Colombia - Third National Roads Sector Project

Document of The World Bank FOR OFFICIAL USE ONLY NICRO)FICHE COPY Report No. 9781-CO Report No. 9781-CO Type: (SAR) HATES, A / X38648 / I-5132/ LA31E STAFF APPRAISAL REPORT COLOMBIA THIRD NATIONAL ROADS SECTOR PROJECT MARCH 3, 1992 Department III Infrastructure and Energy Operations Division Latin America and the Caribbean Region { This document has a resticted 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 authoriztdon.  CURRENCY EQUIVALENTS Currency Unit - Colombian Peso $Col - UScent 0.16 US$1.00 - $Col 630 (as of February 1992) WEIGHTS AND MEASURES 1 gallon - 3.785 liters 1 mile = 1.613 km 1 pound 0.453 kg ABBREVIATIONS COLPUERTOS Colombian Port Authority DGA General Directorate of Customs DDC Directorate of Highways DNYP Directorate of Navigation and Ports DNP National Planning Department FERROVIAS Rail Infrastructure Corporation FNC National Railways of Colombia (in liquidation) FNCV National Fund for Rural Roads FVN National Highway Fund INTRA National Transport Institute INDERENA National Environmental Agency MOPT Ministry of Public Works and Transport ODP Planning Office (within MOPT) STF Rail Transport Company FISCAL YEAR January 1 - December 31  FOR OFFICIAL USE ONLY COLOMBI1 THIRD NATIONAL ROAD SECTOR PROJECT STAFF APPRAISAL REPORT TABLE OF CONTENTS Page No. I. LOAN AND PROJECT SUMMARY . . . . . . .. . . . . . . . . . . 1 II. THE TRANSPORT SECTOR . . . . . . . . . . . . . . . . . a . . . . 3 A. General . . ....... ............. ...... . . ........... 3 B. Institutional Setup . .. . . . . . . . . . . . . . . . . . 4 C. Highways . . . . . .. . . . . 4 (a) The Network.. . ... . 4 (b) Highway Administration .... . . 5 (c) Road Maintenan..oe . . . . . . . 6 (d) Construction Industry..... . . 8 (e) Highway Planning and Financing . . . . . . . . . . . . . 8 (f) Budget Revenues and Expenditures . . . . . . . . . . . . 9 (g) Fuel Prices and User Charges . . . . . . . . . .. . . 10 (h) Trucking Industry ......... . . . . . . . 11 (i) Traffic Counts and Axle Loads . . . . . . . . . . . . . . 12 D. Railways . . . . . . . . . . . . . . . . . . . . . . . 12 E. Ports . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 F. River Transport.. . . . . . . # . . . 14 G. Shipping . . .... . .. . . 15 H. Intermodal Facilitation ........... . . . . . 15 :II. PAST BANK EXPERIENCE IN THE TRANSPORT SECTOR . . . . . . . . . . . 16 IV. THE PROJECT . . . . . . . . . . .. . . ... . . . 19 A. Justification . . . . . . . . . . . . .. . . . . . . . . 19 B. Project Objectives . . . . . . . . . . . . . . . . . . . 20 C. Project Description . . . . . . . . . . . . . . . . . . . 20 (a) Highway Rehabilitation ....... .. . . . . . . . 20 (b) Bridges ... .. .... . . . . . 21 (c) River Training and River Ports . . . . . . . . 21 The report is based on findings of an appraisal mission which visited Colombia in June 1991. The mission comprised Messrs. Amnon Mates, Task Manager and Economist, Jos6 Maria Alonso-Biarge and Jos6 Luis Irigoyen, Engineers, Philip Hazelton, Environmental Specialist and Alan Harding, Consultant/Engineer. Peer review was provided by Messrs. John Flora and William Paterson (technical issues). The report was prepared under the supervision of Mr. Graham Smith, Division Chief, and Mr. Yoshiaki Abe, Director. Ms. Silvia Delgado assisted in its production. This documnent has a8restricted distribution and may be used by recipients only in the performance of their c -ial duties. Its contents nmay not otherwise be disclosed without World Bank authorization.  TABLE OF CONTENTS (cont'd) Page No. (d) Equipment . . . . . . . . . . . . . . . . . . . . . . . . 22 (e) Road Safety . . . . . . . . . . . . . . . a . a a a . 22 (f) Technical Assistance ....... .. . .. .. .. . . 23 (g) Studies . . . . . . . . . . . . a . 24 (h) Training . . ... . . . .. . a a a a 25 D. Project Costs and Financing * * a a.*.a.... a.. a.a. .a.a 25 E. Economic Evaluation . . a . a . . . . . . . a . . . . . .. . . 27 (a) Roads .a .a... . . ....... . . . 27 (b) Bridges . . . . a . . .a. . . . . . . .a. . . .a. . . . . 29 (c) River Training . . a a . . . . a a a . . a a . . 29 V. PROJECT IMPLEMENTATION . . . . . . . . . . . . . . . . . . . . . . . 30 A. Project Execution . a . . . . . a . . .a . a a . . . 30 (a) General .. .a . .a ..a . a .a.a .. . . . .a. a . . a a . . 30 (b) Project Monitoring . .a. a . . . . . . . . . a. a .. 30 (c) Project Implementation Unit . . . . . . . . . . . . . . . 31 (d) Civil Works . . a . a a . . a . . . a a a . . a a . . 31 (i) Roads . . . . . . . . . . . . . . . . . . . . . . . 31 (ii) Bridges . . . . . . . . a . . . a a . . . a a . a 33 (iii) River Training a. . . . . . . . . . . . a. . . . 33 (e) Road Maintenance a a a .a a. . . . . . . . . . . . a a a 33 (f) Equipment . . . . . . . . . . . . . . . . . . . . . . . . 33 (g) Road Safety a a a . . . a a a .a a .. . . . ..a.a. a a . 34 B. Procurement . . . a a a ...... a a.... . a . a a 34 C. Disbursements . . . . . . a . . . . . . . a . . . . . . . . . 36 D. Audits a a . a a . a a a a a . a a a a a a . a a a a a a a a a 36 E. Monitoring a a a a a a . a a a a a a . . a a . . a . . a a . a 37 F. Environmental Impact a a a a a a a a a a a . a a 37 G. Project Risks a a a a a a . a a a a a a a a 38 VI. AGREEMENTS REACHED AND RECOMMENDATION . . . . . . . . . . . . . . . 39 A. Agreements Reached t a a a a a a a a 39 B. Recommendation a . a a a . a a a 42 HAP IBRD 23034R  COLOMBIA THIRD NATIONAL ROAD 3ECTOR PROJECT I. LOAN AND PROJECT SUMMARY Borrowert National Highway Fund. Guarantor: Republic of Colombia Amount: US$266.0 million equivalent. Terms: 17 years with 5 years of grace, at the standard variable interest rate. Project Oblectives: (a) reduce cost of transport, especially long-distance export- import traffic; (b) improve project preparation capacity within the Ministry of Public Works and Transport (MOPT) and planning and implementation of rolling five-year investment plans; (c) improve road maintenance planning and practices; (d) rationalize the structure of MOPT; (e) provide a smooth transfer of part of the national road system to the autonomous regional governments ("departments"); and (f) improve the environmental management of MOPT. Project Descrintion: The project finances a share of the five-year (1991-95) road investment program including: (i) completion of about 2,000 km of roads started under the prior Bank loan or with NOPT's own funds; (ii) twelve new road projects totalling about 400 km; (iii) a bridge rehabilitation program; (iv) a river training and dredging program; (v) equipment purchases and rehabilitation; (vi) road safety works; and (vii) technical assistance, studies and training in the areas of organization and management, road engineering, road maintenance, management information, supervision of works, and environmental control. Project Benefits; The project will result in substantial upgrading of about 1OZ of the total national road network and a significant reduction in transport costs and improved access to the main transport corridors. The river component will improve navigation and allow year-around movement of export goods along the Magdalene River. Other project benefits include higher availability of road equipment, reduction in road maintenance cost and upgrading quality of engineering designs, thereby avoiding project delays and cost overruns. The project will also improve the pricing efficiency of gasoline and diesel and ensure that road users pay for the cost of maintenance and improvement of the road network. The project will assist in the decentralization process of the national road network. Project Risks: There are three main areas of risk: (a) inadequate quality of engineering work could cause design changes and cost overruns; (b) over-programming and deficient supervision could lead to delays in project exacution; and (c) elimination of earmarking  - 2 - of fuel taxes raises concerns regarding timely availability of counterpart funding. The project will minimize these risks by improving project preparation through the introduction of up- to-date standards for project design, guidelines for preparation of engineering studies and a rolling five-year investment plan which will be updated twice a year. A Performance Plan to be signed between MOPT, the National Planning Department (DNP), and the Ministry of finance includes special procedures to assure timely budget transfers and provides for tight project supervision. The security situation in the country could result in interruption of works and inability to supervise and monitor works in the field. Recent political changes would hopefully eliminate this risk. Local Foreign Total Proiect Costs __(US$million) :a) Civil Works Roads 88.8 133.2 222.0 Bridges 3.9 5.8 9.7 River Training 10.6 16.0 26.6 To be Defined 17.1 25.6 42.7 (b) Equipment 0 30.5 30.5 (c) Road Safety 0 6.0 6.0 (d) Technical Assistance 0.4 4.5 4.9 Studies, Training Physical Contingency 12.0 18.1 30.1 Price Contingency 15.2 26.3 41.5 Total 148.0 266.0 414.0 Pinancing Plan: Government 148.0 - 148.0 IBRD - 266.0 266.0 Estimated Disbursement:- - - Bank Fiscal Years------- 1993 1994 1995 1996 1997 (S million) Annual 72.2 84.2 62.6 32.5 14.5 Cumulative 72.2 156.4 219.0 251.5 266.0 Estimated Economic Rate: 311 - weighted average for all roads.  II. THE TRANSPORT SECTOR A. General 2.1 Colombia, with an area of about 1.1 million square kilomoters, and a population of 33 million, enjoys access to both the Pacific Ocean and the Caribbean Sea. (map IBRD 23034) This advantage, however, is largely offset by the difficulty of movements between the coastal zone and the interior. The three massive ranges of the Andean mountains, running two thirds the length of the country, present a serious obstacle to communications. Consequently, land transport costs are high. The Magdalena River, until the mid-century, provided the only overland route between the central region and the Caribbean Coast and, even so, with serious navigational problems during the dry season. In the 1950's, however, under a drive toward integration and modernization, the transport system began to evolve into a national network. 2.2 The effort to establish basic transport infrastructure absorbed a considerable part of the country's public investment. In the late 1950's transport represented about half of the Central Government's investment. However, with the completion of the major expansion of the net:work this share has been reduced and has stood at 13-16% in recent years (Table 1). In the 1980's the transport sector has held a relatively stable share of GDP, between 8 and 92. (Table 2). 2.3 Colombia has now developed an extensive transport network comprising over 112,000 km of roads, of which about 26,300 km constitute the national highway network and the rest are largely unpaved departmental roads (39,200 km) and feeder road (46,500 km), both public and private (Table 3). The railway system consists of about 2,500 km of single-track narrow gauge lines. There are seven major seaports mostly serving international traffic; seventy airports of which seven are equipped for international flights; some 1,400 km of navigable waterways; and over 9,000 km of crude oil, refined products and gas pipelines. Road cransport is the dominant mode. Highways account for 54% of all freight tonnage including pipelines (902 if pipelines are excluded). The main traffic consist of long-haul imports (fertilizers, grains, general cargo) and exports (coffee, textiles, minerals) (Table 4). For passenger transport, highways account for 912, air for 6% and the river and rail for about 12 each. (Table 5). 2.4 With the primary infrastructure now in place, the Government's main investment focus is on improvement to the existing network. First priority is accorded to improving the north-south export-import corridors. Second priority is given to providing main population and production centers with improved access to these major transport corridors. The Government is also considering the transfer of the responsibility for rehabilitation and maintenance of a major part of the national road network to the regional entities ("departments") in order to increase the responsiveness of the decision-making process. In the port and railways sectors, the Government has embarked on a major program of reducing the public sector role and increasing private sector participation.  -4- B. Institutional Setup 2.5 The Ministry of Public Works and Transport (MOPT) is directly responsible for the planning, construction and maintenance of the country's national highway network. An autonomous national agency, the National Fund for Rural Roads (FNCV), is responsible for rural road construction, improvement and maintenance. Other sector operations are delegated to several parastatals and autonomous agencies including: the Colombian Port Enterprise (COLPUERTOS), which owns and operates the public sector ports; the Colombian National Railways (FNC) --in liquidation-- which still owns and operates the railways' equipment, the Colombian Society of Transport (STF), a mixed public- private sector company which will take over from FNC and FERROVIAS, which owns and maintains the railways' tracks. The Minister of Public Works is chairman of the board of these parastatals. In addition, secondary (departmental) roads are under regional jurisdiction, and municipal roads are under the jurisdiction of local governments. The aviation sector falls under the jurisdiction of the Administrative Department for Civil Aviation. 2.6 The Ministry of Public Works and Transport (Chart I) is divided into two secretariat.: (i) a General Secretariat that is responsible for contracting, financial administration and training; and (ii) a Technical Secretariat responsible for construction and maintenance of highways, maintenance of riverways and operation of river ports. MOPT also administers in practice the National Highway Fund (FVN), an autonomous agency which is able to contract financial obligations and which is the main source of financing for the sector (paras. 2.24-2.25). 2.7 The National Transport Institute (INTRA) is responsible for road transport regulation and enforcement, maintenance of a transport data bank, research and studies. INTRA is also responsible for vehicle registration and safety inspection and issuing driver licenses and operating licenses for trucks. For bus transport, it assigns routes and frequencies as well as determines tariff levels. INTRA also participates (as a minor shareholder) in construction of bus terminals. C. Hiahwavs (a) The Network 2.8 Colombia has developed an extensive road network consisting of 112,000 km, of which the national network accounts for about 26,300 km. The latter includes about 10,800 km (41%) of paved roads and 15,500 km of unpaved roads. The current 391 share of paved roads is substantially above the 241 observed in 1970 (Table 6) and reflects the continuous effort to upgrade the road network. Of the total national network about 6% of the paved roads and 22% of the unpaved roads are classified as in bad condition (Table 7) with the rest either in fair (50Z of paved and 66% of unpaved roads) or in good condition (442 of paved and 122 of unpaved roads). These figures indicate that the road network as a whole is in fair condition, and compares favorably with other Latin American countries. They also demonstrate the need for adequate periodic maintenance to preserve the capital base.  (b) Higthwa' Administration 2.9 The Directorate of Highways (DDC) within the Technical Secretariat of MOPT is in charge of highway design and supervision of civil works through three Subdirectoratess Projects, Supervision and Equipment (Annex 1). The first is responsible for preparation and supervision of engineering designs, the second for supervision of ongoing works and the last for operating central workshops and stores and maintaining and rehabilitating the equipment fleet (in conjunction with the 26 regional districts). Most detailed engineering tasks (except for minor works) are contracted to consulting firms. Consultants are employed in aupervising all civil works contracts. 2.10 The technical quality of MOPT's professional staff is satisfactory. However, the quality of engineering studies, especially those carried out by consultants, is inadequate. This is caused partly by the absence of guidelines on the scope of such studies and the exact list of items which have to be covered. In addition, existing engineering standards and technical specifications for road construction, which were prepared under prior loans, need to be updated. To assist MOPT in correcting this problem, the proposed project includes three technical assistance tasks: the preparation (by December 31, 1992) of road technical specifications and of road geometric design standards and the completion (by June 30, 1993) of a manual for engineering norms based in part on the items mentioned above. These tasks form part of the action plan agreed upon during negotiations. 2.11 In the past there were quite a few cases of inadequate performance by contractors. In the last two years MOPT took corrective measures by speeding up payments, tying price escalation payments to satisfactory execution of works and strictly applying contractual penalties for unjustified delays in execution. MOPT has also updated the existing regulations governing the use of its register of civil contractors. To strengthen the above measures, MOPT has prepared new civil works prequAlification guidelines which will be used for both LCB and ICB contracts. The guidelines were reviewed during negotiations and will be put into effect by July 31, 1992. Agreement to this effect was reached during negotiations. 2.12 Supervision of civil works has been carried out by consultants under the overall guidance and monitoring of the DDC. The cost of the consultants turned out to be very high (from 9% to 25% of the contract cost) because of inadequate engineering which forced continual changes in the contractors' work plans. Also, the delays in execution of civil works increased the cost of supervision. MOPT has now adopted a policy of employing one supervision consultant for several minor civil works contracts and this, together with improved financial project administration, and tie measures to be introduced under the proposed project to improve the quality of engineering studies, should reduce project supervision cost. As a further improvement, the proposed project includes funds for preparing a new supervision manual with the assistance of a consultant who will be funded under the loan. This task should be completed by June 30, 1993. 2.13 The Government is now actively considering decentralization of the national road network by transferring to the thirty-three Departments a  substantial part of this network. The roads which will remain under MOPT's control will likely consist of the two major north-south export-import corridors and the transversal roads connecting the major population centers with these corridors. It is tentatively estimated that the latter system will consist of about 8,000 km or about 30% of the present system. However, the process requires careful planning because the Departments have varying road maintenance capabilities. The planning of this transfer process requires the assistance of consultants who will be funded under the project (para. 4.15). The consultants will start their work no later than December 31, 1992; their task will take about eighteen months. They will examine the current resources of each Department and the pace in which it can absorb the new roads in terms of personnel, equipment and financial resources. The consultants will provide guidance not only in the planning stage of the tr'nsfer but also in its implementation. Agreement was reached during negotiations that the Government and MOPT will discuss with the Bank the findings of the study and agree with the Bank on an action plan based on the study's recommendations. 2.14 The Government has decided to launch a study an t'-= desirability of a major restructuring of MOPT. The study, to be financed under the Public Sector Reform Project (Loan 3278-CO of December 1990) will examine the efficiency of the present organizational setup, and will analyze the relationship between the transport planning units and those responsible for the execution of works. The terms of reference for the study were prepared in consultations with the Bank, and the study should be completed by mid-1992. MOPT and the Government will exchange views with the Bank during the annual project reviews on the study's proposals and their implementation. (c) Road Maintenance 2.15 Maintenance of the national road system is the responsibility of the MOPT (Annex 2). Little or no data is available for maintenance done by the various Departments for the departmental (secondary) road network. FNCV is maintaining its rural (tertiary) road network. The overall allocation for maintenance of the national road network has been generally in line with requirements, although the amount has fluctuated depending on budgetary availability. For 1991, the allocation was US$72.4 million equivalent, only slightly below the estimated requirements of US$77.7 million (Annex 2, Table 1), of which about 30% is to be carried out by contractors. This share represents a substantial increase over prior years (13% in 1987) aad reflects the Government's emphasis on contracting out services to the extent possible. 2.16 While the overall allocation for road maintenance has been reasonable, there is a lack of adequate planning of maintenance activities. The planning of road maintenance is under the responsibility of the Maintenance Planning Unit of the DDC. Efforts were put in prior loans into systematizing maintenance planning including preparation of pavement and equipment management systems in three pilot districts. While the design of the maintenance and equipment management system has fhen completed, the system has not been implemented at the field level. The proposed project includes technical assistance funds to update the existing data base, train MOPT staff, and implement the new system (para. 4.14). During negotiations agreement was  -7.. raached that such consultants will be recruited not later than December 31, 1992 and that the system will be in full operation by December 31, 1993. 2.V1 During project preparation, a five-year (1991-95) maintenance plan was prepared by the MOPT under Bank's guidance. It was hased on the maintenance manual prepared by consultants under prior projects and the existing system for data collection and cost accounting. Thirty-three maintenance activities were studied and perforcance standards were established for each. The labor and equipment requirements were determined based on productivity standards. The plan shows a slight declins in the required budget for maintenance from 1992 to 1995 (Annex 2, Tables 1 and 2) reflecting the improved stare of the network with the completion of ongoing rehabilitation and paving works. The average maintenance cost per km, including routine and periodic work as well as emergencies, is about US$3,000 (US$4,024 for paved roads and US$1,885 for unpaved road); these amounts are satisfactory. 2.18 The responsibility for road maintenance is now divided between three different organizational units: (i) the districts, which are in charge of road maintenance works; (ii) the rrograiming Office of the DDC, which is responsible for planning; and (iii) the Subdirectorate of Equipment within DDC, which is responsible for road maintenance equipment. Given the close linkage between equipment availability and road maintenance capability and the need to integrate the planning and execution functions of road maintenance, an organizational restructuring is needed. A new Directorate for Road Maintenance should be created which will incorporate the maintenance planning and execution functions and the management of equipment. This new Directorate should control directly the fields units in terms of budget allocation and implementation of road maintenance plans. Under the Performance Plan to be signed by MOPT, the Ministry of Finance and the National Planning Department (para. 3.8), MOPE undertakes to take all necessary steps needed to reorganize its road maintenance functions. Furthermore, maintenance of all roads which will become part of the departmental road system will be transferred to the Departments together with personnel, eqt-ipment and financial resources. The terms of reference of the decentralization study call on the consultants to recommend the form and pace of such transfer of resources. 2.19 Agreement was reached during negotiations that MOPT will implement the 1991-95 Road Maintenance Plan and allocate the required amounts for road maintenance. The amounts, which will be subject to review with the Bank during the annual project reviews, could be revised depending on the final decentralization arrangements. Agreement was also reached that, by September 30 of each year, MOPT will submit an update of the Five-Year Maintenance Plan by activity showing the amount allocated for the current year and that planned fo.: the following four years, and that by March 31 of each year MOPT will report the amount actually spent for the preceding year and that allocated for the current fiscal year.  - 8- (d) Constructlon Indu .t 2.20 The construction industry of Colombia contributes about 4.2% of GNP with public sector works contributing about 3.0%. MOPT's contractors' register comprises about 1,850 enterprises, classified into six categories according to their contracting capacity; over 100 contractors have a contracting capacity of over two million dollars. 2.21 The local construction industry is technologically advanced. However, it is affected by several financial factorss high interest rates, exacerbated by the lack of specialized banking; lack of suitable insuranse facilities aggravated by high security risks in some regions of the country; delays in contract payments, which delay project execution and tie up equipment; unrealistic work programs, often modified during construction to meet revised engineering estimates or adjust to low budget allocations by MOPT; and cyclical downturns in public sector construction activity. The construction sector is still lacking an appropriate legislation for contract administration. The current statute, the Decree 222 set in force in 1983, is a complex and confusing document of more than 200 articles. A bill will be submitted to Congress in 1992 to address the existing deficiencies. This proposal, :.f approved, will facilitate contracting procedures and will assign more responsibility for budget allocations to the specific government agdncy. Legal aspects, such as taxation, employment and impcrtation regimes, have been improved through recent legislation. A study is included under the proposed project to examine all remaining issues which constrain development of the construction industry (para. 4.15). (e) Highway Planning and Financing 2.22 The Planning Office (ODP) of the Ministry of Public Works and Transport has the primary responsibility for planning in the highway sector. In addition, it reviews the investment plans in the port sector proposed by COLPUERTOS and in the rail sector as prepared by FNC and FERROVIAS. The ODP is generally well staffed and its personnel is adequately tti2.ned. For investment planning, the ODP prepares a data sheet for each r.oposed prcject and sends it for approval to the Naticial Planning Department (DNP). After approval, ODP enters the project data into a data bank (created in 1989) which serves as a base for the annual budget preparation. The budget agreed between ODP and DNP is submitted for approval to the National Council for Economic and Social Policy (CONPES) and then sent to the Ministry of Finance, for submission to Congress. The budget is adjusted once in July of the budget year. This budget preparation process works reasonably well. However, project identification is done on a case-by-case basis and does not originate from an overall comprehensive analysis of the network. MOPT has already started such analysis based on a methodology agreed upon with the Bank. Agreement was reached during negotiations that, as part of the action program, the network economic analysis will be completed by the end of 1992. This analysis will serve as a base for selecting additional high priority road projects which are still undefined (para. 4.6). It would also provide valuable input to the National Transport Master Plan which was awarded at the end of 1991 and is financed under Loan 2829-CO.  - 9 - 2.23 The monitoring of budgetary revenues and expenditures throughout the year and follow-up on changes in execution status of investment projects, is deficient. As a result, road projects were started in the past without assuring first that sufficient revenues existed to accommodate them within the budget constraints given cost increases experienced in the execution of ongoing projects. This tended to slow down all projects and resulted in substantial cost increases. In order to help prevent this from happening again, the Government will supervise closely the execution of all road projects t,.rough monitoring of project costs and implementation profile (para. 5.2). Also, MOPT submitted during negotiations an official investment plan for 1991-95 by project. This plan, together with a five-year projection of revenues and expenditures of the FVN, will be updated and sent to the Bank before loan signing and by March 31 and September 30 of each year (para. 3.7). The Bank will not approve any new sub-project for financing unless it is demonstrated that it can be accommodated within existing resources. MOPT will inform the Bank, and give the Bank the opportunity to comment, on all new investments exceeding US$10 million which were not included in the original investment plan. Agreements to this effect were reached during negotiations. (f) Budget Revenues and Expenditures 2.24 Highway expenditures (capital and current) are funded by the National Highway Fund (FVN), which was created by Law No. 64 in 1967 and has been deriving its financial resources from: (a) proceeds of the tax on fuel products; (b) highway tolls; (c) external loans and suppliers' credits; and 'd) other minor revenue sources such as charges for construction of specific highways and a tax on appreciation in property values following road construction. The sources and uses of FVN funds in recent years are shown in Table 7. Since expenditures had to be fully funded by law, any shortfall in revenues or increase in project cost resulted in postponement in program implementation. In mid-1991 the Constitutional Assembly has decided to eliminate the earmarking of the fuel tax to the FVN and to substitute it with regular Government contributions. 2.25 FVN funds are mainly allocated to investment, which accounted for about 50Z of the total in 1990 (Table 7). The second largest item was road maintenance, which took up about 19%, followed by debt service at 18%. The increasing debt level has caused the share of the latter (which was a low 6% in 1985) to increase substantially over recent years. The budget for MOPT's headquarters staff is separate and funded directly by the Government from general revenues. In 1990, it amounted to an additional US$13.5 million, or about 42 of FVN's expenditures. 2.26 The fuel tax has been by far the largest source of revenues. The tax, which increased every year by the higher of the increase in fuel prices and the heavy industry index, was set in the beginning of 1991 at $Col 92 (US$0.15) per gallon. This tax was distributed 80% to highways, 10% to rural roads and 10 to the railways. In 1990, revenues from this tax constituted 61Z of all revenues used to finance the national highway system; 20% came from highway tolls, 18% from external financing and 1X from other sources. The 1991 budget (Table 8) envisions total revenues of US$378 million, of which US$233 million (62%) are to come from the fuel tax, US$71 million (19Z) from  - 10 - toll, and US$67 million (182) from external financing. With the elimination of the earmarked fuel tax, the Government intends to transfer to FVN at least as much through regular budgetary contributions. 2.27 The toll system was instituted in 1980 and covers the cost of maintenance and improvement of 6,700 km of the most heavily used roads. The average distance for a toll charge is 83 km, and the toll level is based on the assessment of relative damage to infrastructure done by the various vehicle types as found in a study conducted for the MOPT. The current toll level (for the average distance) varies from $Col 400 (US$0.63) for light vehicles to $Col 2,400 (US$3.80) for articulated trucks. Collection and management of the tolls is done by a private company which receives a fixed fee. The toll level is adequate and the collection system is relatively efficient. MOPT is controlling and monitoring the toll collection through ad- hoc traffic counts and automatic traffic counters which are being installed by MOPT using its own funds. Agreement was reached during negotiations that such counters will be installed in 30X of all stations by the end of 1992; 50Z by end-1993; 75% by end-1994; and 100Z 'y the end of 1995. (g) Fuel Prices and User Charges 2.28 The structure of gasoline and diesel prices as of January 1, 1991 and January 1, 1992 is given in Table 9. In mid-1991, the price of gasoline and diesel at the consumer level was about US$0.59 per gallon, compared to the border price level of about US$0.67. In January 1992, prices were raised by about 261, setting them above the border price level at US$0.72 per gallon. Thus, the Government has shown its commitment to align fuel product prices with international prices. Agreement was reached during negotiations that the Government will adjust gasoline and diesel prices from time to time so that the average price throughout the year will be at least equal to the average international price level plus distribution costs (CIF Bogot& for gasoline, which is imported, and FOB Covenas for diesel, which is exported). The price at the consumer level includes US$0.19 in taxes, so the price per gallon received by the petroleum company is substantially below the international level. Because the tax is levied on the low ex-refinery base, only the part of the tax which is above the international level can be considered an economic tax. During negotiations, the Government presented a program which calls for the economic tax to increase from an average US$0.05 in 1992 to US$0.12 in 1994, through an annual increase of 52 in real terms in both gasoline and diesel prices. 2.29 As Table 10 demonstrates, user charges, including fuel tax, are sufficient to finance all expenditures of the national road network. However, the latter is only part of a substantially larger network which includes departmental and rural roads. The actual outlays on upgrading and maintaining the departmental road network are significantly below the desired level because of lack of finarcial resources at the Department level. A calculation has been made (Table 10) of the expenditures required for the total road network, assuming an adequate level of maintenance, rehabilitation and upgrading (but excluding new construction). This has been compared with the existing level of road user charges (tolls, license fees, differential import  - 11 - duties). The calculation shows that a real economic tax (i.e. above the border price) of US$0.12 per gallon, or its equivalent in other charges, is required in order for user charges to cover the costs of maintenance and rehabilitation of the road network. The Government's policy to raise fuel taxes, as detailed in the document which was presented during negotiations, will allow full coverage of all road maintenance and rehabilitation costs by 1994. Agreement was reached during negotiations that road user charges will be put into effect and maintained at a level sufficient to cover 62Z of the costs of maintenance, rehabilitation and improvement of the total road network in 1992; 78% in 1993; and 100% in 1994. Progress on this plan will be reviewed with the Government as part of the annual project reviews. As a second phase, a study will be carried out to analyze the distribution of road user charges among vehicle types and the extent that the charges cover the estimated cost attributable to each vehicle type. During negotiations, agreement was reached that the Government, through DNP, shall complete and furnish to the Bank such study not later than March 31, 1993. (h) Truckina Industry 2.30 The number of trucks in Colombia is about 154,000 and shows a 2-3% annual growth in recent years (Table 11). Trucks are both imported and manufactured locally. The local manufacturing started in 1960 with the establishment of a first assembly plant by COLMOTORES, in which General Motors has an 80Z interest. A second manufacturer, SOFASA, 99.6% owned by Renault, entered in the 1980's, followed by CCA, which is owned jointly by Banco de Colombia and Mazda. All companies produce light vehicles, but only one manufacturer produces buses and trucks. Annual production in 1988 amounted to 65,000 units, of which about 71Z were light vehicles, 10% vans, 10 pickups and 92 buses and trucks. 2.31 In order to protect local industry after substantial losses suffered by the companies in 1984/85, the Government prohibited all importation of vehicles (except for special permits issued to public entities) and maintained price controls over local production. As a result, diversity of the fleet was substantially reduced and 60S of the truck fleet was modified subsequent to purchase. The price control on commercial vehicles was relaxed after 1987. In 1990 the Government relaxed its import policy and started allocating a certain quota in foreign exchange for importation of vehicles. This quota had to be bid on by importers, thus creating an effectively higher exchange rate for such imports. This policy was further liberalized in 1991 when the Government removed all restrictions on foreign exchange availability for imports of vehicles. Custom tariffs on imported vehicles have been reduced several times since 1991 and are currently at a 35-40% range for cars and 25% for trucks. 2.32 Privately owned trucks in Colombia provide services in two operational modes: private service, which is limited to truck owners carrying their own goods, and public service, where trucks carry goods for payment. Public service vehicles are required to be affiliated with a trucking firm. There are more than 500 trucking companies in Colombia, most of which own less than 5 trucks, although some are very large with a fleet of over 100 trucks. The Government does not exercise any control over freight rates, which are  - 12 - established competitively. Trucking companies operate efficiently and the sector does not impose any constraint on economic growth and transport demand. (i) Traffic Counts and Axle Loads 2.33 The Programming Office within the Directorate of Highways is in charge of planning, programming and executing systematic traffic studies of the road network. Traffic counts were expanded recently through the acquisition of new automatic counting devices. The traific counting network comprises 28 permanent stations operating year-round and 878 control stations operating one week per year; this network covers 18,294 km of roads, about 73Z of MOPT's road network, and is operated with the assistance of MOPT districts' personnel. 2.34 Vehicle dimensions and axle loads are regulated by Resolution 13791 of MOPT dated December 1988 and updated by Decree in 1989. The legal limits set forth for the most common axle arrangements are: 11 tons for single axles with dual wheels (6 tons for single wheels); 22 tons for tandem axles with dual wheels; and 24 tons for triple axles with dual wheels. In addition, load limits are also enforced for each truck configuration; these legal loads range from 15 tons for two-axle trucks to 48 tons for five-axle articulated trucks. These axle loads limits and maximum weight allowances are satisfactory. The Programming Office of DDC is also responsible for executing a truck weighing control program to enforce load regulations. The weighing program is still weak, as it is based on the operation of one set of portable scales, which is alternated through five strategic control sites per year. However, MOPT has recently purchased four sets of dynamic and static portable scales and related operational software; in addition, the project includes provisions for the acquisition of eight additional sets. These new facilities will enable control of about 90Z of the network. As part of the action plan, agreement was reached that five sets of scales will be in operation by the end of 1992 and eight additional sets by the end of 1993. D. Railways 2.35 The total railway network in Colombia amounts to 3,239 km (2,532 km in use) with the main trunk line of 1,287 km connecting the Caribbean port of Santa Marta with Medellin and Bogota in the central highlands. The railways were originally conceived as a long-haul bulk carrier for export and import traffic, but operating inefficiencies, high personnel cost, low levels of service and poor management have all combined to reduce its role. Overall traffic declined from 2.4 million tons in 1979 to less than 1 million tons in 1989. By then, only 41 of exports and 9Z of imports moved by rail. Road traffic, efficient and flexible, has replaced rail for general cargo, leaving it an important role only in a few commodities such as coal (about 40%) and coffee (22Z). 2.36 Given the deteriorating operating and financial condition of the railways, the Government, after obtaining congressional approval in 1988, issued in July 1989 various decrees liquidating the existing National Railways (FNC) and creating two public entities in the sector: (a) FERROVIAS which  - 13 - will own all infrastructure, and be responsible for maintaining the railway network and controlling traffic; and (b) Rail Transport Company (STF), which will own all existing rolling stock and will provide rail transport services on a commercial basis, with the objective of seeking maximum private sector participation and ownership. FERROVIAS is supported in its initial stage by Government budgetary transfers and a 10% share of the revenues from fuel taxes. In coming years it is intended to rely progressively on revenues from users of the rail infrastructure and rentals to the private sector of rail installations and equipment. The Government intends to have FNC's liquidation complete, and STF in operation, by July 1992. Substantial progress has already been reached in discussions with investors representing coffee growers and industrial interests in subscribing to a 49% share in STF. Financial obligations related to the disposal of FNC personnel and payment of debt are to be assumed by a special fund created by the Government. A special commission is trying to relocate workers, where possible, to the new companies, with the rest compensated according to existing laws. Staff has already been reduced from 9,000 to around 5,300. Of this total, 2,500 more will be retired, 1,500 compensated and only about 1,300 transferred to the new entities. 2.37 In the context of the Public Sector Reform Project (Loan 3278-CO) the Government stated in its Letter of Development Policy its intention to: (i) limit its role in the sector to regulation and provision of infrastructure which can be economically justified; and (ii) make FERROVIAS financially viable and limit its personnel to the minimum necessary to carry out its operations. The Public Sector Reform Loan finances a study to determine the tariff rate to be charged for the use of the rail infrastructure; consultants for the study were recruited in late 1991. j E. Ports 2.38 There are four major public ports in Colombia: Buenaventura on the Pacific Coast and Cartagena, Barranquilla and Santa Marta on the Caribbean i Coast. All four ports are fundamentally general-cargo terminals, even though Buenaventura and Santa Marta have specialized facilities for handling and storage. In addition, individual companies own private berths to handle their own cargo (petroleum, coal, etc). The National Port Authority, COLPUERTOS, manages and operates the public ports and supervises and regulates private berths located in the vicinity of the ports. COLPUERTOS does not have jurisdiction over the private ports of Turbo (operated by the Federation of Banana Growers), Puerto Bolivar (operated by the Colombia Coal Enterprise), and Covenas (operated by ECOPETROL). 2.39 Traffic at the public sector ports amounted to about 5 million tons in 1989, representing annual growth of about 2.5% in the last decade (Table 12). Among all ports, Buenaventura handled most traffic, 2.9 million tons, or 58% of the total, followed by Cartagena. Buenaventura's dominance is larger among imports where it accounts for 63% of the total, reflecting the fact that it is the only Pacific Ocean entry from the Far East where most imports originate. Private berths, which pay specific charges to COLPUERTOS, handled about 6.9 million tons in 1989, most of it (5.1 million tons) near and  - 14 - around the port of Cartagena. Specialized ports handled an even larger amount, 21.2 million tons, of petroleum, coal and bananas (Table 13). 2.40 Ports suffer from restrictive labor practices, weak management and high operating costs. As a result, with the exception of the port of Buenaventura, all public ports posted losses in recent years. The mounting losses and lack of progress in reducing labor costs has caused Congress to pass a new law in January 1991, to restructure the sector. The law allows private and public enterprises to construct, maintain and operate ports and provide all port services without any restriction with regard to labor employment or ability to cover costs. The Government maintains control over tariffs in the beginning but will let market forces set in as competition builds up. Port operators will only pay a uniform fee based on the economic cost of the public resources used by each enterprise. COLPUERTOS will be stripped of its regulatory power, which will be transferred to MOPT. The law envisages the total liquidation of COLPUERTOS within a period of three years, with the Government assuming the pension payments and debt obligations. Workers will be retrained and be offered either alternative employment or severance pay. The restructuring of the port sector formed part of the conditionality of the Public Sector Reform Loan. F. River Transport 2.41 Colombia has about 1,400 km of navigable waterways which moved approximately 2.7 million tons in 1989. The most important river system for cargo movement is the Magdalena River, which in 1989 moved 19 million tons (Anaex 3, Table 1), with petroleum products accounting for most of it, 1.3 million tons. General cargo on the river has been declining steadily, reflectinC in part the restriction of navigation to the wet season; this is being addressed by the proposed project. 2.42 Responsibility for the maintenance of river transport infrastructure and for the regulation of river transport is held by the Directorate of Navigation and Ports (DNYP) within MOPT. In all, DNYP employs 650 people. It has an annual budget of US$13.5 million, which finances the direct operating cost of its ten dredgers and other equipment, eleven contracts 4or protection of river banks, administrative costs, studies and research, including the cost of two laboratories and the survey vessel, and minor works in the river ports. 2.43 River transport has a distinct cost advantage over roads for long- haul bulk traffic (para. 4.28) and is extremely suitable for the increasing traffic of petroleum products and the expected growth forecast for coal exports. However, such traffic increase depends on the availability of year- around navigation and improved operations at the river ports. This will be provided by the proposed project. Furthermore, adequate maintenance of the river is absolutely essential if navigation is to be reliable. Maintenance has been inadequate in recent years because of poor availability of the old fleet of dredgers and inefficiencies in operation of the fleet. MOPT is looking into the possibility of chartering out DNYP's dredgers to private operators. This option has to be looked at with the help of a consultant who will be funded by the project. Agreement was reached during negotiations  - 15 - that: (a) as a condition of disbursement for the river training civil works, MOPT will submit a plan for implementing a satisfactory maintenance program for the Magdalena River; and (b) MOPT will carry out the program as agreed with the Bank. 2.44 River usage tariffs are minimal, about $Col 0.02 per ton-km, compared to $Col 0.60 for heavy trucks by road. Total revenues from river user charges cover only a very small portion of DNYP's expenditures. Agreement was reached during negotiations that MOPT will put into effect a revised system of user charges which will cover at least the cost of maintaining the river infrastructure system, by January 1, 1994. G. Shinnina 2.45 Flag law protection has been applied in Colombia in the last decade to help the national shipping lines, by reserving for them a portion of the country's foreign trade. The results, however, have been inefficient and costly services. The Government has now embarked on a policy of reducing this protection. In March 1990, it reduced the reserve for bulk cargo on national liners from 502 to 10% and for general import cargo to no more than 50Z (against a previous minimum of 50%, which resulted in an effective average reservation of 75%). As a result, some reduction in shipping rates has already taken place, and the largest national shipping line, Flota Nercante Grancolombiana, has announced a restructuring plan, reorganization, staff reductions and fleet modernization. 2.46 The Public Sector Reform Loan stipulates that, as a condition of disbursement for the second tranche of the loan, the limit of 80Z on the remittance abroad by foreign shipping lines is to be eliminated, and the reservation on bulk imports be further reduced from 10% to 5%. Law 49 of 1990 eliminated all freight remittance ceilings for foreign shipping companies and the reserve quota system was eliminated in October 1991. H. Intermodal Facilitation 2.47 A study was conducted in 1986 with assistance by UNCTAD on the improvements required in export and import procedures and regulations to facilitate the flow of goods and intermodal transfer (ship-river-road and ship-river-rail). Although the subject was later discussed in various working groups, a comprehensive approach was never formulated. The General Directorate of Customs (DGA) has recently prepared a proposal to expedite the flow of goods, allowing merchandise to reach its destination with only one document and only one responsible shipping agent. This is especially important for container traffic, which increased from 45,000 containers in 1981 to 107,000 containers in 1989, and is expected to grow even more rapidly in the future. A major unresolved customs issue is related to allowing merchandise to be inspectee only at final destination instead of the port of entry. Security considera ions and illegal trade h-v- orevented introduction of such legislation in the past. 2.48 DGA and MOPT have taken initial steps to form a group to coordinate discussions among shippers, transporters, gover.nent institutions,  - 16 - and associations of commercial enterprises. Funds are provided under the proposed project for a series of seminars to be coordinated by the Planning Office of MOPT to bring the latest developments in trade facilitation to the attention of all parties. Agreement was reached during negotiations that MOPT will nominate, by September 30, 1992, a full-time employee with experience in the area of international trade to coordinate this effort and that a plan of action to facilitate international transport procedures and regulations, based on the UNCTAD study and other findings, will be prepared by June 30, 1993. Funds for such consultant are included under the project. III. PAST BANK EXPERIENCE IN THE TRANSPORT SECTOR 3.1 The Bank has played a major role in the development of Colombia's transport system. The Bank started its support to the national highway system with a US$16.5 million loan in 1951 and has since had nine operations totalling about US$558 millions (Table 14). The Bank entered financing of rural roads in 1981 and has had three operations for a total of US$150 million. In addition, the Bank has made seven railway loans totalling about US$197 million, one aviation loan (US$61 million) and one port loan (US$43 million). The IFC has financed a US$15 million loan/equity operation in the pipeline subsector. Total Bank/IFC contribution to the sector to date is about US$1,024 million. 3.2 In the railway sector, the Bank loans were unsuccessful in bringing about the hoped-for improvement in railway operations. The Seventh Railway Project, Loan 2090-CO of 1981 (the last Bank operation in the sector), attempted to improve operating efficiency and equipment utilization and streamline management practices. However, overstaffing and operating deficiencies remained and resulted in decreasing traffic and deteriorating finances. As described in paras. 2.36-2.37, the Government has now embarked on a plan to privatize railway operations with only infrastructure remaining under a Government agency while actual operations are transferred to a mixed public-private sector enterprise (STF). Given the fact that the railways enjoy a cost advantage for bulk traffic over long hauls (e.g. coal, coffee), there could be justification for a renewed role for the Bank in supporting infrastructure improvement if the Government is successful in finding enough private operators to ensure viability for the infrastructure company. Any further involvement should await the result of current negotiations with the private sector regarding purchase of a share in STF and the completion of a study to determine tariff levels to be charged by FERROVIAS for the use of rail infrastructure. 3.3 In the port sector, the Bank is now involved in a port rehabilitation project designed to improve port facilities and operating efficiencies, and upgrade investment planning and financial and administrative capability. While the physical elements of the project are being completed, and some improvement in operating practices is apparent, it has become clear that a Government agency will not be able to overcome the restrictive labor practices and the financial losses associated with operating Colombia's public ports (with the exception of Buenaventura). As stated in para. 2.40, the  - 17 - Government has now decided to dissolve COLPUERTOS over the coming three years and let private or mixed public-private sector enterprises build and operate Colombia's ports. The Bank and IFC could possibly be involved in the future with provision of long-term financing for these new enterprises. Although some minor changes were introduced in the ongoing project, as a result of the plan to privatize the ports, the need for most project components is not affected by the eventual transfer of authority. The improved port facilities will be required, regardless of the organization that operates the facilities. 3.4 Rural roads have been supported since 1981 through Bank loans to the National Fund of Rural Roads (FNCV). The Bank's current rural road project, Loan 2668-CO, finances part of FNCV's 1986-92 Investment and Maintenance Program as well as studies, technical assistance and training. The project supports the Government strategy of decentralization, since the road projects are identified and prepared by the local governments while FNCV reviews and screens the projects and supervises their execution. The local governments also contribute to the financing of the projects. After a slow start with the first rural project, FNCV has now developed into an efficient institution staffed with capable personnel. A maintenance management plan has been instituted and management performance is satisfactory. The loan resulted in substantial upgrading of the rural road network. The loan is expected to be completed by mid-1992, about six months ahead of schedule. The Second National Rural Roads Project (Loan 3157-CO), approved in 1990, has shown substantial progress in its initial phase, with rapid contracting of civil works and extension of the maintenance management system country-wide with the assistance of consultants. 3.5 The most intensive Bank involvement has been with the national road network, for which MOPT is responsible. The task here has been more complex than with the rural road system. First, MOPT is a much larger organization with over 10,800 employees compared to only 2,300 for FNCV. Second, MOPT oversees a substantially bigger budget (over US$500 million against US$70 million). Finally, the projects themselves are larger and more complex. The experience under previous Bank loans to the highway sector is detailed in Annex 4. The results of Bank involvement to date have been mixed. On the physical side the results are substantial: the national road network has expanded significantly and the state of the network has improved markedly. Only a small portion of the paved national road network is now classified in bad condition. The two major north-south export corridors are almost complete and all the major population centers are now connected to the road network. The PCR for the (First) Highway Sector Project, Loan 2121-CO, (Sec. M91-229) notes that the institutional strengthening component had only mixed results. First, while computerization was advanced in the areas of accounting and personnel administration, the objective to form a management information system has not been achieved, mainly due to lack of management commitment. (This issue has been dealt with under the ongoing Second National Highways Sector Project, where consultants have designed a management information system whose implementation will form a part of the proposed project). Second, the road maintenance system developed by the consultants has not been extended from the pilot districts to the country as a whole because of lack of management commitment, inadequate coordination among the technical units and between them and the administrative units, and frequent changes in personnel.  - 18 - Third, the vehicle weight control has not advanced satisfactorily (This issue was addressed under the subsequent loan). Fourth, budget planning and administration has remained weak because of inadequate quality of engineering, over-programuing and lack of counterpart funds. The report notes that HOPT implemented several studies on policies in the transport sector and on upgrading road technologies, carried out partially the training program and implemented a system for contracting routine road maintenance. 3.6 The observations pertaining to Loan 2121-CO are also applicable in part to the ongoing Second National Highways Sector Project, Loan 2829-CO. In the area of project preparation, engineering studies continued to be weak in the absence of established guidelines. As a result, the quality of road designs varied substantially depending on the consulting firm and the assigned supervisor; in some cases actual costs were exactly on target while in others costs went up as much as three times. Another major difficulty that surfaced was the tendency of HOPT to start work on more projects than the number which its financial resources could sustain, resulting in construction delays and further cost increases (due both to deteriorating road conditions with the passage of time and the additional input of supervising consultants). Also, the technical supervision by MOPT was unsatisfactory, and in several cases the chosen contractors were not qualified to carry out their task. Another difficulty was caused by selection of contractors whose performance was unsatisfactory. The deteriorating security situation contributed to project delays and cost increase because contractors had to interrupt work when workers' safety could not be assured. This factor also prevented effective supervision of road projects in the field. 3.7 The proposed project concentrates on three areas which proved to be major obstacles to achieving the past projects' objective3: project preparation and engineering, systematic road maintenance and budgetary and financial control. In the first area, the project includes the preparation of detailed guidelines for consulting firms on what items have to be included in all engineering studies, and preparation of documents standardizing road geometric designs and road technical specifications. This will ensure consistency among all engineering studies. Furthermore, a new document for prequalification of contractors, agreed during negotiations, will tighten the criteria for selection of contractors. As to road maintenance, substantial progress has been made during the preparation of the proposed project in completing a road maintenance plan based on performance and productivity standards. Consultants to be selected by December 31, 1992 (para. 2.16) will move promptly to the final stage of system design and implementation. In terms of financial control, MOPT has already prepared a Five-Year Investment Plan that specifies the amount of investment that can be carried out both under the Bank project and for projects carried out with MOPT's own funds, as well as those supported by IDB financing. The investment plan, specifying the investment for each project by year, was submitted during negotiations. The investment plan will be incorporated into a five-year plan for FVN's revenues and expenditures and will be updated by April 1 and October 1 of each year. No contract for a new Bank-financed project will be approved unless the plan demonstrates that the project can be accommodated within MOPT's overall resources. These procedures for Bank approval of individual projects represent a significant tightening of the review process compared to the prior  - 19 - loan, which specified only a general qualifying criteria for road sub-projects to be included under the loan. 3.8. In order to further tighten project monitoring and supervision, the Government (through DNP and the Fiscal Council -CONFIS- within the Ministry of Finance) has agreed to enter into a contract with MOPT in the form of a Performance Plan (Plan de Desempefio), by which MOPT will have to comply with a list of quantitative indicators involving progress and cost control of individual road sub-projects as well as overall institutional objectives (para. 5.2). DNP and the Ministry of Finance will assume responsibility for project supervision on the part of the Government, and will be assisted by consultants in performing this task. The Bank will participate in the Government's formal project review at least once a year. Agreement was reached during negotiations on the draft contract to be signed by MOPT, DNP and the Ministry of Finance (Annex 5). The Government committed itself to supervise the project implementation in accordance with the Performance Plan. In addition, the loan documents include a provision which allows the Bank to suspend considuration of all new sub-projects if project execution is not satisfactory (para. 5.2). IV. THE PROJECT A. Justification 4.1 Colombia's highway network is characterized by rough terrain and large distances between the major Atlantic ports and the main population and production centers. The recent report on the Role of Transport in International Trade (8900-CO, November 1990) has shown that the share of transport in total product costs is high: transport costs account for 702 of the FOB price of coal, a major export commodity, and 302 of the import price of wheat. The project is an integral part of Bank support for the Government's strategy to open the economy to international competition and to make more efficient use of economic assets. This objective is being pursued at the level of macroeconomic and sectoral policy through a coherent set of reforms of the trade regime, financial, industrial, transport and power sectors. The Bank is supporting this strategy of "apertura" through a series of operations including the recently approved Public Sector Reform Loan, Industrial Restructuring Project, and others under preparation. The proposed project will further this strategy by providing part of the infrastructure needed to support the export drive and by reducing transport costs through better maintenance and rehabilitation. At the same time, it aims to correct the institutional weakness observed under the past Bank loans in investment preparation, programming and budgetary control. 4.2 Under the ongoing Second National Highways Sector Project (Loan 2829-CO) a major effort was put into paving the remaining sections of a north- south highway corridor linking the capital city Bogota and other major population centers with the Atlantic ports of Santa Marta and Cartagena. The proposed project will finance the completion of this corridor, which will  - 20 - replace the existing mountain route and reduce transport costs by about 30Z. As a second priority, works have been ongoing on a second north-south corridor connecting Medellin and Popayan, two important centers, with the Atlantic ports, and on providing improved linkages between other production and population centers with these two north-south corridors. The proposed project helps the Government to continue pursuing this strategy. 4.3 The project will introduce twice-a-year updating of the five-year investment plan, which will then be reviewed by the Bank. The project will also assist in the implementation of a medium-term road maintenance plan, decentralization of the national road system from the planning stage through implementation, and the restructuring of the MOPT based on studies to be financed by the project and by the Public Sector Reform Loan. The Bank's involvement will ensure efficient pricing of petroleum products and adequacy of user charges. Finally, the Bank's participation will bring about, for the first time, a direct supervisory role for the Government over the execution of a project by MOPT. B. Prolect ObJectives 4.4 The objectives of the proposed project are to: (a) reduce the transport cost of freight, especially long-distance import and export traffic, and improve access to markets by completing rehabilitation and paving of about 2,400 km roads and improving river transport; (b) improve the quality of project preparation by MOPT and consultants by standardizing engineering designs and specifications and issuing project engineering guidelines; (c) improve road maintenance planning and practices; (d) improve project planning and execution and reduce construction costs by tightening the criteria for contractor qualification, expanding the capability of MOPT to follow up and monitor civil works contracts and establishing a mechanism for Government supervision of project implementation; (e) assist MOPT in the process of decentralization of the national road system and in its restructuring; and (f) improve the environmental management of MOPT. C. Project Description (a) Highway Rehabilitation 4.5 The proposed loan would finance a part of the five-year (1991-95) highway rehabilitation, paving and construction program. The part which would be financed by the Bank consists of:  - 21 - (i) forty-four ongoing contracts initiated under Loan 2829-CO, comprising 1,965 km of paving and rehabilitation works which need additional financing of about US$140 million to be completed; (ii) two contracts totalling 47 km initiated with FVN's own funds, which will need additional financing of about US$8 million to be completed; and (iii) twelve contracts which were not yet awarded comprising 52 km of new construction, 224 km of rehabilitation and 124 km of paving at a cost of about US$74 million. 4.6 The list of all eligible road sections included in the project is given in Table 15. Agreement was reached during negotiations that MOPT will carry out the road works according to the list agreed with the Bank. MOPT also submitted during negotiations an overall Five-Year (1991-95) Investment Plan which includes Bank-financed projects, as well as all other projects to be carried out with FVN's own funds and any other financial source. MOPT will update its five-year Investment Plar., which will include FVN's revenues and expenditures, on March 31 and September 30 of each year and will inform the Bank, and give the Bank an opportunity to comment, on any new investments exceeding US$10 million. The total base cost of the road component is about US$222 million, of which the Bank will finance the estimated foreign exchange cost of about US$133 million (602 of total cost). In addition, about US$43 million of the project is left to finance projects which are yet to be defined. This will be done after completion of the economic analysis of the whole network, due at the end of 1992. (b) Bridges 4.7 The bridge program includes the following: (i) repair of ten existing bridges, to preserve the integrity of their structures, with a total length of 2,284 m. and a base cost of US$2.0 million; (ii) reconstruction of four existing bridges which are in bad condition with a total length of 146 m. and construction of ten new bridges with a total length of 779 m. to link sections of existing roads at a base cost of US$7.7 million. In total, the program comprises 24 bridges, with a total length of 3,209 m and a total base cost of US$9.7 million (Table 16). Agreement was reached during negotiations on the list of eligible bridges. (c) River Training and River Ports 4.8 The investments in river training are described in Annex 3. Their purpose is to improve the navigability of the Magdalena River from Barrancabermeja to the Atlantic Coast from the present average of nine months, to year-round availability. The works in the river will involve channel deepening by dredging and the closing of secondary channels through the use of semipermeable barriers, aided by deposition of dredged materials. These works (cost US$17.6 million) will both deepen and stabilize the navigation channel. The component also includes dredging in the Canal del Dique leading from the river to the port of Cartagena, to catch bottom-moving sediments, thus  - 22 - maintaining the depth of the Canal. This work will also include minor works to stabilize the river banks and dredging the two mouths of the Canal (US$3.5 million). The total cost of these works is US$21.1 million. 4.9 The ports of Capulco anid Barrancabermeja provide the dry cargo intermodal links between the river and rail and road. The installations at the port of Barrancabermeja are insufficient and obsolete and need to be upgraded. The works involve relocation of the transit shed and other buildings to maximize cu,acity of the existing berth, building an additional berth with a total length of 240 m, and improvement of accesses to the port. The total cost for river port works is US$5.0 million. About US$0.5 million has been included for navigation aids to improve operational safety of river navigation. (d) Eauipment 4.10 MOPT's road maintenance fleet (Annex 6) is composed of 3,833 units, of which 1,391 (36%) are more than fifteen years old. This fleet is not adequate to carry out maintenance work by force account within the agreed 1991-95 maintenance plan. Of the present fleet, 483 units need minor repairs and 813 need rehabilitation or reconstruction. In addition, most old units which are more than ten years old should be sold at auction or discarded, because their operation and maintenance is too costly. 4.11 To enable MOPT to carry out the maintenance programs for 1992-95, a total of 753 new units will be acquired through the proposed project at a cost of about US$24 million. Twenty-five units will be acquired by MOPT with its own funds. Furthermore, the units between five and ten years old, and some units between ten and fifteen years old, will be rehabilitated during the same period in accordance with a program prepared by MOPT's Equipment Subdirectorate. The maintenance equipment list was prepared taking into account the increased involvement of private contractors in maintenance activities, including routine maintenance, and is needed for carrying out the scheduled maintenance program by force account and micro-enterprises. The equipment rehabilitation program will be carried out in MOPT's workshops, which are properly supplied and staffed for this purpose. The project will finance US$5 million in spare parts needed for this program. The project also includes: (a) purchase of instruments for the road materials laboratory (US$500,000); and (b) purchase of additional weighing scales (US$1 million) to enforce weight control regulations. The equipment purchases do not conflict with the decentralization process, because the equipment is needed in the short term to enable implementation of the road maintenance plan, either through the Ministry or through the various departments which will absorb both personnel and equipment. The equipment purchasing program was planned so that the equipment can be easily reassigned to the Departments and serve to carry out maintenance on the roads which will be transferred as part of the decentralization process. (e) Road Safetv 4.12 The current road safety system is still inadequate. The number of accidents on the highway network is high, resulting in heavy loss of life and  - 23 - property. One of the main causes of accidents is the lack of adequate vertical signalization, pavement marking and barriers. A program to improve t'.s situation and decrease the number of accidents has been prepared for the period 1992-95. The program lncludes: (i) about 22,600 vertical signs (warning, regulatory, and informative) at a cost of US$2.0 million; (ii) about 2,900 km of road marking amounting to US$3.5 million; and (iii) road barriers at a cost of US$0.5 million. The total cost of the program to be financed by the loan is about US$6.0 million (Table 17). (f) Technical Assistance 4.13 The technical assistance program is designed to overcome remaining defic-lencies in the sector's management. It follows up on studies carried out under the on-going Loan (2829-CO), supports improvements that were to be started under that loan but were delayed because of institutional constraints, and introduces actions in new areas identified during project preparation. The program will improve MOPT's performance in the field of road design and engineering, and road maintenance and civil works supervision, through a combination of studies and on-the-job training. The program will also provide the assistance necessary to plan and implement the decentralization of the national road network. 4.14 Draft terms of reference for all technical assistance tasks are int..uded in Annex 7 and were agreed during negotiations. The technical asistance program includes: (i) Developing and ILp.ycmentinx a Road Maintenance System. Efforts were undertaken under Loan 2121-CO to develop a road maintenance accountJng system, but an actual mechanism of planning and control has not been installed. A preliminary 1992-95 maintenance plan was developed during project preparation. The cechnical assistance will establish a systematic multi-annaal budget and performance plans, define performance criteris- organize maintenance activities including maintenance by contract, overview implementation of the plan and the eq:ipment management system, and train MOPT's personnel. The ;onsultants will be selected by December 31, 1992 and ti.e system should be in operation by the end of 1993. (ii) Standards for pavement structural design. There is currently no pavement design guide within MOPT, which results in inconsistent engineering criteria applied to new construction and rehabilitation work. A consultant will supervise the work of the task force created by MOPT to develop such a pavement catalogue. The consultant will establish the general methodology, define the required inputs, review existing procedures to evaluate soils and road materials, and review the final report and supporting documents. The task should be completed by June 30, 1993.  - 24 - (iii) SutMervision of Road Works. A consultant will design upgraded supervision procedures and prepare a project supervision manual. The task should be completed by June 30, 1993. (iv) ComDuterized Manazement Information System. A study was carried out by local consultants (Econometria S.A.) under Loan 2829-CO resulting in a detailed design of a computerized information system. The implementation stage will be financed under the proposed loan, and should be completed by June 30, 1993. (g) Studies 4.15 Four studies are included under the proposed project. Their terms of reference are included in Annex 7 and were agreed during negotiations. (i) Decentralization Study. The task of transferring part of the national road network to the Departments will require careful planning to ensure that the transfer takes into account the absorptive capacity of each Department and that it is done in a way that will provide the resources (staff, equipment, materials) required for adequate maintenance of the transferred roads (para 2.13). The consultants will also supervise the initial stages of implementation of the decentralization program. These consultants should be recruited by December 31, 1992; their task will take about 18 months and will be completed by June 1994. (ii) Road Construction Industry. The study will examine existing constraints to improving management and efficiency in the construction industry including the regulatory environment, financing, technology and training. The task should be completed by the end of 1993. (iii) Performance of Road Materials and Pavement. The study will follow up on pavement research started by the University of Cauca. The program will cover evaluating road materials' behavior, measuring the impact of environmental factors, monitoring pavement performance, establishing a pavement deterioration model and testing cost-effective solutions to pavement problems. The study should be completed by June 30, 1994. (iv) River Maintenance. MOPT should hire consultants to study the restructuring of maintenance activities of the DNYP (para 2.40). Agreement on a definitive river maintenance plan is a condition for disbursement for the river training works.  - 25 - (v) Other Studies. Engineering guidelines will be completed by June 30, 1993 and will incorporate the results of the task forces on technical specifications and standards for road geometric design. The availability of these guidelines will reduce substantially the variations in scope and quality of engineering studies. (h) Training 4.16 Training of MOPT's staff has been conducted under past Bank projects. The ongoing loan (2829-CO) included funds for consultants to prepare a detailed training program. Some training has been conducted through technical seminars conducted by the University of Cauca. However, the training offered lagged substantially behind the objectives because of the absence of a detailed training plan, lack of coordination among departments and limited commitment by management. During project processing a detailed training plan was prepared by MOPT's Directorate of Industrial Relations with the participation of all operating departments. The plan is fully supported by MOPT's management and includes a detailed timetable for on-the-job training, courses, seminars and fellowships (Annex 8). The total cost of the program to be financed by the project is US$2.1 million. The program finances courses and seminars within Colombia in the areas of road maintenance, heavy equipment operation and maintenance, road planning and design, environmental control, navigation and intermodal transport. In addition, short term fellowships for training abroad are also included. D. Prolect Costs and FinancinR 4.17 Projected revenues and expenditures of the National Highway Fund for 1991-95, as adjusted by the Bank, are given in Table 8. The investment part is as follows: (US$ million) Project 1991 1992 1993 1994 1995 Total 2829-CO 70.4 - - - 70.4 Proposed IBRD 20.4 121.1 113.9 89.4 51.1 395.9 IDB 97-IC-CO 22.7 13.4 - - - 36.1 FVN Road Projects 80.7 120.7 154.8 211.8 150.4 718.4 Proposed IDB - _ 131.1 114.4 103.5 349.0 Total 194.2 255.2 399.8 415.6 305.0 1569.8 4.18 Of the total investment included in the five-year plan, the proposed project accounts for about 25%. The Bank will finance the foreign exchange cost of the project totalling US$266 million or 65% of total cost; the remainder will be financed by the FVN. The loan will finance the foreign exchange component (60%) of civil works, 100% of the imported cost of all equipment, 1002 of technical assistance, studies and training overseas, and 65Z of local training. The project cost by year is shown in Table 18. The costs reflect June 1991 prices.  - 26 - COLOMBIA THIRD NATIONAL ROADS SECTOR PROJECT FINANCING OF PROJECT COSTS P r o j e c t C o a t a P r o j e c t C o a t s B a n k C OM P O N E N T S (Col$ million) (US$ million) L o a n LOCAL FOREIGN TOTAL LOCAL FOREIGN TOTAL (USS Mill) X --_------------_----__----_-_-----_-------_--_-_--------------.-.-_--__----_-_.---------.----_---__-------_ I. CIVIL WORRS -Road Projects-2829-CO 35,237 52,855 88,092 55.9 83.9 139.9 83.9 60 -Road Projects-FN 2,012 3,018 5,031 3.2 4.8 8.0 4.8 60 -Other Road Projects 18,684 28,026 46,710 29.7 44.5 74.2 44.5 60 -Bridges 2,444 3,667 6,111 3.9 5.8 9.7 5.8 60 -River Training 6,701 10,052 16,753 10.6 16.0 26.6 16.0 60 -Projects to be Defined 10,763 16,145 26,908 17.1 25.6 42.7 25.6 60 SUBSOTAL CIVIL WORKS 75,842 113,763 189,605 120.4 180.6 301.1 180.6 60 II. EQUIPMENT -Road Maintenance 0 18,264 18,264 0.0 29.0 29.0 29.0 100 -Laboratory Materials 0 315 315 0.0 0.5 0.5 0.5 100 -Axle Weight Control 0 630 630 0.0 1.0 1.0 1.0 100 SUBTOTAL EQUIPMENT 0 19,209 19,209 0.0 30.5 30.5 30.5 100 III. ROAD SAFETY 0 3,779 3,779 0.0 6.0 6.0 6.0 100 IV. INSTITUTIONAL STRENG- THENING - Technical Assistance 0 724 724 0.0 1.2 1.2 1.2 100 - Studies 0 762 762 0.0 1.2 1.2 1.2 100 - Training : Local 220 409 630 0.4 0.7 1.0 0.7 65 T- raining t Abroad 0 718 718 0.0 1.1 1.1 1.1 100 - Training Aide 23 210 233 0.0 0.3 0.4 0.3 90 SUBTOTAL INST. STRENG. 244 2,823 3,067 0.4 4.5 4.9 4.5 89 V. PHYSICAL CONTINGENCY 7,584 11,376 18,960 12.0 18.1 30.1 18.1 60 S U B T 0 T A L 83,670 150,950 234,620 132.9 239.7 372.5 239.7 64 VI. PRICE CONTINGENCY 9,571 16,576 26,147 15.2 26.3 41.5 26.3 63 -_--_-------------_---_-----------------------.-----------.----------__------__--------..------------------ TOTAL 93,241 167,527 260,767 148.0 266.0 414.0 266.0 64 Notes Figures in local and foreign may not add up to the total because of rounding.  - 27 - 4.19 The preceding table shows total project costs by component. Project cost estimates are based on: ti) up-to-date cost estimates by supervising consultants for on-going civil works initiated under Loan 2829-CO and those started with FVN's own funds; (ii) preliminary engineering designs for the works not yet contracted; (iii) published suppliers' current equipment and spare parts prices; and (iv) prevailing fees for individual technical assistance consultants (US$10,000 per man-month for expatriate consultants and US$5,000 for local). Physical contingencies were calculated at 10 of the contract price for all civil works. These contingencies were estimated at US$30.1 million. Price contingency was estimated at 5Z p.a. (in US$ equivalent) for the period 1992-96 with an estimated total of US$41.5 million. E. Economic Evaluation (a) Roads 4.20 All roads included in the rehabilitation, paving and construction program have been subject to an economic evaluation. For roads already in execution under Loan 2829-CO, and which will be completed under the proposed project, an economic evaluation was carried out during the appraisal of that loan and all showed rates of return exceeding 12t. Nevertheless, all these roads were subjected to an economic reevaluation using the vehicle operating costs subroutine of the Highway Design and Maintenance Model developed by the Bank. This reevaluation takes account of all the changes since the original evaluation in terms of project cost, vehicle traffic and road condition and was based on comparing vehicle operating costs before and after the project. The economic operating costs were calculated for each type of vehicle, for each type of road condition (bad, fair, good), geometry (mountain, hilly, plain), and surface type (paved and unpaved) (Table 19). The evaluation shows that for paving projects started under Loan 2829-CO, the rates of return vary from 7% to over 501 with a weighted average of 232 (Table 15). Two of the projects show a return of less than 10%. For these projects, a second analysis was conducted taking the investment already made as bygone. The returns on the remaining investment turn out to be 12% and 31Z, respectively. For rehabilitation projects started under Loan 2829-CO the returns vary from 17% to over 50% with a weighted average of 31%. The weighted average economic return for all projects started under 2829-CO and with FVN's funds (base cost US$147.9 million or 67% of the road component), is 26%. 4.21 All road sections which belong to the north-south corridor along the Magdalena River connecting Bogot& with the Atlantic ports of Cartagena, Santa Martha and Barranquilla were analyzed as one project, since completion of the corridor as a whole is required to realize the benefits from through traffic. In this analysis, in addition to normal growth based on traffic in the period 1980-89, generated traffic was estimated at 3% annually. The benefits from the paving program of 120 km of the 511-km corridor are derived from reduction in operating cost for both long-distance traffic to the ports which is now using an alternative route, and local traffic, which is now using the existing unpaved roads. The rate of return on the project is 32X.  - 28 - 4.22 The above returns, while very satisfactory, are below those projected during appraisal of Loan 2829-CO, which were 20Z to 1001 for rehabilitation works and 20Z to 70Z for paving. The reduced returns are due mainly to the inadequate cost estimates under Loan 2829-CO, which were caused partly by incomplete and unsatisfactory engineering designs. This will not be repeated under the proposed loan given the advanced stage of projects under execution and the setting of standard engineering norms and technical specifications, as well as standards for road geometric designs, which will result in a revised engineering manual and consistent road design standards. The submission every six months of updated investment plans will prevent the start of additional projects without adequate resources, which in the past has led to delays in execution and cost increases. 4.23 For projects which have not yet started, a detailed analysis has been conducted using the HDM model. Traffic for each sub-project was projected based on historical trends and expected generated traffic. Using engineering data and climatic conditions, as well as traffic characteristics and cost parameters, the model simulated the operating conditions for each sub-project and calculated vehicle operating costs. For rehabilitation projects, the benefits of the proposed investments (including overlays at a cost of US$9.4 per square meter whenever road roughness reaches a certain level) were measured against the alternative of carrying out only routine maintenance (at a cost of about US$500 per km) and road patching (at a cost of about US$7.6 per square meter). For paving projects, the benefits of the project were derived by comparing the scenario under the proposed project with a base case which consists of routine maintenance of unpaved roads (grading), spot regravelling, and gravel resurfacing every 3-4 years (at US$5 per square meter). For the six new construction projects the economic analysis takes into account the reduction in vehicle operating costs because of the improved road conditions and shorter distances as well as time savings because of reduced congestion. The average economic rate of return on all projects which are yet to be contacted is 401 (Table 15). 4.24 The economic rates of return for all road works are as follows: Investment tvoe Base Cost Range of ERR Averate ERR (USSmillion) (2) (S) (a) ongoing works: Rehabilitation 54.9 22-over 50S 31 Paving 93.0 12-over 502 23 Subtotal 147.9 26 (b) to be contracted: Rehabilitation 28.7 24-502 41 Paving 4.9 27-442 26 New Construction 40.6 33-over 50Z 41 Subtotal 74.2 40 Total 222.1 31  - 29 - (b) BridRes 4.25 The base cost of the bridge construction and rehabilitation program amounts to US$9.7 million. All new construction projects which exceed US$500,000 (seven projects totalling US$7.1 million) have been subject to a detailed economic evaluation. Of the seven projects, the two largest were analyzed as part of the total investment in constructing the north-south export-import corridor (para 4.21); the economic return on that project as a whole is 32Z. For the other bridges, the benefits from new construction are associated with savings in both vehicle operating costs and time. It should be noted that only time savings related to work were taken into account. The bridges proposed for new construction replace existing bridges which are in danger of collapse. In case of collapse, traffic would have to be diverted to an alternative route. Three of the five bridges are on heavily trafficked roads with ADTs averaging over 1000 vehicles per day and the other two on medium-traffic routes of 400 vehicles per day. The substantial cost involved in diverting traffic to alternative routes yields rates of return exceeding SOZ for all these bridges. 4.26 Two bridges which were proposed by MOPT were deferred for further analysis: Zambrano Bridge on the northern section of the Magdalena River (estimated cost US$10 million, length 1500 m) and the Puerto Arturo Bridge on the Guaviare River in the South (estimated cost US$5 million, length 600 m). While their tentative returns were in the range of 16-20%, additional refinement of the traffic assignment is required in both cases. For the Arturo Bridge, transport by ferry has to be looked at again as an alternative to the bridge construction. (c) River Training 4.27 The river improvement component will have three major effects: (a) it will allow present producers and shippers to use the river year-around instead of nine months and avoid the higher cost of alternative transport by road; (b) in the case of petroleum products, the project will save the cost involved in mixing low-value heavy oil with higher-value light condensates in order to be able to ship the heavy oil by pipeline; and (c) it will reduce operating costs for existing traffic by allowing larger convoys with more heavily loaded barges, higher speeds and quicker turnaround of equipment. The traffic projections are based on detailed interviews with producers and shippers. For petroleum traffic, projections do not include the new refinery which could begin operations by 1997. However, the expected increase in coal exports which will use the Dique Canal has been factored into the analysis. 4.28 If river transport is handled efficiently, its cost advantage over road is substantial. The economic cost of transporting a ton of general cargo for the 650 km run from Barrancabermeja to Cartagena is about US$6.40 by river (UScent 1.0 per ton-km) but it is about five times higher, (5 US cents per ton-km), by medium-size trucks on hilly roads in average condition. The economic analysis prepared by MOPT assumes: (a) a reduction in operating costs for existing traffic (US$1.92 per ton for liquid cargo, US$2.24 for fertilizers, US$3.87 for malt and US$0.56 for steel); and (b) savings resulting from avoiding the need to add light products to heavy crude  - 30 - condensates in order to ship the latter by pipeline. About three barrels of light crude need to be added to ten barrels of heavy crude in order to enable shipment by pipeline. The resulting economic rate of return on the river component (including the cost of river ports improvements and navigation safety aids), which has a total base cost of US$26.6 million, is 202. V. PROJECT IMPLEMENTATION A. Proiect Execution (a) General 5.1 The proposed loan will be made to the National Highway Fund (FVN). FVN is an autonomous legal entity, able to contract financial obligation. PVN has, as its legal representative, the Minister of MOPT and shares MOPT's staff and structure. Throughout this report, reference made to FVN as the entity in charge of project execution should be deemed to be made to FVN in its legal capacity to execute the policies and programs of MOPT, including the project. The project will be carried out in about five years from the second half of 1991 through the end of 1996. Responsibility for the preparation and execution of specific subcomponents will be delegated by MOPT to its various directorates as follows: General Highways Directorate (DDC) for the roads and bridges civil works, the planning and execution of the road maintenance program and the supervision of technica.l studies and assistance; Directorate of Navigation and Ports (DNYP) for the river training and river port improvement component; Subdirectorate of Equipment for purchase and rehabilitation of equipment; Offico of Planning for supervision of economic studies and related technical assistance; and Directorate of Industrial Relations for the training program. Overall project coordination and follow- up will be done by a newly formed Project Implementation Unit. Environmental control will be provided by a new Envirorment Unit (EU) within MOPT. (b) Proiect Monitoring 5.2 The Governmernt has decided to establish a special mechanism in order to ensure satisfactory project execution and avoid recurrences of over- programming, project Alays and cost increases. Accordingly, the Fiscal Council (CONFIS) within the Ministry of Finance, acting on behalf of the Government, together with the National Planning Department (DNP), will enter into a contract for a Performance Plan (Plan de Desempefio) with MOPT. The contract will include: (a) a review of each road project which falls below 802 of target in terms of physical progress; (b) a review of each project whose costs exceed by more than 20X the initial cost estimate; (c) monitoring of the relationship between annual revenues of FVN and total commitment level; (d) review of implementation of the highway maintenance plan; and (e) follow- up on progress in achieving the institutional improvement tasks under the  - 31 - action plan which forms part of the Loan Agreement. The Ministry of Finance will employ special consultants to provide the day-to-day project follow-up and, together with the National Planning Department, will carry out project reviews twice a year. As stated in para. 3.8, agreement was reached during negotiations on the draft contract to be signed between MOPT, DNP and the Ministry of Finance. This document will be signed prior to signing of the loan documents. Agreement was also reached during negotiations on annual Droiect reviews with the participation of CONFIS, DNP, MOPT and the Bank, which will cover the topics of road network decentralization, organizational restructuring of MOPT, project physical progress, institutional strengthening program, environmental mitigatory actions, progress on the program on road user charges, the investment and the maintenance programs and their corresponding financing. In addition, during negotiations, an action plan was agreed with the Borrower on specific institutional and technical aspects. Furthermore, agreement was reached during negotiations that the Bank will have the right not to approve new sub-projects if it considers the overall execution of the project unsatisfactory. The table in the following page summarizes the main topics to be monitored during project implementation. (c) Project Implementation Unit 5.3 Overall project coordination, supervision and administration under the on-going loan (2829-CO) has not been satisfactory. Project information has not been collected in time from the field, and the administrative section of the External Credit Office, which supervises processing of loan disbursements, has not been in a position to examine the technical aspects of project implementation. To resolve this issue, a new Project Implementation Unit (PIU) will be created within the External Credit Office with a permanent staff of five to monitor project progress, resolve outstanding issues, coordinate among executing departments and agencies and maintain continuous up-to-date financial information. As a condition of loan effectiveness, the PIU will be fully staffed and in operation. (d) Civil Works (i) Roads 5.4 Most of the road civil works to be carried out by contract under the project are already under way and involve about 2,000 km of roads. These works will be supervised by engineering consultants under existing contracts and subject to the general oversight of the DDC. For the twelve road projects approved by the Bank and not yet contracted, final engineering studies will be required by December 31, 1992. This forms part of the action plan agreed during negotiations.  - 32 - lONITORING PROGIAMIl Performance Plan Contract between the Ministry of Finance, DNP, and MOPT to monitor implementation of the road program by the Borrower. Key aspects to be included ares (i) physical progress: review of all road projects falling 20X below target; (ii) budget: review of all projects vhose costs exceed 202 of estimates; (iII) monitoring of relationship between annual budgetary allocation and overall commitments; (iv) monitoring of Implementation of the road maintenance plan. (v) progress on institutional aspects and action plan. Annual Reviews Annual reviews to be carried out between Central Government agencies, the Bank and MOPT on key project objectives. These will include: Ci) road network decentralization (iI) organizational restructuring of MOPT (iII) project physical progress (iv) institutional strengthening program (v) environmental mitigatory actions (vi) progress on the program on road user charges (vii) investment and maintenance programs and their corresponding financing Action Plan Detailed action plan agreed with MOPT on specific institutional and technical aspects: Date Action July 31, 1992 Complete environmental guidelines (5.25). Adopt new prequalification guidelines for civil works bidding (2.11). September 30, 1992 Employ intermodal transport specialist (2.48). December 31, 1992 Complete document on road technical specifications (2.10). Complete document on road geometric design (2.10). Carry out economic analysis of the national road network (2.22). Install automatic traffic counters in 301 of toll stations (2.27). Put into operation five sets of portable weighing scales (2.34). Submit engineering designs for new contracts for eligible roads (5.4). Employ consultants to implement the road maintenance system (4.14). June 30, 1993 Complete the manual on engineering norms (2.10). Complete the civil works supervision manual (2.12). Submit a plan of action to facilitate intermodal transport (2.48). Complete the pavement design guide (4.14). Put into effect the management information system (4.14). December 31, 1993 Make operational the road maintenance system (2.16). Put into effect a revised system of Magdalena River user charges (2.44). Install traffic counters in 502 of toll stations (2.27). Install eight additional sets of portable weighing scales (2.34). complete the study on road construction industry (4.15). June 30, 1994 Complete study on performance of road materials (4.15). December 31, 1994 Install automatic counters in 75Z of toll stitions (2.27). December 31, 1995 Install automatic counters in 1001 of toll stations (2.27).  - 33 - (ii) Bridfes 5.5 For bridge works, final engineering is available for all minor projects. However, the seven major projects, which all exceed US$500,000, hove only preliminary engineering. The preparation of final engineering for this component will be done by the Subdirectorate of Projects within the DDC. Final engineering should be completed by the end of 1992. Most of these works will be carried out by contract. Supervision of all bridge works will be under the Subdirectorate of Supervision within DDC. (iii) River Training 5.6 The General Directorate of Navigation and Ports (DNYP) within MOPT will be responsible for the preparation of bid documents based on engineering studies already completed. Private contractors will carry out the river training and dredging works under the supervision of the DNYP. Maintenance works, after the project component is complete, are expected to be transferred from the DNYP to private contractors (para. 2.43). (e) Road Maintenance 5.7 While the project does not finance road maintenance, the equipment component was designed in accordance with the 1991-95 road maintenance plan prepared by MOPT. This plan forms an integral part of the project. The Maintenance Planning Unit within DDC will continue to be responsible for updating the plan and will be assisted by consultants under the technical assistance program. The execution of the plan will be in the hands of the districts. The Subdirectorate of Equipment will be responsible for ensuring that the equipment acquisition and rehabilitation program proceeds as scheduled. 5.8 As stated in para. 2.18, MOPT has undertaken, in the context of the Performance Plan, to take all necessary steps to modify its structure so as to incorporate all maintenance functions into one new Directorate of Maintenance. This change will ensure coordination among the planning, monitoring, and execution functions of road maintenance, including maintenance of the road equipment. The new scheme will also incorporate the Project Implementation Unit (para. 5.3) and the Environmental Unit (para. 5.25) into MOPT's organizational structure. This restructuring of MOPT will be necessary even if decentralization is carried out. (f) Equipment 5.9 Acquisition of equipment and spare parts will be controlled by the Subdirectorate of Equipment, which is responsible for the vehicle fleet. Rehabilitation of all equipment will be done by MOPT's own workshops, which are adequate. Acquisition of laboratory equipment will be carried out by the central laboratory within the DDC and equipment for the axle weight control program will be under the supervision of the Programming Office of DDC, which will monitor the installation and training, while operation will be left to the districts.  - 34 - (g) Road Safety 5.10 The road safety component was designed by the Programming Office of DDC. The materials which will be purchased under the project according to the agreed road safety plan, will be transferred to the districts, which will install the vertical and horizontal signalling using their own staff. B. Procurement 5.11 The civil works components include contracts for about US$369 million, of which some US$188 million have already been contracted either under Loan 2829-CO or with FVN's own funds following Bank procurement guidelines. On-going civil works which were contracted by MOPT using its own funds but were not awarded according to Bank guidelines, did not qualify to be included under the loan. Civil works contracts for new road rehabilitation and paving are estimated to cost between US$0.6 and US$13.7 million. Bridge repair and construction contracts vary from US$0.1 million to US$1.5 million and the river training and river ports improvement contracts range from US$2.3 million to US$12.8 million. Contracts for all civil works exceeding US$4.5 million will be procured through International Competitive Bidding (ICB), in accordance with Bank procurement guidelines, with the rest, up to an aggregate of US$191.7 million, under Local Cor?etitive Bidding (LCB). The appraisal mission reviewed LCB procedures and found them acceptable. In particular, LCB procedures allow bidding by foreign contractors. The threshold for ICB was determined based on the experience with the most recent Bank loan, where foreign contractors showed little interest in contracts below US$5 million. 5.12 The estimated cost of individual road and bridge sub-projects approved during appraisal is shown in Tables 15 and 16. In line with para. 4 of Appendix 1 of the Bank's procurement guidelines, MOPT will inform the Bank before agreeing to a change in any contract which will raise its price by more than 201 over the original cost (in June 1991 prices) for contracts already in execution, or over 201 of contract price for new works. Agreement on the 201 benchmark was reached during negotiations. Approval of new sub-projects by the Bank for financing under the undefined component will be subject to submission of detailed engineering, economic and environmental evaluation, as well as the Five-Year Investment Plan showing that the FVN has the funds necessary to carry out the construction of the new sub-project according to schedule (para. 3.7). 5.13 Prequalification of civil works contractors will be done for all contracts under ICB and for contracts under LCB exceeding US$2 million. As stated in para. 2.11, a p.equalification document, acceptable to the Bank, was agreed during negotiations. The prequalification criteria to be used will include rigorous screening of the contractors' experience and their financial and technical capability in order to complete the works on schedule. 5.14 Equipment and materials will be procured under ICB, except contracts not exceeding US$200,000, and totalling up to US$9.5 million, which will be awarded under local competitive bidding procedures. The appraisal mission reviewed the LCB procedures and found them acceptable. Items costing up to US$50,000, and aggregating no more than US$1.2 million, could be  - 35 - purchased using shopping on the basis of comparison of price quotations fr'Am at least three suppliers. Local suppliers under contracts awarded under ICB procedures, will be given a 15% preference in accordance with Bank guidelines. 5.15 All contracts for civil works exceeding US$500,000, all contracts for equipment under ICB, and the first two contracts for equipment under LCB will be subject to prior review by the Bank. Thus, prior review will involve over 90% of civil works (excluding on-going and already approved civil works contracts) and about 75Z of all equipment. Since the rest of the equipment is basically spare parts and road safety materials, this percentage is considered satisfactory. In order to facilitate procurement review, standard bidding documents for goods and works were agreed with MOPT during negotiations. 5.16 Consultant services for technical assistance and studies will be contracted in accordance with Bank guidelines. Small consulting contracts valued below US$20,000 equivalent will be subject only to ex-post review by the Bank. These arrangements were confirmed at negotiations. A standard letter of invitation for consultants, standard terms of reference for engineering studies and supervision of civil works, and a standard form of consultants' contract, for both foreign and local consultants, were also agreed at negotiations. 5.17 The following table shows the distribution of the type of procurement appropriate for the acquisition of works, goods and services under the project. The figures in brackets refer to loan financing. Procurement Procedures a/ Prolect Component ICB LCB Other N.A. Total ---------------_____ US$million