Colombia - Second National Highways Sector Project

Document of The World Bank FOR OFFICIAL USE ONLY Report No. P-4554-CO MEMORANDUM AND RECOMMENDATION OF THE PRESIDENT OF THE INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED LOAN IN AN AMOUNT EQUIVALENT TO US$180.3 IILLION TO THE FONDO VIAL NACIONAL WITH THE GUARANTEE OF THE REPUBLIC OF COLOMBIA FOR THE SECOND NATIONAL HIGHWAYS SECTOR PROJECT May 13, 1987 This docment has a restricted distribution and may be used by recipients only in the performance of tbeir officbl duties. Its contents ng not otherwise be disclosed without World Bank authorization.  CURRENCY EQUIVALENTS Currency Unit = Colombian Peso (Col$) US$1 = Col$225.0 (mid-February 1987) Col$ 1,000 = US$4.44 FISCAL YEAR January 1 - December 31 WEIGHTS AND MEASURES Metric System ABBREVIATIONS MOPT - Ministry of Public Works and Transport INTRA - National Transport Institute  FOR OMCIA U8E ONLY COLOMBIA SECOND NATIONAL HIGHWAYS SECTOR PROJECT LOAN AND PROJECT SUMMARY Borrower: Fondo Vial Nacional Guarantor: Republic of Colombia Beneficiary: Ministerio de Obras Publicas y Transporte Amount: US$180.3 million equivalent Terms: Repayment in 17 years, including four years of grace, at the standard variable interest rate and charges. onlending Terms: Not applicable Financing Plan: Government US$1,319.4 millien IDB US$ 102.3 million IBRD (ongoing) US$ 21.0 million IBRD (proposed) US$ 180.3 million TOTAL US$1,623.0 million Economic Rate of Return: Above 35% for the road improvement and maintenance program (76% of total project costs), and at least 12% for the remaining road components. Staff Appraisal Report: No. 6646-CO, May 13, 1987 This document has a restricted distribution and may ';ents only in the performance of their official duties. Its contents may not otherwise to .-5out World Bank authorization.  MEMORANDUM AND RECOMMENDATION OF THE PRESIDENT OF THE INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED LOAN IN AN AMOUNT EQUIVALENT TO US$180.3 MILLION TO THE FONDO VIAL NACIONAL WITH THE GUARANTEE OF THE REPUBLIC OF COLOMBIA FOR THE SECOND NATIONAL HIGHWAYS SECTOR PROJECT 1. The following report on a proposed loan to the Fondo Vial Nacional for US$180.3 million is submitted for approval. The proposed loan would be repayable over 17 years, including four years of grace, at the Bank's standard variable interest rate and charges. 2. Background. The Ministry of Public Works and Transport (MOPT) is directly in charge of the administration of some 26,000 km of roads comprising the national highwaylsystem. MOPT is also primarily responsible for transport policy and for overviewing the activity of the autonomous public agencies running the ports and railways systems. MOPT's role has been predominantly concerned with the construction of highway infrastructure, although, under previous Bank loans, increasing emphasis has been given to maintenance administrat.on and sector management. During implementation of the First Highway Sector Project approved in April 1982, the basis for a cooperative sector development effort covering policy and institutional issues has been established. Financing under the project covered studies on road user charges and trucking regulation and services; actions recommended by these studies have been initiated but still remain to be fully implemented. Further integration of sector planning with the budgetary programing and execution processes is also required for a more effective role of MOPT in multimodal transport management. With regard to transport expenditure policies, priority has been assigned to quick-yielding infrastructure rehabilitation and maintenance in support of export oriented activities. Sector financing is largely ensured through cost recovery mechanisms, with levels consistent with the stabilization policies of the overall macroeconomic program. 3. Project Objectives. The main objectives pursued under the proposed project cover: (a) improvement of MOPT's internal efficiency, including productivity increases in road maintenance; (b) adjustments in the system of cost-recovery from road users; (c) easing of economic regulations affecting the trucking industry and trade facilitation measures; (d) improvement of procedures for the preparation and monitoring of the transport expenditure program; and (e) upgrading the condition of the national highway network and reduce overall transport costs. The loan would support the implementation of MOPT's 1987-1993 investment and maintenance program, designed as an integral part of an economically balanced sector development plan. 4. Project Description. The proposed project includes a policy reform and institutional development Action Plan and an investment component to be financed under the loan. The Action Plan builds on and broadens the  - 2 - achievements of the First Highway Sector Project covering planning, financial control, road safety, personnel training, and effectiveness of road maintenance operations. It also includes adjustments in road user charges for improved cost-recovery, as well as in Government intervention in the road transport market to increase its operational efficiency. Specifically, the facilitation of transport services is pursued through actions aimed at streamlining regulation and documentation,and removing other bottlenecks which have so far prevented a more efficient flow of goods, particularly exports. The Action Plan also aims at improving the transport sector budgetary process through the implementation of programirig and monitoring systems covering the different subsector agencies. The physical investments would focus primarily on paving, rehabilitation and maintenance of the existing road infrastructure, road safety improvements, and road maintenance equipment and spare parts. The total project cost, which is MOPT's 1987-1993 highway investment and maintenance program, net of administration costs, is estimated at US$1.6 billion, with a foreign exchange component of US$654 million (40%). A breakdown of costs and the financing plan are shown in Schedule A. Amounts and methods of procurement and disbursements, together with the disbursement schedule, are shown in Schedule B. A timetable of key project processi'Z events and the status of Bank Group operations in Colombia are given in Schedules C and D, respectively. The Staff Appraisal Report No. 6646-CO of May 13, 1987 is being distributed separately. 5. Rationale for Bank Involvement. The Bank has been a traditional partner in the development of the transport sector in Colombia. The extensive knowledge and understanding of Colombia's transport situation built up in the process place the Bank in a position to assist further implementation of modern sector management techniques within a policy framework consistent with current macroeconomic priorities, and articulated with the ongoing efforts for stabilization and diversification of the economy. Bank participation is also deemed instrumental to help keep the focus on improving transport efficiency and better exploring opportunities of intermodal coordination and trade facilitation. 6. Agreed Actions. The Government has agreed to undertake several actions under the policy reform and institutional development Action Plan, as follows: (a) ensure that all vehicle categories be charged for at least the associated road routine and periodic maintenance costs (1987-1993); (b) reduce regulation of the road transport market, in particular through a reassessment of the role of the National Transport Institute (INTRA) (July 1989); (c) reformulate the Codes of Commerce and Transport for improved equity ard insurance eoverage in transport contracts (December 1989), and review domestic truck assembly and import policy (December 1987); (d) rationalize controls and remove institutional barriers hampering the wider use of containers and intermodal transport (December 1987); (e) update the National Transport Plan taking in due consideration the economic role of the different modes of transport and funding arrangements, and initiate the preparation of regular sector operating plans in accordance with the strategy set up in the Plan (December 1988); (f) develop and implement computerized systems at the transport sector level for monitoring of the subproject portfolio, for pluriannual rolling expenditure and funding programs, and monitoring of the financial and operational performance of the sector agencies (April 1989); (g) implement corrective measures to rationalize contract cost escalation clauses, including the revision of the construction cost adjustment formulas(April 1988); (h) improve accounting and internal  control systems (December 1988); (i) increase the participation of contracted maintenance and reduce force account maintenance expenditures accordingly (1987-1993); (j) institutionalize a maintenance unit to foster more effective and comprehensive road maintenance planning and execution, and improve labor productivity (December 1988); (k) complete the purchase of equipment required to ensure a more effective vehicle-weight-control system (December 1988); (1) contract technical assistance to strengthen engineering studies and update design norms (December 1987); and (m) ensure adequate technical cooperation in training with external sources, in the context of a clearly established training policy (1987-1993). 7. The Government has also agreed to the following: (a) formalization of a sector development strategy based upon the agreed policy framework as guideline for implementation of the transport expenditure program; (b) annual reviews of MOPT's highway expenditures and funding program, in accordance with policies and economic criteria satisfactory to the Bank, with provision of additional counterpart funding for the program in any specific fiscal year, to offset any shortfall that might have ocurred in the previous year; (c) submission for Bank review of pre-feasibility studies for any additional investment on new road construction, which, in any event, shall yield economic returns of at least 12X; (d) selection of rehabilitation, maintenance and paving subprojects in accordance with a balanced investment strategy and, in any case, yielding economic returns of at least 12%; and (e) continued loan disbursements subject to a satisfactory annual review of progress under the Action Plan and compliance with the program targets. 8. Justification. Quantified economic benefits derive from vehicle operating costs and time savings from improved road conditions. The evaluation of the pluriannual road improvement and maintenance program (762 of the total project cost) found a consolidated economic rate of return above 35X. Remaining components of the road program would have an economic return of at least 12%. Additional benefits are expected from productivity increases in road maintenance operations, highway management improvements and greater operational efficiency in the trucking industry. 9. Risks. Potential risks are those associated with the timeframe needed to overcome long established institutional rigidities in MOPT's operational structure. The agreed upon institutional reform has already been set in motion during project preparation, and compliance with the policy, institutional and investment targets, to be assessed annually, would be a requirement for continued loan disbursements. 10. Recommendation. I am satisfied that the proposed loan would comply with the Artic! s of Agreement of the Bank and recommend that the Executive Directors approve the proposed loan. Barber B. Conable President Attachments Washington, D.C. May 13, 1987  -4- Schedule A Estimated Costs a/ Local Foreign Total (US$ million)o ) Investment Items 693.4 538.8 1,232.2 New Construction 136.8 99.1 235.9 Road Improvements 506.6 366.9 873.5 Equipment 5.4 48.2 53.6 Road Safety 13.5 9.8 23.3 Training 0.8 1.8 2.6 Studies 30.3 13.0 43.3 Maintenance 205.4 68.5 273.9 Base Cost 898.8 607.3 1,506.1 Contingencies 70.1 46.8 116.9 Total Cost 968.9 654.1 1,623.0 Financing Plan Government 968.9 350.5 1,319.4 IDB (ongoing and proposed) - 102.3 102.3 IBRD (ongoing) - 21.0 21.0 IBRD (proposed loan) - 180.3 180.3 Total Financing 968.9 654.1 1,623.0 .. .. _ . . . . . . . a/ At February 1987 prices.  -5- Schedule B Procurement Methods Total Project Element ICB LCB Other N.A. 2/ Cost 3/ - - - US$ million Civil Works 58.5 283.5 - - 342.0 (24.5) (118.5) C-) (-) (143.0) Maintenance Equipment 31.6 5.4 - - 37.0 (28.7) (4.9) (-) (-) (33.6) Consultant Services for Technical Assistance 3.1 3.9 - 2.2 9.2 and Training (0.9) (1.2) (-) (1.6) (3.7) Total 93.2 292.8 - 2.2 388.2 (54.1) (124.6) (-) (1.6) (180.3) It Amounts in brackets show the allocations from the proceeds of the loan. 2/ Not applicable: training expenditures. - For loan financed components. Disbursements Amount X of Expenditures Loan Category (US$ million) Financed (i) Highway Improvements, Road Safety 132.7 42% and Supervision (ii) Maintenance Equipment and 32.0 100% of foreign Spare Parts 90% of local (iii) Consultant Services for Technical 2.0 100% of foreign Assistance 30% of local (iv) Training 1.5 71% (v) Unallocated 12.1 Total 180.3 Estimated IBRD Disbursements (US$ million) IBRD FY 1988 1989 1990 1991 1992 1993 1994 Annual 31.0 1/ 35.6 36.2 30.5 26.1 19.7 1.2 Cumulative 31.0 66.6 102.8 133.3 159.4 179.1 180.3 1/ Including Initial deposit of US$9.0 million into Special Account.  -6- Schedule C COLOMBIA SECOND NATIONAL HIGHWAYS SECTOR PROJECT Timetable of Key Project Processing Events (a) Time taken to prepare: 6 months (b) Prepared by: Government with IBRD assistance (c) First IBRD Mission: March 1986 (d) Appraisal mission departure: September 1986 (e) Negotiations: April 20-24, 1987 Cf) Planned Date of Effectiveness: August 1987 (g) List of relevant PCRs and PPARs: Sixth Highway Project (PCR Loan 680-CO) Fifth Highway Project (PCR Loan 550-CO) (PPAR No. 1939)  -7- Schedule D Page I of 5 STATUS OT BANK OPERATIONS IN COLOMBIA A. STATEMENT OF BANK LOANS AND IDA CREDITS (as of March 31, 1987) (USSmillion) Loan Amount (less Cancellation) Number Year Borrower Purpose Bank IDA Undisbursed 81 fully disbursed loans and one IDA credit 2,176.0 23.5 1/ - 1583 1978 Republic of Colombia Power 50.0 8.5 1593 1978 Zona Franca Industrial y Industrial Comercial de Cartagena Export 15.0 0.6 1725 1979 Interconexion Electrica, S.A. Power 72.0 6.3 1737 1979 Instituto Colombiano de la Reforma Agraria Agriculture Cr. 20.0 0.1 1807 1980 Empresa de Energia Electrica de Bogota Power 84.6 15.4 1857 1980 Banco de la Republica Industrial Cr. 150.0 18.3 1868 1980 Empresas Publicas de Medellin Power 124.7 33.4 1953 1981 Empresas Publicas de Medellin Power 85.0 47.8 1966 1981 Republic of Colombia Rural Roads 33.0 1.2 1996 198! lastituto Golombiano te Hidrologia Irrigation 37.0 8.0 1999 1981 Corporacion Electrica de la Costa Atlantica Power 34.2 8.0 2068 1981 Empresa de Energia Electrica de Bogota Power 359.0 71.8 2069 1981 Instituto Nacional de los Recursos Naturales Renovables y del Medio Watershed Ambiente Management 9.0 6.8 1/ Includes exchange adjustment of US$4.0 million.  -8- Schedule D Page 2 of 5 A. STATEMENT OF BANK LOANS AND !DA CREDITS (as of March31, 1987) Number Year Borrower Purpose Bank IDA Undisbursed 2090 1982 Ferrocarriles Nacionales de Colombia Railways 77.0 58.2 2121 1982 Fondo Vial Nacional Highways 149.6 34.5 2174 1982 Republic of Colombia Rural Develop- ment 53.0 37.1 2192 1982 Fondo del Ministerio de Educacion Rural Education 15.0 6.8 2303 1983 Instituto Colombiano Agricultural Agropecuario Research 63.4 44.5 2349 1983 Carbones de Colombia, S.A. Coal Exploration 9.5 7.1 2379 1984 Republic of Colombia Earthquake Re- construction 40.0 8.5 2401 1984 Financiera Electrica Nacional Power Develop- ment Finance 170.0 5.3 2449 1984 Empresas Publicas de Hedellin Multipurpose power & water supply 164.5 138.5 2453 1984 Federacion Nacional de Agricultural Cafeteros de Colombiano diversifi- cation 50.0 35.3 2464 1984 Banco de la Republica Industrial Cr. 40.0 12.8 2470 1984 Empresas Municipales de Cucuta Water Supply 18.5 13.9 2476 1984 Empresa Colombiana de Petrol Petroleum 130.0 25.9 2477 1984 Banco de la Republica Development Banking 90.0 74.9 2512 1985 Empresa Acueducto Alcantarillo de Bogota Water Supply 129.0 120.9 2551 1985 Republic of Colombia Trade Policy Export Diver- sification 300.0 0.9 2611 1985 Republic of Colombia Health Services Integration 36.5 34.5 2634 1/ 1985 Empresas de Energia Electrica de Bogota Power 171.0 171.0 2635 1985 Empresas Puertos de Colombia Port Rehabili- tation 42.8 37.6 2637 1985 Empresas Publicas Municipales Water Supply 24.0 22.3 2667 1986 Instituto Colombiano de Hidrologia Irrigation 114.0 110.9 1/ Not yet effective.  -9- Schedule D Page 3 of 5 A. STATEMENT OF BANK LOANS AND IDA CREDITS (as of March 31, 1987) N o er sear B o PUrtose Bank IDA Undisbursed Nlumber YOM _______ 2668 1986 Fondo Nacional de Caminos Vecinales Rural Trans- port 62.0 57.9 2677 1986 Republic of Colombia Trade and Agriculture Policy 250.0 167.5 TOTAL 5,449.3 23.5 of which has been repaid 1,345.7 6.2 Amount sold 51.0 - of which has been repaid 51.0 Total now outstanding 4,052.6 17.3 (Exchange Adjustment B-Loans) .4 Total now held by Bank and IDA 4,052.2 17.3 Total undisbursed 1,4'3.0  - 10 - Schedule D Page 4 of 5 B. STATEMENT OF IFC INVESTMENTS (as of March 31, 1987) Fiscal Type of Amount in USS Million Year Obligor Business Loan Equity Total 1959 Laminas del Caribe, S.A. Fiber-board .50 .50 1960-1965 Irtdustrias Alimenticias Noel, S.A. Food products 1.98 .08 2.06 1961 Envases Colombianos, S.A. Metal cans .70 - .70 1961-1968 Morfeo-Productos para el Hogar, S.A. Home furniture .08 .09 .17 1961 Electromanufacturas, S.A. Electrical equiprent .50 - .50 1962-85 Corporacion Financiera Development Colombiana financing 6.00 2.02 8.02 1962-1963-85 Corporacion Financiera Development Nacional financing 6.00 2.04 8.04 1963-1967 Compania Colombiana de Textiles 1.98 .15 2.13 1968-1969 Tejidos, S.A. 1964-1970 Corporacion Financiera de Development Caldas firancing - .81 .81 1964-1968 Forjas de Colombia, S.A. Steel forging - 1.27 1.27 1966 Almacenes Generales de Warehousing 1.00 - 1.00 Deposito Santa Fe, S.A. 1966 Industria Ganadera Livestock 1.00 .58 1.58 Colombiana, S.A. 1967-70-74 ENKA de Colombia, S.A. Textiles 17.75 2.61 20.36 85-86 1969 Compania de Desarrollo de Tourism - .01 .01 Hoteles y Turismo, Ltda. (HOTURISMO) 1969-1973 Corporacior, Firanciera del Development Norte financing - .45 .45 1969-85 Corporacion Financiera del Development Valle financing 6.00 .43 6.43 1970 Promotora de Hoteles de Tourism .23 .11 .34 Turismo Medellin, S.A. 1970-1977 Pro-Hoteles, S.A. Tourism .80 .24 1.04 1973-1975 Corporacion Colombiana de Housing - .46 .46 Ahorro y Vivienda 1974 Cementos Boyaca, S.A. Cement 1.50 - 1.50 1975 Cementos del Caribe, S.A. Cement 3.60 - 3.60 1976 Las Brisas Mining 6.00 - 6.00 1977 Promotora de la Interconexion de los Gasoductos de la Costa Atlantica S.A. Utilities 13.00 2.00 15.00 1977 Compania Colombiana de Clinker, Cement and S.A* Construction Material 0.49 2.24 2.73  - 11 - Schedule D Page 5 of 5 B. STATEMENT OF IFC INVESTMENTS (as of March 31, 1987) Fiscal Type of Amount in US$ MillicG, Year Obligor Business Loan Equity Totai 1981-1985 Leasing Bolivar Leasing 14.00 .20 14.20 1981-1982 Petroleos Colombianos Ltd. Chemicals and Petrochemicals 12.15 3.86 16.01 1983 Frigorificos Colombianos, S.A. Food Processing 1.00 0.54 1.54 1984 Cementos Rioclaro S.A. Cement and Construction Material 22.52 5.00 27.52 1984 Carbones del Caribe S.A. Mining 13.14 1.64 14.78 1986 SF/Chucuri Chemicals and Petrochemicals - 5.00 5.00 1987 Prodesal Chemicals and Petrochemicals 6.00 1.18 7.18 Total Gross Commitments 137.92 33.01 170.93 Less cancellations, termina- tions, repayments and sales 92.27 9.60 101.87 Total commitments now held by IFC 45.65 23.41 69.06 _y-_ m Total undisbur3ed (irncluding 37.37 11.21 48.50 participants) = -  C O L OMAlB I A -KtIeOMM02 - O soX tCO SI" 2C0012 TRANSPORTATION NETWORK -M;S$&/ Payed trunk motds - Unpoved roads SNAiRXe _ <l _ _ MOPT disitW-esi .__ International boundories \ i* - \f e^- Rver ports7> e P44- SE . N*vigole river  *~~UW. ~ S.ot,,o,,o Pt. b r~ 0 61 *~~~~~~~~~~~~~~~~~~~~~~~~~~~~~P tl 7tI.P., A,dl SAN P"OI o.T,Iunf 0 Tobioo do ToA-woo Ul~~~~~~~~~~~~~~~~~~~~~~~~~~~~D0~~~~~~~~T,,o KAA '10 4~~~~~~~~ A * dLp 0, An~~~~~~~~~~~~~~~~~~~~~~~oeoC~~~/~*o oi del #?ot, .~~~~~~~C - ~~~~~ Ape I , ~~deA,~*SOT VIpto 0. 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