Bolivia - Second Road Maintenance Project

Documet of The World Bank FOR OMCIL USE ONLY MICROFICHE COPY Report No. P- 5654-BO Type: (PM) ALONSO-BIA/ X38647 / I5121/ LA3IE RepotNo. P-5654-BO MEMORANDUM AND RECOMMENDATION OF THE PRESIDENT OF THE INTERNATIONAL DEVELOPMENT ASSOCIATION TO THE EXECUTIVE DIRECTORS ON A PROPOSED DEVELOPMENT CRED:" IN AN AMOUNT OF SDR 58.6 MILLION (EQUIVALENT TO US$80.0 MILLION) TO THE REPUBLIC OF BOLIVIA FOR THE SECOND ROAD MAINTENANCE PROJECT MAY 19, 1992 This document has a resticted distribution and may be used by recipien only In the perfonnance of dthe official dutes. Its coteant may not otherwise be dbsosed without Wo.d Bank authoization.  CURRENCY EQUIVALENT (As October 25, 1991) US$1.00 - 3.70 Bolivianos (Bs.) US$0.27 - 1.00 Boliviano US$1.36555 - 1.00 SDR FISCAL YEAR January 1 - December 31 ACRONYMS AND ABBREVITIONS CRD Corporacion Regional de DesarroUo (Reriona* Dewvpme Coporo) ERR Economic Rate of Return PY Fiscal Year GDP Gross Domestic Product ICB International Competitive Bidding MDA International Development Agency LCB Local Competitive Bidding LIB Limited International Bidding MTC Ministerio de Transporte, Comunicaciones y Aeronautica Civil (Mbdisy of 7hznport, Commwa*ions and Civil Aeronaudies) SAE Sistema de Administraci6n de Equipo (Eqidpment Manageme System) SAM Sistema de Administracifn de Mantenimiento minnwce Manageme systm) SNC Servicio Nacional de Caminos (Naftina Road Auhorty) SOE Statement of Expenditures TGN Tesoro General de la Naci6n Watondat Tzeasy) UN United Nations  FOR OMCtAL USE ONLY REPUBLIC OF BOLIVIA SECOND ROAD MAINTENANCE PROJECT CREDIT AND PROJECT SUMMARY.: Borroyver: Republic of Bolivia Beneficiaries: Ministry of Transport, Communications and Civil Aeronautics National Road Authority - Servicio Naciotsil de Caminos (SNC) Amoun: SDR 58.6 million (US$80 million equivalent) Terms: Standard, with 40 years maturity Financing Plan of the Project: IDA US$80.0 million Government US$160.0 million Total US$240.0 million Economic Rate of Return: Over 39% Staff Apnraisal Report: Report No. 10018-BO IBRD 23114R This document has a restticted distribution and may be used by recipients only in the performance or their official duties. Its contents may not otherwise be disclosed without World Bank authorization.  MEMORANDUM AND RECOMMENDATION OF THE PRESIDENT OF THE INTl-ERNATIONAL DEVELOPMENT ASSOCIATION TO THE EXECUTIVE DIRECTORS ON A PROPOSED CREDIT TO THE REPUBLIC OF BOLIVIA FOR THE SECOND ROAD MAIrEllNANCE EROJECT 1. The following memorandum and recommerndation of a proposed development credit to the Republic of Bolivia for SDR 58.6 million (equivalent to US$80.0 million) is submitted for approval. The proposed credit would be on standard terms with 40 years of maturity and would help to finance the Second Road Maintenance Project. 2. ScoL Bakgkg=nd. Bolivia still faces difficult prospects over the medium term to sustain economic growth and expand employ'ment opportunities. The weak social and physical infrtucture makes It difficult to maintain high rates of growth in the near future. However, the medium-term strategy of the Government aims to achieve a GDP growth of 4% to 5% per year, to maintain price stability and to alleviate poverty. To achieve this economic growth over the medium term, a more efficient infrastructure system, including transport, is required. In this respect, a major effort has been made to complete the basic road network (road investment has consumed between 24% and 30% of total public investment since 1984) but improving maintenance operations continues to be critical. Under the Export Corridors Project (Credit 2012-BO) approved in 1989, maintenance programs were agreed with the Government for 1991-1993. The proposed Project will help to finance these programs and make adequate road maintenance sustainable in the future. 3. Transport regulations are in general satisfactory. The regulatory framework and the policies covering the transport sector are set out in Supreme Decree 21060 of Auguat 1985. With few exceptions, entry into road, water and air transport is free, and pricing is left to negotiation between operators and users. The prices of transport fuels were raised to border prices and they have been kept high since then. The only exception concerns urban passenger transport pricing, authority over which is delegated to municipalities. 4. Vehicle operating costs have substantially increased during the last years (fuel prices have increased well above opportunity costs, interest rates are well above inflation and new vehicle prices are now at international levels). The only factors working in the opposite direction have been an improvement in vehicle utilization and a change in the type of truck being operated, with a substantial increase in the number of five-axle semitrailers. Road tariffs now reflect actual economic costs, which will reduce as the network is improved and well maintained. 5. Road Infra cture . The road network consists of about 41,000 km. Most of the roads do not have adequate surfaces and only 1,776 km are paved. Their condition is: about 11% good or fair, 38% poor and the remaining 51 % very poor (the last category includes all roads in such condition that they cannot be efficiently maintained). Therefore, about 40% of the network is classified as bad-the state in which the roads require the most urgent intervention. 6. In the past, road maintenance has suffered from: (a) inadequate planning and programming by SNC; (b) budgetary allocations which have been below requirements and were subsequently further reduced to fund some road construction; and (c) lack of correspondence between budget atlocations and acual release of funds. The proposed Project incorporates the above lessons of experience by: (i) strengthening road maintenance administration (re-structuring SNC's maintenance organization); (i) improving maintenance planning and operations (through a program of maintenance by contact and another program of maintenance by force account); and (iii) helping sustain the road maintenance programs beyond the project horizon by assuring that enough resources are allocated and spent on maintenance in the following 5-6 years (1996-2001).  -2- 7. R := . The Mistry of Transport, Communications and Civil Aeronautcs (MTC) has responsibility for the management of the National Road Authority (SNC), which is responsible for planing, engineering design, construction, and maintenance of roads. Recently, SNC has recovered most of its technical capability of the late 1970s, supported by tehnical assistance. But SNC's fiture challenges lIe mainly in improving its planning and management capacity for road maintenance. Maitena of the road network is carried out by SIlC's maintenance department, reporting to the Operations Division. So far, maintenance activities play a subordinate role to activities connected with construction, within the Operations Division. The implementation of this Project will mark a change in emphasis of activity of SNC, with a greater emphasis to be put on maintenance and restricting the use of force account to naneance activities. For this purpose, SNC will establish a new maintenance branch, responsible for all maintenance activities and separate from engineering and construction. Furthermore, the Project includes detailed maintenance programs, and will provide the necessary funding to carry them out. 9. Road The Government's priorities fall broadly into the following categories: maintenance, inter-connecting the main cities, upgrading export corridors, and providing access to regions of high agricultural potential. The proposed Project tries to strike a balance between the needs for additional investments to provide improved access and die needs to maintain the already exsting network In good condition. This has been achieved by preparing a Road Investment Plan and a rolling Maienance Program to ensure that, towards the end of the decade, all of the currently m ntainable nework will be at least in fair eondition and all the roads that are essential to complete the trunk network or to provide access to areas of high agricultural potential will have been reoonstructed. 10. MTC prepared a detailed Investment Plan (1992-1996), based on a tentative plan drafted ouring project preparation. The Plan was agreed with IDA during negotiaions. The agreement includes annual reviews and a requirement for IDA to agree to any substantial changes. The plan considers both income and expenditure and takes into account the SNC's technical capacity to implement the plan, the capacity of the Government to make available counterpart fiuds, and the implementation capacity of the constructon industry. 11. The plan will require a total investment of US$832.8 million over 1991-96. The anmnal average IDVnm would be about US$165 million or 30-35% of the likely total public investment (about 2 12- 3% of GDP), high by any standard. However, only counterpart funids and debt senrice require an Imdiate call on Treasury funds, and this requirement is considered within the financial resources of the Treasuy and the planning and management capacity of SNC. The total US$832.8 million includes US$560 milion (67%) for construction and US$217.8 million (26%) for periodic maitenmce and rehabiliion, of which about US$75 million are for the resurfacing of some 781 km of paved roads (50%) and some 765 km of gravel roads (7%), to be financed by the proposed Project. 12. Implementaton of a Maintenance Management System (SAM) and a Equipment Management Syse (SAEt was completed in January 1992. These systems nov provide the means to improve the maintenance budget process, monitor the current program and prepare future budgets. In the meantime, the priciples of these systems have been used in preparing the rolling Maintenance Program for 1992- 1995 to be carried out by force account, amounting to about US$132 million, (US$28-36 million per year) adding a further 15% to the total road budget. This program includes the resurfacing of those remaning sections of the paved network, not included in the reconstruction programs or recendly reconstucted, and about 4,000 km (36%) of the gravel network and 900 km (3%) of the earth networL Ihe program will be totally financed by the Government. The existing SNC's staff and equipment will  -3- be sufficient to carry out al the required work, after the proposed reorganization (para. 8) and with the use of the SAM and the SAE. 13. In summwy, total expenditure on roads in 1992-96 will amount about US$1,000 million. As a result, in 1996, about SS% of the half of the network that is maintable will be in good or fair condition (at present only 22%), with t10% of the paved network and 70% of the gravel network in good or fait condition. Total expenditure on maintenance will be about 40% of the total road budget, which is acceptable, takdng into account that the country is still far from completing constuction of its road network. 14. Road Finmcing. In addition to the measures above, further measures are required to ensure a consistent and adequate flow of funds for maintenance. Otherwise, the mainnnce activities could decrease after 1996, the network would deteriorate and the main benefits of the Project would be lost. 15. lhe most significant user charges are those derived from the tax on fuels and road tolls. Although the curent road user revenues cover a significant proportion (86%) of road expenditures, the act maintenance needs require higher expenditure, and hence, revenues. The recoendation of the first phase of a Road Fimancing Study, completed in February 1992, was the creation of a road maintenance fund financed from dedicated user charges (a fuel surcharge, improved road tolls and addiional vehicle licensing fees) to finance road and bridge maintenance. While the proposed fund would provide greater accountabity for SNC and eliminae the possibility of the Government withholding adequte funds for maintenance, the measure could be contray to the objectives of the fiscal reform, and reduce competition for fuds within the Government. Since it is expected that the SNC's planning and budgetng process will be substanaly improved with the Project, SNC will be able in the future to defend sound technical deisions, achieve adequate allocation of funds and demonstrate that the allocated funds are well spent, based on professional assessments of the results of the maintenance programs. A period of two years wil be necessary to check if the SNC's planning and budgeting improve as epected and the Tresury releases the finds in a timely manner. At the end of the two years, the Government and ]DA will assess the results and this assessment, jointly with the recommendations of the second phase of the Road Financing Study, will provide the basis for decidlng whether to set up an earmarked fund to finance road maSinteance for 1996 and thereafter. 16. Decfaon. Decentralization of road admiiston is expected to begin in 1992, pending approva by Congress. I would leave only 8,000 km of roads under SNC's administration and trsfe the rest to the Regional Development Corporations (CRDs). If the decentralization takes place before 1996, the Project should not be sbtantlly affected because periodic m ance by cona, the largest component, corresponds to roads that will remain under SNC's administrtion, and m tena by force account and equipment rehabiliton will be easily shared by SNC and the CRDs. Nevertheless, a period of adjustment may be needed until IDA has reassessed the affected components and agreed with the Government on how to proceed. IDA will have the right to suspend disbursements for the affected components during this period. In any case, it is necessary to restructure SNC for its new focus on maintenance and autonomy. 17. Ratonale fr MA Involvement. Since the structural and macro-policy adjustment began in 1985, IDA has suppored Bolivia through struct adjustment operations as well as through investment operatiom to foster stabiluation. Havig implemented the basic adjustments, the focus of the Govenment sateg has now shifed towards Improving the provision of basic soci and services. In accordance with this shift in emphasis, IDA operations are focusing attion to these sectors. Future growth of the economy is not only predicated upon the mainteac of  -4- macnconomic stability and promotion of private sector activities, but also upon provision of a better and mcre efficient transport network. 18. bQi I)jgtba. The Project aims to: (a) improve road conditions in order to reduce vehicle operting costs, improve access to markets, and encourage trade development; (b) improve the road maintenace budget process; (c) improve road maintenance management, planning and operations; (d) improve investment planning; (e) assure SNC's adequate maintenance funding; (f) strengthen the domestic construction industry; and, (g) transfer maintenance technology and organization to the CRDs, if the decenrization takes place. 19. ftiect Desripion MThe components of the project are: (i) for the paved network, a four-year plan for periodic road maintenance by contract including engineering design and civil works supervision (US$45.4 million); (ii) for the gravel network, a four-rar plan for periodic road mainenance by contrct, Including engineering design and civil works supervision (US$18.7 million); (ii) a four-year program of maintenance by force account (US$131.5 million); (iv) a four-year bridge maitenance and rehabilitation plan, by contract (US$3.5 million); (v) a four-year work compound reconstructionprogram by contract (US$3.5 million); (vi) a four-year plan for maintenance equipment rehabilitation by contract (US$3.0 million); (vii) purchases of complementary equipment (UJS$1.9 million); (viii) road safety (US$1.6 million); (a) technical assistance and training for: implementation of the SAM and the SAE in the CRDs; a road infrastucture financing study; a study on the construction industry; project management during project implementation; and, training (US$2.6 million); and procurement agents' fees (US$3.0 miion). The total cost for the Project (US$240 million) is to be financed by IDA (33.3%) and the Government (66.7%). All the recurrent costs are to be financed by the Government. Retroactive financing is recommended for payments made under the Project after January 1, 1992, but before the date of signing of the Credit, up to a totl of US$8.0 million to finance the program of nmaintenance for 1992 and technical assistance to the Project Inplementation Unit in SNC. 20. A breakdown of costs and the financing plan are shown in Schedule A. Amount and methods of procurement and of disbursements are shown in Schedule B. A timetable of key project processing events and the sedule of Bank operations in Bolivia are given in Schedules C and D, respectively. The roads, bridges and workeamps to be rehabilitated are shown in the attached map. The Staff Appraisal Report No. 10018-BO dated May 19, 1992, is also attached. 21. Imlentaton argemn. Implementation of the Project will take about four years, from the fourth quarter of 1992. SNC will have overall responsibility for implemenion. The responsibility for carying out the road mainteance components will be vested in the new maintenace branch to be created before credit effectiveness. This branch wfll include the maintenance and equipment department, and the districts. Periodic maintenance will be carried out mainly by contract, contributing to strengthening the construction industry. Some periodic, routine and emergency maintenance will continue to be carried out by SNC, complemented by the direct hiring of local contractors for some specific works. Since opinions vary on the relative merits of maintenance by contract or by force account, the proposed distrbudon will make it possible to compare cost and quality of maintenance between the private sector and SNC, as a first step to reaching an agreement on private/public shares in maintenance. This operation includes appropriate mechanisms to monitor, during the anmual reviews, the comparative results. Erome . All major ciiYl work contracts (over US$2 million) will be procured through IOC. Smaller works conracts will be awarded under LCB. Contracts for rehabilitation of equipment will be awarded by LIB. Contracts for acquisition of complementary equipment more than US$25,000 will be awarded trough IOC. Di&jars muitsa Sncjal A&comn. A Special Account will be established in the Central Bank with an initial deposit of US$4.0 million. SNC will be required to appoint private  independent commercial auditors. Monitoring and Reporting. During negotiations, agreement was reached on annual reviews and an action program, and the contents of such annual reviews. 22. Environmental Impact. So far, SNC's capacity to analyze the environmental impact of road projects is very limited. ro strengthen this capability, SNC will form an enviroramental unit, within the planning department. The civil works under the Project involve only road maintenance with no new construction or major upgrading. They will have a generally positive effect on the environment. Nevertheless, to relieve some minor adverse effects (quarrying, borrow pits, disposal of materials), the * Project includes measures that will be incorporated as specifications into the bidding documents for all the civil works financed by the Project and into the SNC's code of maintenance. * 23. Aeted A ctions. The main actions agreed with the Government ...-ring negotiations are: (a) establishing a new organization structure in SNC, creating a new maintenance branch separate from engineering and construction, and a new environmental unit; (b) agreement on a five-year investment plan, to be reviewed annually; (c) agreement on the revised standard bidding documents; (d) maintaining retail prices of transport fuels at least at border prices plus distribution costs and dealers' margins; (e) agreement on the four-year periodic maintenance program by contract and the four-year maintenance program by force account, to be updated annually, and on the budget allocation of the corresponding counterpart funds; (t) approval of new subprojects only if the Government secures the counterpart fimds needed; (g) prior consultation with IDA before contracting any works under the Project if final engineering estimates exceed the original cost estimate by more than 25%; (h) contracting private external auditors to audit Project expenditures; and (i) submission of quarterly reports to IDA. The legal documents also provide for detailed annual project reviews and an action program. The annual reviews will cover the following topics: restructuring of SNC; road decentralization; investment plan; retail prices of transport fuels; maintenance financing; programs of periodic maintenance by contract and maintenance by force account (1992-1995); program of institutional strengthening; environmental mitigation measures; and audit reports. A mid-term project review will be carried out in 1994 and will include an assessment of SNC's maintenance planning and budgeting and an agreement on the terms for financing road and bridge maintenance for 1996 and thereafter. The action program includes target dates for completing engineering designs for the civil works to be started in 1994-1995, putting in operation portable scales for weight control and completing the road financing and the construction industry studies. The supervision of project implementation will be carried out according to a supervision strategy defined in the Project, which includes the hiring of local consultants and an expanded monitoring and reporting role to be played by SNC. 24. As conditions for efiectiveness SNC will be asked to: (i) implement the agreed structural changes; (ii) put into effect the agreed bidding documents; and (iii) sign with the Government the Subsidiary Loan Agrecm-ent. 25. ct Beneflts. The Project will contribute to a substantial upgrading of about 33% of the maintainable network, with 100% of the entire paved network and 70% of the gravel network in good or fair condition by 1996, substantially reducing the large backlog of maintenance. The Project will also improve maintenance planning and organization and budgetary control. Other project benefits include higher availability of road equipment, reduction in maintenance costs, and introduction of effective and systematic maintenance practices, including the use of contractors for maintenance. As a consequence, this will substantially reduce vehicle operatinig costs. The average rate of economic return is expected to be 39%. 26. Project Risks. One major obstacle has been weak maintenance management. The implementation of comprehensive management systems (SAM and SAE), completed in January 1992, and the proposed  -6 - reorganization of SNC will ove:come this risk. Another risk in the past, delay in starting civil works because of lack of engineering designs and appropriate bidding documents, has been reduced by completing designs and bidaing documents for 1992-93 before neg&Aiations and by including funds in the Project for technical assistance for engineering designs for 1994-95. The main remaining risk is delay in implementation for lack of counterpart funds. To minimize this risk, an agreement was reached with the Government to allocate funds for the agreed recurrent budgets, which vwill provide the necessary counterpart funds. Another potential risk is some nstitutional weakness, especially if the decentralization Is carried out, mainly due to lack of sufficient qualified staff at the departmental level. The proposed reorganization of SNC, technical assistance provided by the Project for SNC and the possible decentralized agencies, the designed supervision strategy, and (xtensive training programs, also provided by the Project, will limit these risks. Recommendation 28. I am satisfied that tl;e proposed credit would comply with the articles of agreement of the Association and recommend that the Executive Directors approve the proposed credit. Lewis T. Preston President Attachments Washington D.C. May 19, 1992  Schedule A S9COND lRAD _NAMIFMM MCS (a) Periodic Maintenance by 9.0 36.4 45.4 9.0 36.4 Contract (Paved Network) (b) Periodic Maintenance by 3.7 15.0 18.7 3.7 15.0 Contract (Gravel Network) (c) 4aIntenance by Fose 116.7 14.8 131.5 131.5 0.0 Account (d) Bridge Maintenance and 0.7 2.8 3.5 0.7 2.8 Rehabilitation te) Workshop Construction 1.0 2.5 3.5 1.0. 2.5 (f) Equipenot 1.5 3.4 4.9 1.5 3.4 (C) Road Safety Program 0.5 1.1 1.6 0.5 1.1 Ch) Inastitutional 0.0 2.6 2.6 0.0 2.6 Strengthentng tl) Procureseat services 0.0 3.0 3.0 0.0 3.0 Physlca1 Contingency 1.8 5.2 7.0 2.5 4.5 Price Coantine 10.1 8.2 18.3 9.6 8.7 .E Annual 12.0* 22.4 24.8 15.2 5.6 Cunlatsve 12.0 34.4 59.2 74.4 60.0 _Includ Initial deSIt. and retroactiLve financin.  aehedule A pOLI 8S0N X Kt;AIC PROJIBCT mauteud 111x