 2002.
Since the devaluation a number of tariff increases have been approved. Water and electricity
tariffs were raised by 13 and 14 percent, respectively, in August and 8% in November.
Meanwhile the cost of a cylinder of Supergas has been increased by 50 percent. The combined
effect of this is to raise the cost of the subsistence basket of water and energy by 32 percent to
UR$536 per month. For poorer households in Montevideo, the cost of this basket absorbs 8.9
percent of the family budget, still below the 10-15 percent affordability range. For households in
the interior, however, this expenditure represents 13.7 percent of the family budget, a higher
percentage though still within the 10-15 percent affordability range.
Table 4: Cost of a subsistence basket of utility services as pe centage of income
Interior
Montevideo
Electricity
Gas
Water
Total Electricity
Gas
Water
Pre-devaluation
*
Total
Absolute
166
144
95
405
166
144
95
405
Percentage
2.8
2.4
1.6
6.8
4.2
3.7
2.4
10.4
204
3.4
216
3.6
116
1.9
536
8.9
204
5.2
216
5.5
116
3.0
504
13.7
Post-devaluation
Absolute
Percentage
Source: Own estimates based on data from INE and OPP.
Notes: The pre-devaluation and post-devaluation figures are from January and September 2002 respectively.
Page 86
Impacts of the Economic Crisis
A final approach to assessing the affordability question is to examine how non-payment and
disconnection statistics have deteriorated since the onset of the macroeconomic crisis. Nonpayment of electricity bills is currently at 8 percent. Although, small in absolute terms, this
represents a more than doubling of non-payment in the last year. Similarly, non payment for
water and phone services has also increased, though not as dramatically as electricity. UTE,
OSE and ANTEL have all accordingly increased their disconnection rates, though the increases
are of a lesser magnitude than the increases in non-payment. These figures point to possible
impacts of the current crisis and a potential worsening of the affordability indicators discussed
above.
Table 5: EvoRution of utility social indicators
TUTE
Total demand (physical units)
(Mwh)
o September 2001
6,368,267
o September 2002
6,242,788
OSE
(M)
154,217
138,034
(local)
3,701,830
3,386,538
ANTEL
(national.)
536,011
512,377
Non-payment rate:
o September 2001
o September 2002
3.0%
8.0%
7.5%
10.0%
4.7%
9.6%
Disconnection rate:
o September 2001
a September 2002
2.1%
4.7%
3.1%
3.6%
0.7%
0.8%
(internatl.)
82,411
72,371
Source: OPP, Government of Uruguay.
Affordability Impacts of Sector Reform Program
Similar reform programs in other countries have impacted services to the poor through price
increases and investment cutbacks. Given the high level of service coverage in Uruguay, sector
reform is not expected to impact access to services. However, possible tariff increases above
salary adjustments could impact the affordability of services, though these impacts are difficult
to determine at this point. Additional impacts may include electricity tariff reforms, though the
impacts at this point are unclear and depend on the pending recommendation of UREE on target
tariff levels. Correction of the price distortions in the hydrocarbon sectors may also impact
affordability by making LPG more expensive, which has a sizable weight in the budgets of the
poor and is primarily used for cooking. However, the potential impact will likely be small as
LPG prices are currently only 7 percent below estimated import parity prices. In theory, these
households could switch to cheaper natural gas, but they would then confront the large up-front
infrastructure investment costs mentioned in the main text of this document.
labor Impacts of Sector Reform Program
In addition to coverage and affordability issues, one of the most imrnediate consequences of
sector reform could be the shedding of labor to raise the efficiency and profitability of
infrastructure service providers. The reforms proposed by the Government of Uruguay and
outlined above in general pose no substantial immediate impact on labor as reforms are
Page 87
accompanied by retraining and re-absorption programs. In instances in which reforms are tied to
labor reduction, all reductions are on a voluntary based through the offering of early retirement
packages. The Uruguayan Constitution does not allow involuntary reductions for employees of
the public enterprises. In the last ten years, AFE, ANCAP, ANCO, ANTEL, OSE, and UTE
have reduced their staff by 35 percent, or about 1,200 employees. In all cases, reductions were
volunteer. OPP is currently considering additional redundancy packages for selected sectors.
Government Strategy
Though infrastructure and service provision to the poor have been strong, there is still room for
improvement and the current crisis and efforts to increase competitiveness may require adjusting
measures to assure continued access and services to the poor. Past achievements were
accomplished through the public utilities, which have taken on business as well as social
responsibilities, and have financed investment and consumption for low income populations
through cross subsidies. Liberalization of these sectors and competitive pressure on the public
utilities to reduce costs may call for a more explicit government policy to assure continued broad
coverage, particularly in light of potential impacts of the current economic crisis.
Given the high level of coverage in Uruguay, continued access to services presents a much larger
concern that expanding coverage. However, the Government has taken steps to assure continued
expansion of services to the poor. OSE, with support from the ongoing World Bank loan and
GTZ, has initiated a program to expand sewerage coverage in interior cities. The program aims
to increase transparency and facilitate access of low income households by establishing clear
rules for prioritizing investments and charges, organizing communities, and providing savings
and credit programs to help poor households cover the large upfront cost of converting in-house
plumbing for connection to the sewerage system. OPP is also implementing a national slum
upgrading program with support from the 1DB. The program provides central government
financing, matched by local government and beneficiary support, for a wide range of
infrastructure and services to the growing marginal neighborhoods. Investments include water,
sanitation, electricity, paving, public spaces, and storm drainage among others.
In addition to efforts to continually improve coverage, the Government is keenly aware of
potential affordability problems and has included the development of policies and instruments to
sustain the provision and quality of services to the poor as part of their reform agenda. The
process will begin with a more detailed assessment of the current state of services, consumer
preferences and the potential demand for services below alternative scenarios that contemplate
different prices levels, operators, and type and levels of services. This Government study, titled
the Costs and Benefits of the Reforn Program, will include further analysis of existing data
sources, additional modules of questions for the continuous household survey, and focus groups
to provide qualitative information and inform survey design.
The Government study could also serve as an input for tariff reform in the electricity, water and
sanitation and petroleum sectors over the next years. The electricity sector tariffs will be
reviewed based on a benchmarking study to be carried out in 2003. The results of this study, in
combination with the results of the study on the costs and benefits of the reform, will provide
inform potential design of government policies in this area. The pending water and sanitation
sector law provides guidelines for future tariff and subsidy review and design.
Page 88
Conclusions
Overall service coverage and quality are high in Uruguay relative to its peers in the region.
Prices have been relatively stable in real terms over the last five years. Services also appear
affordable, falling below or within the indicative range of 10 to 15 percent of total household
expenditures, even for the poorest ten percent of households in both Montevideo and the interior
of the country. Following the recent devaluations, prices of water, electricity and gas have
increased in peso terms. Estimated household expenditures following the price increases still
indicate that services are affordable; however, recent increases in non-payment of bills and
service disconnections point toward a worsening of affordability. In addition to the crisis, sector
reform could also impact affordability, though it is not expected to substantially effect service
coverage and employment in the utilities. Relevant reforms include possible electricity and LPG
tariff changes. The Government is aware of these changes and taking steps to assess the
potential impacts of the reforms and economic crisis in general. This assessment will serve as an
input to determine whether current tariff structure are effective in providing a basic safety net for
he poor, and if not include fine tuning. This is in addition to ongoing projects supporting
expansion of sewerage networks and upgrading of marginal neighborhoods.
Page 89
Annex 5: FISCAL IMPACTS OF THE REFORM PROGRAM
The project brings with it strong economic and fiscal benefits as a result of an increased private
sector participation (PSP) in the provision of public services, the strengthening of regulatory
skills and activities, and the improvement in the quality of services due to the combined effect of
greater competition and better regulation. As shown in the attached table, total economic
benefits from 2002-2007 are estimated at US$168.6 million. An amount that is equivalent, at an
8% discount rate, to a net present value of US$112.3 million - 0.91 per cent of the US$12,400
million estimated as GDP for 2002.
The income expected from the auctions of cellular bands, the concessions of Carrasco
International Airport and the second container yard at the port of Montevideo, and the roads
mega-concession more than compensate expected decreases in tax collections due to the opening
of markets to competition (visible in the telecommunications sector since May 2002), the
reduction in utilities prices, and the reduction in the number of staff who affect the financial
position of the Banco de Previsi6n Social (Social Welfare Bank). These amounts do not include
all the indirect effects that the roads mega-concession or the concession of Carrasco International
Airport could imply in terms of increased employment and social security contributions, nor the
direct or indirect benefits that will result from OSE risk management contract. The positive
fiscal impacts expected from improving the efficiency of public expenditure in the education and
health sectors are not included.
Assumptions
Auctions. Income from the cellular bands is based on the minimum price (US$6.0 million)
offered for two lots in the auction that took place on October 18, 2002. Income from the second
container yard at the port of Montevideo has been estimated at US$10.0 million based on the
amount received for the first container yard (US$17.0 million). Income for the concession of the
Carrasco International Airport was estimated based on the minimum price asked in the bidding
documents (an initial payment of US$15.0 million plus an annual contribution of at least US$2.5
million during the 20 years of the concession). Income for the concession of the roads megaconcession has been estimated by the MTOP based on previous experience in Uruguay and
Argentina.
ANCAP Association. Income from the Association of ANCAP with a private firm has been
assumed at US$58.8 million based on a report by Salomon, Smith & Barney of April 2002,
which estimated it at US$98.0 million.
Price Reductions. The cost of delivering public services is expected to decrease as a result of
greater presence of competition and PSP and an improvement of regulatory activities.
Considering the utilities directly involved, the reduction in the cost of delivering public services
is expected to reduce real average final prices by about 12%. Price reductions would initially
reduce utilities' results and their dividends to the Government. By company, the reductions
would be as follows:
Page 90
o
o
o
o
(I)
(2)
(3)
(4)
ANCAP
ANTEL
-18%
-15%
(I)
(2)
UJTE
Conecta & Gaseba
- 5%
-15%
(3)
(4)
Estimated difference with average import panty price by product.
Average of ILD, NLD and urban calls. In effect as of May 1,2002.
Estimated effect of VADE effectiveness. Scheduled to take place dunng 2003.
Estimated effect of the entry of natural gas In effect as of November 2002.
Efficiency lImprovements. The implementation of voluntary retirement schemes and additional
measures aimed at reducing and keeping operational costs under control is expected to also
reduce total production and distribution costs. Contrary to price reductions, efficiency
improvements improve utilities' results and increase dividends to the Government. As shown
below, measured by the ratio of physical units sold per year per employee the estimated benefits
vary from 33.3% in UTE to 829.3% in AFE.
2002
AFE
ANCAP
ANC
ANTEL (i)
OSE
UTE
2003
149,4 ton km
1,060 m3
17,100 shipments
166.2 lines
35.2 m3
1,065 mwh
710,1 ton km
2,815 m3
24,440 shipments
197.5 lines
37.0 m3
1,184 mwh
2007
1,388,4 ton km
3,300 m3
29,290 shipments
209.8 lines
44.5 m3
1,393 mwh
(I) Lines per employee
GDperational Costs. Considering current costs (labor, inputs and interests), average real
decreases would be at about 10%. The large reduction in AFE - estimated at about 47% results from an expected 80% decrease in personnel that would not be compensated by increases
in maintenance expenses or payment of fees for the use of railway infrastructure.
AFE. AFE's current demand of 1,200,000 tons (equivalent to 245,000,000 tons km), is expected
to remain constant in 2003, would begin to growth in 2004 and, mainly due to the transportation
of forest products and containers, reach 2.00 million tons in 2007 (equivalent to 479,000,000
tons km). Prices are expected to remain unchanged. The current number of employees (1,640 at
an annual average cost of US$5,976) will be significantly reduced as a result of the proposed
reorganization and only 345 of these employees will remain and no significant change is
expected in the following years. Part of the remaining 1,295 employees (about 420) will move to
an infrastructure in MTOP. The retirement incentive package includes 16 salaries to be paid
during 30 months. Benefits are estimated as the difference between normal salaries and the
value of the retirement incentive package.
ANCAP.
The estimated worth of ANCAP's association with a private company is
US$200,000,000 which, taking into account the State's 49% share, comes to US$98,000,000.
Nonetheless, to take into account current macroeconomic conditions in the region, this benefit
has been conservatively estimated at 60 per cent of that value (US$58,00,000). A significant
improvement in ANCAP's efficiency is expected from its association with the private company.
The number of employees would decrease by 1,285 (from 2,112 to 827) and is expected to
remain at about 827 in the foreseeable future. Resulting savings have been estimated based on
an annual average cost per employee of US$11,479. As in AFE's case, the employees would
Page 91
retire under retirement incentives comprising 16 salaries payable during 30 months. Expected
sales are 2,238,000 m3 today, 2,328.000 in 2003 and 2,730,000 in 2007, with an accumulated
average annual growth rate of 4%.
ANC. A payment of US$1,500,000 per year in universal service fees, increasing 2% per year
was assumed. The number of mailed units per year is estimated at 30,307,000 for 2002 and at
33,390,000 for 2007. Distribution of public utilities bills was excluded. The number of
employees is expected to decrease by 532 in 2003 (from 1,772 to 1,240), and keep falling 2% per
year to reach 1,150 in 2007. Expected savings have been estimated based on an average annual
cost per employee of US$7,675 and a payment of 16 average salaries in 30 installments
(equivalent to a monthly payment of 0.53 of the current salary during 30 months).
ANTEL. In US dollars, income revenues for 2003 are expected to decrease 5.1 percent in
relation to 2002 and thereafter to grow at an annual accumulated rate of 1 percent per year.
Telephone lines are assumed to grow from 951,000 in 2002 to 960,500 in 2003, and continue
growing at the same rate to reach 999,500 in 2007. In 2003, 860 employees are expected to
leave ANTEL (out of a total of 5,273 today), under the same conditions as the other utilities
above (16 average salaries payable in 30 installments). Later on, ANTEL's labor force would
continue to decrease at an annual rate of 1.5% to reach 4,765 employees in 2007. ANTEL's
annual average cost per employee is US$14,855.
OSE. Income has been assumed to grow US$5.6 million per year following the implementation
of a management contract covering a third of the Metropolitan region. Current sales (150 million
of mi3 ) are expected to reach 153 million of m3 in 2003 and then to continue growing at a fixed
rate to reach 170 million of m3 in 2007. In 2003, 460 employees are expected to leave OSE (out
of a total of 4,613 today), under the same conditions as the other utilities above (16 average
salaries payable in 30 installments). Later on, OSE's labor force would continue to decrease at
an annual rate of 2% to reach 3,280 employees in 2007. OSE's annual average cost per
employee is US$9,320.
UTE. Income revenues are expected to drop 5 percent in 2003 as a result of the economic crisis
and later on to growth annually at an accumulated average rate of 2 percent. Current sales (6,664
GWH) are expected to remain unchanged in 2003 and then to grown at an annual average rate of
2 per cent to reach 7,213 GWH in 2007. Labor (currently at 6,260 employees with an annual
cost of US$16,930) has been assumed to decrease by 630 employees (to 5,630) in 2003, and
continue decreasing at an annual rate 2 percent to reach 5,180 in 2007.
Page 92
IFECAL[I9AClF (IF REFlRFORAM
U3$nihcn
2-02
2D03
LbnA&dmft OL3E
2iOD
120
I cefiarBrnl
2_____ao
Q0
1Z 1MbxwoAAupit(1)
Q(
123NesSkxsidQxmYard
Z lcwimthmrPAfi9z6
Q0
3a0
_
QLy
QC
0C
32 AWc
00a
00
120
25
25
4Q_1
24
2
252
IQO
10
0.
Q(
5
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RmIwdE,Edmls0.
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41
41
4Z AtEL
Q
LtI
-
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--
I:'
OQC
-2
Go
Qf
-1Q
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-83
43
0
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60
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-11.3
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-182
(
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0
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0.
-1.
43 UIE
00
2
I
2-45
-4.0
O
2Q(
OQ(
S._MMIi
51 DMESIAAP(3)
52 1/VA
_.0
5ZI AN[H
522U1E
53 fR/C
5-3 1
532 ANTEI
533 CS(4)
534 UrE
54
0
_yI_
120
Q(
Q(
Q.0
/(BPS)
t00
43
2
1.
29
1
Q07
0
'I
07
ao
t0
5.54ANTEL
0S
Q'0
Q.
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19
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4
-
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-198
-1.8
4
3
I
ia
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|
_ _ _ _
1
7.7
6_8
4._
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4
.
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4
l.
371
330
450
1160
11.7
7
4.
9.6
1.
2
3.
170
9.t
189
4
14.
136
1.1
4
5.S
2
1.3
16
27
1
I
42
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-1.8
4.9
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72
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2
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4.{
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73.2
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4'7
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(3)Basditlasmzqtnhr1 na3sddm2
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Page 93
84
9
-5.5
48
-2Q
7.
2
4'
4I51~I
1.7
aQl
2
-1
4.
W
Q
MAL
8[2
490-
555 (C;E
42
1.1
33
7Q
&
200
83
5
31
60
1.
I
19
00-2
5 4 ZANEL
543 {EE
544 JLfE
55Tmzyi,3 to Soadt
&
5.51AFE/MRF
55ZAAP
t
3_
I
0
_
-21
.91
rev
52
251
Z
_
1UAL
24
ao
15.C
Q2
Q1
1
2C7
25
_ _ _
__
1
24
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Q
, _ _ _
A_R
m ____
t
31 AFIE/M
2006
20D5
3hG|
.
-7:
-15.
.
Annex 6: KEY ECONOMIC INDICATORS
CAS Annex B4 -Key Economic Indicators -
page I of 2
1995
1996
Actual
1997
1998
1999
2000
2001
Estimate
2002
2003
Projected
2004
2005
1000
1000
1000
1000
100.0
1000
1000
1000
1000
1000
1000
84
78
74
68
54
59
60
61
60
61
Indusry
28 1
27 7
27 6
27 9
26 3
260
25 0
28 0
28 3
28 1
28 5
Services
63 6
64 5
65 0
65 3
68 3
681
69 0
66 0
65 7
65 9
65 4
Total Consumption
Grossdonesticflxed
investient
Governmentinvestment
Private investment (Includes mcrease in
stocks)
84 7
135
84 9
140
84 8
144
84 9
152
861
14.5
87 0
13.2
87 8
12.1
85 2
104
85 6
90
86 5
83
84 9
79
39
9.7
35
10.5
36
10 8
42
110
43
10 2
35
97
37
85
24
80
24
6.6
24
58
25
55
Exports (GNFS)b
Imports (GNFS)
19 0
191
19 7
19 9
20.5
20.5
19 9
20.6
18 0
19 3
20 0
21.0
18 6
19 9
23 5
20 2
27.4
23 0
27 4
23 0
28 3
22 0
Grossdormesticsavings
153
151
152
151
139
130
122
148
144
13.5
151
Gross national savtngs
13 7
13 7
13 8
13 8
12.4
116
10 5
12 1
11 2
101
10 8
193
51200
20.5
57800
21.7
66000
224
66400
209
63200
201
61200
187
56500
123
49797
110
4557 1
118
41809
Real annual growth rates (%. calculated at 1993 pnces)
-1 4
Gross domestic product at market pnces
-1 2
Gross Dofestc Income
56
6.2
50
47
4.5
41
-2 8
-2 9
-I4
-0 8
-3 1
4 5
-11 0
-18 6
-2 0
-3.5
4.5
31
40
-3 1
Real annual per capita growth rates(*, calculated at 1993 prices)
48
-2 2
Gross domestc product at market pnces
-3 9
71
Total consumption
-4 4
75
Pnvate consumption
43
47
51
38
57
60
-3 6
-20
-2 3
-2 2
-2 1
-2 3
-3 8
-3 2
-3 4
-11 7
-20 7
-21 8
-2.6
-6.0
-5 5
40
49
63
35
33
31
Indicator
National accounts (%of GDP)
Grossdomesticproduct
Agncultrwe
Memorandum items
Grossdomesicproduct(US$bn,tcurrentspnces)
Gross national product per
capita (USS, Atlas method)
6.0
131
4052.3
Balance of Payments (USSm)
5
3507
2148
3848
2449
4210
2793
4136
2829
3478
2291
3658
2384
3272
2144
2887
1873
3017
2023
3247
2208
3708
2411
Imports (GNFS)
Merchandise FOB
Resource balance
Net cufrent transfers
(including official current
transfers)
Current account balance
(after official capita grants)
3568
2711
-62
76
3974
3135
-127
83
4390
3498
-180
74
4471
3601
-335
67
3997
3186
-519
50
4172
3311
-514
43
3675
2911
-403
43
2492
1900
395
38
2528
1919
489
38
2728
2091
519
39
2879
2217
829
41
-213
-233
-298
453
-502
-532
-475
103
170
157
304
Netppnvate foreign direct
investment
Long-term loans (net)
Other capital (net, including
errors and onussions)
Change in reserves\d
157
113
155
238
285
319
128
133
138
144
524
136
88
184
555
4
2175
-1501
446
-3877
0
660
0
-48
0
-748
Exports (GNFS)
Merchandise FOB
5
Memorandum items
Resource balance (%of
GDP at current market pnces)
Annual growth rates
Merchandiseexports(FOB,US$bn)
Pnmary
Manufactures
Merchandise imports (CIF, USS bn)
137
187
78
374
-133
723
-207
-209
-144
-330
-362
-9
-303
-518
3200
-963
-247
301
-0 3
-0 6
-0 8
- 5
-2.5
-2 6
-2 2
32
44
44
63
101
176
2.6
29
13.8
179
92
15 9
137
131
144
11 8
16
16
16
25
-192
-176
-212
-11 9
26
-1.5
78
32
-102
-116
-85
-11 7
-91
-91
-91
-37 9
80
8.0
80
10
92
92
92
90
92
92
92
60
(C.rnwdI
Page 94
URUGUAY
Indicator
Public finance (%of GDP)
Current revenues
Currentexpenditures
Current account ssrplus (+)
or deficit (-)
Capital expenditure
Foreignfinancing
- Key Economic Indicators
page 2 of 2
1995
1996
Actual
1997
1998
1999
2000
2001
Estimate
2002
2003
Projected
2004
27 4
277
-0 3
27.4
280
-0.6
280
282
-0 2
30 4
296
08
30.3
320
-18
29 4
318
-24
29 2
32.4
-3 3
29 1
333
-4 2
29 2
307
-15
29 0
310
-20
28 9
304
-15
39
06
35
1.5
36
17
4.2
12
4.3
-1.3
3.5
0.8
3.7
10
24
1.1
2.4
-16
24
20
25
-16
377
390
I I
386
366
12
396
284
12
439
268
11
490
13 1
0.8
512
72
35
596
190
10
644
139
10
550
98
10
531
177
10
501
69
10
1313
91 3
1438
1572
-4 0
42 2
41 0
127.4
917
1390
1604
-0 2
28 3
26 4
1250
91 7
1363
1688
4 3
19 9
19 3
1240
86 0
1441
1721
43
10 8
94
115.2
88 6
130.0
1780
8.6
56
42
1135
93 0
1221
1789
73
48
40
1079
84 2
1281
1772
10 0
43
5.6
1089
81 6
1334
1213
321
13 9
18 5
1089
83 3
1308
1063
90
29 5
31 2
1122
83.3
1347
1111
90
17 7
16 6
1156
83 3
1388
1160
90
69
92
2005
Monetary indicators
M2JGDP(atcufrentmarketpnces)
GrowthofM2(%)
Pnvate sector credit growth /
total credit growth (*)
Price indices( 1993 =100)
Merchandiseexportprnceindex
Merchandise import pnee index
Merchandisetermsoftradeindex
Realexchangerate((USS/LCU)f
Real interest rate
Consumer pnce mdex (%growth rate)
GDP deflator (%growth rate)
ae estunawedat factor costa footnoote indicating dinsfact should be added
. If GDP components
b GNFS' denous 'goods and nunfactot saevices
cIncludes net unrequted ruansfeas
exludiang official capd grants
d tncludes aaeof IMF resourees
Should indicatedhelevel of thegovernment to which the data refer
in US5/LCU denotes appreciation
f*LCU" denotes 'local cunency untms An mcrease
Page 95
Annex 7: KEY EXPOSURE INDICATORS
CAS Annex BS -Key Exposure Indicators Key Exposure Indicators -Unaguay
1995
Indicator
1996
Actual
1997
1998
page I of I
1999
2000
2001
Estmate
2002
2003
Protected
2004
2005
8415
8585
8725
9323
9108
8895
8937
10690
11892
12251
11959
Net disbursements (US$mn)'
3341
170
140
598
-214
-213
42
1753
1202
359
-292
Totaldebtservice(TDS)
818
641
686
1119
1006
1157
1217
1415
1953
1906
2577
Total debt outstandingand
disbursed (TDO) (US$mn)
(USSmn)
5
Debt and debt service indicators
(%)
TDO/XGS'
TDO/GDP
TDSIXGS
ConcessionallrDO
DBRD exposure indchators (%) f
IBRDDS/pubhcDS
Preferred creditor DS/pubhc DS (%)c
1BRDDS/XGS
219
41
21
204
40
15
211
39
17
268
45
32
249
45
27
272
48
35
310
73
42
354
97
47
366
100
60
330
94
51
301
85
65
152
183
153
95
112
74
41
141
153
136
104
21
18
20
41
25
48
30
536
467
403
475
476
552
544
35
703
37
915
39
987
31
985
05
0
04
0
04
0
04
04
0
04
0
04
04
0
0
06
0
07
0
07
0
IFC(USSm)
Loans
Equilty and quasi-equity f
23
16
7
23
16
7
25
18
7
30
13
17
27
10
17
19
6
13
18
6
12
MIGA
MIGA guarantees (USSm)
0
0
0
38 0
35 5
35 5
20 5
IBRDTDO(US$m)'
Of wluch present value of
guarantees (US$m)
Share of IBRD portfolio (%)
IDA TDO (US$m)
a Includes public and publicly guaranteed debt, extemal liabilites of the financial system. pnvate nonguaranteed, use of IMF credits and net shorttesni capital Source Central Bank of Uruguay and bank staff esuimates
b "XGS" denotes expots of gods and serces,mincluding wkrers' renauttunes
c Preferred creditors are defined as IBRD, IDA. the regional multilateral development banks. the IMF. and the
Bank for Internatnonal Settleents
d Escludes prsent value of guarantees
e Includes eqinty and quasi-equity types of both loan and eqwty instruments
fSpecified on a calendar year basis
Page 96
0
Annex 8: URUGUAY-FUND RJELATIIGNS
(As of January 31, 2003)
I.
Membership Status: Joined March 11, 1946; Article vm
Financial Relations
II.
General Resources Account:
Quota
Fund holdings of currency
m.
SDR Department:
Net cumulative allocation
Holdings
IV.
Outstanding Purchases and Loans:
Stand-by arrangements
V.
In millions
of SDRs
In percent
of Quota
306.50
1,625.31
100.0
530.28
In millions
of SDRs
Percent of
Allocation
49.98
18.16
100.0
36.34
In millions
of SDRs
In percent
of quota
1,318.80
430.28
Financial Arrangements:
Type
Stand-by
Of which SRF
Stand-by
Stand-by
Approval Expiration
Date
Date
4/01/02
6/25/02
5/31/00
3/29/99
3/31/04
8/08/02
5/31/02
3/28/00
SDR Millions
Amount Amount
Approved Drawn
2,128.30 1,111.70
128.70
128.70
150.00
150.00
70.00
0.00
VI.
Projected Obligations to Fund: (Obligation Basis) (SDR millions; based on
existing use of resources and present holdings of SDRs):
2003
Principal
Charges/interest
Total
185.80
43.59
229.39
Page 97
Forthcoming
2004 2005
2006
2007
226.63 566.50 339.88
36.91 35.45 20.19
5.02
36.91 262.08 586.69 344.90
Nonfinancial Relations
VII.
Safeguards Assessment: Under the Fund's safeguards assessment policy, the Central
Bank of Uruguay (CBU) is subject to a Safeguards Assessment with respect to the
Stand-By Arrangement that was approved on April 1, 2002 and considered for
augmentation on June 24, 2002. An assessment of the CBU's extemal audit
mechanism to determine whether the CBU publishes annual financial statements that
are independently audited in accordance with internationally accepted standards was
completed on October 19, 2000. In June 2002, an on-site safeguards assessment was
completed. The assessment identified a further need to improve the external audit
mechanism, including providing for an independent audit committee to oversee this
process, and to conduct an external audit of the FSBS.
VIH.
Exchange Rate Arrangement: The currency is the Uruguayan peso (Ur$). Since
November 2, 1982, Uruguay has followed a crawling peg system within a band
whereby the Central Bank announces periodically its intervention buying and selling
rates. The peso was floated on June 20, 2002. On January 31, 2002, buying and
selling interbank rates for the U.S. dollar, the intervention currency, were Ur$28.35
and Ur$28.40 respectively. Uruguay's exchange system is free of restrictions on
payments and transfers for current international transactions; there is no parallel
market for foreign exchange.
IX.
Article IV Consultation: The 2001 Article IV Consultation was concluded by the
Executive Board on February 14 (EBS/01/17). Uruguay is on the standard 12-month
cycle.
X.
FSAP participation, ROSCs, and OFC Assessments: The ROSC-module on fiscal
transparency was published on March 5, 2000. A ROSC-module on data
dissemination practices was published on October 18, 2001. The authorities have
requested participation in an OFC assessment for early 2002. The FSAP exercise
started in November 2001; its completion has been delayed until the situation
stabilizes.
XI.
Technical Assistance: A STA mission on money and banking statistics took place in
March 1999. A multisector STA mission took place in November 1999 which
developed an overall action plan for statistics management in Uruguay, including
detailed recommendations for bringing Uruguay's data dissemination policies and
practices into line with the Fund's SDDS. Technical assistance in the areas of tax and
customs administration had been provided by the FAD in 1996. In June 2000 and
May 2001, FAD provided technical assistance in the area of quasi-fiscal activities in
the public sector. In December 2001, STA provided technical assistance to help
Uruguay subscribe to the SDDS. In September 2002, FAD provided technical
assistance in the areas of tax policy and revenue administration to prepare a
comprehensive tax reform.
XII.
Resident Representative: Mr. Andreas Bauer
Page 98
Annex 9: STATUS OiF BANK GROUP OPERATIIONS
CAS Annex B8 - Uruguay
Operations Portfolio (tBRiIvDA and Grants)
As Of Date OV228I20O3
Closed Projects 41
Total Disbursed (Active)
of which has been repaid
Total Disbursed (Closed)
of which has been repaid
Total Disbursed (Active +Closed)
of which has been repaid
CD
405 30
30 21
1,302 72
1,103 46
1,708,015,922.42
1,133,675,016 18
Total Undisbursed (Active)
279.74
Total Undisbursed (Closed)
0 00
Total Undisbursed (Active +Closed)
279,744,643 03
Difference Between
Active Proieta
Expected and Actual
iast PSR
'0
Oeetimes
on
Irie
Disbursemantad
Orisinal Amount in USS Milliono
Suporvlsion Reting
Fiscal Year
Orig.
Cancel.
Undisb.
5
39 58570537
44 58570537
6
5.60254805
083588138
645
09001893
09001893
IBRD
IDA
GRANT
Project ID
Project Nrna
P063383
APL OSE MOD&REHAB
S
S
2000
27
P039203
FOREST PROD TSP
S
U
1997
76
P070058
PUBLIC SERVICES MODERNIZATION TA S
S
2001
P049267
TRANSPORTII
S
S
1999
P077172
UR Structural Adjustment
S
S
2003
151 52
50
P074543
UYFOOT&MOUTHDISEASE-ERL
S
S
2002
185
638321976
-12.11676591
S
1996
125
5895466348
5895466348
-5152
2 14174952
P008177
UYPOWERTRNMSN&DISTR
S
24 73
1976333333
P080263
UYSSAL
S
S
2003
15152
50
P070937
UY- Basic ED3
S
S
2002
42
40 57174952
P041994
UY-Baslc Ed 2
S
S
1999
28
301656755
2 60656755
279 744643
-35 36867598
Overall Result
a Intended disbursements to date minus actual disbursements to date as projected at appraisal
690 04
5
Frm Rev'd
Annex 10: STATUS OF BANK GROUP OPERATIONS
CAS Annex B8 (IFC) for Uruguay
Uruguay
Statement of IFC's
Held and Disbursed Portfolio
As of 01/31/2003
(In US Dollars Millions)
I
FY A roval
1985/92
2001
2002
1995
1991
1980/86/88/95/2003
2001
Total Portfolio
Company
Azucitrus
Banco Montevideo
Conaprole
Consorcio Aerop.
Granja Moro
Surinvest
Umontevideo
Held
Disbursed
Loan Equity Quasi Particj Loan Equity Quasi Partic
0.57 3.45
0
0 0.57 3.45
0
0
0
9
9
0
0
9
9
0
20
0
10
0
5
0
10
0
1.6
0
4 1.82
1.6
0
4 1.82
1.78 0.75
0
0 1.78 0.75
0
0
3.01
1.79 1.93
0 3.01
1.79 1.93
0
5
0
0
0
3.3
0
0
0
31.96 14.99 24.93
1.82 15.26 14.99 24.93
Approvals Pending Commitment
Approval Date
Loan Equity Quasi Partic
Pipeline Projects - Pending Approval
Loan Equity Quasi Partic
ABN Trade
20
0
0
80
BKB UruguayTTF
10
0
0
20
Page 100
1.82
Uruguay at a glance
Uruguay
Lain
America
&Carib.
UpparmiddiaIncome
3.4
5,790
195
516
3.680
1,895
647
4,620
2,986
0.7
1.2
1.6
2.3
1.3
2.0
POVERTY and SOCIAL
2001
Population, mid-year (millions)
GNI per capita (Atlas method, US$)
GNI (Atlas method, US$ billions)
3/7/03
Davalopment diamondr
Life expectancy
Average annual growth, 1995-01
Population (%)
Labor force ('Y)
GNI
~
per
capita
Most recent estimate (latest year available, 1995-01)
~
--
Gross
pnmary
enrollment
Poverty (%of population below national poverty line)
91
74
15
Urban population (%of total population)
Life expectancy at birth (years)
Infant mortality (per 1,000 lve births)
Child malnutrition (%of children under 5)
Access to an improved water source (%of population)
..
98
Illiteracy (%ofpopulabon age 15+)
Gross primary enrollment (%of school-age population)
76
69
28
Access to Improved water source
87
2
12
10
109
113
107
109
108
Male
Female
75
70
30
9
85
.
..
-Uruguay
Upper-middle-income group
106
105
KEY ECONOMIC RATIOS and LONG-TERM TRENDS
1981
1991
20S0
2001
GDP (US$ billions)
11.0
112
20.1
18.7
Gross domesOc investment/GDP
Exports of goods and services/GDP
Gross domestic savings/GDP
Gross national savings/GDP
21.4
15.2
17.6
17.0
15.1
20.7
18.0
15.6
14.0
20.0
13.0
11.6
13.4
18.6
12.2
10.5
Current account balance/GDP
Interest payments/GDP
Total debtlGDP
Total debt semce/exports
Present value of debttGDP
Present value of debt/exports
-4.2
20
197
16.2
0.4
4.2
37.4
17.2
-2.7
4.2
44 3
37.0
-2.5
5.0
479
41.9
Econom3c ratiosa
Trade
Ivsmn
Investment
Domesbc
savings
s
..
.
Indebtedness
1981-91
1991-01
2000
2001
201-05
1.4
0.8
4.4
2.6
1.8
4.8
-1.4
-2.2
6.4
-3.1
-3 8
-8.8
-1.5
4.9
02
1981
1991
2000
2001
11.8
32 2
23.5
56.1
8.1
341
27.1
57 8
59
26.0
16.1
681
60
250
156
69 0
68.0
144
701
12.0
73 8
132
74 4
13.4
19.0
17.9
210
19 9
1981-91
1991-01
2000
Agnculture
0.4
16
-3 0
-51
Industry
09
0.6
-23
-566
0
5
0
(average annual growth)
GDP
GDP per capita
Exports of goods and services
UNguay
Upper-middle-income group
STRUCTURE of the ECONOMY
of GDP)
(%6
Agnculture
Industry
Manufactunng
Services
Private consumption
General govemment consumption
lmports of goods and services
2001
Growth of Investnont and GDP f%)
2
T
'*
o
98
_GD1
1
14
-0.4
-2.1
6.2
Services
1.9
3.7
0.8
-1.8
Pnvate consumption
1.7
3.9
-1.6
-2.7
5
1.8
-2.9
2.4
2.1
3.0
7.1
-0.3
-13.0
0.1
-1.3
-7 7
-7 7
l10
General govemment consumption
Gross domestic investment
Imports of goods and services
98
-
GDP
Growth of exports and imports (%)
(average annual growth)
Manufactunng
97
.20
T_
98
97
-Expons
+=Imports
Note 2001 data are preliminary estimates
The diamonds show four key indicators in the country (inbold) compared with its income-group average. I data are missing, the diamond will
be incomplete
Page 101
Uruguay
PRICES and GOVERNMENT FINANCE
Domestic prices
(%change)
1981
Consumer pnces
Implicit GDP deflator
0.0
27.3
1991
2000
2001
101.1
100.8
4.8
4.0
4.3
5.6
Government finance
Current budget balance
Overall surplus/deficit
(o )
_
20
10
(%of GDP, includes current grants)
Current revenue
Inflati
50
0
..
..
..
32.5
29.4
29.2
4.8
1.2
-2.4
-3.9
-3.3
-4.0
1991
2000
2001
Export and import levels (USS mill.)
2,295
701
257
1,057
3 46
316
462
973
2,060
517
292
967
3061
8
279
469
824
4o.oo
3.s00
86
102
85
82
92
89
97
98
GDP deflator
98
99
0O
01
OCPI
TRADE
1i981
(US$ mi/hlons)
Total exports (fob)
Meat
Vegetables
Manufactures
Total imports (cfl.
Food
Fuel and energy
Capital goods
.
..
1.605
376
207
798
1,636
119
232
530
Export pnce index (1995=100)
Importpnce index (1995-100)
Terms of trade (1995=100)
..
.
.
93
90
103
..
..
..
..
3.000
2.,00
2,0o0
1*000
soo
0
95
98
97
98
99
*Exports
00
01
mImports
BALANCE of PAYMENTS
(US$ millions)
1981
1991
2000
2001
Exports of goods and services
Imports of goods and services
Resource balance
1,701
2,098
-397
2,201
1,966
235
3,658
4,172
-514
3,272
3.675
-403
-74
10
-232
40
-61
43
-115
43
Net income
Net current transfers
Cunrent account balance to GDP (%)
0
Current account balance
-461
42
-532
475
*2
Financing items (net)
Changes in net reserves
495
-34
-270
228
835
993
-30 8
_
811
1.08E-2
976
2.0
2,823
11.8
3,341
12.8
1981
1991
2000
2001
2,174
70
4,189
407
8,895
552
8,937
544
0
0
0
0
Memo:
Reserves including gold (US$ millions)
Conversion rate (DEC, local/US$)
EXTERNAL DEBT and RESOURCE FLOWS
(US$ millions)
Total debt outstanding and disbursed
iBRD
IDA
Composition of 2001 debt (USS mill.)
Total debt service
IBRD
IDA
298
16
0
419
70
0
1,653
176
0
1,731
100
0
Composition of net resource flows
Official grants
Official creditors
Pnvate creditors
Foreign direct investment
Portfolio equity
0
.5
358
49
0
7
141
-138
0
47
0
193
510
285
191
0
152
852
319
744
Disbursements
70
6
Pnncipal repayments
Net flows
Interest payments
Net transfers
-2
7
-9
65
81
42
39
28
11
108
141
61
80
36
44
6
58
65
-8
42
-50
World Bank program
Commitments
8
Development Economics
A 544C 161
G2,685
-
-
h
D 6
294
-E4
-r
F 6,122
A- IBRD
B -IDA
C - IMF
D -Other multilateral
E -Bilateral
F -Prtvate
G -Short-term
3/7/03
Page 102
_ ,-
r g
. - . _H2
IF
@P,aoi No.: A
PA
Typs:
0
25012
U
UR