Argentina - Provincial Roads Project

Document of The World Bank Report No. 14915-AR STAFF APPRAISAL REPORT ARGENTINA PROVINCIAL ROADS PROJECT August 14, 1996 Infrastucture and Urban Development Division Country Department I Latin America and the Caribbean Regional Office  CURRENCY EQUIVALENTS Currency Unit = Peso (Arg$) US$1 = Arg$ 1 (August 1, 1996) This exchange rate has been used throughout the report unless otherwise indicated WEIGHTS AND MEASURES Metric System FISCAL YEAR January I - December 31 ABBREVIATIONS AND ACRONYMS CEU - Central Executing Unit CPMS - Computerized Project Monitoring System CVF - Consejo Vial Federal Federal Road Council DNV - Direccion Nacional de Vialidad National Road Department DPV - Direccion Provincial de Vialidad Provincial Road Department EA - Environmental Assessment EBM - Expenditure Budgeting Model FA - Financial Agent FAIP - Financial Action and Investment Plan GOA - Government of Argentina GOP - Government of Province HDM - Highway Design and Maintenance Standards Model ICA - Institutional Capacity Analysis ICB - International Competitive Bidding ICG - Institutional Capacity Gap IDC - Institutional Development Component IERR - Internal Economic Rate of Return IRI - International Roughness Index NCB - National Competitive Bidding NPV - Net Present Value PCR - Project Completion Report PDP - Provincial Development Project PIP - Project Implementation Plan PMU - Project Management Unit POM - Project Operational Manual PRP - Provincial Road Program RMRSP - Road Maintenance and Rehabilitation Sector Project RSU - Road Sub-Unit of the Central Executing Unit SAP - Subsecretaria de Asistencia a las Provincias Subsecretariat for Assistance to the Provinces SAREP - Secretaria de Asistencia para la Reforma Economica Provincial Secretariat for Assistance to Provincial Economic Reform SIA - Specific Investment Application SIP - Subproject Implementation Plan SLA - Subsidiary Loan Agreement TOR - Terms of Reference  ARGENTINA PROVINCIAL ROADS PROJECT STAFF APPRAISAL REPORT Table of Contents Page No Loan and Project Summary ......................................... (i) I. TRANSPORT SECTOR OVERVIEW .................1................... A. The Transport Sector in the Economy . ................................ 1 B. Sector Policy and Institutional Reform . ................................ I C. The Road Networks ......................................... 3 D. Decentralization of Road Administration . ................................ 4 E. Road Financing .......................................... 5 F. Bank Sector Experience and Strategy . .................................. 6 II. PROVINCIAL ROAD SYSTEMS ....................................... 7 A. Road Network Characteristics and Condition ........ ..................... 7 B. Network Maintenance and Upgrading Strategies ........................... 8 C. Road Expenditure and Funding Programs .......... ..................... 9 D. Provincial Road Agencies: Organization, Management and Personnel .............. 10 E. Environmental Management ........................................ 11 II. THE PROJECT ....................... .......................... 12 A. Project Origin, Objectives and Rationale ................................ 12 B. Project Description . ............................................. 13 C. Project Cost and Financing ........................................ 17 D. Environmental and Economic Assessments .............................. 18 E. Project Risks . ................................................. 19 IV. PROJECT IMPLEMENTATION ................. ..................... 20 A. Institutional Responsibilities ....................................... 20 B. Organizational Arrangements ...................................... 21 C. Implementation Plan ............................................ 21 D. Procurement Arrangements ........................................ 24 E. Disbursement, Accounting and Audit Arrangements ......................... 26 F. Monitoring and Supervision Plan .................................... 26 V. AGREEMENTS REACHED AND RECOMMENDATION .28 This repon is based on the findings of an appraisal mission which visited Argentina during June 1995. The mission comprised Messrs. Jacques Cellier (Task Manager, LAIIU), Gerard Liautaud (Senior Highway Engineer, LAIIU), and Rodrigo Archondo- Callao (Highway Economist Consultant). Messrs. Hernan Levy (EA2TP) and Enrique Pinilla (LA21N), Peer Reviewers, provided technical advice. Ms. Joy Obialor provided administrative support. Messrs. Asif Faiz, Orville Grimes, and Gobind T. Nankani are respectively the managing Division Chief, Projects Adviser, and Department Director for the operation.  VI. ANNEXES 1. Bank Experience with Transport Projects in Argentina ..................... 31 2. Provincial Road Networks: Maintenance Policies and Program Economic Evaluation . 34 3. Buenos Aires Subproject Implementation Plan .......................... 42 Table 1. Buenos Aires Network Characteristics .......................... 42 2. Buenos Aires Network Condition and Traffic ..................... 43 3. Buenos Aires Maintenance Strategies and Economic Evaluation .... ...... 44 4. Buenos Aires Subproject Cost and Financing ..................... 45 5. Buenos Aires First Year Investment Program ..................... 46 6. Buenos Aires Network Condition Evolution ...................... 46 7. Buenos Aires Subproject Monitoring Indicators and Targets .... ........ 47 4. Chaco Subproject Implementation Plan ............................ ... 48 5. Cordoba Subproject Implementation Plan .......................... ... 54 6. Corrientes Subproject Implementation Plan ......................... ... 60 7. La Pampa Subproject Implementation Plan ......................... ... 66 8. Misiones Subproject Implementation Plan .......................... ... 72 9. Neuquen Subproject Implementation Plan .......................... ... 78 10. Santa Fe Subproject Implementation Plan .......................... ... 84 11. Institutional Capacity Analysis and Development Component ................. 90 12. Technical Assistance and Training Program, Outline Terms of Reference ...... ... 93 13. Project Implementation Plan ...................................... 99 Table 1. Monitoring Indicators and Targets ........ .................... 99 2. Central Executing Unit Cost and Financing ..................... 100 3. Project Cost and Financing .......... ..................... 101 4. Estimated Schedule of Disbursements ......................... 102 5. Project Implementation Timeschedule ......................... 103 14. Project Supervision and Monitoring Plan ........ .................... 104 15. Supporting Tables and Charts ................... ............. . 106 Table 1. Argentina's Motor Vehicle Fleet .......... .................. 106 2. Provincial Road Networks . ............................... 107 3. Participating Provinces' Road Network Characteristics .............. 108 4. Participating Provinces' Road Network Condition and Traffic .... ...... 109 5. Provinces' Finances, Road Expenditures and Funding ...... ... ...... 110 6. Participating DPVs Institutional and Financial Data ...... ...11....... i Chart 1. Provincial Roads Department Organization ...................... 112 16. Selected Documents and Data Available in the Project File ....... ... ....... 113 Map: IBRD No. 27555: Argentina - Provincial Roads Project  ARGENTINA PROVINCIAL ROADS PROJECT Loan and Project Summary Borrower: Republic of Argentina Implementing Agency: Subsecretariat for Assistance to the Provinces (SAP), Ministry of Interior Beneficiaries: Road Departments (DPVs) of the participating Provinces Poverty: Not applicable Amount: US$300 million equivalent Terms: Repayment in 15 years, including five years of grace, at the Bank's standard variable interest rate for currency pool loans Commitment Fee: 0.75% on undisbursed loan balances, beginning 60 days after loan signing, less any waiver Onlending Terms: Loan proceeds to be onlent to Provinces on the same terms and conditions as the loan Financing Plan: See para. 3.17 Net Present Value: Arg$5,500 million Map: IBRD No. 27555 Argentina - Provincial Roads Project Project Identification Number: AR-PA-5980 Vice President: Shahid Javed Burki Director: Gobind T. Nankani Division Chief: Asif Faiz Task Manager: Jacques Cellier  I  ARGENTINA PROVINCIAL ROADS PROJECT I. TRANSPORT SECTOR OVERVIEW A. The Transport Sector in the Economy 1.01 The transport sector accounts for about 5% of Argentina's GDP, and road transport alone for about 3.5%. These figures, however, exclude the very important segments of own-account transport, services by truck owner-operators, and private automobile use, which are not accounted for in GDP calculations. Road transport accounts for about 85 % of the passenger output (30 billion passenger-km) and about 67% of the freight output (115 billion ton-km). There are about 5.0 million cars and 1.5 million commercial vehicles in Argentina, in addition to 70,000 buses (Table 1, Annex 15). The trucking industry comprises about 43,000 commercial trucking firms which, together, have about 200,000 heavy trucks, and about 60,000 truck owner-operators. The road transport industry has grown at rates which have systematically exceeded those of GDP and other industries. Road transport output recently increased at an average annual rate of 7.5 % compared to average growth rates of 2.7% and 3.1 % for the agricultural and industrial sectors respectively. 1.02 Public investment in transport has declined drastically from about 1.5% of GDP in the early 1980s to less than 0.5 % of GDP in the early 1990s. The share of transport in total public investment also declined, from about 20% in the early 1980s to about 10% in the early 1990s. Roads received the largest share of those investments. Operational subsidies to the railways have been another important share of public expenditures in the sector, but they have recently been curtailed with the concessioning of most railway services. The decline of public investment in transport during the 1980s has resulted in the deterioration of large portions of the road networks, which were built mainly from the 1950s to the 1970s, and of other transport infrastructure. It is only very recently, with the concessioning of the operation and maintenance of part of the national road network, and of many ports and railways, that investment in transport has started to increase again. Preliminary data show that the transport sector accounted for about 15% of national consolidated investment in 1993, with only one-third undertaken by the central government. As a consequence, the condition of the transport networks has started to improve. The size of the transport industry, its direct impact on the productive sectors, as well as the extensive, though reducing involvement of the government in the sector and the fiscal implications point to the critical importance of the transport sector to the success of economic stabilization, recovery and growth efforts. B. Sector Policy and Institutional Reform 1.03 The management of the transport sector, which is shared among the three levels of government, has changed drastically in recent years. A sector reform, which was initiated in 1989 as part of broader structural reforms, aims at reducing government subsidies, at deregulating and privatizing transport services wherever possible so as to allow market forces to be the primary determinant of the services provided, and at decentralizing expenditure and financing responsibilities to provincial and local governments and communities. Substantial progress has already been made in implementing the reform in highways, railways, ports and waterways.  -2- 1.04 Highways. The National Roads Department (DNV), an autonomous agency under the Ministry of Public Works, administers a network of about 38,000 km of national, mostly inter-provincial highways, including also some highways of essentially provincial interest. The 23 Provincial Road Departments (DPVs) are responsible for a total network of about 262,000 km of provincial roads. Municipal Governments have jurisdiction over the rural roads of local interest, as well as urban streets. The objectives of the reform in highways have been to concession to private operators operation and maintenance as well as capacity investments on highways with sufficient traffic to justify raising tolls, to gradually delegate responsibility for the rest of the national network to DPVs, to contract out all works (including routine maintenance) until the DPVs assume responsibility, and to redefine the role of DNV, strengthening its strategic planning, normative, and coordination functions, and streamlining its operational functions. 1.05 DNV concessioned the operation and maintenance of about 10,000 km of major highways in 1990 and capacity investments on important access expressways to Buenos Aires in 1992. After initial difficulties due to road users' opposition to the proposed tolls, which led to the renegotiation of the concession contracts, the program seems at this stage to be meeting its objectives. The financial burden of highway rehabilitation and maintenance has been passed from taxpayers onto road users. Tolls provide a more reliable source of funds needed to program and execute maintenance works efficiently. Traffic has increased on the concessioned corridors, the maintenance condition of that network has improved (less than one percent is now rated in poor condition), and a recent survey indicates that almost 90% of the users are satisfied with the service provided. The maintenance of the rest of the network is either contracted or being contracted with private contractors. DNV recently introduced new contracting arrangements which, like concessions, aim to ensure a given level of service to users, rather than traditional unit-priced maintenance inputs or activities. All DNV rehabilitation and/or maintenance works on the non-concessioned network are expected to be soon carried out through such performance-based contracts. The contracts are awarded for periods of three to ten years. Payments to contractors are made against the achievement of pre-determined performance indicators. Progress has also been made under the decentralization program. The maintenance of nearly 6,000 km of national highways has recently been passed over to 20 provinces under delegation contracts. The challenge is now to expand the highway reform to the provincial level, and in particular to strengthen the technical and administrative capabilities of the DPVs to effectively carry out their responsibilities which are increasing with the delegation program (see section D below). 1.06 Railways. Ferrocarriles Argentinos, a state-owned company, operated a network of 35,000 km, employed a staff of 92,000, and had an operating deficit of over US$1.0 billion. The railway was faced with the typical problems of public railways, including lack of commercial orientation, overstaffing, insufficient funds, deferred maintenance, loss of market share, huge operating deficits and rapidly increasing debts. The Government in 1990 embarked upon a restructuring and concessioning process with a view to reducing the railway's burden on the national treasury, to improving service to shippers and passengers, and to rehabilitating and modernizing tracks and equipment. The freight business was divided into six regional systems. The operation and maintenance of five of them have already been concessioned, through competitive bidding, for 20 years to private operators. The Belgrano line, for which no bids have been received, is being operated by a state-owned company until an attractive package is offered for concession. Most inter-city passenger services have been abandoned after having been offered to provinces. Five of the seven commuter rail operations and the subway of Buenos Aires have also been concessioned to private operators. 1.07 Although the railway reformn is too recent to make a definitive assessment, its main objectives seem at this stage capable of being met. Subsidies have been drastically reduced to about US$100 million per year, and are essentially for capital investments on the commuter rail and subway systems; private  -3 - freight operators are not subsidized. Freight traffic has increased to its late 1980s level, and shippers seem to enjoy lower rates and improved service quality. Commuter rail and subway ridership has also substantially increased. 1.08 Ports and Waterways. There were five different public entities involved in administering port operations prior to the reform, including the highly-centralized Administracion General de Puertos, responsible for 37 ports across Argentina. The ports were characterized by outdated facilities, excessive regulation (particularly labor regulations), high costs and subsidies, inadequate investment and maintenance, and declining traffic. The ports and water transport reform, initiated in 1990, aimed at improving port and water transport efficiency through a mix of deregulation, decentralization and privatization measures. In particular, the Government has abolished many of the restrictive labor regulations. Major ports previously operated by the Administracion General de Puertos have been organized into autonomous Port Authorities administered by representatives of provincial and local governments and of shippers, and terminal operations have been or are being concessioned to private operators. Smaller ports have been transferred to the provinces, which operate them either directly or through concessions, or have abandoned non-viable operations. The operation and maintenance of major waterways (Parana river) and accesses to ports have been or are being concessioned. Also, maritime and coastal shipping activities have been substantially deregulated. As a consequence, ports and shipping charges have already been reduced substantially, mainly through increased labor productivity. C. The Road Networks 1.09 Argentina's road network has a total length of about 900,000 km. It is divided into three Table 1.1: Argentina's Road Networks (000 nm) administrative levels: (a) a national network of about Paved Unpaved Total 38,000 km, of which 28,000 km (75%) are paved, which is under DPV's jurisdiction; (b) provincial National 28 10 38 networks totaling about 262,000 km, of which Provincial 34 228 262 34,000 km (13%) are paved, which are under the Municipal n.a. 600 600 responsibility of the 23 provinces; and (c) municipal networks extending over some 600,000 km, which fall Total 62 838 900 under municipal jurisdictions (Table 1.1). 1.10 The National Road Network. Built mainly between the 1950s and the 1970s, the national network has suffered extensive deterioration during the 1980s as a result of age, heavier-than-expected traffic volumes and axle-weights, and inadequate maintenance. In the late 1980s, the condition of the national network was dramatic, with the proportion of pavements in bad condition, because of major structural problems, reaching 29% in 1989. From that time, however, DNV has placed major emphasis on rehabilitation and maintenance, including through the highway concession program. The proportion of pavements in bad condition had already been reduced to about 20% in 1993. With the approval of the Road Maintenance and Rehabilitation Sector Project (RMRSP, Loan No. 3611-AR) in 1993, DNV has started to implement an efficient pavement rehabilitation and maintenance program for the non- concessioned network, based on a network maintenance strategy developed with the Bank's Highway Design and Maintenance Standards (HDM III) model. The program consists of: (a) extensive strengthening, renewal or reconstruction of about 1,400 km (i.e. 5% of the paved network); (b) resurfacing of about 8,000 km (i.e. 29% of the network) in order to slow down pavement deterioration; and (c) preventive maintenance and limited surface corrections on the remaining 18,000 km (i.e. 64% of the network), where pavements are sufficiently strong. The total cost of the program  - 4 - is estimated at about US$450 million over four years. By the end of project implementation in 1997, the national network is expected to be 75% in good, 18% in fair and only 7% in bad condition. 1.11 The Provincial Road Networks. Provincial road networks comprise approximately 262,000 km, i.e. about 30% of Argentina's total road length. With 34,000 km paved, they already account for about 55 % of the country's total non-urban paved network length. In addition, the length of the paved network has been increasing at an average rate of 10% p.a. over the past 20 years, and the proposed road reclassification would further increase the importance of provincial road networks. Since provincial highways have been built more recently than the main national highways and since traffic has typically been substantially lower, in general they have not yet reached their lifetime, nor have they, with a few exceptions, deteriorated to the point that the main national highways have reached. A large proportion, however, would soon reach such point if they are not adequately maintained from now on. In addition, rapidly increasing traffic levels on many gravel roads require more effective maintenance operations, and would justify paving some sections in order to reduce maintenance expenditures and vehicle operating costs. The DPVs therefore urgently need to strengthen their capabilities to efficiently maintain the networks under their responsibilities (see Chapter 11). D. Decentralization of Road Administration 1.12 The Government, in 1992, initiated a broad reform of the administration of the road subsector, aiming to gradually decentralize responsibilities for administering the national network and the related financing. The reform program, in addition to the above-mentioned concessioning program, encompasses: (a) a reclassification of the networks, with a view to limiting the national network to the main inter-provincial and international connections, and to transferring highways of predominantly local interest to provincial jurisdictions; (b) the delegation of a gradually increasing proportion of the responsibilities for the national network to DPVs; (c) the strengthening of DPVs' technical and management capabilities, in particular for the efficient maintenance of the provincial and delegated national highway networks; (d) the reorganization of DNV, strengthening its strategic planning, normative, supervision and technology transfer functions, and gradually downsizing its operational functions; and (e) the gradual redistribution of road user charge revenues to provinces (para. 1. 17). 1.13 Substantial progress has already been made under the reform program. DNV, with technical assistance financed by the Bank, undertook studies to prepare for the reclassification of the networks, the results of which are expected to be concluded by the end of 1996. At this stage, it seems that the reclassification may result in a net transfer of about 10,000 km of highways from the national to the provincial networks. DNV also developed some experience with delegation through two pilot projects in the provinces of Santa Cruz and La Pampa. On the basis of this successful experience, the operation and maintenance of a total of nearly 6,000 km of national highways in 20 provinces were recently delegated to the DPVs. It is too soon to assess the effectiveness of the delegation program. Some DPVs need to improve their technical and management capacities to effectively carry out the delegated activities. DNV needs to improve the regularity of its payments to the Provinces, as well as the technical supervision and monitoring of DPVs' performance. 1.14 There are substantial size, institutional and technological differences between the various DPVs (Chapter II). In general, however, DPVs have administered provincial road construction programs, but they have not yet developed appropriate capabilities to efficiently maintain the networks under their responsibilities and to assess the technical, economic and environmental aspects of programs and projects. Road expenditure decisions are therefore made to a large extent on the basis of political factors. The DPVs need to develop and establish appropriate network planiing and monitoring, maintenance  programming and management systems, and environmental management capabilities. They also need to rely more systematically on the more efficient private contractor industry, including for their routine maintenance activities, and, where feasible, on long term toll concessions (Chapter II). The proposed project will provide technical assistance and training services for this purpose. In addition, under the Road Maintenance and Rehabilitation Sector Project (Loan No. 3611-AR), DNV is strengthening its capacities for effective technology transfer to DPVs and for training of DPV staff. E. Road Financing 1.15 Road User Charges. Road user charges in Argentina consist of indirect taxes, including taxes on fuel, lubricants, tires, and vehicles; of vehicle registration fees; and of road tolls. Overall, annual revenues from road user taxes and fees (about Arg$2.2 billion in 1995) exceed total annual road expenditures by DNV and the 23 DPVs (about Arg$900 million); and road concessionaires' expenditures are expected to be recovered from road tolls. The structure of road user charges, however, has been significantly affected by recent changes in tax rates and by the introduction of tolls on an important portion of the national network. Private cars, in particular through the relatively high rate of gasoline taxation (55 % of the consumer price) and road tolls, are charged for more than the road provision costs attributable to them, but it is not clear to what extent they are charged for external costs such as congestion and environmental damage. Road cost recovery from trucks and buses has also improved substantially with the recent increases of diesel oil taxation from about US$.02 per liter in 1990 to US$.05 per liter in 1995, and with the introduction of tolls on high-traffic highways. With such charges, one could expect that trucks and buses actually pay at least the short term marginal cost of road use attributable to them. However, the adequacy of the road user charge system needs to be reassessed in the light of the recent changes, following the detailed road user charge study carried out in 1990. A study is being carried out for this purpose under the Road Maintenance and Rehabilitation Sector Project (Loan No. 3611-AR), and a plan of action to implement the study recommendations would then be prepared and reviewed by the Bank (SAR No. 11413-AR, para. 1.19). 1.16 Fuel Prices. The prices of motor-vehicle fuels at the pump, in September 1995, were about Arg$0.84 and Arg$0.28 per liter of gasoline and of diesel-oil respectively. These prices have been consistently maintained well above international prices, including the necessary adjustments for taxes, distribution costs and retailers' margins. The very substantial differences between gasoline and diesel prices, however, which result from past Government attempts to contain escalation of bus fares, might have provided inappropriate incentives to trucking and distribution companies for the inefficient dieselization of their fleets of small trucks and pick-ups. The costs of such possible distortions will be assessed as part of the above-mentioned study. 1.17 Funding of Road Agencies. Road expenditures at both national and provincial levels used to be funded mainly through revenues from road user taxes, which were shared between DNV and the 23 DPVs, and were earmarked for roads. Since 1990, however, earmarked tax revenues allocated to DNV have been gradually eliminated with a view to restoring central control over DNV expenditures, when a substantial portion of the network was being concessioned. DNV is now essentially funded through national budget appropriations. Also, vehicle sales taxes and registration fees are not earmarked for road expenditures any longer. Provincial governments, however, continue to participate in the revenues from the fuel taxes, which are still partially earmarked for road expenditures. The total share of provincial governments in fuel tax revenues has actually increased gradually, from 13% in 1992 to 29% in 1996, in order to account for the decentralization of responsibilities. Also, 60% of the provincial share of these revenues is earmarked for road expenditures and allocated to the DPVs, in accordance with criteria which include population, fuel consumption and provincial resources spent on roads. The revenue distribution  and earmarking scheme is adequate to ensure the reliable funding required for road maintenance, taking into account the weaknesses of the provincial budget systems. It is a major objective of the proposed project to assist the DPVs in preparing appropriate road programs based on sound technical and economic priority criteria, and to ensure adequate funding for rehabilitation and maintenance programs (para. 3.7). F. Bank Sector Experience and Strategy 1.18 The Bank has made 10 loans in the Argentine transport sector since the early 1960s: six for highways totaling US$660 million, two for railways totaling US$123 million, and one loan for ports. Until the late 1970s, the highway projects concentrated on the expansion of the main highway network. The fifth project (Loan No. 2296-AR, US$100 million, approved in 1984) helped finance a broader spectrum of road works, including reconstruction and works on provincial networks. The sixth highway project (Loan No. 3611-AR, US$340 million, approved in 1993) provides financial assistance essentially for the rehabilitation and maintenance of the national network and technical assistance and training for the concession and delegation programs. The two railway projects approved respectively in 1971 and 1979, financed a time-slice of Ferrocarriles Argentinos' investment programs, the second with more emphasis on rehabilitation of track and equipment, and included an action plan to improve the management and finances of the railway. The port project, approved in 1987 to help rehabilitate and modernize grain handling facilities at the port of Bahia Blanca, was closed in 1992 after only US$8 million were disbursed, as a result of the decentralization of ports and privatization of terminal operations. 1.19 The highway projects have generally been successful. The projects' physical objectives have mostly been met, although the difficult economic conditions in the 1980s, including hyperinflation, successive devaluations, and related funding problems, have often caused substantial delays and cost overruns. Substantial progress was also made on policy reforms and institutional strengthening. DNV gradually improved its technical and management capabilities, particularly network condition surveying and maintenance planning and programming. Important studies were completed, including a national transport plan and highway needs and traffic safety studies. The pace of reform has recently increased with the above-mentioned concession and delegation programs. Previous highway projects, however, did not sufficiently address the issue of the technical and management capabilities of the DPVs which are necessary to discharge their increasing road network maintenance and management responsibilities effectively. An assessment of the experience with previous Bank-financed transport projects in Argentina is presented in Annex 1. 1.20 The Bank's strategy in Argentina is to support the Government's ambitious reform program, and in particular to assist in extending the reforms to the provinces in order to consolidate macro-economic stability. With the ongoing decentralization program, the provinces play an increasing role in the provision of public services. The Bank's strategy for provincial reform emphasizes fiscal balance, administrative reforms, efficient resource allocation, and increased efficiency in the public sector. A Provincial Reform Project (Loan No. 3280-AR, US$100 million) and a Second Provincial Development Project (Loan No. 3877-AR, US$225 million) were recently approved to help initiate the reform. A series of sector operations, including the proposed project, is being prepared to help implement the above objectives in the various sectors of the provinces' economies. 1.21 The Bank's assistance strategy in the transport sector is now focused on the effective implementation of the highway subsector reform. The Bank will continue to assist in fully implementing the concession and the delegation programs, and the reorganization of DNV, through effective supervision of the ongoing Road Maintenance and Rehabilitation Sector Project (Loan No. 3611-AR). Through the  proposed project, the Bank would help to ensure efficient resource allocation and use in the highway subsectors of the provinces, strengthen the DPVs' key technical and management systems to prepare and implement efficient road expenditure programs, and gradually transfer execution to private contractors or concessionaires, or to local entities. II. PROVINCIAL ROAD SYSTEMS A. Road Network Characteristics and Condition 2.01 The total length of the road networks in Argentina's 23 provinces is on the order of 262,000 km (i.e., a density of 0.1 km/km2), of which approximately 13% is paved (34,000 km), 18% graveled (48,000 km), and 69% (180,000 km) earth-surfaced. However, significant variations occur across provinces in the distribution of the networks according to surface types, some provinces having less than 5% of their network paved and more than 80% unimproved, while others have between 30% and 40% paved with less than 20% unimproved, depending on population density, level of economic activity and past investments in road infrastructure (Table 2, Annex 15). The average size of a provincial road network is on the order of 10,000 kim, of which 12% to 14% are paved. Except along the north-western fringe of the country, in the mountainous region of the Andes, the pro,.incial road networks generally unfold in flat to rolling terrain with altitudes ranging mostly between 100 and 1000 meters. The climate is predominantly sub-humid and sub-tropical and is characterized by average annual temperatures generally ranging from 10 to 20 degrees Celsius, with mean annual rainfall normally ranging between 200 mm and 1,000 mm. 2.02 Traffic is not very dense on the provincial network, commonly ranging between 200 and 2000 vehicles/day on the paved roads and between 25 and 200 vehicles/day on the unpaved networks. By and large, average daily traffic volumes are about 500 on paved and 50 on unpaved roads with an average percentage of trucks of 25%. The information available for the provinces being appraised reveals that almost half of the total length is more than 15 years old since last resurfacing or overlay, with about 30% older than 20 years. Paved structures usually consist of asphalt concrete (primarily) and surface treatments (exceptionally cement-concrete) on either granular or asphalt-bound base-courses, and sometimes cement or lime-treated materials. Subgrade soils on which pavement structures rest are generally strong and dry, except in the north-eastern provinces (Misiones, Corrientes, Tucuman, Chaco, Formosa, and Entre Rios) where high rainfall, more than 1,000 mm/year, occurs, giving rise to low- bearing capacity subgrades, particularly in low-lying and poorly drained areas. 2.03 Until recently, reliable figures on the maintenance condition of the provincial road networks were unavailable as very few DPVs have, in the past, made objective surveys of network surface conditions. In order to adequately prepare this project, a number of provinces started, in early 1995, to collect the essential information on network condition, strength and traffic. Surface assessments, specifically roughness and surface defect measurements, have first been completed in the eight provinces of Buenos Aires, Chaco, Cordoba, Corrientes, La Pampa, Misiones, Neuquen and Santa Fe, and more recently in the six provinces of Catamarca, Entre Rios, Jujuy, Mendoza, Salta, and Tucuman. Altogether, these surveys have covered about 28,000 km of paved roads (i.e. 80% of the total network of paved provincial roads) and a representative sample of about 67,000 km of unpaved roads. Based on this sample, the surveys indicate that for the paved network 52% is in good condition, 32% is in fair condition, and 16% is in poor condition. The situation on the unpaved network is somewhat less satisfactory, as most of the maintenance efforts have usually been directed towards the heavier trafficked portions of the road system:  - 8 - 15 %, 68 %, and 17 % are respectively in good, fair and poor condition. The detailed results and statistical analyses of the road network condition surveys in the first eight provinces are presented in Tables 3 and 4, Annex 15. The results of the roughness measurements on both the paved and unpaved networks of the eight provinces are summarized in Table 2.1 hereafter. Table 2.1: Condition of First Group of Provincial Networks (% in length / IRI class) Networks IRI Buenos Chaco Cordoba Corrientes La Misiones Neuauen Santa Fe Total Paved Aires Pampa Good < 3 51 52 48 68 92 100 0 42 55 Fair 3-4 37 42 30 3 4 0 70 45 31 Poor 4-6 12 4 15 4 4 0 27 13 11 Very poor >6 0 2 7 25 0 0 3 0 3 Unpaved Good < 7 - 6 - 20 42 1 21 11 15 Fair 7-10 - 71 - 48 58 4 71 88 68 Poor 10-15 - 23 - 32 0 59 3 1 12 Very poor 15-20 - 0 - 0 0 36 5 0 5 B. Network Maintenance and Upgrading Strategies 2.04 The DPVs in the eight provinces developed and evaluated alternative network rehabilitation, maintenance and upgrading strategies on the basis of the above survey results, using the Bank's HDM III model. These analyses enabled the DPVs to determine optimum expenditure strategies and priorities and, on this basis, to define optimum multi-year expenditure programs for the rehabilitation, maintenance and upgrading of their road networks. The methodology and the aggregated results of the analyses are presented in Annex 2. The results obtained for each of the eight provinces are presented in Annexes 3 to 10. The general results and conclusions are summarized below, for both the paved and the unpaved networks. 2.05 Paved Networks. The levels of service of the paved networks are still satisfactory, despite their age and the surface cracking which is associated with age. This can be related to the following three factors, the first one being the most important: (a) the conservative initial structural design adopted by most provinces (60% of the pavements' modified structural numbers are above 3.0); (b) the generally low traffic loads, both volumes and axle loads; and (c) moderate environmental conditions, including low to moderate rainfall. As a consequence, between 70% and 85% of the pavements tested have deflection values below the critical level of 1.0 to 1.2 mm., and surface roughness is currently acceptable. On the basis of these observations, the HDM analyses indicated that, by and large, resurfacing or rehabilitation techniques consisting of thin to medium asphalt concrete overlays (in the range of 3 to 6 cm.) are sufficient to restore pavement structural capacity, extending residual life by at least another 10 to 15 years. This conclusion is in sharp contrast with present and past practices which called for overly conservative pavement designs involving thick layers of crushed asphalt-bound or cement-treated base- courses overlaid with a 5 to 7 cm. thick asphalt carpet. 2.06 Unpaved Networks. The proportion of the unpaved networks in poor condition can be effectively improved through adequate regraveling and additional grading whenever traffic volumes are below 200 vehicles per day. Optimum grading frequencies were derived from the HDM analyses; they  - 9 - are presented in Annexes 3 to 10 for each of the eight provinces. On the sections which presently have more than 200 vehicles per day, the HDM analyses confirmed that appropriate paving solutions, of adequate standards, would yield higher economic returns than the conventional grading and regraveling techniques. But in order to achieve satisfactory rates of return on such paving projects, design standards and therefore construction costs should be lowered. The proposed project would assist DPVs in preparing adequate expenditure programs and appropriate engineering designs for both the paved and the unpaved networks on the basis of appropriate technical and economic criteria and methodologies (para. 3.07). 2.07 DPVs generally contract out periodic maintenance and rehabilitation works on their paved networks to private contractors. Some DPVs also contract out routine maintenance activities on their paved networks, to varying degrees. In general, they engage their force-account capacity for emergency works and for the routine maintenance of the unpaved network. Some DPVs such as Cordoba delegate most of the periodic and routine maintenance on the secondary unpaved network to road maintenance consortia (Consortios Camineros) at a rate varying between Arg$30 and Arg$50 per km. and per month. Some DPVs also delegate the routine maintenance of the tertiary earth road system to Municipalities, while providing them with some equipment such as graders and dump trucks. A recent survey showed that, as an average for all the provinces, the proportion of DPVs' maintenance activities carried by contract accounts for only 42% of the provinces' maintenance budget allocations. But this proportion varies widely among the provinces, from less than 5 % in provinces such as Neuquen which carry out the bulk of their maintenance program by force account to over 90% in provinces such as Cordoba which have reduced their force account activities to emergency operations. There is scope therefore in a number of provinces to increase the portion of the network maintained by contractors or to delegate the maintenance of lower standard roads to municipalities or to road maintenance consortia, and to reorganize the DPVs accordingly. The prospects are good for the provinces to also implement DNV's new contracting arrangements, which focus on performance rather than on inputs or activities. The province of Buenos Aires, for example, is preparing for the procurement of a first package of 2,400 km of works comprising both the rehabilitation and subsequent routine maintenance following the same concept. The proposed project will assist DPVs to implement those reforms (para. 3.08). C. Road Expenditure and Funding Programs 2.08 The provincial governments' total expenditures on roads have increased from about Arg$480 million in 1991 to about Arg$980 million in 1994. Road expenditures generally represent about 5% of the provinces' total public expenditures. However, some provinces, such as Entre Rios, Misiones and Santa Cruz, allocate as much as 10% of their revenues to roads. As an average, the annual road expenditures of provincial governments, including both capital and recurrent expenditures, total about Arg$5000 per km. There is insufficient information on the distribution of road expenditures among the DPVs' various programs, including maintenance and rehabilitation, upgrading and paving, and new construction. However, by and large, DPVs spend from 15% to 40% on personnel salaries and between 20% and 50% of their total budget on rehabilitation and maintenance (about 40% as an average). In many provinces, such spending levels on maintenance could be sufficient, or about sufficient, if cost effective network maintenance strategies and design and maintenance standards were used. Some provinces, however, will need to increase their maintenance expenditures. In most provinces, there is scope to increase upgrading and paving programs in order to reduce the high cost of maintenance of high- traffic unpaved road sections. The proposed project will assist DPVs to implement such agreed expenditure programs (para. 3.07). 2.09 The resources made available to the DPVs come from two main sources: the provincial government general revenue, which in part originates from the national Co-participation Fund, and from  - 10 - revenues from petroleum product taxation, which are collected centrally and redistributed in part to the provinces, a portion of these transfers being earmarked for road expenditures. In 1995, the provinces' total share in the fuel tax revenues (24% in 1995 and 29% in 1996) is estimated at about Arg$522 million. The DPVs' total share in this amount which is earmarked for roads (60%) is estimated at about Arg$313 million. In order to receive these funds, the provincial governments must allocate at least an equal amount from their general revenue to road expenditures. In general, DPVs revenues from fuel taxation and the provincial government matching funds are sufficient to finance the appropriate maintenance of the networks, although some provinces will have to allocate additional funds in the short term for the necessary rehabilitation and strengthening programs (Table 5, Annex 15). D. Provincial Road Agencies: Organization, Management and Personnel 2.10 Provincial Road Departments (DPVs) are placed under the authority of their respective Provincial Ministry of Public Works. A typical organization of a DPV comprises 3 main departments: one for Engineering Studies, one for Construction (new investments), and one for Maintenance. Maintenance activities are decentralized through a number of zonal districts (usually between four and eight), which in turn are structured into four sections: construction, technical studies, equipment and maintenance execution (Chart 1, Annex 15). 2.11 In the course of project preparation, participating DPVs with assistance from the Central Executing Unit (CEU) carried out a systematic institutional capacity analysis using the Institutional Capacity Analysis and Development System (ICADS) methodology in order to assess their capacities to implement the subprojects, to identify potential deficiencies, and to define appropriate remedial actions (Annex 11). The main identified institutional capacity gaps are summarized hereafter: (a) the lack of an organized strategic planning system, stemming from the lack of basic network inventory, condition and traffic data, of well-defined methodologies to formulate investment and maintenance policies, of appropriate technical and economic criteria and procedures to design and evaluate investment and maintenance programs and projects, and of adequately trained planning staff, is resulting into inappropriate expenditure priorities and programs, with more attention being paid to the engineering and execution aspects than to economic planning and programming; (b) the over-reliance of some DPVs on force account for the maintenance of their network, rather than on private contractors or local road consortia, and the lack of effective force account operations planning, management and control systems, is resulting, with a few exceptions, into excessive staff and poor operational performance; (c) the often obsolete methods and techniques used for road engineering and works supervision, the insufficient and inadequate equipment of the road laboratories, are often resulting into inadequate engineering designs, over-dimensioned pavements, excessive project costs, and sometimes unsatisfactory quality of works; (d) inadequate organizational arrangements, including lack of clearly-defined processes, responsibilities, and accountability in essential functions such as budgeting, procurement, environmental impact review, contract management, control, monitoring and evaluation, often associated with lack of appropriate information and communication systems, obsolete technical and administrative manuals, and insufficiently-trained staff, are resulting in inefficiencies and delays in program implementation;  - 11 - (e) the lack of road environmental standards and guidelines and of effective environmental management capabilities in the DPVs has resulted into some environmental damages which could have been prevented or mitigated through appropriate measures; and (f) the excess of personnel (para. 2.12), compounded by the above-mentioned skill-related capacity gaps, and by the low salary levels and the absence of career schemes or incentives, is resulting in poor staff performance. 2.12 Most DPVs currently have between 600 and 2,000 staff. But there are wide differences: Cordoba DPV, for example, has a staff of some 600 for a network of nearly 60,000 km; on the other hand, Formosa, Misiones, Catamarca and Tucuman DPVs have staff ranging between 800 and 1,800 for a network of only 2,500 to 4,500 km (Table 6, Annex 15). Considering the respective length of their networks, a preliminary assessment suggests that about fourteen out of the twenty three DPVs have an excess of staff. The proportion of engineers and technicians is generally of the right order, varying between 10% and 20% of the staff. Most professionals, however, need to update their skills, in particular in the areas of planning and economic analyses, engineering designs, environmental assessments, and supervision of maintenance by contract. 2.13 Initial steps have already been taken to address some of the above-mentioned institutional capacity gaps in the course of project preparation. In particular, adequate procedures and methodologies for network condition and traffic surveys have been disseminated by the CEU to most DPVs. About 45 staff from 14 provinces have been trained to develop maintenance strategies and optimized expenditure programs, and to prepare the appraised subprojects, with the help of the HDM III, HDM Manager and EBM models. The project, particularly the institutional development component, would fully address all the above-identified institutional capacity gaps through the agreed action programs and related conditionality, implementation indicators and targets, including: (a) preparation and review of provincial roads programs and budgets (para. 3.07); (b) strengthening of DPVs' maintenance management systems (para. 3.08); and (c) environmental management (para. 3.09). Appropriate technical assistance and training programs have been designed and would be financed under the project to assist the DPVs in implementing the agreed action programs (Annex 12). E. Environmental Management 2.14 The Government has established that any major civil works project should be subject to an appropriate environmental impact assessment to measure its effects on the inhabitants and on the natural environment in the project area. For those investments likely to have negative impacts, funds should be included to mitigate any adverse effects. Although the DPVs have, with assistance from consultants, prepared environmental impact assessments (EAs) for upgrading and paving projects, they have not yet established a capacity to fully implement environmental regulations. Under the Road Maintenance and Rehabilitation Sector Project (Loan No. 3611-AR), DNV has developed a manual of environmental standards and guidelines for the road subsector, and is strengthening its institutional capabilities for monitoring compliance with these standards (Report No. 11413-AR). In the course of project preparation, the CEU has, on the basis of DNV's manual, developed a manual of road environmental guidelines adapted to the needs of the DPVs. The project would help the participating DPVs to strengthen their own environmental management capabilities with technical assistance and adequately- trained staff, in order to implement appropriate environmental, resettlement and indigenous people standards and guidelines for the road subsector, including to revise the general specifications for road works and engineering in accordance with the guidelines, prepare environmental assessments, and to supervise the effective implementation of the necessary preventive or mitigatory measures (para. 3.09).  - 12 - III. THE PROJECT A. Project Origin, Objectives and Rationale 3.01 Project Origin. The project's concept originated from the combination of three factors: (a) in implementing the Provincial Development Project - PDP (Loan 3280-AR), it became clear that provinces, in order to fully achieve their public sector reform and economic programs, needed to redefine their road expenditure strategies and programs, and to improve the condition of the road networks under their jurisdictions; (b) in implementing the Road Maintenance and Rehabilitation Sector Project (RMRSP, Loan 3611-AR), the proposed decentralization of operational and maintenance responsibilities for national roads to provincial governments highlighted the need to improve the effectiveness of the road maintenance activities of the provincial road departments (DPVs); and (c) a recent Bank study on Argentina Transport Privatization and Regulation (Report No. 14469-AR) showed that the poor state of the roads contributed to slow economic growth in a number of provinces (para. 3.19). The project was designed to address these three issues. In order to ensure that the project effectively contributes to the public sector reform programs of the provinces, the Government entrusted the preparation of the project to the Ministry of Interior's former Secretariat for Assistance to Provincial Economic Reform (SAREP), and its implementation to its successor, the Subsecretariat for Assistance to the Provinces (SAP). The Federal Road Council (CVF), which is formed by the Administrators of the 23 DPVs, actively participated in the design of the project. Most provinces undertook to prepare subprojects. Eight provinces (Buenos Aires, Chaco, Cordoba, Corrientes, La Pampa, Neuquen, Misiones, and Santa Fe) have already completed the preparation of their subprojects, which the appraisal mission reviewed and found satisfactory. Several other provinces, which have made good progress in preparing subprojects, are also expected to participate in the project. 3.02 Project Objectives. The project' s objectives are to: (a) develop and implement efficient provincial road programs (PRP), based on appropriate design and maintenance standards, with a view to improving the efficiency of resource use in the provinces' road sectors and the serviceability of the provincial road networks; (b) reorganize DPVs' operations, gradually transferring maintenance execution to private contractors or to local road consortia, strengthening DPVs' technical and management capabilities and establishing clear goals and accountability for implementing their road programs, including decentralized responsibilities for the national road network; and (c) strengthen DPVs' environmental management capabilities. The project is expected to help establish an institutional and technical framework for maintenance, rehabilitation and upgrading of provincial roads nationwide. It will contribute to the growth of the provinces' economies by reducing the cost of road transport. 3.03 Rationale for Bank Involvement. The Bank's country assistance strategy for Argentina, discussed by the Board of Executive Directors on May 4, 1995, with an update in April 1996, is to assist in consolidating the macroeconomic reforms and deepening their impact by strengthening institutions, as well as providing for investment in infrastructure that has deteriorated due to long periods of underinvestment. The project would build on the achievements of the Provincial Development and Provincial Reform Projects, which assist the provinces in carrying out fiscal and administrative reforms consistent with the national reform program. It would complement the ongoing RMRSP, which assists  - 13 - the national government in gradually transferring the maintenance of portions of the national network to provinces, as well as ongoing or proposed projects in the health, education and agriculture sectors. The project would contribute to this strategy by helping provincial governments prepare efficient and sustainable road expenditure programs, with adequate priorities and standards, and implement them efficiently, primarily through private contractors, thereby improving resource use in the sector. B. Project Description 3.04 The project, of a sector type, would consist of similar subprojects in participating provinces. Each subproject would include: (a) a policy and institutional development component, including technical assistance, equipment, software, and training of staff, to: (i) prepare and monitor the province's annual road expenditure and funding programs (PRP), including efficient maintenance, rehabilitation, upgrading and new construction programs, in accordance with agreed policies, criteria and methodologies, thereby strengthening DPV planning, programnming and budgeting systems; (ii) re-assess DPV maintenance strategy with a view to gradually transfer maintenance activities to the private sector or to local road consortia, re-design or improve DPV processes, methods and techniques for planning, programming and budgeting, engineering, economic and environmental assessments, procurement, works supervision, contract management, accounting and auditing, and program monitoring, and re-dimension DPV staff as appropriate; and (iii) strengthen DPV environmental unit to implement appropriate road environmental, resettlement, and indigenous peoples' standards and guidelines, including preparation of related assessments and supervision of necessary prevention and mitigatory measures. (b) a rehabilitation and maintenance component, consisting of the rehabilitation and periodic and routine maintenance components of the province's road program; (c) an upgrading and new construction component, consisting of highest-priority upgrading, paving and new construction investments, subject to the province's satisfactory performance in road maintenance; and (d) a studies component, consisting of the engineering designs, environmental assessments, and works supervision services for the above civil works components. The project would also include: (e) a project management component, consisting of technical assistance to the CEU for coordinating and monitoring the execution of the project. 3.05 Eligibility Criteria. Provinces with: (a) a current account surplus during the most recent executed budget period; and (b) total debt service obligations less than 15% of total current revenues, would be eligible to participate in the project. To finance new construction investments, provinces should in addition: (c) maintain road network condition and maintenance budgets and expenditures in line with agreed targets developed on the basis of an HDM analysis, and specified in the Subsidiary Loan  - 14 - Agreements (SLAs). Provinces which do not meet the above criteria but are implementing the reforms, in a manner satisfactory to the Bank, as part of a Transformation Fund Agreement under the Provincial Reform Loan (Loan No. 3836-BR) or as part of a similar agreement satisfactory to the Bank, would be eligible to participate in all components of the project except new construction investments. Provinces which do not comply with either of the above conditions would be eligible for the institutional component only. The above eligibility criteria have been agreed on during loan negotiations. Detailed specifications would be included in the Project Operational Manual. The scope of the subprojects would be conunensurate with the financial and technical capacity of the sub-borrower provinces. Relevant indicators for all the provinces are shown in Table 5, Annex 15. Subprojects consisting only of a policy and institutional component, could be included for provinces which do not have the technical and/or financial capacity required for an investment subproject. (a) Policy and Institutional Development Components 3.06 The policy and institutional development programs would consist of actions specifically designed to achieve the above-mentioned objectives in the participating provinces. These programs were or will be developed by provincial governments and road departments (DPVs) and reviewed by the CEU in the course of subproject preparation. The project would provide the necessary technical assistance and training of road agency staff to effectively implement these actions. Agreement was reached during loan negotiations on: (a) the objectives of the action programs (paras. 3.07-3.09); and (b) a draft Project Operational Manual (POM), satisfactory to the Bank, which, inter-alia, defines the administrative procedures, the policies, criteria and methodologies for the policy and institutional development components, and includes a sample Subproject Implementation Plan (SIP) which presents all necessary subproject information in an agreed format (Annexes 3 to 10), sample Terms of Reference (TOR) for technical assistance and staff training (Annex 12), and sample procurement documentation. 3.07 Preparation and Review of Provincial Road Programs and Budgets. The objectives of this action program are to ensure that: (a) DPVs prepare technically sound, economically efficient and financially sustainable provincial road programs (PRP) and budget proposals, on the basis of the results of regular network condition and traffic surveys; and (b) provincial governments assign adequate priority to the maintenance and rehabilitation of existing roads in the provinces' annual road programs and budgets. Agreement was reached during loan negotiations that: (i) DPVs would carry out regular surveys of the surface and structural condition of their networks, traffic counts and axle-load measurements, and accident surveys in accordance with terms of reference included in the POM; (ii) DPVs would, on the basis of the results of these surveys, prepare annual PRPs, including network maintenance, rehabilitation, upgrading and new construction programs, on the basis of appropriate technical and economic analyses, using the HDM III model, and in accordance with policies, criteria, methodologies and timetable included in the POM; and (iii) the CEU would review the survey results and the PRPs, forward them to the Bank for review and comments, and, on the basis of such review and taking into account the comments of the Bank, would approve the specific investments within the PRPs for financing under the respective subloans. 3.08 Strengthening of DPVs' Maintenance Management Systems. The objectives of this action program are to:  - 15 - (a) re-assess DPVs' maintenance strategies with a view to contracting out the maintenance of a gradually-increasing portion of the networks in accordance with specified targets; and (b) strengthen DPVs' technical and management capabilities to effectively implement their maintenance programs, including decentralized responsibilities for the national road network. DPVs would re-assess their maintenance execution policies, taking into account the experiences with contracting out, concessioning and delegation at the national level, with a view to gradually transferring execution to the private sector and/or to local entities, taking into account their own operational capabilities and labor redundancy issues. DPVs would also re-design or improve their processes, methods and techniques for engineering, economic and environmental assessments, procurement, works supervision, contract management, accounting and auditing, and program monitoring. Agreement was reached during loan negotiations that the CEU would: (i) prior to entering into an SLA, review the DPV's maintenance strategy, policies and organization and seek agreement on an action program with appropriate implementation indicators and targets to strengthen the DPV's maintenance management systems and to gradually transfer execution to private contractors or concessionaires, or to local entities; and (ii) thereafter monitor subborrower performance against the agreed targets and, if necessary, exercise appropriate remedies. 3.09 Environmental Management. The objectives of this action program are to assist: (a) sub-borrowers in implementing appropriate road environmental, resettlement and indigenous people standards and guidelines; and (b) DPVs to strengthen their capabilities to prepare environmental assessments (EAs) for all their road programs and projects and to carry out effective supervision. The DPVs would prepare, and sub-borrowers would adopt, road environmental, resettlement and indigenous people guidelines based on the provinces' environmental standards and on DNV's Road Environmental Assessment and Management Manual. DPVs would revise the norms and specifications of their contracts for road engineering and civil works on the basis of such guidelines. DPVs would establish or strengthen environmental units with adequately-trained staff and contract technical assistance to carry out EAs and to supervise implementation of the environmental norms and specifications of contracts and EAs' recommended actions, and to monitor implementation of the guidelines. Agreement was reached during loan negotiations that the CEU would: (i) prior to entering into an SLA, review the DPV's environmental management capabilities and seek agreement on an action program with appropriate implementation indicators and targets to strengthen the DPV's environmental management systems, including preparation of EAs and supervision of contracts; and (ii) thereafter monitor sub-borrower performance against targets and, if necessary, exercise appropriate remedies. The adoption of appropriate road environmental, resettlement and indigenous people standards and guidelines, the revision of the general conditions of road engineering and works contracts in accordance with such standards and guidelines, and the establishment and staffing of DPV's environmental unit would be conditions of disbursement under the subproject. 3. 1, Technical Assistance and Training. In order to implement the above action programs, DPVs have prepared plans to contract technical assistance and to train their relevant personnel. A sumrnary of these plans, including outline terms of reference for the technical assistance and training programs, are presented in Annex 12. Agreement was reached during loan negotiations on the implementation plan and outline terms of reference for the technical assistance and the training programs (Annex 12).  - 16 - (b) Rehabilitation and Maintenance Components 3.11 Rehabilitation and maintenance programs would include rehabilitation and resurfacing of paved networks, and periodic and routine maintenance of both paved and unpaved networks. In the course of project preparation, the eight DPVs have developed network maintenance strategies with the help of the HDM III model. Maintenance strategies for paved networks consist of carrying out: (a) resurfacing works on paved sections which otherwise would soon reach a level of deterioration requiring extensive rehabilitation, through appropriate slurry seal, surface treatment, or asphalt concrete overlay techniques, depending upon traffic levels; (b) pavement rehabilitation works on sections which have already reached or exceeded their lifetime, through appropriate techniques ranging from asphalt concrete overlays to complete reconstruction of pavement; and (c) routine maintenance works as needed. The selected maintenance strategies for the unpaved networks consist of carrying out: (d) periodic grading and re- graveling works, consistent with traffic loads and the quality of materials; and (e) routine maintenance works as needed. The specific maintenance strategies of the eight DPVs are presented in Annexes 3 to 10, Table 3. 3.12 The eight provinces intend to carry out their entire rehabilitation programs Table 3.1: Rehabilitation and Maintenance Components over a period of about three to four years. (Kilometers) Assuming that the size of the provinces' Subproject Rehabili Resurfac Mainten. Mainten. annual road budgets would remain close to tation ing Paved Unpaved past averages, upgrading and construction Buenos Aires 2,455 40 5,200 26,000 programs have been adjusted to reflect Chaco 55 45 760 22,000 these objectives as well as maintenance Cordoba 555 - 3,500 55,500 requirements. The resulting multi-year Corrientes 145 209 550 8,000 programs are presented in Annexes 3 to La Pampa 168 135 2,250 23,000 10, Table 4, and are summarized in , . ~~~~~~~Misiones 247 244 600 4,500 Table 3.1. The eight subprojects Mesqonn 21 13 500 4,00 combined would have an aggregated scope Neuquen 21 13 500 4,000 of about 6,000 km for rehabilitation and Santa Fe 1,183 462 2,350 10,000 resurfacing, 15,700 km for routine Total 4,829 1,148 15,700 153,000 maintenance of paved networks, and 153,000 km for routine and periodic maintenance of unpaved networks. It is expected, however, that due to the insufficient analytical and management capabilities of DPVs, maintenance programs will not be fully adequate until the agreed action programs are implemented. Consequently, additional sections will further deteriorate to the point where they will need rehabilitation. Maintenance strategies and programs will therefore be reviewed and updated annually on the basis of the gradually improved information and analytical tools of the maintenance planning systems, implementation progress and updated funding expectations. They will be presented to the CEU and to the Bank for review as part of the annual PRPs. (c) Upgrading and New Construction Components 3.13 The upgrading and new construction programs have been defined on the basis of the optimum upgrading and paving strategies developed with the help of the HDM III model, and of the provinces' finances. The eight subprojects combined would have an aggregated scope of about 3,350 km for upgrading of earth roads, and about 1,500 km for paving. The scope of individual subproject upgrading and paving components is presented in Annexes 3 to 10, Table 4, and is summarized in Table 3.2 hereafter. First-year investments are presented in Annexes 3 to 10, Table 5.  - 17 - (d) Studies Components Table 3.2: Upgrading and New Construction Components 3.14 The studies components were defined on (Kilometers) the basis of the above civil works components. Subproiect Upgrading Pavine Total They include the engineering designs, economic Buenos Aires - 400 400 analyses and environmental assessments, and the works supervision services which are necessary to Cha 2 6 2 carry out the works programs. Corrientes 129 176 305 La Pampa 35 42 77 (e) Project Management Component Misiones 1,960 142 2,102 Neuquen 1.025 550 1,575 3.15 The project management component would Santa Fe - 107 107 consist of technical assistance, small equipment Total 3,353 1,482 4,835 and software, and training services to assist the CEU in coordinating and monitoring the execution of the project including: assistance to provincial governments for the preparation of subprojects; appraisal of subprojects; negotiation of subloan agreements; annual reviews of provincial roads programs and specific investments; review of procurement processes and documentation; assistance to DPVs for the implementation of subprojects; subproject implementation monitoring and evaluation; and project coordination and monitoring. It was agreed during loan negotiations that the CEU would: (i) prior to entering into a SLA with an eligible province, present to the Bank for its approval a subproject application, including a subproject implementation plan (SIP) with agreed monitoring indicators and targets and a first-year PRP, based on the criteria, methodologies, and forms set forth in the POM; (ii) on-lend the proceeds of the loan to eligible provinces for approved subprojects under SLAs with terms and conditions satisfactory to the Bank, in the form set forth in the POM, and incorporating the respective SIPs approved by the Bank, in accordance with the on-lending indicators and targets set forth in the Project Implementation Plan (PIP); (iii) annually review the participating provinces' road programs (PRPs) and budgets and regularly monitor implementation performance against the agreed targets; and (iv) exercise appropriate remedies under SLAs, including suspension of disbursements or cancellation, if subborrower performance is not satisfactory. C. Project Cost and Financing 3.16 The total cost of the project is estimated at Arg$1,500 million, including Arg$20 million for technical assistance and training of staff, Arg$372 million for rehabilitation and resurfacing works, Arg$670 million for routine maintenance, Arg$261 million for upgrading and new construction works, Arg$30 million for studies and Arg$5 million for project management. The total project cost also includes physical contingencies for Arg$90 million or about 13% of investment base cost (excluding routine maintenance, recurrent costs), and price contingencies for Arg$52 million (or about 8% of investment base cost plus physical contingencies), estimated on the basis of the disbursement schedule and of a 2.6% average annual price increase for both local and foreign expenditures expressed in US dollars equivalent. The foreign exchange cost component is estimated at about Arg$600 million, or 40 %, and the tax component at about Arg$225 million, or 15%. Cost estimates for civil works are based on average per-kilometer costs supported by engineering estimates and recent contract prices. Cost estimates for consultant services are based on prevailing local and foreign man-month rates. The estimated costs of the individual subprojects are detailed in Annexes 3 to 10, Table 4. The total project cost estimate is presented in Table 3, Annex 13, and is summarized in Table 3.3 hereafter.  - 18 - 3.17 The project would be financed from the proposed Bank loan of US$300.0 million Table 3.3: Estimated Project Costs and Financing equivalent (or 20% of the project cost), from a (Arg$ million) possible loan of US$150.0 million equivalent (or Component Costs Local Foreign Total 10% of the project cost) from a Cofinancier to be Policy & Instit. Devt. 12 8 20 determined, and from the respective provinces' Rehab. & Resurfacing 223 149 372 own resources for US$1,050 million equivalent Maintenance 402 268 670 (or 70 % of the project cost). The Government is Upgrading & Construction 157 104 261 discussing a possible loan with the Export-Import Studies 18 12 30 Bank of Japan. In the event that cofinancing Project Management 3 2 5 would not materialize, the participating provinces Base Cost 815 543 1,358 would provide all the necessary counterpart Physical Contingencies 54 36 90 funds. Subproject financing plans are presented Price Contingencies 31 21 52 in Table 4, Annexes 3 to 10 respectively. The Total Cost 900 600 1,500 project financing plan is presented in Table 3, Bank - 300 300 Annex 13, and is summarized in Table 3.3 Cofinancier - 150 150 herewith. Agreement was reached during loan Provincial Govts 900 150 1,050 negotiations on: (a) Borrower guarantee of Total Financing 900 600 1,500 counterpart funds; and, in order to permit starting up urgent subprojects, retroactive financing in an amount of not more than US$10 million equivalent for civil works, goods, and consultant and training expenditures incurred after November 30, 1995 or twelve months before the date of the loan agreement, whichever is later. D. Enviromnental and Economic Assessments 3.18 Environmental Assessments. The direct environmental impacts of road works are primarily related to quarries and borrow pits, disposal of used pavement materials and other wastes, and the activities of road crews. Prior to inviting bids, DPVs will revise their norms and specifications for road engineering and works in order to incorporate appropriate requirements for environmental quality of the works, and will make payments to contractors subject to compliance with these requirements. The upgrading, paving and new construction components of the project could have indirect impacts on the environment and/or indigenous peoples through increased settlement or intensified land use; but no resettlement of population is expected. DPVs will carry out appropriate screening and assessments of such impacts in accordance with agreed criteria, procedures and sample terms of reference included in the POM for all such sections to be built, upgraded and/or paved in the future. Summaries of such assessments, in an agreed format, will be reviewed by the CEU and the Bank, prior to authorizing the financing of the specific investments under the project. In order to allow first for the strengthening of their environmental management capabilities, no such upgrading, paving or new construction investments have been included in the first-year programs of the DPVs which do not have adequate environmental capabilities. The project has been rated "B" by the Bank for environmental assessment purposes. 3.19 Project Benefits. By helping to reduce the deterioration of existing provincial road networks and improve their condition, the project would: (a) avoid further depletion of valuable capital in public roads; and (b) substantially reduce the cost of transport on provincial roads, and consequently support the resumption of growth in agriculture, industry and exports. The direct economic benefits resulting from the reduction of vehicle operating costs have been adequately quantified with the help of the HDM III model. Although they are not easily quantifiable, the benefits from induced economic growth can also be important. The 1994 World Development Report has shown that better road services can contribute  - 19 - significantly to accelerate the convergence of growth towards the country's potential. A recent econometric study on Argentina Transport Privatization and Regulation (Report No. 14469-AR) shows that poor roads had significantly contributed to slow economic growth in at least twelve provinces, including four of the most advanced (Buenos Aires, Cordoba, Mendoza and Santa Fe), most of the poorest (Chaco, Corrientes, Formosa, Jujuy, Misiones), and some intermediate provinces. The poor quality of roads is likely to be an even more constraining factor in the future with the increased volume of trade opportunities which will result from MERCOSUR. Finally, the project would also contribute to: (c) enhanced accountability and more efficient use of public resources in the highway subsector; and (d) prevention or mitigation of adverse environmental impacts of road construction and maintenance. 3.20 Economic Evaluation. An economic analysis has been carried out for each participating province, first at the network and program (i.e. subproject) level, then for each rehabilitation, resurfacing, upgrading and paving works included in the first-year road programs, using the HDM III and the HDM Manager models. The evaluation methodology is described in Annex 2. The results of the HDM analyses, including the selected maintenance and paving strategies and the corresponding Net Present Values (NPV) for the respective subprojects are presented in Annexes 3 to 10, Table 3. The results of the economic evaluation of the project, aggregating the eight appraised subprojects, are presented in section D, Annex 2. The estimated NPV for the project is about Arg$5.5 billion and the corresponding Internal Economic Rate of Return (IERR) is about 39%. The individual subprojects have estimated IERR ranging from 23% to 45%. The specific first-year investments have estimated IERRs ranging from 17% to over 100%. The sensitivity analysis has shown in particular that if the investment costs were to increase by 20%, the estimated IERR for the project would be reduced to about 33 %. The estimated IERRs of the subprojects would still range from 20% to 38%. If the investment costs were to increase by 40%, the estimated IERR for the project would be reduced to about 27%. The estimated IERRs of the subprojects would still range from 17% to 31 %, which would still be very satisfactory. E. Project Risks 3.21 The main risks are: ineffective management of subprojects by DPVs; inadequate coordination and monitoring of the project by the CEU; and insufficient counterpart funds, in particular for maintenance. The experience acquired with similar projects has been incorporated in the project's design in order to minimize these risks. In particular, the project would provide for: adequate organizational arrangements, with clearly defined processes, responsibilities and accountability; simple methodologies, well-suited to the technical capacity of DPVs; detailed subproject implementation plans, with indicators and targets to monitor procurement, physical and financial execution of work programs, network condition, and DPVs' institutional development; well-focussed technical assistance and training of DPV staff in key technical and management areas; as well as a comprehensive project operational manual (POM). The CEU has been strengthened with experienced technical staff and consultants, its internal processes and responsibilities are clearly defined in an internal procedure manual, and a detailed Project Implementation Plan (PIP) would be the basis for managing and monitoring implementation. In order to ensure appropriate funding, the CEU would review provincial road expenditure and funding programs each year at the time of budget preparation, against the agreed targets. The Bank and the CEU would have the right to exercise appropriate remedies under the loan and the subsidiary loan agreements, including suspension of disbursements or cancellation and, if approved by the Bank, reallocation of loan proceeds to well-performing sub-borrowers, if a sub-borrower has defaulted on the obligation to achieve these targets.  - 20 - IV. PROJECT IMPLEMENTATION A. Institutional Responsibilities 4.01 The Government of Argentina (GOA), through the Central Executing Unit (CEU) of the Ministry of Interior's Subsecretariat for Assistance to the Provinces (SAP), recent successor to the former Secretariat for Assistance to Provincial Economic Reform (SAREP), which prepared and implemented the PDPs effectively, would be responsible for implementing the project in accordance with the Project Implementation Plan (PIP). The GOA, through a Financial Agent (FA) satisfactory to the Bank, would onlend the proceeds of the Bank loan to the participating Provinces under conditions proposed by the CEU and approved by the Bank. The Governments of the Provinces (GOP), through the DPVs, would be responsible for preparing and implementing the respective subprojects in accordance with the terms and conditions of Subsidiary Loan Agreements (SLA) between the GOA and the GOP, with a Subproject Implementation Plan (SIP), and with policies, criteria and methodologies specified in the Project Operational Manual (POM). Agreement was reached during loan negotiations on drafts of the PIP and of the POM, including the format for the SIPs and SLAs. The Borrower's adoption of the POM, satisfactory to the Bank, and the execution of at least one SLA would be conditions of loan effectiveness. The GOP's adoption of the POM and the execution of an SLA with a satisfactory SIP would be conditions of disbursement under each subproject. The Loan Agreement, to be signed with the GOA, would specify the above arrangements. The following sections of this chapter summarize the PIP, the SIPs and relevant sections of the POM: (A) institutional responsibilities; (B) organizational arrangements (C) implementation plan; (D) procurement arrangements; (E) disbursement, accounting and audit arrangements; and (F) project monitoring and supervision plan. 4.02 For the purpose of implementing the project, the CEU would in particular: provide technical guidance to provinces in preparing and implementing subprojects; appraise subprojects; negotiate and approve subloan agreements with provincial governments; and supervise subproject implementation, including the review of engineering designs and economic and environmental assessments, approve investments for financing under subloans, and review procurement and disbursements. The Bank would approve all subprojects on the basis of the SIPs, prepared by the DPVs in an agreed format and reviewed and approved by the CEU, and review ex-ante samples of proposed investment and procurement documentation. The Executive Committee of the Federal Road Council (CVF), which includes the Administrators of the 23 DPVs, would provide guidance to the CEU in carrying out the training program through the Highway Staff Development Institute of DNV. 4.03 DPVs would prepare their multi-year expenditure and funding programs on the basis of agreed network condition and traffic data and of the results of an economic analysis, carried out with the HDM III / Manager and EBM models, which help to optimize maintenance policies and programs under budget constraints. Eight appraised subprojects have already been prepared by the respective DPVs. Other DPVs are expected to complete the preparation of their subprojects in 1996. Participating DPVs would be responsible to implement their respective subprojects in accordance to well-defined SIPs, which would include monitorable indicators and targets based on the agreed multi-year expenditure and funding program. A Mid-Term review of project implementation would identify problem subprojects, which would be reformulated or terminated and subloan amount canceled as necessary. Canceled amounts may be reallocated to well-performing DPVs with the Bank's prior approval.  - 21 - B. Organizational Arrangements 4.04 The CEU would maintain the same general organizational structure, including the recently established Road Sub-Unit (RSU), headed by a Project Coordinator, who reports directly to the Executive Coordinator, and staffed with at least two experienced highway engineers, one economist, one environmental specialist, and one road organization specialist. The RSU would be responsible for overall coordination and for all technical aspects of the project. CEU's administrative structures and processes which are in effect under the PDP projects would also be applied to the proposed project. Assurances were obtained during loan negotiations that the Government would establish and/or maintain organizational arrangements for project execution satisfactory to the Bank, including: (a) the CEU and the RSU with functions, responsibilities and staffing, and headed respectively by an Executive Coordinator and a Project Coordinator with qualifications and experience satisfactory to the Bank; (b) a Computerized Project Monitoring System (CPMS) satisfactory to the Bank; and (c) contracting of technical assistance in accordance with terms of reference satisfactory to the Bank. 4.05 The eight DPVs have established appropriate organizational arrangements to carry out the subprojects. Execution responsibilities would be distributed according to the specific organization of each DPV. Each DPV would establish and maintain an appropriately staffed Project Management Unit (PMU) headed by a Project Manager, who would report directly to the DPV Administrator. With these arrangements, the DPVs would have the capacity to carry out the respective subprojects efficiently. Assurances were obtained during loan negotiations that the CEU would ensure that each DPV establishes and/or maintains organizational arrangements for subproject execution satisfactory to the Bank, and in particular establishes: (a) a Project Management Unit, with functions, responsibilities and operations satisfactory to the Bank; and (b) a computerized project management system as specified in the POM, as conditions of disbursement under the SLA. C. Implementation Plan 4.06 The GOA, through the CEU, would implement the project in accordance with the PIP. The main elements of the PIP, which are summarized below, were confirmed during loan negotiations. (a) On-lending Program (i) The GOA, through the CEU, will assist eligible GOPs in preparing - and will appraise subprojects, including the provincial multi-year and first-year road programs, in accordance with the procedures, criteria and methodologies set forth in the POM, satisfactory to the Bank, and will forward subproject applications, including SIPs in the format set forth in the POM, for Bank approval of subproject financing under the loan; (ii) the GOA, after Bank approval of subproject financing, will onlend the proceeds of the loan through Subsidiary Loan Agreements (SLAs) with GOPs, in the form set forth in the POM; and (iii) the GOA, through the CEU, will prepare and appraise subprojects, and will onlend loan proceeds in accordance with the onlending indicators and targets set forth in the PIP (Table 1, Annex 13). (b) Annual Review of PRPs and Budgets and Approval of Specific Investments (i) The CEU will annually review participating provinces' road programs (PRP) and budgets, based on DPVs' network survey results, in accordance with policies and economic criteria set forth in  - 22 - the POM, send copy of these documents and review to the Bank for comments, and, by September 30 of each year, forward the CEU's and the Bank's comments to the GOPs; and (ii) the CEU will approve the specific investments for financing under SLAs, on the basis of their review of the PRPs, taking into account the comments of the Bank. (c) Strengthening of DPVs' Maintenance Management Systems (i) The CEU will, prior to presenting a subproject application, review the DPV's maintenance strategy and seek agreement on an action program, including monitorable indicators and targets set forth in the SIP, to gradually increase the portion of the network maintained by contract and to adjust their staff accordingly; (ii) the CEU will, prior to presenting a subproject application, review the DPV's technical and administrative capacities to implement the subproject, and seek agreement on an action program to re-design or improve processes, methods and techniques for planning, programming, budgeting, engineering, economic and environmental assessments, procurement, works supervision, contract management, accounting and auditing, and/or program monitoring, as necessary, in accordance with the procedures and methodologies set forth in the POM. (d) Strengthening of Environmental Management (i) The CEU, as conditions of disbursement under SLAs, will require GOPs to adopt appropriate road environmental, resettlement and indigenous people standards and guidelines, and DPVs to establish and staff environmental units, and to revise the general specifications for engineering and work contracts in accordance with the standards and guidelines; and (ii) the CEU will require DPVs to carry out environmental assessments for all their road upgrading, paving or new construction investments, in accordance with TORs satisfactory to the Bank, prior to approving the specific investments for financing. (e) Technical Assistance and Training (i) The CEU will require participating DPVs to contract technical assistance in accordance with Bank Guidelines for Use of Consultants and with TORs satisfactory to the Bank (Annex 12); and (ii) the CEU, with assistance from CVF and DNV, will coordinate the implementation by the participating DPVs of a training program in accordance with TORs satisfactory to the Bank (Annex 12). (f) Monitoring of Project (i) The CEU will establish a Computerized Project Monitoring System (CPMS) as a condition of loan effectiveness, and require DPVs to establish similar compatible systems as a condition of disbursement under the respective SLAs, in order to monitor project implementation effectively; and (ii) the CEU will forward quarterly progress reports in an agreed format to the Bank.  - 23 - 4.07 The participating GOPs, through the DPVs, would implement the subprojects in accordance with the approved SIPs. The main elements of the SIPs, which are summarized below, were confirmed during loan negotiations. Annexes 3 to 10 present the relevant information for the eight appraised subprojects. (a) Preparation and Review of Provincial Road Programs and Budgets (i) The DPV will: by April 30 of each year, carry out a survey of its road network's surface and structural condition, traffic, and accidents, in accordance with TORs set forth in the POM; and by July 31 of each year, prepare the PRP and budget proposal in accordance with policies and economic criteria set forth in the POM, and with the annual physical implementation and funding targets set forth in the SIP and, present such PRP together with network survey results to the Bank, through the CEU, for comments; and (ii) the GOP will take into account the DPV's PRP and budget proposal and the CEU's comments in preparing its annual budget proposal, and the DPV will implement the PRP so as to achieve the implementation targets set forth in the SIP. (b) Strengthening of DPV Maintenance Management Systems (i) the DPV will contract out the maintenance of an annually increasing portion of the network under its jurisdiction, in accordance with the annual targets set forth in the SIP; (ii) the DPV will redesign or improve its processes, methods, and techniques for engineering, procurement and works supervision, contract management, accounting and auditing in accordance with guidelines and indicators included in the POM; (iii) the DPV will, as a condition of disbursement under the SLA, establish a computerized project management system (CPMS) to plan, monitor and report on subproject implementation, in accordance with guidelines and specifications included in the POM. (c) Strengthening of Environmental Management (i) The GOP will, as a condition of disbursement under the SLA, adopt appropriate road environmental, resettlement and indigenous people standards and guidelines acceptable to the Bank; and (ii) the DPV will, as a condition of disbursement under SLA, establish an environmental unit with staff, functions and responsibilities satisfactory to the Bank, prepare appropriate EAs for all road upgrading, paving and new construction projects, revise the general conditions of road engineering and work contracts in accordance with the standards and guidelines, and carry out effective works supervision. (d) Technical Assistance, Personnel and Training (i) The DPV, in order to carry out the above action programs efficiently, by a date to be determined, will contract consultants in accordance with Bank Guidelines for the Use of Consultants (August 1981) and on the basis of terms of reference satisfactory to the Bank. (ii) the GOP will keep the total number of DPV road staff within the annually-decreasing targets set forth in the SIP (Table 7); and  - 24 - (iii) the DPV will, in consultation with the CEU and CVF, prepare a training program for the following year in accordance with the policy and criteria set forth in the POM, and with the targets set forth in the SIP, by October 31 each year present it to the CEU for comments and/or financing approval and, taking into account the comments of the CEU, thereafter implement it. (e) Preparation and Economic Evaluation of Specific Investments (i) The DPV will, when presenting the PRP to the CEU for review, present draft Specific Investment Applications (SIA) in a form set forth in the POM, providing information on each proposed investment in the PRP. The CEU will approve the financing of the engineering designs under the SLA on the basis of the review of the draft SIAs; (ii) after completing detailed engineering designs and prior to contracting the works, the DPV will update and finalize the SIAs as required to reflect the final engineering designs, cost estimates, EAs for the upgrading, paving and new construction investments, and economic evaluation, and present them to the CEU. The CEU will approve the financing of the specific investments under the subloan on the basis of the review of the final SIAs; and (iii) all the investments included in the subprojects would have estimated economic internal rates of return (IERR) exceeding 12 percent. (f) Monitoring of Subproject Implementation and Network Condition (i) the DPV will monitor subproject implementation on the basis of the CPMS, including procurement, execution and disbursement schedules, and against the implementation indicators and targets set forth in the SIP (Table 7), and will inform the CEU through monthly progress reports, as specified in the POM. (ii) the DPV will monitor the surface and structural condition, and the traffic, including axle-weights and accidents, of the provincial road network in accordance with procedures, guidelines and terms of reference set forth in the POM, and against the indicators and targets set forth in the SIP, and will send the results of these surveys to the CEU for comments and information to the Bank. 4.08 The implementation indicators and targets referred to in para. 4.07 are presented for the eight appraised subprojects in Table 7, Annexes 3 to 10 respectively. D. Procurement Arrangements 4.09 Procurement arrangements are summarized in Table 4.1 hereafter. 4.10 All civil works contracts estimated to cost US$5.0 million equivalent or more would be procured through International Competitive Bidding (ICB) procedures, in accordance with Bank Guidelines dated January 1995, and using relevant standard bidding documents issued by the Bank. Any modifications to such documents which may be necessary would have to be agreed with the Bank. Civil works contracts between US$350,000 and US$5.0 million equivalent, up to an aggregate amount of US$250 million, would be procured through National Competitive Bidding (NCB) procedures, based on standard bidding documents which were reviewed by the appraisal mission and which, after approval by the Bank, will be included in the POM. Civil works contracts below US$350,000 equivalent, up to an aggregate amount of US$10 million, may be procured under lump sum, fixed price contracts awarded on the basis of  - 25 - quotations obtained from three qualified domestic Table 4.1: Procurement Method" contractors. The value of (US$ million) individual civil works ------------Procurement Method------------- contracts is expected to vary Prolect Element Ita between US$100,000 and ICB NCB Other n.b.f 2 Total US$10.0 million equivalent Civil Works 260.0 250.0 10.0 940.() 1,460.0 (total cost about US$520 (130.0) (125.0) (5.0) (260.0) million). Miscellaneous 5.0 5.0 road laboratory and office equipment and software (5.0) (5.0) would be purchased by Consultants & Training 3/ - - 35.0 35.0 shopping on the basis of (35.0) (35.0) price quotations from at least three eligible Total 260.0 250.0 50.0 940.0 1,500.0 suppliers, when they cannot (Bank financed) (130.0) (125.0) (45.0) - (300.0) be packaged in contracts 1/ Figures in parentheses are the respective amounts financed by the Bank loan exceeding US$100,000 2/ Not Bank-fmanced, routine maintenance and oEher works fiuanced by Cofinancier or GOPs equivalent, up to an 3/ Services contracted in accordance with Bank Guidelines for Use of Consultants aggregate amount of US$5.0 million. NCB procedures would be used for contracts for goods exceeding US$100,000 and below US$350,000 equivalent up to an aggregate amount of US$5.0 million, in the event that such contracts are required. Consultants for detailed engineering, construction supervision, technical assistance and training programs would be selected and engaged following Bank Guidelines for the Use of Consultants (August 1981) and the standard contract issued by the Bank would be used for complex, time-based assignments. 4.11 The DPVs are the principal implementing agencies, responsible for carrying out the subprojects, including all procurement. Participating DPVs would be assisted in their procurement tasks by the Provincial Executing Units which are responsible for the implementation of the ongoing Bank-financed PDPs. The DPVs' organization for and experience with procurement were reviewed during appraisal and found to be satisfactory. All participating DPVs, together with the Provincial Executing Units, have already procured and implemented a number of Bank-financed contracts under the PDPs. The CEU, which has several adequately-trained procurement officers, will provide technical guidance and training of DPV staff. To ensure that the DPVs will follow satisfactory procurement procedures, the CEU and the Bank would review ex-ante all procurement documentation for all ICB-procured contracts. In addition, the CEU would review ex-ante the procurement procedures for all other contracts. The CEU would review ex-ante all terms of reference and other procurement documentation for consultant and training contracts. The Bank would review ex-ante the terms of reference and other procurement documentation for single-source contracts with consulting firms estimated at US$100,000 equivalent or more, all contracts with individual consultants estimated at US$50,000 or more, and for all contracts of a critical nature for which no sample terms of reference are included in the POM. These Bank prior- review arrangements would cover contracts totaling about 50% of the total cost of Bank-financed works, goods and services. The balance of contracts would be subject to selective ex-post review by the Bank after contract award. Agreement was reached during loan negotiations on the above procurement arrangements. As a condition of loan effectiveness, the GOA should have taken all actions, satisfactory to the Bank, to permit the procurement of goods and services under the project management component in accordance with the Bank's Procurement Guidelines. As a condition of disbursement under a subproject, the GOP should have taken all actions, satisfactory to the Bank, to permit the procurement of goods, works and services under the subproject in accordance with the Bank's Procurement Guidelines.  - 26 - E. Disbursement, Accounting and Audit Arrangements 4.12 The Bank would disburse for: (a) civil works, at Table 4.2: Allocation of Loan Proceeds the rate of 50 % of total expenditures; (b) equipment, at Loan category Amount Disbursement Rates the rates of 100% of foreign expenditures and 80% of local 1. Civil Works 50% of total expenditures expenditures; and (c) consultant (a) rehab. & resurfacing 160,000,000 and training services at the rate (b) upgrading & paving 80,000,000 of 100% of total expenditures. 2. Goods 5,000,000 100% of foreign expenditures The allocations of the proceeds 80% of local expenditures of the loan are shown in Table 3. Consultants, Training 100% of total expenditures 4.2. Based upon experience (a) subprojects 25,000,000 with similar projects and the (b) project management 5,000,000 relevant standard disbursement 4. Unallocated 25.000.000 profile for highway projects, Total 300,000,000 the implementation period for the project is estimated at six years. The project completion date would therefore be June 30, 2002, and the Closing Date would be December 31, 2002. The estimated loan disbursement schedule is shown in Table 4 of the PIP, Annex 13. 4.13 In order to reduce the interval during which the Borrower would finance the Bank's share of subproject cost with their own resources, the Borrower would establish a Special Account (SA) in US dollars in a commercial bank to cover local and foreign currency expenditures of subprojects. The Bank would deposit up to US$12.0 million in the SA. The Bank would replenish the Special Account for the amount of withdrawals on account of eligible expenditures at the request of the Borrower. The DPVs have adequate accounting control to enable disbursement to be made on the basis of certified Statements of Expenditures (SOEs). Supporting documentation with respect to expenditures against contracts valued at less than US$5.0 million equivalent for civil works, US$350,000 equivalent for goods, US$100,000 equivalent for consulting firm and training services, and US$50,000 for individual consultants would be retained by the CEU, be available for inspection during project supervision missions, and be subject to auditing by the external auditors. Expenditures for contracts above these limits would be documented. During loan negotiations, agreement was reached on: (a) the above disbursement arrangements; and (b) the CEU to retain independent auditors, acceptable to the Bank, to audit the project accounts, including the DPVs' subproject accounts, financial statements, the Special Account and Statements of Expenditures, and to furnish the auditors' reports to the Bank not later than six months after the end of each fiscal year. F. Monitoring and Supervision Plan 4.14 Subproject implementation will be monitored against the following key indicators and annual targets set forth in the SIPs, and sumnmarized, for the eight appraised subprojects, in Annexes 3 to 10: (a) subproject implementation progress indicators: maintenance quantities executed (patching of potholes on paved roads, grading of gravel and earth roads, and road markings) and rehabilitation-resurfacing and upgrading-paving works contracted and executed;  - 27 - (b) subproject financial indicators: budgets and funding levels for routine maintenance, rehabilitation and resurfacing, and for upgrading and paving programs; (c) subproject development impact indicators: (i) length of network surveyed; (ii) percentage of network length maintained by private contractors; (iii) total number of DPV road staff; (iv) training effort measured by the total number of trainee-weeks; (v) surface condition of paved network measured by the average IRI value on the paved network; (vi) surface condition of unpaved network measured by the average IRI value on the unpaved network; and (vii) average costs of routine maintenance of paved and unpaved roads (by contract and by force account), of rehabilitation and resurfacing, upgrading and of paving. 4.15 Project implementation will be monitored against the following key indicators and related annual targets, set forth in the Project Implementation Plan (PIP), which is summarized in Annex 13: (a) onlending indicators: (i) number of subprojects approved by the Bank; (ii) number and aggregated amount of SLAs signed; and (iii) disbursements from the loan account. (b) project implementation progress indicators: above-defined subproject implementation indicators, aggregated to the project level; (c) project development impact indicators: above-defined subproject development impact indicators, aggregated to the project level; and (d) project management performance: CEU average response time for review and approval or comment on: (i) provincial road programs; (ii) specific investment applications; and (iii) procurement documentation. 4.16 As part of their action programs to strengthen contract management and program monitoring, the DPVs would establish computerized project management systems which would produce satisfactory information to report to DPV management, the CEU and to the Bank, in accordance with specifications included in the POM, allowing for effective monitoring of the implementation of the subprojects. It was agreed during loan negotiations that CEU would monitor the implementation of the project, including all individual subprojects, and, to this effect, would: (a) require DPVs to prepare and forward to the CEU monthly progress reports based on the above-mentioned computerized system; and (b) prepare, on the basis of such monthly reports, and forward to the Bank quarterly progress reports, satisfactory to the Bank, not later than one month after the end of each quarter. 4.17 In order to streamline project execution and to reduce the supervision burden on the Bank, the CEU would, in addition to preparing and negotiating subloan agreements in the agreed format and within agreed parameters, and to the above subproject and project monitoring activities, review all the following subproject implementation documents including: (a) provincial road programs (PRPs) and specific investment applications (SIAs) for financing under subloans; (b) updated procurement, execution and disbursement schedules; (c) procurement documentation for civil works and equipment; (d) terms of reference, invitation letters, short-lists and draft contracts for consultant services; and (e) DPV monthly progress reports. The Bank would carry out prior review of: (f) all subproject applications including subsidiary loan agreements (SLAs) and subproject implementation plans (SIPs); (g) specific investment applications (SIAs) for investments estimated to cost US$5.0 million equivalent or more; and (h) all Bank prior-review procurement documentation as specified in para. 4.11 above. The Bank would supervise and monitor the implementation of the project, with assistance from the CEU, in accordance with the Monitoring and Supervision Plan presented in Annex 14. The estimates of Bank supervision inputs into  - 28 - key activities, which are shown in the table of Annex 14 take into consideration the expected support from the CEU, as well as the need for training of CEU staff to carry out their responsibilities. 4.18 A Mid-Term, detailed review of project implementation will be carried out by the end of 1998. The review will cover all the agreed actions, target dates, and key implementation indicators included in the Project Implementation Plan, and the status of compliance with all covenants of the Loan Agreement. Particular importance will be given to: (a) the Provincial Governments' commitments to provide adequate funds for maintenance and rehabilitation, and counterpart funds for the subprojects; and (b) the DPVs' performance under the agreed maintenance and institutional development programs. The Bank would have the right to exercise appropriate remedies if performance is not satisfactory. VI. AGREEMENTS REACHED AND RECOMMENDATION 5.01 During negotiations, agreement was reached with the Government of Argentina on the following: (a) CEU's appraisal of subprojects in accordance with criteria, including eligibility criteria, and methodologies set forth in the POM, Bank approval of subproject applications including SLAs and SIPs, and onlending of loan proceeds through approved SLAs in accordance with onlending targets (paras. 3.05, 4.06 (a), Table 1, Annex 13); (b) preparation and annual review of participating provinces' road programs and budgets, and related policies, criteria, and subproject implementation indicators and targets (paras. 3.07, 4.06 (b) and 4.07 (a), and Annexes 3 to 10, Table 7); (c) the CEU to review - and the DPVs to strengthen - the DPV maintenance management systems, and the DPVs to increase maintenance by contract, and related targets (paras. 3.08, 4.06 (c) and 4.07 (b), and Annexes 3 to 10, Table 7); (d) the participating provincial governments to adopt appropriate road environmental, resettlement and indigenous people standards and guidelines, and the DPVs to establish or strengthen their environmental management units to implement the guidelines (paras. 3.09, 4.06 (d) and 4.07 (c)); (e) the DPVs to contract technical assistance, gradually reduce staffing levels, and to prepare and implement annual staff training programs, and related targets (paras. 3.10, 4.06 (e) and 4.07 (d), and Annexes 3 to 10, Table 7); (f) procedures, criteria and methodologies for preparation, economic evaluation, and approval of specific investments for financing under SLAs (paras. 4.06 (b) and 4.07 (e)); (g) Borrower guarantee for counterpart funds, and retroactive financing arrangements (para. 3.17); (h) organizational arrangements for project and subproject execution (paras. 4.04 and 4.05); (i) project implementation plan (para. 4.06 and Annex 13); (j) subproject implementation plans, monitoring indicators and targets (para. 4.07, Annexes 3 to 10);  - 29 - (k) procurement arrangements (paras. 4.09 to 4. 11); (1) disbursement, accounting and audit arrangements (paras. 4.12 and 4.13); and (m) monitoring and reporting arrangements, including implementation targets and mid-term review of project implementation (paras. 4.14 to 4.18 and Annexes 3 to 10, Table 7). 5.02 The following would be Conditions of Effectiveness: (a) adoption by the Borrower of the POM, satisfactory to the Bank (para. 4.01); and (b) execution of at least one subsidiary loan agreement (para. 4.01); (c) setting up by the CEU of a computerized project monitoring system (para. 4.06 (f)); and (d) execution of all actions necessary to permit procurement under project management component in accordance with Bank Guidelines (para. 4.11). 5.03 Conditions of Disbursement under each subproject would be: (a) execution of a satisfactory subsidiary loan agreement (para. 4.01); (b) adoption of the POM by the provincial government (para. 4.01); (c) establishment of DPV project management unit satisfactory to the Bank (para. 4.05); (d) setting up by the DPV of a computerized project management system (para. 4.07 (b) (iv)); (e) adoption of road environmental standards and guidelines, establishment of DPV environmental unit, and revision of norms and specifications of DPV contracts (para. 4.07 (c)); and (f) execution of all actions necessary to permit procurement under subproject in accordance with Bank Guidelines (para. 4.11). 5.04 Recommendation. Subject to the above, the project provides a suitable basis for a Bank loan of US$300 million equivalent to the Republic of Argentina. The terms would be 15 years, including five years of grace, at the Bank's standard variable interest rate for currency pool loans.   - 31 - Annex 1 ARGENTINA PROVINCIAL ROADS PROJECT Bank Experience with Transport Projects in Argentina 1. Results of transport projects in Argentina are mixed. The projects assisted institutional development, as confirmed by completion and audit reports for highways and railways projects. The most important contributions were the improvement of the DNV planning practices and technologies of field surveys of the network, and the strengthening of transport planning capabilities of a young generation of professionals that at present play major roles in the sector. Improvements have been less noticeable with regard to broader policy issues. Major improvements, such as pricing and intermodal planning, especially in railway projects, recently have been achieved in the sector within the framework of the ongoing far-reaching reform program mentioned in Section B of Chapter I of the SAR, which is supported by Bank projects aiming to reform the public sector and public enterprises, as well as to develop provincial and municipal governments. In most cases projects experienced delays, and, in some instances, cost overruns. Lack of local counterpart funds has been an issue common to several of the projects. Also, significant loan amounts have to be canceled, like the closure of the Bahia Blanca project, Loan 2805-AR (85% of the loan was canceled for reasons given in para. 9), as well as about 10% of Loan 2296-AR, Fifth Highway project (para. 8). 2. First Highway Project (Loan 288-AR, US$31 million after cancellation, June 1961) was completed in 1968 and included financing for: (a) 40% of the construction cost of various road sections totalling about 2,600 km; (b) the cost of imported maintenance equipment; and (c) consultant's fees for assistance in engineering and supervision. The original Closing Date, December 1965, was postponed several times, until the final closing of December 1968. Progress was slow, and worsened from early 1962 through mid-1965 owing mainly to a shortage of local funds which resulted in arrears in payments to contractors, and to various changes in government and the management of DNV which caused confusion, lack of continuity, and poor relations with consultants. Moreover, continuous devaluation of the peso combined with late submissions of disbursement applications seriously delayed loan disbursements. Consequently, US$16.5 million of the loan was canceled in August 1965. Afterwards, project implementation improved, though with substantial delays, and project objectives were reasonably achieved with the construction of about 2,000 km of roads and the acquisition of maintenance equipment. A Project Completion Report was not prepared for this project. 3. Second Highway Project (Loan 619-AR, US$25 million, June 1969) was completed in 1978 and included construction and supervision of 1,602 km (796 km at appraisal) of highways; technical assistance for pre-investment studies, highway planning and administration, and. transport coordination; and procurement of equipment. The project as appraised was completed with a delay of one year and a total cost underrun of 14%. The underrun, which resulted from devaluation of the Argentine peso and lower than expected contract prices, led the Bank to propose inclusion of an additional 266 km of highways; however, it took two years to reach agreement on using the surplus loan funds. This delay in turn resulted in the additional work being affected by sharp price increases. Completion of the additional work took two years longer and cost about 100% more than expected. Overall the expanded project required nine years to complete successfully, with a 9% cost overrun. The audit IERR is a weighted average of 19% for the four sections constructed under the original project, compared with the 12% appraisal estimate. Higher traffic volumes more than offset higher construction cost and longer  - 32 - Annex 1 implementation time. The audit IERR for one of the two additional sections was 27%, two percentage points less than at appraisal. The particular issues that arose in connection with the project were: (a) underdisbursement of the loan; (b) underestimation of traffic growth; (c) problems of highway management; (d) delay in implementation of vehicle weight and dimension regulation; and (e) major effort required for transport coordination. A long-term achievement was institutional development: DNV has improved its capacity to plan and administer the changing needs of the network as a result of the experience gained under the Second Highway Project. All feasibility and engineering studies were completed and the results form the basis of the Third and Fourth Highway Projects. 4. First Railway Project (Loan 733-AR, US$6.5 million after cancellation, April 1971) was completed in July 1980 and was based on Ferrocarriles Argentinos' (FAs) Investment Plan for the five- year period 1971-1975 and comprised the first two years (1971-1972) of the Investment Plan, together with a plan of action to improve the operations and financial position of FAs. Investment of the equivalent of US$368 million were proposed during the project period 1971-1972, of which the foreign exchange component was estimated at US$172 million equivalent. The Bank loan of US$84 million was to finance 23% of the project or 49% of the foreign exchange requirements. The implementation of the project ran into trouble almost from the start. The action taken in implementation of the agreed program was grossly inadequate, so the Bank decided to stop disbursements in July 1972. After an agreed project amendment, project implementation resumed. By February 1974 it was apparent that no progress had been achieved, and US$27.5 million was canceled. The main features of the project implementation were: (a) the project was completed in 1980 instead of 1972; (b) lack of adequate Government funds; (c) a cost-overrun of 11 %; (d) only 31 % of the 1971-1975 investment program, expected to be made by 1975 was actually made; and (e) hardly any action was taken by FAs to implement the plan of action agreed with the Bank at negotiations. 5. Third Highway Project (Loan 734-AR, US$67.5 million, May 1971) was completed in 1980. It included 18 high-priority road sections totalling about 1,128 km for upgrading or construction, as well as consulting services for updating the national road reconnaissance survey and for feasibility and engineering studies, which subsequently identified and prepared the Fourth Highway Project. After the substantial progress made under the First and Second Highway Projects, no further direct assistance for institutional development was included in the Third Highway Project. Although done through ICB, all civil works were awarded to Argentine firms because international contractors showed no interest due to extensive local competition. The total cost of road works was about US$197 million, an increase of 41 % over the appraisal estimate. Time overrun was 190%; the project closed 6-1/2 years after the appraisal estimate. The overall ERR was less than expected at appraisal (17% versus 24%) mainly due to the extended construction time, with consequent increase of cost due to inflation and below-expectation traffic growth. The Third Highway project was successful despite cost overruns and long delays in completing certain sections of the road. The project met its principal objective of upgrading key sections of the national highway network and reducing transport costs. 6. Fourth Highway Project (Loan 1384-AR, US$105 million, May 1977) was completed in February 1987 and included improvement, construction, and supervision of 1,285 km, technical assistance for studies, and equipment for the Pavement Overlay Study. The project was amended in 1983 to allocate US$15 million for emergency repair of flood damage. There was a cost overrun of about 15%, and the time overrun was 140%. The overall audit ERR was consistent with that expected at appraisal (22% as compared with 23% at SAR), but with a wide variation in individual ERRs. Traffic growth was substantially lower than that projected at appraisal. The Fourth Highway Project achieved its objective, despite long delays in implementation. All civil works, including emergency works, were completed,  -33 - Annex 1 as well as technical assistance for the National Transport Plan, the Pavement Overlay Study, and the Traffic Safety Program and procurement of equipment. 7. Second Railway Project (Loan 1677-AR, US$66.4 million after cancellation, March 1979) was completed in December 1984. The project was intended to strengthen FAs through the redimensioning of its system; the rehabilitation of its track and equipment; and the improvement of its management and services. Also, through technical assistance and studies, the project aimed to review various aspects of FAs and to develop its planning and project evaluation capabilities. The objectives were only partially achieved despite a two-year extension of the loan. Frequent changes in top management (five presidents between 1979 and 1985), uncertain political conditions, deteriorating economic conditions, and accelerated monetary depreciation were significant negative factors. Positive accomplishments included reasonable progress on main line rehabilitation and improvement, freight car turnaround time, and boxcar modification. The overall ERR was less than expected at appraisal (18% versus 22%), mainly due to the resulting below-expectation traffic growth. However, only 4 projects (representing about 20% of the total economic cost) had marginal ERRs of about 10%. In none of the project years did FAs meet appraisal financial targets. The PCR concluded that the project had only limited success and the problems in FAs were serious enough to require urgent attention by the Government. A deep FAs reform program, supported by the Bank, is now underway. 8. Fifth Highway Sector Project (Loan 2296-AR, US$100 million, January 1984) was completed on December 31, 1990 and provided assistance in the implementation of a series of programs included in the 1983-1986 Road Investment plan. About US$10 million of the loan was canceled because some of the provinces were unable to spend their share, and the procurement of traffic counters was not carried out. The components of the Plan supported by the project were: (a) civil works for the national highway system, which included a wide variety of works from road marking and signing to reconstruction or new construction of road or urban beltways; (b) civil works for the provincial networks, including betterment and reconstruction projects, as well as selected construction works; (c) procurement of traffic counters; and (d) technical assistance to DNV and Sub-Secretariat of Transport Planning (SSTP). After a slow start, when the Sector Lending concept was not applied, the progress of project implementation improved, especially for national roads. The implementation of the provincial component overcame a number of initial difficulties, with mixed results among the provinces. Lack of local counterpart funds severely affected project implementation, especially in the period 1989-90. Consequently, the provincial program was not entirely completed, and the equipment procurement and technical assistance program to DNV were not carried out. 9. First Project, Bahia Blanca I (Loan 2805-AR, US$50.0 million, May 1987) was canceled as of April 30, 1992 with disbursements amounting to only US$8 million. The main project components were: (a) rehabilitation and modernization of grain handling systems at elevator 5; (b)upgrading of silo safety systems; (c) minor improvements at the Bahia Blanca port; and (d) technical assistance and engineering studies. The privatization of the operation of the Bahia Blanca grain terminal (which represents about 65 % of the total project cost), and the new port law, which provides for the decentralization of the port system, caused enough changes to make impractical the continuation of the project.  - 34- Annex 2 ARGENTINA PROVINCIAL ROADS PROJECT Provincial Road Networks: Maintenance Policies and Program Economic Evaluation A. Introduction 1. In order to prepare the multi-year (1996-2000) road maintenance program and define adequate budgetary needs as well as priorities for resource allocations, each participating province carried out an economic evaluation of their respective network, using the latest version of the Bank's Highway Design and Maintenance Standard Model (HDM-Ill and HDM Manager) associated with the Highway Sector Expenditure Budgeting Model (EBM-HS). 2. The HDM Ill is designed to make comparative cost-benefit analyses of different construction and maintenance options, including alternative time staging strategies, either for a given road section or an entire network. The model simulates total life cycle conditions and costs and provides economic decision criteria for multiple road design and maintenance alternatives. The life cycle analysis includes the costs of road construction and maintenance, and the vehicle operating costs; travel time costs can be added as an option. The concept can simply be outlined as: determining costs, adding the set of costs over time and comparing the total cost streams for various maintenance and construction alternatives. The basic data requirements are the road or network description, construction options, maintenance standards and unit costs, vehicle characteristics and unit costs, traffic volumes and projections, exogenous benefits and costs, analysis period and discount rates. The essential references for understanding and running the model are contained in "The Highway Design and Maintenance Standards Model, Model description and User's Manual" by Thawat Watanada et al, published for the World Bank in December 1987 by the Johns Hopkins University Press. 3. The HDM Manager is a user-friendly shell environment developed over the last three years by the World Bank for specific customized applications of HDM. For the economic evaluation of the provincial road networks, the latest version (version 3) dated December 1994 was used in association with the full HDM III software package. HDM Manager is designed to evaluate a set of road agency strategies applied to paved and unpaved roads. It stores the input data efficiently and creates all the input files required by HDM. It then transfers, from within the shell, the data to HDM III which in turn computes the road deterioration, the costs streams and the economic indicators used to compare the set of strategies analyzed. Finally, HDM Manager collects and presents the results in a practical way. However, unlike the main HDM prograrn, HDM Manager does not allow for dividing links into sections and subsections, and it executes only one link at a time, using five alternative maintenance strategies and up to seven vehicle types. For the calculation of vehicle operating costs, it uses the fundamental equations derived from the Brazil's experiments. Before running the HDM Model, HDM Manager requires the user to define in succession (i) the discount rate, analysis period, initial year and currency, (ii) the road characteristics, (iii) the vehicle fleet and (iv) the maintenance or construction strategies to be evaluated with their respective unit costs. 4. The EBM-HS Model is an analytical tool for optimizing multi-year programs of expenditures under multiple budgetary constraints. Particularly useful when used in conjunction with the HDM  - 35 - Annex 2 program, EBM-HS reads the project data generated by HDM III (as previously stored in an ASCII text file) and finds the optimal maintenance policy (i.e., the policy that maximizes the net benefits) under budgetary constraints. It is capable of handling up to 100 projects (i.e. maintenance, upgrading, construction, widening, etc...) with 16 mutually exclusive alternatives. Each project alternative having annual values of economic costs and benefits as well as annual amounts of capital and recurrent resources needed to implement the alternative, EBM-HS program, when given the optimization command, examines the resources consumed and the Net Present Value (NPV) produced from the implementation of each project alternative. The program selects the group of alternatives (one alternative for each project) that maximizes the total NPV for all projects within the selected budget limits. B. Methodology of Economic Evaluation 5. The economic evaluation involved the following steps: (a) carry out or update the road network inventory, according to uniform Terms of Reference previously established and designed to provide the mninimum but necessary amount of information on traffic, pavement condition and environmental parameters; (b) compile all the data collected from the inventory into a data base that enables to sort and statistically analyze them in the most efficient manner; (c) identify and estimate the unit costs of the current and most effective maintenance and rehabilitation (or upgrading) techniques compatible with the province's experience and material resources; (d) analyze and determine the most probable budget constraint scenarios which the provincial road department will experience during the next five years or so; (e) on the basis of the information obtained from the inventory, design a matrix of homogeneous groups of roads or links suitable for evaluation, and formulate maintenance policies alternatives for each one of these groups (or cells of the matrix); and (f) run the HDM Manager and EBM models to arrive at the optimum set of maintenance strategies consistent with budget constraints, and the listing of priorities with corresponding expenditures for the 1996-2000 period. C. Basic Parameters and Assumptions 6. The basic parameters and assumptions used to run the HDM and EBM Models are: (a) network conditions and characteristics, including traffic volumes, composition and growth; (b) vehicle characteristics and operating unit costs; (c) typical construction, overlay and maintenance techniques with their respective unit costs;  - 36 - Annex 2 The values used for these parameters are given in the following sections. The analysis was based on a discount rate of 12%, an analysis period of 20 years, traffic growth rates of 3 to 4% per year, 1996 being the first year of project implementation. (a) Network Inventory 7. Prior to starting the network inventory, Terms of Reference were prepared in order to standardize data collection and methodologies across provinces. The methodologies for collecting information were designed to be consistent with the minimum requirements of the economic model to be used (HDM Manager), and also to achieve speed at reasonable cost. The inventory covered both the paved and unpaved network, and comprised the following tasks: (a) a preliminary definition (identification name, length, age of construction...) of individual homogeneous segments forming the network, based on archives available within each DPV; (b) the quantification of the environmental parameters characterizing the immediate vicinity of each segment, i.e., rainfall, altitude and topography; (c) a three-days traffic counts on each homogeneous segment, or at locations enabling to capture traffic characteristics on each uniform section, of the network; the counts involving the assessment of both the volumes and the distribution of vehicles by class; (annual traffic growth projection figures being obtained from past records and/or predicted growth of other economic indicators); (d) characterization of the pavement structure for each homogeneous link, including the definition of the thickness and geotechnical nature of the materials forming that structure, as well as subgrade CBR values; this information being obtained either from existing files or from a few pits dug in the pavements; (e) visual assessment of surface defects on paved roads enabling the extent of potholes and cracking to be determined for each homogeneous link; (f) deflection and rut depth measurements on a suitable sample of the paved network, enabling each uniform segment to be associated with representative values of deflection and rutting; (g) roughness measurements using a calibrated response-type equipment (Mays meter, Bump integrator, or equivalent); the measurements covering the totality of the paved network and a representative sample of the unpaved network (between 10% and 20% in length). 8. The inventory of the first eight provincial networks was carried out between the month of February and May 1995, at a rate of approximately 1,000 km of network/month/province. 9. The information on each network was compiled into a standardized worksheet Table designed to enable easy processing and consistency across provinces. The worksheets uniformly contained 30 columns representing the road and traffic conditions parameters required by HDM Manager, and as many rows as individual road segments within the network. By and large, the average length of each individual section varied from 15 km to 40 km for the first eight provinces analyzed, resulting in a total number of rows or road sections ranging between 70 and 350 depending on the total length of the network under evaluation ( between 2,000 km and 5,000 km). The data were then analyzed, manipulated and rearranged  - 37 - Annex 2 in other homogeneous groups of roads having similar surface, structural, traffic and environmental characteristics. All these data are available in the Project File. (b) Vehicle Characteristics and Operating Costs 10. The vehicle characteristics, utilization and cost data necessary for estimating vehicle operating costs were previously collected at national level and adjusted whenever possible, in order to reflect provincial specificities. The values used in the analyses are presented in Table 1 hereafter. The costs shown are economic costs. Financial costs are about 66% higher than economic costs as an average. Table 1: Vehicle Characteristics, Utilization and Cost Data Characteristics, Car Pick-up Bus Light Medium Heavy Articulat Utilization & Costs Truck Truck Truck Tiruck Gross vehicle weight (ton) 1 2 10 6 10 20 30 ESA Factor per vehicle 0 0.01 0.5 0.1 1 4 6 Nb. of axles 2 2 2 2 2 3 5 Nb. of tires 4 4 6 4 6 10 18 Nb. of passengers 3 3 40 0 0 0 0 Service life (years) 10 10 10 10 10 10 10 Hours driven/year 1,000 1.000 2,000 1,500 2,000 2,000 2,000 Km driven/year 30.000 40,000 100,000 80,000 70,000 60,000 90,000 Depreciation code 2 2 2 2 2 2 2 Utilization code 1 3 3 3 3 3 3 Annual Interest rate (%) 12 12 12 12 12 12 12 New vehicle price (Arg$) 10,000 17,000 42,000 27,000 42,000 60,000 70,000 New Tire price (Arg$) 40 60 200 170 190 210 250 Maintenance labor ($/h.) 7.2 7.2 7.2 7.2 7.2 7.2 7.2 Crew cost ($/h.) 4 4 4 4 4 4 4 Passenger time cost ($/h.) 1.5 1.5 1 0 0 0 0 Cargo time cost ($/vehicle/h.) 0 0 0 0 0 0 0 Gas price ($/liter) 0.24 0.24 n.a. n.a. n.a. n.a. n.a. Diesel price ($/liter) 0.12 0.12 0.12 0.12 0.12 0.12 0.12 Lubricant price (S/liter) 2.5 2.5 2.5 2.5 2.5 2.5 2.5 (c) Maintenance and Rehabilitation Costs 11. Each province defined its own set of maintenance and rehabilitation techniques on the basis of experience and material resources, and determined for each activity suitable unit costs derived either from recent bids proposals or from force-account expenditures data. For unpaved roads, basic cost inputs comprise routine maintenance, spot regraveling, general regraveling and grading. For paved roads, they include routine maintenance, patching, resurfacing (slurry seals, single or double surface dressings), asphalt concrete overlays, and total reconstruction. In addition, the unit costs of investments such as upgrading operations with gravel or asphalt surfacing (paving) and new construction were also determined. The techniques intended for use and their estimated financial unit costs are presented in Table 2 hereafter; economic costs are about 70% of financial costs.  -38 - Annex 2 Thble 2: Financial Unit Cost of Maintenance and Rehabaklttlon irks Unpaved roads Buenos Alres Chaco Cordoba Corriente la FPmpa Milones Neuquen Santa Fe Grading (USSIkm) 60 60 60 66 60 56 112 60 Spot regraveling (USS/m3) 5 17 24 7 5 5 20 48 General regraveling (US$/m3) 10 30 11 11 10 10 8 42 Routine maintenance (USSlkm/yr) 1,000 1,500 865 1,000 1,000 1,300 Paved roads Patching (USS/m2) 20 32 37 35 20 20 20 24 Surface treatment (US$/m2) 4 2.7 4 2.9 4 4 3 3.3 A.C. overlay 5cm (USS/m2) 10 11.8 9 15 10 10 10 10.7 Reconstruction (USS/m2) 20 20 17 21 20 20 20 23.6 Routine maintenance (USS/km/yr) 1,000 1,500 922 1,000 1,000 1,000 1,100 1,000 Paving (thousand USS/km) 150 100 100 100 100 150 100 100 (d) Budget Constraints 12. The levels of budget constraints likely to be experienced during the next five years have been assessed on the basis of past expenditures and projections of revenues from the Co-participation Fund. The selected budget constraints apply essentially to works and do not include personnel or administration costs which, on average, represent 33% of total expenditures. (e) Design of Analytical Matrix 13. Prior to conducting the economic evaluation, the road network of each province was organized into a matrix, taking into account the following characteristics: surface type, including up to three types: asphalt concrete, gravel and earth. The analysis of the survey results indicated that, for all practical purposes, there was no need to differentiate between surface treatment and asphalt concrete surfacing; maintenance condition of the paved network, including three rating categories: good, fair, and poor as a function of roughness, the thresholds used being IRI < 2.5 for good condition, 2.5 < IRI < 3.5 for fair condition, and IRI > 3.5 for poor condition; structural strength, essentially for paved roads, including strong pavements with deflection less than I mm (or modified structural number above 3), and weak pavements having mean deflection higher than 1 mm. (or modified structural number below 3); . traffic level, discriminating between low, medium, high and very high, these levels being respectively < 300, 300-500, 500-1000, > 1000 vehicles/day, for paved roads, and < 50, 50- 100, 100-200, > 200 vehicles/day, for unpaved roads. 14. The network was organized into homogeneous groups of roads or links, suitable for evaluation. Each group of road segments with similar characteristics was then assigned a specific set of maintenance policy alternatives (Section D below). The matrices for the eight appraised networks comprised between  - 39 - Annex 2 eight and 28 filled cells, each cell having an identification code which reflects the above described characteristics. D. Program Evaluation 15. The economic evaluation itself comprised 4 successive steps: (i) the formulation of maintenance policy alternatives for each cell of the matrix; (ii) the HDM Manager runs at the link group (or cell) level, enabling to compare the returns to be expected from each maintenance strategy alternative; (iii) the EBM runs which optimize, at the network level, the set of strategies analyzed by HDM Manager, taking into account various budget constraints; and (iv) the selection of the set of strategies and priorities which are consistent with the predicted budget constraint. The formulation of the alternative policies retained for the evaluation is described below, followed by a summary of the final results of the economic analyses. 16. Formulation of Maintenance Alternatives. Strategies can be either scheduled in time or responsive to a certain threshold of surface condition. For paved roads in good condition which do not need periodic maintenance action in the near future, strategies are normally condition-responsive, i.e., the maintenance policy is triggered to occur when pavement defects or roughness level reach some pre- determined thresholds, for example when cracking exceeds 30% or when roughness exceeds 5 IRI. For paved roads in fair to poor condition, periodic maintenance action can be expected to be needed immediately or in the near future, and therefore the strategies are scheduled to occur at once (year 1 of the project) but are also allowed to be slightly postponed to the third or fifth year of the project in order to test the effect of postponement on the economic returns. For unpaved roads, policies are either scheduled (for example, in terms of time intervals between grading, or number of grading per year) or responsive (for example, regraveling when gravel thickness falls below 5 cm.). Upgrading operations (or construction policies as defined by HDM Manager) which include new gravel wearing course or asphalt paving are generally scheduled to take place either immediately or postponed to a few years later. 17. For the paved network, the base strategy includes routine maintenance with 100% patching of potholes and reconstruction when roughness reaches a very high level, i.e., an IRI of 11. The other four maintenance options which have been assigned to each cell or group of homogeneous roads are generally the following, depending on the condition of the pavement: (a) for pavements in good condition, resurfacing operations using slurry seals responding to 10% and 30% of surface defects, and thin (4 cm. thick) bituminous concrete carpets responding to two thresholds of roughness (IRI of 3 or 6); (b) for pavements in fair condition, asphalt concrete overlays ranging from 3 cm. to 8 cm. were scheduled to take place in years 1, 3, 5 and 7; (c) for pavements in poor condition, asphalt concrete overlays ranging from 3 cm. to 10 cm. were scheduled to occur in years 1, 3, 5, and 7 of the analysis period. The selected technical solutions for paved networks are presented in Table 3 hereafter.  -40 - Anmex 2 Table 3: Strategies for Paved Networks A B C D E F Traffic ADT Good IRI<2.5 Fair 2.5 <IRI<3.5 Poor 3.5<IRI<6 Strong Weak Strong Weak Strong Weak D < I nmm D>ImmnI D<Imm I D<Imm D<l1mm D<lnnmm 1- <300 Routine Maintenance + 100% Patching 2- 300-500 Routine Maintenance + 100% Patching 3cm A.C 3cm A.C 4cm A,C 3- 500-1000 Slurry Seal or 3cm A.C 3cm A.C 4cm A.C 4cm A.C 5cm A.C 4- 1000-2000 Slurry Seal or 3cm A.C 4cm A.C 4cm A.C 5cmA.C 8cm A.C 5- 2000-6000 Slurry Seal or 3cm A.C 4cm A.C 4cm A.C 8cm A.C l0cm A.C 18. For the unpaved network, the base strategy consists generally in carrying out routine maintenance and three grading every year. The other four maintenance options included regraveling of gravel roads whenever gravel thickness falls under 5 cm., and grading frequencies of 4, 6, 12 and 24 per year. For high traffic densities, upwards of 200, the last option was paving the road. The selected technical solutions for the improved networks are presented in Table 4 below. Table 4: Strategies for Unpaved Network Traffic (ADT) Gravel Roads Earth Roads less than 50 6 gradings/yr+regraveling 8 gradings/year 50 to 100 12 gradings/yr+regraveling 12 gradings/year 100 to 200 12 gradings/yr+regraveling 24 gradings/year more than 200 paving paving 19. The average financial unit costs of the selected technical solutions are shown in Table 5 hereafter. Table 5: Average Financial Unit Costs of WU3rks (Arg$/km) Technical Solution Unit Cost Paved Networks Routine Maintenance + Patching 2000/yr Slurry Seal 20,000 3 cm Asphalt concrete 45,000 4 cm Asphalt concrete 65,000 5 cm Asphalt concrete 75,000 8 cm Asphalt concrete 110,000 10cm Asphalt concrete 130,000 Unpaved Networks Gravel roads 1 4,460/yr Gravel roads 2 4,880/yr Gravel roads 3 4,880/yr Paving gravel road 100,000 Earth roads 1 1,560/yr Earth roads 2 1,840/yr Earth roads 3 2,680/yr Paving earth road 125,000-150,000  - 41 - Annex 2 20. Results of Economic Evaluation. The results of the economic evaluation of the eight appraised subprojects are presented in Annexes 3 to 10. Net Present Values (total and per lum) correspond to the optimum strategies proposed by the models for each cell of the matrices of road condition and traffic volumes. The results of the economic evaluation of the project, aggregating the eight appraised subprojects, are presented hereafter. The benefits taken into account are the vehicle operating cost savings and time savings for passengers. They do not include other secondary benefits such as reduced casualties or property damages from fewer accidents, increased comfort and convenience, nor any economic development impact. Moreover, only normal traffic was considered in the analyses; no generated traffic was assumed to take place as a result of the improvements achieved on the networks. The results of the economic analysis of the project, aggregating the eight appraised subprojects, are shown in Table 6 below. Table 6: Project Benefits and Costs (Arg$ million) Present Value of Flows Economic Flnancial Benefits: Buenos Aires 3,552 5,896 Chaco 219 363 Cordoba 866 1,438 Corrientes 439 729 La Pampa 208 345 Misiones 323 536 Neuquen 350 581 Santa Fe 1,395 2.315 Total 7,352 12,202 Costs: Buenos Aires 691 987 Chaco 126 180 Cordoba 192 274 Corrientes 156 223 La Pampa 82 117 Misiones 116 166 Neuquen 165 236 Santa Fe 324 463 Total 1,852 2,646 Net Benefits Rate of Return 5,500 n.a. (IERR) 39% n.a. Note: the source of difference between economic and financial costs and benefits is taxes  - 42 - Annex 3 ARGENTINA PROVINCIAL ROADS PROJECT Table 1. Buenos Aires Network Characteristics Network Lenath oer Surface Type E 30000 Surface type Length (km) % e 20000 ....... . - : - Paved 9825 27% e 10000TI;iII] Gravel 0 0% - o Earth 26321 73% Paved Gravel Earth Total 36146 100% Surface type Distribution of base and wearing courses on paved roads Material Base Wearing course 6000 Km % Km % E 5000 -..... Granular 249 5% 0 G 4000 ... . . .......... ~,3000 Soil cement 312 6% 0 2000 Bitumen macadam 4621 89% 0 0% -' 1000 Soil lime 0 0% 0 Asphall Surface Cement Asphalt concrete 0 5151 99% concrete treatment concrete Surface treatmenl 0 23 0% Cement concrete 0 8 0% Type of Wearing course Total 5182 5182 Evolution of paved network over the last 30 years %increase Year Length per year 1965 0 E 1970 2000 0. 4000 . 1975 4421 24 a2000. 4' 1980 4838 2 -' 0 1985 5037 1LO L LO U 1990 5120 0.3 1995 5182 0.2 Year Age of Paved network Year of % within 6000 construction Age (yrs) Length (km) range E 6 .. 1990-95 0-5 63 1% - e.4000. - ................ f. 1985-90 5-10 83 2%0/ 2000 1980-85 10-15 199 4% o 0 1975-80 15-20 417 8% 0-5 5-10 10-15 15-20 20-30 1960-75 20-30 4420 85% Age, years Total 5182 100% | Paved network structural strength Structural Number Length (km) % E 4000 1.5-2 59 1% 3000 .... . 2-3 255 5% ~' 2000 :................. 3-4 659 13% 1 00 iooo; 4-5 3865 75% 0 5-6 282 5% 1. 2- 3- 4- 5- 6- 6-7 62 1% 5- 3 4 5 6 7 Tota 5182 100% 2 Structural number Total 5182 100% B I Sources: Buenos Aires DPV, CEU; Bank Mission. 1996  - 43 - Annex 3 ARGENTINA PROVINCIAL ROADS PROJECT Table 2. Buenos Aires Network Condition and Traffic Deflection distrlbutIon on paved network Deflection (mm) Length (km) % 0-0.5 507 ........ ... 05- 0.75 782 15% .. 43000 - ... 075-1 3549 68% 200001.1... 1-1.25 177 3% 5 1000 1.25-1.5 82 2% t 1.5-1.75 75 1% 9 nL t oN 1.75-2 10 0% o 2-2 5 0 0% Defection, mm Total 5182 100% Rouahness distribution on the network IRI Paved Unpaved 3000 Km % Km % EI 0-2 0 0% -2000- 2-3 2674 52% 1000 3-4 1899 37% 0 593 11% N 19 O 5-6 16 0% 0 (U 0 6-8 0 0% Roughnes, IRI 8-10 0 0% 10-15 0 0% 15-20 0 0% Total 5182 100% Maintenance condition of the network Surface condition Paved Unpaved 3000 Km % Km % -20001EU Good 2674 52% ..1... Fair 2492 48% 1000 Poor 16 0% of 8 Very poor 0 0% a. Total 5182 100% Surface conditon Daily Traffic distribution on the network ADT Paved Unpaved K m % Km % 2000. ..... 0-25 0 0 0% E10 2-50 030 0% 50-100 0 45 0% 1000 100-200 256 5% 15491 59% 500 20030 20 0% 10647 40 300-500 321 6% 107 0% 500-1000 857 17% _ LO 1000-2000 1713 33% Average DliyTraffic 2000-4000 1771 34% 4000-8000 244 5% Total 5182 100% 26320 100% Vehice fleet distribution on the network Cars Pick-up Bus Small trucks Med. trucks Heavytrucks Articulated trucks Combined (%) 43 30 3 0 9 15 0 Sources: Buenos Aires DPV, CEU, Bank Mission, 1996  - 44 - Annex 3 ARGENTINA PROVINCIAL ROADS PROJECT Table 3. Buenos Aires Maintenance Strategies and Economic Evaluation A. Paved Network Traffic Parameter Pavement condition Class ADT Good IRI<2.5 Fair 2.5<lRl<c3.5 Poor 11R1>3.5 Strong Weak Strong Wek Strong Weak 0<1mnm D>lmm D<lmrm 0lr1mm D<lmm D>lmm _ _ _ _ _ _ _ _ _ _ _ _ ~A B C D E F Strategy Routine :.. :Rouitine Routine 1 <300 Km 226 2030 NPV 0..... ........% . 0 0 ________ ________ NPV/km 0 0...... 0 Strategy Routine Routine. ........ 2 300-500 Km 254.5 66 . ... N P V 0 0 .. ....... ........ .......... _ _ _ _ _ NPVikm 0 0 .. ... .... ... Strategy 4AC at IRI=3.5... 3AC 4AC, Yr3 4AC, yr7 6AC, Yr6 3 500-1000 Km 500 40 60 148.5 108 NPV 0.131 2.065 3.23 2.742 4.35 _____NPVIkm 0.0003 0.0516 0.054 0.01 85 0.04 Strategy 4AC at IR=.:4AC,Yr 6AC, Yr3 8AC, Yr3 Km 678 364 635 36 4 1000-2000 NPV 7.967 1889 72.67 4.17................. 4 2000-6000 KmV 10467 1868 ... 7016 841 N PVk .131.8 53 0.9 102 NPVIkm 01264 0~~~.. .2. 6.154 0.3126 B. Unpaved Net..w..... Strategy 8A tIRA GrAding per year 1 00<5 00 Km 30418 018 NPV 119513109.121 102 NPV/km 016 -.27 .. 0.004 131 Strategy 12 Gradings per year 2 50-10 Km...... ....3 NPV012 NPV/km ...... .0 Strategy 1 rdnsprya 4 >200 Km........... NPV/...m 0.336 Soures: uens Aies NPV, . akm Misson1199  - 45 - Annex 3 ARGENTINA PROVINCIAL ROADS PROJECT Table 4. Buenos Aires Subproject Cost and Financing Price Qu ant it I es B a r n C o s t (ArgS million) Financing Component Unit tArp$ th) Total 1996 1997 1999 1999 2000 1996 1t997 1998 1999 2000 Totai Y Rehabilitation & Periodic Maintenance 1. slurry seal Km 28 0 0 0 0 0 0 0 00 0.0 0.0 0.0 0 0 0.0 2 3cmoverlay Km 420 40 40 0 0 0 0 17 00 00 0.0 0.0 17 3 4 cm overlay Km 59.5 1660 30 456 250 424 500 1.8 27.1 14.9 25.2 29 8 98.8 4 5cm overlay Km 70 0 635 0 0 320 315 0 0.0 0 0 22 4 221 0 0 44 5 5. 8 cm overlay Km 105 0 120 40 44 36 0 0 4 2 4.6 3.8 0.0 0 0 12.6 6 10 cm overlay Km 126 0 0 0 0 0 0 6 0 0 0 0 0.0 0.0 0.0 0.0 7 concrete pvmt re Km 0 0 0 0 0 0 0.0 0 0 0 0 0.0 0.0 0.0 subtotal 642 2455 110 500 606 739 500 7.7 316 41 1 473 298 157.5 50% Upgrading, Paving and New Constructlion 8 graveling Km 0 0 0 0 0 0 0.0 00 0.0 0.0 0.0 0.0 9 paving Km 150.0 400 0 100 100 100 100 0.0 150 150 150 15.0 600 10.construction (unp Km 0 0 0 0 0 0 0.0 0 0 0 0 0.0 0.0 00 11 construction (pav Km 0 0 0 0 0 0 00 0.0 0 0 0.0 0.0 0 0 subtotal 1500 400 0 100 100 100 100 00 150 15.0 15.0 15.0 60.0 50% Studies 12 engineering desi Km 3 0 0 0 0 0 0 0 0.0 0.0 0 0 0.0 0 0 13. environmt asses MM 6 0 0 0 0 0 0 00 00 -0.0 0.0 0.0 0.0 14 works supervisio % 3 0% 02 14 1 7 1.9 1.3 6.5 subtotal 0.2 14 1 7 19 13 65 100% Institutional Strengthening 15 technical assista MM 7.0 204 24 60 60 36 24 0.2 0.4 0.4 0.3 0.2 1.4 16 equipment& soft Is 10 0 100 20 50 30 0 2 0.5 0 3 0.0 0.0 10 17 training train.we 05 1170 450 260 200 260 0.0 02 01 01 01 06 subtotal 04 1.1 0.9 04 03 30 100% Base Cost of Investment Program 83 49 3 58.6 64.5 46.4 227.0 52% 18 physical contingencies 10.0% 0.8 49 59 64 4.6 22 7 19 price contingencies 2 6% 2.6% 2 6% 2.6% 2.6% 01 1.9 39 61 5 7 17 7 Total Cost of Investment Program (Incl. contingencIes) 9.2 56 2 68.3 77 0 56.7 267.4 52% Routine Maintenance 20. paved roads Km 1 5 25900 5180 5180 5160 5180 5180 3 9 7.8 7 8 7 8 7 8 35 0 21 unpaved roads Km 1.7 131600 26320 26320 26320 26320 26320 22.4 44.7 44 7 44 7 44 7 201 3 22 road consortia Km 0 0 0 0 0 0 0 0 0 0 00 0.0 0 0 0 0 subtotal 157500 31500 31500 31500 31500 31500 26.3 52 5 52 5 52.5 52 5 236 3 0% Subproject Total Cost 35.6 109.7 120.8 129.5 109.2 603.7 29% Financing Plan Bank Loan . Cofinancing 4.9 29.5 35.6 39.9 29.4 139.3 28% category 1.a (rehabiliation & periodic maintenance) 4 2 17.5 22.6 26.0 16 4 86.6 50% category I b (upgrading, paving & new construction) 0.0 8.3 8 3 8.3 8.3 33.0 50% category 2 (equipment A software) 0.2 0 6 0e3 0 0 0 0 11 100% category 3 (consultants and Training) 0.4 2 3 2 5 2 4 18 9 4 100% category 4 (unallocated) 01 1.0 2.0 3.2 3 0 9.2 Provincial Government 30.8 79.2 86.2 99.7 79.9 364.4 72% So)urcecs Buenos Aire DPV, CEU. Bank Missiosn 1996  - 46 - Annex 3 ARGENTINA PROVINCIAL ROADS PROJECT Table 5. Buenos Aires First Year Investment Program Existing Road Condition Proposed Investment Wearing Road Section Lencth, km Traffic. ADT Age. yrs IRI course Strategy Cost. MS NPV. MS IERR, % Barcarce-Los Pinos 12 2747 4.2 Asph. Conc. 8 A.C overlay 1.26 15.7 119 25deMayo-Saladillo 13 2499 4.9 Asph. Conc. 8A.C overlay 1.37 17.1 119 Tapalque-Azul 59 2221 4.6 Asph. Conc. 8 A.C overlay 8.2 77.4 119 RP2-Empalme RP36 22 5073 3.0 Asph. Conc. 4 A.C overlay 1.3 6.2 43 Necochea-Loberia 43 3501 3.4 Asph. Conc. 4 A.C overlay 2.6 11.9 43 Canning-RPB 26 2646 3.3 Asph. Conc. 4 A.C overlay 1.5 7.2 43 La Dulce-Juarez 95 2493 3.3 Asph. Conc. 4 A.C overlay 5.9 26.2 43 RN33-Lte.Pcia La Pampa 40 945 3.4 Asph. Conc. 3 A.C overlay 1.9 2.1 25 Sub total 310 24.03 163.8 Earth roads 100 225 Earth Paving 15 33.6 47 Total 410 39.03 197.4 Table 6. Buenos Aires Network Condition Evolution 100% 4 0 80% 3.5 a z c 60% 3 GI o 40% 2.5