The World Bank Santa Cruz Road Corridor Connector Project (San Ignacio - San Jose) (P152281) REPORT NO.: RES41400 DOCUMENT OF THE WORLD BANK RESTRUCTURING PAPER ON A PROPOSED PROJECT RESTRUCTURING OF SANTA CRUZ ROAD CORRIDOR CONNECTOR PROJECT (SAN IGNACIO - SAN JOSE) APPROVED ON JANUARY 11, 2017 TO MINISTERIO DE PLANIFICACIÓN DEL DESARROLLO TRANSPORT LATIN AMERICA AND CARIBBEAN Regional Vice President: Carlos Felipe Jaramillo Country Director: Marianne Fay Regional Director: Franz R. Drees-Gross Practice Manager/Manager: Nicolas Peltier-Thiberge Task Team Leader(s): Felipe Targa Rodriguez, Fabian Hinojosa Couleau, Tatsuo Harada The World Bank Santa Cruz Road Corridor Connector Project (San Ignacio - San Jose) (P152281) I. BASIC DATA Product Information Project ID Financing Instrument P152281 Investment Project Financing Original EA Category Current EA Category Partial Assessment (B) Partial Assessment (B) Approval Date Current Closing Date 11-Jan-2017 31-Dec-2021 Organizations Borrower Responsible Agency Ministerio de Planificación del Desarrollo Administradora Boliviana de Carreteras (ABC) Project Development Objective (PDO) Original PDO The Project Development Objective (PDO) is to improve transport accessibility along the road corridor between San Ignacio de Velasco and San Jose de Chiquitos. Summary Status of Financing (US$, Millions) Net Ln/Cr/Tf Approval Signing Effectiveness Closing Commitment Disbursed Undisbursed IBRD-86480 11-Jan-2017 02-Feb-2017 21-Dec-2017 31-Dec-2021 200.00 23.92 176.08 IDA-59030 11-Jan-2017 02-Feb-2017 21-Dec-2017 31-Dec-2021 30.00 12.48 17.52 Policy Waiver(s) Does this restructuring trigger the need for any policy waiver(s)? No The World Bank Santa Cruz Road Corridor Connector Project (San Ignacio - San Jose) (P152281) II. SUMMARY OF PROJECT STATUS AND PROPOSED CHANGES Project Status 1. The World Bank approved the IBRD Loan 8648-BO in the amount of US$ 200 million and IDA Credit 5903-BO in the amount of US$ 30 million to the Plurinational State of Bolivia to finance the Santa Cruz Road Corridor Connector Project (SCRCCP) on January 11, 2017, and declared it effective on December 21, 2017. The Project Development Objective (PDO)—to improve transport accessibility along the road corridor between San Ignacio de Velasco and San Jose de Chiquitos —is supported by two components: (1) Component A (US$225.05 million, of which the Bank is financing US$225 million while the counterpart was to finance up to US$ 0.05 million in case of unforeseen cash compensation) Road Upgrading of approximately 208 km between San Ignacio de Velasco and San José de Chiquitos, carrying out of technical audits when applicable, and implementation and supervision of the Environmental Impact Assessment (EIA)/Environmental Management Plan (EMP), the Resettlement Action Plan (RAP), the Resettlement Policy Framework (RPF), and the Indigenous Peoples Plan (IPP); and (2) Component B (US$5 million financed by the Bank) Technical Studies and Project Management, that will support preparatory activities for upgrading of the roughly 300 km San Matias-San Ignacio de Velasco road, the original scope was the preparation of relevant feasibility studies and bidding documents, relevant gender studies and Poverty and Social Impact Analyses (PSIAs), and support for the implementation, monitoring and evaluation (M&E) of the Project. The Bolivian Road Agency (Administradora Boliviana de Carreteras, ABC) is the project implementing agency and has full responsibility for the Project's technical, fiduciary, and environmental, and social aspects. The Project's disbursement rate as of December 2021, 4 years and 11 months after the Board approval, is 15.83 percent (US$ 36.40 million between IBRD loan and IDA credit). 2. The Project has been in a problem status for two years. The cumulative delays in the implementation of the Project, and the fact that the supervision and works contracts were extended beyond the Project’s closing date, have been reflected as moderately unsatisfactory Implementation Progress (IP) rating (since November 2019) and a moderately unsatisfactory likelihood of achieving the PDO (December 2020) by the current closing date of December 31, 2021. Rationale for the Proposed Changes 3. Component A: Road Upgrading between San Ignacio de Velasco and San José de Chiquitos (US$225.05 million). Before the COVID-19 pandemic, the component experienced significant delays, mostly due to two reasons: a late start of civil works and its slow progress. The contract with the Contractor was signed in September 2018. However, the selection of the supervision consultant was delayed due to a protracted preparation of request for proposal (RfP). The Supervision contract was signed only in July 2019. Consequently, the Notice to Proceed was issued by the Supervision on September 5, 2019. The Contractor started the works with a completion deadline of 43 months from the said notice (namely by April 4, 2023, beyond the current closing date of December 31, 2021). Subsequently, due to limited progress (physical progress as of September 2020 was 4.55 percent as compared to programmed progress of 13.54 percent), Change Order No.1 to the civil works contract was issued in December 2020, extending the term completion date by 150 calendar days to September 1, 2023, with no increase in the amount. The reasons for the delays were out of the control of the Project and included: • Civil strike (October-November 2019): 21 calendar days • Road blockade: 6 calendar days • COVID-19 Sanitary Emergency: 123 calendar days 4. COVID-19 had a significant impact on the Project since early 2020. The GoB issued a decree making a national quarantine effective starting from March 22, 2020, to May 30, 2020. It was reinforced by the promulgation of the state The World Bank Santa Cruz Road Corridor Connector Project (San Ignacio - San Jose) (P152281) of health emergency on March 26, 2020. Local and regional quarantines also affected the Project. These provisions established strict confinement of the entire population during this period. Under these circumstances, all civil works activities (Component A) were suspended and remained suspended until June 2020 since when the Contractor was able to gradually reactivate the works while complying with biosecurity protocols to prevent infection among the personnel working on the construction site. Due to these biosecurity protocols, the implementation pace lagged behind the original work schedule. Therefore, a large part of the delays in project implementation is attributed to the pandemic, which is out of the Borrower's control and the executing agency. 5. As a consequence of the change of government following the national elections of November 2020, a change in the management team at the head of ABC was accompanied by a significant turnover in the technical, fiduciary, and safeguards teams of the Project. This transition affected the Project’s overall progress and delayed the implementation of actions previously agreed upon. The new staff at the ABC came on board by April-May 2021, which brought more stability in the Project´s implementation. 6. During the Bank’s November 2021 virtual supervision mission, it was observed that the constructions delays continued to increase. The cumulative physical progress as of September 2021 was 14.05 percent compared to the planned progress of 21.79 percent as of the same month. The delays were due to: • The restrictions due to the COVID-19 pandemic continued until April 2021 (activities were only 50 percent normalized from August to December 2020 and 75 percent from January to April 2021), generating a lag equivalent to 3.5 months of production. • Due to inadequate planning, the Contractor´s team that was displaced to nine work fronts did not advance the construction, as expected. Lack of resources, equipment, and personnel and insufficient work planning by the Contractor were pointed out as factors impeding the acceleration of works. 7. Component B: Technical Studies and Project Management (US$5 million). This component included preparing feasibility studies and bidding documents to pilot a Design-Build Maintain Operate and Transfer (DBMOT) ten-year contract on the San Ignacio – San Matias road section (connection with the Brazilian border). However, the Bank's field visits put this road section in question as a viable candidate for the DBMOT approach given the relatively low traffic levels. At the same time, the section had not been prioritized by the Government (GoB) in its National Development Plan. Against this backdrop, ABC decided to modify the scope of the component to include a standard feasibility study for a future input-based civil works contract on the San Ignacio - San Matías road. Currently, ABC is in the selection process of a consulting firm, which may be concluded in Q1 2022, including technical design, road safety audit, and an update of environmental impact assessment studies (thus not including the preparation of bidding documents). 8. To address the reasons for implementation delays with Component 1, the Bank and ABC agreed on action plans in September 2020 and in November 2021. The September 2020 Action Plan included an implementation strategy agreed with ABC during the Project’s mid-term review conducted in September 2020. This strategy mainly consisted in increasing the number of work fronts and bringing in additional civil works equipment. Since then, ABC worked on different activities with the Contractor and the Supervisor firm in line with the proposed action plan to increase the pace of works execution and regain time lost during the COVID-19 pandemic, strikes, and blockades and due to the contractor’s poor performance and ABC’s limited supervision capacity. The revised Action Plan agreed to during the November 2021 Supervision mission included additional actions, to improve the pace of civil works execution and mitigate all identified risks of future delays in the implementation schedule: (i) Revise the civil works action plan to increase the pace of civil works: ABC and the Contractor reviewed the work schedule and refined the strategy by optimizing the distribution of equipment on the worksite, as well as increasing The World Bank Santa Cruz Road Corridor Connector Project (San Ignacio - San Jose) (P152281) and better assigning the work teams while seeking to intensify the activities located on the critical path of the work. The updated strategy was submitted to the Bank on November 17, 2021; (ii) finalize and process the Contract Amendment No.1 by December 2021; (iii) hire a dedicated team to complement ABC´s technical team on the field by FY22 Q3 (ABC has launched a process to recruit the team and have them on board by FY22 Q3; Since the ABC team will be working in the field, they will be able to better supervise and follow-up on the Contractor’s and the Supervisor firm’s activities on the project sites and identify issues early. Moreover, this is expected to reduce the administrative delays associated with ABC processes); (iv) resolve two long-standing issues related to contract management by December 2021. These issues are a contractual risk for the ABC, and therefore could affect the execution of the works, if they are not resolved urgently: updating the price adjustment formula and operationalizing the dispute resolution committee; (v) finalize the update of the two Indigenous People Plan of the Project by December 2021; (vi) under the Road Sector Capacity Development Project (P144597), finalize the contracting of a consulting firm to support contract management of several pilot contracts, including the civil works contract under this project, by January 2022. Request for extension of the project closing date 9. By a letter dated December 3, 2021, the Ministry of Development Planning requested an extension of the project closing date until November 11, 2024 (more than 34 months from the current closing date), based on the request prepared by the Ministry of Public Works, Services, and Housing and the ABC. The request is based on the following justification: • Currently, Amendment No.1 to the civil works contract is being elaborated to reflect the revision of the design study and the incorporation of new activities, such as access roads to towns, bus stops on the targeted roads, increase in the thickness of the asphalt layer, that will reinforce the Project’s outcomes. ABC estimates that these new items will increase the current contract amount by 15 percent. The available loan proceeds will allow for these additional works. Therefore, an extension of the contract by 5.5 months is required, and the completion of the work will be February 15, 2024. • The original contract includes a six-month period for notification and correction of defects after the contract completion; this period would end on August 13, 2024. • After the period for notification and correction of defects, the Borrower has a three-month period for administrative closing of the Project (closing contracts, accounting); the period will end on November 11, 2024. Rationale for restructuring 10. The PDO remains highly relevant for the Bolivia CPF FY16-20, Pillar 1: Promote Broad-Based and Inclusive Growth, Objective 1: Reduce Transport Costs and Increase Connectivity of Isolated and Vulnerable Communities to the National Road Network in Selected Areas. The Project is a critical development priority for the GoB since upgrading the primary road network in the Department of Santa Cruz provides better intra-regional access in four municipalities, benefiting close to 125,000 inhabitants, of which 51 percent are considered poor, and 62 percent are of indigenous descent. The project will allow better integration of these municipalities by improving their connection to the export corridor of the Eastern Corridor, linking Santa Cruz to the Brazilian border (Puerto Suarez), also an access point to the Paraguay Parana waterway. Moreover, it will allow the local population to take advantage of the important tourist potential of the area, characterized by the unique cultural heritage of the Jesuit missions, inscribed on the UNESCO World Heritage List. The proposed restructuring to extend the closing date is intended to allow this population to benefit from the new access to economic opportunities and services provided by the new infrastructure. The GoB has expressed its firm intention to complete the Project, minimizing the implementation delays. The World Bank Santa Cruz Road Corridor Connector Project (San Ignacio - San Jose) (P152281) 11. The Mid Term Review (MTR) conducted in September 2020 confirmed the need for the proposed restructuring to ensure the achievement of the PDO and to improve the Project´s performance. Due to the significant turnover of ABC's regional personnel, the finalization of the MTR report was put on hold for months. ABC resumed work on the MTR and submitted a revised report at the end of June 2021. The final MTR report1 confirmed the need for the extension of the Project closing date, given that the completion date of the works contract exceeds the current closing date, and expected additional delays due to the COVID-19 crisis. 12. The extension of the closing date, together with the implementation of the revised action plan agreed with ABC in November 2021 will ensure the proper execution of works and the achievement of the PDO. The PDO remains achievable but needs more time to be achieved. However, the Task Team recommends a phased extension of the closing date: the first extension of the closing date by 23 months until November 30, 2023, and the second extension by 12 months until November 11, 2024. The first extension of 23 months is consistent with the ongoing civil works schedule, which is expected to be completed in September 2023 according to the current contract. The extension until November 2024 is based on the ABC’s proposed Contract Amendment No. 1 and is still under preparation and requires more time than what remains before the current closing date of December 31, 2021. A longer-term extension could be considered if the terms of Contract Amendment No. 1 are acceptable terms to the Bank, the pace of implementation progresses according to the revised action plan for civil works, and ABC improves its contract management capacities based on the actions agreed in the November 2021 mission. 13. It should be noted that, following this restructuring to extend the closing date, a restructuring to allow the payment of compensations to Persons Affected by the Project (PAP) through loan proceeds will be processed. This action will eliminate a potential risk of future delays related to the release of the right of way and ensure the continuity of civil works without any standstill. The Project was initially designed so that the counterpart would finance cash compensations. However, the GoB decided to release the Santa Cruz departmental budget that was affected by forest fires in 2019 (and compounded by the pandemic thereafter) to compensate the PAPs. Subsequently, the Departmental Government of Santa Cruz announced in October 2019 that they did not have the resources to comply with the RAP. In this regard, during the mission in March 2020, ABC confirmed that a restructuring of the Project would be sought to finance the compensation with Project proceeds. The total amount of compensation payment for the Project is estimated at US$ 1,757,177.53. Currently, the Contractor can carry out construction work on an 87 km section that has been released. However, clearance of the right-of-way for a large part of the remaining road section is subject to the availability of funds for compensation to the PAPs, which is still pending. This situation is not yet a factor of delay in the Project implementation, but it could become so in the medium term if the liberation is not finalized. This Restructuring request was submitted to the Bank on October 13, 2021, and was kept on hold to be processed together with the closing date extension. The delay in the submission of the request for the extension prevented the processing of both aspects in a single restructuring. This restructuring will be processed in Q1 2022, once the project closing date has been extended. 14. There are no outstanding audit reports. The financial audit for 2020 was delivered on time and found acceptable to the Bank. III. DETAILED CHANGES The World Bank Santa Cruz Road Corridor Connector Project (San Ignacio - San Jose) (P152281) LOAN CLOSING DATE(S) Original Revised Proposed Proposed Deadline Ln/Cr/Tf Status Closing Closing(s) Closing for Withdrawal Applications IBRD-86480 Effective 31-Dec-2021 30-Nov-2023 30-Mar-2024 IDA-59030 Effective 31-Dec-2021 30-Nov-2023 30-Mar-2024