- 5 Two studies were commissioned as part of the concession process. The first study, financed by the Rio de Janeiro Metropolitan Transport Decentralization loan and executed by consultants, examined the basic parameters to be included in the concession bid documents, estimated demand under different scenarios, prepared financial projections, reviewed the legal and institutional framework, and proposed a number of actions to be considered by the State to deal with redundant staff who would not be absorbed by the potential concessionaire. The study also reviewed the impact of the federal concession law on the proposed concession. The study's financial projections suggested that there would be three to four years during which the system would require an operating subsidy (of roughly US$150 million) from the government

51. The second study prepared the preliminary background memorandum, cash flow analysis, environmental and safety assessment, inventory of infrastructure and equipment, and procurement documents. The study was financed by the State and conducted by the same local consortium that conducted the Metro study. In addition, through a Bank-administered grant from Japan, funds were made available to Flumitrens to hire consultants to help the State review the cash flow analysis and to mount a road show in Miami. The purpose of that show would be to explain the process to potential concessionaires; the grant also helped in funding procurement consultants, and to prepare the "data room.", i.e., the room where all the documentation prepared by the State on Flumnitrens would be made available to potential bidders. The main responsibility for the preparation of the procurement documents remained with the consortium hired by the State. That consortium also helped the State present the concession documents to the public (public audience), a step required by Brazilian law.

52. The Metro concession, which preceded the Flumitrens concession, was a great success. However, the opposition parties harshly criticized the minimum price set for the concession and accused the administration of having tried to give away State property to the private sector. Sensitive to these concerns, State officials handling the Flumitrens privatization decided not to offer an operating subsidy as part of the Flumitrens concession. Instead, State officials devised a formula for providing the winning bidder with funds for additional capital investments and approving increases in tariffs if improvements (such as installation of air conditioning) were made to the trains. It was expected that such additional capital plus the Bank loan would be sufficien **t** o attract private sector interest in the concession.

53. World Bank procurement guidelines stipulate that if the bidding documents for the concession include the package of investments financed by the Bank and the bidding process follows the Bank's rules on international competitive bidding, the winning party has the right to execute the investment package without further procurement (paragraph 3.13 a. of the Bank's procurement guidelines). This provision represented a great incentive for the private sector, because it ensured that the investments that were still required, mainly train rehabilitation, could be implemented by the 12