document of the world bank€¦ · document of the world bank report no: icr00001727 implementation...

Document of The World Bank

Report No: ICR00001727

IMPLEMENTATION COMPLETION AND RESULTS REPORT (IBRD-72420)

ON A

LOAN

IN THE AMOUNT OF US$ 200.00 MILLION

TO

THE ARGENTINE REPUBLIC

FOR A

NATIONAL HIGHWAY ASSET MANAGEMENT PROJECT

JANUARY 26, 2011

Sustainable Development Department Argentina Country Management Unit Latin America and the Caribbean Region

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CURRENCY EQUIVALENTS

(Average Exchange Rate Effective December 2010)

Currency Unit = Argentine Peso AR$ 1.00 = US$ 0.25 US$ 1.00 = AR$ 4.00

FISCAL YEAR

January 1 – December 31

ABBREVIATIONS AND ACRONYMS

APL Adaptable Program Lending BMS Bridge Management System CAS Country Assistance Strategy CREMA Rehabilitation and Maintenance Contract (Contrato de Recuperación y Mantenimiento) CPI Consumer Price Index DNV National Highways Directorate (Dirección Nacional de Vialidad) DPV Provincial Roads Directorate (Dirección Provincial de Vialidad) FAP Fiduciary Action Plan GDP Gross Domestic Product GGP Gross Geographic Product GoA Government of Argentina HDM Highway Design and Maintenance Standards Model IERR Internal Economic Rate of Return INT The World Bank Department of Institutional Integrity IRI International Roughness Index ISR Implementation Status and Results Report Km Kilometers MOEP Ministry of Economy and Production (Ministerio de Economía y de la Producción) NPV Net Present Value OCCOVI Concession Regulating Entity (Organo de Control de las Concesiones) PAD Project Appraisal Document PCU Project Coordinating Unit PDO Project Development Objective PMS Pavement Management System SIL Standard Investment Loan SLUAT Symposium of Latin American Environmental Units SME Small and Medium size Enterprise Vice President: Pamela Cox Country Director: Penelope J. Brook Sector Manager: Aurelio Menendez Project Team Leader: Maria Marcela Silva ICR Team Leader: Maria Marcela Silva

ARGENTINA

National Highway Asset Management Project

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 Project Performance in ISRs H. Restructuring I. Disbursement Graph 1. Project Context, Development Objectives and Design 1 2. Key Factors Affecting Implementation and Outcomes 5 3. Assessment of Outcomes 10 4. Assessment of Risk to Development Outcome 16 5. Assessment of Bank and Borrower Performance 17 6. Lessons Learned 19 7. Comments on Issues Raised by Borrower/Implementing Agencies/Partners 20 Annex 1. Project Costs and Financing 21 Annex 2. Outputs by Component 22 Annex 3. Economic and Financial Analysis 23 Annex 4. Bank Lending and Implementation Support/Supervision Processes 26 Annex 5. Beneficiary Survey Results 27 Annex 6. Stakeholder Workshop Report and Results 28 Annex 7. Summary of Borrower's ICR and/or Comments on Draft ICR 29 Annex 8. Comments of Cofinanciers and Other Partners/Stakeholders 33 Annex 9. List of Supporting Documents 34 MAP 35

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A. Basic Information

Country: Argentina Project Name: NATIONAL HIGHWAY ASSET MANAGEMENT

Project ID: P088153 L/C/TF Number(s): IBRD-72420

ICR Date: 02/22/2011 ICR Type: Core ICR

Lending Instrument: APL Borrower: ARGENTINE REPUBLIC

Original Total Commitment:

USD 200.0M Disbursed Amount: USD 197.9M

Revised Amount: USD 197.9M

Environmental Category: B

Implementing Agencies: Direccion Nacional de Vialidad

Cofinanciers and Other External Partners: B. Key Dates

Process Date Process Original Date Revised / Actual

Date(s)

Concept Review: 01/28/2004 Effectiveness: 04/26/2005 04/26/2005

Appraisal: 05/03/2004 Restructuring(s): 11/27/2009

Approval: 06/29/2004 Mid-term Review: 09/01/2006 11/27/2006

Closing: 12/31/2008 08/31/2010 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 Performance:

Satisfactory Overall Borrower Performance:

Satisfactory

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C.3 Quality at Entry and Implementation Performance IndicatorsImplementation

Performance Indicators

QAG Assessments (if any)

Rating

Potential Problem Project at any time (Yes/No):

Yes Quality at Entry (QEA):

None

Problem Project at any time (Yes/No):

Yes Quality of Supervision (QSA):

None

DO rating before Closing/Inactive status:

Satisfactory

D. Sector and Theme Codes

Original Actual

Sector Code (as % of total Bank financing)

Central government administration 6 2

Roads and highways 94 98

Theme Code (as % of total Bank financing)

Administrative and civil service reform 25 10

Infrastructure services for private sector development 50 80

Injuries and non-communicable diseases 25 10 E. Bank Staff

Positions At ICR At Approval

Vice President: Pamela Cox David De Ferranti

Country Director: Penelope J. Brook Axel van Trotsenburg

Sector Manager: Aurelio Menendez Jose Luis Irigoyen

Project Team Leader: Gylfi Palsson Maria Marcela Silva

ICR Team Leader: Maria Marcela Silva

ICR Primary Author: Gerard L. Liautaud F. Results Framework Analysis

Project Development Objectives (from Project Appraisal Document) The overall purpose of the program is to gradually consolidate an efficient road network management strategy, bringing about the necessary resources to preserve the national road network in the long term. Specific Objectives are to: 1. Preserve the condition of vital road assets, through the gradual expansion of performance-based contracts for the rehabilitation and maintenance of the non-concessioned primary paved network;

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2. Strengthen road sector management through carrying out a renewal program of DNV to revitalize its role in the sector by: (i) reinforcing its human resource base, (ii) consolidating its transformation into a results-oriented organization accountable for specific outputs; (iii) introducing a systematic approach to bridge management and (iv) enhancing road safety Revised Project Development Objectives (as approved by original approving authority) (a) PDO Indicator(s)

Indicator Baseline Value

Original Target Values (from

approval documents)

Formally Revised Target Values

Actual Value Achieved at

Completion or Target Years

Indicator 1 : Implementation of a comprehensive results- oriented road maintenance program balancing efficiency, equity and regional development considerations, through the expansion of CREMA system.

Value quantitative or Qualitative)

9174 16725 12664

Date achieved 05/10/2004 12/31/2008 08/31/2010 Comments (incl. % achievement)

16,726 km target included outputs to be achieved though the simultaneous execution of the APL1 and APL2. Intended target by end of APL1 was 14,182 km (yet not formally established in PAD).

Indicator 2 : Development of in-house capacity for strategic road asset management within a modern results-oriented approach through the implementation of an Institutional Renewal Action Plan.

Value quantitative or Qualitative)

Institutional Renewal Action Plan outlined

Implementation of different activities under the Institutional Renewal Action Plan

About 70% completed.


Several activities accomplished while others have been move forwards to the APL2 phase.

(b) Intermediate Outcome Indicator(s)

Indicator Baseline Value

Original Target Values (from

approval documents)

Formally Revised

Target Values

Actual Value Achieved at

Completion or Target Years

Indicator 1 : Reduced rehabilitation backlog and good condition of non-concessioned road

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network maintained though project implementation (measured though International Roughness Index -IRI)

Value (quantitative or Qualitative)

IRI=3.6

Average IRI < 3.9 in year 2006 Maintain IRI < 4 throughout project implementation

Average IRI 2006=3.27 2007=3.29 2008=3.28 2009=3.12


The better-than-expected results are due to the thicker overlay thickness and larger coverage of rehabilitation used for locally financed CREMA

Indicator 2 : Implemented activities under Institutional Renewal Action Plan


No actions implemented

Short-run Human Resources plan implemented, Code of Ethics, Performance indicators, Road Users Satisfaction Index, strengthened environment unit, technological modernization, streamelined processes

Human Resources diagnostic, short-run plan designed and under implementation, Code of Ethics, Performance indicators designed and disseminated, strengthened environment unit, partial technological modernization.


Unfinished agenda to be completed under APL2

Indicator 3 : Improved bridge conditions and bridge management in non-concessioned road network


No Bridge Management System

Bridge Management System in operation, 5 bridges rehabilitated.

BMS in operation for 250 bridges in most critical condition 5 priority bridges being rehabilitated (about 57% of works are completed)


Indicator 4 : Integrated multi-disciplinary approach for road safety developed Value (quantitative

Weak support to road safety interventions, and

Improved safety conditions on 6

4 black spots improved,

v

or Qualitative) no institutional coordination

blackspots, horizontal demarcation in 310 km Institutional arrangements in place, monitoring and evaluation system in place and communication.educative campaigns designed

310 km of horizontal marking executed through CREMA contracts Monitoring system developed Education campaigns designedNational Agency for Road Safety created by Law, and in operation


Full development of multi-disciplinary approach to be completed during APL2

G. Ratings of Project Performance in ISRs

No. Date ISR Archived

DO IP Actual

Disbursements (USD millions)

1 11/30/2004 Satisfactory Satisfactory 0.00 2 04/29/2005 Satisfactory Satisfactory 0.00 3 09/16/2005 Unsatisfactory Unsatisfactory 24.13

4 06/30/2006 Moderately

Unsatisfactory Moderately

Unsatisfactory 111.93

5 12/13/2006 Moderately Satisfactory Moderately Satisfactory 155.35 6 06/26/2007 Moderately Satisfactory Moderately Satisfactory 177.02 7 10/08/2007 Moderately Satisfactory Moderately Satisfactory 177.02 8 04/28/2008 Moderately Satisfactory Moderately Satisfactory 185.23

9 06/20/2008 Moderately SatisfactoryModerately


10 10/17/2008 Moderately SatisfactoryModerately


11 04/30/2009 Satisfactory Moderately Satisfactory 187.23 12 12/07/2009 Satisfactory Satisfactory 188.85 13 06/28/2010 Satisfactory Satisfactory 190.21 14 12/24/2010 Satisfactory Satisfactory 197.04

H. Restructuring (if any) Restructuring

Date(s) Board

Approved ISR Ratings at Restructuring

Amount Disbursed at

Reason for Restructuring & Key Changes Made

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PDO Change DO IP

Restructuring in USD millions

11/27/2009 S S 188.85

I. Disbursement Profile

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1. Project Context, Development Objectives and Design 1.1 Context at Appraisal By the end of 2004, when the appraisal of the project was finalized, Argentina’s economy had already begun to rebound strongly from the deepest political and economic crisis in generations that hit the country in 2001-2002. The Ministry of Economy and Production (MOEP) had revised the official projection of Gross Domestic Product (GDP) growth for that current year from 4.0 percent to 5.5 percent. This followed an upward revision of the 2003 growth outcome at 8.7 percent. Industrial production rose by 14.1 percent in the first quarter of 2004 over the same period in 2003, while at the same time the construction industry index increased by 34 percent. Improvements in consumer and business confidence had driven private sector projections of 2004 GDP growth to 6.5 percent or more. As of March 2004, the 12-month Consumer Price Index (CPI) inflation rate stood at 2.3 percent. Fiscal performance was on track, and the government expected to exceed the primary surplus target of 3 percent of GDP for 2004. In an effort to mitigate the aftermath of the crisis period, the Government of Argentina (GoA) was focusing on implementing a strategy that emphasized sustainable growth within a framework of social equity. The Government promoted increased infrastructure investment as a means of addressing potential bottlenecks to sustaining economic recovery. The objective was to restore public and private investment to levels that were at least commensurate with the authorities’ medium-term growth projections of some 3 percent per annum. In particular, Argentina’s transport sector was at a major crossroad in its process of modernization, and the GoA’s agenda for the next years was to: (i) address those structural weaknesses hindering transport efficiency and economic competitiveness; and (ii) improve the institutional framework and the governance of a sector that was still experiencing important adjustments to the interactions between the public and private actors. The road sector which concentrates nearly 80 percent of total freight volume movements and is the dominant mode of transport in the country, played a key role in the Government’s endeavor1. At the time of the appraisal, the administration’s vision for the future included: (i) operating and maintaining high traffic highways through toll road concessions; (ii) consolidating a long-term maintenance strategy for the non-concessioned paved national road network (about 22,000 km) through a program designed to gradually expand the CREMA system; (iii) elevating the status of the National Highway Directorate’s (DNV) role as a driving force in the sector, re-orienting its capacity towards strategic planning of the primary network (including the concessioned portion); (iv) prioritizing investments in bridge rehabilitation and modernizing DNV’s bridge management strategy; and (v) improving road safety. 1.2 Original Project Development Objectives (PDO) and Key Indicators In the early stages of project preparation, the operation was designed as Standard Investment Loan (SIL). However, at appraisal, the project was reformulated as a two-phased Adaptable Program Loan (APL) to be executed over a total period of six years (2004 to 2010) in order to allow for more flexibility and an

1 Argentina has a relatively extensive road network managed by Government which consists of: (i) an estimated 39,000 km of national roads (31,000 km paved) managed by the National Highways Directorate (DNV); and (ii) about 195,000 km of provincial roads under the jurisdiction of 23 Provincial Road Directorates (DPV) which serve as main collectors and connectors between the national network and productive regions.

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adequate sequencing of activities vis-à-vis alternative recovery scenarios. Each phase was to be implemented over a four-year period: the first phase (APL1) from 2004 to 2008 and the second phase (APL2) from 2006 to 2010. The overall purpose of the Program was to gradually consolidate an efficient road network management strategy, bringing about the necessary resources to preserve the national road agency in the long term. Specific objectives were to: 1) Preserve the condition of vital road assets, through the gradual expansion of performance-based contracts for the rehabilitation and maintenance of the non-concessioned primary network (CREMA); and 2) Strengthen road sector management through carrying out a renewal program of DNV to revitalize its role in the sector by: (i) reinforcing its human resource base; (ii) consolidating its transformation into a result-oriented organization accountable for specific outputs; (iii) introducing a systematic approach to bridge management; and (iv) enhancing road safety. The Project Appraisal Document (PAD) for the APL1 to which this Implementation Completion Report (ICR) refers to, established the following key indicators for the achievement of the Project Development Objectives (PDOs): (i) percentage of paved non-concessioned network under CREMA system; (ii) implementation of a bridge management system; and (iii) DNV having effectively developed actions under an Institutional Renewal Action Plan. The original outcome/results indicators for the APL1 included in the Results Framework of the PAD are summarized in the table below:

Objective Expected Outcome Base Line Preserve condition of network through expansion of CREMA coverage

CREMA to cover 16,726 km 9,174 Km

40% located in poorest provinces

Strengthen road sector management

Institutional Renewal Action Plan Implemented No Action Plan

Components Expected Result Base Line CREMA Average IRI < 3.9 in year 2006

Maintain IRI < 4 throughout project implementation IRI = 3.6

Bridges Bridge Management System (BMS) in operation; 5 bridges rehabilitated

No BMS

Road Safety Monitoring and Evaluation System in place, Communications and Educative Campaigns designed; Institutional arrangements in place; Improved road safety conditions on 6 “black spots” and horizontal demarcation on 310 km of roads

No Institutional Coordination Weak support to road safety interventions

Institutional Renewal Short-term human development plan implemented; Code of Ethics for DNV; Performance indicators and mechanisms to promote transparency in place, user satisfaction index in place.

No Action Plan

The Program’s phasing was intended to concentrate government’s efforts during the first stage in the consolidation of the institutional foundations, and the procurement of works where the most pressing rehabilitation needs were. The second phase would allow the flexibility to introduce additional interventions needed to confront the transportation effects of sustained levels of economic activity in the country, which at the time were difficult to anticipate. 1.3 Revised PDO (as approved by original approving authority) and Key Indicators, and reasons/justification The above development objectives and key indicators remained unchanged during the project execution period.

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1.4 Main Beneficiaries The proposed project was expected to benefit, in particular, people in rural and low-income areas through: (i) the reduction of time and travel costs; (ii) new employment opportunities generated by the road rehabilitation and maintenance activities that require labor for carrying out the works and for the production of materials; (iii) increased competitiveness and development of labor generating productive activities (e.g., SMEs); and (iv) improved access to basic services.

1.5 Original Components The Project Appraisal Document (PAD) for the APL1 outlined the global 2004-2010 APL Program which consisted of four components: A road rehabilitation and maintenance component designed to expand the CREMA system to

achieve a total coverage of about 19,244 km of national roads during the period of 2004-2010, to be complemented with the rehabilitation of some 1,799 km through a two-year unit price contracts called “Sistema Modular”. The 19,244 km of CREMA would include: (i) 8,188 km (48 contracts) to be financed by the Bank Loan; (ii) 8,772 km (55 contracts) to be financed with local funds; and (iii) 2,284 km of contracts under execution from two previous Bank loans, the maintenance of which would be financed with local funds;

A bridge management component introducing a systematic approach to bridge rehabilitation and maintenance and addressing the urgent needs of about 30 high priority bridges in the country;

A road safety component, that included two sub-components: (i) a large-scale pilot initiative integrating engineering, enforcement and education measures over four pilot corridors; and (ii) selected road safety engineering interventions on about 35 identified critical spots of the road network across the country;

An Institutional renewal component consisting of technical assistance, equipment and training, and aimed at strengthening the DNV in the areas of human resources, technical modernization, administrative processes, transparency mechanisms, environment, and long-term financial sustainability.

The first phase of the program (APL1) included four components: Component 1 – Rehabilitation and Maintenance through performance-based contracts (Estimated

cost of US$286.1 million of which US$182.8 million would be financed by the Bank Loan). The Bank would support the expansion of DNV’s CREMA Program, through the procurement of 48 CREMA contracts over a total length of 8,188 km. In addition, the Government would procure with local funds 35 CREMA contracts covering some 6,254 km and finance the maintenance of 2,284 km of contracts under execution from previous Bank loans. Given the 5 year nature of this type of contracts and the fact that the resources required to finance said new contracts was well above the amounts available for the implementation of the APL1, it was anticipated that some of the contracts would have to be procured under the APL1 but partially financed both under the APL1 and APL2. Therefore, as explained in detail in section 3.2 below, the physical targets intended to be met under this component with funds available under APL1 are equivalent to about: (i) 25 Bank-financed CREMA contracts totaling 4,276 km of roads (at an estimated cost of US$ 247.0 million); and (ii) 8 new government financed CREMA contracts totaling about 1,192 km plus the continued financing of the maintenance of CREMA contracts previously under execution over a total length of about 2,284 km (at an estimated cost of about US$ 39.1 million).

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Component 2 – Bridge Restoration (Estimated cost of US$10.7 million of which US$7.5 million would be financed by the Bank Loan). The project was designed to finance works on five bridges pre-selected by DNV due to their critical status and urgent need of intervention. Works would include construction, reconstruction, replacement, widening and rehabilitation activities, all to be carried out within the existing right-of-way. Also, a comprehensive bridge management tool to systematically prioritize bridge interventions would be implemented, and engineering designs for future bridge restoration projects prioritized through this tool would be financed under the project.

Component 3- Road Safety (Estimated cost of US$5.8 million of which US$4.4 million would be

financed by the Bank Loan). The project was designed to finance: (i) the design and implementation of a large-scale road safety pilot program in four corridors of the national road network, including the design of a system to monitor and evaluate the impacts, the definition of impact indicators and baseline measurements, the design of educational and communication campaigns, and the preparation of engineering designs for the upgrading works in the proposed corridors; and (ii) road safety engineering interventions (including engineering designs) on six identified critical spots or intersections of the road network across the country, as well as the horizontal pavement marking on approximately 310 km.

Component 4- Institutional Renewal (Estimated cost of US$3.5 million of which US$3.3 million

would be financed by the Bank Loan). The project was intended to provide technical assistance to: (i) identify DNV’s needs in terms of human resources and implement a short-run strengthening plan; (ii) facilitate DNV’s technological modernization; (iii) streamline time-consuming administrative processes; (iv) strengthen DNV’s capacity for addressing environmental issues; (v) design transparency mechanisms to disseminate DNV’s performance, (vi) analyze options for ensuring long term financial sustainability in the road sector and stable flows of funds for road maintenance, and (vii) strengthen the Project Coordination Unit (PCU) to assist DNV in the implementation of the project.

The second phase of the program (APL2) would also comprise: (i) a substantial CREMA component to complete the implementation of CREMA contracts procured under APL1 and new CREMAs to be procured (both Bank-financed and locally financed) to meet a revised target of 16,700 Km by the end of the APL Program2; (ii) the restoration of about 13 additional bridges; (iii) the implementation of a large scale road safety pilot program in 2 corridors and the upgrading of about 15 additional critical spots; and (iv) an institutional component aimed at pursuing to completion the activities initiated during the first phase of the program.

1.6 Revised Components No formal revisions were made to the original components of the project.

1.7 Other significant changes Only two types of amendments were made to the original loan agreement, namely: (i) extending twice, with Management approval, the closing date of the project in order to facilitate its implementation and to allow the Borrower to substantially achieve its development objectives, and (ii) making some minor reallocations of funds among categories. In addition to these formal amendments, and as discussed later in Section 3, significant changes were made by DNV in the rehabilitation standards adopted for the new

2 Target revised in the Project Appraisal Document for the APL2 operation. See Report No. 39716-AR, page 40.

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CREMA contracts to be financed with local funds, both in terms of overlay thickness and extent or lengths of rehabilitated sections.

2. Key Factors Affecting Implementation and Outcomes

2.1 Project Preparation, Design and Quality at Entry Project quality at entry was satisfactory for the reasons described below. The project was fully in line with the Country Assistance Strategy (CAS). The background analysis that supported the project design was sound as it was fully aligned with the main pillars of the CAS (approved by the Board on April 15, 2004) that sought to reduce the extent and severity of poverty in Argentina by focusing on: (i) promoting sustained economic growth with equity; (ii) social inclusion; and (iii) improved governance. The CAS emphasized that one of the building blocks for sustained economic growth was maintaining and improving key infrastructure assets that facilitated regional development and the inclusion of Argentina in a global economy. Expanding the CREMA program to other regions of the country aimed precisely at producing a fairer balance in geographic coverage by targeting poorer regions and provinces with lower levels of economic activity and whose road network usually ended up neglected during times of tight fiscal constraints. Finally, initiatives to increase governance, accountability and transparency in the road sector were also considered in the project design through the institutional renewal component. Lesson learned from other projects were incorporated. The project incorporated in its design the lessons learned from previous Bank-financed operations, essentially related to: (i) excessive cost overruns and delays in project implementation; (ii) insufficient and/or unstable funding for long-term maintenance; and (iii) lack of decisive support from the Government for carrying out institutional development initiatives. Problems of cost overruns and delays in project execution that were in the past attributed to inadequate or untimely designs and/or variation orders commonly observed on traditional ad-measurements contracts were expected to be addressed through the expanded use of the CREMA system3. Problems of shortage of funds for routine maintenance that flawed road rehabilitation projects in the past would be addressed under the CREMA contracts, since the long-term five-years payment obligations become legally binding on the Government4. Finally, in terms of institutional development activities, project design focused on few critical achievable goals and allowed for additional flexibility to accommodate the agenda according to evolving needs, through the selection of the APL lending instrument. A range of risks was identified during project preparation and appropriate mitigation measures were considered, includingamong others: (i) the Government’s ability to expand the CREMA program due to fiscal constraints (to be mitigated by defining expansion targets according to historic budget allocations and adapting standards of rehabilitation to the conditions of different segments of the network, as well as by supporting a road sector financing study); (ii) DNV under-performing in the implementation of the CREMA program due to its increased obligations under the concession program (to be mitigated by strengthening its capacity in preparation of engineering designs, and bidding and supervision of the concessioned works); (iii) DNV’s lack of support and/o ownership for the

3 Indeed, the first CREMA program that was implemented between 1997 and 2002 had proven that: (i) cost overruns represented less than 4 percent increase in costs over the life of the project (such increase being essentially for unforeseen or force-majeure compensation events) and (ii) works and program activities were completed on time and satisfactorily. 4 Experience over the last 5 to 7 years showed that the budgetary process had given CREMA contracts a higher priority than other expenditures, particularly during times of fiscal constraints or financial crisis

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institutional renewal process (to be mitigated by designing a gradual agenda, preparing and implementing Twinning Arrangements, and designating a high-level staff and a steering committee responsible for coordinating the process); (iv) DNV falling short in the implementation of the large scale road safety corridor due to the absence of a higher-level coordinating agency (to be mitigated by providing assistance to prepare, design and implement the strategy, seeking allies outside DNV, and inducing the decision for establishing a high level road safety leading agency). During preparation, the Government’s commitment and support at different levels were adequate. QAG did not evaluate nor rate the Quality at Entry of the project.

2.2 Implementation Four factors affected most the implementation of the project. The first factor – outside government’s control - was the cost increase for road works that started towards the end of 2004, and for which changes in world markets and prices (particularly increase in the cost of petrol and associated by-products such as asphalt and fuels) were a major contributor. While Argentina had enjoyed an inflation-free environment over the previous fifteen years since the 1990 Law of convertibility that pegged the peso to the US dollar, and while it would have been difficult to anticipate and incorporate such a factor during the preparation and appraisal of the project, cost increase for road works was persistent during project implementation, averaging about 1.3 percent per month. Indeed, between January 2004 and December 2009 the cost of road works in Argentina had increased by about 90 percent. This factor was putting at risk the financial feasibility of the project and the achievement of the physical target of kilometers of CREMA aimed at during appraisal. To mitigate that risk, two series of actions were taken by the Government and by the Bank. The first action taken by the Government was to increase substantially DNV’s budget allocations from about US$520 million in 2005 to US$ 2 billion in 2009. The second action proposed by the Government in 2007 and accepted by the Bank was to increase the amount of the loan to be assigned to the second phase of the project (APL2) from US$ 200 million to US$ 400 million. The second factor – also outside government’s control at the time - was the response of the local construction industry to the first round of bidding officially launched under the project in June 2005. That bidding process involved ten CREMA contracts and resulted in bidders’ proposals being much higher than expected with a limited price variation among the bids. At the time, and given a previous precedent5, the Government decided to cancel the bidding process and postpone all subsequent biddings under the project until an in-depth analysis was carried out. The content of said analyses indicated broader issues facing the road construction market in Argentina (across the board and not only for the CREMA), including: (i) limited competition due to the industry being strained as a result of an imbalance between its capacity (eroded after the 2001 economic crisis) and the high demand for road works following an upsurge of public investments in the sector; and (ii) an unforeseen inflation of about on the cost of materials (in particular asphalt), gas-oil, labor and transport that occurred between the periods of DNV estimates (end of 2003 - early 2004) and bid presentation (June 2005). To help mitigate the impact of those issues, the Government and the Bank agreed on a wide reaching plan to enhance the procurement processes, which included the following measures:

5 A similar response was obtained in March 2004 from 21 bids launched under the previous Bank-financed project Loan 4295-AR, which was also characterized by higher-than-expected bid prices, closeness of bids, and small average number of participants per bid. For lack of hard and solid evidence of market distortions, the 21 best proposals of the 2004 bidding process were accepted and contracts awarded accordingly.

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Implementing institutional strengthening measures in the design and costing of road works within a context of increased volatility of prices: DNV updated the designs of future CREMA contracts on the basis of new network condition and traffic surveys, and revised estimates in accordance with current market prices;

Establishing mechanisms to monitor evolution of prices and market responses to new bids; Assessing the capacity of the construction industry: the Government carried out such assessment

in order to identify possible issues that could curtail competition and to have a clearer view of the characteristics faced by the industry;

Strengthening the procurement strategy: DNV improved the bidding strategy and reformulated the project’s procurement plan to reflect and incorporate the lessons learned, including the conclusions of the assessment study of the capacity of the industry;

Revisiting and adjusting biding documents to increase competition: DNV revised and adjusted a number of clauses of the bidding documents in order to facilitate the entry of new firms in the CREMA market;

In addition, the Bank enhanced supervision by carrying out twice a year independent technical performance audits on a sample of ongoing contracts to ensure that rehabilitation and maintenance works met performance requirements, and that road agency’s supervision was enforcing contracts. At the country level, the Bank introduced through the May 2006 CAS a Fiduciary Action Plan (FAP) aimed at: (i) increasing the transparency in Bank financed projects; (ii) improving the strategic focus and coverage of existing Bank supervision tools geared towards evaluating fiduciary risks; and (iii) ensuring increased transparency and competition practices in public procurement.

By April 2006, and after achieving significant progress in the implementation of the above Action Plan, DNV resumed the bidding process of the CREMA and through a series of indicators assessed that such Plan had a positive impact on the outcome of the bids launched since 20066. Although mitigated, the second factor caused a project implementation delay of nearly one year, and prompted the request and approval of the first one-year extension of the closing date from December 31, 2008 to December 31, 2009.

The third factor that affected project implementation – although within the implementation agency control – was DNV’s management effectiveness and commitment to the bridges, road safety and some of the actions of the Institutional Renewal components. Indeed, at the mid-term review on November 27, 2006 and despite the project team’s previous efforts and due diligence in reminding DNV of the need to comply with the appraisal’s estimated pace of implementation to enable the timely triggering the APL2, it was evident that DNV had concentrated most of its efforts in solving the procurement and implementation issues that had occurred on the project’s main component (the CREMA), while seriously lagging behind on the originally planned implementation schedule of other smaller (yet important) components7.

At the time, it became evident that two triggers that were expected to be met before APL2 was presented to the Board by mid 2007 (design of a human resources action plan and the carrying out of an analysis of the road sector financing) were not achievable within the APL1 original time framework. However, it was also noted that the context when the APL1 was conceived, and consequently the triggers set, was very different by 2007. An assessment carried out concluded that the fact that said triggers hadn’t been

6 As measured by: (i) an average of 5 bids per process; (ii) a significant reduction in the difference between the lowest evaluated bids and the revised official estimates, with an average of 10% above; and (iii) awarding about half of the contracts to firms that had not yet benefited from CREMA contracts previously. 7 Rehabilitation of 5 bridges had not yet materialized; consulting firms for the design of the road safety corridors had not been procured; bidding documents for the works on the critical black spots had not been yet finalized; human resources study had not yet been awarded; road sector financing study was not available, Code of Ethics and development of road user satisfaction indices had not started; etc..

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met was not putting at risk the investment Program financed by the operation and it was agreed that said objectives could still be pursued under APL28. Actions to remedy the observed shortcomings and to put back on track the situation in those components were to: (i) continue monitoring closely the implementation of delayed products; (ii) provide a no-objection to a second extension of the closing date of the project from December 31, 2009 to August 31, 2010 in order to enable at least a substantial completion of the bridge rehabilitation program; and (iii) make use of the flexibility given by the APL instrument to complete other unfinished tasks of DNV’s Renewal Plan during the implementation of the second phase of the project (APL2).

The fourth factor that affected implementation and was within the executing agency’s control was the overly conservative overlay design and highly overestimated costs of routine maintenance adopted by DNV for the CREMA contracts financed with Treasury funds. Compared to the standards applied in the Bank-financed CREMAs (average asphalt concrete overlay thickness of about 4 to 5 cm and routine maintenance unit costs of between US$ 4,000 and US$ 5,000/km/year), the CREMAs designed and executed under the locally financed sub-component allowed for overlay thickness in the order of 6 to 7 cm and for routine maintenance cost in the order of US$7,000/km/year (with peaks of US$ 8,000 to 10,000/km/yr) for similar traffic and network condition prior to rehabilitation. As discussed further under Section 3.3 “Efficiency”, such unnecessary designs had a direct impact on the final length or coverage of network achieved under CREMA and on the economic efficiency of the system.

2.3 Monitoring and Evaluation (M&E) Design, Implementation and Utilization

M&E Design. A results framework was established including a series of indicators to monitor the progress toward achieving the project development objectives. Those indicators were adequate and used effective and reliable collection methods. For example, the first part of the PDO that relates to the preservation of the condition of vital road assets was to be monitored through: (i) the total expanded coverage of the CREMA system, as measured by the number of kilometers of CREMA contracts tendered, awarded and in execution under the project in order to achieve a final coverage of 16,725 km; (ii) a minimum percentage coverage of CREMA contracts located in the poorest provinces of the country (defined by their Gross Geographic Product -GGP), measured by the number of kilometers of CREMA in execution in those provinces that would; and (iii) the reduction of the rehabilitation backlog on the non-concessioned network, while continuing to maintain it in good condition, as measured by a standard riding quality test called “the International Roughness Index (IRI)” of the pavements. The target defined for this last indicator, was to keep IRI below 4 throughout project implementation, based on the base line of 3.6 IRI and given the following evolution of roughness, as predicted by the HDM economic evaluation over the program period (2004 and 2010):

Year 2003 2004 2005 2006 2007 2008 2009 Avg. IRI 3.5 3.6 3.8 3.9 3.9 3.8 4.1

The above evolution of roughness took into account the fact that the CREMA component to be financed with local funds would use minimal thickness of overlays (between 1cm of slurry seal and 3 cm of asphalt concrete) over only 30 percent of the total length of the contracts. The second part of the PDO relating to the strengthening of the road sector management was to be monitored either: (i) by easily measurable indicators, when the outcome was physical and could be

8 By 2007, DNV’s budget increased threefold and as such: (i) DNV had been reinvigorized to deliver its largest portfolio of road works in more than 25 years, demonstrating it had the institutional capacity to design, contract and supervise said work load; (ii) the pressing needs for resources had been reduced and the objective and focus of the road sector financing study had changed.

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expressed in quantitative terms (e.g., 5 bridges to be rehabilitated, six black spots to be restored, etc); or (ii) when the outcome results could not be expressed in quantitative terms, by specific implementation schedules that would specify defined products and due dates for completion.

M&E Implementation and Utilization. During project implementation, appropriate data were collected in order to monitor progress, such as the annual traffic and road network condition surveys (including the measurement of roughness - IRI) routinely carried out by DNV, using reliable methods and equipments. To measure the progress made under the institutional development and compliance with related covenants, the semi-annual progress reports prepared by DNV provided useful updates, while bi-annual supervision missions with comprehensive aide memoires helped to assess regularly actions taken, progress, and results achieved. Based on the data collected, timely Implementation Status and Results Reports (ISRs) informed management on issues and/or on progress achieved under each component, and helped decision-makers take appropriate actions aimed at ensuring successful implementation of the project, such as granting of extensions of the closing date of the project.

2.4 Safeguard and Fiduciary Compliance

Procurement. An assessment of DNV’s capacity to implement procurement actions for the project was carried out during appraisal and was found satisfactory. To enhance project’s procurement performance a number of measures were taken between appraisal and negotiations9. During project implementation, however, procurement ratings were qualified as Moderately Unsatisfactory (MU) on several occasions since 2006 (after the higher-than-expected bid prices occurred in June 2005 when the first round of bids under the project was launched). As explained in Section 2.2 above, the implementation of a wide reaching action plan to enhance the procurement process helped to address this issue. Notwithstanding, as observed in the procurement ex-post reviews carried out afterwards, other aspects continued hindering the efficiency of the procurement process including: (i) continuous repetition of procedural mistakes; (ii) DNV's cumbersome internal procedures implying that bidding processes required much more time than expected; and (iii) the chronic lack of an experienced procurement specialist. Even though DNV hired a procurement specialist and carried out a study to analyze internal procedures to identify measures to expedite procurement process, these measures were taken after all works had been procured and as such it was not possible to assess the impacts of said initiatives.

Financial Management. A review of the capacity of DNV and of the PCU to effectively manage and implement financially the project was carried out during appraisal. The main conclusion was that DNV had the required institutional capacity and human resources for the project’s financial administration. However, some opportunities for improvement were identified, and with the implementation of an Action Plan agreed with the government the project management arrangements at loan effectiveness were considered to satisfy the Bank minimum financial management requirements. During project implementation the financial management of the project remained in compliance with Bank procedures.

Environmental and Social Aspects. At appraisal project was qualified as “Category B”, following Bank’s Operational Policy (OP 4.01). Main civil works that would be carried out consisted of rehabilitation and maintenance of existing roads, without altering their physical conditions, and no significant environmental and social impacts that could endanger the natural surroundings of the area of influence were expected. An environmental assessment of the project was carried out based on which, it was concluded that the project was environmentally viable and complied with the Bank’s safeguard policies. During project implementation the project remained in compliance with Bank’s policies. 9 including the development of a Procurement Plan for project implementation, an adaptation of the procurement information system in order to reflect changes induced by the devaluation of the peso, the adoption of an adequate Operational Manual, and a suitable methodology to adjust monthly the price of CREMA contracts to be procured under the loan

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2.5 Post-completion Operation/Next Phase

As mentioned previously at the beginning of Section 1.2, the project is the first phase of a two-phase APL. The appraisal and approval by the Board of the second phase of the program (APL2) in May 2007 helped to provide timely the additional funds necessary for the successful completion of the CREMA works initiated during the latter phase of the APL1, and for the financing of the remaining contracts in line with the severe increase in costs observed for road works since 2004. Likewise, the follow-up operation allows a successful completion of the unfinished activities under the institutional component that suffered delays and were initiated towards the end of the APL1.

Besides the follow-up operation and in line with the June 2006 CAS, the Bank defined a significant pipeline of new investment operations that have special emphasis on modernizing the transport sector in the country. Those operations include the Road Safety Project, the Santa Fe Infrastructure project, the Cordoba Road Infrastructure project, the additional financing for the Buenos Aires Infrastructure project, and the Provincial Road Infrastructure project, with the last three projects containing a performance-based CREMA component. These projects would help to ensure sustainability of the achievements of APL.

3. Assessment of Outcomes

3.1 Relevance of Objectives, Design and Implementation

The Project Development Objectives set out at appraisal remained highly relevant throughout project implementation, including during the preparation of the second phase of the program (APL2) in 2007 for which the same objectives were applied. They continue to be fully consistent with the objectives of the latest CAS dated May 6, 2009 and that covers the period 2010-201210.

3.2 Achievement of Project Development Objectives

3.2.1 First Specific Objective: Preserve the condition of vital road assets, through the gradual expansion of performance-based contracts for the rehabilitation and maintenance of the non-concessioned primary paved network.

Outcome Indicator and Expected Results for the CREMA. The final outcome indicator for the entire two-phased Program, was to expand the CREMA system to cover 19,244 km of the paved non-concessioned national network. The intermediate outcome indicator at the end of the first phase (APL1), was to have increased the coverage of CREMA to 16,726 km (from a base line of 9,174 km), of which at least 40% would be in the poorest provinces of the country (as defined by the GGP). However the target of 16,726 km included measurable outcomes that were expected during the simultaneous execution of the APL1 and APL2, and not only under the APL1 phase. As mentioned before, the operation in its early stages of preparation was conceived as a SIL, however since said approach would commit a large amount of funds from the outset and remove some of the incentives for carrying out the institutional strengthening activities, it was decided at appraisal to use instead an APL. In contrast to the other components of the project that reflected the change in lending instrument by attributing specific targets for the APL1, for the CREMA component, the Results Framework of the PAD specified instead a target that also included a portion of Bank-financed and Treasury-financed CREMA contracts projected under the APL2. Indeed, given that CREMAs are 5-year contracts, an overlap was expected to occur between the APL1 and APL2 and it was anticipated that some of the contracts would have to be 10 Again, the project’s objectives support substantially the 2009 CAS’s three pillars, namely: (i) sustained economic growth with equity,; (ii) social inclusion,; and (iii) improved governance.

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procured under the APL1 but partially financed both under the APL1 and APl2. In addition, contracts were expected to come to term at different stages during program implementation and re-bid in order to maintain the coverage of the program at a certain level.

In reality, from the Program and Project description detailed in Annex 4 of the PAD, it is possible to infer the intended specific target of CREMA coverage under the APL1. Regarding the Bank-financed portion, for the entire Program, it was expected that a total of 48 contracts totaling 8,188 km would be financed by the Bank under the combined APL loan proceeds assigned to the component (US$ 350 million), representing an average individual length of 170.6 km per CREMA contract. Since the loan for the APL1 included US$ 182.8 million for CREMAs, the expected number of kilometers of CREMA to be achieved in that first phase would be 4,276 km, corresponding to about 25 contracts (the remaining 3,912 km, or about 23 contracts, intended to be achieved under the APL2).

Likewise, regarding the locally-financed CREMAs, for the entire Program, it was expected that a total of 55 new contracts totaling 8,772 km would be funded for an amount of US$ 287.6 million, representing an average individual length of about 159.5 km per CREMA contract. Since the amount assigned to the APL1 was US$ 39.1 million, the expected number of kilometers of CREMA to be achieved under the APL1 would be 1,192 km, corresponding to about 7 to 8 contracts. In addition, DNV was expected to continue financing the maintenance of about 2,284 km of CREMA awarded under the previous two Bank loans (3611-AR and 4295-AR) that were coming to term at different stages during the 2005-2010 period. Therefore, the intended target for the CREMA coverage under the APL1 was 7,752 km. The coverage for the combined APL1 and APL2 by the end of the APL1, could be interpreted as 14,182 km (as shown in the following Table), and be used, for comparison purposes, as the outcome result indicator in the Results Framework (yet it was not formally revised in the Loan Agreement).

Results Achieved under the CREMA as of August 31, 2010. As indicated in Annex 2 “Outputs by Component”, the number of kilometers of CREMA contracts in execution at the revised closing date of this project (August 31, 2010) reached a total of 12,664 km, representing 89.2 percent of the intended target for APL1. Of these 12,664 km, 5,163 km (or 40.7 percent) are located in the poorest provinces of the country, thus meeting also the target of 40% specified at appraisal. The Table below summarizes the comparisons between the expected and achieved outcomes:

CREMA sub-component

Total outcome indicator at the end of APL2

(km)

Intermediate outcome indicator at

the end of APL1 according to PAD

(km)

Corrected/Adjusted outcome indicator at the end of APL1

(km)

Achieved at

Closing (km)

New Bank-financed CREMA under APL1+ APL2

8,188

Bank-financed CREMA under APL1 4,276 8,188 4,276 4,494 Bank-financed CREMA under APL2 3,912 3,912 1,246

New locally-financed CREMA under APL1+ APL2

8,772

Locally-financed CREMA under APL1 6,254 6,254 1,192 1,126 Locally-financed CREMA under APL2 2,518 2,518 3,300

Previous CREMA the maintenance of which is financed with local funds (see Note below)

2,284 2,284 2,284 2,468

Total length in Km 19,244 16,726 14,182 12,664 N.B. Of the total CREMA contracts under execution at appraisal and expected to come to term during the implementation of the APL1, some were extended for an additional 1 to 2 years maintenance period. Others were replaced by new CREMA locally financed under the APL2

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Impact of Works on the Condition of the network. Another expected outcome of the expansion of the CREMA program was that the rehabilitation and maintenance works carried out under the project would help prevent further deterioration of the non-concessioned network, measured through the International Roughness Index (IRI). As explained in section 2.3 it was expected that the IRI should be below 3.9 in 2006 and below 4 throughout the project implementation period, the base line at appraisal being 3.6. The Table below shows that not only the expected target was met but also that the project as executed helped to improve the condition of the network (the average IRI declined from 3.6 to 3.1). Indeed, the better-than-expected results are due to the thicker overlay thickness and larger coverage of rehabilitation used for the locally financed CREMA. The project also reduced the maintenance backlog on the network11 from 16.1 percent to 5.4 percent at the end of 2009, and had a positive impact reducing the proportion of roads in poor or bad condition (with IRI>5) from a base line of 5% in 2004 to 0.5% at the end of 2009. The proportion in good condition rose from 83.8 percent to 94.6 percent. The following Table demonstrates the improvement of network condition during project implementation:

Indicator 2004 2005 2006 2007 2008 2009

Average IRI 3.52 3.48 3.27 3.29 3.28 3.12 % in excellent condition IRI<3 24.8 26.4 36.2 36.4 37.3 44.4 % in good condition IRI<4 83.8 84.6 90.9 89.3 88.8 94.6 % Backlog IRI>4 16.1 15.4 9.1 10.7 11.2 5.4 % Poor IRI>5 4.9 4.2 1.9 2 2 0.5

3.2.2. Second Specific Objective: Strengthen road sector management through carrying out a renewal program of DNV to revitalize its role in the sector by: (i) reinforcing its human resource base; (ii) consolidating its transformation into a result-oriented organization accountable for specific outputs; (iii) introducing a systematic approach to bridge management; and (iv) enhancing road safety Institutional Renewal of DNV. Progress achieved under the objective to renew and revitalize DNV’s role in the road sector has been mixed, even though a number of important actions have been carried out during the final years of project implementation to address some critical issues identified at appraisal. About 70 percent of the original scope of the Action Plan has been achieved, with some of the activities shifted to the second phase of the program. Main achievements are presented below: Human Resources Modernization Program: The following actions have been undertaken: (i)

intensive training of DNV’s personnel in the areas of road planning, road safety, and winter maintenance (through a twinning arrangement with the U.S. Federal Highway Administration); and (ii) a detailed diagnosis of the current state of the staff platform of the DNV, on the basis of which, a short-term training program aimed at strengthening the capacity of the district and regional staff has been prepared and will be financed and carried out during the APL2. Currently, based on the results of the diagnosis, a much longer-term program of activities is being prepared, in particular to reflect the recent responsibility bestowed on DNV to manage the national concessioned network. It is expected that the long-term program will also be financed and carried out during the second phase of the program.

Program for Technological Modernization: The following actions have been taken: (i) DNV’s Soils and Materials Laboratory modernized through the procurement of new equipment, (ii) the acquisition of a modern set of computer equipment and software; and (iii) the design of a new strategy for axle-load control on the road network, using cutting edge “Weigh-in-Motion” systems that will be financed during the second phase of the program.

11 Defined as the length of road (expressed as a percentage of the total length of the non-concessioned network) with an index IRI greater than 4.

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Revision of Processes and Procedures: The following activities were carried out: (i) a study aimed at identifying the bottlenecks that often plague the procurement of works within the entity, on the basis of which recommendations to streamline procedures have been made and will be implemented during the second phase of the program; (ii) a study of the body of legal norms ruling the Institution and a revised set of norms has been posted on DNV’s website; (iii) technical assistance has been procured to help establishing a new system of Quality Control aimed at achieving expertise in the certification of processes.

Establishing Sound Mechanisms for Transparency and Accountability: Under this area, some progress has been achieved. Indeed, it has been a tradition for DNV to prepare and publish (or more recently to post on its web site) annual reports, in which an account of its performance in the use of its budget allocations is made. However, there is room for improvements, particularly in highlighting outcomes, the most important of which are the riding quality of the network, and the degree of satisfaction of the road users. A Request for an Expression of Interest from Consultants is already being prepared for carrying out a road user satisfaction survey, including the design of an adequate rating index. Regarding the Code of Ethics, it has been prepared by DNV and officially adopted through a Resolution signed by DNV’s General Manager, dated November 16, 2010 and will be posted on the web page of the Institution.

Strengthening of DNV’s Capacity for addressing Environmental Issues: The following actions were taken (i) the update of the Environmental Manual (MEGA); (ii) the financing with the Loan funds of the organization of the Eight Symposium of Latin American Environmental Units (SLUAT) in Buenos Aires; and (iii) the training of DNV’s environmental unit staff, through their participation to the Ninth Symposium of Latin American Environmental Units.

Analysis of the Road Sector Financing Issues: That study was carried out under the project. Also a study on a Strategic Plan for Territorial Development was also completed, that will assist the Secretary of Public Works in devising mechanisms to ensure efficiency and accountability in the ways funds are allocated to different programs and regions in the country.

Bridge Management System and Bridge Rehabilitation. At appraisal, the expectation that a Bridge Management System (BMS) designed to systematically prioritize expenditures on bridge rehabilitation and maintenance would be fully operational by the end of 2008 was optimistic. However, at the revised project closing date of August 31, 2010, the design of the system (SIGMA) - that started in September 2006 - was complete and was being implemented in six provinces within the northern part of the country where 14 percent of the total bridge network is concentrated. While data collection is being pursued on the rest of the network it is expected that by the end of 2012 DNV will have a fully operational system capable of assessing the needs of its entire bridge network. With regards to the rehabilitation of 5 priority bridges, albeit with some delay (due to difficulties experienced in designing and bidding the works), four contracts including 5 bridges were finally tendered and awarded in 2009. Civil works on those bridges are being undertaken with two of them near completion. Overall, by August 31, 2010, about 57 percent of the works were completed. Once the other three bridges are completed (with local funds) 100 percent of the appraisal target will be achieved. Enhancing Road Safety. Through this component and under the large-scale integrated road safety strategy, DNV has executed: (i) contracts for the technical design of two of the pilot corridors; and (ii) communications/educational road safety campaigns in the road safety corridors with the assistance of the Argentine Road Association. Works for these pilot corridors have been re-scheduled to take place during the APL2, given delays occurred in the procurement and completion of the designs. It is also worth mentioning that a National Road Safety Agency has been created providing the institutional framework to coordinate actions among different jurisdictions and support DNV’s activities in the road

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safety corridors. Regarding the works on the black spots, four interventions and 310 km of horizontal marking (mainly on CREMA networks) had been carried out at project closing.

3.3 Efficiency Whwn addressing the specific issue of this project’s efficiency, it is interesting to mention that a number of international sources have confirmed that performance-based contracts are, in general, more cost-effective than the conventional ad-measurement types of contracts. In the particular case of the CREMA in Argentina, an empirical study comparing the unit costs of the rehabilitation works of the CREMA to those obtained from the traditional unit-price contracts in Argentina showed that the long-term performance-based system has an overall cost effectiveness of about 24%. Indeed, assuming that for similar pavement surface and traffic conditions, overlay thickness is in the range of 4 to 6 cm, the traditional unit price contract from best bids would be on average 15 percent lower than the price quoted in CREMA bids for similar roughness level after rehabilitation. However, for the same price, the CREMA incorporates a number of additional features that would normally be separately priced under a traditional ad-measurement type of contract for an amount equivalent to about 39%12. The results of that empirical assessment were also corroborated by a theoretical study using the HDM-4 Model to evaluate the cost effectiveness and cost efficiency of the CREMA in terms of the economic benefits that are accrued not only to the highway agency, but also to road users over a 2-years analysis period: the study showed that in terms of cost effectiveness (i.e., better outcome expressed in terms of maximum NPV for a given solution or investment level) the CREMA is, on average, 15 percent more cost effective than traditional contracts, for conditions akin to those prevailing on the non-concessioned paved network in Argentina. Another result form the analysis is that cost effectiveness is reduced as the overlay thickness increases, and that for the current condition of the argentine paved network, and unless traffic volume is high (above 2,000 vehicles/day) cost effectiveness is severely affected when overlay thickness exceed a threshold of 5 to 6 cm.

3.3.1 Final Project Cost of the CREMA component At closing, the actual cost of the CREMA program carried out under the APL1, exceeded by a factor of about 2 the original cost expected at appraisal, for the following reasons: i. In the CREMA contracts financed by the Bank’s loan the total increase in cost is about 91 percent

(from an original expected unit cost of about US$ 58,000/km to a final cost of US$ 105,000/km). This increase is attributed essentially to higher bid prices compared to the official estimates (about 18 percent overall) and to the increase of road works prices that occurred between bidding and the completion of the works (about 68 percent overall). Design standards in terms of overlay thickness (about 5 cm) and coverage of the rehabilitation component were executed almost as contemplated at appraisal (coverage of rehabilitated sections increased from about 65% to about 70% causing an increase in cost of about 5 percent).

ii. In the CREMA contracts financed with local funds a much larger increase has occurred, as the costs have been multiplied by a factor of about 4 (from an appraisal estimated unit cost of US$ 33,000/km to a final cost of about US$ 128,000/km). That is mainly due to a substantial increase in the rehabilitation standards finally adopted by DNV. Indeed, while bid prices and inflation represent about 12 percent and 75 percent above original estimates respectively, the bulk of the increase is

12 Including variation orders due to modifications of the original contract during execution that are not permitted under a CREMA (about 16 percent) and the carrying out of detailed engineering study and quality auto-control by the Contractor as specified under a CREMA (about 6 percent).

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attributed to enhanced rehabilitation standards. Originally, the appraisal designs included applying thin resurfacing overlays (from slurry seals to 3 cm asphalt concrete) over about 30 percent of the total length of the contracts, while the average thickness of asphalt concrete overlays actually executed was about 6 cm over nearly 55 percent of the total length of the contracts. In addition, the quantities of expensive items in the routine maintenance component, such as pothole patching and crack sealing, instead of being reduced to account for the more comfortable overlay design standards were overestimated, causing an explosion in the unit cost of this component: from an acceptable level of about US$ 4,000/km/year to an actual US$ 6,000 to 7,000/km/year13.

Although the overly conservative design of the locally-financed CREMAs was not objectionable from a technical point of view (or from an economical point of view when compared to the thinner asphalt overlay contemplated at appraisal), it had two perverse effects, namely: (i) it reduced considerably the total length of CREMAs achieved under the locally-financed system and prevented the realization of a much larger final coverage under the project; and (ii) it affected the economic efficiency of the government investment efforts, as evidenced by the HDM Model evaluations made throughout project design and implementation, showing that the optimum thickness of overlay for the network under consideration is in the order of 4 to 5 cm (and not 6 or 7 cm as applied during execution). Intense and prolonged discussions on this issue took place between the Bank and DNV during 2008- 2010, that led to some improvements in the design of subsequent locally financed CREMAs.

3.3.2 Ex-Post Economic Evaluation CREMA Component. Considering the large cost increases that occurred during the execution of the CREMA component, an ex-post economic evaluation was carried out to verify whether the investments made under the component would still yield acceptable returns. Notwithstanding the observations made in the previous paragraph, the updated economic analysis indicated that the Internal Economic Rate of Return (IERR) remained acceptable in the order of 48 percent compared to an appraisal weighted average of about 40 percent. Likewise, the revised Net Present Value (NPV) is in the order of US$ 149,390/km compared to an appraisal weighted average of about US$ 49,521/km. The higher rates of return obtained from the ex-post economic evaluation can be explained by a combination of two factors: (i) the thicker and greater coverage of overlays used for the locally financed CREMA, as compared to the appraisal design, resulted in much lower roughness value after rehabilitation (typically 1.8 IRI), hence in much lower vehicle operating costs for the with-project case than initially anticipated; and (ii) while the cost of road works increased substantially since the appraisal ( by nearly 100 percent), the cost of operating a vehicle in Argentina (costs of new vehicles, tires, spare parts, fuel, and wages) increased by a much larger factor (between 150 and 200 percent), and as a result the net benefits accrued from carrying out the project, as compared to the without-project case, were also much larger than anticipated at appraisal. Further details about the revised economic evaluation are given in Annex 3 (including a comparison in the evolution of Vehicles Operating Costs and Road Works Costs between 2004 and 2009). Bridge Component. A new economic evaluation was also carried out for the bridge component, since the five bridges actually rehabilitated were different from those identified at appraisal and for which an economic analysis was carried out at the time. The results of the new evaluation (see Annex 3) show 13 Locally-financed CREMAs executed under the APL2 would show an even higher increase in costs compared to appraisal estimates: nearly US$ 250,000/km against an original estimate of US$ 33,000/km (i.e. a seven-fold increase in cost). While cumulative price increase of road works had reached almost 100 percent, and bid prices remained at about 12 percent above official estimates, the sharp difference was essentially due to DNV adopting much higher rehabilitation standards (average overlay thickness of 7 cm over nearly 90% of the total length of the contract) with unit routine maintenance cost skyrocketing to an average of US$ 8,000/km/year (with peaks of US$ 10,000/km/year).

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that the returns obtained from the actual investments are high: the new IERR is 21.1 percent compared to an appraisal estimate of 38.1 percent. Likewise, the revised NPV is US$ 4.4 million compared to an appraisal estimate of US$ 14.7 million. The decline in economic returns is explained by the increase in the unit cost of rehabilitation works – from US$ 11, 200/linear meter to US$ 26,800/linear meter - that resulted from price increases in the road sector (about 100 percent) and from modifications in the design standards (about 40 percent).

3.4 Justification of Overall Outcome Rating Rating: Satisfactory The overall outcome of the project is rated satisfactory, for the following reasons. The objectives set out at the time of appraisal remained relevant not only throughout project implementation period but also to the pillars of the most recent CAS agreed between the Bank and the Government for the period of 2010-2012. Albeit with some delays and minor shortcomings, the project was largely executed as planned and substantially achieved its two development objectives. Finally, and despite the significant increase in project costs that was largely due to price increases and enhanced rehabilitation standards, the economic efficiency of the project-financed investments remained acceptable.

3.5 Overarching Themes, Other Outcomes and Impacts (a) Poverty Impacts, Gender Aspects, and Social Development. As mentioned in Section3.2, forty-one percent of investments made under the CREMA component are located in the poorest provinces of the country. It can therefore be expect that this level of investment will foster economic growth, reduce inequality, and help develop Small and Medium Enterprises while playing a critical role in job creation and reduction of poverty. (b) Institutional Change/Strengthening. Throughout this report, it has been shown that one of the project components was to strengthen the institutional capacity of the Road Agency. In that regard, considerable progress has been achieved and the agency is making progress towards becoming a results-client oriented institution. In addition, the creation of the National Road Safety Agency is a positive outcome for the sector. In the early stages of the preparation of this project the Bank had the opportunity of initiating a dialogue with the Government on the importance of having a higher-level road safety agency to play a coordinating role across sectors to organize activities that go beyond the normal span of DNV (regarding enforcement, education, health related activities, etc.). (c) Other Unintended Outcomes and Impacts (positive or negative). Not applicable.

3.6 Summary of Findings of Beneficiary Survey and/or Stakeholder Workshops Not applicable

4. Assessment of Risk to Development Outcome Rating: Moderate While CREMA continues to be a very relevant road asset management model to maintain roads in good condition, there are some factors that could jeopardize its effectiveness. Moderate risk rating is therefore

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contingent to performance under APL2 to address the following events, which if not mitigated, constitute a particular cause for concern to maintain the coverage of the system and meet the ultimate goal of putting under CREMA the entire non-concessioned 22,000 km-long paved network: i. Lack of timely preparation and tender of new bids 14 . Considering the current status of bid

preparation, very few bids are expected to be launched in 2011.By the end of 2011 - beginning of 2012, there will only be about 3,500 km CREMA under execution (mainly routine maintenance). The above shortcomings are not due to financial constraints, since DNV’s annual budget allocations over the last three years have continued to increase, being on average in the order of US$ 2 billion. During the last supervision mission DNV’s higher management agreed that there was an urgent need to expedite the design and preparation of new bidding documents for the 34 contracts that came to term in 2009-10 and to start discussion on and preparation for a new Bank loan that would help to finance these new contracts.

ii. DNV’s tendency to adopt overly conservative designs and unrealistic routine maintenance unit costs in the CREMAs financed by the government. Currently, in Argentina each additional cm of asphalt concrete overlay above the optimum economic thickness costs in the order of US$ 20,000/km, representing about US$3 million in a typical 150-km long CREMA contract. In addition, adopting unreasonable quantities for maintenance activities such as pothole patching and crack sealing that would not occur on a recently rehabilitated pavement and thus would not be carried out by the Contractor - while paid to him on a lump-sum basis - would have an important impact on the cost-efficiency of the contract and could add up to about US$ 2 million for a particular contract assignment.

5. Assessment of Bank and Borrower Performance

5.1 Bank Performance (a) Bank Performance in Ensuring Quality at Entry Rating: Satisfactory At entry, the project was well prepared and had well conceived objectives and components that were highly relevant to the main goals of the CAS developed by the Bank and the Government at the time of its appraisal and later during its implementation. Lessons learned from previous operations were duly incorporated in the project design, while appropriate measures were contemplated to mitigate the risks identified during project preparation. The rating falls short of being highly satisfactory because there were minor shortcomings at appraisal, namely: (i) the overoptimistic targets regarding the pace at which the institutional renewal plan for DNV could be implemented; and (ii) the lack of a specific and well-defined target regarding the number of kilometers of new CREMA to be implemented during the first phase of the program (APL1). On the other hand, failure to have predicted the disappointing response of the market to the first round of bids launched in 2005 as well as the high rate of inflation starting the same year (both of which plagued project implementation) was quite understandable in the aftermath of serious economic crisis that hit the country in 2002.

14 By September 2010, nearly 6,000 km of CREMAs that were tendered and awarded under this loan (and the previous 4295-AR loan) came to term, and for lack of timely preparation of new bids, the maintenance component of those contracts had to be extended for another year. In contrast with the period of 2004-2008, over which a sustained pace of bidding and contracting of CREMA took place (between 10 and 34 bidding processes per year, with 13 to 19 contracts initiated annually), only seven bids were launched over the two-year period of 2009-2010 and only 7 contracts were initiated (5 under Bank financing and 2 under local financing).

18

(b) Quality of Supervision Rating: Satisfactory Bank’s supervision is rated satisfactory for the following reasons: (i) frequent supervision missions (14 ISRs filed between November 30, 2004 and November 30, 2010 representing about 2 missions per year); (ii) prompt and sound identification of implementation problems such as the unexpected outcome of the 2005 bidding process that led to the design and execution of a comprehensive action plan, which helped to resolve the procurement problem and substantially improve the outcomes of subsequent bidding; (iii) the proactive role of the project team in carrying out critical analyses of the overlay designs used for the Bank-financed component that led to more cost-effective solutions being used, as compared to locally financed CREMA; (iv) the decision to carry out independent technical audits of the CREMA contracts under execution that helped to identify shortcomings in the execution or control of the works that were timely brought to DNV’s attention; such audits being carried out by a seasoned and experienced local highway consultant who audited about 17 contracts, representing about 30 percent of the totality of contracts awarded and in execution between 2007 and 2009; ( v) the fundamental role played by the supervision team in ensuring the adequate transition arrangements that led to the design and approval of the second phase of the program; and (vi) the prompt identification and quick reaction to implementation delays that led senior management to approve and grant two extensions for the closing date of the project, thus ensuring a satisfactory achievement of project development objectives. (c) Justification of Rating for Overall Bank Performance Rating: Satisfactory The satisfactory rating proposed for the overall Bank performance is based on the ratings given to each of the two dimensions assessed above - quality at entry and supervision.

5.2 Borrower Performance (a) Government Performance Rating: Satisfactory Both during preparation and implementation of the operation, the Government showed strong ownership and commitment to achieving project development objectives. Once the loan agreement was signed, the first action taken was to increase DNV’s budget allocations beyond expectations and throughout project implementation; annual allocated resources reached unprecedented levels five-fold historical allocations in dollar terms. That not only helped to mitigate the perverse effect of inflation on the cost of road works, but also enabled DNV to finance the much-enhanced rehabilitation standards adopted for the Treasury-financed CREMA, in addition to significant achievements made over the last five years on the national network development and capacity increase programs. The second action taken by the government was to process timely and adequately the transitional arrangements that led to the approval and realization of the second phase of the project (APL2). (b) Implementing Agency or Agencies Performance Rating: Satisfactory

19

During project preparation, DNV performed well in carrying out diligently all the surveys that enabled the design of the first round of CREMA bids, and in implementing the action plans aimed at strengthening further the financial and procurement management capacity of the entity. During the early stages of project implementation, DNV also performed well in implementing the Action Plan designed to address the procurement issues raised by the outcome of the 2005 bidding process, including the postponement of all bids, and the improvements made in the design and cost estimates of road works as well as in the bidding documents. Also, DNV performed well in carrying out annually the network inventory that helped to monitor the progress and achievement of the M&E key indicators. Initially, DNV’s performance fell somewhat short in four areas: (i) the overly conservative designs adopted for the locally-financed CREMA; (ii) substantial delays that occurred in the design and bidding of the bridge and road safety sub-components; (iii) lack of commitment to fully and timely achieving some of the key elements of the institutional renewal plan (such as the road user satisfaction surveys); and (iv) slow enhancement of the capacity to increase the efficiency of procurement processes. However, in the end, most activities were executed in a satisfactory manner, including the preparation and formal adoption on November 16, 2010, of a Code of Ethics for the institution. (c) Justification of Rating for Overall Borrower Performance Rating: Satisfactory The overall Borrower performance is rated satisfactory, based on the performance of the Government and Implementing Agency.

6. Lessons Learned The following lessons emerge from the analysis of the project: Factoring in project design the effects of an economic crisis. In the aftermath of a serious

economic crisis such as the one experienced at the end of 2001, there were two aspects that affected project implementation: (i) the response of the construction industry heavily constrained by the crisis, to an increased demand for road works; and (ii) the relatively high and persistent rate of inflation of road work prices in the country. Under such circumstances increased fiduciary risks occur due to the market/industry modus operandi rather that to specific project conditions. Besides factoring these two aspects15, some lessons to be learned from this experience include: (i) the need to develop adequate tools for the early detection of market distorsions; and (ii) the importance of maintaining a sound dialogue with country partners when addressing sensitive governance issues, in order to avoid creating additional tension and making the process more disruptive than needed.

Need to recognize the complexity of certain participatory procedures involved in the implementation of any reform process aimed at transforming the modus operandi of a long-established agency, and using adequate instruments to better accommodate the evolving institutional agenda. In retrospect, the delays suffered during the implementation of the large-scale road safety initiative, the bridge management system and/or the institutional renewal component were partially due to a failure to recognize at appraisal that some activities required cumbersome coordination efforts, lacked the institutional champion to move them forward, and/or were to be

15 For instance, building the required capacity to understand the market in which the road sector operate to better design projects, plan activities and enhance competition, transparency and cost-efficiency in the procurement of works; carrying out a study on the road construction industry capacity, foresee higher percentages of contingencies in the project costs and in the Loan Agreement.

20

affected by a shift in priorities16. As such, this type of innovations are better addressed under an APL approach. Project design should take into account the time-consuming efforts behind this initiatives and rather than expect for them to be implemented during the first phase of the program, make use of the flexibility of a two-phase APL allowing sufficient time for a better staged start-up activities and mobilization in general.

The need to ensure that preliminary designs for CREMA projects have balanced rehabilitation and maintenance standards commensurate to surface and traffic characteristics of the network, avoiding unnecessarily conservative solutions that could deviate from the optimum strategy and jeopardize the cost-efficiency of the system. Executing agencies have a tendency to adopt overly conservative rehabilitation/construction solutions that reduce the burden of future maintenance. In general, such a policy does not represent the optimum economic solution for society and care should be taken at the design stage or during implementation to ensure that rehabilitation solutions are commensurate with network surface condition, traffic characteristics, and budget constraints. Equally important is to adequately establish the routine maintenance activities required over the entire network, considering the extent of the rehabilitation works carried out, to avoid excessive increases in the costs of this activity. Unreasonable quantities assumed for activities such as pothole patching and crack sealing that will not occur on a recently rehabilitated pavement and will not be carried out by the Contractor, while paid to him on a lump-sum basis, will have an important impact in the cost-efficiency of the contract.

Usefulness of independent technical audits as a valuable tool for the monitoring of contractors and supervision of performance during the execution of CREMA program. In addition to the regular supervision missions, the independent performance audits carried on a random sample of CREMAs each year helped to: (i) verify that works were being executed in accordance with the contractual program of activities in terms of substance, progress and quality; (ii) detect and report, through additional testing, any deficiency or non-compliance with the specifications and to check whether or not appropriate penalties have been applied when warranted and as mandated by the contract; (iii) check that payments to the Contractor were made in accordance with the terms and condition of the contract; and (iv) recommend any measures or actions deemed as necessary to improve the design, costing, and execution of the CREMA system.

7. Comments on Issues Raised by Borrower/Implementing Agencies/Partners (a) Borrower/implementing agencies. No comments were made. (b) Cofinanciers. Not applicable (c) Other partners and stakeholders. Not applicable

16 For instance: (i) a change in DNV’s top managers as the project began to be implemented introduced certain skepticism with regards the scope and ownership of the institutional renewal plan; (ii) in the case of the road safety component, some of the activities (education campaigns, enforcement measures, etc) are not functions normally under DNV’s jurisdiction and its implementation requires a coordinated approach among all the institutions involved; (iii) the sensitivity of the human resources diagnostic required lengthy consultations with DNV’s labor unions.

21

Annex 1. Project Costs and Financing

(a) Project Cost by Component (in USD Million equivalent)

Component Appraisal Estimate

USD million

Actual/Latest Estimate USD

million

Percentage of variation vs Appraisal

Road Rehabilitation and Maintenance CREMA 286.1 682 138%

Bank-Financed 247 545

Treasury-financed 39.1 137 Bridge Restoration 10.7 6.6 -38% Bridge Restoration 10.5 6.6

Studies (Engineering designs and/or Technical Assistance BMS) 0.2 0

Road Safety 5.8 6.5 12% Pilot Corridors 2.8 0.8 Design Large-Scale Road Safety Initiative 0.2 0.45 Road Safety Upgrade (Works) 2 0 Studies (Engineering Designs) 0.6 0.36 Road Safety Black Spots 3 5.7 Road Safety Upgrading (Works) 2.4 5.7 Studies (engineering Designs) 0.6 0 Institutional Renewal 3.5 1.74 -50% Consultants Services/Technical Assistance 3 1.22 Training 0.1 0.20 Equipment 0.2 0.22 Project Management Unit (PCU) 0.50 0.10 Total Project Costs 306.1 696.8 128% Front-End-Fee 2 1 Total Cost (including Front-end-fee) 308.1 697.8 127%

(b) Financing

Source of Funds Type of

Cofinancing

Appraisal Estimate

(USD million)

Actual/Latest Estimate

(USD million)

Percentage of variation vs Appraisal

Borrower 108.1 206.3 91% IBRD 200 197.9 -1% N.B: The financing gap of US$ 293.6 million is being financed through additional funds from the Treasury and from the follow-up project (APL2) Bank Loan.

22

Annex 2. Outputs by Component

Objective/Outcome Expected Output at Appraisal Achieved under APL1, at closing Aug. 31, 2010

CREMA Coverage 14,182 Km (intended target, yet not formally revised in Loan Agreement).

12,664 Km (89% of appraisal)

40% in poorest provinces 5,163 km (41%)in poorest provinces Institutional Renewal Institutional Renewal Action Plan

implemented Activities in the majority of components substantially achieved, although sometimes below targets. To be pursued during APL2

Components Expected Output at Appraisal Achieved under APL1, at closing Aug. 31, 2010

CREMA Improve road network condition, through: Average IRI in 2006 < 3.9

Average IRI = 3.12

Average IRI over period 2004-2010 < 4 IRI in 2005 = 3.48, IRI in 2006 = 3.27, IRI in 2007 = 3.29, IRI in 2008 = 3.28, IRI in 2009 = 3.12

Bridges Improve bridge network evaluation and condition, through:

BMS in operation

BMS in operation for 250 bridges in most critical condition

5 priority bridges rehabilitated 5 priority bridges being rehabilitated (about 57% of works are completed)

Road Safety Improve road Safety in the country, through Monitoring system developed on pilot corridors

Monitoring system developed

Education campaigns designed Education campaigns designed Institutional arrangements for road safety developed

National Agency for Road Safety created by Law, and in operation

Improve 6 critical black-spots 4 black spots improved 310 km of horizontal marking executed on national roads

310 km of horizontal marking executed through CREMA contracts on national roads

Institutional Renewal of DNV

Short-run Human Resources plan implemented

Human Resources Diagnosis completed. Short-term training program being designed. Implementation of Action Plan to continue during APL2

Adopt Road Sector Financing study recommendations

Road Sector Financing study, and strategic study for Territorial Development completed.

Code of Ethics for DNV developed Code of Ethics finally prepared at project completion and formally adopted on Nov.16, 2010

Performance indicators for DNV and dissemination mechanisms developed

Some progress has been achieved. To be pursued and amplified out during the APL2

Road Users Satisfaction Index developed Little progress. Technical Assistance being contracted. Expected to be carried out during the APL2

Strengthen Division of Environment Environmental Manual updated. Training of staff implemented. Funding of VIIth SLUAT in Buenos Aires with loan proceeds

Modernize technology within DNV Modern computers network procured; Soils Laboratory new equipment procured; state-of-the-art axle-load control system designed. To be pursued during the APL2

Streamline DNV processes in management, procurement, etc.

Consultant contracted for diagnosis of procurement processes; recommendations being analyzed by DNV

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Annex 3. Economic and Financial Analysis CREMA Component The economic analysis to confirm the Internal Economic Rate of Return (IERR) and the Net Present Value (NPV) established at appraisal using the Bank’s HDM model was carried out by the Planning Department of DNV, using the same model. The ex-post evaluation covered a sample of 15 CREMA networks, belonging to both the Bank-financed and Treasury-financed contracts. To be representative, the sample of networks was selected with the following criteria in mind: (i) the rehabilitation and maintenance works were practically completed at the time of the evaluation (at least 90 percent completed); (ii) they would cover different geographic areas of the country (15 provinces out of a total of 23); and (iii) their total length would be equal to at least 30 percent of the total length of new contracts financed under the project and under execution (2,770 km out of 8,499 km, i.e., 33 percent). The following factors that would mainly affect the results of the analyses – as compared to appraisal - were revised and updated:

The actual cost of the works, incorporating increases that occurred as a result of inflation, bid prices, and design adjustments;

The dates or periods at which the rehabilitation components of the contracts were actually executed and completed (start-up year);

The costs of vehicles operation during the period of implementation of the capital works (as established in DNV’s V.O.C Manual, COSTOP);

The actual condition of the pavements (roughness, and other surface defects) and levels of traffic measured, prior to rehabilitation;

The actual rehabilitation standards or overlay thickness executed; and The actual roughness measured after rehabilitation (as obtained from the various independent

technical audits carried out by the Bank, i.e., IRI generally equal to 1.8)

Otherwise, all other meaningful factors were kept unchanged in the evaluation: (i) the analysis period was 20 years; (ii) economic costs remained at about 70.7 percent of financial costs; (iii) annual traffic growth rate after rehabilitation remained at 3 percent for all types of vehicles; (iv) no generated traffic or exogenous benefits were taken into account; (v) the discount rate remained at 12 percent; (v) the base scenario or without project case consisted in a standard routine maintenance policy with 100 percent patching followed by reconstruction works when the IRI reaches 8 IRI; (vi) future maintenance policy for the with-project case consisted in routine maintenance (100 percent of potholes patched) and applying a 5 cm-thick overlay when roughness reaches 4 IRI.

The results of the updated economic evaluation are summarized in the following Table. They show that the revised weighted average Economic Internal Rate of Return IERR is 48 percent compared to a weighted average of 40 percent obtained at appraisal, with a NPV, at 12 percent discount rate, in the order of US$ 149,390/km as compared to a weighted average of US$ 49,521/km obtained at appraisal.

The higher rates of return obtained from the ex-post economic evaluation can be explained by a combination of two factors: (i) the thicker and greater coverage of overlays used for the locally financed CREMA, as compared to the appraisal design, resulted in much lower roughness value after

24

rehabilitation (typically 1.8 IRI), hence in much lower vehicle operating costs for the with-project case than initially anticipated; and (ii) while the cost of road works increased substantially since the appraisal ( by nearly 100 percent), the cost of operating a vehicle in Argentina (costs of new vehicles, tires, spare parts, fuel, and wages) increased by a much larger factor (between 150 and 200 percent), and as a result the net benefits accrued from carrying out the project, as compared to the without-project case, were also much larger than anticipated at appraisal.

Bridge component At appraisal, a set of five priority bridges to be rehabilitated was selected under the project (Rio San Lorenzo, Arroyo San Antonio, Perico y Arroyos, Corrientes, and Guayquiro). However, during project implementation, because of difficulties experienced in the design and/or bidding processes of some of the bridges that delayed the procurement plan of some of these bridges, DNV opted for financing some of these bridges with its own funds and the selection of another set of five bridges that were equally in urgent need of repair or replacement and were finally rehabilitated under the first phase of the program. As shown in the following Table, the economic evaluation carried out for the new set of bridges indicates that the economic return obtained from the investments is high: the revised IERR is 21 percent against an appraisal estimate of 38.1 percent. The revised NPV at a 12 percent discount rate now stands at US$ 4.4 million, compared to an appraisal estimate of US$ 14.7 million. The lower returns are mainly due to the shorter total length of bridges rehabilitated and to the increase in the cost of bridge works from 2004 to 2010.

Table 1-a: CREMA component (2010 Evaluation on a sample of contracts) Malla (or contract)

Province Length,

km Financing IERR %

NPV US$M

NPV US$M/km

CAP US$M

NPV/CAP

102B Chubut 230 Bank 50.42 10.73 0.05 4.43 2.42 103 Rio

Negro 164 Bank 108.11 46.16 0.28 8.54 5.41

104 La Pampa 128 Bank 30.98 6.15 0.05 3.08 2.00 404 Salta 149 Bank 28.93 13.36 0.09 7.7 1.74 301 San Luis 236 Bank 45.87 26.97 0.11 7.12 3.79 312 Mendoza 219 Bank 21.65 5.18 0.02 5.63 0.92

Comparing Evolution of Vehicle Operating Costs and Road works Costs in Argentina between 2004 and 2009

0

0.5

1

1.5

2

2.5

3

3.5

4

4.5

2003 2004 2005 2006 2007 2008 2009 2010

Year

Evo

luti

on

of

Co

sts

VOC

Roadw orks

25

431 Sgo del Estero

252 Bank 40.43 42.04 0.17 15.1 2.78

437 Tucuman 101 Bank 89.01 112.54 1.11 12.41 9.07 133 Neuquen 181 Bank 21.75 4.03 0.02 11.23 0.36 Total Bank 1,660 Bank 45.2 267.15 0.1609 75.25 3.55 501 Corrientes 144 Treasury 33.02 13.62 0.09 6.86 1.99 513C Entre

Rios 83 Treasury 74.00 16.62 0.2 7.13 2.33

309 La Rioja 301 Treasury 22.38 14.99 0.05 14.46 1.04 432 Jujuy 219 Treasury 71.58 25.10 0.11 11.95 2.1 603 Tierra del

Fuego 178 Treasury 32.23 23.57 0.13 15.62 1.51

234 Buenos Aires

125 Treasury 59.90 43.78 0.35 20.07 2.18

Total Local 1,050 Treasury 48.9 137.69 0.13113 76.09 1.81

TOTAL/AVG 2,710 48.03 404.85 0.149 151.34 2.68

Table 1-b: BRIDGE Component

Bridge Length, m Works Investment

US$M Traffic ADT

IERR % NPV

US$M Arroyo San Miguel

25 Reconstruction 1.11 2,250 20.3 0.6

Rio Corinto 25 Reconstruction 2.37

973 20 1.3 Brazo Corinto

75 Reconstruction

Rio Huayco 90 Reconstruction 2.22 860 20.3 1.4 Arroyo 1er Coronda

60 Reconstruction 1.67 1,600 24.2 1.1

Total 275 Reconstruction 7.37 1,420 21.1 4.4

Note: At appraisal, five other bridges were selected and had a total cumulative length of about 950 meters, for a total estimated cost of US$ 10.7 million. The average IERR was 38.1% and the NPV was US$ 14.7 million.

26

Annex 4. Bank Lending and Implementation Support/Supervision Processes

(a) Task Team members

Names Title Unit Responsibility/

Specialty Lending (The system pulls from Task Team in PAD Data Sheet, if any.)

Supervision/ICR Marcelo Hector Acerbi Environmental Spec. LCSEN Roberto Daniel Agosta Consultant TWITR Antonio Leonardo Blasco Sr Financial Management Specialist LCSFM Vickram Cuttaree Senior Infrastructure Economist ECSS5 Jose Luis Irigoyen Senior Manager AFTSN Gerard L. Liautaud Consultant LCSTR Ricardo Eduardo Lugea Senior Procurement Specialist LCSPT Andres Mac Gaul Senior Procurement Specialist LCSPT Reynaldo F. Pastor Chief Counsel LEGLA Lilian Pedersen E T Consultant LCSSO Graciela Sanchez Martinez Social Development and Civil S LCSSO Geise B. Santos Program Assistant LCSEN Maria Marcela Silva Task Team Leader LCSTR Alejandro Roger Solanot Financial Management Specialist LCSFM Marco Antonio Zambrano Chavez Consultant LCSUW

(b) Staff Time and Cost (The system pulls data available for all fields)

Stage of Project Cycle Staff Time and Cost (Bank Budget Only)

No. of staff weeks USD Thousands (including travel

and consultant costs) Lending

FY04 33 187.98 FY05 0.00 FY06 0.00 FY07 0.00 FY08 0.00

Total: 33 187.98 Supervision/ICR

FY04 0.00 FY05 16 92.30 FY06 13 99.55 FY07 25 122.02 FY08 15 102.51 FY09 4 0.00

Total: 73 416.38

27

Annex 5. Beneficiary Survey Results (if any) Not applicable

28

Annex 6. Stakeholder Workshop Report and Results (if any) Not applicable

29

Annex 7. Summary of Borrower's ICR and/or Comments on Draft ICR On December 17, 2010 DNV submitted the Borrower’s ICR. The Report is in Project Files. A summary of said ICR, submitted on January 6, 2011 follows.

REPUBLICA ARGENTINA DIRECCION NACIONAL DE VIALIDAD

PROYECTO

GESTION DE ACTIVOS DE VIALIDAD NACIONAL

PRESTAMO 7242 AR

INFORME EJECUTIVO DE CIERRE FINAL DICIEMBRE DE 2010.

OBJETIVOS del PROYECTO La finalidad general del programa fue consolidar gradualmente una estrategia de gestión eficaz de la red vial, generando parte de los recursos necesarios para preservar la red vial nacional en el largo plazo. El Proyecto propuesto se basó en los logros alcanzados en proyectos anteriores (3611 y 4295), también financiados por el Banco, y tuvo como objetivo principal preservar el estado de los activos viales. Otros objetivos fueron la incorporación de una gestión de puentes sistematizada y abordar temas de seguridad vial. INDICADORES CLAVE

METAS Definida Alcanzada Longitud de la Red Pavimentada no concesionada incluída en el Sistema CREMA. (Km)

14.182 12.665

Implementación de un Sistema de Gestión de Puentes. Funcionamiento total

Funcionamiento Parcial

Adopción de medidas en el marco del Plan de Acción de Renovación Institucional.

Varias Parcialmente

COMPONENTES FÍSICOS

Rehabilitación y mantenimiento de las carreteras mediante los Contratos C.Re.Ma. En esta actividad, que consideramos la mas importante del Proyecto, la meta lograda al fin del APL1 fue del 89 % de la prevista si consideramos los Km. cubiertos con este sistema de contratación. Todo esto con el uso del 100 % de los fondos disponibles en la categoría

Las obras tuvieron mayores costos finales respecto a las previsiones hechas en el Appraisal, fundamentalmente debido a dos factores principales: i) la adopción de soluciones técnicas mayores a las previstas en las Mallas CREMA con financiación local y ii) el aumento del costo de la obra vial en Argentina por los incrementos en materiales, mano de obra y transporte, incremento que fue sustancialmente menor en el tipo de cambio, llegándose a mayores incidencias al considerar los costos en Dólares.

30

Analizando la evolución del IRI se puede apreciar el impacto del Programa CREMA implementado. La mejora sostenida en la condición de las calzadas se refleja en la curva de evolución las reconstrucciones de calzada ejecutadas en las Mallas A1 durante los años 2005-2006 y en las Mallas A2 y A3 en los años 2008-2009, continuándose en la actualidad con la contratación de más obras.

Restauración y Construcción de Puentes: El proyecto contemplaba dos actividades principales:

1) la financiación de obras en cinco puentes en estado crítico y con urgente necesidad de intervención. Las obras se iniciaron en todos los puentes obteniéndose un avance del 57 % al cierre del Préstamo, completándose posteriormente su ejecución con financiación local.

2) la implementación de un instrumento de gestión integral para dar prioridad sistemáticamente a las intervenciones en puentes. Esta actividad se inició en todos los distritos del País, obteniéndose un logro parcial que abarca aproximadamente el 50 % de los puentes de la red vial.

Componente de Seguridad Vial.Se previeron dos subcomponentes: 1) El proyecto tomó la iniciativa de realizar experiencias sobre seguridad vial estableciendo

los mecanismos para su puesta en marcha. Esto incluye diseñar un Sistema para efectuar el seguimiento y la evaluación de los impactos, definir indicadores, formular campañas de educación, realizar diseños de ingeniería como así también las obras en tres corredores propuestos. La actividad llegó a iniciar y dejar casi concluida la etapa de proyecto en dos corredores, quedando pendiente la ejecución de las obras en la siguiente etapa del Proyecto (APL2).

2) Además se financiarían obras puntuales en 6 puntos críticos identificados de la red vial, para mejorar la seguridad vial y la demarcación horizontal sobre 310 km. de rutas. Se concretaron totalmente las obras en 4 intersecciones de rutas Nacionales y se ejecutó la señalización horizontal en los contratos CREMA en una longitud sensiblemente mayor a la prevista.

RENOVACIÓN INSTITUCIONAL DE LA DNV. Como objetivos principales el proyecto financiaría asistencia técnica encaminada a: (i) identificar las necesidades de la DNV en términos de recursos humanos, e implementar un plan de fortalecimiento en el corto plazo; (ii) facilitar la modernización tecnológica de la DNV; (iii) simplificar los procedimientos administrativos que requieren mucho tiempo; (iv) fortalecer la capacidad de la DNV para abordar las cuestiones ambientales; (v) analizar las opciones para lograr la sostenibilidad financiera a largo plazo en el sector vial y flujos de fondos estables para el mantenimiento de caminos, y (vi) fortalecer a la UCP para que preste asistencia a la DNV en la ejecución del Proyecto.

31

Las actividades conducentes a lograr estos objetivos fueron iniciadas en su mayoría aunque no se logró concretar todo lo propuesto. USO DE LOS FONDOS DISPONIBLES Los montos finales desembolsados en las distintas categorías por el Banco y aportados por la DNV se pueden apreciar en el siguiente cuadro

MONTO (en miles de

USD)

CATEGORÍA Asigna

do DESEMBOL

SADO 1 CReMa Parte A1 161.660 161.669 2 CReMa Parte A2 3 Obras Parte B1 – Puentes 4 Obras Parte C1 y C2 – Seguridad Vial

27.8703.3004.320

27.834 2.074 4.027

5 Bienes 340 132 6 Servicios de Consultoría 1.240 991 7 Capacitación 8 Comisión Inicial

2701.000

148 1.000

TOTAL 200.000 197.875

Vemos que el uso de los recursos financieros disponibles por el Banco se utilizaron en un 99 % (197,875 Millones de U$S de los 200 Millones de U$S del Préstamo). La utilización de los fondos muestra una altísima incidencia de los componentes físicos que sumados representan el 98,8% del total de los fondos desembolsados por el Banco. VERIFICACION DE INDICADORES ECONÓMICOS Con el objeto de analizar el desempeño del Proyecto luego de su ejecución, analizando los aspectos ligados al impacto de los resultados obtenidos y la eficiencia con que se gastaron los recursos económicos empleados en las Obras CREMA, se realizó una evaluación económica tomando una muestra de 15 Mallas. La muestra produjo un Valor Actual Neto, al 12% de tasa de descuento, de $AR 1.417 Millones y una tasa de Rentabilidad Económica del 48% confirmándose que se produjo una Rentabilidad Económica aceptable para el subcomponente C.Re.Ma. el cual representó un 95 % del total del Proyecto.

COMENTARIO FINAL Ha habido factores externos al Proyecto que lo han afectado. Entre ellos han sido fundamentales el hecho de que al haberse elaborado el Proyecto en el período de recuperación después de una crisis no se pudo prever los aumentos de costos y la respuesta del mercado a los mismos. Esto trajo como consecuencia mayores costos a los previstos. Los temas de Seguridad Vial, exceptuando las obras puntuales, no llegaron a desarrollarse en la medida de lo esperado, dado que se requiere más tiempo para lograr la coordinación en Seguridad Vial. Se destaca que se continúa trabajando en el tema, y la actividad se sigue desarrollando bajo el APL2.

32

En lo que respecta a la implementación del Sistema de Gerenciamiento de Puentes el mismo se ha iniciado, lo que ya en sí representa un logro importante. Ahora su funcionamiento total en una red tan extensa con una cantidad importante de puentes no fue posible de llevar a cabo. Evidentemente fue utópico pensar que se podría llegar a tener al fin del APL1 el SIGMA Puentes funcionando al 100 %. En cuanto a la Reforma Institucional de la DNV consideramos que si bien se han logrado avances, no es lógico que pueda llevarse a cabo en el tiempo de duración del Proyecto. Por último queremos destacar que consideramos exitoso el desarrollo del Préstamo en cuanto a los objetivos conseguidos y el uso de los fondos disponibles. Todo esto merced al desempeño del Banco, en especial a los funcionarios responsables de las supervisiones, los funcionarios de la DNV y los integrantes de la Unidad Coordinadora, quienes pusieron su empeño y conocimientos para salvar las dificultades que se presentaron a lo largo de la implementación del Proyecto.

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Annex 8. Comments of Cofinanciers and Other Partners/Stakeholders

Not applicable

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Annex 9. List of Supporting Documents

Central (IRIS). Monthly and Semi-Annual Progress Reports. 2004 - 2010.

Dirección Nacional de Vialidad. Gestion 2003-2007 (Subgerencia Control de Gestion – Gerencia de Planeamiento, Investigacion y Control).

The World Bank. Country Assistance Strategy. April 2004.

The World Bank. Estrategia de Alianza con la Republica Argentina. Report No. 48476. May 2009.

The World Bank. Aide Memoires of Supervision Missions. May 2004 - November 2010.

The World Bank. Implementation Status and Results Reports (14 documents). November 2004 to November 2010.

The World Bank. Loan Agreement. Loan 7242-AR. December 2004.

The World Bank. Loan Agreement. National Highway Asset Management Project – Phase II. Loan 7473-AR. June 2008.

The World Bank. Project Appraisal Document. National Highway Asset Management Project – Phase II. Report: 39716-AR. May 2007.

The World Bank. Project Appraisal Document. Report: 28649-AR. May 2004.

DNV. Informe de Cierre, December 17, 2010.

LA PAMPA

S A NL U I S

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Las Lomitas

Cmte. FontanaClorinda

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P. Fernandez

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Comodoro Rivadavia

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A DISPUTE CONCERNING SOVEREIGNTY OVER THEISLANDS EXISTS BETWEEN ARGENTINA WHICH CLAIMSTHIS SOVEREIGNTY AND THE U.K. WHICH ADMINISTERSTHE ISLANDS.

FALKLAND ISLANDS(MALVINAS)

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Corrientes PosadasResistencia

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A R G E N T I N A

NATIONAL HIGHWAYS ANDASSET MANAGEMENT PROJECT

C.RE.MA. NETWORKS TO BE FINANCED BY LOAN AND COUNTERPART FUNDS, AWARDED BETWEEN SEPTEMBER 2004 AND APRIL 2005 (TOTAL 48)

C.RE.MA. AND MODULAR NETWORKS TO BE FINANCED BY COUNTERPART FUNDS (TOTAL 65)

NATIONAL ROADS

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This map was produced by the Map Design Unit of The World Bank.The boundaries, colors, denominations and any other information shownon this map do not imply, on the part of The World Bank Group, anyjudgment on the legal status of any territory, or any endorsement oracceptance of such boundaries.

IBRD 33291

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