Dewuoma of The World Bank FOR OMCAL USE ONLY Report No. 5921a-CO STAFF APPRAISAL REPORT COLOMBIA RURAL TRANSPORT SECTOR PROJECT February 19, 1986 Projects Department Latin America and the Caribbean Regional Office This document has a restricted dsribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization. CURRENCY EQUIVALENTS Currency Unit Peso (Col$) US$1 ColS 168.32 Col$ 1 million US$5,941 WEIGHTS AND MEASURES Metric System ABBREVIATIONS CIDA Canadian International Development Agency CNR Colombian National Railway COLPUERTOS Colombian Port Authority DAAC Administrative Department of Civil Aviation DNP National Planning Department FONADE National Fund for Development Projects FNCV Fondo Nacional de Caminos Vecinales FVN National Highway Fund GRC Government of the Republic of Colombia IDB Inter-American Development Bank INCORA Colombian Institute of Agrarian Reform MOPT Ministry of Public Works and Transport SENA National Training Service USAID United States Agency for International Development FISCAL YEAR January 1 - December 31 FOI OF-IKL KUSE ONLY STAFF APPRAISAL REPORT COLOMBIA RURAL TRANSPORT SECTOR PROJECT TAKLE OF CONTENTS Page No. I. R R *.............................................. 1 II. THE TRANSPORT SECTOR AND RURAL TRANSPORT.... ................ 3 A. Characteristics Os ...... ..........................e..c.... 3 B. Infrastructure ............ *........ ................... 3 C. Transport Planning, Coordination and Investment * ......... 4 D. Fuel Pricing ...........e.. ................................ 5 E. Rhral Development and Transport ........ ..... ...Se......... 5 F. Fonda Nacional de Caminos Vecinales ....... ................ 6 Wi) Organization ........ o............................... 6 (ii) Rural Road Activities ............................... 7 (a) Construction cceccececccccccece.ece.ccc......... 7 (b) M7intenance ..cececcecccce...ce.eec..eceec.e 7 Ciii) Financing and Budgeting cecceeeecceeeecee e........... 7 G. Bank Involvement in the Sector and Lending Strategy ...... 8 (i) Background ...........................eeccccseeccce.e 8 (Li) Sector Strategy .......... ccc a eec .................... 8 (iii) Sector Lending .e........ ............................. 9 (iv) Experience with Past Lending ................ ........ 9 This project was prepared by the Fondo Nacional de Caminos Vecinales (FNCV) and appraised by a Bank team consisting of Messrs. Sergio Miquel (Senior Engineer/Consultant) and Kuldeep Ohbi (Economist) in July 1985. The report has been edited by Ms. Virginia Foster. Th. doAuent ha a ,rktd diutributon an my be uud by mclpinut ony n the peffribmace of thur okicd dum. In contesn way not orwiuw be dbckwd wtbht Word DBnk raotlon. TAMLE OF CONTENTS (continued) -ii - III. PNCV'S IMNESTENT AND C PROAM AND THE PROJECT .... 10 A. Project Origin ............................. 10 B. Project Objectives and Description .....10 C. Rationale for Bank Involvement 11 D. FNCV's Rural Roads Investment and Maintenance Program (1986-1992 Program) ...n......e e e..... 11 E. Costs and Financing ;..........e.e.oosgeoeoeee.e-ee 12 F. Execution and Procurement 15 G. Disbursoemets and Auditing 16 H. Economic Justification 17 I. Assessment of Risks 18 Wv. RECHZNDATIONS 19 TABLES 2.1 Road Network .geeee.e.eeee.eeeeeeee.Ce.eee.eeeeeeeeeee 20 2.2 Growth of Non-Interstate Roads, 1975-1985 ............... 21 2.3 FNCV's Headquarters and Regional Staff ......o............ 22 2.4 Sources of PNCV's 1985 Budget .. ......................... 23 2.5 Projection of FNCV's Funds from Domestic Sources ......o 24 2.6 Sources and Applications of PNCV's Funds, 1980 .......... 25 2.7 , Sources and Applications of FNCV's Funds, 1981 *......... 26 2.8 Sources and Applications of PNCV's Funds, 1982 gooeeeegeo 27 2.9 Sources and Applications of FNCV's Funds, 1983 o......... 28 2.10 Sources and Applications of PNCV's Funds, 1984 o......... 29 2.11 Sources and Applications of FNCV's Funds, 1985 oeeee.e..e 30 3.1 Actual FNCV Expenditures 1981-1984 and 1985 Budget and their Financing goeoeee.ogoeee oeee oeooeee og.gegoeo 31 3.2 Planned (1986-1992) Rural Road Expenditures and their n gsCee..eoeeoooeo.oeg ooeeg.e.. oee ooeoeegeeoe 32 3.3 FNCV Rural Roads Investmet and Maintenance Program 1986-1992 g.e.ee.e.eoe....eeoo..eo.o.e.eooessoeoeeggoe*e33 3.4 Past (1981-1985) and Planned (1986-1992) Rural Roads Construction and Deferred Maintenance Programs ...e.... 34 3.5 Schedule for Consulting Services.....e.o.eue..eoo. ego.eg 35 3.6 Key Equipment to be Procured under Project g....... oeo*oo 36 3.7 Estimated Schedule of Disbursements 7Y1986-1993 eoeoo.ooe 37 3.8 Economic Evaluation of FNCV's First-Year Program (1986) . 38 TABLE OF CONTENTS (continued) - iii - ANNEXS 1 Main Agencies Involved in Rural Development and Transport 39 2 smll Domestic Construction Industry 40 3 FNCV Equipmn ent .e.e .. 42 4 Past and Ongoing Operations in Transport 45 5 Detailed Project Description 46 6 Project Execution, Auditing and Monitoring 50 7 Departmental Rural Roads Study and Term of Reference ... 53 8 Terms of Reference for Technical Assistance for Institutional Efficiency Improvenents .... .............. 55 9 Outlined Methodology for Economic Evaluation ............ 58 10 Selected Documents and Data Available in the Project File 65 CHR 1 PNCV's Organizational Structure ........66 MAPS IBRD 19296 - Location of Road Works 67 IBRD 19297 - Location of Waterways Improvements .................. 68 COLOMBIA RURAL TRANSPORT SECTOR PROJECT I. PROJECT SUMMARY Borrower: Fondo Nacional de Caminos Vecinales (FNCV) Guarantor: Republic of Colombia Amount: US$62 million equivalent Terms: 17 years, including four years of grace, at the standard variable interest rate. Project The project objectives are to: (i) support the Government's Description efforts on agricultural development, diversification and and Benefits: export promotion, and to integrate less developed areas into the mainstresm economy; (ii) improve efficiency and reduce costs of rural transport; (iii) upgrade FNCV's institutional performance; and (iv) develop, or a pilot basis, more efficient conditions for small-scale water transportation in a selected coastal area. The project consists of a subsector operation to support FNCV'a 1986-1992 Investment and Maintenance Program (FNCV's Program) and comprises construction, deferred and periodic maintenance of rural roads, imnprovement of minor waterways, equipment procurement and. technical assistance for institutional upgrading and preparation of a study on departmental road maintenance. Specific work programs for financing under the loan would be selected annually out of FNCV's Program, in accordance with agreed criteria. Major benefits are expected from value added to. agricultural production and lower rural transport costs. Direct beneficiaries would be: (i) small farmers, for whom access to markets would be improved and modernized; and (ii) the isolated communities in the Pacific coastal region, for which small scale water transportation would be made safer and cost effective. Risks: The project faces no major technical risks. Other risks are related to FNCV's relative inexperience with construction and rehabilitation of minor waterways, the possibility of slow implementation of measures to improve the institutional efficiency of FNCV and timely availability of counterpart funds. Strict monitoring of the waterways and Technical Assistance components are deemed sufficient to keep the first two risks at acceptable levels. Timely availability of counterpart funding, which had been a recurrent problem in the previous project with FNCV, is being dealt with in this loan through specific arrangements to ensure consistent release of counterpart funds through a Project Account. 2 Costs and The total cost of FNCV's Program is estimated at US$362 million Financing: equivalent with a foreign exchange component of US$182 million equivalent. The proposed loan of US$62 million would finance 17Z of the total Program and 34Z of its foreign exchange component. FNCV's Investment and Maintenance Program 1986-1992 and the Bank Project (in current US$ million equivalent) FNCV 1986-1992 Program Bank Prolect Total Local Foreign Total Local Foreign Component: Investments 123.0 63.7 59.3 33.0 15.4 17.6 Maintenance of which: 137.5 75.9 61.6 44.1 23.4 20.7 Deferred and Periodic 109.5 56.2 53.3 44.1 23.4 20.7 Routine 28.0 19.7 8.3 - - - Equipment 9.6 0.8 8.8 7.1 0.6 6.5 Technical Assistance 1.0 0.5 0.5 1.0 0.6 0.4 Base Cost 271.1 140.9 130.2 85.2 40.0 45.2 Contingencies 90.8 39.2 51.6 27.3 10.5 16.8 Total 361.9 180.1 181.8 112.5 50.5 62.0 Financing PlAn: FNCV 223.9 171.7 52.2 50.5 50.5 - IDB Loans 20.4 - 20.4 - - DRI Program 22.4 8.4 14.0 - - IBRD Loan 1966-CO 8.4 - 8.4 - -- Proposed Loan 62.0 - 62.0 62.0 - 62.0 Loans to be Arranged 24.8 - 24.8 - - Total 361.9 180.1 181.8 112.5 50.5 62.0 Disbursements 1987 1988 1989 1990 1991 1992 1993 (IBRD FY in US$ million) Anrual 6.0 10.0 12.5 12.0 10.6 7.6 3.3 Cumulative 6.0 16.0 28.5 40.5 51.1 58.7 62.0 Economic The construction and deferred maintenance components of the annual Evaluation: work programs would be evaluated according to agreed economic and technical criteria and yield a mininum 12X economic rate of return. The periodic maintenance component of the annual work progrm would be approved based upon technical evaluation of road conditions, population served and traffic level. The estimated ERL for the road construction, deferred maintenance and canals included in the first year program (1986) is 211. -3- II. THE TRANSPORT SECTOR AND RURAL TRANSPORT A. Characteristics 2.01 Colombia's advantage of having coast lines on both the Pacific Ocean and the Caribbean Sea is largely offset by the difficulty of movement between the coasts and the interior. The three massive ranges of the Andean Mountains running the length of two-thirds of the country present formidable obstacles to comunication among its main population centers, which, until recently, developed as separate and somewhat isolated regions. The Magdalena River, until the mid-century, provided the only overland route between the Central region and the Caribbean coast and, even so, with serious navigation- al problems during the dry season. In the 1950s, however, under a drive toward integration and modernization, the transport system began to evolve into a national network. The developmaent of the country's railways, trunk highways and civil aviation has greatly improved inter-regional coiunication and national integration but rural transport remins relatively underdeveloped. 2.02 The effort to establish the basic transport infrastructure absorbed a considerable proportion of the country's public investment. Transport represented about half of the Central Government's investment in the late 19509. More recently, with the basic infrastructure in place, transport's share has declined, and, since the late 1970s, it has been around 132. In 1984, the transport sector accounted for some 8Z of the GDP, compared to about 5Z in 1950. In the same year, the country's domestic surface transport system moved 25.4 billion ton-kI of freight, of which 88S by road, 5Z by inland navigation, 41 by coastal shipping and 3Z by railways. Roads and aviation dominate passenger traffic, accounting respectively for 712 and 27Z of total demand, estimated at 17,250 million passenger/km in 1984. B. Infrastructure 2.03 Colombia has a road network of about 100,000 km (10,500 km paved), of which 25,100 km comprise the national highway system, 48,500 km are departmental roads and 24,400 km are rural roads (Table 2.1). Nearly 2,000 km are private roads used mainly for timber and mining operations. The planning, construction and maintenance of the national roads network are performed under the Ministry of Public Works and Trassport (MOPT) through its National Highway Fund (FVN) and National Rural Roads Fund (FNCV), in charge, respectively, of the national highways and the rural roads. The departments construct and maintain their own roads through their Secretariats of Public Works. In practice, however, departmental road maintenance is generally poor and varies considerably from department to department. 2.04 The railways system consists of 3,403 km (2,822 km currently in service) of single track narrow gauge (0.914 meters) lines administered by the Colombian National Railways (CNR), a semi-autonomous state-owned agency. The trunk line between the Caribbean port of Santa Marta and Medellin-Bogota in the central highlands is 1,287 km long and carries over 70S of the total railway traffic. The Pacific line (187 km) serves only the Department of Valle, connecting the port of Buenaventura to the city of Cali. 2.05 The Magdalena and Cauca rivers, together with the man-_mde Canal del Dique (connecting the Caribbean port of Cartagena with the Nagdalena river), constitute a major transport system totaling 1,366 km of navigable waterways, which account for almost all inland shipping. The traditional importance of inland waterway shipping, however, has decreased with the development of road and rail transport; the remaining river traffic is mainly hydrocarbons and other bulk commodities, such as cement and fertilizers, which originates at, or is destined for, the ports of Cartagena and Barranquilla. River transport moved about 2 million tons of freight in 1984, roughly the same volume as 30 years ago. Administration and maintenance of inland waterways are under the jurisdiction of MDPT. Freight services are privately operated. 2.06 Aviation in Colombia developed early in the 1920s, induced by the adverse topography and the inherent difficulties of surface transport. Air traffic is now a major passenger transport mode for both international and domestic traveling. There are presently -in the Colombian territory 70 airports whose standards vary widely. Seven of the airports in mainland Colombia and one on the Caribbean Island of San Andres are equipped for international flights. Aviation is governed by the Administrative Department of Civil Aeronautics (DAAC), which is directly responsible-to the President of the Republic. DAAC is financed by the National Aeronautics Fund (FAN), whose revenues originate mainly from user charges. 2.07 Shipping supports most of Colombia's foreign trade. Empresa Puertos de Colombia (COLPUERTOS), the National Port Authority responsible to MOPT, controls all the public ports, namely Buenaventura and Tumaco on the Pacific coast, Cartagena, Barranquilla and Santa Marta on the Caribbean Coast and Leticia on the Amazonas River. Total traffic at the public ports amounted to 9.7 million tons in 1984. Most of Colombia's seaborne trade is, and will likely remain, with the U.S., the industrialized European countries and Japan. C. Transport Planning, Coordination and Investment 2.08 MOPT is responsible for sector planning, including the preparation of the National Transport Plan, which defines the role of individual trans- port modes based upon demand projections in each subsector. The National Transport Plan also outlines investment programs and the corresponding financing sources ,-or each subsector. The objectives of the Plan are formu- lated and updated periodically in accordance with the broader goals established by the National Planning Department (DNP) in the National Development Plan. DNP also coordinates with MOPT and the subsector agencies the programing and budgeting processes for investments in all transport modes, except pipelines which are the responsibility of the national petroleum company (ECOPETROL). 2.09 The current sector policies, largely shaped to accommodate the transport investment needs with the constraints arising from the reduced inflow of external resources, the tight fiscal situation and the macro- economic priorities being addressed in the country's economic adjustment pro- gram, emphasize rehabilitation and maintenance of existing infrastructure and equipment, motor fuel substitution, transport safety and intermodal coordina- tion to reduce transport costs and improve efficiency. They also call for investment policies consistent with supporting productive and external trade oriented activities and cost-based pricing policies to mobilize resources through recovery of investments. :- ~ ~ ~ ~ ~ ~ 5 2.10 The overall sector financing has showed, in recent years, a sonethat stable combination of (a) operating revenues (38Z); (b) earmarked taxes on oil products (35Z); (c) budgetary contributions (13%); td) domestic and external credit (71); and (e) other sources (7X). Overall, sector funding policy emphasizes financial self-sufficiency for each subsector. In practice, however, the implementation of this policy has been weakened, particularly in the case of the railways (which have had to resort to budgetary contributions to finance operating deficits caused by declining operational efficiency) and the existing cross-subsidies between freight and passenger tariffs in the railways, user charges on light and heavy vehicles in the highways and import and export-tariffs in the ports. These issues are in the core of the ongoing sector dialogue and are being addressed at the operational level in the context of the Bank loans for Railways Rehabilitation (2090-CO), Highway Sector (2121-CO) and Ports Rehabilitation (2635-CO). Also as part of the Highway Sector Project (Loan 2121-CO), a comprehensive study of road-user charges is being finalized. That study will be reviewed with the Government by June 1986 and an action plan to implement its conclusions will be developed. D. Fuel Pricing 2611 Colombia has maintained in recent years a policy of annual increases in fuel prices to reflect corresponding opportunity costs. At the end of 1984 domestic prices of oil products were in line with the relevant international levels. However, the accelerated devaluation during 1985 (51%, compared to a domestic inflation estimated at 22Z in the period) created a gap that will require two price adjustments during 1986 to realign local prices to international levels. Following a 20% increase on January 1, 1986, diesel and regular gasoline were priced at US$0.61 (equivalent) per gallon, thus about 13% and 20Z, respectively, below equivalent international levels. If this difference is not offset by the current downward trend in interna- tional oil prices, a further increase should be expected in the course of this year. Fuel price developments in Colombia are being monitored through specific provisions in a Bank loan (2476-CO) to ECOPETROL. E. Rural Development and Transport 2.12 The expansion of rural transport programs to isolated regions is a central item of the Government's efforts to extend public services and to integrate less developed areas into the mainstream economy, increase agricultural productivity and raise income levels of small farmers. Over one-third of the 27 million Colombian population lives in rural areas and depends upon agricultural activities. Agriculture provides about a quarter of all the employment and accounts for 20% of the GDP and about 67% of the country's total exports. A number of public agencies are involved in making agricultural support accessible to rural comounities (Annex 1). Their aCtivities Are coordinated by DNP at the planning level and by the Ministries of Agriculture and Public Works and Transport at the implementation level. Fondo Nacional de Caminos Vecinales (FNCV) is the public agency responsible for the rural transport infrastructure. 2.13 Because the large transport programs to expand and modernize the road infrastructure during the last 30 years gave priority to developing the trunk highway system, rural transport in Colombia still remains relatively underdeveloped. Only in the wid-1970s did FNCV start systematic implementation of rural road programs, and, since then, transport access in 6- rural areas has increased notably at an annual rate of about 10% (Table 2.2). Notwithstanding the almost trifold expansion of the rural roads network during the last decade, the importance of agriculture to the Colombian economy requires substantial additional efforts to maintain and improve farm-to-market accesses. F. Fondo Nacional de Caminos Vecinales (FNCV) (i) Organization 2.14 FNCV was created in 1960, and, until the early 1970s it functioned as a secondary entity in MOPT's structure. In 1972, FNCV was reorganized as an autonomous organization under MOPT and charged with planning, construction, and rehabilitation of rural roads. It is directed by a seven-member Board in which the Ninistries of Agriculture and Interior and the Federation of Coffee Growers are represented under the chairmanship of the Minister of Public Works and Transport. FNCV is managed by a Director General appointed by the President of the Republic. FNCV's staff of 2,230 (Table 2.3) includes 100 engineers, several economists and other specialized professionals. The institution enjoys a reputation for efficiency and sound management, which is confirmed by the good performance of the ongoing Rural Roads Project (1966-CO). FNCV has its main office in Bogota and 25 regional offices, located in each of Colombia's Departments. FNCV's fiscal audits are performed by the Controller General of the Republic. 2.15 Most of the existing rural road system has been constructed either totally or partially by FNCV. The typical road is about 9 km in length, built to all-weather gravel standard with a riding surface 4.5 m wide. Civil works are usually contracted to small, local firms which, in general, perform satisfactorily (Annex 2). The quality of the rural road construction has been good. Only a minor portion of rural roads are built by force account using FNCV's relatively old equipment fleet (para. 2.17). Despite ENCV's overall good performance, insufficient planning and inconsistent availability of counterpart funds have occasioned interruptions and delays to the construction schedules in the recent past. FNCV's planning and programing capacity would be strengthened under the proposed project (para. 3.12). Chart I presents FNCV's organizational structure. 2.16 FNCV's Sub-Directorate of Engineering is responsible for the programing and execution of construction and maintenance activities. It is composed of three divisions: Projects, Procurements and Contracts, and Construction and Supervision, which directly supervises works executed by the 25 regional directorates. The Sub-Directorate of Administration and Finance is responsible for administrative (personnel policies, training, staff assistance, purchases and supplies) and financial matters (budget implementation, financial management, general accounting). It is composed of three divisions: Finance, Industrial Relations and Administrative Services. Among the supporting offices, the most important is the Planning Office, which is responsible for preparing FNCV's operational plans, coordinating the budget preparation process, evaluating implementation of plans and conducting special studies. FNCV has recently created an Organization and Systems Office to lend support to, and improve the performance of, the Planning Office and the Engineering Department. - 7 - 2.17 FNCV's equipment fleet of 711 units (Annex 3) is used for force account operations to complement the capacity of the construction industry, particularly in remote regions. It is characterized by the old age of most units (average 7.5 years) and by the variety of makes and types. Notwithstanding, FNCV's system of assigning to operators the responsibility for basic maintenance of the equipment they use and contracting externil services for major repairs has proved efficient, and its fleet is generally well kept. (ii) Rural Roads Activities (a) Construction 2.18 Since the early 1970s, FNCV has undertaken 10 road construction programs that have added, to date, about 19,000 km to the rural roads network. Five of these programs constituted the major part of FNCV's activities in the period: (a) the Ordinary Program, financed entirely with local resources, is the largest of FNCV's programs and consists of its regular and continuous activities of expansion and rehabilitation of the rural network. It has been gradually losing its relative importance in favor of other programs with external technical assistance and financing, and was down to about one-third of FNCV's total investment program in 1984; (b) the IDB Program, executed during 1970-1978, in which 50 secondary roads were successfully completed; (c) the Pico y Pala labor-intensive program initiated in 1972 (Ist phase), partly financed by the US Agency for International Development, which was extended in 1981 (2nd Ongoing Phase) with support from IDB; (d) the road component of the ongoing DRI Program (Integrated Rural Development Program I and II) with joint financing of IDB, the Canadian International Development Agency (CIDA) and Bank (Loans 1352-CO and 2174-CO), which is expected to have completed about 900 km of rural roads by 1988; and (e) the ongoing Rural Roads Project (Loan 1966-CO), which will have constructed about 840 km and rehabilitated about 780 km by its expected completion in mid-1986. Cb) Maintenance 2.19 According to its statutes, FNCV's mandate had been to maintain the roads it constructed only until the time that the roads could be transferred to Departmental jurisdiction, and, accordingly, FNCV's focus and budget were oriented mostly to construction. However, because of the additional burden that rural road maintenance would bring to their limited resources, most Departments have been reluctant to take jurisdiction over the roads. FNCV has, therefore, been compelled to assume greater responsibility for maintenance, but previous budgetary commitments have prevented a faster deployment of adequate amounts and physical resources to this task. FNCV estimates that resources made available in 1985 will permit proper routine maintenance of about 2,500 km of the network (10% of the total) during the year, but further reorientation of priorities in the context of the proposed loan should enable FNCV tc catch up in a few more years (para. 3.08). (iii) Financing and Budgeting 2.20 FNCV's activities are funded through a combination of (a) transfers from the National budget on account of earmarked taxes on oil products (53.1Z -8- of FNCV's 1985 budget), and special budgetary appropriations (14.8% in 1985); (b) own resources derived from contracts to build roads on behalf of Departments or other entities (2.71 in 1985), a portion of the tax on beer consumption (1Z in 1985) and nominal levies on land improvements brought about by rural roads (0.2% in 1985); and (c) multilateral loans and bilateral aid (28.2% in 1985). Table 2.4 presents FNCV's financing sources in 1985 and Table 2.5 shows projections of domestic sources to FNCV's 1986-1990 budget. 2.21 Although the major portion of the transfers from the national budget to FNCV are binding through earmarking, the actual release of resources by the Treasury, in recent years, has been inconsistent with the corresponding budget appropriations (Tables 2.6 to 2.11), which disturbed the programing of FNCV's investments, particularly the ongoing Rural Roads Project. The inconsistency between the approved budget and the actual release of funds for FNCV, largely due to the tight fiscal situation of the last three years, has hampered FNCV's ability to comply with execution schedules. The project presented in the next chapter contemplates disbursement mechanisms for both local and loan funds (Project and Special Accounts) to minimize the risks of insufficient or untimely project funding. G. Bank Involvement in the Sector and Lending Strategy (i) Background 2.22 The Bank has played an important role in the development of Colombia's transport sector. Its involvement dates back to 1949, when a transport sector mission reported the transport system to be in an exceptionally bad condition. Since 1950, the Bank has lent about US$755 million in 26 loans to the sector (Annex 4). These investments supported the construction of an integrated higbway network and, more recently, have contributed to the rehabilitation and maintenance of the national network and to the development of improved highway and rural roads organizations. They have also contributed to the construction of over 670 km of the main railroad line, as well as to the rehabilitation of other lines. A domestic aviation project helped to improve basic aviation infrastructure and subsector efficiency and planning. A ports rehabilitation project is helping to ensure adequate productivity and services of existing port infrastructure. The proposed project would be the second Bank intervention in rural transport. (iU) Sector Strategy 2.23 The Bank strategy for the transport sector emphasizes policy reform and institution-building objectives, including: (a) policies targeted at achieving a more balanced use of existing transport alternatives, through adequate price signals to consumers and improvements in marketing and distribution arrangements for key commodities; (b) equitable treatment of the transport modes, by pursuing cost-based pricing policies; (c) reduction of total transport costs, by improving modal interfaces and the efficiency of operations within each mode; (d) funding and expenditure mechanisms to reflect the costs of use of existing infrastructure and facilities; (e) investment planning to give adequate priority to export development, agricultural diversification, and energy conservation and substitution, with emphasis on maintenance and rehabilitation programs; (f) further integration of the public planning, budgeting and programing processes and strengthening of the financial and personnel management practices of sector agencies; and (g) Institutional and human resources development, through comprehensive training programs at the upper and middle management and operating levels. (Mi) Sector Lending 2.24 At the project level, the sector strategy is being implemented through: (a) the Rural Roads Project (Loan 1966-C., 1981, US$33.0 million) for construction, rehabilitation and maintenance of rural roads; institutional objectives of the project include the strengthening of FNCV's technical and economic capability for identifying, programing and implementing rural roads subprojects; (b) the Seventh Railway Project (Loan 2090-CO, 1982, US$77.0 million) for rehabilitation and modernization of the railways; the project supports the implementation of the Colombian National Railways' (CNR) 1983-1987 investment program and the improvement of its financial and operational management; (c) the Highway Sector Project (Loan 2121-CO, 1982, US$152.3 million) for rehabilitation, paving and maintenance of the primary road network; the project pursues sectorwide operational improvement including the development of a balanced pluriannual highway expenditure program, the systematic use of economic appraisal methodologies, the implementation of a pavement management system, training at the ua- eerial and operational levels and a comprehensive study of road user charges; and (d) the Ports Rehabilitation Project (Loan 2635-C0, 1985, US$42.8 million) for reconstruction, repair and raequipping of port facilities, and substantial institutional and operational strengthening components; t1b project includes major reforms to rationalize financial and personnel manag2ment of the Port Authority. (iv) Experience with Past Lending 2.25 The performance of these projects so far has been mixed. While the results with the Rural Roads and B:ghways Projects have been positive and the respective loans have contributed significantly to sector management improvements, such as building up of investment appraisal capabilities and more efficient institutional performance, as well as expansion and better maintenance of the transport network, activities involving the Railways subsector have fallen short of expectation. The capacity of CNR to overcome operational and institutional deficiencie.s arS thus, to recuperate credibility with users of cargo servicea has not yet materialized. The main constraints have been lack of firm vvernment commitment to the necessary institutional reforms, compounded by CNR's poor operational planning and - 10 - insufficient Government counterpart funding for critical capital investments. The fiscal constraints in the last three years have prevented the Government from making a significant financial contribution to project investments and have limited its financial support to covering CNR's mounting pension payments, which are not backed by any funding provision. A restructuring or cancellation of the Railways Project is presently being discussed with the Government. The Ports Rehabilitation Project is in its initial phase of execution. III. FNCV'S INVESTMEN1 AND MAINTENANCE PROGRAM AND THE PROJECT A. Project Origin 3.01 The proposed project builds upon the results achieved under the ongoing Rural Roads Project (Loan 1966-CO). It was prepared by FNCV with Bank assistance and was appraised in July 1985. The detailed programing for the road construction, deferred and periodic maintenance components for the first year of FNCV's Program has been completed. The waterways component is substantially prepared with minor engineering details being attended to by FNCV's expert in dredging operations (para. 3.32). Procurement arrangements were discussed with FNCV and confirmed during negotiations (para. 3.21). Negotiations were held in Washington, D.C. on February 10-11, 1986. The Colombian delegation was headed by Dr. Edgar Urrea Perez, Director General of FNCV. B. Project Objectives and Description 3.02 The project objectives are to: (a) support the Government's agricultural development efforts, diversification and export promotion, and to integrate less developed areas into the mainstream economy through reducing the backlog of deferred maintenance and expansion of rural roads; (b) improve efficiency and reduce costs of rural transport through adequate maintenance of the rural roads network; (c) upgrade subsector management through improving the institutional performance of FNCV; and (d) develop, on a pilot basis, more efficient conditions for small-scale water transportation in the Pacific coastal region through rehabilitation and construction of minor canals linking rivers and estuaries in the area. 3.03 The project (para. 3.12) consists of a subsector operation to support FNCV's 1986-1992 Investment and Maintenance Program (FNCV's Program). It would finance a slice of FNCV's Program and include construction, deferred and periodic maintenance of rural roads, improvement of minor waterways, procurement of equipment, and technical assistance for institutional strengthening and preparation of a study on departmental road maintenance. Annex 5 contains a detailed project description and Annex 6 shows details of project execution and physical targets. 3.04 Based on the experience under the ongoing Rural Roads Project, technical assistance contemplated under the project would, inter alia, assist FNCV in streamlining the administrative and contracting procedures for routine maintenance. FNCV would be expected to contract the technical assistance and provide appropriate counterpart staff in accordance with an agreed timetable (para. 3.31). - 11 - 3.05 Since 1982, FNCV has been updating, at irregular intervals, the inventory of roads under its responsibility. Under the proposed project, the inventory would be updated regularly, and e rural road maintenance management system would be implemented to control the deferred maintenance backlog and to institute a regular cycle of periodic maintenance (para. 3.08). 3.06 The proposed project also provides for a study to define a plan of action to resolve the serious problem of departmental roads' maintenance. The study will be financed and executed by the National Fund for Development Projects (FONADE). A preliminary analysis prepared by a Bank consultant, based upon a sample of three representative departments, identified key deficiencies as follows: (a) lack of trained personnel to administer the operations of the departmental road systems; (b) insufficient funding and inefficient use of available resources; (c) frequent turnover of key personnel; and (d) inadequate financial and technical control over the operations of the departmental roads. Further details on the status of the departmental roads are presented in Annex 7. It was agreed during negotiations that the departmental roads maintenance study would be executed according to terms of reference, schedule and employment of consultants acceptable to the Bank. C. Rationale for Bank Involvement 3.07 The Bank's involvement in rural transport in Colombia has focused on institutional building and upgrading subsector management. The proposed operation would consolidate the institutional and operational improvements initiated under the ongoing Rural Roads Project, now in its completion stage (mid-1986), develop further FNCV's investment planning, programing and implementation capacity, and deepen FNCV's policy focus upon enhancing productivity of existing infrastructure (Annex 8) through adequate maintenance of rural transport infrastructure and preservation of past investments (para. 3.12). D. FNCV's Rural Roads Investment and Maintenance Program (1986-1992 3.08 Analysis of FNCV's expenditures from 1981 through 1984 (in constant 1984 prices, Table 3.1), indicates that road investments increased by 8Z from Col$ 2.77 billion to Col$ 5.09 billion, while recurrent expenditures on routine maintenance rose fourteen times from Col$ 11 million to Col$ 162 million. Considering that the size of the network increased from 18,177 km to 22,892 km during the same period, maintenance expenditures per km rose eight times from about Col$ 610 to Col$ 7,081 (equivalent to about US$70 per km). Past expenditures on routine maintenance were clearly below requirements. Mainly to compensate for the results of inadequate routine maintenance, an estimated 30% of the 1981-1984 investments were oriented to rehabilitation. Under FNCV's 1986-1992 Program, routine maintenance would be strengthened, and regular cycles of periodic maintenance would be implemented to control presature and excessive road degradation. Outlays for maintenance would improve under FNCV's Program, with maintenance expenditures per km increasing from the current US$70 to about US$200 by 1992. While the shift to greater emphasis upon routine maintenance corresponds to sectoral priorities, FNCV would ensure that the funds for programed routine maintenance are appropriated to execute the agreed physical targets. In order to facilitate monitoring of these targets, FNCV agreed during negotiations to adopt, by December 1986, an adequate system for measuring - 12 - progress of civil works, and to update the rural roads inventory accordingly, by December 1987, and annually thereafter. 3.09 Base cost estimates for FNCV's Program are shown in constant December 1985 prices in Table 3.2. The table includes expenditures for administration and debt service, representing, respectively, 13Z and 16S of the total. This reflects a significant overhead cost reduction as compared with the 1970s, when administrative expenditures amounted to around 40S of the annual budgets. Out of about US$271 million programed for construction and maintenance, about 451 goes to construction of rural roads and waterways (including engineering and supervision);, about 511 for deferred, periodic and routine saintenance; less than 41-for equipment procurement and 0.35S for consulting services. The amounts programed for rural roads construction would decrease progressively from 451 in 1986 to 41S in 1992. During this period, vhile expenditures for deferred maintenance would decrease slightly as the existing backlog is brought under control, expenditures for periodic and routine maintenance would ore than double in real terms. 3.10 The relationship between the Bank project and FNCV's Program is detailed In Table 3.3. FNCV's Program foresees, on average, about US$51.7 million equivalent in annual outlays compared to an average of US$47.7 million during the last three years. While the higher average amounts of annual investments do not represent a dramtic increase, the different composition of FNCV's Program (Table 3.4)-less emphasis on relatively more capital intensive construction and a substantial increase in deferred and periodic maintenance works-will demand significantly more planning, management and monitoring capacity on the part of FNCV. Based on the experience under the ongoing Rural Roads Project, FNCV's overall Institutional capacity has proven satisfactory and demonstrated a sound basis upon which to develop further its works execution capabilities. The project's institutional upgrading component (para. 3.12(g)) has been designed and timed to permit FNCV to develop in the early years of the Program execution sufficient capacity to carry it through completion. During negotiations, FNCV: (a) confirmed the composition and amounts of annual investment and maintenance targets in FNCV's Program; and (b) agreed on the scope and timing of the semi-annual reviews of the Program, including achievement of the Program's targets. E. Costs and Financing 3.11 The total cost of the FNCV'a Program is estimated at US$362 million, with a foreign exchange component of US$182 million. The proposed loan of US$62 million would represent 17% of the total cost of FNCV's Program and 34Z of its foreign costs (Table 3.3). The balance of the foreign costs would be met by the ongoing Bank Loans 1966-CO and 2174-CO (DRI program) and the IDB Pico y Pala (2nd Phase) loan. The small remaining portion (141) of the foreign costs would be met by additional external loans to be secured in due course during implementation of FNCV's Program. It was agreed during negotiations to retroactively finance US$0.9 million worth of urgent works on two roads included in the first year program. These roads were destroyed during the November 13, 1985 eruption of the Nevado del Ruiz volcano. 3.12 The main components of the proposed project would be: (a) rural roads construction comprising of engineering, execution and supervision of about 251 of FNCV's Program to provide access to isolated agricultural areas; - 13 - (b) deferred maintenance comprising of engineering, execution and supervision of about 24Z of FNCV's Program to restore neglected roads to nor-al maintenance standards; (c) periodic maintenance comprising of engineering, execution and supervision of about 61X of FNCV's Program to bring up the road maintenance backlog to satisfactory standards; (d) waterways iuprovements comprising of engineering, execution and supervision of works to improve efficiency and safety of sa-ll cabotage operations and coastal navigation in the Pacific coastal region, in two phases: about 26 km of minor canals in Phase I (Map IBID 19297) in the Department of Cauca, and depending upon its results, another 34 km in Phase II to complete a rudimentary network of protected waterways in the region; (e) equipment comprising of about 74% of FNCV's equipment procurement program and mainly consisting of: equipment units and spare parts to complete and rationalize the maintenance equipment fleet; a helicop- ter 1/ for supervision of works and surveys in areas with difficult access; and units to equip the Planning Office and to implement the maintenance and management system in the Engineering Department; 'f) departmental roads maintenance study to be financed by FONADE, would evaluate the uinntenance needs of roads in selected departments 2, propose a plan of action for organizing the delivery of maintenance services, together with the quantity and quality controls, financial and appropriate funding mechanisms (Annex 7); and (g) institutional upgrading comprising of technical assistance to: (i) develop technical capacity of the Planning Office; (ii) implement a rural roads maintenance system in the Engineering Department for planning, scheduling, executing and costing maintenance operations; an equipment management system; and strengthen contract administration and work supervision (Annex 8); and (iii) develop on-the-job training for FNCV's staff. For costing purposes, the project components are grouped into: (a) investment; (b) maintenance; (c) equipment procurement; and (d) consulting services. 3.13 The estimated cost of the Bank project is about US$112.4 million equivalent, with the local and foreign costs divided into broad categories shown on the following page. 1/ The inclusion of the helicopter in equipment procurement is based on the analyses and comparison of the net present values of the various rental vs. ownership options taking into consideration full ownership costs and the various feasible helicopter usage projections. 2/ The study would concentrate on the following representative departments: Atlantico, Boyaca, Cordoba, Cundinamarca and Valle. They reflect the typical climatic and topographic conditions as well as the range of technical, financial and institutional characteristic of the departments in the country. - 14 - - - Foreign Cost Z of Z Foreign Cost Totall/ Local Loan Total of 1986-1992 Cost Cost Amount Cost Program (US$ -mllion at constant December 1985 prices) 1. Investment 33.0 15.4 17.6 53 30 Rural Roads Construction 29.0 13.3 15.7 54 28 Waterways Improvements 1.7 1.0 0.7 44 100 Engineering and Supervision 2/ 2.3 1.1 1.2 50 39 2. Maintenance 44.1 23.4 20.7 47 34 Deferred Maintenance 14.4 6.9 7.5 52 24 Periodic Maintenance 28.6 16.0 12.6 44 69 Engineering and Supervision 21 1.1 0.5 0.6 50 100 3. Equipment 7.1 0.6 6.5 92 74 4. Technical Assistance 1.0 0.6 0.4 50 100 Institutional Efficiency 0.7 0.3 0.4 50 100 Dept. Roads Maint. Study 31 0.3 0.3 0.0 50 100 5. Base Cost 85.2 40.0 45.2 53 35 Physical Contingencies 7.7 3.9 3.8 50 31 Price Contingencies 19.6 6.6 13.0 66 33 6. Total 112.5 50.5 62.0 55 34 1/ Amounts rounded to the nearest US$100,000. / Engineering 2.5Z and supervision 5Z of rural roads construction, waterways improvement and deferred maintenance. 3/ To be financed by FONADE. 3.14 The foreign exchange component of civil works was estimated considering the cost of imported equipment, fuel and materials required for the execution of each type of operation. Because of the upward adjustment in the real exchange rate during the last two years, the foreign cost in this project is slightly higher than the one observed in the previous rural roads loan. The estimated cost of foreidgn goods to be procured under the project reflects the exemption of custom duties granted to FNCV and the real costs of customs clearances for Government institutions. The foreign cost of consulting services was estimated at 50S, taking into account that the income and remittal taxes on foreign consultants' fees (to be paid by FNCV) amount roughly to 50% of the gross fees. 3.15 Physical contingencies of 1OZ have been considered for all civil works, engineering, execution and supervision costs of FNCV s Program and the project. Price contingencies, based on December 1985 prices, were calculated according to the following projections: Adjustment Indexes 1986 1987 1988 1989 1990 1991 1992 Foreign Costs (MUV) 0.07 0.07 0.075 0.077 0.076 0.045 0.045 Domestic Costs 0.20 0.18 0.18 0.18 0.18 0.15 0.15 - 15 - 3.16 FNCV prepared the cost estimates for civil works based upon current costs for such operations by force account and by contract. Cost estimates for equipment and vehicles were prepared based on FNCV-supplied manufacturers' quotations and real costs of port and customs clearances costs to be paid by FNCV. The cost for consulting services was estimated based on market rates for local and foreign consultants. Intended deployment of consultants is shown in Table 3.5. F. Execution and Procurement 3.17 Execution of the project would be under direct responsibility of FNCV, except for the Departmental roads maintenance study, which would be executed by FONADE. During negotiations, it was agreed that: FONADE would complete the financial arrangements for the execution of the Departmental roads maintenance study by June 30, 1986; and (ii) FONADE would mDbilize consultants to execute the Departmental roads maintenance study by November 1, 1986. Details on project execution are given in Annex 6. 3.18 Procurement of items to be financed under the proposed loan would be as follows: Procurement Method 1/ (US$ million) YCB LCB Other Total Cost Civil Works - 87.7 11.4 99.1 - (47.4) (5.0) (52.4) Equipment 7.4 0.5 - 7.9 (6.7) (0.4) - (7.1) Tech. Assistance and Consultant Services (Engineering and Superv.) - - 5.5 5.5 - - (2.5) (2.5) Total 7.4 88.2 16.9 112.5 (6.7) (47.8) (7.5) (62.0) 1/ Amounts in parentheses show the allocations from the proceeds of the loan. 3.19 Civil works for construction and deferred maintenance of roads and for construction and rehabilitation of waterways, totaling US$61 million (including contingencies), would be carried out through about 160 contracts with an average cost of less than US$400,000 and none of them exceeding US$1 million. Because of the small size and limited scope of these contracts and their distribution in space and time (unlikely to attract foreign bidders), they are expected to be let through locally advertised competitive bidding procedures, on terms satisfactory to the Bank and in accordance with the arrangements in use for the ongoing project with FNCV. About 70% of periodic maintenance, representing some US$26.7 million would be executed through about 400 contracts averaging US$70,000 and none of them exceeding US$150,000. These contracts would be awarded based on competitive local bidding (without advertising) satisfactory to the Bank, on the basis of evaluation and comparison of bids invited from a list of at least three qualified contractors. FNCV would ensure a wide distribution of bidding opportunities. About 30% of periodic maintenance, representing some US$11.4 million (including contingencies), would be executed by force account, comprising small works scattered in isolated regions, for which studies have indicated that force account is more economical than contracting. These force account works would represent about 10% of the project cost. During - 16 - project implementation, FNCV would improve its contracting procedures for periodic maintenance, and force account operations would not increase in the future. The efficiency of force account in periodic maintenance operations would be monitored closely during project supervision (Annex 8). 3.20 Equipment amounting to about US$7.4 million (including contingencies) would be procured through international competitive biddLng in accordance with Bank guidelines for procurement subject to prior approval by the Bank of all contracts exceeding US$50,000. The procurement program for equipment, indicating lot size and estimated cost, is shown in Table 3.6. Contracts for laboratory and office support equipment, and parts with an estimated cost below US$50,000 up to an aggregate amount of US$500,000, would be procured by locally advertised competitive bidding procedures on terms satisfactory to the Bank. 3.21 Specific agreements were confirmed during negotiations along the lines of the recommendations of the recent review of LCB in Colombia: (a) awards would be to the lowest evaluated bidders; (b) bids for goods would be evaluated on a CIF basis, with freight costs quoted freely by each bidder; and (c) procurement of consultant services would be in accordance with the relevant Bank guidelines and would provide for free and independent participation of foreign consultants. 3.22 Procurement of components financed exclusively by FNCV would be as follows: about 15% of construction and 25% of deferred maintenance consisting of small works scattered in remote areas with difficult access and therefore difficult to contract, would be executed by force account according to procedures which, under these conditions, have proven to be more cost-effective than contracting. Thirty-three percent of the routine maintenance would be executed by force account and 67% by contract (roadmen and microenterprises) under procedures which have proved effective under the ongoing project. These procedures would be improved further and expanded under the proposed project. Force account routine maintenance would diminish from 40% to 30% during implementation of FNCV's Program. Some of the replacement equipment units as well as minor equipment and spare parts would be procured in dispersed purchases spread over seven years under local competitive procedures satisfactory to the Bank. G. Disbursements and Auditing 3.23 The proposed project is expected to be disbursed by December 1992. The disbursement schedule (Table 3.7) of seven years for the proposed loan is about 18 months faster than the regional disbursement profiles for highway projects. It is, however, possible that efficient project implementation with adequate counterpart financing could reduce the implementation period of the project from six-and-a-helf to four-and-a-half years, resulting in lower contingencies and in a r2duction of the project's cost from US$112 million to US$106 million. In this case, the loan amount required would decrease to US$58 million, but the required annual provision of local funds would be US$11.9 million higher corresponding to US$1.7, 3.5, 3.6, and 3.1 million equivalent for year 1986 through 1989 respectively. 3.24 Project execution would require disbursements against a large number of small contracts and against some periodic maintenance works carried out by force account. Considering FNCV's satisfactory contracting and disbursement procedures under the ongoing loan 1966-CO, simple and quick disbursement procedures would be adopted. Withdrawals would be based on periodic statements of expenditures. The statements would comprise - 17 - expenditures for works executed by contract and for periodic maintenance executed by force account, as vell as expenditures for equipment procurement. Expenditures on force account works would be determined by imltiplying the actual physical production by the unit costs for each operation with the unit costs being updated from time to time. FNCV's Engineering Department, with consultant assistance provided *.nder the proposed loan, would prepare the monthly statements of expendiMures and monitor force account works. These arrangements were confirmed during negotiations. Supporting documentation would not be submitted to the Bank, but would be retained by FNCV and made available for review during the project supervision process and audits. 3.25 In order to reduce the interval during which FNCV would finance the Bank's share of project costs with its own resources, a Special Account (revolving fund) in US dollars with an authorized allocation of US$4 million (sufficient for about four months of financeable expenditures) would be established in Banco de la Republica. FNCV would be entitled to wiake periodic withdrawals from the Special Account at the exchange rate applicable on the day the Special Account is debited. The Bank would replenish the Special Account for the amount of withdrawals on account of eligible expenditures at the request of the Borrower. To ensure consistent availability of counterpart funds, a Project Account (revolving fund) in pesos would be established in a local commercial bank, which should maintain a revolving balance sufficient for three months of project expenditures. The establishment of the Project Account with an initial deposit equivalent to US$2.5 million would be a condition of loan effectiveness. 3.26 Withdrawals from the Special Account would be on the following bases: (a) 50X of total expenditures for eligible civil works; (b) 100% of foreign expenditures for the procurement of goods and 90Z of locally procured imported goods; and (c) OOZ of foreign expenditures for expatriate consultants and training fellowships abroad, and 50% of total expenditures for local consultants and for the training component. 3.27 FNCV's general accounts and the project's Special and Project Accounts would be audited by the Controller General of the Republic. Audit reports would be required annually within four months of the closing of the audited period. H. Economic Justification 3.28 All the works included in the first year of the work program (1986) have been subjected to economic evaluation (Table 3.8). The overall economic rate of return on the road construction, deferred maintenance of roads and improvements of minor waterways (canals) is estimated at 21%. The ERRs on individual road components vary from 12Z to over 70%. For the canals, the ERR is 17% based on distance savings. 3.29 The detailed program for each subsequent year for financing under the loan will be evaluated in accordance with the procedures and criteria (Annex 9) confirmed during negotiations and would be required to yield a minimum 12% ERR. For portions of the annual work programs to be financed entirely by national resources, at least 85Z of the works would be selected - 18 - also based upon the economic and technical criteria confirmed during negotiations. Of the remaining 15X, works with estimated costs of over US$200,000 or over 5 km in length would also be selected based on the foregoing. 3.30 Direct beneficiaries would be: (a) small farmers, for whom access to uarkets would be improved and modernized; and (b) the isolated communities In the coastal region of Cauca, for which small scale cabotage operations would be ade safer and cost effective. Project benefits would accrue from: (a) the incremental value added derived from increases in agricultural production and avoidance of crop losses ihich could not be marketed for lack of reasonable faru-to-market access; (b) reduction in transport costs; and (c) safer small scale cabotage operations. Agricultural production increases would arise from inputs of extension services and additional lands brought under cultivation with the aid of improved, all weather farm-to-market access. Reduction in transport costs would derive from: (a) improved road conditions; and (b) shortening of transport distances through the construction and rehabilitation of minor canals to interconnect protected waterways in the Pacific coastal region. The rural transport industry being competitive, the reductions in transport costs are expected to be passed along to consumers. I. Assessment of Risks 3.31 The project faces no abnormal technical risks. 'Other risks are related to the possibility of slow implementation of measures to improve FNCV's institutional efficiency, FNCV8s relative inexperience with the construction and rehabilitation of minor waterways as provided for in the pilot waterways component, and tilely availability of counterpart funds to the project. To minimize delays in implementing institutional efficiency messures and enhance project sustainability, FNCV agreed during negotiations to: (a) contract the technical assistance and provide the appropriate counterpart staff to strengthen the Planning Office and the Engineering Department by November 1, 1986; (b) complete the design phases of the systems for rural road maintenance management, management of the equipment fleet and the module to improve contract management, including administration and supervision of works, by September 30, 1987; and, (c) start implementing the systeim in (b) preceding by March 31, 1988. 3.32 To ensure smooth implementation of the pilot waterways component and the use of appropriate construction technology in order to, interalia, minimize adverse environmental impact, FNCV has set up an ad hoc office in the Engineering Department for supervision, monitoring and control of progress of works under phase I. An engineer experienced in dredging operations heads the office. A part-time marine ecologist is to be recruited shortly to assist the engineer, and experienced resident dredge operators would control the onsite field operations. This arrangement was confirmed during negotiations. Execution of phase II would be contingent upon satisfactory experience under phase I and the incorporation of the arrangements for the supervision and monitoring of works into the Engineering Department. 3.33 To ensure timely availability of counterpart funds to the project, which had been a recurrent problem in past years of implementation of the ongoing Rural Roads Project, the following measures would be implemented: (a) FNCV's investment program would be reviewed semi-annually; (b) Bank agreement on the annual program would be contingent upon evidence of sufficient budget appropriation of local funds for expenditures during the - 19 - year; and (c) sufficient counterpart funds to meet three months worth of approved works are to be maintained, on a continuing basis, in the Project Account (revolving fund) referred to in paragraph 3.25. IV. RECONMENDATIONS 4.01 During negotiations, the following were agreed upon: (a) (i) the departmental roads maintenance study to be executed in accordance with the terms of reference, schedule and employment of consultants acceptable to the Bank (para. 3.06); (ii) FONADE to complete the financial arrangements for the execution of the preceding by June 30, 1986; and (iii) FONADE to uoDilize consultants to execute the study by November 1, 1986 (pars. 3.17); (b) adoption, by December 31, 1986, of an adequate system for measuring progress of civil works and updating of the rural roads inventory accordingly by December 31, 1987, and annually thereafter (para. 3.08); (c) the scope and timing of the semi-annual reviews of FNCV's 1986-1992 Program including achievement of the Program's targets (para. 3.10); and Cd) (i) contracting of the technical assistance and provision of appropriate counterpart staff to strengthen FNCV's Planning Office and the Engineering Department by November 1, 1986; (ii) completion of the design phases of the systems for rural road maintenance management, management of the equipment fleet and the module to improve contract management including administration and supervision of works, by September 30, 1987; and (iii) implemen- tation of rural road maintenance management, management of equipment fleet and improvement of contract management to start by March 31, 1988 (para. 3.31). 4.02 During negotiations, the following were confirmed: (a) the composition and amounts of annual investment and maintenance targets in the 1986-1992 program (para. 3.10); (b) local competitive bidding procedures (para. 3.21); (c) arrangements for disbursements, updating of force account maintenance unit costs, preparation of monthly statement of expenditures and monitoring of force account works (para. 3.24); (d) economic and technical criteria for the appraisal of annual work programs (para. 3.29); and (e) the arrangements for supervision, monitoring and control of vorks for the pilot waterways component (para. 3.32). 4.03 Suitable agreements and assurances having been reached on the substance of paragraphs 4.01 and 4.02, the proposed project is recommended for a Bank loan in the amount of US$62 million on standard terms and conditions at variable rates including retroactive financing for urgent works not to exceed US$0.9 million in total (para. 3.11). 4.04 Loan effectiveness would be contingent upon FNCV's opening of a Project Account (para. 3.25) with an initial deposit of US$2.5 million equivalent. February 1986 - 20 - TABLE 2.1 COLOMBIA RURAL TRANSPORT SECTOR PROJECT Road Network (km) (1985, excluding Municipal Roads) Pdy See.ay ad Iul Totul n Uaed Tdal Be Ud Total b eed Td l Natlionl 9,394 15,681 25,075 9,394 15,681 25,075 1 tuta1 . 1,000 47,503 48,503 1,000 47,503 48,5D dW 24,441 24,449 - 24,449 24,449 Pdvate i/ 2,000 2,000 - 2,000 2000 Total 9,394 15,681 25,075 1,OOD 73,952 74,952 10,394 89,66a 100,027 M; Mtitly for tibr and wl.urg. Sm,ce: MWT and MU December 1985 - 2 - TABLE 2.2 COLOMBIA RIRAL TRANSPORT SECTOR PROJECT Growth of Non-Interstate Roads (1975-1985) (kin) ad - X E- _ ~~ -T - - W - - " _ Kilometers of Roads Year Departanent Municipal Rural Roads 1I/ 1975 32,398 3,210 9,020 1976 21,184 4,826 10,088 1977 30,582 4,023 14,685 1978 33,875 3,525 15,387 1979 40,315 4,456 16,285 1980) 46,312 7,319 17,137 1981 46,709 8,410 18,177 1982 46,820 9,509 19,774 1983 46,933 9,937 21,007 1984 47,045 10,384 22,892 1985 48,503 10,851 24,49 11 Under the resporsibility of Fondo Nacional. de Caminos Vecinales. Source: KOPT and FNCV December 1985 - 22 - TABLE 2.3 COLOMBIA RURAL TRANSPORT SECTOR PROJECT FNCV's Headquarters and Regional Staff Number Director General 1 Secretary General 1 Assistant Directors 2 Subtotal 4 Regional Directors 25 Chiefs (Section or Office) 71 Subtotal 96 Specialized Profeasionals 122 Technicians 119 Temporary Professionals 122 Subtotal 363 Secretarial and Clerical 324 Others 1,443 Subtotal 1,767 TOTAL 2,230 Source: FNCV December 1985 -23- TABLE 2.4 COLOMBIA RuA TRANSPORT SECROR PROJECT Sources of FNCV9 1985 Budget (Col S uillou) Own kQsources (3.9Z) Other 14ultiiational 31.2Z Rural Roads ProJect (17. 1Z) National Budget (67.8Z) Source Co! million Own Resources 255.0 Beer Tax 68.2 Land Improvement Levy 10.5 Other 176.3 Contribution from National Budget 4,397.0 Fuel Tax 3,440.0 Other 957.0 Multilateral Resources 1,829.0 Rural Roads Project 1,107.0 IDB 690.0 Other 32.0 TOTAL 6,481.0 Source: FNCV and Bank estimates. February 1986 - 24 - TABLE 2.5 COLOMPTE RURAL TRANSPORT SECTOR PRIECT Projection of FNCV's Funds from Selected Domestic Sources Contribu- Land Contract tion of Total in Tax on Improvement with National Col $ Year Beer Levy Santander 1/ Fuel Tax Million 2/ Percent 1986 32.60 0.15 2.64 64.61 7,238 1987 31.10 0.17 4.90 63.83 8,702 1988 29.40 0.18 5.67 64.75 10,570 1989 29.34 0.19 6.58 63.89 12,183 1990 28.01 0.19 4.19 67.61 14,673 1/ Long-term contract with Department of Santander. 21 Rounded to the nearest Cal $ million. Source: FNCV December 1985 - 25 - TABLE 2.6 COLOMBIA RURAL TRANSPORT SECTOR PROJECT Sources and AppIlcatlons of FNCV's Funds (CoIS million) (1960) Approved Appropriated Approprlated Total ApproprTated SOURCES: Budget In 1980 In 1981 as of approved Own Resources 1/ 216.92 83.38 45.15 59 Contribution from Natlonal Budget 1,835.95 1,096.49 568.86 91 Tax on Fuel 1,194.90 663.70 405.05 89 Other 641.05 432.79 163.81 93 Loans and Other Sources 1,447.42 1,191is .8- 82 iOTAL 3,500.29 2,371.76 614.01 85 Executed Ex cuted Total Executed APPLICATIONS: Budgeted In 1960 In 1981 as I of Budgeted Administration 424.32 348.60 7.55 84 Specific Programs 2,853.00 1,299.19 669.57 69 1. Ordinwrlo 815.08 480.02 147.89 77 2. Integrated Rural Developrent 930.78 474.12 185.08 71 3. Pico y Pala 207.10 121.80 29.87 73 4. Auxilles Necionales 34.88 10.59 8.21 54 5. Mainteanoee 21.34 7.35 2931 45 6. Special ProJects 843.82 205.30 296-20 59 7. Rural Roads 2/ - - - 8. Studies - - Other Invest.n ts 192.04 32.27 144.75 92 Debt Service 30.92 23.50 - 76 TOTAL 3,500.28 1,703.56 821.87 72 I/ Taves on Beer and Land lmprovement Levy _I Loan 1966-00 Source: FNCV Decmber 1985 - 26 - TABLE 2.7 CMLOSIA RURAL lRANSPT SECTO PROJECT Sourn and Appllcations of FNCV's Funds (CoIS oiliton) Approvd Apprcprtated Appreproated Total Approprieted SOURCES: Budget to 1981 In 1962 as S of approved Own ReSces 1/ 149.27 197.67 - 133 Contribution from Nnationl Budget 2,592.28 1,632.57 847.14 96 Tax on Fuel 1,973.03 1,338.26 557.96 97 O"er 619.25 294.32 289.18 95 Loas and Other Sources 541.98 541.88 - 100 TOTAL 3,293.43 2,372.12 847.14 9B --- - --Total Executed Eus d Executed as S of APPLICATIONS: Bu d In 1981 In 1992 Not Used Budgetd Adslnistration 417.69 366.12 21.05 30.52 93 SpecIfic Progras 2,670.38 954.57 1,255.41 460.40 83 1. Ordinarlo 1,018.60 629.81 289.77 99.03 91 2. Interated Rural Oaelop_nt 686.46 105.82 474.83 105.81 85 3. Pica y Pala 162.90 - 39.63 99.98 23.28 86 4. Auxillos Nacionales 1l.42 3.11 7.52 0.78 94 5. Malntenance 6.35 4.20 1.04 1.11 83 6. Auxilio a las Comunidadas 9.70 5.73 2.95 1.02 90 7. Special Project 612.45 164.11 276.11 172.23 72 B. Rural Roads 2 154.50 2.16 103.21 49.13 69 9. Studies 8.00 - - 8.00 - Otr Invesents 1M.22 60.15 82.76 5.31 97 Deb+ ervice 47.14 25.20 - 21.94 54 TOTAL 3,293.43 1,406.04 1,359.22 518.17 85 I/ Taxes on Bar and Land loprovvemnt Levy 2J Loan 1966-CO Source: FNCV October 1985 - 27 - TAILE 2.8 COLOMBIA RURAL TRANSPORT SECIOR PROJECT Sources and Appilcatlons of FNCV's Funds Colt S million) (1962) Total Appropriated Approved Appropriated Appropriated Appropriated as I of WS0UFCES: Budpwt In 1962 In 1963 In 1984 "ppoVd Own R orces1/ 75.55 60.10 - - to. Contribution from National Budgwt 2,50.16 1 ,916.09 547.18 - 9_ Tax on Fuel 2,192.91 1,811.21 368.35 - 100 Other 370.25 104.88 178.63 - 77 Loans and Other Sources 1,4863.9 175.43 1,072.36 22.21 96 TOTAL 4,122.60 2,171.62 1,619.54 22.21 93 Total Ex - Ex cuted Executed cuted as S APPLICATIONS: Budp td In 1982 In 1983 Not Used of 8udt Ad tnistration 434.85 390.78 12.50 31.57 93 SpecifIc Programs 2,960. 1,367.86 1,290.55 302.36 90 1. Ordtnarto 760.99 672.48 61.20 27.31 97 2. Integrated Rural Developmet 377.01 125.77 205.02 46.25 8B 3. Pico y Pala 744.35 296.54 35.62 92.00 6B 4. Mainteance 62.32 44.69 13.93 3.70 94 5. Auxillo a las Ccmunidades 0.71 0.15 0.56 - 99.9 6. Special Projectss 162.71 61.14 90.11 11.46 93 7. Rural Roads 2J 804.48 161.29 529.11 114.08 86 8. Studies 46.16 5.J0 34.60 7.56 85 Other I nvestents 669.73 78.16 465.14 126.43 82 Debt Service 57.26 47.35 - 9.92 83 TOTAL 4,122.61 1,684.15 1,768.19 470.28 89 -~~~ 1/ Taxes on 8eer and Land lmprovement Levy V Loan 1966-0C Source: FNCY December 1983 - 28 - TALE 2.9 COL0,eIA RURAL TRANSPIT SECTOR PROJECT So5rs and Appllcatots of FNCVts Funds (Col S mIillon) (196311 Approved Appreoprlatd Appreprlated Total Appreprlated SoIRCES: lludp In 1963 In 1964 as S of approved Own Resroas 1/ 69.16 74.27 - 108 Contribution frm Natlonal Budgat 5,153.00 2,660.31 1,761.33 a6 Tax on Fuel 2,514.80 2,026.60 454.77 99 Ofer 2,638.20 631.70 1,306.56 74 Loans and Otbar Soures 849.61 38.53 758.17 94 TOTAL 6.071.77 2,773.11 2,519.50 8B Total Executed Executed Executed as S of PLICATIONS: Budgd In 1983 In 1994 Not used Budpeed AclInistration 670.74 586.U 62.43 21.87 97 Specificc Proeras 5,182.36 1,888.23 2.901 .81 392.30 93 1. Ordinarlo 856.66 812.32 27.35 16.99 98 2. integrated Rural Development 1,759.74 182.11 1,364.62 212.01 a8 3. Pico y Pala 597.48 296.22 286.17 25.09 96 4. Aux!lios Noclonales 25.76 9.63 15.96 .15 99 5. Naintenano 177.19 79.51 33.07 4.61 96 6. SpecIal PrJets 771.22 144.22 539.56 97.43 89 7. Rural Roads 2/ 1,040.32 370.39 626.99 43.04 96 9. Studles 15.00 3.85 8.17 2.99 s0 Other Inv tesvevts 132.00 93.82 24.60 13.58 90 Odebt Servlce 96.67 72.29 - 14.37 84 TOTAL 6,071.76 2,640.78 2,986.84 442.12 93 1/ Taxes on Beer and Land Improwvment Levy 2/ Loan 1966-CO Source: FNCV Oecember 1985 - 29 - TABLE 2.10 COLOMBIA RURAL TRANSPORT SECTOR PROJECT Sources and Appilcatfons of FNCV's Funds (ColS million) (1984) Total Appropriated Approved Appropriated Appropriated To be as S of SOURCES: Budget In 1984 In 1985 Appropriated approved own Resources I/ 200.95 138.86 41.63 20.47 70 Contribution from National Budget 4,661.79 2,950.80 625.80 1,085.19 64 Tax on Fuel 3,152.40 2,810.48 198.52 143.40 90 Other 1,509.39 140.32 427.28 941.79 10 Loans and Other Sources 1,144.18 350.47 411.13 382.56 31 TOTAL 6,006.92 3,440.13 1,078.56 1,488.24 58 Total Ews- Executed Executed cuted as S APPLICATIONS: Budgeted In 1984 In 1985 Not Used of Budgeted Admlnistratlon 770.06 723.48 37.3- Specific Programs 4,810.06 2,348.70 2,386.27 70.39 49 1. Ordinarlo 1,012.67 862.42 133.15 12.09 86 2. Integrated Rural Development 959.27 157.66 762.15 39.46 17 3. Pico y Pala 639.44 338.79 299.83 .82 53 4. Auxillos Parlamentarlos 20.10 1.48 18.62 - 8 5. Maintenance 241.15 129.06 109.28 2.82 54 6. Special Projects 543-24 177.16 355.49 10.58 33 7. Rural Raods 2/ 1,386.63 680.21 701.91 4.52 49 8. Studies 7.56 1.72 5.84 - 23 Other 1nvestlents 231.69 75.20 156.45 .04 33 Debt Service 195.11 179.60 - 15.52 92 TOTAL 6,006.92 3,326.78 2,580.09 95.16 1/ Taxes on Beer and Land Improvement Levy 2/ Loan 1966-CO Source: FNWV December 1985 30 - 0T 2.11 RO -7ASR ucKMR WRJ SOurcan APPUcatiLcm of i'V!'s Funds (0ol$ million) (1985) SORCS: _uy O 0. Resources 255.0 Oitrlhitixt fimm Neatfnal Budget 4,397.0 'D a Rii 3,440.0 Ot. 957.0 Tl and mi Ott.r Sources 1,829.0 ~FAL 6,481.0 APPLI M: _ _ A__dn_strat_m 1,030.0 SoKdfic P=grm 4,174.48 1. Ordinario 1,386.0 2. Integrated Rual Depmeot 832.0 3. PXCo y Pala 69O.0 4. ALidios Na1o.u2es 5. 123.0am 6. Special Proj 438.0 7. Pia1 2/ 1,1o7.0 8. Studies 120.0 0tr I 83.0 DEbt Service 657.0 ,TAL 6,481.0 '/ al m Ber anrd Land lovsnt Ievy I= T1966-CK Source: FNV December 1985 - 31 - TABLE 3.1 COLOMBIA RURAL TRANSPORT SECTOR PROJECT Actual FNCV Expenditures 1981-1984 and 1985 Budget and their Financing (In millilon of ColS) 1/ Funds 2/ Actual Expenditures Available 1981 1982 1983 1984 1985 A. EXPENDITURES 3,811.9 4,479.5 5,215.8 6,315.6 7,916.6 _ _- _ _ _ _ _ 1) DEBT SERVICE 43.1 65.9 86.1 179.6 526.0 EXPENDITURES NET OF DEBT SERVICE 3,768.8 4,413.7 5,129.7 6,136.0 7,390.6 2) ADMINISTRATION 639,5 568,7 708.5 785.9 1.030.0 3) SPECIFIC PROGRAMS 3,129.4 3,845.0 4,421.2 5,350.1 6,360.6 a) Investment 3/ 2.767.7 3,559,7 3,649.4 5.088.2 5,917.6 Pico y Pala 118.9 547.6 759.5 625.0 841.8 DRI Program 497.7 829.4 457.9 1,522.3 1,428.0 Program 1966-CO 4/ 3.8 365.3 1,064.1 1,307.1 1,587.5 Ordinary Program 1,330.6 1,328.9 1,033.4 889.8 1,242.0 Others 5/ 816.7 488.5 334.5 744.1 818.3 b) Routine Maintenance _11_1j6 110.5 162.1 220.0 c) Other Investments 6/ 350.6 222,2 661,3 99.8 223.0 B. FINANCING 3,811.9 4,479.5 5,215.8 6,315.6 7,916.6 __ __ _0 __ __ Own Resources 413.7 111.2 87.9 138.9 255.0 National Budget 7! 2,471.0 4,126.3 3,813.7 5,068.1 5,832.6 Loans and Others 927.2 242.2 1,314.2 1,108.6 1,829.C C. EQUIVALENT AMOUNTS IN MILLION US DOLLARS Total Expenditures 37.6 44.2 51.5 62.5 57.1 Specific Programs 30.9 38.9 43.7 53.0 45.9 1/ Considering overflow of funds from year to year, In constant 1984 prices, 2/ Provisory figures, !n 1985 prices. 3/ Includes about 70% for constructlon and 30% for deferred maintenance. 4/ Includes additional 150 million for periodic malntenance In 1985. 5/ Specially funded emergency and community development programs. 6/ Acquisition of physical faIliltIes and equipment. 7/ Includes tax on fuel. Source: FNCV and Bank estlmales December 1985 - 32 - TABLE 3.2 3L 3Ms E nlm~ (11492 d Mowft~m adtiar ?Smuim if an anobau *a u= a =am bo 1m Pam) 196 57 190 U 191 33 A. D _5J131 57-Sa1 534M SL3L3 SX23.3 SlAM.J W,OEL MUM5 L , su, m 6,69.7 7ID5 7,1.0 8.5A 9.33.A 1031.0 SD% 8 9 or____s___ 3B.3.29 M 45,786A 84476.9 45,9799 47.63.7 48U,4.1 21, 6 - - - - - - -- 2. 6 3 6.ZLf 6,4n12 6.77L2 7,123.A 7 5 7J175.8 8227 30.1646 3. MEL 8U1 1NflUr Am Wt' A1 1.5 39.014.2 .3S3.5 351JOA. 39.749 40,1 27IP93 ) 15,12J 1.7 EC2 17.957.1 18=3.5 UJ111 2. D 9 D ,37MJ m Munilak 140.7 VAP.402 16M91 16.52.1 16,83.3 16J.1712 16 115.147D0 PICO y bPA I 2,07 1,710.4 - - - - - 4.5611 r1M y PAM H - 4211.7 5,46.8 6750 6357. 6,MD16 6,636 M.6465 MM 1 ,811l.9 2,174.3 2.17.3 1.057.1 - - - 7.247.6 E fml 19i6SE 5,426.7 2,103 - - - - - 7,5W.1 PI! Pr qO IL= 1,449.5 4,348.50 ,75. 5,7960 5.798. 4.3485 1.49.5 25.2 ft_ Pau= T - - - 1815.5 3,63.2 5,435.7 10,1.3 gEinY P a 2.901.9 2,901.9 2,501.9 2,501.9 2,5019 2,591.9 2,811.6 20.2932 * Im.niny 142.5 427.8 5i0.5 570.3 _ _ _ 1.711.0 _ Ia S qpsm 619.5 9752 1,0C7.6 1I,.2 1,.l 791. 666 6 130. 1im y Pau I 32. 574.2 574.2 574.2 574.2 574.2 534.2 ?. P Tom 236.7 401.0 473.4 467.0 43L.9 217. 72.4 3.iit OF-T RON OF RKOADWORjS Ma~ -Internatlnae Coundrs ( truction // ; Cd,ibbeon S .,o 0 0 iN 0 Ef;je e.cobai Prtop6WProgram fo#itre iesW 16 lgas - Paved Trunk Roads 6SACIANOu 7 lCogn Paved Roads ATLANT 72' Unpaved Roads M MA~ALENA (D FNcV Directorates s ea CAr:A j9 River Ports Navigable Riveirs Elevations Above 1400 Metors W1~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~1 - Dpeprtment BoundariesI0 International Boundaries 00~ ~ 0 *; S'~nAtN&., - ANtIOQUIA~. 0\ LoA4uu huE E A E A N A b~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~Tb SAN~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~T S I~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~r APC t08 . ~~~. .:. ~~~. t ..i.~~~~~g.'.. ~1ARAUCA I Vout.1M4 A~0RE ~ * . . .., CASANARE oFPcds;c Ocean 4 4.~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ m~~~~~~~~~ 11.8.0.0m wa ~ ~ ~ ~ ~ ~ ~ a oo a6 60m J~~~~~~~~~~~~~~~~~~~~~~~~~~~I IBRD 1 -~~~~~ COLOMBIA LOPEZ RURALTRANSPORTSECTOR PROJECT , Minor Wbterway Improvements RF* Year PMugr: To be Con*udted - - - To be ReahItate '4'' U. S - PACIFIC OCEAN 0 r~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ OA . of , ,* a 5 iG 20 7r 74* VNQBr\__ = KIb4\_ S Z {Xt.-,.,*s *UMNES .;, a'.,-. . ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ S .f l8