Argentina - Third and Fourth Highway Project

Document of The World Bank FOR OFFICIAL USE ONLY Report No. 10254 PROJECT PERFORMANCE AUDIT REPORT ARGENTINA THIRD AND FOURTH HIGHWAY PROJECTS (LOANS 734-AR AND 1384-AR) DECEMBER 31, 1991 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. CURRENCY EOUIVLNS Currency Units - Peso (P), Austral (A$) Exchange Rates xA Pesos er._USS Australes Per US 1970 (Appraisal Year, Highway III) 4.0 1971-74 5.0 1975 60.9 1976 (Appraisal Year, Highway IV) 274.5 1977 597.5 1978 1,003.5 1979 1,618.5 1980 (Completion Year, Highway III) 1,819.5 1981 .4 1982 2.6 1983 10.5 1984 67.6 1985 601.8 1986 (Completion Year, Highway IV) 943.0 ABBREVIATIONS AND ACRONYMS DNV - Direcci6n Nacional de Vialidad (National Directorate of Highways) ERR - Economic Rate of Return FY - Fiscal Year km - Kilometer NTP - National Transport Plan OED - Operations Evaluation Department PCR - Project Completion Report PPAR - Project Performance Audit Report SAR - Staff Appraisal Report FISCAL YEbAR January 1 to December 31 FOR OFFICIAL USE ONLY THE WORLD BANK Wash:ngton, D.C. 20433 U.S.A. Oike of DioectOr*CeneraI Operatms Ivakiaun December 31, 1991 MEMORANDUM TO THE EXECUTIVE DIRECTORS AND THE PRESIDENT SUBJECT: Project Performance Audit Report on Argentina Third and Fourth Highway Projects (Loans 734-AR) and 1384-AR) Attached, for information, is a copy of a report entitled "Project Performance Audit Report on Argentina - Third and Fourth High,iay Projects (Loans 734-AR and 1384-AR)" prepared by the Operations Evaluation Department. Attachment 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 ARGENTINA THIRD AND FOURTH HIGHWAY PROJECTS (LOANS 734-AR and 1384-AR) TABLE OF COMTENTS Page No. Preface....................................................... Basic Data Sheet..............................................i11 Evaluation Summary................................... ...... x I. BACKGROUND ................................ .......1..... A. Genesis of the Third Highway Project ............. 1 B. Preparation, Appraisal and Negotiations of Third Highway Project ............................ 1 C. Genesis of the Fourth Highway Project ............ 2 D. Preparation, Appraisal and Negotiations of Fourth Highway Project ............................ 2 II. PROJECT IMPLEMENTATION ................................. 2 A. Road Construction of the Third Highway Project.... 2 B. Road Construction of the Fourth Highway Project... 3 C. Preparation of National Transport Plan............ 3 D. Special Studies of the Fourth Highway Project..... 4 III. RESULTS............................................... 4 A. Improvement of Highway Facilities................. 4 B. Project Costs..................................... 5 C. Traffic Development on Improved Highways .. 5 D. Economic Returns........................ .......... 5 E. Strengthening of Sectoral Institutions............ 6 F. Sustainability....................... .. .......... 6 G. Lessons Learned....................... . .......... 7 H. Recommendations.................................. 7 ATTACHMENT: Comments from the Borrower .. 9 IBRD 3157R IBRD 21540 This document has a restricted distribution and may be used by recipients only in the performance of their officirl duties. Its contents may not otherwise be disclosed without World Bank authorization. PROJECT PERFORMANCE AUDIT REPORT ARGENTINA THIRD AND FOURTH HIGHWAY PROJECTS (LOANS 734-AR and 1383-AR) PREFACE i. This is the Project Performance Audit Report (PPAR) of two closely related highway projects. The Third Highway Project (734-AR) involved a Bank loan in the amount of US$67.5 million to the Argentine Republic for the purpose of upgrading key sections of the country's highway network. The loan was approved on March 3O, 1971. The Closing Date of December 31, 1974 was extended to December 31, 1979. Final disbursement was made on June 14, 1979. ii. The Fourth Highway Project (1384-AR) involved a Bank loan of US$105.0 million to the Argentine Republic for the purpose of improving various sections of the highway network, improving national transport planning and carrying out certain studies designed to strengthen the National Directorate of Highways (DNV). The loan was approved on March 22, 1977 and became effective December 13, 1977. The Closing Date of June 30, 1981 was extended to December 31, 1985. Final disbursement was made on February 25, 1987 at which time the balance of the loan, US$0.3 million, was canceled. iii. The PPAR is based on the Project Completion Reports (PCR) prepared by the Latin America and the Caribbean Regional Office, the loan documents, the transcripts of the Executive Directors' meetings at which the projects were considered, a study of Bank files and discussions with Bank staff. An OED mission visited Argentina in July 1991 and discussed the effectiveness of the Bank's assistance with the Ministry of Eccnomy and the National Directorate of Highways. Their close cooperation and valuable assistance in providing information for this report is acknowledged. iv. The two PCRs' for the projects provide detailed accounts and assessment of the project experience. This Audit Report supplements the PCRs and highlights aspects of the project experience such as (1) the adaptability of DNV and its contractors in completing road improvements in the face of extremely difficult economic and financial conditions and (2) the limited impact of the national transport planning component of the Fourth Highway Project. In addition, the Audit has reviewed and updated the ex post economic rates of return of both projects. Project Completion Report, "Argentina: Third Highway Project", Loan Number 734-AR, Report Number 4341, March 1983 and Project Completion Report, "Argentina: Fourth Highway Project", Loan Number 1384-AR, Report Number 8211, December 11, 1989. ii v. Following standard OED procedures, copies of the draft PPAR were sent to the Borrower for comments. The comments received are attached. PROJECT PERFORMANCE AUDIT REPORT ARGENTINA THIRD AND FOURTH HIGHWAY PROJECTS (LOANS 734-AR and 1384-AR) BASIC DATA SHEET (A) Third Highway Project KEY PROJECT DATA Appraisal Actual or Item Expectation Current Estimate Total Project Cost (US$ mtllion) 150.0 215.0 Cost Overrun (%) 43 Loan Amount (US$ million) 67.5 67.5 Disbursed as of May 27, 1980 67.5 Canceled 0 Repaid as of May 31, 1991 41.1 Outstanding as of May 31, 1991 23.9 Project Completion Date 12/73 6/80 Proportion Completed by above Date (%) 100 20 Overall Economic Rate of Return (%) 21 15' Institutional Farformance Satisfactory CUMULATIVE ESTIMATED AND ACTUAL DISBURSEMENTS (US$ million) FYZ.1 71 2 2 FY74 1 EY76 FY77Ei Y7 2 Appraisal Estimate 0.5 19.5 43.5 65.5 67.5 Actual 0 0 8.6 21.9 33.1 38.1 45.3 56.6 67.5 Actual as % of Appraisal 0 0 19.8 33.4 49.0 The corresponding PCR estimate, made in 1983, was 17%; see para. 3.04. iv STAFF INPUTS (Staff Weeks) rZ EZ. FZA EM Z Y7A EM E0 E81 Ital Preappraisal' Appraisal3 Negotiation' Supervision 5.9 2.6 1.8 16.1 2.4 6.2 3.9 6.8 2.8 15.4 63.9 Total 5.9 2.6 1.8 16.1 2.4 6.2 3.9 6.8 2.8 15.4 63.9 ISSION DAA No. of Man Mission Perform Type of item Mo/Yr Persons Weeks Composition Rating Problems Preparation 02/70 1 3 EN Appraisal 04/70 3 13 EN EN EC Post Appraisal 07/70 2 3 EN EC Post Appraisal 09/70 2 3 EN EC Post Appraisal 11/70 1 1 EN Negotiation 02/71 1 1 EC Supervision 03/71 2 6 EC EC Supervision 06/71 1 1 EN Supervision 10/71 1 3 EN Supervision 01/72 2 3 EN EC Supervision 06/72 1 3 EN Supervision 10/72 1 2 EN Supervision 05/73 2 6 EN EC Supervision 06/74 2 6 EC LO 2 Supervision 10/74 4 13 EN EN EC EC 2 F T Supervision 04/75 3 15 EN EN EC 2 F M T Supervision 07/76 3 6 EN EN EC 2 M Supervision 05/77 2 3 EN EC 2 M Supervision 10/77 2 2 EN EC 2 F M Supervision 05/78 2 1 EN EC 2 F M Supervision 03/79 1 2 EN 2 F T Supervision 06/79 1 2 EN 2 F T Supervision 09/80 2 1 EN EC Key: Mission Composition: EN - Engineer; EC - Economist; LO - Loan Officer Performance Rating: 1. Problem-free or minor problems; 2. Moder&te problems; 3. Major problems. Type of Problems: F - Financial; M - Managerial; T - Technical. Data for pre-appraisal, appraisal and negotiation are not available. V PROJECT DATES Lta Original Plan Actual First Mention in Files 11/69 Negotiations 10/70 11/70 and 2/71 Board Approval 1/71 3/30/71 Loan Agreement Date 5/5/71 Effectiveness Date 9/3/71 Closing Date 12/31/74 12/31/79 OTHER PROJECT DATA Borrower The Argentine Republic Executing Agency National Directorate of Highways FOLLOW ON PROJECT Loan Amount Date of Proiect Number (USSmillions) Agreement rourth Highway Project 1384-AR 105.0 5/16/77 vi (B) Fourth Highway Project KEY PROJEqTA Appraisal Actual or um EXpectatio Current Estimate Total Project Cost (US$ million) 345.1 396.7 Cost Overrun (%) 15 Loan Amount (US$ million) 105.0 Disbursed as of February 20, 1987 104.7 Canceled 0.3 Repaid as of May 31, 1991 94.0 Outstanding as of May 31, 1991 8.7 Project Completion Date 6/30/81 12/31/85 Proportion Completed by above date (%) 50 Overall Economic Rate of Return (%) 23 22 Institutional Performance Satisfactory CUMULATIVE ESTIMATED AND ACTUAL DISBURSEMENTS (US$ million) E XA E8 . E=Z81 FY83 Y84 FY85 FY86 EL.Z Appraisal Est. 24.4 55.5 101.2 105.0 Actual 0.1 0.6 20.7 44.7 48.7 65.8 70.1 79.1 96.1 104.7 Actual as % of Appraisal Negl. 1.1 20.4 42.6 STAFF INPUT (Staff Weeks) ZZ EYZ FY74 Y2. Z Z =ZA . FY80 Preappraisal 6.7 2.2 1.9 1.3 Appraisal 15.5 14.6 .5 24.3 10.3 57.9 Negotiation 4.0 6.6 Supervision 5.9 38.6 13.3 8.8 Other .4 2.2 13.5 Total 22.2 14.6 2.7 24.7 18.4 85.2 38.6 13.3 8.8 vii STAFF INPUT (Staff Weeks) .1 . Em E. E =182 EJ= EM 2 Intal Preappraisal 12.0 Appraisal 123.3 Negotiation 10.6 Supervision 8.8 5.5 8.8 10.8 3 3.9 4.0 13.2 .5 131.5 Other 16.1 Total 8.8 5.5 8.8 10.8 9.3 3.9 4.0 13.2 .5 293.4 No. of Man Mission Performance Type of LU Mo/Yr Persons ees Com2osition Rating Problem Through 01/72 3 11 EN EC EC 1, 2 Appraisal 06/72 1 2 EN 3 12/72 1 1 EC 05/73 2 2 EN EC 04/75 3 7 EN EN EC 1, 4 07/76 4 17 EN EC EC EC 3, 5 Board Approval 05/77 1 1 EC 6, 7 Through 05/77 2 2 EN EC 1 Effectiveness 06/77 1 1 EC 1 08/77 3 8 EN EC EC 7 10/77 1 1 EN 2 6 02/78 3 8 EN EC EC 6 Supervision 05/78 3 3 EN EN EC 2 8 Supervision 08/78 3 1 EN EC CONS Supervision 10/78 2 1 AG CONS Supervision 12/78 2 4 EN EC 2 6 Supervision 02/79 1 2 EN 2 6 Supervsion 03/79 1 1 AG Supervision 04/79 1 1 EC Supervision 06/79 1 2 EN 2 6 Supervision 07/79 1 1 AG Supervision 08/79 1 1 EN 2 6, 8 Supervision 10/79 1 1 EC Supervision 11/79 7 20 EN-3 EC-4 7 Supervision 12/79 1 2 EN 2 6, 8 Supervision 03/80 1 1 EC Supervision 04/80 1 1 EC Supervision 04/80 1 4 EC Supervision 09/80 2 8 EN EC 7 Supervision 12/80 4 3 EN EC FA EC 6 viii MISSION DATA (Cont.) Supervision 01/81 2 1 EN EC 2 Supervision 02/81 1 2 EC Supervision 05/81 6 13 EC-2 EN-3 FA 7 Supervision 06/81 2 1 EN EC 2 6 Supervision 10/81 2 1 EC EC 6 Supervision 12/81 1 1 TS Supervision 08/82 2 1 EN EC 2 6 Supervision 12/82 2 1 EN EC 6 Supervision 03/83 2 1 EN EC 2 6,9 Supervision 07/83 1 1 EC Supervision 09/83 3 2 EN EN EC 2 8 Supervision 03/84 2 4 EN EC 2 9,10 Supervision 07/84 2 2 EN EC 2 Supervision 11/84 1 2 EN 2 6,8,11 Supervision 05/85 1 3 EN 2 10 Supervision 03/86 1 3 EN 11 Supervision 07/86 2 7 EN EC 9,11 Supervision 11/86 2 2 EN EC 2 10,11 Key: Mission ComRosition: EN - Engineer; EC - Economist; FA - Financial Analyst; Cons - Consultant; TS - Transport Specialist; AG - Agronomist. Performance Rating: 1. Problem-free or minor problems; 2. Moderate problems; 3. Major problems. Types of Problems: 1. "Buy Argentina law" and hiring of consultants; 2. Need for sectoral development office; 3. Requested changes in project composition; 4. Price adjustment clauses for civil works contracts; 5. Government macro-economic problems; 6. Financial (local funding); 7. Administrative and/or technical problems with National Transport Plan; 8. Managerial; 9. Disbursement at historic rates; 10. Completion schedule; 11. Development impact. PROJECT DATES Item Original Plan Actual First Mention in Files 1/26/72 Negotiations 9/75 11/25-26/75 & 2/3-11/77 Board Approval 1/77 3/22/77 Loan Agreement Date 5/16/77 Effectiveness Date 12/13/77 Closing Date 6/30/81 12/31/85 ix OTHER PROJECT DATA Borrower The Argentine Republic Executing Agency National Directorate of Highways FOLLOW ON PROJECT Loan Amount Date of Proect Number (US$ million) Agreement Highway Sector Project 2296-AR 100.0 1/25/84 x PROJECT PERFORMANCE AUDIT REPORT ARGENTINA THIRD AND FOURTH HIGHWAY PROJECTS (LOANS 733-AR and 1677-AR) EVALUATION SUMMARY 1. Introduction During the 15 years that the This project loan was closed on Third and Fourth Highway Projects December 31, 1985, four and a half were carried out, Argentina years behind schedule. experiencel turbulent economic and political conditions, particularly 2. Objectives hyperinflation, which caused daunting problems for the contractors, the The objectives of the two executing agency and the borrower. projects were as follows: Nevertheless, project results were reasonably good. The National The principal objective of the Transport Plan, financed under the Third Higiway Project was to Fourth Highway Project, was prepared finance upgrading or satisfactorily but unfortunately it construction of 1,128 km of has not subsequently been utilized roads (para. 1.1). extensively by transport authorities as a planning guide. Bank lending The main objective of the for the Argentine transport sector Fourth Highway Project was began in 1961 with the First Highway similar to that of the Project, followed in 1969 by the preceding one; it aimed at Second Highway Project. Under the completing 1,250 km of roads. latter, the Third Highway Project was An additional important identified. This PPAR is concerned objective of the Fourth Project with two highway projects in was to strengthen certain Argentina: institutions of the transport sector; in particular, the - The Third Highway Project was project was to improve approved by the Board in 1971 sectoral planning and with a loan of US$67.5 million. strengthen the Directorate of The Bank loan for this project National Highways (DNV) based was closed on December 31, on special studies in the 1979, five years behind project (para. 1.4). schedule. 3. Implementation Experience - The Fourth Highway Project was approved by the Board in 1977 Civil Works. Under both vith a loan of US$105 million, projects, contracts were awarded on the basis of international competitive bidding and only Argentine firms won contracts. xi During project execution, extreme 4. Results inflation caused many problems for contractors; as a result, some Following are the principal contracts were renegotiated or results of the project: retendered. The work of some contractors was halted at times and - The two highway projects restarted. Payments to contractors provided Argentina with a were delayed in many cases. The substantially improved highway civil works were completed network, 2,791 km of highways satisfactorily as follows: being improved; these roads represent 14% of the paved road - Third Highway Project completed network in 1970. In recent in 1980, about 5 years behind years, the economic importance schedule (para. 2.1). of the road network has increased significantly as the - Fourth Highway Project market share of road completed in 1985, almost 5 transport, in both freight and years behind schedule (para. passenger traffic, has risen 2.2). (para. 3.1). Studies and Technical - The actual costs of each of the Assistance. Studies completed under two projects exceeded appraisal the Fourth Highway Project were the estimates by 41% and 15%, following: respectively, for the Third and Fourth Highway Projects (para. - The preparation of a National 3.2). Transport Plan was carried out by the Directorate for National - Road traffic estimates on Transport Planning (NTP) with reevaluation were somewhat the assistance of several lower than forecast at consulting firms (para. 2.3). appraisal (para. 3.3). The active participation of many Directorate staff members - In reevaluating the economic in this planning effort rates of return of the Third afforded opportunities for Highway Project, the PCR found practical training. an ERR of 17% (compared with appraisal ERR of 21%); the ERR - An acceptable traffic safety was further reduced by the PPAR study was carried out by to 15% based on a still further consultants (para. 2.4). reduction of the traffic estimates (3.4). - A pavement overlay study was completed satisfactorily (para. - In the case of the Fourth 2.4). Highway Project, the PCR found a reevaluated ERR of 22% - An agricultural development (compared with appraisal ERR of study designed to identify road 23%); the PPAR agrees with that needs was not undertaken, reevaluated rate (para. 3.5). however, at the request of Government (para. 2.4). - The Fourth Highway Project had a positive influence on the Directorate for National xii Transport Planning through that elements of the NTP in their agency's involvement with the planning work (para. 3.12). preparation of the National Transport - The Fourth Highway Project Plan, particularly in the training it should have concentrated more provided to many staff members (para. attention on the implementation 3.6). of a road safety program following completion of the - The two projects, particularly road safety report (para. the Fourth Highway Project, 3.13). also strengthened the DNV significantly (para. 3.8). 7. Recommendations - Although a road safety study It is recommended that: was completed, the Government did little toward carrying out - The Bank evaluate carefully the a road safety program (para. benefits from comprehensive 3.8). national transport planning studies and the practicality of 5. Sustainability their being used as basic guidance in transport planning The economic benefits from the (para. 3.14). highway improvements under the two projects are likely to be sustained. - Bank staff assist modal Although road maintenance has agencies in utilizing the NTP, recently deteriorated it is expected insofar as it remains valid to improve under a proposed road and useful, in their transport maintenance project (3.09). planning activities (para. 3.14). 6. Lessons Learned - The Bank support not only the Four lessons learned in the two preparation of studies of road highway projects are that: safety but also the implementation of - Impressive road improvements recommendations in such were achieved, despite studies; in particular, the extremely adverse economic and Bank should support in the next financial circumstances, transport project in Argentina because DNV was a relatively a component to implement a road strong institution during the traffic safety program (para. pe r io d of pro j ec t 3.14). implementation (para. 3.10). - The principal benefit from the costly national transport planning study was the training of local staff (para. 3.11). - Neither the Ministry of Economy nor the Bank was sufficiently aggressive in assisting the modal agencies in utilizing 1 PROJECT PERFORMANCE AUDIT REPORT ARGENTINA THIRD AND FOURTH HIGHWAY PROJECTS (LOANS 734-AR and 1384-AR) I. BACKGROUND A. Genesis of the Third Highway Project 1.01 The first major involvement of the Bank in the Argentine transport sector was in 1961-1962 when it undertook a study of the transport system, the Bank then functioning as the Executing Agency for the United Nations Special Fund. In June 1961, while this study was underway, the Bank made a loan of US$48.5 million for the First Highway Project (Loan 288-AR) primarily to finance major highway construction. In June 1969, the Second Highway Project (Loan 619-AR) was approved with a Bank loan of US$25 million. The latter project was aimed at upgrading 800 km of roads but also included the preparation of a Five Year Highway Investment Program. The latter effort required the carrying out of a reconnaissance study of the non-urban roads comprising the national and provincial road network. The Third Highway Project, identified under the Second Highway Project, ultimately included 18 high-priority road sections representing 1,128 km of roads for upgrading or construction. B. Preparation. Appraisal and Negotiations of Third Highway Project 1.02 While the road reconnaissance study provided the basis for preliminary identification of roads for the Third Highway Project, more definitive feasibility studies and detailed engineering were required and this work was also financed largely under the preceding project. A Bank preparation mission in March 1970 reported favorably on the status of the feasibility studies. Appraisal of the project was carried out in April and May 1970 although at that time considerable detailed engineering remained to be completed. Lacking firm cost estimates, the appraisal team was unable to make a final selection of project roads; a post-appraisal was therefore conducted in September 1970 and the project was more precisely defined at that time. 1.03 Loan negotiations began in November 1970 but were adjourned after three days because the parties were unable to agree on terms of the proposed loan agreement. A Government representative believed certain standard clauses of the proposed agreement restricted Argentina's sovereignty and therefore he wished to consult with officials in Buenos Aires. The other problem was the Bank's proposed 40% participation in financing the estimated US$150 million project cost; the Government considered this percentage unacceptably low. The Bank subsequently agreed to increase its participation to 45%, and acceptable language was agreed for the disputed clauses in the loan agreement. Negotiations were concluded in February 1971 and the loan amounting to US$67.5 million was approved by the Board on March 30, 1971. The loan agreement was signed on May 5, 1971 and the loan became effective on September 3, 1971. 2 C. Genesis of the Fourth Highway Prolect 1.04 In June 1971, the Bank carried out a comprehensive review of Argentina's transport sector, and the Fourth Highway Project was identified at that time, based largely on the road reconnaissance study undertaken under the Second Highway Project but also taking account of more recent studies. A preliminary selection was made of 24 road sections representing about 2,000 km of roads spread over 14 provinces. D. Preparation. Apraisal and Negotiations of Fourth Highway Project 1.05 The principal preparation for the project consisted of feasibility studies and detailed engineering of the roads initially selected. The detailed engineering was financed under the Third Highway Project. In January and February 1972, the project was appraised, the main project elements comprising reconstruction and paving of 15 sections of gravel or earth roads representing about 1,250 km. Processing of the project was suspended by the Bank in early 1973 pending resolution of issues related to management in the transport sector. A decision to revive the project was taken in late 1974 which led to reappraisal and negotiations of the somewhat modified project. Presentation to the Board, however, was postponed because of concern over general economic management issues related to the worsening economic situation in Argentina. After the Government adopted more reasonable economic policies during the second quarter of 1976, the project was reactivated. At that point in time, the Bank and the Government undertook to redefine the project in light of the new priority given to the stimulation of agricultural production and exports. An updating and expansion of the project was initiated during the reappraisal mission of July 1976. Further project preparation was required, however, and this was not completed until November 1976. Negotiations were completed in February 1977 and the Board approved the loan on March 22, 1977. The loan agreement was signed on May 16, 1977 but did not become effective until December 13, 1977 because of delays in Government complying with conditions of effectiveness including particularly the issuance of a decrre exempting the project from the "Buy Argentina Law." 1.06 While the primary objective of the Fourth Highway Project, as in the case of the preceding project, was to carry out an extensive road betterment program, the Fourth Highway Project also aimed at strengthening certain institutions of the transport sector. In particular, the project was to improve sectoral planning through the financing of a national transport plan and, in addition, to strengthen DNV (National Directorate of Highways) based on certain special studies. II. PROJECT IMPLEMENTATION A. Road Construction of the Third Highway Project 2.01 Civil works on the 18 road sections of the Third Highway Project were initially subdivided into 29 contracts for international competitive bidding; all the contracts, however, were awarded to Argentine firms, contractors of an extensive and competitive local construction industry. Construction proceeded 3 reasonably well from 1971 through most of 1974; beginning in the latter year, political and economic turmoil made it extremely difficult for the contractors to continue work. Especially troublesome was the high rate of inflation, from 20% to 250% per year, which sharply increased contractor costs. Moreover, restrictions imposed on imports of equipment and spare parts made it nearly impossible to obtain such essential items. Contractors were also handicapped by an escalation formula in their contracts incorporating an unfavorable exchange rate. Labor troubles including strikes added to the contractors' problems. Meanwhile, DNV payments to contractors became six months to a year in arrears following the diversion of road user revenues to general Government expenditures. In these circumstances, prevailing between late 1974 and early 1976, construction work on many road sections was either slowed or stopped. Conditions improved after a new Government came to power in 1976 and project work resumed at a more or less normal pace around November of that year. Because of inflation, work stoppages, and payment delays, however, all contracts were either renegotiated or rescinded and retendered. Between 1976 and 1980, much of the project civil works was accomplished. Despite all the problems encountered by DNV and its contractors, the works were completed in 1980 and the quality of construction was satisfactory. B. Road Construction of the Fourth Highway Project 2.02 Construction works under the Fourth Highway Project might have begun in early 1978 as the loan became effective on December 31, 1977; however, the works did not begin until the second half of 1979. The principal reason for this long delay was that the Government adopted a policy of restraining public expenditures and giving priority to the completion of ongoing civil works. Had the restraint been lifted, however, there is some question whether the local contracting industry had the capacity to absorb the additional work; if not, some foreign contractors might have participated in the works although the local economic climate was not very attractive. In the event, all contractors were Argentine and the works began on a limited scale in late 1979. Initially, the betterment works proceeded reasonably well despite numerous design changes during construction and adverse weather and other problems which accounted for some delays. In February 1982, DNV ordered contractors to reduce the pace of work because of budgetary limits imposed on the agency by central Government authorities. This financial limitation, along with the continuing burden of inflationary pressures on contractor costs, caused severe hardship for many contractors. Contracts were renegotiated in some cases while several contractor firms failed. A number of works were retendered after long delays. Nevertheless, the project civil works were completed satisfactorily in December 1985. The completion date was four and a half years later than was estimated at appraisal. C. Preparation of the National Transport Plan 2.03 The government of Argentina created the Directorate for National Transport Planning in 1977, with the strong support of the Bank, and this agency had the responsibility for implementing the preparation of the National Transport Plan (NTP), an element of the Fourth Highway Project. The Directorate engaged a number of consulting firms to carry out the study with the assistance of local staff. The involvement of so many consulting firms led to some 4 difficulty in coordination of their individual efforts. Some lack of cooperation between modal agencies and the Directorate was evidenced but it did not seriously affect the results. The draft NTP was carefully reviewed in the Bank and the final report reflected many changes recommended by Bank staff. The active participation of Directorate staff throughout the preparation of the Plan involved considerable practical training of local staff. In addition, some training was provided by the Economic Development Institute. D. Special Studies of the Fourth Highway ProJect 2.04 The traffic safety study was carried out for DNV by a consortium of three Argentine firms over a nine month period; their report was issued in March 1980 and was found acceptable; an action plan was thereafter prepared but was not implemented. A pavement overlay study, though late in starting, was conducted by consultants initially on the basis of a limited scope and later, at the direction of DNV, the scope of this useful study was extended to the entire national network. Another study in the Fourth Highway Project, designed to identify developmental roads within the context of agricultural development, was canceled at the request of the Government which did not consider it a high priority. 2.05 The Bank sent 17 supervision missions to Argentina over a period of approximately 9 years to supervise the Third Highway Project, or an average of about 2 missions per year; this is a reasonable frequency. In the case of the Fourth Highway Project, 36 supervision missions were sent over a period of about 4 years, or an average of about 9 missions per year; this relatively high frequency of supervision missions is explained largely by the Bank decision to keep in particularly close touch with the preparation of the National Transport Plan. III. RESULTS A. Improvement of Highway Facilities 3.01 The two highway projects provided Argentina with a significantly improved highway network. The total length of roads improved amounted to 2,791 km, of which 1,127 km were improved under the Third Highway Project and 1,664 km under the Fourth Highway Project. Some of the road sections were upgraded from gravel or earth to paved standard while others involved reconstruction of paved roads, repaving of existing roads or construction of new paved roads. In 1970, the total length of the national road network was about 45,000, only 20,000 of which was paved. The 2,791 km of project roads thus represent a sizeable part of the national road network. The valuable contribution of the project roads to the Argentine economy is suggested by the fact that the roads comprised carefully selected, high-priority highway sections that carried relatively high traffic. The economic importance of roads in Argentina in 1990 was substantial: road transport's market share of freight traffic rose to 56% and its share of interurban passenger traffic reached 86%. 5 B. Project_Cqsts 3.02 The actual cost of the road works in the Third Highway Project was about US$197 million which was 41% higher than the US$140 million appraisal estimate. Most of this difference between the actual and appraisal costs is attributable to unanticipated extraordinarily bad soil conditions along the Campana - Rio Tala route. In the case of the Fourth Highway Project, the actual cost of road works was about US$387 million which was 9% higher than the US$356 million appraisal estimate. About US$21.5 million of the actual cost was incurred to undertake reconstruction work on flood-damaged roads; these civil works were not in the project as appraised. Since, in physical terms, the road betterment objectives for the latter project were exceeded to some extent, the actual project cost is reasonable in relation to the cost estimate at appraisal. C. Traffic Development on ImRroved Highways 3.03 Traffic growth between 1970 and 1980 on project roads of the Third Highway Project was found to average about 3% per year, significantly less than the appraisal growth rate, but not surprising in view of the turbulent conditions experienced in the country during project execution. In the case of the road sections of the Fourth Highway Project, the traffic growth rate derived from surveys showed an average rate of about 0.5% per year; this too was lower than the appraisal estimate. Continued adverse economic conditions in the late 1970s and early 1980s no doubt accounted for this relatively low growth rates for road traffic. Notwithstanding the low traffic growth during the two decades, road transport reflected positive trends in contrast to railway transport which experienced sharp declines in freight traffic. As economic conditions in the country improve in the 1990s, it is expected that traffic on the project roads will show somewhat higher rates of growth than those in preceding decades. D. Economic Returns 3.04 The PCR economic reevaluation of the road works of the Third Highway Project indicates that the reevaluated economic rate of return, on a weighted average basis, was 17%, slightly lower than the 21Z appraisal ERR. In the reevaluation, traffic after 1980 was estimated to increase at 5% per year. Since road traffic generally in the 1980s has been virtually static, according to DNV, the PPAR finds that the 5% annual rate of traffic growth for the period after 1980 is excessive. Accordingly, that growth rate has been reduced to 1% per year and the effect on the ERR is to reduce it to 15%. This rate is satisfactory. 3.05 In the case of the Fourth Highway Project, the PCR found the weighted average reevaluated ERR for road works to be 22%, slightly less than the 23% appraisal ERR. With few exceptions, the reevaluated ERRs for particular road subprojects of the Fourth Highway Project were found to be satisfactory. These revised results reflect a reduction in the projected rate of traffic growth and some small increases in the construction costs. The PPAR found the reevaluations to be reasonable and satisfactory. 6 E. Strengthening of Sectoral Institutions 3.06 The Fourth Highway Project had a positive impact on the Directorate for National Transport Planning through that agency's extensive involvement with consultants in the preparation of the National Transport Plan. Unfortunately, the Directorate was abolished in the early eighties and its planning functions subsumed under other transport sectoral organizations. In carrying out their planning functions, these organizations have made little use of the extensive report which incorporates the NTP. Designed to serve as a guiding document for a number of years, it includes a substantial data base, description of methodologies and policy discussions. While some of the methodologies have been adopted, for the most part the plan is ignored as agencies continue to follow traditional approaches to planning in the sector. Also, the perspective of overall sectoral planning is lacking. 3.07 One of the principal benefits of the NTP was the training received by personnel of the former Directorate. Individuals trained during the preparation of the NTP have, in some cases, been able to utilize effectively their planning skills in their modal agencies. Others have left the sector either by transfer to non-transport agencies of government or to the private sector. Nevertheless, the acquisition of training through the NTP exercise appears to be a valuable benefit of the costly planning study. Originally, the primary benefit of the planning component of the project was to be the effective application of the NTP in sectoral planning but, as indicated above, this objective has not been realized fully. 3.08 One of the benefits of the two highway projects, in terms of strengthening local institutions, was the enhancement of DNV's administrative capability, achieved in part through the special studies undertaken under the Fourth Highway Project. One of these studies did not, as would have been desirable, lead to the establishment of a much-needed road safety program. An influential factor in the development of DNV's capabilities was the insight gained from its broad experience in the execution of the road works of four sizeable Bank-financed highway projects, especially the Third and Fourth Highway Projects which were implemented under very difficult circumstances. Another notable factor in DNV's evolution was the adoption of a methodology for assessing road needs, a methodology first introduced in the national transport planning. This technique led to the development of a comprehensive road information system within DNV. The strengthening of DNV during the early 1980s enabled the agency to move up to a sector approach in borrowing for highway development. A follow-on Highway Sector Project was approved by the Board in May 1983. Unfortunately, in more recent years the strength of DNV has been eroded as a result of budgetary constraints and retirement of older staff. F. Sustainabilit- 3.09 The economic benefits from the highway improvements financed under the two projects are likely be sustained. This conclusion is based on indications that the developmer. of the Argentine economy, after many years of poor performance, may soon show some improvement. Stimulating growth in road traffic. Sustainability of economic benefits is contingent on not only an improved macro economic climate but also adequate road maintenance. Recently, 7 maintenance of the national roads has deteriorated but this should be revised in the near future through a proposed road maintenance project. Road transporters are expected to continue competing effectively against the relatively weak railway system, at least until the railway privatization program, now in the early stage of execution, begins to show results. G. Lessons Learned 3.10 One of the principal lessons learned in the two highway projects is that impressive road improvements were achieved, despite extremely adverse economic and financial circumstances, because DNV had become a relatively strong institution. The experience with these projects underlines the importance of capable local institutions as a factor determining project success. While project completion involved considerable delays, the strength of the DNV during implementation of the two projects enabled the organization to cope with severe implementation problems. It has been difficult, however, to sustain this institutional strength in more recent years. 3.11 A second lesson learned relates to transport planning. The main benefit realized from the comprehensive national transport planning study, which cost a substantial US$12 million, was the training of local staff. This training, while valuable, was not the primary objective of the planning component. 3.12 A third lesson is that the practical application of the NTP was greatly inhibited by the Government of Argentina when it abolished the Directorate of National Transport Planning. Had the Government retained this agency of central planning for the sector, it is likely that the NTP would have had a larger impact on sectoral planning. Both the Ministry of Economy and the Bank should have been more aggressive in assisting the modal agencies in utilizing elements of the NTP in their planning work. 3.13 A fourth lesson is that, in seeking to develop a much-needed road safety program, too much attention was concentrated on the study effort and not enough on the implementation of study recommendations. As a consequence, no road safety program was adopted. H. Recommendations 3.14 It is recommended that: (a) the Bank evaluate carefully the benefits from comprehensive national transport Planning studies; (b) Bank staff assist modal agencies in utilizing the NTP, insofar as it remains valid and useful, in their transport planning activities; and (c) the Bank support not only the preparation of studies of road safety but also the implementation of recommendations of such studies; in particular, the Bank should support, in the next 8 transport project in Argentina, a component to implement a road safety program. 9 ATTACHMENT COMMENTS FROM THE BORROWER 92E0330 January 10, 1992 Spanish (Argentina) OEDD3 TS:ecw Ministry of Economy and Public Works and Services SOySP No. 699/91 Buenos Aires, December 18, 1991 Mr. Yves Albouy Chief, Division III: Infrastructure and Energy Operations Evaluation Department World Bank Washington, D.C. 20433 Dear Mr. Albouy: Ref.: Evaluation of Third and Fourth Highway Projects (Loans 734-AR and 1384-AR) We acknowledge receipt of the draft report sent to us on review of the performance of the above-referenced loans. We have only two comments, which we believe may be helpful to the Bank for analysis and better implementation of future loans. 1. TECHNICAL ASSISTANCE: A certain flexibility and urgency on the Bank's part would be desirable for its support in matters of new developments with repercussions for highway projects, such as road privatizations and concessions. Implementation of such arrange- ments should be quick, for instance by means of a loan advance, and with a swifter approval procedure than the usual system for loans for works. 2. LOANS FOR HIGHWAY MAINTENANCE AND REHABILITATION: We consider that when loans are for highway maintenance, rehabilitation, remodeling, rebuilding or improvement, they should be processed more quickly within the Bank than loans for constructing new roads. We justify this suggestion by noting that the works concerned relate to existing roads, many of which are past their useful lives and suffer from overloading and deficient maintenance, together with very rapid deterioration or breakup. 10 Two or more years can elapse between the studies to assess the state of pavements, preparation of technical and economir. studies, prioritization, programming, initial visits by the Bank. pre- appraisal mission, appraisal mission, analysis of loan proposal by Bank, loan approval, signature of the documents and finally the calling for bids, contract award and finalization, and the actual start of the works. Clearly, when there is so long a lag, with a system where one third is over 30 years old and 87% over 15 years old, changes can occur that will entail major adjustments of the priorities and programs set, as regards both type of works envisaged and their cost. It is possible that where sealing was planned surface dressing may be necessary, and where such dressing was scheduled patching and reinforcement may be necessary, while instead of the latter, full- scale reconstruction may have to be undertaken. In view of the foregoing, we consider it would be worth while for the Bank to examine the possibility of shortening to the maximum extent possible the time required for its internal processing of maintenance and rehabilitation loans. Such expedited processing would serve to hold changes in programming and type of works and additional costs to a minimum, thus making it possible to adhere to the original cost estimates and schedules. Yours sincerely, /s/ Saul Bouer Secretary of Works and Public Services cc: Messrs. 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