Document of The World Bank Public Disclosure Authorized

Report No: 28235

IMPLEMENTATION COMPLETION REPORT (SCL-43950)

ON A

LOAN

Public Disclosure Authorized IN THE AMOUNT OF US$ 64.5 MILLION

TO THE ORIENTAL REPUBLIC OF

URUGUAY

FOR A SECOND TRANSPORT PROJECT

May 10, 2004 Public Disclosure Authorized

Finance, Private Sector and Infrastructure Sector Management Unit (SMU) Argentina, Chile, Paraguay, Uruguay Country Management Unit (CMU) Latin America and the Caribbean Region Public Disclosure Authorized CURRENCY EQUIVALENTS (Exchange Rate Effective March 16, 2004) Currency Unit = Peso Uruguayo 29.6 = US$ 1 US$ 0.034 = 1

FISCAL YEAR January 1 December 31

ABBREVIATIONS AND ACRONYMS ANCAP National Fuel Administration, Alcohol and Portland (Administración Nacional de Combustibles Alcohol y Portland) BMS Bridge Management System CAS ountry Assistance Strategy CEPRE Executive Commission for the Reform of State CND National Corporation for Development (Corporación Nacional de Desarollo) CVU Uruguay Road Corporation (Corporación Vial de Uruguay) CREMA Contracts for Rehabilitation and Maintenance Departments Intendencias DIVD Entity responsible for Departmental Road Maintenance within DNV DNV National Directorate of Highways EEq Energy Equivalent GOU Government of Uruguay HDM Highway Design and Maintenance Standards Model IDB Inter-American Development Bank IERR Internal Economic Rate of Return Departments Intendencias IVA Value Added Tax IRI International Roughness Index ITPI Institute for Transport and Investment Planning LACI Loan Administration Change Initiative MEF Ministry of Economy and Financing MERCOSUR Regional Trade Agreement (Argentina, Brazil, Paraguay and Uruguay) MMS Maintenance Management System MTOP Ministry of Transport and Public Works NPV Net Present Value OPP Office of Planning and Budgeting (Ministry of Presidency) PAD Project Appraisal Document PCU Project Coordination Unit QAG Quality Assurance Group RUC Road User Charge Model SAM Maintenance management system SIPLA Integrated highway planning system TOR Terms of Reference UE-DNV Department within DNV in charge of structures

Vice President: David de Ferranti Country Director Axel van Trotsenburg Sector Director Danny Leipziger Task Team Leader/Task Manager: Jose Luis Irigoyen

URUGUAY UY TRANSPORT II

CONTENTS

Page No. 1. Project Data 1 2. Principal Performance Ratings 1 3. Assessment of Development Objective and Design, and of Quality at Entry 2 4. Achievement of Objective and Outputs 4 5. Major Factors Affecting Implementation and Outcome 16 6. Sustainability 18 7. Bank and Borrower Performance 19 8. Lessons Learned 22 9. Partner Comments 26 10. Additional Information 40 Annex 1. Key Performance Indicators/Log Frame Matrix 41 Annex 2. Project Costs and Financing 45 Annex 3. Economic Costs and Benefits 47 Annex 4. Bank Inputs 55 Annex 5. Ratings for Achievement of Objectives/Outputs of Components 57 Annex 6. Ratings of Bank and Borrower Performance 58 Annex 7. List of Supporting Documents 59

Project ID: P049267 Project Name: UY TRANSPORT II Team Leader: Jose Luis Irigoyen TL Unit: LCSFT ICR Type: Core ICR Report Date: May 10, 2004

1. Project Data Name: UY TRANSPORT II L/C/TF Number: SCL-43950 Country/Department: URUGUAY Region: Latin America and the Caribbean Region Sector/subsector: Roads and highways (94%); Central government administration (6%) Theme: Regional integration (P); Infrastructure services for private sector development (P); Other urban development (S); Other financial and private sector development (S); Technology diffusion (S)

KEY DATES Original Revised/Actual PCD: 03/18/1998 Effective: 09/30/1998 11/05/1998 Appraisal: 08/26/1998 MTR: 12/01/2000 11/22/2000 Approval: 09/17/1998 Closing: 09/30/2002 09/30/2003

Borrower/Implementing Agency: REPUBLIC OF URUGUAY/MTOP; REPUBLIC OF URUGUAY/DNV and Intendencias Other Partners:

STAFF Current At Appraisal Vice President: David de Ferranti Shahid Javed Burki Country Director: Axel van Trotsenburg Myna Alexander Sector Manager: Jose Luis Irigoyen Krishna Challa (Acting) Team Leader at ICR: Jose Luis Irigoyen Jose Luis Irigoyen ICR Primary Author: Jose Luis Irigoyen; Rodrigo Archondo-Callao; Elisabeth Goller

2. Principal Performance Ratings

(HS=Highly Satisfactory, S=Satisfactory, U=Unsatisfactory, HL=Highly Likely, L=Likely, UN=Unlikely, HUN=Highly Unlikely, HU=Highly Unsatisfactory, H=High, SU=Substantial, M=Modest, N=Negligible) Outcome: S Sustainability: L Institutional Development Impact: SU Bank Performance: S Borrower Performance: S

QAG (if available) ICR Quality at Entry: S S Project at Risk at Any Time: No 3. Assessment of Development Objective and Design, and of Quality at Entry 3.1 Original Objective:

Overall purpose. The overall purpose of the project was to increase efficiency in the provision of transport services and the maintenance of road infrastructure to enhance the competitiveness of Uruguay's products, especially within Mercosur, and to rationalize sector expenditures.

Project specific objectives. The project specific objectives were to: (a) rehabilitate and upgrade to Mercosur standards selected national roads and bridges to permit transit of larger and heavier vehicles and reduce transport costs between Uruguay and its Mercosur trading partners; (b) support the Ministry of Transport and Public Works' (MTOP) policy of increasing private sector participation in the maintenance and rehabilitation of national roads through performance-based contracts; and (c) strengthen road sector management through the carrying out of (i) the National Directorate of Highways's (DNV) renewal program, (ii) the transfer of technology to the Departments (Intendencias) to maintain gravel roads, and (iii) a road safety program.

These objectives reflected essential priorities for the transport sector in Uruguay and were consistent with the government strategy for regional integration and trade, road network conservation, strengthening of road sector management, private sector involvement in road management and more efficiency in road financing/road user charges. They also reflected the priorities identified in the Bank's Country Assistance Strategy (CAS), which called for (i) a support of investments in key sectors to enhance the competitiveness of Uruguay's economy in the context of Mercosur, (ii) the increase of private sector participation, and (iii) the acceleration of the rationalization of public expenditure needed to sustain macroeconomic stability. Of particular importance in these circumstances, the objectives were realistic in terms of demonstrated capacity of the implementing agencies, financial, political and institutional constraints at the moment of the project approval and the related project risks.

3.2 Revised Objective:

No revision of the project objectives took place.

3.3 Original Components:

Component 1: Road Rehabilitation and Bridge Reconditioning (Cost: US$20,594,000) This component entailed carrying out of: (a) about 146 km of rehabilitation works consisting of reinforcing the pavement structures of (i) about 96 km of the Palmitas-Mercedes section on national Route 2; (ii) about 30 km between km 192 and the town of Masoller on national Route 30; and (iii) about 20 km between Km 36.4 and km 56.4 on national Route 27; and (b) reconditioning works consisting of strengthening, widening or replacing the existing structures of 13 bridges located on national Routes 3, 8 and 26.

Component 2: CREMA Contracts (Cost: US$ 23,360,000) This component envisaged the implementation of rehabilitation and maintenance works of three road networks covering an estimated 635 km of national roads through multiyear performance-based CREMA contracts between DNV and private contractors. The networks under each contract comprised different pavement types and service conditions. The contracts to be financed under the project covered three networks located in DNV's maintenance districts II and X (about 240 km), II and III (about 242 km), and VII (about 153 km).

- 2 - Component 3: DNV's Road Maintenance Program (Cost: US$ 45,106,000) This component consisted of the road maintenance program for the years 1998 - 2000 directly funded by DNV and included: (i) a program of contract maintenance with micro-enterprises comprised of former DNV staff and private contractors for about 1,855 km, and (ii) maintenance works on the portion of the national road network, which is not maintained by private contractors (incremental operational costs of force account works, excluding salaries, administration, and DNV’s equipment).

Component 4: Departmental Road Maintenance (Cost: US$ 33,000,000) This component included annual routine maintenance programs for about 9,500 km of selected gravel roads in participating departments and annual periodic maintenance programs for about 1,500 km of gravel roads to be carried out by participating departments between 1998 and 2000.

Component 5: Road Sector Management / Institutional Building (Cost: US$ 3,000,000) This component included the (i) provision of technical assistance to DNV to monitor and supervise project implementation; (ii) preparation of MTOP’s transport infrastructure plan for the years 2000-2004; (iii) strengthening of the Institute of Transport and Infrastructure Planning's (IPTI) technical capacity to carry out road sector fiscal policy analyses; (iv) carrying out of DNV’s renewal program to strengthen its institutional, operational and financial capacity; and (v) carrying out of a program to transfer technology and strengthen the road maintenance management practices of the Intendencias participating in the Departmental Roads Maintenance component.

Component 6: Road Safety Program (Cost: US$ 4,740,000) This component included: (i) pavement markings and road signs for about 2,500 km of national roads; and (ii) a pilot to test the effectiveness of low-cost measures to increase road safety along routes passing through urban areas, including an evaluation of the pilot.

Some of the Borrower's highest transport priorities reflected in the above-described objectives (e.g. rehabilitating and upgrading internationally vital parts of the road infrastructure and arresting the deterioration of the overall network, expanding the role of the private sector in road maintenance, and strengthening road sector management) were directly linked to these project components. The project gave high priority to maintenance and also built on and considerably deepened Uruguay's contractual road maintenance efforts, which allowed to keep the road infrastructure deterioration relatively well under control, notwithstanding the country's extremely difficult economic situation. All this was complemented by the capacity strengthening and institutional building component.

The components were adequate in the light of MTOP/DNV's capacity in terms of administrative and financial management as well as procurement and no real problems arose during project implementation. DNV had the necessary technical skills and capacity to commission and supervise road rehabilitation and bridge reconditioning works and performed extremely well as far as the private involvement in road maintenance was concerned, even if its current legal and organizational structure is not the most appropriate one for this purpose. The Intendencias had gained experience as a result of the execution of the departmental road maintenance programs under the First Transport Project, and the entity responsible for Departmental Road Maintenance within DNV (DIVD) was in a good position to assist and monitor the program execution. The project had also put aside funds for further capacity strengthening within these entities.

The project design took into account relevant lessons learned in prior projects and the Bank experience in Uruguay and in the region. Indeed, performance-based contract maintenance, in particular via CREMA contracts, already largely experimented in Argentina, revealed a big success. The CREMA contracts are five-year performance-based contracts between DNV and a private contractor that obligate the latter to undertake all phases of road rehabilitation and maintenance works as a single package from the design and programming of works, through the execution of such works. In addition, by correcting some of the major design shortages of the previous transport project, the project execution was greatly facilitated, especially in terms of procurement delays, project coordination and supervision.

- 3 - 3.4 Revised Components:

During the project implementation period several project components were adjusted in quantitative terms mainly to cope with the drastic budget reductions imposed on DNV or to enhance the achievement of the development objectives, providing continuity to key programs. This lead to a reallocation of loan proceeds on July 10, 2001 and December 23, 2002, and the Bank's no objection dated January 30, 2003 to the inclusion of the Access to Montevideo maintenance contract under this project. The main adjustments were as follows: l Due to the budget cuts the start of the rehabilitation of about 30 km on national Route 30, between Km 192 and the town of Masoller, was postponed to after the project completion date and the remaining balance of this loan was used to continue supporting the CREMA contracts throughout 2001. In this respect it should be noted that the overall impact of the CREMA contracts on achieving the development objectives of the project was greater than that of the project rehabilitation component. In addition, this particular corridor does not constitute an international link and thus has no mayor influence on the overall purpose of the project; l The financing of 31 km of rehabilitation of national Route 2 was carried out with DNV's own resources in the early years of project implementation; l The number of bridges to be rehabilitated was reduced to nine. To speed up implementation and make better use of funding available, two of these nine bridges were included into the CREMA contract for Zones II-III, and two other ones were financed by the Inter-American Development Bank (IDB); l Two additional CREMA contracts were added, using the funds made available by the reduction of rehabilitation works and the non-execution of other minor project activities. In addition, the Access to Montevideo maintenance contract was included into the CREMA component of this project late in 2002 to help DNV accommodating the very tight fiscal situation.

3.5 Quality at Entry:

Quality at Entry is rated satisfactory, based on the consistency of the project's objectives with the priorities of the government strategy for regional integration and road sector development as well as those identified in the Bank's CAS (see 3.1 above). The project design directly built on a previous transport project and a thorough knowledge of the sector in the country. It successfully corrected some of the deficiencies of the previous project and incorporated valuable experiences and lessons also from neighboring countries. Moreover, by limiting the scope to the road sector and opting for clear and not over-ambitious objectives, the project design resulted simple and realistic. It also accounted for institutional constraints and risks by incorporating appropriate risk minimization measures and included a well-designed set of easily measurable performance indicators. The QAG assessment carried out in 1998 rated Quality at Entry overall as satisfactory, considering clarity and realism of development objectives, the incorporation of lessons of experience, the adequacy of sector knowledge and strategy, the technical soundness of the project contents, and the adequacy of the institutional framework analysis as highly satisfactory. The QAG assessment also highlighted the quality of the risk assessment and the consequent minimization measures as well as the project monitoring mechanism and indicators.

4. Achievement of Objective and Outputs 4.1 Outcome/achievement of objective:

In a nutshell the major development achievements of this project consist in (i) the improvement of the network conditions, with the network below the optimal level of service decreasing from 15% in 1997 to 8% in 2001, and again reaching 13% in 2002, (ii) the enhancement of network planning, programming

- 4 - and management as well as the substantial expansion of the output-based model, (iii) a strong economic impact through the increase of the productivity in road maintenance activities and a reduction of the respective costs, (iv) the improved reliability of financing and sustainability, and (v) the capacity to firmly anchor the implementation of the maintenance program during a period of great financial uncertainty caused by the severe economic crisis.

This achievement of the project objective of this Second Transport Project need to be assessed in the light of the exceptional economic situation that hit Uruguay during its implementation period (see section 5). When the Government of Uruguay (GOU) initiated the project, its economy was growing and the budget allocations for road maintenance and investments had been steadily increasing. The unexpected economic crisis that lead to drastic reductions in the public finances, strongly decreased the resources allocated to the transport sector during the project implementation period. In fact, DNV's road sector expenditure was at its peak in 1999 with US$ 137,767,000. In 2000, it dropped to US$ 99,325,000, in 2001 to US$ 97,567,000 and in 2002 it reached its lowest level of US$ 49,404,000. Only the budget for 2003 had seen again an increase to US$ 64,515,000. The steady increase of the DNV's budget from 1994 to 1999 allowed for a significant improvement of the network conditions and a considerable increase in the road asset value, while the following budget restrictions led to a slowdown in the road network preservation and improvement efforts. Nevertheless, the widespread use of multi-year contracts assisted in confronting the crisis, requiring the dedication of most of the available budgetary transfers to finance it.

Overall the project progressed well despite these severe budgetary constraints and exceeded many of the performance indicators agreed upon at appraisal. The project achieved its overall purpose. It increased the efficiency in the transport service provision and road maintenance and so contributed to the rationalization of transport sector expenditures. It also removed some of the bottlenecks to international transport and contributed to the preservation of the road network, thus provided some of the necessary conditions for the competitiveness of Uruguay's products to increase, especially within Mercosur.

Furthermore, the development of the Megaconcession, a 15-year concession for about 1,270 km of the primary roads (about 15% of the national network) and 38 bridges (17% of Uruguay's bridges) demonstrates the strong interest of MTOP in improving the management of critical road corridors and increasing managerial and financial autonomy of the sector. The Megaconcession was granted by Corporación Nacional de Desarollo (DND), in the framework of an agreement with MTOP signed in December 2001, to Corporación Vial de Uruguay (CVU), which is public corporation 100% owned by the DNV. It requires CVU to assure an annual spending flow of a fixed amount to be used for the technical concession management, compulsory works and maintenance, delivery of services to users and tolling facility operation. The concession contract also lists the compulsory works, the minimum service levels for the whole concessioned network and the penalties and fines to be applied, if these service levels are not reached. The Megaconcession is based on the principle of cost sharing and is financed through toll revenues and subsidies. The latter are composed of three components: (i) a fixed payment per km of road maintained, (ii) a subsidy for the maintenance of structures and (iii) a minimum revenue guarantee limited in size and duration (for more details see section 4.2 point 5.4 below). In this sense, the Megaconcession represents a big step towards the commercialization of road sector activities.

With its focus on maintenance, the systematic application of management tools and a search for more autonomous institutional and financial arrangements, the project provided strategic direction for the continuation of key transport policies and programs throughout a period of abrupt and painful fiscal adjustment. MTOP's commitment to those policies proved remarkable.

The project outcome is rated satisfactory. The main justification for this rating is that the specific objectives have been achieved in an overall satisfactory manner. Moreover, even if there was a slowdown in some project activities, and even if there were some adjustments to single project components or sub-components, and thus minor deviations from original targets, this had been imposed by the difficult macro-economic situation beyond the control of the GOU. In making these adjustments MTOP/DNV exercised good judgement and selectivity as well as commitment to the project policy goals.

- 5 - Finally, it should also be noted that the combined net present value (NPV) for all the investment portions of the project discounted at 12% is US$ 233.2 million and the economic internal rate of return is (EIRR) 20.1%. The project is likely to be sustainable. For details see annex 3 and section 6.

The level of attainment for each of the specific project objectives is described in greater detail in the subsequent paragraphs, while the project results for a number of key performance indicators are given in annex 1.

1. Rehabilitate and upgrade to Mercosur standards selected national roads and bridges to permit transit of larger and heavier vehicles and reduce transport costs between Uruguay and its Mercosur trading partners

The achievement of this objective is rated satisfactory despite major cuts to DNV's budget that required a strict policy of maintenance prioritization in order to avoid serious network deterioration, and negatively affected the amount of road rehabilitation and bridge conditioning carried out under the project.

All priority works on the international corridors were carried out, and the omission of some works of lesser importance to make room for other key aspects is more than offset by the expansion of the CREMA contracts. DNV managed to conserve its network relatively well. Indeed, the figures from the assessment of the actual overall network conditions over the project period, given in the table below, show that the average network roughness (IRI) improved from 3.5 in 1997, the year before the project start, to 3.4 in 2002. This indicator had reached in 2000 its lowest level of 3 and was in 2001 at 3.1, which corresponded exactly to the ex-ante estimate.

Consequences of DNV’s Maintenance and Rehabilitation Program on the Network Program Consequences on the Network Condition Actual Actual Actual Actual Actual Actual Ex-Ante Estimate 1997 1998 1999 2000 2001 2002 for 2001 Condition Roughness Percent of Network Length, km Good < 3.5 IRI 54% 71% 75% 82% 80% 64% 60% Fair 3.5 < IRI < 4.5 31% 14% 13% 13% 14% 21% 18% Poor > 4.5 IRI 15% 15% 12% 6% 6% 15% 22% Condition Roughness Percent of Network Utilization, vehicle-km Good < 3.5 IRI 75% 81% 84% 88% 87% 77% 87% Fair 3.5 < IRI < 4.5 16% 12% 11% 10% 11% 16% 8% Poor > 4.5 IRI 9% 7% 5% 3% 2% 7% 5% Percent of Network Below Optimal Level of Service 15% 16% 12% 6% 8% 13% 8% Average Network Roughness (IRI) 3.5 3.4 3.2 3.0 3.1 3.4 3.1

Source: DNV, Bank staff

The deterioration of the roughness index since 2000 resulted less critical on the international corridors than on the secondary and particularly primary network, but it clearly illustrates that the negative consequences of drastic budget cuts over a number of years cannot even be avoided by strictly prioritizing maintenance.

As far as bridge rehabilitation is concerned, the project did neither completely reach its targets. The severe budget constraints only allowed to go ahead with nine of the 13 planned bridge rehabilitations. Nevertheless, the remaining four bridges are now incorporated in the Megaconcession (see section 4.2 point 5.4 below), which includes 38 bridges to be improved, nine of them located on the international corridors. An evaluation of the work carried out on Route 8 showed that the quality of the bridge rehabilitation works is good as far as widening and structural strengthening is concerned.

- 6 - Finally, in terms of signaling and pavement markings the project was highly successful in bringing the road network to Mercosur standards.

It should be highlighted that the Uruguayan road and bridge infrastructure supported well the quick expansion of the Mercosur trade between 1999 and 2000, shown in the following graph in terms of million of tons and annual vehicle miles (in thousands) that entered and exited Pasos de Frontera. The decline of international trade in 2001 is not related to the condition of the road infrastructure but rather reflects the effects of the economic crisis that hit the Mercosur countries.

International Road Freight Transport - Exit and Entry via Pasos de Frontera 1999 - 2001

4,000,000 150,000 3,000,000 140,000 Ton/Year 2,000,000 130,000 Vehicles/Year

Ton/Year 1,000,000 120,000 Vehicle/Year 0 110,000 1999 2000 2001 Year

Source: DNV, Bank staff

2. Support MTOP's policy of increasing private sector participation in the maintenance and rehabilitation of national roads through performance-based contracts

The rating of this objective is highly satisfactory. The use of multiyear performance-based maintenance contracts with the private sector has generalized in Uruguay through CREMA contracts, with micro-enterprises and concessions. In 2002 the conservation of 3,599 km of the national road network of about 8,753 km was maintained by the private sector under various contractual arrangements, which is approximately 44% more than the project target. This is also very close to DNV's internal objective of having 4,000 km or approximately 50% of the network maintained under contract. In this context, it is also necessary to mention the Megaconcession, operational since October 2002, which is a 15-year concession for about 1,270 km of the national road network and 38 bridges (for details see secction 4.2, point 5.4 below)

MTOP/DNV's policy in favor of private sector participation in road maintenance is clearly defined and supported by the results of periodic assessments of the conditions of the road network, which show that the performance-based contracts were superior in consistently meeting the optimum maintenance standards established through economic analysis and incorporated into contracts.

3. Strengthen road sector management through the carrying out of (i) DNV's renewal program, (ii) the transfer of technology to the Departments to maintain gravel roads, and (iii) a road safety program.

Overall this objective is rated as satisfactory but with several areas rated marginally satisfactory or unsatisfactory since some of the related components did not perform as well as expected or for several reasons could not be implemented as planned. Nevertheless, the project has strengthened the road sector management by allowing DNV and its Departments to consolidate and improve their systems, tools, procedures, processes and structures. All this not only increased the efficiency of force account maintenance but also facilitated the management and supervision of the contracts with the private sector. Moreover, even if the consultancy study to transfer technology to and build capacity within the Intendencias neglected some key elements that condition the implementation and sustainability of the

- 7 - departmental maintenance program, such as financial aspects, and even if it could not have yet been fully implemented on the ground, the project presents a menu of options and strengthening measures for the Intendencias to improve their performance. Moreover, by successfully tightening the relationship with the Intendencias, it created a promising basis for future collaboration.

Under this project DNV consolidated and improved the maintenance management system (SAM) and the integrated highway planning system (SIPLA). The systematic and effective use of these systems, especially SAM, combined with innovative management concepts, such as a systematic performance monitoring, the implementation of a new organizational structure with managers placed in charge of key processes, and a sort of competition resulting from the private involvement through contracts, allowed DNV to improve the efficiency of its maintenance operations carried out directly or via contract. The numbers in annex 1 show that the productivity targets for the principal maintenance activities directly realized by DNV were considerably improved. The four types of maintenance unitary costs used as productivity indicators under this project exceeded the project end targets by between 32 to 53% and improved since appraisal by between 42 to 59%. It is also pointed out that these productivity improvements took already place relatively early in the project period with appraisal values exceeded by between 19 to 50% in April 1999.

It is also interesting to note that in 2002, DNV maintained 5,263 km of its network, about 60%, through force account at a unitary cost of US$ 2,005, compared to US$ 3,314 in 2001. However, care has to be taken with these cost figures since the decrease between 2001 and 2002 is to some extent due to the devaluation of the national currency. For contractual maintenance, the control and supervision mechanism adopted by DNV together with the assistance of an Advisory Committee, which included top DNV officials and two international experts, has also been very effective not only in assuring compliance with the agreed contract conditions and standards, but also in creating information and knowledge to improve the management of the road network.

Worthwhile mentioning is also the introduction, on a pilot basis, of performance-based road maintenance arrangements between DNV and two of its Districts under the jurisdiction of the latter and implemented through force account. The pilot implied a clear definition of performance targets for all roads, albeit lower than those under the CREMA program. This allowed for the roads to be maintained to a given condition and assured the necessary resources to achieve the targets. However, the uncertainty of budget allocation prevented DNV from expanding this pilot to other Districts.

DNV has also strengthened its bridge management capacity in the course of this project. It was found that the department within DNV in charge of structures (UE-DNV) had developed the necessary institutional capacity for bridge management and was fully able to identify bridges with structural and dimensional problems, supervise rehabilitation works and carry out routine and preventive maintenance. This department has recently implemented a Bridge Management System (BMS), acquired through an IDB loan, which is not yet used to its full potential mainly due to lack of resources. The procurement procedures used by UE-DNV were adequate and well adapted to local conditions. They allowed for the bridge project component to be implemented in a cost-effective manner but there are a number of steps that could be taken especially to reduce inflated bid prices. This includes a suggestion for the procuring agency to carry out preliminary studies on the conditions of bridge foundations and to make them available in the bidding documents. This would avoid a great degree of uncertainty regarding the exact nature of the works to be carried out, which bidders have currently to face. Moreover, it is recommended to provide advance payments to cover mobilization costs, which otherwise result in a heavy financial burden for contractors.

Consequently, there are no doubts that, even if the study to analyze options to modernize DNV and the road safety pilot did not take place as originally expected, and even if the technology transfer to the Intendencias had some shortcomings, the project constituted an important playground for improvements in systems, tools, procedures and processes, and strengthened the sector management overall. Moreover, although the study regarding DNV's modernization did not take place during the project period, it remains on the agenda, as reflected by the fact that the Five-Year Plan for the transport sector approved in 2000 includes a study for DNV's reformulation in the framework of the State and according

- 8 - to a scheme that allows for greater autonomy in the resource management. On the other hand, the piloting of some form of greater autonomy through the Megaconcession is a further indication of the Borrower's interest to move ahead in this direction.

The reasons for the postponement of the study to analyze options to modernize DNV, together with additional details on the institutional components of this project, are provided below under section 4.2.

4.2 Outputs by components:

1. Road rehabilitation and bridge reconditioning (PAD US$ 20,590,000; actual US$ 12,887,105). This component is rated satisfactory.

In the light of the drastic budget reductions over the project implementation period, DNV decided to give priority to the protection of existing road assets over new investments, a policy that reduced the rehabilitation target for the national road network from 146 km to 85 km (by 42% - see section 3.4). This policy did not jeopardize the priority works on the international corridor of Route 2, partly financed with DNV's own funds, but affected national Route 30, which is not on an international corridor. On the other hand, it allowed to keep the progressive deterioration of the road network relatively well under control, even if in 2002 the percentage of the roads exceeding permissible roughness levels increased from the 8% project target in 2001 to 13%. The figure below shows DNV's budget and the actual total road asset value. With the overall DNV budget steadily decreasing after 1999, it illustrates how maintenance expenditure increased over the project implementation period at the expense of capital investments. It also shows how these budget cuts affected the road network asset value, which increased during the initial period of project implementation, but began to decline after 2001 in line with the heavy budget reductions that started in 2000.

Road Network Asset Value versus DNV Investment/Maintenance Budget

160,000 2,220,000

140,000 2,200,000

2,180,000 120,000 2,160,000 100,000 2,140,000 80,000 2,120,000 60,000 2,100,000

DNV Budget (US$000) 40,000 2,080,000 Network Asset Value (US$000) 20,000 2,060,000

0 2,040,000 1998 1999 2000 2001 2002

Investment Maintenance Total DNV Budget Actual Total Network Asset Value

Source: Bank Staff (Based on DNV budget figures included in the Contribution of the Borrower to the ICR (section 9) and on Actual Total Network Asset Value figures included in the DNV report prepared by Marcelo Krugman and Javier Wilson (annex 7)

Nine of the 13 bridges included in this project were rehabilitated. Among those, two bridges (Sauce and Sarandí) were rehabilitated under the CREMA contract for Zone II and III and two (Guaviyú and Sauce) with IDB financing. The remaining bridges will be rehabilitated under the Megaconcession, which includes nine bridges located on international corridors. The quality of the bridge rehabilitation works is good as far as widening and structural strengthening is concerned.

Both the road rehabilitation and the bridge components proved sound economic investments with an ex-post EIRR of 16.6 and 36,7% respectively.

- 9 - 2. CREMA CONTRACTS (PAD US$ 23,36,000; actual US$ 42,237,456). This component is rated highly satisfactory.

In the framework of this project 123 km of the primary road network was rehabilitated and 856 km maintained under CREMA contracts, which is more than 30% above the original project target. In addition, DNV's strong interest in this instrument is confirmed by the fact that it used its own resources to tender three additional CREMA contracts for about 725 km. It also plans to further expand the program as soon as there is greater certainty on funds availability. In this context it should be pointed out that the Borrower asked the Bank to support a follow-on operation to assist in the expansion of the program.

The use of these performance-based maintenance contracts allowed DNV to assure road maintenance and rehabilitation in an effective and cost-efficient manner, despite the negative economic environment. Nevertheless, the latter still caused the postponement of the execution of the CREMA contract in District V.

The CREMA contracts originally included in this project were as follows (network size is given within brackets): (i) CREMA District II and X (km 240), (ii) CREMA District II and III (km 233), and (iii) CREMA District VII (km 145). Both rehabilitation and maintenance works were carried out in a satisfactory manner and the contracts are still under implementation or have recently terminated.

In 1999 the following CREMA contracts were added to the project: (i) CREMA District IV (km 207) and (ii) CREMA District V (km 267). While the first contract has been implemented in a regular manner, the execution of the second has been delayed due to budget constraints.

In January 2003 the Bank agreed to extend financing under the CREMA component to another performance-based contract, the Access to Montevideo (km 31), which DNV had started with its own funds and was experiencing difficulties in meeting its payment obligations due to the tight fiscal situation. The flexibility of this financing with retroactive effect starting in January 2002 allowed DNV to partially overcome the cash flow shortfall in its 2002 and 2003 budgets, and to complete the contract.

Out of the three CREMA contracts financed by DNV with its own resources, one for about 330 km terminated, while the remaining two will stay in force until 2005 and 2007 respectively. It should be noted that at the end of 2002 five new CREMA contracts were tendered within the framework of the Megaconcession. Four of them are under implementation and the fifth has still to be awarded.

The rehabilitation works under the CREMA contracts were carried out in a satisfactory manner and on average the actual costs were 94% lower than at appraisal (see annex 3 for details). The contractors respected the agreed maintenance standards without extensive use of penalty payments and DNV's supervision mechanisms resulted very adequate. In 2001, the average annual cost per km for CREMA contracts, including rehabilitation and maintenance, was US$ 8,640, which compares favorable with an average annual cost of US$ 10,000 in Argentina.

- 10 - 3. DNV ROAD MAINTENANCE PROGRAM (PAD US$ 45,110,000; actual US$ 73,694,000). This component consists of the road maintenance program directly financed by DNV and carried out through contracts with micro-enterprises constituted by former DNV staff or directly by DNV's staff through force account arrangements. It is rated satisfactory.

At the end of the project DNV had 1,914 km of its network maintained by micro-enterprises (about 22%). In 2001, the average annual cost per km for micro-enterprises was US$ 3,77, compared to US$ 3,314 for force account. In 2002, it was US$ 2,693 for micro-enterprises and US$ 2,005 for force account. The original contracts with the micro-enterprises were re-tendered in 2002 and 2003 for a three-year period, renewable for three additional years. Some of them were awarded to the original contractors, while others went to new micro-enterprises. In addition, the signaling contracts with micro-enterprises were extended and an additional one tendered for a total of 815 km. This means that the project target of having a DNV financed program of contract maintenance with micro-enterprises comprised of former DNV staff and private contractors for about 1,855 km has been largely achieved.

The national roads directly maintained by DNV through force account amounted to 5,263 km in 2002. This is about 60% of the network. As mentioned above under section 4.1, point 3, the systematic and effective use of road planning and maintenance management systems, combined with innovative management concepts and better data and information collection allowed DNV to improve its efficiency in force account maintenance. It also impacted on its productivity targets for the principal maintenance activities that could be enhanced considerably (see annex 1 for details). As a word of caution it has to be added that the cost decreases between 2001 and 2002 are to a certain extent due to the strong currency devaluation.

4. DEPARTMENTAL ROAD MAINTENANCE (PAD US$ 33,000,000; actual US$ 32,940,411). This component is rated satisfactory since overall the Intendencias achieved about 96% of the physical and 92% of the financial targets agreed with DNV.

This component built upon a departmental road maintenance program successfully carried out in the period from 1989 to 1996. It was reassumed in 1997 with the support of the Forest Product Transport Loan 4204-UY, and for the years 1998 to 2000 it was agreed to provide support under this project.

The program involved all Intendencias, with the exception of Montevideo, and aimed at re-gravelling yearly 1,500 km of departmental roads and maintain 9,000 km to a satisfactory level. In 1998 a budget of US$ 10.76 million was spent, which allowed to provide satisfactory routine maintenance for 8,794 km and re-gravelling for 1,163 km of departmental roads. This represented 98% of the overall targets set for 1998. In 1999, the program reached 95.3% of its targets, with a budget of US$ 10.48 million. Due to budget cuts in 2000, the program was reduced from US$ 11 million to US$ 8.47 million. This allowed the program to reach 91.7% of its annual targets.

During 2001, the program was again reestablished at its annual level of US$ 11 million with a partial funding from Bank Loans 4395-UY and 4204-UY. However, due to budget cuts towards the end of the year, the program execution was reduced to US$ 10,04 million, which affected particularly the Intendencias that had delays in the execution of their activities. It allowed to provide basic maintenance for 7,363 km of the planned 9,000 km of roads and achieved the overall targets set for 2001 by 91.3%. The program continued in 2002 with a budget of approximately US$ 9 million, financed under the Bank Loan 4204-UY, maintaining approximately the same coverage as in the previous year.

As an additional remark, it can be added that the main reason for not reaching the targets was that a few Intendencias lagged behind, while the majority did reach or came very close to their annual targets, independently from the budget cuts. There is also some evidence that the efficiency of certain Intendencias could be increased through different schemes and different incentives, as it was the case for Rocha, where the hiring of a private maintenance company proved very successful.

- 11 - 5. ROAD SECTOR MANAGEMENT/INSTITUTIONAL BUILDING (PAD US$3,000,000; actual US$587,920).This component consisted of a number of sub-components that are globally rated as satisfactory even if some sub-components or elements of sub-components are not completely satisfactory.

5.1 Provision of technical assistance to DNV to monitor and supervise project implementation

Most of the monitoring work was done by DNV in-house, with the support of a few technical advisors, in particular two international experts on pavement performance and performance contracts respectively. These advisors were hired by DNV with its own resources to guide its staff. DNV's control and supervision arrangement, supported by this Advisory Committee, proved very successful because it set high standards for the measurement of results on the ground and achieved effective contract enforcement. In addition, carrying out this task in-house increased the ownership within the organization. However, it has to be emphasized that it was the well-established reputation for high integrity within DNV that was instrumental for the success of this kind of monitoring and supervision arrangement.

5.2 Preparation of MTOP's transport infrastructure plan for the years 2000 - 2004

The Integrated Highway Planning System (SIPLA), consolidated and further improved under the project, was used for the elaboration of the Five-Year Plan 2000 -2004. Even if during the preparation period not all planned inventories had been completed, the information provided by SIPLA, integrated with ad hoc surveys, resulted as adequate. As a result of the methodology applied, the different investment programs in the Plan are in line with a more integrated vision of the services that an improved road infrastructure provides to users and the economy of the country. It also allows to compare the situation in base year 2000 with the evolution of the indicators that measure the results of the Plan.

5.3 Strengthening technical capacity within MTOP through its Institute for Transport and Investment Planning (ITPI) to carry out sector fiscal policy analysis with a special emphasis on road financing and updating and revising road user charges

Under the project IPTI, MTOP's Institute for Transport and Infrastructure Planning, has been updating its databases and carrying out several estimates of user charges, using the road user charge model (RUC), developed in 1998. The most recent calculations of road user charges are based on 2001 figures and showed that the total expenses in the sector, including investments and debt service, amounted to US$ 466,160,000 and that the fiscal revenues from road users reached US$ 607,850,000, which gives excess revenues from road users of US$ 141,660,000.

IPTI also carried out a program to speed up the collection of timely data, which led to the identification of all relevant information sources and the introduction of the basis for a more timely data collection mechanism. Nevertheless, the collection of data from the Intendencias still remains a weak point, together with IPTI's activities in the field of air and maritime/fluvial transport.

Other studies carried out by IPTI during the project period include an analysis for the fiscal optimization of the passenger and freight transport sub-sectors and the study on the benefits of users on the routes included in the Megaconcession and their comparison with collected toll revenues. IPTI's activities provided valuable inputs into the design of the Megaconcession and are likely to play a vital role in DNV's future transformation process. No project resources were used for these activities.

5.4 Renewal program to strengthen DNV's institutional, operational and financial capacity

The project supported this sub-component in two ways. In the first place, it provided financing for consultancy services for the consolidation and further improvement of the highway planning and maintenance management systems. In particular, as far as the Integrated Highway Planning System (SIPLA) is concerned, the inventory system was finalized and final design adjustments made. SIPLA initially worked on the basis of a test database that was progressively replaced by the information

- 12 - obtained through various surveys carried out during the project implementation period. This project did not only support the physical parts of this planning tool, but also provided financing for institutional capacity building to allow for activities, such as the analysis of investment scenarios and evaluation priorities in the framework of the policies defined by MTOP.

The Maintenance Management System (SAM) was also improved and consolidated. Its systematic application, together with the expansion to contract maintenance reporting, the piloting of performance contracts between DNV and its Districts II (Rocha) and X (Maldonado), and other improvements in DNV's management processes, allowed DNV to make significant efficiency gains. These gains are expressed in the four key indicators selected at appraisal: (i) patching with premixed asphalt; (ii) surface sealing; (iii) vegetation control; and (iv) crack sealing (for details see annex 1). Moreover, the supervision of the maintenance contracts through DNV's control mechanism supported by an Advisory Committee was very effective not only in terms of compliance with contractual requirements but also in the generation of useful information and knowledge for the improvement of road network management.

The second aspect is related to DNV's renovation program. In this respect it must be emphasized that at project negotiation, the Borrower had been very cautious with respect to the scope of this commitment: (i) only the exploration of reform options but not the reform process itself was finally included in the project, and (ii) the representatives of the Ministry of Economy and Finance made their opposition to the creation of a road fund, which would have granted DNV full financial autonomy, very clear.

Consequently, in the PAD it was specified that working groups would be established to formulate options for the modernization of DNV's institutional structure and operations, the improvement of its human resource management and the introduction of sound commercial and user focused management principles. The discussions regarding the outline of the study had started but the reluctance at political level from the outset, together with the economic situation and the tight fiscal restrictions completely paralyzed any attempt to provide greater economic and financial autonomy to an entity like DNV. However, even if this study did not take place according to the timetable of the project, the Five-Year Plan envisages the analysis of the DNV's reformulation in the framework of the State, with a view to make the new structure operational during the following five-year period (2006-2010). This analysis has not yet started. Nevertheless, one working group had been established and played an important role in the design of the Megaconcession and other schemes to improve DNV's institutional and financial capacity. Moreover, information made available through IPTI's activities and the systematic application of both SIPLA and SAM provided critical input to the design of the Megaconcession, and gave credibility to cost and revenue estimates and overall the proposed government financial undertakings under this concession agreement.

With the Megaconcession MTOP and DNV tried to overcome the restrictions in public spending and to attract private financing for parts of the network that lack financial viability under the current concession schemes. In particular, the Megaconcession aimed at (i) maintaining an adequate level of road network investments during a period of crisis, (ii) tapping alternative (non-budgetary) financing sources for road works, (iii) assuring good service levels on the principal corridors of the road network, and (iv) permitting investments on corridors strategically important for the development of the country through the concept of cross-subsidies.

The framework agreement for the Megaconcession was signed in December 2001 between MTOP and Corporación Nacional de Desarollo (DND), creating a new public corporation, called Corporación Vial de Uruguay (CVU), which is 100% owned by DND. The latter granted CVU a 15-year concession for about 1,270 km of primary roads (about 15% of the national road network) and 38 bridges (17% of Uruguay's bridges). This concession requires CVU to assure an annual spending flow that over the 15-year period reaches a present value of US$ 149,062,005. This spending must be authorized by DND and relates to technical concession management, compulsory works and maintenance, delivery of services to users and tolling facility operation. The concession contract also lists the compulsory works, the minimum service levels for the whole concessioned network and the penalties and fines to be applied, if these service levels are not reached.

- 13 - The Megaconcession is based on the principle of cost sharing and is financed through toll revenues and subsidies. The latter are composed of three components: (i) a fixed payment per km of road maintained, (ii) a subsidy for the maintenance of structures and (iii) a minimum revenue guarantee. The subsidy for road maintenance is in line with the investment levels necessary for the regular maintenance of the network and will be paid during the first four years (about US$ 4,000/km/year). During the same time, the contract assures the concessionaire a minimum annual revenue of US$ 25,000,000 composed of toll revenues and subsidies. From the fifth year onwards, an ceiling for annual toll revenues will be established. If this ceiling is exceeded, the subsidy amount will be reduced or the agreed present value of annual spending increased. Starting in the fourth year, a subsidy for the maintenance of structures of US$ 167/m/month will be paid. CVU has the right to raise revenues through bond issues and loans and is allowed to outsource works and services necessary to the management of the concessioned network. To further bolster toll revenue, the GOU is currently implementing a construction program of additional toll facilities. CDN has also expressed an interest in exploring possible World Bank and IDB financing for this initiative. The implementation of the Megaconcession seems promising. The first construction works started in December 2002, and the program has developed well during 2003.

In short, the Megaconcession concept is a way of testing how a sizeable portion of the road network could be managed by an autonomous body and its improvement and operations funded through commercial instruments, which is one of the goals of DNV's modernization study.

5.5 Carrying out of a program to transfer technology and strengthen road maintenance management practices of the Intendencias participating in the departmental roads maintenance component

The consultancy study aimed at technology transfer to and institutional building within the Intendencias was commissioned in 2000 and completed in 2001. The diagnostic in this study mainly focused on institutional issues and management tools, e.g. planning, organization and execution of works and quality control. The study clearly showed that there is a strong institutional weakness that affects most Intendencias.It had left out some key elements that condition the implementation and sustainability of the departmental maintenance program, such as the financial aspect. Another element that did not work as expected was the effective representation of the Intendencias through the ad hoc "Steering Group" created during project negotiations, which comprised representatives from MTOP and the Intendencias. Both aspects had been highlighted during several supervision missions but were not adequately followed through.

With these limitations in mind, it is not astonishing that while overall the results of the study were found useful, the impacts on the ground had been somewhat less than expected. The study recommendations were presented to the Intendencias during three meetings hold in 2002 in the north, east and west of the country in an effort to frame their implementation in a demand-driven approach that would allow to tailor them to the different realities. The Intendencias, however, asked to mainly focus on the reparation and operation of equipment and the execution of works. There was less interest for the recommendations in the field of accounting, planning, management and outsourcing and administrative decentralization.

The final outcome of this sub-component must again be seen in the light of the economic crisis that created a strong resource scarcity within the Intendencias and DNV. This reduced the number of activities carried out by DIVD, the entity within DNV responsible for the departmental road maintenance program, and the possibilities for contacts with the Intendencias.

It has also to be highlighted that one of the specific goals under the technical assistance was the design of an urban road maintenance program to be co-financed between the Intendencias and MTOP* . With the worsening of the fiscal situation, however, it became apparent that a government co-financed program could not be supported, which, in turn, reduced the interest of some of the Intendencias in the technical assistance component.

- 14 - At project closure, DIVD was trying to involve the Intendencias in an action plan to fully implement the recommendations of the consultancy study. In principle, it was agreed to focus on the development and implementation of basic instruments for the management of the network (e.g. inventory and geographic information systems) and on the support of the methodology for the management of road equipment. It should be noted that the departmental road maintenance program for 2003 envisaged the possibility of dedicating parts of the budget allocation to capacity strengthening but that the interest of the Intendencias was limited.

During 2001 and 2002, DIVD provided technical assistance and training mainly in the fields of workshop, equipment and spare part management. No other activities had been carried out due to the difficult financial situation described above.

*During project preparation, MTOP had requested a follow-on Bank operation to finance, among other investments, the implementation of this urban road maintenance program. This follow-on project did not materialize since the Bank at that time was considering a drastic reduction of lending to Uruguay as part of a "disengagement policy" that underpinned the preparation of the 2000 CAS. 6. ROAD SAFETY PROGRAM (PAD US$ 4,720,000; actual US$ 4,103,802). This component is rated marginally unsatisfactory (indicated on the basis of the physical achievement at time of budgetary crisis).

The progress within this component was mixed. While the program for the improvement of road signs and pavement markings for 3,879 km of road network (55% more than the original target) was concluded, the safety improvement works at the crossing of the (old) Route 1 with the village of Rincón de la Bolsa were awarded but have then been constantly delayed due to budgetary constraints. Therefore, it was impossible to carry out the evaluation of the impact of these improvements on road safety within the time frame of the project. It has to be added that Route 1 at the crossing with the village of Rincón de la Bolsa replaced the site originally selected for this pilot program.

4.3 Net Present Value/Economic rate of return:

The ex-ante economic evaluation for this project was done for each rehabilitation and maintenance component financed under the project and consisting of (i) road rehabilitation, (ii) CREMA contracts, (iii) departmental road maintenance, and (iv) bridge reconditioning. Net benefits were evaluated using the Highway Design and Maintenance Standards Model (HDM-III), which simulates life cycle conditions and costs and provides economic decision criteria. The ex-post economic evaluation was done using the same model and following the same ex-ante methodology, but including (i) actual costs, (ii) actual traffic, (iii) actual road user costs, and (iv) actual timing and duration of road works.

The ex-post Net Present Value (NPV) of the capital works of the rehabilitation, CREMA and bridge restoration programs is US$ 31.7 million and the Internal Rate of Return (IRR) is 20.1%, which can be compared to the ex-ante estimates of US$ 47.0 million NPV and 25.7% IRR. Including the NPV of the departmental roads maintenance program, the total ex-post NPV is US$ 233.2 million, which can be compared to the ex-ante estimate of US$ 257.9 million.

On average: (i) the actual capital work unit costs per km of the rehabilitation, CREMA and bridge restoration programs were 2% lower than the ex-ante estimates, (ii) the actual traffic in year 2002 was 9% lower than the ex-ante estimates, and (iii) the actual traffic annual growth rate for the 1998-2002 period was 0.3% per year, which can be compared to the ex-ante estimates of 3.0 to 4.0% per year.

The ex-post economic evaluation shows that the actual costs were in line with the ex-ante estimates, but the actual traffic growth rate during the 1998-2002 period was lower than expected, which explains the lower than expected economic return of the project, which is nevertheless satisfactory. For more details see annex 3.

- 15 - 4.4 Financial rate of return:

Not applicable.

4.5 Institutional development impact:

This project had a substantial Institutional Development impact on Uruguay's road sector. DNV improved its management processes and implemented various institutional strengthening initiatives that included among others: l Implementation of a new organizational structure with managers placed in charge of key processes. This strengthened the planning capabilities within DNV and the coordination of maintenance programs performed by force account and contract. The latter led to a sort of competition resulting from the private involvement through contracts; l Improvement of the wage structure in order to bring wages closer to market rates; l Establishment of a set of indicators to monitor DNV's performance in managing its road programs and systematic performance monitoring. In this framework DNV had become one of the five pilot agencies that started using performance indicators.

Together with the consolidation and improvement of various planning and management systems (e.g. MMS, SIPLA, BMS) and their systematic application, DNV was able to make a more effective use of their human and financial resources and reached important productivity increases. There is also a very rich experience and profound knowledge that DNV was able to acquire during this project in the field of contractual maintenance.

The technical assistance to the Intendencias was mainly focused on workshop, spare part and equipment management to improve their departmental road maintenance capacity. This technical assistance component of the project was not only fruitful for the Intendencias, but for DIVD as well. It allowed DIVD to better understand the problems on the ground and to establish a closer relationship with the Intendencias, which should allow them to implement the action plan with the recommendations of the above-mentioned consultancy study. It is also interesting to note that as a likely consequence of this constancy study, the departmental road maintenance program for 2003 envisaged for the first time the possibility of dedicating parts of the budget to capacity strengthening in the Intendencias.

The project allowed IPTI, the Institute of Transport and Infrastructure Planning at MTOP, to improve their tools and systems and update their databases. IPTI also carried out a program to speed up the collection of new data, which led to the identification of information sources and the introduction of a more timely data collection mechanism.

5. Major Factors Affecting Implementation and Outcome 5.1 Factors outside the control of government or implementing agency:

Economic crisis. The severe economic crisis that interrupted Uruguay's growth in the 1990s had a very strong impact on the project implementation and to a certain degree on its outcomes. While the first symptoms of the crisis became evident in 1999 after Brazil's devaluation of the Real, Uruguay's close correlation with Argentina, though, is what best explains the length of the recession (4 years), its depth and the sharp financial and output collapse during 2002. Underlying Uruguay's crisis were weak fiscal fundamentals and a fragile financial sector with over 50% of bank liabilities with nonresidents (mostly Argentines). While real economic effects stemming from the strong devaluations in Brazil and Argentina were sizable, the strongest channel of contagion proved to be Uruguay's banking sector. During 2002 the deposit withdrawal represented over 50% of the system deposits.

- 16 - To cope with the situation, the GOU negotiated a massive emergency rescue package with the international financial institutions of US$ 3.9 billion or around one-third of its 2002 GDP. The package was tied to structural reforms including the floating of the exchange rate - the peso value of the US dollar increased 90% in 2002 - and a drastic fiscal adjustment effort. Other Government measures included a significant tightening of its fiscal policies through deep cuts in public investment expenditures and a strict freeze on public sector wages and indirectly on pensions.

5.2 Factors generally subject to government control:

As already briefly mentioned, the economic crisis meant cutting dramatically all public expenditures, with capital expenditures being the first and main target. In the road sector in particular, these drastic budget restrictions required DNV to manage its assets with half or less than the usual resources. The figure below shows the evolution of DNV's budget and expenditure between 1994 and 2003. It clearly illustrates how DNV gave strong priority to maintenance at the expense of new investments, a policy decision adopted to counterbalance the negative effects of the economic crisis on the condition and value of their road assets. It should be noted that the large increase in investment in 2003 does not mean a drastic change in DNV's maintenance policy but is due to the fact that the Megaconcession was fully included under this category. Strictly speaking, however, the Megaconcession includes new investments and maintenance (see section 4.2 point 5.4) and the respective expenditure should therefore be split between the two categories.

Investments, Maintenance Expenditure and Total DNV Budget in Thousand US$

160,000 140,000 120,000 Investment 100,000 Maintenance 80,000 Total DNV Budget 60,000 40,000 20,000 0 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003

Source: Bank Staff (Based on DNV budget figures included in the Contribution of the Borrower to the ICR (section 9))

Although these policy decisions implied a slowdown in the project implementation, it is clear that MTOP/DNV acted in the right and correct way.

5.3 Factors generally subject to implementing agency control:

Procurement in Uruguay is a lengthy process and some procurement delays occurred at the beginning of the project implementation period, which became more critical and evident as the agency was increasingly moving towards outsourcing. Also, some of the contracts awarded had to be delayed due to the budgetary crisis and the pace of several of the successful outsourcing initiatives had to be slowed down. Despite everything and given the economic context, there are no doubts that DNV made the right decisions in this respect.

Where DNV could have been more proactive in the early stages of project implementation is in the formulation of a concrete proposal for the analysis of options for its transformation into a more autonomous agency. By waiting for a more enabling environment, the deterioration of the fiscal situation closed the doors for a formal and open discussion on such alternatives. Nevertheless, DNV managed to shift to a model that, even if only in a partial way, builds on user fees, private financing and a more

- 17 - robust contractual framework to test new options and solutions.

5.4 Costs and financing:

Actual costs were generally in line with appraisal estimates. The Bank loan was 97.2% disbursed by the end of the original closing date. The one-year extension allowed for the balance to be used to give continuity to the CREMA contracts throughout the remaining of CY02 and part of CY03 and to the Access to Montevideo contract. No other significant cost changes took place.

6. Sustainability 6.1 Rationale for sustainability rating:

Sustainability is rated as likely. It is based on the fact that during this project, DNV demonstrated its commitment to giving the highest priority to road maintenance and showed a great ability to plan and deliver efficiently well-responsive maintenance operations. DNV managed to keep the network in acceptable conditions rather than concentrating funds for upgrading and rehabilitation. It also used its scarce resources in an extremely efficient way by experimenting innovative maintenance schemes and raising its own productivity. The few investments undertaken during this project were focused on international corridors and their sustainability is likely, considering DNV's sound maintenance practices. The sustainability argument is further supported by DNV's policy of rehabilitating and upgrading commercially vital links, which received continuity in the Megaconcession.

As far as the preservation of the departmental network is concerned, the implementation of the maintenance program with the Intendencias for more than a decade is certainly a strong indication of MTOP's commitment. In addition, the technical assistance carried out under this project increased the awareness of the Intendencias on the importance of maintenance and helped them to improve their capacity. Nevertheless, at least some of the Intendencias are still rather weak and the implementation of a more commercially-oriented approach could be considered. In this field there is certainly room for more technical assistance to further improve road maintenance practices, increase efficiency and facilitate the collection of cost data.

The sustainability rating is also based on the fact that the private sector participation in Uruguay's road transport management seems an irreversible reality. Performance-based contracts for rehabilitation and maintenance are already in wide-spread use and have shown very positive results.

This trend in direction to more commercially-oriented network management and maintenance practices is confirmed through new commitments towards innovative private-public partnerships to overcome budgetary constraints and DNV's willingness to explore more autonomous solutions for the management and financing of large portions of its network.

It is also supported by the 2003 Public Services and Social Sectors Structural Adjustment and Special Structural Adjustment Loans, which considered the approval of the law creating the Megaconcession as conditionality clause and envisaged monitoring indicators focused on the enhancement of transport sector efficiency and competitiveness.

However, if DNV's budget is not increased and stabilized in the next future and its cash flow difficulties improved, payment delays could cause severe difficulties for the contractors and undermine the success of these arrangements. In addition, it has to be noted that as far as the Megaconcession is concerned, the Forest Product Transport Loan 4204-UY financed DNV's capital contribution during CY03 for eligible road segments. While in the medium-term it is expected that the Megaconcession will attract private capital through the issuance of bonds and pension funds, there is the risk that DNV will cut back on existing programs if additional financing is not secured, especially once support from the Forest Product Transport Project has ended. As a result, DNV and CND have expressed their interest in a possible World Bank or IDB financing. This could be explored as part of the identification of future sector

- 18 - initiatives in Uruguay. In this context it is pointed out that in supporting greater private sector participation, a new project would emphasize improved sector efficiency and international competitiveness rather than increasing rural access.

Moreover, the judgement regarding sustainability takes into account that the road sector management in Uruguay has been strengthened and that there is a solid will by all actors to go further in this direction. Under this project, DNV managed to strongly improve its efficiency, even if its real transformation or at least a study on the possible options to increase its autonomy has not yet taken place. In the light of the current economic situation and the efforts to keep the fiscal deficit under control, DNV's transformation seems politically unfeasible. However, there is a commitment, anchored in the Five-Year Plan, to go ahead with a review of the underlying legal and regulatory framework to transform DNV into an autonomous road sector policy agency funded primarily by road user charges.

In the meantime, the Megaconcession represents an important intermediate step towards DNV's transformation into a sector planning and advisory agency with reduced operational activities and increased managerial and financial autonomy.

Finally, it should be reiterated that it is not the financial sustainability that lacks but the political will since IPTI's study on road user charges in 2001 confirmed that cost recovery in the sector is not an issue. Indeed, charges (excluding IVA and general taxes) from road users as a whole exceeded current expenditures by large, even if heavy vehicles did not fully cover the cost of the damage they caused. Uruguay's economic recovery may also lead to a further push in this direction.

6.2 Transition arrangement to regular operations:

The enhanced capacity within DNV together with its improved tools, systems, structures and processes, the increased efficiency and effectiveness in its operations, the exploration of new instruments that guarantee a greater financial autonomy, and the slowly improving economic situation in Uruguay should permit DNV to sustain the necessary rehabilitation and maintenance activities also without another Bank operation.

In addition, it is generally recognized that for an agency, like DNV that is more and more shifting to outsourcing and public sector involvement, the current legal framework and organizational structure is not the best one to efficiently manage the road network. In this context, a reorganization may follow as natural response to the requirements of its new responsibilities and tasks.

7. Bank and Borrower Performance Bank 7.1 Lending:

The Bank's performance during lending is rated as satisfactory. The project responded to the GOU request to support the efficiency in the provision of transport services and the maintenance of infrastructure to enhance Uruguay's competitiveness and to rationalize sector expenditures. Its objectives reflected essential Government priorities for the transport sector in Uruguay and were in line with the Bank's CAS, which called for a support of investments in key sectors (i) to enhance the competitiveness of Uruguay's economy in the context of Mercosur, to (ii) increase private sector participation, and (iii) to accelerate the rationalization of public expenditure needed to sustain macroeconomic stability.

The project built on lessons learnt from the implementation of the First Transport Project mainly by (i) limiting the project scope to the road sub-sector, thus keeping its design simple, (ii) aligning the project investments to be in phase with the budgetary appropriations under the Five-Year Plan 1995-1999, (iii) completing the engineering designs before appraisal and advance procurement of those civil works planned for the implementation in 1998, and (iv) complementing the institutional and investment efforts

- 19 - started with on-going externally-funded projects to meet MTOP's long term objectives. This facilitated project execution, increased the overall efficiency of Bank supervision missions, and avoided procurement delays.

The project was not very risky in technical, social, environmental and project management terms and the PAD included a correct evaluation of the capability of the implementing agencies. Another major advantage of the project design consisted in the identification of detailed performance indicators that facilitated the Bank's supervision and assisted the Borrower in defining its priorities and making the necessary adjustments.

As far as DNV's reform process is concerned, the project design showed a very cautious and flexible approach, not requiring DNV's transformation but only the exploration of reform options. The risk of a possible slippage in the implementation of institutional reforms had been correctly identified in the PAD and the focus was put on a gradual agenda and the strengthening of analytical and management capabilities.

Since the time of the project identification, there has always been a strong interest and commitment by the two main implementation agencies, MTOP and DNV. As far as the third direct involved actor group, the Intendencias, is concerned, the PAD mentioned their potential unwillingness to participate in the project as risk factor. It also listed a number of mitigation measures, including a link between the institutional component and the financial support in form of the departmental road maintenance program.

What could not have been foreseen was the economic crisis that hit Uruguay during the project implementation period and constituted the main reason for several project components not to exactly perform as expected. Nevertheless, the PAD had anticipated a decline in funds allocated to the sector.

The financial package and the loan amount were appropriate and the lending instrument suitable.

Finally, this lending operation could rely on a number of previous Bank experiences in the field, the CREMA contract experience in Argentina and a number of studies, such as the Road User Charge Study carried out under the First Transport Project.

7.2 Supervision:

The Bank supervision is rated satisfactory. The Bank's oversight and supervision was adequate, with regular visits to Uruguay. These visits took place more or less every six months and the average permanence in the field was about 10 days. The Bank supervision team had a good skill mix and continuity was assured by the task manager himself. Bank management supported the supervision effort, with the sector leader commenting on many of the PSRs in a very enthusiastic and positive way. The missions have been adequately reported in Aide-memoires, a couple of Back-to-office Reports and, most importantly, the Project Supervision Reports (PSR) that give an excellent and very concise overview on the developments on the ground.

The team did a very good job in timely pointing out potential implementation problems mainly related to the institutional and capacity building components, even if the respective suggestions and recommendations were not always fully taken into account by the Borrower.

The performance ratings given in the PSRs are realistic, even if it could have been pointed out that some of the sub-component of the Road Sector Management and Institutional Building component had not been performing in a completely satisfactory way. Nevertheless, it was the current lack of choice between a "completely satisfactory" and "completely unsatisfactory" rating that correctly led to the first option. The fact that the focus in the most recent Aide-memoires shifted from the achievements in relation to single components to the achievement of the development objectives clearly shows that sufficient attention was paid to development impacts.

- 20 - The compliance with the loan covenants remained satisfactory and at the project end the clauses not complied with are: (i) participation of the Office of Planning and Budgeting (OPP) and the Ministry of Economy and Financing (MEF) in mid-term meeting (3.05e); (ii) execution of the study on modernization of DNV (3.08c); and (iii) preparation and public dissemination of an annual report on DNV's operational and financial performance during the preceding calendar year (3.09) - the original plan to create a unit to disseminate relevant information to rod user in real time and periodical survey users opinions have been put on hold due to budget constraints.

Bank staff showed flexibility in approving adjustments, such as the postponement of the rehabilitation works to give priority to maintenance and the inclusion of new CREMA contracts under the project. Bank staff also strongly supported the extension of the closing date by one year to use the remaining project funds to give continuity to the CREMAs and the Access to Montevideo contract, which proved as appropriate.

Finally, through the supervision of this loan the Bank was able to establish a high quality policy dialogue with the Borrower, very much appreciated by the same. It has also led to the Borrower's interest in seeking further Bank involvement in a follow-on operation.

7.3 Overall Bank performance:

The Bank performance overall is rated satisfactory.

Borrower 7.4 Preparation:

The Borrowers performance in the project preparation is rated satisfactory. This rating takes into account that the Borrower carried out all project preparation activities, such as engineering designs and procurement related activities, in a manner that allowed the project to become effective within less than two months from the Board Approval and to start fund commitments/disbursements very quickly. The screening as well as the economic and environmental evaluations of project components used methodologies previously designed and tested during preceding Bank projects. In particular, good use was made of the HDM III model, and its inputs were periodically updated. DNV and the MTOP showed their strong support and great commitment for this project right from the beginning.

7.5 Government implementation performance:

The Government's performance is rated satisfactory. The Loan Agreement was signed within less than one month from the Board Approval, which allowed the project to become quickly effective. The project disbursements were in line with appraisal forecasts until the economic crisis hit Uruguay and strongly drained the Government budget. The drastic cuts in the road sector and the consequent shortage of counterpart funds caused a slowdown in the implementation pace, even if the Government had been able to secure essential funds for the most important project activities.

Critical to the success of the project was the continuity of the top sectorial authorities together with their continued involvement in policy-related issues throughout project implementation.

MTOP was very committed to this project and was directly involved in its implementation through IPTI, one of its institutes, and the Five-Year Plan for 2000-2004. Overall, the sector policies and activities were in line with the project components, supporting or complementing them. For example, this was the case with the Five-Year Plan or the Megaconcession. MTOP also showed a strong interest in the project activities by supporting the departmental road maintenance program over more than 10 years and lately envisaging the possibility to use part of the program's budget for capacity building within the

- 21 - Intendencias.

One area where the Government showed some degree of hesitation and reluctance is DNV's renewal program. From the outset it did not want to commit itself to anything else than studying options for the possible transformation and even such a study did not materialize due to initial inactivity. Waiting for the right time to launch it, and the subsequent economic crisis took away any prospect for the success of a form of change that would imply greater financial autonomy.

7.6 Implementing Agency:

The performance of the implementing agencies is rated satisfactory. All of them were effective in managing their respective components. DNV, in particular, was very effective in carrying out the maintenance and rehabilitation components and the delays caused by facts, such as the small bridge contractor market in Uruguay together with a lack of foreign interest in this sector, Uruguay's lengthy procurement procedures, and the resource scarcity, were beyond their control. Similarly, the causes for the delays and shortcomings in the departmental road maintenance program and the capacity building within the Intendencias managed by DIVD are ascribed to the difficult economic situation.

The PCU had adequate financial reporting and auditing systems, and provided accurate and timely information regarding project resources and expenditures, but did not establish a financial management system compatible with LACI disbursement procedures. Rather, the project relied on MTOP's financial system, which was found appropriate. Audit reports prepared by the Tribunal Nacional de Cuentas were adequate and submitted timely. Most of the legal conditions were met on time, with the exception of those mentioned above under section 7.2. The implementing agencies were also efficient in the technical project monitoring, participating in supervision missions and taking the necessary follow-up actions needed after such missions.

7.7 Overall Borrower performance:

The performance of the Borrower overall is rated satisfactory.

8. Lessons Learned

Several lessons can be derived from the implementation of this project. They are summarized below.

Preservation of road assets in a situation of severe economic crisis. As mentioned in the previous sections, Uruguay has managed to conserve its road network relatively well despite the severe economic crisis and the drastic budget cuts in the sector over a number of years. This is the merit of several factors, which include: l Policy of absolute priority to road maintenance over new investments. As shown in section 5.1, during the years when the economic crisis was most acute, DNV drastically decreased its investment expenditure, while it augmented the funds for maintenance at a steady pace, with the exception of 2002. l New performance-based contractual arrangements for road maintenance. The CREMA-type contracts increased the quality of maintenance works and the combination of recurrent maintenance with some rehabilitation works secured a minimum of new investment, which could have been neglected in a similar situation of budgetary drought if only force account maintenance had been used. In addition, they constituted longer-term commitments for DNV (5 years) to which it inevitably had to give priority over new investments. In a way, these contracts became a firewall to protect funding for road maintenance. l Guarantee of a minimum amount of funds to comply with the commitments of the CREMA contracts.

- 22 - Since the Bank loan partly financed the CREMA contracts, a stable financial flow was assured at least for part of the payments. In addition, in order to implement the Bank project in a satisfactory manner, the GOU had a strong incentive to secure the necessary counterpart funds. l Inclusion of the maintenance component as integral part of the project. Although this component was not funded by the Bank loan, its inclusion under the project contributed, similarly as with the CREMA component, to ease the availability of counterpart funds, and kept DNV's focus on overhead and operational cost reductions.

Nevertheless, even this combination of a strict policy of prioritizing maintenance with the other factors could not avoid the slight but progressive deterioration of the roughness index since 2001, which shows that at a certain point in time there is a need for a reasonable amount of more costly periodic maintenance and rehabilitation investments, otherwise the road assets value will inevitably decrease.

Minimum requirements for performance-based maintenance (CREMA) contracts to work successfully. The experience in Uruguay showed that CREMA contracts are powerful instruments to carry out road maintenance and rehabilitation in an efficient and effective way even in a situation of great budgetary pressure. The successful experience of MTOP in Uruguay reinforces the notion that for CREMA contracts to show their real potential, a number of requirements must be given, namely: l Regular up-to-date and accurate information on the state of the road network and definition of realistic service output standards in the light of the current state of the network and the available resources. This is essential to precisely forecast the necessary rehabilitation and maintenance works and estimate the respective costs. While this is fundamental to design good and realistic contracts, it also constitutes the basis on which DNV can be held accountable towards tax payers and the users. l Effective control of contract compliance and good supervision of works. DNV designed an adequate supervision mechanism for the CREMA contracts with an internal supervision team consisting of a manager, two inspectors and an engineer. The two inspectors visited the sites under contract at least twice a week, the engineer at least once and the team manager inspected all most important problems. The team had two or three regular meetings a week to assess the state of the network under contract, discussed the recommendations for the contractors, and analyzed their timely response and the need to apply penalties. In addition, there was a monthly evaluation of representative parts of 10% of the network chosen at random, with 50 m of every km analyzed in detail. This evaluation was carried out by the engineer, the two inspectors and a representative of the contractor, and constituted the basis for the assessment of the compliance with the negotiated service levels and the emission of the monthly payment certificate. The external component of this supervision process consisted in a routine evaluation carried out every four months together with staff from the Advisory Committee, which prepared periodic evaluation reports, and an annual evaluation of 10% of the network together with DNV's Maintenance Department. l Good supervision of all road works. Experience with DNV's CREMA contracts showed that it is essential to thoroughly supervise all new infrastructure works, not only those contracted out under CREMA agreements since original construction defects could hinder an accurate forecast of rehabilitation and maintenance works to be included under a CREMA contract. On the contrary, performance-based maintenance contract may therefore have an important secondary effect on the quality of all new constructions. l Timely start of contract implementation. DNV experienced that delays in starting the execution of the CREMA contracts due to a lengthy procurement process, for example, usually led to changes in existing conditions since DNV stopped its recurrent maintenance on these parts of the network. Consequently the contract indicators had to be revised. l Reasonable contract duration. In Uruguay the average duration of the CREMA contracts was between four and five years, which is the minimum duration generally recommended in literature to reduce the risk of unsatisfactory quality in the rehabilitation works . Longer contracts of about 7-10 years could provide additional incentives to ensure adequate quality of works, planning and equipment of the contractors, but their financing arrangements become more complex. l Securing financing on a pluri-annual basis. Most of the CREMA contracts in Uruguay had been part of the Bank project, which, as mentioned above, guaranteed stable financing for at least part of the

- 23 - commitments and provided an incentive for the GOU to come up with the necessary counterpart funds. Even with this arrangement the execution of one CREMA contract had to be postponed due to budget constraints, and delays occurred in the payment of the local component to contractors. This uncertainty regarding budget allocations is a strong deterrent for the implementation of contractual schemes that depend on credible funding arrangements and the perception of a high risk that the government might not honor its payment commitments, will certainly be reflected in the prices and could jeopardize the success of the instruments. This clearly shows the importance of a more stable financial mechanism and exposes the fragility of ad hoc short-term solutions used in Uruguay during the economic crisis (e.g. assurance by the Ministry of Economy and Finance of regular monthly assignments to cover DNV's obligations, special payment facilities with the Administracion Nacional de Combustibles Alcohol y Portland (ANCAP), payment certificates to pay contractors obligations with government institutions). The urgency of the situation in Uruguay is further underlined by the fact that maintenance by force account constitutes a current expense for DNV, reflected mainly in personnel costs, while the CREMA contracts are treated as investments, which makes them even more prone to annual budget cuts. l Greater financial and managerial autonomy of the contracting agency. The above clearly points to the fact that for DNV to efficiently and effectively manage the whole road network through performance-based contracts in the future it would need greater financial and managerial autonomy. There is a consensus on this, but the current political and economic situation is not favorable for such a transformation.

DNV's greater financial autonomy as way out from the financial crisis in the transport sector? The successful implementation of DNV's reform process would unavoidably have implied some form of financial autonomy and it is rather interesting to speculate if this would have avoided the financial crisis in the sector. The most straightforward way to create an autonomous financing mechanism would have been the creation of a road fund. A recent study based on the information collected by IPTI for its estimate of road user charges in 2001 showed that a road fund constituted by an additional fuels tax of 0.04 US$/l for diesel and 0.10 US$/l for gasoline, a tax on the axle load of heavy goods vehicles of 70 US$/EEq and the toll revenues would allow to largely cover total costs for road management and maintenance. However, the feasibility of such a scheme during the project implementation period seems highly questionable since the transport sector is an important contributor to government revenue from a fiscal point of view. Moreover, the high incidence of indirect road user charges on users' road usage costs constraints the viability of tolling roads, levying higher tolls, or establishing a fee for road usage. Considering also the sharp increase of petroleum and fuel prices during the project period, it is clear that MTOP would have been left with little options.

There is also evidence that road funds are not immune to macroeconomic shocks and that a Ministry of Finance usually finds creative ways of recapturing resources for general budgetary needs. The experience with road funds in Argentina clearly revealed the cyclical political economy dynamics of these funds, originally established to provide stable financing for long term needs, successively eroded, ultimately abolished and then re-established.

In the case of Uruguay, the commitment of the government to maintenance was essential to avoid serious damage to the road assets caused by maintenance neglect, but the current government's pledge to provide adequate funds for road maintenance does not commit succeeding governments. Therefore, in the absence of any viable alternative, the Five-Year Plan could serve as a basis for securing funds for maintenance if more appropriate expenditure categories and performance indicators were used, but the issue of a more stable funding mechanism cannot be deleted from the agenda.

Impact of funding constraints and fiscal policies in the pace of reform implementation. MTOP’s ownership of, and commitment to the outsourcing policies supported by the project were critical to their success at a time of unprecedented economic crisis. The project suggests, however, some interesting lessons regarding the overall impact of government funding decisions on the reform process as it exposes the tension between immediate stabilization needs and better fiscal outcomes. The decline in sector funding, and equally important the uncertainties with regard to future levels of funding, forced MTOP to slow down the implementation of various institutional initiatives that were being tested with

- 24 - promissory results. For example, MTOP could not further expand the micro-enterprise program with former DNV staff and the performance agreements between DNV and some of its maintenance Districts, or launch new CREMA contracts, for all of which there was strong interest among potential participants but unclear ability to meet their funding requirements on a timely basis. Scaling up these results-oriented experiences requires a more stable macroeconomic environment in which the volatility of funding decisions can be kept within reasonable margins.

Moreover, a retrospective look to the way public funding decisions are made in times of fiscal adjustment suggests the existence of implicit disincentives for reform efforts. MTOP had engaged in a substantial reform of the road sector in the mid 90s, which among other things slashed the size of the ministry’s staff through a series of successful initiatives and relied an outsourcing strategy for more cost-effective road maintenance. Outsourcing, however, meant that maintenance expenditure became a "capital expenditure" for MEF, and as such was subject to the much deeper cuts on investment imposed by government across sectors when the crisis hit Uruguay. On the contrary, for its more rigid composition (mostly government salaries and other fixed commitments) current expenditure was in a manner "protected" during the crisis. Put differently, the way adjustments are implemented at times of crisis, i.e. cutting capital investment across sectors, may end up favoring those who had not sought cost-effective reforms and taking a bigger toll on those who have done so.

Technology transfer to Intendencias. The experience with this project sub-component allowed to capture a number of interesting lessons and highlighted a few critical issues to enhance the impact of possible follow-on efforts in this field. These include: l Demand-driven approach tailored to the specific priorities of Intendencias. It resulted that the degree of internalization of the technical assistance recommendations varied among the Intendencias according to the level of interest shown by their respective leaders. This suggests that future technical assistance programs should be demand-driven and tailored to the specific priorities of the Intendencias requesting support, even if such an approach may face some political sensitivities. l Framework of incentives. The successful departmental road maintenance program should be fine-tuned to further its impact on institutional building. This program should be supplemented with an incentive framework that leads the Intendencias to greater efficiency and effectiveness. It could be achieved, for example, by inducing them to focus on key management tools, to adapt cost accounting principles that would also allow for benchmarking among them, to strive for more collaboration, to contribute with their own resources and to shift to outsourcing policies. For the latter DNV is an excellent source of information and knowledge due to its experience with micro-enterprises and other contractual schemes. l Effective representation mechanism and real ownership. The participation mechanisms for the Intendencias and their accountability reporting did not function as originally intended. The Steering Group helped in the definition of the framework for the consultancy work but did not perform the key monitoring role initially contemplated, partly because local representatives did not have a "collective ownership" of the program. Contrary to what was envisaged at appraisal, the "Congreso de Intendentes" did not evolve into a more encompassing body capable of handling the technical and policy dialogue needed to effectively contribute to strengthen Uruguay's decentralization framework, and in this respect there is much room for improvement. l Integrated approach to institutional and financial constraints faced by the Intendencias.The technical assistance would have benefited from a more integrated approach to the institutional and financial constraints faced by the Intendencias. This would, however, have required clarifying the fiscal decentralization framework and addressing the on-going dispute between the Intendencia of Montevideo and the remaining Intendencias around vehicle registration charges, a main source of funding for the Intendencias. Nevertheless, without interfering with the autonomy of the Intendencias, for instance, an investigation into the resources generated and assigned to the sector, the efficiency in their collection, the assignment and use of these resources and the cost of the different operations would already be a very valuable contribution to be considered for a follow-on effort.

- 25 - 9. Partner Comments (a) Borrower/implementing agency:

REPORTE DE FINALIZACION DEL PROYECTO

URUGUAY Ministerio de Transporte y Obras Públicas

SEGUNDO PROYECTO DE TRANSPORTE Préstamo 4395-UR

1. INTRODUCCION

1.1 El Segundo Proyecto de Transporte, fue financiado a través del Préstamo 4395-UR del Banco Internacional de Reconstrucción y Fomento (BIRF) por un monto de u$s 64.500.000 y por Aporte del Gobierno de la República Oriental del Uruguay.

1.2 El Convenio de Préstamo 4395-UR fue suscrito el día 6 de octubre de 1998, entre la República Oriental del Uruguay y el BIRF. En él se designa al Ministro de Transporte y Obras Públicas como representante del prestatario a los efectos establecidos en la Sección 11.03 de las Condiciones Generales aplicables a los convenios de Préstamo.

1.3 El Proyecto fue diseñado en concordancia con los objetivos establecidos en el "Country Assistance Strategy" (CAS) de fecha 25 de junio de 1997 para el sector. El mismo estableció como objetivo el mejorar la competitividad de los sectores productivos en el marco de la integración en MERCOSUR, incrementar la participación privada y racionalizar el gasto público de manera de mantener la estabilidad macroeconómica. A su vez, identifica a la infraestructura como uno de los sectores claves para el logro de estos objetivos.

1.4 La fecha prevista en el Convenio para el cierre del Proyecto, era el 30 de setiembre de 2002. Durante los años 2001 y 2002, toda la región, y nuestro país en particular, deben afrontar una grave crisis económica y financiera que determina que se debieran adoptar severas medidas de restricción en los topes de ejecución. Esto no permitió cumplir con los cronogramas de ejecución previstos inicialmente, por lo que fue necesario solicitar al BIRF una enmienda prorrogando la fecha de finalización hasta el 30 de setiembre de 2003.

1.5 Durante el período de ejecución del Proyecto, el BIRF aprueba 2 reasignaciones de fondos entre las distintas categorías del Préstamo, (10 de julio de 2001 y 23 de diciembre de 2002), solicitadas a efectos de adecuar los fondos disponibles en esos momentos a las necesidades de financiamiento.

1.6 Con fecha 8 de agosto de 2003, es aprobada por el BIRF la última justificación remitida (Solicitud de Retiro de Fondos No. 41), habiendo sido utilizada la totalidad de los fondos asignados.

1.7 Este Informe de finalización del Proyecto ha sido preparado por la Unidad Coordinadora de Proyectos con el Banco Mundial (UCP) del Ministerio de Transporte y Obras Públicas (MTOP), contando con la colaboración de la Dirección Nacional de Vialidad (DNV) y del Instituto de Planificación del Transporte (IPTI) para la preparación de las Evaluaciones Económicas Ex - Post de las obras incluidas en el Proyecto, que las mismas se encuentran archivadas en el sistema IRIS del Banco.

2 OBJETIVOS DEL PROYECTO

2.1 El objetivo general del Proyecto fue incrementar la eficiencia en la provisión de los servicios de

- 26 - transporte, y el mantenimiento de la infraestructura a efectos de mejorar la competitividad de los productos del país, especialmente dentro del MERCOSUR, así como también, racionalizar los gastos del sector para contribuir a la estabilidad macroeconómica. 2.2 Los objetivos específicos fueron establecidos en el Convenio de Préstamo, como los siguientes: (a) rehabilitar y mejorar, de acuerdo a las normas del MERCOSUR, rutas en los corredores de integración y también otras rutas nacionales estratégicas; y reemplazar o reacondicionar puentes, para permitir el tránsito de vehículos mas grandes y mas pesados, y para reducir el costo del transporte entre el territorio del Uruguay y los países vecinos del MERCOSUR. (b) respaldar la política del país de incrementar la participación del sector privado en la rehabilitación y mantenimiento de las rutas nacionales, a través de los contratos basados en los resultados; y (c) fortalecer la administración del sector vial a través de la implementación de: (i) programa de renovación de DNV; (ii) transferencia de tecnología a las Intendencias Departamentales para mantener los caminos rurales de grava; y (iii) programa de seguridad vial.

3 DISEÑO E IMPLEMENTACION

3.1 El Proyecto fue diseñado recogiendo las lecciones derivadas de la implementación del Proyecto de Transporte I, así como también a través de un productivo intercambio de ideas entre las autoridades y técnicos del MTOP y los técnicos del BIRF participantes.

3.2 En particular, se consideraron los siguientes lineamientos para su diseño: (a) mantener el diseño de un proyecto simple, enfocado básicamente en consolidar y apoyar la gestión del subsector carreteras; (b) ajustar el monto del proyecto a la disponibilidad de cupo presupuestal asignado por la Ley de Presupuesto vigente en el momento del diseño (Plan Quinquenal 1995 - 1999) (c) adelantar la realización de los estudios necesarios (factibilidad económica y ambiental, detalles de ingeniería), de forma tal de poder iniciar rápidamente la implementación del proyecto una vez aprobado el Préstamo; (d) complementar los programas que se venían realizando con otras fuentes de financiamiento, asegurando la necesaria coordinación de esfuerzos para el logro de los objetivos de largo plazo del MTOP.

3.3 El nuevo Préstamo, financiaría la Fase I (a ejecutarse entre 1998 y 2000) de un proyecto más amplio, que se concluiría, con una Fase II con todos aquellos subproyectos del Plan Quinquenal que por razones de disponibilidad presupuestal no podrían ejecutarse durante la primera Fase. Este enfoque progresivo se pensaba permitiría atender las contingencias que en materia de cambios en los patrones de demanda de tráfico o deterioro de la red pudieran resultar de otros Proyectos en consideración en el marco del MERCOSUR, o de la reestructuración iniciada en otros modos de transporte.

3.4 Posteriormente, y debido a los rígidos controles presupuestales y de ejecución establecidos por el Gobierno, esta Fase II, quedaría relegada, abocándonos a cumplir con lo previsto para la Fase I solamente.

3.5 Durante la implementación, se realizaron varias enmiendas, ajustando alguno de sus componentes, pero sus objetivos no fueron modificados.

3.6 El Proyecto, a pesar de las restricciones presupuestales y los topes de ejecución imperantes durante el período de su ejecución, tuvo una buena "performance", lo que se demuestra a través del análisis de la evolución de los distintos indicadores de gestión establecidos en el Project Appraisal Document (PAD), muchos de los cuáles han superados los valores previstos.

4 DESCRIPCION DEL PROYECTO

4.1 El proyecto financió 5 componentes, cuya ejecución es analizada al detalle en el punto siguiente: (a) rehabilitación de rutas y restauración de puentes; (b) rehabilitación y mantenimiento de rutas a través de contratos por niveles de servicio;

- 27 - (c) programa de mantenimiento de rutas financiado por la DNV; (d) mantenimiento de los caminos rurales departamentales; (e) administración del sector vial y fortalecimiento institucional.

5 ANALISIS DE LA EJECUCION

5.1 OBRAS

5.1.1. Rehabilitación de rutas

Se planteó la ejecución de 3 tramos de ruta, habiéndose finalmente ejecutado 2: l Ruta 2 : Rodó - Palmitas (35 kms). Este tramo corresponde a la red primaria nacional, y fue incluido debido a que tenía deformaciones importantes lo que configuraba un peligro para el tránsito, especialmente en los días de lluvia (efecto aquaplanning). Este contrato fue ampliado, ejecutándose el tramo Palmitas - Mercedes (30 kms) del cual solo un 25% fue financiado por el BIRF. l Ruta 27 : 36km400 - 56km400 (20 kms). Este tramo perteneciente a la red secundaria y que conectaba con el eje de Ruta 5 en zona forestal, se encontraba en mal estado, siendo imprescindible su rehabilitación. l Ruta 30: 192km00 - Masoller (30.6 kms). Este tramo que conecta a una capital departamental (Artigas) con el eje de Ruta 5 fue incluido por encontrarse en mal estado. A pesar de que la licitación fue adjudicada se postergó su ejecución por las restricciones presupuestales a la inversión El total de rutas rehabilitadas por el Proyecto fue de 85 kilómetros.

5.1.2 Restauración de puentes

Se previó la ejecución de un conjunto de 13 puentes considerados "fusibles" en los corredores primarios de las rutas 3 y 8, mas un puente en la ruta 26. Dentro de este listado de puentes, incluido en la Carta de Implementación, 2 eran nuevos, mientras que el resto eran obras de ensanche y refuerzo de la estructura original:

l Ruta 3 - Arroyos Chapicuy y Carpinchurí. Ensanche y refuerzo. Ejecutados l Ruta 3 - Arroyo Guaviyú. Puente nuevo. Ejecutado con financiamiento BID l Ruta 3 - Arroyo Sauce. Ensanche y refuerzo. Ejecutado con financiamiento BID. l Ruta 3 - Arroyo Grande. Ensanche y refuerzo. Ejecución postergada. l Ruta 3 - Arroyo San Gregorio. Puente nuevo. Ejecutado. l Ruta 8 - Arroyo Marmarajá I. Ensanche y refuerzo. Ejecución postergada. l Ruta 8 - Arroyo Marmarajá II. Ensanche y refuerzo. Ejecutado. l Ruta 8 - Arroyo Gutiérrez I. Ensanche y refuerzo. Ejecución postergada. l Ruta 8 - Arroyo Gutiérrez II. Ensanche y refuerzo. Ejecución postergada. l Ruta 8 - Arroyo Sarandí. Ensanche y refuerzo. Ejecutado con Contrato Crema II y III. l Ruta 8 - Arroyo Sauce. Ensanche y refuerzo. Ejecutado con Contrato Crema II y III. l Ruta 26 - Arroyo Conventos. Ensanche y refuerzo. Ejecutado.

De los 13 puentes incluidos originalmente, 7 se ejecutaron con financiamiento del Proyecto; 2 con financiamiento del Banco Interamericano de Desarrollo (BID) y los 4 restantes fueron postergados en su ejecución, aunque posteriormente, todos fueron incluidos en la Megaconcesión, actualmente en ejecución.

5.1.3 Contratos de Rehabilitación y Mantenimiento (CREMA)

5.1.3.1 Se trata de contratos por niveles de servicio para una determinada red de carreteras, y durante un cierto período de tiempo, en general de 4 a 5 años, realizados entre la DNV y un contratista privado.

Si bien se analizaron modelos de otros países para la elaboración de los contratos CREMA, éstos fueron

- 28 - reelaborados y adaptados por los técnicos de la DNV para a la situación del Uruguay.

El contratista se obliga a llevar a cabo todas las tareas de rehabilitación y mantenimiento, desde el diseño y la programación de las tareas, hasta la ejecución de las mismas, de acuerdo a los niveles de servicio establecidos a priori.

La fiscalización y el mantenimiento de estos contratos se lleva a cabo a través de la Gerencia de Conservación de la DNV, dónde se crea un "Órgano de Control" a tales efectos.

5.1.3.2 La DNV, ya estaba experimentando con un primer Proyecto Piloto de Rehabilitación y Mantenimiento (PPRM) en el departamento de Canelones con financiamiento del BID.

5.1.3.3 Originalmente se previó, dentro de este componente, el financiamiento de obras de rehabilitación y/o mantenimiento de aproximadamente 635 kilómetros de rutas nacionales listadas en la Carta de Implementación a través de 3 contratos CREMA.

Posteriormente, y a efectos de un más ágil y eficiente cumplimiento de los objetivos del Proyecto, y para ayudar al país en la difícil situación económica y financiera que se encontraba, se introdujeron al financiamiento 3 contratos más.

Contratos originales: l CREMA en zonas II y X (red de 240 kms). Comprendía 29,1 kms de obra inicial de rehabilitación. El contrato de mantenimiento era por cinco años. l CREMA en zonas II y III (red de 233 kms). Comprendía 24 kms de obra inicial de rehabilitación. El contrato de mantenimiento era por cuatro años. l CREMA en zona VII (red de 145 kms). Comprendía 30 kms de obra inicial. El contrato de mantenimiento era por cuatro años.

Contratos incluidos con posterioridad: l CREMA en zona IV (red de 207 kms). Comprendía 40,2 kms de obra inicial. El contrato de mantenimiento era por cuatro años. l Contrato de Accesos a Montevideo (31 kms). Contrato de mantenimiento de estructuras y pavimento de hormigón, así como de la cartelería y de zona parquizada. Este Contrato se introdujo retroactivo a enero de 2002. l CREMA en zona V (red de 267 kms). Sin obra inicial. Posteriormente a la inclusión en el proyecto, se decidió la postergación de su ejecución debido a las restricciones presupuestales vigentes.

Mediante estos contratos se rehabilitaron 123 kms de rutas, y se mantuvieron por niveles de servicio 856 kms. de carreteras.

5.1.3.4 A la finalización de los contratos originales, algunos fueron prorrogados mediante ampliaciones y se incluyó su financiamiento dentro del Proyecto de Transporte de Productos Forestales, mientras que otros tramos se incluyeron en la red a la Megaconcesión.

5.1.3.5 Esta forma nueva de contrato contó con gran aceptación por parte de BIRF al ser introducidos en el Proyecto, dado los buenos resultados que estaba experimentando en la región, pero la implementación llevada a cabo en nuestro país superó incluso las expectativas más optimistas, en cuánto a los resultados obtenidos.

5.1.4 Programa de Mantenimiento de la DNV

5.1.4.1 La DNV experimentó un progreso muy importante en el alcance de su objetivo de mejorar la gestión del mantenimiento con la consolidación de 2 sistemas fundamentales a tales efectos: (a) el Sistema de Administración del Mantenimiento (SAM), que es un sistema de administración de recursos y de actividades de mantenimiento realizadas por administración alimentadas por Bases de Datos de las todas las zonas de

- 29 - la DNV, y (b) el Sistema de Planificación del Mantenimiento (SIPLA).

5.1.4.2 Del análisis de resultados del SAM se deduce que el gasto directo de mantenimiento fue disminuyendo en monto pero ha sido mayor en relación por kilómetro de red atendida.

5.1.4.3 La productividad de las actividades se incrementó en forma sustantiva con respecto a las cuatro actividades testigo que se tomaron para el Proyecto.

El siguiente cuadro ejemplifica las metas de productividad propuestas a principios del Proyecto hasta el año 2000 y las alcanzadas a fines de 2002, las que fueron ampliamente superadas, si bien también influyó la devaluación del peso respecto al dólar de ese año.

1998 1999 2000 2002 Bacheo c/mezcla 207 190 180 84,53 asfáltica. u$s/m3 u$s/m3 u$s/m3 u$s/m3 Sellado peladuras 1.3 u$s/lt 1.2 u$s/lt 1.1 u$s/lt 0.75 u$s/lt Corte de pasto 69.3 65.0 60.0 33.37 u$s/ha u$s/ha u$s/ha u$s/ha Sellado de fisuras 1.7 u$s/lt 1.6 u$s/lt 1.5 u$s/lt 0.95u$s/lt

5.1.4.4 Iniciado durante la vigencia del Proyecto de Transporte I, y continuando en éste, la DNV experimenta un cambio sustancial en cuánto a su rol en el mantenimiento de las carreteras.

Mediante la utilización de diferentes instrumentos: concesiones, contratos de rehabilitación y mantenimiento, contratos con microempresas, la DNV ha reducido su participación en el mantenimiento por administración desde un 100% en 1996, a un 55% en el 2003.

5.1.4.5 Los cambios en las formas de gestión del mantenimiento en la DNV, se visualizan en los gráficos siguientes:

MODOS DE GESTION DE MANTENIMIENTO AÑO 2001

DNV por administración

23% Concesión

Mantenimiento 14% 58% contratado Microempresas 5%

MODOS DE GESTION DE MANTENIMIENTO AÑO 2003

DNV por administración

15% Concesión 15% Mantenimiento 55% Contratado 10% Microempresas 5% Megaconcesión

Se toman como ejemplos el año 2001, que es cuando se encuentran en plena vigencia todos los contratos CREMA y de microempresas y el año 2003 que es cuando ya se encuentra en plena vigencia la Megaconcesión (punto 5.2.2.4.).

- 30 - De ambos gráficos se deduce que si bien la Megaconcesión es un gran aporte para la tercerización del total de la red, trajo consigo un descenso de la red de microempresas y de contratos CREMA.

5.1.5 Programa de Seguridad Vial

5.1.5.1 El programa incluía originalmente 2 componentes: l Demarcación y señalización de rutas l Plan Piloto en el área de Punta de Rieles sobre la ruta 8, consistente en verificar la efectividad de las medidas de bajo costo, para incrementar la seguridad vial de las rutas que pasan a través de las áreas urbanas, incluyendo, luego de ello, una evaluación de tal programa piloto.

5.1.5.2 El componente de demarcación y señalización se llevó a cabo con éxito superando largamente los resultados previstos. Se cubrieron un total de 3.879 kms de carreteras en todo el país.

5.1.5.3 Los indicadores de progreso, programados y al fin de Proyecto, se muestran en el cuadro siguiente:

1998 1999 2000 Fin de Proyecto Km de carreteras con demarcación horizontal y/o vertical Programado 650 1850 2500 2500 Real 430 1653 2895 3879

5.1.5.4 En cuánto a la ubicación del Plan Piloto previsto, éste fue sustituido por otro en un tramo de la vieja Ruta 1 en la zona de Rincón de la Bolsa, pero debido a las restricciones presupuestales y la priorización de las obras, no se ejecutó.

5.1.6 Mantenimiento de la Caminería Rural Departamental

5.1.6.1 Este programa se inicia con el Proyecto de Transporte I y ha sido objeto de sucesivas mejoras a lo largo de los años, adaptándolo a las necesidades de las Intendencias de nuestro país.

El objetivo del programa, estipulado en el Convenio que firman cada año las Intendencias con el MTOP, es mejorar la calidad del servicio de la red departamental afianzando la cultura del mantenimiento regular de la red, y fortalecer la capacidad institucional de las Intendencias para el mantenimiento sostenible de su red.

5.1.6.2 La red cubierta anualmente es de 9.000 kms de caminos rurales departamentales mas las obras de arte, lo que cubre aproximadamente un 33% de la red vial total departamental.

5.1.6.3 El cumplimiento del programa siempre ha sido altamente satisfactorio, y promedialmente el total ejecutado por año supera el 92%.

5.2 ADMINISTRACIÓN DEL SECTOR VIAL

5.2.1 Transformación interna de la DNV

5.2.1.1 La DNV, responsable de la administración del sector vial del país se abocó a partir del año 1995 a llevar a cabo una serie de transformaciones importantes en su estructura. Mejorar la calidad del gasto, aumentar la eficiencia y priorizar la inversión frente al gasto, son algunos de los objetivos planteados.

5.2.1.2 Estos objetivos, incluidos en el Plan de Reforma del Estado del quinquenio, se enmarcaron dentro de la Ley de Presupuesto involucrando al sector privado en el logro de los mismos. Los cuatro puntos principales de este Plan eran: (i) integración efectiva del país al MERCOSUR; (ii) mejora de la competitividad de productos uruguayos (iii) potenciar las ventajas comparativas de cada región del país (iv) optimizar la infraestructura existente en el país.

- 31 - 5.2.1.3 Una de las metas de la DNV para su reestructura consistió en la reducción del número de funcionarios, que se efectuaría mediante tres vías: (a) no renovación de contratos; (b) incentivos para el retiro y (c) formación de microempresas.

PERSONAL DE LA DNV

4000 3500 3000 2500 2000 Funcionarios 1500

Funcionarios 1000 500 0 1995 1996 1997 1998 1999 2000 2001 2002 2003 Años

Es destacable en la gráfica, que la disminución importante de funcionarios de la DNV coincide en el tiempo. Con la creación y puesta en marcha de las microempresas (años 1997 y 1998) y con la tercerización del mantenimiento de la red.

5.2.2 Tercerización del mantenimiento

5.2.2.1Microempresas Este emprendimiento se instrumentó con la base de la Ley 14.411 de agosto de 1995, consolidándose en el año 1997 al influjo de algunos jefes de zona de DNV.

Esta nueva modalidad consistió en la contratación en forma directa, en primera instancia, de empresas formadas por ex funcionarios de mantenimiento de la DNV los que al retirarse se les otorgaba un incentivo económico, y además se les asesoraba legal y empresarialmente.

Se trataba de contratos para el mantenimiento ordinario de tramos de la red secundaria y terciaria, y contratos de señalización y alumbrado, los que se realizaban a cambio de una cuota básica por tarea y por kilómetro. (bibliografía "De peones a empresarios" Juan Echeverz Año 1998).

Las microempresas en el año 2001 administraban una red de 1914 kms.

5.2.2.2 Contratos tipo CREMA A la puesta en funcionamiento de la mayoría de las microempresas, se le sumaron los contratos tipo CREMA, mayoritariamente firmados entre los años 1998 y 1999. Se mantuvieron, bajo esta modalidad de contrato, aproximadamente 1240 km. de la red.

5.2.2.3 Concesiones de obra pública

A la concesión existente en la Ruta Interbalnearia (del año 1993) se le sumaron 3 tramos mas en las Rutas 1, 5 y 8, totalizando aproximadamente 429 kms concesionados.

5.2.2.4 Megaconcesión

Con fecha 5 de octubre de 2001, el MTOP suscribe con la Corporación Nacional para el Desarrollo (CND), un convenio para la ejecución de obras y proyectos por el sistema de "Concesión de Obra Pública", y para la cooperación y asistencia técnica, semitécnica y especializada, denominado "Megaconcesión".

La Megaconcesión es una solución que se encontró ante la imposibilidad de cumplimiento de la intención de la DNV de transformarse en una agencia independiente, y que muestra el fuerte interés de la misma en

- 32 - el logro de una eficiente gestión en los corredores principales. A su vez, se consideró un instrumento idóneo para superar la escasez de los recursos públicos que impedían llevar adelante obras de infraestructura imprescindibles para evitar el deterioro de la red vial nacional.

A través de este convenio, las partes " acuerdan dar y recibir respectivamente, en régimen de concesión, los estudios, proyectos, construcción, mantenimiento, operación y explotación de las obras públicas de infraestructura que se indican en el Anexo I ..."

Se trata de una concesión por 15 años, para la gestión de l272 kms. de carreteras primarias (51% de la red primaria y 15% de la red nacional) y 38 puentes (17% de los puentes de la red nacional.

Es una concesión de costos compartidos: es gratuita (no paga canon) y parte de los costos son asumidos por el concedente.

En diciembre de 2002, se inicia la ejecución de las obras.

El concesionario cuenta, para financiar sus obras, con las siguientes fuentes de financiación: (a) ingresos generados por los peajes, (b) un pago fijo por kilómetro mantenido, (c) un ingreso mínimo garantido por el concedente, limitado en monto y duración, para cubrir posibles disminuciones de los ingresos por peajes.

5.2.3 El proceso de transformación en cifras

5.2.3.1 Para poder interpretar este proceso descrito, habría que considerar la evolución de la composición del gasto durante el período de ejecución del Proyecto:

1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 Administración 6,315 8,323 8,282 10,908 16,341 13,250 11,142 9,554 5,081 5,212 Fortalecimiento Institucional 1,196 730 795 889 1,559 1,717 1,047 1,949 1,043 758 Mantenimiento por Administr. 22,959 25,628 28,587 31,367 30,875 26,493 18,247 18,504 12,483 13,169 Mantenimiento contratado - - - - 1,989 6,067 28,660 28,329 15,564 7,593 Inversión nueva 45,170 46,511 59,869 72,193 78,042 90,240 40,229 39,233 15,233 37,783 75,640 81,192 97,533 115,357 128,806 137,767 99,325 97,569 49,404 64,515

La tabla muestra cómo varió el nivel y composición del gasto de la DNV entre los años 1994 y 2003, alcanzando un nivel máximo en el año 1999 (u$sm 137.767), frente a un nivel de u$sm 64.515 en el año 2003. Es de destacar el importante incremento de la inversión nueva producido durante el año 2003, el que fue motivado fundamentalmente por el inicio de la Megaconcesión

5.2.3.2 Los gráficos que siguen muestran los valores representados en esta tabla anterior y la participación de cada uno de los tipos de gastos:

- 33 - 160.000 140.000 120.000 Administración 100.000 Fortalecimiento Institucional 80.000 Mantenimiento por Administ. 60.000 Mantenimiento contratado 40.000 Inversión Nueva 20.000 - 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003

100%

80% Administración

60% Fortalecimiento Institucional

40% Mantenimiento por Administr. Mantenimiento contratado 20% Inversión nueva 0% 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003

5.2.3.3 El incremento de los recursos durante los años 1996 a 1999, permitió mejorar la condición de la red e incrementar el patrimonio vial, el que ha presentado la evolución que se muestra en el siguiente gráfico:

EVOLUCION DEL PATRIMONIO VIAL

2300 2250

Millones de U$S 2200 2150 2100 Patrimonio Actual 2050 2000 Patrimonio Medio 1950 1900 1850 1800 1994 1995 1996 1997 1998 1999 2000 2001 2002

- 34 - 5.2.4 Asistencia Técnica

El Proyecto financió dentro de este componente, las siguientes consultorías: l Sistema de Planificación (SIPLA) (saldo sin financiar luego de finalizado el Proyecto de Transporte I), l Programa de Fortalecimiento Institucional para las Intendencias Municipales l Estudios complementarios para el Puente Colonia-Buenos Aires.

5.2.4.1 SIPLA (Sistema de Planificación) El Proyecto financió la etapa final de esta consultoría, que se implementó en la Gerencia de Programación de la DNV, y que constituyó una herramienta muy importante en la fase de elaboración del Plan Quinquenal 2000-2004.

El SIPLA fue alimentado por datos de relevamientos y de sistemas de gestión aportados por otras consultoras bajo supervisión de distintas gerencias, tales como la evaluación superficial y rugosidad, deflectometría, gestión de señalización, singularidades de gestión de estructuras, conteos de tránsito y análisis de accidentes.

5.2.4.2 Fortalecimiento Institucional a las Intendencias Municipales

Esta asistencia técnica tenía como objetivo el desarrollo de la capacidad institucional de las 18 intendencias del interior del país, a efectos de un mantenimiento sostenible de sus redes de caminería. Se buscaba también la transferencia de "know how" para la organización, planeación, ejecución y control de los trabajos de mantenimiento, tomando como base la propia experiencia de la DNV o las experiencias exitosas de otras Intendencias.

La consultora seleccionada basó su trabajo en la realización de un "Diseño de un modelo de planificación, ejecución y control del mantenimiento vial en las Intendencias Municipales del interior del país".

Del diagnóstico realizado por la consultora se denota la gran debilidad institucional que afecta la gestión vial de muchas Intendencias.

Se pone en evidencia también que el Departamento de Infraestructura Vial Departamental (DIVD) de la DNV debe prestar su apoyo y su coordinación (pese a su falta de atribuciones frente a los gobiernos locales) para que se puedan implementar varias de las tareas de gestión recomendadas por la consultoría.

De las visitas realizadas a distintas Intendencias durante las misiones de supervisión, se puso de manifiesto su conformidad con la asistencia recibida especialmente en lo referido a laboratorios, supervisión y operación.

5.2.4.3 Puente Buenos Aires - Colonia

Se financiaron con el Proyecto los estudios complementarios de navegación y gálibos, llevados a cabo debido a la preocupación existente acerca de las implicancias del puente en la navegación del río.

5.2.5 Otros aspectos institucionales derivados del Proyecto

5.2.5.1 Transferencia de tecnología a los departamentos La DIVD continuó durante todo el período desarrollando un programa para el fortalecimiento de las Intendencias en administración de talleres y en gestión de repuestos.

Ya en los Convenios para el mantenimiento de la caminería rural departamental firmados en los años 2002 y 2003, se incluyó el apoyo para mejorar la gestión de los equipos viales, el que se dividió en dos áreas: (a) Capacitación, que estuvo a cargo de la Gerencia de Conservación de la DNV, e incluía capacitación en maquinaria, mecánica y jefe de talleres; y (b) Repuestos, que se basa fundamentalmente en la identificación de la compra de repuestos y en el mecanismo administrativo de compra. La etapa para la

- 35 - compra de repuestos consta de mantenimiento ordinario, de mantenimiento extraordinario y de reparaciones mayores o compra.

Respecto al área de Inventarios, este tema aún no se ha podido instrumentar en los convenios.

5.2.5.2 Actividades del IPTI

Entre las actividades realizadas por el IPTI durante la ejecución del Proyecto, se destacan las siguientes: l Actualizaciones de las bases de datos y estimación de los cargos a los usuarios. La corrida del modelo con datos del 2001 fue afectada por el bajo nivel de las entradas. Si bien los ingresos cubrieron los gastos, se continúa con el desequilibrio de los aportes entre los vehículos livianos y los pesados. La corrida del modelo con datos del 2002 fue realizada utilizando datos promedio del período 1997 - 2001, dada la aguda disminución de la inversión y la fuerte devaluación del tipo de cambio. l Colaboró en los estudios de factibilidad de rutas para determinar su inclusión en la Megaconcesión. l Tiene en ejecución un estudio para estimar los beneficios que reciben los usuarios de las rutas de la Megaconcesión en relación a los peajes que se cobran. l Efectuó la evaluación económica ex-ante y ex-post de los puentes incluidos en el Proyecto.

6. EJECUCIÓN FINANCIERA Y DESEMBOLSOS DEL PROYECTO

6.1 La tabla que sigue muestra el detalle de los componentes ya analizados financiados dentro del Proyecto, discriminando la inversión final entre el aporte del BIRF y el aporte del Gobierno (montos en u$s):

- 36 - INVERSION FINAL BIRF Gobierno TOTAL 1, OBRAS 1.1. Rehabilitación de rutas Ruta 2 - Rodó – Palmitas (+ Palmitas – Mercedes) 4.559.676 2.132.124 6.691.800 Ruta 27 - Progresiva Km.36,4 a Km.56,4 1.362.797 671.864 2.034.661 Sub Total 5.922.473 2.803.988 8.726.461 1.2. Restauración de puentes Puentes S/Arroyos Chapicuy y Carpinchurí (Ruta 3) 638.841 299.026 937.867 Puente sobre Arroyo San Gregorio (Ruta 3) 1.174.099 555.484 1.729.583 Puente sobre Arroyo Marmarajá II (Ruta 8 Km.174) 347.755 195.544 543.299 Puente sobre Arroyo Conventos (Ruta 26) 627.733 322.162 949.895 Sub Total 2.788.428 1.372.216 4.160.644 1.3. Programa de Seguridad Vial Demarcación de pavimento en Zonas IV y V 111.663 48.025 159.688 Demarcación de pavimento en Rutas Nacionales 267.934 115.130 383.064 Demarcación : Zonas Noreste, Este y Sur 120.443 51.618 172.061 Demarcación: Zonas Norte, Litoral y Centro 266.420 121.971 388.391 Demarcación de Pavimento en caliente 385.746 165.320 551.066 Señalización vertical: Zona Noreste, Este y Sur 370.231 158.670 528.901 Señalización vertical: Zona Norte, Litoral y Centro 326.371 139.875 466.246 Dispositivos de señalización vial 175.441 75.189 250.630 Demarcación en frío en Zonas Noreste, Este y Sur 236.413 101.320 337.733 Suministro de dispositivos en Rutas red primaria 273.248 117.252 390.500 Demarcación en frío: Zonas Norte, Litoral y Centro 332.880 142.642 475.522 Sub Total 2.866.790 1.237.012 4.103.802 TOTAL CATEGORIA 1A 11.577.691 5.413.216 16.990.907 1. OBRAS (Continuación) 1.4. Contratos CREMA CREMA en Zonas II y X 8.525.013 3.695.408 12.220.420 CREMA en Zona VII 6.557.571 3.116.259 9.673.830 CREMA en Zonas II y III 6.437.640 2.831.823 9.269.463 CREMA en Regional IV 6.393.715 3.406.184 9.799.899 Contrato de Accesos a Montevideo 891.691 382.153 1.273.845 TOTAL CATEGORIA 1B 28.805.630 13.431.827 42.237.456 1. OBRAS (Continuación) 1.5. Mantenimiento Caminos Departamentales 23.060.135 9.880.276 32.940.411 TOTAL CATEGORIA 1C 23.060.135 9.880.276 32.940.411 2. CONSULTORIAS Y CAPACITACION Fortalecimiento Institucional de las Intendencias 269.494 115.497 384.991 Planificación/Gestión Mantenimiento de la DNV (SIPLA) 39.757 17.038 56.795 Estudios complementarios Puente Bs.As.-Colonia 102.293 43.841 146.134 TOTAL CATEGORIA 2 411.544 176.376 587.920 Fee 645.000 0 645.000 TOTAL 64.500.000 28.901.694 93.401.694

- 37 - 6.2 El avance financiero del proyecto, en comparación con el avance programado, se muestra en el cuadro siguiente (montos en u$s):

Año Gobierno BIRF Total Invertido Total % Avance % Avance % % por año Invertido Programado Reprogramado Avance Avance acumulado Real Real 1999 28.118.108 25.049.937 53.168.045 53.168.045 39.46 38.84 2000 21.076.971 18.777.109 39.854.080 93.022.125 80.31 67.95 2001 20.435.614 18.205.735 38.641.349 131.663.47 97.44 96.17 5 2002 1.758.963 1.567.029 3.325.992 134.989.46 99.53 98.60 98.60 6 9/2003 1.010.446 900.189 1.910.636 136.900.10 100.00 100.00 2

6.3 Durante el período de ejecución del proyecto, la DNV debió afrontar una marcada disminución de su nivel de inversión, motivada fundamentalmente por las severas restricciones presupuestales y los topes de inversión establecidos por las autoridades económicas.

6.4 Como forma de mitigar estos efectos, y contribuir al cumplimiento de los objetivos del proyecto en el tiempo previsto, en enero de 2003, se realiza una reasignación de los fondos asignados al préstamo, reforzando la categoría 1B, contratos CREMA, y se incorpora un nuevo contrato "Accesos a Montevideo"

6.5 De esta manera, y tal como lo demuestran los valores expuestos anteriormente, la disminución en el nivel de inversión no se vieron reflejadas en el proyecto, debido a que las obras financiadas en él fueron consideradas prioritarias y su ejecución se mantuvo durante el período.

6.6 Desembolsos estimados y desembolsos reales (u$sm):

1999 2000 2001 2002 2003 Estimado PAD anual 8.8 33.3 19.4 2.7 0.3 Estimado PAD acumulado 8.8 42.1 61.5 64.2 64.5 Real 11.5 34 52.9 62.2 64.5 % Real sobre Estimado 131 81 86 97 100

Fecha del último desembolso: 8 de agosto de 2003

120

100

80 Programado 60

40 Real

20 Reprogramado 0

- 38 - 7. DESEMPEÑO DEL BIRF

7.1 El vínculo con el BIRF, a través de los técnicos que han participado en los distintos Proyectos, ha proporcionado al país importantes aportes en el desarrollo de la Política de Transporte.

7.2 El BIRF siempre ha participado aportando su vasta experiencia, y ha demostrado, en todo momento, gran receptividad y flexibilidad, sobre todo, en aquellos momentos en que se le requirieron cambios o ajustes en diferentes componentes del Proyecto a efectos del logro de los objetivos establecidos en el mismo.

7.3 En todas las etapas del proyecto, desde la identificación y preparación, la confección del PAD y la supervisión realizada al mismo, la gestión del BIRF ha sido sumamente satisfactoria, y ha resultado un gran apoyo a la gestión. 7.4 Durante la preparación y ejecución del proyecto, se realizaron 14 misiones de supervisión, todas ellas integradas por técnicos altamente calificados, lo que junto con la decisión del gobierno de priorizar las obras incluidas en el proyecto, colaboró en el éxito final del mismo.

8. DESEMPEÑO DEL PRESTATARIO

8.1 A pesar de la tradición de Uruguay de ser un firme pero lento ejecutor de los proyectos del BIRF, en este caso ésta no ha sido la situación. En efecto, tal como quedara expuesto en el punto 6 del presente informe, la ejecución de este proyecto fue realizada, en concordancia con lo previsto en las etapas de preparación del proyecto.

8.2 El proyecto fue diseñado teniendo en cuenta las reales necesidades de la DNV, conjuntamente las posibilidades de ejecución de la misma, teniendo en cuenta la situación económica y financiera del país.

8.3 Se plantearon objetivos y metas realistas que se pudieran cumplir en el período de ejecución previsto inicialmente, teniendo en cuenta las condiciones macroeconómicas imperantes.

8.4 La UCP cumplió con sus funciones de forma totalmente satisfactoria, siendo importante su rol en el relacionamiento entre el BIRF y las distintas entidades involucradas en el proyecto: DNV, IPTI, y otros.

8.5 Se presentaron al BIRF semestralmente los informes de seguimientos requeridos, incluyendo información tanto de la ejecución física como financiera de los distintos componentes del proyecto, así como también la evolución de los indicadores de gestión estipulados. 8.6 En cuánto a la presentación de los Informes de Auditoría de los Estados Financieros elaborados por el Tribunal de Cuentas de la República, sólo el primer año fue efectuada con un pequeño retraso, habiéndose tomado inmediatamente las medidas correctivas necesarias para subsanar este inconvenientes, y para las posteriores presentaciones, las mismas fueron realizadas en tiempo y forma.

9. EVALUACION DE LOS RESULTADOS

9.1 La DNV experimentó, durante la vigencia del Proyecto, un intenso proceso de transformaciones estructurales, que ha sido apoyado, como factor muy importante, por el Segundo Proyecto de Transporte.

9.2 La participación del sector privado en la gestión de la red vial ha sido fundamental para el logro de las transformaciones planteadas.

9.3 El Proyecto tuvo una ejecución altamente satisfactoria, como consecuencia de un diseño adaptado a priori a los requerimientos y capacidades de la DNV.

9.4 A pesar de las restricciones presupuestales y de ejecución durante el período de vigencia del Proyecto, el mismo demostró tener la flexibilidad necesaria para adaptarse a esta situación, sin generar un atraso

- 39 - significativo en los cronogramas previstos de ejecución y desembolsos.

(b) Cofinanciers:

(c) Other partners (NGOs/private sector):

10. Additional Information

- 40 - Annex 1. Key Performance Indicators/Log Frame Matrix

Outcome / Impact Indicators: 1 Indicator/Matrix Projected in last PSR Actual/Latest Estimate SECTOR-RELATED CAS GOAL SECTOR-RELATED CAS GOAL

* Average network roughness remains below * Average network roughness (m/km IRI) was The actual status is the same as the one an IRI of 3.2 and the percentage of national 3.4 and the percentage of national roads (in included in the last PRS for all roads with IRI above 4.5 not to exceed 25%. km) with an IRI above 4.5 was 15%. outcome/impact indicators. * Transit of freight vehicles meeting Mercosur * All critical bottlenecks removed or in the standards enabled on three main international process of being removed under the road corridors. Megaconcession. * Maintenance of not less than 50% of the * Maintenance of 3599 km of the national national road network (about 4000 km) road network carried out by the private sector carried out by the private sector under under various contractual arrangements. If various contractual arrangements. the Megaconcession that embraces 1,272 km of the road network is added, this target is largely exceeded.

PROJECT DEVELOPMENT OBJECTIVE PROJECT DEVELOPMENT OBJECTIVE

* Share of national roads exceeding * Share of national roads exceeding permissible roughness levels lowered from permissible roughness levels lowered from 15 percent in 1997 to 8 percent. 15 percent in 1997 to 12.92 percent. * Transit of trucks loaded up to Mercosur All critical bottlenecks removed or in the standards (45 tons) permitted along Routes process of being removed under the 2, 3, 8 an 17. Megaconcession. * Use of performance based contracts * Use of performance based contracts extended from about 620 km in 1997 to about extended from about 620 km in 1997 to 3,599 2,840 km. km. * Working groups established within DNV will * The working group was established and have evaluated options to modernize DNV's even if the study to evaluate options for institutional structure and its operations, DNV's renewal has not yet been carried out, strengthen DNV's human resources, and the group contributed to the design of the adopt commercial and user-oriented Megaconcession and other schemes to practices. improve the institutional and financial capacity. * Preparation and public dissemination of an * DNV participates in a pilot coordinated by annual report on DNV operational and OPP-CEPRE under which it has to provide financial performance. information on the following three parameters to measure effectiveness, efficiency and service quality: value of road assets; percentage of overhead / intermediary cost over investment expenditures; and condition of the network. DNV also produces annually a number of reports such as "Management Indicators", "Management Report" and "Management of the Road Network". DNV also has a website www.dnv.gub.uy/index.html. * At least 66% of all-weather gravel roads in * 50% (estimate). the departments receive quality maintenance regularly.

- 41 - Output Indicators: 1 Indicator/Matrix Projected in last PSR Actual/Latest Estimate * 146 km of national roads rehabilitated under * 85 km of national roads rehabilitated under The actual status is the same as the one the project. the project. included in the last PRS for all output indicators. * 13 bridges reinforced, widened or replaced. * 9 bridges reinforced, widened or replaced. * 635 km of roads rehabilitated under * 856 km of roads rehabilitated under CREMA-type contracts. CREMA type contracts. * 1855 km of roads maintained through * 2,743 km of roads maintained through performance-based contracts funded by performance-based contracts funded by DNV. DNV. * Fully operational strategic planning tools * SAM and SIPLA, the operational planning (MMS, HDM-based Integrated Planning tools to manage road maintenance by System) within DNV to manage road contract and force account, are fully maintenance by contract and force account operational and the performance-based and prepare a performance-based Five-Year Five-Year Plan prepared. Plan. * Systematic performance monitoring under Target exceeded very early in the project MMS resulting in at least 10 percent increase cycle with appraisal values exceeded by in the productivity of four selected force between 19 to 50% already in April 1999. account activities from average targets in 1997. * Working groups have carried out related * The working group was established and studies, study tours, and technical even if the study to evaluate options for assistance programs, and analyze and DNV's renewal has not yet been carried out, evaluate options for DNV renewal. the group contributed to the design of the Megaconcession and other schemes to improve the institutional and financial capacity. * Annually 1,500 km of departmental roads * Re-gravelling over the period 1998 - 2002: re-gravelled and 9,500 km maintained to 5,511 km: Maintenance over the same satisfactory standards. period: 41,025 km. * Standards and procedures for planning, * Standards and procedures developed operation and maintenance of departmental through the technical assistance. roads recommended for each department, and implemented in at least two departments. * Detailed inventory of road maintenance * Started in June 2000 with the final report equipment and actions recommended for delivered in May 2001. each department to improve management and productivity of equipment fleets and organization and operation of workshops. * Road maintenance staff in the departments * Training completed at the end of December trained to carry out improved processes. 2000. * Guidelines designed for departments to * Study completed on June 30, 2000. maintain urban roads and streets. * Steering Group established with the * The Steering Group was established and participating Intendencias to monitor and operated during the consultancy study, but its evaluate the transfer of technology to the actions were limited. departments. * 2,500 km of roads to have pavement * 3,879 km of roads have pavement markings markings and road signs to meet Mercosur and road signs to meet Mercosur standards. standards. * Pilot for road safety improvement of routes * The pilot has not been carried out. in urban areas carried out and evaluated.

1 End of project

- 42 - Progress Indicators to Evaluate Project Implementation and Achievement of Development Objectives Performance Indicators Cumulative Progress by the end of year Progress on 1998 1999 2000 March 31, 2003 (1) Output Indicators required to achieve Development Objectives: o Km of national roads rehabilitated under the Project: 0 km 35 km 146 km 85 km (2) o Number of bridges reinforced, widened, or replaced: 0 bridges 5 bridges 13 bridges See modified indicators o Km of roads rehabilitated under CREMA-type contracts: 0 km 84 km 84 km 123 km executed (3) o Km of roads rehabilitated and maintained to standards under 0 km 635 km 635 km 856 km (3) CREMA-type contracts: o Km of roads maintained through performance-based 1,152 km 1,740 km 1,855 km 2,743 km (4) contracts funded exclusively by DNV: o Km of departmental roads re-graveled: 1,500 km 3,000 km 4,500 km 5,511 km (5) o Km of departmental roads maintained to satisfactory 9,000 km 18,000 km 28,500 km 41,025 km (6) standards under the Project: o Km of roads that have pavement markings and/or road signs 650 km 1,850 km 2,500 km 3,879 km (7) improved to Mercosur standards: o Pilot for road safety improvement implemented on Route 8 Works completed by August 31, 1999 Change of area for the at Punta de Rieles: Pilot evaluated by March 31, 2000 Pilot o Strategic planning tools (SAM, SIPLA) and integrated Consulting contracts for SAM/SIPLA Both delivered and information and performance systems operational within extended by September 30, 1998 operational DNV: SAM/SIPLA improved and operational by September 30, 1999 o Increase in the productivity of four selected force account activities: (i) Patching with premixed asphalt: 207 US$/m3 190 US$/m3 180 US$/m3 84.53 US$/m3 (ii) Surface sealing: 1.3 US$/lt 1.2 US$/lt 1.1 US$/lt 0.75 US$/lt (iii) Vegetation control: 69.3 US$/ha 65.0 US$/ha 60.0 US$/ha 33.37 US$/ha (iv) Crack sealing: 1.7 US$/lt 1.6 US$/lt 1.5 US$/lt 0.98 US$/lt o Establishment of working groups within DNV and Groups and liaison designated by loan Group active (8) implementation of studies, study tours, and technical negotiations assistance programs for the continuation of DNV’s renewal: o Standards and procedures for planning, operation and Consultants selected by December 31, 1998 Single contract that maintenance of departmental roads recommended for each Study completed by December 31, 1999 includes the four eligible Intendencia (department), and implemented in at consultancies previously least two departments: defined o Detailed inventory of road maintenance equipment and Consultants selected by December 31, 1999 actions recommended for each department to improve Study completed by December 31, 2000 Started in June 2000 management and productivity of equipment fleets and Final Report delivered in organization/operation of workshops: May 2001 o Road maintenance staff in the departments trained to carry Training Program completed by December 31, out improved processes: 2000 o Guidelines designed for departments to maintain urban Consultants selected by June 30, 1999 roads and streets: Study completed by June 30, 2000 o Establishment of a Steering Group with participation of the Steering Group established by loan Operated during the Intendencias to monitor and evaluate the transfer of negotiations Consultancy Study, but its technology to the departments: Program results evaluated by Steering Group actions were limited by end 1999 and 2000 Outcomes to be achieved by carrying out of the Project: o Share of national roads exceeding permissible roughness 15% - 8% 2001 2002 levels, not greater than: 8.13% 13.25% o Transit of trucks loaded up to Mercosur standards (45 tons) Traffic permitted by December 31, 2000 Route 2 achieved permitted along corridors linking Montevideo with Fray Route 3, one bridge Bentos (Route 2), Paysandú (Route 3), and Río Branco pending (Routes 8/17/18): Route 8, seven bridges pending (9) o Use of performance-based maintenance contracts on 1,500 2,725 km 2,840 km 3,599 km (10) national roads extended to not less than: km

- 43 - Modified Indicators Related to the Project and the Achievement of Development Objectives Performance Indicators Cumulative Progress by the end of year Progress on 1998 1999 2000 March 31, 2003(1) Output Indicators required to achieve Development Objectives: o Number of bridges reinforced and widened with IBRD 0 5 7 7 finalized (11) financing: o Number of bridges reinforced, widened without IBRD 0 0 4 2 finalized financing: 2 postponed (11)

o Km of roads rehabilitated under CREMA-type contracts: 0 km 83 km 123 km 123 km (12) o Km of roads rehabilitated and maintained to standards 0 km 618 km 1092 km 856 km (13) under CREMA-type contracts: o Pilot for road safety improvement implemented on Contract tendered by August 1999. Evaluation Indefinitely postponed Route 1 (old) – Rincón de la Bolsa: by August 2000. (14)

Notes: (1) Date of this reporting exercise. (2) The contract for Route 2 (35 km) executed. The contract for Route 27 (20 km) executed. The amplification of the section Palmitas-Mercedes (30km) executed. (3) Initial works of: CREMA II and X (29,1 km) already executed, CREMA VII (30 km) already executed, CREMA II and III (24 km) already executed, CREMA IV (40.2 km) already executed. Maintenance: CREMA II and X (240 km) in execution, CREMA VII (145 km) in execution, CREMA II and III (233 km) in execution, CREMA IV (207 km) in execution. In January 2003 the inclusion of the Access to Montevideo Contract (31 km) was approved, with retroactive effect from January 2002. (4) Includes eight road maintenance micro-enterprises (1587 km), two micro-enterprises for the maintenance of signaling (815 km) and one performance contract with traditional contracting financed by DNV (341 km) (the Access to Montevideo Contract is to be financed by the Project). (5) Cumulative progress: Year 1998 – 1,163 kmYear 1999 - 1,130 km Year 2000 - 850 km Year 2001 – 1,417 km (Partially financed by the Forest Product Transport Project) Year 2002 – 951 km (Forest Product Transport Project) (6) Cumulative progress: Year 1998 – 8,793 km. Year 1999 – 8,409 km Year 2000 – 8,252 kmYear 2001- 7,891 km (Partially financed by the Forest Product Transport Project) Year 2002 – 7,680 km (Forest Product Transport Project) (7) The progress can be detailed in the following way: One contract for pavement marking (709 km), terminated. One contract for pavement marking (208 km), terminated. One contract for road signs (350 km), terminated. One contract for pavement marking (148 km), terminated. One contract for pavement marking (355 km), terminated. One contract for pavement marking (in hot) (135 km), terminated. One contract for road signs (350 km), terminated. One contract for pavement marking for 640 km finalized in April 2001. One contract for road signs for 200 km finalized in August 2001. One contract for pavement marking for 434 km finalized in June 2001. One contract for road signs for 350 km finalized in April 2002. (8) Even if it did not start with the study of options, the Group collaborated in the design of the Megaconcession and the other schemes for the improvement of the institutional and financial capacity. (9) Route 3 – Bridge over the river Grande already tendered; Route 8 – Bridge Corrales tendered and about to start; Bridges Pirarajá, Retamosa and Sarandí with bidding documents ready for bidding; Bridges Marmarajá I and Gutierrez I and II with bidding documents under preparation. All these bridges are included in the Megaconcession. (10) Based on 8 maintenance micro-enterprises plus Serviam for 1,928 km, 6 maintenance contracts (4 CREMAS plus 2 DNV) for 1,238 km and 4 concessions for 433 km. (11) Out of the 13 bridges included at Appraisal, the Project financed 7, two of them included in CREMA II and III. The seven bridges were completed. Without IBRD financing: The works on the bridges over the rivers Guaviyú and Sauce were executed within the IDB Program (both completed).

In the Megaconcession the following bridges are included: the bridge over the rivers Grande, (bidding already carried out), Marmarajá small (to be tendered) and Gutierrez I and II (to be tendered). (12) New CREMA contracts in the districts IV and V were added to the Project. In the district IV an initial rehabilitation work for 40 km (already executed) was included. CREMA V was postponed. (13) New CREMA contracts in the districts IV and V were added to the Project. In the district IV the maintenance is for 207 km and in district V for 267 km. The contract in the district IV is under implementation. CREMA V was postponed. The Access to Montevideo contract was approved for financing in 2002 and part of 2003. (14) The new pilot for road safety will be carried out on Route 1 (old) at Rincón de la Bolsa and will be financed with local funds. The contract is awarded. The execution will last 4 months.

- 44 - Annex 2. Project Costs and Financing

Project Cost by Component (in US$ million equivalent) Appraisal Actual/Latest Percentage of Estimate Estimate Appraisal Component US$ million US$ million Road Rehabilitation and Bridge Reconditioning 20.59 12.89 62.58 CREMA Performance-based Contracts 23.36 42.24 180.81 DNV Road Maintenance Program (Incremental Costs) 45.11 73.69 163.38 Departmental Road Maintenance 33.00 32.94 99.82 A. Road Sector Management and Institutional Building 3.00 0.59 19.6

B. Road Safety Program 4.74 4.10 86.58 Total Baseline Cost 129.80 166.45 Physical Contingencies 4.91 Price Contingencies 1.62 Total Project Costs 136.33 166.45 Front-end fee 0.65 0.65 100.00 Total Financing Required 136.98 167.10

Project Costs by Procurement Arrangements (Appraisal Estimate) (US$ million equivalent) 1 Procurement Method Expenditure Category ICB 2 N.B.F. Total Cost NCB Other 1. Works 36.80 18.30 33.00 45.11 133.21 (25.70) (12.80) (23.10) (0.00) (61.60) 2. Goods 0.00 0.00 0.00 0.00 0.00 (0.00) (0.00) (0.00) (0.00) (0.00) 3. Services 0.00 0.00 3.10 0.00 3.10 (0.00) (0.00) (2.20) (0.00) (2.20) 4. Miscellaneous 0.00 0.00 0.65 0.00 0.65 (0.00) (0.00) (0.65) (0.00) (0.65) 5. Miscellaneous 0.00 0.00 0.00 0.00 0.00 (0.00) (0.00) (0.00) (0.00) (0.00) 6. Miscellaneous 0.00 0.00 0.00 0.00 0.00 (0.00) (0.00) (0.00) (0.00) (0.00) Total 36.80 18.30 36.75 45.11 136.96 (25.70) (12.80) (25.95) (0.00) (64.45)

- 45 - Project Costs by Procurement Arrangements (Actual/Latest Estimate) (US$ million equivalent) 1 Procurement Method Expenditure Category ICB 2 N.B.F. Total Cost NCB Other 1. Works 46.40 12.83 32.94 73.69 165.86 (31.59) (8.79) (23.06) (0.00) (63.44) 2. Goods 0.00 0.00 0.00 0.00 0.00 (0.00) (0.00) (0.00) (0.00) (0.00) 3. Services 0.00 0.00 0.59 0.00 0.59 (0.00) (0.00) (0.41) (0.00) (0.41) 4. Miscellaneous 0.00 0.00 0.65 0.00 0.65 (0.00) (0.00) (0.65) (0.00) (0.65) 5. Miscellaneous 0.00 0.00 0.00 0.00 0.00 (0.00) (0.00) (0.00) (0.00) (0.00) 6. Miscellaneous 0.00 0.00 0.00 0.00 0.00 (0.00) (0.00) (0.00) (0.00) (0.00) Total 46.40 12.83 34.18 73.69 167.10 (31.59) (8.79) (24.12) (0.00) (64.50)

1/ Figures in parenthesis are the amounts to be financed by the Bank Loan. All costs include contingencies. 2/ Includes civil works and goods to be procured through national shopping, consulting services, services of contracted staff of the project management office, training, technical assistance services, and incremental operating costs related to (i) managing the project, and (ii) re-lending project funds to local government units.

Project Financing by Component (in US$ million equivalent) Percentage of Appraisal Component Appraisal Estimate Actual/Latest Estimate Bank Govt. CoF. Bank Govt. CoF. Bank Govt. CoF. Road Rehabilitation and 16.30 4.29 8.71 4.17 53.4 97.2 Bridge Reconditioning CREMA 18.50 4.86 28.81 13.43 155.7 276.3 Performance-based Contracts DNV Road Maintenance 0.00 45.11 0.00 73.69 0.0 163.4 Program (Incremental Costs) Departmental Road 23.10 9.90 23.06 9.88 99.8 99.8 Maintenance A. Road Sector 2.20 0.80 0.41 0.18 18.6 22.5 Management and Institutional Building B. Road Safety Program 3.70 1.04 2.87 1.24 77.6 119.2 Physical Contingencies 4.91 0.0 Price Contingencies 1.62 0.0 Front-end Fee 0.65 0.65 100.0 Total 64.45 72.53 64.50 102.60 100.1 141.5

- 46 - Annex 3. Economic Costs and Benefits The ex-ante economic evaluation was done for each rehabilitation and maintenance component being financed under the project consisting of (i) road rehabilitation, (ii) CREMA contracts, (iii) departmental road maintenance, and (iv) bridge reconditioning. Net benefits were evaluated using the Highway Design and Maintenance Standards Model (HDM-III), which simulates life cycle conditions and costs and provides economic decision criteria. The ICR ex-post economic evaluation was done using the same model and following the same ex-ante methodology, but including (i) actual costs, (ii) actual traffic, (iii) actual road user costs, and (iv) actual timing and duration of road works.

The ex-post Net Present Value (NPV) of the capital works of the rehabilitation, CREMA and bridge restoration programs is US$ 31.7 million and the Internal Rate of Return (IRR) is 20.1%, which can be compared to the ex-ante estimates of US$ 47.0 million NPV and 25.7% IRR. Including the net present value of the departamental roads maintenance program, the total ex-post NPV is US$ 233.2 million, which can be compared to the ex-ante estimate of US$ 257.9 million.

On average: (i) the actual capital works unit costs per km of the rehabilitation, CREMA and bridge restoration programs were 2% lower than the ex-ante estimates, (ii) the actual traffic in year 2002 was 9% lower than the ex-ante estimates, and (iii) the actual traffic annual growth rate for the 1998-2002 period was 0.3% per year, which can be compared to the ex-ante estimates of 3.0 to 4.0% per year.

The ex-post economic evaluation shows that the actual costs were in line with the ex-ante estimates, but the actual traffic growth rate during the 1998-2002 period was lower than expected, which explains the lower than expected economic return of the project, which is nevertheless satisfactory.

Main Assumptions

The HDM-III model was used to compute the reduction on road user costs resulting from road investments. The table below shows current unit road user costs estimated for the ex-post evaluation, in 2001 US Dollars, for a typical road with roughness equal to 4.5 IRI.

Economic Unit Road User Costs (US$ per vehicle-km) for Roughness 4.5 IRI Medium Heavy Articulated RUC Component Car Pickup Bus Truck Truck Truck Fuel 0.021 0.028 0.065 0.064 0.107 0.129 Lubricants 0.009 0.009 0.015 0.015 0.015 0.023 Tires 0.004 0.007 0.112 0.109 0.242 0.392 Maintenance Parts 0.014 0.027 0.141 0.092 0.162 0.257 Maintenance Labor 0.006 0.007 0.042 0.037 0.040 0.089 Crew 0.000 0.000 0.081 0.063 0.075 0.074 Depreciation 0.076 0.044 0.052 0.093 0.044 0.052 Interest 0.045 0.026 0.031 0.067 0.026 0.031 Passenger Time 0.036 0.042 0.278 0.000 0.000 0.000 Total 0.212 0.190 0.817 0.539 0.711 1.047

The table below presents the typical traffic composition per traffic level.

Traffic Composition by Traffic Level (%) Traffic Medium Heavy Articulated Class Car Pickup Bus Truck Truck Truck AADT > 3000 61% 25% 4% 7% 1% 2% 1000

Similar to the ex-ante evaluation, the adopted evaluation period is 15 years and the discount rate used is 12%.

- 47 - Road Rehabilitation Program

The road rehabilitation program considered the rehabilitation of four sections, but due to budget constraints Route 30, between Km 192 and the town of Masoller, was excluded from the program. The table below presents the comparison, in 2001 US Dollars, between the ex-ante, contract and actual financial costs per km, which shows that on average the actual costs were 8% higher than the contract costs and 5% higher than the cost estimated at appraisal.

Road Rehabilitation Program Financial Investment Costs (US$ 000/km) Ex-Ante and Ex-Post Cost per km (US$ 000/km) Ex-Post/ Ex-Post/ Section Road Work Ex-Ante Contact Ex-Post Ex-Ante Contract Ruta 2: Rodo-Palmitas Overlay 12 cm 156.0 148.9 187.9 1.20 1.26 Ruta 2: Palmitas – Mercedes Overlay 12 cm 147.0 140.3 110.4 0.75 0.79 Ruta 27: Ruta 28 - 56k000 Reconstruction DST 88.4 87.1 104.6 1.18 1.20 Average 1.05 1.08

The comparison between the ex-ante and actual traffic is given on the table below, which shows that on average the actual daily traffic in 2002 was 82% of the ex-ante estimate. The ex-ante annual traffic growth rate was defined as 3% for all roads but the actual annual growth rate was negative on all roads.

Road Rehabilitation Program Traffic Ex-Ante Estimates Ex-Post Actual Traffic Traffic Traffic Growth Traffic Growth 2002 1998 2002 98-2002 2002 98-2002 Ex-Post/ Section (AADT) (AADT) (%) (AADT) (%) Ex-Ante Ruta 2: Rodo-Palmitas 1504 1693 3.0% 1500 -0.1% 0.89 Ruta 2: Palmitas – Mercedes 1504 1693 3.0% 1500 -0.1% 0.89 Ruta 27: Ruta 28 - 56k000 305 343 3.0% 239 -5.9% 0.70 Average 3.0% -2.0% 0.82

The comparison, in months, between the ex-ante and actual execution time is given on the table below, which shows that on average the actual execution time was 72 percent higher than the ex-ante estimate, with an actual average execution time of 20 months.

Road Rehabilitation Program Execution Time Contract Actual Actual Duration Duration per Section (months) (months) Contract Ruta 2: Rodo-Palmitas 12 23 1.92 Ruta 2: Palmitas – Mercedes 10 9 0.90 Ruta 27: Ruta 28 - 56k000 12 28 2.33 Average 11 20 1.72

The table below presents the main characteristics and the economic evaluation results of the rehabilitation sections, which indicates that the ex-post economic returns were slightly lower but still satisfactory with an overall IRR of 16.6%, which is 91% of the ex-ante IRR.

Road Rehabilitation Program Economic Evaluation Ex-Ante Ex-Post IRR NPV Length Surface Roughness IRR NPV IRR NPV Ex-post/ Ex-post/ Section (km) Type (IRI) (%) (M US$) (%) (M US$) Ex-ante Ex-ante Ruta 2: Rodo-Palmitas 35 CA 2.5 19.3 3.0 17.1 2.08 0.89 0.69 Ruta 2: Palmitas - Mercedes 38 CA 2.5 19.3 3.3 17.4 2.28 0.90 0.70 Ruta 27: Ruta 28 - 56k000 20 TS 5.1 16.4 0.5 13.7 0.19 0.84 0.38 Total 93 18.3 6.8 16.6 4.6 0.91 0.67

- 48 - CREMA Program

The CREMA program considered the rehabilitation and maintenance of three networks of around 200 km each. The table below presents the comparison, in 2001 US Dollars, between the ex-ante, and the actual financial costs per km of the rehabilitation and periodic maintenance works, which shows that on average the actual costs are 94% of the costs estimated at appraisal.

CREMA Program Financial Investment Costs (US$ 000/km) Ex-Ante Ex-Post Cost per km Ex-Post/ CREMA Section Road Work Road Work Ex-Ante Ex-Post Ex-Ante Region II Ruta 10: Tramo 3 (R104 -J.Ign.) Reseal 4 mm Reseal 4 mm 6.80 7.02 1.03 and X Ruta 10:Tramo 4 (J.Ign. - L.Gar) Regravelling de 15 cm Regravelling 15 cm 23.33 16.53 0.71 Ruta 10:Tramo 5(L.Gar.- Caracol) Regravelling de 15 cm Regravelling 15 cm 22.71 16.13 0.71 Ruta 10:Tramo 6(Caracol-L.Rocha) Regravelling de 15 cm Regravelling 15 cm 22.72 16.12 0.71 Ruta 12:Tramo 17(Portozzuelo-Ruta9) Routine Maintenance Routine Maintenance Ruta 39:Tramo 2(San Carlos-Ruta9) Routine Maintenance Routine Maintenance Ruta 39:Tramo 3(Ruta9-48K600) Routine Maintenance Reconst. Partial 60% 60.79 Ruta 39:Tramo 4(48K600-71K600) Routine Maintenance Routine Maintenance Ruta 39:Tramo 5(71K600-Aigua) Routine Maintenance Routine Maintenance Ruta 93: Tramo 41Rr (Piriap.-93) Overlay 9 cm Overlay 10 cm 129.44 190.11 1.47 Ruta 104: T1 (Ruta 10 - Ruta 9) Routine Maintenance Routine Maintenance Ruta 99: Tramo 1 (R10 - R200) Overlay 5 cm Overlay 8 cm 90.00 142.43 1.58 Ruta 10: Tramo 1(Est Solis-Piriapolis) Routine Maintenance Routine Maintenance Ruta 37: Tramo 1 (Piriap.- R9) Overlay 11 cm Overlay 8 cm 122.68 186.99 1.52 Ruta 60:Tramo1 (P.Azucar-A.P.Azucar) Routine Maintenance Routine Maintenance Ruta 60:Tramo2 (A.P.Azucar-L.D.) Reconstruction DST Reconst. Partial 30% 70.46 75.38 1.07 Ruta 60:Tramo3 (L.Deptal - R12) Routine Maintenance Routine Maintenance Ruta 9:Tramo 52Rr (R9 - Caracol) Regravelling De 15 cm Regravelling 15 cm 22.70 32.17 1.42 Region II R8: Ao. Corrales - Ao Sarandi Routine Maintenance Routine Maintenance and III R8: Ao Sarandi - Ruta 17 Routine Maintenance Routine Maintenance R14: Averias - Ruta 8 (256K500, J.P.Va.) Routine Maintenance Routine Maintenance R14: Lascano – Averias Slurry Reseal 4 mm 11.45 5.50 0.48 R15: Lascano - Paraje La Coronilla Slurry Surface Treatmeant 15.00 14.43 0.96 R15: Paraje La Coronilla - Ruta 19 Regravelling De 15 cm Surface Treatmeant 23.32 6.68 0.29 R15: Ruta 19 – Cebollati Regravelling De 15 cm Regravelling De 15 cm 24.15 17.12 0.71 R17: Treinta Y Tres - Ruta 18 Routine Maintenance Routine Maintenance R17: Ruta 18 (300K000) - 314K000 Reseal 4 mm Reseal 4 mm 6.79 7.00 1.03 R17: 314K000 - Gral E. Martinez Reseal 4 mm Routine Maintenance 6.31 R18: Ruta 17 - Ao. Del Oro Overlay 12 cm Overlay 13 cm 185.82 166.37 0.90 R18: Ao. Del Oro – Vergara Routine Maintenance Routine Maintenance R18: By Pass Vergara Overlay 12 cm Overlay 12 cm 191.11 172.48 0.90 Region VII R21: Colonia - Ruta 22 Overlay 12 cm Overlay 12 cm 190.79 165.99 0.87 R22: Ruta 21 (207K900) – Tarrariras Reseal 4 mm Reseal 4 mm 7.12 7.00 0.98 R22: Tarrariras - 36K000 Routine Maintenance R22: 36K000 - Ruta 1 (149K000) Routine Maintenance R50: Ruta 1 - Cem. Tarariras Reconstruction Reseal 4 mm 54.57 17.95 0.33 R50: Cem. Tarariras – Tarariras Routine Maintenance R54: Juan Lacaze - Ruta 1 (138K700) Routine Maintenance R54: Ruta 1 (138K700) – Barker Reseal 4 mm Reseal 4 mm 7.02 7.19 1.03 R54: Barker - Arroyo San Juan Reseal 4 mm Reseal 4 mm 6.78 7.00 1.03 R54: Arroyo San Juan - Ruta 12 (78K400) Reseal 4 mm Reseal 4 mm 6.99 7.23 1.03 Average 0.94

The comparison between the ex-ante and actual traffic is given on the table below, which shows that on average the actual daily traffic in 2002 is 91% of the ex-ante estimate. The ex-ante annual traffic growth rate was defined as 3% for all roads but the actual annual growth rate was on average 0%.

- 49 - CREMA Program Traffic Ex-Ante Estimates Ex-Post Actual Traffic Traffic Traffic Growth Traffic Growth 2002 1998 2002 98-2002 2002 98-2002 Ex-Post/ CREMA Section (AADT) (AADT) (%) (AADT) (%) Ex-Ante Region II Ruta 10: Tramo 3 (R104 -J.Ign.) 1898 2136 3% 1499 -6% 0.70 and X Ruta 10:Tramo 4 (J.Ign. - L.Gar) 150 169 3% 178 4% 1.05 Ruta 10:Tramo 5(L.Gar.- Caracol) 150 169 3% 178 4% 1.05 Ruta 10:Tramo 6(Caracol-L.Rocha) 76 86 3% 92 5% 1.08 Ruta 12:Tramo 17(Portozzuelo-Ruta9) 381 429 3% Ruta 39:Tramo 2(San Carlos-Ruta9) 1405 1581 3% Ruta 39:Tramo 3(Ruta9-48K600) 242 272 3% 223 -2% 0.82 Ruta 39:Tramo 4(48K600-71K600) 242 272 3% Ruta 39:Tramo 5(71K600-Aigua) 242 272 3% Ruta 93: Tramo 41Rr (Piriap.-93) 1958 2204 3% 1817 -2% 0.82 Ruta 104: T1 (Ruta 10 - Ruta 9) 413 465 3% Ruta 99: Tramo 1 (R10 - R200) 2611 2939 3% 2428 -2% 0.83 Ruta 10: Tramo 1(Est Solis-Piriapolis) 2611 2939 3% Ruta 37: Tramo 1 (Piriap.- R9) 1958 2204 3% 1528 -6% 0.69 Ruta 60:Tramo1 (P.Azucar-A.P.Azucar) 430 484 3% Ruta 60:Tramo2 (A.P.Azucar-L.D.) 430 484 3% 470 2% 0.97 Ruta 60:Tramo3 (L.Deptal - R12) 430 484 3% Ruta 9:Tramo 52Rr (R9 - Caracol) 150 169 3% 172 3% 1.02 Region II R8: Ao. Corrales - Ao Sarandi 1659 1867 3% and III R8: Ao Sarandi - Ruta 17 1659 1867 3% R14: Averias - Ruta 8 (256K500, J.P.Va.) 310 349 3% R14: Lascano – Averias 310 349 3% 302 -1% 0.87 R15: Lascano - Paraje La Coronilla 420 473 3% 435 1% 0.92 R15: Paraje La Coronilla - Ruta 19 136 153 3% 150 2% 0.98 R15: Ruta 19 – Cebollati 136 153 3% 150 2% 0.98 R17: Treinta Y Tres - Ruta 18 833 938 3% R17: Ruta 18 (300K000) – 314K000 427 481 3% 378 -3% 0.79 R17: 314K000 - Gral E. Martinez 427 481 3% 378 -3% 0.79 R18: Ruta 17 - Ao. Del Oro 660 743 3% 615 -2% 0.83 R18: Ao. Del Oro – Vergara 660 743 3% R18: By Pass Vergara 660 743 3% 617 -2% 0.83 Region VII R21: Colonia - Ruta 22 523.5 589 3% 862 13% 1.46 R22: Ruta 21 (207K900) - Tarrariras 586 660 3% 457 -6% 0.69 R22: Tarrariras - 36K000 1023 1151 3% R22: 36K000 - Ruta 1 (149K000) 1023 1151 3% R50: Ruta 1 - Cem. Tarariras 313 352 3% 257 -5% 0.73 R50: Cem. Tarariras – Tarariras 193 217 3% R54: Juan Lacaze - Ruta 1 (138K700) 1056 1189 3% R54: Ruta 1 (138K700) - Barker 132 149 3% 150 3% 1.01 R54: Barker - Arroyo San Juan 132 149 3% 150 3% 1.01 R54: Arroyo San Juan - Ruta 12 (78K400) 132 149 3% 151 3% 1.02 Average 3% 0% 0.91

The table below presents the main characteristics and the economic evaluation results of the CREMA sections, which indicates that the ex-post economic returns were slightly lower but still satisfactory with an overall IRR of 17.6%, which is 83% of the ex-ante IRR.

- 50 - CREMA Program Economic Evaluation Ex-Ante Ex-Post IRR NPV Length Surface Roughness IRR NPV IRR NPV Ex-post/ Ex-post/ CREMA Section (km) Type (IRI) (%) (M US$) (%) (M US$) Ex-ante Ex-ante Region II Ruta 10: Tramo 3 (R104 -J.Ign.) 18.1 ST 2.9 53.2 0.47 74.3 0.23 1.40 0.49 and X Ruta 10:Tramo 4 (J.Ign. - L.Gar) 7.5 GR None 0.18 None 0.16 0.86 Ruta 10:Tramo 5(L.Gar.- Caracol) 18.1 GR None 0.44 None 0.38 0.85 Ruta 10:Tramo 6(Caracol-L.Rocha) 10.3 GR None 0.12 None 0.05 0.44 Ruta 12:Tramo 17(Portozzuelo-Ruta9) 18.2 ST 2.8 Ruta 39:Tramo 2(San Carlos-Ruta9) 1.2 AC 1.7 Ruta 39:Tramo 3(Ruta9-48K600) 28.9 ST 2.1 16.3 0.16 Ruta 39:Tramo 4(48K600-71K600) 23.0 ST 2.1 Ruta 39:Tramo 5(71K600-Aigua) 18.2 ST 2.1 Ruta 93: Tramo 41Rr (Piriap.-93) 7.2 AC 3.2 18.0 0.30 12.0 0.01 0.67 0.03 Ruta 104: T1 (Ruta 10 - Ruta 9) 16.0 ST 3.3 Ruta 99: Tramo 1 (R10 - R200) 2.2 ST 4.0 37.1 0.47 23.3 0.14 0.63 0.31 Ruta 10: Tramo 1(Est Solis-Piriapolis) 11.6 AC 1.9 Ruta 37: Tramo 1 (Piriap.- R9) 9.7 ST 3.8 31.3 1.33 21.1 0.78 0.67 0.59 Ruta 60:Tramo1 (P.Azucar-A.P.Azucar) 16.5 ST 2.1 Ruta 60:Tramo2 (A.P.Azucar-L.D.) 13.0 ST 3.9 14.0 0.09 29.8 0.13 2.13 1.42 Ruta 60:Tramo3 (L.Deptal - R12) 8.5 ST 3.0 Ruta 9:Tramo 52Rr (R9 - Caracol) 11.5 GR 4.8 None 0.27 None 0.21 0.80 Subtotal 239.7 31.0 3.68 19.0 2.26 0.61 0.61 Region II R8: Ao. Corrales - Ao Sarandi 16.2 AC 1.7 and III R8: Ao Sarandi - Ruta 17 13.9 AC 1.7 R14: Averias - Ruta 8 (256K500, J.P.Va.) 26.9 ST 3.0 R14: Lascano - Averias 13.1 ST 3.0 26.6 0.17 38.9 0.05 1.46 0.29 R15: Lascano - Paraje La Coronilla 14.0 ST 3.5 12.4 0.01 16.8 0.03 1.35 3.07 R15: Paraje La Coronilla - Ruta 19 18.7 GR 0.83 14.4 0.01 0.01 R15: Ruta 19 - Cebollati 31.3 GR 1.29 1.01 0.78 R17: Treinta Y Tres - Ruta 18 12.3 AC 1.8 0.00 R17: Ruta 18 (300K000) - 314K000 14.0 ST 3.0 17.1 0.04 4.8 (0.02) 0.28 -0.51 R17: 314K000 - Gral E. Martinez 35.5 ST 3.0 23.1 0.26 0.00 0.00 R18: Ruta 17 - Ao. Del Oro 18.2 ST 3.8 12.3 0.05 12.3 0.06 1.00 1.02 R18: Ao. Del Oro - Vergara 21.9 AC 2.0 0.00 R18: By Pass Vergara 5.9 AC 4.0 12.2 0.02 12.5 0.03 1.02 1.53 Subtotal 241.9 21.3 2.68 16.6 1.16 0.78 0.43 Region VII R21: Colonia - Ruta 22 30.4 ST 4.0 14.7 0.76 15.8 0.72 1.07 0.95 R22: Ruta 21 (207K900) - Tarrariras 26.0 ST 3.0 36.3 0.15 27.0 0.09 0.74 0.64 R22: Tarrariras - 36K000 8.0 ST 2.5 0.00 R22: 36K000 - Ruta 1 (149K000) 6.3 ST 2.5 0.00 R50: Ruta 1 - Cem. Tarariras 20.5 ST 3.7 12.9 0.05 15.1 0.05 1.17 1.02 R50: Cem. Tarariras - Tarariras 2.0 ST 2.8 0.00 R54: Juan Lacaze - Ruta 1 (138K700) 4.1 AC 2.2 0.00 R54: Ruta 1 (138K700) - Barker 11.4 ST 3.0 88.6 0.10 15.8 0.01 0.18 0.09 R54: Barker - Arroyo San Juan 26.7 ST 3.1 39.2 0.15 13.0 0.01 0.33 0.06 R54: Arroyo San Juan - Ruta 12 (78K400) 17.3 ST 3.1 27.6 0.06 12.6 0.46 0.00 Subtotal 152.6 15.7 1.26 17.0 0.87 1.08 0.70 Total 634.1 21.1 7.61 17.6 4.29 0.83 0.56

Bridge Reconditioning Program

The reconditioning of 13 bridges was evaluated at project appraisal yielding a program NPV of US$ 33.39 million and an average IRR of 32.3%. Nine of the thirteen bridges were reconditioned under the project and the remaining bridges were placed under the Uruguay Megaconcession program. The table below presents the main characteristics of the bridges included under the project.

- 51 - Bridges Reconditioned Under the Project Length Ex-Ante Estimate Actual Actual Cost Route Bridge (m) Reconditioning Type Reconditioning Type (US$ per meter) 3 Guaviyú 160.0 New Bridge Strengthening & widening to 8 m 1,558 3 Chapicuy / Carpinchurí 135.0 Strengthening & widening to 8 m Strengthening & widening to 8 m 6,660 3 San Gregorio 147.0 New Bridge New Bridge 11,935 3 Sauce de Pintos 30.0 Strengthening & widening to 10 m Strengthening & widening to 8 m 8,059 8 Marmarajá km 173 151.0 Strengthening & widening to 8 m Strengthening & widening to 8 m 3,833 8 Sauce / Sarandí 35.0 Strengthening & widening to 10 m Strengthening & widening to 8 m 10,801 26 Conventos 126.0 New Bridge New Bridge 8,746

The table below presents the comparison, in 2001 US Dollars, between the ex-ante, contract and actual costs, which shows that on average the actual costs were 4% higher than the contract costs and 13% higher than the cost estimated at appraisal.

Bridges Reconditioning Financial Costs Ex-Ante Contract Ex-Post Ex-Post Ex-Post Cost Cost Cost Per per Route Bridge (US$M) (US$M) (US$M) Ex-Ante Contract 3 Guaviyú 1.30 0.20 0.25 0.19 1.25 3 Chapicuy / Carpinchurí 0.60 0.89 0.90 1.50 1.01 3 San Gregorio 1.05 1.71 1.75 1.67 1.03 3 Sauce de Pintos 0.19 0.23 0.24 1.27 1.07 8 Marmarajá km 173 0.75 0.86 0.58 0.77 0.67 8 Sauce / Sarandí 0.50 0.36 0.38 0.76 1.04 26 Conventos 0.63 0.90 1.10 1.75 1.22 Average 1.13 1.04

The comparison between the ex-ante and actual traffic is given on the table below, which shows that on average the actual daily traffic in 2001 is 92% of the ex-ante estimate. The ex-ante annual traffic growth rate was defined as 4.0% for all bridges and the actual annual growth rate was on average 1.1%.

Bridges Reconditioning Traffic Ex-Ante Ex-Ante Actual Actual AADT Ex-Ante Actual AADT AADT AADT Per Annual Annual Route Bridge 1998 2001 2001 Ex-Ante AADT Growth Growth 3 Guaviyú 803 903 795 0.88 4.0% -0.3% 3 Chapicuy / Carpinchurí 803 903 795 0.88 4.0% -0.3% 3 San Gregorio 1260 1417 1414 1.00 4.0% 3.9% 3 Sauce de Pintos 1260 1417 1414 1.00 4.0% 3.9% 8 Marmarajá (km 173) 623 701 716 1.02 4.0% 4.7% 8 Sauce / Sarandí 1660 1867 1450 0.78 4.0% -4.4% 26 Conventos 666 749 669 0.89 4.0% 0.1% Average 0.92 4.0% 1.1%

The comparison, in months, between the ex-ante and actual execution time is given on the table below, which shows that on average the actual execution time was 49% higher than the ex-ante estimate, with an actual average execution time of 16 months.

- 52 - Bridges Reconditioning Execution Time Ex-Ante Actual Actual Duration Duration Per Route Bridge (months) (months) Ex-Ante 3 Guaviyú 12 17 1.42 3 Chapicuy / Carpinchurí 10 24 2.40 3 San Gregorio 12 15 1.25 3 Sauce de Pintos 12 15 1.25 8 Marmarajá (km 173) 10 16 1.60 8 Sauce / Sarandí 12 12 1.00 26 Conventos 8 12 1.50 Average 11 16 1.49

The bridge reconditioning program was evaluated ex-ante by DNV estimating road user benefits of the bridge improvements in terms of savings in road user costs. Using the same methodology, the ex-post evaluation yielded the results given on the table below, which shows that all project were economically justified with an average IRR of 36.7%, which is 94% of the ex-ante IRR. The ex-ante and ex-post NPV cannot be compared because the ex-ante evaluation grouped some bridges on the same route as one project and did not properly differentiate the NPV corresponding to each bridge.

Bridges Reconditioning Economic Evaluation Ex-Post Ex-Ante Ex-Post IRR NPV IRR IRR Ex-Post/ Route Bridge (US$M) (%) (%) Ex-Ante 3 Guaviyú 0.85 35.7 46.1 1.29 3 Chapicuy / Carpinchurí 3.05 35.7 46.1 1.29 3 San Gregorio 2.15 19.8 16.7 0.84 3 Sauce de Pintos 3.05 19.8 19.6 0.99 8 Marmarajá (km 173) 9.68 47.8 82.9 1.73 8 Sauce / Sarandí 3.16 69.8 20.7 0.30 26 Conventos 0.91 43.3 24.7 0.57 Total/Average 22.84 38.8 36.7 0.94

Departmental Roads Maintenance Program

The economic evaluation of the Departamental Roads Maintenance Program was done through the analysis of a matrix of road classes. The table below presents the network length by traffic and roughness estimated in 1997, based on a full network survey.

Departamental Maintenance Program Network in 1997 (km) IRI<5 515 Total Percent ADT<30 1859 755 745 270 3630 40% 30150 107 41 29 0 177 2% Total 4643 2434 1317 606 9000 100% Percent 52% 27% 15% 7% 100%

The table below presents a comparison, in 2001 US Dollars, between the ex-ante unit road maintenance works costs estimates and the average ex-post unit costs, for the 1998-2001 project period, which shows that on average the project costs were 7% lower than the ex-ante estimates. Note that in 2003, due to devaluation of the local currency, the unit road work costs are, in Dollars terms, around 50% lower that the ex-post project costs from the 1998 to 2001 period.

- 53 - Departamental Maintenance Program Unit Costs Ex-Ante Ex-Post Ex-Post Cost Cost Per Road Work Type (US$) (US$ Ex-Ante Regravelling (US$/m3) 8.00 7.68 0.96 Spot Regravelling (US$/m3) 10.00 9.10 0.91 Grading (US$/km) 104.00 96.96 0.93 Routine Maintenance (US$/km) 178 165 0.93

The ex-post economic evaluation was done considering the average ex-post unit road maintenance costs and ex-post traffic growth estimates. The ex-ante evaluation assumed an annual traffic growth rate of 4% for all vehicles, while the ex-post evaluation considered, based on the observed traffic growth on low volume national roads on recent years, a traffic growth rate of 0% for cars and pickups and 3% for commercial vehicles during the 1998 to 2001 period, followed by a 4% growth rate afterwards. The table below presents the results of the economic evaluation, in 2001 US Dollars, which yields a network NPV of US$ 202 million, which is 88% of the ex-ante network NPV corresponding to US$ 229 million, in 2001 US Dollars.

Departamental Maintenance Program Network Ex-Post NPV (US$ M) IRI<5 515 Total ADT<30 2.5 1.6 2.3 1.2 7.6 30150 5.1 3.9 9.0 Total 87.0 67.0 27.5 19.9 201.5

DNV Maintenance and Rehabilitation Program Consequences

The project was a component of an overall maintenance and rehabilitation program to be undertaken by DNV during the 1998-2002 period. An ex-ante network evaluation indicated that with the proposed program the network condition in 2001 would have marginally improved compared with the network condition found in 1997, for example, the percent of the vehicle utilization in poor condition decreasing from 9% to 7% and the percent of the network below optimal level of service decreasing from 15% to 8%. The table below presents the ex-ante estimates for 2001 and the actual network condition from 1997 to 2002, which shows that overall the actual network condition in 2001 is in line with the ex-ante estimates.

Program Consequences on the Network Condition Actual Actual Actual Actual Actual Actual Ex-Ante Estimate 1997 1998 1999 2000 2001 2002 for 2001 Condition Roughness Percent of Network Length, km Good < 3.5 IRI 54% 71% 75% 82% 80% 64% 60% Fair 3.5 < IRI < 4.5 31% 14% 13% 13% 14% 21% 18% Poor > 4.5 IRI 15% 15% 12% 6% 6% 15% 22% Condition Roughness Percent of Network Utilization, vehicle-km Good < 3.5 IRI 75% 81% 84% 88% 87% 77% 87% Fair 3.5 < IRI < 4.5 16% 12% 11% 10% 11% 16% 8% Poor > 4.5 IRI 9% 7% 5% 3% 2% 7% 5% Percent of Network Below Optimal Level of Service 15% 16% 12% 6% 8% 13% 8% Average Network Roughness (IRI) 3.5 3.4 3.2 3.0 3.1 3.4 3.1

- 54 - Annex 4. Bank Inputs (a) Missions: Stage of Project Cycle No. of Persons and Specialty Performance Rating (e.g. 2 Economists, 1 FMS, etc.) Implementation Development Month/Year Count Specialty Progress Objective Identification/Preparation 10/1997 5 TASK MANAGER/HIGHWAY ENGINEER (1); ENVIRONMENTAL SPEC. (1); PROCUREMENT SPEC. (1); SPEC. IN ECONOMIC ANALYSIS (1); HIGHWAY ENGINEER (1) 01/1998 1 TASK MANAGER/HIGHWAY ENGINEER (1) 04/1998 5 TASK MANAGER/HIGHWAY ENGINEER (1); LEAD ECOLOGIST (1); LEAD TRANSPORT ECONOMIST (1); SPEC. IN ECONOMIC ANALYSIS (1); HIGHWAY ENGINEER (1)

Appraisal/Negotiation 07/1998 4 TASK MANAGER/ HIGHWAY ENGINEER (1); OPERATIONS ADVISOR (1); FINANCIAL ANALYST (1); HIGHWAY ENGINEER (1) Supervision 04/1999 3 TASK MANAGER/ S S HIGHWAY ENGINEER (1); HIGHWAY ENGINEER (1); FINANCIAL MGMT SPEC. (1) 11/1999 4 TASK MANAGER/HIGHWAY S S ENGINEER (1); TRANSPORT SPEC. (1); FINANCIAL MGMT SPEC. (1); OPERATIONS ADVISOR (1) 05/2000 3 TASK MANAGER/HIGHWAY S S ENGINEER (1); TRANSPORT SPEC. (1); FINANCIAL MGMT SPEC. (1) 11/2000 1 TASK MANAGER/ HIGHWAY S S ENGINEER (1) 05/2001 1 TASK MANAGER/HIGHWAY S S ENGINEER (1) 11/2001 4 TASK MANAGER/HIGHWAY S S ENGINEER (1); TRANSPORT

- 55 - SPEC. (1); FINANCIAL MGMT SPEC. (1); SENIOR URBAN SPEC. (1) 05/2002 3 TRANSPORT SPEC. (1); S S TRANSPORT ECONOMIST (1); FINANCIAL MGMT SPEC. (1) 10/2002 2 TASK MANAGER/ HIGHWAY S S ENGINEER (1); TRANSPORT ECONOMIST (1) 05/2003 1 TRANSPORT SPECIALIST (1) S S 11/1998 2 TASK MANAGER/ HIGHWAY S S ENGINEER (1); HIGHWAY ENGINEER (1) ICR 06/2003 5 TASK S S MANAGER/HIGHWAY ENGINEER (1); TRANSPORT SPEC. (2): TRANSPORT ECONOMIST (1); STRUCTURAL ENGINEER (1)

(b) Staff:

Stage of Project Cycle Actual/Latest Estimate No. Staff weeks US$ ('000) Identification/Preparation 27.1 69.6 Appraisal/Negotiation 11.0 34.6 Supervision 45.2 264.3 ICR 4.0 12.0 Total 88.8 385.4

- 56 - Annex 5. Ratings for Achievement of Objectives/Outputs of Components (H=High, SU=Substantial, M=Modest, N=Negligible, NA=Not Applicable) Rating Macro policies H SU M N NA Sector Policies H SU M N NA Physical H SU M N NA Financial H SU M N NA Institutional Development H SU M N NA Environmental H SU M N NA

Social Poverty Reduction H SU M N NA Gender H SU M N NA Other (Please specify) H SU M N NA Private sector development H SU M N NA Public sector management H SU M N NA Other (Please specify) H SU M N NA

- 57 - Annex 6. Ratings of Bank and Borrower Performance (HS=Highly Satisfactory, S=Satisfactory, U=Unsatisfactory, HU=Highly Unsatisfactory)

6.1 Bank performance Rating Lending HS S U HU Supervision HS S U HU Overall HS S U HU

6.2 Borrower performance Rating Preparation HS S U HU Government implementation performance HS S U HU Implementation agency performance HS S U HU Overall HS S U HU

- 58 - Annex 7. List of Supporting Documents

Project documents, such as the Project Appraisal Document and the Loan Agreement, and the project reports and aide-mémoires are on file.

DNV report on Ex-post Economic Feasibility Study and Impact on the Evolution of the Status of the National Road Network prepared by Marcelo Krugman and Javier Wilson (Estudio Expost de Factibilitad Económica e Impacto en la Evolución del Estado de la Red Vial Nacional) on file.

IPTI report on the Economic Evaluation of Bridges on file.

DIVD report on the Economic Evaluation of the Departmental Road Network Maintenance on file.

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