Nicaragua - Road Rehabilitation and Maintenance Project

Document of The World Bank Report No. 15281-lI STAFF APPRAISAL REPORT NICARAGUA ROAD REHABILITATION AND MAINTENANCE PROJECT May 2, 1996 Central America Country Department Latin America and Caribbean Region  Currency Equivalents Currency Unit = Cordoba US$1.00 = C$7.8 in December 1995 Fiscal Year January 1 to December 31 Weights And Measures Metric British/US Equivalent 1 meter (m) = 3.28 feet (ft) 1 kilometer (km) = 0.62 mile (mi) 1 kilogram (kg) = 2.20 pounds (lb) 1 metric ton (m ton) = 2.205 pounds (lb) I liter (1) = 0.27 gallon (gal) 1 hectare (ha) 2.47 acres Abbreviations and Acronyms ADT Average Daily Traffic ARI Acuerdo de Reestructuraci6n Institucional Institutional Restructuring Agreement BCIE Banco Centroamericano de Integracion Econ6mica Central American Bank for Economic Integration CAS Country Assistance Strategy CERC Corporaci6n de Empresas Regionales de Construccion Regional Highway Construction Agencies COCATRAM Comisi6n Centroamericana de Transporte Maritimo Central American Comission of Maritime Transport DANIDA Danish International Development Agency DDT Direcci6n de Transito DGTT Direcci6n General de Transport Terrestre Directorate-General of Land Transport EAAI Empresa Administradora de Aeropuerto Intemacional ENAP Empresa Nacional Portuaria  ERR Economic Rate of Return GDP Gross Domestic Product GON Government of Nicaragua HDM Highway Design and Maintenance Model IDA International Development Association 1DB Inter-American Development Bank IDP Institutional Development Project IRI International Road Roughness Index ITP Integral Transport Plan MCT Ministry of Construction and Transport MOF Ministry of Finance OECF Overseas Economic Cooperation Fund (Japan) PPMM Proyecto Piloto de Microempresas de Mantenimiento REMECAR Rehabilitaci6n y Mejoramiento de Caminos Rurales Rehabilitation and Improvement of Rural Roads REMEVIAL RehabilitacionyMejoramiento Vial Rehabilitation and Improvement of Roads REMITRAN Regional Forum for Ministers of Transport RMF Road Maintenance Fund SEECA Secretaria Permanente del Tratado General de Integracion Econ6mica (SIECA) TST Technical Support Team UCP Project Coordinating Unit UNDP United Nations Development Program VOC Vehicle Operating Costs   NICARAGUA ROAD REHABILITATION AND MAINTENANCE CREDIT AND PROJECT SUMMARY Borrower: Republic of Nicaragua Implementing Agency: Ministry of Construction and Transport (MCT) Beneficiary: Not Applicable Poverty Category: Not Applicable Amount: SDR 17.2 million (US$25.0 million equivalent) Lending Terms: Standard IDA, with 40 year maturity Commitment Fee: 0.5% oh undisbursed credit balances, beginning 60 days after signing, less any waiver. Financing Plan: See para. 4.13. Economic Rate of Return: 89% Memorandum of the President: Report No. P-6786 Maps: IBRD No. 27723 and No. 27724   NICARAGUA ROAD REHABILITATION AND MAINTENANCE PROJECT STAFF APPRAISAL REPORT Table of Contents Pa2e No. CREDIT AND PROJECT SUMMARY. ................................ iv 1. THE TRANSPORT SECTOR . ....1.... .. .................................................. .... I A. Background and Economic Setting ..... .......1....... .... ...........................................I B System Overview .............................. 2 C. Objectives and Strategy ............................... 3 H. THE ROAD SUBSECTOR ................................ S5 A. Road Network ............ ........ . ....................................................................5 B. International Corridor. ..................................................... 5 C. Road Transport .............................. 6 D. Administration ........ ...................... 7 E. Planning and Programming .............................. 8 F. Revenues and Expenditures ...... ...... .. .. . ............................. .. ..................... 9 G. Maintenance .. . ................................. .........................1.................................I 0 H. Technical Aspects ...............1..1.. .. ...... ........ ..................r... .................... I. Construction Industry ........................ 11 J Environmental Aspects ........................ 12 K. Safety ... .... ..... -- .............1......2............................ ..............2........ ...... . 12 tII. PAST IDA INVOLVEMENT AND LESSONS APPLICABLE .......................... ....14...................... . ... 14 A. Portfolio Overview ........................... 14 B. Lessons Applicable.....14 IV. THE PROJECT ................16 A. Origin and Preparation ............................. 16 B. Objectives ............................. 16 C. Rationale for IDA Involvement ........... ................ 16 D. Project Description ............................ 16 E. Cost Estimates ............................. 18 F. Financing ............................ 19 G. Implementation and Monitoring ............................ 20 H. Procurement ............................. 21 This report is based on the findings of an IDA appraisal mission which visited Nicaragua in December. 1995. The mission team consisted of Emmanuel A. James (Task Manager) and Guillermo Ruan (Senior Highway Engineer), and was assisted by Ms. Ellen Newfield. The peer reviewer for the project was Ms. Mirtha Pokorny (Transport Economist). Ms. Migdalia Quijada assisted in the production of the report. The Country Department Director (Acting) is Ms. Donna Dowsett-Coirolo, and the Sector Leader is Martin Staab.  Paee No. I. Disbursements ................................... 23 J. Accounts and Audits ................................... 23 K. Environmental Impact ................................... 24 L. Sustainability ................................... 24 V. ECONOMIC EVALUATION ........................................ 25 A. Introduction ........................................ 25 B. Traffic ........................................ 25 C. Benefits and Beneficiaries ........................................ 26 D. Economic Returns ........................................ 26 E. Risks and Sensitivity Analysis ........................................ 26 VI. AGREEMENTS AND RECOMMENDATION ......................................... 28 ANNEXES Annex A: Maintenance ................................... 29 Annex B: Technical Assistance ................................... 33 Annex C: Implementation Plan ................................... 34 Annex D: Reporting Requirements ................................... 38 Annex E: Bank Supervision Plan ................................... 40 Annex F: Documents and Data Available in the Project File .44 TABLES Table 1-1: Regional Overview .46 Table 2-1: Road Network by Surface Type and Condition .47 Table 2-2: International Road Corridor .48 Table 2-3: Registered Motor Vehicles .49 Table 2-4: Registered Motor Vehicles by Region .50 Table 2-5: Transport Infrastructure Investments .51 Table 2-6: Road Network Improvement .52 Table 2-7: Capital and Recurrent Expenditures .53 Table 4- 1: Existing Road Design Standards .54 Table 4-2: Maintenance Targets .55 Table 4-3: Estimated Disbursement Schedule .56 Table 5-1: Actual and Expected Traffic Volumes .57 Table 5-2: Vehicle Operating Costs .58 Table 5-3: ERR (Izapa-Leon) .59 Table 5-4: ERR (Leon-Chinandega) .60 Table 5-5: Sensitivity Analysis .61 CHARTS Chart 1: Ministry of Construction and Transport Organigram .62 MAPS Map 1-IBRD 27723: ............. 63 Map 2-IBRD 27724: ............. 64  NICARAGUA ROAD REHABILITATION AND MAINTENANCE PROJECT STAFF APPRAISAL REPORT 1. THE TRANSPORT SECTOR A. Background and Economic Setting 1.1 Background. The performance of the Nicaraguan economy over the last four years has been characterized by a remarkable stabilization effort accompanied by a strong fiscal adjustment. Recently, after more than a decade of decline and stagnation, the economy has begun to turn around as demonstrated by a 3.3% real GDP growth in 1994 and 4.2% in 1995. Recovery in the agriculture sector, which is the largest employer and accounts for over 30% of GDP and some 70% of total exports, provided the impetus for growth. 1.2 The strategy of the Government of Nicaragua (GON) to turn the economy around has been based on several interrelated components. One component dealt with the redeployment of public assets to more productive uses through privatization and the continued deregulation of the economy. Other key components concerned improving the Government's institutional capacity to design and implement policies, the strengthening of public finances through increased public sector savings, and the rebuilding of the country's infrastructure which had been rundown during the extended period of civil unrest. 1.3 While the economic reform measures are beginning to show positive impacts on growth, the transition process has been arduous and slow. This may be due largely to the major problems that limit prospects for growth in the near tern. These include problematic land titling, high dependence of the economy on foreign aid, high external debt, weak production and export prospects for its traditional commodities, and important infrastructure bottlenecks. Several of these issues are being addressed within the context of the Bank's macro-economic dialogue with Nicaragua as well as by projects such as the Second Economic Recovery Credit (Cr. 2631-NI,), the Institutional Development Project (Cr. 2690-NI), and the recently concluded commercial debt buyback operation (TF- 023396). 1.4 However, economic growth could be severely constrained if key needs in the transport sector, especially in road transport as identified in the recent Transport Sector Report (No. 14474-NI of June 1995) are not addressed soon. The econonic recovery requires minimum levels of transport infrastructure and the efficient delivery of transport services in order to achieve sustained rates of growth. Currently, however, Nicaragua is relatively less endowed than its Central American neighbors in terms of transport infrastructure (Table 1.1). Insufficient, or malfunctioning, transport infrastructure serves as a bottleneck for external as well as internal trade, thereby limiting the competitiveness of exports as well as discouraging the development of areas with agricultural potential.  - 2 - B. System Overview 1.5 With the closing of its railway system in 1993, Nicaragua has largely committed itself to a road-based transport system for getting its exports to deep-water ports. However, most infrastructure and vehicle fleets are in poor condition, and neither is adequate to support Nicaragua's transition to a market-based economy. Furthermore, nearly all of Nicaragua's exports are agricultural products with low value added and small profit margins. High transport costs and operational inefficiencies in the transport sector have further slowed agricultural recovery prospects. 1.6 The Government's Policy Framework Paper for 1994-97 recognizes the need to intensify the process of structural reform for the efficient functioning of a competitive economy. This reform includes the privatization and deregulation of service provision as well as institutional reform within Government units. The Government has already removed some constraints in the transport sector through recent reforms but other key problems remain, including neglected physical infrastructure, insufficient resources for maintenance, institutional shortcomings which affect the administration of the sector, and a shortage of human resource skills. 1.7 The need to rehabilitate and modernize the transport sector is now an urgent priority if the Government is to achieve sustained export-led economic growth. The Government has already started the process by undertaking an ambitious plan of public sector reform (including the Ministry of Construction and Transport) and by divesting itself of public assets, most recently in the power and telecommunications industries and, two years ago, in urban transport. There are, however, other issues that need to be addressed in the short and medium term. These include: (a) public sector reform and capacity building: Market regulatory reform needs to be accompanied by institutional reform of the public sector to define its new role as planner and regulator instead of provider of transport services or infrastructure; (b) infrastructure rehabilitation and maintenance: Transport facilities are in poor condition due to inadequate .maintenance, especially in the road and port sub-sectors. Given the very limited resources available, expenditures on transport infrastructure should concentrate on maintenance and rehabilitation of facilities; and (c) urban transport: Urban transport in Managua lacks planning and integration with traffic management and road and street development. An integral transport improvement plan needs to be developed.  - 3 - C. Objectives and Strategy 1.8 The main objective of the Country Assistance Strategy (CAS) that was discussed by the Board on June 23, 1994 is to support the Government of Nicaragua in its efforts to complete the transformation toward a market economy capable of sustaining growth and reducing poverty. It is to be realized by focusing now on four main areas, namely reviving growth, reforming the public sector and strengthening institutional capacity, alleviating poverty and investing in human capital, and improving environmental and natural resource management. Reviving economic growth is essential because without it there would be little chance that progress could be made in meeting the other challenges facing the country, including poverty reduction. In order to help revive growth, IDA supports strategies directed at (i) maintaining a stable economy and deepening the structural adjustment process; (ii) developing a broad-based national consensus to underpin the reform effort; (iii) removing constraints to private sector development: and (iv) rebuilding the country's social and physical infrastructure base so as to increase productivity and raise living standards. The latter item is the main focus of the proposed project. 1.9 Nicaragua no longer has a railroad and its seaports, though rundown, have adequate capacity to handle current traffic levels. The main bottlenecks lie in road transport. Hence, rebuilding key segments of the road network, which is in a state of disrepair after years of civil unrest and a neglect of maintenance, is a key element of the transport strategy. In the short- and medium-term, the priorities for road improvement are clear as they should focus on reconstruction of the roads in the East-West and North-South corridors. Reconstruction of both corridors would reduce the costs of transporting both exports and imports while at the same time helping to increase the viability of national ports. A second priority should be to improve the principal production roads that connect the export corridors and provide access to the major agricultural production regions. Complementary improvements to selected rural and feeder roads should form part of the program. Bridges in the main corridors also need strengthening, so as to permit raising gross vehicle weights to the more efficient levels prevailing in neighboring countries. These priority areas form a coherent program that would go far in eliminating the road infrastructure constraints to economic growth. 1.10 Apart from road improvement, the strategy also includes other elements that are intended to promote sustainable development in the sector. These consist mainly of helping: (i) to improve the planning, programming, and implementation of road maintenance by contract; (ii) to ensure that priority Is given to, and funds provided for, the maintenance of the road network; (iii) to ensure that attention is paid to safety and environmental issues in the sector; and (iv) to support the Ministry of Construction and Transport (MCT) in adapting to its changed role in a policy environment of deregulation and greater private sector involvement. 1.11 IDA's overall strategy also provides impetus for improving public sector management, including in the transport sector. With IDA support, under the Institutional Development Project, restructuring agreements (ARI) are to be prepared for several Government departments, including the MCT, and implemented in 1995/96. The ARI calls inter-alia for the 'right sizing' of the MCT by changing it from a large, operating entity to  one that is more normative and that will make greater use of private contractors to implement both road maintenance and rehabilitation. MCT has really taken ownership of this institutional strengthening and reform process, and its implementation is proceeding well.  - 5 - II. THE ROAD SUBSECTOR A. Road Network 2.1 Nicaragua's road network totals about 17,146 km and is divided into paved, unpaved all-weather, and unpaved dry-season roads (See Table 2.1). While its density (15 km/OOOkm2) and service index (0.4km/000pop.), in terms of paved roads, are among the lowest in Central America, the key road transport problem arises from the fact that some 83% of the network is in poor condition. This includes extensive segments of the north- south trunk road between the Honduran and Costa Rican borders, as well as the east-west road linking Managua to the port of Rama. During the 1980s, the condition of the road network worsened, with almost no resurfacing or reconstruction taking place. Since 1990, some rehabilitation has begun, but much further investment is needed. 2.2 Beyond the condition of the roads themselves, the general lack of complementary infrastructure adds a further burden to the economy. For example, the lack of shoulders and vehicle pull-offs on steeply graded sections, the generally poor condition of freight vehicles, and the high percentage of non-motorized traffic on rural roads, together have significantly slowed traffic over large sections of the road network, and increased the number of accidents. The safety situation will worsen as vehicular traffic increases in the future unless adequate mitigatory steps, such as the provision of shoulders, are taken. B. International Road Corridor 2.3 For a number of years, the ministers of transport of the Central American countries have been meeting annually to discuss and resolve issues of common interest under their responsibility. These meetings have produced a significant number of agreements which are intended to benefit the region as a whole. One of the initiatives taken by the ministers was to request the Secretaria Permanente del Tratado General de Integraci6n Econ6mica Centroamericana (SIECA) to examine the various road corridors connecting all countries and to determine the investment priorities and the phasing of these investments. The technical assistance provided by UNDP supported a study in 1990 that looked into the road transport corridors. Of the three corridors studied, the so called 'Natural Corridor" (Corredor Natural) is considered the best intra-regional option as it connects all countries over relatively flat lands and with reasonably good geometric design characteristics (See Map IBRD No. 27724). 2.4 Furthermore, the report makes recommendations on specific investments and on the phasing of these investments. The recommended phase I investments include the rehabilitation of sections of the Natural Corridor in Honduras and also throughout Nicaragua. In Honduras, IDA is financing the rehabilitation of the 44km section between Choluteca and the Nicaraguan border (Guasaule). Across the border, the GON intends to seek financing from OECF for rehabilitation of the 71.1km Guasaule-Chinandega road section. The next link, which is from Chinandega to Izapa (67.7km), would be financed by the proposed IDA credit. The 50km section from Izapa to Nejapa was recently rehabilitated with financing from the Banco Centroamericano de Integraci6n Econ6mica (BCIE). South of Managua, the 84km section (Nandaime-Pefnas Blancas, on the border  - 6 - with Costa Rica) is to be rehabilitated with financing from DANIDA. These projects account for 45% of the phase one investments proposed by the SIECA Study. Most of the remaining investments are in Costa Rica and Guatemala. Table 2.2 has further details on the condition and improvement programs for selected links in the corridor. C. Road Transport 2.5 The provision of freight transport services is fully private. All public enterprises that provided road transport services in the previous administration have been privatized. Operators are organized in transport cooperatives, and for commercial cargo (vehicles with less than 3 tons), there are 10 cooperatives in Nicaragua. There are 94 cooperatives in the light and heavy duty segment of the freight market with a total of 1,634 vehicles. Half of the freight operators are owner-drivers while the other half own, on average, a maximum of three trucks. There is limited recent data on the age of the vehicle fleet although in 1989, 50% of the freight transport fleet was estimated to be more than 1 years old. Tables 2.3 and 2.4 have further details on the vehicle fleet. 2.6 However, interurban road transport services remain partially regulated. Entry in both the passenger and freight markets, for example, is controlled by the need to obtain an annual license. Licenses are granted by MCT, through the Direcci6n General de Transporte Terrestre (DGTT). Operating licenses for interurban passenger services specify the route, the capacity and characteristics of the vehicle to be used, and the level of service proposed by the operator. For passenger transport, taxis and commercial cargo, licenses are limited to one per person, while for collective transport, the limit is three per person. Technical and safety regulations, however, which are more important from the operating and traffic safety points of view, are not sufficiently developed and DGTT lacks monitoring and enforcement capabilities. 2.7 There are no substantial market imbalances in the provision of road freight services. There is, however, a degree of excess supply caused by the stagnation of economic activity between 1990 and 1993, and the inability of Nicaraguan trucks to attract traffic and compete with their Central American neighbors. Although not many new licenses have been granted since 1979, agricultural exporters do not face difficulties in contracting freight services. This is partly because importers frequently enter into agreements with maritime shipping companies, which then become responsible for transporting the merchandise from the port to the hinterland. These maritime companies, in turn, contract their services with domestic or international truckers. Thus, trucks from Honduras or Costa Rica, for example, transport and deliver their cargo into Nicaragua and then at times compete for backhaul export traffic. 2.8 The main issues that need to be addressed in interurban transport in the short to medium term are: (i) the high costs of freight operations; and (ii) in passenger transport, the remaining controls on entry and price. High operating costs are caused mainly by the high input costs (fuel and spare part costs), and outdated axle-load regulations that reduce the efficiency of modern freight transport. The price of fuel in Nicaragua has traditionally been high compared with its Central America neighbors. In December 1995, the Nicaraguan prices of gasoline and diesel were US$2.20/gallon and US$1.15/gallon  respectively, compared to US$1.50/gallon and US$1.06 in Honduras and US$1.30/gallon and US$0.97 in Costa Rica. The opportunity cost, based on the border price plus distribution and marketing costs, is about US$1.10 per gallon for both gasoline and diesel. The tax component in fuel prices is over 100% of the ex-refinery price for gasoline. The price of fuel is a constant source of complaint from transport operators. In response, the Government has deregulated the hydrocarbon sector and since April 1, 1995 the import of crude oil and refined products, as well as their marketing and distribution, have been liberalized. Retail fuel prices will be calculated from an import parity formnula. This reform is expected to contribute to a slight reduction in fuel prices. 2.9 Failure to update vehicle weight and axle load regulations and to make them compatible with those in adjoining countries contributes to the lack of competitiveness and market access of Nicaraguan truckers. Honduras, Costa Rica, and Guatemala apply a common 37-ton maximum vehicle weight, while Nicaragua, based on the national standards for bridge design and construction, still uses a 33 ton limit for domestic trucks. Hence, since Nicaragua allows trucks from neighboring countries to use their roads at weights beyond the latter limit, domestic trucks in theory are disadvantaged. GON, consistent with other regional Governments, has agreed on a timetable for increasing axle load limits in the international corridors in order to conform with existing Central American standards. A program is currently being implemented to strengthen bridges on the principal road network to allow higher loads, and studies are being made to see if the design safety margin on other bridges could be sufficient to allow some increase in loads. 2.10 Finally, the rationale for the current inter-urban passenger transport regulations on entry and rates is weak, being based on protecting existing operators from competition while at the same time attempting to protect users from monopoly pricing by the protected operators. Although operating licenses remain the ownership of the Government and therefore do not entail any property rights, in practice they are sold on the parallel market at a high premium. This suggests there are significant gains to be made from liberalizing the supply-side of the interurban passenger market by a removal of economic regulations, with the Government moving its focus to regulation of service operation rather than entry. Under the project, the proposed urban transport improvement study will examine this and other issues related to passenger transport. D. Administration 2.11 MCT is responsible for the construction of roads and public buildings and the operation and regulation of road, sea and air transport. It is also responsible for land use planning and public housing. In addition to road construction, its transport functions relate to the promulgation and implementation of regulations relating to the safety and efficiency of operation of all means of public transport, by land, sea and air. This includes establishing tariffs for inter- and intra-urban transport of passengers, authorizing licenses for the use of vehicles and vessels on particular routes, including those temporarily in the national territory. In relation to ports, MCT is responsible for their construction and maintenance, including the dredging and marking of navigation channels.  - 8 - 2.12 MCT was formed by the fusion of three ministries. There are separate Divisions for Highways (planning and execution of civil works), Land Transport (regulation of operations), Air Transport (investment and operations), Maritime Transport (ports and waterways investment and operations as well as maritime operations) and Public Works (civil works). In addition to the inefficiencies resulting from the failure to integrate the three previous structures fully, MCT still functions as a Ministry responsible for doing and controlling rather than for supervising and monitoring. The detailed organizational structure of MCT is shown in Chart I. 2.13 The administrative reforms being supported by the Institutional Development Credit 2690-NI would help transform MCT from an agency deeply involved in the day to day activities of the sector, into one more concerned with ensuring that the provision of services by others is closely related to the needs of the users, and preventing abuses in a more open and competitive environment. The regulatory role of MCT would be reduced to the minimum level necessary for the safe and efficient operation of services. Implementation of regulations regarding vehicle design and safety, driver competence and exhaust emissions would be more strictly enforced, with higher penalties for lack of compliance. 2.14 MCT has about 630 staff and the level of staff training varies widely. At the highest levels there are several staff with post-graduate specialist qualifications, very pertinent to the tasks for which they are responsible, while at the other extreme, there are many staff without any qualifications beyond secondary school. Currently, MCT's 5-person training unit, is not very effective in the formulation and implementation of training plans. Even the plans that are prepared are usually underfunded and therefore the level of compliance with them is low (about 50%). With a reduction of its regulatory role in respect to transport operations and in its executive role in respect to construction and maintenance, a smaller but overall more professional and better trained staff will be required. 2.15 To that end, Credit 2690-NI includes the preparation of a two-year training plan consistent with the changing needs of MCT. The proposed project will supplement Credit 2690-NI in this effort by providing on-the-job as well as professional training for selected MCT staff. The progress of training will be monitored during project implementation. E. Planning and Programming 2.16 Planning is undertaken in relation to preparing annual investments for inclusion in the national budget, as exemplified in the current Esquema General del Plan Nacional de Transporte. Under the proposed reorganization of MCT, its planning function would be emphasized with a strengthening of its sector responsibilities, staffing and budget. The first activities of the new Planning Directorate, now in the process of formation, will be to create a dynamic data base of transport statistics and a reliable road inventory, the lack of which has been a severe impediment to any serious planning. The Directorate will also prepare and update investment and maintenance plans. 2.17 The IDA Transport Sector Report recommended a program of maintenance and investments in the entire transport sector for the period 1996-2000 that totals about US$300 million. In the road subsector, the program includes maintenance of the road  - 9 - network as well as the rehabilitation of economically justified sections of the trunk, collector, and rural roads. Completion of the program will result in about 30% of the network being in good and fair condition by 2000, up significantly from 17% now. The program targets the most critical road subsector needs and is expected to be supported primarily by IDB (US$75 million), IDA (US$25 million), DANIDA and other donors (US$80 million). In general, the IDA and DANIDA assistance would be focused on the trunk roads in the main corridors that are essential to the least cost movement of Nicaragua's imports and exports. Most of the IDB assistance will be for rehabilitating complementary rural and collector roads under a project that is similar to their first rural road project (REMECAR). A second rural roads project (REMEVIAL) was appraised in June 1995 by the IDB, with the participation of IDA staff. Subsequently, the IDB Board approved a US$75 million credit for it on October 18, 1995. More details on the program are given in Tables 2.5 and 2.6. 2.18 Several donors will be funding these investments and hence coordination will be necessary. The MCT has agreed to organize annual project progress and investment program reviews with the Donors active in the road sub-sector, whose focus will be to disseminate information, coordinate plans, and to help resolve investment and maintenance issues. In the case of unsatisfactory progress or program content as determined by these reviews, IDA will ask the Government to take remedial steps. This was confirmed at negotiations. The reviews will be important since, at current levels, the program represents about 21% of public investments in the period. The corresponding figure for the proposed 1DA project is about 3%. F. Revenue and Expenditures 2.19 Currently the main road user charges are the gasoline and diesel tax, which have been primarily set with a revenue-raising rationale. Based on 1994 statistics, from a tax of US$1.15 per gallon on 37.9 million gallons of gasoline and of US$0.35 per gallon on 78.3 million gallons of diesel, some US$71 million are raised annually through the fuel taxes. Of the total revenues raised from road users at the national level, over 90% come from fuel taxes and a very small percentage from non-road use related sources such as license plates, driving permits, or traffic violations. 2.20 There is only a coincidental relationship between revenues from user charges and expenditure on roads, with user charge revenues being considered part of the general revenue from taxation, while road expenditure is subject to the normal budgetary processes. Total expenditure on roads have typically been less than 50% of sector revenue levels and about 8% of total Government expenditure. These ratios will not change significantly with the implementation of the project as its routine and periodic maintenance costs are only about 0.2% of Government expenditure or 1.6% of MCT's recurrent budget at a maximum. Table 2.7 has further details on expenditures. G. Maintenance 2.21 The poor road condition has resulted not only from years of civil war but also largely from a lack of maintenance during the past 15 years due to weaknesses in MCT  - 10 - especially in planning, programming, and implementation. The implementation of road maintenance was problematic also because it was carried out primarily by the Corporaciones de Empresas Regionales de Construcci6n (CERC), which are essentially parastatals dependent on the MCT. However, GON intends to implement true contract maintenance and hence has phased out most of the CERCs and reduced staffing levels by over 50% in the remaining ones. They will mostly carry-out emergency works and do road maintenance mainly in regions where they are considered to be the only viable alternative because of the lack of qualified private contractors. 2.22 Road maintenance allocations have fluctuated significantly in the recent past and have been averaging less than US$12.0 million during the past 4 years. This is the amount needed to protect the existing maintainable road segments at appropriate levels and also provide for a minimum of repairs elsewhere in the network. With the budgetary restrictions and extreme needs that exist in Nicaragua in many sectors of the economy, alternative financing mechanisms need to be implemented in order to ensure adequate road maintenance on a consistent basis. One practical way of making these changes operational would be the creation of a Road Maintenance Fund (RMF). 2.23 The RMF would basically be a funding mechanism, which can provide an adequatc and stable flow of finance to meet the demand for maintenance. The RMF would be placed under a Road Board, with representatives of road users and private sector organizations as well as of national and local governments. The effectiveness and sustainability of the Fund depends on the specific legal and institutional framework under which it operates. The RMF would review annually a three-year rolling maintenance plan, decide how much is needed, and determine a tariff level that would be proportional to the costs imposed on the road network by different classes of road users, or proportional to the benefits derived from the use of the network. 2.24 Since the objective is to charge road users a tariff explicitly for road operation and maintenance, this road tariff should be clearly recognizable and distinguishable from the indirect taxes that road users also have to pay. The tariff could comprise primarily: (i) a fuel levy (a user charge) added to pre-existing fuel taxes; and (ii) vehicle license fees (a charge for access to the road network). Other sources could include bridge and ferry tolls, weighbridge fees and international transit fees. In some countries, fines from overloaded vehicles are transferred into the Road Fund, on the grounds that such vehicles have damaged the road pavement. Other taxes such as value added tax, registration fees, vehicle inspection fees, and driving licenses fees - would not be paid into the Road Fund. The most important charge is the fuel levy, which is a discrete road tariff added to the price of fuel. In Nicaragua's case, for example, an additional charge of US$0.10 per gallon on gasoline and diesel would generate another US$12 million at the 1994 consumption level. However, mechanisms would be included in its design to ensure that the fund raises only the appropriate amount of resources as previous IDA experience shows that avoiding both under- and over-funding is essential to the long term success of a fund. This is best achieved by a two part charge. Terms of reference for a study on the design of the RMF, to be financed by the IDB, have been finalized and consultants have been invited to submit proposals.  - 11 - 2.25 Hence, in order to help assure reliable funding for maintenance, that could also encourage further participation of private contractors, it was agreed at negotiations that legislation for the establishment of a RMIF be presented to Congress by June 1997. The Government agreed also to provide funding satisfactory to IDA in order to carryout required annual programs of routine and periodic maintenance. H. Technical Aspects 2.26 Given that the development of roads in Nicaragua has been limited by the shortage of funds and trained personnel, the project will utilize international competitive bidding for the selection of contractors to carryout the road rehabilitation works. GON will also use experienced international consultants for the supervision of these works. This will be supplemented by appropriate design standards so as to ensure the use of resources more efficiently. The overall objective is to design and build roads with the most appropriate technology so as to ensure an economic life of at least 15 years. 2.27 At present, there is considerable variation in the technical standards for main roads particularly with respect to geometric design (narrow lanes and shoulders). Because of the limitation of funds, recent rehabilitation efforts have been carried out without significant improvement to the substandard cross section dimensions. Better civil works construction techniques and technologies are also needed. 2.28 The geometric design standards used for the roads to be financed under the Credit are an improvement to existing practices. They include adequate shoulders and standard lane widths, consistent with the type of road (trunk) to be rehabilitated. As a result, it is anticipated that once the works are completed, the accident rate on these roads should decrease. 2.29 Similarly, adequate standards have been used in the design of pavement structures, drainage structures and other road components. The proposed pavement design will allow for an increase in the axle load regulations for Nicaragua to bring them up to the agreed Central American (REMITRAN) limits. The work carried out by the consulting engineering group responsible for the design is of high quality and well detailed. This will facilitate the work of the contractor in charge of the rehabilitation works. I. Construction Industry 2.30 Following the 1979 revolution, the provision of road construction and maintenance services became the responsibility of the Government and the CERCs were created for this purpose thereby limiting the participation of the private sector. As a result of this, most of the construction companies either left the country or folded their operations. The current administration is, however, looking at increasing the involvement of the private sector. 2.31 Several construction companies are participating in projects with IDB financing while others are preparing to bid for the proposed rehabilitation works. However, with the approval of this Credit and of IDB's program, Government officials and local contractors  - 12 - need to familiarize themselves with the bidding requirements and documents used by IDA and other institutions for the contraction of works. 2.32 Discussions held with the Cdmara de la Construcci6n indicate that there are several Nicaraguan construction companies with sufficient know-how to undertake the type of works to be financed under the Credit. Lack of equipment and of spare parts, and the difficulty in obtaining financing will, however, limit their participation in the proposed project. It is therefore anticipated that the road rehabilitation works under the credit will be carried out by foreign contractors possibly with the participation of local contractors as subcontractors. Also, local firms could participate by forming local consortia or associating with foreign firms. 2.33 The ongoing shift from force account to contracting of works, particularly of maintenance activities, will require changes in implementation procedures and a more rapid development of the private sector. Under Credit 2690-NI funds will be made available for an evaluation of the issues affecting the capacity of the construction industry. Subsequently, technical assistance and training in those areas where weaknesses are identified should be provided. J. Environmental Aspects 2.34 The environmental analysis was carried out as part of the feasibility studies. Since the project includes mainly the rehabilitation of existing trunk roads, within existing rights of way and with no major realignment works, there were no significant environmental or resettlement problems identified by the study. There could be, at most, the potential for minor short-term impacts on the environment during project implementation. These are to be mitigated through specifications agreed with the IDA that will be placed in the civil works contracts to ensure that acceptable procedures are followed during construction to protect the environment. There will be no need to resettle people. The project has been rated as 'B' in terms of overall environmental impact. K. Safety 2.35 The Direcci6n de Transito (DDT) of the Ministerio de Gobernacidn is responsible nationally for traffic regulation and control. As such, matters relating to accident prevention, driver education campaigns, statistics and their analysis is the responsibility of the DDT. The DDT reports to the Policia Nacional. On the other hand, matters relating to the regulation of the road transport sector are the responsibility of the Direcci6n General de Transporte Terrestre of MCT. The extent of coordination between the DDT and DGTT is limited as DGTT gets to participate in accident prevention and analysis only when a public transport unit is involved in an accident. 2.36 Road Accidents are recorded and analyzed by DDT and the police. The fatality rate per 100,000 inhabitants in the Department of Managua where 25% of the population of the country lives is 15, a figure that is about twice the rate in Costa Rica and Colombia. This rate has been on the increase during the last few years as the vehicle fleet increased.  - 13 - 2.37 To some extent, the high accident rate is a reflection of the condition of the roads, the mostly old vehicles using the roads, and the general driver behavior. Accidents involving pedestrians are very common, amounting to 52% of the fatalities. Two-vehicle accidents accounted for 24% of the fatalities with the remaining 24% evenly distributed among other accident categories (i.e. vehicle overturns, collision with a fixed object, etc.) 2.38 In the rural areas, road safety is affected adversely by the presence of non-motorized vehicles and motorcycles, the restrictive road design standards, and the generally poor condition of vehicles. The lack of reliable statistics, however, makes it difficult to determine which of the preceding factors contributes most to the high accident and fatality rates. The proposed project will contribute to improving road safety in the rural areas by using proper road design standards, including adequate shoulders intended to meet current and projected traffic volumes. The Government can improve the current situation further by providing better general education of the public, better vehicle inspection systems and driver training schemes, and increased police enforcement of road safety laws.  - 14 - mEl. PAST IDA INVOLVEMENT AND LESSONS APPLICABLE A. Portfolio Overview 3.1 This would be the first IDA project in the transport sector since the re-opening of lending operations. Inferences need to be drawn therefore from lessons learned from the IDA portfolio as a whole, from other similar operations, and from the experience of other donors. 3.2 In FY95 there were six IDA operations ongoing in Nicaragua. According to the FY95 Annual Review of Project Progress (ARPP), all projects were rated as being satisfactory from both the viewpoints of meeting development objectives and implementation progress. There were no project cancellations, closing date extensions, major problem-driven project restructurings or overdue audits during FY95. The important factors that have contributed to this good performance have been the high degree of project ownership and commitment by the Government, as well as the rapid and flexible response by IDA in the provision of technical assistance. Total disbursements of US$54.2 million in FY95 were somewhat higher than the average annual projections (US$40-45 million) due to the heavy influence of the disbursement pattern of the adjustment credits. However, there were brief delays during the year in disbursements from some operations due to late startups and to the implementation of difficult tranche release conditions. B. Lessons Applicable 3.3 IDA has extensive experience with initial operations in countries whose infrastructure has deteriorated severely after years of neglect. The experience seems to indicate that, even given the Governments' typically overriding desire to rehabilitate the entire road network, emphasis should be placed on designing a balanced program that focuses on the sustainable development of the institutions that manage the sector as well as on the maintenance of infrastructure. As for rehabilitation, IDA would support typically projects that focus only on the core, economically viable segments of the old network. Very important too would be the use of project conditionality that is designed to increase the level and reliability of budgetary allocations for maintenance of at least the segments of the network that are in good or fair condition and, subsequently, for other segments once they have been rehabilitated. 3.4 Apart from some startup difficulties, the experience of other donors who have been active in the transport sector, especially the IDB, has been relatively good. The main lessons from this experience, which are consistent with IDA experiences in other countries, have been that: (a) planning and programming procedures, especially for road maintenance, need to be given increased emphasis; (b) effective supervision requires considerable effort due to the weaknesses of Government agencies; (c) sustainable institutional improvements require significant effort from the Government and support from foreign donors over a long period of time and possibly through repeater projects; and (d) unless dealt with continuously, the inconsistent and inadequate provision of counterpart funds could reduce project implementation rates well below existing MCT capacity.  - 15 - 3.5 IDA experience with road funds is also appropriate here. Though there is significant variation by country, certain elements seem to be essential to designing a successful and sustainable road fund. First, a fund should be fully funded by user fees (or road tariff) rather than transfers from tax revenues. Second, the fund should be managed by an independent board comprising representatives of road user groups who are selected by the organizations they represent. Third, the board should be free to determine the level of the tariff - based on a fuel levy, licence fees, etc. - in response to changing road maintenance expenditure needs, currency devaluation and inflation. Fourth, the fuel levy should be collected by fuel companies, and when feasible other fees should be collected under contract, with the requirement that all of the proceeds be deposited directly into the road fund. Fifth, the fund should be managed according to sound commercial principles - with a commercial accounting system, clear disbursement procedures, an independent financial audit, and technical audits. Finally, to avoid mostly the problems associated with over funding, the fund should have built in mechanisms for regularly adjusting the road tariff. 3.6 The above lessons have all been taken into account. The road rehabilitation works form an economically justified part of the core road network that Nicaragua will need to help sustain growth. The Government will be encouraged to give priority to maintenance funding and implementation through the establishment of a road fuind and also by increasing the participation of the private sector. Finally, the project's management and implementation arrangements are consistent with Government plans and policies.  - 16 - IV. THE PROJECT A. Origin and Preparation 4.1 The need for road rehabilitation was identified initially in connection with improvement options for the access to Corinto port. Feasibility studies were conducted with Japanese grant financing for the rehabilitation of the 140 km road section on the North-South corridor connecting Guasaule, on the Honduran border, to the town of Izapa. Preparation of the proposed project began in 1995 when the Government requested IDA assistance in the rehabilitation and maintenance of the main road network, in strengthening MCT's planning, programming and implementation activities, and in consolidating ongoing measures and policy reforms on road maintenance. B. Objectives 4.2 The objectives of the proposed project are to strengthen the institutions that are responsible for road transport in Nicaragua, to improve the planning, funding, and implementation of road maintenance, and to improve the quality and the capacity of selected trunk roads on a sustainable basis so as to enhance Nicaragua's export competitiveness. C. Rationale for 1DA Involvement 4.3 The proposed project is fully consistent with the CAS (para. 1.8). Currently, an extensive program of institutional changes and infrastructure facilities modernization is about to be carried out. Given the weakness of MCT, the management and development of the road subsector could benefit considerably from IDA expertise. Apart from financing needed investments, the key areas that the IDA contribution would be needed include: (a) improving the planning, and implementation of road maintenance by contract; (b) helping to ensure that adequate attention is paid to, and funds provided for, maintenance of the roads in good or fair condition; and (c) ensuring that attention is paid to safety, environmental, and policy issues in the sector. In addition, MCT needs assistance in adapting to its changed role in a policy environment of deregulation and greater private sector involvement. In this regard, IDA has relevant experience which it can draw on to help support the formulation and the supervision of policy and analytical studies required to obtain legislative or other approvals needed for proposed changes. D. Project Description 4.4 The proposed project includes: (a) civil works, including the rehabilitation and improvement of the Chinandega- Izapa section (67.7 km) of the trunk road connecting Nicaragua with Honduras and Costa Rica; (b) a pilot project to maintain 500 km of roads using microenterprises (Proyecto Piloto de Microempresas de Mantenimiento-PPMM); and  - 17 - (c) technical assistance, training and studies. 4.5 Road Network Rehabilitation and Improvement. The main component of the proposed project will be the rehabilitation and improvement of the Chinandega-Izapa road section located in the natural corridor connecting Nicaragua with Honduras in the north. DANIDA will be financing the rehabilitation and improvement of the section Nandaime- Rivas-Pefias Blancas (81.7 km) that is also in this corridor and connects Nicaragua with Costa Rica in the south. Works on the Chinandega-Izapa section will be divided into two contracts and international competitive bidding will be used in contracting the works. Detailed engineering for the section has been completed by a local civil engineering consultant. 4.6 Overall, the project is designed to rehabilitate all damaged sections, widen the substandard sections and provide adequate shoulders along the road. The section Leon- Chinandega (40.3 km) carries approximately 4000 vehicles per day as well as some slow moving traffic (agricultural tractors and animal drawn vehicles). As traffic volume increases, there will be a need to widen this section; for this reason major bridge substructures will in some locations be built to allow for the widening of the road to four lanes. The existing design standards of MCT (Table 4.1) are adequate and will be applied unless otherwise specified in the detailed engineering. 4.7 Road Maintenance. The Credit will finance a pilot project on road maintenance with the participation of local communities through the formation of microenterprises (PPMM). The proposed three-year pilot project would cover the routine maintenance of 500 km of roads of various types (trunk, secondary, and feeder roads). Ten to twelve microempresas, composed of 12 to 14 persons each from communities along the 40-50 km road section to be maintained, would be formed and trained with the assistance of consultants familiar with the experience of the Ministry of Transport of Colombia where the microempresas concept has been used successfully for several years. Annex A has further details on the establishment of the PPMM. 4.8 With regards to increasing the implementation of maintenance by contract, the project will provide technical assistance in developing the required managerial and administrative capacity within MCT. Based on discussions with MCT a feasible range of targets for road maintenance has been developed and is shown in Table 4.2. To further strengthen its commitment, the GON agreed at negotiations to carry-out maintenance by contract in accordance with the following annual contract values and kilometer targets:  - 18 - Contract Maintenance Targets Item Year I Year 2 Year 3 Year 4 Year 5 Km maintained 375 1025 1395 1985 3050 US$Mil. allocated 1.2 2.4 3.6 4.8 7.5 4.9 This maintenance effort will be complemented by the technical assistance being provided by DANIDA under which a condition inventory of about 8000 km of the road network will be carried out in 1996/97. A systematic procedure for determining road conditions will also be set up and used as a basis for developing the road maintenance by contract program annually. 4.10 Technical Assistance, Training and Studies. Under this component, consultants will be retained to: (i) assist with the supervision of the road rehabilitation works and with the implementation of the road maintenance pilot project using microenterprises (PPMM); (ii) improve MCT' s maintenance management, planning and operations and provide training when required; (iii) examine the role of the private sector and the communities in the execution of road maintenance activities; (iv) carry-out transport and transit studies in the international corridors, as well as integral urban transport studies for Managua and other cities; (v) assist with monitoring and evaluation; and (vi) assist the Government in the preparation of future projects. 4.11 Training for the PPMM implementation will include training the trainers (promoters) as well as members of the microenterprises and MCT staff in the sustainable implementation of this concept. There will also be funding for overseas study tours that are focused on microenterprises, professional courses in transportation planning and maintenance management at universities abroad, as well as attendance by selected staff at relevant regional seminars and workshops. A training program will be prepared and it will include the qualifications of the candidates, the type, duration and cost of proposed training, and an indication of the assignment proposed upon the return of the candidates. At appraisal, MCT agreed to prepare TOR and a schedule for the provision of technical assistance, training, and the carrying out of agreed studies under the project. The proposed amounts and timing are in Annex B. E. Cost Estimates 4.12 The estimated total cost of the Project is US$28.4 million (excluding taxes, but including physical and price contingencies) with a foreign exchange component of US$17.8 million equivalent or 63% of Project cost net of taxes and duties. The cost includes: (a) physical contingencies of 10% on the base cost; and (b) price contingencies of 2.4% p.a. on the foreign component and of 8, 7, 6, and 5.5% annually on the local component for the respective years, starting in 1996. Costs are based on December 1995 prices, using an  - 19 - exchange rate of US$1.00 = 7.8 C6rdobas. Cost estimates for road rehabilitation works were prepared by the consulting engineering firm that carried out the engineering designs and are based on recent experience in Nicaragua. Consulting services are based on standard international rates. The estimated project costs are summarized below. Project Cost Summary a/ (CS Million) (USS Million) IDA's Share Local Foreign Total Local Foreign Total US$ % lzapa - Leon 14.0 31.0 45.0 1.8 4.0 5.8 4.9 Leon - Chinandega 26.6 58.8 85.3 3.4 7.5 10.9 9.3 Sub-total Road Rehabilitation 40.6 89.7 130.3 5.2 11.5 16.7 14.2 85 Road Maintenance Pilot (PPMM) 10.1 2.4 12.5 1.3 0.3 1.6 1.4 85 TAlTrg./Studies 8.1 23.7 31.7 1.0 3.0 4.1 4.1 100 Total Base Cost 58.8 115.8 174.5 7.5 14.8 22.4 19.7 88 Physical Contingencies 5.9 11.6 17.5 0.8 1.5 2.2 2.0 Price Contingencies 18.2 11.1 29.3 2.3 1.4 3.8 3.3 Total Project Cost 82.8 138.5 221.3 10.6 17.8 28.4 25.0 88 a! Excluding taxes and duties estimated e 21% which is equivalent to 46.8 million Cordobas or US$6.0 million. F. Financing 4.13 IDA' s financing of US$25 mnillion would represent 88% of the total project cost net of taxes and duties. The Government of Nicaragua will contribute US$3.4 million or 12% of the total project cost. IDA will also be financing some of the local costs but this is justified given the limited resources available to the Government. The overall financing plan is as follows: Project Financing Plan (US$ million) Source of Finance Local Foreign Total Government 3.4 0.0 3.4 IDA 7.2 17.8 25.0 Total a/ 10.6 17.8 28.4 a! Net of taxes and duties.  - 20 - G. Implementation and Monitoring 4.14 MCT will have overall responsibility for project coordination and implementation. Day-to-day project activities will be coordinated by a Technical Support Team (TST). Except for an expatriate adviser, the TST staff will be provided by MCT and include: a Project Manager, two highway engineers - one with not less than 7 years of road construction supervision experience and the other similarly experienced in maintenance planning and implementation, an accountant experienced in the use of computer software, and support personnel, as required. The adviser will be an experienced (consultant) transport planner, familiar with the implementation of IDA projects who will be hired under the project. The TST is to be maintained for the duration of the project and it will report to the Director of the existing Project Coordination Unit (UCP) in the MCT. The efficacy of this arrangement will be reviewed annually by IDA and, if necessary changes will be recommended. As a condition of credit effectiveness, the Government agreed at negotiations to staff the TST with the following minimum staff: a Project Manager, two highway engineers, and an accountant, all with qualifications, experience, functions and responsibilities satisfactory to IDA. 4.15 The TST will have two primary functions: (i) overall project coordination, including preparation of progress reports, processing of disbursement requests, and management of the Special Account; and (ii) project execution which will include: preparation and processing of tender documents, contracting of consultants and contractors, monitoring of project progress, supervision and payment of contracts, and overall management of project accounts. The TST will also help to administer local and overseas training under the project. Draft TOR for the TST have been prepared by MCT. 4.16 Performance Monitoring. The Implementation Plan (Annex C) as agreed for the various project components will be monitored through quarterly progress reports which would be prepared by the TST. Furthermore, by September 30 each year, representatives of the Government and IDA will conduct a detailed review of the progress made in reaching the project objectives and in implementing project components. In the case of unsatisfactory progress, remedial action plans will be prepared by the Government within one month of the review. During appraisal, performance indicators for project monitoring purposes were agreed upon and are included in the Implementation Plan (Annex C). These include indicators that link the project's inputs with the expected outcome of an improved road network. In addition, other indicators are related more to the impact the project will have on the developmental objectives of the Government. Taken together these implementation performance (IP) and developmental objective (DO) indicators would provide a reliable measure of project performance. It was agreed also that the Government will supply information, in a manner satisfactory to IDA, on monitoring and project progress. The reporting requirements are listed in Annex D, and the nature and staffing of IDA supervision missions is in Annex E. Also, MCT will prepare a detailed project completion report and submit it to IDA no later than six months after the closing date of the Credit. The latter is scheduled currently for December 31, 2000. All of these annual review/reporting agreements were reached at negotiations.  - 21 - H. Procurement 4.17 Procurement will be carried out in accordance with the 'Guidelines for Procurement under IBRD Loans and IDA Credits, January 1995," with the revisions of January, 1996. Selection and appointment of consultants will follow the 'Guidelines for the Use of Consultants by World Bank Borrowers and by the World Bank as Executing Agency of 1981" World Bank Standard Bidding Documents will be used for the bidding of works under the Road Rehabilitation and Improvement Component. The following table presents the breakdown by procurement method: Procurement Arrangements (USSmillion) Procurement Method Item ICB Other a/ Total Civil Works 21.2 - 21.2 (18.2) (18.2) Maintenance Works - 1.1 1.1 (0.9) (0.9) Goods & Materials - 0.6 0.6 (0.5) (0.5) PPMM Training - 0.5 0.5 (0.4) (0.4) Consultants - 4.7 4.7 (4.7) (4.7) Training - 0.3 0.3 (0.3) (0.3) Totals 21.2 7.2 28.4 (18.2) (6.8) (25.0) a/ 'Other" includes prudent shopping, direct contracting, and IDA 's consultant selection procedures. Note: Figures in parentheses indicate IDA financing. 4.18 Civil Works and Maintenance Works. Civil Work Contracts for road rehabilitation (estimated value US$21.2 million) will be procured on the basis of International Competitive Bidding (ICB). Formal prequalification of contractors will be carried out for all ICB contracts. Prior review of procurement procedures and documentation by IDA will be required for all procurement under ICB. Road maintenance works estimated to cost less than US$100,000 per contract will be contracted directly  - 22 - following special procedures outlined in paragraph 3.07 of the Guidelines and on the basis of reference unit prices and standardized quantities; these contracts will aggregate up to US$1.1 million. The MCT will when necessary provide technical assistance to the communities to assure that before entering into a contract for road maintenance, a community must be properly organized and possess the capacity to execute a contract. The first two of these contracts will be subject to prior review while the others will be reviewed ex-post by IDA supervision missions, and they will all be based on a standard form of contract agreed by IDA. Given the supervision needs of the PPMM, six vehicles suitable for field operations (e.g. pick-ups) will be procured by international shopping. The other PPMM related goods (tools, training materials, small items of equipment, construction materials, office equipment and supplies - all estimated to cost less than US$25,000 per contract) will be procured through national and international shopping procedures after receiving at least three quotations, up to an aggregate of US$0.6 million. 4.19 Consultant Services. Consultants for technical assistance, training, and studies will be selected following the 1981 Bank Group consultant guidelines. The Borrower has agreed to use IDA 's standard letter of invitation, and standard form of contract for time- based assignments and for lump-sum assignments. IDA prior review would be required for all contracts for consulting services valued at more than US$100,000 for consultant firms and all contracts with individuals costing more than US$50,000 equivalent. For consultant contracts valued at less that the amounts indicated above, prior review by the Bank will only cover the corresponding terms of reference and short list of firms. This exception shall not apply to: (a) single source selection of consulting firms; (b) assignments of a critical nature as reasonably determined by IDA; (c) amendments to contracts for the employment of consulting firms raising the contract value to US$100,000 or above; and (d) amendments to contracts for the employment of individual consultants raising the contract value to US$50,000 equivalent or above. Financing for training and study tours will be based on a detailed program to be submitted to IDA for prior approval. 4.20 Advance Procurement Action and Retroactive Financing. With the objective of initiating road works quickly after credit approval, emphasis was placed during project preparation on advancing key procurement steps. Accordingly, the international prequalification notice for road contractors was published in April 1996. It is also planned to select supervision consultants for road rehabilitation works shortly after credit approval. Also, extensive and avoidable delays have occurred in the implementation of projects in Nicaragua because procurement actions are not initiated early enough. This could particularly affect the implementation of contract maintenance where repeated, timely award of contracts is essential. In order to avoid this, and in keeping with the implementation schedule, MCT will, when appropriate, initiate and complete all procurement steps up to (but not including) contract signature for any project component prior to the release of budgetary allocations. Finally, retroactive financing for all components of the project, not to exceed SDR 350,000, would be provided for expenditures incurred between January 1, 1996 and the date of the Credit Agreement. This is also considered necessary for adherence to the project' s implementation schedule.  -23 - I. Disbursements 4.21 Credit funds will be disbursed (net of taxes) on the following basis: (a) Civil Works: 85% of expenditures; (b) Maintenance Works: 85% of expenditures; (c) Goods: 85% of expenditures; (d) PPMM training: 80% of expenditures; and (e) Consultancy Services, studies, and training: 100% of expenditures. 4.22 Disbursements under the project will be made against full documentation of expenditure except for the following items, for which disbursements would be on the basis of Statements of Expenditures (SOEs): (i) maintenance works contracts, except for the first two contracts; (ii) goods, including construction materials, training materials, office equipment, and supplies; (iii) consultants contracts, estimated to cost less than US$100,000 equivalent, for firms and less than US$50,000 equivalent for individuals; and (iv) all training. This training will include the costs of fuel, oil, and spares for vehicles, and also other costs incurred by MCT in establishing and supporting the PPMM. Similarly, the promoters' fees, per diem, training facilities rentals and the printing of training materials will also be eligible expenditures for reimbursement. SOE records would be made available to IDA staff as required for inspection during supervision. The disbursement schedule is shown in Table 4.3. It corresponds to the standard disbursement profile for IDA projects in Nicaragua. The credit should be disbursed completely by June 2000. J. Accounts and Audits 4.23 Special Account. In order to expedite and facilitate disbursements a Special Account, with an initial deposit of US$1.0 million equivalent and an authorized allocation of US$2.0 million equivalent, would be established in the Central Bank or in a commercial bank acceptable to IDA. This account will be maintained by MCT. The Special Account would be used for all eligible foreign and local expenditures. Replenishments to the Special Account would be made on a monthly basis or when 20 percent of the initial deposit has been used, whichever occurs first. 4.24 Revolving Fund in Local Currency. MCT will need a timely and reliable supply of counterpart funds if the project is to be implemented efficiently. Hence, it was agreed during negotiations that a revolving fund in local currency (Fondo Rotatorio) would be established at a commercial bank acceptable to IDA, solely for project purposes. As a condition of credit effectiveness, the account where the counterpart funds are to be deposited will be opened by the MOF. It was agreed also at negotiations that at the  - 24 - beginning of each quarter the MOF will deposit 3 months worth of counterpart funding into the revolving fund. 4.25 During negotiations, agreement was reached also with the Government that: (a) the project's records and accounts, including for the SOEs and the Special Account, will be audited annually by independent auditors acceptable to IDA, and (b) it will submit to IDA certified copies of the audit reports no later than four months after the end of each fiscal year. In the case of SOEs, the audit report will contain a separate opinion as to whether the SOEs submitted during each fiscal year, together with the procedures and internal controls involved in their preparation, can be relied upon to support the related withdrawals. K. Environmental Impact 4.26 Works under the project consist of the rehabilitation of existing facilities and therefore they would not cause direct impacts on the environment other than those linked to the construction process itself These are to be addressed in the bid and contract documents which will have clauses to ensure that civil works are executed in accordance with environmental protection specifications acceptable to IDA. MCT' s institutional capacity to handle the environmental aspects of road works is being strengthened through technical assistance being financed by the IDB. MCT agreed at appraisal to inform the IDA annually on the status of this ongoing institutional strengthening program with the IDB. L. Sustainability 4.27 Implementation of this project will lead to the adoption of better planning, organization, and management procedures and techniques. Important too would be the improved provision of funds for road maintenance and the encouragement of greater participation by the private sector in activities that have so far been reserved for Government agencies. The changes in practices and procedures are sustainable individually and taken together, they can promote lasting and highly beneficial changes in the road sector.  - 25 - V. ECONOMIC EVALUATION A. Introduction 5.1 The project roads are located in the Departments of Chinandega and Le6n which, with populations of 348,971 and 330,168, rank 3rd and 4th respectively in the country, after Managua and Matagalpa. Defined as Nicaragua's western region in the Bank's Poverty Assessment (Report No. 14038-NI of June 1995) it contains about 12% of the country's land area and about 17% of its population. This makes it one of the more densely populated regions with about 70 persons/km2. The population of the region has more than doubled since the 1971 census and some 52.4% of it is considered urban; this is about the same as at the national level (51.6%). It is also the region with the highest agricultural potential, because it has deep and fertile volcanic soils much of which are suitable for irrigation, and is traditionally one of the more dynamic parts of the country. 5.2 The western region has about 2,500km of roads, of which about 950 km are dry- season rural roads, but most of them are in poor condition. Agriculture is the most important sector in the regional economy. However, it is estimated, that wholesale prices are about 40% higher than farmgate prices, for a weighted average of the six more important regional crops (mostly grains). There may be other factors but the poor road conditions have certainly contributed to high agricultural production losses, high transport costs, and the resulting high spread between wholesale and farmgate prices. If better roads could help to reduce the spread then this could lead directly to additional incomes for local producers. B. Trafric 5.3 The traffic volumes on the project road sections were estimated by counts carried out originally in 1993 by MCT. These traffic volumes were updated on the basis of a systematic 7 day, 24 hr-count organized by the consultants in October 1995. Actual traffic volumes were between 3,300 and 3,800 vehicles per day (vpd) on the project roads. This represented about 10.8% p.a. growth on average during 1993-95 and was probably due to the reactivation of the economy. Trucks and pickups represented about 45% of the traffic in both road sections. Articulated vehicles, like tractor-trailers and agricultural vehicles, the types of traffic that contribute to congestion and slow operating speeds, accounted for over 10% of the total traffic. Passenger traffic growth has been overall much faster than freight. 5.4 For the future, growth rates have been estimated at 5% p.a. for passenger traffic and 3% p.a. per freight. Conservative growth rates were used because it is expected that traffic will return to its slower, long term trends that prevail usually in the corridor. These reflect the road functions and general economic trends expected during the lifetime of the project roads since, according to the traffic survey, over two-thirds of trips are work or business related. The resulting projections for the various vehicle types are shown in Table 5.1.  - 26 - C. Benefits and Beneficiaries 5.5 The investments, maintenance, and institutional strengthening supported by the project will provide a wide range of benefits. First, the road rehabilitation will cause reductions in vehicle operating costs (voc) for users of these roads. Second, improved planning and implementation procedures for maintenance will prevent further deterioration of roads countrywide and help to protect earlier investments as well as to stimulate the private construction industry. Finally, the institutional support should help MCT to use resources more efficiently and to prepare itself to better manage the challenges of the future. 5.6 The benefits deriving from the road rehabilitation can be quantified as they consist largely of voc savings accruing to road users. The voc both with and without the project for different types of vehicles is shown in Table 5.2. The economic operating costs were derived from recent information on costs in Nicaragua, after adjusting for taxes and duties. The voc savings vary by vehicle type but they are typically a 50% reduction from current operating costs as the project will improve the poor condition of the roads considerably. VOC savings for heavy vehicles are about 80%, which is not unexpected. Also, since the improved roads will permit higher average speeds, travel times could be reduced. This is another source of savings to users that has been quantified and included in Table 5.2. The time savings are very modest in comparison to voc savings. D. Economic Returns 5.7 The economic rates of return (ERR) are based on the costs and benefit streams shown in Tables 5.3 and 5.4. The ERR with and without time savings for the two road sections range from 84.6% to 96.7%. For the project as a whole, the weighted average ERR is 88.6% (and 90.8%, including time savings). The benefit cost ratios, at a discount rate of 10%, are 11.00 for the Izapa-Le6n road and 9.30 for the Le6n-Chinandega section. The newly rehabilitated roads will also improve road safety by eliminating the hazardous conditions caused by large potholes and other irregularities. The construction and paving will create employment for about 400 workers over a 30 month period; about 40% would be unskilled labor that can be recruited locally. Also given the substantial traffic volumes and the increased proportions of trucks and pickups expected in the future, the ERR estimate is quite robust. E. Risks and Sensitivity Analysis 5.8 The project is not subject to unusual risks with respect to its implementation and the use of experienced consultants and contractors will further minimize this. The main risks relate to the unreliability of counterpart funds, and to inefficiencies in the planning, budgeting, and implementation of road maintenance. These will be addressed through agreements with the Government on the size and availability of funds for maintenance and rehabilitation works, by using the Fondo Rotatorio, by setting up a good technical support team, and by the guidance from IDA supervision missions. There are also some risks  - 27 - associated with the failure to reach the road fund and the MCT institutional development goals. These do not threaten project implementation directly as it does not need the proceeds from the road fund and the TST will handle implementation arrangements. However, they do present risks to the broader IDA objectives of sustainable development, especially with regards to maintenance in the road sector. Currently, the risk of either failure is very low since both MCT and users want the road fund, and the institutional strengthening is desired highly because of the need to learn how to implement maintenance by contract. 5.9 Still the sensitivity of the ERR to various scenarios was tested and the results summarized in Table 5.5. Given the high base case ERR, even under adverse scenarios (including 20% cost increase, 20% benefits decrease, lack of maintenance) the project's ERR does not fall below 70%. Even if this road is not maintained adequately, it would take more than 10 years for it to return to its current status of disrepair. The economic benefits still so heavily outweigh the costs in this scenario that the ERR remains high (85%). This project is clearly justified economically.  - 28 - VI. AGREEMENTS AND RECOMMENDATION 6.1 At negotiations the GON agreed on: (a) holding annual reviews of its road program with IDA (para. 2.18); (b) presenting legislation for the establishment of the RMF to Congress by June 1997 (para. 2.25); (c) providing sufficient funds to carry out required annual programs of routine and periodic maintenance (para. 2.25); and (d) a program of contract maintenance, including annual targets in terms of both value and kilometers to be performed by contractors (para. 4.8). 6.2 Prior to credit effectiveness, GON will provide evidence: (a) that the manager/staff satisfactory to IDA have been provided for the TST (para. 4.14), and (b) of opening an account in local currency in a commercial bank for the project's counterpart funding needs (para. 4.24). 6.3 Based on the above agreements the project is suitable for a credit of SDR 17.2 million (US$25.0 million equivalent), with a 40 year maturity, including 10 years of grace, on standard IDA terms.  - 29 - Annex A NICARAGUA ROAD REHABILITATION AND MAINTENANCE PROJECT ROAD MAINTENANCE PILOT PROJECT Background 1. The reasons in the past for the poor condition of the Nicaraguan roads were mainly financial and institutional. The Government is committed now to better policies for the implementation of road maintenance, to improve the operation and management of the MCT, and to increase the participation of the private sector in maintenance operations. A number of technical assistance programs and studies are being undertaken by the MCT to address these issues, one of which is a pilot project to create microenterprises for the execution of routine maintenance activities of the road network. The Pilot Project 2. The Pilot Project, (Programa Piloto sobre Mantenimiento por Microempresas, PPMM), will cover 500 km of roads most of which will be on the paved road network. The maintenance for the selected roads will be provided by 10 to 12 microenterprises made up of 10 to 14 persons (12 on average) who carry out manual routine maintenance activities on approximately 50 km of roads. This scheme has been thoroughly tested in Colombia where 398 microenterprises provide routine maintenance to 21,500 km and employ 4,900 persons. 3. The proposed PPMM was prepared by the MCT with the assistance of a Consultant who visited Nicaragua (Dr. Martha I. Lobo Soler, Technical Advisor to the Microenterprise Program of the Instituto Nacional de Vias de Colombia). The mission visited Nicaragua to discuss with the MCT and other agencies the feasibility of launching such a program. In her report, Mantenimiento de Vias a traves de Microempresas Asociativas, the Consultant concluded that the existing conditions in Nicaragua, such as high unemployment and past experience with labor intensive programs, provide an ideal environment for the microenterprise concept. A copy of the report can be found in the Project files. 4. The microenterprises will be organized as cooperatives (Cooperativas de Servicios de Mantenimiento Vial) with members having equal rights and obligations. Contracts will be with the MCT with the microenterprises providing their own tools and MCT providing, on site, materials and small items of equipment, when needed. MCT will acquire the required tools for the microenterprises the cost of which will be deducted from the monthly payments over the life of the contract.  - 30 - Annex A 5. The microenterprises will do light patching and sealing, vegetation clearance within the road's right-of-way, cleaning of culverts and ditches, maintaining and replacing road signs and all other routine maintenance activities on the 50 km assigned to each of them. Supervision of the works will be conducted by the MCT. 6. The PPMM's cost per km-year of routine maintenance using microenterprises has been estimated at US$ 500.00 which includes: labor (including fringe benefits), tools, uniforms and other equipment), daily transportation to and from the job site, and administrative expenses. Cost per km-year does not include the cost to MCT of providing materials (for instance, cold mix for patching) and the cost of supervising the works. The cost per km-year will increase to approximately US$600-700 when those costs are added. 7. The nature of the PPMM requires the participation of other Government agencies in addition to the MCT. The Ministerio del Trabajo (Miitry of Labor) will be involved in setting up the legal structure under which the microenterprises will work, the contracting arrangements (contract type and duration) and in advising on the process to be followed in the fornation of cooperatives. The Instituto Nacional Tecnol6gico (INATEC) will be involved in providing the necessary training to the personnel to be responsible for selecting the microenterprises (promotores) as well as for the microenterprises themselves. Training will be provided, through workshops, in areas such as how to create a microenterprise, how to deal with the change from being a laborer to being a contractor, organizational aspects, basic administration and accounting, and, with the assistance of the MCT, on how to carry out the contract maintenance activities. Finally, The Programa de Apoyo a la Microempresa (PAIC), a program under the Presidency aimed at supporting the role of microenterprises in the country, will participate in the PPMM as the experience of PAIMIC with microenterprises initiatives is very valuable and also very relevant. 8. Microenterprises will be selected from communities along the road sections to be maintained. The selection of microenterprises will be carried out by MCT with advice from the 6 promotores to be contracted under the Project. Continued advice on setting up the PPMM will be sought from the Instituto Nacional de Vias of Colombia which is the agency responsible for the microenterprise program in that country. In addition, consultants with extensive experience on the subject will be financed under the Project to provide advice during the initial stages of the PPMM as well as during its implementation and evaluation phases. 9. The PPMM will have a total duration of3 years and a cost of US$1.6 rnillion. Approximately 9 months will be required for Phase I - Organization and Launching of the PPMM - which will include: the establishment of policies and the preparation and signing of the required agreements among the participating agencies, making an initial visit by the agencies to Colombia to become familiar with that program, selecting and training the 6 promotores, contracting the consulting services, confirming the roads to be included under  -31 - Annex A the PPMM, preparing training material, selecting, contracting and training the microenterprises, acquiring the necessary tools, and launching the PPMM. Phase 2 - Initial Implementation and Adjustment - during which adjustments will be made to the PPMM will run for approximately three months. Finally, Phase 3 - Implementation, Monitoring and Evaluation will run for 24 months. During Phase 3, the PPMM will be under permanent monitoring in to ensure the quality of the work and to assess the possibility of increasing the number of microenterprises with local financing. 10. The preliminary list of roads from which the PPMM will be selected is presented in the following table: No. Road Section Surface Type Length (kin) I San Isidro-Esteli-La Sirena Paved 41.3 2 La Sirena-Empalme Yalaguina Paved 48.3 3 Yalaguina-Las Manos Paved 43.7 4 Yalaguina-El Espino Paved 31.1 5 San Isidro-Dos Montes Paved 49.0 6 Dos Montes-Telica Paved 49.0 7 Chinandega-Corinto Paved 20.6 8 Chinandega-El Congo Paved 44.8 9 El Congo-Cosiguina-Potosi Unpaved 30.7 10 El Viejo-Tonala-Puerto Moraza Unpaved 27.0 11 Somotillo-San Pedro del Norte Unpaved 35.3 12 Izapa-La Paz Centro-Managua Paved 60.3 13 Zona Franca-Km 65+000 Paved 53.0 14 Km 65+000-Sebaco Paved 38.0 15 Matagalpa-Sebaco-San Isidro Paved 35.0 16 Acoyapa-Tepenaguazapa Unpaved 62.7 17 Tepenaguazapa-San Carlos Unpaved 64.5 Total 734.3 11. The PPMM will provide direct employment initially to about 180 persons in the rural areas where unemployment rate is high. If the PPMM proves to be successful, an expanded program of routine maintenance by microenterprises will be a source of continuous and productive employment with a unit cost significantly lower (less than half) than the one paid to contractors at present.  - 32 - Annex A 12. To be successful, the PPMM, or for that matter an expanded program of microenterprises, will require that work performed be paid for promptly at the end of the month or pay period in order to ensure that workIers will remain on the job. For this purpose, it is essential that a simple payment mechanism, free of delays, be established at the start of the PPMM. The proposed Fondo Rotatorio (para. 4.24), if properly handled, would be the suitable mechanism.  -33- Annex B NICARAGUA ROAD REHABILITATION AND MAINTENANCE PROJECT Technical Assistance, Training and Studies Ust of TA Person- Status of TOR (Date) Short List ContractVAcfivity Purpose/Objective Month Started Completed Expected A. Supervision: 1. Civil Works Assistance for design 70F Dec-95 Apr-96 Apr-96 Implementation and supervision 120L B. Technical Support: 2. PPMM Setup & train 15F Jan-96 Jun-96 Jun-96 'microempresas' 1 OL 3. Maintenance Mgt. Design & implementation 15F Jan-96 Jun-96 Jun-96 of contract maintenance IOL 4. Institutional Support Performance monitoring, 5OF Jan-96 Jul-96 Periodically training program design 15L & admin., technical audits, preparation of data & organizing Annual Coordination reviews, PCR preparabon, etc. C. Training: 5. Fellowships and PPMM needs, and - Jan-96 Jul-96 study tours professional training of MCT staff. D. Studies: 6. Transport & feasibility Urban Transport, and 45F Feb-96 Dec-96 Dec-96 Corridor O-D Studies. 25L Totals 375 F = Foreign Professional L = Local Professional a/ Estfmates are net of contingencies. Note: Standard Contract documents are expected to be used in all cases.  - 34 - Annex C NICARAGUA ROAD REHABILITATION AND MAINTENANCE PROJECT Implementation Plan ELEMENTS TOPICS DESCRIPTION 1. The Project Scope and Objectves To strengthen the insttutons that are responsible for road transport in Nicaragua, and to improve the quality and the capacity of selected trunk roads on a sustainable basis so as to enhance Nicaragua's growth prospects. Project Description The project will include: (a) the rehabilitation and improvement of 67.7 km of main roads; (b) the design and implementaton of a road maintenance pilot project using microenterprises; (c) consulting services for technical assistance, training and studies. Financial Plan The cost of the Project is estimated at US$28.4 million to be financed as follows: IDA: US$ 25.0 million GON: US$ 3.4 million TOTAL: US$ 28.4 million 2. Implementation Organization MCT will be responsible for overall project Arrangements coordination. Project acbvibes will be coordinated by the Technical Support Team (TST) to be set up within existing Project Coordination Unit (UCP) responsible for the coordinaton of IDB's REMECAR project. The TST will have 5 staff members. Responsibilities of the The MCT through the TST will: organizaton (a) monitor, evaluate and report physical and financial progress of the project; (b) manage all procurement aspects of the project (i.e. prepare bid documents, advertise, conduct bidding and evaluabon processes, obtain approvals, conclude contracts, process payments, etc.); (c) manage the selection of consultants to be engaged under the project (i.e. prepare terms of reference (TOR), shortlist qualified firms, prepare letters of invitaton and supplementary documents, invite proposals, define evaluation criteria, etc.); (d) manage the flow of project funds and maintain all accounts for the project; (e) coordinate the preparation of the project's Audit Report and forward report to IDA; (f) ensure that GON makes adequate budget allocabons for the Project, and that funds be made available in a timely manner; (g) prepare and submit disbursement requests to IDA; (h) coordinate project preparabon studies; (i) prepare a project completion report.  - 35 - Annex C Implementation Plan (Continued) ELEMENTS TOPICS DESCRIPTION 2. Implementation Role of IDA during project IDA will conduct regular supervision missions Arrangements implementation during project implementabon. Given the limited (cont.) experience of MCT with IDA's procedures, it is anticipated that frequent missions will be required during the inital year of project implementation. The supervision plan therefore calls for 4 supervision missions per year. 3. Implementation Implementation Plan for See attached Implementation Schedule. Plan various project components Schedule of procurement See attached Implementation Schedule actions Economic analysis See Section 5 in the main text Project risks The critical factors that could affect the project's success relate to the unreliability of counterpart funding, and the limited funding for road maintenance. Risks were minimized by: (i) reaching an agreement with the GON to open a revolving fund account in the Central Bank into which counterpart funds for six months of project implementation are to be deposited in advance; and (ii) appropriate road maintenance targets were established during project preparation. 4. Project Monitoring Major Credit Covenants The main covenants cover the following areas: and Evaluabon (a) establishment of the "Fondo Rotatorio"; (b) establishment of TST; and (c) maintenance financing and the Road Fund. Key Indicators See next page.  - 36 - Annex C IMPLEMENTATION PLAN (Continued) List of Performance Monitoring Indicators Performance Measure/Target Item & Unit 1996 1997 1998 1999 A. Input Indicators: 1. Establish Fondo Rotatorio (month): June 2. Deposit counterpart funds ($mil.;gross): 0.5 2.8 2.8 1.0 3. Establish Technical Support Team (month): August 4. Total road maintenance budget ($mil.): 12 12 12 12 5. % of Budget Allocated to Contract Maintenance: See Table 4.2 for targets 6. Number of maintenance contracts signed: See Table 4.2 for targets B. Output Indicators: 7. Establish and maintain microempresas (Min. Total no.): 0 12 12 12 S. Roads maintained by PPMM (km): See Table 4.2 for targets 9. Overall maintenance by contractors (km): See Table 4.2 for targets 10. Trunk roads rehabilitated (km): 10 30 28 - C. Outcome Indicators: a/ 11. Avg. delay in counterpart funding (vs. the quarterly target dates) in days: 0 0 0 0 12. % of road network maintainable (1994 = 17%): 20 23 26 30 13. Presentation of road fund legislation (month) - June - - D. Impact Indicators at: 14. Traffic growth (%) 5 5 5 5 15. Reduced transport costs (%): b/ 0 0 4 2 a/ Where appropriate, the TST will carryout surveys or studies to establish/verify these indicators. b/ With reference to the Managua-Corinto trip (154 kmi). The current charge is C$1 ,617 for 500 quintals.  NICARAGUA ROAD REHABILITATION AND MAINTENANCE PROJECT Implementation Schedule 1996 1997 1998 1999 COMPONENTS 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 SCHEDULING ROAD REHABILITATION - Prequalification of contractors - - Tendering/contract award . _ _ - Construction _ _ - Supervision of construction ._ MAINTENANCE PILOT PROJECT (PPMM) = = _ __ - Design/contracting/awarding (Phase 1) _ _ - - Initial implementabon/adjustment (Phase 2) . - Implementation/evaluation (Phase 3) _ - Supervision of PPMM _ _ . _ . __ TECHNICAL ASSISTANCE & STUDIES l - - _ _ - Technical assistance - road maintenance c o __ - Urban transport study . _ . _ _ - - MAIN PROCUREMENT ACTIONS ROAD REHABILITATION - Review and approval fo procurement documents * (Jan. 31196) Publication for contractor prequalificabon * (Mar. 15/96) - Prequalificabon of contractors * (May 15/96) - Request for tenders/bids X (June 30/96) - Submission and evaluation of bids I (Sept. 30/96) - Contract awards/signature 1 (Dec. 31/96) MAINTENANCE PILOT PROJECT (PPMM) - Review/approval o procurement documents *(Jan. 31/96) - Submission/approval of TORs and short list of consultants * (Feb. 296 - Submission/evaluation of proposals * (Apri 306) - Contract award/signature * May 31/96) TECHNICAL ASSISTANCE & STUDIES - Review/approval of package for invitation of consultants X (Sept. 30/96) (letter of invitabon, TORs, short list) * (Nov. 30/96) - Submission/evaluation of proposals I I - Contract award/signature -* (Jan. 15/9I Legend: Major component ( _ _ _ Preliminary/preparatory work for activity _ Implementation of acbvity ksr/c5/ruan * Completion dates  -38 - Annex D NICARAGUA ROAD REHABILITATION AND MAINTENANCE PROJECT Project Reporting Requirements 1. Progress Reports shall be prepared by the TST and submitted quarterly in triplicate no later than one calendar month after the end of the quarter. 2. The Report should contain the following information: 2.1 General Information (a) Progress accomplished during the reporting period in respect of: (i) Road Rehabilitation * prequalification of contractors * invitation to bid * bid receipt and evaluation * contract award (ii) Road Maintenance Pilot Project (PPMM) 3 selection of roads - selection of consultants * selection, contracting and training of promoters * selection, contracting and training of microenterpreneurs * launching of PPMM * monitoring of progress * Evaluation of PPMM (iii) Technical Assistance and studies * calling proposals * receipt and evaluation of proposals * contract award * arrival date of staff * man-months expended  -39 - Annex D (b) actual or expected deviations from the project implementation schedule: (c) actual or expected difficulties or delays and their effects on the implementation schedule, and the steps planned or taken to overcome the difficulties and avoid further delay; (d) expected changes in the completion date of the project; (e) key personnel changes in the staffs of the MCT/UCP/TST, consultants or contractors; (f) matters which may affect the cost of the project; (g) any development activity likely to affect the economic viability of project components; and (h) compliance with environmental guidelines. 2.2 A bar-type progress chart, based on the project implementation schedule, showing the progress on each project component. 2.3 A financial statement set out in a tabular form showing for each project component: (a) original estimated cost; (b) revised cost, if appropriate; (c) actual expenditure; (d) projected expenditure; and (e) actual and projected withdrawals from the project account. 2.4 The status of compliance with each covenant of the Credit Agreement. 3. The first report should cover the quarter ending December 1996 and focus on activities related to project startup. It will be important to highlight any early implementation problems that need to be rectified.  - 40 - Annex E NICARAGUA ROAD REHABILITATION AND MAINTENANCE PROJECT Supervision Plan 1. The nature and scope of the project, especially the increase in maintenance by contract, would necessitate extensive and close supervision, especially during the first two years of project implementation. On the other hand, the close involvement with the IDB including cooperation with their field office for supervision should lead to some savings, particularly after the initial intensive phase. The staff input indicated under the Project Launch workshop and Annual Coordination and Implementation Review Missions is in addition to regular supervision needs. It is anticipated that during the first two years two additional supervision missions will be required annually. 2. A project launch mission and yearly project reviews will be organized, assisting the staff of MCT to develop a common understanding of the project's overall development objectives, operational procedures, coordination needs and potential implementation problems. 3. The tentative supervision timetable and required staffing is the following: Project Launch Workshop: First Quarter FY97 Focus: Reviewing and fine tuning, as necessary, the implementation plan of each executing unit, identifying and planning required coordination among agencies, project management, procurement, environmental assessment, disbursement and auditing procedures and requirements. Technical assistance and studies. Duration: 5 days Participating IDA Staff: - Task Manager - Highway Engineer - Urban Transport Engineer - Disbursement Specialist - Procurement Specialist - Lawyer  -41 - Annex E Total Time Required: In the field: 5 sw At Headquarters: 3 sw Total 8 staff weeks Annual Coordination and No later than September 15 of each year, Implementation Reviews: starting in 1996. Focus: Project Progress review, identification of implementation problems and issues, and planning for the upcoming year. Duration: 5 days. Participating IDA Staff: - Task Manager - Highway Engineer - Urban Transport Engineer Time Required: (IDA) In the field: 3 sw/year At Headquarters: 3 sw/year Total 6 sw/year Mid-Term Implementation Review: No later than September 15, 1998. Focus: Annual Coordination and Implementation review coverage plus: project performance; identification of areas in need of adjustment; status of: (a) implementation of institutional changes in MCT; (b) status of Maintenance Funds; (c) performance of microenterprises on maintenance; and (d) impact of technical assistance and availability of counterpart funds. Duration: 5 days. Participating IDA Staff: - Task Manager - Highway Engineer - Urban Transport Engineer - Lawyer  - 42 - Annex E Time Required: (IDA) In the field: 4 sw At Headquarters: 4 sw Total 7 staff weeks 4. The Project Launch in FY97 would require 8 staff weeks. The Annual Coordination and Implementation Review would require about 6 staff weeks per year. In addition, one regular supervision mission (one of one-week duration), comprising the Task Manager, a Highway Engineer and a Micro Enterprise will be necessary. The Mid-Term Implementation Review would require 7 staff weeks. Thus, total field supervision would amount to 36 staff weeks, and office supervision is expected to amount to an additional 33 weeks, for a total of 69 staff weeks during the life of the project, i.e. an average of 17 staff weeks per year. 5. During the first two years of project implementation, supervision efforts will focus on organization and team development with a view toward strengthening the operational capacity of the UCP/TST. The Project Launch workshop will be followed by additional supervision input to familiarize selected local staff with IDA's procurement, disbursement and auditing procedures and guidelines. Proposed Agenda for Annual Coordination and Mid-Term Implementation Reviews 6. The Annual Coordination and Implementation Review-- to be organized by the TST will take place by September 15 of each year, b6ginning in 1996, with the participation of the UCP/TST, representatives of the executing units, IDB and IDA staff and staff from other donor agencies. Annual reviews would focus on evaluation of progress against the implementation of the Implementation Schedule and against agreed performance indicators (See Annex C) The result of the annual review would be the agreement on the following year's program, and on remedial actions required to address problems or changing circumstances during implementation. 7. The Mid-Term Implementation Review to be conducted no later than September 15, 1998 would follow the same format as the annual reviews but the analysis of project impact would be expanded. In addition to covering all the areas included in the annual reviews, the mid-term review would pay particular attention to reviewing compliance with the Implementation Schedule Plan, including: (a) the performance of microenterprises in maintenance; (b) Government's performance on project counterpart funding and on the status of the RMF; and (c) the effectiveness of technical assistance and studies carried out under the project.  - 43 - Annex E 8 IBorrower's Contribution to Supervision: (a) Project monitoring and coordination will be the responsibility of the TST. (b) The TST will be responsible for coordinating arrangements for Bank supervision missions, and for providing information required by missions. (c) Mission briefing meetings on arrival, and wrap-up meetings will normally be chaired by the Minister or Vice-Minister of MCT.  - 44 - Annex F NICARAGUA ROAD REHABILITATION AND MAINTENANCE PROJECT Documents and Data in the Project File General Reports and Studies: (a) Esquema General del Plan Nacional de Transporte, MCT, Febrero 1995. (b) Plan Nacional de Transporte - Diagn6stico del Transporte Acuatico, MCT, Enero 1989. (c) Censos Nacionales 1995: Cifras Oficiales Preliminares, INEC, Septiembre 1995. 2. Project Related Documents: (a) Estudio de Factibilidad Tecnica y Econ6mica de la Carretera (i) Izapa-Le6n- Chinandega and (ii) Chinandega-Guasaule, Louis Berger, June 1993. (b) Estudio de Factibilidad Tecnica y Econ6mica de la Carretera Izapa-Le6n- Chinandega-Guasaule, Informe de Actualizaci6n, Louis Berger, November 1995. (c) The Road Improvement and Rehabilitation Study in Nicaragua, JICA, July 1994. (d) Feasibility Study on the Development and Strengthening of the Directorate of Maintenance and Improvement of Road Maintenance Performance, DANIDA, February 1994. (e) Mantenimiento de Vias a traves de Microempresas Asociativas, Dra. Martha Lobo Soler, November 1995. (f) Estudio del Marco Juridico y la Factibilidad Financiera para la Concesi6n de Proyectos Pilotos de Mantenimiento o Rehabilitaci6n de la Red Vial, Louis Berger, July 1995. (g) Estudio Diagn6stico Institucional y Reestructuraci6n - Ministerio de Construcci6n y Transporte, Coopers & Lybrand, November 1996. (h) MCT Institutional Restructuring Agreement, August 1995.  - 45 - Annex F (i) Environment specifications for civil works contracts, MCT, April 1996. 3. Terms of Reference: (a) Technical Support Team, January 1996. (b) Supervision of Road Rehabilitation, February 1996.  -46 - NICARAGUA ROAD REHABILITATION AND MAINTENANCE PROJECT Table: 1.1: Regional Overview WDR Km. of Roads Population Area GDPlperson Km. of Paved Roads per. Country Rank Network Paved (million) ('000 kM2) USS 000 km2 '000 persons Costa Rica 78 35,600 5,600 3.2 51 1,960 110 1.75 El Salvador 65 12,000 1,739 5.4 21 1,170 83 0.32 Guatemala 58 12,200 3,485 9.7 109 980 32 0.36 Honduras 38 14,200 2,400 5.4 112 580 21 0.44 Nicaragua 23 17,146 1,717 4.1 118 340 15 0.42 Panama 82 9,970 2,360 2.5 77 2,420 31 0.94 NicaraguaRank 2 6 4 1 6 6 4 Sources: Mission estimates, MCT, and the World Development Report, 1995  -47 - NICARAGUA ROAD REHABILITATION AND MAINTENANCE PROJECT Table 2.1: Road Network by Surface Type and Condition Surface Type Length (km) Good (km) Fair (km) Poor (km) Paved 1,717 103 464 1,150 Unpaved All-Weather 7,152 418 1,936 4,798 Unpaved Dry Season 8,277 0 0 8,277 Total 17,146 521 2,400 14,225 Source: Ministero de Construccion y Transporte, Direccion General de Vialidad.  -48 - NICARAGUA ROAD REHABILITATION AND MAINTENANCE PROJECT Table 2.2: Intemational Road Corridor Improvement Program Length Time Cost Aid Country/Road Sections (km) Condition Period ($M) Source HONDURAS Amatillo Jicaro Galan 40.2 Fair 1991-92 0.8 IDB/Taiwan Jicaro Galan-Choluteca 43.8 Good 1992-93 4.5 IDB Choluteca-Guasaule 44.3 Poor 1995-96 4.0 IDA 128.3 NICARAGUA Guasaule-Pte. Real 38.1 Poor - 8.1 Pte. Real-Chinandega 33.6 Poor - 6.9 Chinandega-Leon 40.3 Poor 1996-99 10.9 IDA Leon-lzapa 27.4 Poor 1996-99 5.8 IDA Izapa-Nejapa 57.7 Good 1993-94 12.5 BCIE Nejapa-Nandaime 56.6 Poor - - Nandaime-Penas Blancas 81.7 Poor 1996-97 14.0 DANIDA 335.4 COSTA RICA Penas Blancas-Liberia 77.3 Fair 1996 0.4 Local Liberia Arizona 80.8 Poor 1996 0.4 Local Arizona-Barranca 39.3 Good 1995-96 3.7 BCIE Barranca-Caldera 15.2 Good 1995-96 0.6 IBRD Caldera-Pozon 17.2 Fair 1996 0.1 Local Pozon-Tarcoles 17.6 Fair 1996 0.1 Local Tarcoles-Loma 53.5 Poor 1996-97 14.8 IBRD Loma-Quepos 27.3 Fair 1996 0.2 Local Quepos-Bavo 43.0 Poor - Bavo-Palmar Norte 61.0 Poor 1997-98 19 BCIE Palmar Norte-Rio Claro 60.3 Fair 1996 19 Local Rio Claro-Pase Canoas 33.5 Poor - - BCIE 526.6 Total Source: Ministerio de Construccion y Transporte, Direccion General de Vialidad.  -49 - NICARAGUA ROAD REHABILITATION AND MAINTENANCE PROJECT Table 2.3: Registered Motor Vehicles (1991-1995) Vehicle Type 1991 1992 1993 1994 1995 Automobiles and Jeeps 61,385 67,158 69,508 72,046 73,557 Buses and Microbuses 4,368 5,943 6,151 6,376 6,719 Trucks and Pick-ups 50,799 64,684 66,947 69.392 70,284 Motorcycles 19,501 22,221 22,998 23,838 24,525 Total 136,053 160,006 165,604 171,652 175,085 Source: Ministero de Construccion y Transporte, Direccion General de Vialidad.  -50 - NICARAGUA ROAD REHABILITATION AND MAINTENANCE PROJECT Table 2.4: Registered Motor Vehicles by Region (1994) Province/ Vehicle Department Fleet I Managua 85,594 2 Esteli 5, 569 3 Matagalpa 7,276 4 Leon 12,116 5 Chontales 5,575 6 Rama-Nueva Guinea 719 7 Rio San Juan 368 8 Granada 9,929 9 Rivas 5,187 10 Madrid 2,956 11 Nueva Segovia 4,317 12 Jinotega 3,561 13 Chinandega 10,947 14 Boaco 2,751 15 Carazo 5,976 16 Masaya 7,346 17 South Atlantic Region 886 18 North Atlantic Region 582 Total 171,652 Source: Ministero de Construccion y Transporte, Direccion General de Vialidad.  - 51 - NICARAGUA ROAD REHABILITATION AND MAINTENANCE PROJECT Table 2.5: Transport Infrastructure Investments (1996-2000) Ongoing Cost a/ Possible Sector Investment or New US$m Finance Source Priority Ports Corinto: Rehabilitation of container crane N 0.2 ENAP High Rehabilitation of general cargo dock 0 1.3 ENAP High Dredging access channel N 12.0 Netherlands Low Rama: Dredging of sandbar at El Bluff 0 0.1 DANIDA High Provision of container crane N 0.5 Private High Provision of chilled/frozen facilities N 1.0 Private High Electricity supply N 0.2 ENAP High Sub total ports 15.3 Airports Managua: Freight Facilities 0 2.0 Private/EAAI High Psg'r. terminal modernization N 20.0 Private/EAAl High Other airports N 5.0 Govemment Low Sub total airports 27.0 Roads East-West Corridor San Benito - Rama N 22.4 IDA/DANIDAIIDB High /( North - South Corridor Izapa - Chinandega N 18.0 IDA High Corinto - Chinandega N 4.4 IDA High Chinandega - Guasale N 17.0 IDA High Nandaime - Penas Blancas 0 15.0 DANIDA High Other Rural roads (REMECAR) 0 75.0 IDB High Rural and Feeder Roads 0 35.0 IDB High Bridge reconstruction 0 20.0 EU/JAPAN High Maintenance 0 60.0 GovernmentVRMF Very Hig Sub total roads 267.8 Total 311.1 Source: "Recovery in the Transport Sector" - Report No. 14474-NI. a/ Estimated costs, including taxes of 15-22%. b/ DANIDA funds currently being used to carryout emergency repairs (C$14m in 1995) and to complete studies and designs.  NICARAGUA ROAD REHADIUTATION AND MAINTENANCE PROJECT Table 2.6: Road Network Improvement a/ Annual Improvement Program dt t1S94 rJ t(km) 1999 e Source Length b/Condition by Km Maintainable Roads 95 96 97 98 99 Total Maintainable Roads or Category (km) Good Fair km I - - - km % Funds f/ Trunk Roads Total 1,137.0 65.8 255.5 321.3 28.3 0.0 81 7 189.6 176.7 248.3 696.3 865.9 83.7 Izapa-Chinandega 67.7 0.0 0.0 7 7 30.0 30.0 67.7 67.7 100.0 IDA Chinandega-Guasaule 73.3 17.1 17.1 23.4 0.0 30.0 30.0 13.3 73.3 73.3 100.0 IDA Nandaime-Rivas-Penas Blancas 81.7 0.0 0.0 30.0 30.0 21.7 81.7 81.7 100.0 DANIDA San Benito-El Rama 260.0 0.0 0.0 0.0 0.0 28.0 50.0 60.0 138.0 138.0 53.1 DANIDA Boaco-Muy Muy-Matiguas-R. Blan 107.1 8.1 0.0 8.1 7.6 44.0 40.0 15.0 99.0 107.1 100.0 FIV Managua-Masaya 31.6 31.6 31.6 31.6 31.6 31.6 100.0 Masaya-Granada 15.4 7 3 7.3 7.3 47.4 Granada-Guanacaste 10.8 0.0 Guanacaste-Nandaime 9.1 0.0 Masaya-Catanna-Guanacaste 17.4 10.0 10.0 10.0 57.5 Las Piedrecitas-Nejapa-Nandaime 60.6 0.0 Masaya-Tipitapa 23.2 0.0 Nejapa-lzapa 57.7 57.7 57.7 57.7 100.0 Chinandega-Corinto 20.8 0.0 Managua-Yalaguina 206.8 206.8 206.8 103.0 103.0 206.8 100.0 Yalaguina-Somoto 9.5 9.5 9.5 9.5 100.0 Somoto-El Espino 21.6 15.0 15.0 15.0 69.4 Las Piedrecitas-lzapa 60.2 30.0 30.2 60.2 60.2 100.0 Valle Dorada-Cuesta de los Martire 2.5 Collector 6,170.6 58.9 730.0 788.9 12.8 23.0 120.0 82.0 123.0 195.0 543.0 1,331.9 21.6 IDB Productlon Clrcults 1,305.9 80.0 115.0 195.0 14.9 0.0 5.0 29.9 16.0 0.0 50.9 245.9 18.8 IDB Feder 5,258.9 316.0 1,159.0 1,475.0 28.0 119.0 226.0 189.0 141.0 106.0 781.0 2,256,0 42.9 Municipal 3,274.2 0.0 150.0 150.0 4.6 0.0 0.0 73.0 73.0 73.0 219.0 369.0 11.3 Totals 1 7,14C.0 _ 620.7 2,409.6 2,330.2 17.11 1 42.0 432.7 163.6 629.7 622.3 2,290.2 5,068.71 29.6 Note: a) Assumes adequate maintenance to prevent deterioration of roads in good and fair condition. b) Good = IR1 5 or better; Fair = IRk10 or better. Maintainable (minimum) = km of roads in good + fair conditon c) Best estimates - to be updated as the results from the DANIDA-4inanced road condition study become available. d) Indicative targets to be updated annually They are based generally on capital budgets of CS132.8 million in 1995, and CS340.6 mililon pa. for 1996-1999. e) Totals are not always cumulativ as some roads in fair conditon will be rehabilitated. f) lmprovemert plans by Donor are: IDA=140 km., DANIDA = 200 km., FIV - 99 km. Source: Ministerio de Construccion y Transporte, Direccion General de Vblidad, December 1995.  - 53 - NICARAGUA ROAD REHABILITATION AND MAINTENANCE PROJECT Table 2.7: Capital and Recurrent Expenditure (million Cordobas) Item 1992.0 1993.0 1994.0 1995 1996 (est.) (prop.) 1. Government Total 2589.6 2535.2 2790.4 2,940.8 4.401.3 1.1 Capital 815.6 484.9 579.3 697.7 1,471.1 1.2 Recurrent 1774.0 2050.3 2211.1 2,243.1 2,930.2 2. MCT Total 329.7 182.9 239.7 242.7 482.3 2.1 Capital 265.3 130.1 188.2 195.7 443.7 2.2 Recurrent 64.4 52.8 51.5 47.0 38.6 3. Roads Total 228.5 105.4 206.1 207.1 399.0 3.1 Captal 162.4 62.1 102.1 119.6 301.0 3.1.1 Govemment 89.9 36.5 23.7 51.3 53.2 3.1.2 External 72.5 25.6 78.4 68.3 247.8 3.2 Maintenance 66.1 43.3 104.0 87.5 98.0 3.2.1 Routine 42.0 25.0 25.0 23.0 14.2 3.2.2 Reshape Rural Roads 21.4 23.3 41.2 3.2.3 Resurface Roads 20.9 6.2 8.0 9.9 25.0 3.2.4 Road Drainage 1.2 2.9 3.2 3.2.5 Coffee Roads 3.2 2.7 34.2 12.3 3.2.6 Rama Road 0.0 0.0 14.2 16.1 14.4 3.2.6.1 Govemment 1.8 3.9 8.5 3.2.6.2 DANIDA 12.4 12.2 5.9 3.2.7 Other (studies, etc) 9.4 4. Inflation (%) 0.0 0.2 0.1 10% 8% 5. Exchange Rate (C$IUS$) 5.0 6.1 6.7 7.5 8.5 6. GDP 9225.5 11067.3 12445.4 14,270.4 16,519.8 Source: Ministerio de Construccion y Transporte, Diclembre 1995.  -54- NICARAGUA ROAD REHABILITATION AND MAiNTENANCE PROJECT Table 4.1: Exising Road Design Standards Type of Road National 2nd. Class Depatmental 1 st Class Departmental 2nd. class Right-of-way 50.00 m. 40.00 m. 30.00 m. Surface width 9.70 m. 8.50 m. 5.00 m Pavement width 6.70 m. 8.10 m 5.00 m Maximum slope: a. Flat terrain 3% and up to 4% for 900 m. 5% and up to 6% for 700 m. 6% and up to 8% fr 500 m. b. Rolling terrain 5% and up to 6% for 300 m. 7% and up to 10% for 300 m. 8% and up to 10% for 300 m. c. Mountainous terrain 7% and up to 8% for 300m. 9% and up to 12% for 200 m. 10% and upto 12% for 200 m. Design Speed: a. Flat trrain 80 Kmthr 60 Kmlhr 50 Km/hr b. Rolling terrain 60KmJhr 45 Km/hr 40 Km/hr c. Mountainous trrain 40 Km/hr 30 Knfhr 30 Km/hr Vertical Sight Distance: a. Flatterrain 110m. 75m. 60m. b. Rolling terrain 75 m. 55 m. 45 m. c. Mountainous trrain 45 m. 30 m. 30 m. Dgrees of Curvature (Max.): a. Flattewmin 330 6BW 15.W b. Rolling terrain so 12 24 30' c. Mountainous terrain 10. 20