Ecuador - Fourth Highway Project

Document of The World Bank FOR OFFICIAL USE ONLY Report No. 4477 PROJECT COMPLETION REPORT ECUADOR FOURTH HIGHWAY PROJECT (LOAN 1231-EC) May 9, 1983 Latin America and the Caribbean Regional Office 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 ECUADOR FOURTH HIGHWAY PROJECT (LOAN 1231-EC) PROJECT COMPLETION REPORT TABLE OF CONTENTS Page No. PREFACE ........................................... ii BASIC DATA SHEET ....... ........................... iii MISSION DATA ....... ............................... iv HIGHLIGHTS ........ ............... . v I. INTRODUCTION ................................ . 1 II. PROJECT PREPARATION, APPRAISAL AND NEGOTIATIONS 1... III. PROJECT EXECUTION ...... .............. . 5 IV. COST ESTIMATES AND DISBURSEMENTS ....... .. ......... 10 V. ECONOMIC REEVALUATION ............. .. .............. 12 VI. PERFORMANCE OF THE BORROWER .......... .. ........... 14 VII. ROLE OF THE BANK .................................. 14 VIII. CONCLUSIONS ....... ................................ 15 TABLE 1. Comparison Between the Appraisal and Final Cost Estimates .............................. 16 ANNEX 1. Letter of Agreement from Borrower .... ............. 17 MAP IBRD No. 16472 (PCR) - Ecuador - Fourth Highway Project 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.  - ii - PREFACE The following is a Project Completion Report on the Fourth Highway Project in Ecuador, for which Loan 1231-EC, in the amount of US$10.5 million, was approved by the Board on March 30, 1976. The Loan was closed on September 21, 1982. The Completion Report was prepared by the Bank's Latin America and the Caribbean Regional Office and is based on information obtained from the files of the Bank's Records Center, LAC Information Center, Appraisal and Supervision Reports for Loan 1231-EC, Minutes of the Board Meeting and the final reports prepared by the consultants involved in the project. In accordance with the revised procedures for project performance audit reporting, this Completion Report was read by the Operations Evaluation Department, but the project was not audited by OED staff. The Draft Completion Report was sent to the Borrower who, by letter dated March 29, 1983, communicated to the Bank its agreement with concepts expressed in it. The letter and an unofficial translation have been annexed to the report.  - iii - BASIC DATA SHEET Key Project Data Item Original Plan Actual Total Project Cost (US$ million) 21.0 25.4 Overrun (%) - 21.0 Loan Amount (US$ million) 10.5 10.5 Disbursed (9/21/82) 10.5 10.5 Economic Rate of Return (%) 14 20 Date Physical Components Completed 12-78 01-82 Financial Performance good Institutional Performance fair Proportion of Time Overrun (%) 100 Other Project Data Item Original Plan Actual First Mention in Files 2-73 Appraisal - 2-75 Negotiations 12-75 12-75 Board Approval 3-30-76 3-30-76 Loan Agreement Date - 5-24-76 Effectiveness Date 5-30-76 10-13-76 Closing Date 12-31-79 12-31-82 Borrower Republic of Ecuador Executing Agencies Ministry of Public Works (MOP) Ministry of Agriculture (MAG) /, JUNAPLA 1/, and FONAPRE 1/. Fiscal Year of the Borrower 1-1/12-31 Follow-on Projects Name Fifth Highway Project Loan Number 1429-EC Amount (US$ million) 17.5 Loan Agreement Date 9-2-77 Name Sixth Highway Project Loan Number 1882-EC Amount (US$ million) 55.0 Loan Agreement Date 10-31-80 1/ For Part F of the Loan Agreement only.  - iv - MISSION DATA Date of Type 1/ Month/Year No. of Weeks No. of Staff Staff-Week Report Identification 3-73 not in files 2 - not in files Preparation 12-73 1 1 1 1-11-74 Pre-Appraisal 5-74 1/2 1 1/2 7-22-74 Appraisal 2-75 1-1/2 2 3 3-28-75 Post-Appraisal 7-75 1/2 1 1/2 8-11-75 Post-Appraisal 10-75 1 1 1 10-21-75 Post-Appraisal 11-75 1/2 2 1 11-24-75 Post-Appraisal 2-76 1-1/2 2 3 3-08-76 Limited Supervision 7-76 1 1 1 8-20-76 Supervision 10-76 3 2 6 12-14-76 Supervision 6-77 1-1/2 2 3 7-25-77 Supervision 10-76 1 1 1 10-31-77 Supervision 3-78 1 2 2 6-08-78 Supervision 8-78 2 1 2 9-25-78 Supervision 2-79 1 2 2 4-02-79 Supervision 9-79 2 3 6 10-01-79 Supervision 7-80 2 1 2 10-29-80 Supervision 11-80 2 3 6 12-05-80 Supervision 3-81 2 3 6 4-15-81 Supervision 7-81 1 2 2 9-04-81 Supervision 3-82 1 2 2 4-23-82 Total Supervision Effort FY1976 FY1977 FY1978 FY1979 FY1980 FY1981 FY1982 (March) Staff Weeks 1.3 11.0 8.7 5.9 3.1 12.5 3.9 1/ Most of these missions included work for the Fifth and Sixth Highway Projects.  -v - HIGHLIGHTS The Fourth Highway Project, which included the improvement of the Babahoyo-Balzapamba road, had as a main objective the strengthening of the Ministry of Public Works' capability for road planning, engineering, construction and maintenance in light of the massive infrastructure invest- ment programs expected to be implemented during the second half of the 1970s. The improvement of the Babahoyo-Balzapamba road experienced substantial delays and cost overruns because of an inadequate embankment design in the southern bypass to the city of Babahoyo (paras 3.03, 4.01). The problem was exacerbated by untimely actions by MOP, which were carried out against Bank's recommendations. Although civil works were completed in January 1982, the embankment is still settling. MOP is monitoring the settlement rate and has undertaken to provide an asphalt pavement to the bypass in due time. Because of improvements to be completed in 1984 to the Babahoyo- Ambato road, beyond Balzapamba, carried out outside the project and not envi- saged during appraisal, the project road will become part of an important route between Quito and Guayaquil. As a consequence, substantial benefits derived from traffic diversion are expected to be realized, and the project road will yield an estimated economic rate of return of 20% as compared to the appraisal estimate of 14% (paras 5.02, 5.05). The Project Completion Report concludes that the institution- building aspect of the project was successful even when accomplishments fell short of the now evidently over-optimistic appraisal expectations (para 8.01). In particular: (a) Technical Assistance for Highway Maintenance substantially improved maintenance management practices, especially the information system and programming of maintenance activities. However, the persistent problem of budgetary constraints and lack of experience and contin- uity in MOP staff limited improvements in administration of workshops and warehouses, as well as the transfer of know-how from the consultants to MOP's personnel (paras 3.07 and 3.08). (b) Technical Assistance for Highway Engineering and Feasibility Studies contributed substantially to the strengthening of highway design and economic assessment capabilities both of MOP staff and local consultants, and it introduced modern design concepts and technologies in Ecuador. This Technical Assistance was instru- mental in the creation of a Feasibility Studies Department, includ- ing a Traffic Studies Section within the Engineering Department of MOP, as well as in the creation of a Cost Accounting Department under the Directorate of Programming (paras 3.09 and 3.10).  - vi - (c) Technical Assistance for the Transport Planning and Coordination Program, in compliance with the Loan Agreement, helped to expand the former Planning Directorate of MOP into the Transport Planning and Coordination Directorate (DPCT), with the addition of three departments: (i) Policies and Planning; (ii) Economic Planning; and (iii) Information and Studies. However, the creation of a single unit for planning and coordination of all modes, Section 4.04(b) of the Loan Agreement, was not accomplished because of the reluctance of the Defense Ministry to relinquish control of the sea and air transport subsectors. Furthermore, although DPCT staff now form a core group of prepared professionals, they have not successfully integrated with the rest of MOP. MOP has tended to view DPCT as an autonomous agency, and DPCT's investment planning efforts have not yet been utilized in MOP's annual investment programming exercises (paras 3.11, 3.13). (d) Technical Assistance to the Construction Industry succeeded in strengthening MOP's works supervision capability and the administration and executing capabilities of the construction industry, which were put to test during the period of the assistance and thereafter by expanded road construction and rehabilitation programs. However, the consultants' recommendations to improve the performance of MOP's Construction Directorate vis-a-vis the construction industry have still not been implemented (paras 3.14, 3.15). The Project Completion Report states that the main lesson to be learned from this project is that the Bank must avoid being too optimistic about the Borrower's absorptive capacity when it finances massive infusions of technical assistance (para 8.02).  I. INTRODUCTION 1.01 Ecuador is almost entirely dependent on road transportation for the movement of general cargo and passengers, with petroleum products transported by pipeline. In 1980, the road network reached a total length of about 34,600 km, of which 17% are paved, 35% are gravel and 48% are earth roads. The main network, under the direct responsibility of the Ministry of Public Works (MOP), consists of about 8,400 km of trunk roads connecting the main production centers and linking them with Colombia to the north and Peru to the south. About 50% of these trunk roads are paved, and slightly less than 50% are gravel-surfaced. Responsibility for the remaining 26,200 km of roads (1% paved, 34% gravel, and 65% earth) is divided among local governments and national regional agencies. The 1970s was a period of rapid growth in the highway subsector. Between 1970 and 1979, the total length of paved and gravel roads grew by 5% annually; 1,600 km of paved roads, 4,600 km of gravel roads and 5,400 km of earth roads were added to the road system. 1.02 Over the past 25 years, the Bank has been continuously involved with highway development in Ecuador. Since 1954, six highway projects (total lending about US$115 million) have been approved which, when the ongoing Fifth and Sixth Highway Projects are completed, will have resulted in the construction and improvement of about 1,800 km of primary and secondary roads and 1,500 km of feeder roads, and improvements in the maintenance, manage- ment, and operation of the network. 1.03 This completion report is based on information obtained from the files of the Bank's Records Center, LAC Information Center, Appraisal and Supervision Reports for Loan 1231-EC, Minutes of the Board Meeting, and on the final reports prepared by the consultants involved in the Fourth Highway Project. II. PROJECT PREPARATION, APPRAISAL, AND NEGOTIATIONS 2.01 The Transport Sector Memorandum of June 1975 highlighted the need for strengthening MOP's technical capability for road planning, engineering, construction and maintenance. Ecuador had always suffered from institutional weakness and, up to the early 1970s, had lived with few resources. Suddenly, the country was benefited with large revenues derived from the oil industry and started to expand infrastructural investments without having adequate technical capability. The Fourth Highway Project was, therefore, a natural consequence of the above-mentioned Memorandum. It was mainly designed to provide MOP with the badly needed technical assistance to upgrade its insti- tutional capacity and enable it to handle adequately the expected massive infrastructure investment programs.  - 2 - 2.02 The improvements of the Babahoyo-Balzapamba and the Duran- El Triunfo roads, as well as of ten rural roads, were selected in 1973 by the Government and the Bank from a just completed Highway Master Plan 1/, with a view to their inclusion in a proposed highway project. The Transport Sector Memorandum (para 2.01) confirmed the priorities attached to the selected road improvements. 2.03 Early in the project preparation period, the Bank suggested linking the rural roads element of the project to specific agricultural development programs. It was therefore decided to postpone the construction of the rural roads for future projects but to include in the proposed project a study of the agricultural potential of the area of influence of the trunk road between Puerto Ila and Garrapata 2/and of the investments required to realize such potential (para 3.16). 2.04 A local consulting firm was engaged by MOP in mid-1974 to carry out the engineering studies for the Babahoyo-Balzapamba road, while the US con- sultants responsible for preparing the Highway Master Plan were retained to carry out the engineering studies for the Duran-El Triunfo road. By the time of the appraisal (February 1975), it was clear that, while the studies for the Babahoyo-Balzapamba road were progressing smoothly, contractual problems between MOP and the US consultants were delaying the completion of the engi- neering studies for the Duran-El Triunfo road. For this reason, the Issues Paper, issued on April 17, 1975, dealt mainly with the uncertainties and risks resulting from incomplete engineering and preliminary cost estimates. Shortly after, the consultants, dissatisfied with the lack of progress in resolving their contractual problems, terminated their services to MOP. The detailed engineering was continued by local consultants, but the ensuing delays caused the slippage of the Duran-El Triunfo road to the Fifth Highway Project (Loan 1429-EC). 2.05 Loan negotiations were completed in December 1975, and a loan amounting to US$10.5 million was approved by the Executive Directors on March 30, 1976. The Loan Agreement was signed on May 24, 1976 and became effective on October 13, 1976. 2.06 The agreed project, as described in the Loan Agreement, is as follows: Part A: Paving and improvement of the Babahoyo-Balzapamba road (about 49 km) Part B: (1) Review of the operations of the entire Maintenance Department of MOP and, specifically, its operations in MOP's Primera Division 3/, including review of maintenance equipment, 1/ The Plan was part of a highway project financed by a consortium formed by USAID, IDB, the Bank (Loan 379-EC) and IDA (Credit 51-EC). 2/ Puerto Ila-Garrapata was one of the ten rural roads originally selected from the Highway Master Plan (para 2.02). 3/ Which includes the provinces of Carchi, Imbabura, Pichincha, and Esmeralda.  - 3 - technical aspects of maintenance operations, training of mainte- nance personnel, and planning, budgeting and controlling of maintenance works. (2) Preparation, on the basis of the findings under Part B (1), and carrying out of a two-year pilot maintenance program in the said Primera Division, with a view to extending it to other Divisions of MOP. Part C: Preparation and carrying out of a program, including staff training, to improve the capabilities of MOP in the fields of: (1) highway planning and preinvestment studies; (2) detailed engineering of highway projects; and (3) application and enforcement of measures for protection of roads and regulations of their use. Part D: (1) Preparation and carrying out of a program designed to improve the capabilities of the Borrower's road construction industry; and (2) Provision of technical assistance to assist MOP in (a) prepara- tion and review of prequalification procedures; (b) preparation of bidding documents and evaluation and comparisons of bids; (c) administration and supervision of civil works; and (d) settlement of disputes with respect to civil work contracts. Part E: Provision of technical assistance with respect to the functions of the agencies to be established pursuant to paragraphs (a) and (b) of section 4.04 of the Loan Agreement 4/, particularly in the fields of: (1) transport sector economics; (2) multimodal planning; (3) statistics and information systems; and (4) modal review and evaluation. Part F: Preparation and carrying out of a two-phased program of studies on the area of influence of the proposed trunk road between Puerto Ila and Garrapata, concerning: (1) development of such area's agricultural potential and investment required to realize such agricultural potential; and 4/ Section 4.04 of the Loan Agreement refers to the establishment within MOP of an agency responsible for the planning and coordination of all land transport (para 3.11).  - 4 - (2) integrated rural development of such area, including investments in physical infrastructure and social services, this second phase to be carried out only if the investments recommended by the study included in Part F (1) were technically and economically feasible. The project was expected to be completed by June 30, 1979. 2.07 The Cost Table as shown in the Appraisal Report is as follows: US$ Millions Local Foreign Total FEC A. Civil Works (i) Babahoyo-Balzapamba road improvement 5.5 3.7 9.2 40 B. Supervision of Civil Works 0.2 0.6 0.8 70 C. Programs and Technical Assistance (i) Maintenance program 0.5 1.3 1.8 - (ii) Highway engineering program 0.4 1.0 1.4 - (iii) Highway planning program 0.2 0.3 0.5 - (iv) Transport planning and coordination 0.4 0.8 1.2 - (v) Local road construction industry - 0.1 0.1 - (vi) Rural development study 0.2 0.4 0.6 - (vii) Project coordination 0.2 0.3 0.5 - Sub-total 1.9 4.2 6.1 70 Total Base Cost 7.6 8.5 16.1 D. Contingencies Physical (10% of A) 0.6 0.4 1.0 Price increase A 2.3 1.6 3.9 Sub-total 2.9 2.0 4.9 Total Project Cost 10.5 10.5 21.0 /1 Price escalation rate as follows: (a) Foreign Exchange Element Civil Works: 1976 13% 1977-1979 12% per year Consulting Services: 1976 12% 1977-1979 9% per year (b) Local Cost Element: 1976, 20%, varying to 12% in 1979.  - 5 - III. PROJECT EXECUTION Civil Works 3.01 Invitations for international competitive bidding for the Babahoyo-Balzapamba works were issued in January 1977. The bids were opened in April 18, 1977, and, after an extensive bid evaluation by MOP, contracts were awarded, on September 1977, to two local contractors who presented the lowest combination of bids as follows: (a) Sections 1 and 2 (Babahoyo-Puente Palmar y Puente Palmar-Pisagua, 39.2 km), at Sucres 227,082,193.52 5/, to be executed in 27 months, and (b) Section 3 (Pisagua-Balzapamba, 11 km), at Sucres 41,341,112.00, to be executed in 30 months. 3.02 Execution of the civil works started in early October 1977, eight months behind the initial implementation schedule shown in the appraisal re- port. The slow start of the project was mainly due to a five-month delay in declaring the loan effective and was exacerbated by personnel changes in top MOP positions after the project had been formulated and negotiated. Subse- quent delays were caused by: (a) abnormally long rainy seasons in the years 1979 and 1980; (b) difficulties in excavating materials from the originally selected borrow pits in an area where good materials are extremely scarce; (c) embankment foundation problems in the swampy section (2.5 km long) south of Babahoyo (para 3.03); and (d) flooding, drainage and foundation problems in other road sectors. 3.03 A southern bypass to the city of Babahoyo crosses an area subject to seasonal flooding, which, according to the original design, required a 3 m high embankment. The foundation design of this embankment was not satisfac- tory and, at the Bank's suggestion, MOP hired a soils specialist to conduct a detailed study. In January 1978, MOP, with the Bank's concurrence, decided on the construction of the embankment according to the specialist's recommen- dations: sand pile foundation for culverts, 1 m overburden on top of the embankment, and installation of settling monitoring devices totaling an addi- tional cost of US$118,260. At the initiation of construction, and repeatedly after the missions in September 1979 and July 1980, the Bank insisted on the need for continuous instrumental control of sheer strength and bearing capa- city of the weakest soils during construction. Nevertheless, MOP persisted in constructing the embankment without sand piling for culverts, embankment overburden, or installation of monitoring devices, and, in mid-July 1980, added improved subgrade material to permit traffic of heavy trucks along the 5/ The exchange rate during the period of project implementation was US$1.00 = 25.00 Sucres.  - 6 - bypass (this action had been requested by the city of Babahoyo to prevent further deterioration of its heavily damaged streets). In August 1980, the foundation soil on a 180 m stretch along the embankment suddenly subsided, with a simultaneous upheaval of the natural ground on both sides. A November 1980 Bank mission, supported by a soils specialist, recommended specific studies to program the reconstruction of the failed embankment section. MOP carried out these studies and, contrary to the Bank's recommendations, put a one inch thick asphalt concrete layer on top of the subgrade to facilitate temporary diversion of traffic from Babahoyo. Civil works on Sections 1 and 2 of the project were completed in January 1982, but, since the embank- ment is still settling at a pace of about 1 cm per month, MOP undertook the commitment to compensate for future settlement and to provide an asphalt pavement in due time. 3.04 Section 3 (10.5 km) was satisfactorily completed in December 1980, with a seven-month delay. In addition to the abnormally long rainy seasons of 1979/1980, the delay was caused by instability of the cut slopes, combined with inadequate construction methods, resulting in a much greater number of slides than estimated; unexpected drainage and foundation problems; and the replacement of shoulder surface treatment by asphalt concrete as a precaution against damage caused by slide removal equipment. 3.05 The supervision of the civil works was carried out by the same local consulting firm that prepared the engineering and feasibility study for the project road. Although its performance was adequate overall, it did not recognize in time the importance of the foundation problems in the Babahoyo area (para 3.03) and, therefore, did not recommend adequate preventive measures. Technical Assistance 3.06 The implementation of the technical assistance elements of the project had a slow start for the reasons listed in paragraph 3.02 as well as delays in the approval of a special decree to allow hiring of foreign con- sulting firms without local 'participation. In addition, during the early stages of implementation 6/, all elements of technical assistance suffered delays and curtailed effectiveness because of inadequate counterpart staff -and vehicles. These problems were partially overcome by mid-1978, except for a few counterpart positions, particularly economists. Technical Assistance for Highway Maintenance 3.07 This technical assistance component of the project was completed satisfactorily by US consultants in January 1981. Their main achievements were: (a) testing and implementing of maintenance programing in the pilot district of Santo Domingo; (b) extension of maintenance programing to all other districts; 6/ Except for the technical assistance to the construction industry (para 3.16), all the technical -assistances had started by October 1977.  - 7 - (c) improvement of the administration of central and district workshops and warehouses; (d) improvement of the operation and administration of crushing and asphalt plants; (e) development of cost data on all maintenance owecations; and (f) preparation of about 12 audio-visual training courses for mainte- nance operations. 3.08 Maintenance management, in particular the information system and the programing of maintenance activities, has been substantially improved; however, the impact of this technical assistance fell short of appraisal expectations. The persistent problems of budgetary constraints and lack of qualifications and continuity in the counterpart staff limited the improve- ment of the administration of workshops and warehouses, as well as the trans- fer of know-how from the consultants to MOP's personnel. These issues are being addressed by the follow-on maintenance program included in the Sixth Highway Project (Loan 1882-EC), which also sets out production and efficiency targets. The final cost of this element of the project was US$1.62 million, 27% below the cost estimated at appraisal. Technical Assistance for Highway Engineering and Feasibility Studies 3.09 MOP engaged an Argentine consulting firm to carry out this tech- nical assistance, which was finalized in December 1980 after realizing the following achievements: (a) creation of the Feasibility Studies Department, including a Traffic Studies Section within the Engineering Department of MOP; (b) reorganization of the contracting and supervision of engineering and feasibility studies; (c) preparation of personnel through on-the-job training in specific fields such as soil mechanics, bridge and structure design, hydraulics and hydrology, photogrammetry and computation; (d) creation of a Cost Accounting Department under the Directorate of Programing; (e) the offering of 26 courses on engineering and economic subjects which were attended by 800 trainees, as well as preparation and publishing of the corresponding textbooks; and (f) assisting MOP in carrying out highway engineering and feasibility studies and in supervising the performance of such studies by local consultants, combined with on-the-job training of personnel in these fields. 3.10 This technical assistance program contributed substantially to the strengthening of highway design and economic assessment capabilities both of MOP staff and local consultants, and it introduced modern design concepts and  technologies in Ecuador. This contribution was reflected in the consultants' Final Report of October 1980, favorably commented on by the Bank's letter of December 29, 1980. The final cost of this technical assistance was US$1.11 million, or 52% below the US$2.33 million estimated at appraisal. The original estimates were based on the assumption of two different technical assistance contracts. The consolidation into one contract resulted in impor- tant cost savings. Technical Assistance for Transport Planning and Coordination Program 3.11 This technical assistance was awarded to an Israeli firm and started in mid-November 1977. It was extended twice: to compensate for the delay originated by inadequate counterpart staffing and to expand the program. In compliance with Section 4.04 (a) of the Loan Agreement, by September 1980 7/, the former Planning Directorate of MOP had been expanded into the Transport Planning and Coordination Directorate (DPCT), with the addition of three departments: (i) Policies and Planning, (ii) Economic Planning, and (iii) Information and Studies. Other tasks accomplished by the assistance were: review of general development plans, origin and destination surveys both for freight and passengers, organization of a transport data bank, inventory of all transport modes, evaluation of new transportation projects, investigation of road user charges, and a draft Highway Transport Plan for 1981-1995. The creation of a single unit for planning and coordin- ation of all modes, Section 4.04 (b) of the Loan Agreement, was not accom- plished during the implementation of this project because of the reluctance of the Defense Ministry to relinquish control of the sea and air transport subsectors; as a result, DPCT's role is limited to the planning of the land transport only. Under the Sixth Highway Project (Loan 1881-EC), a National Transport Council was to be created, comprising all Ministers responsible for the different transport modes; however, there has been little interest regarding this proposition, and the Government is now taking steps for the creation of a Sub-Secretariat of Transport to unify all land transport efforts under a single agency. 3.12 The technical assistance for transport planning was completed on December 31, 1980 at a cost of US$1.25 million, 18% below the US$1.48 million estimated at appraisal. The Bank's comments on the Final Report encouraged MOP to: (a) support the recommendations for changes in the transport planning organization; (b) implement the recommendations on the highway investment plan, especially,those regarding postponement and reformulation of projects planned at that time; and (c) ensure that, in the next phase of the technical assistance (to be financed under Loan 1882-EC), the Directorate of Transport Planning and Coordination (DPCT, formerly UPCT) and the Depart- ment of Feasibility Studies work together closely in preparation and analysis of traffic data. 7/ The original deadline for the compliance of this covenant was extended twice.  In addition, during this subsequent phase of the technical assistance, the consultants are reformulating some aspects of the methodology used before updating the Highway Investment Plan. 3.13 The impact of the technical assistance to transport planning has been mixed. On the one hand, a land transport planning institution has been established, with planning and policy analysis benefiting substantially from the introduction of economic analysis methodologies and a more systematic collection and analysis of data. DPCT staff have benefited from the on-the- job training received and now form a core group of prepared professionals. On the other hand, however, DPCT has not been successful in fully integrating with the rest of MOP. MOP has tended to view DPCT as an autonomous agency, and DPCT's investment planning efforts have not been utilized in MOP's annual investment programing exercises. Under the Sixth Highway Project, efforts are being made to strengthen the internal links between DPCT and the rest of the Ministry. The creation of a Sub-Secretariat of Transport (para 3.11) would be a positive step in this effort since DPCT would constitute the core Technical Directorate within the Sub-Secretariat. Technical Assistance to the Construction Industry 3.14 The technical assistance for the construction industry, by the same Argentine firm referred to in paragraph 3.09, was started in July 1978 and completed in February 1980, at a total cost of US$120,000. Six courses offered on construction subjects (three in Quito, two in Guayaquil and one in Cuenca) were attended by a total of 300 engineers from MOP and local con- tractors. Several important construction jobs were systematically visited throughout a year to monitor construction techniques and production, work organization, quality of works and supervision, payment procedures and MOP/contractor relationships. 3.15 The consultants presented a Final Report, dated May 1980, with the following main recommendations: (a) creation of a national register of contractors; (b) simplification of bidding procedures; (c) establishment of a general price escalation formula; (d) organizational improvements of MOP's Construction Directorate; and (e) continuity in road construction programs. Except for the recent establishment of a price escalation formula (para 4.02), these recommendations have still not been implemented. The technical assistance succeeded in strengthening MOP's works supervision capability and the administration and execution capabilities of the construction industry, which were put to test during the period of the assistance and thereafter by expanded road construction and rehabilitation programs.  - 10 - Puerto Ila-Garrapata Rural Study 3.16 The study of rural development in the Puerto Ila-Garrapata area by an Ecuadoran/Colombian joint venture was completed in June 1979 and resulted in the appraisal of the Puerto Ila-Chone Rural Development Project (Loan 1992-EC, US$20 million, signed November 24, 1981), comprising construction or improvement of 215 km of feeder roads. Additionally, 48 km of feeder roads in the Puerto Ila-Doblones area are being constructed under the Fifth Highway Project. The final cost of this study was US$680,000, about 8% below the cost estimated at appraisal. Project Coordination 3.17 Because of the complex character of, the technical assistance ele- ments and the possibility for overlapping in the work of the consultants con- tracted to implement them, the Bank considered the hiring of a qualified project coordinator to be critical. After rejecting three candidates infor- mally proposed by the Bank (at MOP's request), MOP hired an Ecuadoran who resigned in December 1977, four months after he initiated his activities. MOP proposed one of its employees as a replacement, and, in order to prevent further delays, the Bank gave its qualified agreement. The new project coor- dinator was restricted to administrative matters and did not adequately address the coordination of certain technical problems common to at least three of the programs, such as: (a) road inventories, road condition studies and technical classifica- tion; (b) estimates of traffic volumes; (c) vehicle operating costs, and road construction and maintenance costs; and (d) future expenditure levels in the highway subsector. This resulted in overlapping of consultants and counterpart activities, unnecessary additional costs and, in some aspects, contradictory recommenda- tions offered by the different consultants. The final cost of the coordina- tion was US$60,000, compared with the US$610,000 estimated at appraisal. The reason for this important difference is the fact that MOP hired a local coordinator, rather than the envisaged foreign one, at a salary comparable to that of the local civil servants. IV. COST ESTIMATES AND DISBURSEMENTS 4.01 A comparison between appraisal and final cost estimates (including contingencies) is shown in Table 1. The final cost of the project was about US$25.4 million, 21% above the appraisal estimate, including normal contin- gencies. This increase was caused mainly by the fact that foundation problems in the construction of the Babahoyo-Balzapamba road (para 3.03) brought about an increase in the estimated final costs of the civil works of 56% above that of appraisal, which more than offset the decline' in the cost  - 11 - of most of the technical assistance elements of the project. The final cost of the civil works averaged US$409,800 per km. Supervision amounted to about 5% of the construction cost. 4.02 Although the project was physically completed in January 1982, the final cost of the civil works cannot be established precisely because of difficulties developed in the application of the polynomic formula for price escalation contained in the Loan Agreement (Annex to Schedule 4). MOP claimed that the use of the minimum wage as a proxy for labor costs exaggerated price increases. Nevertheless, MOP started payments of price escalation for 1979 through 1981 to the contractors according to the contractual formula. These payments had not, been approved by the Contraloria of Ecuador. A law on price escalation for all civil works contracts was signed on March 24, 1983, approving a polynomic formula similar to the one used for civil works under the loan. The law also orders all pending claims based on previous formulas to be paid. This settles the dispute, and MOP will duly cancel the outstanding price escalation payments. 4.03 Disbursements lagged behind appraisal estimates from the start, as can be seen in the following table, which reflects the initial slow start in implementing all project elements as well as the considerable delay suffered during the road construction. The loan was fully disbursed in September 1982. Disbursements (million of dollars) Appraisal Actual as % of FY Estimates Actual Appraisal 1977 3.8 0 0 1978 7.8 1.4 18 1979 10.5 4.0 38 1980 10.5 6.8 65 1981 10.5 9.3 88 1982 10.5 10.2 97 1983 10.5 10.5 100  - 12 - 4.04 The allocation of loan proceeds has been revised twice, as shown below. ------------Revisions----------- 1st 2nd Final Categories Original (3/3/78) (1/16/81) (9/21/82) I. Civil Works 4,600,000 4,600,000 5,596,000 5,659,307 II. Consultant Services (a) Design and supervision of Part A of the Project 600,000 600,000 500,000 467,137 (b) Technical assistance for Parts B, C, and E of the Project (including coor- dination of the Project) 3,400,000 3,400,000 3,900,000 3,892,782 (c) Technical assistance for Part D of the Project 100,000 100,000 123,300 123,300 (d) Technical assistance for Part F of the Project 300,000 380,700 380,700 357,474 III. Unallocated 1,500,000 1,419,300 - - Total 10,500,000 10,500,000 10,500,000 10,500,000 4.05 The Closing Date was extended twice: from the original date of December 31, 1979 to December 31, 1981 and then to December 31, 1982. The loan was closed on September 21, 1982. V. ECONOMIC REEVALUATION 5.0i Benefits were not quantified for the technical assistance component of the project; however, in retrospect, the massive effort was overdesigned for MOP's absorptive capacity and was further hampered by the inadequacy of coordination and of the counterpart staff. A qualitative reevaluation of each type of assistance is included in the description paragraphs of Chapter III preceding. 5.02 The Babahoyo-Balzapamba road improvement was justified at appraisal on the basis of: (a) reduced vehicle operating costs and passenger time savings; and (b) reduced road maintenance costs.  - 13 - The appraisal estimated an ERR 8/ for civil works of 14%, while an ex-post economic reevaluation resulted in an estimated ERR of 20%. The significant difference between the estimated ex-ante and ex-post ERRs can be explained by an underestimation of normal and generated traffic growth (para 5.03) and by the anticipated traffic diversion that was not expected at the time of appraisal (para 5.05). These extra benefits were only slightly offset by the real cost increases due to the embankment problem and the ensuing delays in completing the civil works (para 3.03). In real terms, the estimated final cost of the project is 27% above the appraisal estimate. Inasmuch as the price escalation polynomic formula (para 4.02) overestimates the real cost of the project, the calculated ERR is a conservative one. 5.03 In 1974, traffic volumes on the road between Babahoyo and Balzapamba varied from 830 vehicles per day in the Babahoyo bypass to 230 vehicles per day in the Montalvo-Balzapamba section. The appraisal economic evaluation was performed under the assumption of an overall traffic growth rate of 8% per year until 1986 and of 6% thereafter. Current traffic counts show that the actual average traffic growth rate on the project road was 14.7%. This high traffic growth rate reflects the heavily subsidized fuel prices as well as the strong performance of the Ecuadoran economy, shown by a growth rate of the real Gross National Product of about 6% per annum for the period 1975-1980. 9/ The reevaluated ERR was calculated under the more conservative assumption of traffic growing at a rate of 7% until 1986 and 6% thereafter. The expectation of declining traffic growth rates is based on the assumption that the price of fuel in Ecuador is going to increase gradually until it reaches international levels. 10/ 5.04 The 49-km Babahoyo-Balzapamba road is part of the trunk road system of Ecuador and, specifically for traffic between Quito and Guayaquil, is part of an alternate route which leaves the main road (the Pan American Highway) at Ambato, some 100 km South of Quito, and then proceeds through Balzapamba and Babahoyo to join the main road again between Milagro and Duran, close to Guayaquil. The route through Babahoyo is the more direct communication between Ambato and Guayaquil, but, at the time of the appraisal, its condi- tion was very variable (from good and paved, on some sections south of Babahoyo, to very poor, between Babahoyo and the Pan American Highway at Ambato). Because of this variation in conditions, traffic between Quito and Guayaquil stayed on the longer routes through Santo Domingo or through Rio Bamba. 5.05 The improvement of the Babahoyo-Ambato road beyond Balzapamba, where it climbs the Andes to Ambato, was considered uncertain at the time of the appraisal. Since then, the larger than expected traffic growth 8/ Economic Rate of Return. 9/ Source: International Financial Statistics. IMF, April 1982. 10/ The Government raised the price of gasoline in March 1983. Still, a weighted average of petroleum derivative prices in Ecuador is 54% of current international prices. The retail prices of regular and premium gasoline are US$0.71 and US$0.95 respectively.  - 14 - (para 5.03) made the improvement of the Balzapamba-Ambato road economically feasible. The expected completion in 1984 of the last section of the Balzapamba-Ambato road in need of improvement will place the project road in an alternative Quito-Guayaquil corridor expected to save a diverted vehicle 35 km of the Quito-Guayaquil trip. Although the project road would have been economically viable without the traffic diversion derived from the improvement of the Babahoyo-Ambato road, its inclusion represents a substantial normal traffic increase in the project road fundamental in explaining the important difference between the ex-ante and ex-post estimated ERRs. VI. PERFORMANCE OF THE BORROWER 6.01 The performance of the Borrower was mixed. The main causes for occasional less-than-satisfactory performance by MOP were: (a) discontinuity in the staff assignments. The project was imple- mented under five General Directors of Public Works with frequent changes in managerial staff; and (b) a chronic shortage of qualified technical personnel, due to government salaries substantially below those paid by the private sector. 6.02 There were frequent delays by the Borrower in processing payments to contractors and consultants. These delays resulted from the Borrower's overly complex procedures and documentation, particularly in the Ministry of Finance. 6.03 In the case of the embankment problem (para 3.03), the Borrower did not comply with the Bank's recommendations, causing further delays in the completion of the civil works and increased costs. 6.04 The Borrower's compliance with the major Loan Covenants was good, except for Section 4.04 (b) of the Loan Agreement, which obligated MOP to create, maintain, and operate an agency for planning and coordinating all modes of transport. As explained in paragraph 3.11, this objective was not achieved. VII. ROLE OF THE BANK 7.01 The Bank contributed significantly to project identification and preparation via its participation in the financing Consortium and the Sector Mission of 1974 (para 2.01). During the execution of this project, the Bank provided some essential continuity in view of Government changes. The scope and size of this, the Fourth Highway Project, were probably beyond MOP's ad- ministrative capability; this limitation was exacerbated by the poor project coordination, which did not prevent wasteful duplication of assignments to the already scarce technical personnel acting as counterpart staff for the consultants in charge of the different technical assistance assignments.  - 15 - 7.02 The number and timing of supervision missions were appropriate for project needs, and good relations with the Borrower were maintained through- out the project period. The Rank is continuing to provide essential tech- nical assistance to MOP under the two followup projects presently being implemented. VIII. CONCLUSIONS 8.01 The institution-building aspect of the project had some success even when, as discussed throughout the report, accomplishments fell short of appraisal expectations. These expectations were undoubtedly overly optimis- tic. Nevertheless, the Fourth Highway Project did achieve, to a considerable extent, its main objectives: MOP's capabilities were substantially strength- ened in the areas of highway design, economic analysis and programing and implementation of maintenance activities. It is in the area of transport planning that the main objective - the integration of all transport modes through the creation of a Transport Planning Unit - was not achieved. Never- theless, the groundwork laid during the project, although limited to the highway subsector, should represent, in the medium run, a considerable benefit to Ecuador's transport sector. The project was successful in upgrad- ing the Babahoyo-Balzapamba road with an overall estimated ERR above that expected at appraisal. 8.02 The main lesson to be learned from this project is that the Bank must avoid being too optimistic about the Borrower's absorptive capacity when it finances massive infusions of technical assistance. The project emphasizes the importance of a patient and supportive attitude by the Bank in assisting Borrowers through changing political and administrative circum- stances, such as the frequent changes in the highway administration and the lack of qualified counterpart staff resulting from low Government salaries. It also highlights the benefits to the Borrower of a long-term view and participation in the sector, such as, in this case, carrying out two followup projects.  - 16 - TABLE 1 ECUADOR FOURTH HIGHWAY PROJECT (LOAN 1231-EC) PROJECT COMPLETION REPORT Comparison Between the Appraisal and Final Cost Estimates Total Cost Estimates Increases or Appraisal Final Decreases (US$ millions) A. Civil Works 12.53 19.53 + 56% B. Supervision of A 0.98 1.04 + 6% C. Technical Assistance (i) Highway maintenance program 2.21 1.62 - 27% (ii) Highway engineering and feasibility studies 2.33 1.11 - 52% (iii) Transport planning and coordination 1.48 1.25 - 18% (iv) Construction industry 0.12 0.12 0% (v) Rural development 0.74 0.68 - 8% (vi) Project coordination 0.61 0.06 - 90% Sub-total 7.49 4.84 - 35% Total Project 21.00 25.41 + 21% Loan 10.50 10.50 Bank participation 50% 41% / As of March 31, 1982.  - 17 - ANNEX Page 1 of 2 REPUBLICA DEL ECUADOR MINISTERIO DE OBRAS PUBLICAS Y COMUNICACIONES Of. No. 048-c.E-BIRF Quito, marzo 29 de 1983 Senior Shiv S. Kapur DIRECTOR OPERATfONS EVALUATION DEPARTAMENT Banco Mundial 1818 H. Street N.W. Washington D.C, 20433 U.S.A. Ref.; Informe IV Proyecto Vial Estimado senor Kapur: En contestaci6n a su atenta comunicact6n de 24 de marzo/83, referente al IV Proyecto de carreteras, debo indicar a usted lo - siguiente: Esta oficina conjuntamente con las varias Unidades Ejecuto ras de este Ministerio, han analizado el informe de evaluaci6n so bre los varios proyectos incluidos en el IV Proyecto de carrete - ras Prestamo 1231-EC, y concuerdan totalmente con el mismo. En cuanto a la Coordinaci6n se tomar3n en cuenta las reco - mendaciones que sobre el particular se hacen en su informe de eva luaci6n y se la est3 reforzando en los aspectos tecnico, adminis- trativo y financiero, con el fin de dar total cumplimiento a los Convenios de Prestamo vigentes con el Banco, uate ng. i Hidalgo A. COORDtNADOR PROYECTOS VFALES ECUADOR-BIRF  - 18 - ANNEX Page 2 of 2 UNOFFICIAL TRANSLATION MINISTRY OF PUBLIC WORKS AND COMMUNICATIONS Quito, March 29th,1983 Dear Mr. Kapur: In answer to your letter of March 24th, 1983 regarding the Fourth Highway Project, I would like to indicate the following: This office, together with the various Executing Units of this Ministry, have analyzed the Project Completion Report for the Fourth Highway Pro- ject and fully agree with it. The recommendations that the Report makes regarding coordination will be taken into account . T echnical, administrative and financial as- pects are currently being strengthened in order to comply with the Loan Agreements made with the Bank. Sincerely, signed by: Ing. Luis Hidalgo A. Coordinator Highway Projects Ecuador - IBRD  IBRD 16472(PCR) MAY 1982 E C U A D O R v