Document of
                   The World Bank


                                           Report No: 62801-HN




                RESTRUCTURING PAPER

                        ON A

          PROPOSED PROJECT RESTRUCTURING

                         OF

SECOND HONDURAS ROAD REHABILITATION AND IMPROVEMENT

                      PROJECT

                 IDA CREDIT 4466-HO

                     MAY 8, 2008

                       TO THE

               REPUBLIC OF HONDURAS


                   AUGUST 9, 2011
         ABBREVIATIONS AND ACRONYMS




 Regional Vice President:            Pamela Cox
        Country Director:            Carlos Felipe Jaramillo
Sector Manager / Director:           Laura Tuck/Aurelio Menendez
           Team Leader:              Stephen Brushett
                             a
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                          HONDURAS
     SECOND ROAD REHABILITATION AND IMPROVEMENT PROJECT
                           P109058
                          CONTENTS

                                                                                                                       Page
A.   SUMMARY................................................................................................................ 4
B.   PROJECT STATUS.................................................................................................. 4
C.   PROPOSED CHANGES .......................................................................................... 4




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                                          HONDURAS

     SECOND ROAD REHABILITATION AND IMPROVEMENT PROJECT

                                   (IDA CREDIT 4466-HO)

                                RESTRUCTURING PAPER

SUMMARY
The proposed changes are: (i) a change in the date of the legal covenant in the Financing
Agreement in regard to the adoption of the Strategic Sector Plan and the revised Road
Maintenance Plan; and (ii) an amendment to the Financing Agreement and to the Supplemental
Letter in regard to Advance Conservation Measures.

In view of various initial delays in the implementation of the project, the Recipient was unable to
complete - after due consultation with stakeholders - the preparation of the two key sector
documents: (1) the Strategic Sector Plan; and (2) a revised Road Maintenance Plan, by the
stipulated date of December 31, 2010. The Recipient and the Bank have agreed on a revised
schedule by which the documents will be completed no later than June 30, 2012. Their
completion remains an important contributory factor to the achievement of the project
development objectives in regard specifically to improved governance and enhanced road
management capacity.

The amendment to the Supplemental Letter dated October 13, 2008 would change the minimum
area of thorn forest habitat to be conserved from approximately 2,000 to approximately 1,400
hectares. The Recipient and the Bank have agreed that the reduced minimum area can be
considered viable for the conservation of flora and fauna species at risk. The revised area includes
about 800 hectares of privately owned land parcels where long term conservation of thorn forest
will be managed through a Decree and for which contracts providing payment for environmental
services (PES) have been signed. A financially sustainable and operationally viable system of
management of these lands is under preparation and will need to be up and running prior to the
contracting of the San Lorenzo to Olanchito road improvement works.

There are no changes to the project development objective.


PROJECT STATUS
The project has yet to start implementing any of the planned works, although bid documents for
two major road work contracts are expected to be issued in the third quarter of 2011. Progress
has been made towards strengthening institutional capacity and implementation arrangements.
Progress is also being made on the implementation of all Advance Conservation Measures stated
in the Supplemental Letter, and an action plan has been agreed upon with the Government to
complete the remaining critical steps which include the formal adoption of the Decree.


PROPOSED CHANGES

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(i)    Implementation schedule
          The implementation schedule is modified to allow an extension for the preparation
          and subsequent consultation of the Strategic Sector Plan and of the revised Road
          Maintenance Plan to be completed by June 30, 2012 (Financing Agreement Schedule
          2 Section I E.).

(ii)   Advance Conservation Measures
          The Financing Agreement Schedule 2 Section IV B 1 (b) and the Supplemental
          Letter dated October 13, 2008 will be amended such that: references made to the
          conservation of a total of approximately 2,000 hectares of thorn forest habitat in the
          Recipient’s Upper Aguan Valley will be changed to approximately 1,400 hectares;
          and references made to the conservation area on currently privately owned land will
          be changed from 1,400 hectares to 800 hectares.




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