Report Number ::: ICRRICRR1389813898 ICR Review IEG Independent Evaluation Group Public Disclosure Authorized

1. Project Data: Date Posted ::: 05/01/2014

Country ::: Project ID ::: P057481 Appraisal Actual Project Name ::: Transport Project Costs (((US$M(US$MUS$M):):):): 100 104.4 Infrastructure Maintenance And Rural Access LLL/L///CC Number::: L7303 LoanLoan////CreditCredit (((US$M(US$MUS$M):):):): 70 68.1 Sector Board ::: Transport Cofinancing (((US$M(US$MUS$M):):):): 0 0

Cofinanciers ::: GTZ Board Approval Date ::: 06/09/2005 Public Disclosure Authorized Closing Date ::: 07/31/2011 07/31/2011 SectorSector( (((ssss):):):): Roads and highways (92%); Central government administration (3%); Ports waterways and shipping (3%); Sub-national government administration (2%) ThemeTheme( (((ssss):):):): Trade facilitation and market access (33% - P); Rural services and infrastructure (17% - S); Regional integration (17% - S); Infrastructure services for private sector development (17% - S); Injuries and non-communicable diseases (16% - S)

Prepared by ::: Reviewed by ::: ICR Review GroupGroup:::: Coordinator ::: Kavita Mathur Roy Gilbert Christopher David IEGPS1 Nelson

2. Project Objectives and Components:

Public Disclosure Authorized a. Objectives: The project's development objective was 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 (Loan Agreement Schedule 2, p 26 and PAD, p. 11).

b.Were the project objectives/key associated outcome targets revised during implementation?

No

c. Components: The cost table by components in Annex 1 of the ICR is incomplete. Its figures refer to the Bank Loan amount per components. Actual full cost by component is not presented in the ICR. The project team provided IEG with the cost data. Component 1: Transport Infrastructure Rehabilitation (appraisal estimate US$ 44.6 million; actual cost US$61.0 million). This component entailed carrying out reinforcement, replacement, and Public Disclosure Authorized rehabilitation works of strategic transport infrastructure, including international Mercosur corridors, linking economic poles with export markets or providing transfer terminals for key economic activities. This component was subdivided into three sub-components:  Road department Direccion Nacional de Vialidad (DNV) managed routes consisting of: (a) reinforcing the pavement structure of about 35 km of roads on national and ; and (b) 20 km between Rio Tacuari-Cafiada Santos on national Route 18.  Corporacion Vial del Uruguay (CVU) managed routes and bridges consisting of: reinforcing the pavement structure of 24 km on National Routes 1, 2 and 3 and carrying out reconditioning works consisting of strengthening, widening or replacing existing structures of 20 bridges located on routes 1,5, 6, 7, 8, 21, 26, 28, 30 and 200 (Interbalnearia route) and the access to .  Transfer terminal rehabilitation, involving minor infrastructure rehabilitation works on eligible terminals, playing an important role in industrial and traditional fishing, tourism and freight and passenger transfers. Component 2: Road rehabilitation and maintenance (CREMA) contracts (appraisal estimate US$ 24.85 million; actual cost US$18.0 million). This component entailed carrying out the rehabilitation and maintenance of six road sub-networks covering an estimated 981 km of national roads through performance based CREMA contracts. Component 3: Departmental road rehabilitation and maintenance (appraisal estimate US$ 20.6 million; actual cost US$23.0 million). This component entailed carrying out the rehabilitation and maintenance of eligible annual departmental sub-projects executed by participating Departmental Governments and partially funded by the DNV through an annual performance based agreement. The departmental road maintenance program considered under the project included the yearly routine maintenance of approximately 9,000 km of gravel roads, during at least two years. Component 4: Transport Infrastructure and safety program (appraisal estimate US$ 3.8 million; actual cost US$1.9 million). This component included low-cost measures and investments to increase road safety, including roads passing through urban areas and the acquisition of road safety elements. Component 5: Transport sector management and institutional building (appraisal estimate US$ 5.8 million; actual cost US$0.15 million). This component included technical assistance support to enhance transport infrastructure management, involving: (i) assisting Ministry of Transport and Public Works (MTOP) in the preparation of its transport infrastructure plan for 2005-2009; (ii) training for capacity building and provision of new tools; (iii) strengthening infrastructure management at departmental level; (iv) assisting MTOP in the preparation of an urban transport program for Montevideo; and (v) feasibility studies of the Montevideo ring road and access roads project.

d. Comments on Project Cost, Financing, Borrower Contribution, and Dates: Project Cost. As previously noted the cost table by components in Annex 1 of the ICR is incomplete, the figures refer to the Bank Loan amount. Therefore, the actual project cost at completion is unavailable. The project team provided IEG with the cost data which was US$104.4 million. The overall cost overrun is about US$4.4 million was covered by Uruguay’s own resources. Financing. The actual loan disbursed was US$68.1 million compared to the appraisal estimate of US$70 million. Borrower Contribution: The Borrower's actual contribution was US$30 million. Dates . The project closed on time.

3. Relevance of Objectives & Design:

a. Relevance of Objectives: Rated high . The project objectives are in line with the recently approved Country Partnership Strategy (CPS) for the period 2010 - 2015. The second pillar of the CPS called "Competitiveness and Infrastructure" focuses on the improvement of the condition of key land transport infrastructure as well as improvement in the institutional capacity in the MTOP to carry out transport planning. The project objective remains highly relevant to current country priorities as Uruguay is aiming to become a regional logistics hub for South America. By reducing transportation costs, removing infrastructure bottlenecks to improve regional integration and trade, modernizing MTOP and promoting participation of the private sector in road maintenance, the project objectives were directly aligned to Bank and country priorities.

b. Relevance of Design: Rated substantial . The results framework linked inputs to expected outputs and outcomes in a logical causal chain. The project's components focusing on the transport infrastructure rehabilitation are fundamental in restoring the service levels of strategic transport infrastructure, whose condition constrain the efficient provision of transport services, in particular, the transit of heavier and larger trucks. The project components including reinforcement, replacement, and rehabilitation of strategic transport infrastructure, including international Mercosur corridors; rehabilitation and widening of bridges; improving the access to Montevideo are critical for linking economic poles with export markets. These improvements would result in cost-efficient level of service through vehicle operating cost savings and reduction in travel time.

4. Achievement of Objectives (Efficacy): To upgrade the country's transport infrastructure to a condition that facilitates the transportation of freight and passengers at a cost -efficient level of servic e: rated substantial . Outputs  About 130 km of national highways were rehabilitated;

 About 430 km of paved national roads were maintained;

 On the Road rehabilitation and maintenance (CREMA) contracts, only half of the six contracts foreseen by the PAD were actually undertaken under the project. Many of the other envisaged works were carried out through other sources of financing;

 All 19 departments fully implemented the roads maintenance program. Approximately 9,000 km of departmental roads were maintained yearly. Around 6% to 13% of these roads are still in poor condition (compared to the 10% target);

 The number of kilometers of national roads compliant with Mercosur standards has remained constant since the 2005 baseline at 1287 km compared to the target of increasing it to 1400 km.;  5 bridges on Mercosur corridors were upgraded; and

 Institutional strengthening activities, focusing on transport planning and road management were carried out. The strategic planning tool and the financial management system were updated. Outcome As discussed in Section 10a below, the outcome indicators measured the condition of the entire 8,700 km of the Uruguay’s national road network, although the project supported only fractions of the national road network through the rehabilitation of 130 km and maintenance of 430 km. Therefore, changes in the condition of the entire network will have other non-project causes and the overall results cannot be exclusively attributed to this operation. The ICR nevertheless reports (p. 13) that the percentage of the national road network in bad condition as determined by the Road Condition Index declined from baseline 29.5% in 2005 to 22.3% in 2010 better than the 25% targeted by the project. The opening of National Route 8 to international traffic (trucks loaded to Mercosur standards) required the upgrading of 3 bridges. Two of these bridges (Arroyo Corrales and Arroyo Cebollati) were financed through other sources and were not completed by project closing. The indicator "Transit of trucks loaded up to Mercosur standards on Route 8" was not met. At project closing (2011), this was limited to three segments along Route 8 (Montevideo-Empalme Ruta 9; Empalme Ruta 9-Minas and Melo-Acegua), the same segments that formed the baseline at appraisal in 2005. There were no indicators to measure freight or passenger traffic improvements such as cost savings or reduction in travel time. The project team provided the following evidence to IEG which was not included in the ICR:

 The project contributed to improved maintenance of about 9,000 km of unpaved roads, covering about 15% of the Uruguay’s rural roads network. According to road condition survey carried out in 2011 on a subset of the rural road network - 29% were in good condition, 63% were in regular condition and 8% were in poor condition.

 The project helped about 21,000 low-income Uruguayans to better access markets, jobs, schools and health care centers as Departmental roads are primarily local unpaved roads, located in remote areas, where poorest people are. It is estimated that 5% of Uruguay’s poor population live in rural areas, with an overall poverty rate of 12% (source: 2011 census).

 The project resulted in transport costs savings due to better maintained rural roads. Based on the Road Economic Decision model (RED – which is used to carry out the economic appraisal of low volume road investments), the transport cost savings were estimated at, on average, 15% per vehicle-km, resulting in an estimated benefit of $25 million over three years.

 The project financed about US$18 million for Road Rehabilitation and Maintenance Performance Based (CREMA) contracts, covering 260 km of national highways. CREMA contracts are bring substantial efficiency gains in the road asset management. World Bank’s Transport paper #36, CREMA in Argentina - A Review of Fifteen Years of Experience [2011] concludes that CREMA contracts are between 15 and 70% more effective than traditional contracts, depending on the initial conditions.

5. Efficiency:

At appraisal, Economic Rate of Return (ERR) was calculated for the projects corresponding to the first year of the program . The ERR for roads rehabilitation was 19%, for bridge restoration 62%, and CREMA contract (for Tourist Zone) was 34.5%. The ex-post ERR were estimated for a sample of three roads/bridge sub-projects. The ICR reports (p. 21) that the three selected sub-projects are representative of the investments financed by the project because of similar technical solutions (therefore investment costs) and road traffic ranges. These works constitute approximately one third of the loan amount. The ERRs for the three works are as follows:

 The ERR for Route 18 road rehabilitation was 13.1% for an investment of US$13.3 million.

 The ERR for rehabilitation works on two segments of Route 8 was 20.1% for an investment of US$ 9.2 million.

 The ERR for bridge reinforcement on Route 8 Arroyo Grande was 46.5% for an investment of US$1.9 million. During the period 2005 -2011, that Average Annual Daily Traffics (AADT) had increased by 30 to 50%. Truck traffic has increased proportionally faster than light vehicle traffic, with subsequent impact on pavement deterioration. The ICR further reports that further analysis could not be carried out for the project as a whole because of data unavailability for the road sections that were not originally included in the project scope. The ICR does not discuss the data limitation which prevented further analysis. Moreover, the ICR does not provide actual (full) cost data by component. The overall efficiency of the project is rated modest.

aaa.a... If available, enter the Economic Rate of Return (((ERR(ERRERR))))////FinancialFinancial Rate of Return (((FRR (FRRFRR)))) at appraisal and the rerere-re---estimatedestimated value at evaluation :::

Rate Available? Point Value Coverage/Scope*

Appraisal No

ICR estimate Yes 18% 24% * Refers to percent of total project cost for which ERR/FRR was calculated.

6. Outcome: The project outcome is rated moderately satisfactory based on: high relevance of objectives and substantial relevance of design; substantial efficacy and modest efficiency. aaa.a... Outcome Rating ::: Moderately Satisfactory

7. Rationale for Risk to Development Outcome Rating:

The key risks to development outcomes are: Insufficient funding for maintenance . Although the Government has taken proactive measures to address the maintenance financing by increasing the allocation of resources to the roads, the network deterioration has slowed, but the recent 2010 indicators values reveal some deterioration of the network. Further, aging pavements are likely to require increased maintenance in later years; given budget spending limits, there is therefore a risk that the road maintenance might be insufficiently funded to deal adequately with road maintenance and rehabilitation needs. Maintenance policy framework. The policy framework remains strong and transport infrastructure maintenance remains a priority at Government level, with low risk of policy reversal. The Government is developing new strategies to increase the financing of the road maintenance, including external financing with IFIs, PPPs and a new tax on land use to fund road rehabilitation and maintenance. Technical quality of works . To improve the prospects of the technical sustainability of physical works, the Government policy is to increase the participation of the private sector in highway management and financing. The Government is increasingly using Performance Based Maintenance Contracts (CREMA) and road concessions. However, the ICR reports (p. 24) that there are uncertainties regarding the PPP program but does not provide reasons.

aaa.a... Risk to Development Outcome Rating ::: Moderate

8. Assessment of Bank Performance:

a. Quality at entry:

The Project design drew on lessons learned through previous operations in the sector. Policy dialogue with the Government during preparation was continuous, despite changes in the political administration. The Bank provided the Borrower with access to global experience regarding institutional reforms, the consolidation of a maintenance policy (through innovative approaches such as CREMA contracts) and the introduction of road management planning tools. However, there were some shortcomings in the project design: (i) weaknesses in the design of the monitoring and evaluation framework, with targets for PDO indicators turning out to be too broad and ambitious, and not clearly attributable to the project alone; (ii) problems in the original selection of sub-projects which resulted in almost no disbursement during the first year of the project and the need for a substantial project restructuring, only one year after effectiveness; and (iii) flaws in the design of the technical assistance component, considering that almost none of the activities originally envisaged were finally financed through the loan.

Quality---at -atatat----EntryEntry Rating ::: Moderately Unsatisfactory

b. Quality of supervision:

The Bank task team carried out, on average, two supervision missions per year. The ICR reports (p. 25) that Bank supervision in terms of environmental and social safeguards was adequate even though the project could have benefited from some more involvement from environmental and social experts. Fiduciary supervision was adequate, no significant issue were reported on financial management. The Bank played a substantial role providing technical assistance and advice to its counterparts, even if many of these technical assistance component activities were eventually financed through other sources outside the project. There were some shortcomings: (i) delays in the processing of the first restructuring, with over 10 months elapsing between the first restructuring request and its approval by the Bank; (ii) a missed opportunity to adjust PDO indicators during project implementation, specifically, at midterm review; and (iii) delays arising from procurement issues.

Quality of Supervision Rating ::: Moderately Satisfactory

Overall Bank Performance Rating ::: Moderately Satisfactory

9. Assessment of Borrower Performance:

a. Government Performance:

The project spanned two administrations. There was widespread support to maintenance within the MTOP, which goes beyond political lines. However, despite this political commitment to the sector policies, new priorities arose during the Tabaré Vázquez administration, in terms of new works (including the Montevideo Ring Road and the expansion of National ). These new priorities diverted the resources from from highways maintenance. During the last two years of project implementation, there were shortages in terms of counterpart financing, generating bottlenecks and delays in the completion of the last programmed works. In particular, the shortages affected the CREMA contracts and the rehabilitation of route 18. This was solved by transferring two contracts from DNV to CVU (formalized under the February 2011 restructuring), given that CVU was not subject to fiscal space issues, hence enabling counterpart funds to be provided through this alternate source and thus not compromising the overall work program. The Government, through effective donor coordination, financed works that were excluded from the project.

Government Performance Rating Moderately Satisfactory

b. Implementing Agency Performance:

The project implementing agency was DNV. The ICR reports (p. 27) that the DNV showed flexibility and resourcefulness in addressing problems arising during implementation. The quality of works was good. The PCU submitted bi-annual progress reports to the Bank on time. These reports contained information on project financing, procurement, physical progress of works, safeguards and key implementation issues. Procurement processing was somewhat lengthy and could have been more streamlined. In particular, the time required to address an issue on the last procurement process delayed the works, and became the main cause for the project’s failure to disburse 100% of the Loan.

Implementing Agency Performance Rating ::: Satisfactory

Overall Borrower Performance Rating ::: Moderately Satisfactory

10. M&E Design, Implementation, & Utilization:

a. M&E Design:

The PAD included three indicators to assess the achievement of the project development objectives: (i) the Uruguay national road network pavement condition, measured by the International Roughness Index to indicate "Cost Efficiency”; (ii) the national road network pavement condition; and (iii) the value of the Uruguay’s road network asset. These indicators are all at the national level and far beyond the scope of what this single project could achieve with US$ 100 million financing. This financing was able to support the rehabilitation (130 km) and maintenance (430 km) of only a fraction of the 8,700 km of the Uruguay’s national road network; this portion is too small to secure impacts at network level. The road quality at network level depends much more on exogenous factors, in particular the total amount of financing available for the road and rehabilitation sub-sector. The target values set for these indicators were too optimistic. The ICR reports (p. 21) that the the target set for “Cost efficiency” which measures the percentage of road network below the optimal level of service, as determined by IRI was very high, by any Latin American and Caribbean country standards. The project achieved 22% (compared to a target of 11%) which may be considered a good level of service, from a regional comparative perspective. The monitoring and evaluation framework is not adequate to measure the results of the project i.e. the cost-efficient level of service, in the sense that the project could not influence significantly the indicators, set at network level. Also, there were no indicators to measure improved freight or passenger traffic such as vehicle operating cost savings or reduction in travel time.

b. M&E Implementation: The indicators set out in the PAD were measured during implementation. However, it is difficult to verify that the results measured were attributable to the project. c. M&E Utilization: The ICR contains no information on utilization of M&E.

M&E Quality Rating ::: Negligible

11. Other Issues

a. Safeguards: The project was assigned Environmental Category "B" and three safeguards were triggered: O.P4.01 (Environmental Assessment), O.P4.12 (Involuntary Resettlement), and OPN 11.03 (Cultural Property). Environmental Safeguards The proposed project would support the rehabilitation and maintenance of existing roads and minor repair and maintenance works for existing transfer terminals and therefore no significant negative environmental impacts were expected. Minor environmental issues expected included: stabilizing slopes, recovering areas for the exploitation and deposit of materials, controlling existing erosion processes, and incorporating road safety measures. Prevention/mitigation measures would be incorporated in works design. The Environmental Unit within the Ministry was responsible for the environmental safeguards. In 2003, the Environmental Manual for road works was passed as a national Decree and was updated in 2006. The ICR reports (p. 9) that during implementation there were no major negative environmental impacts or compliance issues. Social Safeguards The involuntary resettlement policy was triggered at appraisal because the construction of a by-pass to Colonia Valdense (a road section of Route 1) would require small land acquisition/resettlement. An Abbreviated Involuntary Resettlement Plan was prepared and published in the Bank's INFOSHOP according to the Bank’s rules. According to the Resettlement Plan, 11 families and 14 properties would be affected consisting of 11 housing units, 3 hangars, 1 commercial establishment, and a unit once used as a tire replacement shop. According to the Bank guidelines, all projects involving civil works trigger the cultural property policy. Even though there is no expectation that cultural property is in the project area, the Environmental Assessment sets forth "chance find" procedures in the case that such property is encountered. The MTOP developed its first Operational Manual on Resettlements as well as a Framework to deal with issues of expropriations and resettlements. The ICR reports (p. 9) that there were no major issues in dealing with the specific cases requiring resettlement. In widening National Route 1, in 2008 all of the affected properties were formally and properly handled with the exception of one property that faced titling problems. According to Project Team, the management of social and environmental issues was handled by the Borrower in a satisfactory manner with no significant issues arising in terms of safeguards.

b. Fiduciary Compliance: Financial Management A financial system was put in place under previous Bank financed operations. The ICR reports (p. 9) that the financial management arrangements of the project were satisfactory and were carried out according to the arrangements agreed upon in the legal agreement and operational manual. The ICR further reports that the Annual Audited Financial Statements were submitted to the Bank on time throughout the project life, and no major issues were identified. If financial management of the project was was satisfactory, it is unclear why the the ICR was unable to report the actual (full) cost of project components financed under the project. Procurement A review conducted by the Bank in June 2007 assessed procurement as being moderately satisfactory and made a series of recommendations including the need to improve the existing information system. Procurement processes in the MTOP tended to be lengthy, with extended periods elapsing between the opening of a bidding process and the signing of contracts in the case of works. The ICR reports (p. 9) that overall the procurement of goods, works, and services under the project was carried out satisfactorily in accordance with Bank Procurement Policies.

c. Unintended Impacts (positive or negative): There were no unintended impacts.

d. Other: None .

121212.12... RatingsRatings:::: ICRICRICR IEG Review Reason for Disagreement ///Comments /Comments Outcome::: Moderately Moderately Satisfactory Satisfactory Risk to Development Moderate Moderate Outcome:::

Bank Performance ::: Satisfactory Moderately Quality of supervision was Satisfactory moderately satisfactory, while quality at entry was rated moderately unsatisfactory. According to OPCS/IEG harmonized guidelines, the outcome rating then determines the overall performance rating. Borrower Performance ::: Satisfactory Moderately Government performance was rated Satisfactory moderately satisfactory due to shortages in terms of counterpart financing, generating bottlenecks and delays in the completion of the last programmed works.

Quality of ICR ::: Satisfactory

NOTESNOTES: - When insufficient information is provided by the Bank for IEG to arrive at a clear rating, IEG will downgrade the relevant ratings as warranted beginning July 1, 2006. - The "Reason for Disagreement/Comments" column could cross-reference other sections of the ICR Review, as appropriate. 13. Lessons:

Adapted from the ICR: The development objective and corresponding indicators should be commensurate to what a small scale project can realistically attain in a large-scale system. For example, a US$ 70 million Specific Investment Loan can contribute to address road maintenance issues but cannot be expected to impact sector-wide trends. This should be adequately reflected in terms of Project design, ensuring that objectives and indicators are coherent with the Project’s capacity to deliver. Fast-track preparation Projects should include significant flexibility in their design to help them become quickly operational . Although the Project was prepared rapidly, this implied that some of the preparatory work – typically: engineering designs – that should have been undertaken prior to Project approval were actually carried out later in the first years of implementation. This, added to the fact that the Project Appraisal Document included a very specific list of works and activities to be undertaken under the Project implied that practically no works were executed in the first two years following effectiveness. Two significant restructuring were required, with substantial delays to implementation. The ICR draws a well know lesson on promoting donor coordination. The Government of Uruguay, through the MTOP, does not think in terms of the IDB Project, the World Bank Project, or CAF’s Project, but rather in terms of a comprehensive MTOP work program, which is partially financed by different sources. This partly explains why, although the Bank did not finance many of the works originally included in the project at design stage, these were completed with alternative financing sources. This programmatic approach is particularly useful for rehabilitation and maintenance works, which require regular and predictable funding, especially when such services are contracted out to the private sector.

14. Assessment Recommended? Yes No

15. Comments on Quality of ICR:

The overall quality of the ICR is satisfactory. It documents the project's implementation experience. It is candid about the limitation of the M&E framework. The lessons are derived from project experience. The Borrower ICR is included in Annex 7 of the ICR. The main shortcoming of the ICR is that the cost table by components in Annex 1 is incomplete, the figures just refer to the Bank Loan amount. The absence of cost data is critical as it prevents the reader for knowing what resources had to be deployed for the project and hoe efficiently were funds utilized. If resource mobilization and allocation for a project is not properly monitored, it provides greater scope for abuse. Borrower contribution is not listed.

aaa.a...QualityQuality of ICR Rating ::: Satisfactory