Colombia - Rural Roads Project

Document of FILE COPY The World Bank FOR OFFICIAL USE ONLY Report No. 3226b-CO STAFF APPRAISAL REPORT RURAL ROADS PROJECT COLOMBIA March 9, 1981 IProjects Department Latin America and the Caribbean Regional Office This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed[ without World Bank authorization.  Currency Equivalents Currency unit = Peso (Col$) US$1 = Col$ 47.274 (estimated average 1980) Col$ 1 = US$0.02115 Fiscal Year January 1 - December 31 Units of Weight and Measures: Metric Metric British/US Equivalent 1 meter (m) = 3.28 feet (ft) 1 kilometer (km) = 0.62 mile (ml) I kilogram (kg) = 2.20 pounds (lb) 1 metric ton (m ton) = 2.205 pounds Abbreviations CIDA Canadian International Development Agency CNR Colombian National Railways COLPUERTOS Colombian Port Authority CONPES Social and Economic Policy Committee DAAC Administrative Department of Civil Aeronautics DNP National Department of Planning DRI Integrated Rural Development FEDECAFE National Coffee Federation FNCV National Rural Roads Fund IDB Inter-American Development Bank IDEMA Government Marketing Institution INCORA Colombian Institute for Agrarian Reform MOPT Ministry of Public Works and Transportation PIN National Integration Plan  FOR OFFICIAL USE ONLY STAFF APPRAISAL REPORT RURAL ROADS PROJECT COLOMBIA TABLE OF CONTENTS Page No. 1. THE TRANSPORT SECTOR ................ 1 A. General .... . ... .. ............ ........... . ...... * * 1 B. The Transport System . . 1 C. Investments, Regulation, Planning and Coordination 4 D. Bank Involvement in the Transport Sector ... 6 Il. THE HIGHWAY SUBSECTOR ............ .o..... . ........ . 7 A. General ... ..... o......-0- t............** +.... 7 B. Network Characteristics ................ ** *... @...*... 7 C. National Highway Administration and Organization 8 D. Departmental and Rural Roads . . . 8 E. Financing and Road User Charges .... 9 III. RURAL DEVELOPMENT AND TBE NATIONAL FEEDER ROADS FUND ...... 10 A. General ..................................... 10 B. Rural Development Institutions and Rural Roads Programs 11 C. The National Feeder Roads Fund (FNCV) ..... 12 D. Rural Road Construction ... ............... 14 E. Rural Road Maintenance ..... . ...... 16 F. Financing and Budgeting . ..... ............ 16 G. FNCV's Equipment and Force Account Operations. ... 17 IV. THE 1981-1984 PROGRAM .................. .................. 18 A. Long-Term Strategy .............. ............ 18 B. FNCV's 1981-1984 Program ........... I.............., 19 C. Implementation ................. 0 ..... ...... *.* ....444 21 D. Strengthening of FNCV ................ 23 This report is based on the findings of an appraisal mission which visited Colombia in September 1980. The mission comprised Messrs. J.C. Sallier (engineer), Lars Nordin (economist), T. Hoglund (research assistant) and Mrs. H. Ribe (YP, economist). The report has been edited by Miss V.R. Foster. 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. . . _ .~  TABLE OF CONTENTS (Continued) (ii) Page No. V. BANK PARTICIPATION ......... . . .. . . ................... . .. .............. . 24 A. Subsector Project .... .. .... ........... 25 B. Preparation, Evaluation and Selection of Project Components *.. .. **........ .. ............. 26 C. Procurement ..* ................. ... *...... .*. ....... 28 D. Disbursement ...................... .................... 30 E. Working Capital Fund ..0.6 ......................... ... . 32 F. Monitoring .......................... 33 G. Economic Justification of the Subsector Project 34 H. Assessment of Risks ...... 35 VI. AGREEMENTS REACHED AND RECOMMENDATION ................... . 35 TABLES 1.1 - National and International Passenger and Freight Transport -............................... ..... ...... ... 37 1.2 - Public Sector Investments in Transport ........... 38 1.3 - World Bank Group Involvement in Colombian Transport ..... 39 2.1 - Colombian Road Network ... ..... . . . . . . . . . . . . . . ................... .40 2.2 - National Highway Fund Revenues ... 41 2.3 - Evolution and Composition of Regular Gasoline Prices, 1971-1979 . ....................o....*.. .... .... o ... 42 3.1 - FNCV's Total Road Construction by Department 1961-1979 43 3.2 - FNCV's Road Construction by Activities 1975-1979 --- 44 3.3 - Small Contracting Industry Characteristics .............. 45 3.4 - FNCV's Budget Implementation 1971-1979 (2 pages) ...... .. 46-47 3.5 - FNCV's Equipment Fleet as of September 1980 ............ 48 4.1 - Tentative 1981-1984 Financial Program .. ................. 49 4.2 - Origin of Resources for the 1981-1984 Program ... o ....... 50 4.3 - Tentative 1981-1984 Physical Program . ...... ... . 51 4.4 - Design Standards ...... .o..o. .......... . . ........ .............. . 52 4.5 - Purchase of Maintenance Equipment ....... . ......... 53 ANNEXES 1 - Road Selection Methodology .............................. 54 2 - Outline Terms of Reference for Technical Assistance ..... 63 3 - Related Documents and Data Available in the Project File. 66 CHARTS I - Organization Chart of MOPT ............. 67 II - Organization Chart of FNCV ........ .......... 68 MAP IBRD 15394 - Colombia Rural Roads Project  I. THE TRANSPORT SECTOR A. General 1.01 The Andes Mountains in Colombia present formidable barriers to com.munication among the main population centers in the country, which, until recently, constituted separate and almost self-sufficient regions. It was not until the early 1950s that, under the drive toward integration and modern- ization, the transport system began to evolve into a national network. 1.02 The Magdalena River had been the only transport route between the central region and the Atlantic coast until, in the early 1960s, construction and. upgrading of the Western Road (Cartagena-Medellin-Cali-Pasto), the Eastern Road (Santa Marta-Bucaramanga-Bogota-Neiva), and the two main transverse roads that connect them in the central region were substantially completed. Since 1961, the Atlantic Railroad has provided a connection between the port of Santa Marta and the two major urban centers of Bogota and Medellin. During the last 25 years, the country's port capacity and air transport services have also expanded considerably. 1.03 During the period 1950-1978, the transport: sector's contribution to GD? grew at an annual rate of 6.1%, which is larger than the annual growth rate of 5.2% of total GDP for the same period. At the same time, the share of the transport sector.in GDP rose from 5.1% in 1950 to: 6.6% in 1978. 1.04 The Colombian inter-urban transport system moved about 21.5 billion ton-km in 1978, of which about 75% was moved by truck over the national highway network (Table 1.1). Coastal shipping accounted for about 11%, river transport about 7%, railways some 6% and aviation about 1%. Although agricultural output dominates, manufactured goods are becoming an incre.asing share of Colombian freight. Roads dominate passenger traffic, accounting for almost 71%, while aviation's share is close to 27%; railways serve only about 2% of the passenger traffic. B. The Transport System (i) Highways 1.05 The highway subsector and its administration are discussed in detail in Chapter II. The rural roads subsector and its administration, as well as its links with the agriculture sector and the institutions involved in rural development, are discussed in detail in Chapl:er III. (ii) Railways 1.06 The railway network in service consists of about 2,705 km of single track narrow gauge (0.914 meter) lines owned by the Government. The most im- portant routes, the Atlantic or Trunk Lines, between Santa Marta and Bogota- Medellin are 1,287 km long and carry over 70% of the total railway traffic. The Pacific Lines serve only the Department Del Valle, linking mainly the port of Buenaventura with the city of Cali. The connection between the Pacific and Atlantic systems was interrupted in 1975 by landslides in a  -2- critical section of about 140 km south of Medellin. The section has never been repaired. In view of potential new container traffic and possible coal exports through the port of Buenaventura, a study is planned to determine the feasibility of connecting the two systems by constructing a new railway link between Ibague and Armenia. This would also help to balance the import and export traffic through the port of Buenaventura. 1.07 The railway system is administered by the Colombian National Railways (CNR) created in 1963. Since 1960, the Bank has supported the expansion and the upgrading of the CNR system through six projects (a seventh is under prep- aration, para 1.10). The improvement of CNR's financial position and of its operational efficiency have been the main objectives of the latest projects. During the early implementation of the last railway project (Loan 926-CO, US$25.0 million, May 1973), CNR showed good performance. Freight traffic increased from 1,198 million ton-km in 1972 to 1,329 million ton-km in 1974, and passenger traffic increased from 398 million pass-km to 482 million pass-km for the same period. The working and operating ratios were even better than the appraisal targets, and CNR produced a Col$ 10 million surplus in 1974. After 1974, however, CNR encountered technical, financial and managerial difficulties which caused its performance to deteriorate sharply. Freight traffic also decreased to 1,159 million ton-km in 1976 because of a countrywide economic slowdown and Government restrictions on imports of wheat and fertilizer which had been transported by CNR. Government interest in the railways appears to have weakened during this period. 1.08 There has been an upward trend in freight traffic since 1976, yet the overall share of traffic moved by rail has continued to decline because of deterioration in railway services and investments in other modes. Although the competition with trucking is increasing, rail freight is somewhat specia- lized in that the commodities carried by rail are mostly low value bulk com- modities moved over comparatively long distances. The average haul is about 460 km. Passenger traffic has been decreasing since 1976 because of the closure of a number of uneconomic services, reductions in frequencies, ration- alization of passenger trains and the shortage of locomotives which has caused more cancellations in passenger trains, including some on the Bogota-Santa Marta main line. 1.09 Since 1978, the Government has reaffirmed its commitment to the upgrading of rail transport services and to the improvement of CNR's financial position. Steps have been taken by the Government to assist the railways to fulfill its economic role. The Social and Economic Policy Committee of the Cabinet (CONPES) has approved a recommendation by the National Planning Department to provide adequate financial assistance for CNR to meet substantial operating deficits and investment requirements, including planning and design for the proposed Saboya-Carare link. The main purpose of this link would be to provide an improved connection between Bogota and Santa Marta and to facilitate new container traffic and coal exports expected to be mined in the vicinity of Saboya. 1.1(t Renewed interest in the long term viability of the railway has been spurred by increasing energy prices and by the prospect of large-scale haulage of coal from deposits in the Central and Eastern mountain ranges to the ports or to domestic industrial centers. The National Transport Plan, stating that  - 3 - the railways have an important advantage in transporting bulk commodities over lonag distances, proposes reforms to encourage this t:ype of use of the network, inaluding marketing strategies and rehabilitation of the track, most of which is in bad condition. The Bank is preparing a Sevent:h Railway Project address- ing the present needs of the railway, focusing on institutional improvements and rehabilitation of CNR's physical assets. (iii) Inland Waterways 1.11 The traditional importance of inland waterway shipping has decreased because of the development of road and rail transport. The Magdalena and Cauca Rivers, together with the man-made Canal del Dique which connects the port of Cartagena with the Magdalena River, constitute a major transport system, totaling 1,366 km of navigable waterways, which accounts for almost all inland shipping. The Magdalena River is quite dependable in all seasons to Gamarra (about 470 km from the Barranquilla river-sea terminal); beyond there to Salgar (930 km from Barranquilla), only seasonal navigation is possible. Other river systems (Amazonas, Orinoco, Atrato), although very extensive, serve only intraregional transportation of small magnitude. 1.12 Bulk goods, especially petroleum, fertilizer products and cement, constitute the main freight movement, but there is still competition for this traffic from other modes. Total traffic in 1977 was 2.3 million tons, of wlhich 85% consisted of petroleum products. Passenger traffic on the rivers is negligible. Freight transport services are mostly in private hands while the administration and maintenance of the river and most ports are under the jurisdiction of MOPT's Directorate responsible for inland waterways. Inland shipping has complemented rail traffic to some extent, particularly for goods originating from and destined to the ports of Cartagena and Barranquilla. Transshipments to both rail and road can be effected at a number of river ports further upstream; however, the comparative advantage of road transport relative to the combined river-rail or river-road movements makes these combinations viable for just a few products. (iv) Ports 1.13 The principal seaports of Colombia are Cartagena, Barranquilla and Santa Marta on the Atlantic coast, and Buenaventura and Tumaco on the Pacific coast. They are administered by the Colombian Port Authority (COLPUERTOS), which is an autonomous Government agency. For about a decade, this agency has been improving transit storage and cargo-handling facilities with financing from the Inter-American Development Bank (IDB). About 3 million tons per year move through the ports; of this total, more than 50% is handled by Buenaventura. I:n all ports, except Tumaco, the volume of inbound traffic is more than that of outbound traffic, and only Buenaventura has significant cabotage traffic other than oil, which is transported mainly from Tumaco to Cartagena via the Panama Canal. 1.14 One bottleneck to evacuating goods from the ports is the inland transportation system. In the past, neither the railways (Santa Marta and Buenaventura have rail services) nor the trucking industry have, at times, been able to handle the volumes available to them. More coordination amo-' nodes of transport and improved information from COLPUERTOS to the transpo:t  - 4 - services are also needed. Lack of bulk inland storage facilities by IDEMA-- the owner of most of the grains imported in bulk--is another cause of port congestion. The structure of port charges also at times tends to increase freight congestion. If demurrage charges were raised sufficiently in relation to the costs, storing at ports would become uneconomic and the space necessary for port operation would become available. Low labor productivity and ineffic- ient cargo handling practices also contribute to high costs and port congestion. Finally, the use of containers in an efficient intermodal system may help to alleviate port congestion and is being studied by consultants, financed by UNDP with the Bank as Executing Agency, in connection with the preparation of a proposed port project. (v) Aviation 1.15 The aviation subsector developed very early in Colombia as a result of the major problems to surface transportation caused by the topography. Air transport is now a major passenger transport mode for both international and intercity travel. Domestic freight tonnage has decreased in recent years although, in terms of ton-km, its volume has remained stable. International freight traffic, however, has been gaining importance. There are three major national airlines and eleven foreign airlines providing international services, and there are ten additional regularly scheduled domestic carriers. Since 1968, aviation has been governed by the Administrative Department of Civil Aeronautics (DAAC), which is directly responsible to the President of the Republic. DAAC is supported by the National Aeronautics Fund (FAN). 1.16 There are some 70 airports whose standards vary widely. In general, those in the western half of the country are better developed than those in the east. At present, seven of the airports in mainland Colombia and one additional on the Caribbean Island of San Andres are equipped to handle international flights. In view of technological improvements in the aviation field and the inherent difficulties of surface transport, aviation is most likely to maintain an increasing role in the country, especially in passenger transport among major urban centers and in services to the more remote areas of the Colombian Amazonas. A new airport at Medellin and improvements to Bogota and Cartagena airports are being implemented under a Bank-financed aviation project (Loan 1624-CO). C. Investments, Regulation, Planning and Coordination 1.17 The effort to complete the basic transport network has required a considerable share of the country's total investments. Transport represented between 10% and 15% of total investments and about half of public investments in the late 1950s. In the 1960s, when the trunk highway system and the Atlantic Railways were being completed, that share rose to more than 60%. More recently, however, the transport infrastructure share of total public investments has been declining; in the late 1960s, it was about 35%, and, since 1970, it has been about 25%. 1.18 In 1979, about Col$ 12,133 million (about US$282 million) were invested in the transportation sector (Table 1.2). Of this amount, about 78% was for highways and road transport (including national highways and depart- mental and feeder roads), 9% for ports and inland navigation, 12.5% for airports and 0.5% for rail transport (not including operating subsidies). The continuous decline in railway investments partly explains the decreased operating performance of CNR.  1.1.9 The financing of the transport sector is arranged through a com- biriation of (a) National Funds, e.g., the National Highway Fund, the National Feeder Road Fund, and the National Aeronautics Fund which are supplied by tax revrenues, Government contributions and foreign assistance; and (b) general revenues collected by the transport entities from their customers, e.g., CNR andl COLPUERTOS. The transport sector institutions follow a policy of cost recovery, and their pricing policies are generally adequate. However, CNR has had to resort to Government contributions to finance its operating deficits because of management difficulties and operational inefficiency, in particular lack of motive power. Existing cross-subsidies, e.g., between import and export tariffs in the ports and between freight and passenger tariffs on the railways, are not of major significance. The heavy subsidization of road transport over other modes is rapidly being phased out with the considerable increase in gasoline prices (Table 2.3). 1.20 The transport system developed in a relatively short period of time in response to heavy demands by the rest of the economy and not as a result of a deliberate sector planning effort. The responsibility for transport policy was distributed among Ministries, regional and local governments and decentral- ized agencies, each of which played an important role in creating the rules and regulations governing its own activities. Consequently, there was little coordination among modes and a lack of regional planning. Until 1966, when, by Decree 3160, an attempt was made to tie in the various entities in charge of transportation with the Ministry of Public Works (MOP), no framework allowing central planning and policy formulation existed. Ministerial control remained limited, and the lack of coordination persisted. 1.21 More recently, however, there has been considerable strengthening of sector institutions, with the establishment of central control of the sector umder MOP which, in 1976, became the Ministry of Public Works and Transport (MIOPT). This involved a restructuring in 1976 and a reorganization in 1980 wLth the creation of a Sectoral Planning Office and a National Transport Council respectively (Chart 1). The National Planning Department (DNP) also maintains an overall coordinating role and has a transport section in its infrastructure division devoted to transport matters. The Sectoral Planning Office of MOPT is responsible for carrying out intermodal planning and coor- dination. In addition, budgets and investment programs for all modes except pipelines and aviation now require MOPT approval. The National Transport Plan, prepared by the Sectoral Planning Office of MIOPT in 1980, defines the role and goals of each mode and outlines investment programs and their finan- cing for each component of the sector. It also establishes guidelines for the distribution of responsibilities for planning, construction and maintenance of the transport network among national and regional agencies. 1.22 Future revisions of the Plan would place increased emphasis on: (a) projections of traffic flows by mode and commodity considering changes in their relative costs as a result of increasing energy prices; (b) identifi- cation of alternative sources of financing and sector self-financing; (c) strengthening of mechanisms for timely payment from the Government to sector institutions, especially the railways; (d) improved coordination among sector institutions and different modes, e.g., to facilitate intermodal transport and container traffic, and (e) determination of investment priorities among modes.  -6- 1.23 The present administration's development strategy combines a new focus on expansion of the economic infrastructure, designed to integrate regional markets, with a return to export-led growth and increased emphasis on improving allocation efficiency. The renewed emphasis on transport and communication infrastructure, combined with efforts to accelerate growth in less developed regions of the country, seems appropriate at this stage of Colombia's development. Transport costs are high and discourage interregional trade. With these costs lowered, transport services made more reliable, and incentives provided for investment in areas with growth potential, a substan- tial boost could be given to interregional trade and to overall economic growth and employment generation. D. Bank Involvement in the Transport Sector 1.24 The Bank has played an important role in the development of Colombia's transport sector. Its involvement dates back to 1949, when a transport sector mission reported the transport system to be in exceptionally bad condition. Since 1950, the Bank has lent about US$441 million 1/ in 21 loans to the sector (Table 1.3). These investments accelerated the construction of an integrated highway network and, more recently, have contributed to the rehabilitation and maintenance of the network and to the development of an improved highway organization. They have also contributed to the construction of over 670 km of main line on the Atlantic railroad from Dorada to Fundacion, as well as to the rehabilitation of others. The domestic aviation project is helping to improve basic aviation infrastructure and to improve subsector efficiency and planning. 1.25 The first four highway projects, although delayed and with cost overruns, resulted in the construction or upgrading of 3,200 km of trunk roads and contributed to the development of a unified trunk road system and the main mode of freight transport and communication in the country. The Fifth Highway Project (Loan 550-CO, US$17.2 million, 1968) and the Sixth Highway Project (Loan 680-CO, US$32 million, 1970) were delayed in execution by a general economic slowdown, causing untimely provision of local funds, and by poor contract management and insufficient supervision and coordination by MOPT. However, these two projects have made important contributions to the improvement of the trunk road system, assisted in the establishment of better engineering practices and contractual procedures, and contributed to the development of the local consulting and construction industries. 2/ The Seventh Highway Project (Loan 1471-CO, US$90 million, June 1977), aimed primarily at achieving an increased and more efficient use of resources devoted to maintenance, is accompanied by substantial increases in budgetary appropriations for spare parts, equipment renewal, materials and periodic overlays and strengthening of the national highways. After a two-year delay, this arrangement is now working satisfactorily. 1/ Including an IFC operation for pipeline development. 2/ Sixth Highway Project: Project Completion Report, October 29, 1980.  1.26 The Bank participation in rural road construction has been through rural development projects, which also included other activities in the agri- cultural sector. The First Caqueta Project (1971) involved construction and improvement of 124 km of low standard roads; the Second Caqueta Rural Settlement Project (1975) included construction of about 200 km of penetration roads and complementary road works; and the Second Cordoba Agricultural Devrelopment Project (1975) included construction of 168 km of all-weather roads as well as culverts, bridges and other structures. The experience gained under these projects indicated that special consideration had to be given to road selection, timely funding and proper maintenance of constructed roads. More recently, the Integrated Rural Developmient Project (DRI) (1976) financed construction works corresponding to an equivalent length of 440 km, which are being successfully implemented by the National Rural Roads Fund (FNCV). II. THE HIGHWAY SUBSECTOR A. General 2.01 Colombia has a road network totaling about 67,000 km (Table 2.1), of which almost 23,000 km constitute the national highway system and are under the jurisdiction of MOPT. The Secretariats of Public Works of the Departments have approximately 31,000 km and FNCV has approximately 11,200 km of roads. The balance of about 2,000 km of roads are private, municipal or in the National Territories. About one-third (7,900 km) of the national system is paved, while only about 3% of the departmental roads are paved. The remaining two-thirds are gravel or unsurfaced roads. B. Network Characteristics 2.02 The national highway system consists of (a) the primary road network, of about 10,500 km, which connects the main economic centers among themselves and with the seaports and neighboring countries; and (b) secondary roads, of about 12,500 km, that link smaller towns to the primary network and roads that provide access to other transportation modes (e.g., river ports). The regional road system comprises secondary roads that link regions of the departments among themselves, low traffic interdepartmental roads and rural roads that provide access to isolated regions. 2.03 The road network is not well maintained. At least half of the paved roads need asphalt overlays or strengthening in the next ten years to preserve the pavement structure. MOPT has a physical road inventory of only 10,000 km of its network. No similar information exists for Departmental, or FNCV, roads, and there is virtually no maintenance of their network. Conse- quently, the areas of priority of Government road transport policy for the next years are improved road maintenance and rehabilitation of the existing network.  C. National Highway Administration and Organization 2.04 Following the reorganization of the Ministry implemented in May 1980 (Chart 1), MOPT is responsible for the construction and maintenance of the national highway network. MOPT has about 15,000 employees, including about 250 engineers and 210 technicians. The Highway Directorate, which is under the jurisdiction of the Technical Secretary, is in charge of the execution and supervision of highway construction and maintenance done directly by MOPT. This work is carried out through its 26 districts of public works located in each of the 23 Departments and in some of the national territories. The Highway Directorate also administers and controls works done by contractors, including required engineering studies, and is in charge of the procurement and maintenance of equipment owned by MOPT. 2.05 The maintenance of Colombia's national highway system has been gener- ally inadequate, to the extent that, in many cases, roads have deteriorated so much that they require large outlays for their rehabilitation. Up to 1978, about 30% of MOPT's budget was allocated for maintenance, but more than 80% of it was used up in fixed personnel and administrative expenses. Since 1978, allocations for maintenance have increased, allowing rational planning and programing of routine and periodic maintenance activities. Road mainte- nance is a first priority of the Government transport policy; it constitutes about 54% of the program for 1980-1985 as outlined in the National Transport Plan. Specific measures for improvement of programing and budgeting procedures are being implemented under the Seventh Highway Project (Loan 1471-CO). 2.06 Two studies conducted in the 1970s recommended improvements in the organization of MOPT's maintenance operations. Workshop facilities and staffing were strengthened, and a pilot program was established in the district of Tunja. Little attention, however, was paid to the management of the equip- ment fleet. INIDO experts assisted MOPT's Equipment and Workshops Division from 1973 to 1976 in the programing of equipment maintenance. The maintenance system, being implemented under the Seventh Highway Project, requires the stocking of fast-moving spare parts in the districts, with automatic reordering at predetermined levels. Preventive maintenance, together with an equipment replacement program, would improve equipment availability and eventually allow a reduction in the number of units needed to maintain the highway network adequately. In an effort to accelerate improvement in maintenance, MOPT is hiring contractors to carry out routine and periodic maintenance of the paved national highways. The present goal is to contract about 6,000 km. D. Departmental and Rural Roads 2.07 The administration of departmental secondary and rural roads is under the jurisdiction of either the Secretariats of Public Works of the Departmental Governments or FNCV. The Secretariats have responsibility for planning, constructing and maintaining secondary and rural roads. The per- formance of these entities varies greatly. The Departments of Antioquia, Cundinamarca, and Valle have relatively strong road organizations geared to  - 9 - plan and carry out construction and improvements funded under the departmental bucdgets, but are still deficient on the maintenance side. Most of the other Departments have limited financial resources and, consequently, have not developed adequate organizations to deal with their roads. 2.08 In order to support and supplement the efforts of the Departments, FNCV was created and made responsible for planning, constructing and maintain- ing feeder roads in all regions of the country. Once completed, the roads conastructed by FNCV can be transferred to the Departments, provided they have the capabilities to assume the extra maintenance responsibilities. FNCV is described in more detail in Chapter III. 2.09 Other agencies involved with feeder roads are the Instituto Colombiano de la Reforma Agraria (INCORA), the Instituto Colombiano de Hidrologia, Metereologia y Adecuacion de Tierras (HIMAT) and the Federacion Nacional de Cafeteros (FEDECAFE). These institutions undertake the building of feeder roads under projects within their specific jurisdiction or for the benefit of their members. Their feeder road construction programs have not overlapped with FNCV's programs. The demand for rural road improvements substantially exceeds the combined capacity of FNCV and the above-mentioned organizations. Works of the three agencies are often coordinated by FNCV, which provides them with assistance and advice. However, maintenance of these roads is largely limited to exceptional repairs. 2.10 According to Government criteria, MOPT is responsible for the maintenance of the national highway system through its 26 Regional Districts, and the Departments would eventually assume responsibility for maintenance of a:Ll departmental and rural roads in their areas. INCV, which has a reponsi- bility for maintaining its rural roads, does not want to develop into another labor-heavy bureaucracy. Therefore, there is reason for delegating, in the long run, maintenance responsibilities of FNCV roads to the Departments as they acquire the proper capabilities. E. Financing and Road User Charges 2.11 The National Highway Fund (Fondo Vial Nacional) was created in 1966 for the purpose of channeling all resources devoted to the highway subsector. The Fund, which has no staff of its own, is administered by MOPT. Its main source of income is the gasoline tax (114% of the refinery price), which, since 1976, has accounted for over 70% of the Fund revenues (Table 2.2). The proportion has risen to that level from about 50% in previous years, reflecting the Government's policy to increase prices and taxation of gasoline. The Fund's other sources of revenue include foreign financial assistance (IBRD, IDB and others), own resources (such as vehicle license fees, assessment taxes and toll proceeds) and direct Government contributions which are being phased out since increases in gasoline prices and taxation began in 1975. During the ].970s, about 30% of national highway expenditures were for maintenance, 50% for construction and 20% for other expenses. Since 1978, however, the share of maintenance expenses has been increasing; it was about 40% in 1979, and rehabilitation has emerged as a significant category constituting about 10% of t:he Highway Fund expenses in 1979.  - 10 - 2.12 The Government has been increasing gasoline prices gradually since August 1975. Table 2.3 gives the price structure for regular, low octane gasoline. It reflects taxes accruing to the National Highway Fund as well as other taxes, transportation charges (which accrue to Ecopetrol) and distribution margins. Price increases took place monthly from September 1975 to September 1976, and further increases were decreed in the following years. After the most recent increase in October 1980, prices have reached a level of Col$ 52.50 (about US$1.06) per gallon for high octane gasoline and Col$ 44.00 (about US$0.89) per gallon for regular gasoline and diesel fuel. Increasing gasoline and diesel prices to reach international price levels as quickly as possible is an important element of the Government's economic policy. The equivalent import price "at the pump" amounts to about US$44.53 per barrel or US$1.06 per gallon for regular gasoline. With an estimated consumption of 26.5 million barrels in 1980, the implicit economic subsidy amounts to some US$189 million, or 0.7% of GDP, compared to some US$435 million, or 1.6% of GDP, in 1979. In the next few years, the revenues of the National Highway Fund would sustain an increased level of maintenance expenditures and cover programed highway investments, including rehabilitation and construction for primary roads as well as for rural roads. III. RURAL DEVELOPMENT AND THE NATIONAL FEEDER ROADS FUND A. General 3.01 Colombia has evolved from a largely traditional rural and agricul- tural production base to a more industrial and urbanized economy, with a substantial service sector. Since the 1950s, the share of agriculture in GDP has declined from 40% to 26% while the shares of industry and services have risen from 18% to 35% and from 33% to 44% respectively. The productive base of the economy has widened considerably, and production in both the agricul- tural and the industrial sectors has become more diversified. The country is largely self-sufficient in basic food supply, and it is even a net exporter of agricultural products. Despite the success in export diversification that started in the mid-1960s, the economy is still heavily dependent on coffee and agricultural exports; in 1979, exports of coffee and other agricultural products were 60% and 10% of total merchandise exports respectively. 3.02 Outside the major urban centers, economic growth has been concentrated in a few areas of high agricultural productivity; large parts of the country are isolated and have been virtually untouched by past advances. The modern agricultural sector, consisting of farms larger than 20 ha, produces a large proportion of basic food items for domestic consumption and is responsible for the expansion and diversification of agricultural exports and for the growth in industrial processing of agricultural products. The traditional agricultural sector, on the other hand, produces mainly food crops for direct consumption, with techniques that have changed very little over the years, on farms smaller than 20 ha. These farms are located mostly in low yield areas in the Andean highlands above the coffee zone and have poor communication with the rest of the country. About one-quarter of the workers in the country are employed in agricultural activities, and they receive about 17% of the total labor income.  - 11 - 3.03 Nearly 10 million people, or about 30% of Colombia's total popula- tion, live scattered in rural areas or in rural centers with less than 2,500 inhabitants. Only 60% of the rural communities are linked by all-weather roads. In 1975, about 55% of the rural population and 24% of the urban population were living in absolute poverty. Public services are not available to most rural residents or to a large percentage of the urban population, although significant advances have occurred in this regard recently. 3.04 In the early 1970s, emphasis changed to targeting more directly the provision of public services and income opportunities to the poorest 50% of the population. This action resulted in integrated rural development, nutri- tion and health programs, education, rural electrification, water supply and sewerage programs. The expansion of feeder road programs to reach and inte- grate isolated regions of the country is another component of the Government's efj-ort to raise the productivity of "minifundia" and., consequently, the ineomes of small farmers. B. Rural Development Institutions and Rural Roads Programs 3.95 Colombia has a large number of ministries and institutions which are directly or indirectly involved in rural development. Coordination of strate- gies, plans and work programs is done by the National Planning Department (DNP) which is directly responsible to the President: of the Republic. At the implementation level, the Ministry of Agriculture is the most important Government organization in charge of agricultural development. The Agricultural Sector Planning Office (OPSA) is the planning and coordinating unit within the Ministry. It cooperates closely with the agricultural unit of DNP. 3.06 DRI (para 1.26) is a comprehensive program of assistance focused on developing production-oriented programs for small farmers in potentially productive regions of the country, associated with improvements to supporting and social services and infrastructure. DRI is administered by a special unit in DNP responsible for coordination of several activities in the rural sector including credit, extension services including training and marketing, reforestation, feeder road construction, electrification, water supply, educa- tion and health services. Feeder road construction constitutes about 20% of the DRI project; 69 road sections have already been constructed or are under way (233 km equivalent), and the work has been undertaken successfully by FNCV as executing agency (para 1.26). 3.07 The major extension and research service is the Instituto Colombiano Agrropecuario (ICA), which is responsible for agricultural and livestock development. With the exception of its participation in DRI, the Institute has had many shortcomings, mostly due to lack of definition of specific priorities, which have led to duplication of efforts and to disregard of economic factors in the agronomic recommendations. 3.08 Caja de Credito Agrario Industrial y Minero (Caja Agraria) is the principal agricultural credit bank in Colombia. Currently, the Caja Agraria is a mixed enterprise in which the Government has 89% of the shares. The agency has several activities that reach small farmers: credit, extension services and distribution of agricultural inputs. It has been involved in shIh implementation of the credit component of the DRI program.  - 12 - 3.09 Since 1961, INCORA (para 2.09) has been involved in programs of distribution of public land and redistribution of unused private land. Currently, INCORA's land-titling activities are limited mostly to distributing titles on public land in colonization areas to small-scale farmers. INCORA was also assigned to handle a wider range of activities, including credit, technical assistance, colonization, feeder road construction, irrigation and drainage, to assist land reform beneficiaries in developing their newly acquired holdings. 3.10 The main organization promoting agricultural cooperatives is CECORA; most of these cooperatives are both marketing and service enterprises. IDEMA has had a main objective of promoting an increase in agricultural production through incentives given by a price support policy and the purchase of a significant part of agricultural output. Relatively little progress has been made so far in providing an effective marketing system for the diversified production of small farms, with the exception of coffee. 3.11 Finally, FEDECAFE (para 2.09) is a producers' association with semi-official status, which, for many years, has reinvested tax revenue from coffee exports in the development of rural infrastructure in coffee-growing areas. FEDECAFE has constructed roads to serve its affiliates directly, using contractors, as well as in cooperation with the Departments and FICV. This network is well maintained and documented in a road inventory for the coffee areas. FEDECAFE also provides good price information, extension, collection and marketing services. C. The National Feeder Roads Fund (FNCV) 3.12 FNCV was created in 1960 and began operating in 1961 as an organi- zation dependent upon MOPT. In 1968, it gained partial autonomy, and, in 1972, it was reorganized and received full autonomy. FNCV is directed by a seven-member board presided over by the Minister of Public Works and Transport. The Ministers of Agriculture and Interior are also represented. The Fund is managed by a Director General who is appointed by the President of the Republic. Its staff of about 1,600 includes some 100 engineers and several economists; headquarters are located in Bogota. It has two Directorates: Administration and Engineering, as well as a Planning Office created in 1977. The agency has 24 decentralized Regional Directorates. The fiscal supervision of the agency is the responsibility of the Controller-General of the Republic. 3.13 The purpose of FNCV is the construction, upgrading and maintenance of feeder or rural roads, a task to be undertaken in cooperation with depart- mental and other local authorities. Most of the existing feeder road system has been constructed either totally or partially by FNCV. Between 1961 and 1979, FNCV constructed about 8,000 km of rural roads and finished about 5,300 km of road construction started by other entities. Most of these roads have an average length of about 5 km and are built to all-weather gravel standard with a riding surface 4.5 m wide. Most of the rural road works have been contracted by small, local firms, and only a minor portion has been undertaken by force account. In general, the quality of the completed roads has been good. For lack of planning and erratic funding, FNCV has  - 13 - had. many instances in which projects were pushed for political reasons and never reached completion or were delayed to the point that the initial works carried out had to be restored before project resumption. 3.1.4 Although FNCV has always conducted its operations through the same basic system of at least two Sub-Directorates, Technical (Engineering) and Administrative, it has, since 1969, gone through three structural changes. The major purpose of the various changes has been to improve technical, program- ing and planning capabilities, as well as to strengthen the regional offices. The agency's present structure is presented in Chart: 2. 3.L5 The Sub-Directorate of Engineering is responsible for the programing and execution of road construction and maintenance activities, and it is com- posed of three divisions: Technical, Supervision and Control and Physical Programing. The Sub-Directorate of Administration and Finance is responsible for both administrative (personnel policies, training, social welfare, purchase and supplies) and financial matters (formulation and implementation of budget, general accounting, income and expenditures). It is composed of four divi- sions: Finance, Physical Resources, Health Services and Administration. The Planning Office is responsible for preparation of FNCV plans, coordination of the process through which the draft budget is prepared, evaluation of imple- mentation of plans and conducting of special studies. It is composed of two sections: Organization and Procedures, Planning and Socio-Economic Studies. 3.16 FNCV also has 24 Regional Directorates -- one in each of Colombia's 2I Departments and one for the remaining National Territories. Except for the National Territories' Regional Directorate, headquartered in Bogota, the other Regional Directorates are located in the Departmental capitals. These Directorates are responsible for execution of FNCV programs in the various Departments and for maintaining contacts with the Departmental authorities for purposes of coordination. 3.17 FNCV's manpower requirements for its 1981-1984 work program are as follows: Regional Headquarters Directorates Total White-collar civil servants 1/ 180 483 663 Blue-collar civil servants 27 60 890 950 Total 240 1,373 1,613 1/ Civil servants in Colombia are divided into two categories -- white- collar (empleados publicos) and blue-collar (trabajadores oficiales). The first category, which consists of technical and administrative personnel, is governed by Statutory Regulations. 2/ The blue-collar category consists of skilled and unskilled workers. Since they are employed on contracts of unspecified duration, in effect they enjoy permanent appointments.  - 14 - The agency's white-collar staff includes the university-trained individuals (some with specialist degrees), who are found in its managerial and profes- sional ranks. FnCV's present structure is suitable for its operatiQns. Except for specialized key technical and managerial positions, FNCV would not have to expand its staff over the next few years; the proper policy should be to upgrade the effectiveness of the existing staff and to put a ceiling on the total number of employees in each major category. During negotiations, it was agreed that FNCV would, by June 30, 1982, inform the Bank about its staffing policies and afford the Bank a reasonable opportunity to comment. D. Rural Road Construction 3.18 FNCV carries out its own construction programs by force account or by using small contractors, and it is the executing agency for a number of programs designed by other entities. FNCV has not kept a systematic, organized record of its activities since it first began operations. The information available was collected recently from data furnished by the Regional Direc- torates, and it is presented only at an aggregate level. Table 3.1 shows roads constructed entirely by FNCV and additional works completed by them but started by other entities such as Departments or municipalities. Table 2.1 shows Colombia's road network as per the various jurisdictions involved in its construction and maintenance. The part of the network constructed entirely by FNCV (7,962 km) represents about 12% of the total road network length. If the 5,337 km completed by FNCV are included, that figure rises to about 19%. 3.19 FNCV classifies its activities into four categories: surveys, earthworks, drainage works and graveling. These four categories are stages in road construction, with a road being ready for use after completion of drainage works and graveling. FNCV has data on road construction using this type of breakdown available since 1975 (Table 3.2). This system of presenting information reveals the total of works executed but not the actual status of the network (i.e., the degree to which construction has advanced). FNCV is preparing a full inventory of the status of its network which would be completed by November 30, 1981. This inventory would be used for the physical programing of the 1982 program and beyond and would be updated annually by June 30 of each subsequent year. This was confirmed at the time of negotiations. 3.20 FNCV has been responsible for the execution of ten programs since 1971. The four major programs are: (a) Regular Program: this program consists of FNCV's direct road construction and maintenance activities, and it is financed by its own general resources. The program was FNCV's largest in 1971, about two-thirds of its total activities, but has been gradually losing its relative importance in favor of specific projects and was down to about one-third in 1978. (b) IDB Program: this program started in 1970 and lasted until 1978; during 1971-1976, it constituted roughly one-third of FNCV's activities; about half in 1972 and 1973. Under this project, 46 secondary roads were successfully completed. (c) Labor-Int_.isive (Pico y Pala) Program: this program was originated in 1972 with an agreement between the Ministry of Public Works and the Ministry of Agriculture. Initially, it was funded by these two ministries and FEDECAFE; between 1975 and 1978, it was partially funded by USAID. IDB has approved an extension of this program  - 15 - starting in 1981. This construction program is based on labor- intensive techniques, using local manpower. Since 1973, this program has constituted about one-fifth of FNCV's budget. It has been a successful project, demonstrating competitiveness with mechanized construction for earthmoving operations, in rolling terrain and in areas with surplus labor. (d) Integrated Rural Development Program (DRI): this program was mentioned in paragraph 3.06. FNCV has been the executing agency for the road component of the program, which :is supported by IDB and CIDA and by the Bank (Loan No. 1352-CO). The DRI program has accounted for about 40% of FNCV's operations during 1978 and 1979. 3.21 There are 1,063 contractors registered with FNCV who can engage in feeder road construction. These contractors are classified into four groups according to their equipment and financial capability (Table 3.3). Only Class I contractors, 30% of the total, are equipped to handle all aspects of road construction under FNCV programs. Class II and Class III contractors, 42% of the total, need to rent additional equipment to do the gravel course. Class IV contractors, 20% of the total, are capable only of handling small drainage works. The average contractor owns approximately US$200,000 worth of e(Iuipment and is capable of building about 5 to 10 km of rural roads per year. It is estimated that the overall capability of the small contracting industry is equivalent to about 3,000 km per year, and that about 50% of this potential is presently idle. It is also estimated that about 95% of the construction actually carried out by these contractors is financed equally by FNCV and by t.le Departments, and the remaining 5% is undertaken by the private sector. Because of their small size, the contractors are de!pendent on regular payments. Otherwise, they suffer a financial burden which may result in insolvency and disruption of construction. 3.22 The small contractors are not evenly distributed around the country; it is estimated that about 75% of them are located in a radius of 100 km from Bogota. These contractors have little mobility, whiich produces an unbalanced situation where any bidding for works to be executed in the Bogota area attracts about ten proposals against an average of three for similar projects in the rest of the country. This situation may produce bottlenecks for an ambitious con- struction program in all the country. For this reason, FNCV has considered complementary alternatives, such as (a) the "pico y pala" program, which would be used for works located in mountainous terrain with soft material and when there is an abundance of unemployed labor and which would represent about 25% of the 1981-1984 construction program and (b) force account construction in remote areas where contractors are not available. FNCV's 1981-1984 program would encourage small contractors to work in new regions of the country, through better programing and regular payments. Primary support for equipment upgrading would also be available to contractors through the special line of credit under the Eighth Development Finance Project (Loan 1857-CO, US$150 mil- lion, May 27, 1980), setting aside US$15 million equivalent for the purpose.  - 16 - E. Rural Road Maintenance 3.23 FNCV, according to its statutes, is responsible for maintenance of the roads it builds until the time they are transferred over to the Jurisdic- tion of the Departments. FNCV was established with the main function of constructing and improving roads of particular interest to local communities or of particular importance to support rural development programs. It was intended that roads once built or improved would be transferred to the Departments for maintenance. However, the Departments have been reluctant to take up this responsibility since most of them lack the necessary capacity and funds. FNCV has therefore faced an increasing maintenance responsibility. As mentioned in Chapter II, the problem of deficient road maintenance is widespread, affecting even primary and secondary roads under MOPT jurisdiction. 3.24 Because of the lack of an adequate inventory of the feeder road network and because existing estimates from various sources differ from each other, there is no comprehensive knowledge of the extent of the maintenance problem for feeder roads. Although about 1,700 km in 1978 and 1,600 km in 1979 received some emergency maintenance, the lack of proper policies and adequate equipment for maintenance have rendered the situation severe. FNCV has started a detailed road inventory to be completed by November 30, 1981. This inventory would be used in the preparation of future budgets. The current situation calls for strengthening of maintenance capacity and for implementation of a' rehabilitation plan for roads which have deteriorated because of past neglect. F. Financing and Budgeting 3.25 FNCV is financed from a wide variety of sources. In the prepara- tion of its own budget, the agency classifies its various sources of funds in two categories: own resources and appropriations under the National Budget. The first category, amounting to about 20% in 1975 and declining rapidly to 7% in 1979, includes the proceeds from direct taxes, mainly the beer tax, and from areas where property tax assessment revenues are derived. The second category, amounting to about 80% in 1975 and 93% in 1979, covers mainly the revenues from the National Highway Fund (10% of the proceeds of the gasoline tax), supplemental funds voted by the Legislature and funds from external sources. 3.26 Table 3.4 presents the approved, received and executed budgets of FNCV for the period 1971-1979 expressed in 1971 Colombian pesos and in current Colombian pesos. First, it can be observed that, at constant prices, FNCV's budgets over the period 1974-1977 have been below the levels of 1972 and 1973, when IDB and FNCV's own programs peaked. FNCV's expenditures have risen since 1972 and have, after the execution of the DRI project started, almost doubled, indicating a capacity for rapid expansion by the agency as soon as increased resources are released. 3.27 Second, in every year since 1971, only part of the appropriated funds was received and used in the execution of projects; during 1975-1979, on average, 66% of the appropriated budget was received, and 73% of the available resources were used effectively during the same year. The difference between  - 17 - initial budget allocation and funds actually made available to FNCV is a result of slow and incomplete disbursements by MOPT and the National Treasury. The difference between funds available and real expenditure on projects is due to the fact that, in general, about 50% of the funds are actually made avail- e.ble to FNCV in the last three months of each fiscal year, leaving little time to spend them during the same calendar year. 3.28 The salaries and overhead expenses account for about 40% of total FNCV expenditures in 1979. This proportion is relatively high, although it is in line with those of some similar administrations in Latin America. Given the nature of FNCV's operations with small scattered works, one should expect relatively high overhead. It is clear, nonetheless, that 40% is too hiigh. The buildup of FNCV's operations in the early 1970s was accompanied by an expansion of staff and of organizational infrastructure. The subsequent Letdown of works left FNCV with considerable excess capacity. The Government llow recognizes the need to reduce FNCV's overhead and has declared a "freeze" Dn recruitment. As the FNCV program develops over the coming years, FNCV's capacity would be fully utilized, and its overhead would become a smaller portion of its total expenditures. Improvement in accounting and management information systems would also foster better control of overhead (para 4.21). C. FNCV's Equipment and Force Account Operations 3.29 The existing equipment is assigned to the Regional Directorates and used only for construction, rehabilitation and emergency maintenance. Equip- ment policy is shaped by the need to complement the capacity of the construc- tion industry when required. Therefore, no systematic renewal of equipment is envisaged. Because of the new emphasis on maintenance and rehabilitation, FNCV must increase its equipment fleet to support "peon caminero" effort by supplying gravel for patching and handling landslides. This additional equipment must be assigned for maintenance in a flexible way to increase its utilization (para 4.18). 3.30 The total FNCV equipment fleet (Table 3.5) consists of 589 units, including 248 units obtained in a barter agreement with East Germany for coffee in 1980 with a three-year stock of spare parts and no local possibility of additional spare parts replacement; about 162 units either obsolete or under repair; and the remaining 179 working units, which are, on average, 10 years old. 3.31 Before the arrival of the new equipment in 1980, it was estimated that equipment availability was about 35%. The main causes of the low avail- ability were the age of the fleet, inadequate preventive maintenance practices, and a severe shortage of spare parts. The existing FNCV workshops do not have an adequate stock of spare parts or tools to undertake the required maintenance and repairs, and FNCV cannot afford to build up a workshop equipment mainte- nance and repair capability. Therefore, MOPT should be in charge of this task. During negotiations, the Government confirmed that the MOPT Districts, which are relatively better equipped, would carry out the maintenance of FNCV's equipment at FNCV's expense in accordance with organizational arrange- ments acceptable to the Bank.  - 18 - 3.32 FNCV's policy in the future would be to implement most of its works by contractors. However, given the isolation of some roads and the limited capacity of Colombian contractors in parts of the country, some work would also have to be done by force account. FNCV's force account capability, con- sidering the equipment available in December 1980, is estimated to correspond to about 130 km per year of new construction. IV. THE 1981-1984 PROGRAM A. Long-Term Strategy 4.01 There exists a fundamental need to improve the care being given rural roads in Colombia. The present system, which splits responsibilities between FNCV and a number of decentralized departmental agencies, does not have suffi- cient coordination to provide adequate levels of construction, rehabilitation, and maintenance. 4.02 The development of the Government's long-term strategy to address this need is based on present realities. Two factors are particularly important: (a) The decentralization policy dictates that departmental agencies perform an increasing amount of rural road work. This implies that the coordination and management of decentralized activities constitute an important area upon which to focus attention. (b) Of the many entities dealing with rural roads in the country, only FNCV has an established capability at the national level. The long-term strategy for the Government is to strengthen the planning, managerial and control capabilities of FNCV, with the aim of eventually developing the organization into an efficient planning and funding agency for programs carried out by the departmental agencies. The Government s long-term strategy would be discussed regularly with the Bank (para 5.22). FNCV would have the authority to establish guidelines for project selection and design, for construction management and for maintenance and would enforce these guidelines through allocation of financial resources. From such a position, FNCV would be able to ensure the design and implementation of a balanced policy of new construction and rehabilitation, and the buildup of maintenance operations to satisfactory levels nationwide. 4.03 A recent analysis of FNCV-s rural road network indicates that about 50% of the total is ten years old or more, and at least 65% is six years old or more. In the past, no significant maintenance activity was carried out. It can be assumed, therefore, that 50 to 70% of the existing network is in unsatisfactory condition and should be rehabilitated. FNCV has designed a balanced and comprehensive policy, initiated by its 1981-1984 program, to improve the conditions of rural roads over the next ten years. The goals of FNCV's policy are to:  - 19 - (a) rehabilitate the entire FNCV network between 1981 and 1990, while simultaneously constructing about 5,600 km of new rural roads; (b) initiate a routine maintenance policy for new and rehabilitated roads that would provide for the continual upkeep of all rural roads under FNCV's responsibility by 1990; and (c) initiate a systematic policy of periodic regraveling in 1985 for that portion of the network seven years or older to reduce the rate of degradation and the need for additional rehabilitation. 4.04 The physical targets envisaged by the po:Licy are well within FNCV's capabilities. The average workload of each regional directorate by 1990 would be quite reasonable, amounting to: - approximately 30 km of new construction (between three and five road stretches) - approximately 80 km of rehabilitation (about eight stretches) - approximately 50 km of regraveling (about five stretches) and - approximately 600 km of routine maintenance (requiring about 120 laborers) 4.05 To achieve a balanced program providing for the continual upkeep of the entire road network, FNCV would gradually shift emphasis from construction to rehabilitation and maintenance. This shift is reflected in the following 1990 tentative program breakdown: - 35% for new construction, as opposed t:o 82% in 1981 - 50% for rehabilitation, as opposed to 18% in 1981 - 10% for routine maintenance, as opposed to almost 0% in 1981, and - 5% for regraveling, as opposed to 0% in 1981. Contemplated increases in the level of funding received from the Highway Fund and from external sources would give the Government adequate financial resources to carry out the ten-year policy. In case of unanticipated financial difficulties, the rational contingency plan would be to decrease the amount of new construction and to maintain the vital rehabilitation and maintenance components. B. FNCV's 1981-1984 Program 4.06 The objectives of FNCV's 1981-1984 program are to initiate the imple- mentation of the long-term strategy outlined above by: (a) gradually increas- ing the proportion of rehabilitation works in FNCV's working program;  - 20 - (b) providing the basis for a maintenance system; and (c) strengthening FNCV's capability in planning, management and control. Based on historical data, a balanced policy to be followed by FNCV during 1981-1984 would be such that the length of the rehabilitation program would be at least 80% of the length of the new construction program and that, during the following year, the rehabilitated and constructed roads would be routinely maintained. This ratio would be revised after the results of the inventory, which will be known by November 30, 1981. During negotiations, FNCV confirmed its policy to achieve a proper balance between new construction, rehabilitation and routine maintenance. 4.07 The 1981-1984 new construction and rehabilitation program (Table 4.1) comprises five subprograms: DRI I, DRI II, Pico y Pala, the Proposed Rural Roads Project, and the ordinary FNCV program. The DRI I project is scheduled to end in 1981. DRI II should start late in the same year. The DRI projects represent about 20% during the four-year period. The projects are financed jointly by the Bank, IDB, and CIDA. The Pico y Pala subprogram, representing 19%, is an IDB-financed effort devoted to construction through the use of labor-intensive techniques. The Bank-financed Rural Roads Project makes up 37%, leaving 24% to be financed entirely by FNCV under its ordinary program. 4.08 The 1981-1984 program (Table 4.1) amounts to US$226 million and would be financed as indicated in Table 4.2; 64% of this figure is for invest- ment, 6% for maintenance, and 30% for management, design, scpervisioi, aad debt servicing. Investment expenditures can be divided into 70% for construc- tion (2,025 km), 29% for rehabilitation (1,810 km), and 1% for studies to be carried out by consultants. The maintenance program is divided into 75% for equipment purchases and 25% for routine maintenance (4,580 km). The equipment purchase requirements have been tentatively defined. Management, design and supervision expenditures are estimated to decrease from 40% of the total in 1981, to 33% in 1982, 25% in 1983, and 24% in 1984. The high 1981 percentage reflects decentralization costs and idle labor during that year. 4.09 The 1981-1984 physical investment program shown in Table 4.3 comprises the construction of 2,025 km at an average cost of about US$49,000 per km and the rehabilitation of about 1,810 km at an average cost of about US$25,000 per km. This is equivalent to about 2,900 km of new construction, considering that rehabilitation is about half the cost of construction or an average of 730 km per year. Given that FNCV constructed about the equivalent of 871 km of new construction in 1979 (Table 3.2), this program is well within the capabilities of FNCV. Based on the length of roadwork to be performed, the proportion of rehabilitation works is 28% in 1981, 447 in 1982, 48% in 1983, and 59% in 1984. The rather low proportion in 1981 is due to the completion of the first DRI program, which did not consider rehabilitation a major priority, and to the IDB-financed Pico y Pala Programq, which deals only with new construction.  - 21 - C. Implementation (i) Project Identification and Selection 4.10 The roads to be constructed by FNCV are identified from direct petitions presented by rural communities. There are always far more petitions than resources available. The methodology for selection of roads and prepa- ration of specific subprojects has been prepared by FNCV in close cooperation with the Bank and IDB and is contained in FNCV's "Manual for Selection of Rural Roads" 1/. 4.11 In order to achieve a regional balance in the distribution of its funds, FNCV divides its investment budget among the Departments according to guidelines prepared by DNP, which consider road and population densities. The! average allocation per Department is about 4.6% with a maximum of about 102 for the Department of Antioquia and a minimum of about 0.7% for the Department of Quindio. The selection of roads to be constructed within each Department follows several stages described in Annex 1. First, by using a points system, the most promising roads are preselected for further- analysis. The main factors taken into account at this stage are the terrain, population density, land distribution, potential for increased agricultural production, distance to markets, and access to extension services and agricultural credit. These roads are then evaluated in more detail, using, the economic rate of return (ERR). Economic benefits consist mainly of producer surplus for new roads. Rehabilitation projects yield producer surplus due to alleviation of seasonal interruptions as well as cost savings on established traffic flows. After discarding roads with an economic return less than the opportunity cost of capital (11%), the selected roads are ranked, either on the basis of ER'R or using the social rate of return. FNCV's evaluations would provide the basis to estimate the social rate of return of selected subprojects. At this point, FNCV is interested in testing the use of the social rate of return to establish relative priorities among justified subprojects. (ii) Design, Studies, Procurement and Supervision 4.12 Rural road design standards (Table 4.4) are determined by FNCV regulation No. 448, dated April 10, 1975. These standards are compulsory for FNCV and are widely used in the departmental public works administrations and other entities, such as DRI or INCORA, dealing with rural roads. Three classifi- cations are used, based on traffic levels. These are further subdivided accord- ing to the type of terrain, giving a total range of eight classifications. These standards are reasonable and adequate, and no modifications are envisaged. 4.13 FNCV has 22 surveyor teams that would carry out about half of the te!chnical studies (all of the studies related to the Pico y Pala Program arnd most of the studies related to rehabilitation works). The rest of the technical studies would be contracted to consulting firms. Because the quality of the studies carried out by the consultants is uneven (overdesigning is not 3 uncommon), FNCV has decided to reject any project presenting more than 25,000 m of excavation on average per kilometer and to ask for additional survey efforts. 1/ Metodologia y Criterios para la Seleccion de Caminos, FNCV Document O.P. No. 031, September 1980.  - 22 - The average cost of final engineering work done by consultants is about US$1,200 per kilometer, or about 3% of the construction cost (which is a quite reasonable percentage). 4.14 Supervision of the works would be carried out either by FNCV teams or contracted consultants. Past experience indicates that the quality of supervision performed by both of these groups is satisfactory. Normally, consultants provide only 50% of the supervisory services called for by FNCV. For the 1981-1984 program, however, this ratio would probably increase to 60% because of the heavy requirements of the Pico y Pala Program for FNCV super- visory teams. Once consultants have been mobilized in the field, their fees are due and paid even when contractors are not working because of lack of funds, which raises average supervisory costs from 10 to 15% of the cost of the works. Substantial savings would be obtained on supervision charges from the smooth flow of payments to contractors made possible by the Working Capital Fund (para 5.19). 4.15 Procurement for civil works, design and supervision follow the Government's competitive bidding procedures (under Decree 150), which are the same as those used by MOPT and other C-overnment entities and are satisfactory to the Bank. FNCV has considerable experience in this field and has demon- strated its capability under the ongoing DRI program (Loan 1352-CO). In addition, four full time auditors from the Controller General of the Republic are permanently assigned to FNCV to ensure that accounting practices would follow Government regulations. The auditing control of FNCV expenditures is adequate. Satisfactory expenditure records are kept for each specific project and each contract. (iii) Maintenance 4.16 The Government's policy is that the maintenance of rural roads would eventually be the responsibility of the Departments. However, because of the absence of technical skill, administrative structure and financial resources, the Departments are presently unable to assume such responsibility. In conse- quence, FNCV is charged temporarily with the maintenance of its road network, including roads that would be constructed or rehabilitated under the 1981-1984 program. 4.17 To handle this maintenance activity, FNCV has adopted a "peon caminero" strategy that employs peasant workers to help maintain rural roads and, at the same time, provides local employment. The "peon caminero" would be supported by equipment as required for larger works. FNCV would finance the contracting of such workers (about US$253 per km per year including hand tools) through municipal authorities to perform routine maintenance on desig- nated road sections (on average, 5 km long). This arrangement would make the eventual transfer of maintenance responsibilities to the Departments an easy and uncomplicated process. It is expected that, by 1984, some 460 "peon camineros" would be working to maintain about 2,330 km of rural roads (Table 4.3). The quality of this work would likely be ensured through the social pressure from the local communities and controlled periodically by FNCV staff. During negotiations, FNCV confirmed the implementation of routine maintenance by "peon caminero". 4.18 Rxisting FNCV equipment is basically devoted to new construction, rehabilitation and emergency maintenance. Thus, additional equipment, includ- ing 10% spare parts (Table 4.5) intended only for rehabilitation and the  - 23 - support of routine maintenance efforts, would be procured. MOPT would main- tain FNCV's equipment to eliminate the duplication of workshops and to avoid the buildup of FNCV's facilities that would later be unnecessary (para. 3.31). To ensure maximum utilization of the new maintenance equipment, FNCV's Central Office would: (a) retain control of this equipment; (b) assign responsibility for maintenance programing and control to the Physical Programing Division no later than June 30, 1981 in order to assign equipment temporarily as needed to individual regional offices according to maintenance planning; and (c) carry out, by June 30, 1981, a detailed road inventory of the network to support planning efforts both in the field of rehabilitation and in maintenance (para 3.19). These measures would create a mobile, highly utilized mainte- nance equipment fleet and were agreed during negotiations. 4.19 Because MOPT's warehouses are under reorganization with Bank Assist- ance (Loan 1471-CO), it is considered unfeasible for the time being for MOPT to manage FNCV's stock of spare parts; this would be a possibility, however, after MOPT's reorganization. Existing FNCV storehouse facilities are adequate to handle the new maintenance equipment without being extended. FNCV has undertaken a program to scrap 47 obsolete units before December 1981 (Table 4.5). An additional scrap program of about 52 units, together with the disposal of at least 75% of obsolete existing spare part stock of the Central Storehouse in Bogota, should be carried out before September 30, 1982, the scheduled delivery period for the first batch of the new maintenance equipment. This was confirmed during negotiations. D. Strengthening of FNCV 4.20 FNCV would activate its new organization and method unit (Chart 2) and adapt its management procedures to deal with the new situation introduced by the Covernment's decentralization policy and the establishment of a balanced construction, rehabilitation and maintenance program. FNCV would: (a) initiate a reorganization of its internal information processing system; (b) strengthen the decentralization process; and (c) upgrade the technical capability of the entity. This was confirmed during negotiations. (i) Management Information System 4.21 With the help of consultants (para 5.08), FNCV needs to reorganize its management information system in order to provide the management with more reliable and comprehensive data to evaluate FNCV's activities and to assist in the decision-making process. This information would be broken down into physical, financial and administrative data. The physical data system would allow: (a) establishing a proper road inventory; (b) establishing staffing and equipment plans compatible with the work programs; and (c) providing accurate accounts of quantities of work performed. The financial data system would be the basis for: (a) verifying the funds received by FNCV; (b) monitoring the expenditures by introducing an analytical accounting system; and (c) providing rapid knowledge about bottlenecks in the liquidity position. The administrative and operational data system would be expanded to:; (a) maintain information on the capability of the contracting industry; and (b) evaluate FNCV's interral processing.  - 24 - (ii) Decentralization and Control 4.22 The implementation of FNCV's new decentralized organization and wider ranging activities makes it necessary to reaffirm the rules for authority and responsibility given to various administrative units. For this purpose, FNCV's overall policy and planning has to be well documented and understood. Programing and budgeting would be enhanced by the improved data base resulting from the above activities, and centralized technical, financial and administra- tive control would be exercised to ensure success of the decentralization effort. Toward this end, the regional offices would prepare monthly reports on financial and physical progress of works. Technical inspections would be carried out by senior engineers and auditors from Bogota on a sample basis to assist the field engineers and to control works performed. Finally, improved coordination among FNCV, DNP, and MOPT at the national level, and among FNCV regional districts, Department authorities, and MOPT districts at the regional level, would be established through regular meetings. (iii) Technical Capability 4.23 With the administrative tools described above, FNCV would have to upgrade its technical staff further to take full advantage of the organization's potential. FNCV would promote a working group in charge of identifying techni- cal problems as they occur and providing appropriate solutions, particularly in the maintenance field. During negotiations, FNCV agreed to the establishment of such a working group by June 30, 1981. V. BANK PARTICIPATION 5.01 The working relationship built with FNCV through the implementation of rural road components of agricultural projects (para 1.26) has provided the Bank an opportunity to appreciate the strengths and weaknesses of FNCV. The Bank has reviewed the development prospects for the agricultural and transport sectors contained in the National Integration Plan (PIN) and agrees with the need for an expanded feeder road program and for increased attention to the maintenance problem of rural roads. The proposed project is specifi- cally focused on rural roads and would provide a framework to address the needs of the subsector with an overview of FNCV's institutional and financial requirements. The Bank would contribute to FNCV's 1981-1984 program. Prepa- ration and supervision of the proposed subsector project would focus on: (a) criteria and methods for subproject selection and preparation; (b) overall capacity requirements and institutional strengthening; and (c) long term policies for decentralization of the maintenance function to the Departments. The present chapter describes the modus operandi of the proposed subsector project to serve as a guide for future supervision.  - 25 - A. Subsector Project 5.02 The FNCV program and its financing, outlined in paragraphs 4.06 to 4.09, serve as the basis for assessing the Bank's role in FNCV's Rural Roads Program over the period 1981-1984. An analysis of the financing of FNCV's 1981-1984 Rural Roads Program in Table 4.1 indicates that the proposed sub- sector project would cover an increasing share of FNCV's road construction and rehabilitation program (18% in 1981, 37% in 1982, 39% in 1983 and 45% in 1984) and limited equipment purchases required for maintenance. FNCV's total 1981-1984 program amounts to US$226 million. Of this amount, the component that would be supported by the Bank is US$63 million or 28%, referred to hereafter as project expenditures to distinguish them from other expenditures under FNCV's 1981-1984 program. The specific areas which would be supported by the proposed subsector project are indicated below: Estimate of FNCV's Program Expenditures to be Financed under the Subsector Project 1981-1984 (Constant January 1981 US$ million) 1981 1982 1983 1984 Total Km Cost Km Cost Kl Cost Km Cost Km Cost Engineering 210 0.25 210 0.25 290 0.35 - - 710 0.85 Construction 70 2.74 140 5.47 210 8.21 290 11.34 710 27.76 Rehabilitation 70 1.37 140 2.74 210 4.10 290 5.67 710 13.88 Supervision - 0.44 - 0.85 - 1.26 - 1.70 - 4.25 Purchase of Main- tenance Equipment - - - 6.55 - 2.19 - - - 8.74 Purchase of Hand Tools - - - 0.20 - - - 0.20 Technical Assistance - 0.11 - - - - - - - 0.11 Base Cost (January 1981) 4.91 16.06 16.11 18.71 55.79 Price Contingencies 1/ 0.21 1.76 2.24 3.00 7.21 rotal 5.12 17.82 18.35 21.71 63.00 1/ Price contingencies: for domestic prices: 22% in 1981, 21% in 1982, 19% in 1983 and 17% in 1984. for international prices: 9% in 1981, 8% in 1982, 7% in 1983 and 1984.  - 26 - 5.03 The proposed Bank loan of US$33 million would finance the foreign exchange component of the preceding project expenditures as follows: Project Cost Estimate (Constant January 1981 US$ million) FEC Bank Participation Project Component Local Foreign Total % US$ %_ I. Four-Year Construction and Rehabilitation Program Engineering 0.47 0.38 0.85 45 0.38 45 Construction 15.27 12.49 27.76 45 12.49 45 Rehabilitation 7.63 6.25 13.88 45 6.25 45 Supervision 2.34 1.91 4.25 45 1.91 45 Sub-Total 25.71 21.03 46.74 21.03 II. Four-Year Maintenance Program Purchase of Mainte- nance Equipment 1.14 7.60 8.74 87 7.60 87 Purchase of Hand Tools 0.11 0.09 0.20 45 0.09 45 Sub-Total 1.25 7.69 8.94 7.69 III. Technical Assistance 0.02 0.09 0.11 87 0.09 87 Base Cost 26.98 28.81 55.79 28.8I Price Contingency 3.02 4.19 7.21 4.19 Total Project 30.00 33.00 63.00 33.00 B. Preparation, Evaluation and Selection of Project Components (i) Construction and Rehabilitation Subprojects 5.04 The two important concepts to be considered are the individual subproiects and the contracts for engineering, civil works and supervision associated with each subproject. The subproject is the unit considered for purposes of project preselection, evaluation and selection, while final engineering, construction, and supervision contracts associated with the subproject are the basis for disbursements. Not all subprojects would be completed by 1984, the end of the disbursement period, and they would have to be completed under FNCV programs in subsequent years in accordance with the schedule defined for each subproject. However, all contracts accepted for disbursement under the loan would have an initial completion date before December 31, 1984. The commitment of funds would be restricted to contracts pertaining to eligible subprojects. Commitments would be monitored closely  - 27 - to ensure adequate progress in disbursement. It is expected that FNCV would process subprojects well in excess of what would be strictly necessary to meet the commitment and disbursement estimates. Since most rural road construction contracts cover only one year, the proposed system would provide ample flexi- bility to adjust the progression of commitment and disbursements. 5.05 Preselection, evaluation, and final selection of subprojects would follow the procedures outlined in FNCV's "Manual for Selection of Rural Roads" (para 4.10). Each subproject would have to be technically sound and economic- ally justified, with an ERR of at least 11%. FNCV has demonstrated the capacity to carry out economic analyses in line with the agreed Manual. FNCV would prepare, for each subproject, a report presenting the key technical, design, cost and economic parameters according to the Manual. The reports wotld be sent to the Bank and would include the rejected subprojects. These reports would establish the eligibility of individual subprojects and would allow review and eventual improvement of the preselection methodology. 5.06 Bank review would take place at two levels. First the Bank would review and possibly approve FNCV's proposal to include a given subproject or group thereof in the Bank-financed part of its program. After receiving Bank approval, FNCV would declare the subproject eligible for Bank financing. Second, the Bank would selectively review procurement actions for the imple- me:atation of eligible subprojects. Award decisions for contracts worth less than US$700,000 would not be subject to prior review by the Bank. Should the tender price surpass, by more than 20%, the cost estimates used to assess the eligibility of a given subproject, FNCV would review the qualification of the subproject and explore possible reduction in design standards in order to ensure that the subproject still meets the eligibility requirements. The updated evaluation would be forwarded to the Bank inI the case of contracts worth US$700,000 or more and would be kept available by FNCV for review in the case of smaller contracts. The proposed arrangemenlts would focus Bank super- vision on subproject selection while ensuring selective but adequate coverage on engineering, procurement and contract administration, which are areas in which FNCV has a record of good performance. The prior review of eligibility of subprojects would also allow monitoring of the buildup of the portfolio of subprojects for Bank financing. The requirement fo-r subproject eligibility and the related documentation were reviewed and confirmed at the time of negotiations. (ii) Maintenance and Equipment Purchases 5.07 Equipment requirements during the 1981-1984 period have been deter- mined on the basis of a preliminary analysis of annual volume of maintenance works. The proposed Bank loan would finance equipment purchases in two batches, including 10% spare parts (Table 4.5). The list of equipment was reviewed and confirmed at the time of negotiations. Equipment acquisition would be coordinated with a scrapping program for both obsolete equipment (Table 3.5) and spare parts. The repair of FNCV's equipment would be performed by MOPT (para 3.31). Equipment purchased under the loan would be used exclu- sively for maintenance and rehabilitation needs. The efficient utilization of this equipment would be planned from FNCV headquarters in Bogota. Furthermore, an FNCV-financed routine maintenance policy involving the hiring of "peon  - 28 - camineros" (para 4.17) by municipalities would be implemented. The Bank would support this routine maintenance policy by financing the supply of hand tools. (iii) Technical Assistance 5.08 The Bank would support the strengthening of FNCV overall administra- tive structure, particularly the management information system (para 4.21), by financing limited technical assistance, i.e., one Highway Engineer Manager and one Public Administration specialist for about 10 man-months (at about US$10,000 per man-month). This assistance, to be started no later than January 1, 1982, is intended to streamline administrative procedures deemed particularly essential in FNCV's new decentralized organization. The terms of reference for the consulting services were reviewed and agreed during appraisal (Annex 2) and confirmed during negotiations. C. Procurement 5.09 Equipment amounting to about US$8.75 million (January 1981) would be procured through international competitive bidding in accordance with Bank Guidelines for Procurement. The procurement program for equipment indicating lot size and estimated cost would be subject to prior approval by the Bank. A draft program for the first batch of purchase was reviewed and agreed at the time of negotiations. Similar items would be grouped for bidding purpose. Contracts for imported equipment, vehicles and parts with an estimated cost below US$50,000 equivalent within an overall of US$500,000 would be procured under competitive local procedures which are satisfactory to the Bank. 5.10 Because of their small size and limited scope, the rural road construction or rehabilitation contracts would not interest companies not already operating in Colombia or even those not already established in the specific region where the subproject is located (para 3.32). Civil works, engineering, supervision and hand tools would be procured through local competitive bidding procedures acceptable to the Bank. This would follow the arrangements being used successfully for the road component of the ongoing DRI Project (para 1.26). Given the limited scope of technical assistance services, this component would be contracted directly by FNCV with a firm or with individuals acceptable to the Bank. 5.11 Civil works contractors, or consulting firms for studies or super- vision, should be listed in FNCV's official file of preselected companies or individuals. Procedures for civil works procurement and the hiring of consult- ing services for engineering or supervision would follow procurement procedures as defined in Decree 150, whose provisions are compatible with Bank requirements for local competitive bidding. Local advertising is appropriate for the procurement of these services.  - 29 - 5.12 The review and approval of contract award decision would distinguish between small and medium size contracts. For all civil work contracts related to the implementation of eligible subprojects, FNCV would: - prepare tender documents; - issue tender invitations; - open tender; and - prepare tender evaluations. (a) In the case of contracts worth less than US$700,000 equivalent, at the date of the bid opening, FNCV would, without Bank involvement: - award contracts; - legalize contracts; and - issue notice to proceed together with payment of an advance to contractors. The tender evaluation report with the justification for the award decision would be kept in FNCV's offices available to review. (b) In the case of contracts worth US$700,000 equivalent or more (corresponding to about 15 km or more of betterment), at the time of bid opening, FNCV would seek the Bank's agreement before finalizing the contract and would, for this purpose, send to the Bank: - the tender evaluation report, indicating the award decision and its justification; and - the proposed contract. The Bank would review this information and, if satisfied, indicate no objection to t:he contract award. Contracts worth US$700,000 or more would account for about 50% of the civil works component and 10% of the number of contracts for civ:il works. 5.13 If the information concerning procurement of civil works were found unsatisfactory, the Bank would request clarification. The Bank would have the right to reject a contract and request new tendering if agreed tender procedures were not followed. If the Bank should reasonably determine, after consultation with the Borrower, that the execution of an eligible subproject was proceeding on the basis of a contract inconsistent with the procurement procedures agreed under the loan, the Bank might cancel from the loan the amount corresponding to its scheduled participation in such contract.  - 30 - 5.14 Taking into consideration the limited capacity of Colombian con- tractors in parts of the country, some FNCV force account work would be necessary. However, to avoid an unwarranted buildup of FNCV's force account construction and rehabilitation capabilities, restrictions should be estab- lished on the extent to which Bank funds would be used to reimburse such work. Construction and rehabilitation should be executed by force account only if no acceptable bid were received for a project. In addition, no more than US$3 million of the construction and rehabilitation component of the loan should be used for force account work. Of this, no more than US$1 million should be used for construction. For force account work, the Bank would consider as the base cost of a project the lower figure of the lowest bid received and the FNCV official estimate at the time of the bid opening. Calculations for Bank reimbursements would be based on only 70% of the total cost (base cost plus inflation adjustment) of force account construction work. This methodology reflects both a disincentive for force account work and the removal of profits and overheads normally included in contractors' prices. Consultants satisfactory to the Bank should verify force account construction and rehabilitation work before reimbursements are made. The above was confirmed during negotiations. D. Disbursement 5.15 Disbursement for various types of expenditures would be made against the documentation given below on the following basis: - 45% of total expenditures for civil works, studies, supervision, and supply of hand tools; - 100% of foreign expenditures for imported equipment; and - 87% of total expenditures for technical assistance. The above percentages represent the estimated foreign exchange components of the various project elements. 5.16 The documentation to be presented consists of: (i) Normal documentation. This would be required for imported equipment and technical assistance. (ii) Statement of expenditures. The large number of small construction and rehabilitation jobs that would be contracted under the proposed loan, as well as the procurement of hand tools and engineering services, make it prudent to streamline normal Bank procedures to reduce the volume of documentation in order to allow Bank supervi- sion resources to be used more effectively. To facilitate the review and verification of FNCV expenditures, the Bank would receive a general statement of monthly expenditures from the agency, and would reimburse directly on the basis of the supplied statement. The statements would be audited semi-annually by the chief auditor from the Controller General of the Republic working in FNCV.  - 31 - 5.17 Three separate indicators would be monitored to follow the progress of the project: (i) the total value of the portfolio of eligible subprojects which would quickly build up and amount to 120% of the project value by the end of 1983; (ii) commitments, i.e., the value of contracts awarded for the implementation of eligible subprojects; and, finally (iii) project expenditures which are the basis for disbursement; disbursement would lag behind project expenditures by up to three months. The implementation of Bank-financed subprojects would start by mid-1981 and progress as shown below. These targets were reviewed and confirmed at the tiTr.e of negotiations. Bank-Financed Share of Project Expenditures (US$ million) Total 1981 1982 1983 1984 1981-1984 Civril Works 2.21 4.60 7.09 10.18 24.08 Hand Tools - 0.09 - - 0.09 Equipment - 6.44 2.3C - 8.74 Technical Assistance 0.09 - - - 0.09 Project Expenditures ('disbursement basis) 2.30 11.13 9.39 10.18 33.00 Cumulative Value of Port- folio of Eligible Sub- projects by year-end (Bank share) 10.00 24.00 36.00 40.00 Cunulative Value of Signed Commitment for Contracts (Bank Share) 8.00 17.00 26.00 33.00 Cumulative Project Expenditure 2.30 13.43 22.82 33.00 The disbursements would progress as follows, taking into account the advances to the Working Capital Fund and allowing about three months for processing applications. Estimated Progress of Disbursement for Project Loan (US$ million) 1981 1982 1983 1984 1985 Gross Disbursements 0.8 11.5 9.1 9.2 2.4 TWorking Capital Fund Advance 1.35 0.0 0.0 0.0 -1.3. Net Disbursements 2.15 11.5 9.1 9.2 1.05 Accumulated Disbursements 2.15 13.65 22.75 31.95 33.0  - 32 - 5.18 In order to ensure the prompt initiation of the project, FNCV has prepared the evaluation of subprojects for which contracts would be let in 1981. E. Working Capital Fund 5.19 In the past, the execution of FNCV's annual programs has been impaired by late availability of funds. About 50% of budgeted funds are currently made available during the first nine months of the year and the remaining 50% made available only in the last three months. This practice, combined with unduly slow proceduTes for vetting and liquidation of payments to contractors, has led to shortfalls in work carried out against works planned. An aggravating factor for externally financed projects is the fact that FNCV's budget provides only for the local components. While awaiting disbursements which can take several months, FNCV has had to advance out of its own funds the externally financed part of the cost. The above-mentioned factors point to a serious liquidity problem which has had a particularly disruptive impact on projects relying on small contractors who do not have the financial strength to sustain long delays in payments. Numerous small contractors (about 200) would be engaged in the implementation of the project. The prompt availability of funds is therefore essential for the success of the proposed project. The project would consequently provide for the establishment of a Working Capital Fund supplied by advances to cover payments to contractors, while reimbursement applications are being processed. 5.20 Project funds would be managed by FNCV through a Working Capital Fund established as a separate bank account. The Fund would be utilized exclusively for project expenditure related to construction and rehabilitation work, including contracts for engineering civil works and supervision. The inflow of the project would consist of counterpart contributions (55%) and the proceeds of the Bank loan (45%). The Fund would start up with an initial amount of US$3.0 million equivalent estimated to cover the needs during the first four to six months of the project. FNCV's initial contribution would be US$1,650,000 equivalent. The Bank-s contribution would be disbursed as follows: (a) the first Bank disbursement of US$1,350,000 equivalent for a startup would be made upon receipt of adequate documentation indicating that: (i) the Fund had been established; and (ii) the Government had completed all actions necessary to contribute its corresponding share (US$1,650,000 equivalent). The Government would have 30 days to fulfill this commitment; in the meantime, FNCV would finance works (including the Government-s share) with the Bank's advance; (b) subsequent releases of Bank funds, based on certified statements of expenditures, would be conditioned upon: (i) the Government having fulfilled its previous payment commitments to the Working Capital Fund, and (ii) the Government's commitment to contribute its corresponding share, i.e., 55% of total expenditures within 30 days of the Bank's subsequent releases; and (c) once disbursements for construction and rehabilitation reach US$21 million, i.e., 88% of the corresponding allocation under the loan, the Bank's disbursement percentage for project expenditures paid out of the Fund would be reduced from 45% to 25% to recoup the initial startup contribution.  - 33 - 5.21 As disbursements are made from the Fund, FNCV would submit periodic reimbursement requests to the Government and to the Bank. It would be a condition for loan disbursement for the civil works component that a Working Capital Fund, on terms and conditions satisfactory to the Bank, had been established and that the Government had completed all actions necessary to contribute its initial obligation to the Fund (US$1,650,000). In addition, assurances were obtained during negotiations that the procedures, terms and conditions of the operation of the Working Capital Fund would not be changed or waived without prior Bank approval and that by February 28 and August 31 of each year, FNCV would agree with the Government and the Bank on the funding requirements for the next six months. However, at the request of the borrower, the Government or the Bank, policies and procedures of the Working Capital Fund would be reviewed to adjust its operation and/or size to the needs of the project. F. Monitoring 5.22 Semi-annual consultations would be held in January and September of every year to discuss FNCV's overall program and budget and to review the progress of the loan. Monitoring and supervision of the proposed subsector project would focus on the following four areas: (a) The evolution of FNCV's program and its compatibility with the Government's long term strategy reported annually in advance of the September consultation; (b) The progress made in pursuing a balanced construction, rehabi- litation and maintenance policy; (c) The implementation of eligible subprojects. In preparation for the September consultation, FNCV would prepare: (i) a complete file and economic studies for all eligible sub- projects to be carried out the following year; and (ii) an assessment of overall progress and common problems; in particular, the monitoring of key parameters used in the economic evaluation of previous roads. (d) The commitment and disbursement of loan f'unds. FNCV would: (i) prepare monthly expenditure statements; (ii) send applications for advances to the Working Fund when required and permitted by the Working Fund mechanism; (iii) send monthly Working Fund statements; (iv) send quarterly reports with summaries of expenditures and physical progress on all eligible subprojects; and (v) send a semi-annual review and update of a commitment schedule in which existing and project'ed contract commitments are set forth in order to achieve target disbursements as indicated in paragraph 5.17.  - 34 - The preceding monitoring arrangements were discussed and confirmed during negotiations. 5.23 The Bank would take the following measures to ensure proper execution of the project: (a) review and approve ex ante the eligibility of subprojects; (b) review and approve ex post a sample of about 10% of the final engineering and tender documents for subprojects; (c) review ex ante award decisions worth US$700,000 or more and review ex post a sample of about 10% of contract awards worth less than US$700,000; and (d) review quarterly progress reports and other pertinent information, in particular the building of the portfolio and the progress of commitments and disbursements. 5.24 FNCV would keep records of all tenders and contractual documents and official decisions pertaining to each eligible subproject. FNCV would prepare quarterly reports of approved contracts for each subproject, showing total ex- penditures to date, monthly payments and basic administrative data. At the end of the implementation of the subsector project, FNCV would prepare a project completion report. The Bank would reserve the right to inspect and review the documentation maintained by FNCV and the right to be sent specific portions of the detailed records. This arrangement was confirmed during negotiations. G. Economic Justification of the Subsector Project 5.25 Agricultural productivity cannot increase significantly where access roads are impassable or non-existent, where transport costs are high, and where ability_to get to the markets is uncertain. Under these conditions, there are neither the means nor the incentives to produce a surplus. The proposed project is geared to help in solving these problems which, despite past efforts, still exist. The project would help to integrate micro-regional transport networks and to correct imbalances in the road infrastructure, thereby providing savings to existing traffic as well as improved access for the rural population. The project would also help to make important advances toward improved maintenance of rural roads. Improved accessibility increases rural contact with services provided by Government agencies and private sources, including extension services, medical and veterinary coverage, marketing cooperatives, credit agencies, and equipment suppliers. 5.26 A rate of return has not been calculated for the proposed project because the subprojects to be included in the program have not yet been identified. However, the roads to be financed under the program would have to yield a minimum economic rate of return of 11%. The sample of eight roads already prepared shows an average economic rate of return of 37%. This is representative of the roads under the 1981-1984 program and, more specifically, of the subprojects to be financed by the proposed Bank loan. The two-stage process for selection of subprojects would ensure that priority subprojects are addressed first with due consideration to the need to achieve regional balance among the various Departments. The arrangement for reevaluating subprojects in cases when the tender price surpasses the initial cost estimates by more than 20% (para 5.06) provides an adequate guarantee against the risk of overdesigned or unjustified projects.  - 35 - 5.27 Road maintenance costs have been included in the economic evaluation of subprojects. No specific evaluation of maintenance as such has been carried out for lack of proper road inventory. However, experience from similar programs in Colombia (Seventh Highway Project, 1977) and other Aindean countries (Ecuador, Sixth Highway Project (1980)) suggests that the proposed measures to initiate adequate maintenance on FNCV's network would have a ret:urn well above 40%. 5.28 Benefits of the proposed project are expected to accrue mostly to farmers in the areas of influence of the roads built, or to consumers, since the transport industry in Colombia is competitive. The country as a whole would benefit from an improved rural well-beinlg. H. Assessment of Risks 5.29 FNCV's budget estimates for its 1981-1984 program have been carefully reviewed and are considered conservative. The estimates do not reflect a risirg trend in gasoline price, which would increase the resources available to FNCV. The amount of the loan has been set prudently below the potential disbuirsement basis. There is no serious risk that FNCV-s program would not provide a sufficient basis to commit and disburse the loan as scheduled. The wide range of subprojects and the flexibility afforded in the commitment of loan funds, together with the Working Capital Fund mechanism, should prevent a situation wherein the loan would be tied to a relatively small number of large subprojects stretching over an extended completion period. 5.30 The efficient execution of the project rests on the capacity of FNCV, whose ongoing performance under the DRI Project (Loan 1352-CO) is satisfactory. Considering the needs of the country in the field of rural road conslruction, rehabilitation and maintenance, it is unlikely that FNCV would run out of projects with a satisfactory rate of return. VI. AGREEMENTS REACHED AND RECOMNENDATION 6.01 During negotiations, agreement was reached with the Government and FNCV on the following: (a) FNCV to inform the Bank by June 30, 1982 about its staffing policies and afford the Bank a reasonable opportunity to comment (para 3.17); (b) FNCV's inventory of the status of its network to be completed by November 30, 1981 and to be updated annually by June 30 of each subsequent year (paras 3.19 and 4.18); (c) MOPT to repair FNCV's equipment in MOPT-s workshops (para 3.31); (d) FNCV to follow a policy to achieve a balance between the new construction, rehabilitation, and routine maintenance (para 4.06); (e) the "peon caminero" routine maintenance concept to be implemented (para 4.17);  - 36 - (f) control of maintenance and rehabilitation equipment under the loan to be retained by FNCV's headquarters in Bogota (para 4.18); (g) maintenance planning responsibilities to be assigned within the Physical Programing Division of FNCV no later than June 30, 1981 (para 4.18); (h) an equipment and spare parts scrapping program to rid FNCV of 47 units of equipment by December 30, 1981 and 52 units by September 30, 1982 (para 4.19); (i) FNCV to reorganize its internal information processing system, strengthen its decentralization process and upgrade its technical capability (para 4.20); (j) a working group to be established by June 30, 1981 to improve FNCV's technical operation (para 4.23); (k) requirement for subproject eligibility and the related documen- tation (para 5.06); (1) list of equipment (paras 5.07 and 5.09); (m) FNCV to employ, no later than January 1, 1982, consultants for the technical assistance, and terms and conditions of employment to be satisfactory to the Bank (para 5.08); (n) limitations on force account work (para 5.14); (o) targets for implementation of Bank-financed subprojects (para 5.17); (p) procedures for the Working Capital Fund not to be changed or waived without prior Bank approval (para 5.21); (q) the nature and timing of the semi-annual discussions and updating of FNCV budget estimates (para 5.22); and (r) maintenance of records (para 5.24). 6.02 Establishment of a Working Capital Fund would be a condition for disbursement under the civil works component of the loan (para 5.21). 6.03 Subject to the above, the project provides a suitable basis for a Bank loan to FNCV of US$33.0 million equivalent; the terms would be 17 years including a four-year grace period. March 9, 1981  COLOMBIA RURUAL ROADS PROJECT National and International Passenger and Freight Transport International Freight National Freight Transport Transport National Passenger Transport International Ton/km (millions) Ton (thousands) Pass/km (millions) Passenger Coastal Transport Year Road Rail River Shipping Air Sub-total Sea(l) Air Sub-total Road Rail River Air Sub-total Pass(thousan 1970 10,285 1,473 1,545 786 85 13,874 2,599 20 2,619 7,637 249 1 2,067 9,954 467 1971 10,879 1,150 1,319 843 79 14,270 2,709 25 2,734 8,055 281 7 1,953 10,296 524 1972 11,726 1,198 1,451 2,116 121 16,612 2,652 28 2,680 8,114 398 4 2,273 10,789 596 1973 12,559 1,331 2,003 2,482 124 18,499 3,068 31 3,099 9,223 427 4 2,539 12,195 685 1974 13,316 1,329 2,585 3,240 152 20,622 3,227 46 3,273 9,735 482 4 2,702 12,923 815 1975 13,824 1,139 2,400 2,398 144 19,905 2,864 48 2,912 10,179 523 4 2,870 13,576 891 1976 14,461 1,159 1,609 2,535 138 19,902 2,696 51 2,747 10,199 511 5 3,226 13,941 966 1977 15,158 1,215 1,820 2,650 146 20,899 3,500 71 3,571 10,709Q 39 4 1-664 149769 l;041 197% 16,507 1,232 1,402 2,195 155 21,491 3,808 93 3,900 11,244 342 4 4,213 15,803 1,140 1979 17,332 1,105 1,400 2,300 n/a 4,689 120 4,809 11,807 322 4 n/a 1,260 * Estimate (1) Excludes freight handled in private ports. Source: MOPT February 1981  COLOMBIA RURAL ROADS PROJECT Public Sector Investments in Transport (1972-1978) (millions of current Col$) Inland Year Roads 1/ (%) Rail (%) Water (%) Airports (%) Sea-ports (%) Total (M) 1972 2,576.7 (81.7) 289.4 ( 9.1) 65.6 (2.1) 172.5 ( 5.5) 50.9 (1.6) 3,155.1 (100) 1973 2,746.8 (81.1) 299.2 ( 8.8) 78.7 (2.3) 211.0 ( 6.2) 49.5 (1.5) 3,385.1 (100) 1974 3,363.2 (73.6) 343.8 ( 7.5) 123.9 (2.7) 660.1 (14.5) 77.0 (1.7) 4,568.0 (100) 1975 3,335.7 (68.9) 540.5 (11.2) 162.7 (3.4) 651.9 (13.5) 153.8 (3.2) 4,844.6 (100) 1976 4,752.2 (80.1) 465.2 ( 7.8) 277.4 (4.7) 169.1 ( 2.8) 271.8 (4.6) 5,935.7 (100) 1977 6,016.3 (83.2) 3B2.3 ( 5.3) 231.4 (3.2) 433.6 ( 8.0) 169.7 (2.3) 7,233.2 (100) 1978 6,439.7 (83.1) 271.7 ( 3.5) 216.8 (2.8) 506.0 ( 6.5) 315.1 (4.1) 7,749.4 (100) 1979 9,482.4 (78.2) 79.9 ( 0.6) 420.0 (3.5) 1,531.3 (12.6) 619.7 (5.1) 12,133.4 (100) 1/ Includes national highways, departmental and rural roads. Source: DNP and MOPT September 1980  _ 39 - TABLE 1.3 COLOMBIA RURAL ROADS PROJECT World Bank Group Involvement in Colombian Transport Highways Loan 43-CO 1951 US$ 16.50 First Highway Project Loan 84-CO 1953 US$ 14.35 Second Highway Project Loan 144-CO 1956 US$ 16.50 Third Highway Project Credit 05-CO) 1961 US$ 19.50) Fourth highway Project Loan 550-CO 1968 US$ 17.20 Fifth Highway Project Loan 680-CO 1970 US$ 32.00 Sixl:h Highway Project Loan 1471-CO 1977 US$ 90.00 Seventh Highway Project US$ 225.55 Rural Roads Components of Agriculture Projects Loan 739-CO 1971 US$ 3.80 Caqueta I Project Loan 849-CO 1972 US$ 1.60 Second Atlantico Project Loan 1118-CO 1975 US$ 5.90 Caqueta II Project Loan 1163-CO 1975 US$ 5.10 C6rdoba II Project Loan 1352-CO 1976 US$ 3.50 Int(egrated Rural Dev. Project US$ 19.90 Railways Loan 68-CO 1952 US$ 25.00 First Railway Project Loan 119-CO 1955 US$ 15.90 Second Railway Project Loan 267-CO 1960 US$ 5.40 Third Railway Project Loan 343-CO 1963 US$ 30.00 Fourth Railway Project Loan 551-CO 1968 US$ 18.30 Fifth Railway Project Loan 926-CO 1973 US$ 25.00 Sixth Railway Project US$ 119.60 Aviation Loan 1624-CO 1978 US$ 61.00 Domestic Aviation Project Pipelines IFC-R76-66 1976 US$ 13.00 Loan to PROMIGAS, S.A. US$ 2.00 Equity in PROMIGAS, S.A. US$ 15.00 TOTAL US$ 441.05 Source: IBRD, Transport Sector Survey, 1979 September 1980  COLOMBIA RURAL ROADS PROJECT Colombian Road Network (1979) (km) Primary Secondary and Rural Roads Total Paved Unpaved Total Paved Unpaved Total Paved Unpaved Total National 7,900 2,600 10,500 - 12,500 12,500 7,900 15,100 23,000 DepartmentaLl - - - 1,000 30,000 31,000 1,000 30,000 31,000 FNCVI/ - - - 11,200 11,200 - 11,200 11,200 Private!- - - - - 2,000 2,000 - 2,000 2,000 Total 7,900 2,600 10,500 1,000 55,700 56,700 8,900 58,300 67,200 1/ Estimated length Source: MOPT, FNCV September 1980 . s~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~-  COLOMBIA RURAL ROADS PROJECT National Highwa- Fund Reenue- (1970-1979) 1970 1971 1972 1973 1974 1975 1976 1977 1978 1979 G..ol.ne crT 767,382 932,700 1,200,400 1,l88,927 1,207,394 1,654,494 2,674,785 3,351,971 4,708,407 8,095,27? Govern,ent contribution 313,641 280,249 101,870 94,759 55,013 684,251 178,017 920,786 629,293 1,915,701 I8RD Projects 53,739 200,686 163,828 93,958 22,426 19,996 230 - - 3,276 IDB Projects 60,970 131,841 179,963 143,601 128,737 23,657 35,526 38,364 188,646 23,171 FONADE -ontracts - - 1,303 16,292 28,317 29,136 15,602 - - - US Government donation for Inter-American Highway - - - ,3830 253 - 3,014 - - _ Owo Resources 47,737 49,800 98,795 61,068- 78,229 111,848 117,845 161,442 182,883 216,935 Previous Balance carry-over 125,140 45,886 - 276,325 266,459 43,583 - 25,284 26,517 48,042 Dutch Gnver-nent credit - - - _ - - 111,642 Sub-Total 1,368,605 1,641,162 1,746,159 1,886,510 1,786,828 2,566,965 3,076,661 4,497,847 5,735,796 10,302,417 Unappropriated Revenues 1/ 186,044 315,643 400,139 295,129 888,759 158,103 610,568 197 434 883,369 (33.045) TOTAL 1,554,653 1,956,805 2,146,298 2,181,639 2,675,587 2,725,068 3,687,229 4,695,281 6,119,115 10,269,372 Nati o.a 1 Highwy FPnd Expenditure8 (1970-1979) (Tho....od of it- UMl179 19791. 1971 1972 1973 1974 1975 1976 19577 1978 1979 Stodi-e end Techei-al lerricco 26,759 27,301 27,921 55,837 85,123 60,508 119,261 93,951 49,809 68,393 Bridge6 67,062 86,475 72,850 8b,844 86,124 132,688 100,841 85,166 97,265 183,033 Trunk Highways (North-So-th) 461,577 452,101 500,724 486,828 482,047 410,160 696,871 899.611 708,554 850,603 TC,-k lcigl5ay (9a-t-w-st) 132,236 187,630 214,446 288,018 367,134 368,829 379,506 483,661 1,024,510 1,031,619 Other High-ay6 107,608 103,273 131,953 153,646 196,500 233,148 164,515 326,552 590,445 660,049 Access to citlso 21,052 47,992 57,982 57,936 107,868 23,918 53,232 252,645 269,476 265,564 P-ian P-rgram- 133,023 220,526 277.295 178,680 107,782 223,348 414,182 245,622 416,360 581,569 Hydreolir Works 42,119 44,740 6,59S2 78,671 123,868 162,732 277,416 231,360 216,816 419,905 Irhabtliteti.o - - - - 92,792 716,938 383,980 958,791 Highway Meiot-oa-cr 425,788 515,210 561,354 53P,984 780,2Z5 871,887 966,112 1,352,351 2,354,794 3,935,009 Other Epe-ditur 13,930 62,865 32,li7 S129 _56,246 39,564 249,14i 156_689 73 -1_ 433,126 Sub-Total 1,431,153 1,788,114 1,942,394 1,931,173 2,492,925 2,526, 782 3,513,869 4,344,546 6,1b5,442 9,08/,751 Coott-ihbttos to Nati-1ol Feeder Roads Food 123,50 168691 104,104 249,466 18262 198286 1735360.35 433.673 881,621 TOTAL 1,554,653 1,956,805 1,146,298 Z,1&1,339 2,675,587 2,725,068 3,687,229 4,695,281 6,619,115 10,269,372 1/ Difference between appropriated rovevn-e nod actual cope-ditore- norm6lly financed with sobuequ-ot year's budgetary appropriatio-. Soure.: MOPT Septerdber 1980  COLOMBIA RURAL ROADS PROJECT Evolution and Composition of Regular Gasoline Prices (1971-1979) (Col$ per gallon) Refinery Taxes Transportation Distribution Price Highway Sales Departmental and Wholesale Retail Price Fund Handling June 1971 1.31 1.44 0.16 0.04 0.13 0.16 0.18 3.42 January 1975 1.31 1.44 0.16 0.04 0.13 0.21 0.18 3.47 January 1976 1.77 1.96 0.28 0.04 0.48 0.32 0.30 5.15 January 1977 3.03 3.39 0.60 0.04 2.06 0.46 0.42 10.00 January 1978 3.46 3.88 0.73 0.04 2.82 0.50 0.57 12.00 October 1978 5.06 5.69 0.92 0.04 3.04 0.60 0.65 16.00 March 1979 5.06 5.69 1.30 0.04 6.41 0.75 0.75 20.00 July 1979 5.06 5.69 1.84 0.04 11.65 0.85 0.87 26.00 May 1980 8.07 9.10 2.48 0.04 12.05 0.98 1.28 34.00 October 1980 11.00 12.42 2.87 0.04 14.97 1.16 1.54 44.00 Source: MOPT, Planning Office December 1980  - 43 TABLE 3.1 COLOMBIA RURAL ROADS PROJECT FNCV's Road Construction (1961-1979) Roads Started by Roads Built others and finished FNCV by FNCV (km) (km) Departamentos - Antioquia 1,265 463 Atlantico 148 82 Bolivar 122 151 Boyaca 900 495 Caldas 456 107 Cauca 386 576 tesar 127 13 Cordoba 280 177 Cundinamarca 566 98 Choco 28 65 Guajira 206 83 Huila 400 107 Magdalena 54 73 Meta 606 440 Narifio 78 500 Norte de Santander 9 195 Quindio 66 66 Risaralda 328 70 Santander 576 500 Sucre 215 21 Tolima 523 232 Valle 157 305 I[ntendencias - Arauca 4 - Caqueta 209 518 Casanare 77 - Putumayo 40 San Andres - - Comisar{as - Amazonas 36 - Guarania 20 - Guaviare 8 - Vaupes 5 Vichada 67 - T o t a 7,962 5,337 Source: FNCV September 1980  - 44 - TABLE 3.2 COLOMBIA RURAL ROADS PROJECT FNCV Road Construction (1975-1979) (kmn) Drainage Equivalent Survey Earthworks Works Gravelling Length 1/ 1975 1,007 581 516 510 553 1976 1,725 1,126 795 644 948 1977 766 812 631 723 767 1978 554 534 526 441 504 1979 486 978 748 700 871 1/ Assuming that the equivalent length of road construction for 1 km of earthworks, drainage works and gravelling equals 0.6 km, 0.1 km and 0.3 km respectively. Source: FNCV September 1980  - 45 - TABLE 3.3 COLOMBIA RURAL ROADS PROJECT Small Contracting Industry Characteristics (1) Financial Capability Total Number of Legal Range of Average Value Annual Capability 21 Class Contractors Contract Value of Contract 1/ (US$ million) (June 1980) (million Col $ 1978) (US$ 1980) (1980) No. % I 323 30 5 250.000 81 II 295 28 2 - 5 90.000 27 III 145 14 0 - 2 75.000 11 IV 300 28 0 - 0.3 7.000 2 1063 100 121 (2) Equipment Capability /Renewal Class Buldozer Grader Loader T'ip Truck Value US$ J. 1 1 1 6 300.000 1 4 150.000 II-[ 1 2 100.000 IV Concrete mixing plant only 5.000 Average (excluding Class IV) 200.000 11 Information obtained from 105 contracts managed by FNCV in 1979. 2/ This capability is shared equally by FNCV and the Departments. About 5% is used by the private sector. 3/ Additional equipment must be rented. Source: FNCV and Mission Estimates September 1980  - 46 - TABLE 3.4 page 1 COLOMBIA RURAL ROADS PROJECT FNCV's Budget Implementation (1971-1979) (in constant 1971 Col$ million) Approved Received Executed Budget Budget Budget 1971 503.6 n/a 296.1 1972 701.1 n/a 359.0 1973 578.4 n/a 266.7 1974 329.3 n/a 165.6 1975 233.8 174.6 142.1 1976 247.0 166.2 120.3 1977 325.7 213.9 160.6 1978 463.2 253.0 186.3 1979 576.2 396.2 240.7 Source: FNCV September 1980  - 47 - TABLE 3.4 page 2 COLOMBIA RURAL ROADS PROJECT FNCV's Budget Implementation (1971-1979) (in cur-rent Col$ million arnd US$ million) (1) (2) (2).(l) ~~~ ~ ~~~~(3) (3) .(2) Allocated Budget Received Budget I, Executed Budget Col$ (US$) C(%)M) Col$ (US) () 1971 503.6 (25.0) n/a 296.1 (16.8) 1972 773.3 (35.0) n/a 396.4 (18.0) 1973 749.7 (31.4) n/a 345,6 (14.5) 1974 589.4 (21.8) n/a 296.9 (11.0) 1975 505.7 (16.2) 377.7 (12.1) 74.7 307.6 ( 9.8) 81.4 1976 649.3 (18.5) 436.8 (12.5) 67.3 315.4 ( 9.0) 72.2 1977 1022.4 (27.6) 671.6 (18.2) 65.7 504.1 (13.6) 75.1 1978 1730.1 (43.6) 945.0 (23.8) 54.6 695.9 (17.6) 73.6 1979 2766.7 (64.0) 1909.5 (44.4) 69.0 1159.8 (27.0) 6Q.7 1/ It is estimated that about 50% of these funds are received by FNCV in the last quarter of each year. Source: FNCV September 1980  COLOMBIA RURAL ROADS PROJECT FNCV's Equipment Fleet as of Sept. 1980 Age (YearS) 27.5 17.5 12.5 7.5 2.5 Total Conditiol 1/ G B R G B R G B R G B R G B R G B R Dumptruck 1 6 0 5 6 1 2 0 1 52 13 29 233 0 6 293 25 37 Loader 0 1 1 0 0 4 2 0 0 8 1 8 6 0 0 14 2 13 Bulldozer 1 7 5 15 14 23 0 1 3 7 1 4 14 0 0 37 23 35 Agr. Tractor 0 0 0 0 0 0 0 0 0 14 0 3 0 0 0 14 0 3 Grader 0 2 0 0 1 1 1 1 0 11 0 7 34 0 0 46 4 8 Compactor 0 00 0 0 0 0 0 0 16 0 3 0 0 0 16 0 3 Compressor 0 2 0 2 1 1 3 1 4 2 0 0 0 0 0 7 4 5 2 18 6 22 22 30 8 3 8 110 15 54 285 0 6 427 58 104 Total as of 26 74 19 179 291 589 Sept. 1980 1981 Scrapping 18 20 5 4 0 47 1982 Scrapping 8 35 5 4 - 52 Total Scrapping 26 55 10 8 0 99 1) G= Good B= Bad R= Under repair Source: FNCV September 1980  - 49 - TABLE 4.1 COLOMBIA RURAL ROADS PROJECT Tentative 1981-1984 Financial Program (US$ million) I. Investment 1981 1982 1983 1984 Total A. iNew constructions DRI I 9.58 - - - 9.58 DRI II 0.70 2.21 4.59 4.54 12.04 Pico-Pala 4.00 7.00 9.00 7.00 27.00 Rural Road Project 3.12 6.24 1Lo.21 14.81 34.38 Ordinary program 4.50 3.30 3.40 3.40 14.60 Sub-Total 21.90 18.75 27.20 29.75 97.60 B. Rehabilitation DRI II 0.35 1.10 2.30 2.32 6.07 Rural Road Project 1.56 3.29 5.10 7.25 17.20 Ordinary program 2.90 3.06 4.86 10.00 20.82 Sub-Total 4.81 7.45 1L2.26 19.57 44.09 C. Studies DRI II 0.06 0.10 0.14 0.08 0.38 Rural Road Project 0.29 0.30 0.43 - 1.02 Ordinary program 0.10 0.26 0.15 0.15 0.64 Sub-Total 0.45 0.64 0.72 0.23 2.04 Total Investment 27.16 26.84 40.18 49.55 143.73 II. Maintenance A. Equipment Rural Road Project - 7.41 2.65 - 10.06 Ordinary program 1.00 - - - 1.00 B. Routine Maintenance - - - - - Ordinary Program 0.05 0.37 0.73 1.23 2.38 Total Maintenance 1.05 7.78 3.38 1.23 13.44 III. Administration Management design supervision 19.47 17.07 14.48 15.81 66.83 Debt Servicing 0.51 0.52 0.36 0.35 1.74 Sub-Total 19.98 17.59 14.84 16.16 68.57 Total 48.19 52.21 58.40 66.94 225.74 Source: FNCV, Mission estimates September 1980  - 50- TABLE 4.2 COLOMBIA RURAL ROADS PROJECT Origin of Resources for the 1981-1984 Program (US$ million) 1981 1982 1983 1984 Total % Resources FNCV own resources 1.10 1.05 0.96 0.96 4.07 1.8 FONADE 0.29 0.42 0.19 - 0.90 0.4 DRI I 9.58 - - - 9.58 4.2 DRI II 1.11 3.41 7.03 6.94 18.49 8.1 IDB 2.80 4.90 6.30 4.90 18.90 8.4 Highway Fund 31.01 31.30 34.53 43.96 140.80 62.5 Sub-Total 45.89 41.08 49.01 56.76 192.74 85.4 Rural Road Project 2.30 11.13 9.39 10.18 33.00 14.6 Total 48.19 52.21 58.40 66.94 225.74 100 Percent 21 23 26 30 Source: FNCV, National Planning Office, Mission estimates September 1980  - 51 - TABLE 4.3 COLOMBIA RURAL ROADS PROJECT Tentative 1981-1984 Physical Program (km) Investment 1981 1982 19i83 1984 Total New Construction DRI I 275 - - - 275 DRI II 15 45 9i0 90 240 IDB 95 140 160 105 500 IBRD 70 140 210 290 710 FNCV 100 70 710 60 300 555 395 530 545 2,025 Rehabilitation DRI II 15 45 90 90 240 IBRD 70 140 2L0 290 710 FNCV 130 130 200 400 860 215 315 500 780 1,810 Total 770 710 1,030 1,325 3,835 Routine Maintenance FNCV 100 740 1,410 2,330 4,580 Studies DRI II 45 75 105 60 285 IBRD 210 210 290 - 710 FNCV 70 170 100 100 440 Total 325 455 495 160 1,435 Source: FNCV and Appraisal mission September 1980  - 52 - TABLE 4.4 COLOMBIA RURAL ROADS PROJECT Design Standards Specification Type of Terrain Special Class Class I Class II Fifth year traffic (ADT) 100 50/100 0/50 F to Hl/ 70 55 40 Design Speed (km/h) H to i/ 60 40 35 M to A/ - 25 20 F to H 180 95 50 Minimum Radius H to M 125 50 35 M to A - 18 15 F to H 4-7 4-7 4-7 Maximum Gradient (%) H to M 4-7 7 7 M to A - 7 9 F to H 410 300 Passing Sight distance (m) H to M 350 200 M to A - 145 F to H 90 60 Staffing Sight distance (m) H to M 70 40 M to A - 20 Right of Way (m) 40 30 30 F to H 9 6-7 4.5-5 Roadway Width (m)&/ H to M 8 6-7 4.5-5 M to A - 5.5-6.5 4.5-5 F to H 6 5-6 3.5-4 Carriageway width (m) H to M 6 5-6 3.5-4 M to A - 3.5-4.5 3.5-4 Bridge design HS 20.40 to be determined Pavement paved gravel spot gravel 17 F to H means from Flat to Hilly terrain H to M means from Hilly to Mountainous terrain, H to A means from Mountainous to Alpine type terrain 2/ Including lateral drainage ditches Source: FNCV, Resolucion 448, April 10, 1975 September 1980  _ 53 _ TABLE 4.5 COLOMBIA RURAL ROADS PROJECT Purchase of Maintenance Equipment (US$) 1982 1983 Total IX2e No. Cost No. Cost No. Cost Jeep 24 163,000 0 - 24 163,000 Dump Truck 120 3,060,000 40 1,020,000 160 4,080,000 Loader 15 810,000 5 270,000 20 1,080,000 Bulldozer (D5 type) 11 517,000 9 423,000 20 940,000 Compactor 22 627,000 0 - 22 627,000 Total & CIF (Cost) 192 5,177,000 54 1,713,000 246 6,890,000 Spare Parts 523,000 187,000 710,000 Total (CIF as of January 1981) 5,700,000 1,900,000 7,600,000 Price Contingencies 740,000 400,000 1,140,000 Total CIF (Bank financing) 6,440,000 2,300,000 8,740,000 Local expenditures (15% CIF) 855,000 285,000 1,140,000 Local contingencies 115,000 60,000 175,000 Total Local expenditures 970,000 345,000 1,315,000 Total 7,410,000 2,645,000 10,055,000 Base Cost 6,555,000 2,185,000 8,740,000 Financial contingencies 855,000 460,000 1,315,000 Total 7,410,000 2,645,000 10,055,000 September 1980  - 54 - ANNEX 1 Page 1 COLOMBIA RURAL ROADS PROJECT Road Selection Methodology 1. This Annex describes the methodology for selecting roads to be constructed or rehabilitated as contained in FNCV's "Manual for Selection of Rural Roads." 1/ It also gives the results of an application of the Manual to eight roads, which was made prior to the appraisal of the project. Project Identification and Selection 2. Representatives from MOPT, FNCV and the Departments meet about twice a year to review regional road programs. The roads to be constructed by FNCV are identified from direct petitions presented by rural communities. There are always far more petitions than resources available. The methodology for selection of roads and preparation of specific subprojects has been prepared by FNCV in close cooperation with the Bank and IDB. 1/ 3. In order to achieve a regional balance in the distribution of its funds, FNCV divides its investment budget among the Departments according to guidelines prepared by DNP, which consider road and population densities. The average allocation is about 4.6% with a maximum of about 10% for the Department of Antioquia and minimum of about 0.7% for the Department of Quindio. The selection of roads to be constructed within each Department follows several stages. First, by using a points system, the most promising roads are preselected for further analysis. These roads are then evaluated in more detail, using the economic rate of return (ERR), and, after discarding roads with an economic return less than the opportunity cost of capital, the remaining roads can finally be ranked, using the social rate of return if desired. 4. The main objective of the first level of selection is to eliminate, at an early stage, roads that have little probability of being selected after the economic analysis has been performed because they are likely to have either large costs or small benefits. Each subproject submitted by the communities is evaluated according to a points system based on information about the terrain, population density, land distribution, potential for increased agricul- tural production, distance to markets, and access to extension services and agricultural credit. This information is obtained during a visit to the communities by an Engineer from FNCV trained for this task. The points allo- cated to the various data are shown in Attachment 1. After adding up benefit- related points and cost-related points, a ratio between the benefit and costs points is calculated and the road projects are ranked in descending order, 1/ Metodologia y Criterios para la Seleccion de Caminos, FNCV Document O.P. No. 031, September 1980.  - 55 - ANNEX 1 Page 2 for further evaluation until the total budget plus an additional 20% is covered. The 20% margin is intended to provide enough roads for construction, in case any of the roads preselected on the basis of the point system should not pass the subsequent rate-of-return screening. 5. In order to proceed with the road evaluation, FNCV would conduct a second visit to the community and would obtain more detailed and precise information on costs of construction, agricultural production and income levels. This is necessary to calculate economic and social rates of return which take into account benefits from increased production as a result of the road and the reduction in transportation cost. These benefits would accrue directly to the rural poor in the form of increased income for their agricul- tural produce. The team that obtains this information would include an engineer, an economist and an agriculture expert. The economic rates of return of the projects are calculated, and a new ranking of projects is obtained. The highest ranking projects can be included in the program for each Department until its "share" of FNCV's investment budget is exhausted. Plrojects with ERRs lower than 11% (the present estimate of the opportunity cost of capital) cannot be retained. The economic evaluation of a subproject is made over a ten-year period. 6. In addition, the social rates of return of the projects, which incorporate the preference of the society for consumption gains accruing to t:he poor, can be calculated and used if desired to establish priorities among roads that have passed the ERR test. The social rate of return used in this methodology is calculated by applying the distribution weights for consumption t:o the flow of benefits from the project according to the standard social accounting approach (Squire/Van der Tak). The distribution weights are de- fined as the ratio between the consumption per capita for the country and the consumption of project beneficiaries before the project. Hence, persons (or groups of persons) with consumption levels below the national per capita level receive distribution weights greater than one, and the social rate of return of a project that benefits them is higher than its economic rate of return. Thus, if the projects benefit persons with different income levels (before the project), the ranking of projects according to their social rate of return teill be different from the ranking according to the ERR. 7. Income levels for the group of beneficiaries, before the project, are estimated using the value of production per capita in the zone of influence, :including agriculture and cattle production, and they are adjusted by an assumed propensity-to-consume of 0.9 in order to obtain consumption values. Since, with the available information, it is very difficult to estimate the income levels exactly, the methodology defines several income categories using the size of the farms. The value of output within each category is calculated ulsing the mean farm size and the average prices and yields for each type of output. The distribution weights are calculated ior the mean of each income ,group, and each weight is applied to the consumption increase of project qbeneficiaries in that income category to obtain a new flow of benefits from the project.  - 56 - ANNEX 1 Page 3 8. Within each Department, the top ranking projects should be selected until the allocated budget is exhausted. FNCV's methodology is simple to apply and allows the use of objective criteria to include, in FNCV's program, projects that favor the poorest groups in the country. Nevertheless, if all communities considered for road projects are in similar situations regarding their income and its distribution, the roads selected using either the economic or the social rate of return are likely to coincide. During the course of the Bank project, the rankings of road projects according to the two criteria would be monitored in order to determine whether the use of social rates of return changes the composition of the road program and, hence, to determine whether its use should continue. 9. During several field visits, FNCV has tested the questionnaires designed to obtain the necessary information for the point system and the calculation of the rates of return. In the process, FNCV has prepared a sample of eight projects which have been evaluated according to their methodology for selection of roads. The project rankings with the point system and the economic rate of return are similar, but they do not coincide entirely. The rankings of projects according to social and economic rates of return are identical, with the sole exception of a project with a relatively large porportion of the population in the high income bracket, which receives a lower ranking with the social rate of return. This fact indicates the potential of using the social rate of return to give priority to projects that benefit the poorest groups. As the number of projects evaluated by FNCV increases, more work to change the weights assigned to several indicators and to improve the quality of information used to calculate the rates of return would be done to improve the correlation between the rankings according to the point system and the rate of return calculations. In the long run, if a good correlation between the point system and the rates of return can be established, it would be possible to facilitate the selection of roads to be constructed by using the point system more exclusively with occasional checks of the ERRs. Application 10. As described in the preceding paragraphs, roads are preselected accord- ing to a points system that uses information from a field visit by the regional engineer of FNCV and compiles it directly onto a working sheet (Attachment 1) to arrive at a "benefit/cost" ratio for the primary ranking. Preselected roads are then subject to a second, more detailed field visit by a team from FNCV consisting of an engineer, an economist and an agriculture expert. The data collected are used for calculating the economic and social returns of the projects. 11. The economic and social returns were calculated for eight roads located in the Departments of Boyaca, Huila and Narino according to FNCV's manual. The results are shown below. Details of the calculations for the Llamadas-La Argelia road are presented in Attachment 2 as an illustration.  - 57 - ANNEX 1 Page 4 Internal Rates of Return % Road Economic Social 1. Reyes Patria-El Infierno 76.8 166.4 2. Puente El Diablo-Sirasi 6.1 6.4 3. Puente Mueche-Escuela Barrancas 10.5 24.3 4. Llamadas-La Argelia 15.6 44.8 5. El Carmelo-El Cerrito 36.4 39.8 6. La Chorrera-Bajo y Alto Frutal 9.3 18.9 7. La Piedra-El Placer 24.9 50.7 8. Santa Maria-Santa Fe 31.1 60.3 12. As could be expected, the application of social pricing raises thie rate of return for all roads. This is natural since the benefits of rural roads normally go to the poorer segments of the population. Ranking the roads according to their rates of return gives the following results: Road Ranking Order Economic Return 1 5 8 7 4 3 6 2 Social Return 1 8 7 4 5 3 6 2 13. From this small sample, only a few conclusions can be drawn. One road, number 5, drops from a second ranking to a fifth position, mainly because of the relative wealth of the area of influence (largely cattle owners) as compared to the areas of the other roads. The relative order of the other roads remains unchanged although the percentage change between economic and social return varies for the different roads. Thus, if the sample were larger, more roads would probably have their ranking order changed. Throughout the project implementation, the results of the use of the Manual will be monitored, and modifications will be made as warranted by the results. January 1981  * - ~~~~~~~~**~~~~~E ~~REGtONA L __ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ EVALUADOR - .. ~ DE CAr,:1NS VEC!NALEs NOVIBRE DE LA VIA _______ _______ FECHA .'OJ DMEL Fm:R NIVEL MLNtCIPIO HOJA No I -S-7 D:A NIECANZADO LDNGITUD ______ ___________ FORMAULAR0~ W*2-2__________________ _________ ________ 1RACARASTERStAS FISICAS P 3 III CARACTERISTICAS ECONOMICAS III CARACTERISTICAS ECONOMICAS P.c 1.1 E)XPLANACION a!3 POTENCIAL CE FRODUCCION ________ ~ riiscm,nI ~ __________ jVFRAUM$E NilVIAS A AENAVILTMAt 5 8 10 all_ 3.tIi-s, d"QjjIJ i WU_ _____ AEP YIl1A! MAm1A et 20.000 IAII/ g 2 7 33 47 MA$ DEL 2U% LE INCLiRI0RACION EEL AREA A AGRICULTURA 1 0 CON MAS DE 3 SERVIC;CIS Of1 0000 A 10,1000 bl'/K~ 9 22 31 ENTRE 10 Y20% DVINCUP.PORACION DEL AREA AAGRICULTLJRA 8 CON 2 0 3 SERVICIOS 2 NENwCA 0C IQOOC0 I45I'- 14_ f7 _I9 _ENTIIE Y MENOS 10% DIE INCOEPORACtON DEL AREA A AGRICULl' 6 CON I SERVIFCIO 1.t *BAS DE DREtAJE MENOS DEL 5% DE INCORPORAI2ION DEL AREA A AGRICULTURA 2VEDA UI-I ALCANT1ARILIA.A 2 3 4 foiki 4c.- lo, ue!ys ___ __ MASSDE LA MITAD CON 2 SERVICIOS2 Ill'-tUEM1C v jOMONis TOP MiL SUELOS TIPO I Y 120 MAD DE LA.MITAD CDII I StWiI ,aUDG OWYft0 LINEAL j.)Ci. SUELOS TIPO III 1 MASDSE LA MITAD SIN NINGIGN SERVICIO ii-AFIR1,414 . SIJELOS TIPO IV Y V I 0 B., PLANES DE DESARROLLO ___________ ACAIRE0MAl0M of' 1(01K. SUELDS TIPO VI8 ACAAAW' OSE A% i5 % SUELOS TIPO VI11 5 MAS DE LA MITAD SE VENEDAS SERVirDAS 4 A(AP4io WI*OR Or 5 Ko.6 SUELOS TIPO VIII 0 MENDS DE LA MITAD DE VEkLIU,S i:RVIDAS--- --- TOTAL CAII.ACTEFtlS7ICAS FISICAS NINIIUN PLAN CI L. A SERVICIOS COMPLEMENTARIOS EXISTENTES Asislonci -TlsEn ca It 'CARACTER'ST1CAS SOCIALES Pissos --~C - dI 24DEMSID~AD DE POSLACION UTILIZACION MAYOIR DEL 70/. 10 MASDSE LA MITAS DE VEREDIAS SERVIDAS I 'MAWOf PE 400 HAli.AIES1 K~s DE VIA IS UTILIZACtOD ENTRE 50OY 70 /% 5 MENDS SE LA MITAD DE VERECAS SEkI.I.f.S *E M4AS DE 25 aA 400 H1A eIANTCS /01 tICV VIA 12 UTILIZACtON MENOR DEL SO % * NINGUN PLAN OE MAV LE ITCA 250 FAS:TANTES/ Km DE VIA 5 PRO FALTA DEL CAMINO 2___________TDNPCCINDL EL-O _______ DE SO A 100 NASITA-TES/ K. DC VIA 2 PRO OTRAS CAUSAS 0 I MAS DE LA MITADJ DE VEREDAS SERVIDAS MENOS DE aD I4ASITAN1ES/K1m DE VIA 0WIzEd enc MENDS DIE LA MITAD DE VERESAS SERVIDASI 2 2 CISTftIsuclC- rE LA TIERRA __SENI ELIANINGUN PLAN 0 IJILIZACION MAYOR DEL 70% 3 __ lr~tuI~L __________ EL SD% C FIA3 rEL SOICLS ERd PRIDIO2 MENONES CC 10 "A. 15 UTILIZACION ENTRE 5D Y 7 0%- 2 MASDSE LA MITAD DE VEI1EDAS CON 3 PLANES 0 MA3 ELC% DM.AS DCLSJE~G EN4 PREDIOS ENTRE ICY SO K~A. 12 UTILIZACION M,ENOR DEL SON' % LA MITAD SE VEREDAS CON 2 PLAtiES ' EL SD/. 0 I/AS DEIL S,E..O EN PFKDIOS MAYORCS OilS M0 A. 5 POR FALTA DEL CAMINIO MENDS DE LA MITAD DE VEIIEDAS CON I PI-AN RNDRSCUA . ---- S5 E,. O0% a gAAS DEL SUELS E RDO MtNORED DIE go MA 5 TLZCOIITUO 2MNAE EL.. 40% 0 'lAS DEL SOILr, EN PREEDS0 ENjTRC SOY 100 HA 12 UTILIZECdON MAYOPR DEL 70 % 5 QIS?oncin EL 40 % 0 14A3 DEL S51E, EwI 1`11MCS M4AYOR(S DE 1OONA 5UTILIZACION ENTRE SD5 70 ?o 3 MENOR DE S K.- 7! TOTAL CkEAC1T9RISTICAS SbrCIALES UTILIZACION IIENOR DEL SD '.6 DE 5 A 12! Km~. - PFOR FALTA CLE. CAMIA11O 2 CIE 1IAA ?O K.. 2 PUN III-Ai c/l iAT`( 1.0/I D 20 0  III CARACTERISTICAS ECONCNVCAS &UhlA N0 2 ~~~~~ ~~~~VIA RELACION INDICADOR BENEFICIO- COSTO - -loll _______ ________ _ 10 CARACTERISTICAS SOCIALES -t- ECONOMICAS tITdI SO 1 70 lo. - __ ____ _____________ __ __ CARACTERISTICAS FISICAS ie'rte 'L O so * 4 TUIrAL. CARACTCeLIS T If COAISO _ ACEPTADO Sl 0 _-_N O FoAS *A Al Co ificar Servicios Comunoles existentes en los veredas rem(tose a Plones de Desarrollo (introestructura). Compare puntojes y osigne eI mayor valor de tos ds, onotoe uno X en el meror sa or paro ev,ter la doble computociOn. * Si lo u'zoac&n de Ios Seroicios CompliBmentarlos exlstentes es inferior a] 50"! por alguna de los cousos onotodos rem(toso a Planes de Desorrollo. Compore punroles y osigne el rmaOMr volor de I's cts, anota una X on el menor valor pora evitor doble computocion. OBSERVACIONES . _ 00 -- ___o So. ______. I jikis Section Planwion y Estudios SocketenomIcos ~~~~Jefe Oficino de Ploneocion  - 60 - ANNEX 1 Attachment 2 Page 1 COLOMBIA RURAL ROADS PROJECT Evaluation of the road from Llamadas to La Argelia This case study summarizes in abbreviated form the evaluation of one of the eight sample roads prepared for the appraisal of the project. The full evaluation of all eight sample roads are in the Project File. Road Length: 8 km Area of Influence: 5,600 ha Terrain: Mountainous 69%; Rolling 27%; Flat 4% Geology: Earth 27%; Conglomerate 24%; Rock 49% Culverts: 9 per km Population Density: 30-60 families per vereda 6- 8 members per family Land Distribution: less than 10 ha per farm 60% 10-20 ha per farm 30% more than 20 ha per farm 10% without project with project Land Use in Area: agriculture 30% 39% of Influence: cattle 30% 29% unused 40% 32% Soil Type: 7 (according to soil map for Colombia) J  -61- ANNEX 1 Attachment 2 Page 2 Main Crops: Maize 26%, Frijol 17%, Lulo 9%, Sugar Cane 7%, other 41% Agricultural Credit: used by 50-70% of the farmers Fertilizer: used by 50-70% of the farmiers Distance to market: 26 km Transportation cost: Col$ 200 per ton-km by donkey Col$ 13 per ton-km by truck Benefit Points: 54 Cost Points: 51 Point Ratio: 1.06 without with(in year 6) Yield:(kg/ha) 1,000 1,250 for maize 250 350 for frijol 1,250 1,875 for other Acreage Cultivated: (ha) 1,680 2,200 Agricultural Production (ton) 975 1,707 ERR Calculation Invest- Net Benefit Benefit ment of production of transport Maintenance Net Year Cost increases Cost Savings Cost Benefits Col $ Col $ Col $ Col $ Col $ 1 24,644 - - - (-24,644) 2 348 1,290 672 966 3 1,394 1,369 672 2,090 4 3,835 1,650 672 4,812 5 6,275 1,738 672 7,341 6-10 6,972 1,791 672 8,091 ERR 15.6%  -62- ANNEX 1 Attachment 2 Page 3 Social Rate of Return Calculation Total Distri- Number of Family Production Consumption Consumption bution Farm Size (ha) Farms Size per farm per farm per capita weight 2/ Col $ Col $ 1/ Col $ Less than 10 102 8 14,464 13,017 1,627 27.7 10-20 52 8 62,676 56,408 7,051 6.4 21-50 67 7 159,100 143,190 20,456 2.2 More than 50 44 7 265,168 238,651 34,093 1.3 Net Consumption Social Farm Size (ha) Increase Benefits 3/ Col $ Col $ Less than 10 376 10,429 10-20 753 4,804 21-50 2,447 5,384 More than 50 2,698 3,562 Total 24,179 Invest- Benefit ment Social of transport Maintenance Net Year Cost Benefits Cost Savings Costs Benefits Col $ Col $ Col $ Col $ Col $ 1 24,644 - - - (-24,644) 2 1,209 1,290 672 1,827 3 4,836 1,369 672 5,533 4 13,298 1,650 672 14,276 5 21,761 1,738 672 22,827 6-10 24,179 1,791 672 25,297 SRR 44.8% 1/ Propensity to consume is assumed at 0.9 of production 2/ National average consumption level Col$45,000 divided by consumption per capita 3/ Net consumption increase multiplied by distribution weight  - 63 - ANNEX 2 Page 1 COLOMBIA RURAL ROADS PROJECT Outline Terms of Reference for Technical Assistance Consultants will be employed for (a) Study of FNCV's Data Collection and Processing System (b) Study of FNCV's Organizational Structure 1. Introduction The 1981-1984 FNCV plan is part of a ten year strategy designed to provide for a balanced works program. An integral part of this program is the initiation of a much needed road maintenance policy. To effectively plan, organize and control these expanded activities and continue ongoing decentrali- zation efforts, FNCV must improve its management capabilities. Consulting services are required to bring about this goal, particularly in the areas of information processing and organizational structure. 2. Objectives To ensure that: (a) FNCV's data collection and processing system supplies management with aggregate information covering: (1) road network characteristics and growth; (2) cost and expenditure allocation; (3) the equipment, labor, contractors and financial means available to FNCV; and (4) administrative and financial efficiency; and (b) that FNCV's organizational structure operates as efficiently as possible without major bottlenecks or delays. -,. Functions Study of FNCV's Data Collection, Processing and Distribution System (a) Phase 1: Focus on analyzing the existing FNCV data collection system which fails to provide management with either reliable statistics or figures which readily assist informed decision making. Such analysis should include: (1) physical data covering the rural roads network, the labor force, equipment, contractors, works in progress and works completed to date; (2) financial data on the budget and the accounting system; and (3) administrative data on bidding, implementation, supervision and auditing operations.  - 64 - ANNEX 2 Page 2 (b) Phase 2: In conjunction with FNCV's management, develop a proposal to improve the information processing system. It is important that this proposal be a simple and practical one, not requiring involved techniques. Study of FNCV's Organizational Structure (a) Phase 1: Focus on analyzing the existing organizational structure - the functions, responsibilities, coordination and interaction among the different department and services of FNCV. An attempt should be made at this stage to identify all administrative bottlenecks hindering the efficient utilization of FNCV's resources. (b) Phase 2: In consultation with FNCV's management, determine the appropriate changes to be made in the organizational structure and in operational requirements to promote greater organizational efficiency. (c) Phase 3: Prepare a detailed proposal and strategy, agreed upon by FNCV's management, to be carried out within a three-year period to achieve the gradual implementation of the recommendations made in Phase 2. 4. Period and Requirements (a) It is envisaged that the technical assistance called for can be provided in ten man-months from consultants of high international caliber. (b) Two specialists are recommended: (1) A highway engineer experienced in highway management accounting procedures and data information collection and processing. He should have 15 years or more of experience, including at least five in public administration. (2) A public administration specialist with at least 15 years of experience, including five years in private administra- tion. Some familiarity with public works is also essential. (c) The specialists would devote: (1) Two months for Phase 1 activities. (2) One month for Phase 2 activities. (3) The remaining two months for Phase 3 activities. (d) The Bank should receive: (1) A brief report, covering the, consultants' analysis of the situation by the end of month two. (2) A copy of proposals, recommendations, and the manual by the end of month five.  - 65 - ANNEX 2 Page 3 .'. Special FNCV Counterparts and Support Services FNCV should supply the consultants with specialists from the FNCV administration to aid technical assistance efforts. The organization should also furnish support services, such as offices, secretarial staff, and trans- portation.  - 66 - ANNEX 3 COLOMBIA RURAL ROADS PROJECT Selected Documents and Data Available in the Project File 1. Statistical Data on Rural Roads Construction 1975-1978 (December 1979) 2. FNCV's Report on its Organization, Budget, and Physical Resources (February 1980) 3. The Planning Process in FNCV (March 1980) 4. DNP's Methodology for Allocations of Investments between Departments (December 1979) 5. FNCV's Manual for Selection of Rural Roads (September 1980) 6. FNCV's Maintenance Plan (April 1980) 7. FNCV's Classification Methodology for Contractors 8. Economic Evaluation of Eight Sample Roads (August 1980) 9. Departmental Maps of Rural Roads January 1981  MINISTE RIO DE OBRAS PUBLICAS Y TRANSPORTE ORGANISMOS DESCENTRALIZADOS OROANiGRAMA | rNk- r-~~~~~~~~~-~-~-~~----------~MINIS~TROI PUsI OS ; olNrRPTeoNi , | _ ..... _...E.........SK LD-f ^5 . r55 05 1 I 00 0E M 00*N 5 TR i DIRECCION DDLC S rOfSAL 2 1 PqDIRECCION DE I oE DIRECCION DIRECCION DE CARR ~~~~~~~~~~~NAVEDAC ~ INIELE 0IIAINE ERCIALY VRLCONESS *os,oso CARRETERAD Pu RTO NACIONAI.~ ~ ~~~~~~~ES FTA INANCIERA D.SRAE 505.0000001IE05 cONSI | l=aL Y ROS-ORDCOO VICE RUS-DI N * ST NN Y S TOOt RooI ol PEROVOYOTO8 S UERIION 00 00100 .0OLRO*IR *6 P.BSUC. T-1c,1 R : t D.A.f.,d. FCtOYCT O S 005 905c0 150100 5000 ..... TOSO IOCS,00 0010 TOCVIO^CO 010$ , 01000 tOW 0(S0005