El Salvador - Third Highway Project

CONFIDENTIAL R e p o r t No. 600 INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT INTERNATIONAL DEVELOPMENT AS SOCIATION PROJECT PERFORMANCE AUDIT OF E L SALVADOR THIRD HIGHWAY PROJECT D e c e m b e r 27, 1974 Operations Evaluation Department  TABLE OF CONTENTS P a g e No. Ssmary i - ii Background 1 P r o j e c t Implementation 2 P r o j e c t Costs 6 Fcocomic J u s t i f i c a t i o n 7 The Role of t h e Bank 9 Corlciusions 10 LIST OF TABLES T a b l e I: F o r e c a s t and A c t u a l P r o j e c t C o s t s T a b l e 11: F o r e c a s t and A c t u a l T r a f f i c Growth T a b l e 111: F o r e c a s t and A c t u a l P r o j e c t R e s u l t s Map: E l S a l v a d o r R e v i s e d T h i r d Highway P r o j e c t  PREFACE C r e d i t 31-ES o f 1962 t o E l S a l v a d o r was c l o s e d i n March 1970 and Loan 521-ES o f 1967 -- a supplementary loan t o h e l p f i n a n c e t h e same highway p r o j e c t -- was c l o s e d i n J a n u a r y 1973, T h i s r e p o r t i s a n a u d i t of a c h i e v e m e n t s u n d e r t h e l o a n l c r e d i t measured a g a i n s t t h e o b j e c - t i v e s on t h e b a s i s of which t h e y were o r i g i n a l l y approved. The a u d i t i s b a s e d on a r e v i e w o f a c o m p l e t i o n r e p o r t p r e p a r e d hy t h e L a t i n America and C a r i b b e a n R e g i o n a l O f f i c e and o f t h e r e l e v a n t f i l e s and documents a v a i l a b l e a t t h e Bank, and the i m p l e m e n t a t i o n o f t h e p r o j e c t was d i s c u s s e d w i t h some IBRD s t a f f who had b e e n i n v o l v e d w i t h i t . A one-week m i s s i o n t o E l S a l v a d o r was undentaken t o u p d a t q i n f o r m a t i o n and t o d i s c u s s h r i e f l y t h e r e l e v a n t i s s u e s w i t h t h e Highways Department staff. The v a l u a b l e a s s i s t a n c e p r o v i d e d by t h e Highways Department of E l S a l v a d o r i s g r a t e f u l l y acknowledged. Note: Currency E q u i v a l e n t (Colones) US$ 1 = @ 2.50 s i s c e 1962  I n November 1962, I D A g r a n t e d a US$ 8 . 0 m i l l i o n c r e d i t t o E l S a l v a d o r ( C r e d i t 31-ES) t o h e l p f i n a n c e a highway p r o j e c t c o n s i s t i n g of a ) t h e c o n s t r u c t i o n o f s e v e n t r u n k highways and f o u r f e e d e r r o a d s t o t a l l i n g 364 km ( s e e map), b ) e n g i n e e r i n g and s u p e r v i s i o n s e r v i c e s f o r t h a t con- s t r u c t i o n , and c ) a f o u r - y e a r m a i n t e n a n c e program f o r t h e C o a s t a l Highway, a r o a d i n c l u d e d i n a p r e v i o u s Bank l o a n . The p r o j e c t was b a s e d on a f i v e - y e a r highway development program p r e p a r e d t h e p r e v i o u s y e a r by c o n s u l t a n t s . P r o j e c t implementation took e i g h t years, t w i c e t h e estimated t i m e , due t o a v a r i e t y o f r e a s o n s . A s soon a s c o n s t r u c t i o n began, i t b e - came c l e a r t h a t a c t u a l t r a f f i c on some o f t h e r o a d s was growing f a s t e r t h a n f o r e c a s t and would r e q u i r e h i g h e r d e s i g n s t a n d a r d s . O r i g i n a l l y , t h e Government had a s k e d I D A t o change t h e p r o j e c t d e s c r i p t i o n s o a s t o r a i s e d e s i g n s t a n d a r d s on t h o s e r o a d s , i n d i c a t i n g t h a t i t would f i n a n c e t h e c o s t o v e r r u n s from i t s own r e s o u r c e s . However, a n e a r t h q u a k e t h a t s t r u c k San S a l v a d o r i n May 1965 f o r c e d t h e Government t o commit a l l of i t s f u n d s t o r e c o n s t r u c t i o n . I n l i g h t o f t h e s e developments, and o f t h e f a c t t h a t con- t r a c t b i d s f o r some o f t h e major works were much h i g h e r t h a n e x p e c t e d , t h e Bank i n d i c a t e d t h a t i t was w i l l i n g t o c o n s i d e r a s u p p l e m e n t a r y l o a n (IDA l e n d i n g t o E l S a l v a d o r was a t t h a t t i m e no l o n g e r j u s t i f i e d ) . The p r o c e s s i n g t o o k a l o n g t i m e , m a i n l y b e c a u s e o f a d e l a y o f more t h a n two y e a r s i n ob- t a i n i n g a p p r o v a l by t h e c o u n t r y ' s N a t i o n a l Assembly, a n d Loan 521-ES, f o r US$ 2 - 8 m i l l i o n was f i n a l l y s i g n e d i n December 1967, a n d became e f f e c t i v e s i x months l a t e r . A s i d e from t h e d i f f i c u l t i e s d e s c r i b e d above, c o n s t r u c t i o n was d e l a y e d i n t h e main b e c a u s e o f t h e cumbersome l e g a l a n d a d m i n i s t r a t i v e p r o - c e d u r e s i n E l S a l v a d o r f o r e n a c t i n g and implementing c o n t r a c t s , t h e s l o w a v a i l a b i l i t y o f l o c a l f i n a n c e and t h e need f o r r e v i s i o n s i n d e s i g n d u r i n g e x e c u t i o n due t o i n s u f f i c i e n t l y d e t a i l e d e n g i n e e r i n g a t t h e o u t s e t . A f i n a l c a u s e o f d e l a y was t h e 1969 b o r d e r d i s p u t e between E l S a l v a d o r and Honduras, i n which s e v e r a l c o n t r a c t o r s l o s t most o f t h e i r equipment, I n s p i t e o f t h e s e problems, t h e p r o j e c t ' s p h y s i c a l o b j e c t i v e s were e v e n t u a l l y a c h i e v e d s a t i s f a c t o r i l y and t h e q u a l i t y o f r o a d c o n s t r u c t i o n i s a d e q u a t e . However, t h e l o c a l c o n t r a c t o r s ' l a c k of e x p e r i e n c e i n r o a d c o n s t r u c t i o n r e s u l t e d i n t h e need t o r e d o p a r t o f t h e works. The e x t r a c o s t i n v o l v e d h a s been c i t e d a s one o f t h e r e a s o n s f o r t h e f i n a n c i a l f a i l u r e o f s e v e r a l of the contractors. A c t u a l p r o j e c t c o s t s were 70% above t h e 1962 e s t i m a t e s ( i n c l u d i n g 20% c o n t i n g e n c i e s ) , a l t h o u g h much o f t h e i n c r e a s e was due t o h i g h e r d e s i g n s t a n d a r d s o f two of t h e m a j o r r o a d s . The a c t u a l c o s t o f t h e f e e d e r r o a d s was more t h a n d o u b l e t h e a p p r a i s a l f o r e c a s t , l a r g e l y b e c a u s e t h e o r i g i n a l e s t i m a t e s were n o t a d e q u a t e .  As r e g a r d s m a i n t e n a n c e , a s a t i s f a c t o r y o r g a n i z a t i o n f o r t h e C o a s t a l Highway was s e t up a s a r e s u l t of t h e f o u r - y e a r maintenance program, a t a c o s t somewhat lower t h a n what was o r i g i n a l l y e n v i s a g e d . However, c o n t r a r y t o t h e Bank's h o p e s , t h e program had l i t t l e s p r e a d e f f e c t on t h e o v e r a l l highway maintenance o p e r a t i o n s i n t h e c o u n t r y . Maintenance o f a l l t h e B a n k - a s s i s t e d r o a d s h a s , however, been r e a s o n a b l y adequate. The a p p r a i s a l o f t h e 1967 supplementary l o a n i n c l u d e d e s t i m a t e s o f t h e i n t e r n a l r a t e s o f r e t u r n f o r t h e s e v e n t r u n k r o a d s , which ranged between 10% and 24%. No p r e c i s e new e s t i m a t e s were p o s s i b l e b e c a u s e o f u n r e l i a b l e s t a t i s t i c s , b u t t h e i n d i c a t i o n s a r e t h a t of t h e n i n e s e c t i o n s i n which t h e s e v e n t r u n k r o a d s were d i v i d e d f o r t h i s a n a l y s i s , t h r e e (and p r o b a b l y f o u r ) , r e p r e s e n t i n g 35-40% o f t h e i n v e s t m e n t , a p p e a r t o b e c l e a r l y j u s t i f i e d ; two, a c c o u n t i n g f o r 12% of f i n a l p r o j e c t c o s t , have s o f a r f a i l e d t o meet t h e o r i g i n a l o b j e c t i v e s , one o f t h e s e c t i o n s due t o t h e e f f e c t o f t h e war w i t h Honduras i n r e d u c i n g t r a f f i c ; on t h e remain- i n g t h r e e s e c t i o n s no judgment i s p o s s i b l e f o r l a c k of t r a f f i c d a t a . The f o u r f e e d e r r o a d s were e x p e c t e d t o i n d u c e changes i n a g r i c u l t u r a l produc- t i o n which a p p a r e n t l y have n o t m a t e r i a l i z e d , a l t h o u g h producfim i n c r e a s e s h a v e t a k e n p l a c e . However, t h e s e f e e d e r r o a d s seem t o have been a worth- while investment . The Bank c a n b e c r e d i t e d w i t h encouraging and s u p p o r t i n g t h e c o u n t r y ' s f i r s t l o n g - t e r m highway development program and d e m o n s t r a t i n g f l e x i b i l i t y , i n c l u d i n g t h e g r a n t i n g o f a supplementary l o a n , under con- d i t i o n s t h a t were e x t r a o r d i n a r y and beyond i t s c o n t r o l . What is s u r p r i s i n g , however, i s t h a t i n s p i t e o f i t s i n t e r e s t i n highway p l a n n i n g , t h e Bank d i d n o t i n s i s t more on t h e need t o have i n f o r m a t i o n t h a t i s c e n t r a l f o r p l a n n i n g , such a s t r a f f i c c o u n t s and o r i g i n l d e s t i n a t i o n s u r v e y s . F i n a l l y , t h e f i n a n c i a l f a i l u r e of s e v e r a l of t h e c o n t r a c t o r s s u g g e s t s t h a t i n t h i s p a r t i c u l a r c a s e a l t e r n a t i v e methods t o promote t h e l o c a l i n d u s t r y s h o u l d h a v e been f o l l o w e d ; f o r example, through j o i n t v e n t u r e s w i t h e x p e r i e n c e d f o r e i g n f i r m s , o r through c l o s e r s u p e r v i s i o n d e s i g n e d t o p r e v e n t s e r i o u s mistakes during construction.  FERi-G;"'l-NC;.:;CAUDIT OF EL S4.L" IDOR THIRD HIGHWAY PROJECT The ~ a n k ' sinvolvement w i t h E l S a l v a d o r ' s highway s e c t o r began i n 1951, when i t h e l p e d f i n a n c e c o n s t r u c t i o n o f t h e c o u n t r y ' s second most i m p o r t a n t t r a n s v e r s a l r o u t e ( a f t e r t h e I n t e r - A m e r i c a n Highway), t h e C o a s t a l Highway (Loan 104-ES). T h i s was f o l l o w e d by a f e e d e r r o a d p r o j e c t i n 1959 (Loan 216-ES), d e s i g n e d t o open up new a r e a s of t h e C o a s t a l p l a i n t o a g r i - c u l r u r a l p r o d u c t t o n , e s p e c i a l l y c o t t o n . Both o f t h e s e p r o j e c t s were c a r r i e d o u t b e c a u s e o f t h e o b v i o u s p r i o r i t y o f maximizing l a n d u s e i n L a t i n America's most dcnsr'y p s p u l a t ~ dr o K a t r y (323 i n h a b i t a n t s p e r s q u a r e m i l e i n 1962, growin2 a t a r a c e o i o v e r 3% p e r y e a r ) ; a t t h a t t i m e no o v e r a l l highway develuprncnt p l a n Eor E l S a l v a d o r e x i s t e d . .. - . . . i . ~i.:.i.;C, _ h e Government commissioned TAMS, t h e c o n s u l t i n g e n g i n e e r s f o r L ? I ~f e e d e r r o a d p r o j e c t mentioned above, t o d e v e l o p a comprehensive f i v e - y e a r high.i:ay deve1opr;ent pmgram, The Government e x p e c t e d t h a t t h e p r o g r a n c o u l d s e r v e a s a b a s i s f o r t!;e l d e c t i f i c a t i o n o f a n o t h e r Bank-financed project. 'The ~ I G ~ ~ Z T I cornp1.~:.~ was t~i ~i:.;jriI 1 1961 and t h e Government sub- m i t t e d i t t o t h e Bapk f o r c o n s i d c r a t i o r i s h o r t l y t h e r e a f t e r . The Bank, how- e v e r , f e l t t h a t 2 c o r e d e t a i l e d s t u d y o f t h e economic a n d e n g i n e e r i n g a s p e c t s o f t h e f e e d e r rcazs Cncludcd Ln t h e program was n e c e s s a r y ; t h i s work was completed I r z Xu'av~:-iZ:!?: 1.961, xttd i n b y r i ; i 9 6 2 a n a p p r a i s a l m i s s i o n was s e n t . Wit11 : ' - ::: ~ r : . c e ~ z E a icf - . t ~ Eeeder o r o a d s which were judged by t h e a p p r a i s a l team t:; h.2 i : 7 ~ z g i 2 Q ~ c , e e n t t r e prog-am was a c c e p t e d b y t h e Bank a s a p r o j e c t 1h and a cv L ,> ;; L. c -i2.-., -~,::;.ne . (C,rcdi.t: 31-ES) f o r US$ 8 . 0 m i l l i o n t o f i n a n c e t h e foreLgn exchangs c c s t s was s i g n e d a n November 2 , 1962. Governmental admin- i s t r a t i g e proccdz.::,;:., d e l a y e d !+ffect:'Lveness o f t h e c r e d i t f o r f i v e months. The - ;1'0!,3::.:: . .,. >-::,~r;.L ?or ,~~.d - .I / t:'?r_ c o n s t r u c t i o n of s e v e n t r u n k h i g h - . ' ways and ! :; i : YL^.L:!~.:: .~::!..:3?.1.11:g:)64 iw, .:::,.~:l..~ * ( s e e map) , ( i i ) engineering and s u p e r v i s i o n s s r v i c c s f o r t h a t c o r s t r u c t i o n , and ( i i i ) a f o u r - y e a r main- t e n a n c e p r o g r m f o r t h e C o a s t a l HS.ghi;ay. The m a i n t e n a n c e program was i n c l u d e d at t h e s ~ ~ g : ? s t i ~ CI: ? : : i:he B a n k , which was concerned t h a t m a i n t e n a n c e work on t h e CoasLa; %i.gh:gay had n o t b e e n a d e q u a t e due t o a l a c k o f s u f f i c i e n t eqrlipmc:nt, Z h t: So?.r.-.rr?inen!: r e a d i l y a c c e p t e d t h i s p r o p o s a l and even r e q u e s t e d a l a r g e r .n;.;Zr?-?-r,s.:.~,-t. 3rov.s:ion t o £ L a n c e y e - e q u i p p i n g t h e i r e n t i r e main- t e n a n c n p!:':partlr,eilt; ::he 8a;lk, however, f e l t t h a t such a p r o v i s i o n was n o t n e z e s s a r y , parti.cl;Zai?ly < n , ~ i e wo f t !: e Government's p o l i c y o f e n c o u r a g i n g t h e Q s e a? mai7u&L I ~ b o r o v e r equipmei>+ i n o r d e r t o s t i m u l a t e employment, B e s i d e s t h e s t a n d a r d c o v e n a n t s , t h e Government s p e c i f i c a l l y a g r e e d t o brldget a t l e a s t @12,00r),000 o v e r t h e c a l e n d a r y e a r s 1963-66 t o f i n a n c e t h e l o c a l c o s t of c o n s r r u c t i o n and s u p e r v i s i o n e x p e n s e s ( i t e m s i and ii o f the praject). I n a d d i t i o n , t h e Government a g r e e d t o b u d g e t a n a g g r e g a t e an!oun-: o f e1,750,000, t o b e s p r e a d e v e n l y o v e r t h e c a l e n d a r y e a r s 1963-66, t o f i n a n c e t h e l o c a l c o s t s o f t h e maintenance program f o r t h e C o a s t a l Highway ( i t e m iii o f t h e p r o j e c t ) . P r c i e c t Implementation I n o r d e r t o encourage c o m p e t i t i o n i n b i d d i n g by a l l o w i n g l o c a l c o n s t r u c t i o n f i m s t o p a r t i c i p a t e , t h e Highway Department d e c i d e d ( w i t h t h e agreement o f t h e Bank) t o award c o n s t r u c t i o n c o n t r a c t s on t h e b a s i s of r e l a t i v e l y s h o r t r o a d s e c t i o n s and of "packages" o f such s e c t i o n s . U l t i - mately four l o c a l firms p a r t i c i p a t e d i n c o n s t r u c t i o n under t h e p r o j e c t , a s 2211 a s a P e r u v i a n s u b s i d i a r y of a n I t a l i a n f i r m and a n American company. The i a r g e s t f f r m , Constructors Columbus d e l P e r u , s e c u r e d c o n t r a c t s f o r L u i 2 d i n g t h r e e m a j o r primary r o a d s a s w e l l as s e v e r a l s m a l l e r r o a d s ; t h i s mounted t o 75X o f t o t a l c o n t r a c t awards under t h e o r i g i n a l p r o j e c t . The p r o j e c t ' s p h y s i c a l o b j e c t i v e s were e v e n t u a l l y a c h i e v e d s a t i s - f a c t o r i l y . The q u a l i t y of road c o n s t r u c t i o n h a s been c o n s i d e r e d a d e q u a t e by t h e ~ i r e c c i 6 n General d e Caminos and t h e Bank. However, t h e main r e a s o n f o r t h i s a d e q u a t e q u a l i t y was t h e i n s i s t e n c e o f t h e c o n s u l t a n t s i n c h a r g e o f s u p e r v i s i o n t h a t work b e redone t o meet s p e c i f i c a t i o n s ; t h e t e c h n i c a l c a p a b i l i t y o f t h e l o c a l c o n t r a c t o r s had b e e n g e n e r a l l y judged t o b e good, b u t none of them had p r e v i o u s e x p e r i e n c e i n highway c o n s t r u c t i o n . The amount of t h i s e x t r a work was l a r g e , and h a s been c i t e d a s one of t h e main r e a s o n s f o r t h e f i n a n c i a l f a i l u r e o f s e v e r a l of t h e l o c a l f i r m s . Some o f t h e s e f i r m s had t o be t a k e n o v e r by banks i n o r d e r t o complete t h e i r con- t r a c t s and o n l y one (Terra-Pav S.A.) remains f u l l y i n v o l v e d i n r o a d b u i l d i n g today. Constructl~z 3f t w 3 ;f t h e n a j o r p r i m a r y r o a d s , t h e S a n t a T e c l a - A c a j u t l a and S a n t a X t z l a - L j TLLtrkzd s e c t i o n s began i n mid-1964, b u t i t became a p p a r e n t a l m a s t i m e . 3 i a t e l y t h a t t r a f f i c on t h o s e r o u t e s was growing f a s t e r t h a n f o r e c a s t and w m l d r e q u i r e h i g h e r d e s i g n s t a n d a r d s . I n October 1964 t h e Government f o r m a l l y r e q u e s t e d I D A t o change t h e p r o j e c t d e s c r i p t i o n s o as t o r a i s e d e s i g n s t a n d a r d s on t h e S a n t a T e c l a - A c a j u t l a and S a n t a T e c l a - La L i b e r t a d r o u t e s a n d t o d e l e t e t h e f o u r f e e d e r r o a d s from t h e p r o j e c t i n o r d e r t o keep t o t a l p r o j e c t c o s t s t h e same. The Board o f I D A approved t h i s change on December 2 3 , 1964, Three months l a t e r , however, t h e Government d e c i d e d n o t t o d e l 2 t 2 chs f e e d e r r o a d s from t h e program due t o t h e importance of t h e s e r o a d s f o r t h e c o u n t r y ' s a g r i c u l t u r a l development, and planned t o f i n a n c e any c o s t o v e r r u n s from i t s own r e s o u r c e s . But t h i s p l a n was thwarted i n e a r l y May 1 9 6 5 , when a n e a r t h q u a k e s t r u c k San S a l v a d o r f o r c i n g t h e Govern- ment t o commit a l l a v a i l a b l e f u n d s t o r e c o n s t r u c t i o n . I n addition, the Government was d i s a p p o i n t e d t o f i n d t h a t a l l c o n t r a c t b i d s f o r one of t h e m a j o r works ( C o n t r a c t V I - - c o n s t r u c t i o n o f t h e s e c t i o n s La C u c h i l l a - Sonsonate and Sonzacate-San J o r g e , a s w e l l a s paving f o r t h e e n t i r e A c a j u t l a - S a n t a T e c l a and S a n t a Tecla-La L i b e r t a d s e c t i o n s ) were much h i g h e r t h a n expected. The Government's consequent d e c i s i o n t o r e j e c t a l l b i d s on C o n t r a c t V I and a s k f o r a new c o m p e t i t i o n d i s c o u r a g e d c o n t r a c t o r s from b i d d i n g on o t h e r p r o j e c t s : i n one c o m p e t i t i o n f o r a c o n t r a c t i n c l u d i n g t h r e e f e e d e r r o a d s , o n l y two f i r m s showed a n y i n t e r e s t and u n i t p r i c e s were 16% h i g h e r t h a n e x p e c t e d . Combined w i t h t h e s i g n i f i c a n t u n d e r e s t i m a - t i o n o f n e c e s s a r y q u a n t i t i e s by Highway Department p e r s o n n e l a t t h e time t h e Highway Development Program was drawn up, t h i s r e s u l t e d i n a n e a r doubling of t h e expected c o s t of t h e feeder roads. Owing t o t h e combination of a l l t h e s e f a c t o r s (need f o r h i g h e r d e s i g n s t a n d a r d s , e a r t h q u a k e , h i g h b i d s ) , t h e Bank i n d i c a t e d t h a t i t might c o n s i d e r making a supplementary l o a n ; a formal a p p l i c a t i o n was s u b m i t t e d by t h e Government i n November 1965. A s a p r e c o n d i t i o n t o c o n s i d e r a t i o n of a supplementary l o a n , t h e Bank i n s i s t e d t h a t p r o c e d u r e s f o r t h e p r e - q u a l i f i - c a t i o n o f b i d d e r s be implemented by t h e Highway Department and t h a t i n v i t a t i o n s t o b i d b e s e n t t o t h e e m b a s s i e s o f IBRD member c o u n t r i e s ( n e i t h e r had b e e n r e q u i r e d under t h e 1962 C r e d i t Agreement). I n a d d i t i o n , i t was d e c i d e d t h a t IDA l e n d i n g t o E l S a l v a d o r c o u l d no l o n g e r be j u s t i f i e d i n view of t h e c o u n t r y ' s low e x t e r n a l d e b t s e r v i c e r e q u i r e m e n t s and f a v o r - a b l e growth p r o s p e c t s . The Government r e l u c t a n t l y a g r e e d t o r e q u e s t t h e N a t i o n a l Assembly t o a u t h o r i z e s i g n a t u r e o f a n IBRD l o a n , a t s t a n d a r d r a t e s , ( t h e n 6%), of US$ 2.8 m i l l i o n t o complete t h e r e v i s e d p r o j e c t . l / Unfortu- n a t e l y , a d m i n i s t r a t i v e d e l a y s and p o l i t i c a l d i f f i c u l t i e s u n r e l a t e d t o t h e p r o j e c t d e l a y e d Assembly a p p r o v a l o f t h e new l o a n by more t h a n two y e a r s . Loan 521-ES f i n a l l y became e f f e c t i v e o n J u l y 1, 1968. By t h i s t i m e c o s t e s t i m a t e s on t h e p r o j e c t had i n c r e a s e d , and i t was a p p a r e n t t h a t US$ 2.8 m i l l i o n would n o t b e s u f f i c i e n t t o meet t h e a d d i t i o n a l f o r e i g n exchange c o s t s ( i n September 1967, a Bank s u p e r v i s i o n m i s s i o n had e s t i m a t e d t h a t a t l e a s t US$ 5.1 m i l l i o n would b e r e q u i r e d ) . N e v e r t h e l e s s , i t was d e c i d e d n o t t o r e v i s e t h e l o a n amount a s t h i s would r e q u i r e s u b m i t t i n g a n o t h e r p r o p o s a l t o t h e Assembly and would d o u b t l e s s f u r t h e r d e l a y t h e p r o j e c t . As i t was, t h e d e l a y i n s i g n i n g and making e f f e c t i v e t h e s u p p l e - m e n t a r y l o a n had a s e r i o u s d e t r i m e n t a l e f f e c t on some a s p e c t s of t h e o r i g i n a l p r o j e c t . T h i s was p a r t i c u l a r l y t h e c a s e f o r s a n e o f t h o s e r o a d s e c t i o n s which were supposed t o be b u i l t t o a lower s t a n d a r d under t h e o r i g i n a l a g r e e - ment b u t were upgraded under t h e r e v i s e d p r o j e c t ( S a n t a Tecla-La C u c h i l l a , S a n t a Tecla-La L i b e r t a d , S o n s o n a t e - A c a j u t l a ) . These s e c t i o n s were t o r e c e i v e a n a s p h a l t - c o n c r e t e pavement c a p a b l e o f h a n d l i n g t h e h e a v i e r t h a n e x p e c t e d - 1/ I n order t o avoid a d m i n i s t r a t i v e delays i n r a t i f y i n g e x t e r n a l loan agree- merits which had been s i g n e d ( a s o c c u r r e d under C r e d i t 31-ES), l e g a l p r o - c e d u r e s i n E l S a l v a d o r had b e e n changed t o r e q u i r e N a t i o n a l Assembly a p p r o v a l b e f o r e s i g n a t u r e o f such l o a n s . l e v e l o f t r a f f i c , L 1 b u t were f o r t h e time b e i n g s u r f a c e d o n l y w i t h a s i n g l e b i t u m i n o u s t r e a t m e n t , which d e t e r i o r a t e d r a p i d l y . By 1970, e x t e n s i v e r e p a i r s t o t h e r o a d b a s e , v a l u e d a t a p p r o x i m a t e l y US$ 500,000 e q u i v a l e n t , were r e - q u i r e d on c e r t a i n s e c t i o n s a s a r e s u l t of t h e d e l a y i n s u r f a c i n g them w i t h t h e r e q u i r e d t y p e of pavement. T h i s , i n t u r n , f u r t h e r d e l a y e d completion o f t h e p r o j e c t a s d e t a i l e d s o i l i n v e s t i g a t i o n s and r e p a i r s had t o be made b e f o r e t h e new pavement c o u l d f i n a l l y be l a i d . On s e v e r a l o t h e r r o a d s (Sonzacate-San J o r g e , La C u c h i l l a - S o n s o n a t e , and 2 f e e d e r r o a d s ) t h e Government was r e l u c t a n t t o award c o n t r a c t s u n t i l a d d i t i o n a l f u n d s from t h e supplementary l o a n were a s s u r e d . The Government t h e r e f o r e r e q u e s t e d a n e x t e n s i o n o f t h e o r i g i n a l c l o s i n g d a t e (May 1, 1967) t o May 1, 1968. The Bank f i n a l l y a g r e e d t o e x t e n d t h e c l o s i n g d a t e t o December 31, 1967, and informed t h e Government t h a t i t would b e w i l l i n g t o f u r t h e r e x t e n d t h e c l o s i n g d a t e o n l y i f t h e s u p p l e m e n t a r y l o a n were approved by t h e N a t i o n a l Assembly (Loan 521-ES was f i n a l l y s i g n e d on December 7, 1967). The c l o s i n g d a t e o f C r e d i t 31-ES was extended a g a i n t o November 1, 1968, b u t e v e n t u a l l y had t o be extended t h r e e more t i m e s t o March 31, 1970, due t o slow p r o g r e s s i n e x e c u t i n g t h e works. T h i s slow p r o g r e s s was a t t r i b u t e d by Bank s u p e r v i s i o n m i s s i o n s t o ( i ) cumbersome l e g a l and a d m i n i s t r a t i v e p r o c e d u r e s i n E l S a l v a d o r f o r enacting and implementing c o n t r a c t s , ( i i ) slow a v a i l a b i l i t y o f l o c a l f i n a n c e f o r p r o j e c t e x e c u t i o n , a n d ( i i i ) t h e need f o r r e v i s i o n s i n d e s i g n d u r i n g e x e c u t i o n due t o i n s u f f i c i e n t l y d e t a i l e d e n g i n e e r i n g (mainly on f e e d e r r o a d s ) . I n a d d i t i o n , problems were e n c o u n t e r e d w i t h s e c u r i n g b i d s f o r c o n s t r u c t i o n o f t h e La C u c h i l l a - S o n s o n a t e l i n k o f t h e S a n t a T e c l a - A c a j u t l a highway; i n A p r i l 1969 b i d s were s o l i c i t e d , b u t o n l y o n e was r e c e i v e d , and t h e p r i c e was 23% above t h e e n g i n e e r i n g e s t i m a t e , A second s o l i c i t a t i o n t h e f o l l o w i n g J u n e a l s o r e s u l t e d i n o n e b i d b e i n g s u b m i t t e d (79% above t h e e n g i n e e r i n g e s t i m a t e ) . The main problem was t h a t t h e c o n t r a c t was t o o s m a l l t o a t t r a c t f o r e i g n f i r m s . As a r e s u l t , w i t h t h e Bank's p e r m i s s i o n , p r i v a t e b i d d i n g n e g o t i a t i o n s were h e l d w i t h p r e - q u a l i f i e d l o c a l f i r m s and a c o n t r a c t was f i n a l l y awarded i n September 1969, f o r a n amount 45% above t h e o r i g i n a l estimate. A f i n a l c a u s e of d e l a y was t h e 1969 b o r d e r d i s p u t e between El S a l v a d o r and Honduras, i n which s e v e r a l c o n t r a c t o r s l o s t p a r t of t h e i r equipment. One such c o n t r a c t o r had a l s o been awarded c o n s t r u c t i o n o f t h e S a n t a Tecla-Teotepeque f e e d e r r o a d , b u t b e c a u s e o f h i s l o s s e s h e was i n a d e - q u a t e l y equipped t o c a r r y o u t t h e p r o j e c t on s c h e d u l e . T h i s s i t u a t i o n was - 1/ T r a f f i c on t h e s e s e c t i o n s , which had o r i g i n a l l y been p r o j e c t e d t o grow a t 9%, a c t u a l l y grew a t 14-28% a n n u a l l y between 1961 and 1966. l a t e r made even worse when t h e Government awarded two o t h e r , more l u c r a t i v e , c o n t r a c t s t o t h e same f i r m , r a t h e r t h a n a l l o w i n g t h e canpany t o r e g a i n i t s s t r e n g t h . I n F e b r u a r y 1972, when t h e ~ a n k ' sl a s t s u p e r v i s i o n m i s s i o n was s e n t , t h e S a n t a T e c l a - T e o t e p e q u e s e c t i o n was s t i l l b e i n g c a r r i e d otit w i t h i n s u f f i c i e n t equipment. The Government, d e s p i t e t h e a d v i c e o f t h e c o n s u l t - a n t s ( B a r t k u s ) and c o n t r a r y t o t h e Loan Agreement, a u t h o r i z e d t h e c o n t r a c t o r t o i n c r e a s e h e s i z e of g r a v e l r e q u i r e d and reduce t h e depth of t h e s u r f a c e l a y e r i n o r d e r t o speed up c o n s t r u c t i o n . At t h e t i m e o f t h e l a s t s u p e r v i s i o n m i s s i o n t h e p r o j e c t was 89% complete. I n November 1972, B a r t k u s ' c o n s u l t i n g c o n t r a c t was t e r m i n a t e d and t h e l a s t two months o f c o n s t r u c t i o n , though a d e p a r t u r e from t h e Loan Agreement, went u n s u p e r v i s e d by Bank-approved c o n s u l t a n t s . C o n s t r u c t i o n o n t h e l a s t c o n t r a c t under t h e r e v i s e d p r o j e c t was completed i n December 1972, a b o u t two y e a r s b e h i n d s c h e d u l e , and t h e l o a n f u l l y d i s b u r s e d on December 3 1 o f t h a t y e a r . Although i t was n o t p o s s i b l e f o r t h e e v a l u a t i o n m i s s i o n t o v i s i t a l l o f t h e r o a d s e c t i o n s completed u n d e r t h e T h i r d Highway P r o j e c t , a b o u t 206 km o f t h e 364 km i n c l u d e d under t h e p r o j e c t were i n s p e c t e d . A l l t h e r o a d s v i s i t e d were i n g e n e r a l w e l l c o n s t r u c t e d and a d e q u a t e l y main- t a i n e d , a l t h o u g h s l i d e s b l o c k i n g some s e c t i o n s of f e e d e r r o a d s i n d i c a t e d t h a t machinery was s t i l l s c a r c e . D e s p i t e t h e Bank's c o n t i n u i n g e f f o r t s t o improve m a i n t e n a n c e o p e r a - t i o n s i n E l S a l v a d o r , Bank s u p e r v i s i o n m i s s i o n s g e n e r a l l y concluded t h a t t h e r e was l i t t l e s p r e a d e f f e c t from Bank-encouraged m a f n t e n a n c e improvement p r o j e c t s t o o v e r a l l highway m a i n t e n a n c e o p e r a t i o n s i n t h e c o u n t r y . Never- t h e l e s s , a s a t i s f a c t o r y m a i n t e n a n c e o r g a n i z a t i o n f o r t h e C o a s t a l Highway was s e t up a s a r e s u l t o f t h e 4 - y e a r p r o g r a d / f i n a n c e d by C r e d i t 31-ES and a l l Bank s u p e r v i s i o n m i s s i o n s a g r e e d t h a t m a i n t e n a n c e o n Bank-financed r o a d s e c t i o n s was a d e q u a t e , i n c o n f o r m i t y w i t h t h e l o a n and c r e d i t agreements. The performance o f s u p e r v i s i o n c o n s u l t a n t s t h r o u g h o u t t h e e i g h t y e a r s o f c o n s t r u c t i o n was judged by Bank m i s s i o n s t o b e s a t i s f a c t o r y , a l t h o u g h r e l a t i o n s between t h e c o n s u l t a n t s and t h e Government w e r e n o t always good. The o r i g i n a l c o n s u l t a n t s , TAMS, were r e p l a c e d by Brown 6 Root when TAMS' c o n t r a c t e x p i r e d i n December 1966, and Brown & Root was r e p l a c e d by B a r t k u s A s s o c i a t e s i n August 1968. The Bank had no o b j e c t i o n t o t h e Government's c h o i c e o f c o n s u l t a n t s . I t s o n l y c r i t i c i s m o f c o n s u l t a n t performance was - 1/ T h i s program i n c l u d e d f u n d s f o r equipment p u r c h a s e s , t r a i n i n g , and man- agement s e r v i c e s by TAMS t o s e t up a m a i n t e n a n c e o r g a n i z a t i o n t o be used e x c l u s i v e l y on t h e C o a s t a l Highway. t h a t , a t t i m e s , t h e r e p r e s e n t a t i v e s o f B a r t k u s (who w e r e t h e m s e l v e s S a l v a d o r e a n s ) worked t o o c l o s e l y w i t h some c o n t r a c t o r s , making them l e s s 11a g g r e s s i v e " i n enforcing contract specifications. P r o j e c t Costs The t o t a l c o s t of t h e p r o j e c t a c t u a y t u r n e d o u t t o b e about 70% above t h e o r i g i n a l 1962 p r o j e c t e s t i m a t e , i f a l t h o u g h much o f t h e i n - c r e a s e d c o s t was due t o t h e change i n d e s i g n s t a n d a r d s f o r two of t h e m a j o r r o a d s ( S a n t a T e c l a - A c a j u t l a and S a n t a Tecla-La L i b e r t a d ) . N e v e r t h e l e s s t h e a c t u a l c o s t of t h e f e e d e r r o a d s (whose s t a n d a r d s remained unchanged) was more t h a n d o u b l e t h e o r i g i n a l f o r e c a s t , a change w e l l above t h e i n c r e a s e i n p r i c e s during t h e period, suggesting t h a t d e s p i t e t h e a d d i t i o n a l s t u d i e s made a t t h e Bank's i n s i s t e n c e , e n g i n e e r i n g e s t i m a t e s were not a d e q u a t e ( T a b l e I). By t h e t i m e new c o s t e s t i m a t e s were made f o r t h e r e v i s e d p r o j e c t ( p a r t i c u l a r l y by 1967, when f u r t h e r r e v i s i o n s were made f o r t h e s u p p l e - m e n t a r y l o a n a p p r a i s a l r e p o r t ) a much c l e a r e r i d e a was o b t a i n e d of what p r o j e c t c o s t s would a c t u a l l y be. F i n a l a p p r a i s a l e s t i m a t e s were based on t h e a c t u a l c o s t s of s i x r o a d s e c t i o n s which had b e e n completed b e f o r e t h e end of 1966, t h e c o n t r a c t v a l u e of s e v e r a l s e c t i o n s under c o n s t r u c t i o n ( a d j u s t e d f o r e s t i m a t e d f i n a l work q u a n t i t i e s ) , and updated c ~ s e tstimates of t h e remaining works i n c l u d i n g a 10% c o n t i n g e n c y allowance.2' Not s u r - prisingly, therefore, actual c o s t s closely paralleled t h e revised estimates f o r most i t e m s (Table 1 ) . The o n l y s i g n i f i c a n t o v e r r u n s o c c u r r e d on t h e S a n t a T e c l a - A c a j u t l a , S a n t a Tecla-La L i b e r t a d and Sonzacate-San J o r g e r o a d s e c t i o n s , a s w e l l a s on t h e c o n s u l t a n t s ' s u p e r v i s i o n s e r v i c e s . The o v e r r u n on t h e S a n t a T e c l a - A c a j u t l a and S a n t a Tecla-La L i b e r t a d r o a d s e c t i o n s was l a r g e l y due t o t h e d e l a y i n completing paving o p e r a t i o n s ( s e e s e c t i o n on p r o j e c t i m p l e m e n t a t i o n ) . On t h e mountainous Sonzacate-San J o r g e s e c t i o n t h e o v e r r u n s were due t o t h e need f o r i n c r e a s e d e a r t h w o r k s , and t o t e c h - n i c a l problems a s s o c i a t e d w i t h t h e t y p e of s t o n e used i n t h e a s p h a l t a g g r e g a t e f o r paving. The i n c r e a s e i n c o s t s f o r c o n s u l t a n t s ' s e r v i c e s was a d i r e c t r e s u l t of t h e d e l a y i n completing t h e p r o j e c t , r e q u i r i n g them t o r e m a i n on t h e job l o n g e r t h a n p r o j e c t e d . T a b l e I a l s o r e v e a l s t h a t e x p e n d i t u r e s on t h e C o a s t a l Highway m a i n t e n a n c e program f e l l somewhat s h o r t of e x p e c t a t i o n s : although t h e o r i g i n a l program e n v i s a g e d spending US$ 1 . 4 m i l l i o n e q u i v a l e n t on t h i s i t e m , - 1/ I n c l u d i n g c o n t i n g e n c i e s o f a b o u t 20%. - 2/ The updated e s t i m a t e s of t h e Highway Department were adopted by t h e a p p r a i s a l team. l e s s t h a n US$ 1.0 m i l l i o n was a c c u a l l y s p e n t . Bank f i g u r e s i n d i c a t e t h a t US$ 460,000 was d i s b u r s e d f o r t h i s program, meaning t h a t t h e Government c o n t r i b u t i o n was o n l y US$ 519,000 e q u i v a l e n t r a t h e r t h a n US$ 700,000 e q u i v - a l e n t a s r e q u i r e d by t h e C r e d i t Agreement. T h e r e i s no i n f o r m a t i o n a v a i l - a b l e a b o u t why t h e Bank d i d n o t p r e s s t h i s p o i n t , b u t p r o b a b l y i t d i d n o t b o t h e r t o r a i s e t h e i s s u e s i n c e m a i n t e n a n c e was always judged t o b e s a t i s - f a c t o r y o n t h e C o a s t a l Highway. F o r t h e above r e a s c n s , t h e t o t a l c o s t o f t h e p r o j e c t was 71% above t h e o r i g i n a l p r o j e c t t o n and 12% above t h e r e v i s e d e s t i m a t e f o r t h e s u p p l e m e n t a r y l o a n . The Bank's s h a r e , o r i g i n a l l y c a l c u l a t e d on t h e b a s i s o f 60% o f t h e t o t a l p r o j e c t c o s t , a c t u a l l y amounted t o 47% o f t h e f i n a l proj ect. Economic J u s t i f i c a t i o n The economic j u s t i f i c a t i o n o f t h e s e v e n t r u n k r o a d s i n t h e o r i g - i n a l p r o j e c t was b a s e d on d i r e c t b e n e f i t s d e r i v e d from s a v i n g s i n v e h i c l e o p e r a t i n g c o s t s o n l y , T r a f f i c was e x p e c t e d t o grow a t 9% a n n u a l l y between 1966 (when t h e r o a d s were s c h e d u l e d t o b e c o m p l e t e d ) and 1971. O t h e r bene- f i t s i n t h e form o f l e s s t r a f f i c c o n g e s t i o n , i n c r e a s e d t r a d e w i t h Honduras, and b e t t e r communication between c i t i e s , were c o n s i d e r e d b u t n o t e x p l i c i t l y i n c l u d e d i n t h e c a l c u l a t i o n o f b e n e f i t s . On t h i s b a s i s t h e b e n e f i t / c o s t r a t i o s o f t h e s e v e n r o a d s were e x p e c t e d t o r a n g e between 1 . 5 and 2,5. I n f a c t , t r a f f i c on t h e two most i m p o r t a n t r o a d s e c t i o n s ( S a n t a T e c l a - A c a j u t l a and S a n t a Tecla-La L i b e r t a d ) grew a t 14-28% p e r y e a r , much f a s t e r t h a n t h e 9% r a t e p r o j e c t e d . On t h e S a n t a T e c l a - A c a j u t l a s e c t i o n t h e l a r g e r t n a n a n t i c i p a t e d growth was c a u s e d b y t h e e x p a n s i o n o f p o r t f a c i l i t i e s a t k c a j u t i a (making i t E l S a l v a d o r ' s p r i n c i p a l p o r t ) , a s w e l l a s by i n c r e a s e d t r a d e w i t h Guatemala. On t h e S a n t a T e c l a - L a L i b e r t a d s e c - t i o n t h e r a p i d t r a f f i c growth was l a r g e l y due t o t o u r i s t t r a f f i c between San S a l v a d o r and t h e b e a c h e s n e a r La L i b e r t a d . I t seems t h a t n e i t h e r o f t h e s e d e v e l o p m e n t s w e r e a d e q u a t e l y t a k e n i n t o a c c o u n t i n t h e o r i g i n a l 1961 Highway Development Study. When t h e p r o j e c t was r e v i s e d i n 1967, Bank s u p e r v i s i o n m i s s i o n s c o n f i r m e d t h a t v e h i c l e o p e r a t i n g c o s t s a v i n g s c a l c u l a i o n s used i n t h e o r i g i n a l a p p r a i s a l f o r C r e d i t 31-ES were reasonable.^' On t h i s b a s i s , and u s i n g new t r a f f i c f o r e c a s t s , r a t e s o f r e t u r n f o r t h e r o a d s t o b e upgraded under t h e s u p p l e m e n t a r y l o a n , a s w e l l a s t h e d e f e r r e d S o n z a c a t e - S a n J o r g e s e c t i o n , w e r e c a l c u l a t e d t o r a n g e between 10% and 24%. 1/ US 0 . 4 ~p e r km f o r p a s s e n g e r c a r s and US 1 . 6 ~ - p e r krn f o r commercial vehicles on t h e S a n t a T e c l a - L a L i b e r t a d and S a n t a T e c l a - A c a j u t l a s e c - t i o E z ; US 2 . 2 ~p e r km f o r p a s s e n g e r c a r s and US 5 . 3 ~ p e r km f o r cormner- c i a ; v e h i c l e s on t h e Sonzacate-San J o r g e s e c t i o n .  No o t h e r v e h i c l e o p e r a t i n g c o s t c a l c u l a t i o n s e x i s t f o r t h e s e v e n t r u n k r o a d s i n c l u d e d i n t h e p r o j e c t , & / b u t based on t h e a s s u m p t i o n t h a t t h e Bank e s t i m a t e s were indeed c o r r e c t , some g e n e r a l o b s e r v a t i o n s a b o u t t h e a c t u a l economic j u s t i f i c a t i o n o f t h e p r o j e c t c a n be made ( t h e s e o b s e r v a t i o n s a r e summarized i n T a b l e 1 1 1 ) . The San Miguel-Agua S a l a d a s e c t i o n was c l e a r l y j u s t i f i e d s i n c e t r a f f i c exceeded t h e o r i g i n a l p r o j e c t i o n and t h e r o a d was b u i l t a t a lower c o s t , On t h e S o n s o n a t e - A c a j u t l a s e c t i o n t r a f f i c h a s grown more r a p i d l y t h a n e x p e c t e d ( e s p e c i a l l y t r u c k t r a f f i c ) s o t h a t i t , t o o , h a s undoubtedly met i t s o b j e c t i v e s i n s p i t e o f some c o s t i n c r e a s e s , The S a n t a Tecla-La C u c h i l l a f o u r - l a n e highway has b e e n j u s t i - f i e d b y t h e a b s o l u t e l e v e l of v e h i c l e s u s i n g t h e highway, which i s f a r i n e x c e s s o f t h e 5,000 v e h i c l e p e r day maximum c a p a c i t y o f t h e o r i g i n a l two-lane highway s c h e d u l e d f o r c o n s t r u c t i o n under t h e o r i g i n a l p r o j e c t . The S a n t a Tecla-La L i b e r t a d s e c t i o n h a s p r o b a b l y been j u s t i f e d i n l i g h t o f i t s t r a f f i c l e v e l , although i t i s d i f f i c u l t t o a s c e r t a i n whether t h e f o r e c a s t 10% r a t e o f r e t u r n h a s been m e t s i n c e no breakdown o f t h e t o t a l c o n s t r u c t i o n c o s t ( i n c l u d i n g p a v i n g ) f o r t h a t s e c t i o n i s a v a i l a b l e , On two t r u n k r o a d s e c t i o n s , E l Jobo-Ahuachapan and E l P o y - T e j u t l a , t h e p r o j e c t o b j e c t i v e s have n o t been m e t s i n c e t r a f f i c f a i l e d t o approach p r o j e c t e d levels.2/ F o r t h e o t h e r t r u n k r o a d s e c t i o n s no c o n c l u s i o n s are p o s s i b l e due t o t h e a b s e n c e of r e l i a b l e f i g u r e s . Regarding t h e f e e d e r r o a d s , t h e o r i g i n a l p r o j e c t e n v i s i o n e d t h a t t h e y would i n c r e a s e a g r i c u l t u r a l p r o d u c t i o n i n t h e a r e a s t h e y s e r v e d by 25%, and h e l p d i v e r s i f y t h e c o u n t r y ' s economy away £ r u n c o f f e e by s t i m - u l a t i n g p r o d u c t i o n o f f r u i t s , s u g a r c a n e , c o r n and b e a n s . No p r e c i s e c a l - c u l a t i o n o f b e n e f i t s was a t t e m p t e d d u r i n g a p p r a i s a l , b u t t h e i n c r e a s e i n t h e g r o s s v a l u e o f a g r i c u l t u r a l p r o d u c t i o n a t t r i b u t a b l e t o t h e improved r o a d s was e x p e c t e d t o n e a r l y e q u a l t h e c o s t o f t h e f e e d e r r o a d s a t t h e end of t h e 1 0 - y e a r p e r i o d f o l l o w i n g t h e i r c o m p l e t i o n , The a p p r a i s a l f o r t h e s u p p l e m e n t a r y l o a n i n c l u d e d a much more i n - d e p t h c a l c u l a t i o n o f economic b e n e f i t s b a s e d on t h e v a l u e added o f t h e i n c r e m e n t a l a g r i c u l t u r a l o u t p u t . R a t e s o f r e t u r n r a n g i n g from 10% t o 20% were f o r e c a s t f o r t h e f o u r f e e d e r roads on t h i s b a s i s , No s u c h e l a b o r a t e c a l c u l a t i o n o f a c t u a l b e n e f i t s w a s p o s s i b l e w i t h i n t h e s c o p e o f t h i s a u d i t . However, v i s i t s were made by t h e e v a l u a t i o n 1/ - An a t t e m p t was made by t h e a u d i t m i s s i o n t o c o n t a c t l o c a l t r a n s p o r t c o n c e r n s f o r such i n f o r m a t i o n , b u t no r e c o r d s a r e k e p t . 2/ - I n t h e c a s e o f E l P o y - T e j u t l a , t h i s i s a t t r i b u t a b l e t o t h e 1969 war w i t h Honduras which ended a l l commerce between t h e two c o u n t r i e s , s o t h a t expected i n t e r - c o u n t r y t r u c k t r a f f i c d i d not m a t e r i a l i z e , m i s s i o n t o t h e two most i m p o r t a n t f e e d e r r o a d s ( i n t e r m s o f l e n g t h ) , S a n t o Tomas-Cojutepeque and T e o t e p e q u e - S a n t a T e c l a . The o v e r a l l i m p r e s - s i o n o f t h e a u d i t m i s s i o n was t h a t t h e s e f e e d e r r o a d s had been a w o r t h - w h i l e i n v e s t m e n t , though t h e y d i d n o t a p p r e c i a b l y s t i m u l a t e t h e d i v e r s i - f i c a t i o n o f p r o d u c t i o n away from c o f f e e ; t h e r o a d s 1 main i m p e t u s seems t o have been t o encourage a d d i t i o n a l c o f f e e p l a n t i n g s . The R o l e o f t h e Bank The Bank was t h e f i r s t m u l t i l a t e r a l agency t o f i n a n c e highway c o n s t r u c t i o n p r o j e c t s i n E l S a l v a d o r . I t was t h e r e f o r e n a t u r a l t h a t E l S a l v a d o r a p p r o a c h e d t h e Bank t o f i n a n c e t h e c o u n t r y ' s f i r s t l o n g - t e r m highway development program. F o r i t s p a r t , t h e Bank c a n b e c r e d i t e d w i t h e n c o u r a g i n g t h e development o f such a program and w i t h h e l p i n g t o c a r r y i t o u t . The Bank s u g g e s t e d few changes i n t h e program a n d a c c e p t e d t h e Govern- ment's p o l i c y of encouraging l o c a l f i r m s t o p a r t i c i p a t e i n t h e p r o j e c t t h r o u g h t h e award o f c o n t r a c t s f o r t h e c o n s t r u c t i o n o f r e l a t i v e l y s m a l l sections. , I n g e n e r a l t h e Bank was f l e x i b l e i n r e s p e c t o f t h e p o l i c y a s p e c t s o f t h e p r o j e c t and seems t o h a v e m a i n l y b e e n i n t e r e s t e d i n s e e i n g t h a t t h e p r o j e c t was e f f i c i e n t l y c a r r i e d o u t , a l t h o u g h i n s p i t e o f i t s b e s t i n t e n t i o n s some problems d i d d e v e l o p and some b e n e f i t s d i d n o t m a t e r i a l i z e . For example, t h e d e l a y i n s i g n i n g t h e s u p p l e m e n t a r y l o a n , which a d v e r s e l y a f f e c t e d prog- r e s s made u n d e r t h e o r i g i n a l c r e d i t , was beyond t h e c o n t r o l o f t h e Bank, which n e v e r t h e l e s s r e p e a t e d l y used a v a i l a b l e c h a n n e l s i n a n a t t e m p t t o s p e e d up a p p r o v a l o f t h e l o a n by t h e Government. Throughout t h e p r o j e c t t h e Bank i n s i s t e d upon c l o s e p r o j e c t s u p e r - v i s i o n by competent c o n s u l t a n t s a n d , u n t i l t h e p r o j e c t was n e a r l y completed, s e n t f r e q u e n t s u p e r v i s i o n m i s s i o n s of i t s own. Both Bank and Government s o u r c e s a g r e e t h a t t h e s a t i s f a c t o r y c o m p l e t i o n o f t h e works a s o r i g i n a l l y s p e c i f i e d was l a r g e l y d e p e n d e n t upon t h e c o n s u l t a n t ' s s u p e r v i s i o n . Toward t h e end o f t h e p r o j e c t , however, t h e Bank seems t o h a v e r e s i g n e d i t s e l f t o t h e s l o w p r o g r e s s b e i n g made; t h e Bank d i d n o t p r e s s t h e c o n t r a c t o r o n t h e S a n t a T e c l a - T e o t e p e q u e f e e d e r r o a d t o s p e e d up s u r f a c i n g o p e r a t i o n s by a p p l y i n g more equipment, t h e s u p e r v i s i o n c o n s u l t a n t s w e r e a l l o w e d t o l e a v e two months b e f o r e c o n s t r u c t i o n was f i n a l l y completed, and no f i n a l i n s p e c - t i o n v i s i t was e v e r made. I n s t i t u t i o n a l l y t h e Bank h e l p e d t o implement p r o c e d u r e s f o r p r e - q u a l i f i c a t i o n o f b i d d e r s under Loan 521-ES. On m a i n t e n a n c e , t h e Bank hoped t h a t by way of d e m o n s t r a t i o n , t h e program d e v e l o p e d f o r t h e C o a s t a l Highway would e n c o u r a g e a d o p t i o n o f s i m i l a r methods on a l l highways; t h i s d i d n o t o c c u r . However, t h e f a c t t h a t t h e C o a s t a l Highway m a i n t e n a n c e program was s u c c e s s f u l l y implemented i m p l i e s t h a t w i t h p r o p e r f u n d i n g and s u p e r - v i s i o n , a n a t i o n a l highway maintenance program c o u l d a l s o b e s u c c e s s f u l l y e s t a b l i s h e d . P e r h a p s t h e Bank was r i g h t t h a t s u c h a program was t o o am- b i t i o u s i n 1962, b u t i t might have been w o r t h c o n s i d e r i n g a g a i n when t h e supplementary l o a n was made i n 1967. C u r r e n t l y , a highway maintenance program drawn up by B a r t k u s ( i n a s s o c i a t i o n w i t h Louis B e r g e r ) and funded by a n EximBank l o a n , i s b e i n g implemented. F i n a l l y , i t i s s u r p r i s i n g t h a t , o v e r t h e y e a r s , t h e Bank d i d n o t i n s i s t more on t h e need o f i n f o r m a t i o n t h a t i s c e n t r a l f o r t h e p r e p - a r a t i o n o f highway p l a n s , s u c h a s r e a s o n a b l y a c c u r a t e t r a f f i c c o u n t s , o r i g i n l d e s t i n a t i o n s u r v e y s , o r v e h i c l e o p e r a t i n g c o s t s . Perhaps a more c r i t i c a l r e v i e w o f t h e o r i g i n a l 5 - y e a r Highway Development P l a n would have h i g h l i g h t e d t h e d e f i c i e n c i e s o f t h e d a t a on which t h e P l a n was based. I n r e t r o s p e c t , i t seems t h a t t h e need f o r a supplementary l o a n t o h e l p f i n a n c e t h e u p g r a d i n g of some o f t h e road s e c t i o n s c o u l d have been a v o i d e d had t h e t r a f f i c i n f o r m a t i o n been more a c c u r a t e . Conclusions I n s p i t e o f t h e d e l a y s and d i f f i c u l t i e s e x p e r i e n c e d d u r i n g imple- m e n t a t i o n , most of t h e highway improvements i n c l u d e d i n t h e p r o j e c t seem t o h a v e been w o r t h w h i l e i n v e s t m e n t s . Some o f t h e i m p o r t a n t e v e n t s t h a t i n - f l u e n c e d t h e outcome of t h e p r o j e c t , such a s t h e war w i t h Honduras o r t h e d e l a y i n r a t i f i c a t i o n o f t h e supplementary l o a n , were beyond t h e i n f l u e n c e o f t h e p a r t i e s concerned. The c a s e o f t h e f e e d e r r o a d s i n c l u d e d i n t h e p r o j e c t c o n f i r m s t h e view t h a t t h i s t y p e of r o a d s s h o u l d b e a p p r a i s e d i n t h e c o n t e x t of a w i d e r r e g i o n a l development s t r a t e g y : most o f t h e changes i n a g r i c u l t u r a l p r o d u c t i o n p a t t e r n s expected a s a r e s u l t of t h e f e e d e r roads d i d not m a t e r i a l i z e . The e v o l u t i o n o f t h i s p r o j e c t a l s o h i g h l i g h t s t h e d i f f i c u l t i e s f a c e d b y a p o l i c y o f promoting l o c a l c o n s t r u c t i o n i n d u s t r i e s . Competitive b i d d i n g was b a s e d on s m a l l r o a d s e c t i o n s i n o r d e r t o e n c o u r a g e l o c a l f i r m s t o p a r t i c i p a t e . Local f i n r s d i d p a r t i c i p a t e , b u t t h e y c o m p l e t e l y l a c k e d e x p e r i e n c e i n r o a d c o n s t r u c t i o n . The f a c t t h a t most o f them went o u t o f b u s i n e s s l a r g e l y b e c a u s e o f t h e need t o r e c o n s t r u c t i m p o r t a n t p a r t s o f t h e works s u g g e s t s t h a t i n t h i s p a r t i c u l a r c a s e a l t e r n a t i v e methods t o promote t h e l o c a l i n d u s t r y s h o u l d have been f o l l o w e d ; f o r example, t o have encour- aged j o i n t v e n t u r e s w i t h e x p e r i e n c e d f o r e i g n c o n t r a c t o r s , o r t o have r e - q u i r e d a much c l o s e r s u p e r v i s i o n by t h e c o n s u l t a n t s , t o b e a b l e t o s p o t d e f i c i e n c i e s i n t h e works b e f o r e i t was n e c e s s a r y t o r e d o them.  EL SALVADOR: THIRD HIGHWAY PROJECT Table I - Forecast and Actual Project Costs (US$ Thousands ~~uivalent) Cr 31-ES (1962) 1965 Revised Project Loan 521-ES (1967) X Overrun Appraisal Forecast Appraipal Forecast Revised Appraisal Forecast P . C T U A L Total Cost Foreign - Total Foreign Total Foreian Total Foreign Total 1962 1967 Cost Cost Cost cost- -C Cost Cost Appraisal Appraisal A. Construction a. Trunk Roads 1. Santa Tecla-Acajutla 2. Santa Tecla-La Libertad 3. Sonzacate-San Jorge 4. Sitio del Nifio-Apopa 5. San Miguel-Agua Salada 6. El Poy-Tejutla 7. El Jobo-Ahuachapan Sub-total 8,850 12,210 13,465 b. Feeder Roads 8. Juayna-Los Arenales 9. Teotepeque-Santa Tecla 10. Santo Tomas-Cojlltepeque 11. San Ramon-Inter-Am. Hwy. Sub-total 1,950 3,260 3,890 Total Construction Cost 6,590 10,800 9,425 15,470 10,587 17,355 B. Desixns and Supervision 750 1,350 800 1,500 1,050 1,850 C. Maintenance Program 700 1,400 575 1,275 460 1.256 TOTAL PROJECT COST 8,040 13,350 10,800 18,245 12,097 20,461 11,805 from BankIIDA 8,000 10,800 10,800 10,800 Forecasts include contingencies; application of 20% contingency provision under Cr. 31-ES results in slight rounding error. a Figure incomplets as only administrative costs of fDrce account work performed under Cr. 31-ES are available. ! - Source: Highways Department and Bank supervision reports  EL SALVAWR: THIRD HIGHliAY PROJECT I a b l e I1 - Furecasc and Actual T r a f f i c Growth (A e r ge v e h i c l e s p e r day) Loan 521-ES Revieed Forecaet 0riF.inal 1962 Higlway P r o p a m ~orecasc?' dl Av. Annual A C T U A L - AIL Annual Growth Rate % Heaw Growth Rate Av. Annual Grovth Rate X Heavy V e h i c l e s - - 1961 (actual - - 1966 1971 (1961-66) 11966-71) (a) ( 7.) (1966) - 1966 1971 -(1966-71) 9- - 1961 - 1966 - 1971 (1961-66) (%) (1966-71) (%) (1966) (%) ( 1 9 7 (4.) 1) Santa I e c l e - Aca~utla Senta I e c l e - La C u c h i l l a La C u c h i l l e Sonsonare - Sonsonate - Acajutla S a n t a Tecla - La L i b e r t a d Sonrecate - San J o r g e sirio del N i n o - Apopa San Miguel - Agua S a l a d a EI Poy - r e j u t l a E l Jobo - Ahuachapen JUBynP - Los Arenales Teotepe.ue - .ants Tecla Santa Tanas - Cojutepeque Sen Kemon - Int. Am. Huy. a/ - T h i s program was prepared by T AM S an 1961, and c o n t a i n e d t r a f f i c f o r e c a s t s adopted b y t h e Bank: f i g u r e s f o r e a c h y e a r were o b t a i n e d by a p p l y ~ n gf o r e c a s ~growth r a t e s t o figures e s t i m a t e d t o b e u s i n g t h e r o a d s i n 1966 ( e s t i m a t e d d a t e for c m p l e t i n g r o a d s ) . b/ F i g u r e tor 1964: i n 1966 r r a c f i c d e c l i n e d somewhat due t o c o n s t r u c t i o n . cl I n c l u d e s d i v e r t e d t r a f f i c a f t e r 1969. dl - Source: Direction d e Caminos. Although sum- f i g u r e s seem d ~ b i a u s . t h e absence o f any o t h e r sources of t r a f f i c d a t a f o r t h e s e roads p r e - eluded e i t h e r c o n f i r m i n g or c o r r e c t i n g those f i g u r e s . e/ f i g ~ r efor 1964. i n 1965-66 a d d i t i o n a l t r a f f i c was ( t e m p o r a r i l y ) d i v e r t e d f r m S a n t a T e c l a - La C u r h i l l a s e c t i o n , due t o c o n s r r v c c i o n works t a k i n g p l a c e t h e r e . f/ F i g u r e f o r 1972 was used.  EL SALVIIIUR: THIRD HIGlWAY PROJECT Table I l l - Fareeast and Actual P r o j e c t R e s u l t s F o r e c a s t Benefl t & / Reviaed C o n s t r u c t i o n Cost (US$ 0 0 0 ' ~e q u i v a l e n t ) 1971 T r a f f i c (AVPD) R a t e o f Growth 1966-71 (9.) (1962) (1967) Project Actual Overrun 7. 1962 1967 (Beneflt/Cost ( I n t e r n a l Rate Objective. Road S e c t i o n (1966-71) 1962 F o r e c a s t 1967 F o r e c a s t Actual Forecast Farecalt Actual Ratio) of R e t u r n ) - net* I. Santa Tecla-AcaJutla s a n t a Tecla-La C u c l i i l l a ) ) yes ( S a t u r e t i o n p o i n t f o r two-lane road exceeded.) La Cuchilla-Sonsonate ) ) ".a. (No t r . f f I c d a t a a v a t l - b l r . ) Sonsonate-Acajucla ) 8.655 ) 151% 177" Yea i ~ r a f f i cexceeded f a r e c s e t . j ) ) 2. Santa Tecla-La Libertad ) ) Probably ( T r a f f i c g r w t h met loree*at.) ".a. (No r e l i a b l e t r a f f i c d a t a . ) n... (No r e l i a b l e t r a f f i c d a t a . ) Yes (Exceeded o r i g i n a l t r a f f i c p r o j e c t i o n a t l e s s cost.) ( T r a f f i c growth s i g n i f i c a n t l y below f o r e c a s t . ) ( T r a f f i c growth s i g n i f i c a n t l y b e l ~ v forecast.) (No a g r i c u l r u r e l i n f o r m a t i o n a v a i l a b l e . ) ( S i g n i f i c a n t developmental impact observed by evaluation mission.) 10. Santa Trmas-Cojutepeque 1.654 1151: 57, 111 9% Yes ( S i g n i f i c a n t developmental impnct observed.) 11. San Rwon-Int. Am. Hwy. 572 59% -6% ".a. 10% ".a. (No a g r i c u l t u r a l i n f o m a t i a n a v a i l a b l e . ) =I Does n o t i n c l u d e v a l u e o f f a r c e account work done by Highway Department. a1 E r i s r l n g d a t a does n o t permit r e a l i s t i c p r e s e n t a t i o n o f actual traffic situation. cl Figure f a r 1972 wa. used i n t h e absence of d a t a f o r 1971. 61 Based on v e h i c l e o p e r a t i n g c o a t s a v i n a s o n l y e x c e p t as i n d i c a t e d . el Based on i n c r e a s e d v a l u e of a g r i c u l t u r a l p r o d u c t i o n i n region s e r v e d . f/ F i g u r e f o r 1972 adopted aa paving o p e r a t i o n s i n t e r f e r e d w i t h 1971 t r a f f i c . P A C I F I C O C E A N