Argentina - Second Highway Project

Document of The World Bank FILE COPY FOR OFFICIAL USE ONLY Report No. 2556 PROJECT PERFORMANCE AUDIT REPORT ARGENTINA SECOND HIGHWAY PROJECT (LOAN 619-AR) June 25, 1979 Operations Evaluation Department This document has a restricted distribution and may be used by recipients only In the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.  - i- FOR OFFICIAL USE ONLY PROJECT PERFORMANCE AUDIT REPORT ARGENTINA SECOND HIGHWAY PROJECT (LOAN 619-AR) Table of Contents Page No. PREFACE iii PROJECT PERFORMANCE AUDIT BASIC DATA SHEET iv-v HIGHLIGHTS vi-vii PROJECT PERFORMANCE AUDIT MEMORANDUM I. Background 1 II. The Second Highway Project 2 III. Main Issues 4 IV. Conclusions 11 Annexes A. Actual versus Expected Costs 13 B. Equipment Purchases 14 C. Proposed New Structure for the Federal Highway Department 15 D. National Transport Plan - Summary of Terms of Reference 16 E. Borrower's Comments 19 ATTACHMENT: PROJECT COMPLETION REPORT I. Introduction 21 II. Project Preparation and Appraisal 21 III. Project Implementationand Costs 25 IV. Economic Reevaluation 32 V. Institutional Development 35 VI. Role of the Bank 36 VII. Conclusions 37 Tables 1. Appraisal Estimate of Cost of Works Compared with Actual Costs in Constant US$ 38 2. Comparison of Scheduled and Actual Contract Periods 39 3. Schedule of Disbursements 40 4. Appraisal Estimates of Rates of Return Compared with Completion Estimates 41 5. Appraisal Estimates of Traffic Compared with Actual Counts 42 6. Final Status of Civil Works 43 7. Actual Project Costs 44 This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization. - ii - Page No. Annex Conversion of Current $a into Constant US$ 45 Chart Organization of the National Highway Authority (Vialidad Nacional) 47 Map - iii - PROJECT PERFORMANCE AUDIT REPORT ARGENTINA SECOND HIGHWAY PROJECT (LOAN 619-AR) Preface This report presents a performance audit of the Argentina Second Highway Project, for which Loan 619-AR for US$25 million was fully disbursed in December 1977. It consists of a memorandum prepared by the Operations Evaluation Department (OED) and a Project Completion Report (PCR) prepared by the Bank's Latin America and the Caribbean Regional Office. The memo- randum is based on the PCR, the Goverment's Final Report of June 1978, dis- cussions with Bank staff, and a review of the project files and transcript of the Executive Director's meeting which considered the project. Comments made by OED on an earlier draft of the PCR have been reflected in the pre- sent version. OED staff visited Argentina in January 1979 to review the results of the project with the Government. Particular points raised by these authorities concerned: the computerization of traffic data; the purchases of equipment, including film for photogrammetry equipment; the new organiza- tional structure and the staffing of the federal highway department; the proposed changes in regulations on truck weights and dimensions; and the scheme for implementing a National Transport Plan. These points have been reflected in the audit memorandum. In addition, a draft version of this report was sent to the authorities for comment and their replies are attached as Annex E. The excellent assistance provided by the Government and by its consultants is gratefully acknowledged. The audit memorandum takes a more critical approach than the PCR to discussions of the project cost, the underdisbursement of the loan, the underestimation of traffic growth, the problems of highway management, the delay in implementation of vehicle weight and dimension regulations, and the major effort required for transport coordination.  - iv - PROJECT PERFORMANCE AUDIT BASIC DATA SHEET ARGENTINA SECOND HIGHWAY PROJECT (LOAN 619-AR) KEY PROJECT DATA Appraisal Actual or Item Expectation Current Estimate Total Cost (US$ million) Original Project Components 49.80 42.81 Underrun (%) - 14 Components Added during Implementation 12,60 25.02/1 Overrun (%) - 99 Grand Total 62.40 67.83 Overrun (%) - 9 Loan Amount (US$ million) - 25.00 Disbursed ) - 25.00 Repaid ) 4/30/79 4.13 Borrower's Obligation ) - 27.36/2 Date Physical Components Completed Original Components 6/30/72 6/30/73 Additional Components 6/30/76 6/30/78 Proportion of Time Overrun (%) Original Components 30 Additional Components 80 Economic Rate of Return (%) Four Original Road Sections 12/3 19/3 Two Additional Road Sections Section 1 29 27 Section 2 18 n.a./4 Cumulative Estimated and Actual Disbursements (US$ million) FY70 FY71 FY72 FY73 FY74 FY75 FY76 FY77 FY78 Estimated 8.3 20.5 25.0 25.0 25.0 25.0 25.0 25.0 25.0 Actual 0 3.4 13.1 17.0 19.0 19.9 20.8 24.1 25.0 % Actual/Estimated 0 17 52 68 76 80 83 96 100 OTHER PROJECT DATA Original Item Plan Revisions Actual First Mention in Files - 08/67 Government's Application - - 04/68 Negotiations 04/69 - 4/23-5/2/69 Boand Approval 06/69 - 6/24/69 Loan Agreement Date 06/69 - 6/24169 Effectiveness Date 10/1/69 11/1/69, 1/12/70 12/14/69, 12/1/69, 12/31/69, 1/15/70 Cloaing Date Original Project Components 6/30/72 6/30/73 ) Additional Project Components 12131/76 6/30/77 ) 12/77 6/30/78 Bovrower The Argentine Republic Executing Agency Vialidad Nacional Fiscal Year of Borrower 1/1-12/31 Follow-on Project Name Third Highway Loan Number 734-AR Amount (US$ million) 67.5 Loan Agreement Date 5/5/71 /1 Project was expanded by additional construction of two road sections. 7_ Including exchange adjustment of US$6.49 million. /3 Weighted average. 4 Re-estimation not posLible as traffic counts are not available. - v - MISSION DATA Month, No. of No. of Man- Date of Item Year Weeks Persons Weeks Report Preparation 05/68 1.0 3.0 3.0 05/68 Appraisal 09/68 3.0 2.0 6.0 06/69 Total 4.0 9.0 Supervision I 9-10/69 2.0 1.0 2.0 11/69 Supervision II 02/70 2.0 1.0 2.0 04/70 Supervision III 8-09/70 1.0 2.0 2.0 09/70 Supervision IV 02/71 0.5 1.0 0.5 03/71 Supervision V 3-04/71 2.0 2.0 4.0 05/71 Supervision VI 06/71 0.5 1.0 0.5 07/71 Supervision VII 10-11/71 1.0 1.0 1.0 11/71 Supervision VIII 1-02/72 1.0 3.0 3.0 03/72 Supervision IX 06/72 1.0 1.0 1.0 07/72 Supervision X 10/72 1.0 1.0 1.0 11/72 Supervision XI 05/73 1.0 2.0 2.0 07/73 Supervision XII 9-10/74 1.0 4.0 4.0 11/74 Supervision XIII 4-05/75 1.0 2.0 2.0 06/75 Supervision XIV 07/76 1.0 3.0 3.0 11/76 Supervision XV 05/77 1.0 2.0 2.0 06/77 Supervision XVI 10/77 1.0 1.0 1.0 01/78 Supervision XVII 05/78 0.5 3.0 1.5 07/78 Total 18.5 32.5 COUNTRY EXCHANGE RATES Name of Currency (Abbreviation) Argentine Peso ($a) Year: Appraisal Year Average - 1968 Exchange Rate: US$1 = $a350.00 /1 1969 US$1 = $a350.00 /1 1970 US$1 = $a 4.00 /2 1971-1974 US$1 = $a 5.00 1975 US$1 = $a 60.90 1976 US$1 = $a274.50 1977 US$1 = $a597.50 1978 US$1 = $a775.30 /3 /1 Old pesos. /2 New pesos (1 new peso = 100 old pesos). 7 As of June 1978. - vi - PROJECT PERFORMANCE AUDIT REPORT ARGENTINA SECOND HIGHWAY PROJECT (LOAN 619-AR) Highlights The Second Highway Project in Argentina, for which Loan 619-AR provided US$25 million, supported: construction and construction supervi- sion of 1,062 km of highways; technical assistance for preinvestment stud- ies, highway planning and administration, and transport coordination; and procurement of equipment (para. 4 and PCR, para. 2.03). Except for the transport coordination assistance, which suffered from divided sector management, the project as appraised was completed with a delay of one year due to the civil works and a total cost underrun of 14%. The underrun, which resulted from devaluation of the Argentine peso and lower than expected contract prices, had been foreseen by the Bank six months be- fore the originally scheduled completion date. However, two years were taken to reach agreement on using the surplus loan funds toward construction of an additional 266 km of highways. This delay in turn resulted in the additional work being affected by sharp price increases. Completion of the additional work took two years longer and cost 99% more than expected. Overall, the expanded project required nine years to complete successfully and experienced a 9% cost overrun. Notwithstanding the delay and cost overrun, needed facilities were provided, during a period of serious economic and political difficulties for the country, which otherwise would not yet be available. (See paras. 5-10, 15-20, and PCR, paras. 2.04-3.22). The re-estimated economic rate of return is a weighted average of 19% for the four sections constructed under the original project, compared with the 12% appraisal estimate. Higher traffic volumes and vehicle operating costs more than offset higher construction cost and longer implementation time, result- ing in improved estimates of return. Due to insufficient traffic data, the return was re-estimated for only one of the two additional sections. It is 27%, two percentage points less than at appraisal, because beneficial effects of higher traffic volumes were outweighed by increased construction cost. (See para. 12 and PCR, paras. 4.01-4.10). The following points may be of particular interest: - effects of the continual devaluation of the Argentine peso on project financing (para. 18); - importance of ensuring that preinvestment studies fully investigate all major traffic generating sources to avoid underestimation of traffic growth (paras. 21-22 and PCR, para. 4.09 and Table 5); - need to improve programming of traffic data (para. 24); - vii - - importance of ensuring that funds are available for consum- able supplies when equipment with such requirements is recom- mended for purchase (para. 27); - timing and appropriateness of decentralizing highway operations in the development of the highway network (para. 28); - difficulties encountered in staffing the federal highway depart- ment (para. 29); - gradual implementation of a program to control vehicle weights and dimensions (paras. 30-33); - importance of and difficulties in achieving coordination of transport development (paras. 34-38); and - positive role of the project in the development of domestic consultants (para. 43). PROJECT PERFORMANCE AUDIT MEMORANDUM ARGENTINA SECOND HIGHWAY PROJECT (LOAN 619-AR) I. Background General 1. Argentina's transport system focuses on Buenos Aires, the po- litical and commercial capital. In 1976, the transport infrastructure consisted of about 1 million km of highways, 3,000 km of navigable rivers, 9 main river and ocean ports, 16,100 km of oil and gas pipelines, 39,800 km of railways, and 1,500 airports and airstrips. The major transport flows comprise: industrial products in the corridor from Cordoba through Santa Fe, Rosario, and Buenos Aires to La Plata; grain and livestock products in the Pampa; and specialized primary products from various regions to consumption and processing centers and export ports as well as the reverse flow of manu- factured products. Highway Development 2. Highways carried about 42% of freight and 86% of passenger traffic in 1976. At that time, the network included about 50 000 km (5%) of national highways and 950,000 km (95%) of provincial highways.!T About 42,000 km (4%) of the network, including about 25,000 km of national highways, was paved. During the 1960s and 1970s, the network was expanded rapidly through the con- struction of modern limited-access multilane facilities near urban centers and along a few heavily travelled 57utes. Also several connections to neigh- boring countries were constructed.- In addition, most gaps and missing lat- eral links in provincial highways were filled. The present network is general- ly adequate for current traffic volumes,3/ and attention is gradually turning to rehabilitiation of existing deteriorated highways. Bank Lending for Highways 3. Since 1961, the Bank has provided four loans, totalling US$228.5 million (after cancellations), for Argentina's highway development. The con- struction/improvement works and preinvestment studies suppported are described in PCR, para. 1.01. -The projects also were to assist in construction super- vision, acquisition of highway maintenance equipment, and improvement of high- way planning as well as transport coordination. Furthermore, they were to support studies of highway reconnaissance, regional agricultural development, and pavement overlays as well as preparation of a National Transport Plan and a traffic safety program. The First Highway Project (Loan 288-AR of June 1961 1/ Classified as primary, secondary, and tertiary. 2/ With financing from international lending institutions. 3/ However, some general expansion as well as improvement of provincial high- ways and international connections to Bolivia and Chile will be desirable as traffic volumes increase. - 2 - for US$17.5 million after cancellations) was closed in 1968; no Project Performance Audit Report (PPAR) was prepared. II. The Second Highway Project Objectives and Original Description 4. The Second Highway Project (Loan 619-AR of June 1969 for US$25 million) was completed in 1978 and is the subject of this PPAR. Project components, as originally appraised, comprised: (a) upgrading and paving of about 796 km of national highways;- (b) consulting services for: (i) construction supervision;I. (ii) a reconnaissa ce study to identify future highway investments; 2 (iii) feasibility studies of about 2,500 km;!. (iv) detailed engineering of about 2,000 km;11 (v) improvement of highway planning an administration;l' and (vi) advice on transport coordination;.' (c) equipment purchases related to (b) (ii)-(iv) above..! Further details are given in PCR, para. 2.03. Amendment of the Project During Implmentation 5. As explained in the PCR (para. 2.06), construction and paving of two additional highways (about 261 km) was added to the project by amendment of the Loan Agreement on January 11, 1974 to utilize surplus funds from the original components (see paras. 15-20). Project Results 6. Implementation. During the project period (1969-78), Argentina ex- perienced extremely serious economic and political difficulties. Inflation in 1970-76 rose at an average annual rate of 89%, the second highest increase in the world during that period. The Argentine peso was devalued from US$l= $a4 in 1970 to US$1=$a775.3 in mid-1978. Moreover, policies adopted by-the 1/ To be financed by the Bank and the Government. 1/ To be financed by the Government. 3/ To be financed by the Bank. - 3 - Government of 1973-7d caused many difficulties for highway operations-V and affected the project adversely in terms of implementation delays and cost in- creases (see paras. 8 and 10 as well as PCR, paras. 5.03-5.04). Only with the formation of another Government in 1976 were serious efforts made to restore efficient highway operations and complete the project. 7. In the end, about 1,062 km of highways were built by Argentine con- tractors. Construction supervision was provided satisfactorily by the feder- al highway department (Vialidad Nacional), assisted by expatriate and local consultants. Parts of the Pan American Highway, which is the country's only direct north-south route, were upgraded, circuitous urban routes were cir- cumvented, and access from the rich grain producing provinces to the main export terminal was improved (PCR, para. 2.07). Significant technical and economic data for determination of future highway investments were compiled by the reconnaissance survey. Improvements in highway planning and admini- stration were initiated,V and necessary equipment was acquired. As agreed with the Bank, expatriate consultants were not employed for transport coordi- nation services as originally stipulated; local personnel was used instead. 8. Time. The original project componelts were finished one year later than the Project Completion Date (Jung,1972)3/ and the additional components two years behind schedule (June 1976)41 (PCR, Table 2). The civil works were the main cause of delay. One or more of the following prolonged the construc- tion of the original or additional highway components or both: inadequate managerial input and limited financial capacity of some local contractors; work stoppages due to shortages of funds and subsequent contract renegotia- tions; shortages of equipment, spare parts, and supplies; inadequate detailed engineering; difficulties arising from political instability, including labor troubles and strikes; and abnormally heavy rain and harsh frost. 9. Another less important delaying factor, but one which held up the award of contracts, was the three-month deferral of loan effectiveness. This occurred while the Presidency queried numerous provisions of the already signed Loan Agreement, particularly the requirement for maintenance of the entire highway network (not only the project highways) as well as the amounts of the bid bonds and contractors' performance guarantees. 1/ Funds for highway operations were scarce after most road user revenues were redirected by law in 1975 to general Government expenditures. Con- struction firms had to stop work when they could not obtain payment or commercial loans as well as imported equipment and spare parts. Manage- ment of highway operations deteriorated because most senior staff in the federal highway department were replaced by others more politically than professionally oriented and because the assistance of consulting firms was rejected. 2/ Additional technical assistance is needed for full implementation of about 26 manuals prepared by consultants. 3/ Specified in the Loan Agreement. 4/ Specified in the Amendment Letter. 10. Cost. PCR, Table 7 shows that the combined actual cost of the original and additional project components-was US$67.83 million, or 9% more than estimated (US$62.40 million). To review the soundness of cost estimates, it is necessary to compare the estimated and actual costs of the project's original and additional components separately (Annex A). On this basis, the actual cost of the original components was US$42.81 million, or 14% less than the appraisal estimate (US$49.80 millionl/) because the expen- ditures on all major components except equipment were lower than the esti- mates. The actual cost of the additional components was US$25.02 million, or 99% more than estimated (US$12.60 million) due to the sharp rise in prices of construction items following the 1973 oil crisis. The average construction cost per kilometer was US$95,000 for the additional sections, compared with US$45,800 for the original sections. 11. Disbursements. Instead of starting in the first quarter of FY70, as expected at appraisal, disbursements for the original project components began exactly a year later (FY71). Only 32% of the loan was disbursed by the end of the scheduled three-year period in FY72. The expansion of the project in FY74 (para. 5) and the delays (paras. 8-9) were responsible for the longer disbursement period, necessitating three extensions of the Closing Date. The Basic Data Sheet shows further details. 12. Economic Re-evaluation. The economic rates of return for the ori- ginal and additional project components were re-estimated on essentially the same methodology as at appraisaLV Current traffic and actual construction costs were taken into consideration (PCR, Table 4). For the four original sections, the weighted re-estimated rate of return is 19% (compared with the appraisal estimate of 12%). Higher traffic volumes and vehicle operat- ing cost savings for heavy commerical vehicles more than offset higher con- struction costs and longer implementation times. The re-qstimated rate of return for one of the two additional highway sections is 27% (versus the estimate of 29%) because the increased construction cost outweighed the bene- ficial effects of higher traffic volumes. The return could not be re-estimat- ed on the other additional section because traffic data are not available. 13. Environmental Effects. Earth roads between San Antonio Oeste-Rio Colorado, Laboulaye-Mercedes, and Pradere-Rufino were upgraded through the project to bituminous paved highways. As a result, dust pollution was con- siderably reduced. III. Main Issues 14. The particular issues which arose in connection with the project were: (a) the underdisbursement of the loan; (b) the underestimation of traffic growth; (c) the problems of highway management; (d) the delay in 1/ Rounded to US$50 million in the Appraisal Report. 2/ For both the original and additional components, these were reduced vehicle operating costs and travel distances, the difference between maintenance costs for unpaved and paved roads, and the relief of con- gestion. For the additional components, passenger time savings and modest reductions in accidents were also assumed. - 5 - implementation of vehicle weight and dimension regulations; and (e) the major effort required for transport coordination. Underdisbursement of the Loan 15. The PCR (para. 2.06) explains that, upon completion of the original project components, a US$5.9 million surplus was left in the loan account. The Bank's supervision mission of January/February 1972 had forecast the like- lihood of this surplus developing as a result of: (a) the devaluation rate of the Argentine peso vis-a-vis the US dol- not being offset by the escalation formula for domestic in- flation applied to construction costs;1/ and (b) the lower contract prices vis-a-vis appraisal estimates for civil works due to excess capacity in the construction industry in early 1970. 16. To dispose of this surplus, the mission proposed: (a) cancellation; (b) augmentation of the Bank's percentage participation in the project; or (c) application toward construction of additional highway sections. The mission recommended the adoption of proposal (b), but a decision on dispo- sition of the surplus was delayed two years. In January 1974, a decision was taken to use up the surplus funds by enlarging the project through the addi- tion of two highway sections originally proposed for inclusion in the Fourth Project. 2 1/ This was the cumulative effect of three causes: (a) the periodic devalua- tions during late 1971 and early 1972 which had lowered the Argentine peso exchange value vis-a-vis the US dollar more rapidly than the increase of the domestic price index used for the escalation formula applied to con- tractors' bills; (b) the average delay of three to four months between cal- culation of contractors' bills and submission of withdrawal applications, which led to considerable divergence in dollar equivalent payments to con- tractors and in reimbursements because, in a period of rapid devaluation, disbursements were made at the rate of exchange on the date of disburse- ment as quoted by the Central Bank; and (c) the dual exchange rate system adopted from December 1971 to April 1972, whereby the "commerical" rate was US$1=$a5 and the "financial" rate was allowed to fluctuate, which led to the Central Bank quoting the least favorable "financial" rate for the date of disbursement and the loss of about US$250,000 before the error was caught. 2/ Initially appraised in early 1972. - 6 - 17. If the decision to add the two sections had been made soon after the surplus loan funds were identified in early 1972, most construction (based on the 28 months needed) could have been completed before the sharp price rise after 1973 and the policies of the 1973-76 Government led to time delays and cost overruns. Nevertheless, the addition of the two sec- tions to the project under review allowed upgraded facilities to be avail- able considerably earlier than they would have been under the Fourth Pro- ject, for which loan processing was postponed repeatedly between 1972 and 1977 because of transport sector and general economic management issues. Construction work under that project, for which the Bank eventually made a loan (1384-AR) in May 1977, is only expected to begin in 1979. 18. It is not clear why the staff's recommendation to increase the Bank's percentage participation in the subject project was not adopted, particularly since this would have helped the loan to be completely dis- bursed and to cover the true value of foreign exchange required for the pro- ject. A continual devaluation of the Argentine peso unmatched by contrac- tors' price escalation resulted in the Borrower receiving from the loan less than the full amount of the foreign exchange cost of the work involved. 19. To eliminate this situation for the future, a policy of gliding parity exchange rate adjustment is now being followed in Argentina, with encouragement from the International Monetary Fund. Moreover, in the case of the recent Agricultural Credit Project (Loan 1564), the Bank has adopted a special arrangement for disbursements. This arrangement permits dis- bursements to be made using the exchange rates prevailing about the time expenditures are actually made, rather than those on the day of withdrawal applications. 20. The problem of lower contract prices vis-a-vis initial estimates for construction work has continued in Argentina, primarily because of keen competition among contractors for scarce work and because initial estimates may have been somewhat high. A relatively large construction program is en- visaged to begin shortly under the Fourth Project and, with more work and better cost estimates available, a cost underrun is not expected to materialize. Underestimation of Traffic Growth 21. Traffic volumes in the opening years on four of the six project highway sections were much higher (by 16% and 83% in individual sections) than estimated at appraisal (PCR, Table 5),1/ mainly because of an increase in the number of heavy commercial vehicles (PCR, para. 4.09). Although not clearly defined in the PCR, this increase seems to have resulted from a rapid expan- sion of agricultural and industrial production. As, however, the highest traf- fic volume was only about 1,600 vehicles per day, the increase did not affect the road's design standards. Yet, a serious underestimation of traffic, such as the present case, could adversely affect investment priorities. 1/ On one section, traffic was lower and on another traffic counts are not available. - 7 - 22. It is noted that traffic was similarly underestimated (in the range of 42% to 73%) for the four highway projects already evaluated in Brazil.l/ These situations suggest that extrapolation techniques in traffic forecasting are inadequate and point to the need for careful, on the spot investigations at the preinvestment study stage of major traffic generating sources in the public and private sectors. They also suggest that the data base was poor, pointing to the need for improved traffic counting and up-to-date compilation of traffic data to assist highway investment plan- ning (see para. 24). Problems of Highway Management 23. The Appraisal Report for the project identified five major high- way management problems: (a) lack of basic data (such as highway inven- tory and reliable traffic counts) for planning and administrative purposes; (b) lack of equipment to collect such data; (c) lack of a satisfactory cost accounting system; (d) duplication of services provided by federal and pro- vincial highway departments; and (e) shortages of engineers. 24. The audit concurs with the PCR (paras. 3.14-3.17, 3.20, 3.22, 5.01-5.02, and 6.01-6.03) that progress was made through the project on problems (a) through (c) above. The PCR did not, however, raise some sig- nificant points regarding these problems. One concerns traffic counts. While counting is more frequent and locations are more appropriate than in the past, continuation of the program to computerize data collected since 1975 has been delayed due to programming difficulties. As a result, data required for specific highway sections are compiled manually, as necessary. Government authorities informed the audit mission that they are aware of the need to correct this problem and hope to resolve it soon. 25. Another point requiring elaboration concerns the equipment. In the appraisal, only broad equipment categories were suggested2/ and a global cost of US$500,000 was estimated. A detailed list of specific items and prices was to be identified during project implementation by the federal highway department and consultants. 26. The identification process resulted in the exclusion of some equip- ment, including weighing scales, suggested at appraisal (see the list in Annex B) and, even with these exclusions, found that double the estimated amount of financing was required. Fortunately, the loan account contained sufficient funds to cover the difference. Otherwise, the purchase of some necessary equipment might have had to be deferred. A specific list of equip- ment and their cost estimates (including adequate price contingencies for the period between appraisal and purchase) should have been prepared at the time of appraisal. 1/ See PPARs No. 1026 of February 12, 1976 and No. 1644 of June 21, 1977 on the First and Second Highway Projects, respectively. The PPAR on the Third and Fourth Projects is currently being prepared by OED. 2/ Vehicle weighing scales, field laboratory equipment, highway inventory items, traffic counters, speed detectors, and drafting and photogrammetry equipment. - 8 - 27. Government authorities informed the audit mission that the photo- grammetry equipment (which accounted for 24% of the total equipment cost) currently is not in operation because funds are not available to purchase film, which is very expensive.l/ Due attention should be given, when re- commending equipment that requires consumable supplies, to ensuring that funds for these supplies are available on a regular and continuous basis. 28. The PCR did not discuss the problem of duplication of federal and provincial highway services or fully address the problem of shortages of engineers. The audit mission found that the federal highway department has delegated maintenance and construction operations to some stronger provincial highway departments.!/ However, progress has been slower than expected because of the federal department's limited budget (PCR, para. 6.03). A proposed structure which will result in the department being charged pri- marily with executive responsibilities was submitted for consideration to the Under-Secretary of Public Works in November 1978. The provisions of the proposed structure are shown in Annex C. Decentralization of highway operations is appropriate at this stage in light of the size and level of development of the highway network. 29. Finally, difficulties have been experienced in staffing the fed- eral highway department with qualified engineers, particularly due to the policies of the 1973-76 Government (see para. 6) and, more recently, to the higher salaries in the private sector. The problem is being addressed by reducing the number of low and middle level headquarters staff, with the intention of using funds "saved" from their salaries to enhance engineers' salaries. Highway authorities do not anticipate problems in this regard with civil service regulations because the federal highway department is semi-au- tonomous. It is essential that sufficient numbers of qualified engineers with adequate managerial capabilities be employed in the proposed structure. Delay in Implementation of Vehicle Weight and Dimension Regulations 30. Further to the covenants mentioned in PCR, para. 3.20, the Govern- ment undertook in the Loan Agreement to enforce appropriate vehicle weight and dimension regulations. These regulations restrict single axles to 10,600 kg and tandem axles to 18,000 kg; they are considered satisfactory. Consul- tants associated with the project recommended the installation of sufficient weighing scales to control about 80% of truck traffic on national highways. 31. Unfortunately, the consultants' assignment ended before agreement was reached on the number of weighing scales required and before an education 1/ The equipment has, however, been used in the past for studies such as traffic safety, detailed engineering, and maintenance requirements. 2/ Tne Appraisal Report indicated that to achieve more efficient highway management, detailed planning, construction supervision, and maintenance were to be transferred gradually to the provinces, leaving overall plan- ning and coordination at the federal level. - 9 - program for the trucking industry was undertaken.VI The Loan Agreement for the project did not specify a date for full operation of the vehicle weigh- ing program; it was in connection with the Loan Agreement for the Fourth Project in 1977 that June 30, 1978 was specified. However, the program still is not in full operation and consideration is being given to further study of the problem of how to control overloading effectively, which is recognized as more complex than believed at the time of the subject covenant. While the desirability of controlling overloading is fully recognized, re- cent studies in Columbia and Jamaica have called attention to the need to assess the cost-effectiveness of a control program based on weighing scales. A similar survey in Brazil showed that weighing stations on heavily travel- led roads require complex and expensive design to be efficient. The Bank is monitoring the Argentine Government's review of the situation under the axle weight control covenant of the Fourth Project. 32. Government authorities informed the audit mission that a new regu- lation was promulgated in September 1978 for the use of a powe -weight ratio as another means of controlling truck weights and dimensions 2 The regula- tion is being phased in during January 1979-84.1/ Trucks failing to meet the minimum requirements will not be allowed on the highways without special permits and payments for exceptional loads. 33. It is intended for the power-weight ratio to be used in conjunc- tion with weighing scales to control vehicle weights and dimensions. There- fore, a decision on the necessary number of weighing scales should be made quickly so that an effective weighing program using both elements can be de- veloped. Adequate weight control will become increasingly important as re- habilitation of the highway network is undertaken. It is noted that, in this connection, the federal highway department will have to assess pave- ment conditions and to develop criteria to program overlay work. The on- going Fourth Project provides for a study to review the methodologies cur- rently used for the technical and economic evaluation of overlay designs and the current practices for cost estimation and bid document preparation. In addition, recommendations are to be made on the organization, staffing, and equipment necessary to ensure a continuing program of investigation of the asphaltic paved network. Major Effort Required for Transport Coordination 34. The project under review included,the employment of two expatriate experts for two years to strengthen the Sectoral Planning Office (SPO)4/ 1/ About 85% of the truck fleet is privately owned. Most trucks are over- loaded and the owners stand to lose considerable revenue from reduced loads. 2/ This ratio is the quotient which results from dividing the effective brake horsepower of trucks by their total gross weight. 3/ The ratio will be 3.5 hp/ton (equivalent to 2.6 KW/ton) in January 1979, rising to 5.5 hp/ton (4.1 KW/ton) in January 1984. 4/ Currently known as the National Directorate of Transport Planning. - 10 - of the Secretariat of Transport and Public Works, created in 1968 to im- prove transport coordination and develop transport investment review pro- cedures. The experts were to advise SPO on coordination matters and to train personnel. The PCR (para. 2.05) states that, during project imple- mentation, the Bank and the Government decided that these experts were not needed because of an increase in the number of local professional personnel. 35. The audit mission reviewed the activities of SPO subsequent to this mutual decision. It found that the Bank obtained an undertaking from the Government in the Loan Agreement for the Third Project (Loan 734-AR of May 1971 for US$67.5 million) that SPO would be charged with supervision of planning and investment studies involving more than one transport mode and staffed with sufficient qualified personnel. 36. Notwithstanding this arrangement, SPO was not very successful in getting its views accepted by the various transport agencies. The largest agencies (those responsible for highways and railways) were operating with considerable independence and others were under only loose Government control. In the circumstances, considerable effort was needed to develop a convincing case for a coordinated approach to transport development. Perhaps expatriate experts with a broader perspective would have been helpful in this endeavor. At any rate, the Government which came into office in 1973 disbanded SPO and the Bank was not able to influence the Government from taking this action. 37. Interest in transport coordination was rekindled when another Gov- ernment took office in March 1976. SPO was reactivated and allowed to recruit new, capable personnel and strengthen its position vis-a-vis the transport agencies. B t coordination efforts still suffered from the division of sector management.1 To improve coordination as well as planning, the Government de- cided to prepare a National Transport Plan, for which it obtained Bank fin- ancing under the ongoing Fourth Project. 38. Formal studies associated with the Plan, whose Terms of Reference are summarized in Annex D, were initiated in May 1979. It is noted that a serious gap exists in the knowledge of transport facilities and equipment. Although individual studies have been executed, they have not been coordinat- ed. Furthermore, significant policy questions and sector management problems need to be addressed, particularly the conflicting interests among the vari- ous transport agencies. The National Transport Plan, when prepared, should allow the Government and the Bank (whose last transport sector mission visit- ed Argentina in 1972) to acquire an overall view of the current status of 1/ With the exception of civil aviation, which is under the Air Force, the Ministry of Economy is responsible for transport operations. Within the Ministry, the Secretariat of Transport and Public Works has an Under- Secretariat of Transport which supervises railways and road transport and an Under-Secretariat of Public Works for highway infrastructure. Ports and waterborne transport are under the Secretariat of Maritime Affairs. The Secretariat of Energy is responsible for pipelines. - 11 - the transport sector, should provide a sound basis on which to formulate future objectives and policies, and might bring together all transport agencies under one integrated structure. IV. Conclusions 39. The enlarged Second Highway Project was implemented during a peri- od of severe economic and political difficultuies in Argentina, with a six year overall time delay and a 9% overrun in the total cost. Except in the area of transport coordination, the project components were carried out successfully. 40. Problems were experienced with loan disbursement, traffic projec- tion, and vehicle weight and dimension control. Loan underdisbursement due to continual devaluation of the Argentine peso resulted in the Borrower and contractors being unable to obtain the proper amounts of foreign exchange to which the loan entitled them for project expenditures. Underestimation of traffic growth points to the need for improvement of the data base, a process already initiated. In addition, more expeditious data handling of traffic information collected since 1975 and more close reflection of economic devel- opment prospects in traffic projections are required. Delay in determining the number of weighing stations for vehicle weight and dimension control should not be permitted to continue so that, together with the power-weight ratio system just being introduced, an effective control program can be de- veloped. In this connection, an education program for truckers is essential. 41. The lack of much progress on transport coodination during the pro- ject period suggests that when sector management is divided, as in this case, full account should be taken of the conflicting interests of various agencies involved, a convincing case for coordination should be developed, and a major long-term implementation effort should be expected. The National Transport Plan, now underway, would provide the opportunity to acquire an overview of the current status of the transport sector, to provide a sound basis for for- mulation of transport sector objectives and policies, and to devise an inte- grated structure for the transport agencies. 42. The proposed restructuring of the federal highway department to carry out only executive responsibilities seems appropriate in view of the size and level of development of the highway network. Sufficient numbers of qualified engineers with adequate managerial capability are essential for efficient operation of the proposed structure. 43. The audit mission received positive comments from federal highway authorities about the role of consultants in the project. The close co- operation which developed between the parties was felt to have facilitated completion of the original project highways within reasonable time and accept- able cost as well as rescheduling of the additional highways when adverse conditions developed in 1973-76. The authorities commented that the in- dependent, organized, and stable consultancy community that has developed - 12 - in Argentina is directly traceable to the fact that the entire inspection and technical assistance work under the Second Highway Project was charged to consultants because of the insufficient number of departmental engineers. Currently, Argentine consultants are carrying out preinvestment studies and construction supervision within the country as well as doing satisfactory inspection work for Bank-financed projects in other Latin American countries. 44. The authorities commented that their first involvement with pro- ject evaluation was through the project under review. They considered exam- ination of past problems as being very helpful for the future. Special appreciation was expressed for the Bank's advice on appropriate application of loan funds and its patience during the difficult 1973-76 period. - 13 - ANNEX A PROJECT PERFORMANCE AUDIT MEMORANDUM ARGENTINA SECOND HIGHWAY PROJECT (LOAN 619-AR) Actual versus Expected Costs Item Cost Change Actual Expected US$ million % Original Project Components Construction of 796 km 36.50 40.48 -10 Construction Supervision 0.40 1.15 -65 Subtotal 36.90 41.63 -11 Road Reconnaissance Study .32 .46 -30 Preinvestment Studies 3.20 5.75 -44 Road Planning and Administration 1.15 1.15 0 Transport Coordination .23 .23 0 Equipment 1.01 .58 +74 Total Original Project 42.81 49.80/1 -14 Components Added during Implementation Construction of 266 km 24.90 12.00 +108 Construction Supervision 0.12 0.60 -80 Total Additions 25.02 12.60 +99 Grand Total 67.83 62.40 +9 f1 Rounded to US$50 million in the Appraisal Report. -14- ANNEX B PROJECT PERFORMANCE AUDIT MEMORANDUM ARGENTINA SECOND HIGHWAY PROJECT (LOAN 619-AR) Equipment Purchases Number of Units Cost DescriptionUS$ Photogrammetry Equipment Universal Autograph, Wild Model ) A-7, Complete 1) High-Precision Autographs, Wild ) Model A-10, Complete 2 ) High-Precision Apparatus for ) Point Marking and Transfer, ) Wild Model PU63, Complete 1 ) High-Precision Stereoscopes, ) Wild Model ST4, Complete 2 ) 240,323.68 High-Precision Stereoscopes, ) Wild Model ST10, Complete 2 ) Instruments for Direct ) Measuring of Distances, Wild ) Model Distomat DI10, Complete, ) with Universal Theodolite, ) Wild Model T2/360* and Parts 2 ) Automatic High-Precision ) Engineer's Levels, Wild Model ) NAK-2 3) Traffic Counters, Street Amet 200 509,600.00 Manual Counters and Set of Parts ) (4 Accumulators) and 20 ) Manual Counters and Set of Parts ) 12,430.11 (14 Accumulators) 80 ) Spare Parts for Coil-Type Traffic Counters 101,920.00 Coil Testers and Set of Parts 3 1,362.14 Compilers, Marbelite Model, and 3) Set of Parts 1 ) 14,487.90 Photographic Highway Recorder and Accessories 1 34,826.70 Electronic Telemeters, SM 11 and Accessories 2 26,428.75 Roughometers and Set of Parts 3 52,189.60 Friction Meters and Accessories 2 15,344.00 Total 1,008,912.80 - 15 - ANNEX C PROJECT PERFORMANCE AUDIT MEMORANDUM ARGENTINA SECOND HIGHWAY PROJECT (LOAN 619-AR) Proposed New Structure for the Federal Highway Department The proposed new structure for the federal highway department seeks to meet and implement the following requirements and guidelines: (a) decentralization of personnel and equipment to the provinces as appropriate in each case; (b) restructuring of the decision-making echelon; (c) placing of emphasis on planning and control by the federal highway department itself, while decentralizing to the private sector the execution of construction works and maintenance; (d) providing the personnel structure with sufficient flexibility to facilitate the department's operation; (e) making channels of communication more flexible; and (f) contributing to economy in public expenditure. - 16 - ANNEX D Page 1 PROJECT PERFORMANCE AUDIT MEMORANDUM ARGENTINA SECOND HIGHWAY PROJECT (LOAN 619-AR) National Transport Plan - Summary of Terms of Reference Introduction 1. The Argentine Government is engaged in ongoing planning of the National Transport System, the initial phase being preparation of a National Transport Plan, with the aim of organizing investment and developing the best strategy for the efficient short, medium and long-term performance of the system. The National Directorate of Sectorial Planning under the Under- Secretariat of Transport within the Ministry of Economy will be the responsible agency for this National Transport Plan. Objectives 2. The basic objectives of the study will be to develop an efficient national transport sector that will contribute to the orderly development of the country and the growth of other sectors of the economy; to formulate a package of policies for the sector; to make fullest use of available re- sources and to prepare a program of investments and improvements in the operation and administration of transport in keeping with the predetermined policies. 3. The study will be conducted in accordance with terms of reference satisfactory to the Bank and will include: (a) a short-term program (1978-1979) that will identify and diagnose the critical problems of the sector, propose a mechanism for coordinating management, operational and investment decisions, and provide a coordinated.1978-1979 investment plan for the sector. Such investments are expected-to consist principally of improvements and rehabilitation of the most urgently needed transport facilities; and (b) a detailed five-year action progrnm (1980-1984) which will include () a proposed national strategy and set of poLicies for the development, management and operation of the transport system; (ii) a program of action for each transport mode that will include, inter alia, required changes in trans- port pricing based on user's cost, required regulations for each subsector and required improvements in operations; (iii)a proposed system for the future pLanning and coordina- tLon of tranport operations and investmeLts;(iv) a deter- mination of the future role of each transport mode on the 17 -ANNEX D Page 2 basis of an annlysis and forecast of future transport demand in relation to the exp-cted development of the economy, and, in particular, development of a phased program for the closure of uneconomic railway lines when desirable; and (y) a five-year investment plan (1980-1984), which will include new construction and expansion of capacity, and an indicative ten-year investment plan. In the preparation of these investment plans, particular attention will be given to the investments needed to open up new areas to agricultural production, support the expansion of exports, and achieve greater regional integration with neighboring countries. 4. Within these tasks, particular emphasis will be placed on: (a) the determination of transport services and infrastructure needed to support the opening up of undeveloped areas for agricultural production; (b) the transport services and infrastructure required to support the planned expansion of exports, especially the routing of export flows and optimum strategy for the development of port capacity; (c) the future role of the railway system and the development of a phased program for the closure of uneconomic railway lines and the provision, where necessary, of alternate means of transport; (d) the pricing of road transport and the level of road user charges in relation to highway expenditure; and (e) regional integration with neighboring countries, especially the transport services and infrastructure required to serve their external trade efficiently. Scope of the Studies 5. The study will be nationwide and will cover all modes of transport. It will extend beyond national geographical boundaries as necessary to link the national transport system with those of other countries. 6. A diagnosis will be made of the transport sector from the tech- nical, operational, economic, financial, administrative, legal and regulatory aspects. The scope of the basic study and diagnosis will be extended to cover aspects of other economic sectors that affect the transport system. - 1- ANNEX D Page 3 7. The main focus of attention will be inter-urban traffic; only limited studies will be made of individual urban centers. Whenever projects affect traffic flows or other urban area characteristics, the appropriate authorities will be informed, and such studies as required will be undertaken to support the analysis of affected traffic flows. 8. All technical, economic, financial and administrative studies, field research and other work needed to accomplish the objectives established for this study will be carried out. Estimate of Man-Months Consultants (man-months) Highways 781.5 Railways 45.0/1 Ports and Waterways 272.0 Civil Aviation 25.0 Pipelines 36.0 Sector and 1anagement 936.0 Total Man-months 2,095.5 /1 15 man-months of the 45 man-months are proposed for finan- cing under a UNDP grant, and this cost is not reflected in the total cost. ANNEX E - 19 - Page 1 PROJECT PERFORMANCE AUDIT MEMORANDUM ARGENTINA SECOND HIGHWAY PROJECT (LOAN 619-AR) Borrower's Comments Subsecnelatio cle ganspolte Buenos, Aires, Mayo 16 de 1979 Mr. Shiv S. Kapur Director Operations Evaluation Department The World Bank 1818 H. Street, N.W. Washington, D.C. 20433 U.S.A. Dear Mr. Shiv S. Kapur I have no coments to make on your proyect performance audit. report on Argentina Second Highway Proyect (Loan 619-AR). Sincerely yours, IN:' EL OGU ETA . GT.; 2i Vl - 20 - ANNEX E, Page 2 FORMNO788 IBRD LANGUAGE SERVICES DIVISION cONTROL No. E-l13/79 DATE: May 3l. 1979 ORIGINAL LANGUAGEt Spanish (Argentina) DEPT8 OED |TANsIATog: OTS:kh Mr. Shiv S. Kapur - Operations Evaluation Department With reference to Loan 619-AR and your letter of May 3, 1979 by which you requested our opinion regarding the Project Performance Audit Report, the Administrator-General of the National Highways Authority, Ing. Gustavo Roberto Carmona, instructs me to inform you that the Authority has no objections to the said report. Regards. Sgd. Ing. Armando Garcia Baldizzone SECRETARY FOR INTERNATIONAL RELATIONS NATIONAL HIGHWAYS AUTHORITY. ATTACHMENT - 21 - November 30, 1978 PROJECT COMPLETION REPORT ARGENTINA SECOND HIGHWAY PROJECT (Loan 619-AR) I. INTRODUCTION 1.01 The first Bank highway loan to Argentina (288-AR, US$48.5 million equivalent) was made in June 1961 to finance the foreign exchange component for the improvement of 2,600 km of national highways, provision of consultant services and procurement of road construction equipment. A number of problems (the most crucial being the shortage of local funds) developed in the course of this first project, leading to the reduction of the loan amount, in 1965, to US$32 million to correspond with the reduced scope of works (1,900 km), which were completed successfully in December 1968. The Government of Argentina requested Bank assistance for a second highway project in mid-1967 to help finance the upgrading of about 800 km of national highways and to assist in improving overall operations of Argentina's highway network as a part of the Government's renewed policy of coordinated transport investments. To date, four loans totaling US$228.5 million have supported the construction and/or improvements of over 5,400 km of the primary network, 4,500 km of feasibility studies, and 3,500 km of detailed engineering designs. Two of the projects have now been completed successfully. 1.02 The Bank has been closely associated with the Government's efforts to improve transportation planning and administration. This was emphasized during the preparation of the Second Highway Project. A mission reviewed Argentina's road and railway transport in September 1968. The findings of the mission were conveyed to the Government early in 1969. After the needed steps to improve transport coordination and planning had been initiated (para 2.05), the Bank made a second loan (619-AR) of US$25 million to (i) im- prove about 800 km of highways, (ii) execute studies to identify and prepare future highway programs, and (iii) provide advice on transportation coordina- tion. This Project Completion Report is based on the consultants' report, "Second Highway Loan No. 619-AR," of June 1978 which Vialidad Nacional trans- mitted to the Bank. 11. PROJECT PREPARATION AND APPRAISAL 2.01 Administration and coordination of the highway network needed considerable improvement at the time of project preparation. Vialidad, the General Directorate of Highways, had weak communications with the provincial and local highway organizations. The network, although generally sufficient for traffic requirements, needed selective improvements, efficient administra- tion and more effective planning of investments. The components financed under the project were selected by the Bank's appraisal mission from proposals made by Vialidad with the objective of improving the overall operation of its highway system. 2.02 Negotiat-ions took place between April 23 and May 2, 1969. Loan 619-AR, for US$25 million equivalent, was signed nearly two months later, on June 24, 1969. - 22 - Description of the Project 2.03 The project comprised: I. Civil Works Upgrading and paving of about 796 km of the national road network consisting of: (a) Route 7 - Laboulaye-Mercedes (about 203 km) (b) Route 3 - San Antonio Oeste-Arroyo Verde (about 169 km) (c) Route 3 - Uzcudum-Canadon Ferrais (about 222 km) (d) Route 251 - Intersection Route 22-San Antonio Oeste (about 202 km) II. Consulting Services Supervision of works under item (I) preceding. III. Additional Consulting and Expert Services (a) Future investment program, feasibility studies and detailed engineering to include: (i) Identification and preparation of a five-year road investment program (1971-1975) to include: a reconnaissance study of the national and provincial primary road networks to identify road construction priorities, and a review of those works included in Vialidad's Plan Trienal; (ii) Feasibility studies for about 2,500 km of high priority roads identified by the reconnaissance study; (iii) Detailed engineering, including bidding documentation, for about 2,000 km of roads identified by the feasibility studies as having the highest priority; and (iv) Coordination and continuous review of the work under (ii) preceding, including the establishment and application of sound technical and economic criteria. (b) Improvements in the planning and administration of the road network, including: (i) Carrying out of a road inventory and establishment of an initial operation of a traffic counting system for the national and provincial primary road networks; - 23 - (ii) Improvement of internal cost accounting systems for cost control programing, forecasting expenditures, and preparing cost estimates; and (iii) Formulation of recommendations for transport coordination and development of the various modes. IV. Miscellaneous Equipment Procurement and utilization of miscellaneous field and office equipment for design and construction control of road invest- ment, collection of road traffic and inventory data, and enforcement of motor vehicle weight regulations. The loan was made to the Argentine Republic, and Vialidad Nacional was the Executing Agency. 2.04 The cost table, as shown in the Appraisal Report, follows: $a (billions) US$ (millions) % Bank Govt Bank Total Govt Bank Total Participation 1. Construction of 796 km of highways 6.16 6.16 12.32 17.60 17.60 35.20 50 2. Consulting services for supervision of (1) above 0.14 0.21 0.35 0.40 0.60 1.00 60 3. Additional consulting and expert services for: (a) highway reconnaissance study 0.14 - 0.14 0.40 - 0.40 0 (b) execution and coordination of highway feasibility studies and detailed engineering 0.70 1.05 1.75 2.00 3.00 5.00 60 (c) improvement of planning and administration of the highway network 0.35 - 0.35 1.00 - 1.00 0 (d) transport coordination 0.07 - 0.07 0.20 - 0.20 0 4. Equipment related to (2) and (3)(b)(c) above, and weighing scales - 0.17 0.17 - 0.50 0.50 100 Subtotals 7.56 7.59 15.15 21.60 21.70 43.30 Contingencies, 15% rounded (10% for quantities, 5% for prices) 1.19 1.16 2.35 3.40 3.30 6.70./a Totals 8.75 8.75 17.50 25.00 25.00 50.00 Lb /a Actually US$6.50 million without rounding. 7 Actually US$49.80 million without rounding. - 24 - 2.05 Costs for the provision of additional consulting and expert services to strengthen Vialidad's capacity to plan and administer the highway network (para 2.04 preceding, excluding item 3(b) in the table) were financed locally by the Government. In August 1969, Vialidad entered into an agreement with the Federal Highway Administration (FHWA, USA) to provide specialists for highway planning, including the execution of a systematic road conditions inventory of the national and provincial network (about 137,000 km) and the implementation and initial operation of a system of detailed traffic counts, including origin and destination studies. FHWA provided these experts, who also helped Vialidad to refine and implement an internal cost accounting system. The arrangement was satisfactory in view of FHWA's prior expertise in planning and administering large scale highway networks. Coordination of transport (especially rail and highway), recommended by the Bank mission (para 1.02), was discussed during negotiations, and assurances were obtained for the employment of two specialists to help the Sectoral Development Office (SDO) of the Ministry of Transport to formulate recommendations for the devel- opment of the various modes. However, during project implementation, the Bank concurred with the Government that the services of these experts were not needed because of the increase in the numbers of local professional staff attached to SDO (from 5 in 1968 to 10 in 1970). Consultant TAMS (USA) was contracted by the Government for the reconnaissance survey with Bank approval. During negotiations, the Government agreed that the timely completion of the reconnaissance survey and the concurrent implementation of improvements in highway planning and administration, as well as the transport coordination study, would be prerequisites to the execution of the loan-financed feasibility studies and detailed engineering. Amendment to the Project 2.06 Early in 1973, it was foreseen that a surplus would remain in the loan funds. The following reasons accounted for this development: (a) rapid devaluation of the Argentine peso vis-a-vis the US dollar; and (b) the surplus capacity in the construction industry in early 1970, which led to very compe- titive bidding and awarding of contracts at less than the appraisal estimates. Upon completion of works, a surplus of US$5.9 million was left in the loan account. The Bank and the Government agreed, in January 1974, to reallocate the undisbursed funds to the construction and paving of two additional roads: (i) the Rio Colorado-Cotita road (136 km) in the La Pampa Province and (ii) the Pradere-Rufino road (125 km) in the Buenos Aires/Santa Fe provinces. Both of these roads had been appraised for inclusion in the Fourth Highway Project. The base cost amounted to US$11.0 million equivalent (excluding contingencies); the Bank agreed to finance 40% of this amount or US$4.4 million, leaving US$1.5 million unallocated. Location of Civil Works 2.07 The location of works is shown on the attached map (IBRD 2426). Route 7, part of the intercontinental Pan American Highway, is a major connec- tion between the urban pole and the province of Buenos Aires (having about three-quarters of the country's population) with the border between Argentina and Chile in the province of Mendoza. National Route 251 and its northern - 25 - leg, the Rio Colorado-Cotita section, provide direct connection with Routes 3 and 35, thereby avoiding the circuitous transit through Viedema City and the busy port of Bahia Blanca. Route 3 is part of the only direct north-south link between isolated Patagonia and the rest of the country and connects the southern cities with the country's major ports: Buenos Aires and Bahia Blanca. The two additional roads (para 2.06) improved accessibility between the rich grain-producing provinces (Cordoba, San Luis, La Pampa and parts of Santa Fe and Buenos Aires) and Bahia Blanca, the country's main export terminal. III. PROJECT IMPLEMENTATION AND COSTS 3.01 Loan 619-AR became effective on January 12, 1970, approximately six months after loan signature because of the time needed by the Government to ratify the Loan Agreement. The delay did not affect the project adversely. By June 1970, all civil works had been let and works on most sections started between August and November 1970. Works on the two additional sections (para 2.06) started between January and June 1974, with the exception of a 45-km section, which began in March 1977. All civil works are now completed and the loan is fully disbursed. Civil Works 3.02 Civil works were widely advertised for international competitive bidding. Of the 30 firms and joint ventures which tendered valid bids for works under the original project, only four were foreign. Vialidad awarded 18 contracts to the lowest bidders (13 local firms) totaling US$27.6 million (after post-bidding qulification), which was 21% lower than the appraisal estimates of base costs (Table 1). Foreign firms could not compete success- fully with the local contractors who, because of the existing overcapacity, bid very keenly. The two additional sections were tendered in late 1973 (para 2.06). Fifteen local firms presented valid bids for the works on the two sections. Vialidad awarded six contracts to three firms (lowest bidders) totaling US$10.9 million, which was about the same as the appraisal estimates of base costs. 3.03 The progress of works is shown in Table 2. Works on the four original sections proceeded without major delays. For these roads, the schedule envisaged between 18 and 20 months for the completion of individual contracts. In the field, the actual progress was slower than scheduled, with an average of 26 months for the completion of individual contracts, although some contracts (e.g., Laboulaye-Rio Bamba and La Cautiva-Mackenna on Route 7 and Emp. Ruta 22-Km 60 on Route 251) were completed ahead of schedule. Progress on the two additional sections was significantly poorer than planned. The scheduled 28 months for each lot was matched by an average of 52 months for the completion of works. A trend exists between the progress of works and the final costs. The average completion time of 26 months per lot for the four original sections shows an average cost of US$45,800/km, whereas the average progress of 52 months per lot for the two additional sections shows a higher- per-kilometer cost of around US$95,000. There are several reasons for the disparity between the planned completion time and the actual time needed to complete works. These include: - 26 - (a) Inclement weather conditions in 1972, 1973 and 1974, which affected progress on some sections. (b) The over-extending of the local construction industry during execution of the two additional sections. The Third Highway Project (Loan 734-AR) was also being carried out at this time, leading to less than adequate managerial input to the works. (c) The limited financial capacity of some contractors working on the two additional sections, which led to financial difficulties when adverse conditions developed. At the same time, commercial bank credit either became unavailable or was unattractive because of high interest rates (in excess of 25%). (d) Rampant inflation (para 3.04), which became particularly acute during the execution of works on the two additional sections, making the original cost escalation formula inequitable. Contractors were not adequately compensated for those input costs (especially equipment and spare parts that account for about 35% of the costs) which were determined by the dollar element in the escalation formula because the official peso/ dollar exchange rate did not reflect the commercial rates. (e) Delays of up to one year in payments to contractors because Vialidad did not have sufficient funds at times (in 1975, the Budget Law diverted part of the earmarked funds for Vialidad to the Government's general expenditures). This led to work stoppages and renegotiation of some contracts at higher prices. (f) Labor troubles and strikes on some contracts in the two addi- tional sections and political difficulties which caused delays in the execution of works. 3.04 During project execution (1970-1978), Argentina suffered great economic and political difficulties. In the period 1970-1976, annual infla- tion (implicit GDP deflator) averaged about 89% according to the Bank's World Development Indicators of June 1978 (of the 114 countries for which data are available, Argentina's inflation was higher than all but one other country in this period). The impact of the domestic crisis on the cost of civil works -- which the appraisal mission could not have foreseen and therefore did not include in its cost estimates -- distorts the comparison of appraisal esti- mates with the current costs of works. For example, between 1970 (the begin- ning of works) and 1978 (completion of works), the average annual increase in the civil works cost index exceeded 130% (Annex 1, Table 1). Consequently, in order to make a meaningful comparison of the estimated and actual costs, constant US$ have been used: 1968 base for the original project components and 1972 base for the components in the amended project. Annex I shows the methodology used to arrive at these bases. - 27 - (i) The Four Original Sections 3.05 Shortly after civil works for the original project were in progress, Vialidad with Bank concurrence decided to upgrade the design standards from the planned type IV (6.7 m pavement width, 1.5 m shoulders) to type III (7.3 m pavement width, 3.0 m shoulders). Although no economic justification was of- fered, the reasons for the changes were: (a) to make the project roads'uniform with the prevailing national design norms; and (b) to avoid abrupt design changes, for safety reasons, between sections upgraded under the project and adjacent sec- tions not included in the project. The higher design standards, although they led to increased quantities, contributed only about 10% toward the total final cost of US$36.5 million (Table 1). The other 20% of the cost increases were due to the numerous change orders which increased quantities and caused delays in the completion of works on isolated sections. Overall, since civil works had been let at substantially lower than the appraisal estimates, the final cost of works was US$36.4 million (US$45,800/km), about 10% lower than appraisal estimates of final costs. 3.06 Changes in the scope of works on individual sections, which were generally a consequence of design modifications in the light of field condi- tions encountered, varied from road to road. The particularly harsh freeze and thaw cycles of the 1972 winter caused extensive damage to the surface and base of the southern stretch of Route 3 between Uzcudum and Canadon Ferraiz. The extra work needed to correct the frost damage, combined with increased quantities reflecting the upgraded design standards, resulted in cost increases of about 26% over the original contract amount. The final cost was US$11.7 million (US$52,700/km), about 16% over appraisal estimates of final costs. Almost two-thirds of this final cost increase were attributed to the frost damage repairs. 3.07 The variation in the final costs over the original contract amounts on the northern stretch of Route 3 (between San Antonio Oeste and Arroyo Verde), which passes through the zone of dry Pampas, is attributed mainly to the drought in the area and to poor contractor performance, in addition to the impact of the upgraded design standards common to all roads. The difficulties on the adjoining La Porfia-Sierra Grande section, on the other hand, were caused by the financial problems of the contractor. In February 1973, almost one year behind the original completion date, with 30 km of works still uncompleted, the contract was transferred to the contractor who had satisfac- torily completed work on the adjacent Route 251. When work was finally com- pleted a year and a half behind schedule, the final cost was US$6.2 million (US$36,800/km), about 70% above the original contract amount in US$ terms, but only about 7% over appraisal estimates of final costs. 3.08 Cost overruns of nearly 50% over the original contract (due mainly to increased earthworks and paving) were experienced on Route 251. Progress on the sections between Km 60 and General Conesa was delayed almost one year by the unforeseen heavy rainfall in the area; two other sections were delayed about six months, while the intersection between Route 22 and Km 60 was completed six months ahead of schedule. The final cost of Route 251 was US$7.8 million (US$37,400/km), about 7% lower than appraisal estimates of final costs. 3.09 The final cost of works on Route 7 was US$10.8 million (US$53,800/km), almost 35% less than appraisal estimates of final costs. It was completed on schedule by the end of 1971 and showed a nominal cost increase over the amount - 28 - of the original contract (15%), which had been let for US$9.4 million; about 35% less than the appraisal estimate of base costs. Most of this increase is attributed to less than satisfactory engineering. Sections of the road ran through extensive areas of erosion-prone sand dunes, necessitating larger- than-estimated earthwork quantities. The engineering for the 32-km section between Laboulaye and Rio Bamba showed differences between the design and actual ground elevations, leading to substantially greater excavation quanti- ties than anticipated. (ii) The Two Additional Sections 3.10 Construction of the two additional sections (para 2.06) was faced with many problems from the very beginning. On the Rio Colorado-Jct. Prov. 18 (70.2 km), the contractor withdrew equipment and stopped work entirely in August 1975, with only 4% of the work performed, because of non-payment by Vialidad. This delay was further aggravated by labor disorders, poor tech- nical management, inadequate equipment, lack of spare parts, and the inequi- table price adjustment formula used by Vialidad (revised only in mid-1976). As a result, this subsection was renegotiated with the contractor, in August 1976, who was left with one-third of his contract to complete. The other two-thirds were divided into two lots and awarded, in December 1976, to two contractors who had previously performed satisfactorily on project roads. 3.11 Other problems which affected timely execution of civil works were a shortage of material supplies, mainly asphalt and steel, a scarcity of water, and a lack of local funds (para 3.03). This was the case on the Jct. Prov. 18- Cotita (64.4 km) where the contractor's work remained consistently behind schedule. From April to June 1976, the contractor was forced to withdraw his equipment completely, with only 34% of the contract work completed. The con- tracts were then renegotiated at higher unit prices. Furthermore, design changes, such as the addition of an impervious membrane to protect the base and subbase from the saline water table, and the substitution of stone aggre- gates with crushed tosca (a quasi rock with high salt content), added to the escalation in final costs of US$11.4 million (US$83,400/km), about 104% over the appraisal estimate, including contingencies. The original contract completion date was prolonged by 20 months (para 3.03). Once contracts were renegotiated, however, they were completed more or less within the allotted time. 3.12 Construction of the Pradere-Rufino section was hampered by wet weather and poor soil conditions. Design changes were needed, mainly to permit adequate drainage. This raised final costs to US$13.5 million (US$108,000/km), about 93% over the appraisal estimate of final costs. Progress was also forestalled initially by inadequate equipment and personnel on site for the volume of work. 3.13 In general, road construction and improvement were satisfactory in spite of the numerous change orders and time overruns. The first group of projects was executed successfully within a three-year period (1970-1973), at a cost of 10% below the appraisal estimates of final costs. Execution of the two additional sections (1974-1978), however, was severely delayed by numerous factors, such as inclement weather and subsequent design changes (para 3.03). - 29 - Actually, the political and economic instability of the country from 1973 to 1976 had the greatest impact on prolonging the execution of the additional project component. During this period, with an inflation rate reaching 1,000%, the Government had placed a ban on the importation of foreign goods, including equipment spare parts which the contractors needed urgently. Vialidad also had increasing financial difficulties during the period (para 3.03). With adequate measures taken (para 5.05) by Vialidad, contracts were renegotiated and rebid in the latter half of 1976, and normal progress resumed, leading to a satisfactory completion of the construction works in June 1978, approximately two years behind the original Closing Date. The final cost was about 98% above the appraisal estimate of final costs. Reconnaissance Survey 3.14 The reconnaissance survey of nearly 110,000 km of the national and provincial networks (financed locally, para 2.05) was carried out successfully by TAMS (US), supported by Organtec, Consular, and FIEL (Argentina). The survey was performed in two stages. The first stage, executed in conjunction with Roy Jorgensen Associates, involved the preparation of a "Procedures Manual." The second stage analyzed the priorities of construction and reconstruction projects based on construction costs, road user savings and savings in road maintenance costs. From the 480 projects screened in the survey, about 190 projects (10,900 km) were found to merit consideration on economic grounds. The most promising from this list included the feasibility studies and detailed engineering under the project. The survey provided information on the technical characteristics and economic justification of all major highway investment projects. It was updated in 1971 by Ingeneco and Organtec and formed the basis of Vialidad's 1971-1975 Five-Year Investment Plan. Feasibility and Engineering Studies 3.15 The reconnaissance survey was followed by feasibility studies of about 2,500 km of roads selected as having high priority. Detailed engineer- ing was then carried out for those roads for which the feasibility studies were favorable and provided a basis for the subsequent Third Highway Project (Loan 734-AR).' Of the 1,900 km for which detailed engineering was done, Vialidad completed 350 km by itself. These studies were carried out within the established time frame and without cost overruns. The cost of these project components amounted to US$3.2 million: US$760/km for feasibility studies and US$1,200/km for detailed engineering. Miscellaneous Equipment 3.16 To help improve highway planning and administration, US$1.0 million was used for the purchase of equipment, which included traffic counters for the organization and operation of a system of traffic counting as well as field office equipment for highway operations. This was an increase of 100% over the appraisal estimate, at which time a final list of equipment had not been prepared. The increased cost was justified in view of the needs formu- lated by FHWA consultants to Vialidad (para 3.17 following). - 30 - Performance of Consultants and Contractors 3.17 FHWA advisors (para 2.05), who were attached to Vialidad between 1970 and 1974, developed a program for improving traffic and road inventory data for rational road investment planning and efficient road administration. An important element of the FHWA program was the training and guidance of Vialidad's personnel to continue the procedures improved or introduced by them, as well as the completion of an inventory of the national highway network, which is being expanded by Vialidad to include the secondary roads. The inventory documentation is available for distribution and could form a suitable basis for implementation in other countries. The consulting services provided by FHWA were well received by Vialidad and were satisfactory. 3.18 The field inspection of the works was done directly by Vialidad, under the coordination and supervision of the consultants TAMS (US) and Organtec (Argentina) for all those forming part of the original plan. In the additional sections (Rio Colorado-Cotita and Pradere-Rufino), Vialidad did the field inspection to begin with, utilizing technical assistance from the consultants Cadia and Inconas (Argentina), respectively. In the second half of 1977, Vialidad began a policy of making greater use of consultants' services and converted (with the Bank's consent) a part of Cadia's contract for supervision assistance into one for full inspection by the consultant (the same policy has been adopted for the Third Highway Project (Loan 734-AR) currently under execution). In all cases, the inspection and supervision were performed satisfactorily. The cost of the consultants' services was US$0.52 million equivalent (less than 1% of the construction cost) since the bulk of the field work had been done by Vialidad using its own funds. The consultants generally assisted with the administrative and technical aspects, working out of central offices, and thus used very few professionals in the field per job or group of jobs, thereby contributing to the low final cost of supervision. 3.19 Compared with the First Bank Highway Project (Loan 288-AR), the performance of the contractors in the execution of the civil works showed significant improvement. Of the 16 contracts, none was cancelled, although three were reduced in scope. Work stoppages were due chiefly to the shortage of local funds, not to the incompetence of the contracting firms (in most cases). Three contracts were renegotiated with the contractors, and parts of their contracts were rebid. Two contractors performed excellently, having completed construction within the contract period. Three were fair and others were satisfactory. A few firms demonstrated poor managerial capacity, and others had underestimated unit prices in their bids, leading to cash flow problems. Notwithstanding these difficulties, overall performance was satis- factory, taking into consideration the fact that Argentina was experiencing a most difficult economic and political period. Special Loan Covenants 3.20 No special covenants were attached to the loan agreement. The general covenants included: (a) proper administration, operations and finan- cial condition of Vialidad for accomplishing the project components; (b) main- tenance of the network; and (c) due consideration of economic merits in the formulation of future road construction plans. The lack of sufficient local funds and the less-than-satisfactory administrative machinery (para 1.01) - 31 - existing during the First Highway Project (Loan 288-AR) were, by and large, remedied under the Second Highway Project (Loan 619-AR) (paras 2.05 and 3.13). Implementation of the 1968 Bank transport mission's recommendations by the Government (paras 1.02 and 2.05), the decentralization of Vialidad (Chart 1) and its staffing with professional personnel, revision of its remuneration scale and implementation of a responsive cost accounting system all contri- buted to an operationally more efficient Vialidad. The temporary setback in the financial capacity of Vialidad (para 3.03) has now been remedied. Adequate local funds are available for Vialidad, although it is still constrained by a low investment budget. It has reduced the scope of new programs to enable it to complete the ongoing projects. 3.21 The maintenance of the national network is proceeding satisfactorily with over US$600/km per year being devoted to this end. However, at the pro- vincial level, disparities exist in the types of service provided by the richer provinces (Buenos Aires, Cordoba, Mendoza) and the poorer provinces. As documented in the SAR for the Fourth Highway Project (Loan 1384-AR), agree- ments entered into by Vialidad and several provincial authorities are expected to improve road maintenance in the poorer provinces (para 3.20 of the SAR). 3.22 The reconnaissance survey carried out under the Second Highway Project (Loan 619-AR) and completed in 1970 confirmed and demonstrated the utility of economic criteria in the formulation of national road investment plans. The survey formed the basis for Vialidad's Five-Year Investment Plan (1971-1975). As updated in 1971 under the Third Highway Project, it formed the basis for Vialidad's Road Betterment Program, selected sections of which were financed under the Fourth Highway Project (Loan 1384-AR). The synergistic effects of considering the technical as well as the economic merits of road investment plans have been well realized and accepted by Vialidad. Disbursements 3.23 Disbursements lagged by about 6 to 12 months behind execution of works, but the Bank was not responsible. Vialidad's internal procedures caused the delays. During most of the project period (1971-1978), there was a pro- gressive devaluation of the Argentine peso; while the Bank disbursements were made at the rate of exchange prevailing on the day of disbursement, disburse- ments in US dollar equivalent were less than,projected. Final disbursement by category versus original disbursement is as follows: - 32 - Final Original ----------USS ---------- I. Civil Works 21,417,773.67 17,600,000 II. Supervision of Category I 305,950.54 600,000 III. Feasibility Studies and Detailed Engineering for 2,500 km 2,276,277.52 3,000,000 IV. Miscellaneous Imported Equipment 999,998.27 500,000 V. Unallocated - 3,300,000 25,000,000.00 25,000,000 3.24 Table 3 shows the quantity estimated versus the actual amounts disbursed. The first disbursement was almost a year and half behind the appraisal estimate because of the time taken by the Government to ratify the Loan Agreement (para 3.01) and the delays in starting works. By the end of December 1976, the original closing date for the amended project (para 2.05), about 88% of the loan, had been disbursed. Disbursements were more or less stationary between the second quarter of 1974 and the first quarter of 1976 because of the difficult economic period in Argentina and its effects upon construction progress. As of December 1977, the loan had been fully disbursed, a period of eight years versus the estimated five. IV. ECONOMIC REEVALUATION 4.01 The Second Highway Project was justified on the basis of quantifi- able benefits accruing to road users mainly from reduced vehicle operating costs brought about by the improvements in road design and surface character- istics. Where applicable, quantifiable benefits of reduced travel distances were used. Benefits were assessed also for savings in road maintenance costs which resulted from the differences between the high costs of maintaining the existing unpaved roads and the relatively modest costs of maintaining the newer paved roads. Additional benefits were attributed to the relief of con- gestion of the formerly unpaved roads (through increased capacity of the new roads) as well as decongesting the already paved, complementary Route 8 (not included in the project) through attracting its excess traffic onto Route 7 with its superior surface characteristics and shorter travel distance (36 km) between Buenos Aires and Mercedes. During appraisal, the best estimates of the economic rate of return (ERR) for civil works investments ranged between 10% and 14%, yielding a weighted ERR of 12% for the project's civil works component (Table 4). - 33 - 4.02 The two additional road sections (para 2.06), appraised during the course of preparation for the Fourth Highway Project, showed ERRs of 29% and 18% respectively, yielding a weighted ERR of nearly 23%. Quantifiable benefits for these two roads, in addition to those mentioned in paragraph 4.01, included passenger time savings and modest reductions in road accidents. 4.03 The economic reevaluation of the project was originally done by Vialidad's consultants (para 1.02). Up-to-date vehicle operating costs (v.o.c.) not being available, consultants used the v.o.c. savings on which the feasibi- lity studies for the four original sections had been based. The Bank appraisal mission had found these estimates to be optimistic in 1968 and had revised them downward, as shown in Annex 3 of the SAR. In the absence of better infor- mation, the appraisal estimates of v.o.c. have been substituted for the consul- tants' estimates on all road sections in this reevaluation. The estimates of savings from road maintenance costs calculated by the consultants are based on field experience and are reasonable. They have been retained for the economic reevaluation. The estimates of traffic and its growth are based on counts conducted by Vialidad. 4.04 The economic costs used by consultants are derived from the certified financial costs of works. The economic costs are net of taxes, and transfer payments stated in constant 1968 US$ for the four original sections and 1972 US$ for the two additional sections. The methodology outlined in Annex I has been used to convert the certified cost of works to constant dollars, using the civil works cost index as a basis. Because the annual average exchange rate masks monthly fluctuations in the $a/US$ parity and the civil works cost index itself is an annual average, the resulting economic costs represent mid- year values regardless of when works were completed in any given year. It has not been possible to shadow-price the cost of civil works, which would have been preferable had the necessary information been available for undertaking the exercise. 4.05 The operating assumption is that, by expressing costs and benefits in constant base year dollars, a reasonable correspondence can be expected between the appraisal estimates and the ex-post reevaluation. Minor distor- tions will still exist in the economic costs because of imperfections in the civil works cost index. In order to minimize these distortions, the salvage value of works has not been considered in the analysis. As far as the benefits are concerned, the consultants attributed values of time to passengers for the two additional sections (para 2.05). These time values have been excluded from the reevaluation since no indications of work versus pleasure trips are available from the consultants or Vialidad. 4.06 Upon completion of the project, a comparison of the actual final costs of each of the road sections in the project (excluding the two additional sections) and the available traffic counts (Tables I and 5) shows that the estimate of the ERR on all but one road, Route 3, which has an ERR of 12% compared with the 14% forecast during appraisal, has been surpassed. Of the two roads included under the amended project, Route 33 has an ERR of 27%, which is 2 points less than the appraisal estimate, due largely to the increase in - 34 - the cost of civil works experienced on this road. Traffic data on the provin- cial Rio Colorado-Cotita road not being available, it was not possible to recalculate the ERR. 4.07 The ERR on the Rio Colorado-Cotita road can be expected to be reason- able even if, when actual traffic counts are available, it may not approach the appraisal estimate of 18%, primarily because of the higher than expected cost of civil works (about 100% over appraisal estimate). Although the consultants' initial estimates of traffic (about 200 vehicles) compare well with the appraisal mission's estimates (208 vehicles) for 1978, the needed gestation period has not been sufficient for generated traffic to mature (a period of two to three years is reasonable to fully capture these benefits). The poten- tial for capturing additional traffic is real in view of: (a) the modern, all-weather paved connection with the prosperous humid Pampas in the north and northeast (Buenos Aires), with a 66-km distance saving between the Rio Colorado bridge and La Adela in the south and the railheads at Houca and Cotita in the north; (b) the considerable amount of cattle and sheep ranching in the corridor of the road; and (c) the improved accessibility provided by the road between the granary of Argentina (centered around Cordoba, San Luis and Santa Fe provinces) and the country's primary export port of Bahia Blanca. 4.08 Overall, the efficiency of capital invested in civil works appears to have been better than expected, as evidenced by the weighted ERR of over 19% for the works in the original project and the over 27% ERR for the Pradere- Rufino section. One reason for this is that civil works in the original project were accomplished at an actual cost which was 10% lower than the appraisal estimates of final costs. The major reason for the higher-than- expected rates of return is the structural change in the composition of traffic as revealed by Vialidad's traffic data. 4.09 In the case of Route 7 with its about 33% ERR, Vialidad's projections show a total of 1,500 vehicles in 1977 compared with the appraisal estimate of 880 vehicles, representing a net increase of over 70% in the traffic using the road. Besides the increased traffic, the share of heavy commercial vehicles (about 650) is 43% compared with the estimated 21% (190 vehicles), thereby helping to explain partially the ERR of nearly 20 points above the appraisal estimate. Heavy commercial vehicles (nearly all long haul traffic), plying Route 251 between its intersection with Route 22 just below the Rio Colorado and the township of San Antonio Oeste in the Rio Negro province, account for just over 45% (140 vehicles) of the total 1977 traffic as opposed to the under 30% foreseen at the time of the appraisal. Although this figure represents a drop of nearly 40% in the absolute numbers of vehicles counted in 1977, the benefits from upgrading the road are affected only by a negligi- ble drop of 8% due to the increased share of heavy commercial vehicles. The shortfall in the expected versus the actual traffic is explained by the fact that fewer passenger cars materialized than expected (about 160 versus the expected 390), thus minimizing adverse effects on the stream of benefits which, coupled with the lower-than-expected final cost of civil works (about 7% less than estimated), produces the 13.5% ERR. - 35 - 4.10 Based on the foregoing economic reevaluation, the project appears to have been justified relative to the appraisal as well as in absolute terms. V. INSTITUTIONAL DEVELOPMENT 5.01 Vialidad had limited capacity to undertake large scale highway improvements prior to the implementation of the Second Highway Project. Institutional inefficiencies had been partially responsible for the eventual curtailment of the scope of work and a reduction in the loan amount under the First Highway Project (Loan 288-AR). To establish the necessary framework to plan and administer the network more efficiently, a Bank mission (1968) recom- mended (a) decentralization of decision-making; (b) hiring of experts to assist management; and (c) updating of Vialidad's internal cost accounting system. The suggested changes began to be implemented toward the end of 1968. Regional administrations were set up to plan and execute road maintenance with the aim of eventually decentralizing Vialidad's executive functions. Staff upgrading was undertaken through placing more emphasis on hiring professionals and offering more progressive remuneration. FHWA consultants were retained to improve the organizational efficiency and cost accounting procedures. 5.02 FHWA helped Vialidad (1970-1974) in accomplishing various specific goals to improve highway operations, such as (a) compilation of systematic road inventory and practical procedures to revise it on an ongoing basis; (b) development of an urgently needed sufficiency rating manual; (c) implemen- tation of up-to-date traffic counting and classification procedures; (d) com- pletion of a vehicle weights study; and (e) development of an urgently needed traffic safety study. As a consequence of the institutional capacity built up under the Second Highway Project (Loan 619-AR), Vialidad has become increasingly aware of economic losses and human suffering ensuing from the high incidence of fatal highway accidents (four times higher than that of the USA). To curtail this situation, Vialidad is now implementing a Traffic Safety Program financed under the Fourth Highway Project (Loan 1384-AR). 5.03 The progress made in institutional improvements suffered a temporary setback in 1973-1976 (para 3.13). Consulting firms began to play only minor roles, and payments for services were delayed by up to one year in a period of hyperinflation. Personnel changes further contributed to a decline in Vialidad's effectiveness. Moreover, the 1975 Budget Law diverted road user revenues earmarked for Vialidad toward financing the Government's general expenditures, leaving Vialidad with insufficient funds to meet its obliga- tions -- a factor responsible for work stoppage on sections of the Pradere-Rufino road. 5.04 When the new Government took office in March 1976, one of its first decisions was to supply Vialidad with sufficient counterpart funds to continue the Second and Third Highway Projects. Further, as a result of the economic policies implemented by the Government, such as reducing Government expendi- tures and increasing the price of oil to international levels, a climate of - 36 - relative economic stability was created. Construction firms were then able to obtain financing to continue works and to import badly needed spare parts for equipment. 5.05 Vialidad experienced major personnel changes since the new Government took office. Several senior staff who held important offices before 1973 were recalled, and the Transport Planning Office, which had hardly operated during 1973-1976, became active again. A general reorganization of Vialidad occurred (see Chart) which resulted in a more efficient operation of the Department, thus facilitating prompt execution and completion of the Second Highway Project. Vialidad has since resumed its policy of relying upon consulting firms for pre-investment studies and construction supervision. VI. ROLE OF THE BANK 6.01 The Bank has been constructively involved in the highway sector since 1961, when the First Highway Project (Loan 288-AR) was undertaken to upgrade some 2,600 km of primary network. Although Bank lending in the sector was dormant between 1962 and 1968, active participation was renewed in 1968 when a transport mission made a comprehensive study of the highway and railroad sectors. Based on the recommendations of the mission (paras 1.02, 3.20 and 5.01), Vialidad implemented measures to reorganize and strengthen sector administration and to better assess, as a continuing process, its investment priorities, which previously had not had a firm technical basis. 6.02 The reorganization of the cost accounting system recommended by the Bank and implemented by Vialidad with assistance from FHWA has resulted in a more reliable basis for the planning and administration of the network needs. Although a comprehensive system for determining invstment priorities has not evolved, the National Transportation Survey currently under way (partially financed by the Bank under the Fourth Highway Project, Loan 1384-AR) is expected to remedy this shortcoming and to present its detailed findings by 1982. To establish a comprehensive and continuous process for determination of investment priorities, Vialidad has engaged one foreign and several Argentine consultants for a study of Pavement Overlay Design and Assessment of Highway Needs. These studies (partially financed by the Bank under the Fourth Highway Project (Loan 1384-AR) are to be coordinated with the National Transportation Survey. Also under the Fourth Highway Project, Vialidad has undertaken, with local consultants, two studies, one on Traffic Safety and the other on Vehicle Loads and Measures. 6.03 A long-term contribution made by the Bank in the course of the Second Highway Project has been institutional development. Vialidad has improved its capacity to plan and administer the changing needs of the network as a result of the experience gained under the project. The successful execution of works for the two additional sections between 1974 and early 1978 -- during a period of staggering economic and political difficulties in the country -- could not have been accomplished without a strengthened Vialidad. Although Vialidad still suffers from a limited investment budget, it has been able to cut its programs to complete the ongoing projects. - 37 - VII. CONCLUSIONS 7.01 The Second Highway Project can be regarded as a success despite the cost overruns experienced for civil works in the amended project (Tables 5 and 6). Vialidad's capability to administer and supervise large projects in Argentina's diverse geographic and economic regions has improved markedly. Indicative of this is the successful completion of works during a period of extreme economic and political conditions, as well as the professional perfor- mance of Vialidad in subsequent Bank-financed projects. All feasibility and engineering studies included in the project have been completed without cost overruns (Table 7), and the results have formed the basis of the Third Highway Project (Loan 734-AR) and the Fourth Highway Project (Loan 1384-AR). From an economic point of view, the project appears successful vis-a-vis the appraisal. 7.02 Finally, the improvements in Argentina's rural network have had a positive impact on the development of the provinces concerned, evidence of which can be found in the socio-economic changes in the previously isolated communities now experiencing the benefits of modern technology. Cotita, once a dusty way-stop to Bahia Blanca and the fruit-producing Neuquen region, today has paved, heavily trafficked streets. Pradere, which was not even located on the map of Argentina, is now a growing town; Rufino, the terminus of the road, cannot cope with new traffic which has made it necessary to construct bypasses and install traffic lights. A strong sense of purpose is evident in the zones of influence of the project roads. 7.03 -The project was a success from an economic as well as a social point of view. It would appear that parts of the project -- especially the Laboulaye-Mercedes section -- may have been conceived late. Construction work was adequately justified by the expected traffic growth rates, which, in restrospect, were generally conservative. The project's social impacts have, on the whole, been beneficial and desirable, as evidenced by the integration of the dry Pampas with the prosperous Buenos Aires in the east and the fertile Piedmont and Cordoba in the west and north. PROJECT COMPLETION REPORT ARGENTINA SECOND HIGHWAY PROJECT (LOAN 619-AR) Appraisal Estimate of Cost of Works Compared with Actual Costs in Constant US$ (US$ million) Appraisal Estimate (1968) Actual Costs Without With Actual Original as % of Cost Route Section Contingencies Contingencies- Costs2/ Contract with Conting. R7 Laboulaye-Mercedes 14.4 16.5 10.8 9.4 -35.0 R251 Empalme R22-San Antonio Oeste 7.0 8.1 7.8 5.2 -6.8 R3 San Antonio Oeste-Arroyo Verde 5.0 5.8 6.2 3.7 +6.9 R3 Uzcudum-Canadon Ferrais 8.8 10.1 11.7 9.3 +16.1 Subtotal 35.2 40.5 36.5 27.6 -10.1 (average) Appraisal Estimate (1972) R33 Pradere-Rufino 6.1 6.7 13.5 4.9 + 92.9 S/N Rio Colorado-Cotita 4.9 5.3 11.4 6.0 +103.6 Subtotal 11.0 12.0 24.9 10.9 + 97.6 (average) Total 46.2 521 61.4 1/ Includes 10% quantity and 5% price contingencies. 2/ Actual costs have been converted to the 1968 base for the first four sections and 1972 base for the last two sections in order to facilitate comparison. Source: Vialidad's Final Report "Second Highway Loan 619-AR)", June 1978 October 1978 PROJECT COMPLETION REPORT ARGENTINA SECOND HIGHWAY PROJECT (LOAN 619-AR) Comparison of Scheduled and Actual Contract Periods RTE SECTION Ea F;! D A'- __1 F_A[riE 15 LabouIaye - Rio Bamnba Rio B-amba - La Cýautiv-a 7 La Cautivz - Mackenna j Lackernna - Washigt on Wash;igon - Le. San Luis L te.Cordob?.-Va.Mercedes E.;>m Rui.'a 22-K m 60 K3 m. 5 0 - Gral. Conesa Gra1. Conea - LagunaCortes L aga nahcoulesCon.rantcPeriod S.Ar.AoCna- Lta PorPra 3 La :rf.a-Sierra Grande 17 Sierra Grande-Arroyo Ver-de z .r ¯ 8- ~. --.- H Emp.Ruta 25l»9-M-alaspina 3 Ma a zsp:n a - P Salaman.ca P S-alamanca - C. Pilar C. P:ýar - C ~dnFerrais s/pKm 25.5 - K m 47,5 rn r ?.5 - Emrrp.- Ru ta P 18 Gr t Vle a -Pie dri tas- 33 -cua Ccntract Period Source: Vialidad's Final Report "Second Highway Loan 619-AR", June 1978 - 40 - PROJECT COMPLETION REPORT TABLE 3 ARGENTINA SECOND HIGHWAY PROJECT (LOAN 619-AR) Schedule of Disbursements ACTUAL DISBURSEMENTS AS ACCUMULATED DISBURSEMENTS IN THOUSANDS OF A PERCENTAGE OF APPRAl- U.S. DOLLARS EQUIVALENT SAL ESTIMATE (UP TO LA- TEST SEMESTER) OR NEW IBRD/ IDA LATEST NEW ESTIMATE OF DISBURSEMENTS FISCAL ACTUAL TOTAL APPRAISAL REVISED DISBURSEMENT AS A PERCENTAGE OF YEAR AND DISBURSEMENTS ESTIMATES ESTIMATES ESTIMATE APPRAISAL ESTIMATE (FOR SEMESTERS (5/31/78) FUTURE SEMESTERS (1 -2) x 100 or (4 2) x 100 1970 1st 0.3 2nd 1.8 3rd 5.0 4th 8.3 1971 1st- 11.6 2nd 0.6 14.9 3rd 1.4 18.0 4th 3.4 20.5 16 1972 1st 5.8 23.0 2nd 8.1 25.0 3rd 10.2 4th 13.1 52 1973 1st 14.8 2nd 15.8 3rd 16.7 4th 17.0 68 1974 1st 17.8 2nd 18.7 3rd 19.0 4th 19.0 76 1975 1st 19.5 2nd 19.9 3rd 19.9 4th 19.9 80 1976 lst 19.9 2nd 20.3 3rd 20.3 4th 20.8 80 1977 1st 21.5 2nd 22.0. 3rd 22.8 4th 24.1 1978 lst 24.4 2nd 25.01/ 98 3rd 25.0 100 100 4th 25.0 100 Totals 25.0 25.0 Closing Date 6/30/72 6/30/78 1/ Last disbursement December 22, 1977 - 41 - TABLE 4 PROJECT COMPLETION REPORT ARGENTINA SECOND HIGHWAY PROJECT (LOAN 619-AR) Appraisal Estimates of Rates of Return Compared with Completion Estimates Appraisal Estimate Completion Road No. Section Rates of Return (%) Rates of Return (%) Roads in the Original Loan Agreement of 6/24/69 R7 Laboulaye-Mercedes 13.0 32.7 R3 San Antonio Oeste-Arroyo Verde 14.0 12.1 R3 Uzcudum-Canadon Ferrais 10.0 15.2 R251 Empalme R22-San Antonio Oeste 10.0 13.5 Weighted Rate of Return 12.0 19.4 Roads included after Project Amendment dated 1/10/74 R33 Pradere-Rufino 29.0 27.3 ExP24 Rio Colorado-Cotita/ 18.0 - Weighted Rate of Return 22. - 1/ The road having just been opened to traffic (civil works completed and accepted provisionally by the Government in March-July 1978), neither reliable normal traffic counts nor estimates of generated traffic are available. Consequently no recalculation of the ERR has been attempted, which nevertheless is expected to be satisfactory. October 1978 PROJECT COMPLETION REPORT ARGENTINA SECOND HIGHWAY PROJECT (LOAN 619-AR) Appraisal Estimates of Traffic Compared with Actual Counts % Change Year Average in Actual vs Rte Opened to Apr. Est. % Actual Traffic Counts Est. Tfc in Year No. Section Traffic 1970 1974 Growth 1973 1974 1975 1976 1977 1978 Road Opened to Tfc. R7 Laboulaye-Mercedes 1972 587 740 6 1262 1316 1373 1433 1495 1559 +83.0 R251 Empalme R22-San Antonio Oeste 1972 231 287 5 251 263 276 289 304 319 -5.8 R3 San Antonio Oeste-Arroyo Verde 1973 235 297 6 - 345 364 385 407 431 +16.1 R3 Uzcudum-Canadon Ferrais 1973 227 285 6 425 449 475 502 531 562 +57.4 R33 Pradere-Rufino 1978 383 450 4 - - - - - 837 +59.4 S/N Rio Colorado-Cotita * 1978 158 185 4 - - * Actual traffic counts not yet available Source: Vialidad's Final Report "Second Highway Loan 619-AR", June 1978 October 1978 k-n, PROJECT COMPLETION REPORT AI.N I I NA SECOND HIGHWAY PROJECT (LOAN 619-AR) Final Status of Civil Works Key Dates Expected Contract Increases ($am) Length Contract Beginning Completion Provisional Original Final Cost Route SctLIon (k.) Award of Work of Work Acceptance Contract Final Cost per km (Sa) Laboulaye-Rio Bamba 32.1 05/22/70 08/08/70 02/07/72 06/15/72 6.893 11.961 372,641 Rio Bamba-La Cautiva 34.2 05/22/70 07/27/70 01/27/72 02/27/72 6.064 8.671 253,561 7 La Cautiva-Mackenna 31.4 05/22/70 08/08/70 02/08/72 12/24/71 5.539 8.119 258,586 Mackenna-Washington 27.1 05/22/70 08/01/70 02/01/72 02/01/72 4.251 6.452 238,10 Washington-Limite San Luis 41.1 05/22/70 08/01/70 02/01/72 02/01/72 7.724 12.378 301,180 Lmte. Cordoba-Villa Mercedes 35.3 05/22/70 07/28/70 01/28/72 02/28/72 5.108 7.720 218,722 Subtotal 201.2 35.579 55.301 Empalme R22-km 60 60.0 06/09/70 09/14/70 05/14/72 11/15/71 5.550 10.353 172,558 251 km 60-General Conesa 55.1 06/09/70 09/14/70 05/14/72 03/07/73 4.970 15.683 284,631 General Conesa-Laguna Cortes 45.0 06/09/70 08/01/70 04/01/72 10/15/72 4.341 8.405 186,772 Laguna Cortes-San Antonio 48.6 06/09/70 08/01/70 04/01/72 10/15/72 5.074 13.297 273,605 Subtotal 208.7 19.935 47.738 San Antonio- 81.6 07/20/70 10/15/70 04/15/72 12/15/72 6.033 18.144 222,358 3 La Porfia-Sierra Grande 39.4 07/21/70 11/02/70 05/02/72 10/27/73 3.363 17.315 439,472 Sierra Grande-Arroyo Verde 47.6 07/21/70 11/02/70 05/02/72 04/30/73 4.887 15.748 330,857 Subtotal 168.6 14.283 51.207 Uzcudum-Empalme R268 52.1 07/21/70 10/09/70 06/09/72 03/17/72 6.305 11.158 214,176 Empalme R268-Malaspina 52.1 07/21/70 10/09/70 06/09/72 04/10/73 7.329 17.126 328,718 3 Malaspina-P. Salamanca 54.4 07/20/70 10/30/70 06/30/72 04/30/73 8.796 16.013 294,364 P.Salamanca-C. Pilar 45.0 07/20/70 10/30/70 06/30/72 04/01/73 7.060 19.592 435,389 C. Filar-C. Ferrais 18.5 07/20/70 10/30/70 06/30/72 04/01/73 5.805 13.934 753,238 Subtotal 222.1 35.295 77.823 Rio Colorado (km 0)-km 25.5 25.5 06/06/73 06/10/74 12/10/76 03/31/78 32.300 1,907.000 74,784,314 km 25.5-km 47.5 22.0 12/21/76 03/01/77 01/28/78 02/28/78 909.202 2,355.376 107,062,545 S/N km 47.5-Emp. RP 15 22.7 12/21/76 03/01/77 03/01/78 05/08/78 973.525 2,479.172 109,214,652 Emp. RP 18-Cotita 66.5 06/06/73 01/07/74 07/07/76 07/15/78 27.309 2,122.000 31,909,774 Subtotal 136.7 1,942.336 8,863.548 Pradere-Gral. Villegas 29.0 09/21/73 01/10/74 01/10/76 05/15/78 9.896 1,493.221 51,440,740 33 Gral. Villegas-Piedritas 31.5 09/21/73 01/10/74 01/10/76 05/15/78 12.168 2,116.871 67,110,650 Piedritas-Canada Sece 37.8 09/21/73 01/10/74 01/10/76 05/15/78 14.690 2,845.405 75,207,630 Canada Seca-Rufino 26.7 09/21/73 01/10/74 01/10/76 05/15/78 12.201 3,775.461 41,509,03 Subtotal 125.0 48.955 10,230.958 0" TOTAL 2,096.383 19_326.575 Source: Vialidad's Final Report "Second Highway Loan 619-AR", June 1978 November 1978 PROJECT COMPLETION REPORT ARGENTINA SECOND HIGHWAY PROJECT (LOAN 619-AR) Actual Project Costs (US$ million) Appraisal Estimate of Final Costs Including Contingencies Actual Costs Govt. Bank Total Govt.11 Bank 2/ Total Civil Works - Construction of 1,060 km of highways 20.24 20.24 40.48 39.91 21.49 61.40 - Consulting services for civil works 0.46 0.69 1.15 0.21 0.31 0.52 Additional Consulting Services - Reconnaissance survey 0.46 - 0.46 .32 - .32 f: - Feasibility studies and detailed engineering 2.30 3.45 5.75 .92 2.28 3.20 - Improvement of planning and admin- istration of highway network 1.15 - 1.15 1.15 - 1.15 - Transport coordination 0.23 - 0.23 0.23 - 0.23 Miscellaneous Equipment - 0.58 0.58 - 1.00 1.01 Total 24.84 24.96 49.803/ 42.74 25.08 67.83 Sources: 1/ Vialidad's Final Report "Second Highway Loan 619-AR)", June 1978 2/ Final disbursements by category 3/ Rounded to US$50 million in the Appriasal Report. November 1978 - 45 - ANNEX PROJECT COMPLETION REPORT ARGENTINA SECOND HIGHWAY PROJECT (LOAN 619-AR) Conversion of Current $a into Constant US$ Hyperinflation in Argentina, especially between 1973 and 1976, makes a comparison of the appraisal estimates and the actual final costs fallacious. To minimize the problem, the civil works cost index has been used to convert the actual final costs to the base years in which appraisal estimates were made: 1968 for the original project and 1972 for the works in the amended project. The following procedure was used for this purpose: (i) Divide the index for the base year by the index for the year in which construction costs were incurred. (ii) Multiply the construction costs by the fraction obtained from (i) above. (iii) Divide the results of (ii) by the exchange rate ($a:US$) in the base year. (iv) Add the results of steps (i) through (iii) for all years in which construction costs were incurred. ANNEX - 46 - Page 2 PROJECT COMPLETION REPORT ARGENTINA SECOND HIGHWAY PROJECT (LOAN 619-AR) Annual Average Civil Works Cost Index (1960 = 100) Year Civil Works Cost 1968 606.2 1969 664.3 1970 743.3 1971 972.7 1972 1,507.0 1973 2,584.7 1974 3,551.9 1975 12,608.0 1976 58,077.0 1977 130,592.8 1978 214,771.7 Source: Vialidad's Final Report "Second Highway Loan 619-AR", June 1978 October 1978 - 47 - CHART I NVENTOPIES ANCI TECHNICAI. STUrl!5s AND INVESTIGAllO4. øø HIGHWAYS - REGION i > NATIOrNAL RGADJS -4 z PROVINCIAL ROADS -4 00 4J ~MAINTEfNANCE z O,'RAnlONS S-SHOS z ANDLEQUIPMEIJT L, REGION IV .GAL r4 0 00 ACCOUNTjNG r NAc4 4>>  BOL IV lA P A R A G U A Y NAN 5 LADORk S A L T A 14 - t- *ASUNCIÓN ( 40 34 1 'C H A' C O FRMOSA CATAMARCA - ,ý1 SAN MIGUE L DE TUC UMAN TUCUMAN REISENI 14 SANTIAGO S15«ES y EL ESTERO 1'CORRIENTES . \ CAAMARA 5 N OCORRIENTES 40 DEL E kf 69 r , SANTA 2 LA LAiOJA FEB R A Z i L ej ~ SAN JUAN 1 SAN CORDOBA J U AN SAAFE C 0 R DB A PRN ENTRE 12 VAPAAIC)MENDOZA O5ARIO VAPAAI SAN LUIS: R IOS UR U GU A Y SANTIAGO M( MERCEDES S A N I LABOULAYE JUF BNS IE 4° l U 1 5 * IKj IE A PILA MONTEVIDEO PRADERE 5 3 5 1lA P A M P A -B BUE NO0S A IR 5 6( - -- - NEUQUEN CTITA -..3 MAR DEL PL ATA EUQUEN -.CQOR O 3 ZAPALA 2AHIA BLANCA R 1 0 -SAN ANTOIO V DMA SAN CARL 5ý N E G R O DE BARItO E p ARROYO VERDE TRELEW RAWSON A RGE NTINA C H UBU T UZC DUM SECOND HIGHWAY PROJECT SCANADON Principal Roads of the National Highway Network SFERRAIS 9 OMODORC, RIVADAVIA -Highways improved under Second Project Paved roads Gravel or consolidated roads S A N T A ----Earth roads (and some traeIlS) lom .--.- --Provincial boundaries It C R U Z ------International boundaries SAN JULJ AN RIO GALLEGOS 0 10o 2oo 300 400 500 600 700 8oo - - KILOMETERS Note: Provincial narnes h-v been oddsd. Remoinder of map å a recreation of 18RD 2426, F9bruay 1970 RIO GRANDE 3 Thilnap has ,. been prpared by the World 8an's staff ex-Ively for the convemenc TERfOR the redr IEfR terprtowchisa ta h d- mmen mntnsuedéandlthe T E R TO Y O T IE RR A boudanes show on thns map do not imply. on the part of the World Rank andnrs s- ID E L F UEGO n-op-e"E f -6 bo- ega sntso n eaoy rayedreeo