Document of The World Bank

FOR OFFICIAL USE ONLY | Lt COPY

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A/'( / - ,L] ReportNe. 5549b-CH Public Disclosure Authorized

STAFF APPRAISAL REPORT

CHILE

ROAD SECTOR PROJECT Public Disclosure Authorized

Mav 23, 1985 Public Disclosure Authorized Projects Department Latin America and the Caribbear. Regional Office

This document has a restricted distribution and mav be used by recipients only in the perforrauce of their official duties. Its contents may not otherwise be disclosed without World Bank authorization. Currency Equtivalents

Since 1983, the Government has followed a crawling exchange rate adjusting the currency to reflect the difference between domestic and international inflation.

Currency Unit = Peso (Ch$) US$1 =ChS 120 (November 1984 = Appraisal Time) USSi = Ch$ 141 (March 31, 1985) USS1 =Ch$ 149 (April 30, 1985)

Fiscal Year

January I - December 31

Units and Measures

I meter (m) = 3.28 feet (ft) 1 kilometer (km) = 0.62 mile (mi) 1 square kilometer (km2) = 0.386 square mile (sq mi) 1 metric ton (m ton) = 1.1 US short ton (sh ton)

Abbreviations

ADT Annual Average Daily Traffic CIF Cost Insurance Freight CNP Corporacion Nacional Portuaria, the National Ports Corporation ECLA United Nations Economic Commission for Latin America EMPORCHI Empresa Portuaria de Chile, the Chilean State-Owned Ports Authority EMPREMAR Empresa Maritima del Estado, the State Shipping Company ENAP Eipresa Nacional de Petroleo, the N3ational Petroleum Company FEC Foreign Exchange Component FFCCE Ferrocarriles del Estado, the State Railways HD"Wodel Highway Design and Maintenance Standards Model IBRD International Bank for Reconstruction and Development ICB International Competitive Bidding IDB Inter-American Development Bank INACAP Instituto Nacional de Capacitacion, National Training Institute IRR Internal Rate of Return ITAO Instituto Tecnico de Adiestramiento de Operarios, a Technical Institute for Training of Equipment Operators LANCHILE Linea Aerea Nacional de Chile, the Stare-Owned Airline LTD Limited Liability Company MOP Ministry of Public Works ArT Hinistry of Transport and Telecommunicatinns NPV tNet Present Value ODEPLAN Oficina de Planificacion Nacional, the Planning Office of the Presidency SONACOL Sociedad Nacional de Oleoductos, the National Pipeline Company TOR Terms of Reference Vialidad The Roads Directorate of MOP STAFF APPRAISAL REPORT FOR OFCIAL USE ONLY

CHILE

RMADSECrOR PROJECT

TABLE OF CONTENTS Page No.

I. PROJECT SUMKARY.1......

Il. THE TRANSPORT SECTOR ...... 3

A. The Transport System and the Subsectors ...... 3

(i) Railvays ...... 3 (Hi) Seaports and Airports ...... , 3 (iii) State-Owned Maritime, Air Transport and Pipeline Companies ...... 4 (iv) The Road Subsector ...... *...... 5

B. Institutional Framework ...... 6

C. Main Sectoral Issues ...... 6

Ci) The Balance between Maintenance and New Construction . 7 (ii) Road Xaintenance Personnel Training ...... 7 Ciii) Road User Charges and Diesel Taxation ...... 8

D. Bank Lending Strategy in the Sector ...... 8

E. Experience with Past Bank Lending ...... o...... 9

III. THE ROADS DIRECTORATE'S INVESTMENTAND MAINTENANCE PROGRAM AND THE PROJECT ...... 10

A. Project Orlgin and Objectives ...... 10 B. The Government's Roads Program 1985-1991 ...... it C. The Project Cost and Financing...... 12 D. Project Components *-...... -...... -...... -. 14

(i) Investment...... 14 (ii) Maintenance ...... 14

E. Economic Evaluation ...... 16 F. Risk Assessment ...... 17

IV. PROJECT IMPLEMENTATION ...... 17

A. The Investment and Maintenance Programs ...... 17 B. Project Execution and Procurement ...... i 8......

This report is based on the findings of an appraisal mission which visited Chile in November 1984. The mission comprised Messrs. A. Byl (Economist) and S. Miquel (Engineer). Mr. L. Pisani (Vocational Training Specialist) participated in part of the mission and prepared the training annex of this report. The report has been edited by Miss V. Foster.

This document has a resuricted distnbution and may beused by recipients only in theperformance of their official duties. Its contents may not otherwise bedisckosed without World Bank authorization. -ii-

TABLE OF CONTENTS (Continued) Fage No.

C. Tender Process and Bank Review of Contracts ...... 21 D. Disbursements and Special Account .. 21 E. Auditing ...... 23 F. Monitoring of the Project .. 23

V. AGREEMIENTS REACHED AND RECOMMENDATION .24

TABLES

2.1 Road Network, Administrative and Surface Classification, December 31, 1984 ...... ,...... 26 2.2 Longitudinal Road by Region and Surface Type, October 1984.27 2.3 Annual Average Daily Traffic and Composition by Vehicle Type at Major Toll Stations in Selected Years 1972-1984 ...... 28 2.4 Evolution of the Registered Road Motor Vehicle Fleet, 1968-1983 ...... ,,,,..... 29 2.5 Road User Charges and Road Expenditures, 1970-1984 .30 2.6 Actual Road Expenditures and their Financing, 1980-1984 ...... 31 2.7 Actual (1984) and Planned (1985-1991) Road Expenditures and their Financing ...... ,,. 32 2.8 Fuel Consumption by Road Vehicles, 1970-1984 ...... 33 2.9 Structure of Retail Prices of Automotive Fuels in Santiago, December 1984 ...... 34 3.1 Consulting Services Required and their Cost, 1986-1988 ...... 35 3.2 Equipment to be Procured under Project, 1987-1988 ...... 36 3.3 Schedule of Equipment Procurement, 1987-1988 ...... 37 4.1 General Procurement Methods ...... 38 4.2 Summary of Routine, Periodic and Deferred Maintenance Components by Works Execution Method and Financing ...... 39 4.3 Estimated Schedule of Disbursements, FY 1986-1989 ...... 40

ANNEXES

1. Training Component .41 2. Economic Analysis ...... ,.,. 56 3. Organization and Execution of the Road Maintenance Program .73 4. Information Necessary for Project Monitoring .79 5. Selected Documents and Data Available in the Project File 81

CHARTS

Chart 1- Organizational Chart of the Directorate of Roads (Vialidad) Chart II- Organizational Chart of Regional Offices for Roads

MAPS

MAP IBRD 18892 - The Basic Network MAP IBRD 18893 - The Basic and Local Networks in the Northern Central Region CHILE

ROAD SECTOR PROJECT

I. PROJECT SUIMNARY

Borrower: The Republic of Chile

Amount: US$140 million equivalent

Terms: Repayment in 15 years, including three years of grace, at the standard variable interest rate.

Project Executing Agency: Ministry of Public Works (Roads Directorate)

Description: The proposed project consists of the Government's 1986-1988 Roads Investment and Maintenance Program. This program includes construction; reconstruction;upgrading; routine, periodic, and deferred maintenance; consulting and training services and procurement of road maintenance equipment.

Beneficiaries: Project benefits will accrue to the economy at large in the form of vehicle operating cost savings.

Risks: There are no major risks affecting the proposed project. The Roads Directorate's performance under the previous two projects has been very good, and the Government has already included the funds required for project implementation in its current three-year plan.

Project Cost and Financial Plan: The total cost of the Government's Roads Investment and Maintenance Program for the 1986-1988 project period is estimated at about US$656 million equivalent with a foreign exchange component of about USS347 million equivalent. The proposed Bank loan represents 21% of the total program and 40% of the foreign exchange component. The balance of the foreign exchange requirementswill be financed by ongoing IDB loans, an ongoing Bank loan, and a supplier credit to be arranged in conjunction with this loan. The Government, will also finance all local costs. Bank loan disbursements are targeted only for expenditures under the maintenance program because of the high rate of return of maintenance and in order to ensure its timely execution. Ministry of Public Works Road Investment and

Maintenance Program (1986-88)

(in millions of current IISdollars)

Components Total Costs 1/ Local Foreign

Investment 253 114 139 Maintenance 312 152 161 Contingencies 91 43 48

Total 656 309 347

Financing Sources

Government 2/ 401 309 92 IDB 44 - 44 IBRD Loan (2297-CH) 57 - 57 Supplier Credit 14 - 14 Proposed Loan 140 - 140

Total Financing 656 309 347

Estimated Disbursements: (Bank FY in millions of U.S. Dollars)

1986 1987 1988 1989

Annual 28 38 46 28 Cumulative 28 66 112 140

Rate of Return: The economic rates of return in the investment program range from 15% to 38% and those of the maintenance program are 49% for paved roads and over 1001 for gravel and earth roads.

1/ Project cost includes about 20i identifiable taxes and duties. 2/ Possible *-B Loan cofinancing may be considered. II. THE TRANSPORT SECTOR

A. The Transport System and the Subsectors

2.01 The backbone of the Chilean transport system is Route Five, a section of the Longitudinal Road which runs from the Peruvian border in the North to Quellon on the island of Chiloe in the South. Over large sections of its alignment, Route Five is paralleled by a railway. The system consists further of a rather dense string of ports that can be used for national and international shipping and a series of airports for local and international air transport. Road transport carries about 662 of domestic freight, the railways carry about 22%, coastal shipping about 7%, and oil pipelines about 4%. Air transport handles less than 1%. International goods traffic is more than 90% by ship (exports about 98%). Passenger traffic is mainly by bus, although 1.7 million railway tickets were sold in 1983 for an average trip of 170 km (up from 102 km in 1975).

(i) Railways

2.02 Chile has about 9,600 km of railways, of which about 6,000 km (mainly the Southern Railway, the Santiago-Valparaisoand Calera-Los Andes links of the Northern Railway, and the private Antofagasta-to-Bolivia Railway) are 1.676 meter gauge. The rest (most of the Northern Railway) is mainly 1 meter gauge. About 1,600 km are electrified, mainly in the South and Santiago-Valparaiso/SanAntonio, and about 700 km are continuous-welded. Commercial goods :raffic by rail amounted to about 4.4 million tons in 1983, over an average distance of about 281 km, compared with 3.9 million tons and 266 km in 1981.

2.03 In the early 1970s, the Chilean railways - overdesigned, overstaffed and unable to eliminate uneconomic lines or to set adequate rates - were covering, in some years, less than half of their total expenditures, and Government contributions were well over US$100 million per year. Since 1973, the railways have taken a set of measures to improve their efficiency and to eliminate deficits. These successfully implemented measures include: (a) phasing out of uneconomic and non-productive services; (b) reductior of the labor force and rationalization of its use (more than 27,000 people in 1973 and less than 8,000 in 1985); (c) partial maintenance of the network and some equipment by private contractors, resulting in reduced maintenance costs; (d) technological improvements, mainly elimination of steam locomotion; and (e) tariff increases more than doubling rates, in real terms, between 1971 and 1980.

2.04 As a result, Government financial assistance decreased steadily after 1976 and has been almost unnecessary since 1980. However, the long-term role of the railways has not yet been clearly defined, and the process of trimming out non-productive lines does not appear to be complete, particularly in the North.

(ii) Seaports and Airports

2.05 Chile has a coastline of more than 5,000 km, with more than 70 cargo port installations. The ten major Chilean seaports are state-owned and - 4 -

are run by Empresa Porttiaria de Chile (EMPoRCHl); the remainder are private, specialized (minerals and petrolpeum) anid general cargo ports. Port policy aims at encouraging port efficiency tlhrntighcompetitinn among public and private ports and, within ports, among terminal operators. Port policy was defined in the 1980s by three major new laws:

- Law 18036 of Septemher 1981, establishing norms for port workers, abolishing the prntected port workers register and introducing three daily shifts of seven hours instead of the previous two eight-hour shifts;

- Law 18040 of December 1981, modifying the Customs Ordinance to simplify port procedures; and

- Law 18042 of October 1981, which was intended to establish a National Ports Corporation (CNP) for the purpose of transforming the ten existing EMPORCHI ports into individual public companies (Sociedades Anonimas); this aspect of the law, however, was never implemented; the law also expressly forbids port authorities to handle, transport or store goods, since this work was to be left to the private sector.

As a result of the changes of the first two laws, productivity increased, costs declined and congestion was eliminated.

2.06 Apart from earthquake damage reconstruction needs in San Antonio and Valparaiso, future investments in Chilean ports will mainly be for changeover to new methods of goods handling, such as containerization, which is proceeding at a rapid rate; and for efficiency improvements, such as better access to the ports and to the f'.nal destination of the imported goods. Only the rapidly growing wood products trade may require new capacity investments in the Concepcion area, from which most wood is exported via the port complex of San Vicente/Talcabuano.

2.07 Chile has an adequate network of airports, and three airports are used for international flights. The Santiago International Airport has been improved recently, but major expansion plans have been postponed since there appears to be little urgent need for them.

(iii) State-Owned Maritime, Air Transport and Pipeline Companies

2.08 EMPREMAR, the state shipping company, and LANCHILE, the state-owned airline, are not scheduled for privatization (for strategic reasons), but would no longer receive Government subsidies, except for specifically identified routes. They have been exposed completely to local competition in national transport and to foreign competition in international transport, since the Chilean Government gives all foreign and local companies access to Chilean international ports and airports. EMPREMAR is operating satisfactorily, but LANCHILE is in severe financial difficulties.

2.09 Chile's 622-km network of pipelines, which extends from Concon in the center (Fifth Region) to Concepcion in the south (Eighth Region), belongs to the Sociedad Nacional de Oleoductos (SONACOL), a company owned partly by private interests and partly by the state-owned Empresa Nacional de Petroleo (ENAP). The pipelines transport mainly gasoline, diesel and liquified - 5 -

petroleum gas (LPG), but alsn many other petroleum products In lesser quantities (some 300,000 cubhic meters per month in total).

(iv) The Road Subsector

2.10 The road network totals about 79,000 km, of which some 12.5% (9,824 km) are paved, either with cement concrete (3,538 km) or with asphalt (Table 2.1). Because of the country's long and narrow shape, the network is dominated by three major stret:hes of North-South roads (4,459 km in total), commonly referred to as the Longitudinal Road or Route Five (from the First to the Tenth Region); the Austral Road between Puerto *'aras (North of Puerto Montt in the Tenth Region) and Villa O'Higgins (at the foot of the impenetrable perma frost area in the Eleventh Region); and, finally, Route Nine in the Twelfth Region between Paso Bagueles on the Argentine border north of Torres del Paine, and Fuerte Bulnes, south of Punta Arenas (Table 2.2).

2.il The longitudinal and the major transversal roads make up Chile's National Roads or *-A roads (5,760 kn) which, together with the so-called Regional Roads or "B' and *C roads, constitute the Basic Network of 22,831 km (Table 2.1 and IBRD Map 18892). The country also has some 56,165 km of local roads or *D- and *-E roads (Principal and Secondary Local Roads). IBRD Map 18893 shows the Basic Network and the Local Network of the Northern Central Region.

2.12 Annual average daily traffic levels (AADT) on the main National Roads, as measured at toll stations, are between 2,000 and 8,500 vehicles (Table 2.3); they grew between 0.2% and 18.3% in the 1976-1981 period, but declined by 3.4% and 11% in 1982 and 1983, respectively, to grow again by 2.4% in 1984. The declines are the combined effect of decreased production and reduced use of passenger cars as a result of worsened economic conditions.

2.13 Another interesting feature of Chilean road traffic is the changing composition of vehicles in the makeup of traffic and the vehicle fleet. The share of passenger cars in traffic increased from 60% in 1976 to 68% in 1982/83, whereas the share of two-axle trucks diminished from 22% in 1972/73 to only 9% in 1983. The share of trucks with three or more axles increased from 5% to 13% in the same period (Table 2.3).

2.14 The registered motorized road vehicle fleet appears to have increased very rapidly since 1976 and reached about 891,000 vehicles in 1983, or about 76 vehicles per 1,000 inhabitants, versus less than half that many in 1975 (Table 2.4). The registered truck fleet, which increased at a similar rate as the whole fleet in 1976-1978, has since declined every year, indicating bnth the degree of oversupply and the lack of demand for truck services, in spite of depressed trucking rates.

2.15 Data on the vehicle fleet, however, continue to lack sufficient detail, and it is hoped that they will be improved under the ongoing study of the Institutional and Economic Efficiency of the Chilean Transport System, given their importance in understanding the current market disequilibrium in trucking (para 2.17). -6-

B. InstitutionalFramework

2.16 Transport-policy-makingin Chile is officially the task of the Ministry of Transport and Telecommunications (MTT), which is in charge of all modes, but the Ministry of Public Works (MOP) is in charge of all transport infrastructureworks and does road planning. It is also responsible for the collection of tolls and the implementationof the vehicle weighing program, but, for the latter two activities, it works in close collaboration with the Police Force or -Carabineros.- The Planning Office (ODEPLAN) published a broad, non-quantitativeSocio-Economic Program for 1981-1989 and updates a rolling three-year plan every year. It also checks whether proposed trans- port investments are justified economically according to its guidelines for analysis and whether they fit into the broad program. The weakest link in this chain is MTT, which is severely understaffed, both quantitatively and qualitatively, particularly in its Transport Planning Unit. Even in a strictly market-oriented economy, the major function of data processing, to facilitate knowledgeable operation of the market, should be performed satisfactorilyby this Ministry. A recently approved Public Sector Management Technical Assistance Loan will address, inter alia, the linkages between sector-policy formulation and management of the public enterprises in the transport sector.

C. Main Sectoral Issues

2.17 Since taking power in 1973, the Government has actively introduced measures to implement a market-oriented transport strategy. These measures include: (a) eliminating all restrictions to entry into the road transport industry; (b) attempting to eliminate all transport sector subsidies; (c) charging air, land and maritime transport for the use of public infrastructure; (d) decentralizing decision-making in each transport mode regarding tariffs, design of services, and personnel policies; and Ce) treating all modes equally in terms of taxes, social services, and such.

2.18 The Government had a certain amount of success with the imple- mentation of its strategy, but was Got fully satisfied with the workings of the competitive system. It therefore asked the Bank for assistance in determining the major obstacles in the way of a better functioning transport market in Chile. This request led to the formulation of a study of the Institutional and Economic Efficiency of the Chilean Transport System, which is presently under way with the United Nations Economic Commission for Latin kmerica (ECLA) as executing agency, as well as an Intermodal Transport Study of the Corridor Santiago-Ports of the Fifth Region. These studies are being financed under Loan 2297-CH and are expected to be completed in early 1986.

2.19 The major sectoral issues being addressed by these studies are: (a) the modal split in land transport and road user charges; (b) the effects of complete deregulation of the trucking industry; (c) policy development in the ports subsector; (d) the impact of subsidy reduction to LANCHILE; and (e) the physical, institutional and organizational needs for rapid contain- erization.

2.20 This proposed project will focus upon the following main issues in the roads subsector: the balance between maintenance and new construction; road maintenance personnel training; and road user charges and diesel taxation. -7-

(i) The Balance between Maintenance and New Construction

2.21 Road maintenance and road investment efforts have declined, in dollar terms, from the levels reached in 1981, mainly because of economic problems, declining goods traffic and rapid devaluation of the peso in relation to the dollar since 1982 (Tables 2.5 and 2.6). However, in recognition of the deteriorating conditions of the network (Annex 2, Table 2), maintenance expenditures are expected to rise by 39%, in real terms, In 1985 (Table 2.7). In the years of the project (1986-1988), they are expected to rise further, in real terms, by as much as 62% in 1986, 13% in 1987 and 17% in 1988, whereas investment expenditures are expected to decline over the same period.

2.22 Substantial investments for reconstruction and upgrading nf main roads and for major bridge rehabilitationand reconstruction are expected to continue through 1985, but will drop off rapidly in 1986 through 1988 - the project period - to make way for increasing maintenance expenditures. Recently, however, the Inter-American Development Bank (IDB) approved a US$36 million loan to Chile for the construction of a major penetration road in the Austral area of the country. This will increase construction expenditures for this road, from an average of US$5 million per year in the first three years of the 1980s and US$11.7 million in 1984, to an average of US$14.6 million per year over the project period. This road, as evaluated by IDB, has a satisfactory internal rate of return (IRR) with individual IRRs of road sections, excluding time savings, ranging from 12.6% to 67%. However, because of its long payback period, the road's priority needs to be closely monitored, particularly in light of the current economic situation. Nevertheless, the levels of road expenditures and the balance of the program are still satisfactory. To prevent the trend toward new construction at the expense of maintenance and rehabilitation from reappearing, agreement was reached during negotiations upon the size and composition of the six-year 1986-1991 roads program (Table 2.7), which would be changed only with approval of the Bank.

(ii) Road Maintenance Personnel Training

2.23 Although several attempts have been made in the past to establish a sound personnel training program in HOP and MTT, training still appears to be a neglected area in the transport sector. Until 1979, training in Vialidad was carried out by: (a) an MOP-wide Training Institute, ITAO (Instituto Tecnico de Adiestramiento de Operarios), for heavy machine operators, drivers, welders and mechanical maintenance workers; and (b) a Training Unit of Vialidad, oriented toward training for professional and administrative personnel. However, because of policy changes and the reorganization of Vialidad, both units were eliminated and training was assigned, as an additional responsibility, to the Administrative Department of Vialidad, which only coordinates courses planned by the Subsecretary of MOP.

2.24 Vialidad's management is aware that its personnel needs additional training in order to employ more efficiently the work methods to be introduced as part of the proposed Road Sector Project. Toward this end, Vialidad's management is determined to establish a comprehensive training program, aimed at strengtbening the technical skills of professional personnel, as well as of road foremen, equipment operators and mechanics. Since Vialidad's training section lacks experience, the training component included in the proposed project would help to establish a suitable training department capable of implementing the training activities required to achieve the project's institutional and physical objectives (Annex 1).

(iii) Road User Charges and Diesel Taxation

2.25 Road vehicle fuel consumption, in spite of an increase in the vehicle fleet by more than 10% per year during 1976-1982, increased by less than 8% per year in that period. On the other hand, diesel consumption increased faster than both gasoline consumption and the vehicle fleet (Tables 2.4 and 2.8). Retail prices of automotive fuels cover, with a con- siderable margin, the corresponding opportunity costs (internationalprices, Table 2.9). As of December 1984, in the Santiago region, retail prices for regular and premium gasoline were, on the average, about 432 above the International or ex-refinery prices plus distribution charges and retailers' margins, while diesel oil was retailing at some 20X above (Table 2.9).

2.26 Although revenues from road users have substantially exceeded the Government's total road-related expenditures since the mid-1970s (Table 2.5), a considerable cross-subsidizationexists between gasoline-powered cars, mainly for personal transport, and diesel-powered vehicles, mainly trucks and buses, leading to inefficiencies in the road and rail traffic mix. The main inequity occurs because an excise tax of 27% is levied upon the ex-refinery price of gasoline in addition to the 20% value added tax levied upon the retail price before taxes, while no such excise tax is levied on diesel. A diesel fuel tax would be an efficient way to make the trucking industry pay a larger share of the road construction and maintenance burden. The Government is aware of the problem and was planning to implement corrective measures progressively,following the recommendationsof a road user charges study by a local consulting firm. So far, it has not acted because of the acute sensitivity of the nation's influential trucking industry regarding this issue and the need to study the road/rail relationship anew.

2.27 The ECLA study on the Economic Efficiency of the Chilean Transport system, which is expected to be completed in early 1986, is addressing the issue of diesel pricing and road user charges in general in the broader context of the current competitive situation in the land transport market. During negotiations, agreement was reached on gradually correcting the retail price of diesel fuel, taking into account the recommendations of the ongoing ECLA study.

D. Bank Lending Strategy in the Sector

2.28 The present Chilean Government rapidly increased its reliance upon the Bank in the sector to the point where it engages in frequent dialogue with the Bank concerning the implementationof liberal market-oriented transport policies. In addition, during the preparation of the Second - 9 -

Highway Reconstruction project, emphasis in the dialogue with the Bank shifted from road construction to maintenance. The Government is convinced that Bank experience would contribute substantially toward introducing sound preventive maintenance and pavement management.

2.29 The Bank has responded very favorably to this policy change and has expanded its field of activity in Chile from highway reconstruction to road maintenance and to studies of the whole transport system. These studies mav lead to further Bank operations in other transport suhsectors, and are already contributi-g significantly to sophisticated personnel training, not only in the Roads Directorate but also in MTT. It is Bark strategy to expand and deepen this-cooperation (paras 2.17-2.19).

E. Exnerience with Past Bank Lending

2.30 The Bank has been involved in the road subsector in Chile since 1961, through five loans and a credit, totaling about USS219 million. The Bank operations were for the construction, upgrading and rehabilitation of more than 3,000 km of roads; the periodic maintenance of about 2,200 km of roads; the preparation of feasibility and final engineering studies for more than 1,500 km; and the building of road maintenance capacity through technical assistance and procurement of maintenance and research equipment.

2.31 The First Highway Construction and Maintenance Project was financed by Credit 4-CH for USSl9 million and Loan 287-C for USS6 million, both in June 1961. The Second Highway Maintenance Project (Loan 558-CH for USS13.2 million in September 1968) and the Third Highway Project (Loan 668-CH for USS10.8 million in June 1970) are the first two projects for which Project Completion and Project Performance Audit Reports (PPAR) were issued (1979 and 1980 respectivelv). The objectives of these two projects were not fully realized because of the effects of major changes in the economic, political and social structure of the country, insufficiency of funds for recurrent road expenditure and rampant inflation. The latest PPAR drew attention to the need for selective organization strengthening,which was subsequently addressed in the First and the Second Highway ReconstructionProjects.

2.32 With the First Highway Reconstruction Project (Loan 1927-CH for US$42 million in April 1981), a new era in Bank relations with Chile started. The main objective of the project was the reconstructionof about 250 km of Route Five, mainly south of Santiago (IDB was doing another 500 km). Execution of this loan progressed so well that disbursements were completed on schedule in 1984, and compliance with the loan covenants concerning implementation of axle load limit regulations and improvement of road maintenance was exemplary. All planned weighing stations are in operation, axle load limit violations have been reduced from about I0 of all trucks to less than 0.5Z of all trucks, and several large private enterprises have installed their own weighing stations.

2.33 Ihe Second Highway Reconstruction Project (Loan 2297-CH for US$128 million in August 1983) was approved to help MOP to continue the reconstruction of 435 km of Route Five north of Santiago, and the reconstructionand widening of about 411 km of main transversal roads. It also helped Y,OPto start a major road maintenance effort of the Basic Network by financing regraveling, surface dressing and overlays of about 2,200 km of major roads; construction and rehabilitation of a series of 100 bridges (including 60 km of access roads); and acquisition of road maintenance - 10 -

equipment and pavement research and laboratory equipment, as well as consulting services and training.

2.34 Physical project implementation is progressing very well and an schedule, hut disbursements are lower than expected, because of lower-than- expected project costs, due to the competitive construction marker and the strength of the US dollar in relation to the Chilean peso. At the Covern- ment's request, the Bank has allowed the Government to execute some emergency works after a recent storm, and some extra maintenance and rehabilitation works. With the new arrangements, about US$18 million, in cost savings, of the USS128 million loan were expected to be canceled eventually. However, in response to the recent earthquake in Chile, the Bank has amended the loan to permit significant portions of the savings to be used for emergency repairs for roads, bridges and ports. A further request to use some of the still remaining funds for repair of a severely damaged diesel locomotive workshop is still expected. Consulting services to identify and appraise this element are being recruited.

III. THE ROADS DIRECTORATE'S INVESTMENT AND MAINTENARCE PROGRAM AND THE PROJECT

A. Project Origin and Objectives

3.01 Since the mid-1970s, tne Chilean Government has been expanding municipal responsibilities for services, including health, education and ir.frastructure maintenance. Consequently, responsibility for the Local Road Network (about 56,000 km) was to be turned over to the municipalities. The Ministry of Public Works' Roads Directorate (MOP's Vialidad) would then have remained responsible only for the maintenance of the Basic Road Network (22,500 ka). However, measures to make village councils responsible for the local network were never implemented, a; 3 Vialidad never completely relinquished responsibility for the local network.

3.02 During transport sector work and the appraisal of an ongoing highway reconstruction project (Loan 2297-CH of 1983), the Bank identified as the major issues: (a) the need to provide more adequate funding and better organization for maintenance of the basic highway network; and (b) the uncertainty surround'ng the intended execution and financing of local road maintenance by the municipalities. The first issue was partially resolved by an adequate construction, reconstruction, rehabilitation and maintenance program for the basic network for the period 1933-1989, whose implementation was made a covenant of Loan 2297-CH. To confront the second issue, a study was commissioned to prepare a plan of action and to find adequate financing for the maintenance of the local network.

3.03 Early in the study period, tne Government and MOP concluded that the municipalities did not have equipment, personnel, or funds to perform adequate maintenance of local roads, nor would they be able to acquire the necessary means in the near future. Via.idad therefore started, in mid-1983, pilot rural road maintenance programs in three southern provinces to establish the extent of possible voluntacy contributions from the municipalities for the execution of these programs.

3.04 Based upon the results of the pilot programs, Vialidad now feels, and the Ministries of Interior and Finance agree, that it should - 1i -

re-establish, as an objective, the assuming of full responsibility for most of the road network; municipalities, lhowever,are still expected to collaborate with Vialidad on easily accessible roads of purely local interest. As a first step, Vialidad has prepared a program for the rehabilitationand maintenance of the Primary Local Network (24,000 km), including a lump sum of money for performing spot interventions on the remaining, much less traveled 32,000 km of the local network (Secondary Local Network) whenever traffic flows are seriously impeded.

3.05 Vialidad is capable of executing this expanded program (para 4.05) and of helping to create an atmosphere of cooperation with the municipalities for the spot maintenance of the remainder of the network. Vialidad is also ready to help the Ministries of Finance and the Interior to redefine the physical and financial role of the municipalities in maintenance of the Secondary Local Network on the basis of experience under ongoing pilot pro]- ects. During negotiations, it was agreed that Vialidad would prepare, by December 31, 1986, a maintenance plan for secondary local roads satisfactory to the Bank, including a redefinition of the physical and financial role of the municipalities.

3.06 The main objective of the proposed project, i.e., to help the Government, both institutionallyand financially,with the execution of its road reconstruction and rehabilitation program and with the re-establishment of an effectively functioning road maintenance organization, is consistent with national and sectoral objectives and priorities. Specifically, the proposed project would help the Government to: (a) complete a major main road reconstruction effort; (b) continue to improve the organization and execution of overall maintenance for the remaining gravel roads in the basic road nerwork; (c) re-establish a functional local road maintenance system with improved technical execution; (d) improve Vialidad's competence in the economic evaluation of road maintenance and rehabilitation activities; (e) streamline the road maintenance efforts of municipalities through a study of possible voluntary physical and financial contributions to the mai5-tenance of the Secondary Local Network; and (f) strengthen the capability of Viaiidad's Road Maintenance Directorate through a comprehensive training program.

B. The Government's Roads Program 1985-1991

3.07 The Government's planned road expenditures for the 1985-1991 period (Table 2.7) cover three years beyond the 1986-1988 project period. Another operation in the additional three years would be necessary for further consolidation of the substantially increased activity and expansion of the maintenancp effort to the Secondary Local Network, which, under the proposed project, would get only spot attention (para 3.04). The 1985-1991 period is also the time during which the ongoing major reconstruction and deferred maintenance efforts should be substantially completed. As far as construc- tion is concerned, it is the period in which the Government plans to complete the previously discussed Austral Road (para 2.22) and to complete, particularly during 1989-1991, a major widening of the Santiago-Valparaiso (including tunnels) and Santiago-San Antonio roads, leading to the most important ports and summer tourism areas. All significant construction, reconstructionand upgrading elements in the program, especially during the next three years, are already included in ongoing Bank and IDB projects. - 12 -

3.08 The Government's planned road expenditures are reasonably balanced (paras 2.21 and 2.22). The economic justification of the Austral Road proj- ect has been reviewed by IDB, which has approved Loan 490/0C-CH for US$36 million to finance Its construction. All major elements of the program are subject to economic evaluation using a methodology developed by ODEPLAN, whlch has been reviewed and found acceptable by the Bank. The only weakness of the current ODEPLAN system Is that it does not include optimization calculations of the program as a whole. This optimization has been done by Vialidad and the Bank, mainly for the reconstruction and maintenance program, and it is clear that rates of return for that program are higher than those for individual construction projects. If, therefore, less than the required financing were to be available from the Government, the maintenance program would have to receive priority over the investment program, whose execution would then have to be spaced over a longer time period. This was agreed during negotiations.

C. The Project Cost and Financing

3.09 The proposed project consists of the Government's 1986-1988 Road Investment and Maintenance Program. The total project cost, including about 20% identifiable taxes and duties, amounts to US$655.5 million with a foreign exchange component of US$346.8 million. The foreign exchange component is broken down into US$300.8 million of capital costs (87% of the total foreign exchange cost) and US$46.0 million of recurrent costs. The proposed loan of USS140 million would finance 40% of the foreign exchange cost of the project. Financing from the ongoing project (Loan 2297-CH), ongoing IDB loans and a supplier credit, to be arranged in conjunction with this project, amounts to about US$114.5 million, bringing the total foreign financing to USS254.5 million, which is less than the foreign exchange component of the capital cost of the investment and maintenance program L1 . This program is detailed in Table 2.7 and summarized in the table on page 13. The maintenance program, excluding several specific maintenance works financed under Loan 2297-CH and IDB Loan 490/OC-CH, has been selected for Bank loan disbursements to ensure the timely execution of this high priority component (para 4.08).

3.10 For the estimation of the foreign exchange component (FEC) of civil works, MOP has developed a computer program that establishes the FEC of each construction or maintenance item and calculates the FEC for typical opera- tions. The FEC for consulting services was estimated assuming that contracts would normally be awarded to local firms with a limited participation of foreign consultants (para 3.12). For goods to be procured under the project, the FEC has been estimated at 65%, based upon the CIF prices at the port of entry into Chile and payment by MOP of 25% import duties, 2% customs clearance and port costs and 20% sales tax (totaling 53%).

3.11 Because of the sectoral approach of this project, no physical con- tingencies have been considered. Price contingencies for 1986, 1987 and 1988, on the basis of March 1985 prices, assume internal and external price increases of 5% for 1985, 7.5% for 1986 and 8% for 1987-1989 (MUV Index).

3.12 The cost estimates for civil works related to investments are based upon quantity estimates and current unit prices. and are reasonable given the standards proposed and the expected traffic. The cost estimates for civil works related to maintenance were prepared by MOP based upor current costs for such operations by force account and by contract, in distinct geographic

1/ 'B loan cofinancing may be considered. - 13 -

CHILE

ROAD SECTOR PROJECT

Planned Road Investment and Maintenance and their Financing, 1986-1988 (in millions of US dollars, at March 1985 prices)

Total Local Foreign Costs Cost Cost As Z of Amount Amount Amount Amount Total Capital Recurrent

Investment 252.8 113.7 139.1 55 139.1

Civil Works 250.1 112.4 137.7 55 137.7 - Construction 83.0 37.3 45.7 55 45.7 - Reconstruction 117.7 52.9 64.8 55 64.8 - Upgrading 49.4 22.2 27.2 55 27.2 -

Consultant Services 2.7 1.3 1.4 50 1.4 -

Maintenance 312.3 152.4 159.9 51 120.2 39.7

Civil Works 280.6 140.1 140.1 50 104.2 35.9 Routine 78.0 42.1 35.9 46 - 35.9 Periodic 107.6 51.6 56.0 52 56.0 - Deferred 94.6 46.4 48.2 51 48.2 - Consulting Services and Training 7.5 3.7 3.8 51 - 3.8

Equipment Purchases 24.6 8.6 16.0 65 16.0 -

Subtotal Program 565.1 266.1 299.0 53 259.3 39.7

Price Contingencies 90.4 42.6 47.8 53 41.5 6.3

Total rrogram 655.5 308.7 346.8 53 300.8 46.0

Sources of Financing

Government Financing 1/ 401.0 308.7 92.3 Foreign Financing 254.5 - 254.5 Bank Financing 197.0 - 197.0 Loan 2297-CH 57.0 - 57.0 Proposed Loan 140.0 - 140.0 Supplier Credit 13.5 - 13.5 IDB Financing 44.0 - 44.0

Total Financing 655.5 308.7 346.8

1/ -B loan cofinancing may be considered. - 14 -

regions of the country: the arid north with extreme daily temperature variations, the temperate center with light rainfall and the cooler south with heavy rainfall. Cost estimates for maintenance equipment and vehicles have been prepared on the basis of MOP-supplied manufacturers' quotations and custom duties, port costs and taxes to be paid by MOP. The cost for consult- ing services has been estimated as shown in Table 3.1, assuming about 80 man-months for foreign consultants and 1,188 man-months for local consultants, including 36 man-months for foreign lecturers and 12 man-months for a local consultant for training organization and administration. The cost of the training component has been estimated by detailed costing of all elements (Annex 1, Table 4).

D. Project Components

(i) Investment

3.13 The investment component includes civil works and consultant services. The civil works component comprises construction, reconstruction and upgrading. Construction consists mainly of the Austral Road and some widening or doubling of sections of major, heavily traveled roads, as well as a one-lane road between Punta Arenas and Puerto Natales (Route Nine of the Longitudinal Road), and a few new bridges and urban overpasses. Reconstruc- tion is mainly the continuation of the major effort to reconstruct Route Five, the main thoroughfareof the country, and major transversal roads. Upgrading consists mainly of a program of paving major gravel roads with more than 300 vehicles per day, some of them part of the basic network. Finally, the consultant services component deals mainly with local consultants to supervise the investment activities.

(ii) Maintenance

3.14 The maintenance components include civil works, equipment and consultant services and training. The civil works comprise routine, periodic and deferred maintenance. Routine maintenance of the Basic Network (22,500 km) and of the Primary Local Network (24,000 Im) includes: (a) patching and sealing of joints and cracks on cement concrete and asphalt paved roads; (b) grading and spot regraveling of unpaved roads; (c) clearing and maintenance of drainage ditches and structures; (d) maintenance of bridges and river training structures; (e) maintenance of road signs, tunnels, weighing and toll stations; and (f) snow removal on specific mountain roads. On the remaining 32,000 km of the network (Secondary Local Network), which will get neither regular routine nor periodic maintenance from the Roads Directorate at this stage, voluntary municipal contributions will be encouraged under the project. Kaintenance of the Secondary Local Network includes only spot interventions whenever these roads become impassable (para 3.04).

3.15 The periodic maintenance component will include: (a) resealing and surface treatments or overlays of paved surfaces, both roadways and shoulders; (b) regraveling of unpaved surfaces; and (c) repair of bridges and of river training structures. Most surface treatment and overlay operations are handled, at this time, under deferred maintenance; under the proposed project, however, they will be increasingly integrated into the periodic maintenance program. - 15 -

3.16 The deferred maintenance component focuses upon bringing neglected paved and unpaved roads back to normal maintenance standards. The main activities included are: (a) resealing and surface treatments or overlays of paved surfaces; (b) patching and regraveling of unpaved surfaces; (c) paving cf gravel roads with high traffic levels (surface treatments for roads above 300 vehicles per day and overlays for roads above 1,000); and (d) rehabili- tation or reconstruction of drainage structures, including bridges, and of river training structures.

3.17 The equipment component includes procurement of road maintenance equipment and vehicles to replace wornout units and to increase the stock of equipment to handle a larger network. The equipment will serve to execute the limited force account operations included in the road maintenance program and the vehicles will be used for project supervision. The tentative list of equipment to be purchased (Ta:lIc 3.2) and its procurement schedule (Table 3.3) were agreed upon at negotiations.

3.18 The consulting services component includes professional services for: (a) project coordination; (b) engineering studies; (c) supervision of major civil works; (d) continuation of the long range pavement evaluation and design studies directed toward the establishment of an adequate management system, initiated under the Second Highway Reconstruction Project (Loan 2297-CH); (e) training; and (f) other feasibIlity and engineering studies to prepare a possihle future project (Table 3.1).

3.19 Finally, the training component will consist of the implementation of a series of coordinated measures to upgrade the maintenance capability of Vialidad, including:

(a) training of about 2,000 technical and administrative employees, emphasizing hands-on production training (Annex 1, Table 1);

(b) provision of technical assistance in: (i) pavement followup and condition monitoring; (ii) road maintenance administration; (iii) surface treatment; (iv) planning; (v) equipment administra- tion; and (vi) organization and administration of training programs (Annex 1, Table 2).

3.20 Vialidad's training program is primarily addressed to mechanics, assistants, equipment operators, road foremen, professional storekeepers and accountants and administrative personnel. The enrollment by function is projected in Annex 1, Table 1. The training program includes about 150 courses and seminars with an average duration of about 50 hours. It is expected that about 70Z of these courses will be contracted with local train- ing institutions, such as Instituto Nacional de Capacitacion Profesional (INACAP), the Chamber of Construction Industries, and universities. However, in all cases, course contents will be defined by Vialidad's technical specialists.

3-21 To carry out the training program, the project would further provide: (a) fellowships abroad, of one to three months duration, for about 27 Vialidad professionals, including the regional and provinc*al chiefs (Annex 1, Table 3); (b) exchange of experiences among the regions through internal tours of about one week duration for about 46 professionals; and - 16 -

(c) 48 staff-months of expert and consultant services, of which 36 staff- months should be for expatriate technical advisors and 12 staff-months should be for local advisors (Table 3.1 and Annex 1, Table 2).

3.22 Training of road foremen, drivers and heavy equipment operators would be carried out mostly in the field. Thus, trainees would learn under real working conditions while performing needed maintenance rehabilitation works on specific sections of roads. Training of mechanics would be carried out in the regional workshops through practical courses using and repairing worn and unserviceable equipment. Experienced personnel would be trained in pedagogical matters to perform as part-time instructors under the supervision of the local training coordinators. Short technical seminars would be conducted for maintenance engineers, equipment supervisors, storekeepers and accountants, and foremen and administrative personnel, both in Santiago and in the regions.

3.23 A training advisory committee, staffed by the heads of key depart- ments of Vialidad and led by the deputy director, was appointed during project preparation. The recommendations of this committee served as basis for the preparation of the present report. An external consulting firm was hired in January 1985 to provide technical assistance in: (a) assessing training needs at the national level; (b) organizing the Training Unit; (c) preparing a detailed three-year training plan; (d) defining course contents; (e) assessing instructors' requirements; (f) preparing detailed fellowship and technical assistance programs; (g) assigning training personnel to the training unit; (h) preparing lists and specifications of training materials, learning aids and equipment needed; and (i) determining specific training costs and evaluation systems.

3.24 At negotiations, the Government confirmed that, by November 30, 1985, it would furnish to the Bank a plan of action satisfactory to the Bank, to carry out the Training Program and that, no later than December 31, 1985, it would establish and staff the national training organization for the road subsector - comprising the headquarters Training Unit, regional coordinators and training advisory committees. The plan of action would include the Terms of Reference for contracting training services (para 4.15).

E. Economic Evaluation

3.25 The economic evaluation of this project was performed in two phases. In a first phase, the whole network of the country was evaluated by Vialidad, using the Second Generation Highway Design and Maintenance Standards Model (HDM II). This evaluation resulted in internal rates of return (IRR) of selected construction, reconstruction, upgrading and mainte- nance activities. On the basis of the thus obtained IRRs, an investment and maintenance program for the period 1985-1991 was prepared. Most of the investments in that program for the project period 1986-1988 are included in ongoing Bank and IDB projects. The IRRs in the investment program range between 15 and 38%. Detailed information is in the Project file (Annex 5).

3.26 Because of the high rates of return obtained on maintenance activities, it was decided that further economic evaluation should concentrate upon expanding and optimizing the Government's road maintenance effort. In the second phase, the Bank's new Third Generation Highway Design and Maintenance Model (HDM III) was used. This model predicts the life-cycle - 17 -

cosLs of different road design and maintpnance options, including different time-staging strategies, either for a given road project on a specific alignment or for groups or links of an entire road network. It estimates the total costs for large numbers of alternative maintenance policies on a year-by-year basis, and can thus be used to search for the alternative with the highest net present value (NPV) at given discount rates, or the highest IRR. The objective is, thus, to search out that combination of standards and policies which results in the minimum total life-cycle costs to society, including the costs to road users, as well as the costs borne by the Highway Authority. Vehicle speeds and operating costs, and road deterioration and maintenance costs, are estimated internally by the model as a function of the road design and maintenance standards, traffic volume and axle loads, and environmental conditions. Maintenance and vehicle operating costs are first estimated in physical quantities; then, prices and unit costs, as specified by the user, are applied to determine the total financial, economic and foreign exchange cost.

3.27 Twenty-seven maintenance policies were evaluated for each link of paved roads and 31 for gravel and earth roads. The evaluation for each link was done on the basis of the NPV and of the IRR, first assuming no budgetary constraints and later taking into account the available budgets for the project period. The details of the optimization process are shown in Annex 2. The IRR of the program on asphalt roads is about 49%, and, on the gravel and earth roads, it is over 10OZ. The analysis also shows that, with the proposed expenditure level, the Government will move rather close to an economic optimum in maintenance.

F. Risk Assessment

3.28 There are no major risks affecting the proposed project. Vialidad's performance under the last two projects has been very good. Loan 1927-CH was completed on schedule and Loan 2297-CH is on schedule as far as the physical execution of works is concerned. There may be some uncertainty regarding the availability of counterpart funds and the capacity of Vialidad to execute planned works and contracts without staff increases. The second factor will be monitored closely. As far as the first is con- cerned, the Governmer.tattaches high priority to the implementation of the project, partly in the framework of a broader objective of employment generation. The Government has already included the funds required for the project in its current three-year plan and has officially agreed to provide the funds as required by planned expenditures of Table 2.7 or as modified from time to time in agreement with the Bank. This arrangement was confirmed at negotiations.

IV. PROJECT IMPLEMENTATION

A. The Investment and Maintenance Programs

4.01 All of the subprojects included in the 1986 investment program have been subjected to economic evaluation and show satisfactory IRRs. The program was officially agreed upon during negotiations. Most of the subprojects are being financed under the ongoing project (Loan 2297-CH) or IDB loans. Investment levels for 1987 and 1988 have been agreed, and potential new subprojects have been identified. The detailed program for each year will be developed by the Government in accordance with agreed upon procedures and will be reviewed by the Bank annually (para 4.24). - 18 -

4.02 The maintenance program for asphalt paved, gravel and earth roads has been optimized using the IIDMIII model (Annex 2, Table 8). A detailed program for 1986 and tentative programs for 1987 and 1988 were agreed during negotiations. These programs will be adjusted annually on the basis of more up-tn-date information, results of research and measurements carried out with new equipment purchased under Loan 2297-CH and experience gained in executing the previous year's program. They will be discussed and agreed with the Bank during the semi-annual project review meetings (para 4.24).

4.03 Routine maintenance programs for cement-concrete roads, bridges, and signalization have been developed, based upon current MOP experience and they take existing budgetary constraints into consideration. These programs have been included in the annual programs and will be reviewed and adjusted annually.

4.04 Summary information on the technical and economic evaluation of the major subprojects included in the investment and maintenance program will be prepared by Vialidad, following guidelines prepared by ODEPLAN. These guide- lines have been reviewed by the Bank and found satisfactory. The summary forms contain information on the rationale for the proposed works, definition of the design standards, the alternatives considered, the costs, and the results of the economic evaluation. This information will be reviewed by the Bank in the course of the semi-annual review meetings (para 4.24).

B. Project Execution and Procurement

4.05 Execution of the project would be the responsibility of MOP's Roads Directorate (Vialidad), which has a central and regional staff of about 4,000, of which some 150 are engineers and a further 50 are other categories of professionals. It is a policy of the Government and of Vialidad to keep the staff as small as possible, to execute as much work as possible by contract, and to hire consultants or temporary contract workers to handle overflow of work. Vialidad's organization is shown on Chart 1. It comprises mainly the Departments for Studies, Construction, Bridges, Urban Roads, River Training Structures, Laboratory, Maintenance Operations, and Administration, and is adequate for the execution of the investment elements of the project. Execution of the maintenance elements of the project would be the responsi- bility of the Maintenance Department, which is presently being reorganized and strengthened in preparation for the expected increased obligations (Annex 3). Actual execution of the maintenance works would be the responsibility of Vialidad's 13 regional offices, closely monitored by the Maintenance Department.

4.06 The Maintenance Department is being organized into four sub- departments: (a) the Maintenance Planning Subdepartment (created in May 1982 under Loan 1927-CH) has carried out the preparation of the proposed project and is responsible for maintenance inventory, medium and long range planning, estimates of work quantities, frequencies of operations and costs, priority of works, estimates of needed revenues, and programing of works; (b) the Normative Subdepartment studies and determines maintenance techniques, technical specificationsand contracting procedures; (c) the recently created Executive Subdepartment will implement the work programs, allocate funds and resources, monitor implementation of the program and actual operational costs, manage financial aspects of the program, prepare disbursement applica- tions and coordinate training; and (d) the Services Subdepartment handles procurement of goods and equipment maintenance. - 19 -

4.07 The organization of a typical regional office, represented on Chart 2, comprises: (a) the Administration Department; (b) the Force Account Maintenance Department, including a Subdepartment for equipment and workshops administration; and (c) the Civil Works Contracts Department, whichiis in charge of execution of construction and maintenance works by contract. The line of responsibilitiesreaches, through these Departments, further down to the Provincial Delegates and is divided again below this level into force account and contract operations. The force account operations, which corres- pond mostly to routine maintenance, are carried out by maintenance crews, each responsible for routine maintenance of about 200 km of road. The typical crew is composed of a foreman, a driver and four to six laborers, supported permanently by a truck and auxiliary equipment, and occasionally by heavier equipment, according to needs. The regional workshops carry out pre- ventive maintenance and minor repairs. Vialidad's central workshop carries out some major repairs; however, most major repairs are carried out mainly by contracts with private garages and equipment dealers (Annex 3, para 10).

4.08 The general procurement information for the project (the Government's 1986-1988 Roads Investment and Maintenance Program amounting to US$655.5 million, including contingencies), is shown in Table 4.1. Because of the high rate of return on maintenance, and to ensure its execution, even when sufficient local funds for the whole roads program might not become available, the maintenance component of about US$362.0 million has been selected for Bank loan disbursements (paras 3.09 and 4.20). The maintenance component includes equipment procurement for about US$8.1 million financed under Loan 2297-CH and for about US$20.4 million under cofinancing arrange- ments (para 4.14). It also includes several specific maintenance works which are already financed under Loan 2297-CH (about US$49.0 million) and under IDB Loan 490/OC-CH (about US$3.8 million). The list of these specific works was confirmed at negotiations, and the corresponding expenditureswould not be eligible for financing under the proposed loan.

4.09 Procurement of Bank-financed project componentswould be in accordance with the Bank's Guidelines for Procurement (August 1984). In 1980, MOP modified its traditional civil works tendering and contracting system, to make it more cost-effective, by shifting to the contractor most of the responsibilityfor work quantities and for financing and execution of works. This move implied several departures from Bank Guidelines, but, during negotiations (April 1983) and project implementationof Loan 2297-CH, MOP gradually eliminated the disc epancies, mainly by: (a) reverting respon- sibility for engineering to MOP; (b) reinstating the possibility to grant an advance payment of 20% and to provide again for monthly payments; and (c) eliminating automatic disqualificationof all bids more than 202 above or below the official estimate. Procurement was, thus, brought back completely in accordance with Bank Guidelines and has been used successfully so far in the award of 40 contracts for about US$88 million under Loan 2297-CH. The bidding documents and procedures used successfully under Loan 2297-CH would be used in the implementation of the proposed loan, which would finance about US$272.0 million procurement (Table 4.1).

4.10 About 65% of routine maintenance, representing some US$59 million, including contingencies,would be executed by force account, comprising operations for which studies have indicated that, under given circumstances, force account is more economical than contracting. These force account operations represent 22% of the project cost to be financed under the - 2u -

proposed loan, 18Z of the total cost of maintenance civil works (Table 4.2) and 9Z of total project cost. During project implemientation, MOP would improve its contracting proceduiresfor routine maintenance, and force accouint work wotuldnot increase in the future. The efficiency of force account operations would he monitored closely during project supervision (Annex 4).

4.11 Despite the high amount of expenditturesto be made throu1ghcon- tracting under the maintenance program, the nature and individual size of the programed civil works would not elicit participation by foreign contractors. It is expected that less than eight civil works contracts would have an estimated cost above US$2.0 million, with a combined cost oF about US$20.0 million, representing less than 8% of the maintenance works to be contracted. Moreover, these few larger contracts are scattered throughout the country, and their execution would be spread over the three years, preventing then from being packaged to attract foreign competition. In addition, there would be about 240 contracts for surface treatments, overlays or bridge works with an average individual cost of about US$350,000 and about 1,000 small contracts for other maintenance works with an average individual cost of about US$100,000. These contracts would be packaged for tendering into groups of a homogeneous nature. Nevertheless, the size of these contracts and their distribution in space and time still would not make the resulting packages larger than US$2.0 million. Agreements on tender packaging and scheduling were reached at negotiations.

4.12 Considering the above-explainedcircumstances, the capacity and competitivenessof the local construction industry, and the experience under the two recent highway reconstructionprojects (Loans 1927-CH and 2297-CH), it is not likely that foreign contractors would show an active interest in participating in tendering. Therefore, most contracts are expected to be won by local contractors. Nevertheless, contracts for civil works estimated to cost US$2.0 million or more, or packages of smaller contracts with a combined cost of about US$2.0 million, would be awarded through international competitive bidding in accordance with the Bank's guidelines for procurement. Contracts estimated to cost less than US$2.0 million, or packages having a combined cost below this threshold, would be awarded following local competitive bidding (LCB) procedures, which are in any case open to foreign bidders. LCB procedures were reviewed in detail and found to be satisfactory. Bidding and contracting procedures were agreed at negotiations.

4.13 Prequalificationof contractors for ICB, as well as for LCB, would be based upon HOP's permanent register of contractors,which groups contract- ors according to different types of works and into five categories according to their financial and executive capability. Foreign contractors are permitted to register individually or in joint venture with local firms. The register is updated continuously, has been used successfully for more than 30 years, and is satisfactory to the Bank. For foreign contractors, invitations to prequalify are sent to Embassies and published in the Development Forumi. In addition, notices of specific ICB tenders would be advertised locally and sent to Embassies. The Bank would be kept informed concerning the list of prequalified foreign contractors, those refused prequalification, if any, and the reason therefor. - 21 -

4.14 Parallel cofinancing for equipment with a CIF cost of about US$13.5 million, incliiding contingencies, would be sought. The Government would Invite for tenders according to either one of two options acceptahle to the Bank: (a) prospective bidders would be informed that the Government is arranging bilateral export financing; or (b) prospective bidders would he requested to include offers of financing with their bids. The former alternative should he pursued if there is sufficient evidence regarding the availability of bilateral export credit. Initial discussions with three prospective bilateral export agencies have indicated good probabilities for cofinancing arrangements. Should financing be required at a later stage, the program and financing plan would be adjusted accordingly. The implementation schedule for goods procurement was agreed upon during negotiations (Table 3.3).

4.15 Terms of reference for procurement of consulting services for proj- ect coordination, for engineering and for supervision of civil works would be similar to those under Loan 2297-CH. Terms of reference for the contracting of training services and for special studies would be agreed with the Bank before calling for bids. These consulting services would be contracted in accordance with the relevant Bank guidelines, dated August 1981.

C. Tender Process and Bank Review of Contracts

4.16 The Bank has a long and excellent experience with MOP's tender procedures, and a set of standard bidding documents and model contracts were reviewed and approved under Loan 2297-CH. Therefore, once a subproject has been declared eligible, MOP would tender and award contracts subject to ex-post review by the Bank. The time allowed for preparation of bids would be 45 days for tenders having an estimated contract amount above US$2.0 million equivalent, 30 days for those between US$0.2 and US$2.0 million, and 15 days for smaller maintenance contracts.

4.17 After the signature of each contract having a cost of US$2.0 million or more, MOP would send to the Bank two conformed copies of the con- tract, together with the tender evaluation report indicating the award decision. The Bank would review this information and, if satisfied, indicate no objection, thereby declaring the specific contract accepted; otherwise, it would request further information. A copy of each contract costing less than US$2.0 million, together with the tender evaluation indicating the award decision, would he filed by MOP, to be made available for random review by project supervision missions. If either one of the reviews would show that, in a specific case, agreed tender procedures were not followed, the Bank would have the right to reject the contract and to cancel the related loan amount.

D. Disbursements and Special Account

4.18 The execution of the extensive road maintenance program would require disbursements against a great number of small contracts and against some routine maintenance works carried out by force account. The total volume of individual disbursement operations would seriously strain MOP's and the Bank's capabilities to handle then in the traditional way. Considering MOP's proven adequate contracting and payment procedures and its capacity for swift and effective work execution, simple and quick disbursement procedures - 22 -

would be used. Withdrawal applications would be on the basis of monthly statements of expenditures for the execution of the different components of the agreed specific Maintenance Program. The monthly statements would comprise expenditures for works executed by contract and for routine mainte- nance executed by force account. The latter would be determined by multiplying the real physical production measurement times the unit costs for each operation (Annex 2, Table 3), to be updated from time to time. The preparation of the monthly statements of expenditures and the monitoring of project work would be carried out by Vialidad's Maintenance Department with appropriate consultant asststance provided under the loan. These arrange- ments were confirmed at negotiations. Supporting documentation would not be submitted to the Bank, but would be retained by MOP and made available for review during project supervision missions and audits.

4.19 In order to reduce the interval during which MOP would finance the Bank's share of project costs with its own resources, the Government might request the Bank to make advance payments from the loan account into a Special Account, to be opened in US dollars in the Central Bank, and which would be available for reimbursing MOP for the Bank's share of the project cost. The total amount in the Special Account would not exceed US$12.0 mil- lion as the amount required for about four months of project execution. MOP would be entitled to make monthly withdrawals from the Special Account, in pesos or in foreign currencies, at the exchange rate applicable on the day the Special Account is debited. The Bank would replenish the Special Account for the amount of withdrawals for eligible expenses at the request of the Borrower.

4.20 Bank loan disbursementswould be made against the maintenance component of the Vialidad program. The following categories would be eligible for withdrawal from the Special Account:

(a) 50% of total expenditures for civil works under the maintenance program, except for works financed under IBRD Loan 2297-CH and IDB Loan 490/OC-CH, and

(b) 1002 of foreign expenditures for expatriate consultants and training fellowships abroad and 50% of total expenditures for local consultants and for the training component.

4.21 Standard disbursement profiles prepared by the Bank in the LAC region indicate that a seven-year period is required to obtain full disburse- ment of a standard project loan, but this is not appropriate for the proposed sector project. The First Highway Reconstruction Project in Chile, Loan 1927-CH, will be fully disbursed within six months after the original Closing Date of December 31, 1984. The ongoing Second Highway Reconstruction Project Loan (2297-CH) is expected to be fully disbursed one year after the original completion date because of the inclusion of additional emergency works in the project scope. Therefore, it can be safely assumed that full disbursement of the proposed project would be achieved within six months after the end of the programed three-year execution period (Table 4.3). Preparations for timely initiation of project execution are well advanced. - 23 -

E. Auditing

4.22 It was agreed that the Contraloria General de la Republica de Chile as independent auditor would: (a) consistently apply procedures and methods satisfactory to the Bank that conform to generally accepted auditing standards; (b) carry out its auditing vork in a timely manner (annual reports would be presented not later than four months after the end of each calendar year); and (c) maintain an independent character in its auditing role.

F. Monitoring of the Project

4.23 With regard to the monitoring of the project, Vialidad would prepare quarterly reports fe- the Bank (Annex 4) providing information on its road expenditures and, more particularly, on its maintenance and investment budget, including a breakdown by category of expenditures and by force account and contract. Force account expenditures should be further broken down by their cost components; unit costs by force account and by contract should be compared; productivity of force account operations should be assessed; and lengths of roads being maintained and level of maintenance should be documented, as vell as compliance with agreed project implementation targets, status of selection and execution of deferred maintenance subprojects, and general evaluations of the condition of the network and of the maintenance programs. The disbursement schedule would be reviewed and recommendations made for eventual modifications of the programs and of the reporting requirements.

4.24 Furthermore, in order to monitor progress of the objectives of the Sector Project, it was agreed at negotiations that the Government would, at least semi-annually, meet with representatives of the Bank to discuss and reach pertinent agreements on the following matters:

(a) During the first semester of each year, review of the results of the previous year's program:

- summary of financial implementationof the Road Investment and Maintenance Program;

- level of completion of road works in the investment program;

- level of completion of the maintenance program;

- economic evaluation of subprojects included in the investment and in the maintenance programs;

- implementationof the training component;

- use of consulting services;

- review of audit reports and consolidation of disbursements against actual expenditures;

- comparison of projected and actual loan disbursements; and

- other lessons iearned during implementation. - 24 -

(b) During the second semester of each year, review of the program for the next year, on the basis of lessons learned in the previous year:

- updated medium-term road investment program and objectives;

- proposed investment and maintenance budget;

- status of selection of Bank-financed subprojects;

- budget of funds for consulting services and for training;

- road condition inventories and review of the maintenance programs; and

- review of the proposed disbursement schedule.

V. AGREEMENTSREACHED AND RECOMMENDATIONS

5.01 During negotiations, agreements on the following issues were formalized:

(Wa size and composition of the six year 1986-1991 roads program which would be changed only with prior approval of the Bank (para 2.22);

(b) gradually correct the retail price of diesel fuel, taking into account the recommendations of the ongoing ECLA study and starcing uot later than one year after completion of the study (para 2.27);

(c) preparation, by December 31, 1986, of a maintenance plan for secondary local roads satisfactory to the Bank (para 3.05);

(d) list of equipment and procurement schedule (paras 3.17 and 4.14);

(e) the preparation, by November 30, 1985, of a plan of action, satisfactory to the Bank, to carry out the Training Program and the establishment and staffing, not later than December 31, 1985, of the national training or-anization for the road subsector (para 3.24);

(f) the Government to provide the funds as required for planned expenditures (para 3.28);

(g) the detailed roads program for 1986, including list of maintenance works financed under other loans (paras 4.01, 4.02, 4.03 and 4.08); - 25 -

(h) tender packaging and scheduling (para 4.11);

(i) bidding and contracting procedures (para 4.12);

(j) disbursement arrangements (para 4.18); and

(1) scope of the reporting requirements (paras 4.23 and 4.24).

5.02 Subject to the above, the proposed project would be suitable for a Bank loan of USS140 million, with a term of 15 years, including a grace period of three years, at the standard variable interest rate.

Kay 24, 1985 - 26 -

TABLE 2.1

CHILE

ROADSECTOR PROJECT

Road Network, Administrative and Surface Classification, December 31, 1984

(in kilometers)

Cement Class Concrete Asphalt Gravel Earth Total

l. BASIC NETWORK 3,233 5.731 11,401 2,466 22,831

A. National Roads 2,134 2,474 1,014 138 5,760

B. Principal Regional Roads 780 2,559 3,631 634 7,604

C. Secondary Regional Roads 319 698 6,756 1,694 9,467

1I. LOCAL NETWORK 305 555 21?763 33,542 56,165

D. Principal Local Roads 145 272 12,083 12,026 24,526

E. Secondary Local Roads 160 283 9,680 21,516 31,639

TOTAL 3,538 6,286 33,164 36,008 78,996

Source: MOP Vialidad

February 1985 - 27 -

TABLE 2.2 CHILLE

ROAD SECTOR PROJECT

Longitudinal Road by Region and Surface Type, October 1984 (in kilometers)

Cement Of which Region I/ Length Concrete Asphalt Gravel Earth Total2/ 4 lanes

Route Five 3/ 3,389.4 1,517.3 2,008.3 91.1 3,616.7 227.3

1 449.5 17.6 443.2 - - 460.8 11.3

II 592.4 - 570.2 22.2 - 592.4 - III 485.0 3.0 482.0 - 485.0 -

IV 366.2 80.3 296.5 - - 376.8 10.6

V 125.7 62.7 68.5 - - 131.2 5.5

R.m.4/ 124.3 198.5 22.4 - - 220.8 96.5

VI 105.6 159.2 25.4 - - 184.6 79.0

VII 190.5 185.3 5.2 - - 190.5 -

vIrI 207.5 174.2 42.1 - - 216.2 8.7

iX 206.5 220.8 1.4 - - 222.2 15.7

X 536.2 415.9 51.5 68.9 - 536.2 -

Austral Road S/ 617.6 5.0 - 525.5 87.1 617.6 -

x 311.1 5.0 - 219.0 87.1 311.1 -

xI 306.5 - - 306.5 - 306.5 - Route Nine 6/

XII 452.0 162.0 a/ - 290.0 - 452.0 - TOTAL 4,459.0 1,684.3 2,008.3 906.6 87.1 4,686.3 227.3

1/ Regions I-IV are the North, V-VIII are the Center, IX-XII the South. 2/ The total column indicatesthe total km of roads built. Since there are four lane sections, the total for a given sectioncould be larger than the corresponding length. 3/ From the Peruvian border to Quellon on the Island of Chiloe. 1/ MetropolitanRegion (around Santiago,the capital). 5/ From Puerto Varas to Villa O'Higgins. 6/ From Fuerte Bulnes (South of Punta Arenas) to Paso Bagueles (Northof Torres del Paine. a/ BetweenPunts Arenas and Puerto Natales,there are 132 km paved single lane and 32 km both lanes.

Source: MOP Vialidad

March 1985 CHILE

ROAD SECTOR PROJECT

Annual Average Daily Traffic and Compositionby Vehicle Type at Major Toll Stations in Selected Years 1972-1984a/

Toll Station 1972 1975 1976 1977 1978 1979 1980 b/ 1981 1982 1983 1984

Chacabuco 391 999 1,131 1,228 1,328 1,381 1,583 1,823 1,802 1,728 1,738 Lampa 3,369 2,215 2,134 2,302 2,577 2,615 3,061 3,450 3,242 3,186 3,220 Zapata 4,765 3,525 3,545 4,013 4,740 4,679 4,980 6,094 5,612 4,440 4,612 Pomaire 4,384 3,114 3,168 3,554 4,108 4,188 4,828 6,038 5,840 5,192 5,108 Angostura 6,548 4,687 4,670 5,273 5,987 6,427 7,277 8,394 8,474 7,624 7,948 Perquilauquen 2,095 1,529 1,458 1,668 1,859 1,962 2,250 2,570 2,428 2,201 2,340

Total 21,552 16,069 16,106 18,038 20,599 21,252 23,979 28,369 27,398 24,371 24,966

Annual Z Change -3.1 -17.9 0.2 12.0 14.2 3.2 12.8 18.3 -3.4 -11.0 2.4

X~~~~~~~~~~~~~~~~~~~~~~ Composition of Vehicles (in percent)

Passengercars 65 n.a. 60 60 63 62 63 67 68 68 67 Buses 8 n.a. 11 11 10 12 12 10 12 11 11 Two-Axle Trucks 22 na.s 19 19 16 14 13 11 10 9 9 Three and more Axle Trucks S n.a. 10 10 11 12 12 12 10 12 13 a/ Covers those stations which have been In operation constantly since 1972. There are seven other stations which were In operation during part of the period since 1972. b/ Since this year, several stations charge only in one direction assuming that vehicles have, in any way, to return. Figures adjusted to take account of this change. Source: MOP Vialidad

Hay 1985 - 29 -

TABLE 2.4 CHILE

ROAD SECTOR PROJECT

Evolution of the Registered Road Hotor Vehicle Fleet, 1968-1983

(in units)

Automobiles Buses & Station and Servic e I/ Year Wagons Microbuses Vehicles Trucks Total Number Z Number Z Number Z Number % Number %

1968 130,228 12,614 57,211 54,504 254,557 1969 150,853 15.8 13,384 6.1 61,522 7.5 60,544 11.1 286,303 12.5 1970 176,076 16.7 15,956 19.2 72,933 18.5 69,653 15.0 334,618 16.7 1971 193,314 9.8 15,769 1.2 75,337 3.3 71,948 3.3 356,368 6.5 1972 216,031 11.8 15,773 - 79,567 5.6 75,989 5.6 387,360 8.7 1973 225,247 4.3 15,479 -1.9 82,503 3.7 78,794 3.7 402,023 3.8 1974 235,335 4.5 15,682 1.3 85,348 3.6 81,510 3.4 417,875 3.9 1975 248,231 5.5 15,074 -3.9 77,669 -9.0 71,849 -11.9 412,823 -1.2 1976 264,118 6.4 15,413 2.2 105,480 36.1 81,234 13.1 466,245 12.9 1977 298,338 13.0 15,563 1.0 111,566 5.8 85,290 5.0 510,757 9.5 1978 340,050 14.0 17,135 10.1 119,840 7.4 92,557 8.5 569,582 11.5 1979 351,089 3.2 20,117 17.4 159,627 33.2 90,411 -2.3 621,244 9.1 1980 409,196 16.6 20,734 3.1 181,300 13.6 85,222 -5.7 696,452 12.1 1981 519,021 26.8 22,146 6.8 230,622 27.2 84,168 -1.2 855,957 22.9 1982 547,134 5.4 21,173 -4.4 239,432 3.8 78,073 -7.2 R85,812 3.4 1983 565,231 3.3 20,037 -4.4 229,077 -4.3 76,932 -1.5 891,277 0.6 1984 n.a. n.a. n.a. n.a. n.a.

Annual Average Growth Rate

1968-1982 11.6 3.8 8.5 1.2 9.2 1976-1983 11.5 3.8 11.7 -3.2 9.7

1/ Includes vans, taxis, ambulances, pickups, garbage and water trucks.

Source: MTT and National Statistics Institute

February 1985 - 30 -

TABLE 2.5 CHILE

ROAD SECTOR PROJECT

Road User Charges (RUC) and Road Expenditures (RE), 1970-1984

(at current prices in millions of US dollars at IFS average exchange ratesl/)

Vebicle Registra- RUC Fuel Import tlon Total Expenditures Debt Totai as X of Year Taxes Duties 2/ Tolls Fees RUC Malot. Invest.31 Service RE RE

1970 52.7 6.4 5.3 10.0 74.4 26.4 81.6 2.7 110.7 67

1971 58.3 6.2 6.2 14.1 84.8 43.4 67.3 3.8 114.5 74

1972 60.9 18.1 4.4 17.6 101.0 49.3 43.3 5.4 98.0 103

1973 102.5 39.9 3.1 19.1 164.6 65.6 44.7 8.1 118.4 139

1974 232.7 43.8 5.0 10.2 291.7 54.0 195.6 8.4 258.0 113

1975 165.6 37.9 7.3 6.9 217.7 17.3 34.1 4.0 55.4 393

1976 239.9 99.6 9.4 6.7 355.6 21.8 35.9 5.7 63.4 561

1977 273.5 108.6 13.1 18.4 413.6 25.0 37.6 5.3 67.9 609

1978 236.3 86.1 14.2 16.9 353.5 31.0 41.4 5.2 77.6 455

1979 141.7 100.9 29.4 17.6 289.6 33.6 64.2 4.8 102.6 282

1980 220.2 208.5 38.7 17.9 485.3 76.4 82.5 5.6 164.5 295

1981 287.0 358.0 45.8 21.8 712.7 83.6 167.7 7.0 258.3 276

1982 320.3 332.1 36.5 30.2 719.1 60.5 129.8 12.1 208.4 345

1983 354.5 195.1 29.7 36.4 615.7 52.1 131.1 16.8 200.0 308

1984 357.1 224.9 27.7 38.5 648.2 56.6 118.3 24.2 199.1 326

1/ IFS - International Financial Statistics of the International Monetary Fund. 2/ On vehicles, spare parts, tires and road fuels and lubricants. T/ Does not Include depreciation of equipment but Includes studies and equipment purchases.

Source: MOP DPU Creditoo Externos y Moneda Extranjera and Tables 2.6 and 2.7

March 1985 - 31 -

CHILE TABLE 2.6

ROAD SECTOR PROJECT

Actual Road Expenditures and their Financing, 1980-1984 (in millions of CH pesos at current prices)

1980 1981 1982 1983 1984

EXPENDITURES 6,534 10,187 10,100 15,792 19,642

(net of debt service) (6,316) (9,914) (9,800) (14,468) (17,255)

INVESTMENT 2,715 5,980 6,036 10,052 11,059

Construction 716 876 1,959 3,627 2,762 Reconstruction 1,517 4,329 3,625 6,199 7,735 Upgrading 455 707 394 156 306 Consulting Services 28 68 58 70 257

MAINTENANCE 2,679 2,930 2,748 3,405 5,012

Routine Maintenance 1,740 1,863 2,165 2,124 1,944 Periodic Maintenance 455 521 266 483 1,144 Deferred Maintenance 455 521 266 483 1,707 Equipment Purchases 29 25 51 315 217

ADMINISTRATION AND EXPLOITATION 921 1,004 1,016 1,011 1,184

Maintenance Administration 301 330 328 337 394 Investment Administration 501 561 522 538 612 Exploitation 119 113 166 136 178

DEBT SERVICE 218 273 300 1,324 2,387

FINANCING 6,534 10,187 10,100 15,792 19,642

LOCAL 6 395 9 214 7,937 9,581 13,269 Tolls and other 1,587 1,948 2,075 2,822 3,463 Wages and Salaries by Government 1,074 1,138 1,199 1,304 1,559 Other Government Contributions 3,734 6,128 4,663 5,455 8,247 of which Debt Service (218) (273) (300) (1,324) (2,387)

FOREIGN 139 973 2,163 6,211 6,373

Source: MOP Vialidad

March 1985 - 32 - TABLE 2.7 CHILE

ROAD SECTORPROJECT

Actual (1984) and Planned (1985-1991) Road Expenditures and their Financing (In millons of US dollars et constant March 31, 1985 prices)

1984 1985 1986 1987 1988 1989 1990 1991 1/ 2/ EXPENDITURES 199.i 159.3 225.5 239.0 241.3 225.4 279.9 285.1 285.5 __in. _. _ * _. . - _cs . _ . .__. __ Net of Debt Service 1174.9) (139.9) 189.2 (206.01 (206.3) (180.41 (224.9) (222.6) (224.5)

INVESTWNT 112.1 89.7 123.6 105.3 93.8 53.7 74.2 67.0 68.3

Construction 28.0 22.4 40.9 27.5 29.9 25.6 50.3 41.0 44.0 of which Austral Roed 3 / (11.7) (9.4) (14.2) (12.4) (14.9) (16.6) (23.0) (23.0) (17.8) Reconstructlon 78.4 62.7 65.7 56.4 45.5 15. 12.4 13.5 11.8 Upgrading 3.1 2.5 15.7 20.5 17.5 11.4 10.5 11.5 11.5 Consulting Services 2.6 2.1 1.3 0.9 0.9 0.9 1.0 1.0 1.0

MAINTENANCE o.8 40.6 56.4 91.5 103.3 117.5 14i.5 146.4 147.0 of which 2297-CH - - (32.8) (29.9) ti8.5) (0.8) - - - ot which Austral Rood - - (2.0) (3.3) (0.5) - - - -

Routine Maintenance 19.7 15.7 20.6 23.0 26.0 29.0 35.0 39.0 39.0 Periodic Maintenance 11.6 9.3 21.0 32.8 35.4 39.4 48.4 49.7 49.7 Deferred Maintenance 17.3 13.8 9.2 29.2 28.1 37.3 51.1 50.7 50.3 Consulting and Training - - - 1.5 3.0 3.0 3.0 3.0 3.0 EquIpment Purchases 2.2 1.8 5.6 5.0 10.8 8.8 4.0 4.0 5.0 of whilch 2297-CH (1.6) (1.3) (4.5) (5.0) (2.0) (-1 I-) (-11 (-

ADMtNISTRATION AND EXPLOITATION 12.0 9.6 9.2 9.2 9.2 9.2 9.2 9.2 9.2

Maintenance Administration 4.0 3.2 3.4 3.5 3.6 3.7 3.7 3.7 3.7 Investment AdmTnistratlon 6.2 5.0 4.3 4.2 4.1 4.0 4.0 4.0 4.0 Exploltation 1.8 1.4 1.5 1.5 1.5 1.5 1.5 1.5 1.5

DEBT SERVICE 24.2 19.4 36.3 33.0 35.0 45.0 55.0 62.5 61.0

FINANCING 199.1 159.3 225.5 239.0 241.3 275.4 279.9 285.1 285.5

LOCAL 134.5 107.6 155.4 167.5 158.8 159.2 173.9 181.3 180.7

Tolls and other 4/ 35.1 28.1 28.8 29.0 29.5 30.0 30.6 31.2 31.9 Wages and Salaries by Governnent5/ 15.8 12.6 11.6 11.6 11.6 11.6 11.6 11.6 11.6 Other Government Contributions 83.6 66.9 115.0 126.9 117.7 117.6 131.7 138.5 137.3 of which Debt ServTce (24.2) (19.4) (36.31 (33.0) t35.0) (45.0) (55.0) (62.5) (61.0) of which Transfers (8.6) (6.9) (7.5) (7.5) (7.5) (7.5) (7.5) (7.5) (7.5)

F0REIGN 64.6 51.7 70.1 71.5 82.5 66.2 106.0 103.8 104.8

Existing IBRD Loans 27.2 21.8 36.1 29.0 29.5 2.3 - - - Proposed Loan - - - 30.3 40.3 50.1 - - - Supplier Credit - - - - 5.8 5.8 - - - Existing iOB Loans 37.4 29.9 33.7 19.4 16.6 8.0 8.0 - - Possible Other Loans ------98.0 103.8 104.8

1/ Actual In 1984 prices. USS- 98.656 pesos. 2/ Actual in March 31, 1985 prices, USS- 141 pesos. 3/ includlng some upgrading fren gravel to surfue dressed standard. a: "Other" Includes dout USS3.2 million per year sales of assets and collection of fines for violations. 5 May be partiaily financed from "B" Loan.

Source: MMP ValalIdad and Beank estimates

May 1985 - 33 -

TABLE 2.8

CHILE

ROAD SECTOR PROJECT

Fuel Consumption by Road Vehicles, 1970-1984

(in thousands of cubic meters and in millions of kwh)

Annual Elec- Gasoline Growth tri- (81 RON) (93 RON) Subtotal Diesel 1/ Total (2) city Regular Premium Volume Z Volume Z

1970 1,324 340 1,664 307 1,971 - 15 1971 1,415 431 1,846 12 313 2 2,159 9.6 11 1972 1,369 455 1,824 -2 317 1 2,141 -0.8 11 1973 1,271 369 1,640 -10 352 11 1,992 -7.0 8 1974 1,234 260 1,494 -9 382 9 1,875 -5.8 9 1975 1,017 195 1,212 -19 402 5 1,614 -14.0 19 1976 986 207 1,193 -2 440 9 1,633 1.2 35 1977 988 288 1,276 7 455 3 1,731 6.1 42 1978 946 436 1,382 8 556 22 1,938 12.0 59 1979 956 463 1,419 3 728 31 2,147 10.8 71 1980 949a/ 531 1,480 4 854 17 2,334 8.8 72 1981 773 838 1,611 9 929 9 2,540 1.1 79 1982 520 1,031 .,551 -4 833 -10 2,384 -9.4 80 1983 394 1,095 1,489 -4 900 8 2,389 - 77 1984b/ n.a n.a 1,441 - 970 8 2,411 3.0 n.a

Average Annual Growth in X

1970-75 -5.5 -11.7 -6.5 4.5 -4.0 1975-84 n.a. n.a. 6.4 10.3 4.6 1970-84 n.a. n.a. -1.0 8.6 1.5

1/ Including up to 4,000 cubic meters of kerosene per year up until 1979, none thereafter. a/ Including some 48,000 cubic meters of 86 RON gasoline (RON - Research Octane Number). b/ Estimate.

Source: Comision Nacional de Energia, Balance de Energia-Chile, 1961-1980, 1983 update and 1984 estimate

March 1985 - 34 -

TABLE 2.9

CHILE

ROAD SECTOR PROJECT

Structure of Retail Prices of Automotive Fuels in Santiago, December 1984

(in US dollar per gallon)

Gasoline Diesel-Oil 81 RONJL 93 RON Regular Premium

Ex-refinery Price (c.i.f. Valparaiso plus 20Z) 0.939 0.992 0.973

Distribution Charges and Retailer's Margins 0.152 0.152 0.098

Retail Price before Taxes 1.091 1.144 1.071

Excise Tax 0.253 0.268 -

Value-Added Tax 0.218 0.229 0.214

Subtotal taxes 0.471 0.497 0.214

Retail Price 2/ 1.562 1.641 1.285

1/ RON - Research Octane Number. 2/ As of January 12, 1985 and April 1985, retail prices in Santiago were increased in pesos -to catch up with currency devaluation." In reality, none caught up completely. The prices as of April 22, 1985 are about US$1.51 for regular gasoline, US$1.61 for premium and US$1.27 for diesel.

Source: Comision Nacional de Energia

May 1985 CHILE

ROADSECTOR PROJECT

ConsultingServices Required and their CostJ986-1988

Local Consultants 1/ Forelgn Consultants /T Man Coat Msn Cost Total Cost Months Local Foreign Total Months Local Foreign Total Local Foreign Total

Project Coordination 36 72 72 144 35 264 396 660 168 212 380

BngineorinZ 300 600 600 1,200 - - - - 800 800 1,600

Supervision 750 1,500 1,500 3,000 - - - - 2,140 2,140 4,280

PavementStudies 50 100 100 200 4 30 44 74 230 244 474 VI Others 3/ 40 80 80 160 4 30 44 74 130 144 274 1

Total 1,176 2,352 2,352 4,704 44 324 484 808 2,676 2,836 5,512 =NM Mmmmm . m mm.mm m.. -. mno ma .nn .... m.

Training4/ 12 24 24 48 36 264 396 660 288 420 708

Grand Total 1,188 2,376 2,376 4,752 80 588 880 1,468 3,964 3,256 6,220

l/ US$4,000/man-,onths 2/ US$11,000/man-uontheplus 66.62 taxes to be paid by MOP 31 Feasibilityand engineeringstudies to prepare a future project I 4/ Included In the tralulng component,Tables 2 and 4 of Annex 1.

.tI Source: MOP and MiHsIonu tilates

March 1985 CHILE ROAD SECTOR PROJECT Equipmentto be Procured under Project, 1987-1988a/ (in units and in thousandsof US dollars)

Equipment Charac- Equipment EqulpmentFleet 1/ Type teristics Required Good to To Be To Be CIF Cost Regular Scrapped N Total Procured Unit Total Vehicles Pick-up trucks 0.5 ton 370 205 109 334 145 10.0 1,450.0 Flat bed trucks 8.0 ton 365 302 - 302 63 12.0 756.0 Dump trucks 4.0 cu. m. 85 85 - 85 - - - Low bed trucks 50.0 ton 9 2 3 8 4 90.0 360.0 Water tank trucks 5.0 cu. m. 28 - 14 14 28 20.0 560.0 Lubricatingtrucks 3.0 ton 20 - 20 20 20 20.0 400.0 Equipment Motograders 115 H.P. 205 134 65 205 65 50.0 3,250.0 Bulldozers 200 H.P. 8 4 - 4 4 200.0 800.0 Bulldozers 100 H.P. 11 - 39 44 6 120.0 720.0 Bulldozers 60 H.P. 7 - - - 7 58.0 406.0 Front end loaders 2.0 cu. m. 17 - 40 40 17 60.0 1,020.0 Backhoes 0.3 cu. m. 6 - - - 6 70.0 420.0 Asphaltmixers 38 28 - 28 10 10.0 100.0 Plate compactors Vibrating 76 56 - 56 20 1.0 20.0 Manual rollers Vibrating 76 56 - 56 20 8.0 160.0 Self propelledrollers Vibrating 28 - 30 30 28 20.0 560.0 Heavy line painters - 3 - 4 4 3 30.0 90.0 Light line painters - 11 - - - 11 6.0 66.0 Snow removerb - 7 5 - 5 2 200.0 400.0 Grasscutters - 133 - 18 18 133 0.5 66.5 Chainsaws - 40 19 31 50 21 0.5 10.5 TOTAL CIF COST 11,615.0 Customs clearanceand port costs 235.0 Taxes (custom duties and sales taxes) 5,800.0 TOTAL COST 17,650.0

a/ For ProcurementSchedule see Table 3.3 1/ Assuming all equipmentunder 2297-CH Is procured Source: HOP Vialidad May 1985 CHILE

ROADSECTOR PROJECT

Scheduleof EquipmentProcurement,l987-1988 (in units and In thousandsof US dollars)

Equipment Charac- 1987 1988 Type teristics Unit No. of No. of Cost Units Cost Units Cost

Vehicles Pick-up trucks 0.5 ton 10.0 - - 145 1,450.0 Flat bed trucks 8.0 ton 12.0 - - 63 758.0 Low bed trucks 50.0 ton 90.0 28 560.0 4 360.0 Water tank trucks 5.0 cu. M. 20.0 - - -- Lubricatingtrucks 3.0 ton 20.0 20 400.0 - - Equlfflent Motograders 115 H.P. 50.0 65 3,250.0 - - Bulldozers 200 H.P. 200.0 - - 4 800.0 Bulldozers 100 H.P. 120.0 - - 6 720.0 Bulldozers 60 H.P. 58.0 - - 7 406.0 Front end loaders 2.0 cu. m. 60.0 l7 1,020.0 - - 4 Backhoes 0.3 cu. m. 70.0 - - 6 420.0 Asphaltmixers 10.0 - - 10 100.0 Plate compactors Vibrating 1.0 - - 20 20.0 Manualrollers Vibrating 8.0 - - 20 160.0 Self propelledrollers Vibrating 20.0 28 560.0 - Heavy line painters - 30.0 - - 3 90.0 Lightline painters - 6.0 - - 11 66.0 Snow removers - 200.0 - - 2 400.0 Grasscutters - 0.5 - - 133 66.5 Chainsaws - 0.5 - - 21 10.5 TOTAL CIF COST 5,79040 5825.0 Price Escalation 730,0 l 155.0 TOTAL COST 6,520.0 6,980.0

Source: MOP Vialidad. May 1985 - 38 -

TABLE 4.1

CHILE

ROAD SECTORPROJECT

General Procurement Methods I/

(in millions of US dollars at March 1985 prices including contingencies) 2/

Procurement Methods Total Cost ICB LCB Other N.A. 3/ Civil Works 250.0 306.3 58.8 a/ 615.1 (20.0) (184.7) (58.8) - (263.5)

Equipment 8.1 - 20.4 b/ - 28.5

Consultant Services and Training 1.7 8.7 - 1.5 11.9 (1.7) (5.5) - (1.5) (8.7)

Total 259.8 315.0 79.2 1.5 655.5

(21.7) (190.2) (58.8) (1.5) (272.2) -~~~~~ _-

1/ Amounts in brackets are financed by the proposed Bank Loan. All figures include physical contingencies. 2/ US$1 $Ch. 141 §/ Not applicable: Scholarships abroad and miscellaneous training expenditures. a/ Routine maintenace executed by force account. b/ Equipment to be procured under cofinancing arrangements.

Source: MOP Vialidad

May 1985 - 39 -

TABLE 4.2 CHILE

ROAD SECTOR PROJECT

Summary of Routine, Periodic and Deferred Maintenance Components by Works Execution Method and Financing

(in millions of US dollars at March 1985 prices Including contingencies) 1/

By Force By Contract Account Total IDB Loan IBRD Loan Proposed Proposed 490/OC-CH 2297-CN Loan Loan

RoutineMaintenance - - 31.7 58.8 90.5

PeriodicMaintenance - - 124.8 - 124.8

Deferred Maintenance 4.4 57.1 48.2 - 109.7

Total 4.4 57.1 204.7 58.8 325.0 _ _ sm -

Percentage 1.3 17.6 63.0 18.1 100.0

1/ US$1 - $Ch. 141

Source: MOP Vialidad

May 1985 - 40 -

TABLE 4.3 CHILE

ROAD SECTOR PROJECT

Estimated Schedule of Disbursements, FY 1986-1989

(in millions of US dollars)

Disbursed in Cumulative FY and Quarter Ending Quarter FY Disbursement Z

1986 28.0

December 1985 12.0al 12.0 8.5 March 1986 8.0 20.0 14.3 June 1986 8.0 28.0 20.0

1987 38.0

September 1986 9.0 37.0 26.4 December 1986 9.0 46.0 32.9 March 1987 10.0 56.0 40.0 June 1987 10.0 66.0 47.1

1988 46.0

September 1987 11.0 77.0 55.0 December 1987 11.0 88.0 62.9 March 1988 12.0 100.0 71.4 June 1988 12.0 112.0 80.0

1989 28.0

September 1988 12.0 124.0 88.6 December 1988 12.0 136.0 97.1 March 1989 4.0 140.0 100.0

Completion of Works: December 1988. a/ US$12 million for special account

Source: MOP and Mission Estimates

May 1985 - 41 -

ANNEX I Page 1 of 4

CHILE

ROAD SECTOR PROJECT

Training Component

I. Road Personnel Training

1.01 Although several attempts have been made in the past to establish a sound training program, training still appears to be a neglected area in the road subsector. Until 1979, training was carried out by: (a) a Training Institute (ITAO 1/) for training equipment operators, drivers, welders and mechanic maintenance workers; and (b) the Training Unit of Vialidad, oriented to provide training for professional and administrative personnel. However, because of policy changes and reorganization of Vialidad, both units were eliminated and training was assigned as an additional duty to the Administrative Department of Vialidad. The current role of Vialidad's Administrative Department is only to coordinate courses planned by the Subsecretary of the Ministry of Public Works. In 1984, the plan for the overall ministry included seven seminars in technical areas and six courses in administration areas respectively. Under this arrangement, about 45 members of Vialidad received courses in 1984 which, to a large extent, were not road-specific. In addition, another 280 members of Vialidad's personnel attended one- to two-hour conferences, mainly in safety and hygiene subjects.

1.02 Vialidad authorities are aware that, among others, one of the existing deficiencies in road maintenance is the lack of technical skills of maintenance personnel at all levels. Therefore, Vialidad personnel need additional training to enable them to employ, more efficiently, work methods which are to be introduced as a part of the proposed road sector project. To do so, Vialidad authorities are determined to establish a comprehensive training program, oriented toward strengthening technical skills of senior personnel, as well as of road foremen, equipment operators and mechanics. Since the Vialidad training section lacks experience and power, the training component included in the proposed project would help to establish a suitable training department capable of implementing the training activities required to achieve the project's institutional and physical objectives.

II. The Project's Training Component Objectives and Description

A. ObJectives

2.01 The major objectives of the project's training component are to:

1/ ITAO - Instituto Tecnico de Adiestramiento de Operarios. - 42 -

ANNEX 1 Page 2 of 4

(a) strengthen Vialidad's road maintenance activities through a comprehensive training program which includes (i) upgrading of about 2,000 technical and administrativepersonnel; (ii) fellow- ships abroad for ;bout 27 Vialidad professionals;and (iii) internal tours for about 46 professionals;and

(b) establish a national structure for training of Vialidad personnel, Including (i) the headquarters training unit; (ii) the regional coordinators; and (iii) the training advisory committees.

B. Description

2.02 Vialidad's three-year (1986-1988) training program is primarily addressed to road foremen, equipment operators, mechanics, storekeepers, accountants and administrativepersonnel. The program is aimed at some 2,000 persons. The enrollment by function is projected as follows: (i) mainte- nance - 1,700 people; (ii) administration - 210 people; (iii) planning and studies - 20 people; (iv) bridges - 40 people; and (v) construction and laboratories - 20 people. The training program includes about 150 courses and seminars with an average duration of about 50 hours. It is expected that about 70% of these courses would be contracted with external training institutions, such as INACAP2 /, the Chamber of the Construction Industries, and the universities. However, in all cases, course contents would be defined by Vialidad's technical specialists. Training of road foremen, drivers and heavy equipment operators would be carried out mostly in the field. Thus, trainees would learn under real working conditions while performing needed maintenance or pavement rehabilitation works on specific sections of the roads. Training of mechanics would be carried out in the regional workshops through practical courses using and repairing worn and unserviceable equipment. Short technical seminars would be conducted for maintenance engineers, equipment supervisors, storekeeper accountants, foremen and administrative personnel, both in Santiago and in the regions. Table 1 of this annex gives the number of personnel, by level and function, to be trained.

III. Organization and Implementation of the Training Program

A. Training Facilities and Equipment

3.01 Training equipment and material such as workshop equipment and tools, spare parts, used heavy equipment and audio-visual training aids would be provided to facilitate the training process. Limited physical training facilities such as a classroom and workshop would be improved or remodeled in order to provide a basic infrastructure for training in selected regions.

2/ INACAP - Instituto Nacional de Capacitacion. - 43 -

ANNEX1 Page 3 of 4

B. Technical Assistance

3.02 The three-year training program would require 48 man-months of technical assistance, of which 36 man-months should be expatriate technical advisors and 12 man-months should be local advisors in planning, organization and administration of training programs. Vialidad would assign counterpart personnel to the technical specialists, and project unit personnel would be counterparts of the training specialists. Outline terms or reference for these services are given in Attachment 1, and the Summary of Technical Assistance requirements is presented in Table 2 of this annex.

C. Fellowships

3.03 Fellowships of one to three months duration would be organized abroad for about 27 Vialidad professionals, including the regional and provincial chiefs. These fellowships would total about 54 staff-months and would permit Vialidad senior staff to be upgraded by attending courses and seminars and visiting selected countries. A summary of fellowship requirements is shown in Table 3 of this annex.

D. Preparation of the Training Program

3.04 At the time of project appraisal, an external consulting firm was hired to provide technical assistance in: (a) assessing training needs at national level; (b) organizing the Training Unit; (c) preparing a detailed three-year training plan; (d) defining course contents; (e) assessing instructors' requirements; (f) preparing detailed fellowship and technical assistance programs; (g) training personnel assigned to the training unit; (h) preparing lists and specifications of training material, learning aids and equipment; and (i) determining specific training costs and evaluation systems.

E. Course Content

3.05 The course content would be defined through occupational analysis in order to reflect the specific training requirement of each maintenance occupation. The occupational analysis would be a basis for preparation of syllabi for the different training courses.

F. Instructors

3.06 The execution of the training program would require five full-time instructors recruited from Vialidad senior technical staff or from the private sector. In addition, experienced personnel of Vialidad would perform as part-time instructors in specific technical subjects. Both full-time and part-time instructors would be trained by external sources in pedagogical matters and training methodologies. - 44 -

ANNEX 1 Page 4 of 4

G. Internal Tours

3.07 To facilitate the exchange of experiences among regions, internal tours of about one week duration should be arranged for about 46 professionals.

H. The Training Unit

3.08 The program would include the establishing and staffing, by August 15, 1985, of the Training Unit to ensure adequate management and coordinationof the training activities. The training unit would be under Vialidad's Deputy Director and would be led by a qualified engineer with at least three years of experience in road maintenance. The Training Unit would: (a) coordinate and monitor the implementationof the training programs; (b) establish the agreements with training institutions; (c) admin- ister the external technical assistance; (d) administer the fellowship program for courses abroad; and (e) evaluate the results of the training programs.

I. Traiuing Advisory Committee

3.09 A training advisory coLmittee, staffed by the heads of key depart- ments of Vialidad and led by Vialided's Deputy Director, was appointed in September 1984. This committee's main task is to advise the Deputy Director in matters such as training strategy, policy priorities and organization. In addition, as a part of the national structure for training, regional committees and training coordinatorswould be appointed to carry out training activities in the region.

J. Studies

3.10 Under the project training component, Vialidad would carry out studies to define the skills and knowledge required by all maintenance occupations. The project would also finance the preparation of a job des- cription manual for all Vialidad personuel categories as well as specific studies to evaluate results of the training program.

IV. Cost of the Training Component

4.01 The total cost of the training component is estimated at US$2.0 million. The estimated foreign exchange component is 1.02 million, repre- senting about 50X of the total project cost. Detailed costs are shown in Table 4 of this annex.

May 1985 - 45 -

ANNEXI Table I

CHILE

ROAD SECTOR PROJECT

Number and Level of Personnel to be Trained Annually under the Project, 1986-1988

(in number of persons)

Level 1986 1987 1988 Total

Mechanics 120 170 210 500 Helpers 100 150 200 450 Equipment Operators 100 150 150 400 Foremen 100 100 150 350 Professionals 50 55 60 165 Administrative Personnel 40 45 50 135

TOTAL 510 670 820 2,000

Number of Personnel by Function and Level to be Trained in the Project, 1986-1988

(in number of persons)

Equipment Function Prof. Admin. Foremen Operators Mechanics Helpers Total

Maintenance 45 -- 335 385 495 440 1,700 Construction and Laboratory 10 -- 5 5 -- - 20

Planning and Studies 20 ------20

Bridges 5 -- 10 10 5 10 40

Administration 85 135 ------220

TOTAL 165 135 350 400 500 450 2,000

Source: MOP 'Vialidad

February 1985 - 46 -

ANNEX 1 Table 2

CHILE

ROAD SECTOR PROJECT

Summary of Technical Assistance Requirements for Training, 1986-1988

(in staff-months)

Total Tentative Schedule Staff- Level Months 1986 1987 1988

Expatriates

Pavement followup and condition monitoring 3 - 3 -

Road maintenance administration 12 6 6 -

Surface Treatment 3 - - 3

Planning 6 6 - -

Equipment maintenance 6 - 3 3

To be defined 6 - - 6

Sub-Total Expatriates 36 12 12 1Z

Locals

Training organization and - - administration 12 12 -

Total 48 24 12 12

Source: MOP Vialidad

February 1985 - 47 -

ANNEX1 Table 3

CHILE

ROAD SECTOR PROJECT

Fellovship Requirements by Department for Training Component, 1986-1988

(in number of fellowships and in staff months)

Staff Tentative Schedule Department Number Months (in number of fellowships) 1986 1987 1988

Road Maintenance 15 30 3 6 6

Construction 2 4 - 1 1

Studies 3 6 1 1 1

Bridges 3 6 - 1 2

Laboratory 2 4 - 1 1

Administrationl/ 2 4 1 1 -

TOTAL 27 54 5 Ti T1

1/ Training Unit

Source: MOP Vialidad

February 1985 - 48 -

ANNEX 1 Table 4 CHILE ROAD SECTOR PROJECT Projected Expenditures for Training of Maintenance Personnel, 1986-1988 (in thousands of US dollars)

Description Local Foreign TOTAL

Training Facilities and Equipment 120.0 120.0 240.0 Improvement of workshop and classroom remodeling 42.5 25.0 67.5 Workshop equlpment and tools 1/ 20.0 40.0 60.0 Audio-visual aids and learning material 15.0 30.0 45.0 Furniture and office equipment 42.5 25.0 67.5 Technical Assistance 288.0 690.0 978.0 Expatriate technical advisers (36 staffmonths)2/ 264.0 396.0 660.0 Local Advisers (12 staffmonths)3/ 24.0 24.0 48.0 Fellowships (54 staffmonths)4/ - 270.0 270.0 Implementation of Program 472.5 190.0 662.5 Per-diem and transportation for Vialidad personnel5/ 250.0 100.0 350.0 Part-time instructors' salaries6/ 60.0 15.0 75.0 Full-time instructors' salaries7/ 72.0 18.0 90.0 Preparation of training curriculum and programs 32.0 8.0 40.0 Training Material 22.5 40.0 62.5 Instructors 20.0 5.0 25.0 Internal Regional Tours8/ 16.0 4.0 20.0 Pro ect Unit 62.4 15.6 78.0 Personnel 40.0 10.0 50.0 Office Materials 4.0 1.0 5.0 Per-diem and transportation 6.4 1.6 8.0 Seminars of coordination 12.0 3.0 15.0 Studies 48.0 12.0 60.0 Occupational Analysis 12.0 3.0 15.0 Job description 16.0 4.0 20.0 Course evaluation and followup 12.0 3.0 15.0 Personnel administration and career development 8.0 2.0 10.0

990.9 1,027.6 2,018.5 sumin m mm 1/ Including 20% V.A.T. on goods procured locally and 50% for custom duties and V.A.T. on imported goods. 2/ Average US$11,000 per month. 3/ Average US$4,000 per month. 41 Average US$5,000 per month including per-diem, airfare and Insurance. 5/ Estimate: 1,500 participants, US$20 per day during 15 days: and US$50 transportation for each participant. 6/ Estimate: 100 courses, average 50 hours/course and US$15 per hour for course preparation. 7/ Estimate: 5 senior instructors, US$500 per month per 3 years. T/ Estimate: 46 trips, 1 week duration US$40 per day plus US$100 for transportation. Source: MOP Vialidad February 1985 - 49 -

ANNEX 1

ATTACHMENT 1 CHILE Page 1 of 7

ROAD SECTOR PROJECT

Outline Terms of Reference for Technical Assistance Training of Road Maintenance Personnel

1. Training Advisor

Duration 12 months

Duty Station Santiago with frequent field trips

A. Qualifications and Experience

(a) should be a road maintenance specialist, preferably an engineer, with a good general and technical education up to university level and with five to seven years experience in managing training activities, particularly in establishing programs and facilities. Morever, he should be capable of: (i) organizing a comprehensive policy of staff development through practical and productive training; (ii) advising in the implementation of a comprehensive training plan; (iii) taking part in active training by conducting seminars and discussions on specific road maintenance problems including operation and maintenance of bridges, tunnels, weighing and toll stations; (iv) reviewing and recommending improvements in existing personnel policies; and (v) organizing the national structure to carry out a sound and permanent training program;

(b) working experience in countries with similar characteristics;and

(c) fluency in Spanish.

B. Responsibilities

The training advisor will help the training unit in:

(a) establishingand coordinating training policies;

(b) identifyingmanpower training needs to carry out the road maintenance and rehabilitationprogram;

(c) preparing the required training programs;

(d) determining the resources required to conduct the training program;

(e) approving training curricula and materials;

(f) implementing the training program, bearing in mind the necessary coordination of activities between the Training unit and the operational units; - 50 -

ANNEX1

ATTACHMENTI Page 2 of 7

(g) maintainingliaison vith proavncesand regionsto obtainstaff cooperationin all matters relatedto trainingand staff developmentpolicies; (h) carryingout workshops/seminarson maintenancemanagement and related topicsfor high level staff;

(i) designingan evaluationsystem within the trainingprogram both to monitorthe resultsof trainingwhile it Is being performed,and, later,to evaluatethe effectivenessof completedprograms; and

(j) keepingpersonnel in the TrainingDepartment up to date in matters concerningtheir trainingduties. - 51 -

ANNEX 1

ATTACHMENT I Page 3 of 7

2. Pavement Followup and Condition Monitoring Specialist

Duration 3 months

Duty Station Santiago with some field trips

A. Qualifications and Experience

(a) a good general and technical education up to university level as a road engineer;

(b) field experience of at least five years in pavement followup and condition monitoring;

Cc) experience in organization of followup and condition monitoring methods and corresponding training of manager and supervisors;

Cd) capacity to plan, organize and control work activities;

Ce) working experience in countries with similar characteristics; and

Cf) fluency in Spanish.

B. Responsibilities

The consultant will be responsible for keeping the personnel in charge of pavement followup and condition monitoring up to date by:

(a) assisting in the improvement of the current methods and practices for pavement followup and condition monitoring;

(b) assisting in preparation of guidelines and procedures;

(c) assisting in determining the training means and programs required to implement training activities in the field of followup and condition monitoring. - 52 -

ANNEX I

ATTACHMENT1 Page 4 of 7

3. Road Maintenance Specialist

Duration 12 months

Duty Station Santiago or other suitable location

A. Qualifications and Experience

(a) a good general and technical education up to university level as a road engineer;

(b) effective previous training and subsequent field experience in routine and periodic road maintenance;

(c) experience in training managers in road maintenance methods, standards and procedures;

(d) experience in developing and implementing on-the-job productive training in road maintenance at supervisory levels;

Ce) capacity to plan, organize and control work activities;

(f) working experience of about ten years in countries with similar characteristics;and

(g) fluency in Spanish.

B. Responsibilities

The specialist will be responsible for:

(a) providing training in routine and periodic road maintenance management, including planning, programing, execution and control procedures;

(b) planning, organizing and implementing productive training of personnel assigned to rehabilitation/maintenanceworks;

(c) providing on-the-job training to road foremen, overseers, equipment operators and drivers;

(d) training Vialidad's counterpart and instructor assigned to the Training Department; and

(e) assisting the Training Department in preparing and distributing programs, equipment, material and learning aids required for the training process. - 53 -

ANNEX I

ATTACHMENT I Page 5 of 7

4. Surface Treatment Specialist

Duration 3 months

Duty Station Santiago and other sites as needed

A. Qualifications and Experience

(a) a good technical education up to university level as a road maintenance engineer;

(b) experience in surface treatment (no less than eight years);

(c) experience in upgrading managers and supervisors in surface treatment, including regraveling and surface dressing;

Cd) working experience in countries with similar characteristics;and

(e) fluency in Spanish.

B. Responsibilities:

The specialist will conduct three short-term seminars aimed at:

(a) training management and medium-level technicians in surface treatment w.thods and practices;

(b) training a select group of technicians in programing, budgeting, implementing and controlling surface treatments; and

Cc) training supervisors in treatment practices, including: (i) suitability of equipment; (ii) availability of materials; and (iii) storage and distribution methods. - 54 -

ANNEX1

ATTACHMNT 1 Page 6 of 7

5. Planning Specialist

Duration 6 months

Duty Station Santiago

A. Qualifications and Experience

(a) education up to university level;

(b) experience of five to seven years in planning and programing road maintenance (routine and periodic);

(c) experience in the organization of road planning departments;

(d) capacity to plan, organize and control work activities;

(e) working experience in countries with similar characteristic5'and

(f) fluency in Spanish.

B. Responsibilities

The specialist will help to strengthen Vialidad's planning department in the following aspects:

(a) programing and finaucing road maintenance;

(b) establishing guidelines, procedures and indicators for evaluating economic justification of roe?ds;

(c) processing and analyzing statistical data;

(d) defining criteria and priorities for road construction and maintenance; and

(e) implementingand evaluating the road construction and maintenance plan. - 55 -

ANNEX I

ATTACHMENT 1 Page 7 of 7

6. Equipment Maintenance Specialist

Duration 6 months

Duty Station Santiago or other suitable locaton

A. Qualificationsand Experience

(a) a good general and technical education up to technician level or equivalent as a mechanical superintendent or senior workshop foreman;

(b) sound practical training and subsequent extensive practical experience in the maintenance and repair of heavy road construction/maintenance equipment, dump trucks and other road vehicles;

(c) experience in developing and implementing on-the-job productive programs in maintenance and repair of road equipment;

Cd) capacity to plan, organize and control work activities of others while maintaining a team spirit;

(e) working experience of about 20 years in countries with similar characteristics;and

(f) fluency in Spanish.

B. Responsibilities

(a) planning, organizing and implementing training of mechanics assigned to maintain road equipment;

(b) developing training materials in collaboration with the training adviser and the chief of the Training Department.

(c) assisting in preparing lists of spare parts for equipment and of materials and other resources required for training; and

(d) training a Vialidad counterpart and other instructors assigned to work with him. - 56 -

ANNEX 2 Page 1 of 4 CHILE

ROAD SECTOR PROJECT

Economic Analysis

l. For the economic evaluation of the Road Maintenance Program, the Bank's new Third Generation Highway Design and Maintenance Standards Model (HDM III) was used. This model predicts the life-cycle costs of different road design and maintenance options, including different time staging strategies, either for a given road project on a specific alignment, or for grotupsor links of an entire highway network. It estimates the total costs for large numbers of alternative maintenance policies on a year-by-year basis, and can thus be used to search for the alternative with the highest net present value (NPV) at given discount rates, or the highest internal rate of return (IRR). The objective is, thus, to search out that combination of standards and policies which results in the minimum total life-cycle costs to society, including the costs to road users, as well as the costs borne by the highway authority. Vehicle speeds and operating costs, and road deteriora- tion and maintenance costs, are internally estimated by the model as a function of the road design and maintenance standards, traffic volume and axle loads, and environmental conditions. Maintenance and vehicle operating costs are first estimated in physical quantities; then prices and unit costs, as specified by the user, are applied to determine the total financial, economic and foreign exchange cost.

2. For the present program, the model was used with respect to (a) asphalt concrete and (b) surface treated paved roads, and (c) gravel and (d) earth surface roads. The road sections wit}:Portland cement concrete were analyzed separately since the HDM-III model does not cover the deterioration of such roads. The kilometrage of the road network, in total and by zone (a distinction made essentially to capture climatic and soil effects), is given in Table 1 of this annex, where each cell is identified as a group.

3. For each of the groups so identified (i.e., for each of the three zones and the four surface types covered in the HDM-IIl model), a further classification was established according to matrices between road condition and traffic, as illustrated in Table 2 of this annex. The cells in these matrices, expressed in kilometers, are identified as -links.- Thus, for each of the groups, a set of links was established (for paved roads ranging from 10 to 16 in each region, depending upon how many cells in the matrix were filled by a significant kilometrage, and for gravel and earth roads, com- prising three links each in each region).

4. For the paved roads, the classificationof each link was based partly upon a general road inventory. This inventory identified, inter alia, surface type and the overall condition of the road pavement. For the purpose of the model use, this information was supplemented by further data and then translated into assessments of pavement composition and strength; pavement cracking, rutting, raveling and other blemishes; and surface roughness. For the unpaved roads, surface condition is not quantified since it is forever changing, as a function of traffic and blading policy, and is predicted by - 57 -

ANNEX 2 Page 2 of 4 the model given the material (gravel and earth) characteristics,which were assessed based upon available data.

5. Traffic volumes were obtained from routine observation data, covering the full classificationmatrix. The annual traffic growth rate was 5% for unpaved roads and ranged from 2.5% to 6.5% for paved roads, depending upon vehicle type.

6. Five vehicle categories, namely car, pickup, bus, light-truck and heavy-truck,were used to represent the traffic composition in the analysis. Detailed information for each category was also provided, including fuel type, gross vehicle mass, pay load, equivalent number of axles per vehicle, normal vehicle service life, hotursand kilometers driven per year, and average number of passengers per vehicle.

7. Also, basic cost inputs were provided. For paved roads, this included unit costs for routine maintenance, pothole patching, surface dress- ings, overlays and typical rehabilitation. Similarly, for unpaved roads, unit costs for routine maintenance, blading with a motorgrader, spot regraveling and full regraveling were provided (Table 3 of this annex). Finally, unit costs of the different components of vehicle ownership, mainte- nance and operation were provided (Table 4 of this annex). Tables 3 and 4 show cost data in terms of financial, economic and foreign exchange costs.

8. The policy optimization was carried out first at the link level, seeing that the optimum policy would vary from link to link, depending upon their respective characteristics. In formulating the set of maintenance policy alternatives for final evaluation, it was necessary, therefore, first to test a wide range of maintenance options before discarding some in favor of others. For the sake of computational efficiency, it was convenient to use the same set of policy options for all the paved roads, and similarly for unpaved roads.

9. Table 5 of this annex gives a set of 27 alternatives that were evaluated for each link of paved roads. As can be seen, maintenance opera- tions on paved roads, in addition to basic routine maintenance, may consist of any combination of patching, resealing, overlay and pavement reconstruc- tion, and they can all be triggered at various levels of distress. Alternative 01 is the baseline case (or null alternative) where, besides basic routine maintenance which is performed under all alternatives, only a nominal amount of patching is done. (The purpose of defining this alterna- tive is to evaluate the additional benefits of increments in maintenance.) The table includes three sets of policy combinations:

(a) Nos. 1-10: Different combinations between patching potholes (none or all) and applying surface treatments at various extents of surface cracking (5, 25, 50 or 75% of the surface cracked).

(b) Nos. 11-19: Different combinations between not using surface dressings or applying them at 25% or 50% cracking, and putting on a 5 cm asphalt concrete overlay at roughness 65, 55 or 45 QI; and - 58 -

ANNEX 2 Page 3 of 4

(c) Nos. 20-27: As (b) preceding, but, instead of overlay, rehabilitatingwith new granular base and asphalt concrete (Nos. 20-25) or surface treatment (Nos. 26-27) upon reaching roughness 70 or 90 QI.

10. Tables 6 and 7 of this annex give a set of 31 alternatives evaluated for gravel and earth roads respectively. The maintenance opera- tions to be considered, in addition to routine maintenance, are blading, spot regravelingand full regraveling. The baseline case here is nominal regraveling, plus grading once, twice or four times per year, for low, medium and high traffic volumes, respectively. There are, essentially, two sets of policy combinations:

(a) Nos. 41-47: Spot regraveling and blading at various frequencies as a runction of vehicle passes; and

(b) Nos. 48-68: As (a) preceding, but also regraveling with 15, 20 or 25 cm of new gravel when the gravel thickness has worn down to a nominal 5 cm.

-1. The maintenance alternatives were evaluated for each link on the basis (0) of net present value (NPV) of each alternative when compared with the baseline case at a discount rate of 12% and (l1) of the internal rate of return CERR). The analyses were carried out over a 20-year period. Under no buidgetaryconstraint, the optimum policy on each link would be the one that maximizes the NPV. (The discount rate of 12% represents the opportuaity cost of capital in Chile - a higher discount rate would change the optimum policies toward those less capital-intensive.) Tables 5 to 7 of this annex give, for illustrative purposes, the arrays of NPV and IRR for some typical links; the optimum policies are underlined with single and double lines in the case of the NPV and the IRR criteria, respectively.

12. Pursuing the maximum NPV criterion without constraint would lead to a program costing more than the budget available. To prune it down to an acceptable level, the Bank's model for Expenditure Programing under Budget Constraint was used in conjunction with the HDM-III model. The Budget Constraint model uses mathematical programing to evaluate the tradeoffs between competing alternatives, in order to maximize the objective function, NPV, against the resource constraint, budgetary provision, for distinct periods of time.

13. The following steps were taken in using the Budget Constraint model:

(a) Three budget periods were considered, namely years 1-3, years 4-6, and years 7-20, the budgetary amounts for the three periods being US$365, 350 and 1,757 million respectively.

(b) The HDM analysis had shown that, for links of identical characteristics,near-enough the same ranking between policy alternatives was obtained in the three regions. Therefore, these links of identical characteristicswere lumped together. - 59 -

ANNEX 2 Page 4 of 4

(c) In order not to bias the choice between capital or recurrent expenditures, they were lumped together into one expenditure designation.

(d) For each link to be analyzed, four policies (in addition to the *-null-alternative) were selected for analysis, representing the options that would be the most likely competitors toward arriving at the overall optimum.

14. The results of the analysis are given in Table 8 of this annex for paved roads and in Table 9 for unpaved gravel and earth roads, in terms of the kilometrage of roads to be given various types of maintenance and rehabilitation, and the corresponding costs, for the three time periods. The IRRs for these programs are 49% and over 100% for paved and unpaved roads respectively.

March 1985 - 60 -

ANNEX 2 Table 1

CHILE

ROAD SECTOR PROJECT

Road Network by Surface Type Used for Economic Analysis, 1984

(in kilometers)

Northern Central Southern Surface Type Total Zone Zone Zone

Cement Concrete 3,382 150 1,801. 1,431

Paved (i) Asphalt Concrete 4,364 3,051 803 510 (ii) Surfaee Treatment 1,442 338 259 845

Unpaved (i) Gravel 23,715 3,828 4,967 14,920 (ii) Earth 14,180 6,845 3,422 3,913

Souree: MOP Vialidad

February 1985 - 61 - ANNEX 2 Table Z Page 1 CHILE

ROAD SECTOR PROJECT

Links Definition for Asphalt Concrete Roads by Zone

(Length in kilometers, traffic in low, medium, high and extra high and condition In good, medium, less-than-medium and bad.

Zone Zone Zone Link ID North Central South Total

LAGO 717 88 - 805 LAME 529 62 160 751 LALZ 276 11 30 317 LABA 101 - - 101

1623 161 190 1974

MAGO 318 70 6 394 MAME 436 15 54 505 MALM 204 26 105 335 MABA 68 10 - 78

1026 121 165 1312

RAGO 226 56 31 313 HAME 70 86 67 223 JHAM 45 148 6 199 HABA 19 11 - 30

360 301 104 765

XAGO 12 10 32 54 XAME 20 88 19 127 XALX 10 107 - 117 XABA - 15 - 15

42 220 51 313

TOTAL 3051 803 510 4364

1/ LAGO - Low Trafficked Asphalt Road in Good Condition LAME - Low Trafficked Asphalt Road in Medium Condition LALM - Low Trafficked Asphalt in Less-than-Medium Condition LABA - Low Trafficked Asphalt Road in Bad Condition etc. - 62 -

ANNEX 2 Table 2 Page 2 CHILE

ROAD SECTOR PROJECT

Links Definition for Surface Treated by Zone

(Length in kilometers, traffic in low, medium, high and extra high and condition In good, medium, less-than-medium and bad.

Zone Zone Zone Link ID North Central South Total

LSGO 95 11 427 533 LSME 18 9 70 97 LSLM 10 21 127 158 LSBA - 18 35 53

Sub Total 123 59 659 841

MSGO - 31 36 67 MSME 143 24 63 230 MSLM 45 8 28 81 MSBA - 11 16 27

Sub Total 188 74 143 405

HAGO 20 49 - 69 HSNE 7 8 14 29 HSLM - 30 20 50 HSBA - 7 9 16

27 94 43 164

XSGO - - - XSME - 22 - 22 XSLM - 10 10

XSBA - - -

Sub Total - 32 - 32

Total 338 259 845 1442

Source: HDM Memo May 1985 - 63 -

ANNEX2 Table 2 Page 3 CHILE

ROAD SECTOR PROJECT

Links Definition for Gravel and Earth Roads by Zone

(Length in kilometers, traffic in low, medium and high)

Link ADT 1982 ID Zone Zone Zone Total Range North Central South Total

LG 3.158 1.437 9.280 13.875 MG 532 1.897 3.536 5.965 HG 138 1.633 2.104 3.875

Total 3.828 4.967 14.920 23.715

Link ADT 1982 ID Zone Zone Zone Total Range North Central South

LE 5.117 913 2.369 8.399 ME 883 1.001 830 2.714 HE 845 1.508 714 3.067

Total 6.845 3.422 3.913 14.180

Source: HDMruns

March 1985 - 64- ANNEX 2 Table 3

CHILE

ROAD SECTOR PROJECT

Unit Cost of Maintenance Operations

Maintenance Operation Unlt Cost Type Unit Cost USS.

Patching sq. . Financial 10.55 Economic 8.92 Foreign Exchange 5.23

Resealing sq. m Financial 3.38 Ecnnomic 3.05 Foreign Exchange 1.69

Overlay sq. m Financial 8.39 Economic 7.35 Foreign Exchange 4.22

Pavement Reconstruction sq. a Flnancial 15.31 in Asphalt Concrete Economic 11.06 Foreign Exchange 7.70

Pavement Rehabilitation In sq. a Financial 10.56 Surface Asphalt Concrete (1) Economic 7.63 Foreign Exchange 5.31

Pavement Rehabilitation sq. a Financial 5.54 in Surface Treatment (2) Economic 4.01 Foreign Exchange 2.79

Routine Maintenance Paved km/yr. Ftnancial 496.00 Road Economic 406.50 Foreign Exchange 202.90

Grading km Financial 97.79 Economic 84.23 Foreign Exchange 58.80

Spot Regraveling cu. m Financial 5.21 Economic 4.49 Foreign Exchange 2.76

Gravel Resurfacing cu. m Financial 15.42 Economic 13.55 Foreign Exchange 9.45

Routine Maintenance km/yr. Financial 150.68 Unpaved Road Economic 117.60 Foreign Exchange 61.63

Source: IBRD VHDM computer runs

March 1985 - 65 - ANNEX_2 Table 4

CHILE

ROAD SECTOR PROJECT

Unit Costs of Vehicle Fleet, 1984

(In US dollars)

Financial

Light Heavy Item Unit Car Pickup Truck Truck

New vehicle USS/veh 9.275 11,053 44,940 88,482 Tires USS/tire 85.20 108.90 347.20 494.40 Maintenance labor US./hr 2.20 2.20 2.20 2.20 Crew time USI/hr 0.00 1.00 1.20 1.80 Annual Overhead Costs Z 0.0 0.0 10.0 10.0 Annual Interest Rate Z 13.0 13.0 13.0 13.0 Petrol USSILt. 0.42 0.42 - - Diesel Fuel USM/Lt. - - - - Engine Oil USS/Et. 3,00 3.00 3.00 - 3.00

Economic Cost

Light Heavy Item Unit Car Pickup Truck Truck

New vehicle US$/veh 5.725 6.823 27.741 54.618 Tires USS/tire 52.60 67.20 214.30 305.20 Maintenance labor USS/hr 2.20 2.20 2.20 2.20 Crew time USS/hr 0.00 1.00 1.20 1.80 Annual Overhead Costs Z 0.0 0.0 10.0 10.0 Annual Interest Rate Z 12.0 12.0 12.0 12.0 Petrol USS/Lt. 0.34 0.34 - - Diesel Fuel USS/Lt. - - - Engine Oil USS/Lt. 2.51 2.51 2.51 2.51 Passenger delayl/ USS/.veh/hr 2.07 3.60 3.20 3.50

Foreign Exchange Cost

Light Heavy Item Unit Car Pickup Truck Truck

New vehicle US$/veh 4.770 5.6868 23.118 45.515 Tires USS/eire 42.60 54.50 173.60 247.20 Annual Interest Rate % 12.0 12.0 12.0 12.0 Petrol USS/Lt. 0.28 9.28 - - Diesel Fuel US$/Lt. - 0.27 0.27 Engine Oil USS/Lt. 2.09 2.09 2.09 2.09

1/ Includes the time value of all passengers per vehicle. Source: MOP Vialidad February 1985 AMUX 2 CHl06E sleS

ato sscen nCr

it Pr...t V.iw. ta9t 12 pe y_ r dluent rutsl low...n t162003 In wiIIoas of DODIins and t1.frnel M ltelmt. Cwud wln Pol Icy _mmr 1 It. Stillens of as 01DOlin) Zo_ No - Swfm Treated

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7 100 S -0.410 3.6 0.02) 12.6 0.0 - 12.024 32.0 0.0 0.351 26.9 1.409 49.1

6 100 23 -0.201 7.3 0.03 13.1 A.0 - 12.026 32.0 0.0 - 0.002 30.0 1.469 49.1 9 l1o 50 -0.191 6.9 0.D031 13.1 O. - 12.024 32.0 0.0 0.66 31.2 1.4t9 49.I 10 lo n 5 -0.197 6.0 0.04 14.0 0.0 - 1246a 34.6 0.0 - 0.594 30.4 1.497 4.7

1i1 :o - 0 at 65 Of 0.94 6 t. 0.50T 164 0.460 22.0 30.371 61.6 13.68 49.6 2.86 53.1 3.00N 62.1 12 CKW 25 65 01 0.264 14.0 0.469 16.2 0.449 21.9 30.511 £1.3 12.09 49.5 2.742 46.4 3.9 61.6 13 tIW 10 65 01 0.961 10.6 0.507 18.6 0.60 22.0 30.497 41.5 12403 49.0 2.74 4605 3.057 62.0

14 100 - Ot at n 01 -0.2710 11.2 0.507 134 0.4O6 21.1 30.965 41.6 13.40 48.7 3.20 36.3 3.125 67Z1 is 100 25 5 01 -0.472 lO0 t o.<" 10.2 0.456 21.1 30.51T 61.5 13.443 414 3.43 11.0 3.59 61 16 100 30 55 g1 -0.210 11.2 0.507 16. 0. 21.1 30.497 41. 13.66 4M. 3.431 36.2 3.57 a2.0

1? t00 - O at 4S 91 -0.270 13.2 0 17.6 0.327 16.4 3I1.4 41.3 1350 39.1 3.572' 3.3 3.197 61.9 is 100 2J 45 01 -0.473 10.6 0.40 17.6 0.317 16.3 301925 41.2 13.452 39.0 3.43r 1.0 3.155 61.7 19 100 30 4A91 -0.270 11.2 C.4AN 174 0.327 16. 31434 41.3 13.01 30.1 3.471' 32 3.197 61.9

20 too - l atE 01 0. :12 21.3 0.526 2114 0CA 251.9 24051 61.4 15.147 56 1.516 135.0 2.929 8MS5 21 100 25 90 s -D.20 7.3 0.172 15.5 0.072 25.7 21.741 35.0 1S.1cr055'. 0.812 30. 2.330 50. 22 100 o 9i7 01 -. 139i 6.9 0.172 15d. 0.611 25.9 21.141 35.0 15.167W 565 0 420 31.2 2.330 30.0

23 100 - E at 70 98 0.6711 18.4 0.571 19.1 0.OA4 25.9 33.128' 43.1 15.147 56 2.965 61.0 3.24t5 04.4 24 too 25 7001 .O09 12.9 0.574' 19.1 Oi72 25.7 3.07 42.9 15.165 S5L4 2.74 47A4 3.2U9 64.3 25 100 130 70 01 0.6797 18. tsr 141.1 Os.' 25.9 33X1tA' 43.0 15.167 1.5 2.763 74 3.265 04-4

20 100 - fST Ot 9001 0.2U 5246 062W 44.9 0.730 38.9 27.721 961.9 14.09 91.1 1.30 223.0 2.77 13.3

27 too - AM . 7006 1.I Ir 2 62 o.7721 27.9 0.730 1.9 31.900 63.9 14459 91.1 2.431 663 3.051 90.7

L'sGT a'lI 31 95 to *0 143 45 20 7 MliTIM. IE55C8 lOll5O 73 90 73 g0 73 STRI JEtL W 1.71 1.71 0.93 1.71 0.93 1.7) 1.11 .wIF*ED SIUcTLA M. 341 341 2.83 3.61 2.83 3.6I 34I TRAFFIC *IVabrt) 2J7 217 257 712 712 1332 322

FIIWC0IL CWiTAL WsT 19t6 16.921 - 0.599 0.333 30.S71 3.326 1.175 0'517 mEga Po.3CV in 1V7W ------MILLIOS (I DOLLMS 196 ------

rsgo - - - - - _ _ _

199t t61.053 1A5 - - 1992-1997 2.963 2.106 - - - 0.355 0.392 0.110

19616-199 17.574 USSihalvw 6OA"

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(Is oil I _n oUS del ewe1)

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POL 1411 SWT U0; ISA. OW. LlE LIO LIE LIE LOW LIE LIW LOE Lit ft. MM AVs. waUDCo l iIL TmOIIoI_ L fl E LOX If ST N1 NMtNW .1E mlt ImAe.p (WAY AT 5s WI _ lot WV lm WV lop WV m WV mo NM lie sV fo me mm NM l

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45 is 211W 15 41.C - -9.10 - -31.30 - .33 2Z.I 2L77 13.1 -3.87 7.0 54S.0 77.7 G3C2 9.2 20.14 5.4 4 s3 1 C uO.O 1 - I.S - -30.2 - 260A 24.0 5.0 174 4.24 11.7 60.5 NJ 7.W C3A 25.W 47,6 so is GM 10 -47.55 - -10.4 _ -S1.55 - .3 322.1 L 72 I 60 4.5 11.2 57.7S- *.5 1.10 10. S2.3t 47. _ t5 I 13 -14.13 - -41.3 - -3300 1-LU 1l.6 15. iL? -IS .217 330 22 67.2 3. 25.S 44.6 -- Is IWo 15D -6654 - -12.2 -34.66 - 40 1t -0. 79 1e.21 -2.11 7.9 4600 6S m.9" 47.4 2.53 41.3 * iS 12Wm0 ID 41.0 - -42.0 - -354D - I.9 13.9 -3.I 64 -4.26 lo 42.40 3.4 S0. 41.4 21.05 376 54 is 1ism ISO 42.3 - -12.11 - -3S3. - 2.06 3.3 4. 3.3 43 23L 33.6 44 3.97 L IL9S. 3I1

53 is 2010 200 .6.04 0.2 -tl It -3_.0 - 6.63 ILS C0.1 12.9 .4.32 LS MM St .6 .S2 46.3 T.06 31.4 S 15 ato D0 -314 D0A 4: -a .33.5 0 20.1 L1 itO .1.8 3.9 65.07' 6. 7LW1 30 516 33.9 57 IS 4M0 2O -6f6.7 - -11.89 - -34. - 6.95 iLl 1.S5 It. 2.04 365 37.30 66.4 3.34 4133 3.L. .61

is 111000 23 D - -42.J -36. - 4. ILS 4.1l IIJ -3.07 2 MCI 5163 66.4 49 24.0 37.6 -a 5I ItOm 200 47.76 - -1ILt5 - -3LW - 2.40 16.3 4.5 3.S6 -. 33 6.5 47.76 32.4 3Z a1tm Z.ss 332 a is 12=1 200 -M0.32 - -i4ts - -36.7 - 4.3 11.9 -L06 70 -3.6" 4.6 42.17 S^ 49.37 35. t9?N 32.3 Si I :5000 200 -71.65 - -14.35 - -33,23 - -373 .2 -c.73 2.6 -7.74 1.1 3a5c 31.3 5121 33 13. D 13.0

42 is 230 20 -250.7 - -1343 - O40L - 3.9 016.4 0.22 17.246 6. 3§ 51.9 St .4 063 3S 67. 3 27.7 a is 400 0 -. 47 - -13.32 - -33 - 7.70 13 .4t 13.3 -2.4 S6 57.34 57.4 73P 44.7 24.73 34.6 64 i SXO 230 49.30 - -14.19 - -40.3 - 6.26 116. 1.17 2. -2.7t 63. 53.32 54.2 W.77 SLD 24I17 3.6 6S 1s 5M 2 -7Sa - -1323 - -42.15 - 6.12 333 .0.1 11.3 -LU2 .3 50.13 4*Y 63t7 3DO6 2300 32. 46 IS 10Io= 250 -6.72 - -13.05 - .4600 - 1.71 13.4 -&34 3.3 4.06 7.0 45.47 14.9 5766 33.6 2Mai 30.6 67 IS 12NO 250 -6.73 - -16.33 - .MI7 - 4.79 01. 4.1 7.3 -4.44 5.A 3JI 40.3 4.00 31.9 14.51 2.4 CtIS 15" 290 -6.46 - -1L6 - 4_.3D - -4.1 3 -J.30 4.2 -L6 3.2 31.23 33 33.64 3 14024 24.6

TOL LE . ~I_ iLl?4.le 175 913 2.3 as 1.05 O 33 I-S3 714 TVFIC rmmufl 17 17 17 Y Y Y2 is 16 lab O. PTICI SIJE tat% 636 76 000 t 100e o i 7 100 is M 15 8.WTmCmIT11 aEcht CZ) 10 14 14 to 14 14 10 14 14 15345m Wtill 1to.2WW 167-lu tlU-I 179311 IS-iS 14-IS 1st7-n 461-IS1 147-al7 *MOO= GMTF.ICT m011 ID-ID 147-113 133-:24 033-132 131635 13-1 1I W-50 g47 5F47 .wit. CT ImT Pa. aL its Il.mrs 3.02 0.316 0.1S 0.730 0.73 0.AN 1.- 2.7W 0.-3 CAPITALCUT IOSTOLc MSS I669 17. M - - 5 5 - L7 21 0I0I v63

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elme__ I .m A! SCOW lt I_.

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I.A&1 1 lot Pit I lindlst. eperly 1 mel 'W l 5.0 - L9w 0.150 LIs5 0.76 LW7 is

-1__1_I Aw1 SCO 100 %IcI_

MA Gte" I PJ .eeeOeS i.. chlbet, Is?. of _oc - 5.434 6.605 0.s5 06, S L73 Loos 1i y( ftile us PM llwemt.ecto- Sf 276 to 1. t593. 17 - 43.( 555 0.90 L0 LW 2L.055 25 1s. 1991 46 k. 13M td 5 k. 5. 19* 11l L_ tl_ _I,1 335 PAt h_Inl.t.e e e te3S _I fielted by, i93 - 19.63 04. 0L.A LN4 465.13 32 _itlse. 19, 1-OOi

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._ 42 k I. 19t. Swet hi . 7Iv Ie_oms rt s 19" ai W03

54W .ue- tit. mMl. I"9 PAI ll et. U..eIe_ 7 99 We gal I aed 1. 197-203 by es6 r. 1-ilyt leI-os 1517 - 1111 L.207 L 27 1.31 4tL175 42 SlA Wi ¶0 PItf tdi 1.752 - 1.7S2 0.045 L045 0.210 1Wi7D 5x

Ce_tn, 1.ol muiAT A 20X5 -hl CI-

VAC0 or" 54 P.81 be.5ea oe I-I. g Jm4the. - Ls551O 6.3O 0.0O LO I 0.o n 5 a.6t I.e 1564997 sd MOI 10 Wring letthes b.t__ee 199t400

543 _ 4_Itt 127 PitS oseil's kmdl-teI 1 VWidy pWtod .79 Irr 7.43 1._3 15 .65 0.19 11 0.19 0O 39.107 64

wryle, eqtrsms e 7 5.iw P1AR L_ timol u le 117 PA4 le. s 11 1. 130 0.37x 0.17x 0.e2 12L.M M7 tAB so Is15 5 i.. 0.6o 0.176 1.70 0.11t 0.L1O 0.096 2CL 137

TOT. ASFsLT OR) '.364 66.371 62.15S 143211 77104 6.95 32.7 425.716 is.

I/ tbis.t.. .eWlte,iM of OP l.5ll64 im Isssu*ld e Cepitl 11 a .crrwl v.t .d__. I capt tel *I t hIlde rse.UmmcetIRt weerearre. awfae inrsqt md qr~1.Bl. etc. All ce.l,ctl. _I SCt of tim. ir5 cl_hl.X rtietrwtsk.S tweemi Ir_etd _ e.qes. dt4 bmdled md. the C__.et4V t iebEetrEgt6 2/ P.tc11lg of *11 oatil W4 reetliss .Item i vow IMebII- . .11 .m1ltsset pSIIcise. 3/ WEt ft.-ft We1i

_ WIte I bt. of ptws. CHILE

P040070 P0ItOgCT

Swory of Walntnece E endilturesI/ R rledan Poewdand U 2wed RoU6, 19662005 cgoestsI Miil 46One 41IeIN$as U4fl 46 ?eris Priem S. PAWDMR * 5NAE ThMATED

Decerltion Optimm Capital Coet. RIclwrentCosts NW', VM4/ In Group of Ceet or Lei th Wintsn"ncaf Cetcgoy Condltlon (iw) Policy OCecriptionof MaintenacePolley , 196-4, 196941 192-2005 19964 19 91 lIM-200 123 (3

hdlur-wolumeAADT 500wehicles

LSA Oocd 1,230 PJi7 Recanatructlon WM4Tof d20ki In * 40.914 * 1.60 1.IIS0 6.4 9.964 17 IM ard 410 km In 111

LUC mwdlu 7 Pn3 Reconstructionlef tl of 97 lo In 19" - 3.71 * 0.207 0.179 0.674 3.J1 53

LS Laosthbn udilm In f.2h Rscomtruatluto 4ATI4of 154km In 1196 132 * * 0.234 0.234 i.2 10.41 32

LgZ Sa D Pis RcconhtructIon (MT) of 53 la In ¶98 2.037 * * 0.074 0.07r 0. St 4,1 45

Redlum,oiin MAT 5001000weilcIe

1603 Oeed 67 PJ Recoentructlan CW4T of 22.33 In * 1.734 0.967 0.09 0.011 0.492 4.756 if 1, 2. km In 1m nda22.4 km In 1t

MoeW ihdluw 230 PJS7 Reconstruction(MT) of 230bk In 1966 6 - 0.342 0.342 .647 51.307 a

6K Lees then ddIm a P126 ReconstructionnurT) of 1 km In II* 3.143 - - 0.120 O.IZO 0.56. 2.6Sa 0.1112 10.52 1 s Std n Pis Wcoroeructlof(MVT) of 27 lo In 1966 1.048 - 0.030 0o0r "10 "iwa OM 1002=O wbhisee HSCO Good I3s PJ2e ReonctruetlinM MVe of 45 to In 1917 * 5.23 . 0.245 I.02 2.640 i Wd90 kis In 2ea Hu Lose iten mdi as FJ27 Rgootruct Ion (MTr In 199 1.125 - . 0.042 04042 0.211 4.001 44 itra-411 wlum ADO? 2000vehicl. 7300 Good 5 2 Nil oesIsy21 lo In 1967and 111a In 19M 1.2SJ 0.62 0.041 0.041 0.672 111227 12 TOTAL1 CCTRhATO (t) 2,119 25,696 47.056 S.10 3.240 5.254 15.746 14556 n.eas.

TOTALPAD (A41 6105 IO0.24 90.056 109.1an 151.404 10.224 47.966 51.53 49

1/ Wlantenaneeoporditur so doelina hbroInclude a cocital nd a recurrent east oIus,t. lte capltol clitt Include recoutructlon, werlays, sutrce drusing ud rqraling. etc. All costruction end60 of the criNy scheduledrecenatructlon hew boen tated einonpo 6te handledunder the eerntlr Invzintwuntprisr 2I Patchnlgof ail potholes endrwtins mlntooen *nh yea included In all intenanmepollele 71 Not 1r0fl t Value IT Interul Rlte of Return CHILE

RWOSECTOR PROJCT

Suury of MaIntnaeo Elpenditur.e 1/ Requitrd on PavedAnd U'Waved Raide, 19N-2005 (costs In mll lonc of USdol len at constantDcrwist 194 prices) C. WPA ROA35M * RAWL

OecrIpt lon OptImmu Capital Coats RecurrentCosts W RR GroWp of Cost or Length Ibntenance at In Catsgory CondItlon OR) Pollt Descriptlon of MainteancePol Icy 22 981666 19691 199*2005 196-68 t9691 1 9-2005 121 II)

LG ACTlr thn 3J156 PJ4Z hIiding every 4,000vehicle pum* - - 27.059 29.609 16.81 130.75 lbs LO* t00 vpd LOST moo ACTbetween 532 PJ49 SldIng every 4,000vehIcle psece 5.916 5. C9 20.220 2.814 3.228 22.205 4.71" 100 100-250"pd plus gravel resurfacing to i5O m In (WorthIono) 1967,19lii 19f, 1919 and20M2

MM Agr between 1,5S7 PJ49 Gliding every 4,000vehicle pnm 20.727 * ,772 10.142 11.52 7S1.11 130.011 100 100-250vpd plus yrcvl resrfacing to 150go In (ChentstZonal 1967,1392, 1115,20DD cnd 2DO3 lGT ACTbetween 3, s; PJ49 91.dl4g every 4,OO0vehicle poses 41,9 - 129.043 1LODS 21.459 147.592 174.697 100 100-250vpd plus gravel reurfacIng to ISO1m In (SouthZone) 196, 1994, IM and2004

Hu1D ACTgreatr 136 PJD 9ladlngrevery 6,000vehIcle poces 1.472 2.99 11.986 1.2G9 1.311 9.693 36.43 100 than 210 vpd plus grial resurfacing to lSO- In (NorthZonal 197, and every tw yews thereafter

HOM ACTgreater 1,S3 PJ4I eldlng ery 4,000vhlelu pamn 23.3J2 24.642 132.115 20.547 213.37 155.54 350.46 100 then 250vpd plus ravel rtsurfaclng to 150- In (Central Zone) 1966. 1191and every th yews thereafter

MM05 ACT reater 2,104 PJSo eludIng evry 6,000 vehIcle pal" 24.234 104,453 16.443 21.097 146.758 329,199 100 than 250vpd plus revel resurfacing to ISOMmIn (SouthZoe)i 1969, 1993,1997, 2000 end2003

TOTALORAEL (C) 23,715 93.411 57.577 494.54 9S.46^9112.316 747.419 1,140.456 100

1 I. Ilntenanee nxpendltum Al defIned hre Include e capItal anda recurrent Cost olsut. ls capital slwnt Includet recomstrudton, orieys, surfuce OsIlrg and 8 a reWaelng, ste. All contruction and601 of the already scheduledrecemtructlon havebeen treated as exogenausdoet handledurnder the goveruntc IwVse1eMntprog_Q

V All eslnentacepolilelu Include spotrepavelllng of up to 153 pefryew rand bale routine ,intencsn. " CHIL

ROADSECTOR PROJECT

Sumary of Maintenance Expenditurea '/ Requiredon Paved and Unpaved Roads, 1986-2005 (costs In millions of US dollars at constant December 19B4 prices) D. UNPAVEDROADS - EARTH

Description Optimum Capital Costs Recurrent Costs NJV IRR Group of Cost or Length Malntenance at In Category Conditlon Ikm) Pollcy Descrlptlon of Maintenance Pollcy 2/ 1986-89 1989-91 1992-2005 1986-88 1989-91 1992-2005 121 ill

LEND ADT loss than 5,117 PJ42 Blading every 4,000 vehicle passes - - - 10.596 11.329 66.421 19.908 ItC LECE 50 vpd 913 LEST 2,569

MEND ADT between 532 PJ44 Blading every 8,000 vehicle passes - - - 1-392 1.515 9.569 8.952 '00 50-250 vpd (INorth Zone)

MECE ADT between 1,001 PJ43 Blading every6,000 vehicle passes - - - 3.427 3.769 25.94F 11.984 100 MEST S0 -250 vpd 830 (Central and South Zones)

HENO ADT greater 845 PJSO Blading every 6,000 vehicle passes 12.108 8.B58 38.524 3.450 3.902 26.616 57.784 SI than 100 vpd plus gravel resurfacIng to 150 m In (North Zone) 1990, 1994, 1997, 2000 and 2003

HECE AOT greater 1,508 P.150 Blading avery 6,000 vehicle passes 21.608 15.163 70.450 6.157 6.965 4'.502 14.101 60 than 100 vpd plus gravel resurfacing to 150 m In (Central Zone) 1986, 1990, 1994, 1998, 2001 and 2004

lOST ADT greater 714 PJ51 Blading every 8,000 vehicle passes i0.231 7.033 15.931 2.308 2.596 17.441 25.935 45 than 100 vpd plus gravel resurfacing to 150 m In (SouthZone) 1986 and every five years thereafter

TOTAL EARTH (01 13,89 43.947 31.084 124.905 27.330 30.076 191.297 198.664

TOTAL UNPAVEDIC*O) 317B29 137.433 88.631 619.454 126.819 142.392 938.'16 1.379.122 100 ^~~~~~~~~~~~~~~~U SeNE .E .... 05 8* 55.55 553503awasws.s ... a GRANDroTAL (A+B+C+O) 44,332 227-491 197.835 770.S68 137.34 152.626 986.6B2 1,951.474 Ir

* ...... *3333 0335 35503 SUE.... 5330 33333033....

--- ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~a c r z 1/ Maintenance expendItures as defined here Include a capitaland a recurrent cost elerent. The capitaloleNent Includes reconstroctlon, overlays, surface dressing and Ct 0- regravel Ing, etc. All constructlon and 60% of the already scheduled reconstructiln have been treated as exogenous data handled under the Governnm-'s Investment progra. Aet 2/ All relntenance pollcies Include spot regraveillng of up to IS m3 per year and basic routine maIntenance. - 73 - ANNEX 3 Page 1 of 4 CHILE

ROAD SECTOR PROJECT

Organization and Execution of the Road Maintenance Program

A. Background

1. The planning and control of road maintenance has traditionallybeen the responsibilityof the Road Maintenance Department of MOP's Roads Directorate (Vialidad), Chart I of the report. Actual execution of road maintenance has always been carried out by Vialidad's local offices, formerly 25 provincial offices, since 1978, 13 regional offices, comprising two or three provinces each. HOP's traditional responsibilityfor the maintenance of the total road network (at present about 79,000 km) was reduced in the early 1980s to the Basic Network (about 22,500 km). As a result of a move toward decentralizationof administrativeservices, the Government decided, at that time, to turn over responsibility for the Local Road Network (about 56,500 km) to the municipalities. However, this measure was never implemented, Vialidad never completely relinquishedresponsibility for the local network, and it has maintained its local organizationalstructure and personnel in place.

B. MiOP's Road Maintenance Organization

2. Under the proposed project, Vialidad would resume responsibility for the maintenance of the Primary Local Network (about 24,000 km) and would undertake spot interventions on the remaining, much less trafficked 32,500 km of the Secondary Local Network whenever traffic flows were seriously impeded. Vialidad is capable of absorbing this expanded responsibility because: (a) maintenance expenditures have been rising rapidly since 1984 and will be further increased under the proposed 1986-1988 expenditures program until reaching an adequate level in 1988 (paras 2.21 and 3.07 of the report); Cb) Vialidad has already been strengthening its maintenance organization and will continue this effort under the proposed project (paras 3 through 6 following); (c) a high percentage of the expanded works program will be uadertaken by contract (para 7 following); (d) Vialidad's present physical infrastructure, throughout the country, is adequate for the requirements of the expanded maintenance program (para 8 following); and (e) Vialidad's staff and equipment fleet, although presently not sufficient for the full requirements of the expanded program, will be strengthenedunder the proposed project (paras 9 and 10 following).

3. The effectivenessof the Road Maintenance Department, which had been strengthened under Credit 4-CH and Loans 287-CH and 558-CH in the 1960s, was diminished during the 1970s because of insufficient funding for maintenance and the political turmoil that affected all activities in the country. This issue was addressed during preparation and appraisal of the First Highway ReconstructionProject (Loan 1927-CH) and further pursued during appraisal and implementationof the ongoing Second Highway ReconstructionProject (Loan 2297-CH). Complying with covenants under Sections 3.06(a) and (b) of Loan 1927-CH, MOP created, on May 25, 1982, a Road Maintenance Council and a Maintenance Planning Subdepartment and submitted to the Bank, in September 1982, a satisfactory1983-1985 program - 74 - ANNEX 3 Page 2 of 4 for routine and perindic maintenance of the Basic Network, which has been carried out satisfactorily. Complying with Covenant 4.03(a) of Loan 2297-CH, MOP submitted, in June 1984, a satisfactory program far the maintenance of the Local Network which served as a first step for the preparation of the proposed project.

4. Under both loans, MOP has also carried out an exemplary effort to upgrade the technical capacity of its maintenance administration staff by: (a) initiation of action that led to the organization, in Santiago, of the First Latin American Highway Maintenance Seminar, sponsored jointly by the United Nations Economic Commission for Latin America (ECLA) and the Bank (August 1983); (b) participationof about 70 road maintenance engineers at that seminar; (c) participation of MOP's top management and maintenance planning staff at several international conferences on maintenance and pavement management and visits to the road maintenance organization of the host countries; (d) organization of bi-annual meetings of all regional road maintenance engineers to share the International experiences and findings and to discuss the requirements for carrying out a national effort to strengthen road maintenance; (e) application of the Bank's Highway Design and Maintenance Standards Model (1DM) in the planning of road maintenance; (f) sending of Vialidad's HDM expert to Bank headquarters for three months to familiarizehimself with the use of the third generation of the HDM model and to prepare the maintenance program used in the evaluation of the proposed project; and (g) initiation of the strengthening of Vialidad's Maintenance Department, as discussed in the next paragraph.

5. Since 1982, Vialidad has been progressively strengthening its Maintenance Department in preparation for its increased obligations for planning, managing and monitoring the proposed expanded road maintenance program. These tasks will be accomplished through its four Subdepartments:

(a) Maintenance Planning, staffed by four professionalsand supporting personnel, has carried out the preparation of the proposed project and is in charge of: (i) the road maintenance inventory; (ii) medium- and long-term planning; (iii) estimates of work quantities, of frequencies of operations, and of uni costs; (iv) assignment of priorities; (v) estimates of needed revenues; and (vi) programing of works. Most of the planning tasks will be carried oat using HDM-III.

(b) Standards and Specifications, staffed by an engineer and supporting staff, is in charge of: (i) study and determination of maintenance techniques; (1i) technical specifications for maintenance operations; and (iii) contracting procedures for maintenance works.

(c) Execution, staffed by five professionals and supporting personnel, is in charge of: (i) implementation of the works program; (ii) allocation of funds and resources; (iii) monitoring of the program and of actual operational costs; (iv) management of financing of the maintenance program; (v) preparation of disbursementapplications; and (vi) coordination of training.

(d) Services, staffed by four mechanical engineers and supporting personnel, is in charge of: (i) equipment administration; (if) planning of - 75 - ANNEX3 Page 3 of 4 equipment and spare parts procurement;and (iii) workshops and equipment repair.

6. Actual execution of the maintenance works is carried out by Vialidad's 13 regional offices. The typical organizationalchart of a regional office is shown on Chart II of the report. It comprises (a) an administrationdepartment; (b) a maintenance department in charge of force account works, including a subdepartment for equipment and workshop management; and (c) a civil works contracts department, which handles contracting of construction and of maintenance works. The line of responsibilitiesreaches through these departments further down to the Provincial Delegates (two or three for each region), where it is divided again into force account and contracted operations. The force account operations are divided into routine maintenance of the Basic Network within each province and routine maintenance of the provincial Local Network, each one of which is carried out by an adequate number of maintenance crews. Each maintenance crew is responsible for about 200 km of roads and comprises one foreman, one driver, and four to six laborers, supported permanently by an eight-ton truck and auxiliary equipment, and by additional major equipment, according to needs. The contracts for routine and periodic maintenance, as well as for new construction and rehabilitation of roads and bridges, are supervised by staff of the contracts office in each provincial delegation under the technical control of the regional civil works contracts department.

7. The increase of road maintenance operations under the project would be absorbed mainly through contracting. At present, all periodic and deferred maintenance and about 30% of routine maintenance is carried out by contract. The percentage of routine maintenance executed by contract would increase under the project and is expected to reach an average of 36% during the three years (about US$33 million). Execution of routine maintenance by force account would average 64% (about US$59 million) over the three years and would, therefore, not demand a substantial increase of MOP's personnel and equipment fleet. The substantially increased demand in supervisory capacity would be met by reassignment of MOP supervisors from construction supervision,which would diminish, and mostly by hiring consultants.

C. Infrastructure,Personnel and Equipment Requirements

8. As discut'ed in paragraph I preceding, Vialidad's infrastructure in office buildings, war 'houses and workshops in the regional capitals and in the provinces is suff'cient to cope with the demands of the expanded mainte- nance program under ;he proposed policies.

9. Table I of this annex sbows the relationship between the number of Vialidad staff that were engaged in maintenance operations in November 1984, the expansion of the number of staff already authorized before appraisal of the project, and the staff needed for the execution of the maintenance program, considering present productivity. Vialidad is selectively carrying out the authorized expansion and is seeking a restructuring of the authorization to make it consistent with real needs. It follows that, even assuming that the productivity would not be increased under the project, the need for additional staff would stay within boundaries easily manageable through reassigning and training of present staff and minimal hiring of new personnel. The only serious gap is that of the number of professionals - 76 - ANNEX3 Page 4 of 4 available for management and supervision. Vialidad, however, is taking measures to upgrade existing maintenance personnel or to transfer staff from the construction department. Additional employment of about 600 unskilled laborers is no problem and is consistent with the Government's policy to reduce unemployment.

10. Table 3.2 of the report shows the equipment required to carry out the programed force account maintenance, the present equipment in good-to- regular and in less-than-regularcondition, and the equipment to be procured under the project to complete the required fleet. Equipment administration is carried out in an efficient and cost-effectivemanner, relying substantiallyupon contracted maintenance of equipment. Preventive maintenance of about 80% of the equipment units is carried out in MOP's regional and provincial workshops and 20Z in private workshops. More detailed information provided by MOP on curative maintenance carried out in 1984 (Table 2 of this annex) shows that 80% of the repair operations were carried out in MOP's workshops (88% for light vehicles and 52% for heavy equipment) and 20% by equipment dealers and specialized workshops. Most of the operations carried out in MOP's workshops corresponded to minor repairs, whereas heavy repair operations were mostly contracted out, representing 77% of the total cost of curative maintenance of the equipment fleet. The upgrading of equipment management, and the increased reliance upon contracting of equipment maintenance that Vialidad has been carrying out during these last three years, will be strengthened under the project through the training component, which includes employment of an expatriate equipment maintenance expert.

May 1985 - 77 -

ANNEX 3 Table 1 CHILE

ROAD SECTOR PROJECT

Vialidad's Personnel Needed to Manage and Execute Annual Maintenance Program

Personnel Needed for Administration of Program and Supervision of Contracts

Personnel Estimated Surplus or (November Authorized Total 1/ Deficit 1984) Expansion Required Present Authorized

Professionals, Management and Supervision of Contracts 100 121 150 -50 -29

Supervision of Force Account Work and Workshops 99 163 100 -1 63

Administrative Personnel 89 110 100 -11 10

Drivers 180 192 200 -20 -8

Subtotal 468 586 550 -82 36

Personnel Needed for Force Account Work

Foremen 264 265 231 33 34

Driver 314 384 268 46 116

Operators 252 252 177 75 175

Skilled 204 275 201 3 74

Unskilled 1,146 1,075 1,819 -673 -744

Subtotal 2,180 2,251 2,696 -516 -445

GRANDTOTAL 2,648 2,837 3,246 -598 -409

Deficit as % of Total Needed 18.4 12.6 1/ Assuming present productivity Source: MOP and Mission Estimates March 1985 CHILE

ROAD SECTOR PROJECT

CurativeMaintenance of Equipment1984

Number of Units Repalred Total Cost of Light Vehicles Heavy Equipment Total Repairs (USSOOO) Number Z Number x Number Z Amount S

In MOP's workshop 1,788 88 298 52 2,066 80 182 23

In private workshops 241 12 270 48 511 20 446 77

2,029 100 568 100 2.577 100 578 100

Source: MOP

March 1985 - 79 -

ANNEX 4 Page 1 of 2

CHILE

ROADSECTOR PROJECT

Information Necessary for Project Monitoring

1. To facilitate adequate monitoring of the project, quarterly Progress Reports (due March 31, June 30, September 30 and December 31 of every year) would be prepared by the Ministry of Public Works (MOP). They would contain the information outlined below:

(a) Road expenditures and their financing for the previous two years and for the current year, and budgetary projections for the period until 1991; to be updated every year in the June 30 report; details as modified by supervision missions from time to time; and

(b) Breakdown of maintenance expenditures during the last two years between works executed by contract and by force account, the latter with separate indication of expenditures for labor, equipment, fuel, materials and administration.

2. MOP's expenditures for the maintenance of the secondary local net- work (spot interventions)during the two previous years, contributions supplied by the municipalities or other public and private entities and data on works performed in each region and in total. To be updated in the September 30 report.

3. Unit costs and productivity of the different force account maintenance operations for each region, or for characteristiczones of the country, and comparison of the unit costs with the unit costs for similar operations executed by contract. To be updated in the March 31 and September 30 reports.

4. Length of the Basic Network and or the Primary Local Network under maintenance during the two previous years with separate data for each type of surface in each region and in total. To be updated in the March 31 report.

5. Compliance during the previous two years, and projected compliance for the present and for the subsequent year, with the project implementation targets specified in the agreed annual programs. To be updated in the March 31 report. The project implementationtargets will be the fellowing: - 80 - ANNEX 4 Page 2 of 2

By Force By Routine maintenance Unit Account Contract

Clearing of right-of-way m2 4,750,000 - Cleaning of drainage ditches m3 180,000 110,000 Cleaning of side ditches l.m 330,000 - Cleaning of culverts l.m. 130,000 200,000 Grading of roads Km 100,000 40,000 Gravel patching of roads m3 200,000 225,000 Maintenance of joints (concrete roads) Km 70 410 Patching of concrete roads and shoulders m2 100,000 60,000 Patching of asphalt roads and shoulders m 2 130,000 90,000 Maintenance and repair of signs Units 850 - Painting of barriers l.m. 7,600 - Road Marking Km 650 - Maintenance of timber bridges l.m. 3,500 - Painting of steel and concrete bridges l.m. 8,300 -

Periodic maintenance

Regraveling of roads Km - 1,420 2 Resealing of asphalt roads m - 3,000,000 Surface treatment of roads Km - 240 Overlays of roads Km - 333 Repair of timber bridges l.m. - 1,300 Repair of concrete bridges l.S. - 6,000

6. Review of the preceding targets for the current and the subsequent years. To be updated in the June 30 report.

7. Status of selection and execution of deferred maintenance subprojects. To be updated in each report.

8. General evaluation of the conditions of the Basic and of the Local Networks based upon detailed condition inventories of sample roads, relation to condition inventories of previous years starting 1984, and impact upon proposed program for current and subsequent year. To be updated in the December 31 report.

9. General evaluation of the programing, execution contracting, monitoring and administration of the road maintenance and of the training program and future projections. To be updated in the March 31 and September 30 Reports.

10. Review of the audit reports and of the schedule of estimated withdrawals of the proceeds of the loan. To be included in each report.

11. Recommendations on possible modifications of the agreed programs and of the contents and format of tte quarterly reports to adjust them to updated requirements.

May, 1985 - 81 -

ANNEX 5 Page I of 3

CHILE

ROAD SECTOR PROJECT

Selected Documents and Data Available in the Project File

A. General Reports and Statistics

A.1 Mensaje Presidencial, 11 septiembre 1980-11 septiembre 1981, 1981. A.2 Programa Socio-Economico 1981-1989,1981 A.3 Chile-Series Estadisticas 1981, Instituto Nacional de Estadistricas, Ministerio de Economia, Fomento y Reconstruccion, 1981. A.4 Compendio Estadistico 1984, Instituto Nacional de Estadisticas, Ministerio de Economia, Fomento y Reconstruccion.,1984. A.5 Sabre Contratacionde Servicios de Auditoria Externa Departamiento de Auditoria, Contraloria General de la Republica, 1471. A.6 Estrategia Nacional de Desarrollo Economico y Social-Politicasde Largo Plazo - ODEPLAN. A.7 Chile Hacia un Nuevo Destino: Su Reforma AdministrativaIntegral y el Proceso de Regionalizacion. Documento No. 2, Comision NacIonal de la Reforma Administrativa, CONARA. A.8 Chile, Comision Nacional de Energia, Balance de Energia 1963-1982 with 1983 updates, 186 pp. A.9 Indice de Precios al Consumidor, Base diciembre 1975=100, Metodologia, Ministerio de Economia, Foiento y Reconstruccion, INE, 25 pp.

B. Basic Documents and Data Related to the Transport Sector

B.1 Evolucion de una Empresa de Ferrocarriles del Estado bajo un Sistema Economia Social de Mercado: El Caso Chileno, Comision Economica para America Latina, 1981. B.2 Plan Director para el Sistema Ferroviario Chileno Red Sur (Inforne sobre el estudlo del proyecto indicado), Empresa de Ferrocarriles del Estado, 1982. B.3 Anuario de Transporte y Comunicaciones 1979, Instituto Nacional de Estadisticas,Ministerio de Economia, Foiwentoy Reconstruccion, 1981. B.4 Estadisticasde Transporte Terrestre, Ministerio de Transportes y Telecomunicaciones(multiple volumenes), 1981 and following. B.5 MTT, EL Transporte en Chile, 1981, 8o p., mapas. B.6 Anuario Estadistico 1983, Ferrocarriles del Estado-Chile, 1984, 62 pp.

C. Highway Subsector

C.1 Volumenes de Transito en los Caminos de Chile 1982, Direccion de Vialidad, Ministerio de Obras Publicas, 1983. C.2 Red 'JialBasica, Direccion de Vialidad, Ministerio de Obras Publicas, 1981. - 82 -

ANNEX 5 Page 2 of 3

C.3 Plan de Mantenimiento, Red Vial Basica, Departamento de Conservacion, Direccion de Vialidad, Ministerio de Obras Publicas, 1981. C.4 Clasificacion de Caminos, Direccion de Vialidad, MOP, marzo 1981. C.5 Inventario del Camino Longitudinal Ruta 5, MTT, diciembre 1983. C.6 El Camionero, Organo oficial de la Confederacion Nacional Gremial de Duenos de Camiones de Chile. C.7 El Transporte en la Zona Austral, Fase I, Diagnostico,octubre 1984, MTT. C.8 Antecedentes sobre Transportes Duodecima Region, SERPLAC XIIa region, Punta Arenas, febrero de 1984. C.9 La Linea 3 del Metro de Santiago, MOP, Direccion General del Metro, octubre 1984, 13 pp. plus annexes. C.lO Plan Trienal de Inversiones en Infraestructura,1984-1986, Camara Chilena de la Construccion, 50 pp.. C.11 MOP, Vialidad, Departamento de Estudios, Guia para evaluar Proyectos Viales, noviembre 1980, Actualizada 1981, 50 pp. plus anexes.

D. Selected Documents and Studies Related to the Feasibility of the Project

D.1 Precios Sociales en la Evaluacion de Proyectos, ODEPLAN, 1982. D.2 Prograna de Conservacion Red Comunal, Direccion de Vialidad, 1982. D.3 Estudio de Vias entre Santiago-Valparaisoy San Antonio, INECON, Ingenieros y Economistas Consultores Ltda., 1980. D.4 Determinacion de Niveles de Conservacion de Varios Caminos-Presupuestos,Consultor Julio Torrejon Olmos, 1982. D.5 MOP, Chile Crece, Camino LongitudinalAustral, 4 pp. D.6 MOP, Asi Progresa Chile, Carretera Longitudinal, 4 pp. D.7 Comision Nacional de Energia, Breve Analisis de Efectos de Aplicar el Impuesto Especifico al Diesel Caminero en el Costo del AbastecimientoNacional de Hidrocarburos.. D.8 Primera Reunion Conservacion Zona Sur - Direccion de Vialidad, Concepcion, 30 de noviembre-02 de diciembre 1983. D.9 Evaluacion Plan Piloto Conservacon Red Comunal, MOP, Vialidad, XA Region, 1983, 7 pp., tables D.10 Administracion y Operacion Minimina - Plan Integral de Conservacion y Mejoramiento, 33 pp., 1984. D.11 Programa de Conservacion Red Comunal Primaria Nivel Recomendado, Direccion de Vialidad, agosto 1984. D.12 Plan Integral de Mejoramiento de Caminos No Paviuentados,Direccion de Vialidad, octubre 1983. D.13 Programa de Conservacion - Nivel Recomendado - Red Basica, Direccion de Vialidad, noviembre 1984. D.14 Prograua de Conservacion - Red Comunal Primaria - Nivel Recomendado, Direccion de Vialidad, noviembre 1984. D.15 Avance Programa de Conservacion- Nivel Recomendado- Primer Semestre, Direccion de Vialidad, septiembre 1984. D.16 Plan Integral de Puentes (EvaluacionPreliminar para la Provincia de Cautin con proyeccion a nivel Nacional), Direccion de Vialidad, 1984. D.17 Plan Integral de Puentes (Nomina Preliminar de Puentes Seleccionados a Nivel Nacional), Direccion de Vialidad, 1984. - 83 -

ANNEX 5 Page 3 of 3

D.18 Plan Integral de Mejoramiento y Conservacion de Caminos - Pr- aga de Rehabilitacion Caninos Pavimentados - Red Basica, Direcci. de Vialidad, Julio 1984. D.19 Plan Integral de Mejoramiento y Conservacion de Caminos - Cambio de Standard (Upgrading) - Red Basica, Direccion de Vialidad, Julio 1984. D.20 Plan Integral de Mejoramiento y Conservacion de Caminos - Programa de Rehabilitacion Caminos No Pavimentados (Ripiaduras-Puentes- Saneamiento-Defensas Fluviales) - Red Basica, Direccion de Vialidad, julio 1984. D.21 Plan Integral de Mejoramiento y Conservacion de Caminos - Programa Rehabilitacion Caminos No Pavimentados (Ripiaduras-Puentes- Saneamiento-Defensas Fluviales) - Red Basica, Direccion de Vialidad, Julio 1984. D.22 Programa Rehabilitacion de Caiinos No Pavimentados - Red Comunal (Local Network), 441 pp., Direccion de Vialidad, Julio 1984. D.23 Programa Rebabilitacion de Carinos Pavimentados - Red Comunal, Direccion de Vialidad, julio 1984. D.24 Programa Cambios de Standard - Red Comunal, Direccion de Vialidad, julio 1984. D.25 Obtencion de Componente Extranjero en Obras Viales, MOP, Vialidad, 3 pp. and computer printout. D.26 Computer Printout, Programa para el Calculo de Costos Privados de Conservacion de Caminos. MOP, Vialidad, Proyecto: Estudio de Precios Unitarios de Conservacion de Caminos. D.27 Tables HDM Analysis, Roberto Armijo, Vialidad, MOP. Santiago/ Washington, febrero 1985. D.28 Proyeccion de Inversiones 1984-1991. D.29 Proyecto Sectorial de Conservacion de Caminos - Programa Direccion de Vialidad Periodo 1986-1988 MOP, Mayo 1985. ,.30 Cumplimiento Programa de Conservacion, Nivel Recomendada, Ano 1984, MOP, Marzo 1985. D.31 Data Input Tape for HDM _ Model - Road Maintenance Chile - IBRM Facility Center HB2-21 D.32 Plan de Integraclon y Desarrollo Rural. Programa Red Vial Austral, Solicitud de Prestamo al BID (3 Volumes).

E. Bidding and Related Institutional Documents

E.1 Programa de Rehabilitacion y Conservacion Vial: Documentos de Licitacion, Direccion de Vialidad, MOP, abril 1983. E.2 Programa de Rehabilitacion y Conservacion Vial: Registro Especial de Contratistas, Vialidad, MOP, abril 1983. E.3 Organizacion que Empleara Vialidad para Llevar a Cabo el Desarrollo del Programa de Rehabilitacion y Conservacion Vial, Ord. No. 2059 of April 15, 1983. E.4 Decreto 334 - Fija nuevo Texto de Reglamento para Contratacion de Trabajos de Consultoria, HOP, octubre 1984. E.5 Plan Integral de Conservacion y Mejoramiento Vial - Bases Administrativas Generales - Sistema por Suma Alzada, MOP, 1985 E.6 Base de Concurso. Consultoria de Coordinacion Plan Integral de Conservacion y Mejoramiento Vial, MOP, mayo 1985.

Nay 1985 CHILE ROADSECTOR PROJECT OrganizationChart of the Directorateot Roads(Vialidad)

o fa aodsI

Socratareat Plogramming & Control

D_putv Ditoctcx Doputy Ditecto4 DepulU lrbaocad Ira Inlew. tor Urbstn ttoou5 ~~~~urbetnnoadsl

Deporlntnns co

LaboratoryStudies ~Constnuchio Brde Rive,tfaininig Oprtos Maintenac Aminis rooi

Planning tndr& icj Services

-- Inventory - Maintenance - trograms - Equipment -Costs techniques - Assignment - PRocurormnt - Quanities - Speci,icotions of Re5ourcos - Workshops -Resources - Contracting - Controd - Planning Procedures - Itaining - Ptograms - Disbursemenls

Source MOP March 1985 wod Bonk - 27319 CHILE ROADSECTOR PROJECT Organizalion Char of Regional Officesfor Roads

| Durclet dl lleMs I~~~~~~IZgLIZI Directot

Adminisrtion Depadmrtment ForceAccount Maintenance CNI 0C( Conrrac Dopaitirmonl ts Lti3pafl

Equipmentn & Woikstlwps

. | Rovirnciai ~~~~~~~~~~~~~~~~~~~~I. R ovincial Provincial

I DologJIe Delegatle telagaleD

|Fofce Arrnount Conlact

easic N3twork Local Networ Nkait;nance r-onsiuc8on

I I I I I I ! -T 1 1 Maimtenance .rews Maintenance Crews Supttvisvs Supevlr Nate. 'Each nmintenance crew responsible torabout 200 kms of roads. & comprising I foreman. 1 dhrver.& 4 to 6 laborers Equipped with neAItck & auxiliary equipnent Supportec by odditonal equiprnent as needed Soutce MOP March 1985 Wo'ldBarih -27321 P A CI FIC C EA N

C L~~~~~~~~~~~~~~

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- - ~ ~ ~ ~ ~ ~ ~ - C H- IL8 HIGHWAYSECTOR PROJECT TOTALROAD NETWORK NORTH CENTRAL

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