IEG ICR Review
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Report Number ::: ICRRICRR1449614496 ICR Review IEG Independent Evaluation Group Public Disclosure Authorized 1. Project Data: Date Posted ::: 09/29/2014 Country::: Brazil Project ID ::: P095460 Appraisal Actual Project Name ::: Bahia Integrated Project Costs (((US$M(US$MUS$M):):):): 156.2 210.9 State Highway Management Project LLL/L///CC Number::: L7411 LoanLoan////CreditCredit (((US$M(US$MUS$M):):):): 100.0 100.0 Sector Board ::: Transport Cofinancing (((US$M(US$MUS$M):):):): Cofinanciers ::: Board Approval Date ::: 11/15/2006 Closing Date ::: 09/30/2013 10/14/2013 Public Disclosure Authorized SectorSector((((ssss):):):): Roads and highways (87%); Sub-national government administration (10%); General agriculture fishing and forestry sector (3%) ThemeTheme((((ssss):):):): Infrastructure services for private sector development (40% - P); Municipal governance and institution building (20% - S); Trade facilitation and market access (20% - S); Regulation and competition policy (20% - S) Prepared by ::: Reviewed by ::: ICR Review GroupGroup:::: Coordinator ::: Jeffrey Balkind Robert Mark Lacey Christopher David IEGPS1 Nelson 2. Project Objectives and Components: a. Objectives: Public Disclosure Authorized The Loan Agreement between the State of Bahia and the IBRD (Schedule I, page 9) states the project's objective as follows: "to increase effective use of the Borrower's road infrastructure, through : (a) rehabilitation and maintenance of key sections of the Borrower's paved road network; and (b) provision of support for institutional improvements in the Borrower's road sector, while fostering greater integration among the Borrower's regions and with the rest of the country." According to the Project Appraisal Document (PAD, page 8): "The Project's ultimate development objective is to increase effective use of the Borrower's state road infrastructure, with an aim at stimulating higher economic growth . The objective is to be achieved through (a) rehabilitation and maintenance of key sections of the state paved road network, so as to contribute to the decrease of road transport costs on selected corridors, and to the increase in the use of the state road transport infrastructure, and (b) support to a set of key institutional improvements in the road sector to ensure the sustainability of physical achievements, as well as the fostering of a greater integration within the state’s regions, and of the state with the rest of Brazil ." This evaluation uses the Loan Agreement version . Public Disclosure Authorized b.Were the project objectives/key associated outcome targets revised during implementation? No c. Components: There were two components: Component 111:1::: Rehabilitation of State Paved Road Sections (((appraisal(appraisal cost $ 140140. ...6666 million, actual cost $$$194$194194....1111 million ).).). The component supported the introduction and execution of long -term, performance-based road maintenance and rehabilitation contracts on 2,000 km of the State of Bahia's paved road network (15 percent of the state highway network). The project listed 11 road sections initially totaling 1,177 km according to an agreed set of readiness criteria. The remaining 823 km of roads were to be identified later. All State road sections rehabilitated under the project had to be part of the road sections identified for maintenance and /or rehabilitation in the State Government's main logistics program (PELTBAHIA 2004), as suitably updated, and be part of road corridors connecting strategic cities or connecting the economically dynamic regions of the state to markets or ports for exports/imports from other states or countries. Investments also needed to demonstrate a minimum internal rate of return of 20%. Prior to Board presentation of the Bank loan, road sections totaling about 1,200 km for a first phase were identified, and the remainder were expected to be identified afterwards . It was these 1,200 km of works that became subject to performance-based maintenance contracting. Component 222:2::: Institutional Strengthening (((appraisal(appraisal cost US$ 151515. 15...6666 million, actual cost $ 161616. 16...8888 millionmillion).).).). There were five sets of activities to be financed by the component : Support the Government's efforts to optimize the role of transport services in order to de -concentrate economic growth, reduce logistics bottlenecks, and integrate the transport dimension into the planning of state -wide education and health services. Implement the State’s logistics program (PELTBAHIA). Strengthen the State road administration and planning system . Strengthen the road administration’s technical capacity to support the various municipalities in maintaining their road networks and in improving transport services for the poor . Preparation of the project works engineering designs and the carrying out of technical supervision, as well as support the road administration to coordinate implementation. In September 2010, a Level 2 Restructuring increased the percentage of expenditures to be financed by the Bank loan from 50 to 90 percent. This addressed the issue of delays in counterpart funding . Also, a new outcome indicator was introduced: the reduction of unit vehicle operating costs on selected itineraries or road sections . d. Comments on Project Cost, Financing, Borrower Contribution, and Dates: Project Cost ... The total cost of Phase 1 paved roads sections was US$194 million versus an appraisal estimate of $140 million. Actual investment costs on the 1,196 km that were completed under the project were 38 percent higher than estimated at appraisal. The costs of the Institutional Strengthening Program were 8 percent higher than the appraisal estimate. The principal cause of the higher cost of the investment component was the use of outdated estimates during preparation that remained uncorrected at appraisal . In addition, a year's delay in loan effectiveness led to cost increases, as did the depreciation of the US dollar against the Brazilian Real (the PAD had estimated an exchange rate of 2.16 R$/US$, but the average exchange rate over the project implementation period was 1.76 R$/US$). Due to the cost increases, a financing gap of $ 77 million emerged, leading to a significant shortfall in physical outputs -- only 1,196 km (about 60 percent) of the planned 2,000 km of road network identified for road rehabilitation and maintenance were completed under the project . The ICR (page 8) attributes $40.7 million of the civil works cost increase to "a heavier technical solution" (4 cm of asphalt skimming and replacement, instead of 2 cm) and inflation. It attributes $33.7 million to unfavorable exchange rate changes during the project period, and $ 2.9 million to additional km in PREMAR's first phase. Financing ... The Bank loan of US$100 million became effective on December 6, 2007 (13 months after Board approval). The loan was fully disbursed. There were no other external sources of financing . Borrower Contribution . According to Annex 1 of the ICR, this was US$112.1 million, compared to an appraisal estimate of $86.0 million. Key Dates . As noted above, the loan became effective in December 2007, 13 months after Board approval. The project closed on schedule on September 30, 2013, 3. Relevance of Objectives & Design: a. Relevance of Objectives: High The project remains highly relevant to current conditions and priorities in the country and in Bahia State . The Brazil-World Bank Country Partnership Strategy (CPS) for FY2012-2015, which was approved by the Board in November 2011, focuses on three developmental pillars : equity, sustainability, and competitiveness . The project is an important part of achieving sustainability and maintaining competitiveness of the transport sector . Specifically, the CPS includes among its strategic objectives, the following sub -objective (diagram, page 18) "improving transport and logistics supply chains is critical both to increase export competitiveness and to promote economic development in lagging regions." To address these various challenges, the Government updated its National Plan for Logistics and Transport, which has among its main objectives the need to improve the efficiency of the productive sectors and help reduce regional inequality, thereby rebalancing Brazil ‘s transport matrix, in order to obtain higher efficiencies in the movement of goods and freight sector. Bahia State's Multi-Year Plan ("Bahia 2020 Plano") attaches high priority to the road rehabilitation program . Located in the North East, Bahia State, with its important port of Salvador, is key to achieving a more equitable distribution of transportation services (first pillar of the CPS) in the country as a whole. b. Relevance of Design: RatingRating:::: Substantial The results framework had a clear causal chain, linking the investment components and the institutional strengthening activities to be financed by the project to the expected outputs and outcomes . Inputs, expected outputs, and expected outcomes were logically spelled out, using an approach that drew on state -level financed projects in large federally administered countries that also have extensive decentralization mechanisms in place . However, three exogenous factors were not sufficiently anticipated . Firstly, economic growth was occurring quite rapidly in Brazil and especially in the north -east corridor that was not a result of transport investments, but of developments in other infrastructure sectors, especially energy, Secondly, the more