Document of The World Bank FOR OFFICIAL USE ONLY Report No. 4254 PROJECT COMPLETION REPORT PARAGUAY FOURTH HIGHWAY PROJECT (LOAN 1059-PA) December 30, 1982 Latin America and the Caribbean Regional Office This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization. FOR OFFICIAL USE ONLY PARAGUAY FOURTH HIGHWAY PROJECT (LOAN 1059-PA) PROJECT COMPLETION REPORT TABLE OF CONTENTS Page No. PREFACE .................................................. i KEY PROJECT DATA ............................................ ii MISSION DATA . ................................... iii HIGHLIGHTS . . ............ -- .iv I. INTRODUCTION ............................................... 1 II. PROJECT PREPARATION, APPRAISAL AND NEGOTIATIONS .... 1 III. PROJECT IMPLEMENTATION ..... ....................... . 5 IV. COST ESTIMATES AND DISBURSEMENTS ................... 8 V. ECONOMIC RE-EVALUATION . ........................ 9 VI. PERFORMANCE OF THE BORROWER ...................... 10 VII. ROLE OF THE BANK . .......................... ........ 12 VIII. CONCLUSIONS ..................................... ...... 12 TABLES 1. Appraisal Estimates and Actual Cost ......... . 13 2. Scheduled and Actual Disbursements ....... .. ........ 14 3. Traffic and Vehicle Operating Costs on Project Roads 15 MAP IBRD - 3770R1-PCR | 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 witbout World Bank authorization. PARAGUAY FOURTH HIGHWAY PROJECT (LOAN 1059-PA) PROJECT COMPLETION REPORT PREFACE The following is a Project Completion Report on the Fourth Highway Project in Paraguay, for which Loan 1059-PA in the amount of US$14.5 million was approved by the Board on December 10, 1974. The Loan was closed on June 30, 1981, and, on July 21, 1981, undisbursed funds amounting to US$27,243.14 were canceled. This Completion Report was prepared by the Bank's Latin America and the Caribbean Regional Office and is based on information obtained from the files of the Bank's Record Center, LAC Information Center, Appraisal and Supervision Reports for Loan 1059-PA and on the final reports prepared by consultants responsible for supervision of the civil works. In accordance with the revised procedures for project performance audit reporting, this Completion Report was read by the Operations Evaluation Department but was not audited by OED staff. The Draft Completion Report was sent to the Borrower; however, no comments were received. - ii - PARAGUAY FOURTH HIGHWAY PROJECT (LOAN 1059-PA) PROJECT COMPLETION REPORT KEY PROJECT DATA Original Item Plan Actual Total Project Cost (US$ million) 20.0 21.1 Overrun (%) - 5.5 Loan Amount (US$ million) 14.5 14.5 Disbursed 14.5 14.5 1/ Date Physical Components Complete 12/78 7/80 Time Overrun - 40% Estimated Economic Rate of Return 21% 31.5% Financial Performance - Good Institutional Performance Fair Other Project Data Original Item Plan Actual First Mention in Files or Timetable 07/70 Appraisal 11/71 Re-appraisal - 03/74 Negotiations 03/72 03/07-10/74 Board Approval 05/72 12/10/74 Loan Agreement 05/72 12/12/74 Effectiveness 08/72 03/11/75 Closing Date 06/30/79 12/31/80 Borrower Republic of Paraguay Executing Agency Ministry of Public Works and Communications (MOPC) Fiscal Year of Borrower January 1 - December 31 Follow-on project Fifth Highway Project Loan Number 1529-PA Amount US$33.0 million Loan Agreement 03/17/78 Country Exchange Rates Name of Currency Guarani (¢) Appraisal Year Average US$1.00 = ¢126.0 Intervening and Completion Year Average The rate of exchange of US$1 = ¢126.0 did not change during the project implementation period. 1/ On July 21, 1981, undisbursed funds amounting to US$27,243.14 were canceled. - iii - PARAGUAY FOURTH HIGHWAY PROJECT (LOAN 1059-PA) PROJECT COMPLETION REPORT MISSION DATA No. of No. of Date of Type Month/Year Staff Weeks Staff/Weeks Report Preparation 09/70 2 1 2 11/70 Preparation 04/71 4 1 4 06/71 Appraisal 11/71 4 2 8 12/72 Reappraisal 03/74 2 3 6 08/74 Totals 7 20 No. of No. of Date of Type Month/Year Staff Weeks Staff/Weeks Report Supervision 03/75 2 2 4 04/22/75 Supervision 09/75 2 2 4 10/05/75 Supervision 11/75 1 1 1 12/30/75 Supervision 06/76 1 1 1 07/27/76 Supervision 10/76 1 1 1 11/03/76 Supervision 02/77 2 2 4 04/07/77 Supervision 04/77 2 2 4 06/24/77 supervision 10/77 2 1 1 11/29/77 Supervision 04/78 2 2 4 06/20/78 Supervision 10/78 2 2 4 11/29/77 Supervision 02/79 1 2 2 04/29/78 Supervision 07/79 1 2 2 08/09/79 Supervision 10/79 2 2 4 11/07/79 Supervision 05/80 2 2 4 06/02/80 Supervision 10/80 2 1 2 11/20/80 Totals 25 42 Total Supervision Time (Includes Mission and Headquarters Time) FY-75 - 10.4 Staff-weeks FY-79 - 4.9 Staff-weeks FY-76 - 13.3 " FY-80 - 3.9 " FY-77 - 4.9 FY-81 - 4.0 1/ FY-78 - 5.2 " 1/ Estimated and includes preparation of Project Completion Report. - iv - PARAGUAY FOURTH HIGHWAY PROJECT (LOAN 1059-PA) PROJECT COMPLETION REPORT HIGHLIGHTS Loan 1059-PA for US$14.5 million supported road construction and reconstruction of 102 km of high priority roads, purchase of spare parts for road maintenance equipment and technical assistance to improve road main- tenance operations, transport planning and development of the local construction industry. The project was generally implemented as planned except for substantial delays in the completion of the Encarnacion-Pirapo Road (para 3.04). The actual cost of the project, US$21.1 million, was in line with the appraisal estimate of US$20 million. The reestimated ERR for the Encarnacion-Pirapo Road (39%) is well above the original estimate (24%), mainly because agricultural development along this project road exceeded that foreseen at appraisal (paras 5.02, 5.05). On the other hand, the reestimated ERR for the Mbocayaty-Colonia Independencia Road does not show a significant difference from the appraisal estimate of 12% (paras 5.06, 5.07). Although the technical assistance for transport planning and road maintenance proved of value to the Government, its impact was below appraisal expectations (para 8.02). The main objective of strengthening indigenous capabilities to enable the phasing out of consultants' services is being achieved, at a slower pace than foreseen at this project appraisal, within the framework of three follow-on projects. However, the recurrent problem encountered during the implementation of the Fourth Highway Project, the loss of qualified technical staff to the highpaying hydroelectrical projects, still persists and is being addressed under the Seventh Highway Project (Loan 2140-PA) (para 6.04). Also, the abundance of work for the construction industry greatly diminished the interest in the recommendations for aid to the industry developed under the project, and no action resulted from them (para 8.02). PARAGUAY FOURTH HIGHWAY PROJECT (LOAN 1059-PA) PROJECT COMPLETION REPORT I. INTRODUCTION 1.01 Paraguay's highway network, including the primitive track system serving the Chaco, totals about 8,500 km of which some 6,700 km are under the jurisdiction of the Ministerio de Obras Publicas y Comunicaciones (MOPC). Of the latter, some 85% are unpaved and susceptible to closure for up to 100 days per year because of rain. Road development has been concentrated on paving the more heavily trafficked roads and expanding the network to connect economic and population centers. Adequate maintenance is critical and improve- ments are required to meet growing traffic volumes and facilitate the develop- ment of new agricultural areas. 1.02 Over the past 20 years, the Bank has been continuously involved with highway development in Paraguay. Since 1961, seven highway projects (total lending about US$149 million) have been approved which, when the ongoing Fifth, Sixth and Seventh Highway Projects are completed, will have resulted in the up- grading of more than 900 km of primary roads, construction of about 500 km of feeder roads and improvements in maintenance management and operations. In addition, four agricultural projects have provided US$17.5 million for improve- ment and maintenance of about 1,500 km of additional feeder roads. 1.03 This Completion Report is based on information obtained from the files of the Bank's Record Center, LAC Information Center, Appraisal and Supervision Reports for Loan 1059-PA and on the final reports prepared by consultants responsible for supervision of the civil works. II. PROJECT PREPARATION, APPRAISAL AND NEGOTIATIONS 2.01 Project preparation began in early 1969 when, under financing provided by the Second Highway Project (Loan 443-PA; US$2.1 million; April 1966), a contract was awarded to a US consulting firm for carrying out feasi- bility studies for about 460 km of roads included in the so-called "Plan Triangulo" area (Map IBRD-3770RI-PCR). Detailed engineering for about 250 km of the highest priority roads was also included in the consultant's contract. The feasibility studies were completed in early 1970, the priority roads were selected in July 1970, and detailed engineering was completed in November 1971. However, the Highway Department (Vialidad) of MOPC questioned the final cost estimates which were substantially higher than those of the feasibility studies. Although the consultant had followed the design standards recom- mended in the feasibility studies, final quantities and unit price estimates produced results well above the current range of costs per kilometer for similar roads in Paraguay. Subsequently, in mid-1973, the consultant revised the engineering using lower design standards where appropriate to reduce major quantities and lower costs to an acceptable level. - 2 - 2.02 During project preparation the Bank felt that the project should not be appraised until Government made clear its intentions regarding improvement or closing of the state-owned, 376 km Presidente Carlos Antonio Lopez railway (PCAL) and that there was acceptable evidence of adequate local financing being available for the project because of serious fiscal problems in the country. The Government informed the Bank by letter in May 1971 that it would provide no additional financial support to the PCAL beyond the level of funds currently assigned to meet deficits (about US$0.6 million per year); this was accepted by the Bank. Although no formal confirmation concerning counterpart funds was received, the Bank, under strong pressure by Government, sent an appraisal mission to Paraguay in November 1971. 2.03 Five "Plan Triangulo" roads, for which detailed engineering and cost estimates had been prepared, were considered at appraisal. These roads were: Cost Length 1/ Estimate 2/ B/C Ratio Km US$ Million Encarnacion-Pirapo 76 6.9 1.9 Villarica-Numi 29 3.0 0.6 Mbocayati-Col. Independencia 27 2.0 0.7 Paraguari-Villarica 83 6.3 0.9 Carapegua-Col. La Colmena 51 4.0 0.6 Totals 266 22.2 1/ Including bypasses of towns and access roads. 2/ Feasibility study estimates, excluding contingencies. As only the Encarnacion-Pirapo road showed an acceptable economic rate of return, the project proposed at that time included construction and supervision of that road alone. The appraisal report was advanced to the yellow cover stage in December 1972 but further action was deferred by the Bank because of the continuing difficult fiscal situation in the country. 2.04 Paraguay's financial situation had improved considerably by early 1974 and in March that year the Bank agreed to reappraise the proposed project on the basis of revised engineering and cost estimates (para 2.01). The Government had asked that the other four "Plan Triangulo" roads be again considered in the reappraisal and Vialidad had been requested to obtain new traffic counts on the roads prior to the mission's visit. Unfortunately, a fuel shortage in February 1974 caused a substantial drop in traffic and, therefore, the new traffic figures were not representative. Traffic counts were again taken in mid-1974 when fuel supplies and traffic had returned to normal. As a result, the Mbocayaty-Colonia Independencia road showed an acceptable economic return and was included in the project. - 3 - 2.05 The Government requested that the project also include financing of spare parts, tires and batteries for road maintenance equipment procured under the previous highway project. The Bank agreed with this request and suggested that, in addition, other components aimed at institution building and prepara- tion of the next highway projects be included. The following elements were added to the project: (a) Continued technical assistance for highway maintenance - During recent years, road maintenance had been managed by consultants rather than by Vialidad. Therefore, the pro- ject included financing of consulting services for an interim two-year period during which it was expected that Vialidad would strengthen its maintenance department and take over all maintenance operations. (b) Preparation of a study to determine further maintenance requirements - The objective was to prepare a five-year highway maintenance program to improve planning and operations and which would provide the basis for possible Bank and other financing. (c) Technical assistance for transport planning - Neither the Technical Secretariat for Planning nor MOPC Planning Office were capable of proper transport planning. Therefore, consultant assistance was provided to establish and make operational the Office for Coordination and Integral Planning of Transport (OCPIT) within MOPC as had been recommended by the 1973 UNDP-financed transport survey. Training abroad of selected local personnel was also included. (d) Aid to the local construction industry - The Bank, in agree- ment with MOPC and the Paraguayan Chamber of the Construction Industry, included financing of consulting services for a study to improve the performance of the local construction industry mainly in the fields of work planning, site manage- ment, equipment usage, personnel training, costing and bid preparation. 2.06 Negotiations were carried out in Asuncion between March 7 and 10, 1974, and, on December 10, 1974, a loan amounting to US$14.5 million was approved by the Executive Directors. The Loan Agreement was signed on December 12, 1974 and became effective on March 11, 1975. 2.07 The project items and their estimated costs, as shown in the appraisal report, were: -4- US$ Million Equivalent % Foreign Local Foreign Total Exchange A. Construction and Reconstruction of Roads (a) Encarnacion-Pirapo road, about 70 km 2.70 6.30 9.00 70 plus a 1.5 km bypass and a 4.5 km spur road (b) Mbocayaty-Colonia Independencia road, 0.90 2.10 3.00 70 about 24 km plus a 2 km acess road Subtotal 3.60 8.40 12.00 B. Right-of-Way 0.30 - 0.30 C. Purchase of Spare Parts, Tires and Batteries for Maintenance Equipment - 1.15 1.15 100 D. Consulting Services (a) For supervision of construction of roads under A above 0.20 1.00 1.20 80 (b) For extension of the present maintenance assistance 0.04 0.16 0.20 80 (c) For a study of future maintenance 0.04 0.16 0.20 70 (d) Technical assistance for transport planning and training 0.08 0.32 0.40 80 (e) Aid to local construction industry - 0.10 0.10 100 Subtotal 0.36 1.74 2.10 E. Contingencies Physical (10% of Item A) 0.36 0.84 1.20 Escalation: 25% of Item A 0.86 2.14 3.00 13% of Item D 0.02 0.23 0.25 Subtotal 1.24 3.21 4.45 Total 5.50 14.50 20.00 72% All project elements were expected to be completed by December 31, 1978 and the loan closing date was set at June 30, 1979. - 5 - III. PROJECT IMPLEMENTATION Construction and Reconstruction of Roads 3.01 Fo- bidding purposes the 76 km Encarnacion-Pirapo road was divided into two contracts with the option of bidding individual contracts or the two in combination. The Mbocayaty-Colonia Independencia Road (26 km) was tendered as a single contract. Bids, by prequalified contractors, were opened in September 1975 and, with Bank agreement, awards were made to the lowest bidders as follows: (i) both contracts of the Encarnacion-Pirapo road to a Japan/Paraguay joint venture for US$10,950,000, about 10% below the appraisal estimate, including contingencies; and (ii) the Mbocayaty-Colonia Independencia Road to an Argentine/Paraguay joint venture for US$4,154,688, about 3% above the appraisal estimate, including contingencies. Two joint venture Paraguay/Argentine firms (one for each road) were retained to supervise construction. 3.02 Contractor mobilization began in January 1976, somewhat earlier than originally scheduled. However, work on the Mbocayaty-Colonia Independencia road encountered delays after a few months when the contractor in order to provide suitable materials, was required to locate and develop a new gravel quarry located some 90 km from the project as compared with a possible quarry adjacent to the road which was indicated in the bidding documents. The documents, however,'clearly specified that it was the contractor's respon- sibility to provide acceptable materials for the base and pavement works. Additional delays resulted from a management reorganization by the contractor and late provision of some key construction equipment, particularly for crushing operations. 3.03 The Mbocayaty-Colonia Independencia road was satisfactorily completed in mid-July 1978, about eleven months behind the contract schedule. Upon completion, the contractor submitted a claim amounting to US$666,000 mainly to cover additional transport costs from the new quarry. Vialidad agreed to pay US$320,750 of the claim but, at the same time imposed a fine of US$98,500 in liquidated damages for late completion. The final cost of the works, without the fine and including price escalation, was US$4,133,819, about 0.5% below the bid proposal and about 2% over the appraisal estimate, including contingencies. 3.04 Works on the Encarnacion-Pirapo road suffered delays from the outset. Initially the contractor concentrated all efforts on constructing a large camp near the center of the project and delayed mobilizing needed construction equipment, especially crushing plant, together with adequate equipment repair facilities. The contractor's field management was initially very poor and was changed several times but without significant improvement in work organization and execution. By the contract completion date of March 1978 only about 55% of the work was completed and construction was not finished satisfactorily until July 1980, about 28 months behind schedule. Liquidated damages amounting to US$530,000 were levied for the delay. - 6 - 3.05 Shortly after completion the contractor submitted a claim for US$5.5 million mainly for additional administrative costs caused by the longer construction period and for additional equipment, materials and labor costs required to finish the work. Vialidad rejected the entire claim as not justified. Thus, the final cost, including price escalation, was US$11,380,000 which is about 4% over the bid price and nearly 5% less than the appraisal estimate including contingencies. 3.06 Construction supervision by the consultants was satisfactory. Final costs, including necessary contract extensions, were US$504,800 for the Mbocayaty-Colonia Independencia road and US$1,370,000 for the Encarnacion-Hohenau-Pirapo road. Both costs are about 12% of the final construction cost, which is reasonable under the circumstances but are about 38% over appraisal estimates mainly because of the longer than expected construction periods. Purchase of Spare Parts, Tire and Batteries for Maintenance Equipment 3.07 Spare parts and other items were procured by direct purchase and negotiated contracts as specified in the Loan Agreement. Following deter- mination of final costs for road construction and other project elements, all funds remaining in the loan account (about US$1.1 million) were used, with Bank agreement, for the purchase of additional spare parts for rehabilitation of road maintenance equipment. Consulting Services for Road Maintenance 3.08 The same joint venture of US/Paraguay consulting firms that carried out the maintenance assistance under the previous Bank highway project was engaged for the extension of assistance. This continued assistance was intended to phase out consultant management and return operations to Vialidad's control but this was not accomplished entirely, mainly because of serious losses of professional and technical Vialidad staff, particularly to a major hydroelectric project where salaries were up to four times those paid by the Civil service. The situation, however, was partially corrected under the Fifth Highway Project (Loan 1529-PA; US$33.0 million; March 1978) when a Main- tenance Project Unit was created. The Unit was initially staffed with some expatriates, but most of these have been replaced and a majority of staff is now from Vialidad. 3.09 The joint venture consultant also completed a report in mid-1977 which recommended a comprehensive five-year road maintenance program. The program, which was the principal basis for appraisal of the Bank's Fifth Highway Project, included proposals for rehabilitation and enlarge- ment of Vialidad's equipment fleet; improvement of inventories, cost account- ing and budgetary control; and a road betterment program to be carried out simultaneous with the maintenance program. Vialidad accepted the report's major recommendations and their implementation is being carried out under the Fifth Highway Project. - 7 - Technical Assistance for Transport Planning 3.10 The assistance in transport planning by the Office of Coordination and Integral Planning for Transport (OCPIT) was carried out satisfactorily by a joint venture of Argentine and Paraguayan consultants. Among the tasks performed were: (i) preparation of feasibility studies for several high priority roads; (ii) evaluation of the operating efficiency and service of the various transport modes and recommendations for improvements; (iii) preparation of a ten-year investment program for the different transport modes (except civil aviation) on the basis of economic priorities; (iv) determination of transport costs and tariff policies; (v) study of road user charges;-and (vi) development of basic data for the transport sector. 3.11 The results of the above tasks proved of value to Government but, unfortunately, only minimum training was imparted to OCPIT staff by the consultants in the course of their work. This was due entirely to OCPIT's inability to recruit and retain qualified staff because of non-competitive civil service salaries. Technical assistance to OCPIT is being provided for under ongoing projects. Development of the Local Construction Industry 3.12 Vialidad engaged the services of a joint venture of Argentine/ Paraguay consulting firms to carry out a study of the local construction industry and to conduct seminars for MOPC staff and contractors. Some major recommendations of the report, which was submitted in early 1979, were: (i) creation of a Register of Contractors; (ii) improved contractor insurance and financing; (iii) reliable Government work program with related funding; and (iv) continuing training courses for contractors. 3.13 Vialidad has not yet taken action on implementing,the study recom- mendations and, in an effort to induce action, a covenant was included in the Loan Agreement for the Sixth Highway Project (Loan 1736-PA; US$39.0 million; June 1979) requiring the Borrower to prepare an implementation plan of action satisfactory to the Bank. Successive supervision missions have reminded MOPC of this obligation but the matter has continued to receive little priority. - 8 - This is due in part to the fact that there is abundant work for contractors, particularly in Paraguay, on major hydroelectric projects where prices paid are substantially higher than on normal construction works and, therefore, industry interest in new regulations and laws is limited. IV. COST ESTIMATES AND DISBURSEMENTS 4.01 A summary comparison between appraisal estimates and final costs is shown in Table 1. Final project cost was US$21.1 million, less than 6% over the appraisal estimate of US$20.0 million, including contingencies. The variations in actual costs and appraisal estimates for the various project components have been explained in previous paragraphs. 4.02 The allocation of loan funds was revised three times, as shown below, to meet actual construction costs and to provide for necessary additional spare parts, tires, etc. Original First Second Third Category 12/12/74 10/14/77 11/20/80 6/30/81 1. Civil Works 8,400,000 11,530,000 10,432,000 10,431,203 2. Spare Parts 1,150,000 1,400,000 2,462,000 2,435,652 3. Consultants 1,740,000 1,570,000 1,606,000 1,605,902 4. Unallocated 3,2l0,OO0 - - - Totals 14,500,000 14,500,000 14,500,000 14,472,757 1/ 4.03 Disbursements lagged behind appraisal estimates from the start (Table 2). This reflects the initial slow pace of the construction works and the considerable delay in completing both project roads (paras 3.03 and 3.04). The closing date was extended three times: from the original date of June 30, 1979 to June 30, 1980; then to December 31, 1980; and finally, to June 30, 1981 to allow for additional spare part purchases (para 4.04). 1/ On July 21, 1981, undisbursed funds amounting to US$27,243.14 were canceled. - 9 - V. ECONOMIC REEVALUATION Encarnacion-Pirapo Road 5.01 Reconstructing, improving and shortening by 20 km the road between Encarnacion and Pirapo has already contributed significantly to the economic development of Itapua Province. Further, this 76 km section of Route 6 was the first link in completing a paved through road from Encarnacion to Ciudad Stroessner, Paraguay's principal entry port to Brazil. The continuation of Route 6 from Pirapo to Ciudad Stroessner and construction of about 500 km of feeder roads in the region are being financed under the Sixth Highway Project with completion scheduled for 1984. Over the next ten years this through road will substantially support and augment agricultural development and rural accessibility in Itapua and Southern Alto Parana Provinces. 5.02 Development along the project road has exceeded that foreseen at appraisal. The many highly efficient colonies and cooperatives in the area have prospered rapidly and the value of export crops such as cotton, soya beans and tuna oil has been growing at over 10% p.a. during the period 1976-80. The Bank's Second Rural Development Project (Loan 1418-PA; US$ 22.0 million; May 1977) has been a major factor in the area's accelerated development. 5.03 Although the road was not formally completed until July 1980, by November 1978, 60% of its length was open to traffic and actual traffic in February 1980, when the entire road was opened, exceeded the appraisal estimate for 1980 by 80%. Average daily traffic for 1980, based on counts both in and out of harvest season, was 1,050 vehicles of which more than 50% were trucks (Table 3). This traffic growth occurred despite rapid escalation in motor fuel costs and it can be expected that the continued rapid growth of production in this richly endowed area will continue for at least the next 15 years, the period used for forecasting benefits in this reevaluation. It has therefore been conservatively assumed that traffic will grow at the following rates - Light vehicles, 6% p.a.; buses, 4% p.a.; and trucks, 7% p.a. This compares with appraisal estimates of 5.4%, 3.5% and 6%, respectively. 5.04 The nominal construction cost taking into account price escalation was US$11.38 million and the supervision nominal cost was US$1.37 million. Thus, total cost for the project road was US$12.75 million. Due to delays in completing the works (para 3.04) Vialidad assessed the contractor liquidated damages amounting to US$530,000. The cost to Vialidad of the project was, therefore, US$12.22 million. 5.05 The appraisal estimated economic rate of return (ERR) for this road averaged about 24% for the two sections, Encarnacion-Hohenau and Hohenau-Pirapo. The reevaluation considers the entire 76 km as a whole, taking into account the 20 km distance saving over the old road. The economic cost of construction (US$16.5 million) is calculated by inflating nominal costs to 1980 prices; benefits are also in 1980 prices. With a revised estimated ERR of 39%, this highway investment has proved much more successful in economic terms than expected. - 10 - The higher ERR is due to greater than expected traffic, reflecting fast economic development which the road helped to generate, and much greater than estimated vehicle operating cost savings (Table 3), principally due to the rapid escalation in real fuel prices. Mbocayaty-Colonia Independencia Road 5.06 Very little information is available on development of the influence area for this 26 km road improvement. However, traffic counts taken in October 1980 show average daily traffic on the road of 310 vehicles with about 55% being buses or trucks. This is slightly higher than the appraisal estimate for 1981. 5.07 The works were completed and the road fully opened to traffic in July 1978, ahout eleven months behind schedule. The final construction cost of US$4.13 million is about 2% over the appraisal estimate, including contingencies. The economic cost of the project including supervision is US$6.52 million in 1980 prices. The estimated ERR on this road is 12% as compared with the appraisal estimate of 13%. The reevaluation confirms that the improvements were justified. VI. PERFORMANCE OF THE BORROWER 6.01 Considering the serious staff constraints under which the project was executed, the Borrower's performance was generallv 0atlsractorv The long delay in completing the Encarnacion-Hohenau-Pirapo road was caused mainly by contractor problems. Although the Government made numerous and strong representations to the contractor's headquarters concerning needed improvements in work scheduling and overall project management, little or no action was taken on the Ministry's complaints. 6.02 The institution building components of the project were not entirely successful. Good results were obtained from the assistance to improve transport planning (para. 3.10), and in preparing a road main- tenance program (para 3.09) but, the exodus of qualified personnel, par- ticularly to the nearby hydroelectric works, prevented Vialidad from assuming all highway maintenance activities during the agreed two year period of consultant assistance. The consultant's recommendations for aiding the local construction industry have not been implemented by Vialidad because of limited interest by the industry (para 3.13). 6.03 Paraguay has kept the lid on the size of its government agencies. Institutional capacity is, therefore, clearly lagging behind requirements. On the other hand, the public sector has not claimed large shares of GDP and has not built up large and inefficient administrative establishments. Restraints on administration growth within a framework of containment of the public sector will continue to limit opportunities for improvements. - 11 - 6.04 The Borrower, in general terms, has complied with the principal covenants of the Loan Agreement except for the following: (a) Section 4.03(b) Sets forth the Borrower's obligation to improve the enforcement of regulations limiting dimensions and weights of vehicles using the national roads. The Borrower has only three obsolete fixed weighing scales which do not have any cross-check system and control is loosely carried out. The Fifth Highway Project provided financing for a thorough study of the problem as well as for the purchase of electronic scales and construction of the weighing stations. This study was completed in August 1980. The scales have been purchased and construction of the weighing stations is under way. The vehicle weight control system is expected to be operating in 1983. (b) Section 4.40(b) Requires adequate staffing and funding of the OCPIT. The local staffing has been insufficient and of inadequate quality because of low authorized salary scales. Consultants have assisted OCPIT in carrying out its designated functions which otherwise could not have been carried out because of the above mentioned reasons. The Fifth and Sixth Highway Projects include the financing of consultants for continuing the assistance to OCPIT. (c) Section 4.05 Requires that Vialidad employ and retain qualified personnel for carrying out highway maintenance operations and provide funding and supporting services for its staff. Vialidad has not been able to meet the staffing obligation mainly because of low salary scales (para 3.08). The Seventh Highway Project includes the Borrower's obligation to complete, by no later than June 30, 1983, the hiring of engineers in order to meet the staffing targets set forth in the Loan Agreement. (d) Section 4.06 requires Vialidad to assume all highway maintenance functions within two years from the effective date of the loan. The shortage of staff explained in the above paragraph, has prevented compliance with this covenant. The ongoing program to improve highway mainte- nance and strengthen MOP's field and headquarter capacity is presently being coordinated by a Project Unit within Vialidad (para 3.08). - 12 - VII. ROLE OF THE BANK 7.01 The Bank was significantly involved in project identification and preparation by inclusion of feasibility studies and detailed engineering in the preceding Second Highway Project and by participation in the review of that work. The scope and size of this, the Fourth Highway Project, addressed priority needs in the highways sub-sector which, at the time, were within MOPC's administrative capabilities and the original implementation schedule was tight, but reasonable. The Bank was accommodating and flexible in agreeing to use loan funds remaining after road construction was completed for purchase of additional spare parts. 7.02 The number and timing of supervision missions were appropriate for project needs and good relations with the Borrower were maintained throughout the project period. The Bank is continuing to provide essential technical assistance to MOPC under the three follow-up projects presently being implemented. VIII. CONCLUSIONS 8.01 Although delayed, the road improvement elements of the project were successful and are meeting the main objectives of lowering transport costs between agricultural regions and domestic and internationel markets and providing all weather accessibility to improve general living conditions in the areas of influence. 8.02 Accomplishments resulting from the projects' technical assistance components were mixed. Some significant gains were realized in improved transport planning and in establishing a long-term road maintenance program for which implementation assistance is being provided under subsequent Bank projects. Although recommendations for aid to the local construction industry were developed under the project, no action resulted mainly because of an abundance of work. The need, however, for such aid continues. 8.03 The project emphasizes the importance of a patient and supportive attitude by the Bank to assist Borrowers through difficult institutional circumstances, such as developed here during implementation. It also high- lights the benefits to the Borrower resulting from a long-term view and participation in the sector such as in this case where three follow-up projects are being carried out. - 13 - TABLE 1 PARAGUAY FOURTH HIGHWAY PROJECT (LOAN 1059-PA) PROJECT COMPLETION REPORT Estimates and Final Costs (US$ millions) Appraisal Final % Project Items Estimate!./ Cost Change A. Construction and Reconstruction of Roads (a) Encarnacion-Pirapo 12,150 11,380V/ - 6 (b) Mbocayaty-Colonia Independencia 4,050 4,1332/ + 2 B. Right-of-Way 0,300 0,300 C. Purchase of Spare Parts, Tires and Batteries for Maintenance Equipment 1,150 2,436 +112 D. Consulting Services (a) Supervision of construction 1,360 1,875 + 38 (b) Extension of maintenance assistance 0,440 0,309 - 30 (c) Study of maintenance needs (d) Technical assistance for transport planning 0,440 0,568 + 29 (e) Aid to the local construction industry 0,110 0,104 - 5 Totals 20,000 21,105 + 5.5 1/ Including contingencies 2/ Total cost without reduction for liquidated damages Source: MOPC and consultant report - 14 - TABLE 2 PARAGUAY FOURTH HIGHWAY PROJECT (LOAN 1059-PA) PROJECT COMPLETION REPORT Scheduled and Actual Disbursements (Cumulative) Appraisal Estimate Actual Actual as % of % of % of Appraisal IBRD FY Amount Total Amount Total Estimate -------------…=US$ Thousands----------- 1975 100 6.9 3 0.0 3.0 1976 3,000 20.7 300 2.1 10.0 1977 7,500 51.7 4,000 27.6 53.3 1978 11,500 79.3 8,600 59.3 74.8 1979 14,500 100 11,400 78.6 78.6 1980 - - 12,600 87.0 86.9 1981 - 14,4731/ 99.8 99.8 1/ On July 21, 1981, undisbursed funds amounting to US$27,243.14 were cancelled. Source: Appraisal Report and Controllers Department - 15 - TABLE 3 PARAGUAY PROJECT COMPLETION REPORT FOURTH HIGHWAY PROJECT (LOAN 1059-PA) Encarnacion Pirapo Road Comparison Between Forecast and Actual Traffic Volumes SAR Actual Years AADT Estimate AADT 1978 458 525 1979 480 630 1980 588 1,050 Source: Staff Appraisal Report and Final Report by Consultants Estimated Vehicle Operating Costs for Encarnacion-Pirapo and Mbocayaty-Colonia IndeDendencia Roads (in UST/km) SAR March 1974 1980 MOPC Estimate Paved Gravel/Earth Paved Gravel/Earth Light Vehicles 8.0 11.2 21.0 28.0 Buses 8.4 14.3 39.0 60.0 Trucks 11.4 21.8 52.0 75.0 Source: Staff Appraisal Report and Final Report by Consultants t ~~~~~~~~~~-25<8 Tro. Mor'l t011 S ?.. 5!7- To Mbuyt 'So rkJoaquin I O' To Salto j 1_ BRAZIL5tAigrrdo HY `roYos y Esteros Cecilio Bez 7? 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