Docummnt of The World Bank FOR OMF AL USE ONLY Rqpt NO. 13295 PROJECT COMPLETION REPORT URUGUAY THIRD HIGHWAY PROJECT (LOAN 2238-UR) JUNE 30, 1994 Infrastructure and Energy Division Country Department IV Latin America and the Caribbean Regional Office This document has a restricted distribution and may be used bv recipients only in the performance of their ofricial duties. Its contents may not otherwise be disclosed witbout World Bank authorization. Fia Year January 1 - December 31 Currency Equivaents Year-end 1981 - US$1.00 = Np. 11.59 Year-end 1982 - US$1.00 = Np. 33.75 Year-end 1983 - US$1.00 = Np. 43.25 Year-end 1984 - US$1.00 = Np. 74.25 Year-end 1985 - US$1.00 = Np. 125.00 Year-end 1986 - US$1.00 = Np. 181.00 Year-end 1987 - US$1.00 = Np. 281.00 Year-end 1988 - US$1.00 = Np. 457.50 Year-end 1989 - US$1.00 = Np. 805.00 Year-end 1990 - US$1.00 = Np. 1,594.00 Units of Weights and Measures: Metric 1 kilometer (kIn) = 0.62 mile (mi) 1 meter (m) = 3.28 feet (ft) 1 kilogram (kg) = 2.20 pounds (lbs) i metric ton = 2,206 pounds (lbs) Principal Abbreviations and Acronyms AFE State Railroad Administration (Administraci6n de Ferrocarriles del Estado) ANP National Port Administration (Administraci6n Nacional de Puertos) DNT National Transportation Directorate (Directorate Nacional de Transportaci6n) HDM Highway Design Model IDB Inter-American Development Bank Intendencia Municipal administration in each district MTOP Ministry of Transport and Public Works Np. New Uruguayan Pesos TPU Transport Planning Unit of DNT Ualidad National Highways Directorate FOR OFFICIAL USE ONLY THE WORLD BANK Washington, D.C. 20433 U.S.A. Office of Director-General Operations Evaluation June 30, 1994 MEMORANDUM TO THE EXECUTIVE DIRECTORS AND THE PRESIDENT SUBJECT: Project Completion Report on Uruguay Third Highway Project (Loan 2238-UR) Attached is the "Project Completion Report on Uruguay - Third Highway Project (Loan 2238-UR)", prepared by tne Latin American and Caribbean Regional Office. The report has no Part II, as the Borrower did not provide it, but it makes use of other Borrower supplied information. The project's basic objective was to consolidate the momentum achieved under the Bank's first two highway projects. Specific tasks were road construction, rehabilitation and maintenance and, importantly for this repeater project, the institutional strengthening of the Ministry of Transport and Public Works (MTOP). Implementation took three and one-half years longer than planned because of a variety of factors, including: changes in government, sector priorities and composition of physical works; and slow contract management. Actual project costs were about 75% of estimated costs due to national currency devaluations and strong contractor competition. The project's physical achievements were good, with an ex-post economic rate of return (ERR) of 20% overall, as compared to an ex-ante ERR of 26%. Essential studies were carried out, but institutional development was limited. Discontinuity in Bank staff assigned to the Uruguay road sector had a negative impact on implementation and ultimate results. Project outcome was marginally satisfactory. Institutional development was modest. Sustainability is uncertain as the prospects for adequate road maintenance are mixed and the institutional achievements have not been firmly implanted in MTOP. PCR quality is satisfactory. No performance audit is planned. Robert Picciotto by H. Eberhard K6pp Attachment This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed vithout World Bank authorization. FOR OFFICIAL USE ONLY PROJECT COMPLETION REPORT URUGUAY THIRD HIGHWAY PROJECT (Loan 2238-UR) TABLE OF CONTENTS PREFACE ................................................... EVALUATION SUMMARY . ...................................ii Project Objectives . .......................................ii Project Implementation and Results ...... .................... ii Sustainability . ..........................................iii Lessons Learned . ........................................iii PART I PROJECT REVIEW FROM THE BANK'S PERSPECTIVE .... 1 Project Identity ............... ........................... 1 Background ............... ............................. 1 Project Objectives and Description ........................... 2 Project Design and Organization ............................ 3 Project Implementation ................................... 4 Project Results ............... ........................... 6 Sustainability . .......................................... 7 Bank's Performance ........... ........................... 8 Borrower's Performance ................................... 9 Bank-Borrower Relationship ................................ 9 Consulting Services and Procurement of Goods ..... ............ 9 Project Documentation and Data ........................... 10 PART IL PROJECT REVIEW FROM THE BORROWER'S PERSPECIIVE1 PART DE STATISTICAL INFORMATION ....................... 12 Related Bank Loans .......... ........................... 12 Project Timetable ............ ........................... 12 Project Costs and Financing ................................ 13 Estimated and Actual Schedule of Disbursements ..... ........... 14 Economic Evaluation of Category I .......................... 15 General Characteristics of Sample Roads ...................... 16 Results of Threshold Analysis for Category 3 (Feeder Roads): Required Minimum Traffic Volume .................... 17 Compliance with Loan Covenants ............................ 18 Mission Data .............. ............................. 19 Map No. IBRD 14225R - URUGUAY Third Highway Project .... .. 21 This document has a restricted distribution and may be used by recipients only in the performance of their |official duties. Its contents may not otherwise be disclosed without World Bank authorization. I - i - PROJECT COMPLETION REPORT URUGUAY THIRD HIGHWAY PROJECT (LOAN 2238-UR) PREFACE This is the Project Completion Report (PCR) for the Third Highway Project in Uruguay for which Loan 2238-UR in the amount of US$45.00 million was approved on February 15, 1983. The loan closed on December 31, 1990 three years behind schedule with US$41.97 million disbursed. US$3.03 million (7%) was cancelled. The PCR was prepared by the Infrastructure and Energy Operations Division of the Latin America and Caribbean, Department IV. The Borrower sent tabulated data and a brief overview of the project in June 1993 which have been used in the preparation of Parts I and III of this report. The Borrower sent a letter on October 25, 1993 that noted the receipt and the review of Parts I and III of the PCR but offered no substantive comments or text to be included in Part II. Thus, this PCR was completed without Borrower contributions to Part II. This omission is permitted under Bank guidelines for PCRs more than two years old. This PCR is based, inter alia, on: (a) the Staff Appraisal Report; (b) Loan and Guarantee Agreements; (c) supervision reports; (d) corre- spondence between the Bank and the Borrower; (e) interviews with Bank staff; and (f) data from the Borrower. - ii - PROJECT COMPLETION REPORT URUGUAY THIRD HIGHWAY PROJECT (LOAN 2238-UR) EVALUATION SUMMARY 1. Project Objectives 1.1 The main objective of this project was to consolidate the momentum achieved under the first two highway projects by the financing of a comprehensive investment program, covering the national and feeder road networks and a roads and bridges reconstruction program. This objective was achieved. A second objective was to provide technical assistance for strengthening the planning and executing capability of the MTOP (Ministry of Transportation and Public Works) and Vialidad (National Highway Directorate). This objective was only partially achieved. 2. Project Implementation and Results 2.1 There were substantial delays in the implementation of the project due to a late start caused by changes in the government, changes in sector priorities, project restructuring, decreases in budget allocations, and further changes in the government resulting in delayed decisions on contracts and payments and a lack of continuity. As a result, the loan closing date was extended twice for a total of three years. 2.2 Changes in the country's monetary policies and the resulting currency devaluation-only partially compensated for by price increases-helped lower project costs (para. 5.6). Highly competitive bidding for the civil works resulted in further savings and a significantly lower total project cost (para. 5.7). Combined, the two resulted in the elimination of the cofinancing element in the financing plan for the project. The lower costs, along with the dropping of Route 1 reconstruction, enabled some additional works to be included, principally in the Feeder Roads Program and traffic safety (para. 5.4). Delays, however, in calling for bids and budget restrictions slowed civil works execution in 1989 and 1990 and led to a number of contracts remaining uncompleted at the time of loan closing. Thus, US$3.03 million of the US$45.00 million loan was cancelled. Financing for these uncompleted contracts was eventually provided under the follow-on Transport I Project (Ln. 3021-UR). 2.3 The physical improvement of the highway network as a result of this project was substantial. The institutional strengthening of the MTOP and - iii - Vialidad was not as effective as anticipated largely because of several changes in the government and the management of the entities during the project period (para. 6.1). 2.4 The overall cost of the project at US$101.8 million was 74% of the appraisal estimates of US$137.0 million. Economic re-evaluation was performed for items covering more than 94% of the actual project costs and yielded an overall economic rate of return (ERR) of 19.6% for the Civil Works (Category I), with individual sub-projects ranging from 13% to 55%. In the ex post evaluation of the Feeder Roads Program, the average ERR was 13.1% (para. 6.3). 3. Sustainability 3.1 Provided that scheduled maintenance is carried out, the likelihood of sustainability for the Civil Works component is high. Recent supervision reports from the Transport I Project indicate that road maintenance is progressing wel in many provinces but poorly in a few due to a system of fixed, per kilometer payments for maintenance that does not adequately cover the costs of transporting materials to remote sites (para. 7.1). 3.2 The likelihood of sustainability for sector institutional development is low. Since the project closed, there have been more changes in the management of MTOP as well as high staff turnover due to low wages. Further, a new government will be elected in 1994, which historically has meant sector management changes. However, some of the institutional gains such as the MTOP's annual investment planning system were still in place as of early-1994 (para. 7.2). 4. Lessons Learned 4.1 The costs of this project as wel as that of its predecessor, the Second Highway Project, were off by 26% and 14% respectively-in both projects, primarily due to changes in the exchange rate is-a-vis inflation. Thus, the first lesson learned is that greater attention needs to be given to the macro economic environment in Uruguay and its affect on project costs. The project costs should have been reassessed during a supervision mission, and if warranted, a portion of the loan cancelled. For this project, the lack of any reassessment resulted in project cost estimates that were too high. So although overall costs dropped, the Bank financed a greater share of the total project costs than originally approved, and the Borrower paid commitment fees on a portion of the loan that was never used (para. 8.3). 4.2 The second lesson learned comes from the benefit of hindsight. When the Route 1 civil works (42% of the loan) were removed from the project, it would have been prudent to reduce the scope of the project accordingly. Instead, the project became a catch-all for the road sector with various small scale works added or expanded to use the funds originally slated for Route 1 - iv - with little analysis of the work's economic merit. This caused delays and extensions and perhaps worse, further taxed the limited budget allocations and institutional capacity of the implementing agencies (para. 8.4). 4.3 The third lesson learned is that a lack of continuity in Bank supervision staff has a negative impact of the quality of Bank portfolio management. With at least six different Task Managers/Project Officers, four different Division Chiefs, and three reorganizations of the Managing Division, the lack of continuity in supervising this project was excessive. Consequently, during critical decisions affecting project implementation the Bank was ill prepared to take an active role (paras. 8.1 & 8.5). In the context of projects in Uruguay, this continuity is all the more important in order to compensate for frequent turnover among Borrower staff. PROJECT COMPLETION REPORT URUGUAY THIRD HIGHWAY PROJECT (LOAN 223S-UR) PART I: PROJECT REVIEW FROM THE BANK'S PERSPECTIVE 1. Project Identity Prject Nam: Third Highway Project Loan Number: 2238-UR Loan Amount: US$45.0 million RVP Unit: Latin America and the Caribbean Region Counary: Uruguay .3ector: Transport Sub-Secto Highways (Roads) 2. Background 2.1 Uruguay's transport infrastructure comprises 62,000 km of roads (15% are paved), 3000 km of railway track, one deep-water port and a number of smaller ports, an offshore tanker-mooring station, pipelines for petroleum imports and 25 commercial airports. Montevideo, the capital and Uruguay's commercial and population center, is the hub of the transport system. 2.2 At the time of project appraisal (1982), roads carried 85% of the total freight, railways carried 12%, and river transport 3%. Since the 1960s, the road's share has been gradually increasing at the expense of rail and river transport. Much of the existing transport system in Uruguay, however, is antiquated. The last major investments in railroad lines and port facilities were in the 1920s, and there has been little roadway maintenance since the 1950s when most of the road networks (feeder and national) were completed. The principal problem of the road sub-sector is the age and deteriorated condition of the national network, notably the international connections. 2.3 Sector Objectives. To define key development issues in the transport sector, a comprehensive survey of the national transport system was undertaken by the Bank, with UNDP assistance, in 1976-78. This survey established a general framework for transport investment and identified four high-priority needs: (a) to strengthen national transport planning; (b) to improve road rehabilitation and reconstruction; (c) to reduce the railroad deficit, network and operations; and (d) to modernize the ports. - 2 - 2.4 Following the framework of the National Transport Survey, this project grew out of a need to strengthen the road sub-sector, a need to further rationalize the railway system, and a need to improve transport planning in general. The first project brief (July 1981) highlighted the main transport problems of Uruguay, noting the high transport costs arising from poor infrastructure and equipment conditions, the poor sector organization, and the inadequate maintenance over the past twenty years. 2.5 Bank Sector Lending Experience. Overall, Bank experience in the sector has been mixed. The first Bank loan to the sector was signed in 1962 (Ln. 324-UR) for the amount of US$18.5 million. This First Highway Project closed in 1972 with significant delays and cost overruns. The project did, however, finance the equipment and studies necessary to establish a regular highway maintenance operation. The Second Highway Project (Ln. 1689) was signed in June 1979 for US$26.5 million and provided consulting services for the preparation of a roads and bridges reconstruction program, and provided technical assistance to the TPU (Transport Planning Unit), as well as helped finance the reconstruction of the main international highway between Montevideo and the Brazilian border (Route 8). The Second Highway Project performance was rated as satisfactory and sustainability as likely, but institutional development was only partial. The project closed two years behind schedule in June 1986, and US$1.9 million (7%) of the loan was cancelled. 3. Project Objectives and Description 3.1 Objectives. The Third Highway Project was originally slated to: (a) help finance the MTOP's (Ministry of Transportation and Public Works) Five-Year Highway Investment Program; (b) consolidate and strengthen the planning, programming and executing capability of MTOP and Vialidad (National Highway Directorate); (c) strengthen the role of Montevideo as the center for transit traffic by reconstruction of key road corridors to Argentina and Brazil; and (d) finance studies on intermodal transport. 3.2 Description. The appraised project description consisted of the seven components. (a) Road and Bridge Reconstruction: civil works comprising reconstruction of 115 km of road sections on international links with Argentina and Brazil, and the construction of three new bridges-two to replace existing bridges on the rivers Caballada and Bellaco, and the third one, a new bridge on Route 10 near Punta del Este. (b) Road Maintenance and Rehabilitation on National Highways: civil works to rehabilitate five road sections (185 km), and some additional roads for which the evaluation would be submitted by the borrower during the execution of the project. - 3 - (c) Feeder Roads: rehabilitation/reconstruction of 3000 kn within the Feeder Road Program. (d) Traffic Safety: horizontal and vertical signalization on about 250 km of road sections. (e) Strengthening of MTOP's institutional capabilities for transport planning, programming and investment, covering: (i) annual updating of the Five-Year Investment Program based on traffic counts, a balanced assessment of the needs of maintenance, bridge rehabilitation, construction and reconstruction of national highways, and the investment requirements of the National Feeder Roads Program; (ii) preparation of plans of action for strengthening and restructuring the MTOP, including its training requirements; and (iii) enhancement of the MTOP's capabilities, by using short-term consultant services and training MTOP personnel in the fields of organization, management, optimization of maintenance, rehabilitation, reconstruction and construction expenditures, road safety and research work. (f) Studies on intermodal transport, including: (i) review of Borrower policies and regulations with the objective of recommending measures aimed at increasing domestic and international intermodal transport; and (ii) economic, financial and technical justification for the establishment of a intermodal freight consolidation center, and, if needed, preparation of preliminary engineering and regulatory, institutional and financial framework for the operation of the center. (g) Preparation and adoption by AFE (State Railroad Administration) of a cost accounting system. 3.3 The total estimated cost of the project at the time of appraisal was US$137 million. The foreign exchange component was approximately US$70 million, of which US$45 million was to be financed by the Bank loan, and the balance, US$25 million, by cofinancing (para. 5.7). The - 4 - government and the Intendencias (the municipal administrations in each district) were to cover the entire local costs of US$67 million. 4. Project Design and Organization 4.1 The project was designed to continue and consolidate the work initiated in the first two highway projects and to strengthen and reorganize the MTOP's capabilities. The overall execution of the project was the responsibility of the MTOP. DNT (National Transportation Directorate) was the executing agency for the reconstruction and rehabilitation of the national roads, the Intendencias for the feeder roads, TPU for the intermodal studies, and AFE for the establishment of accounting system. MTOP was also to handle the technical assistance funds. 4.2 As the Intendencias owned their own equipment, the execution of works on the Feeder Roads (US$40 million) was to be by force account, with subcontracting of various tasks, and assistance of the land owners. A Special Account in Uruguay, subject to annual audit, was made available for financing the Bank's share of the project costs. 5. Project Implementation 5.1 Loan Effectiveness. The project was appraised in February 1982, negotiated in December 1982, and approved by the Board on February 15, 1983. The Loan Agreement was signed on March 25, 1983. It became effective more than six months later on October 4, 1983. The delay was caused by a change of government and an overhaul of the project management teams in the MTOP and DNT. 5.2 Changes in Project Scope. The were significant changes during project implementation as evidenced by the five loan amendments. The reason for the changes was that the project suffered from changes in administrations and changes in priorities. The national government changed three times during implementation. The overall executing agency, MTOP, was reorganized twice and changed its sector priorities twice. The first change in priorities came in 1985 and resulted in the government shifting all road sector resources to IDB-funded road projects at the expense of other works. The Bank mission in October 1985 noted that this would result in a two year delay in implementation. A formal, two year extension of the loan closing date was subsequently granted. 5.3 The second change in priorities came in 1988. The Uruguayan Government, with the help of the IMF, began a macro economic restructuring program. Government transfers to the transport sector decreased significantly. This risk was correctly identified at appraisal but was discounted because of the belief that the MTOP has sufficient reserves to cushion any reduction in transfers. This was not the case, and payments due to contractors lagged, in some cases, more than a year. The result was that contractors slowed down or stopped work. The lag in transfer of funds caused the second extension of the loan closing to the actual closing date of December 31, 1990. 5.4 There were also changes due to design problems. The Bank mission in October 1985 noted that there were serious problems with the proposed reconstruction of Route 1-the most frequently used road in Uruguay. The road was designed in the 1940s to contemporary standards. However, current standards for line-of-sight, corner radii, etc. made the existing roadbed obsolete and a serious safety hazard. It is worth noting that during project appraisal, the Bank failed to adequately analyze the Route 1 engineering proposal, and it was only when it was to be implemented that the reconstruction proposal was found to be inadequate. The reconstruction of Route 1 was put on hold until a design study of the alternatives was completed. The delay of Route 1 resulted in a restructuring of the project. Funds originally slated for Route 1 reconstruction (US$17.7 million in Jan. 1983) were reallocated to Feeder Roads, traffic safety and design studies for railroad and port improvements. Route 1 reconstruction was moved to the follow-on project, Transport I (Ln. 3021-UR) signed in 1989. During the reallocation, the AFE accounting system component was dropped since AFE was to be reorganized. Unfortunately, no economic analysis was done during the project restructuring on the effect of dropping Route 1 and adding or expanding other sub-components. 5.5 Further delays in calling for bids, combined with existing budget restrictions, slowed civil works execution in 1989 and 1990 and led to a number of contracts remaining uncompleted at the time of loan closing. Thus, US$3.03 million of the US$45.00 million loan was cancelled. Financing for these uncompleted contracts was eventually provided under the follow-on Transport I Project. 5.6 Project Costs. The actual cost of the project was US$101.8 million against the estimated cost at appraisal of US$137.0 million (see Table 3 for details). One of the primary reasons for the lower project costs was that the repeated devaluations of the Np. (New Uruguayan Peso) were not wholly counteracted by price increases. At the time of appraisal (February 1982), the Np. was at 12.73 to the US dollar. When the project closed (December 1990), the Np. was at 1,594 to the US dollar, a 12,522% increase. Consumer prices over the same period increased 11,430%. This meant local project costs, in US dollar terms, became cheaper. 5.7 A second reason the project cost dropped was the highly competitive bid process. There was significant excess capacity in the road construction industry of Uruguay. Competition among contractors fostered aggressive bids, resulting in substantial reductions in costs. As a result of the decrease in project costs, it was no longer necessary to seek cofinancing. An amendment to the Loan Agreement in May 1984 deleted the cofinancing requirement. Because of the low bids and the restructuring of the project - 6 - (para. 5.4), substantial savings were achieved in the Civil Works, which at a cost of US$37.2 million were completed at 56% of the originally estimated US$65.9 million. On the other hand, the Feeder Roads cost US$59.4 million, 49% over the estimated cost of US$40.0 million due to the substantial increase in the Feeder Roads Program. The net result of the changes in costs and project scope was that the final project cost was US$101.8 million, 74% of the appraised US$137.0 million. 5.8 Disbursements. The loan disbursement began slowly. In the first year, only US$0.7 million was disbursed against US$5.0 million forecast (see Table 4 for details). By the original loan closing date of December 31, 1987, only US$18.9 million (42%) had been disbursed. There were significant lags in disbursements because of the delays in contract approval, delays in payments to contractors, and delays in government funds (para. 5.5). When the loan closed three years later in December 1990, US$41.97 million (93%) of the US$45.00 million loan had been disbursed. The remaining US$3.03 million was cancelled. 5.9 Environment. Although the environmental impact was not addressed in the Staff Appraisal Report since the project was appraised in 1982, the follow-on project's Staff Appraisal Report from 1988 (Ln. 3021-UR) noted that there were no adverse environmental effects from the road sector works. The general nature of the project's civil works was upgrading existing infrastructure rather than creating new infrastructure; thus, the environmental changes were by nature limited. 6. Project Results 6.1 Overview. The essential component of the civil works program were comprised of: (a) road and bridge reconstruction works; (b) rehabilitation works on the national highway network; (c) traffic safety works; and (d) Feeder Roads Program. All were completed (except for Route 1), albeit with lengthy delays, and at a total cost significantly lower than the appraised estimate. The overall result of the program to strengthen sectoral planning as well as the MTOP's and Vialidad's institutional capabilities is more difficult to assess. The specific results were: (a) a railway study of restructuring AFE and the subsequent reduction of operations; (b) port studies on how best to strengthening the ports sub-sector, which became part of the Transport I Project (Ln. 3021-UR); and (c) the MTOP established an annual investment planning system for the transport sector. While some improvements have taken place in the capabilities of the Government for sectoral planning and in the MTOP's capacity for planning and investment, institutional development was only partial due to the frequent changes in the sector priorities and in the MTOP. 6.2 Economic Rate of Return. Economic evaluation was done for a little over 94% of the actual project costs. This covered Category 1 Civil Works and Category 3 Feeder Roads. The remaining project covering minor traffic - 7 - safety and technical assistance amounted to US$6.0 million and have characteristics that do not lend themselves to economic evaluation. For this same reason they were not evaluated in the Staff Appraisal Report. The methodology used for the ex post evaluation of the project was the application of HDM - m (Highway Development Model), calibrated to Uruguayan conditions. 6.3 In the ex post analysis, Civil Works components gave an overall economic rate of return (ERR) of 19.6%, which is higher than the 12% commonly assumed to be the opportunity cost of capital in Uruguay. Table 5 details the overall results of the economic evaluation of Category I, and Table 6 lists general characteristics of some typical roads. The individual sub-projects were all economically feasible with ERRs ranging from 13% to 55 %. In the ex post evaluation of Feeder Roads (Table 7), the average ERR was 13.1%. A note of caution, however; the ERRs are predicated on the execution of satisfactory periodic maintenance, in particular resealing work, which will need to be continually monitored in the coming years in order for the benefits to be attained. The Transport Project I (Ln. 3021-UR) currently under way should help ensure this supervision. 6.4 Impact. The overall impact of the project was medium to high. For Civil Works there was a high impact; there were tangible improvements in feeder roads, national bridges and roads (with the exception of Route 1), and traffic safety. The Civil Works improved vehicle operating conditions and thus reduced vehicle operating costs. High vehicle operating costs were singled-out in the Staff Appraisal Report as a major problem of the transport sector. Economically, the geographical spread of the Civil Works helped strengthen local construction industries. For strengthening sector planning and the MTOP's and Walidad's institutional capacities there was a medium impact; essential studies were completed and a planning system for sector investment was implemented but frequent changes in governments, personnel, and sector priorities hampered institutional development. 7. Sustainability 7.1 Provided that scheduled maintenance is carried out, the likelihood of sustainability for the Civil Works component is high. At the least, the structural improvements (e.g., bridges, illumination, road reconstruction) in the feeder and national road networks will have long-term benefits. Recent supervision reports from the Transport I Project indicate that road maintenance is progressing well in many provinces but poorly in a few due a system of fixed, per kilometer payments for maintenance that does not adequately cover the costs of transporting materials to remote sites. 7.2 The likelihood of sustainability for sector institutional development is low. Since the project closed, there have been more changes in the management of MTOP as well as high staff turnover due to low wages. Further, a new government will be elected in 1994, which historically has - 8 - meant sector management changes. However, some of the institutional gains such as the MTOP's annual investment planning system were still in place as of early-1994. 8. Bank's Performance 8.1 Bank performance was less than adequate. In general, the Bank's role in problem-solving was reactive rather than proactive. The Bank treated project-delaying changes in priorities as faits accomplis, when in fact, the documentation shows the Bank was given advanced notice that priorities were being reevaluated and presumably could have had a greater role in determining the outcome. The Bank's reactive role in implementation was not from a lack of supervision. There were 13 supervision missions and 59 supervision staff weeks on the project. The problem with the supervision, and perhaps the reason for the reactive role of the Bank, can be found in the lack of staff continuity. During project implementation, there were no fewer than six different Task Managers/Project Officers, four different Division Chiefs and three restructuring of the Managing Division. This lack of staff continuity no doubt affected the quality of Bank supervision. 8.2 The Staff Appraisal Report correctly identified the potential risks. However, the report's conclusions that the risks were minimal-especially regarding government transfers to the transport sector-proved incorrect. The initial costs of the project were overestimated, which led to the cancellation of cofinancing, and eventually to the financing of over 41 % of the project cost from the Bank loan instead of 34% as foreseen at appraisal. The original and actual financing plan of the project (in US$ millions) are indicated below. Bank Cofinancing MTOP Intendencia Total Original $45.0 $25.0 $47.0 $20.0 $137.0 Actual $41.9 $0.0 $30.2 $29.7 $101.8 8.3 Lessons Learned. The first lesson learned is that greater attention needs to be given to the macro economic environment in Uruguay as it affects project costs. The cost estimates of this project and that of its predecessor, the Second Highway Project, were off by 26% and 14% respectively-in both cases, primarily due to changes in the exchange rate vWs-a-vis inflation. It would appear that staff did not apply the lessons from the Second Highway Project in preparing and appraising the Third Highway Project. The result in both projects was that although overall costs dropped, the Bank financed a greater share of the total project costs than originally approved, and the Borrower paid commitment fees on a portion of the loan that was never used. The experience gained from this project and its predecessor suggest that in future projects in Uruguay, supervision missions should periodically reassessing project costs, and if needed, cancel a portion of the loan if there have been significant cost savings. This would be beneficial for both the Bank and the Borrower. 8.4 The second lesson learned regards the restructuring of the project after Route 1 was moved to the follow-on project (para. 5.4). Route 1 comprised 42% of the Bank loan. It would have been prudent to reduce the scope of the project when Route 1 was removed from the loan. Instead, the project became a catch-all for the road sector with various small scale works added or expanded to use the funds originally slated for Route 1 with little analysis of the work's economic merit. These changes caused delays and extensions and perhaps worse, further taxed the already strained budget allocations and institutional capacity of the Government. 8.5 The third lesson learned is that a lack of continuity in Bank supervision staff has a negative impact of the quality of Bank supervision. The staff turnover on this project was excessive and consequently the Bank missed opportunities to provide input at several critical junctures (para. 8.1). In the context of projects in Uruguay, this continuity is all the more important in order to compensate for frequent turnover among Borrower staff. 9. Borrower's Performance 9.1 Borrower's performance was substantially and adversely affected by frequent changes in government, followed almost invariably by changes in senior management and priorities and by a lack of fiscal resources due to macro economic restructuring. The result was delayed decision-making, inadequate funds, and a lack of continuity in the execution of the project. 10. Bank-Borrower Relationship 10.1 Bank relationships with the government and the various agencies were satisfactory. Even with the high turnover of staff in both the Bank and the Borrower, relations remained cordial and open. It was largely on the strength of the relationship that the project was as successful as it was, notwithstanding Bank staff turnover and shifts in sector priorities. Had the relationship been strained, support for the project on both sided would in all likelihood have eroded. 11. Consulting Services and Procurement of Goods 11.1 Technical assistance was provided primarily for strengthening the MTOP's capabilities and included the training of key MTOP personnel. Bank-approved procedures were used in hiring all consultants. Overall, the consultants performed well, although absorption of technology transfer was limited by the lack of continuity among Borrower staff. Supervision consultants performed satisfactorily but could do little to avoid delays caused by payment lags and bureaucratic changes. - 10 - 11.2 Procurement of goods was limited and uneventful. As for civil works, although Bank-approved procedures were used, there were often delays in bid evaluation and in the negotiation of contracts. 12. Project Documentation and Data 12.1 The Staff Appraisal Report and the Legal Agreement provided the framework for the supervision of the project. Quarterly progress reports from the Borrower were received regularly, albeit with delays. The project went through several changes of which a faithful record was found in the supervision reports and the project files. However, neither the Bank's supervision reports nor the Borrower's quarterly reports contained reliable cost data. After completion of the project, the Borrower sent in June 1993 a 'Final Report' containing a brief overview of the project and cost data. The data were the basis of the cost tables included in this report. - 11 - PROJECT COMPLETION REPORT URUGUAY THIRD HIGHWAY PROJECT (LOAN 2238-UR) PART II: PROJECT REVIEW FROM THE BORROWER'S PERSPECTIVE A copy of the PCR's Parts I and HI was sent to the Borrower. The Borrower sent a letter on October 25, 1993 that noted the receipt and the review of Parts I and HI of the PCR but offered no substantive comments or text to be included in Part II. The Borrower did, however, send a "Final Report" in June 1993 containing a brief overview and some cost data-but no critique-on the project. The data were incorporated into Part III of the PCR. Given the number of changes in the government and executing agencies during implementation, and given the number of intervening years, a meaningful review of the project from the Borrower's perspective was unlikely. Thus, the PCR was prepared without the Borrower contributing Part II. This omission is permitted under Bank guidelines for PCRs more than two years old. - 12 - PROJECT COMPLETION REPORT URUGUAY THIRD HIGHWAY PROJECT (LOAN 2238-UR) PART III: STATISTICAL INFORMATION Table 1: Related Bank Loans ThI Loa No Y: ot ()igaa D us d Dhbi a : e t Approvl A __... First Highway Project 0324-UR 1962 18.5 18.5 Closed 1971 Second Highway Project 1689-UR 1979 26.5 24.6 Closed 1986 Montevideo Port Project 1798-UR 1980 50.0 50.0 Closed 1990 Transport I Project 3021-UR 1989 80.8 18.0 Under implementation Public Enterprise 3717-UR 1992 4.5 it 0.5 Under Implementation Reform Project Source: IBRD project files I/ Port component of the loan. Table 2: Project Timetable The : PX t; Date PX t aed Actual P -te Identification July 1980 Preparation July 1981 Appraisal February 1982 February 1982 Negotiation December 1982 December 15 to 18, 1982 Board Approval February 1983 February 15, 1983 Loan Signature March 25, 1983 Loan Effectiveness June 1983 October 4, 1983 Loan Closing December 31, 1987 December 31, 1990 Project Completion June 10, 1987 December 31, 1990 Source: IBRD Project Files - 13 - Table 3: Project Costs and Financing (In millions of US dollars) ESTIMATED & ACTUAL COSTS ORIGINAL AND ACTUAL FINANCING PLAN Appraisal Estimates Actual Costs Original Actual Local Foreign Total Local Foreign Total Bank Cofin. MTOP Intendenda Total Bank Cofin. MTOP Intendencla Total Road and Bridge 17.8 28.8 46.6 15.3 13.9 19.6 48.8 Reconstruction 14.9 22.3 37.2 19.4 17.8 37.2 Road Rehabilitation 14.2 22.9 37.1 12.1 11.1 15.6 38.8 Feeder Roads 33.9 15.7 49.6 41.9 17.5 59.4 15.3 10.7 20.0 45.9 17.5 59.4 Trsffic Safety 0.8 1.3 2.2 0.2 3.8 4.0 1.3 0.9 2.2 3 8 0.2 4.0 Technical Assistance 0.2 0.8 1.0 0.9 0.9 0.7 0.3 1.0 0.9 0.9 Front End Fee. 0.3 0.3 0.3 0.3 0.3 0.3 0.3 0.3 XIOTAL 67.0 70.0 137.0 57.0 44.8 101.8 1/ 45.0 25.0 47.0 20.0 137.0 41.9 b/ 301 29.7 101.8 Source: IBRD Project Files and Borrower's Data a/ Actual costs were lower than cetimated due to changes in exchange rates and lower than estinated contractor bids. (pars. 5.6 & 5.7) b/ US$3.03 million was cancelled. (parn. 5.8) - 14 - Table 4: Estinated and Actual Schedule of Disbursements IWRD: FWiaNi xer Apa.)i6ewe Aeul ~ Acdoal 9$ %Of ~knst. Dihurseteub Reviied l?4mate ________________ (cumatie) (cumulative) - - (cuulative) 1984 Sept 1983 Dec 1983 2.00 0.33 March 1984 3.50 1.00 0.71 71% June 1984 5.00 0.71 1985 Sept 1984 7.00 1.67 Dec 1984 9.00 6.00 5.80 96% March 1985 11.50 7.07 June 1985 14.00 7.07 1986 Sept 1985 17.50 7.07 Dec 1985 21.00 10.00 7.71 77% March 1986 24.50 7.71 June 1986 28.00 8.47 1987 Sept 1986 31.00 9.0 Dec 1986 34.00 16.00 9.08 57% March 1987 37.00 11.14 June 1987 40.00 12.00 1988 Sept 1987 42.50 14.15 Dec 1987 45.00 20.00 18.91 94% March 1988 22.15 June 1988 23.98 1989 Sept 1988 23.98 Dec 1988 30.0 26.80 89% March 1989 28.52 June 1989 30.17 1990 Sept 1989 33.07 Dec 1989 40.0 34.61 90% March 1990 35.95 June 1990 35.95 1991 Sept 1990 37.20 Dec 1990 45.0 37.92 87% March 1991 38.92 June 1991 _ 41.97 Source: EBRD Supervision Reports and Project Files - 15 - Table 5: Economic Evaluation of Category I No. -Secti ERR . . . SAR (%) A'tual (%) 1 Route 3: Salto-B. Uni6n (-) 20.5 2 Route 13: Aigua-A. Alferez 22 17.7 3 Route 1: Bridge Ao. La Caballada 25 (*) 4 Route 15: Lascano-La Coronilla 15 19.5 5 Route 12: Cardona-Cortinas 29 22.3 6 Route 14: RN 5-Sarandf del YI (-) 13.4 7 Route 24: Acc. and Bridge Ao. R. Bellaco 25 (*) 8 Route 9: 107 km 000 to 121 km 600 (-) 17.3 9 Route 10: Acc. and Bridge Ao. Potrero 16 (*) 10 Route 23: San Jose-I Cortinas 28 31.4 11 Route 48: Junction RN 36 and RN 49 60 24.0 12 Route 27: Moirones Vichadero (-) 14.8 13 Route 5: 65 km 000 to 91 km 200 29 13.0 14 Route 45: RN 1 to RN 11 (-) 54.9 15 Route 39: Acc. and Bridge Ao. Maldonado 44 17.0 16 Route 5: Paso de los Toros - Rivera (-) 48.5 17 Route 33: RN 6 -RN 11 28 13.0 18 Route 65: RN 6 - RN 7 (-) 15.8 19 Route 81: RN 33 - RN 6 (-) 15.8 20 Route 3: Trinidad - Paso del Puerto 29 15.0 21 Route 49: RN 36 - RN 48 77 24.0 Overall ERR: 26 19.6 (-) Note: Not available (*) Note: The original SAR assumptions concerning the economic evaluation of these sub-projects are not available. The actual costs resulted in smaller values than originally estimated (Bridge Caballada, 62% of original SAR cost; Bridge Bellaco, 41%; and Bridge Potrero, 56%). Consequently, the real ERRs under the same assumptions in the SAR would result in values even greater than the already acceptable values in the SAR, which were, respectively, 25%, 25% and 16%. - 16 - Table 6: General Characteristics of Sample Roads No. Sectdon L:enght Width Surface Conditions Intereruptions Roughness ( 100 0 (km) 1m) wlo project w/o project Due to Rain (IRI| :__ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ :_ _ _ _ _ :_ _ _ _ _ _ _ _ _ _ (d ays) 1 Col. Rubio-R31 (km 13) 26 6.00 Earth Bad 20 to 60 20 R31 (km 10) - Pblo. Laurelcs 59 5.00 Gravel Fair 2 R8 - Cno. Cuchilla (Queb. 35 3.00 Gravel (5 km) Fair Less than 20 18 ______ Cuervos) Earth (30 km) Bad 20 3 Pblo. Arcvalo - Po. de la Vuelta 22 3.00 Earth Fair 20 to 60 20 4 Paso Vargas - Estaci6n Ataques 16 6.00 Earth Bad 20 to 60 20 S Est. Vichadero (R20) - Est. 52 5.50 Improved Earth (40 km) Bad 20 Bellaco (R25) Gravel (12 km) Fair 18 6 R. 97 - Escuela No. 57 19 - Improved Earth (10 km) Bad Less than 20 20 Gravel (9 km) Bad 20 7 Verduin - Comercio Sainz 40 - Earth Bad More than 60 20 8 R5 - Paso Hondo (R59) 34 5.50 Earth Bad More than 60 20 9 R7 (A. Saravia) - R80 14 7.00 Improved Earth Fair Less than 20 20 10 R14 (km 64.500)-R3 (km 22 6.00 Earth (11 kmn) Fair Less than 20 20 _____ 264.500) Improved Earth (11 km) Bad 20 TOTAL: 339 km Source: Institute of Transport Planning, October 1993. - 17 - Table 7: Results of Threshold Analysis for Category 3 (Feeder Roads): Required Minimum Traffic Volume Sections CoetIm MiniC -.:mum Traffic Actual Traffic. - - -([) - ----:- i:flc Unit) rafi Un ts) 1 4,697 18 27 2 2,966 9 12 3 2,685 10 17 4 8,952 32 30 5 11,797 34 25 6 4,176 15 30 7 26,908 97 63 8 9,921 36 41 9 3,318 12 41 10 3,316 12 20 Average Return of the Sample (Excluding Section 7) Average Economic Cost/Km: US$6,487 Average AADT: Cars, 14; Pick-ups, 4; Trucks, 6 Average Annual Maintenance Cost per Km: US$170 - 195 Average ERR: 13.1 % - 18 - Table 8: Compliance with Loan Covenants Coveniwt Subjiet ie;l :ta,tl' Sec. 2.01 Amount of Loan US$45 million US$41,974,862 was disbursed US$3,025,138 cancelled Sec 2.04 Closing Date Dec 31, 1987 Closing date postponed thrice, the last time to December 31, 1990 Sec. 3.01 (c) Submission of additional Annually, not later than In compliance works for inclusion in Parts June 30 A.2 and B.2 of the project. Sec. 3.01 (d) Submission of sub-projects Annually, by June 30 In compliance for inclusion in the National Feeder Roads Program. Sec. 3.04 Semi-Annual meetings between Starting In compliance borrowed and the Bank September 1983 Sec. 3.06 Plans for Restructuring and July 31, 1983 In compliance strengthening of MTOP Sec. 4.02 Certified copies of Audit 6 months after end of each In compliance (although often with Reports year delays) Sec. 6.03 Borrower to allocate Road In compliance maintenance funds yearly, in an amount not lower than funds for 1982 Sec. 4.04 Special Account- Audit Report Annually, within 6 months In compliance of end of each year Source: IBRD Supervision Reports and Project Files - 19 - Table 9: Mission Data ~~~~~~~ l1''-b "'1 l1 1* '1 S'c*id 1vrl ouet I. Through Appraisal Project Identification 12/80 1 3 Engineer Third Highway Project Identified Project Preparation 5181 2 S Engineer, Project Brief issued July 10, Economist 1981 Project Preparation 10/81 2 7 Engineer, Project Brief updated Economist Decenber 11, 1981 Apprais 2/82 4 18 Engineer, Economist, Spl.', Consultant H. Post Appraisal to Board Approval Post Apprisa 6/82 2 Engineer, Discussion with new Economist, Minister and Head of Vialidad Post Apprais 7/82 1 Engineer Review of designs and plan Post Apprail S/S2 1 Finalization of Investments Plan and the Institution Building Component Yellow Cover and Yellow Cover November 29, President's Report 1982 Negotiations 12/82 Negotiations on December 15 to 18. Summary of Negotiations not date December 20, 1982 Board Approval 2/S3 February 15, 1983 Bank News Release Circular February 17, 1983 Loan Signatum 3/83 Loan signed on March 15, 1983 1. Intermodal Specialist - 20 - fe Date Numbe or I iDM lJ_ SedaAlon over Commueut ] ;*W4led QBrde | Peron f Mld | :RePd e:4ejV Rag ;0 ti$00j-0400j m. Supervision _ Supervision 4/83 1 4 Economist 1-22 To review TOR's for studies and to expedite effectiveness of loan Supervision 9/83 4 4 Engineer, 1-2 Loan because effective Enginecr, October 4, 1983 l _________________ _______ ___________ Econom ist, Spl. Supervision 7/84 2 5 Engineer, 1-2 Economist Supervision 12/84 1 4 Engineer 1-2 Supervision 8/85 1 7 Economist 3 Supervision 3/86 2 5 Engineer, 2 Economist Supervision 12/86 1 2 Engineer 2 Supervision 4/89 1 12 Engineer 2 Major changes in project, leading to amendments to Loan Agreement Project restrictive Disbursements slow (only US$9.7 million so far) Supervision 2/90 2 8 Engineer, 2 Low Budget, Disbursements Economist only US$10.4 million so far Supervision 4/90 2 1 Engineer, Engineer - Closing date extended for the third time to December 30, 1990 Supervision 6/90 2 6 Engineer, 2 Economist Supervision 10/90 2 8 Economist, 2 New director for Vialidad Financial analyst from October Preparation of I_____________ I__ _ _ I_______ _ _ _ _ _ _ ____________ Transport I starts Supervision 2/91 2 4 Economist, I I Economist SUMMARY Mission Daa Staff Days Through Appraisal 105 l Post Appraisal to Board 37 Board Effectivenes 20 Supervision 89 Total 251 Source: IBRD Project Files 2 Rstinp 1-1 mndinctes seneral rtatus for project 1, disburements 2. 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