Argentina - Road Maintenance and Rehabilitation Sector Project

Document of The World Bank FOR OFFICIAL USE ONLY Report No: 21161 IMPLEMENTATION COMPLETION REPORT (CPL-36110; SCL-3611A; SCPD-3611S) ON A LOAN IN THE AMOUNT OF US$340 MILLION TO THE ARGENTINE REPUBLIC FOR A ROAD MAINTENANCE AND REHABILITATION SECTOR PROJECT DECEMBER 14,2000 Finance, Private Sector and Infrastructure Department Country Management Unit - LCC7C Latin America and Caribbean Region This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.  CURRENCY EQUIVALENTS (Exchange Rate Effective) Currency Unit = Peso (A$) A$ 1.00 = US$ 1.00 US$ = FISCAL YEAR January 1 - December 31 ABBREVIATIONS AND ACRONYMS ADT - Average Daily Traffic CAI - Core Accountability Implementation Completion Report CAS - Country Assistance Strategy CD - Country Director CVF - Consejo Vial Federal (Federal Road Council) COT - Construir, Operar, Transferir CREMA - Contrato de Recuperaci6n y Mantenimiento (Contract of Rehabilitation and Maintenance) DNV - Direcci6n Nacional de Vialidad (National Highway Directorate) DPV - Direcci6n Provincial de Vialidad (Provincial Highway Directorate) IERR - Internal Economic Rate of Return ICR - Implementation Completion Report IRI - International Roughness Index MTR - Mid-term Review NBF - Not Bank Financed NPV - Net Present Value PCD - Project Concept Document SAR - Staff Appraisal Report SOP - Secretaria de Obras Publicas (Secretariat of Public Works) TL - Team Leader TT - Task Team Vice President: David de Ferranti Country Manager/Director: Myma Alexander Sector Manager/Director: Danny Leipziger Task Team Leader/Task Manager: Gerard Liautaud  FOR OFFICIAL USE ONLY CONTENTS Page No. 1. Project Data 2. Principal Performance Ratings 1 3. Assessment of Development Objective and Design, and of Quality at Entry 2 4. Achievement of Objective and Outputs 3 5. Major Factors Affecting Implementation and Outcome 6 6. Sustainability 7 7. Bank and Borrower Performance 8 8. Lessons Learned 8 9. Partner Comments 9 10. Additional Information 9 Annex 1. Key Performance Indicators/Log Frame Matrix 12 Annex 2. Project Costs and Financing 13 Annex 3. Economic Costs and Benefits 15 Annex 4. Bank Inputs 16 Annex 5. Ratings for Achievement of Objectives/Outputs of Components 18 Annex 6. Ratings of Bank and Borrower Performance 19 Annex 7. List of Supporting Documents 20 This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not be otherwise disclosed without World Bank authorization.   Pro ject ID: P006003 Pro ect Name: RD MAINT & REHAB SCT Team Leader: Gerard L. Liautaud _ TL Unit: LCSFT ICR Type: Core ICR Report Date: December 14, 2000 1. Project Data Name: RD MAINT & REHAB SCT L/C/TFNumber: CPL-36110; SCL-361 IA; SCPD-361 IS Country/Department: ARGENTINA Region: Latin America and Caribbean Region Sector/subsector: TH - Highways KEY DATES Original Revised/Actual PCD: Effective: Appraisal: 05/01/93 MTR: Approval: 06/03/93 Closing: Borrower/lmplementing Agency: GOVT OF ARGENTINA INA/DNV/DPVS Other Partners: STAFF Current At Appraisal Vice President: David de Ferranti Shahid Husain Country Manager: Myma L. Alexander Ping-Cheung Loh Sector Manager: Danny Leipziger Alfonso Sanchez Team Leader at ICR: Geraud L. Liautaud Raul Auzmendi ICR Primary Author: Geraud L. Liautaud 2. Principal Performance Ratings (HS=Highly Satisfactory, S=Satisfactory, U=Unsatisfactory, HL=Highly Likely, L=Likely, UN=Unlikely, HUN=Highly Unlikely, HU=Highly Unsatisfactory, H=High, SU=Substantial, M=Modest, N=Negligible) Outcome: HS Sustainability: L Institutional Development Impact: SU Bank Performance: S Borrower Performance: S QAG (if available) ICR Quality at Entry: S S Project at Risk at Any Time: No  3. Assessment of Development Objective and Design, and of Quality at Entry 3.1 Original Objective: The main objectives of the project were to: (a) ensure adequate maintenance and/or rehabilitation of the national road network for those sections not concessioned; (b) assist with the quality and financial supervision of the maintenance to be executed by the concessionaires; (c) support the incremental implementation of the institutional reform of the Direcci6n Nacional de Vialidad (DNV), Direcciones Provinciales de Vialidad (DPV), Secretaria de Obras Ptublica (SOP) and Consejo Vial Federal (CVF) to respond to the Government's decentralization policy as well as to changes in national/provincial government roles regarding sharing road transport subsector management responsibilities, through: (i) the physical reconditioning of the road sections for which maintenance and operational responsibility may be delegated to the provinces (thus reducing the initial workload of the provinces), (ii) the strengthening of the generally inadequate provincial capability to manage road activities through a broad Technical Assistance program and reinforced transfer of technology among highway agencies, and (iii) the evolution of appropriate road planning and financing mechanism; (d) assist in achieving the optimal combination of provincialization, privatization, and nationally-supported operations for those sections that are of national interest; and (e) support the creation in DNV of an environment unit with trained staff to prepare systematically and monitor environmental assessments when the works warrant, and to provide future guidance to the DPVs. 3.2 Revised Objective: Project objectives were not revised during implementation. However, project description and the Loan Agreement were amended in January 1996 to include a new category of disbursement for the CREMA contracts (Contrato de Recuperaci6n y Mantenimiento). Such contracts are five-year performance-based contracts entered into by DNV with private sector contractors to undertake all phases of road rehabilitation and maintenance works as a single package, from design and programming of works, through the execution of such works. The new category was financed by the previously unallocated amount and by the reallocation of uncommitted amounts from civil works (rehabilitation and periodic maintenance). Thereafter, only Schedule I of the Loan Agreement was periodically revised to reallocate the proceeds of the loan as requested by the Borrower. 3.3 Original Components. Originally the project comprised: (a) a four-year tranche (mid-1993 to mid-1997) of the DNV's road maintenance and reconstruction program for the portion of the national road network which is not concessioned; (b) flood emergency works; (c) technical assistance for DNV reorganization and its reconversion program; (d) management training and technical assistance; and (e) implementation of specific action plans in pilot provinces to transfer know-how and strengthen their implementation capacity. The project would also include the equipment required for the implementation of the various technical assistance components. The original total cost of the project was estimated at US$756 million equivalent, including US$335.7 million for rehabilitation works and periodic maintenance on the paved network, US$170 million for routine maintenance on the paved and unpaved networks, US$20 million for flood emergency works, US29.7 million for consulting services, US$3.6 million for equipment, US$113 million for identifiable taxes and US$84 million for physical and price contingencies. 3.4 Revised Components: In January 1996, the Bank agreed to revise project description by incorporating a new civil work component called "CREMA" (Contrato de Recuperacion y Mantenimiento). Such contracts are performance-based and require the Contractor to rehabilitate and subsequently maintain a subnetwork of roads (generally between 100 and 300 km long) on a lump sum basis for a total period of five years. The Bank had perceived at the time that DNV's innovative system of contracting an integrated rehabilitation and maintenance program was likely to be cost and quality effective for several reasons: (i) by focusing on road user's satisfaction and on Contractor's performance to achieve a minimum level of service rather than on inputs or resources used, the system would foster innovation on part of the Contractor; (ii) by prescribing that the Contractor sets up his own quality control system, DNV's supervision workload would be drastically reduced; (iii) by selecting a lump-sum type of contract, the risk of cost overruns would be practically eliminated; and (iv) by extending the contract period to five years the risk of unsatisfactory rehabilitation works would be greatly reduced since the Contractor has to maintain the works over that period of time; in addition, Treasury would be deterred from failing to provide funds - 2 -  for maintenance and to honor long-term payment obligations. To finance the new component an amount of US$104 million was reallocated from the previously unallocated category of the loan and from the residual uncommitted amounts for rehabilitation and periodic maintenance. The percentage disbursement for the new CREMA category was set at 75%. 3.5 Quality at Entry: Consistent with QAG assessment (7/27/99) the quality at entry of the project is given a satisfactory rating. Indeed, the project was designed as an integral part of the Bank's macroeconomic and sector assistance strategy for Argentina. Project's objectives were supportive of the Government efforts to stabilize the economy, reduce fiscal deficit, increase efficiency in the delivery of public services and achieve overall economic growth. The project addressed major aspects of the sector with significant macroeconomic implications, such as: optimization of road expenditures in infrastructure rehabilitation and maintenance, increasing efficiency in the management of the country's road networks including the preservation of the asset that they represented, which at the time of project preparation was in dire need of restoration. Project risks were adequately identified and evaluated. 4. Achievement of Objective and Outputs 4.1 Outcome/achievement of objective: Apart from the objectives listed in para. 3.1 the project was expected to reduce vehicle operating costs on the non-concessioned national road network through an adequate maintenance and rehabilitation program. During appraisal, the surface condition index of that network (IE) was very low, about 5.5 and the proportion of roads in poor condition was estimated at about 35%. At completion, nearly 45% of the network had been rehabilitated or resurfaced under the project. This achievement, cormbined with the efforts provided for routinely maintaining the system, helped improve substantially the condition of the network. Regular monitoring of surface conditions between 1993 and 1999 gives the following indications: in 1996, the average surface condition index (IE) had improved from 5.5 to 6 reaching at closing a value of 6.6, close to the target of 7 agreed during negotiations. In that respect it is worth mentioning that a target of 7 is extremely rigorous and difficult to obtain over a network of roads and that the achieved value of 6.6 may be considered as excellent. In terms of International Roughness Index (IRI) the overall proportion of paved roads in poor condition (with IRI>5) has decreased from the appraisal figure of 35% to 12% in 1996 and to 10% in 1998. Simultaneously, the proportion in good to very good condition (with IRI<4) has increased from 44% in 1993 to 70% in 1998. The quality of road infrastructure also improved substantially on the concessioned corridors over the last 6 years: the overall proportion of that network in poor condition has decreased from 25% to practically zero percent. Purely public provision of road infrastructure and heavily regulated transport services at federal level have practically disappeared and have been replaced by public-private partnership and more efficient deregulated long distance road transport services as reflected by the current status of the concessioned and non-concessioned contracts in the road sector. These contracts cover about 66% of the total length of the national road network and comprise approximately: 9,400 km of high traffic toll roads (with daily traffic > 3000) under 20 concessions contracts (12-year duration), including the 4 accesses to Buenos Aires and the access to Cordoba; 61 CREMA contracts (5-year duration) covering 11,667 km; 2 COT ( Construir, Operar y Transferir) contracts of 10-years duration covering about 626 km of non-tolled roads; and 13 routine maintenance km/month contracts of a 2-year duration which cover about 3,845 km. Because of the above achievements the project outcome, overall, has been rated as satisfactory. 4.2 Outputs by components: a. Rehabilitation Components. The original objective was to rehabilitate about 7,700 km of paved roads. At completion 9,940 km were rehabilitated, thus exceeding appraisal estimate by 22%. b. Institutional Development Components. The institutional development components had the following outputs: * Private sector participation in the management of the maintenance of the network has been drastically improved: at appraisal, the 29,000 km-long non-concessioned national network was maintained entirely but not -3 -  efficiently by force-account; at completion, only 20% of that network is maintained in-house. * Outsourcing modalities of maintenance activities over the entire national road system now involve a balanced combination of toll roads concessions (25% of total length on high traffic volume roads), CREMA, COT or km/month maintenance contracts with the private sector (43% of total length on medium traffic volume roads), and delegated maintenance mandates to the provincial road departments (16% of total length, mainly on low volume roads). Of the 38,408 km which comprise the entire national highway system, about 6,150 km only, i.e., 16% are now maintained by force-account, and the intention is to bring that proportion down to less than 5%. * Because of the implementation of the CREMA contracts, it has been estimated that communities located near the networks to be maintained would benefit through opportunities of employment generated by road maintenance activities: about 5,000 jobs have been generated across all regions, every year. * The number of DNV staff has been drastically reduced over the last 6 years from about 4,000 to slightly less than 3,000; i.e., the number of km of non-concessioned roads per agent has improved from 7 to nearly 11 (in 1990, the ratio was as low as 5 km/agent). * Planning, prioritizing, budgeting and programming of road works on the non-concessioned network are now based on objective pavement condition and traffic surveys and the HDM model is widely used both at central and regional levels to select and optimize economically sound highway expenditure programs. * An Environmental Division has been set up in DNV and has developed and is implementing satisfactory environmental standards and guidelines. * A comprehensive training program has been implemented during the project and most of DNV's staff as well as DPV's technical personnel have been trained and upgraded using the proceeds of the loan (see Section 10 for more details). * Supervision of the quality of maintenance executed on the concessioned corridors is adequately carried out by a special department within DNV. * A number of important studies have been financed and executed under the project with action plans drawn for the implementation of their recommendations: a study of the reformulation of the national road system sets a solid foundation for furthering the road decentralization program; a road users charge study has been carried out which showed that total highway expenditures are fully recovered from road users; a modem traffic information and updated axle-load control systems have been prepared which will enable DNV, when implemented, to better design, plan, and execute rehabilitation and capacity-increase programs in the future; a road safety study (a critical issue in Argentina) has defined a comprehensive program of actions aimed at reducing the high accident toll currently suffered by the country (Section 10 includes details of the achievements under the road users charges study and road safety study). * Because it offers an effective means to improve the efficiency and public accountability of road maintenance expenditures, the CREMA system of contracting has been a success and is enjoying a widespread reputation across the region. The experience of the last 3 years has indeed been successful from various angles. On the institutional side: (a) the system by prescribing that the Contractor sets up his own quality control system has reduced considerably the need for time and staff consuming supervision (thus cost) and eliminated redundant quantities and quality-testing of activities performed; inspection team size and tasks are reduced to the bare minimum; (b) delays in project implementation which in traditional programs are due to lack of planning and insufficient stock of prepared sub-projects have been minimized since the Contractor is required to carry out the detailed engineering design before initiating the works; (c) focus is now on road users' satisfaction and on Contractor's performance to achieve a minimum level of service rather than on inputs i.e. quantity activity and unit rates compliance; (d) the system has fostered innovation on part of the Contractors in the programming and execution of the works since acceptance and payments are not tied to rigid specifications related to workmanship -4 -  but rather to end results and level of service; (e) in parallel to the Argentine initiative, several countries on the Continent (including among others: Chile, Colombia, Peru, Uruguay, Brazil) are now experimenting and selectively using many of the innovative features of that system; and (f) a paper describing the system and presented at the Seventh International Conference on Low-Volume Roads in May 1999 received the award for that conference. On the financing and funding side several advantages have been obtained: (a) the risks of cost overruns have been drastically reduced since contracts are fixed-priced: currently, the cost overruns on the CREMAs amount to less than 3% and are essentially due to force-majeur and compensable events (El Nino related) and this is to be compared to the traditional 15% cost increase generally experienced with other conventional contracting systems; (b) despite some delays in payment which have occurred at the end of 1999 due to emerging macroeconomic difficulties, the use of the CREMA contracts seem to have deterred Treasury from failing to honor the debts and the system provides a more stable funding for road maintenance as the long-term payments obligations under these contracts become legally binding on the Govemment; (c) the average cost per year and per km of the CREMA system is of the order of US$11,000 against a US$19,000 average cost for the COT contracts while the unit cost of the km of rehabilitation under the CREMA stands at about US$66,000 to be compared to the original estimates of US$59,000 based on less efficient conventional contracting methods; (d) likewise, the CREMA routine maintenance cost is of the order of US$3,100/km/year which is consistent with the range of unit costs experienced in the region for routine maintenance activities carried out by force-account or other traditional unit prices contracts, i.e., from US$2,500 to US$4,000/km/year; and (e) procurement was a success as the lowest bid price in aggregate exceeded the official budget by only 20% and this can be accounted for by the financial charges of the contractors which had to invest up-front for the rehabilitation work, as well as by the risks associated with high penalties in case of non compliance with the specified level of service and finally by the fact that the contractor's design (overlay thickness) was sometimes more conservative than the minimum solution specified by DNV on which was based the pre-bid estimate. Since most of its objectives have been met, the project outcome is rated as satisfactory and the institutional development impact has been rated as substantial. 4.3 Net Present Value/Economic rate of return: The economic evaluation carried out at appraisal with the HDM 3 model indicated that the rehabilitation component of the project (representing 60% of the original total base cost) had an Intemal Economic Rate of Return (IERR) ranging from 21% to 35% with an overall average of about 30%. Ex-post analyses gave IERR values ranging from 35% to 53% with an overall average of 44%. The economic return of the project remained therefore at a highly satisfactory level. A separate ex-post evaluation carried out for the CREMA sub-component alone also gave high returns: an IERR of 60% with a Net Present Value of US$1,173 million and a Benefit/Cost ratio of 1.8. The economic analysis also showed the positive fiscal impact of the execution of the CREMA works: future annual rehabilitation costs for the Road Authority will be reduced by about 30%. 4.4 Financial rate of return: As part of the analysis referred to immediately above, it has been estimated that as a result of the execution of the CREMA contracts, the national road agency will have positive financial benefits in the long term because future expenditures needed to maintain the network at an acceptable level of service will decrease. The positive fiscal impact has been estimated to be in the order of 30%: financial capital and recurrent maintenance expenditures will be reduced from about US$11,300/lan/year to US$8,000/kln/year after project implementation. A financial evaluation has shown that the financial rate of return of the CREMA sub-component is in the order of 65% at a 12% discount rate. 4.5 Institutional development impact: The project has contributed to the establishment within DNV, both at central and regional levels, of a comprehensive pavement management system, including the use of the HDM model for preparing and monitoring efficient expenditure programs under budget constraints, based on technical and economic criteria rather than on political considerations. It also contributed to the establishment of an appropriate environmental division and to the setting up of a department responsible for the monitoring of the quality of services provided along the - 5 -  concessioned corridors. Moreover, the project has directly contributed to contracting out, using innovative modalities, the maintenance of the network which was previously carried out by force-account and to obtain improved funding for maintenance. Finally, the project helped finance an extensive training program for DNV and DPV staff and also a number of major sectoral studies including action plans for the implementation of their recommendations: decentralization of road maintenance mandates will be furthered thanks to the study on the reclassification of the network ; road safety will be enhanced through the implementation of the traffic safety study recommendations and more efficient network and traffic surveys will be carried out by implementing the results of the studies conducted on traffic information systems, axle load measuring systems and pavement evaluation methodologies. For these reasons, the institutional impact of the project has been rated as substantial. 5. Major Factors Affecting Implementation and Outcome 5.1 Factors outside the control of government or implementing agency: The Tequila financial crisis of 1994 and 1995 introduced a substantial extemal shock outside Government control which required that more stable financial mechanisms for maintenance be developed. * In early 1996, realizing that the CREMA system of contracting would be an effective means to improve project performance in particular and the efficiency and public accountability of road maintenance operations in general, the Bank agreed to amend the Loan Agreement and to create a special disbursement category of works with an attractive rate of 75% (above the rates used for the other categories). The flexibility shown by the Bank in revising the Loan Agreement to accommodate more private sector involvement had a positive effect on the project outcome. Moreover in 1998 the Bank approved a new loan that would help sustain the CREMA contracts signed under this project. * In 1999 the provincial and national elections slowed down decision-making across all govemment agencies. This was compounded by emerging constraints on public spending and change in administration. This factor affected in particular the institutional development component of the project (delays in contracting the last sector studies). 5.2 Factors generally subject to government control: * The untimely provision of counterpart funds in sufficient amount has sporadically plagued project performance throughout its implementation period. Both the civil works and institutional components achievements were affected by the problem of local budgetary resources, particularly acute in 1995 and during the last two years of implementation. * Because of the emerging "Tequila" crisis and as an economic emergency measure a decree signed by the Superior Gobiemo de la Nacion in 1994 prohibited bidding and awarding of contracts for civil works between November 1994 and March 1995. As a result, the physical component of the project was delayed with a substantial disbursement lag during that period. 5.3 Factors generally subject to implementing agency control: * In 1995, the civil works in the 1993-94 Road Investment Programs were delayed by poor designs and by DNV's slow processing of design modification orders (more than 50% of the works contracted in 1993 needed changes to their design). * Also, DNV's reluctance to and slowness in hiring Consultants affected the speed at which institutional objectives (program of technical assistance) were achieved. * However, when the project was in disarray late 1995, as a result of the Tequila crisis (DNV's budget allocations fell by about 25%, from nearly US$600 million to about US$450 million), Vialidad Nacional had particular merit in developing and implementing the CREMA system of contracting and in involving the private sector in the road maintenance activities to an unprecedented level. That enabled quick and intensified use of available Bank loan and was instrumental in ultimately bringing about the highly successful achievement of project objectives. -6 -  5.4 Costs andfinancing: Project cost details are given in Annexes 2a (Project Costs by Component), 2b (Project Costs by Procurement Arrangements), and 2c (Project Financing by Component). As can be seen in these annexes, the total project cost at closing amounted to about US$615 million i.e. 81% of the appraisal estimate of US$756 million. The reduction is mainly accounted for by the lower-than-expected costs for taxes and contingencies (initially assumed to be 35% of project base cost) and by lower bid costs for rehabilitation and periodic maintenance works. Overall, actual average unit cost for rehabilitation and periodic maintenance (including works carried out outside the CREMA contracts, using conventional ad-measurements type of contracts) was US$53,700 against an original estimate of US$58,700/km. Regarding project financing, the Bank contribution was 97% of planned estimates and the Government contribution reduced by 31%, as compared to appraisal estimates. 6. Sustainability 6.1 Rationalefor sustainability rating: Project sustainability is rated as likely, overall. However, as macroeconomic conditions in Argentina have deteriorated recently, the financing and management capabilities in place will be tested. The DNV will need to continue efforts to ensure sustainability including the following actions which need to be monitored: (i) necessary funds are timely, regularly, and appropriately allocated to the maintenance and rehabilitation of the national road network (CREMA contracts) and given priority over new constructions. As indicated earlier, it is estimated that through more timetable efficient, reliable and timely maintenance allocations the yearly requirements are reduced by 30%; (ii) adequate pavement standards and models such as the HDM are used to prepare and prioritize economically sound road expenditure programs based on updated and objective road network condition and traffic surveys. Recent improvements of the strategic road network condition will allow for more systematic management to be developed; (iii) procurement of all DNV works are based on transparent and competitive bidding, whether they are or not partly financed by multilateral agencies; (iv) adequate staffing including training and career development programs are provided and implemented within DNV; and (v) the CREMA system of contracting is expanded to include the entire national non-concessioned network. Even though the system introduces more rigidity in fiscal allocations to the sector it assists the Government in supporting countercyclical measures focusing on the high priority network. A follow-up project recently financed by the Bank is helping consolidate the benefits from this project, thereby increasing the likelihood of sustainability. It is worth noting that DNV is now providing technical assistance to countries in Central America on how to develop the CREMA contracting method. 6.2 Transition arrangement to regular operations: Transition arrangements for the project's future operation are well in place and are being currently secured by a Bank-financed follow-on project. The CREMA system of contracting is being expanded to cover the entire non-concessioned paved national network and the bidding of a second package is now under way. Also the Km/month contracts and the maintenance agreements with the Provinces have been renewed. DNV's organization, missions and staffing are being reviewed and modemized by the new administration which took office in January 2000. Further training of staff is being provided for by the new Bank loan. However, and in the face of current restricted budgets, the challenge for the on-going follow-on project is the availability of funds for the CREMA contracts. There is a need to keep a close watch on the priority given to that issue by the Government, - 7 -  and the Bank role in supervising and monitoring this project will be critical. 7. Bank and Borrower Performance Bank 7. 1 Lending: Bank performance during identification, preparation and appraisal was-satisfactory on the whole. Its involvement in the project was consistent with the government's strategy on decentralization and supportive of the country objective to resume economic growth, including the provision of efficient and reliable transport services to targeted sectors of the economy as well as the promotion of the private sector operations in transport. The appraisal team had a good skill mix of highway engineers, a transport economist, an environmental specialist and a procurement consultant. Project design was simple and consistent with the agencies' implementation capacity overall. Risks were adequately recognized and performance indicators appropriately defined. 7.2 Stupervision: Bank supervision performance was also satisfactory. On average, the project was supervised twice a year and implementation progress and ratings adequately reported. In recognizing the innovative nature of the CREMA system of contracting, and in approving the needed restructuring of the project, Bank performance helped bring about the successful achievement of project objectives. 7.3 Overall Bankperformance. Overall performance was satisfactory. Borrower 7.4 Preparation: Fully committed to the project objectives, the Borrower participated actively in the preparation of the project. Government staff prepared all technical, economic and financial aspects of the project. 7.5 Government implementation performance: Government implementation performance was satisfactory The executing agency showed strong commitment to the project and assigned adequate key managers to coordinate its implementation. Less satisfactory were the timely and sufficient provision of counterpart funds. 7.6 Implementing Agency: Throughout the project implementation period, the implementing agency performance was satisfactory. 7.7 Overall Borrower performance: The overall Borrower performance was satisfactory. 8. Lessons Learned 1. The Argentine experience confirmed that strong government ownership and commitment can help bring about dramatic and positive changes in highway sector policies within a relatively short period of time (in this case in less than 10 years). 2. This project has also shown that the implementation of an optimized network rehabilitation and maintenance strategy can effectively bring an entire road network back into a satisfactory condition over a period of a few years and at a reasonable cost. 3. Proactive supervision and restructuring of the project as soon as critical assumptions have changed were essential to achieve the development objective: in this case, by the end of 1995, stock of subprojects ready for bidding was lacking and the design and adoption of the CREMA system proved to be an appropriate solution for facilitating the use of the Bank loan. -8 -  4. Good quality of project design at entry, full Borrower's commitment and innovativeness, sound highway maintenance policies involving private sector participation, Bank flexibility in revising the Loan Agreement, as well as good support to supervision missions from the decentralized Country Management Unit are factors that played a vital role in bringing about the success of the project. 5. Albeit the CREMA system of contracting may not be a panacea and remains vulnerable to macroeconomic conditions, experience has shown that it offers several and important advantages compared to other traditional methods of contracting rehabilitation and maintenance works: it reduces substantially supervision costs and practically eliminates project cost overruns; it also provides a more stable funding mechanism for maintenance and it fosters innovation thus promoting cost-effective technologies on the part of the contractors. 9. Partner Comments (a) Borrower/implementing agency: The Borrower provided no comments on and endorsed the Bank's version of the ICR, but submitted its own evaluation report the summary of which is included as Annex 7 of this report. (b) Cofinanciers: (c) Other partners (NGOs/private sector): 10. Additional Information The following additional information on the institutional development impact of the project are noteworthy. They refer to what was accomplished through the training program, and to the conclusions and recommendations arising from the Road Users Charges study and the Road Safety study. Training Program. DNV training requirements were identified by a survey carried out prior to appraisal. The training program focused particularly on management, planning, engineering and highway sector refonns. More specifically, needs were felt to: (a) improve management capabilities by moving to a Management by Program budgeting system (MBP-oriented); (b) train staff in the application of the Environmental manual for road works and in the utilization of related technologies and; (c) train DNV personnel in prospective planning including the preparation of pluriannual road investment programs based on appropriate models and criteria to support decisions on investments priorities. The loan helped implement and substantially achieve a training program that was in line with the above requirements: between 1996 and 1999 more than 60 senior staff were trained and participated to nearly 30 events and training courses covering the following areas: * Environmental impact evaluation of road projects; * State-of -the-art road design, construction and maintenance technologies; * Economic analysis of road investments using the HDM model; * Value engineering applied to highway design and construction; * Physical, economic and financial monitoring of projects; * Road safety issues and solutions; and * Specific and customized courses on georadar, modified asphalt, Superpave asphalt mixture design process, quality control of conventional and pre-stressed concrete structures, human resources, and bridge rehabilitation and maintenance. The implementation of the training program was instrumental in achieving the successful design and supervision of the CREMA contracts. -9-  Road Users Charges Studv Between 1935 and 1989 the development of the road sector in Argentina was financed by the creation of specific taxes on fuels, lubricants and tires. Since then the road sector has been funded by the Treasury and also but more recently (as of 1990) by toll collection on concessioned corridors. This has profoundly affected the structure of the road users charges system. The study was to focus on determining the present structure of users charges and to identify related charges to the different road users, distinguishing between the various road networks: national, provincial, and municipal (in each case separating roads operated and/or maintained under concessions from those operated and maintained without concessions). The study was carried out under contract in 1999 by the Civil Engineering Department (Transport Division) of the University of Buenos Aires. It determined all users charges including the quantification of extemalities such as congestion costs due to urban traffic, environmental pollution and accidents costs. The main conclusions derived from the study were the following: * Current users charges amount to about US$10.4 billion annually, including US$5.7 billion of specific charges and US$4.7 billion of general taxes. * The specific users fees are sufficient to cover 100% of total highway expenditures needs estimated to be in the order of US$3.2 billion per year and 81% of extemalities estimated to cost about US$3.1 billion, including congestion, environmental pollution and road accidents costs. * Total annual road users charges (US$10.4 billion) exceed overall financial road expenditures needs estimated to be US$6.3 billion, annually. * Fuel taxes alone (which were previously earmarked to cover highway construction and upgrading) exceed network expenditures needs by about US$1.9 billion annually. * Total taxes paid by and recovered from road users annually (US$9.8 billion excluding toll fees) represent about 22% of the Govemment general revenues (about US$50 million); and * Heavy traffic is not subsidized by light traffic and trucks fully pay the additional damage cost that they impose on the network. The general recommendations of the study were as follows: I. Ensure that at least US$3.2 billion are assigned annually to cover the costs of maintenance, rehabilitation and development of the country's road system including the municipal and urban network; considering only the national and provincial network, annual needs for maintenance, rehabilitation and upgrading (paving) are estimated to be in the order of US$1.2 billion (US$520 million for the national system excluding concessioned corridors, and US$640 million for the provincial network). Over the last years, actual governments annual allocations (excluding toll fees of about US$600 million per year, recovered from concessioners) have consistently amounted to about US$1.4 billion (US$500 million for DNV and US$900 million for the DPVs) thus slightly exceeding estimated needs. 2. Design specific instruments and explore efficient mechanisms (including road funds) aimed at distributing the above funds to DNV and to the provinces and municipalities in accordance with their respective needs. 3. Expand the CREMA system of rehabilitation and maintenance to the entire national road network including the concessioned corridors, once the concession contracts are terminated. 4. Ensure that the national and provincial road agencies utilize more efficiently the resources allocated to them. As suggested in 1. above the issue is less that of adequate financing from the part of the governments but of improper assignation of available resources by the road agencies (too much priority given to new constructions, over-designed and too costly pavement standards, and sometimes - 10 -  excessive payrolls costs, and inadequate procurements methods). 5. Apply and vigorously enforce the National Traffic Law No. 24.449 and Decree No 775 which regulate the emission of gas and particles in the atmosphere as well as the allowable limit of noise, and obtain the adhesion of the provincial governments which have not yet endorsed the terms and conditions of the Law. Road Safety Study The Road Safety study included the preparation of three Manuals based on extensive investigation, observations and surveys carried out on the national road network. The first Manual dealt with inadequate practices and proposed solutions to correct them; the second manual focused on road safety audit procedures; and the third manual elaborated on safe highway design including cities crossings. Based on the study, an action plan for the short term has been prepared and is estimated to cost at least US$30 million. Among the most critical improvements deemed necessary in the short to medium term are the following: e Paving of shoulders on selected motorway sections; * Upgrading and paving of shoulders on conventional national roads carrying more than 2,500 vehicles per day; * Adequate protection of obstacles along the roadside (trees, electric posts, bridge piles, vertical signs, guardrails, etc.); e Capacity increase (widening) on selected sections of the network; - Edge marking of roads carrying upwards of 2,500 vehicles per day; * Increasing size and dimensions of vertical signs; - Improving level crossings at railway junctions; and - Elimination of Y-shaped intersections. It is DNV's intention to implement the action program referred to above and to request Bank's assistance in financing it as one of the component of a new loan. - 11 -  Annex 1. Key Performance Indicators/Log Frame Matrix Outcome I Impact Indicators: Indicator/Matrix Projected in last PSR ActuallLatest Estimate (a) 7,700 km of rehabilitation works to be 9,440 9,400 achieved at closing; (b) improving the maintenance condition of - the non-concessioned network; (c) a country-wide average of surface 6.6 6.6 pavement index of 7 (i.e., IRI<3-3.5) to be achieved at the end of 1997. Output Indicators: Indicator/Matrix Projected In last PSR Actual/Latest Estimate End of project Item Year 1993 11994 1995 1996 1997 1998 1999 2000 Final/Total Rehabilitation Program (kmi) Appraisal Targets (Cumulative) 1478 4654 7454 7726 7726 7726 7726 7726 7726 Achieved 322 1836 3932 5210 7125 9310 9440 9440 9440 % Achieved 22% 39% 53% 67% 92% 121% 122% 122% 122% Amounts of Disbursement US$M Appraisal Targets (Cumulative) 88.9 220 295 319 333 339 340 340 Achieved (Cumulative) 57.9 103 152 209 305 314 329 329 % Achieved 65% 47% 52% 66% 92% 93% 97% 97% Surface Condition Index of Network Appraisal Targets 5.54 5.87 6.22 6.6 7 7 7 7 7 Achieved 5.54 5.7 5.84 6 6 6.5 6.6 6.6 6.6 % Achieved 97% 94% 91% 86% 93% 94% 94% 94% Expenditures for Technical Assistance, US$M Appraisal Targets (Cumulative) 3.3 9.3 12 13.6 13.6 13.6 13.6 13.6 13.6 Achieved (Cumulative) 0 0.7 3 4 5.3 6.4 8.8 10.4 10.4 % Achieved 8% 25% 29% 39% 47% 65% 76% 76% - 12 -  Annex 2. Project Costs and Financing Proect Cost by Component (in US$ million equivalent) ._ Appraisal Actual/Latest Percentage of Estimate Estimate Appraisal Project Cost By Component US$ million US$ million Rehab. and Resurfacing 365.70 506.90 1.39 Routine Maintenance 160.00 93.40 58 Technical Assistance and Training 29.70 12.30 41 Equipment 3.60 2.00 55 Contingencies 197.00 Total Baseline Cost 756.00 614.60 Total Project Costs 756.00 614.60 Total Financing Required 756.00 614.60 Project Costs by Procurement Arrangements (Appraisal Estimate) (US$ million equivalent) Expenditure Category ICB Procurement Methode2 N.B.F. Total Cost 1. Works 306.10 188.40 0.00 14.00 508.50 (0.00) (0.00) (0.00) (0.00) (0.00) 2. Goods 2.40 0.50 1.60 0.00 4.50 (0.00) (0.00) (0.00) (0.00) (0.00) 3. Services 0.00 0.00 36.00 0.00 36.00 (0.00) (0.00) (0.00) (0.00) (0.00) 4. Miscellaneous 0.00 176.00 31.00 0.00 207.00 Routine Maintenance (0.00) (0.00) (0.00) (0.00) (0.00) 5. Miscellaneous 0.00 0.00 0.00 0.00 0.00 CREMA (0.00) (0.00) (0.00) (0.00) (0.00) 6. Miscellaneous 0.00 0.00 0.00 0.00 0.00 (0.00) (0.00) (0.00) (0.00) (0.00) Total 308.50 364.90 68.60 14.00 756.00 (0.00) (0.00) (0.00) (0.00) (0.00) -13-  Project Costs by Procurem nt Arrangements (Actual/Latest Estimate) (US$ million equival nt) Expenditure Category Procurement Method EX eCteoyICB NCB Other N.B.F. Total Cost 1. Works 182.00 149.77 6.23 14.00 352.00 (0.00) (0.00) (0.00) (0.00) (0.00) 2. Goods 1.79 0.00 0.21 0.00 2.00 (0.00) (0.00) (0.00) (0.00) (0.00) 3. Services 0.00 0.00 12.30 0.00 12.30 (0.00) (0.00) (0.00) (0.00) (0.00) 4. Miscellaneous 0.00 0.00 93.40 0.00 93.40 Routine Maintenance (0.00) (0.00) (0.00) (0.00) (0.00) 5. Miscellaneous 154.90 0.00 0.00 0.00 154.90 CREMA (0.00) (0.00) (0.00) (0.00) (0.00) 6. Miscellaneous 0.00 0.00 0.00 0.00 0.00 (0.00) (0.00) (0.00) (0.00) (0.00) Total 338.69 149.77 112.14 14.00 614.60 (0.00) (0.00) (0.00) (0.00) (0.00) Figures in parenthesis are the amounts to be financed by the Bank Loan. All costs include contingencies. " Includes civil works and goods to be procured through national shopping, consulting services, services of contracted staff of the project management office, training, technical assistance services, and incremental operating costs related to (i) managing the project, and (ii) re-lending project funds to local government units. Project Financing by Component (in US$ million equivalent) l ~~~~~~~~~~~~~~~~~~~~~~~Percentage of Appraisal | Component Appraisal Estimate Actual/Latest Estimate Bank Govt. CoF. Bank Govt. CoF. Bank Govt. CoF. Works 194.00 232.74 272.00 234.90 140.2 100.9 Routine Maintenance 73.00 97.00 45.00 48.40 61.6 49.9 Goods 4.00 0.76 1.70 0.30 42.5 39.5 Services 31.00 10.30 2.00 33.2 Unallocated 38.00 85.50 0.0 - 14-  Annex 3: Economic Costs and Benefits Appraisal Latest Estimate Base year 1993 1994 Unit Cost/km 58,000 53,600 IERR, % 30 44 NPV, US$M 174 - 15-  Annex 4. Bank Inputs (a) Missions: Stage of Project Cycle No. of Persons and Specialty Performance Rating (e.g. 2 Economists, I FMS, etc.) Implementation Development Month/Year Count Specialty Progress Objective Identification/Preparation October 1989 2 ECN, EGR April 1990 2 ECN, EGR June 1990 2 ECN, EGR August 1990 2 ECN, EGR October 1991 3 ECN, EGR, INST Appraisal/Negotiation December 1991 3 ECN, EGR, ENS February 1992 1 ECN July 1992 2 ECN, EGR October 1992 5 ECN, 2EGR ENS, PRO Supervision November 1992 1 EGR March 1993 2 ECN, EGR August 1993 2 ECN, EGR December 1993 4 2ECN, EGR, PRO HS HS March 1994 2 ECN, EGR S HS September 1994 3 ECN, EGR, PRO S HS April 1995 2 ECN, EGR S S November 1995 1 ECN U S June 1996 2 2EGR U S December 1996 2 ECN, EGR S S June 1997 2 EGR, PRO S S April 1998 2 EGR, PRO S S June 1998 2 EGR, INST S S December 1998 1 EGR S S March 1999 1 EGR S S November 1999 1 EGR HS HS March 2000 2 EGR, PRO HS HS ICR June 2000 1 EGR HS HS - 16-  (b) Staff: I Stage of Project Cycle ActualLatest Estimate No. Staff weeks US$ (,000) Identification/Preparation 47.7 142 Appraisal/Negotiation 89.4 232.5 Supervision 48.9 143.7 ICR 4.4 12.7 Total 631 530.9 - 17 -  Annex 5. Ratings for Achievement of Objectives/Outputs of Components (H=High, SU=Substantial, M-Modest, N=Negligible, NA=Not Applicable) Rating LIJ Macro policies O H OSUOM O N * NA Oi Sector Policies * H OSUOM O N O NA Ol Physical * H OSUOM O N O NA El Financial * H OSUOM O N O NA E Institutional Development 0 H O SU O M 0 N 0 NA O Environmental O H * SU O M O N O NA Social El Poverty Reduction O H OSUOM O N * NA L Gender O H OSUOM O N * NA L Other (Please specify) O H OSUOM O N * NA El Private sector development 0 H O SU O M 0 N 0 NA El Public sector management 0 H O SU O M 0 N 0 NA El Other (Please specify) O H OSUOM O N * NA - 18-  Annex 6. Ratings of Bank and Borrower Performance (HS=Highly Satisfactory, S=Satisfactory, U=Unsatisfactory, HU=Highly Unsatisfactory) 6.1 Bank performance Rating F Lending OHS@*S OU OHU