Document of The World Bank FOR OFFICIAL USE ONLY Public Disclosure Authorized 48692 PROJECT PAPER Public Disclosure Authorized ON RESTRUCTURING THE URUGUAY: TRANSPORT INFRASTRUCTURE MAINTENANCE AND RURAL ACCESS PROJECT February 15,2007 Public Disclosure Authorized Public Disclosure Authorized Sustainable Development Department Latin America and the Caribbean Region UR - Transport Infrastructure Maintenance and Rural Access Project (Loan 7303) Project Paper A DATA SHEET Date: February 15,2007 Task Team Leader: Jorge Rebelol Andres Country: Oriental Republic of Uruguay Pizano Project Name: Transport Infrastructure Sector Manager: Jose Luis Irigoyen Maintenance and Rural Access Country Director: Axel van Trotsenburg Colonia 1089, Piso 3, 11100, Montevideo, Uruguay 2 B Introduction 1. This Project Paper seeks the approval of the Vice President to introduce changes in the Uruguay - Transport Infrastructure Maintenance and Rural Access Project (the Project)- Loan 7303 - P057481, and any accompanying amendments to the Project’s legal documents (the Loan Agreement and Implementation Letter). The proposed changes reflect the inclusion of rehabilitation of new roads and reconditioning of bridges in Schedule 2 to the Loan Agreement and Annex C to the Implementation Letter, under the Corporacibn Vial del Uruguay’s (CW) execution. The works included had been part of the Forest Products Transport Project (the FPTP financed in part with Loan 4204) but were not completed due to a lack of fiscal space and consequent reduction in budgetary allocations to the Ministerio de Transporte y Obras Publicus (MTOP). As a result of the proposed changes, new rehabilitation of roads would be added and some reinforcing of bridges would be replaced. These changes would be done while maintaining all the road rehabilitation and the bridge reinforcing on key international corridors that were originally included in the design ofthe Project. Section 4 ofthis paper provides details of the roads added and bridges being replaced. C Background and Reasons for Restructuring 2. Uruguay’s economy depends very much on its road network for the movement of goods and passengers since other modes such as rail cannot deliver the same level of service. The road network also plays a very important role in the facilitation ofUruguay’s exports and in attracting foreign direct investment in processing plants for products such as forest products. In the last 15 years, the country benefited from the Bank-financed Second Transport Project (STP) and the FPTP, which contributed to the increase in the quality of road corridors through rehabilitation and maintenance, including through private sector schemes such as Contrato de Rehabilitacion y Mantenimiento (CREMA) contracts. In 2005, Uruguay signed a new loan to finance the Project, which is the subject ofthis amendment. 3. During the last 15 years, the MTOP embarked on a major effort of modernizing the transport sector that included (i)reorienting the functions of transport agencies towards policy making, planning, regulation and control, rather than execution activities; and (ii)allowing for increased private sector participation in the sector through outsourcing and concessions. On the whole, the reforms have succeeded in improving the quality of transport infrastructure and services, as may be measured by the condition of the road network and its weathering of the crisis and by the important improvements in port productivity and costs. 4. The Republic of Uruguay’s (RoU) road management strategy is based upon the use of performance based instruments, including: (i)private sector participation mechanisms, such as road concessions, performance-based maintenance contracts, and maintenance by micro-enterprises; (ii) the concessions with CW (former 3 Megaconcession), an innovative scheme for channeling funding towards the performance-based maintenance ofkey sections ofthe network; and (iii)an output-based maintenance scheme for departmental roads. 5. The Project was approved by the Board on June 9,2005 and became effective on July 4, 2005. The Project’s Development Objective (PDO) is to upgrade the country’s transport infrastructure to a condition that facilitates the transportation of freight and passengers at a cost-efficient level of service. To achieve the PDO, the Project intends to rehabilitate key transport links, remove existing bottlenecks, arrest any further deterioration of infrastructure due to budgetary constraints and improve infrastructure management and safety. Total Project cost is US$ 100 million of which the Bank is financing US$70 million through Loan 7303. 6. The Project is performing in a satisfactory manner. Based on the latest supervision mission carried out in November 2006, the achievement of the PDO was rated marginally satisfactory, essentially due to delays in implementation. The implementation of the Project was also rated marginally satisfactory, due mainly to budgetary constraints requiring the administration to wait for the approval of the new budget in March 2006. There are no audits outstanding. Finally, the Project is still at an early stage but has already disbursed about US$ 10.87 million (14.5% of the loan). The implementation of the Project is proceeding marginally slower than planned but the preparatory work is in line with the main objective of improving cost efficiency of transport. 7. The proposed restructuring would enable the completion ofroad and bridge works that were part of the FPTP but could not be completed before loan closure in April 2006, because of severe fiscal space restrictions that constrained the MTOP’s budget. These budgetary constraints were triggered by the compliance of targets agreed between Uruguay and IMF, as part of a program to improve the fiscal situation of the country which was highly affected by the Argentine macroeconomic crisis. One direct implication is that several capital investments planned could not take place or were delayed due to uncertainty in budget allocation, as priority was given to the maintenance of existing roads which were key to the economy. Loan 4204 was amended to help the country deal with the crisis. As a result, some road and bridge works initially planned under Loan 4204 could not be undertaken before the approval ofthe new budget in March 2006. D Proposed changes 8. The Bank received on August 30, 2006 a request from the MTOP to modify the Schedule 2 to the Loan Agreement, Annex C to the Implementation Letter and update the procurement plan referred to in the Loan Agreement, in order to substitute road and bridge works by others initially planned in the Loan 4204. 4 Description 9. The proposed changes in the Project’s design have high priority and are consistent with the original PDO. These changes consist of replacing a number of sub-projects included in Schedule 2 to the Loan Agreement and Annex C to the Implementation Letter with roads that had originally been part of Loan 4204 and were not completed because of budgetary restrictions. The works initially planned under the Loan Agreement and being replaced will be undertaken later in the period 2005-2010 by the Borrower using other sources offunding. 10. The original Project consists of 5 components, involving investment in road rehabilitation and maintenance, bridge reinforcement, transfer terminals, transport safety and institutional strengthening. The original Project’s components are described below: Table 1: Project sescription Component Description Amount financed by Project US$ million A.l DNV (a) rehabilitation works consisting of reinforcing the 8.4 managed routes pavement structure of about 35 km of roads on national route 3 and route 18 A.2 CVU (a) rehabilitation works consisting of reinforcing the 27.6 managed routes pavement structure of 24 km of roads on national and bridges route 1, 2 and 3 and (b) carrying out of reconditioning works consisting of strengthening, widening or replacing existing structures of 20 bridges located on national Routes 1, 5, 6, 7, 8, 21, 26,28,30 and 200 A.3 Transfer Minor infrastructure rehabilitation works in several 8.6 terminal terminals rehabilitation B Road Rehabilitation and maintenance works in six road 24.85 rehabilitation and sub-networks covering an estimated 981 km of maintenance national roads through performance-based CREMA contracting - contracts. CREMA contacts C Departmental Departmental road rehabilitation and maintenance 20.6 road rehabilitation and maintenance D Transport (i)implementing low-cost measures to increase road 3.8 infrastructure safety, including roads passing through urban areas, safety program and (ii)acquisition and installation of road safety elements- - - - __ - __ __ E Transport (i)assist MTOP in the preparation of its transport 5.8 5 sector infrastructure plan for years 2005-09, (ii)training for management and capacity building and provision of new tools, (iii) institutional strengthening infrastructure management, (iv) building assisting MTOP in the preparation of an urban transport program, and (v) feasibility studies of the Montevideo ring-road and access roads projects 11. The proposed changes will update Part A.2 of the Project according to the Loan Agreement, which consists ofthe rehabilitation of CVU managed routes and bridges and will not modify any of the other components. Part A. 2 of the Project was expected to reinforce the pavement structure of about 24 km of roads and to strengthen, widen or replace the existing structure of20 bridges. The proposed changes would replace some of the works initially planned under Part A.2 of the Project by other rehabilitation of CVU managed routes and bridges and would result in the rehabilitation of 91.2 km of roads, and the reconditioning of 5 bridges for this component. The proposed changes will result in an increase of 67.2 km of roads being rehabilitated and a decrease of 12 bridges being reinforced under component A.2. The Project will finance up to US$ 27.6 million of works under component A.2 (amount which excludes the US$ 4.5 million in works already financed by Loan 4204 from the total cost of the works listed under the proposed Part A.2 of the Project).