Argentina - Third Highway Project

Document of The World Bank FOR OFFICIAL USE ONLY Report No. 4341 PROJECT COMPLETION REPORT ARGENTINA THIRD HIGHWAY PROJECT (LOAN 734-AR) March 3, 1983 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.   ARGENTINA FOR OFFICIAL USE ONLY THIRD HIGHWAY PROJECT (LOAN 734-AR) PROJECT COMPLETION REPORT Table of Contents Page No. Preface ................... , , , . ....., i Basic Data Sheet ................,,,,,.... a .....,,,,., . ii Highlights .iv PROJECT COMPLETION REPORT I. INTRODUCTION ............................................ 1 II. PROJECT PREPARATION, APPRAISAL AND NEGOTIATIONS .... ..... 2 III. PROJECT EXECUTION ....................................... 4 IV. COST ESTIMATES AND DISBURSEMENTS ........................ 5 V. ECONOMIC REEVALUATION ................................... 7 VI. INSTITUTIONAL DEVELOPMENT AND PERFORMANCE OF THE BORROWER 9 VII. ROLE OF THE BANK .10 VIII. CONCLUSIONS .10 ANNEX 1. Conversion of Current $a into Constant US$ .12 TABLES 1. Project Roads .13 2. Chronology of Works Execution .14 3. Execution and Construction Costs of Civil Works .15 4. Scheduled and Actual Disbursements .16 5. Appraisal Estimates of Traffic Compared with Actual Counts .17 6. Appraisal Estimates of Rates of Return Compared with Completion Estimates .18 MAP IBRD 3157 (PCR) - Argentina - Third Highway Project This document hs a etricted distribution and may be used by recipients only in the Performance of thoir offiWl dutie. Its contents may not otherwue be di.clsed without World ank authorization.   PREFACE The following is a Project Completion Report on the Third Highway Project in Argentina, for which Loan 734-AR, in the amount of US$67.5 million, was approved by the Executive Directors on March 30, 1971. The loan was closed on December 31, 1979, when funds were fully disbursed. This Completion Report was prepared by the Bank's Latin America and the Caribbean Regional Office and is based on information obtained from the LAC Information Center, Appraisal Report No. PTR 65a, staff supervision reports, project progress reports, a consultant's final report and informa- tion gathered by a completion mission to Argentina in September 1980. In accordance with the revised procedures for project performance audit reporting, this Completion Report was read by the Operations Evaluation Department but the project was not audited by OED staff. The draft Completion Report was sent to the Borrower; however, no comments were received.   - ii - BASIC DATA SHEET Key Project Data Appraisal Estimate Actual Total Project Cost (US$ million) 150.0 215.0 1/ Overrun (%) - 43% Loan Amount (US$ million) 67.5 67.5 Disbursed 67.5 67.5 Repaid 12/31/80 - 10.39 Borrower's Obligation - 56.11 Date Physical Components Completed 12/73 06/80 Time Overrun (%) - 190% Economic Rate of Return (%) 21.0 17.0 Institutional Performance - Satisfactory 2/ Other Project Data Original Item Forecast Actual First Mention in Files 11/69 Government's Application - - Negotiations 10/70 11/70 & 02/71 Board Approval 01/71 03/30/71 Loan Agreement Date - 05/05/71 Effectiveness Date - 09/03/71 Closing Date 12/31/74 12/31/79 Borrower: The Argentine Republic Executing Agency: Vialidad Nacional Fiscal Year of Borrower: 01/1 - 12/31 Follow-on Project : Fourth Highway Project Loan Number : 1384-AR Amount : US$105.0 million Loan Agreement: 05/16/77 1/ In 1970 dollars. 2/ Under very difficult circumstances beyond the control of the Highway Directorate.   - iii - Mission Data No. of No. of Staff- Date of Month/Year Weeks Staff Weeks Report Preparation 02/70 2 1 2 03/0 /70 Appraisal 4-05/70 3 3 9 06/09/70 Post-Appraisal 07/70 1 2 2 07/28/70 Post-Appraisal 09/70 1 2 2 09/17/70 Post-Appraisal 11/70 1 1 1 12/02/70 Negotiations 02/71 1 1 1 03/05/71 Totals 9 17 Supervision 3-04/71 2 2 4 04/16/71 Supervision 06/71 1/ 1 1 1 07/20/71 Supervision 10-11/71 2 1 2 11/23/71 Supervision 01/02/72 1/ 1 3 3 03/20/72 Supervision 06/72 2 1 2 07/13/72 Supervision 10/72 1.5 1 1.5 11/10/72 Supervision 05/73 2 2 4 No report in files Supervision 06/74 2/ 2/ 2/ No report in files Supervision 10/74 2.5 4 10 11/01/74 Supervision 4-05/75 4.5 3 13.5 06/02/75 Supervision 7-08/76 2 3 6 08/17/76 Supervision 05/77 .5 2 1 06/23/77 Supervision 10-11/77 1.5 2 3 01/13/78 Supervision 05/78 1/ .5 2 1 07/11/78 Supervision 03/79 1.5 1 1.5 04/05/79 Supervision 06/79 1.5 1 1.5 07/16/79 Completion 09/80 0.3 2 0.6 Totals 26.3 55.6 Total Supervision Time FY74 3/ 1.9 Staff weeks FY78 3.9 Staff weeks FY75 16.1 FY79 8.1 FY76 2.5 FY80 3.1 FY77 6.3 FY81 13.7 4/ Country Exchange Rate Name of Currency (Abbreviation) New Pesos ($a) Year: Appraisal Year Average Exchange Rate: US$1 = $a3.8 Intervening and Completion Year Average Average inappropriate because of extreme inflation - see Annex 1. 1/ Limited supervision only. 2/ Information not in files. 3/ No records available prior to FY-74. 4/ Through December 1980, including preparation of Project Completion Report.   - iv - HIGHLIGHTS The Third Highway Project successfully met its objective of up- grading key sections of Argentina's highway network despite cost overruns (para. 4.02) and long delays in completing certain of the road sections (paras. 3.02 and 3.03) mainly due to the country's difficult political and economic circumstances experienced during project implementation (para. 3.02). The overall estimated ERR is less than that expected at appraisal (17% versus 24%). The difference is explained by the extended construction period with consequent inflation, and the so far disappoint- ing traffic growth on some of the project roads (para. 5.01). Although construction of the Campana-Rio Tala expressway could be considered premature because of high cost overruns (para. 5.08), construction of the remaining road sections proved to be justified. The Third Highway Project's biggest impact has been through the construction of Route 14, the spine road of Mesopotamia, which has effectively contributed to the development of this important region (para. 5.04). The paving of nine other earth and gravel roads helped to integrate various regions with the major traffic corridors (para. 5.05). Although traffic development on the expressways was below appraisal expectations in the initial year following construction (para. 5.07), the PCR recognizes that these modern facilities should markedly facilitate the growth of the major industrial and commercial centers (para. 8.02). Furthermore, the project contributed significantly toward the development of local consultant capabilities (para. 6.02). The PCR concludes that, under difficult circumstances, Argentina completed this major construction program successfully and that Vialidad's capability to administer and supervise large highway programs has now reached maturity, having overcome, and emerged stronger from, the great difficulties encountered in the mid-seventies (para. 8.03).   I. INTRODUCTION 1.01 Argentina has developed a h ghly diverse and extensive transport network to integrate its 2,800,000 km of territory and to serve the needs of its population of 26 million (Map IBRD 3157). The network includes 100,800 km of national and primary provincial roads, 34,400 km of railways, 17,000 km of pipelines for crude oil, refined petroleum products and natural gas, over 100 ports and 90 commercial airports. The importance to the nation's economy of the efficient operation of the transport network is illustrated by its contribu- tion of 5.7% to Gross Domestic Product, ranking fifth among the ten sectors comprising the economy, and by its high proportion (18%) of public sector invest- ment. Furthermore, public transport enterprises, mainly the railways, account for 37% of all employment in the public sector. Within the transport sector, highways increasingly represent the dominant mode. From 1965 to 1978, road transport's share of cargo traffic increased from 48% of total interurban ton-kilometers to 65% while rail's share declined from 19% to 11%. Similarly, in terms of passenger service, roads' share rose from 76% of inter-urban passenger-kilometers to 86% while rail declined from 22% to 8%, with air transport increasing its share from 2% to 6%. The development of the highway network has generally kept pace with demand, and, with the basic network in place, investment is now being directed at reconstruction and at capacity additions in corridors connecting major cities. 1.02 The Bank has been closely associated with the transport sector in Argentina since 1961. Highway development has been promoted by four loans totaling US$228.5 million (Loan 288-AR, June 1961, US$31.0 million after cancellation; Loan 619-AR, June 1969, US$25.0 million; Loan 734-AR, May 1971, US$67.5 million; and Loan 1384-AR, May 1977, US$105 million). These loans have supported the construction and improvement of over 5,400 km of the primary network, 4,500 km of feasibility studies, and 3,500 km of detailed engineering designs as well as providing for numerous studies and programs that have increased efficiency in the highway subsector. Two loans, totaling US$152.5 million, have been made to help improve the railway system (Loan 733-AR, May 1971, US$56.5 million after cancellation; and Loan 1677-AR, March 1979, US$96.0 million)., 1.03 This completion report is based on information obtained from the LAC Information Center, Appraisal Report No. PTR 65a, staff supervision reports, project progress reports, a consultant's final report and information gathered by a completion mission to Argentina in September 1980.  - 2 - II. PROJECT PREPARATION, APPRAISAL AND NEGOTIATIONS 2.01 The project was identified and prepared under the Second Highway Project. A US consulting firm, associated with two local firms, was retained to conduct a reconnaissance survey of the entire non-urban national road network and to identify those sections likely to yield the greatest benefits from improvement. More detailed feasibility studies and preliminary engineer- ing for selected sections were carried out by the same consultants. 2.02 The project was appraised in March 1970 and included 18 high-priority road sections totaling about 1,128 km for upgrading or construction. Several local consultants, with coordination by the US firm and their associates, were retained to prepare detailed engineering for the selected roads, with comple- tion targeted for October 1970, the scheduled date for loan negotiations. The design work was done on schedule with the exception of one road section (para 3.01). Also included in the project were consulting services for updating the national road reconnaissance survey and for feasibility and engineering studies which subsequently identified and prepared the Fourth Highway Project. 2.03 Loan negotiations began in November 1970 but were adjourned after three days, mainly because the Government's representative felt that certain clauses in the proposed loan document restricted Argentina's sovereignty and that the Bank's proposed participation of 40% of the estimated US$150 million project cost was too low. The Bank subsequently agreed to increase its participation to 45%, and acceptable rewording was worked out for clauses in the loan agreement. 2.04 Negotiations were concluded in February 1971 and the loan, amounting to US$67.5 million, was approved by the Executive Directors on March 30, 1971. The loan agreement was signed on May 5, 1971 and became effective on September 3, 1971. 2.05 The agreed project consisted of the following: Civil Works (Table 1) (a) improvement and paving of ten gravel and earth road sections totaling about 761 km; (b) improvement and repaving of two sections of paved roads totaling about 136 km; and (c) construction of six sections of four-lane divided highways totaling 231 km. Consulting Services (a) supervision of the civil works construction; (b) detailed engineering studies for approximately 1,500 km of roads;  - 3 - (c) feasibility studies for about 2,000 km of roads; (d) coordination and review of the studies under (b) and (c) above; and (e) updating of the national highway network reconnaissance survey. Vialidad Nacional was the executing agency and the project was expected to be completed in 27 months, by December 31, 1973; the Closing Date of the loan was December 31, 1974. 2.06 The estimated costs given in the Appraisal Report were: Pesos (million) US$ (million)1/ Bank Local Foreign Total Local Foreign Total Participation US$ m % 1. Construction work 326.4 153.6 480.0 81.6 38.4 120.0 54.0 45 2. Construction supervision 13.2 4.8 18.0 3.3 1.2 4.5 2.0 45 3. Additional con- sulting services 14.8 7.2 22.0 3.7 1.8 5.5 2.5 45 Subtotals 354.4 165.6 520.0 88.6 41.4 130.0 58.5 Contingencies, 15% rounded (10% for quantities; 5% for prices) 53.6 26.4 80.0 13.4 6.6 20.0 9.0 45 Totals 408.0 192.0 600.0 102.0 48.0 150.0 67.5 /1 At US$1 = $a4.00  - 4 - III. PROJECT EXECUTION Civil Works 3.01 Work on the 18 road sections was originally subdivided into 29 contracts for international competitive bidding by prequalified contractors. For all but the 80.5 km Campana-Rio Tala section on National Route 9, the tender and award process was executed efficiently, although behind the original schedule; there were 28 bid openings between April 1971 and February 1972 and all 28 contracts were signed between April 1971 and May 1972. All work was awarded to Argentine firms. International contractors showed no interest in the bidding because of extensive local competition. The tendering of the Campana-Rio Tala section was deferred until early 1975 as completion of detailed engineering was delayed by unexpectedly bad soil conditions and bidding was postponed because of the political and economic crisis in 1974 (para 3.02). 3.02 Actual progress of the works is shown graphically in Table 2. Despite some initial delays, construction proceeded relatively well from 1971 through most of 1974, when political and economic events made it extremely difficult for Argentine contractors to continue work. President Peron's death triggered political instability. The absence of economic management deepened the impact of a recession prompted by the abrupt end of an export boom. The rate of annual inflation soared from 20% to 250%, creating a financial climate that made it impossible for contractors to obtain financing. Import restric- tions were placed on equipment and spare parts needed for construction, making these items virtually unobtainable. Payments to contractors by Vialidad became six months to a year in arrears following the diversion of road user revenues to general Government expenditures. Labor trouble and strikes and a cost escalation formula for contractors that used an unfavorable exchange rate also impeded the execution of project works. From the end of 1974 through most of 1976, these problems persisted. Only 14 of the original 28 contracts were completed by August 1976, although all were originally scheduled to be finished before the end of 1974, the original Closing Date. Of the remaining contracts, work on half was stopped, while the rest were progressing very slowly. 3.03 Conditions improved after a new Government came to power in 1976. Project work resumed at a normal pace around November of that year when counterpart funds were made available and customs restrictions were lifted on equipment and spare parts for construction. Because of inflation, work stoppages, and payment delays, however, all contracts were either renegotiated (at higher real terms) or rescinded and retendered. Work was further subdi- vided for some road sections to accelerate progress. Project civil works were thus separated into a total of 38 contracts. By December 1977 some 80% of the roadwork was satisfactorily completed but the financial climate in the country was still causing delays with inflation continuing at a rate of well over 100% annually. As an anti-inflationary move, the Treasury restricted budget expenditures by Vialidad in late 1977 and early 1978, which again resulted in delayed payments to contractors and further slowed the work. Payment timing subsequently improved, and the project was finally completed in 1980. The quality of all construction was satisfactory.  3.04 In addition to financial problems, technical difficulties also delayed work and increased costs on the 80.5 km expressway (Route 9) between Campana and Rio Tala. Although considerable soils and foundation investiga- tions were carried out during design, actual conditions encountered during construction were far worse than expected. The most serious problems occurred in a 6-km stretch near the river where poor foundation soils made it extremely difficult to construct stable embankments. In fact, an 800 meter viaduct was eventually required to replace a failed embankment section. Consulting Services 3.05 Argentine firms were retained for all consulting work financed under the project and their overall performance was quite satisfactory. The two local consultant firms which had been associated with the US firm carrying out the initial national road reconnaissance survey (para 2.01) were retained to update the survey as well as to coordinate and review the feasi- bility studies and detailed engineering work done by several other Argentine firms. Three local consultants provided adequate supervision of the road construction. The detailed engineering financed under the Second Highway Project (para 2.02) was performed in a timely and satisfactory manner by local firms except for the soils and materials investigations for one road section as previously discussed in paragraph 3.01. IV. COST ESTIMATES AND DISBURSEMENTS 4.01 A comparison of appraisal estimates and final costs is shown in Table 3. The comparison has been made using constant 1970 US dollars, the year of project appraisal. The methodology outlined in Annex 1 has been used to convert the certified cost of works to constant dollars, using the civil works cost index as a basis. Because the annual average exchange rate masks monthly fluctuations in the $a/US$ parity and the civil works cost index itself is an annual average, the resulting economic costs represent mid-year values regardless of when works were completed in any given year. It has not been possible to shadow-price the cost of civil works, which would have been preferable had the necessary information been available. In spite of this imprecision, however, the comparison is considered to be a reasonable indica- tion of cost differentials between actual expenditures and appraisal estimates 4.02 The total cost of road works was about US$197 million in 1970 values an increase of 41% over the US$140 million appraisal estimate (including contingencies). This increase came almost entirely from overruns on the Campana-Rio Tala section of Route 9 (paras 3.04 and 4.06). Principal factors affecting costs for the various types of road improvements are discussed in the following paragraphs.  - 6 - Improvement and Paving of Earth and Gravel Roads 4.03 Work on the 422 km of National Route 14 was delayed considerably during 1972 and 1973 by unusually heavy rains. This pushed construction into the crisis years, resulting in further delays with increased costs. An additional complication was the construction of the Salto Grande dam in the Uruguay river, which necessitated revised location and design in the area affected. Actual costs in 1970 dollars were US$95,000/km (US$240,000 in 1980 dollars), about 13% over appraisal estimates. 4.04 The nine other earth and gravel road sections improved and paved under the loan showed an overall cost reduction of 5% below the appraisal estimate of US$60,000/km in 1970 dollars (US$150,000 in 1980 dollars). This reflects the more favorable location of the works in a drier part of the country and the lack of extensive execution delays. Four contracts, nonethe- less, were renegotiated as a result of the economic crisis. Improvement and Repaving of Paved Roads 4.05 The two roads in this category, totaling 135 km, were completed with limited delays. Final costs in 1970 dollars were US$65,000/km (US$160,000 in 1980 dollars); about 31% below appraisal estimates, which results mainly from completion of the work well before the financial crisis in 1974. Construction of Four-Lane Divided Highways 4.06 Three road sections totaling about 89 km (National Route 20 Cordoba- Carlos Paz, and National Routes 7 and 40 near Mendoza) were completed at costs approximately equal to the appraisal estimate of US$360,000/km in 1970 dollars (US$900,000 in 1980 dollars). However, large cost increases over appraisal estimates did occur on the expressway works for National Route 9 (142 km). This road is situated in the region along the Parana river, an area with extraordinarily bad soil conditions that not only delayed detailed engineering (para 3.01), but required major and expensive design changes during construc- tion (para 3.04). In addition, the work was tendered in 1975-77, a period of economic and financial instability during which contractors allowed for considerable risk in their bid prices. The final cost of the 61-km San Nicolas-Rosario section was US$580,000/km in 1970 dollars (US$1,450,000 in 1980 dollars) about 65% over the appraisal estimate, with the cost of the 81-km Campana-Rio Tala section reaching almost US$750,000/km in 1970 dollars (US$1,900,000 in 1980 dollars), nearly 300% over appraisal estimates. Consulting Services 4.07 The cost of consulting services for feasibility studies, detailed engineering, and updating the national highway reconnaissance survey was slightly less than the appraisal estimate. Consulting services for supervision, however, did cost considerably more than anticipated because of the extended construction periods. Exact figures are unavailable (once the US$2.0 million allocated for construction supervision was disbursed by the Bank, further disbursement requests were no longer received), but Vialidad estimates the  - 7 - amount to be about 6% of the works cost. This corresponds to a cost increase of around 125% over the appraisal forecast which, under the circumstances, is considered reasonable. Disbursements 4.08 Table 4 shows estimated and actual disbursements by year and amount. In retrospect, the appraisal estimate for the rate of disbursement was far too optimistic. By the original Closing Date of December 31, 1974, only 41% of the loan, or US$27.5 million, had been disbursed. Disbursements proceeded slowly throughout the rest of the project, although they did pick up slightly as economic conditions improved after 1976. The loan was fully disbursed in June 1979, eight years after the signing of the loan, rather than the three and a half years originally envisaged. 4.09 Loan funds were reallocated only once (at final disbursement) as shown below: Loan Agreement Final ---US$ Million--- I Construction 54.0 63.7 II Construction Supervision 2.0 2.0 III Other Consulting Services 2.5 1.8 IV Contingencies 9.0 67.5 67.5 V. ECONOMIC REEVALUATION 5.01 The Third Highway Project was justified at appraisal on the basis of quantifiable benefits accruing to road users mainly from reduced vehicle operating costs and travel time which would result from improvements in road design and surface characteristics. Benefits were assessed also for savings in road maintenance costs, when applicable, resulting from the difference between the costs of maintaining the existing roads and-the lower costs of maintaining the newly paved or improved roads. The appraisal estimate of the Economic Rate of Return (ERR) for civil works was 24%, with an average rate of traffic growth of 5% per year from 1970 to 1980 (Tables 5 and 6). Reevaluation, based on the consultants' final report in July 1980, resulted in a weighted average ERR of 17%, with an average traffic growth of 3% per year from 1970 to 1980 and assuming a 5% rate thereafter. While this rate of return is significantly less than projected, it is nonetheless still satisfactory, especially taking into consideration the turbulent conditions experienced in the country during project execution. With the high proportion of heavy vehicles on project roads, averaging 93% (Table 5), and the extreme competi- tiveness of the trucking industry, it appears that project benefits related to  - 8 - freight movements are being reasonably distributed among truckers and shippers by limiting freight tariff increases. The paving of earth and gravel roads has helped to integrate various regions with the national economy, especially with regard to the Mesopotamia region, and the construction of expressways has facilitated the continued development of the main industrial and commercial centers of Argentina. 5.02 Traffic estimates were based on counts conducted in 1979 and 1980 by Vialidad. The wide variation between traffic forecasts and actual results illustrates the level of uncertainty in road traffic projections, especially during the period of economic and political instability. While it is difficult to determine what specific factors altered traffic development on individual subprojects, the results in Table 5 do show that, in the case of paving earth and gravel roads, traffic growth was generally higher than expected as accelerated development in the areas of influence occurred despite the economic crisis. On existing paved routes, however, traffic in these first years is below expectations as normal traffic increases were not main- tained and generated traffic did not materialize, underscoring the difficulty in estimating the elasticity of demand for such projects. 5.03 The economic reevaluation of the project was done by Vialidad's consultants, utilizing the vehicle operating costs on which the feasibility studies were based. Since gas and oil prices increased more than other relevant prices, these calculations underestimate actual user savings. However, such fine tuning of benefit calculations was not considered necessary for this exercise. The economic costs used by the consultants were derived from the certified financial costs of works (para 4.01). In order to provide a reasonable correlation between appraisal and reevaluation ERRs under the circumstances of extreme inflation and exchange rate fluctuation, costs and benefits are expressed in constant base year (1970) dollars. The following discussion addresses economic performance on this basis for each type of civil works category. Improvement and Paving of Earth and Gravel Roads 5.04 Improvement of National Route 14 in Mesopotamia was expected to trigger a high annual traffic growth rate of 6%. In fact, this area developed even more than expected, with an average annual traffic growth rate of 10% over the period. This resulted in an ERR of 21%, 3% higher than anticipated, despite actual costs 13% higher than estimated. 5.05 The nine other paving projects registered a recalculated average ERR of 26%, 4% higher than appraisal estimates. With the exception of Routes 151 and 157, traffic growth was generally higher than expected, reaching 8-10% annually in the case of Route 178 and Route 12. While average costs for this group of projects were 5% less than projected, there were significant cost increases for those projects completed after 1976.  - 9- Improvement and Repaving of Paved Roads 5.06 The two road sections repaved under the loan show an ERR comparable to that estimated at appraisal (16% vs. 17%). Lower traffic growth (2% vs. 4%) was offset by lower costs (31%). Construction of Four-Lane Divided Highways 5.07 The ERR for expressway road sections as a group was 15%, substan- tially below appraisal estimates of 28%, but still reasonable. Lower than expected traffic (Table 5) and delayed construction resulting in higher costs (Table 3) were the main reasons for the reduced ERRs. The most notable was the San Nicolas-Rosario section of Route 9, where a 10% annual increase was projected but actual growth has been zero. Apparently, only through traffic on Route 9 (about 5,600 vehicles per day) is making use of the new expressway, and, since these vehicles no longer pass through the industrial area, traffic conditions there have greatly improved so that local traffic need not use the new road. With increasing traffic in the future and other related road improvements, it is expected that more vehicles will gradually divert, espe- cially because the expressway gives better access to the beltway around Rosario now under construction. 5.08 In the case of Route 9, Campana-Rio Tala, the soil difficulties encountered during design and construction led to significantly higher costs (para 4.06). Notwithstanding a 1980 traffic of 7,680 vehicles/day and traffic growth of 3% annually, the resulting poor economic performance (a reevaluation estimated ERR of 10%) make this the only marginal road section in the project. With a first year benefit/cost ratio of less than 10%, the execution of the section appears to have been premature; had its high cost been known from the outset, construction should have been postponed. VI. INSTITUTIONAL DEVELOPMENT AND PERFORMANCE OF THE BORROWER 6.01 After the substantial progress made under the First and Second Highway Projects in improving the administrative, planning and design capabil- ities of Vialidad and local consultants, no further direct assistance for institutional development was included in the Third Highway Project. The economic turbulence between 1973 and 1976, however, resulted in a setback to Vialidad's institutional development. Shortage of funds allocated by Government and staff losses during this period led to a serious decline and, in some respects, a halt in Vialidad activities. Construction, maintenance and planning efforts suffered, and it took almost four years to complete stalled projects and rebuild the institution. It was only during the past year that Vialidad has been able to consider a balanced program, and substantial assistance for this effort is included in the proposed Fifth Highway Project. 6.02 The project did provide a means for the improvement of local donsul- tant capabilities through the preparation of feasibility studies, designs and the national road reconnaissance survey. Such improved capabilities are  -10 - exemplified by the extensive Highway Needs Study which has been carried out by local consultants under the direction of Vialidad and with financial assistance under the Fourth Highway Project. 6.03 While no direct assistance was provided under the project, a covenant in the Loan Agreement required adequate staffing of the Sectoral Planning Office in the Secretariat for Transport and Public Works. Although no action was taken during the crisis period, the Bank's persistence on the need for improved national transport planning led the new Government in 1976 to reorga- nize the Sectoral Planning Office and establish the Directorate for National Transport Planning. This office is now properly staffed and has prepared a National Transport Plan with assistance provided under the ongoing Fourth Highway Project. VII. ROLE OF THE BANK 7.01 The Bank contributed significantly to project identification and preparation via the preceding Second Highway Project and, during execution of this project, provided some essential continuity during the changes in Government and the disruption of Vialidad's operations caused by severe financial and staffing problems. The number and timing of supervision missions were appropriate for the circumstances and a very good relationship between the Government and the Bank was maintained throughout the long and difficult project period. 7.02 During the economic crisis in the mid-seventies, severe budget constraints dictated changes in road investment priorities. But, because the project was for improvement of specific road sections, it was difficult for the Bank to quickly shift financing to other investments considered to be of higher priority under the circumstances. The need, however, for such flexibility could not have been foreseen at appraisal; the proposed Highway Sector Project will provide such flexibility. 7.03 The preparation and implementation of the Fourth Highway Project, and currently the preparation of the Highway Sector Project, have been and are based on the experiences of the earlier three projects and illustrate the Bank's role in the progressive development of Vialidad and the highway subsector despite intermittent national crises. VIII. CONCLUSIONS 8.01 The Third Highway Project was successful despite cost overruns and long delays in completing certain of the road sections. The project met its principal objective of upgrading key sections of the national highway network and reducing transport costs on these routes. The overall ERR is less than expected at appraisal (17% versus 24%), mainly due to the extended  - 11 - construction time with consequent inflation, and the so far disappointing traffic growth. Although the Campana-Rio Tala expressway could be considered premature because of high cost overruns, the remainder of the road sections stand up well in the economic reevaluation. 8.02 The Third Highway Project's biggest impact has been through the construction of Route 14, the spine road of Mesopotamia, which has effectively contributed to the development of this important region. The paving of nine other earth and gravel roads helped integrate various regions with the major traffic corridors. Although traffic development on the expressways has been disappointing in the initial year following construction, these modern facil- ities should markedly facilitate the growth of the major industrial and commercial centers. Furthermore, the studies included in the Project have led to the Fourth Highway Project and contributed significantly toward development of local consultant capabilities. 8.03 Under difficult circumstances, Argentina completed this major construc- tion program successfully. Vialidad's capability to administer and supervise large highway programs has now reached maturity, having overcome, and emerged stronger from, the great difficulties encountered in the mid-seventies. Vialidad is now ready and fully prepared to engage in the remaining institution building contemplated under the proposed Highway Sector Project (Fifth Highway Project).  - 12 - ANNEX 1 ARGENTINA THIRD HIGHWAY PROJECT (LOAN 734-AR) PROJECT COMPLETION REPORT Conversion of Current $a into Constant US$ High inflation in Argentina, especially since 1973, makes a comparison of the appraisal estimates and the actual final costs difficult. To minimize the problem, the construction cost index has been used to convert the actual final costs to costs in 1970 when the appraisal estimates were made. The following procedure, utilizing the first two columns below, was used for this purpose: i) Divide the construction cost index for the base year by the index for the year in which construction costs were incurred. ii) Multiply the construction costs by the fraction obtained from (i) above. iii) Divide the results of (ii) by the exchange rate ($a:US$) in the base year. iv) Add the results of steps (i) through (iii) for all years in which construction costs incurred. Price Increases and Exchange Rate during Project Implementation Exchange Rate Construction Cost $a/US$ Index 1960 = 100 1970 average 3.8 740 1971 average 4.6 970 1972 average 8.2 1,500 1973 average 9.4 2,580 1974 average 8.9 3,500 1975 average 37.0 12,600 1976 average 224.0 58,000 1977 average 418.0 115,000 1978 average 796.0 272,000 1979 average 1,317.0 710,000 1980 average 1,770.0 1,240,000 Source: IMF, INDEX October 1980  - 13 - TABLE 1 ARGENTINA THIRD HIGHWAY PROJECT (LOAN 734-AR) PROJECT COMPLETION REPORT Project Roads A. The Improvement and Paving of Ten Earth or Gravel Road Sections No. Route Province From To Length (km) 1. 14 Entre Rios Gualeguaychu - Paso de los Libres 422.0 Corrientes Misiones 2. 178 Buenos Aires Pergamino - Santa Teresa 54.1 3. 193 " Zarate - Solis 31.2 4. 226 " Bolivar - Pehuajo 79.6 5. P331 Tucuman Aguilares - Sarmientos 8.0 6. P305 " Las Moritas - El Sunchal 21.4 7. 12 Misiones Wanda - Cataratas 37.6 8. 157 Catamarca Salinas - Recreo (km 31) 31.0 9. 157 " De la Paz - Frias 36.2 10. 151 Rio Negro Cordero - Teresita 40.2 Total 761.3 B. The Improvement and Repaving of Paved Roads No. Route Province From To Length (km) 11. 3 Buenos Aires Azul - Las Flores 89.8 12. 2 Santa Fe Gomez - Tortugas 45.5 Total 135.3 C. The Construction of Divided Highways No. Route Province From To Length (km) 13. 9 Buenos Aires Campana - Rio Tala 80.5 14. 20 Cordoba Cordoba - Carlos Paz 24.0 15. 9 Santa Fe San Nicolas - Rosario 61.0 16. 7 Mendoza San Martin - Mendoza 38.2 17. 40 " Mendoza - Lujan 16.5 18. 40 " Lujan - Argelo 10.7 Total 230.9  CHRONOLOGY OF WORKS EXECUTION TR A M 0 LONt. buTt E7 O7 741761 1TO PERGAMI NO - EL aSDCOMO 00 a gif a S9LWINJ) SANTA TERESA4 Z4 2 SI SOLI.S -fEP4LU4E AUrA 9 1, 3226 &OLIVAti- PtIRMJ " lI ~ iJ 5A 9 CAUPANA- RtiO ARECO 3A I 5A 9RIO ARECO - VARIANTE NOO TALA 36.5 l-. .A 9VARMNI'E RIO TALA 9,4 I 5043~LAS FlOhi!,-CACHARjK11019.2-207 2Y ', O11 1 ii LASMWYiLWS-CASUMCKM 10,-40 24 * I20 0 Ef.VP.4 LAEi duTA -CAGRLOS A 22', -- 24 IS? ~ANANT.)NIO0ELA PAZ __IA .56l,6 I Ii - ::I Ii H iiiT itPi- A A(./fS- EL SU CAL 0,4 23A4 IS? LMALrUA 60 - RECREO 31.3 :1 YV mIIt J Ij111 25 131 OIO1JE C W.OOERO- HOST STA TERES1TA 4OL2 M I 9 CANADA DE .OAEZ - TORTU6AS 49,5 9 9 SAN tWLA I - ROSARIO 39,0 I l6 12 CaW4I WANOA-CA74RATAS J.- 41--- i H i I' i I 26" 14 EMPALME It R 20 -EAMPALUE R. R 28 9qjI3'l iIL 26 44 EAFNLAME fiPad EMPALMC RA. 18 ?5,4 t 2&4a 14 EMU LIIE Rti 8 - AcC.SW A aZCdWI4 152. -2 &;- 14 AXo,4JA CJNCORIA-A-AMl GRANDE 23.0 A'ArLQ 6fANuE-AAIANptsoK G&AwNE r 40 2&78 IfAAI*OI GRANDE-A'AOCORET4 LEU* 28-9 14 AUAJEM3I'IN GRAADE - ROl uOCO2TA 25.5 2'314 RIO swCcWtrA -A'CLJRUPICr 3, "~~i- 6'14_ A-CtnueCY - C0LON4 LISERTA _ i 264u1 14 COLONlA LNlLNTAD EUPALIAM IN 2 42,6 26-431 H EWALUME fMit26 -PASOVE LS LOPES 32,0 IL_______. Ac'tual in ~ Estimate ~- I ji  ARGENTINA THIRD HIGHWAY PROJECT (LOAN 734-AR) PROJECT COMPLETION REPORT Execution and Construction Costs of Civil Works Costs (US$ million)l/ Final Cost No. of Length Appraisal Final as % of Contract Cost/Km Province Route Road Sections (Km) Estimate 2/ Cost Appr. Est. Period US$/Km Improvement & Paving Earth and Gravel Roads Buenos Aires 178 Pergamino-Sta. Teresa 2 54.1 4.0 3.3 71-75 60.000 Buenos Aires 193 Solis-Empalme RN9 1 31.2 2.3 2.6 72-80 85.000 Buenos Aires 226 Bolivar-Pehuajo 1 79.6 4.8 5.4 71-80 70.000 Tucuman P331 Aguilares-Sarmientos 1 8.0 0.4 0.4 71-80 50.000 Tucuman P305 Moritas-Sunchal 1 21.4 0.9 1.7 71-78 80.000 Misiones 12 Wanda-Cataratas 1 37.6 3.3 3.4 71-75 90.000 Catamarca 157 Salinas-Recreo 1 31.0 2.1 1.3 72-74 40.000 Catamarca 157 La Paz-Frias 1 36.2 2.6 1.8 72-76 50.000 Rio Negro 151 Cordero-La Teresa 1 40.2 1.6 1.0 71-74 25.000 Subtotal Paving 10 339.3 22.0 20.9 - 5% 60.000 Improvement & Repaving Paved Roads Buenos Aires 3 Las Flores-Azul 3 89.8 8.8 6.3 71-73 70.000 Sta. Fe 9 Gomez-Tortugas 1 45.5 3.6 2.3 71-74 50.000 Subtotal Repaving 4 135.3 12.4 8.6 - 31% 65.000 Route 14 Entre Rios Corrientes 14 Guayleguaychu-Concordia 5 166.0 17.0 22.5 71-78 135.000 Entre Rios Corrientes 14 Concordia-Paso de los Libres 9 256.0 18.3 17.5 72-80 70.000 Subtotal Route 14 14 422.0 35.3 40.0 + 13% 95.000 Construction Four-Lane Divided Highway Buenos Aires 9 Campana-Rio Tala 3 80.5 15.2 60.0 75-80 750.000 Cordoba 20 Cordoba-Carlos Paz 1 24.0 7.9 8.1 72-77 340.000 Santa Fe 9 San Nicolas-Rodario 1 61.0 21.6 35.6 73-79 580.000 Mendoza 7 La Purisima-San Martin 1 38.2 16.4 17.3 72-80 450.000 Mendoza 40 Mendoza-Agrelo 3 27.2 9.2 6.9 71-77 250.000 Subtotal 4-Lane Divided Highway 9 230.9 70.3 127.9 + 82% 550.000 Grand Total 37 1,127.5 140.0 197.4 + 41% 175.000 1/ In 1970 dollars 2/ Including contingencies October 1980  - 16 - TABLE 4 ARGENTINA THIRD HIGHWAY PROJECT (LOAN 734-AR) PROJECT COMPLETION REPORT Scheduled and Actual Disbursements Appraisal Estimate Actual % of % of Actual as % of IBRD FY Amount Total Amount Total Appraisal Estimate 1971 0.5 1 1972 19.5 29 1973 43.5 64 8.6 13 20 1974 65.5 97 21.9 32 33 1975 67.5 100 33.1 49 49 1976 38.1 56 n.a. 1977 45.3 67 n.a. 1978 56.6 84 n.a. 1979 67.5 100 n.a. n.a. - not applicable  ARGENTINA THIRD HIGHWAY PROJECT (LOAN 734-AR) PROJECT COMPLETION REPORT Appraisal Estimates of Traffic Compared with Actual Counts Estimated Actual Appraisal % Heavy Annual Actual % Heavy Annual Route No. Section ADT 1970 1980 Vehicles Growth % ADT 1980 Vehicles Growth 178 Pergamino-Santa Teresa 960 1,240 36 3 2,140 51 8 193 Solis-Empalme R.9 630 970 36 4 970 36 4 226 Bolivar-Pehuajo 550 820 32 4 1,060 21 7 P331 Aguilares-Sarmientos 380 435 28 1 710 51 6 P305 Las Moritas-El Sunchal 260 290 36 1 390 38 4 12 Wanda-Cataratas 450 660 24 4 1,180 31 10 157 Empalme R.60-Recreo 640 830 63 3 360 76 - 6 157 De la Paz-Frias 710 830 63 2 740 68 0 151 Cordero-Teresita 720 1,050 38 4 600 24 -2 Average Subtotal 590 790 40% 3 910 44% 4% 14 Gualeguaychu-Concordia 800 1,450 50 6 1,770 49 8 14 Concordia-Paso de los Libres 300 570 33 8 1,190 42 15 Average Subtotal 550 1,010 41% 6 1,480 46% 10% 3 Las Flores-Azul 2,630 3,570 52 3 2,800 63 1 9 Gomez-Tortugas 2,610 4,000 50 4 3,640 39 3 Average Subtotal 2,620 3,790 51% 4 3,220 51% 2% 9 Campana-Rio Tala 5,970 9,350 39 5 7,680 40 3 20 Cordoba-Carlos Paz 7,375 10,260 18 3 7,580 15 0 9 San Nicolas-Rosario 5,500 14,100 32 10 5,600 53 0 D 7 La Purlsima-San MartUn 4,800 7,850 23 5 6,250 50 3 40 Mendoza-Empalme R.P.4-Lujan 7,200 12,200 23 5 12,150 19 5 m 40 Lujan-Agrelo 3,430 5,085 23 4 4,810 41 3 L Average Subtotal 5,710 9,800 26% 6 7,350 30% 3% Averaae Total 2,420 3,980 37% 5 3,240 43% 3%  ARGENTINA THIRD HIGHWAY PROJECT (LOAN 734-AR) PROJECT COMPLETION REPORT Appraisal Estimates of Rates of Return Compared with Completion Estimates Type of Route Appraisal Estimate Completion Estimate Project No. Section Rate of Return (%) Rate of Return (%) Paving 178 Pergamino-Santa Teresa 16 44 193 Solis-Empalme 20 14 226 Bolivar-Pehuajo 28 22 P331 Aguilares-Sarmientos 20 20 P305 Las Moritas-El Sunchal 14 13 12 Wanda-Cataratas 26 31 157 Empalme R.60-Recreo 17 13 157 De la Paz-Frias 16 20 151 Cordero-Teresita 37 27 22 26 Route 14 14 Gualeguaychu-Concordia 22 20 14 Concordia-Paso de los Libres 15 22 18 21 Repaving 3 Las Flores-Azul 16 16 9 G6mez-Tortugas 20 17 17 16 4-Lane Highways 9 Campana-Rlo Tala 19 10 20 Cordoba-Carlos Paz 25 17 9 San Nicolas-Rosario 39 18 7 La Purlsima-San Mart In 25 19 40 Mendoza-Agrelo 27 23 28 15 Weighted Average 24 17  IBRD 3157 PC B 0 L i i a V A A SEPTEMBER- 1980 \ LA /U AC.._/P l ; r qFI A Cy , e , 4 ,.SAN_SALVAD'OR ~ j j'U SALTA tj,I RIRELS CAMPO\it\ ~~~ I SALE ~~~~~~~~~ ASUNCIO'N - f.~~~~ ~~ 21