Document of The World Bank Report No: ICR00001064 IMPLEMENTATION COMPLETION AND RESULTS REPORT (IBRD-74590) ON A LOAN IN THE AMOUNT OF US$ 30 MILLION TO THE REPUBLIC OF CHILE FOR THE INSTITUTIONAL STRENGTHENING OF THE MINISTRY OF PUBLIC WORKS DEVELOPMENT POLICY LOAN JUNE 29, 2009 Sustainable Development Department Transport Unit Latin America and the Caribbean Region CURRENCY EQUIVALENTS (Exchange Rate Effective as June 15, 2009) CLP 1.00 = US$ 0.0018 US$ 1.00 = CLP 565 FISCAL YEAR January 1st ­ December 31st ABBREVIATIONS AND ACRONYMS ANTT Surface National Transport Agency of Brazil (Agencia Nacional de Transporte Terrestre) CAS Country Assistance Strategy CPS Country Partnership Strategy DPL Development Policy Loan GoC Government of Chile ICR Implementation Completion Report IDB Interamerican Development Bank IMF International Monetary Fund ISR Implementation Status Report MOPW Ministry of Public Works OECD Organization for Economic Cooperation and Development OSITRAN Peruvian Transport Regulator (Organismo Supervisor de la Inversión en Infraestructura de Transporte) PDO Project Development Objectives TAL Technical Assistance Loan Vice President: Pamela Cox Country Director: Pedro Alba Sector Manager: Aurelio Menendez Task Team Leader: Tomas Serebrisky ICR Team Leader Tomas Serebrisky ICR Main Author Francesco Totaro REPUBLIC OF CHILE DEVELOPMENT POLICY LOAN FOR THE INSTITUTIONAL STRENGTHENING OF THE MINISTRY OF PUBLIC WORK CONTENTS Data Sheet A. Basic Information B. Key Dates C. Ratings Summary D. Sector and Theme Codes E. Bank Staff F. Results Framework Analysis G. Ratings of Program Performance in ISRs H. Restructuring Main Document 1. Program Context, Development Objectives and Design......................................................... 1 2. Key Factors Affecting Implementation and Outcomes......................................................... 10 3. Assessment of Outcomes ...................................................................................................... 14 4. Assessment of Risk to Development Outcome..................................................................... 21 5. Assessment of Bank and Borrower Performance.................................................................. 22 6. Lessons Learned.................................................................................................................... 23 7. Comments on Issues Raised by Borrower/Implementing Agencies/Partners....................... 24 Annex 1. Bank Lending and Implementation Support/Supervision Processes......................... 25 Annex 2. Letter of Development Policy ................................................................................... 26 Annex 3. Summary of Borrower's ICR and/or Comments on Draft ICR ................................. 34 MAP A. Basic Information Chile - Ministry of Country: Chile Program Name: Public Works DPL Program ID: P100854 L/C/TF Number(s): IBRD-74590 ICR Date: 04/09/2009 ICR Type: Core ICR Lending Instrument: DPL Borrower: REPUBLIC OF CHILE Original Total USD 30.0M Disbursed Amount: USD 30.0M Commitment: Implementing Agencies: Ministry of Public Works Cofinanciers and Other External Partners: B. Key Dates Process Date Process Original Date Revised / Actual Date(s) Concept Review: 08/10/2006 Effectiveness: 02/27/2008 Appraisal: 03/13/2007 Restructuring(s): Approval: 06/14/2007 Mid-term Review: Closing: 12/31/2008 12/31/2008 C. Ratings Summary C.1 Performance Rating by ICR Outcomes: Satisfactory Risk to Development Outcome: Moderate Bank Performance: Satisfactory Borrower Performance: Satisfactory C.2 Detailed Ratings of Bank and Borrower Performance (by ICR) Bank Ratings Borrower Ratings Quality at Entry: Satisfactory Government: Satisfactory Quality of Supervision: Satisfactory Implementing Agency/Agencies: Satisfactory Overall Bank Overall Borrower Performance: Satisfactory Performance: Satisfactory C.3 Quality at Entry and Implementation Performance Indicators Implementation QAG Assessments Performance Indicators (if any) Rating: Potential Problem Quality at Entry Yes None Program at any time (QEA): (Yes/No): Problem Program at any Quality of No None time (Yes/No): Supervision (QSA): DO rating before Satisfactory Closing/Inactive status: D. Sector and Theme Codes Original Actual Sector Code (as % of total Bank financing) General public administration sector 20 20 General water, sanitation and flood protection sector 20 20 Roads and highways 60 60 Theme Code (Primary/Secondary) Infrastructure services for private sector development Primary Primary Law reform Secondary Secondary Regulation and competition policy Primary Primary E. Bank Staff Positions At ICR At Approval Vice President: Pamela Cox Pamela Cox Country Director: Pedro Alba Axel van Trotsenburg Sector Manager: Aurelio Menendez Jose Luis Irigoyen Program Team Leader: Tomas S. Serebrisky Jordan Z. Schwartz ICR Team Leader: Tomas S. Serebrisky ICR Primary Author: Francesco Totaro F. Results Framework Analysis Program Development Objectives (from Project Appraisal Document) The overall policy objective of the Development Policy Loan (DPL) is to support the Government's reform of the Ministry of Public Works by strengthening its planning functions; developing performance standards for contracts and concessions; improving project management; strengthening regulatory oversight of public works and private contracts; and embedding the organizational changes in appropriate legal and normative structure. This, in turn, is meant to contribute to the Government's objectives of greater efficiency in the use of public resources; and increased transparency, competition and citizen participation in the contracting and concessioning of public works. Revised Program Development Objectives (if any, as approved by original approving authority) The PDO remained unchanged during the implementation phase.. The results framework of this DPL intended to reflect the complexity and wide range of activities encompassed by the Ministry of Public Work's Reform Program. It was ambitious in its overall scope and included outcomes that are beyond the timeframe of the program. However, in accordance with Bank guidelines for DPLs1, the Program Document indicated that the outcomes beyond the timeframe of the program would be monitored within the framework of a Technical Assistance Loan that accompanies this DPL. In retrospective, and given the fact that this initiative was a breakthrough due to the Ministry's size and to the multiple innovations being pursued, some (but not all) of the expected Project outcomes should have been defined more carefully. A more conservative approach, in line with Bank guidance would have helped establish a clearer distinction between end of program outcomes (monitorable at the time of Completion) that could be attributed to the Project and those that would materialize in the longer term as the reform process consolidates. Moreover, the indicators present a number of issues related to their design: in general, they do not have an adequate balance vis a vis the outcome that has to be measured. More specifically some are hard to measure and not very realistic, especially because of the differences in costs and efficiencies generated by new approaches introduced by the reform, such as performance based contract with higher standards. It is important to highlight that the PDO remained relevant and completely in line with the objectives pursued by the Ministry of Public Work's Reform Program. However, the limitations of the M&E framework described above make it difficult to establish objective measures to assess the level of PDO achievement to date, as it does not provide ready information to make this type of judgment. An additional obstacle is given by the short timeframe comprised between the presentation of the Development Policy Letter (by which the intention to start the reform process was made public) and this operation's closing date 2 . Thus, Table (a) below presents an assessment on the likelihood of PDO achievement, based on qualitative evidence that results from the multiple activities which are currently being carried out under the reform program, and supervised under Technical Assistance Loan. Table (b) summarizes the achievement of indicators designed to be complied with at the time of this DPL's ICR. 1 2004 Annual Report on Operations Evaluation, Operations Evaluation Department, World Bank, July 2004, Box 1.3,, "Designing Development Policy Operations," in Good Practice Notes for Development Policy Lending, Operations Policy and Country Services, World Bank, October 2004, and Good Practice Note For Development Policy Lending, Operations Policies and Country services, World Bank, June 2005 2 A total of 18 months elapsed from April 2007, when the Development Policy Letter was presented to the Bank, until December 2008, when the DPL was closed. (a) PDO Indicator(s) Original Target Formally Actual Value Indicator Baseline Value Values (from Revised Achieved at approval Target Completion or documents) Values Target Years Indicator 1 : Ministry's investment program aligned with the new strategic plan.. Value (quantitative or Qualitative) Date achieved Achievement of this outcome is likely. Progress under the Strategic Planning component under the TAL has a satisfactory pace. On one hand, the contracting process for the design of a new planning methodology has already been Comments launched and is expected to be completed by the 3rd quarter of 2010. On the (incl. % other hand, and as noted in Table (b), multiple initiatives to engage all achievement) stakeholders involved in infrastructure planning have prepared the ground for the implementation of the new methodology by strengthening consensus, generating a common agenda, and creating institutional coordination mechanisms. Greater competition in bidding supported by fair risk-sharing arrangements Indicator 2 : embedded in contracts and consumer-responsive service targets. Reduction in road network maintenance costs of at least 15% for performance- based contracted covered roads. Value (quantitative or Qualitative) Date achieved Achievement of this outcome is likely. The Roads Directorate has already developed a sample of technical performance standards which have been incorporated to road rehabilitation and conservation contracts for roads in Coquimbo and O'Higgins. Efforts to introduce the concept of standards in other transport infrastructure subsectors are under way, such as the definition of performance indicators for airports with a view to their inclusion in the future concession of the Santiago airport. Progress in technical standards is reinforced Comments by the satisfactory work carried out by the team working in regulatory issues (incl. % (see below) which focuses on standards from the users' standpoint, generating a achievement) positive balance between the two perspectives. Improvements in bidding processes as well as those in the Contractor's Registry and Works Manual of MOPW (see paragraph 42) is also satisfactory and contributes to the procedural and administrative aspects required to foster competition. An analysis of the impact on costs of performance based contracts will be done by the Road Directorate of Chile. The analysis will be done once the first round of performance based contracts expire. Indicator 3 : More accurate estimates for project cost and construction durations. Value (quantitative or Qualitative) Date achieved Achievement of this outcome is likely. To date, the TAL's Project Management (PM) component has achieved very significant progress. The appointment of 60 Project Managers that overview projects from an integrated perspective largely Comments surpassed the expected short term outputs for the DPL. Training on PM for a (incl. % large audience of project staff is being contracted under the TAL, which will achievement) help reinforce the new PM approach and the leverage of the recently appointed Project Managers. Other initiatives under the component are under way to empower the role of PMs, who will as a result have clearer incentives, larger control on project design, resource allocation, and works schedules; and will thus be accountable for project duration and costs deviations. a. Greater responsiveness to consumer concerns related to levels of service; Indicator 4 : b. Greater oversight of performance of public sector service providers as well as concessionaires Value (quantitative or Qualitative) Date achieved The achievement of these two outcomes is likely. The Regulatory Strengthening component under the TAL is developing a methodology for measuring user satisfaction in infrastructure services. In addition, the completion of the design of regulatory accounting systems is expected to be achieved by the end of 2009. Comments An ongoing consultancy that as of March 2009 completed the first phase (out of (incl. % 8) will provide the MOPW the capacity to develop and feed economic and achievement) financial models to oversee concession contracts. In addition, the MOPW will be able to simulate the economic impacts of changes to contract commitments (including tariffs, investments, subsidies among other regulatory instruments) resulting from contract amendments (Convenios Complementarios), an issue that has generated controversy and has been identified as maybe the only weak aspect of the concession program in Chile. a. Presentation to Congress of Ley Organica or completion of normative Indicator 5 : arrangements that proxy law in separation of MOPW's functions; b. Efficiency gains derived from the reform greater than its costs 5 years after it was implemented. Value (quantitative or Qualitative) Date achieved The process of drafting the regulatory framework for the new institutional structure of the MOPW has proved to be a difficult exercise, as envisaged at Comments project appraisal. A number of initiatives have been carried out to facilitate and (incl. % improve the drafting of the new law: (i) a legal workshop that analyzed achievement) advantages and disadvantages of decentralizing Service Directorates; (ii) a study tour to Colombia; (iii) a comparative analysis of the French, Brazilian and Colombian legislation on the issue; and (iv) an analysis of possible alternatives for the MOPW institutional architecture was commissioned to a consortium of four universities. Finally, extensive consultations with MOPW's unions are currently underway to reach a consensus on the main issues to be included in the new Ley Orgánica. Although it is considered that the implementation of all initiatives under the Reform Program will yield important returns in terms of efficiency, efficiency gains appear as extremely difficult to calculate. After the reform is completed, the MOPW could conduct a regulatory impact assessment, following OECD standards. This indicator, as stated, could only be measured at the earliest in 2013. (b) Intermediate Outcome Indicator(s) Original Target Formally Actual Value Indicator Baseline Value Values (from Achieved at approval Revised Completion or documents) Target Values Target Years Indicator 1 : Completion of 2 Competitiveness Plans for Key Clusters 15 Value Competitiveness (quantitative or 0 2 Plans approved Qualitative) (one for each Region) Date achieved December, 2008 100% achievement. The MOPW has gone further than what was established in the prior actions by carrying out Competitiveness Plans for all Regions of the country. Furthermore, MOPW has also negotiated and signed, by December Comments 2008, Programmatic Agreements with all Regional Governments. These (incl. % Agreements represent a major step forward for the implementation of the achievement) Competiveness Plans as they lay out schemes to distribute investment financing responsibilities between the Central Government and the Regions. All Regional Competitiveness Plans include specific chapters in which the relevant regional productive clusters are analyzed in detail. Indicator 2 : Development of sample performance standards for high and low volume roads, for both concessions and public works contracts. The MOPW did not Design and have performance implement (i.e. standards for high and include in low volume roads contracts) Value before the start of the performance (quantitative or modernization program. standards in at Achieved Qualitative) Performance standards least one new should be understood as concession or a set of technical public works specifications aimed at contract for low providing a high quality and high volume services for all groups roads of infrastructure users. Date achieved December 2008 The Road Agency in Chile (Vialidad) signed several contracts for the Comments rehabilitation and maintenance of low volume roads that include newly (incl. % developed performance standards. In a good example of cooperation between achievement) departments of the MOPW, the newly developed standards for high volume roads have been adopted for the contract design of the Coquimbo and O'Higgins road network concessions. Indicator 3 : Review of bidding processes and recommendations on new procedures complete. Current Consultants andDraft of improved Value Contractors Registry Consultants and (quantitative or and Bidding DocumentsContractors Partially achieved Qualitative) considered outdated andRegistry and characterized by high Sample Bidding entry barriers Documents Date achieved Based on the results of a completed consultancy (February 2008), a proposal for the amendment of the regulatory framework for public works and consultant services development is being drafted. This includes the modification and digitalization of both of the consultants and contractors registry (registro de contratistas y consultores). This initiative is intended to Comments remove barriers of entry in the registry and enhance competition. The intention (incl. % of the MOPW is to complete within the year 2009 a comprehensive study to achievement) improve contract management. The study will focus on two main aspects of public contracting: (i) the definition, improvement and standardization of bidding documents (bases de licitación) for public works, with a view to improving risk allocation as a means to increase the efficiency of public expenditures; and (ii) contract management, focusing on improving administrative processes and eliminating bureaucratic bottlenecks. Indicator 4 : 12 Project Managers in place representing each sector of activity and 4 regions. Value (quantitative or 0 Project Managers in 60 Project Qualitative) place Managers in place Date achieved April 2009 100%. The component has fully met the proposed short term goal as 60 project Comments managers have been appointed by MOPW Service Directors. Project managers (incl. % operate in every Service Directorate (sector of MOPW's activity) and in every achievement) Region covering 30% of the MOPW investment portfolio. About 50% of project managers are based in the Regions. Completion of design for regulatory accounting system. Indicator 5 : MOPW had no Value regulatory accounting Completion of a Design of (quantitative or system in place capable regulatory regulatory Qualitative) of supervising accounting system accounting system infrastructure services. in progress Date achieved The completion of the design of regulatory accounting systems is expected to be achieved by the end of 2009. An ongoing consultancy that as of March 2009 completed the first phase (out of 8) will provide the MOPW with the capacity Comments to develop and feed economic and financial models to oversee concession (incl. % contracts. Besides, the MOPW will be able to simulate the economic impacts achievement) of changes to contract commitments (including tariffs, investments, subsidies among other regulatory instruments) resulting from contract amendments (Convenios Complementarios). Once regulatory accounting systems are available, Chile will be one of the few countries in Latin America that will have these systems in place. Indicator 6 : Determination of standards to be regulated for roads and one other sector Value Lack of standards Standards defined (quantitative or defined to measure user for roads and one Standards for roads Qualitative) satisfaction in other infrastructure defined infrastructure services sector Date achieved December 2008 Comments 50% achieved. The baseline and for service standards were developed for (incl. % roads. The MOPW decided that airports will be the next infrastructure sector to achievement) undergo this exercise. Indicator 7 : Ministerial drafting complete and presentation to Cabinet of Ley Organica del MOPW. New Ley Organica Value of the MOPW (quantitative or drafted and Not achieved. Qualitative) presented to Cabinet Date achieved The process of drafting the regulatory framework for the new institutional structure of the MOPW (Anteproyectos de Ley Orgánica) has proven to be a Comments difficult exercise, as envisaged at project appraisal. The draft organizational (incl. % law (Ley Orgánica) is expected to be presented to Minister Bitar by June 2009 achievement) and submitted to Congress before the end of the current presidential term (March 2010). Extensive consultations with MOPW's unions are currently under way to reach a consensus on the main issues to be included in the new Ley Orgánica G. Ratings of Program Performance in ISRs Actual No. Date ISR Archived DO IP Disbursements (USD millions) 1 09/11/2007 Satisfactory Satisfactory 0.00 2 04/28/2008 Satisfactory Satisfactory 0.00 3 06/25/2008 Satisfactory Satisfactory 0.00 4 10/30/2008 Satisfactory Satisfactory 0.00 H. Restructuring (if any) Not Applicable 1. Program Context, Development Objectives and Design 1.1 Context at Appraisal 1. Macroeconomic Context. Over the 2001-2006 period, the Chilean economy had reestablished solid economic growth, fueled by robust domestic demand and record high copper prices. GDP growth had accelerated from 2 - 3 percent in 2001 and 2002 to 5.7 percent in 2005. Growth in 2006 had slowed to 4.0 percent. Macroeconomic indicators also demonstrated strong overall performance with declining levels of debt to GDP, rapidly increasing average income levels, and low and stable inflation. With a disciplined fiscal policy, a broadly neutral monetary policy, and foreign currency earnings expanding as a result of historically high commodity prices, the Government's primary concern was the achievement of higher economic growth. Medium- term macroeconomic projections of the Chilean authorities forecasted a stable GDP growth at about 5 percent per annum, considering that adverse shocks would have been counterbalanced by the Government's ability to pursue counter-cyclical fiscal policies. 2. The September 2006 IMF Article IV Review at the time of appraisal commended Chilean authorities for their continued implementation of sound policies based on a cautious fiscal rule, a good inflation targeting framework, and trade liberalization. The IMF noted that these policies, combined with a solid financial system, have led to sustained economic growth and contributed to poverty reduction. 3. Country Context. In March 2006, Michelle Bachelet succeeded Ricardo Lagos as Chile's elected President--the fourth successive representative of the Concertación coalition to hold the office since 1990. The new government reaffirmed its commitment to the prudent macroeconomic management and the outward oriented economy of previous administrations while expanding access to public services that would help more Chileans contribute to the country's growth and development. The 2007 Budget, submitted to Congress on September 30, 2006, was in line with these priorities with a planned increase in spending of 8.9 percent in real terms. 4. Since the start of its mandate in March of 2006, the Bachelet Administration committed itself to achieving the goal of "Growth with Equality of Opportunity." This goal inspired an ambitious Government Program that reflected a consensus on the need to move beyond the first generation of reforms and to confront the remaining challenges to achieving higher levels of growth. In promoting economic growth, the program put explicit emphasis on raising levels of income and improving the quality of life so as to converge with the standards of the OECD. 5. Sector Background. In the early 1990s, the Government of Chile took stock of its infrastructure needs and estimated its infrastructure deficit at US$11 billion with additional losses due to lack of competitiveness of US$1.7 billion annually.3 In determining how to respond to this need for massive investments and significant improvements in service delivery, the Government also recognized that the public sector did not have the resources to carry out the major works required, nor could it commit its budgetary resources exclusively to infrastructure investments given the country's social investment needs. 3See: Concesioneschile.com 1 6. To help face this challenge, the Government called on the private sector to take part in the building, maintenance and operation of major road works. Thus, the Chilean Concessions System was born, allowing the private sector to finance economically profitable projects and recover their investment primarily through direct charges to users. In the years since its inception, the concession program has expanded both in terms of sectors and design. Sectorally, Chile had at the time of appraisal (and still has today) what may be the world's most extensive concession program encompassing roads, ports, railroads, bridges, tunnels, reservoirs, jails and canals. 7. President Bachelet launched the "Infrastructure Development for Competitiveness Plan" at the inception of her administration to ensure that public infrastructure would help different productive sectors be more efficient.4 The Plan called for a US$115 million increase in public spending on infrastructure in 2007, and marked the first step in an ambitious program over four years, from 2007 to 2010. The Plan depended significantly on private sector involvement through improved collaboration and through tax incentives to stimulate private investment in public roads. In announcing the Plan, the President noted that the Ministry of Public Works (MOPW) would be supervising infrastructure concessions worth US$2.2 billion between 2007 and 2010. The administration recognized that both its growing public investment and concessioning programs would require greater attention in terms of planning, contract design, project management and oversight in order for them to maximize their potential as contributors to higher growth levels. 8. In addition, on March 13, 2007, the Government presented its "Chile Invests" Plan that provided details on the context in which this greater emphasis on infrastructure investment would be carried out. 5 The new plan included an initiative entitled, "Creating a More Agile Government," which directly called for the modernization of the MOPW and described the key points of an Institutional Strengthening Program. The Plan called for a new legal structure for the Ministry that would separate out responsibilities for roles and functions (e.g., planning, contract design, execution, oversight); strengthen technical capacities (e.g., through integrated project management); and create the Superintendency of Public Works to regulate contracts and concessions. 9. The MOPW represents, in many ways, a linchpin in the Chilean economy. Its own budget of US$1.25 billion at project appraisal made it one of the largest financiers of construction in the country. The additional US$600 million to US$1.1 billion per year in concession investments that it leveraged made it the primary driver of public-private partnerships in the country. Its rural infrastructure programs have been providing direct services for much of the country's poor. Perhaps most profoundly, the infrastructure network that MOPW has been building and maintaining underpins the competitiveness of most major industries in Chile. Thus, government's efforts to reach a new level of efficiency and accountability in infrastructure investment had to necessarily focus on MOPW's capacities to achieve significant impacts. 10. The MOPW's Institutional Reform Program is an ambitious effort to respond to the challenges described in previous paragraphs. The overall reform objective is to achieve greater 4See: Government Announcement: http://www.chileangovernment.gov.cl/index.php?option=com_content&task=view&id=1143&Itemid=2. 5See: "Las 27 medidas que darán un nuevo impulso a la economía," Noticia Destacada de la Presidencia (March 13th, 2007). Full text: http://www.gobierno.cl/noticias/detalle.asp?idarticulo=5802 2 efficiency in the use of public resources and increased transparency, competition, and citizen participation in the contracting and concessioning of public works. It encompasses improvements in the MOPW's business, governance and support processes (see Figure below) that reflect the wide scope of the Ministry's operation, and the resulting complexity of the reform process. The table further below presents the specific objectives of each of the eleven activities included in MOPW's Reform Program. Business Processes Program 1. Planning of 2. Contracting of 3. Management of 4. Regulation of Infrastructure Investment Projects Investment Projects Infrastructure Bank Services Services ninge Support Strength Governance 5. Management of Sectoral Norms and Regulations 6. Institutional Development nal Processes 7. Strategic Planning and Internal Management Controls 8. Corporate Communications utio Instit Support 9. Management of Information Technologies 10. Human Resource Management Processes 11. General Services Management, Infrastructure and MOPW Financial Services Integrated Standards, Integrated Regulatory Organizational Planning Contracts Project Strengthening Reform and Management Technical Competition Assistance Loan Component Component Component Component Component Policy Area Policy Area Policy Area Policy Area Policy Area Development Policy Loan Prior Prior Prior Prior Prior Actions Actions Actions Actions Actions 3 Component Objective Modernization of To establish a sustainable and integrated approach to the planning of Infrastructure infrastructure that underpins the productive potential of each territory Planning Process and improves the quality of life of the inhabitants of those regions. Implementation of Service To develop levels of service standards for infrastructure and establish the Standards and use of model contracts and procedures that promote competition and Model Contracts allow for the appropriate assignment of risks Strengthening and Integration To design and implement an Integrated Project Management procedure of Project and to carry out the transition between the existing and traditional project Management management procedures to the new one Creation of To establish an oversight process for infrastructure services to be Infrastructure implemented by an agency that is independent from those that plan and Oversight hire public works Process Modernization of Simplify and improve the quality of regulation by eliminating Sectoral Norms unnecessary norms, decreasing the cost of compliance with the existing and Regulations norms and making them more accessible to the users and the public in general To separate, both in terms of regulations and functions, the areas of Institutional planning, contracting, execution and regulation of infrastructure Development provision in order to allow for a system of checks and balances according to a rational and transparent assignment of roles and responsibilities. Strategic Planning and Strengthen the internal control functions to increase accountability and Internal Controls transparency in public management Change Management Facilitate the change process and support the other components of the (Corporate Program Communications) Modernization of Human Resource To establish a strategic human resource management system based on Management performance Modernization of Information Technology To provide world class information technology services to foster quality Management and efficiency in MOPW's business and governance processes Systems Modernization of General Services Management, To decentralize and professionalize general, infrastructure and financial Infrastructure services, establishing explicit standards for their provision and Financial Services 11. The GoC requested Bank support in those areas that focused mostly on changes in the Ministry's business processes, and on the key legal and organizational aspects that would underpin those changes. In particular, the GoC requested the Bank's involvement in this initiative in order to leverage the Bank's experience in logistics and territorial planning, the design of public-private contracts, in project management and in the development of regulatory frameworks for infrastructure. In fact, the Bank offered a comparative advantage in its ability to draw upon global knowledge, sustain a policy dialogue, and exploit synergies with other operations and technical support including, but not limited to, the Territorial Development Project, the Santiago Urban Transport DPL and TAL, and the fee-for-service technical assistance projects on the valuation of contingent liabilities in infrastructure and the definition of policy options to improve the performance of EFE, the state owned Chilean rail operator. 4 12. The Ministry of Finance and the MOPW were attracted by the synergies that could be gained from having both a DPL and a TAL to finance several of their key initiatives. First, because the thematic and substantive linkage of the two projects was expected to provide an effective framework for monitoring and evaluating the implementation of the Ministry's reform program for a period long enough that exceeds the current administration. Second, by having both a DPL and TAL, the political profile of the Bank-financed projects increased, making possible a contingent role of the Bank as an honest broker between the Ministries of Finance and Public Works in case the reform suffered major setbacks in the years to come. 13. Rationale for Bank Assistance. The Bank supported those areas that represent the pillars of the reform where it was thought to provide the largest value added. These areas, as mentioned above, focused mostly on changes in the Ministry's business processes, and on the key legal and organizational aspects that would underpin those changes. 14. The choice of the lending instruments to implement Bank's support to the reform process was discussed in detail with the Chilean authorities, and it was decided that a DPL together with a TAL would be the most adequate option. The DPL was intended to speed up the achievement of a set of policy-oriented prior actions (see a description of Prior actions in Sec. 1.4) that would provide the basis (and pave the way) for the technical activities and initiatives to be implemented under the TAL. The DPL would also entail the attainment of specific short term outputs and a disbursement condition oriented to reinforce the reform pillars established by the prior actions. In addition, and given the relative importance of the Ministry of Finance in Chile, the DPL was an excellent tool for MOPW to ensure the Ministry of Finance's support from the beginning of the reform process. The single- tranche operation, as opposed to a programmatic loan, aiming at the first phase of the MOPW institutional strengthening reform, was effective. It responded successfully to the needs of the authorities by providing timely support built upon clearly established prior actions. Finally, the three elements described previously (prior actions, short term outputs, and disbursement condition) were thought out carefully to ensure the maximum impact possible given the short timeframe that is typical of this type of lending instrument. 15. The two loans focused on strategic interventions that reflect the Bank's infrastructure lending and technical assistance program in many Middle Income Countries. Integrated planning, rational project management, appropriate public-private contract design, and regulatory structures that protect both consumers and investors are areas of core competence for the Bank. It is important to outline that this reform initiative was a breakthrough in the LAC region, not only due to the magnitude of MOPW (both in terms of budget it handles and the infrastructure sectors it encompasses) but also as a result of the complexity of the objectives pursued in each of the policy areas. 16. By supporting the implementation of the Government's Institutional Strengthening Program, the DPL was in line with the goals and strategic approach set out in the relevant government plans described above and in the latest joint IBRD-IFC Country Partnership Strategy (CPS, 2007). The objective of the joint CPS was to support Chile's efforts to converge with OECD income levels and living standards by (i) accelerating growth and (ii) building a more equitable society. 1.2 Original Program Development Objectives (PDO) and Key Indicators (as approved) 5 17. The overall policy objective of the DPL and the TAL was to support the Government modernization program of the MOPW. The five policy areas under the DPL represent a subset of areas within a large modernization program where the Bank has been engaged. Thus, the Bank supports specific policy initiatives oriented to: (i) strengthening its planning functions; (ii) developing performance standards for contracts and concessions; (iii) improving project management; (iv) strengthening regulatory oversight of public works and private contracts, and; (v) embedding the organizational changes in appropriate legal and normative structure. This, in turn, was meant to contribute to the Government's objectives of greater efficiency in the use of public resources; and increased transparency, competition and citizen participation in the contracting and concessioning of public works. 18. Short, medium and long term goals of the DPL and TAL. The DPL intended to achieve the explicit short term outputs listed in the following Table. The DPL's policy matrix also defined a subsequent series of tasks to be undertaken in each policy area that will require several years to complete. These tasks that will be implemented under the TAL are aligned with both the overall development objectives and will build upon the short term outputs defined for the DPL. It is relevant to outline that although DPL and TAL objectives overlap in each of the policy areas both operations differ in terms of their expected impacts. According to the Project Document the single-tranche DPL is expected to achieve end of program short term outputs, while the TAL should achieve its defined outcomes in a longer term. In accordance with the Bank guidelines for DPLs , this ICR presents an analysis on the likelihood of PDO and related outcomes' 6 achievement at completion although the monitoring of progress of the TAL's components will allow for the evaluation of mid and long term sustainability of DPL's objectives. Objectives Short-term Outputs (for DPL Medium-term Outcomes ICR) (for TAL ICR) Integrated Planning: Completion of 2 Ministry's investment program Rational and integrated use of Competitiveness Plans for Key aligned with the new strategic scarce resources Clusters. plan Investment decisions to support competitiveness of key supply chains Standards, Contracts, and (i) Development of sample (i) Greater competition in Competition: performance standards for high bidding supported by fair risk- Develop levels of service standards and low volume roads, for both sharing arrangements embedded for infrastructure and establish the concessions and public works in contracts and consumer- use of model contracts and contracts. responsive service targets. procedures to promote competition and to assign risks appropriately. (ii) Review of bidding processes (ii) Reduction in road network and recommendations on new maintenance costs of at least procedures complete. 15% for performance-based contracted covered roads. Integrated Project Management: 12 Project Managers in place More accurate estimates for Modernize the design and representing each sector of project cost and construction construction process under an activity and 4 regions. durations. 6Implementation completion and results report, Operations Policies and Country services, World Bank, August 2006 6 integrated management approach that covers the full life cycle of projects. Regulatory Strengthening: Completion of design for Greater responsiveness to To provide consumers with a more regulatory accounting system. consumer concerns related to responsive set of arrangements for levels of service. basic service provision Determination of standards to be regulated for roads and one Greater oversight of performance other sector. of public sector service providers as well as concessionaires. Organizational Reform: Ministerial drafting complete Presentation to Congress of Ley To create a system of checks and and presentation to Cabinet of Orgánica or completion of balances by separating roles of Ley Orgánica del MOPW. normative arrangements that planning, contracting, execution proxy law in separation of and regulation. MOPW's functions. Efficiency gains > cost of reform by end of year 5. 1.3 Revised PDO (as approved by original approving authority) and Key Indicators, and Reasons/Justification 19. The PDO and the key indicators have remained the same during the life of the project. 1.4 Original Policy Areas Supported by the Program (as approved) 20. Policy Areas. As explained in section 1.1 (Context at Appraisal), Chile requested the support of the World Bank primarily in those components of the Program where it was considered the Bank could provide most value added. Area Component Planning of Infrastructure Services Integrated Planning Contracting of Investment Projects Standards, Contracts and Competition Management of Investment Projects Project Management Regulation of Infrastructure Services Strengthening of Regulation or Oversight Management of Sectoral Norms and Regulations Organizational Reform 7 21. Prior Actions. The table below presents the prior actions and their link with each of the policy areas supported by the DPL. In retrospect, the effort and time spent in establishing the set of prior actions was fruitful. First, because these were well defined and actually yielded the expected impacts in their respective policy areas. Second, because their achievement provided momentum to kick-off the reform initiative. The GoC complied with all of them in a timely fashion, and thus the Bank team proceeded to present both Projects (DPL and TAL) to the Board of Directors. Constrains to the MOPW Prior Actions Policy Area Objective operation and institutional structure Integrated Planning Lack of medium and long-term "Infrastructure for Strengthening the MOPW's planning with an integrated Competitiveness" Plan process of Regional or geographic perspective oriented launched by the Minister: this geographic planning for the to the competitiveness of Chile's Plan initiated the process of development of infrastructure productive sectors. producing four integrated platforms that raises the Low level of interaction with infrastructure plans to better levels of both productive and other relevant stakeholders in serve the core industries of social infrastructure infrastructure sector and a lack Mining, Agriculture, Tourism, throughout a given macro- of societal or consumer voice in and Forest Products zone; and project planning. Programmatic agreements Strengthening the MOPW's Investment programs which are (Acuerdos Programáticos) Integrated planning along contract-driven rather than signed with at least 2 Regional supply-chains to identify integrated along a supply chain, Governments: these agreements infrastructure bottlenecks leading to coordination defined the manner in which and increase sectoral difficulties and inefficient regional governments and competitiveness, expenditures. MOPW (at the Central level) incorporating all would jointly develop infrastructure, service and infrastructure planning and regulatory components of a financing arrangements given product's logistics systems. Standards, Contracts and Competitiveness Lack of explicit service Development of a sample set of Develop levels of service standards embedded in potential performance standards standards for infrastructure 8 concessions or public works due to be used in road conservation and establish the use of to an historic focus on input- concessioning model contracts and driven rather than performance- procedures to promote based contracts. competition and to assign Uneven levels of competition risks appropriately. during bidding processes for either concessions or public works exacerbated by lack of information correlating outcomes to contract size, structure, design elements or bidding procedures. Project Management Low levels of accountability Issuance of two Ministerial Modernize the design and related to project outcomes due Resolutions naming Project construction process under an to an atomized approach to Managers with explicit integrated management project management with responsibility for the integrated approach that covers the full different individuals responsible lifecycle of specified projects life cycle of projects. for each stage of project development. Poor availability of information about project costs, contract management or design and construction issues. Strengthening of Regulation or Oversight ("Fiscalización") Institutional inability to provide Issuance of Ministerial Develop a regulatory effective oversight of contracts Resolution creating a unit framework (fiscalización) for and concessions according to (within MOPW) with powers to all infrastructure services to agreed upon levels of service, let advise on the development of a be implemented by an alone cost elements. new regulatory and oversight institution that is independent Lack of ability to consider framework in respect of public of the planning and consumer concerns or even to works, and participate in the contracting process. assure public access to preparation of a draft bill for information in the oversight of the establishment of the new services. oversight function for public works contracts and concessions Organizational Reform An organizational structure that no prior action was set. To institutionally and legally does not provide for clear separate the areas of separation of roles and planning, contracting, responsibilities among the four execution and regulation of major areas of activities-- MOPW's sectors in order to planning, contract design, project allow for a system of checks management and regulation. and balances according to a rational and transparent assignment of roles and responsibilities. 22. For the specific case of the fifth Policy Area, "Organizational Reform", no prior action was set. Though, the presentation to Congress of a draft law establishing a new mechanism for oversight of public works contracts and concessions (by the creation of a Superintendency of Public Works) was established as a disbursement condition. The rationale for this was agreed upon Chilean authorities and the Bank team: this law was considered to be at the core of the 9 reform initiative and its presentation to Congress had to be highlighted as the condition sine qua non to define the success of the DPL. 1.5 Revised Policy Areas 23. The policy areas were not revised during the life of the project. 1.6 Other significant changes 24. There were no significant changes made to the project from the design stage to the completion of the operation. 2. Key Factors Affecting Implementation and Outcomes 2.1 Program Performance (supported by a table derived from a policy matrix) 25. The operation tranche. Tranche # Amount Expected Actual Release Release Release Date Date Single Tranche 30,000,000 07/31/2007 12/05/2008 Regular The Institutional Strengthening of the MOPW DPL was approved by the Board of Directors of the World Bank in June 2007. Formal Project preparation activities started with the Concept Review meeting held in October 2006; and the appraisal mission was carried out in March 2007. The single tranche was disbursed only a few days before the closing date, in December 2008. The World Bank experience shows that countries that take DPL loans request the full amount of available resources as soon as the conditions for disbursement are met. This was not the case for this loan to Chile. The Ministry of Finance requested the single tranche disbursement only a few days before the closing date of the loan which occurred several months after the condition for disbursement was met. Given the sound fiscal policy Chile has been implementing during the last several years, the delay in the request of total available funds responded to Government optimization of its fiscal resources and expenditure management. By no means did it imply a lack of commitment to the MOPW modernization program. 26. Tranche disbursement condition. Tranche 1 List conditions from Legal Agreement/ Program Document Status Presentation to Congress of a draft law establishing, inter alia, a new Met mechanism for oversight of public works contracts and concessions. 27. The original draft Law creating the Superintendency of Public Works and amending the Concession Law was split in two drafts. The draft amending the Concession Law was presented to the Senate in 2007 and is expected to be approved by the Congress during calendar year 2009. The Law creating the Superintendency of Public Works was first presented to the Lower House of Congress (Cámara de los Diputados) in 2007. The draft was subsequently withdrawn in December 2008 and resubmitted to the Senate in January 2009 by the Executive to expedite the 10 legislative procedure, though the Law is not expected to be approved until the end of the presidential mandate. 28. Rationale of the disbursement condition: The disbursement condition specified in the Loan Agreement responds to a request of the Word Bank to translate the reform pillars contained in the Development Policy Letter and other documents into a legal commitment. The Government of Chile supported this condition as it was viewed as a credible pledge to the start of the reform process and a tool that would make it difficult to reverse the reform process. 2.2 Major Factors Affecting Implementation 29. The endorsement by the MOPW leadership of the modernization program has ensured the continuity of the reform. After Minister Bitrán, who was the original reform champion, left office in January 2008, immediate support by his successor, Minister Bitar, was decisive to providing continuity to the modernization program. This endorsement was critical at a time when support to the reform was waning within the MOPW due to weaknesses in the internal communication of the reform's principles and objectives among ministry's stakeholders. In this regard, it is worth mentionioning that Minister Bitar, in coordination with the Directorate of Public Works (Dirección General de Obras Públicas -DGOP), favored a more participative approach to the implementation of reform and backed the empowerment of the project components. Both of these actions served to enhance the ownership of the reform. 30. The commitment to the reform demonstrated by the highly qualified team leading the project components contributed to the successful implementation of the reform pillars. Team leaders have been key in involving MOPW senior and junior staff (both in Santiago, where the headquarters of the MOPW are located and in all the country's Regions) in the modernization process. They have fostered implementation pace of the reform by organizing trainings, strengthening the dialogue and building coordination stages among ministry areas that had traditionally worked somewhat in isolation. 31. MOPW leadership's remarkable efforts to involve the main stakeholders in the reform process have been essential to maintain the pace of implementation. The new Minister (Bitar), the DGOP, and the Undersecretary were key in backing a stronger consultation with the MOPW internal stakeholders. MOPW unions were granted a direct dialogue with the Minister. The team leading the project components involved MOPW's senior managers in the design and implementation of the reform through a detailed consultation program. Furthermore, the team leading the project components consulted with the MOPW unions through ad hoc committees. Training associated with change management activities served also to communicate and explain the principles and implementation priorities of the reform to non-managerial MOPW personnel further expanding the acknowledgment of the reform. Finally, the Change Management component also used the intranet to share the pattern and advancement of the modernization process with the MOPW personnel. 32. A strong policy dialogue and analytical underpinning contributed to a sound project design. The objectives and actions of the Institutional Strengthening Program were the result of more than a year of work at MOPW and from consultations with relevant external stakeholders. The effort has been coordinated by a multidisciplinary team composed of MOPW staff with specific responsibilities for each technical area of reform. That team has worked to identify the main shortcomings of the MOPW and has developed proposals for their improvement. The World 11 Bank has supported the work of these teams with technical and regulatory advice since the early stages of the reform's inception. The result framework of the operation was very well focused with significant prior actions each of which had a high degree of substance spanning an appropriate range of five different policy areas. 33. Bank and country specific procurement processes coupled with high turnover of key staff in the PIU have slowed implementation of Bank financed activites. The process for public contracting in Chile mandates the revision and approval of all contracts by Contraloría (national auditing body of Chile). The approval of Contraloría has to be obtained after the no objection to the contracting process and outcome is provided by the Bank. The role of Contraloría is very important and has helped Chile become the most effective country in Latin America in controlling corruption7. However, the double approval process and the lack of a fast track clearance process by Contraloría in Bank financed activities has had a negative impact in the schedule of consultancies envisaged under the Bank financed Project. Although this observation applies only to the TAL that accompanies the DPL, it is important to include it in this ICR because it applies to the effectiveness of the Bank and MOPW partnership. Another factor that has somewhat delayed Bank-financed activities is the very high turnover of the Project Coordinator office in the PIU. The head of this unit has changed, on average, every six months since the project identification mission. 34. Risk assessment at appraisal. Risks identified at appraisal were relevant and have been well managed as mitigating factors were embedded in the design of the DPL. a.The risk of Minister Bitrán leaving the MOPW, an event that could threaten the sustainability of the reform process. The loss of the reform champion was correctly identified. As indicated by Minister Bitar during his inaugural speech, the presence of the World Bank was instrumental to guarantee the continuity of the reform process. In fact, one of the main reasons for requesting the participation of the World Bank as a partner (through the DPL and TAL) in the reform process was to ensure the continuity of the modernization program. b.The risk referred to the approval of laws by Congress (a new organizational structure for the MOPW, the bill creating the Superintendency and the amendments to the Concession Law) that were well identified at appraisal remain "Moderate" and will be dealt with in section 4 (Assessment of Risk to Development Outcome). c.The risk that broadening the MOPW's planning capabilities could slow down the MOPW's pipeline and hinder investment flow has not materialized. The organization of several training and capacity building activities, the advancement of prior actions as well as the negotiations of Programmatic Agreements with Regional Governments (outlining specific infrastructure works to be jointly financed between each of these and the MOPW) served to gradually merge the new principles of integrated planning methodologies within the pipeline development without disrupting the project implementation flow. 7The Governance Indicator database produced by the World Bank (available at http://info.worldbank.org/governance/wgi/index.asp) shows that Chile has the top ranking position among countries in Latin America for the indicator Control of Corruption. 12 2.3 Monitoring and Evaluation (M&E) Design, Implementation and Utilization 35. The design of the Program Matrix did not include end-of program outcomes monitorable at the time of completion. The Policy Matrix intended to reflect the complexity and wide range of activities encompassed by MOPW's Reform Program is ambitious in its overall scope. It has been already mentioned in section F above that some (but not all) of the expected Project outcomes should have been defined more carefully. The result framework of the DPL lacked a clear distinction between end-of program outcomes monitorable at the time of completion and outcomes that would materialize in the longer term as the reform process consolidates. Furthermore, the indicators for the medium term outcomes do not have an adequate balance vis a vis the outcome that has to be measured; more specifically some are hard to measure and not very realistic. These limitations of the M&E framework make it difficult to establish objective measures to assess the level for the medium term outcomes achievement for this ICR, lacking the information to make this type of judgment at completion. An additional obstacle to this is given by the typology of the lending instrument (a single-tranche DPL) and the short timeframe comprised between the presentation of the Development Policy Letter (by which the intention to start the reform process was made public) and this operation's completion date. 36. M&E design tied medium and long terms outcomes in the key policy areas to actions to be implemented under the TAL, thus ensuring DPL sustainability. The Project's M&E framework reflects the linkages between the two loans and strikes a balance in terms of the outputs and outcomes that result from each of them. Clearly defined short-term outputs were selected as natural evolution of DPL prior actions, and were valuable in terms of measuring project advancement. The set of medium term outcomes helped to narrow down and provided useful milestones for each policy area objectives even though these are to occur outside the timeframe of the single-tranche operation. The fine tuning of the indicators to ensure their alignment with the expected outcomes, the availability of data for their periodic monitoring, and the establishment of baseline values is being carried out as part of the supervision activities of the TAL. 37. M&E implementation was useful to strengthen the dialogue with the counterpart and identify new opportunities for support. Both the interim semi annual report prepared by the MOPW and the supervision missions were particularly useful to collect data relating to the project implementation. The missions provided the framework for an in depth follow-up of the project components' progress and served to highlight pending issues to the authorities. In addition the supervision missions gave the Bank and the MOPW the opportunity to deepen the policy dialogue and identify areas of joint cooperation that were not identified during project preparation. Finally, a field visit conducted during project supervision served to corroborate the process of the reform implementation in the regions. It also contributed to motivate the decentralized MOPW staff, and was particularly useful to provide feedback to the component's team leader that attended the field visit. 2.4 Expected Next Phase/Follow-up Operation (if any) 38. TAL support and supervision to achieve medium to longer term outcomes. The TAL is supporting the subsequent series of activities (consultancies, expert advice, capacity building and training) to be undertaken in each policy area. Although implementation of these activities will require several years, the TAL will ensure the continuous budgetary and technical support needed for achieving sustainability to the project. The progress monitoring of the TAL's components will allow for the evaluation of the progress against the medium to longer term DPL's objectives. 13 The results of the Bank support have underscored the added value of the operation. As discussed in previous paragraphs of this ICR, the Government of Chile has put great emphasis on their choice of the TAL as the best instrument to support the implementation of the reform initiative; as a result, a second DPL request from GoC seems highly unlikely. 3. Assessment of Outcomes 3.1 Relevance of Objectives, Design and Implementation 39. The loan objective remains relevant to the country and Bank agenda. The main objective of the DPL remains extremely relevant to Chile's current agenda. The President restated her commitment to the modernization of the State in her speech of May 21, 2008. To this end, the MOPW committed to the achievement of 16 objectives with the Ministry of Internal Affairs, which has been designated by the President to supervise the national modernization program that includes all ministries and public agencies in Chile. The Ministry of Finance is supporting the MOPW reform program by ensuring a stable amount of funds in the budget for adequate project implementation. Furthermore, Chile's continued efforts to converge with OECD countries performance provide a favorable support for the reform. Finally, in the current context of global financial crisis, MOPW will have an even more active role in the Chilean economy as a vehicle for implementation of countercyclical policies 8 . The need to improve the efficiency and performance of the MOPW becomes even more important in the light of its increasing role as growth and employment generator. 40. The objective of the loan also remains relevant for the achievement of the Bank strategic objectives, which emphasized the need to continue to focus on the modernization of the state through a close engagement with the Chilean authorities. Likewise the project objectives are fully consistent with those set in the Country Partnership Strategy (CPS) endorsed by the Board in May 2007, contributing directly to objectives of supporting the efficiency of infrastructure and public services in addition to decentralization and regional development. 3.2 Achievement of Program Development Objectives 41. Integrated Planning. This component is rated Satisfactory. 8Chile has been cited as an example of how to implement adequate countercyclical economic policies. See for instance the article titled "Stimulating" published by The Economist on February 19, 2009 (available at http://www.economist.com/world/americas/displaystory.cfm?story_id=13145570) 14 Objectives Short-term Outputs Medium-term Monitoring & (for DPL ICR) Outcomes Evaluation Indicators Integrated Planning: Completion of 2 Ministry's % of projects approved Rational and integrated Competitiveness investment program based on integrated use of scarce resources Plans for Key aligned with the new planning methodology Investment decisions to Clusters. strategic plan support competitiveness of key supply chains 42. The prior actions designed for this policy area were met, establishing the pillars for the subsequent initiatives. These prior actions included the design of Competitiveness Plans for all regions and the signing of two Programmatic Agreements with Regional Governments, which outlined specific infrastructure works to be jointly financed between each of the Regional Governments and the MOPW, thus strengthening a more coordinated and participatory approach to planning. 43. The MOPW has gone further than what was established in the prior actions by carrying out Competitiveness Plans for all Regions of the country. Furthermore, MOPW has also negotiated and signed, by December 2008, Programmatic Agreements with all Regional Governments, which represent a major step for the implementation of the Competiveness Plans.9 44. The planning approach discussed during Project preparation was based on productive clusters, as it was considered that this methodology could yield better results in terms of investment harmonization among regions, with MOPW acting as a coordinator. However, this proved to be difficult to implement, as Chile did not have a shared and comprehensive vision of its infrastructure needs in the long run. Productive clusters usually encompass two or more regions, and reaching agreements on infrastructure requirements for a particular sector was complicated in the absence of a consensus on what the regional or territorial needs were. Thus, MOPW suggested changing the methodology toward a territorial planning approach, to lay the foundations for subsequent discussions on cluster needs. This initiative was strongly supported by the Bank's team, as it was understood that the construction of a country-wise strategic vision was a fundamental requirement to conduct effective sectoral supply chain analysis in the future. To build up the general vision on infrastructure needs, MOPW carried out 5 workshops at the central government level and 15 in the regions, which were attended by approximately 1200 stakeholders including MOPW officials and representatives of relevant line ministries, local authorities, and the private sector. These workshops concluded in December 2008 and the main outputs were two documents that present the agreements reached on the country's infrastructure and infrastructure services needs to 2020: the Strategic Map for Chile's Infrastructure Development; and the compilation of 15 Regional Infrastructure Development Maps for the same period. Another important output of this complex process led by MOPW was the establishment of "counterpart teams" at the regional level, which will represent the region in MOPW's planning exercise each year. 9The territory of Chile is divided in 15 Regions 15 45. In spite of the change in the planning process' priorities just described, this component is rated as satisfactory as the 15 Regional Competitiveness Plans completed by December 2008 include specific chapters in which the relevant regional clusters were analyzed in detail. 46. Standards, Contracts, and Competition. This component is rated Satisfactory. Policy Area Short-term Outputs Medium-term Monitoring & Objectives (for DPL ICR) Outcomes Evaluation Indicators Standards, Contracts, (i) Development of (i) Greater (i) Share of works and Competition: sample performance competition in contracts and Develop levels of standards for high bidding supported by concessions based on service standards for and low volume fair risk-sharing measurable, output- infrastructure and roads, for both arrangements oriented standards. establish the use of concessions and embedded in Increased competition model contracts and public works contracts and in bidding. procedures to promote contracts. consumer-responsive competition and to service targets. (ii) MOPW data on assign risks (ii) Review of contract costs % of appropriately. bidding processes (ii) Reduction in road contracts that benefit and network maintenance from input. recommendations on costs of at least 15% new procedures for performance- complete. based contracted covered roads. 47. In the area of Standards, the component has developed a sample of performance standards for low volume roads and for road networks concessions. In a good example of cooperation between departments of the MOPW and tangible implementation of tools developed under the MOPW modernization program, the newly developed standards have been adopted for the contract design of the Coquimbo and O'Higgins road network concession. The Coquimbo network concession contract deserves a special mention for two reasons. First, it is extremely innovative: the contract combines elements of toll roads, shadow tolls, and performance based contracts (similar to CREMA contracts financed by the Bank in other Latin American countries). Second, it was jointly designed by the Roads Directorate (Vialidad) team and staff currently developing standards of service for all of MOPW's infrastructure works. From this perspective, the Coquimbo contract required a different level of dialogue that resulted in a balanced combination of technical aspects with a new dimension of standards that focuses on users' needs. Thus far, MOPW has received 10 bids for the Coquimbo network, of which 7 have been prequalified. Additional activities in the road sector that include innovative aspects of standards include the recent implementation by Vialidad of mixed input-based and output-based road management contracts for 3-5 year periods. 48. Efforts to introduce the concept of standards in other transport infrastructure subsectors are under way, such as the definition of performance indicators for airports with a view to their inclusion in the future concession of the Santiago airport10. The definition of performance 10The airport that serves the city of Santiago was concessioned in 1998 for a 15 year term. The term of the concession was made variable in 2004 with a maximum extension of 78 months from the original ending date of the concession. 16 indicators will be the outcome of a consensus building exercise among the MOPW Airport Directorate, the Civil Aviation Directorate of the Ministry of Defense, the Ministry of Transport, the MOPW Coordination Unit of Concessions and representatives from airports concessionaires and major airlines. 49. In the area of Contracts and Competition, based on the results of a completed consultancy, a proposal for the amendment of the regulatory framework for public works and consultant services development is being drafted. This includes the modification and digitalization of the consultants and contractors registry (registro de contratistas y consultores) as well as the production of new regulation for public works contracts (reglamento de obras). This initiative is intended to remove barriers of entry in the registry and enhance completion. The intention of the MOPW is to complete within the year 2009 a comprehensive study to improve contract management. The study will focus on two main aspects of public contracting: (i) the definition, improvement and standardization of bidding documents (bases de licitación) for public works, with a view to improving risk allocation as a means to increase efficiency of public expenditures; and (ii) contract management, focusing on improving administrative processes and eliminating bureaucratic bottlenecks. 50. Integrated Project Management. This component is rated Highly Satisfactory. Policy Area Short-term Medium-term Monitoring & Objectives Outputs (for DPL Outcomes Evaluation Indicators ICR) Integrated Project 12 Project Managers More accurate Reduction in variation Management: in place representing estimates for project between contract Modernize the design each sector of cost and construction signature value and and construction activity and 4 durations. final executed works process under an regions. values (time & costs). integrated management approach that covers the full life cycle of projects. 51. The component has fully met the proposed short term goal as 60 project mangers have been appointed by MOPW Service Directors11. Project managers operate in every Service Directorate and in every Region covering 30% of the MOPW investment portfolio. About 50% of project managers are based in the Regions. The regulation for public works (Reglamento de Obras Públicas), which is completely drafted and is expected to be enacted during 2009, crystallizes the concept, profile and instruments related to the figure of Project Manager (PM). The multiple initiatives undertaken by MOPW have contributed to the clarification and more precise definition of the PMs' role and duties. First, the implementation of supporting technologies such as the integrated technological platform for project management coupled with the public works digital book has contributed to enhance the PMs' roles. In addition, workshops and training programs that will start in 2009 will allow the certification of 400 MOPW personnel in integrated project management, including fiscal inspectors and senior mangers. A consultancy for implementing a 11The MOPW has five sector-specific Service Directorates (Direcciones): Airports, Arquitecture, Hydraulic Works, Port Works and Roads (Vialidad). Although it is not a formal Directorate, the unit of Concessions works, in practice, as one Directorate. 17 Project management office (PMO) to supervise the projects' portfolio using integrated project management tools is expected to be contracted before June 2009 as the Bank already gave its no objection to the award decision by MOPW. 52. Regulatory Strengthening. This component is rated Satisfactory. Policy Area Short-term Medium-term Monitoring & Objectives Outputs (for DPL Outcomes Evaluation Indicators ICR) Regulatory (i) Completion of (i) Greater Audit of Strengthening: design for regulatory responsiveness to responsiveness to To provide consumers accounting system. consumer concerns consumer complaints with a more responsive related to levels of and claims. set of arrangements for (ii) Determination of service. basic service provision standards to be regulated for roads (ii) Greater oversight and one other sector. of performance of public sector service providers as well as concessionaires. 53. The component is developing a methodology for measuring user satisfaction in infrastructure services. This task encompasses the definition and measurement of a baseline and its indicators for 20 projects including airports and concessioned urban and interurban roads. The baseline and indicators for service standards were developed for roads, as mentioned when describing the achievements of the Standards component. 54. The component developed the integrated technological platform (used by the Standards and the Integrated Project Management components) that serves the purpose of monitoring the operation of concessions and the management of public works. This database, still in its early stage of development, is expected to be a key tool for the Superintendency when it is created. 55. The completion of the design of regulatory accounting systems is expected to be achieved by the end of 2009. An ongoing consultancy that as of March 2009 completed the first phase (out of 8) will provide the MOPW the capacity to develop and feed economic and financial models to oversee concession contracts. In addition, the MOPW will be able to simulate the economic impacts of changes to contract commitments (including tariffs, investments, subsidies among other regulatory instruments) resulting from contract amendments (Convenios Complementarios), an issue that has generated controversy and has been identified as maybe the only weak aspect of the concession program in Chile. Once regulatory accounting systems are available, Chile will be one of the few countries in Latin America that will have these systems in place. In transport, only the surface transport agency (ANTT) in Brazil and the transport regulator in Peru (Ositran) have operating regulatory accounting systems. 56. Organizational Reform. This component is rated Moderately Satisfactory. 18 Objectives Short-term Medium-term Monitoring & Outputs (for DPL Outcomes Evaluation Indicators ICR) Organizational Ministerial drafting Presentation to Calculation of cost Reform: complete and Congress of Ley savings as greater than To create a system of presentation to Organica or 1 percent of total checks and balances by Cabinet of Ley completion of investment (public and separating roles of Orgánica del normative private). planning, contracting, MOPW. arrangements that execution and proxy law in regulation. separation of MOPW's functions. Efficiency gains > cost of reform by end of year 5. 57. The process of drafting the regulatory framework for the new institutional structure of the MOPW (Anteproyectos de Ley Orgánica) has proved to be a difficult exercise, as envisaged at project appraisal. Even though several preliminary drafts were prepared, many issues remain to be defined to reach a consensus on the final version of the law. 58. A number of initiatives have been carried out to facilitate and improve the drafting of the new law: (i) a legal workshop that analyzed advantages and disadvantages of decentralizing Service Directorates; (ii) a study tour to Colombia; (iii) a comparative analysis of the French, Brazilian and Colombian legislation on the issue; and (iv) an analysis of possible alternatives for the MOPW institutional architecture was commissioned to a consortium of four universities. 59. The draft organizational law (Ley Orgánica) is expected to be presented to Minister Bitar by September 2009 and subsequently submitted to Congress. Extensive consultations with MOPW's unions are currently underway to reach a consensus on the main issues to be included in the new Ley Orgánica. 3.3 Justification of Overall Outcome Rating Rating: Satisfactory 60. The operation has met its project development objectives of creating the foundations for increasing the effectiveness, and efficiency of the MOPW further cementing the sound reputation of Chile public institutions. Specifically, this DPL has been instrumental to design and implement a modernization plan for the MOPW that will certainly contribute to position Chile closer to the ultimate goal of achieving standards of public sector performance of OECD countries. The progress observed in the major project components (i.e strengthening the MOP planning functions; development of performance standards for contracts and concessions; improvement of project management capabilities; and strengthening of public works and private contracts' regulatory oversight) provides a strong signal to all stakeholders about the commitment to the modernization program and the irreversibility of the process. The achievement of the longer term DPL's objectives of enhancing the quality of Chile's public expenditure increasing transparency, competition and citizen-participation in the contracting and concessioning of public works will require several years and the TAL will ensure the continuous budgetary and technical support needed for reaching these objectives and granting sustainability to the project. In view of the 19 progress made so far towards the achievement of the PDO and the continuous relevance of the agenda, the operation would justify a "Highly Satisfactory" rating; however the delay in the approval by the Congress of the new organizational law for the MOPW, the law creating the Superintendency of Public Works, and the amendments to the Concession Law, creates a moderate uncertainty for the overall sustainability of the reform program. Therefore, the ICR is rated overall as Satisfactory 3.4 Overarching Themes, Other Outcomes and Impacts (a) Poverty Impacts, Gender Aspects, and Social Development 61. The operation built the foundations for generating an indirect impact on poverty alleviation by inducing greater efficiency, effectiveness and accountability in the utilization of public resources. It also broadened participation in public infrastructure investment, and fostered transparency and accountability in infrastructure service delivery (principally by enhancing oversight, and access to information). In addition, the project promoted instruments such as strategic environmental assessments that have already fostered (and will continue to foster) the integration of environmental aspects into the planning process. All the above, will help Chile to achieve OECD standards for public works projects that contribute to sustainable development. 62. Furthermore, it is also worth mentioning that during meetings with Minister Bitar and the Strategic Steering Group that he leads the topic of climate change in general and glacier melt in particular was identified. The Project team and the PIU made possible the interaction of sectoral experts in the MOPW and the Bank in this area that prompted possible future partnerships between the MOPW and the Bank. (b) Institutional Change/Strengthening) 63. The operation's institutional impact was and will be substantial. On the one hand, it established in the new draft law the foundation of a new institutional structure for the MOPW. On the other, it implemented procedural changes that could be undertaken without legal changes. This includes the creation of a single directorate of Planning designed to provide an integrated strategic vision for all types of infrastructures. The operation introduced the profile of the project manager which was key to create an integrated project management approach that covers the full life cycle of projects. It also designed a Project Management Office (PMO) to improve the management and oversight of the portfolio of projects under the responsibility of the MOPW. The operation further developed an integrated technological platform that will build a database for monitoring the performance of concessions and public works. (c) Other Unintended Outcomes and Impacts (positive or negative, if any) 64. The relevance of this project for the Bank agenda should be highlighted as Chile is an example for the Bank in the area of infrastructure service provision. The Bank has constantly relied on Chile to illustrate to other countries in different regions how infrastructure reforms should be conducted, in particular in the area of attracting private sector financing and operators through public private partnerships. In the last couple of years, World Bank staff and public officials from East Asia and South East Asia have conducted study tours to learn from the Chilean experience. Thus, the Bank will benefit significantly from the MOPW modernization process as it will provide valuable lessons for other countries that request the assistance of the Bank to follow a similar path of reforms. 20 4. Assessment of Risk to Development Outcome Rating: Moderate 65. Three sources of risk that were well identified at appraisal remain "Moderate". These risks concern the approval of laws by Congress: (i) a new organizational structure for the MOPW, (ii) the bill creating the Superintendency and (iii) the amendments to the Concession Law. a.The risk of Congress not passing into law a new organizational structure. The draft has not yet been submitted to the Congress. Minister Bitar entrusted the MOPW Chief Counsel (Fiscal) with drafting of the new law. The Fiscal has undertaken a drafting process involving MOPW unions. The draft is expected to be presented to the President before the end of 2009 and subsequently to Congress. The moderate risk derives from: (a) the need to produce a draft text that is the result of an internal consensus building exercise with MOPW unions; and (b) resistance to institutional change. b.The risk of Congress not passing into law the bill creating the Superintendency. The Law creating the Superintendecy of Public Works was first presented to the Lower House in 2007. The draft was subsequently withdrawn in December 2008 and re-submitted in January 2009 to the Senate by the Executive to expedite the procedure, though the Law is not expected to be approved until the end of the presidential mandate. The moderate risk derives from (a) the need to reach sufficient political support, in particular from the private sector (investors, operators, financiers); and (b) the limited availability of members of Congress and space in the Congressional agenda during the electoral year. c. The risk of Congress not passing into law the amendments to the Concession Law. The draft amending the Concession Law was first presented to the Senate in 2008 and was expected to be approved by the end of that year. Representatives of several key public service concession owners opposed the draft (particularly a new dispute resolution mechanism) and requested a two year delay for the enactment of the draft because of the financial crisis. The government (with support from several renowned Chilean economists) has thus far refused to consider delaying the discussion of the draft. 66. Two new sources of risk were identified at this point. a.The risk of change of government affecting or delaying project implementation. Although the current presidential frontrunners have expressed their intention to continue on the path of reform, the upcoming elections clearly bring uncertainty to the continuation of project implementation. However, the reform has achieved a degree of institutional maturity and has broader support among key stakeholders. The TAL, which provides resources for carrying out the reform as well as for its monitoring and evaluation, provides a sufficient mitigation measure to assure the project's continuity. This risk is considered "Low". b.The risk of cultural resistance and vested interests opposing project implementation. A well established organizational culture and self-interest inertia have resisted institutional change within the MOPW. Mitigation measures aimed at fostering stakeholders' participation and promoting change management served to counter-balance this resistance to change. The gradual integration of new profiles (such as the project manger) and the progressive definition of new institutional bodies for supervision and coordination, also served to mitigate this risk which is considered overall "Moderate". 21 5. Assessment of Bank and Borrower Performance 5.1 Bank Performance (a) Bank Performance in Ensuring Quality at Entry Rating: Satisfactory 67. The rating for Bank performance during the preparation phase is satisfactory. The justification for this rating is as follows. Acknowledging the complexity of the reform, the Bank assigned a highly qualified team with extensive experience in the relevant policy areas. The team was able to maintain a close collaboration with the Minister and his team from the beginning, and responded promptly and with high levels of flexibility to their requests for assistance in certain topics (particularly the drafting of the Concessions and Superintendency of Public Works Law) at the outset of the reform process. Experts from different parts of the world participated actively in preparation missions and workshops, providing ad-hoc advice directly to the Minister and his cabinet on specific issues. The team's appropriate skill mix helped deliver a well designed project and provided value added to the Borrower. The Bank's performance assisting the Borrower in identifying and appraising the project to ensure consistency with the CAS and with government's priorities, and in a manner that would ensure attainment of expected outcomes, was also very valuable. Performance at entry could have been highly satisfactory if design of the M&E framework had included end-of-program outcomes monitorable at completion. (b) Quality of Supervision Rating: Satisfactory 68. A close follow-up dialogue was established to track the achievement of the short term outputs of the DPL. In addition, traditional supervisory activities to monitor progress toward mid-term outcomes are being carried out in the context of the TAL. Project execution was regularly supervised and missions traveled to the field more than twice a year, with additional regular Bank support provided directly by the Project team. Progress and ratings are adequately reported in the Implementation Status Reports (ISRs). Beyond the focus on regular supervision matters, there is a strong interest on the part of the Bank in assessing impact of project activities and, in doing so, maintaining central government focus in the reform agenda. To ensure that impact analysis is feasible, the M&E framework for the TAL is currently being revised with Chilean counterparts to ensure that indicators are objective and that the required data to monitor their evolution throughout project implementation is available. (c) Justification of Rating for Overall Bank Performance Rating: Satisfactory The overall Bank performance is rated satisfactory. 5.2 Borrower Performance (a) Government Performance Rating: Satisfactory 22 69. Government performance is rated satisfactory due to the commitment and involvement in MOPW's reform initiative, as evidenced by: (i) the active participation of the Ministry of Finance in the definition of the prior actions and triggers for the DPL. The positive commitment of the Ministry of Finance, given the structure of power in Chile, is a sine qua non condition for the successful implementation of any institutional reform in Chile; (ii) the explicit support from the highest levels of government to the reform program in public speeches and press releases; (iii) the continued and timely budgetary support from the Ministry of Finance to ensure smooth implementation of the activities envisaged by the reform program; and (iv) the valuable contributions and participation from staff of other public agencies in multiple initiatives of the reform program (in particular, involvement of multiple agencies in the seminars carried out by MOPW under the Integrated Planning policy area). (b) Implementing Agency or Agencies Performance Rating: Satisfactory 70. Implementing agency performance is rated as satisfactory. From the beginning of project implementation, MOPW has assigned a qualified team to lead the initiatives under each policy area. These teams have worked hard in the production of terms of reference, and in the organization of trainings and other events; strengthening the dialogue and building coordination stages among Ministry areas that had traditionally worked in relative isolation. The Project Coordinating Unit has complied with all of its fiduciary responsibilities in a satisfactory manner, and played an important role in providing relevant information to assess the attainment of outputs established for the ICR. (c) Justification of Rating for Overall Borrower Performance Rating: Satisfactory The overall Borrower performance is rated satisfactory. 6. Lessons Learned (of wide general application) 71. Leadership, integration, and commitment are critical for success. The leadership of MOPW's top management (Minister, DGOP, and Undersecretary), was fundamental for overcoming the uncertainty generated by the loss of the minister who conceived the original reform program. This was also possible because MOPW's top management empowered the project components and backed a more integrated approach to the reform. This favored the integration of the project components that was critical for combining their corresponding outputs (such as, digital interfaces, project management processes, output-based standards etc.). However, the alignment of the components was possible mainly due to the commitment to the reform demonstrated by the highly qualified team leading the project components, which was able to motivate the entire group working on the reform and win the trust of MOPW senior managers. 72. Consultation with stakeholders and an effective communication strategy enhance the ownership of the reform. The reform objectives were defined by the MOPW in close and extensive consultations with stakeholders internal and external to the MOPW. The World Bank has supported this participative approach and has encouraged the continuous monitoring and evaluation of the reform's analytical underpinnings. At the implementation stage, the MOPW 23 leadership has strengthened the initiatives aimed at guaranteeing the continuous support of stakeholders. To this end, the change management component turned out to be critical to expand support for the reform. MOPW leadership also decided to increase training, capacity building, and technical support activities to facilitate the implementation of the reform. In addition, the project components--supported by the MOPW Human Resources Department--have established ad hoc committees, which serve as platforms for consulting with the MOPW unions. The Bank team highlighted during supervision missions the need to involve non-managerial personnel within the MOPW in Santiago and in the Regions to increase understanding of the objectives pursued by the reform and to increase overall support. 73. The design of the resuts framework of single-tranche development policy operations should pay special attention to the short term of the operation. This Project's M&E framework reflects the linkages between the two loans and strikes a balance in terms of the outputs and outcomes that result from each of them. Clearly defined short-term outputs were selected as natural evolution of DPL prior actions, and were valuable in terms of measuring project advancement. The set of medium term outcomes helped to narrow down and provided useful milestones for each policy area objectives even though these are to occur outside the timeframe of the single- tranche operation. The Program Document, in accordance with Bank guidance, indicated that the outcomes, beyond the timeframe of the program would be monitored within the framework of the TAL accompanying the DPL. Nonetheless, while the Policy Matrix provided key actions of the medium-term program, as well as monitoring and evaluation indicators, the Policy Matrix did not include end-of-program outcomes. This made the medium term outcome non monitorable at the time of completion given the short timeframe comprised between the effectiveness of the loan and the operation's completion. The short duration of the operation, which is a general characteristic of all single-tranche DPL, suggests that the results framework should carefully link the PDOs and the outcomes to be measured. (operation-specific) 74. Bringing more stability through time to the project coordination unit is essential. More stability of the PIU coordinator office will enhance the synergies between the project components and leverage the policy dialogue with the Bank. This dialogue has been fruitful on climate change issues and can further be extended to other issues such as PPPs, renewable energy concessions, and energy efficiency. The stability of the PIU office will also improve the effectiveness of the change management component that is anchored in the PIU. It will as well enhance the procurement pipeline flow. 7. Comments on Issues Raised by Borrower/Implementing Agencies/Partners (a) Borrower/Implementing agencies 75. The Borrower has provided comments to a draft version of the ICR that were discussed at length during the supervision mission of the TAL conducted in April, 2009. Many of these comments were incorporated to the text. The Borrower submitted to the Bank its own completion report (included in Annex 3) on May 20, 2009. 24 Annex 1. Bank Lending and Implementation Support/Supervision Processes (a) Task Team members Names Title Unit Responsibility/ Specialty Lending Julieta Abad-Oholeguy Consultant LCSTR Jordan Schwartz Lead Economist LCSSD Task Manager Jose L. Guasch Sr Adviser LCSSD Marta Elena Molares-Halberg Lead Counsel LEGLA Alexandre Arrobbio Sr Public Sector Mgmt. Spec. LCSPS Carter J. Brandon Lead Environmental Specialist EASCS Tomas S. Serebrisky Senior Infrastructure Economist LCSTR Supervision Julieta Abad-Oholeguy Consultant LCSTR Jose A. Barbero Consultant LCSTR Jose L. Guasch Sr Adviser LCSSD Marta Elena Molares- Halberg Lead Counsel LEGLA Ana Maria Grofsmacht Procurement Specialist LCSPR Geise B. Santos Program Assistant LCSTR Daniel Arguindegui Procurement Specialist LCSPR Alejandro Solanot Financial Management Specialist LCSFM Tomas S. Serebrisky Senior Infrastructure Economist LCSTR Task Manager Francesco Totaro E T Consultant LCSTR (b) Staff Time and Cost Staff Time and Cost (Bank Budget Only) Stage No. of staff weeks USD Thousands (including travel and consultant costs) Lending FY06 1 21.91 FY07 33 240.48 FY08 -0.56 FY09 113,911.61 Total: 34 261.83 Supervision/ICR FY06 0.00 FY07 0.00 FY08 21 100.34 FY09 17 0.00 Total: 38 100.34 25 Annex 2. Letter of Development Policy12 Santiago de Chile, April 30th, 2007 Ms. Pamela Cox Vice President Latin America and the Caribbean Region The World Bank Washington, DC Dear Ms. Cox: Since the start of its mandate in March of 2006, the Administration of President Michelle Bachelet has committed itself to achieving the goal of "Growth with Equality of Opportunity." This goal has inspired an ambitious Government Program that reflects a consensus on the need to move beyond the first generation of reforms and to confront the remaining challenges to achieving higher levels of growth. In promoting economic growth, the explicit emphasis will be placed on raising levels of income and improving the quality of life so as to converge with the standards of the OECD. The Government Program thus proposes a new phase of development, incorporating new approaches to supporting innovation and competitiveness and achieving greater equality of opportunity for all of Chile's citizens. The Institutional Strengthening Program of the Ministry of Public Works (MOPW) is a central feature of the overall Government Program, particularly as it pertains to the support of economic growth, competitiveness and the "New Citizenry Treaty." That Treaty calls for reform of public institutions through improvements in the quality of public services as well as greater transparency and citizen participation. The following paragraphs provide a brief background to the MOPW's Institutional Strengthening Program as well as its objectives and main components. Public infrastructure is a keystone of the Chilean economy and MOPW is responsible for planning, constructing, maintaining and operating this infrastructure in support of economic growth and social development. Currently, the annual budget of MOPW approaches US$1.5 billion, making it an important financier of the country's construction industry. Moreover, it has been under the control of the MOPW that, since the beginning of the 1990s, the successful system of concessions was developed. This system has been essential in the alleviation of Chile's infrastructure deficit. Investments under concessions administered by MOPW have valued, in recent years, around US$1.0 billion annually, making the Ministry Chile's principal administrator of these forms of public-private partnerships. In order to continue to raise the levels of growth and to achieve higher standards of living for all Chileans, it is necessary to remove barriers to competition and implement measures to strengthen innovation, make Chile more competitive and offer greater opportunities for all of its citizens. In this sense, MOPW has acquired a new relevance and its role needs to be redefined. 12The letter presented in this Annex is the English translation of the official Development Letter signed by Ministers Velasco and Bitran. A copy of the Spanish version is available in Project files. 26 Despite the tremendous successes of the last 15 years, there is wide consensus about the need to improve efficiency in public spending in infrastructure by perfecting the design of the concession system; attaining a higher level of accountability--for both public works and concessions; and establishing explicit quality of service standards for users. In order to provide MOPW with the tools for achieving this new function, the current Administration has proposed to undertake a major institutional reform program for which it has solicited the support of the World Bank in specific core areas. The objectives and actions of the Institutional Strengthening Program are the result of more than a year of work at MOPW and from consultations with relevant external stakeholders. The effort has been coordinated by a multidisciplinary team composed of MOPW staff with specific responsibilities for each technical area of reform. That team has worked to identify the main shortcomings of the Ministry and has developed proposals for their improvement which are described below. The World Bank has supported the work of these teams with technical and regulatory advice since the early stages of the initiative's inception. At the same time, the Ministry has engaged in public discussions with key actors in the areas of MOPW's activities such as the Chamber of Construction, the Association of Concessionaires of Public Works, Regional Governments and several civil society organizations. These discussions have allowed for a more objective analysis and a broader vision of the goals to be achieved. Through the work described above, it has been found that the primary challenges confronted by MOPW in its core business functions are as follows: Planning Lack of medium and long-term planning with an integrated geographic perspective oriented to the competitiveness of Chile's productive sectors. Low level of interaction with other relevant stakeholders in infrastructure sector and a lack of societal or consumer voice in project planning. Investment programs which are contract-driven rather than integrated along a supply chain, leading to coordination difficulties and inefficient expenditures. Absence of risk analysis and ex-post evaluation in the process of planning. Service Standards, Contracts and Competition Absence of explicit representation of the interests of citizens and users in contract design (as much in public works as in concessions) and in the regulation of services. Uneven levels of competition during bidding processes for either concessions or public works, reducing the effectiveness of those processes. Project Management Low levels of accountability related to project outcomes due to a fragmented approach to project management with different individuals responsible for each stage of project development. Poor availability of information about project costs, contract management or design and construction of projects. 27 Regulation Insufficient institutional capacity to provide effective oversight of contracts and concessions according to agreed upon levels of service, let alone cost elements. Need for strengthening the capacity to capture the concerns of users and assure public access to information in the area of regulation. As a result of this diagnostic, the structure of the Institutional Strengthening Program arose, whose objectives are the more effective and efficient use of public resources and greater transparency, competition and citizen participation in the contracting of public works. The Program includes three types of activities: First are those oriented at improving the "business processes" of MOPW (that is, Planning; Contracting; Management of Projects; and Oversight or "Fiscalización" of Infrastructure Services). Second are those activities whose objective is to improve the "governance processes" of the Ministry (such as Management of Norms and Regulations; Institutional Development; Strategic Planning; Control Management; and Corporate Communications). The third area of activities is intended to improve "support processes" of MOPW (such as Information Services; Human Resources and General and Financial Services). A complete list of the 11 projects that comprise the Program and the objectives of each one is presented in Annex 1 of this letter. The following diagram illustrates the three types of processes and Programs areas of activity: 28 Business Processes 1. Planning of 2. Contracting of 3. Management of 4. Regulation of Infrastructure Investment Projects Investment Projects Infrastructure Services Services Governance 5. Management of Sectoral Norms and Regulation 6. Institutional Development Processes 7. Strategic Planning and Internal Management Controls 8. Corporate Communications Support 9. Management of Information Technologies 10. Human Resource Management Processes 11. General Services Management, Infrastructure and Financial Services It is important to note that we have requested the support of the World Bank primarily in those components of the Program where we feel the Bank can provide most value added given its international experience in the area of infrastructure. This would be in Territorial Planning; the Design of Standards and Public-Private Contracts; Integrated Project Management; Regulation of Infrastructure Services--including the design and establishment of regulatory structures that protect both users and investors; and Organizational Development including the Management and Modernization of Sector Norms. The following paragraphs summarize the principal reforms for each area in which we are requesting Bank support. In this respect, the design of a new Planning Process for infrastructure investments and the permanent concern for its correct application is of central strategic relevance for MOPW. It will determine the likelihood of providing infrastructure that responds to real demand levels and the urgent needs of the development process of Chile. The exact characteristics of the planning process that are expected to come out of the Institutional Strengthening Program are: that it represents an integrated vision for all types of infrastructure, by region and by form of management, according to a long-term perspective and participatory manner with all sectors of the national workforce. It should allow for development, improvement in competitiveness, better accessibility and guaranteed equality in levels of access for goods and services. Fundamental to the achievement of this objective is the implementation of a solid planning methodology under the responsibility of a single Directorate of Planning. The fragmented planning approach, dependent on various operational directorates within MOP, has not proven to be the most adequate approach. Another fundamental aspect within Planning is environmental assessment. In order to achieve standards in our public works projects which are appropriate to countries of the OECD and which contribute to sustainable development, we consider the integration of environmental aspects into 29 our planning process to be essential. This should be done through instruments such as Strategic Environmental Assessments. MOPW has already made concrete advances in this new approach to the planning function. The first has been the initiation of the Infrastructure Plan for Competitiveness in September 2006. Under this initiative, during 2006, the Government began an intensive planning process for the country, region by region, based on integrated territorial management giving a strong push to regional projects and opening new arenas for participation by the private sector and by local communities. As a result of this process regional and inter-regional investment plans have been produced which seek to provide a pipeline of projects that is coherent, incorporating economic, regional and human concerns. To date, preliminary versions of the following Plans have been prepared under this methodology: Competitiveness Plan 2007-2012, Mining Sector Competitiveness Plan 2007-2012, Agricultural Sector Competitiveness Plan 2007-2012, Forestry Sector Competitiveness Plan 2007-2012, Tourism Sector The second advance in Integrated Planning involves 27 Programming Agreements that are being signed with Regional Governments and other Ministries, according to the Framework for Quality of Life in Cities Plans. These Agreements are instruments that allow for the execution of specific public works investment programs in cities in which there are shared financing responsibilities and within a fixed timeframe, as much for Regional Governments as for MOPW itself. The agreements are publicly available and approved by Decree by the Ministry of Finance. In establishing Service Standards, MOPW intends to provide a response to a social need: increasingly, both users of public works and Chile's citizenry in general, are demanding an adequate quality of service which makes it necessary to rely on an institution which facilitates that level of service and, as a consequence, assures its availability. The incorporation of explicit service standards en the works administered by MOPW implies a cross-cutting change en the way in which projects are conceived, planned, constructed and maintained. In this sense, it represents a fundamental change in the way MOPW undertakes its daily management. In the past, MOPW was directly responsible for the construction of public works. With time and the growth of an efficient private industry to provide construction services, MOPW has changed into an organization which principally manages works construction contracts undertaken by third parties. However, the skills required for this task have not been completely developed, a fact which is reflected in the continued use of unit prices in the majority of contracts. This, together with insufficient investment in engineering studies, has resulted in deficient contracts that are sometimes poorly designed, contributing to projects that are executed with cost and time overruns. The modernization of MOPW requires a transformation into an organization that is expert in the management of contracts, above all in long-term contracts, minimizing the losses that are produced through inefficiency in design and management. In order to achieve this objective, MOPW will have to develop expertise in new types of contracts and improve the capacity of those managing contracts that are already under execution, as well as concessions. In the area of Project Management, the primary objective of the reform is the modernization of the process of design and construction of works, under an approach to project management that 30 integrates the lifecycle of the projects. Integrated management means that a profession--Project Chief or Manager--is responsible for putting into service a work, based on a defined timeframe and budget. Since project responsibility will be concentrated and so it will be necessary to assure that Project Managers possess the necessary skills, information, teams and tools to undertake their new commitments. This implies multi-dimensional reform. First is the area of Human Resource policy which will require the Ministry to define the Project Manager and to establish appropriate incentives for this new role, based on expected results. At the same time, it will be necessary to establish teams that can work with the Project Manager. Second, it will be crucial to establish information systems that provide the Project Manager with sufficiently detailed data on the design and execution of work, not only to improve project management but also to create a reliable database that can be used to improve planning and oversight. The first steps in this direction have already been taken through a Ministerial Resolution that authorizes 17 quotas for critical functions. This will allow for the provision of additional incentives to be assigned to MOPW staff named as Project Managers. With respect to Regulation, the Program has as a central element the creation of the Superintendency of Public Works, whose structure, functions and objectives can be found in a Draft Law which is under review by the Executive Branch in advance of its submission to Congress. The new entity will constitute a mechanism structured along the new operating logic of MOPW. It will develop the oversight systems and the incentives necessary for the various directorates of MOPW to focus on the quality of service promised to the people of Chile-- through both traditional public works contracts and concessions. The coordination between those activities related to the establishment of the new Superintendency and the improvement in the management of contracts is fundamental to the success of the reform. The Superintendency would have a key role in the area of concessions, overseeing the compliance with quality of service standards. The establishment of a Unit of Oversight ("Fiscalización"), within the structure of MOPW, in June 2006, represents the first step in the creation of the Superintendency of Public Works. This Unit has its own budget and a staff of 40 that report to the Unit's Director. Its functions include the preparatory tasks for the establishment of the Superintendency as well as other tasks that would be appropriate to the Superintendency once it has been established. These include the oversight of commitments according to quality of service variables defined for the public works, as well as the oversight of environmental and community agreements. An essential pillar of the Program, that covers the entire Ministry and crosses the components already described, is the Organizational Reform of MOPW. This includes the definition of an improved institutional structure and the establishment of the corresponding regulatory framework. The objective of this component is to separate the areas of planning, contracting, execution and regulation from the provision of infrastructure in order to establish a institutional system based on an assignment of transparent and rational roles according to the principle of checks and balances. Progress has already been made in the preparation of a draft law package for the achievement of the proposed objectives. The draft laws under review by the Executive Power include the Draft Law of the Superintendent of Public Works and amendments to the Concessions Law. This component also includes drafting of amendments to the Stormwater Law, the Rural Drinking Water Law, and the Reservoir Regulation Law, which are all in similar phases. Perhaps the biggest challenge of the component is the MOPW integrated reform project, which will propose a new general structure and proceedings for all of the activities carried out by the Ministry, furthering separating of the already described roles. 31 The complete implementation of the proposed changes in the first four components will result in new working relations, changes in the functions and structures of the units, a matrix administration design for project management and the definition of new professional profiles, all of which would be reflected in the organizational structure. This implies the need to develop a set of norms that help to implement the resolutions that are approved. These changes will not be possible without the participation of the staff of the Ministry of Public Works as well as the Ministry's outside stakeholders. For this reason, an extensive process of Change Management has been included in the Program. The changes will be possible only if the MOPW stakeholders see opportunities and share the benefits of the reform. For this reason, the diagnostic carried out on the challenges faced by the MOPW has been extensively disseminated, both internally and externally. The goals that we have proposed for the Reform Program are: Reduce logistics costs for the productive sectors of Chile, as a percentage of the GDP Increase the efficiency of the investment in public infrastructure Reduce the execution time of works Increase competition among firms competing for design and construction of works Support the reduction and improved management of the contingent liabilities associated with the investments in public works Quantify the asset value in inter-urban road infrastructure and maximize the value with a policies of investment in conservation Obtain a high level of public confidence in the work of MOPW, measured by public surveys Obtain a high level of business sector confidence in the work of MOPW Obtain a high level of internal confidence in the work of MOPW, in climate measured by internal surveys of MOPW Attract professionals and technicians that join MOPW from the best firms in their profession Given the depth of the MOPW Institutional Strengthening Program, we have solicited the support of the World Bank, not only for technical reasons, but also for the institutional aspects. We consider the presence of the World Bank as fundamental for the continuity of this process of structural change the implementation of which will take several years, even beyond that of the present Administration. For this reason we would like to ask the World Bank to fulfill a supervisory role through missions and regular consultations related to the core areas of the reform. The specific request of a Development Policy Loan is for two reasons: First, to involve the Government through the Ministry of Finance to carry out the objectives of the MOPW Institutional Strengthening Program; and second, to give strong support to the likelihood of technical success of the Program. It is worth noting that the Program described in the present Development Policy Letter, counts on the specific support of the President of the Republic, who described the Program on March 13 of the current year, in the official announcement of the Package of Measurements to promote the economic growth of the country. Therefore, the Government is committed to the Program which has been presented in this Letter and views favorably the support and collaboration of the World Bank. The Government appreciates the consideration by the Board of a Development Policy Loan for the amount of US$ 30 million. 32 Sincerely, Andrés Velasco Brañes Minister of Finance Eduardo Bitran Colodro Minister of Public Works 33 Annex 3. Summary of Borrower's ICR and/or Comments on Draft ICR13 Santiago, May 20, 2009 Mr. Tomas Serebrisky Project Manager Re: Chile- Institutional Strengthening of the Ministry of Public Works Dear Mr. Serebrisky: In accordance with the procedure for closing the IBD Loan 7459, referred to as the Institutional Strengthening of the Ministry of Public Works DPL, I am pleased to deliver to the World Bank, through you, the following completion report. 1.- Background. As a key factor in the Government's efforts to reform the public sector and support the competitiveness of the productive sectors the Presidency, the Ministry of Finance, and the Ministry of Public Works introduced in 2006 a key process for strengthening the Ministry of Public Works [Ministerio de Obras Públicas MOP]. This process has the explicit support of President Michelle Bachelet, who made reference to it on March 13, 2007 in the context of the official announcement of a series of measures to promote the economic growth of the country. The Program for the Institutional Strengthening of the Ministry of Public Works is a comprehensive reform that seeks to strengthen the strategic areas of the Ministry. This reform, in which the participation and leadership of civil servants are key factors, will allow us in the near future to plan projects in a comprehensive manner, perform contracts that comply with service standards, make project management more efficient, and improve our capacity to regulate, and have oversight of, public works that will improve the quality of life of all Chileans.. Given the depth and scope of the Program, the support of the World Bank was requested not only for technical aspects but also for institutional reasons. The presence of the World Bank is fundamental to give continuity to the process of structural change, the implementation of which will take several yearseven beyond the current administration. Besides, the Bank plays a high level supervisory role, through missions and regular consultation, to support all the program initiatives. There was a manifestation of this in the signing of two loans, one for 11.7 million dollars for Technical Assistance (TAL) with a span of five years, and the other a single disbursement of 30 million dollars for Policy Development [Desarrollo de Políticas DPL]. There were two reasons for the specific request for a Policy Loan (DPL): first, it commits the Government, through the Ministry of Finance, to achieving the objectives of the MOP reform program; and second, it gives greater support and viability to the Program. 13The letter presented in this Annex is the English translation of the official Borrower's ICR report signed by Sonia Tschorne Berestesky, Director, General Directorate of Public Works. A copy of the Spanish version is available in Project files. 34 2.- Key Factors affecting Implementation 2.1.- We agree with the Bank's analysis that, while the change of Minister in January 2008 did not mean a change in the objectives and scope of the Program, the tempo of implementation and emphasis was affected. It is acknowledged that leadership changes work against the pace of implementation of this type of programs, especially when the goals are ambitious and when the execution time of the task is short. 2.2.- Revision of, and alterations in some of the specific technical plans already defined also were a key factor that affected the implementation of the Program because revisions led to delays not taken into account in the original planning and this meant that some activities had to be restarted, given the new emphasis. For example, there was a new approach to drafting the amendment to the MOP's Framework Law (Ley Orgánica) to provide for greater participation of the Ministry's personnel, which definitively is a positive change, modified the Program's original schedule of achievements, thus affecting the assessment of the short-term outcomes expected at termination of the Development Policy Loan (DPL). 2.3.- The change of Government also involved the transfer of operating and administrative responsibility for the Program from the Accounting and Financing Directorate to the General Public Works Directorate [Dirección General de Obras Públicas DGOP]. This change helped the coordination operations of the MOP Directorates, given the hierarchical authority exerted over them by the DGOP but, nevertheless, meant there had to be some relearning of the administrative aspects. It is our assessment that, given the progress of the Program, it should have been decided from the very beginning that the DGOP would be responsible for its coordination. 2.4.- When designing a communication plan that addresses doubts and fears on the subject of labor stability caused by the process of change an accurate reading of the Government's readiness for change as well as the readiness for change of civil servants, represented by their trade unions, is a very relevant factor. Also relevant is a correct time-scaling of the Program to allow for the critical involvement of the entire organization. 3.- Assessment of Outcomes 3.1.- While acknowledging and agreeing for the most part with the Bank's assessment on corroborating the performance of the indicators, it is noteworthy, from a methodological perspective, that the indicators used do not fully reflect many aspects of the process which are impossible to measure exclusively from a numerical standpoint. Although aspects of a qualitative nature are indicated in the report through the commentaries, a final merely quantitative assessment does not account for the complexities of a reform process such as the one being undertaken by the MOP. One example of this is the Organizational Reform component which, by measuring its outcomes simply by whether or not a draft amendment to the MOP Framework Law has been delivered, does not account for the lessons learned about the need to achieve greater participation and involvement of the organization in the discussion of the new law. 4.- Risk Assessment to Generate the Outcomes 4.1.- We agree with the Bank that the original identification of risks associated with the Program was correct, as well as its assessment. 4.2.- We also agree with the identification of two new risks indicated by the Bank, to the extent that they were recognized both by the executives of the Bank and MOP civil servants. 35 4.3.- Moreover we can add another risk to those already identified, which relates to the difficulty of objectively assessing the real progress of the Program, given that, as the executing agency, we are subjects and objects of the change process. It is recognized that daily involvement in the processes may limit analysis and proper assessment of the changes and the way in which this filters through the organizationgenerating complacency, when in reality there is not much progress or, on the contrary, discouragement when in reality much progress has been made. 5.- Lessons Learned 5.1.- We concur with the lessons learned as indicated by the Bank. In addition, the following points appear relevant: 5.2.- Identify and maintain an ongoing relationship with the agents involved directly or indirectly with the Program, in its different spheres of development. It is of vital importance to clarify the roles that each agent or organization performs in the different stages of the process, and involve them on a timely basis in the joint task of program implementation. Recent experience has shown that proper identification of the relevant agents for a change process becomes very important when communicating with, and rallying, hearts and minds in order to reduce to the fullest extent possible the number of disputes, whether caused by misunderstandings or distrust, which can cast doubt on any genuine interest in making significant improvements in the Ministry's way of doing things. Certainly, this does not mean that we aspire to complete consensus on matters to be tackled, but to engender moments of understanding and shared dialogue, which should always be maintained for the duration of the reform process, and not just through its design phase. 5.3.- Highlight the importance of having the organization and agents properly informed, and in a timely manner. It is important, therefore, to design a communications plan that will assume control of the various areas to which the fundamental aspects of the Program will be communicated. First and foremost, to the heart of the organization; highlighting the objectives, applicability, and impact of the changes, as well as the estimated timeline for the desired occurrence of intermediate milestones and goals. Information activities must be organized based on a good reading of the existing reality, and the history of the organization, especially in those long-lived organizations with no significant changes in structure, where there is no culture of change. In short, it is not enough to apply theory when developing "communication plans," since a matter as fundamental as a relationship of trust, which is built upon true and timely information and communications, may be considered as already established. 5.4.- Develop a tiered participation strategy, with gradual empowerment of permanent employees of the organization. Along the same lines, the gradual but bold incorporation of public sector workers and organizations of civil servants and workers into participation forums with the aim of sharing and familiarizing them with "shared design," as well as the importance of this participation, is recognized as necessary. There are decision meetings that are inseparable from the Government, but having the support of Ministry employees allows one to gain legitimacy, despite possible differences, as well as benefit from the involvement of the permanent employees of the organization. 5.5.- In any future engagement in, or development of, this type of program involving cultural transformation it is necessary to revise the formulation of the indicators accounting for the 36 process and its interim achievements. In some aspects, the process by which a goal is attained is as important as, or even more important than, the outcome itself. 6.- Comments to the Bank 6.1.- It is recognized that that Bank has made valuable contribution to the general design framework and monitoring of the initiative. From the start of the initiative, the Bank's technical managers have played an important monitoring role for this Program by participating actively, in its formulation stage, in formulating the general design of the Program, helping to shape it in the document that finally became the agreement between the Government of Chile and the World Bank for the institutional strengthening of the Ministry of Public Works. In this Loan Agreement, the objectives and scope thereof are mentioned as well as the main aspects on which work will be done. The methodological and technical assistance has been of great help in the progress made up to now. Similarly, the Bank's support in giving continuity to the Program, beyond changes of authorities or the center of operations of this Program, has been outstanding. From a managerial point of view, the financial assistance and monitoring to ensure proper use of available funds are also valued. 6.2.- Help in the formulation of laws. At the suggestion of Bank representatives, the participation in, and review of different international experiences assisted in an understanding of conceptual aspects that focused on the public policies aimed at being accountable to the community and having regulatory agencies that separate the role of project execution and supervision was of great help in formulating proposals for improving the Concessions Law and creating the Superintendency of Public Works. Both pieces of legislation are currently in different stages of approval in the Parliament. These laws are important steps from the perspective of creating a better business environment, developing public infrastructure, as well as establishing the institutional structure that will assist in improving the effectiveness and efficiency of investment. 6.3.- Despite the above, it is important to expand the Bank's technical assistance since it is agreed that the experiment now being conducted is novel even for the Bank and, consequently, an external viewpoint that improves the synchronization of the Program's components in terms of their work rhythms and varying progress, is of value. In this sense, having an external observer perform follow-up activities and close monitoring and become involved in the value contributed to the entire Program by the expected outputs of each of the initiatives will lessen the risk highlighted in point 4.3 of this letter. Yours very truly, Sonia Tschorne Berestesky Directora Dirección General de Obras Públicas 37 38