Colombia - Fifth Highway Project

Document of The World Bank FOR OFFICIAL USE ONLY to Report No. 1939 PROJECT PERFORMANCE AUDIT REPORT COLOMBIA FIFTH HIGHWAY PROJECT (LOAN 550-CO) February 27, 1978 Operations Evaluation Department This document has a restricted distribution and may be used by recipients only In the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.  FOR OFFICIAL USE ONLY PROJECT PERFORMANCE AUDIT REPORT COLOMBIA FIFTH HIGHWAY PROJECT (LOAN 550-CO) Table of Contents Page No. PREFACE PROJECT PERFORMANCE AUDIT BASIC DATA SHEET HIGHLIGHTS PROJECT PERFORMANCE AUDIT MEMORANDUM I. Background 1 II. Project Results 1 III. Points of Special Interest 3 IV. Conclusions 6 ATTACHMENT: PROJECT COMPLETION REPORT I. Project Preparation A.1 II. Implementation A.4 III. Economic Re-Evaluation A.9 IV. Performance of the Borrower A.13 V. Role of the Bank A.15 TABLES 1. Project Content at Appraisal 2. Expected and Actual Costs 3. Construction Contracts Awarded 4. Disbursements: Projected and Actual 5. Traffic Counts on Project Roads/Bridge 6. Recalculations of Economic Rates of Return (Percentages) MAP Colombia National Highway Network (IBRD 12553) This document has a restricted distribution and may be used by recipients only in the performance their official duties. Its contents may not otherwise be disclosed without World Bank authorization.  PROJECT PERFORMANCE AUDIT REPORT COLOMBIA FIFTH HIGHWAY PROJECT (LOAN 550-CO) PREFACE This report presents a performance audit of the Colombia Fifth Highway Project for which Loan 550-CO of July 25, 1968 in the amount of US$17.2 million was closed on June 30, 1974. The memorandum is based on the attached Project Completion Report (PCR) prepared by the Bank's Latin America and Caribbean Regional Office, in which certain revisions have been incorporated after discussion with Operations Evaluation Department (0ED). The memorandum also draws on discussions with Bank staff, review of project files, minutes of the Board of Executive Directors' meeting, and on the preliminary findings and background papers of OED's report, Bank Operations in Colombia - An Evaluation (Report No. Z-18). No mis- sion was undertaken by OED staff in connection with this project perfor- mance audit report. OED concurs with the principal findings of the PCR. The audit has provided revised cost data and reestimated rates of return for two of the project's components. It also has expanded on the use of the Fondo Vial, the institution-building objectives of the loan, the use of consultants, and the problem of maintenance.  PROJECT PERFORMANCE AUDIT BASIC DATA SHEET COLOMBIA FIFTH HIGHWAY PROJECT (LOAN 550-CO) KEY PROJECT DATA Appraisal Actual or Item Expectation Current Estimate Total Project Cost (US$ million) 39.5 42.3/a Cost of Construction 33.4 38.3 Overrun ( - 15% Loan Amount (US$ million) 17.2 17.2 Disbursed ) 17.2 17.2 Cancelled ) - Repaid ) As of 8/31/77 2.6 Oustanding ) 14.6 Exchange Adjustment 5.0 Date Physical Componeats Completed 3/75 Proportion Completed Dy Above Date (%) 100 Economic Rate of Return (%) 11%-21% 9%-25% OTHER PROJECT DATA Original Item Plan Revisions Actual Negotiations - - 6/68 Board Presentation - - 7/23/68 Loan Signature - - 7/25/68 Effectiveness Date - - 9/25/68 Closing Date 6/30/72 - 6/30/74 Borrower Government of Colombia Executing Agency Ministry of Pub. Works & Transp. (NOPT) Follow-on Project Name Sixth Highway Project Loan Number 680-CO Amount (US$ million) 32.0 Loan Signature 6/04/70 MISSION DATA Month, No. of No. of Date of Item Year Weeks Persons Manweeks Report Identification 12/67 n.a. 2 n.a. 2/02/68 Appraisal 4/68 1.6 2 3.2 7/08/68 TOTAL n.a. n. Supervision I 4/69 0.7 3 2. A 5/02/69 Supervision II 6-7/69 1.7 2 3. 2 7/24/69 Supervision III 11-12/69 3.9 2 7.8 1/14/70 Supervision IV 10-11/70 1.7 2 3 4 2/08/71 Supervision V 1/71 0.7 1 0.7-/x. 2/18/71 Supervision VI 2-3/71 1.2 3 3.7/d 5/17/71 Supervision VII 6/71 1.9 2 3.:M 8/20/71 Supervision VIII 10-11/71 3.0 1 3 . 2/04/72 Supervision IX 2-3/72 3.1 3 9. e 6/07/72 Supervision X 6/72 2.1 1 2.1 e 7/17/72 Supervision XI 8/72 0.7 2 1. 9/07/72 Supervision XII 9-10/72 1.7 1 1. 11/10/72 Supervision XIII 1-2/73 2.0 2 4. 3/30/73 Supervision XIV 3/73 0.6 1 0.6. 4/19/73 Supervision XV 5-6/73 4.4 1 4. e 7/27/73 Supervision XVI 7-8/73 1.0 2 2. 9/14/73 Supervision XVII 11/73 1.5 2 3. a 1/30/74 Supervision XVIII 1-2/74 4.3 1 4.,/e 3/28/74 Supervision XIX 10/11/74 n.. 2 n.a 12/31/74 Supervision XX 2/75 1.7 2 3./ 2/28/75 TOTAL 379L 64.1/f COUNTRY EXCHANGE RATES Name of Currency Colombian Pesos (Ps) Year: 1967 Exchange Rate: US$1 = Ps 16.00 1968 US$1 = Ps 16.95 1969 US$1 = Ps 17.93 1970 US$1 = Ps 18.35 1971 US$1 = Ps 20.08 1972 US$1 = Ps 22.01 1973 US$1 = Ps 23.81 1974 US$1 = Ps 27.11 /a Excludes final coEts of the reorganization of MOPT, studies and equipment, which are not available. /b In addition to surervision includes review of the Transport Investment Study. /c In addition to supervisiop includes preparation of the Sixth Highway Project. Mission focussed mainly on supervision of other projects. 7a Also includes supervision of the Sixth and Seventh Highway Projects and other sector work-.- Zi Excludes supervision XIX.  PROJECT PERFORMANCE AUDIT REPORT COLOMBIA FIFTH HIGHWAY PROJECT (LOAN 550-CO) HIGHLIGHTS The Colombia Fifth Highway Project helped finance construction of 460 km of national highways, a bridge, technical assistance in connec- tion with a reorganiZation of the Ministry of Public Works and Transport (MOPT), and preinvestment and engineering studies. Components were com- pleted with some delay and cost overrun. Road construction was delayed by up to three years due largely to inadequate engineering preparation and difficult terrain. Implementation of the reorganization was delayed even further, mainly because of the changing of views of the successive Governments on its importance. The project cost overrun of 15% results from the lengthy construction period, additional design work and increased quantities. This overrun would be higher if account were taken of the ex- tensive additional work MOPT undertook on the roads, which was financed by the Government and classified as maintenance rather than construction. In spite of this, the rates of return, ranging between 9%-25%, compare on the whole favorably with the appraisal estimates. Points of special interest are: (i) Establishment of a National Highway Fund im- proved availability of local funds and ex- pedited payments to contractors (paras. 7-8 and 20); (ii) institution-building effort impeded by other priorities and lack of commitment (paras. 9-11, 20 and PCR, para. 2.15); (iii) difficulties with consultants and the Govern- ment's phasing out of expatriate consultants (paras. 12-15); and (iv) slow progress in maintenance (paras. 16-19 and PCR, paras. 4.03-4.04).  PROJECT PERFORMANCE AUDIT MEMORANDUM COLOMBIA FIFTH HIGHWAY PROJECT (LOAN 550-CO) I. BACKGROUND Loan 550-CO of 1968 for US$17.2 million was the Bank's fifth highway operation in the Republic of Colombia. The loan financed: Ca) Construction or reconstruction and paving of 460 km of four national highways (see PCR, Table 2 and Map); (b) construction of a bridge over the Cauca River at La Virginia; (c) consultant services for supervision of construction; (d) implementation of a management study recom- mending reorganization of the Ministry of Public Works and Transport (MOPT); (e) preinvestment studies and detailed engineering for future highway programs; and (f) traffic, laboratory, engineering and workshop equipment to complement the reorganization of MOPT. 2. Considerable difficulties were encountered under the Bank's four previous highway projects, including geophysical problems, inade- quate provision of local funds, slow payment to contractors and insti- tutional problems. As a result, under each of these projects, some of the planned civil works were not completed, and these outstanding works were included in the succeeding loans. The Fifth Highway Project included some of this unfinished work. In an effort to improve areas where previous difficulties had arisen, the project also provided for reorganizing and strengthening MOPT and recommended that, as a prerequisite to the project, a national highway fund, the Fondo Vial, be established to avoid the fund- ing and payment problems experienced earlier. II. PROJECT RESULTS 3. All civil works were completed between July 1970 and March 1975 representing delays of between seven months and about three years beyond the schedule set at appraisal. The reorganization of MOPT was not com- pleted as planned; this is discussed in Section III. Many of the organi- zational changes recommended by the management consultants were made by 1976, six to seven years later than originally anticipated. Consequently, part of the equipment to be purchased along with the implementation of the reorganization was dropped from the project and the remaining funds were applied toward cost overruns on civil works. As the Government decided to - 2 - use local consultants for preinvestment studies, part of the funds pro- vided for the foreign exchange cost of this item were also applied to civil works. The balance of the allocation for studies was applied toward detailed engineering of the Barranquilla Bridge, and toward trans- port planning, road rehabilitation and paving programs (PCR, paras. 2.16- 2.22). 4. The delays in completing civil works resulted from extremely difficult terrain, inadequate designs which had to be revised during execution, inclement weather, inadequate organization, equipment and ex- perience of contractors, low unit prices which eventually necessitated rebidding for some sections, and delays in payments to contractors which contributed to their financial difficulties (PCR, paras. 2.01-2.14, 4.02). 5. The final cost of civil works of US$38.3 million (Ps 784.2 mil- lion) represents a cost overrun of 15% over the appraisal estimate of US$33.42 million (Ps 554.8 million) (PCR, Table 2). This cost overrun would be greater if account were taken of the extensive work MOPT under- took on many of the roads which was classified as "maintenance" although it really consisted largely of construction (PCR, para. 3.14). The final cost of supervision of construction of US$4 million (Ps 84.3 million) re- presents an overrun of 74% over the appraisal estimate of US$2.3 million (Ps 37.8 million). This does not reflect, however, the supervision costs of the Barbosa-Oiba Road and La Virginia Bridge, which are unavailable. If the proportion of these supervision costs to construction is assumed to be similar to that of the other roads (11%), then the total overrun is about 83%. The overrun for civil works and supervision arose from the protracted construction period, increased quantities, and the additional design work which was necessary. The final costs of the management pro- gram to reorganize MOPT, studies and the equipment which was purchased are not available. 6. In spite of cost increases, the rates of return on civil works at audit compare favorably with both the appraisal expectation and the level of opportunity cost of capital in Colombia, which is considered to be about 11%, on all but one road as shown below: Rates of Return Actual Construction Actual Traffic Appraisal Est. at Costs as a % of as a % of Esti- Road Estimate Audit Estimated Costs mated Traffic Medellin-Cartagena 15%-21% 24% 111% 127% Medellin-Santuario 11% 9% 171% 156% El Pailon-Loboguerrero 17% 21% 102% 103% Barbosa-Oiba 16% 20% 81% 127% La Virginia Bridge 15% 25% 84% 124% - 3 - Traffic grew more rapidly than expected on all of the roads (PCR, Table 5), while reduction in vehicle operating costs was in line with the appraisal forecast, representing a savings of about 30%. Although construction costs increased by 2% to 71% on three of the roads, this was generally offset by the higher than anticipated traffic growth. The exception oc- curs on the Medellin-Santuario Road where a substantial (71%) cost overrun was not fully offset: by higher traffic (PCR, paras. 3.01-3.13). While the PCR did not calculate rates of return for the Barbosa-0iba Road and the La Virginia Bridge, the audit estimates them at 20% and 25%, respectively. These rates of return are based on actual construction costs, approxima- tions of the supervision costs (assumed to be 11% of construction costs) and actual traffic counts. Recent vehicle operating cost data were used for arriving at these estimates in respect of the Barbosa-0iba Road which allow for fuel price increases since the time of appraisal. Due to in- sufficient data on congestion cost savings in the case of the La Virginia Bridge (a two-lane bridge replacing an old one-lane structure), the ap- praisal assumptions were used with the actual cost of construction in 1968 prices. III. POINTS OF SPECIAL INTEREST Fondo Vial 7. A major difficulty encountered in the Bank's four earlier high- way projects was the shortage of local funds and the delays in paying con- tractors due to time-consuming administrative procedures. To improve this situation, the Bank recommended that the Government establish a national highway fund (Fondo Vial) whose revenues would be derived from foreign loans, budget allocations and a new ad valorem tax on the refinery price of gasoline and diesel fuel. It was hoped that these revenues would be adequate to cover road construction and maintenance. In addition, to avoid the administrative delays, MOPT would manage the Fondo Vial and would pay contractors directly. 8. During the first few years after its establishment in 1967, the Fondo Vial was instrumental in the prompt payment of contractors. However, by 1970 available funds were insufficient to meet the construction expend- iture. This situation resulted from the combined effects of inflation, Colombia's difficult financial position, the increase in highway works, and a decline in the contribution of gasoline and diesel ad valorem taxes from 70% of total highway expenditures in 1968 to only 30%. In 1971 and in 1975, the Government took action to equalize the dual exchange rate (the market rate and the petroleum exchange rate)l/ and to increase the gasoline tax rate. As a result, Government revenues improved. In 1976, about 85% of the Fondo Vial's revenue was supplied by the ad valorem tax. 1/ The petroleum exchange rate had been fixed at US$1 = Ps 9.00 since 1962 whereas the market exchange rate had risen by 1970 to US$1 Ps 19.19. - 4 - The establishment of the highway fund has now improved the availability of local funds and greatly expedited payments to contractors, thereby diminishing major sources of delay and difficulty in project execution (PCR, para. 4.07). Institution-Building 9. The reorganization of MOPT was based on a study prepared by management consultants under the Fourth Highway Project. In view of the many difficulties experienced in the earlier highway projects, the strengthening of MOPT was considered essential for sound highway plan- ning and project execution. The Bank's earlier efforts to help strengthen MOPT had included the creation of a Highway Department within the Ministry and staff training, both financed by the Second and Fourth Highway Proj- ects. Under the Fifth Highway Project, implementation of the management consultants' recommendations - covering staffing and salary policies, training, administration, planning, design, construction and maintenance - represented a more comprehensive effort at improving the overall operation of MOPT. 10. Progress in implementing the recommendations was slow. Legis- lation authorizing the restructure of MOPT was delayed by about six months requiring an equivalent extension to the consultants' contract. Once re- organization got underway, the achievement in the area of maintenance was the most noteworthy; the workload in each maintenance district was redistri- buted, a maintenance classification scheme begun and the Tunja district was used as a pilot project. Progress in other areas, however, continued to lag. Some MOPT staff were convinced that a reorganization would improve the Ministry but the management consultants stated that other staff re- sisted changes and did not give attention to their recommendations. In early 1970, the consultants' contract.expired and while MOPT extended the contract of two maintenance experts, the services of the other experts were allowed to expire, a situation the Bank did not try to alter. In late 1970, while some aspects of the reorganization had been introduced on paper, they had not been put into effect. This situation worsened with a change in administration which was not convinced that the reorganization was needed. As difficulties with civil works increased, the Government and Bank supervision missions gave less attention to the institution-building component. Finally, in August 1972, the Government requested that the US$38,000 remaining in the loan account for reorganization be applied toward civil works cost overruns and the Bank agreed. 11. Eventually, most of the management consultants' recommendations were implemented, but six or seven years later than had been scheduled in the appraisal report. While it may be that the two-year period initially allowed for implementing organizational changes may have been unrealistically short, the reason for slow progress was lack of conviction on the part of MOPT that the reorganization was really necessary. Moreover, both the Government's and the Bank's attention was directed towards the mounting construction difficulties. -5- Use of Consultants 12. Under the Fifth Highway Project, the Bank recommended that the two local consulting firms and their expatriate associates, who had com- pleted final designs, be retained to supervise construction. Although MOPT had been phasing out the expatriates in the Ministry, it accepted this arrangement and agreed that if any changes in it were contemplated, the Bank's prior approval would be sought. 13. The above agreement, however, did not last, and during super- vision, it was found that MOPT had asked the consultants to reduce their expatriate staff. In: the following months, MOPT phased out the consul- tants altogether without first consulting the Bank. The immediate reason for MOPT's decision was the inadequate site investigation undertaken by the consultants in the design which resulted in large cost increases. In fairness to the consultants, it should be added that the terrain over which some of the roads were built is extremely unstable, making road design ex- ceptionally difficult. 14. A more basic reason for termination of the arrangement with the expatriate consultants seems to lie in MOPT's general views on the use of consultants. MOPT has been concerned in the past that expatriate consul- tants were more expensive than their local counterparts and that they did not provide expertise which was unavailable in the country. The Ministry considered that the reliance on consultants over time made it difficult to hire engineering staff - who preferred to work as consultants with higher salaries rather than as Government employees - and that it ran counter to the objective of building up the Ministry's own capabilities. The Ministry's views on this matter apparently have undergone some change recently, and it is expected that expatriate consultants will be used in the near future. 15. Based on the information available, the lesson of this particular experience is difficult to identify. It could be that MOPT was not al- together persuaded of the necessity for expatriate consultants, and that the requirement of the Bank's prior approval before the arrangement could be changed was either a reflection of an uncertain situation or a case of excessive rigidity. This does not take away from the fact that MOPT acted in contravention of the agreement in repatriating foreign consul- tants without as much as consulting the Bank. The PCR (para. 4.06) con- siders that the termination of expatriate consultants may have contributed to some of the problems experienced with contractors; it might have been better for all concerned to reach full agreement on the hiring of consul- tants and to have developed a gradual program for phasing them out, if necessary. Maintenance 16. Road maintenance has been a matter of concern to the Government and the Bank during the last 25 years. Two of the earlier projects, the Second and Fourth Loans of 1953 and 1961, tried to improve maintenance - 6 - by financing purchase of maintenance equipment and providing technical assistance and repair shop construction. However, these loans did not result in a major improvement in maintenance. By 1976, despite equip- ment purchases under earlier loans, MOPT had not yet developed a program for equipment replacement, and much of its equipment was in generally unsatisfactory condition. 17. The main reasons underlying the maintenance problem seem to be inadequate maintenance practices and low priority given to it, unstable soil and inclement climate, vehicle overloading and insufficient alloca- tion of funds. While Bank highway projects in Colombia have included provisions for maintenance, and the usual maintenance covenant, the main focus of these projects has been the construction of new roads. In the early years of implementation of the present project, the changes in main- tenance recommended by the management consultants had a positive impact. However, progress in maintenance, as in institution-building, declined. The pilot program, which was successful, was not repeated in other districts. And while part of the project component for feasibility studies was used for the study of rehabilitation and paving programs, no real progress in maintenance was achieved (PCR, para. 5.06). 18. The Government is now trying to improve this situation under the Seventh Highway Project supported by Loan 1471-CO of 1977 for US$90 mil- lion. This project finances: (a) rehabilitation of trunk highways, many of which would not require such extensive improvement had they been properly maintained; (b) improvement of the maintenance fleet and efficiency of road maintenance operations through equipment purchases, technical assistance and training of MOPT staff; and (c) institution of a vehicle weight con- trol program, including weighing equipment and training in its use (PCR, paras. 4.03-4.04). 19. An interesting aspect noticed during project implementation was that contractors on one of the project roads proved able in the course of their contracts to carry out high quality maintenance of roadworks at costs which appeared comparatively lower than those experienced by MOPT. This stressed the low efficiency of MOPT's operations which was mainly due to chronic shortages of funds for equipment and spare parts and consequently inefficient equipment utilization, and to the fact that about 70% of MOPT's maintenance budget goes toward salaries, wages and benefits. MOPT is now trying to optimize its maintenance work by reorganizing the Maintenance Districts to have a better distribution of the work force and has commenced a program to renew equipment and to improve availability of spare parts. IV. Conclusions 20. The components of the Fifth Highway Project were substantially completed by 1975 but three years later than the appraisal forecast. - 7 - The total construction cost was 15% more than the appraisal estimates, mainly as a result of difficulties and delays experienced in civil works, due to the very difficult topography, inadequate design and in- clement weather. In spite of higher than expected costs, most of the civil works have proven to be worthwhile investments, and rates of re- turn are generally higher than the appraisal expectations. The studies financed by the loan were also successfully executed, but the institution- building component, supporting the reorganization of MOPT, has not been fully completed. This reflected both differences of view within Colombia regarding the importance of reorganization, and the greater priority given to the construction component of the project by both the Govern- ment and the Bank, particularly since the physical progress of the proj- ect started to falter. One notable institutional achievement under the present project, however, was.the establishment of the "Fondo Vial". 21. Progress in road maintenance under previous projects has not been substantial, and the present project did not prove an exception. The major reason is, as in many other countries, the higher priority given to completing the trunk highway system at the expense of road maintenance. A major attempt is being made to deal with this problem through a seventh highway loan made in 1977. However, the experience of the maintenance part of the project raises the question of why this important aspect of highway management has not been a principal area of Bank assistance at an earlier stage of Bank highway operations in Colombia.  ATTACHMENT COLOMBIA FITTK HIGHWAY PROJECT (Loan 550-CO) Project Completion Report I. Project Preparation A. Formative Stale 1.01 Formulation of project content began, in general terms, as early as 1964. At that time the Fourth Highway Project (Ln. 295/Cr. 5-CO) had already been underway some three years and there were major problems with execution; the Fourth Project itself included construction of road sections which had been part of the earlier highway projects but could not be completed under these projects. Nevertheless, exploratory conversations were held between Government and the Bank and centered largely on sections of the proposed Medellin-Bogota highway (see map), specifically on the 55 km closest to Medellin (i.e., the section Medellin to Santuario). There was already a road of sorts from Medellin to Santuario with traffic reported in excess of 600 vehicles per day, and appreciable agricultural activity and potential in the area of Santuario. Other sections of the national highway system were also considered; specifically (i) the Troncal Occidental (the western trunk road) between Medellin and Cartagena, and (ii) the Buga-Buenaventura road. The Bank indicated that: any further lending would be conditional on improve- ment of performance under the Fourth Highway Project, an independent review of engineering designs and the use of consultants for supervision. 1.02 In mid-1966, the Government changed and the new Minister of Public Works sought to advance the timing of the proposed project. The Bank dis- agreed because it considered that demonstrable progress under the Fourth Proj- ect should first be made. The new Minister suggested widening geographically the scope of the project by including road sections near Bogota, a proposed bridge at Barranquilla and three sections of the Troncal Occidental between Medellin and Cartagena. Simultaneously MOP1/ and the Bank were considering what should be done, in the context of the proposed Fifth Project, with road sections which had been included in the Fourth Project but which had still not been started. By early 1967, the Minister of Public Works had made con- siderable strides in reorganizing his Ministry and project preparation entered into the final stage. B. Final Stage 1.03 Later in 1967, the Bank wrote MOP confirming that it would require, for the new project feasibility studies, substantially complete engineering reports for all roads included, and a review of procurement procedures. The 1/ MOP - Ministerio de Obras Publicas -- the Ministry of Public Works. - A.2 - Bank also suggested that the content of the project be expanded to include: Cal all of the Troncal Occidental which was still unpaved. This meant in effect six or seven sections. MOP had earlier proposed only three of these unpaved sections for inclusion; (b) the second (i.e., implementation) stage of the management study of MOP being undertaken under the Fourth Highway Project by a consortium of consultants, COMEC OMexicol/Frederic R. Harris CUSI; and CcJ provision of highway maintenance equipment. 1.04 By the end of 1967, the roadworks already underway (some of which had been included in the Fourth Project) and which were proposed for inclusion in the Fifth Project were agreed between the Bank and MOP (totalling 50 km). At that time, the Highway Engineer, stationed by the Bank in Colombia to assist in the implementation of ongoing projects, called attention to the need to include specific measures under the proposed loan to expedite the import ot spares needed by contractors. 1.05 By early 1968, the civil works content of the proposed project had been firmed up as: (a) improvement of 12 road sections comprising (i) two sections (53 km) of the new road to the port of Buenaventura; (ii) 323 km, the remaining unpaved lengths of the Troncal Occidental between Medellin and Cartagena; and (iii) the Medellin-Santuario road (55 km); and (b) a bridge over the Cauca River at La Virginia. The notional loan amount, based on the project's estimated foreign exchange cost, was US$16 million. Works on five of the road sections and on the bridge were imminent or actually underway. These works had either been included in the Fourth Project (for which procurement procedures had, of course, been agreed by the Bank) or had been contracted outside the Bank projects, in compliance with Bankprocurement-pro- cedures. The Bank indicated that it would consider retroactive financing for these ongoing works with effect from May 1968 (which was three months prior to the ex- pected date of presentation of the project to the Executive Directors). 1.06 The decision to include the access to Buenaventura was timely. For nearly 20 years, MOP had struggled without success to complete a modern paved highway to Buenaventura, the country's main port on the Pacific Coast. A paved short-cut from the Troncal Occidental at Buga (some 60 km north of Cali) thrusting westwards towards Buenaventura as far as Loboguerrero, had recently been completed. The 53 km section included in the project, Loboguerrero to - A.3 - El Pailon Con the outskirts of Ruenaventura), represented the missing link in the road access to the port. C. Appraisal and Negotiations 1.07 The project was appraised in early 1968, The appraisal mission confirmed the civil works content, as earlier defined, but in agreement with the Government included improvement and paving of a further road section of 29 km between Barbosa and Oiba. This section was, at that time, the only section of the Bogota-Bucaramanga road (the main road northwards from Bogota) which remained unpaved. The project also included: Ca) consultant services for supervision of civil works; Eb) the second stage of the management studies of MOP; Cc) pre-investment studies and detailed engineering for future highway programs; and Cd) equipment and vehicles in support of the reorganization of MOP. The proposed loan amount: was US$17.2 million. The appraisal mission recommended that the bidding for one of the sections of the Troncal Occidental should not be accepted by the Bank., The Government subsequently agreed with the Bank's position and the section was rebid under procedures acceptable to the Bank, 1.08 Immediately prior to negotiations, COMEC- Harris (para. 1.03)had sub- mitted their report and recommendations on the organization and practices of MOP. Further processing of the project was delayed pending receipt of the Ministers proposals on implementing the COMEC-Harris-recommendations. The Minister responded in June 1968 with detailed proposals and the related timetable. The Bank agreed with the proposals. Processing of the project proceeded, culminating in Board presentation and loan signature in July 1968. There were no specific conditions of effectiveness attached to the loan, and the latter was declared effective September 25, 1968. Details (i) of the project as finally agreed by the Govern- ment and the Bank, and (ii) the civil works components specifically are given in Tables 1 and 2. 1.09 Concurrently, with signature of the Loan Agreement, three supplementary letters were signed. The first letter covered advertising procedures and timing of the various stages of the procurement process, bonding/guarantee requirements, retention money and maintenance requirements. The letter also introduced the "package" concept for the civil works on the Troncal Occidental, and stipulated two packages, each of three sections. The second letter related to employment of consultants for consi:ruction supervision. It explicitly mentioned the two Colombian consultant fi-_ms (each with its U. S. associate firm) retained to supervise the civil works and included an undertaking not to make major changes in agreed contractual and staffing arrangements without prior approval of the Bank. The second letter also recorded that the COMEC-Harris consortium had been - A.4 - retained Ci) to help implement its recommendations on reorganization and procedures of MOP; and Cii) to assist in procurement of equipment. The third letter related to import of equipment and spares for civil works and confirmed Government's assurance that contractors engaged in the project would receive priority for licensing and importation of equipment and spares. Ii. Implementation A. Civil Works 2.01 Medellin-Cartagena Road (323 km)CThe Troncal Occidental). The project works on the Medellin-Cartagena road were a "mixed bag" both spatially and contractually. Spatially the works comprised reconstruction and paving of seven sections. The seven sections were not all contiguous but were inter- spersed by paved sections (some of the latter paved under earlier Bank projects); contractually work on two of the sections had been awarded and were ongoing at the start of the project (Table 3). The rest were awarded during the project, 2.02 Generally speaking, the work on these seven sections suffered from appreciable increases in quantites which led to large cost and time overruns. These quantity increases were caused principally by: Ca) earthwork and drainage works were consistently underestimated especially on the mountainous sections; Cb) the winters of 1970 and 1971 were particularly severe exacerbating the. underestimation of prohlems (c several of the contractors were retained on the basis of bids which proved to be unrealistically low. The result was a sequence of slow commencement of activities, low monthly payments, slow and sporadic progress and gradual erosion of the original unit prices by price escalation. All sections took at least four years to complete, some over five years. 2.03 Three of the seven contracts were terminated before the work was com- pleted. On two of the three, totalling 77 km, payments for work done had risen to 150% of the bid price; in both cases, the contractors availed themselves of the legal option to relinquish their contracts. In both cases, they claimed, with some justification, that contract unit prices, even allowing for price adjustments, were well out of line with current costs. On one of these two sections, MOP, with Bank concurrence, finished the work (7 km of asphalt paving) by force account. On the other, the remaining work (also asphalt paving) was rebid and awarded to a new contractor. 2.04 On the third section, Taraza-Caucaiia (53 km), the consultants recommended against award to the lowest bidder and recommended the second lowest. MOP did not accept the consultants' evaluation and proposed to the Bank that the contract go to the lowest bidder; the Bank concurred with MOP. - A.5 - Within a year, the consultants were proven right, and MOP terminated the con- tract because of lack of performance by the contractors. The work was subse- quently rebid and completed in 1974. 2.05 One interesting feature of this work on the Troncal was the treat- ment of road maintenance. The contractors were obliged, under the terms of their contracts, to maintain their respective sections, but initially failed to do so. The initial lump sum arrangements were revised so that the contractors were paid in accordance with scheduled rates for equipment, labor and materials actually ordered and used on maintenance. Under the revised arrangements, maintenance improved dramatically despite the fact that some of the sections were carrying 1,000 vehicles per day, mostly trucks. 2.06 Overall, despite the problems with difficult terrain, weather, under- bid contracts and overruns of quantities and time, the effort on the Troncal was well justified. A paved road was completed from Medellin to the Caribbean (and indirectly to the port of Barranquilla);a valuable enhancement of the road network. In addition, the Troncal serviced an area of.considerable production and future potential, chiefly in cattle production. 2.07 El Pailon-Lob,guerrero (53 km). This road section, being in a narrow canyon-like valley, and running at the side of the capricious and powerful Rio Dagua, was continually being attacked by the river. The road was not alone in being subject to the whims of the river - the railway which occupies the opposite bank was likewise subject to river washouts and erosion. 2.08 Work on this section proceeded satisfactorily enough except for damages and delays resulting from erosion by the river and a freak cloudburst which caused a stream which crossed the road line to become a torrent and to deposit about 5 meters of gravel and boulders on the newly completed road. This section had thereafter to be realigned over a considerable distance. 2.09 The contractors in August 1971 exercised their right under Colombian law to relinquish the contract, since the value of works completed at that time had reached 150% of the bid price. The remaining work, mainly asphalt paving, was rebid in February 1972 and work recommenced in June 1972. The remaining river defense works were eventually completed by the MOP District office. 2.10 Medellin-Santuario (55 km). This section was divided into two con- tracts, Medellin-Guarne (21 kM)and Guarne-Santuario (34 km). Both contracts had bein awarded to Colombian firms (Table 3) prior to Board Presentation. The Medellin-Guarne section took 68 months to complete (twice the original contract perioe); the Guarne-Santuario section took nearly 86 months, almost three times the original contract period. This is a specific instance where, in retrospect, it seems that more firmness by MOP in dealing with both contractors might have reduced the completion time for these contracts (para. 4.02). The geological problems encountered were awesome particularly on the Medellin- Guarne, manifesting themselves in landslides and general instability. A tunnel in this section, some hundreds of meters in length, gave continual problems particularly in the area of one of the portals. It was decided in - A.6 - November 1970 to extend the tunnel and to displace the portal by about 50 meters, letting the. rockfalls and slides close up over the original portal location. This solution proved satisfactory. 2.11 Later supervision missions reported that although the terrain was stabilizing and only minor slips were occurring, there was a lack of maintenance, Minor slides in the cuttings - inevitable in such terrain - were not being cleared causing subsequent water infiltration and weakening of the pavement base. 2.12 Barbosa-Oiba Road (29 km). The formation on this section was completed under earlier Bank Group-financed projects. The works under this Fifth Project comprised minor adjustments of alignment, drainage works and paving. The section is located in particularly difficult terrain in that the upper strata, including the surface layers, creep downhill on the underlying rock. As a result, the surface, even without the disturbing effect of the road, is characterized by large and deep horizontal tension fissionsIt The instability of the terrain, and the full extent of the drainage works required were probably not appreciated during the detailed engineering. As a consequence, major revisions-of design -- particularly of the drainage - were made during contract implementation. Some problems were experienced with paving quality during construction. A Bank supervision mission reported pavement failure during construction and the Ministry, when informed of the Bank's concern,increased its monitoring of the project. The consultant,INGETEC, improved its supervision and placed an additional experienced paving engineer on site. However, the outcome was a still unsatis- factory paving surface. The road is now in poor condition as the heavy main- tenance which this surface -required was not forthcoming. 2.13 La Virginia Bridge. Under the general heading of "La Virginia Bridge", the project works comprised: Ca) the bridge itself -- a continuous steel girder bridge, some 200 meters in length, over the Rio Cauca; (b) 4 km of approaches to the bridge including a 30 meter pre- stressed concrete bridge over the railway; cc) an access road of 2 km from the new alignment to La Virginia town. The contract for the whole work had already been awarded (but not legalized) prior to the inception of the project (Table 3). 2.14 Work commenced in April 1969 and was scheduled to be completed in July 1970. The contract period was,however, extended and the work eventually completed in April 1971. Construction of the main bridge was effected smoothly enough. Work on the access embankments was damaged by the Cauca overflowing onto its floodplain. Moreover, a major defect in design was manifested when the 1/ This phenomenon was also observed on the highest section of the project works on the Troncal Occidental (para. 2.02). - A.7 - embankment immediately adjacent to the open-type abutment of the bridge over the railway collapsed. All traffic had to he diverted back to the weak, single-lane suspension bridge in La Virginia town. The slope of the. earthwork immediately adjacent to the abutment had obviously been too severe. The solution adopted by MOP was to reduce the slope by extending the Bridge by an additional span. This proved satisfactory. B. Reorganization of 'M)P 2.15 The study of the structure of MOP and its procedures was started under the Fourth Highway Project (para. 1.02). The work, which was entrusted to a consortium of the consulting firms CMEC (Mexico) and Frederic R. Harris CUS), comprised two stages, a diagnostic stage followed by an implementation stage. The diagnostic stage, financed under the Fourth Highway Project, started in June 1967. By the time of negotiations for the Fifth Project (June 1968), the consultants had produced a report on the diagnosis. The Minister's statement of intentions formed an attachment to one of the supplementary letters signed at the time of loan signature. Progress in implementing reorganization of MOP proved very slow, with the Bank's Resident Highway Engineer (Sec. 5.0) and successive supervision missions reporting dissatisfaction with implementation efforts. However, the need for such a reorganization was accepted by the Government, and in January 1976 MOP was reorganized into the Ministry of Public Works and Trans- port (MOPT). C. Pre-investment Studies and Detailed Engineering 2.16 The project provided pre-investment studies and detailed engineering, out of which the loan, under Category IV,was to have financed the expected foreign exchange componont, US$1.25 million. Only about US$800,000 was eventually disbursed under this heading, the remaining funds being reallocated to civil works to cover cost ove:cruns. Government policy to increase reliance on local consultants reduced the need for foreign consultants. Category IV was therefore under-utilized since, by the terms of the Loan Agreement, 'the funds in this Category of the loan could be used only to finance foreign exchange expenditures. The nature of the work financed under this heading was by and large, consistent with that envisaged in the appraisal report. Details follow. 2.17 Detailed Engiaeering and Preparation of Bidding Documents -- Barran- quilla Bridge. Government had suggested including in the project construction of this additiohal bridge. To provide for adequate preparation, detailed design and preparation of bidding documents were included in the project. The bridge was constructed under the Sixth Highway Project and opened to traffic in April 1974. 2.18 Assistance from the U. K. Road Fesearch Laboratory. Concerned that pavement design in Colombia did not appear adequate, MOP, encouraged by the Bank, approached the U. K. Road Research Laboratory for assistance. This materialized as one engineer from the Overseas Unit of the Laboratory, stationed as an advisor, in Bogota for one year (1969-1970) and a three-man team from the Laboratory stationed in Colombia for a period of 1 l'2 years, commencing 1971. - A.8 - 2.19 The-engineer had a considerable impact on pavement design in Colombia by emphasizing, inter alia: Cal the need for adequate drainage; (b1 the utility of asphaltic emulsions in the higher (and therefore wetterl parts of the country; Cc) the need to reorganize the system of.distribution of asphalt, specifically by switching to bulk supplies, as opposed to the supply in drums (which was.the custom and led to variations in quality and failures of asphaltic mixturesl. Specifications for asphalt works under the proposed highway project call for asphaltic products to he delivered to site in bulk. Transport in drums is no longer accepted. 2.20 The three-man team concentrated on a number of topics, foremost of which was geological instability and how the effects of such instability, inherent in the Andes in Colombia, could be minimized in the context of construc- tion and maintenance of roads and railways. The work of the team has been a contribution to advancing the state of the art and particularly valuable in relocating vulnerable sections of the main transport routes. 2.21 Transport Planning, Preparation. of Feasibility Studies and Detailed Engineering for the Road Rehabilitation Program. MOP contracted INGEROUTE (France) in December 1971 to help prepare a transport investment plan; to prepare guidelines for feasibility studies; and to coordinate the work of local con- sultants on feasibility studies and design for the proposed road rehabilitation program. The latter was conceived primarily as an overlay program. The work of INGEROUTE -- the original contract was extended once -- proved useful; the firm's impact on the local consultants, many of whom were small and comparatively untried firms, was significant. The firm's work on the rehabilitation program was in a relatively new area, both technically and economically, entailing an attempt to assess the appropriate timing and economic viability of overlaying and pavement rehabilitation. The rehabilitation program now under preparation is a direct outcome of the INGEROUTE study. 2.22 "The Harvard Model". The latter stages of preparation for the Fifth Highway Project coincided with Phase I of the Transport Investment Survey carried out by the Development Advisory Service of Harvard University, and financed, in part, under the Fourth Highway Project. This survey used an econometric model ("The Harvard Model") which attempted to measure the aggregate effects of transport development by tracing the interaction of individual investment projects on the national economy. Phase I of the survey covered refinement of the model and initiation of the work for implementation. At the end of Phase I, Harvard wished to bow out because it felt that it would be more appropriate to let a non-academic organization pursue the exercise. A payment of US$55,000 was made to Harvard under Category IV of the loan to cover the cost of services provided in connection with Phase I. The Bank pursued the development of the model. Although the initial objective of developing a - A.9 - general operational model for sector analysis proved impractical, the model's network elements have been developed under ensuing research efforts to the point where they constitute a valuable tool in project evaluation and are used currently in relation with preparation of transportation projects, D. Equipment and Vehicles 2.23 Category V of the project loan included US$O.5 million for procurement of equipment and vehicles. This was designed for workshop improvements, traffic control and laboratory equipment which a reorganized MOP would require. Approxi- mately 75% of this amount was, in fact, to be used for purchase of small tools for the refurbished central and district workshops of MOP. The appraisal report envisaged the balance being used for procurement of vehicles, traffic counters and motorists/laboratory equipment. The total package of equipment and vehicles was conceived to put some "teeth" into the reorganized MOP, and the idea was sound. 2.24 In the event, no workshop tools were procured under the project; an indication the problems of equipment maintenance were of a more general nature not amenable to a piecemeal approach. The other equipment envisaged under this element - soil testing equipment, vehicles, traffic counters -- was procured. In total, disbursement under this category was only US 234,000, less than half that fully envisaged. This element of the project could not be regarded as fully successful. E. Cost, Financing and Disbursement 2.25 The loan was Eully disbursed. A comparison of the actual use of the loan, by category, with that originally envisaged is given in Table 4. Table 2 compares, for the project as a whole, appraised and actual costs. III. Economic Re-evaluation A. General 3.01 The Economic Justification presented in the Appraisal Report dealt only with the civil works which, with the associated consultant services for super- vision, amounted to about 90% of the estimated project cost. Quantitative evaluation was attempted for the remaining components. This part of the Comple- tion Report therefore, likewise deals only with the civil works, i.e. the road- works and the bridge. Benefits considered at appraisal comprised reduc.tion in vehicle operating costs and distance savings. Traffic was assumed to -row initially at 7% per year, declining to 5% per year at the end of the economic life, assumed as 20 years. Generated traffic was considered only for :he Medellin-Santuario road. The predicted rates of growth were thought tj be con- servative. Economic rates of return were recalculated (see Table 6) f)r three of the five project elements taking into account recent traffic count iata (see Table 5) and actual project costs. Where it seemed that reportec final costs may have underestimated real costs, calculations were made to tEst the sensitivity of returns to cost increases. The average operating cost savings - A.10 - used at appraisal (30%1 are. consistent with estimates for similar projects taking into account the poor condition of the project roads in 1968. 3.02 Overall, the recalculated returns suggest the project proved a worthwhile economic investment. The actual return on the major componentthe 323 km Medellin-Cartagena sections, averaged around 25%.. Economic returns on other elements were in the region of those forecast at appraisal. Only the Medellin-Santuario road was considered marginal at time of appraisal with a projected return of 11%. Recalculation even under the most pessimistic assumptions reveals an actual return of 9% suggesting the project remained a marginal economic investment. It was not necessary to recalculate returns on the bridge and the Barbosa-Oiba road section since the reported cost and actual traffic counts were almost identical to those used at appraisal. B. The Medellin-Cartagena (Troncal Occidental) 3.03 For the seven sections of the Troncal Occidental included in this project, the appraisal report noted traffic volumes at that time in the range of 600-1,000 vpd, C60%-80% heavy vehicles) depending on the section. Based on an assumed reduction in vehicle operating costs of 30%, as a result of recon- struction and paving, the appraisal report predicted economic returns in the range of 15-21% (again depending on the section). The estimated cost of this element of the project, at appraisal, was US$21.7 million. 3.04 The final cost of the work was about US$24.3 million, or some 11% higher than the appraisal estimate. Traffic on the seven sections in 1973, as reported by MOP (Table 5) varied between 820 vpd (80% heavy) to 1,780 vpd (58% heavy): these figures correspond to a growth of traffic from about 7% per year (the figures used in the appraisal report) to about 12% per year. 3.05 Recalculations based on actual traffic counts for each section suggest the actual average economic return was around 25%, based on operating cost savings only. However, on these sections there were also considerable time savings. Prior to the project, the journey between Medellin and the north took several days -- in the wet season, trucks were stuck axle-deep in mud with long lines of vehicles held up on either side and with drivers and MOP personnel toiling to open the road. On completion of the project works, the journey can be completed, safely and predictably, in a working day. It is therefore safe to assume that this project element has proved a well justified investment. C. The El Pailon-Lcboguerrero Road 3.06 In one sense, the most important benefit deriving from the project for this road section -- the "missing link" in the new road access to the port of Buenaventura - was that after more than 20 years of working, an all-weather modern road access to the port was completed and the benefits from the two decades of investment in :his road at last began to be realized. 3.07 At appraisal, taking all investments into account - those made since 1946, and those proposed under the project -- an economic return of 16.5% was - A.11 - projected. The problems of isolating project benefits attributable solely to the new investments probably explain this methodology. However, the Appraisal Report also considered the alternative reasoning; assuming all investments in the previous two decades as "sunk costs," the return on the proposed investment under the project was estimated at about 85%. Traffic on the existing rudi- mentary Cali-Buenaventura road at appraisal was estimated at about 1,200. vpd. 3.08 The estimated cost of the proposed works, at appraisal, was about US$3.9 million. The eventual cost, after works dragged on until 1974 was about US$4.0 million. Traffic on the La Delfina-El Pailon section has not thus far grown as rapidly as expected and has remained around the 800 vpd to 1100 vpd over the period 1970 to 1975. The recalculated economic return suggests a return on the new investment of 20% to 30%. 3.09 Furthermore, this road access to Buenaventura must now be playing an additional role, not foreseen at appraisal. In the winters of the early years of the present decade, unprecedented rains caused major landslides, and the railway between Medellin and Cali was interrupted (and is still not back in service). Thus the considerable freight movement between Medellin and Buena- ventura, which previously moved by rail via Cali, now moves by road. After the closure of the railway, it was indeed fortunate that the road to Buenaventura was close to completion - it may not otherwise have been practicable to main- tain the freight traffic between Medellin and Buenaventura, with disastrous results to the economy. D. The Medellin-Santuario Road 3.10 The area of Santuario (55 km southeast of Medellin) was envisaged, at appraisal, as the natural area for expansion of the industrial complex of Medellin. At that time, some minor industries had already relocated at Santuario; traffic on the existing poor and tortuous road was about 500 vpd C50% heavvy. The proposed works were to be on a new alignment from Medellin, at least as far as Guarne (40% of the way to Santuario); the existing traffic was expected to grow at: 7% p.a. in the early years, plus generated traffic at 10% per annum for the first ten years. The appraisal report, estimated an economic return of 11% over a 20-year economic life. 3.11 MOP records of the contracts (the work was carried out by two separate contracts - Medellin-Guarne and Guarne-Santuario) indicate a final cost of US$6.5 million, equivalent, for the 55 km, (US$130,000 km); this represented a cost overrun of some 717.. However, from supervision reports of the difficulties encountered during construction (mainly from landslides), it is probably safe to assume that the cost was appreciably higher -- much of the work at the close of the project was performed by the MOP District Office (and presumably, there- fore, is not shown in the contractual figures). - A.12 - 3.12 Traffic materialized certainly on the Medellin-Guarne section much more. than as projected; MOP figures CTable 5) indicate l,70Q vpd (30% heavyl in 1973; this figure far exceeds the. 7%. normal growth and 10% generated traffic growth. However, traffic in the Guarne-Santuario section in 1973 was reported only at 720 vpd C55% heavy1. Time overruns were considerable -- 68 months actual construction period compared with an estimated 34 months for the Medellin- Guarne section, and 85 months compared with 30 for the Guarne-Santuario section. If it is assumed that real completion costs were 25% above reported cost, the economic rate of return is only 9%. This is not however significantly below the appraisal of 11%. 3.13 One additional beneficial effect of the new road was to provide an impetus to the market gardening activity in the Santuario area - much of the vegetable demand of Medellin is supplied from Santuario. Another, possibly more readily appreciated in human rather than economic terms, was the opening up of the Guarne-Santuario area as an area of relaxation for the population of Medellin. E. The 29 km Section of the Barbosa-Oiba Road 3.14 This section -- the last remaining unpaved section on the trunk route between Bogota and Bucaramanga - was carrying 45Q vpd (75% heavy) at the time of appraisal. The appraisal report indicated that, with an assumed 30% reduction in vehicle operating costs consequent on reconstruction and paving, the invest- ment therein would yield an economic return of 16% over a 20-year life. The proposed investment was of the order of US$2.7 million equivalent. From the construction viewpoint, this was probably the most troublesome section in the project. MOP reported a final cost of US$2.2 million. However, without doubt this seriously underestimated the true cost of the work -- much of the latter was carried out as "maintenance" and debited accordingly. Traffic after con- struction, in 1973, was recorded by MOP (Table 5) as 800 vpd (78% heavy) repre- senting growth of 12% compared with appraisal projections of only 7%. F. Construction of the New Bridge at La Virginia 3.15 Construction of the new bridge over the Cauca River at La Virginia (on the Troncal Occidental, mid-way between Cali and Medellin) was, basically, an insurance against collapse of the aging (40-year old) suspension bridge. The Appraisal Report indicates that if the suspension bridge were to collapse prior to completion of the replacement structure, the annual cost of the diversion of traffic (the diversion would add 76 km to the journey) would be double the cost of the new bridge. In addition, the suspension bridge, being only single-lane, was causing considerable congestion for the 1,500 vpd using it in 1968. The old suspension bridge remained in service until the opening of the new bridge; (in fact, the approach embankment of the latter collapsed soon after opening and traffic was diverted again over the suspension bridge). Even though the existing bridge did not collapse -- and prediction of collapse of a bridge is not an exact science -- the decision to build the new bridge as an insurance, was undoubtedly correct; there was no doubt that the old bridge would - A.13 - have to he replaced - the only question was the timing.. The Appraisal Report indicated a rate of return on the investment of 15% based on the avoidance of congestion costs at the existing bridge. The predicted growth of traffic C7M per yearl implies that the 1,50l vpd in 1968 would rise to 2,100 vpd in 1973; the actual figure reported by MOP for 1973 was 2,60Q vpd CTable 5). In terms of heavy vehicles, where the greater part of congestion costs could be expected to occur -- there were 900/day in 1968, and the assumed growth of 7% revealed 1,275. Thus the traffic forecasts more than held up. The bridge was completed without significant cost overruns and with a delay of about a year; thus it is reasonable to assume that the rate of return forecast at appraisal was achieved, IV. Performance of Borrower 4.01 The performance of MOP was undoubtedly affected by periodic changes in approach to the scope and execution of the role of MOP, particularly in the areas of: (a) the use and treatment of consultants, both local and expatriate; and (b- the administration of civil works contracts. In the area of compliance with some loan covenants and other commitments, the performance of the-Borrower was generally unsatisfactory. In particular, the performance was disappointing in the areas of highway maintenance, enforcement of vehicle weights and dimensions and provision of adequate funds. Each of these areas will be examined in detail. A. Construction Implementation 4.02 Supervision missions over the implementation period reported mixed, but generally disappointingprogress. The greatest single cause was lack of local financing, due to difficulties in raising taxes, the ambitious highway program and inadequate allowance for inflation in cost estimates. Delays in payments to contractors had led to bankruptcies under earlier projects. The Bank reports also indicated that because of the Government's concern with preserving employment provided by project civil works, MOP may not always have exercised sufficient firmness in dealing with contractors. This appears to have resulted in some contractors slowing down progress to emphasize their claims. The situa- tion was gradually reversed and an adequate level of contractual discipline was eventually restored. The eventual result was the quite strong construction in- dustry Colombia now possesses. Also, this experience with the Fifth and later the Sixth Highway Projects has contributed to strengthening MOPT's impact on and monitoring of the industry. B. Highway Maintenance 4.03 Very general requirements for maintenance of the highway system were set out in Section 5.07 (a) of the Loan Agreement. Super-ision reports in 1970 - A.14 - and 1971 indicated that the Borrower was clearly not complying with its com- mitment to improve maintenance. A supervision mission of June 1971 quoted examples of a new highway failing for lack of simple, routine maintenance. Lack of progress in highway maintenance was probably the single most disap- pointing aspect during the period of the project. Poor highway maintenance has persisted in Colombia for many years, possibly for more than a quarter of a century. During appraisal of the Fifth Highway Project (April 1968), it was decided not to include procurement of additional field maintenance equipment at that time "as large fleets of such equipment are already held by the MOP". It was felt that existing equipment should be put to more ef- fective use by (a) building up an effective highway maintenance organization to operate it, and (b) improving the functioning of MOP workshops and the plan- ning of equipment maintenance and overhaul. The main reasons for deficient maintenance were and are lack of effective management and insufficient re- sources. Besides the fairly general maintenance covenant of the Loan Agree- ment, the project included only a small provision for tools and workshop equipment. 4.04 The diagnosis reached at the time of the appraisal of the project is generally applicable to the situation. Since 1976, workshops have been improved and MOP staff in the field districts have been strengthened. The equipment fleet was not renewed and has included a large proportion of aging and obsolete machines. The maintenance program included under the proposed Seventh Highway Project has attempted to reflect the lessons of the past. The approach is less piecemeal, and the program includes an important element of technical assistance directed at improving management of the equipment fleet and planning and control of-maintenance activities. The proposed project also includes a four-year equipment renewal program and specific commitments con- cerning future level of maintenance expenditures. C. Vehicle Weights and Dimensions 4.05 Section 5.07 (b) of the Loan Agreement required the Borrower to take steps to ensure enforcement of vehicle dimensions and weight control regulations. Overloading of trucks has been a continuing problem. In June 1968, at the time of loan negotiations, the Government announced in the press that the provisions of Decree 102/1955 relating to axle weights were to be enforced with effect from July 1, 1968. However, in spite of periodic calls for action, enforcement was not strictly carried out and no progress was made while the destructive effects of overloading became more and more evident. Recently the Government has initiated a study to develop a detailed enforcement program and disburse- ment for weighing stations under the proposed Seventh Highway Project will be contingent on the enforcement of an adequate weight program. D. Expatriate Assistance to the Local Consultants 4.06 In a side letter to the Loan Agreement, Government specified the consultant arrangements (see para. 1.09). After the change of Government in 1970, there was apparently a new approach by MOP which influenced the two local consultants to reduce the input by the US associates. The Bank considers that there were behefits to each of the local firms from the association with US - A.15 - firms (in both cases, the association had been successful and had gone back many years). In MOP's view, these benefits were outweighed by the higher cost of the US involvement. The greater emphasis placed on developing the local consulting industry has helped to firmly establish the civil engineer- ing consulting profession in Colombia. Procedures for selecting consultants are now satisfactory. Nevertheless, it appears that MOP did not abide entirely by its undertaking in the side letter. E. Provision of Yunds 4.07 Section 5.01 (a) of the Loan Agreement requires the Borrower to S. . "make available promptly as needed, all funds . . . required." The Fondo Vial (the National Highway Fund) established in December 1967 was in- tended in part to provide MOP with earmarked funds. By 1970/71, the revenues accruing to the Fondo Vial were quite inadequate for MOP's program (see para. 4.02 for reasons). This manifested itself in late payments to the contractors, thereby exacerbating the already difficult financial position in which many found themselves. The financial situation of the project later improved to some degree. V. Role of the Bank A. In the Formative Stage of the Project 5.01 In 1964, the Bank's principal concern was with project management by the Government in a:eas such as provision of adequate detailed engineering, sound documentation (conditions of contract, specifications, etc.), prequali- fication of bidders, international competitive bidding procedures, adequate performance guarantees and adequate contract supervision. As a result of an earlier (1955-1958) favorable experience with the assignment of a Bank Resident Highway Engineer in Colombia, the Bank re-appointed an engineer to the position. He took up his duties in September 1964 and remained in Colombia until June 1969. 5.02 Under his terms of reference, the Resident Highway Engineer was responsible for the supervision of the execution of ongoing highway projects financed under Bank loans, or credits, and also to advise the Bank on issues involved in possible future Bank-assisted projects. He worked directly with the Colombian authorities, who were fully advised of his duties and respon- sibilities. In addition to his duties directly related to project execution, he worked closely with the Colombian authorities in developing proposals for reorganization of the Ministry of Public Works. 5.03 The Bank considers that the presence of the Resident Engineer was beneficial. Although implementation of the Fifth Highway Project was attended by numerous difficulties, these may well have been even more serious without the efforts of the Bank's Resident Highway Engineer. - A.16 - 5.04 The Bank was active in formulating and preparing the Fifth Highway Project during the period 1964 to 1968. One useful contribution during these years was the suggestion that all the unpaved sections of the Troncal Occidental between Medellin and Cartagena be included in the project; MOP proposed originally to include three sections and omit the remaining three or four. In the event, all were included in the project, and there is now a paved road from Medellin to the Caribbean. This road carries considerable traffic and the decision to in- clude all sections was probably a wise one. B. In the Implementation Stage 5.05 Whereas in the formative years, the Fifth Project was envisaged as a civil works project, in the event, it also included implementation of the re- commendations of the management study, preinvestment studies and other elements directed at institutional enhancement. Prior to this project, approval of con- tracts took up to six months, requiring the assent of the Council of Ministers and the President. The Bank played a part in assisting MOP to reduce this time to no more than 60 days. 5.06 On the debit side, the Bank might have taken stronger action in response to unsatisfactory performance by the Borrower on highway maintenance and enforcement of axle weights. Supervision mission reports were explicit, particularly on lack of maintenance. A firm response by the Bank might have brought home to MOP the cost to the Colombian economy of lack of maintenance and of overloading of vehicles. In February 1977, the Bank addressed the Ministry, expressing concern over the lack of maintenance. It is doubtful whether a firmer attitude would have been practical in view of the fairly general formulation of the maintenance covenant of the loan which did not provide any specific timetable or targets as to what would be considered ac- ceptable or satisfactory maintenance. It would seem that, in order to be of real value, a maintenance covenant should be based on a broad review and agree- ment developed during project preparation concerning specific maintenance re- quirements for the project period. The same remark applies to the enforcement of vehicle weight control where prior agreement should be reached on the for- mulation of specific enforcement measures. Table 1 PROJECT COMPLETION REPORT COLOMBIA - FIFTH HIGHWAY PROJECT v LOAN 550-CO Project Content at Appraisal Foreign Exchange Total Component Col.Ps. US$ Equiv. US$ equiv. (million) (million) 1. Construction, reconstruction and/or paving of 456 km of high--ways and the La Virginia Bridge 433.7 26.59 11.97 (45%) Quantity contingencies (average 15%) 65.1 3.98 1.80 (45%) Price contingencies 46.0 2.85 0.47 Total, Item 1 544.8 33.42 14.24 2. Consultants for supervision of construction 36.0 2.21 0.55 (25%) 3. Consultants for Phase II of Management Study 10.1 0.62 0.53 (85%) 4. Pre-investment studies and detailed engineering for future highway programs 40.7 2.50 1.25 (50%) 5. Contingency allowance for consultants 4.2 0.26 0.13 (50%) 6. Equipment for Ministry of Public Works reorganization 8.2 0.50 0.50 (100%) Total 644.0 39.51 17.20 TABLE 2 PROJECT PERFORMANCE AUDIT MEMORANDUM COLOMBIA FIFTH HIGHWAY PROJECT (LOAN 550-CO) Expected and Actual Costs Appraisal--- Actual Pesos US$ Pesos US$ 1. Civil Works a. Medellin-Cartagena 354.0 21.7 526.7 24.3 b. El Pailon-Loboguerrero 64.1 3.9 73.9 4.0 c. Medellin-Santuario 62.4 3.8 121.0 6.5 d. Oiba-Barbosa 43.2 2.7 42.5 2.2 e. La Virginia Bridge 21.1 1.3 19.8 1.1 Subtotal 544.8 33.4 784.2 38.3 2. Consultancy a. Supervision of Construction 37.8 2.3 84.3 -- 4.0-/- b. Management Program 10.6 0.6 n.a. n.a. c. Preinvestment Studies and Detailed Engineering 42.6 2.6 n.a. n.a. d. Equipment and Vehicles 8.2 0.5 n.a n.a. Total 644.0 39.5 n.a. n.a. Sources: Appraisal Report of the Fifth Highway Project; MOP, Informe Final, August 1975; and Integral Progress Report No. 50 of 1975, Tables No. 2 and 5. /a Includes contingencies of 15% for quantity increases and 10% for price escalation on civil works and 5% for consultants' services. /b Supervision of 1) a.-c. only. Final costs of d. and e. not available. Table 3 PROJECT COMPLETION REPORT COLOMBIA - FIFTH HIGHWAY PROJECT - LOAN 550-CO Construction Contracts Awarded Approximate Contractor Amount of Contract Section and Length Name Nationality Col. Ps. tS$ Equiv. (millions) 1. La Delfina-Pailon 35 km 1/ Siac, Ltd. Colombian 33.8 2.1 2. Rio Grande-Rio Nechi 53 kn2/ Proyectos Colombian 45.4 2.8 Construcciones, Ltd. 3. Rio Nechi-Ventanas Constructora Colombian 23.2 1.4 33 km Sanchez 4. Medellin-Guarne Unicon Colombian 27.0 1.6 21 km Intecon, Ltd. 5. Guarne-Santuario Sococo Corp. Colombian- 24.4 1.5 34 km Comprised of American R. Piedrahita, Nathan Moore, Mora Mora Co. Ltd. and Agregados y Mezclas Iguana 6. La Virginia Bridge HB Estructuras 17.3 1.1 Metalicas SA., Conciviles, Ltd. and Murne Rodas, Ltd. 1/ Part of access to Buenaventura. f/ Parts of the Medellin-Cartagena Road (Troncal Occidental) 3/ The Medellin-Santuario Road Table 4 PROJECT'COMPLETION REPORT COLOMBIA - FIFTH HIGHWAY PROJECT - LOAN 550-CO Disbursements: Projected and Actual (in US$) As in Actually Disbursed Category Loan Agreement ("Rounded" Figures) I. Civil Works 11,970,000 15,110,000 II. Supervision of Category I 500,000 300,000 III. Reorganization of XOP 530,000 760,000 IV. Pre-investment Studies and Detailed Engineering 1,250,000 800,000 V. Equipment and Vehicles 550,000 230,000 VI. Unallocated 2,400,000 17,200,000 17,200,000 TABLE 5 PROJECT CoYPLETION AEPORT COLOMBIA - FIFTH HIGhWAY PROJECT - LOAN 550-CO TRAFFIC C0OU< :. UN 1R I.I.CT ROAl)S/BRIDGE 1968 1969 1970 1971 1972 1973 Road Sect.on/Bridge (i) Lobcoguerrero-El Pailon - Loboguerrero-La Delfina 112/45-10-45 171/52-09-39 481/19-08-73 481/19-08-73 331/27-08-65 632/32-15-5t - La Delfina-E1 Pailon 179/31-05-62 172/37-07-56 897/21-10-69 897/21-10-69 1136 /31-29-40 967/29-16-55 (ii) Medellin-Santuario - Medellin-Guarne 1117/68-14-18 1703/70-09-21 - ruarne-Santuario 716-43-22-35 720/52-23-25 (iil) Troncal Occidental - Rio Grande-Rio Negro 719/18-07-75 690/20-09-71 927/14-07-79 927/14-07-79 86/18-47-75 1036/17-06-77 - Rio Negro-Ventanas 693/17-06-77 622/17-09-1/, 776/14-06-80 776/14-06-80 778/18-07-75 866/19-06-75 - Ventanas-Pto. Valdivia 621/11-05-84 502/09-07-84 115/08-04-88 715/02-04-88 795/13-C4-83 820/15-06-79 - Ptc. Valdivia-Taraz5 591/10-04-86 516/10-06-84 745/00-04-87 745/09-04-87 69(/15-C5-80 879/14-05-81 - Taraz.-Caucasia 591/10--04-86 516/10-06-8. 745/09-04-87 745/09-04-87 69(/15-CS-80 879/14-05-81 - San Jorge-Planeta Rica 701/19-12-69 684/21-33-66 1211/13-08-79 1069/30-09-61 1051/24-18-58 1372/40-12-48 - La Ye-Sincelejo 1111/49-13-38 1052/43-14-43 1052/43-14-43 1148/33-18-49 1479/30-19-42 1781/42-16-42 (v) Barbosa-Oiba 431/20-15-65 480/25-16-59 702/31-15-54 852/17-13-70 805/21-17-62 804/21-17-62 (vi) L.i VirEnia Bridge 1665/47-09-14 2157/44-08-48 2225/48-08-44 2225/48-08-44 2274/43-10-47 2601/51-08-41 LEGIND Traffic data above are coded as follows: "Average Ijily Traffic/7 of Light Vehicles - % of Buses - Z of Trucks". (All Vehicles) SOURCF: Planning Office MOP Submitted to Bank May 5 and May 7,, 1975. ,N"rr: There are large and unexplained discontinuities in some of the above figures. Moreover, for 1970 and 1971, many sections exhibit identical figures. Possibly these figures, at best, should be regarded as indicative only. TABLE 6 COLOMBIA FIFTH HIGHWAY PROJECT (LOAN 550-CO) Recalculations of Economic Rates tf Retuft (Percentages) Appraisal Optimistic Pessimittic Estimate Recalculatior- Recalculation2 1. Medellin - /3 /3 /3 Cartagena 15 - 21' 34.-- 24.5L- 2. Medellin - Santuario 11 12.9 9.0 3. El Pailon - Loboguerrero 85 30.7 21.3 /1 Benefits assumed to accrue each year in proportion to the amount of con- struction completed. /2 Proportional benefits assumed to commence only after the fifth year of construction for sections one and three and after fourth year for section two. For section two, costs were raised 25% over costs reported by the Borrower to test the effect of possible under-reporting. /3 At appraisal, rates of return were calculated for each of seven sections of road. For recalculation, reported traffic counts on each section were used but only an average rate of return calculated. 78 t68 74 72· COLOMBIA 0 5o 103 ISo 200 230 300 NATIONAL HIGHWAY NETWORK KILOMETERS IV 0 s,0 100 5 200 I SProposed Severith Highway Project MILES Sixth Highway Project -- Fifth Highway Project Major bridges Car, bboeon Sea RIOHACIHA Paed trunk roads P.Ved roods __ _ Unp~vd roads 1 RT ø MOPT districis c Railroads 1ARRANQU .LL --- Roilrood discontinued ATLAN O O R.Fr o International airports C ® Paved airport.s / * Unpoved airports CARTAGEN -~ Raep O fu F,dce ön LEDUPA iSeaports o River ports V . .t.- Novigable rivers is. &- Other rve rsic Elevations above 1400 meters E D - Department boundaries - t-- .International boundaries C ESA olk e \ 5INCELE)0 S R i PANAMA P-'rR 1 El c L..M ORTE DE iý V E N E Z U E L A O ,NNTAND4R M-111rbe C -T.,n'i grd OR SA -A R P{vradee ej Pirolwe.hes I5CAR MANGA Ar c- a i an CoRC* - r©¢ n Lib.-V ~ 5q' .~ An de QA RAUCA Crprr.hap E.c ANDRES ? dCsoC S N R N' C H 0C R,'* \ l 9lS% ~ Coen t d If EC,---A A iiene - CaRiL MeBaek.aonde$U__ IRAGUÉI 1 eeVICHADA Tke Ocean uTU N-bO 0V0LLA V I2C3O -- - 7o b e r r e a s o n An C a re ebe a n S c T ~ ~ ~ - m ZE ?VALLM E. T"A CCAA G-h.q - C----- OPAYÁN B4ýuc oog T nZ. Son icea Cueon delln Po CoreA 2° ~ ~ ~ ~ ~ ~ ~ ~ _ Ri ta9T p c eo. Tomoco E-1. Rmc R- D-,1ECUADORD EO CAO UA DOG ° p,~ A- AREA OF MAIN MA 7E 76 74R