Document of The World Bank

FOR OFFICLIL USE ONLY Public Disclosure Authorized

Report No. 11063-VE

STAFF APPRAISAL REPORT

Public Disclosure Authorized

HIGHWAYMANAGEMENT PROJECT

DECEMBER 1, 1992 Public Disclosure Authorized

LAI Department Public Disclosure Authorized Infrastructure Operations Division Latin America and the Caribbean Regional Office

This document has a restricted distribution and may be used by recipients only in theperformance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization. CURRENCY EOUIVALENTS

Currency Unit = Bolivar (Bs.) US$1.00 = Bs. 69.30 (September 30, 1992)

This exchange rate has been used throughout the report unless otherwise indicated

WEIGHTS AND MEASURES

Metric System

FISCAL YEAR

January 1 - December 31

ABBREVIATIONS AND ACRONYMS

ADT - Average Daily Traffic BMS - Bridge Management System CAVN - Compania Venezolana de Navegacion National Shipping Company CVG - Compania Venezolana de Guayana Guayana Regional Corporation DCV - Direccion de Conservacion Vial Road Maintenance Directorate DGSVT - Direccion General Sectorial de Vialidad Terrestre General Directorate of Roads IDB - Inter-American Development Bank INP - Instituto Nacional de Puertos National Port Agency ERR - Economic Rate of Return MTC - Ministerio de Transporte e Comunicaciones Transport and Communication Ministry PDVSA - Petroleos de Venezuela S.A. National Petroleum Company PERL - Public Enterprise Reform Loan PMS - Pavement Management System SA - Special Account SAVA - Servicio Autonomo de Vialidad Agricola Autonomous Service for Agricultural Roads SOEs - State-Owned Enterprises TAL - Technical Assistance Loan VOCS - Vehicle Operating Cost Savings VENEZUELA FOR OMCIAL USE ONLY

HIGHWAY MANAGEMENT PROJECT

STAFF APPRAISAL REPORT

Tableof Contents

Loan and Project Summary ...... (i)

I. THE TRANSPORT SECTOR ...... 1 A. Overview of the Transport System ...... 1 B. The Road Transport Industry ...... 1 C. Ports and Shipping ...... 2 D. Railways ...... 3 E. Sectoral Organization ...... 3 F. Bank Sector Experience and Strategy ...... 4

I. THE ROADS SUBSECTOR ...... 5 A. The Road Network ...... 5...... I'll...I5 B. Road Administration, Decentralization, Concessions ...... 6 C. Financing and Cost-Recovery ...... 7 D. Organization and Management ...... 8 E. Highway Planning and Programming ...... 9 F. Highway Maintenance Management ...... 9 G. Investment and Maintenance Expenditures ...... 10 H. Environmental Management ...... 11 m. THE PROJECT ...... 12 A. Project Origin, Rationale and Objectives ...... 12 B. Project Description ...... 13 C. Project Cost and Financing ...... 17 D. Project Environmental Impact and Economic Evaluation ...... 19 E. Project Risks ...... 19

IV. PROJECT IMPLEMENTATION ...... 20 A. Institutional Responsibilities ...... 20 B. Organizational Arrangements ...... 20 C. Implementation Program ...... 21 D. Procurement ...... 24 E. Disbursements, Accounts and Auditing ...... 25 F. Monitoring and Supervision Plan ...... 26

V. AGREEMENTS AND RECOMMENDATION ...... 27

This report is based on the findingsof an appraisal missionwhich visited Venezueladuring April-May 1992. The mission comprised Messrs. Jacques Cellier (Task Manager, LAIIN) and Paul Autret (Pavement Specialist, Consultant).Mr. Gerard Liautaud(Highway Engineer, LAIIN) contributedto the report. Mr. Jose Alonso-Biarge (Peer Reviewer, LA3IN)provided technical advice. Ms. Joy Obialorprovided administrative support. Messrs. Asif Faiz, Vahram Nercissiantz,and ArmeaneChoksi are respectivelythe managingDivision Chief, Projects Adviser, and DepartmentDirector for the operation.

| This document has a restricted distribution and may be used by recipients only in the performance or their officialduties. Its contents may not otherwise be disclosedwithout World Bank authorization. VI. ANNEXES

1. SupportinyTables and Charts

Tablesa:

1.1 Venezuela's Vehicle Fleet ...... 29 1.2 Road Densities in Latin America and Caribbean Countries ...... 30 1.3 PetroleumProducts, Price Structure and Adjustment ...... 31 1.4 Evolutionof Road Expenditures, 1982-1992...... 32 1.5 SummaryResults of EconomicEvaluation of ExpresswayProjects ...... 33 1.6 Project Costs and Financing ...... 34 1.7 Estimated Scheduleof Disbursements ...... 35

ch=:

1.1 Organizationof the Ministryof Transport and Communications ...... 36

2. Assessmentof Network Condition ...... 37 3. Network Maintenanceand RehabilitationStrategies ...... 40 4. Decentralizationand Strengtheningof HighwaysManagement .43 5. Project Quantitiesand Cost Estimates...... 51 6. First-Year Rehabilitationand ResurfacingProgram ...... 55 7. Economic Analysis of First-Year Program .58 8. Monitoringand SupervisionPlan ...... 63 9. SelectedDocuments and Data Availablein the Project File ...... 65

MC: IBRD No. 22154: Venezuela VENEZUELA

IGHWAYMANAGEMENT PROJEC

Loan and Project Summary

Borrowr: Republic of Venezuela Executing Agency: The Ministry of Transport and Communications(MTC)

Amount: US$150.0 million equivalent

Terms: Repayment in 15 years, including five years of grace, at the Bank's standard variable interest rate. Project Objectives: The project's primary objectives are to: (a) rehabilitate and maintain the national paved highway network; and (b) establishsustainable institutional mechanisms to ensure effective road maintenancein the future within a framework of a decentralizedroad administration. Other related objectives are to: (c) develop and implementpolicies and mechanismsfor adequate funding of road maintenanceand efficient recovery of road costs; (d) encourage privatesector participationby contractingout routine maintenanceactivities and transferring expresswaysto private concessionaires;(e) strengthenthe road maintenancecapabilities of the operational road administration units, and the policy formulation, planning, and monitoring systems of MTC's highway maintenanceoffice; and (f) develop and improve compliancewith environmentalstandards in the transportsector, particularlyfor highways. Project Description The project would consist of: (A) a policy and institutional development program, includingtechnical assistance and trainingof staff, to: (a) prepare and implementa program to decentralize the maintenance of the road network and help transfer management of expressways to private concessionaires;(b) design and establish appropriate road cost- recovery and maintenancefunding policies and mechanisms; (c) develop and establish a highway managementsystem to help DGSVT prepare and monitor efficient highway and bridge rehabilitationand maintenancestrategies, standards, and programs; (d) formulateand implement a plan to contract out maintenance; (e) strengthen the technical capacitiesof MTC state directorates and state public works departmentsto manage and supervise road maintenancecontracts; and (f) establish a capability in MTC to develop, implement and monitor environmentalstandards and guidelines for roads; (B) an investment program consisting of the highest-priority highway and bridge rehabilitation and resurfacing componentsof MTC/DGSVT's1993-97 program, includingthe rehabilitationofabout 3,000 km and the resurfacing of about 4,800 km of highways;and (C) a maintenance program consisting of routine and periodic maintenanceworks, which would be fully funded with local resources. Project Benefits: The project, by helping to retard the deteriorationof the highwaysystem through improved maintenancewould: (a) avoid further losses of valuable capital investedin public roads; and (b) contribute to growth in agriculture, industry and exports by substantiallyreducing the cost of road transport. It would also contribute to: (c) enhanced accountabilityand more ii

efficient use of public resources in the highway subsector; and (d) mitigation of adverse environmentalimpacts of highway constructionand maintenance. Project Risl&s: Project risks include: ineffective managementof project by MTC/DGSVT; inadequate supervision of works and contracts by decentralizedunits; and insufficient allocation of resources by the Government. In order to minimize these risks, the project includes: (a) a well-defined project implementation program and organizational arrangements; (b) strengthening of DGSVT's key planning and control responsibilities as well as implementationcapabilities of the decentralizedunits; and (c) a supervisionand monitoring plan with annual reviews of DGSVT's expenditureand funding programs, and a detailed mid-term review of project implementation.

Estimated Project Costs and Financiny I/ (USS million equivalent)

Project Component Local Foreign Total S Highway Rehabilitation 121.4 65.4 186.8 22 Highway Resurfacing 94.5 50.9 145.4 17 Capacity Increase 11.0 6.0 17.0 2 Bridge & Tunnel Rehab. 66.6 35.8 102.4 12 Marling & SignaUing 12.1 6.6 18.7 2 Routine & Emergency Maintenance 141.9 76.4 218.3 26 Engineering and Supervision 17.9 9.7 27.6 3 Technical Assist. & Training 8.9 4.8 13.7 2 Total Base Cost 474.3 255.5 729.8 87 Physical Contingencies 32.4 17.4 49.8 6 Price Contingencies 39.3 21 12 604 Total Project Cost 546.0 294.0 840.0 100 Financing Plan Government 490.0 - 490.0 58 Inter-AmericanDevelopment Bank 56.0 144.0 200.0 24 World Bank - 150.0 150.0 18 Total Fmancing 546.0 294.0 840.0 100

Estimated Disbursements FY93 FY94 FY95 FY96 FY97 FY98 Annual2/ 20 20 30 40 30 10 Cumulative 20 40 70 110 140 150

I/ including estimated local taxes and duties totaling US$168.0 milJion. 2/ including initial deposit of US$10.0 million into special account.

Rate of Return: The estimated economic rate of return for the first-year program is 53%. The economic rates of return for the remaining investmentsare expected to range from above 12% to about 100%, with most of them exceeding30%. VENEZUELA

HIGHWAY MANAGEMENTPROJECT

I. THE TRANSPORT SECTOR

A. Overview of the Transport System

1.01 Road transport is the dominantmode of domestic transport in Venezuela; it accounts for almost all cargo traffic (the main exceptions are petroleum and ore products), and for 99% of inter-city passenger trips. It effectively serves the country's diversified and geographicallydispersed pattern of agriculturalproduction and the short-distancepassenger movements.The railway system is limited to a 240 km line to which carries about half a milliontons of freight and 300,000 passengers, and three special-purposelines whichserve the miningindustry. Inland water transport, whichhistorically has played a major role, has lost its importance with the developmentof road transport, and is now significantonly for the export of minerals on the Orinoco.

1.02 The foreign trade of Venezuelaamounts to approximately35 million tons per year, excluding petroleum. The nationalstate-owned shipping line (CAVN) carries about 30% of Venezuela's exports and 45% of its imports. The maritime trade is handled through: (a) eight public ports which until recently were owned and operated by the national ports agency (INP) and are being transferred under the responsibilityof the states and municipalities;(b) industrial terminals on the Orinoco River serving Guayana Regional Corporation (CVG); (c) other private industrial terminal serving single industries, located primarily on the North Coast and Lake ; and (d) the petroleumterminals operated by PDVSA. The INP ports handle roughly 10 million tons of cargo annually,but this represents 90% of the general cargo and virtually all the containerizedtraffic. Two INP ports, Puerto Cabello and , handle most of this traffic.

B. The Road Transport Industry

1.03 Industry Organization. The road freight transport industrycomprises: (a) about 115 transport companies, which operate mainly in the very competitive segments of the transport market; (b) about 65 transport cooperatives operating on a national or regional scale, which can be either simple associationsof owner-drivers,or have all their capital, includingvehicles and sometimesmaintenance and loadingfacilities, held in commonbetween the cooperativemembers; and (c) individualowner-operators, who generallyare affiliatedto a union or syndicate,which often controlsthe members negotiatingpower with clients. The companiesprovide about 30%, the cooperatives50%, and the independentoperators the remaining 20% of the supply of road transport.

1.04 Freight Transport Demand. The total output of the road transport industry is estimated at between 30 and 40 billion ton-km per year. A very high proportionof this total output is in urban areas. The interurbantransport output is about 10 billion ton-km.

1.05 Market Shares. The market for final products, which represent about 30% of the total transport demand, is roughlyequally shared amongthe industry's main groups, i.e. the companies,the cooperatives - 2 - and the individualtruck owner-operators.The market for semi-finishedproducts (about 25% of total) is shared mainlybetween the companiesand the cooperatives,which operate the larger trucks on the longer distances and achieve the highest load factors. Minerals and cement are transported mainly by cooperatives, under long-term contracts which provide the shipper with the assurance of adequate transport supply but at a generally high price. Individual owner-operatorsdominate the transport of agricultural products, which is very fragmented and generally contracted on an individual truck load basis.

1.06 Vehicle Fleet. There are about 228,000 trucks in Venezuelaand about 19,000 buses (Table 1.1, Annex 1). A small portion of the truck fleet, however, in used in inter-urbantransport. The averageage of the vehicle fleet is very high, probably higher than 10 years, if one considersthe smallnumber of new truck sales in recent years. A recent survey at toll stations showed that 57% of trucks were two-axle and 12% were three-axle rigid trucks, the rest of the surveyedvehicles (31%) being semi-trailersand tractor trailers with four to six axles.

1.07 Truck Load Regulation. Truck loads are regulated mainly through a maximum gross vehicle weight of 48 tons, and a maximum single-axle load of 10 tons. Truck and trailer combinationsare permitted lower gross vehicle weights than semi-trailers with the same number of axles, and have a maximumpermitted gross weight of 41 tons on five or six axles. The maximum permitted length is 17 meters for semi-trailersand 21 meters for tractor and trailer combinations.Actual truck loads, however, are substantiallyabove the limits. A recent survey showed that about 25% of small and medium trucks and about40 % of large trucks (more than four-axles)were overloaded;about 27% of six-axle trucks were more than 25% overloaded. Overloading is often achieved by making illegal alterations to the vehicle dimensions,usually by extendingthe body length. More than 60% of the six-axle trucks surveyed were of more than the legal maximumlength; and more than half of the six-axle tractor trailer combinations exceeded the maximum length by more than one meter. Taking into account the failure of previous attempts to enforce axle-loadregulations, MTC has revised its pavementdimensioning standards to take overloading into account. MTC has also prepared a plan to discuss with the trucking industry groups mutually-acceptableapproaches to implementing axle-load and maximum vehicle weight and length regulations. The project would assist MTC to implement such plan under the highway maintenance planning and programmingaction program (para. 3.09).

C. Ports and Shipping

1.08 The NationalPort Institute(INP) of the MinistryOf Transport and Communications(MTC) was responsiblefor the provisionof labor, equipmentand all services within its ports. These activitieswere characterizedby low productivity,low equipmentavailability and lack of suitableequipment for efficient container handling. As a result of INP's inefficiency,shippers frequentlyhired private firms to handle cargoes, while still paying INP tariffs and subject to the restrictive practices of INP's labor agreements. Also, as a result of inefficienciesand problems in INP ports, the shipping conferencesapplied various cargo surchargesfor congestionand port cost differential.The cost of these chargesto the nation has been estimated at US$30-50 million annually. Moreover, INP has been a substantial burden on the Government'sbudget, with transfers averagingUS$25 million in 1988-1990.

1.09 As a conditionof the Public EnterpriseReform Loan, the Govermnentin 1990 approved a far- reaching reform program which involved:the dissolutionof INP and the dismissalof all INP workers; the establishmentof new regionalport authoritiesto oversee the individualports, with the commensurate - 3 - transfer of responsibilityfor port administrationto state governments;and the operation of all ports by the private sector under concessionagreements. A key objectivewas to promote competitionboth between ports and within ports, by having a number of different private operators within each port. INP was liquidatedin 1991, and its 11,000 employeeshave been laid off with adequate compensation.Many of the INP workers are now hired by private stevedoringfirms on a contractualbasis. Althougha number of technical aspects of the reform still need to be worked out or implemented,shippers now enter into short-term contracts with the ports for terminal use and are free to hire private labor from a roster of stevedoringfirms.

1.10 As with ports, inefficientand restrictivepractices in shippingwere perceivedby the private sector as an important impedimentto trade expansion and economic growth. Venezuela, like many other countries,had restrictiveshipping legislation designed to promote the nationalfleet, in particularthe state- owned shippingline, CAVN. Recently,however, the Governmenthas implementeda number of measures to liberalizeshipping and to promote competition.Regional (AndeanPact) and bilateral agreementshave been signed with a number of countries to eliminate cargo reserve requirements, thereby allowing shippers freedom of choice in selecting a carrier, and to liberalizeshipping rates and route extensions. Also, the Governmenthas approveda broad restructuringprogram for CAVN to reduce costs and ensure that it operates on a commercialbasis.

D. Railways

1.11 The Governmenthas been for some time considering an ambitiousrailway investmentplan as a means to achieve regional economic integration. The proposed constructionof two new rail links is currentlybeing considered:(a) the Center-OccidentalLine, whichwould consistof a -Cuasection, aiming to open new areas to urbanization,in the southof the metropolitanregion, and of the Cua-Puerto Cabello section, to link with the existingOccidental lines; and (b) the South-OrientalLine, which would provide a direct rail link to a new deep-sea port at Guacarapo for the Guayana Regional Corporation (CVG) iron ore exports, thus avoidingthe present transhipmentfrom the existingrailway line at Puerto Ordaz throughthe Orinocoriver. The NationalFreight Transport Study, which is currentlybeing carried out under the Technical AssistanceProject (Loan no. 3225-VE), and other related studies will provide an adequate assessmentof the technical and economicfeasibility of these projects.

E. Sectoral Oreanization

1.12 The Ministryof Transportand Communications(MTC) has overallresponsibilityfor the transport sector, with the exception of the existing railway lines which serve the mining industry, the most importantof which are operatedby FERROMINERA,a branch of CVG. MTC is made up of six Sectoral General Directorates (DGS), each headed by a Director-General(Chart 1, Annex 1):

(a) the Roads Directorate (DGSVT) is responsible for the design, construction, and maintenanceof the nation's road network (paras. 2.15-2.16);

(b) the Land Transport Directorate (DGSTI) is responsiblefor regulatingand controlling traffic, transit and land transportation; (c) the Water Transport Directorate (DGSTA) is responsible for shipping policy, regulation, control of navigation,pilotage, and construction,operation and maintenance of ports and navigationchannels;

(d) the Air Transport Directorate (DGSTA)is responsiblefor the air transport policy and regulation,control of air navigation, and for construction,operation and maintenanceof airports and airstrips;

(e) the Administration and Services Directorate (DGSAS) is responsible for personnel managementand finances; and

(f) the CommunicationsDirectorate (DGSCO)is responsiblefor telecommunications,mail and broadcast policies, regulationand supervision.

1.13 The Ministryhas a State Directorate in each state, as well as a number of central supportoffices, including for budgeting and planning, and for coordinationwith state governments. MTC has also a numberof decentralizedagencies or state-ownedenterprises under itsjurisdiction, includingFERROCAR, which operates the railways, the Ports National Institute, the shipping line (CAVN), as well as the (Chart 1.1, Annex 1). The nationalairline ()and the national telephone company (CANTV) have recently been privatized. The Government recently undertook to decentralize road administration(paras. 2.06-2.09).

F. Bank Sector Exedrience and Strategy

1.14 Since this wouldbe the first highwayproject in Venezuela,lessons have been drawn from similar highway projects, which were recently completed in the region and elsewhere, and reviewed by OED (AnnualReview of Project PerformanceResults for 1990and 1991). In summary, a good proportionof the highwayprojects (78%) have been rated as satisfactory, but less (60%) have been rated as having likely prospectsof sustainability.The physical objectivesof the projects have generallybeen attained. The major problems have been with the institutionalbuilding components, which often fell short of their objectivesof establishingsustainable capabilities for the maintenanceof the networks. Maintenancehas continuedto suffer from lack of funds and inadequatecost-recovery, from poor organizationaland staff performance and insufficient accountability, and from unenthusiasticgovernment support, especially where it is carried out by force account. But progress has been made where maintenancehas been contractedout, such as in Brazil and Chile, and where adequatefunding mechanisms, such as road funds, have been established.Attention has been put into carefully incorporatingthis experience in the design and preparationof the project.

1.15 The Bank's strategy in Venezuela is to support policies and investmentsthat will encourage economicgrowth and social developmentin a contextof macro-economicstability. The primary emphasis is on efficient resource allocation,increased efficiency in the public sector and the appropriatetargeting and delivery of supportsystems to the poor. In the transport sector, Bank strategy is evolving, based on the results of ongoing studies. However, after supporting,through a PERL, the privatizationof VIASA, restructuringof the ports, and the liberalizationof shipping, and, through a TAL, the strengtheningof sector policy formulationand planning within MTC, the main priorities are to assist the Govermnentto establish appropriate regulatory, administrativeand financing frameworks to effectively manage the highway network and the urban transport systems, particularly ensuring their adequate operation and maintenance,and the increasedparticipation of the private sector in transport services and infrastructure. II. THE ROADS SUBSECTOR

A. The Road Network

2.01 Venezuela has about 81,200 km Box 1 of roads, of which about 31,200 km are paved, 24,800 km are gravel, and 25,200 Venezuela' Road Network(km.) km are earth roads. Venezuela's road densities, in relation to surface area or Roadcater!oriE1 ElIal£iili population, are lower than Latin arteriahighways 10,400 250 g00 11,450 Americanaverages (Table1.2, Annex 1). locahiShways 7,500 1,250 300 9,050 There are about 10,400 km of arterial highways, 7,500 km of local highways, feederroads 9,200 8,100 3,300 20,600 and 50,000 km of feeder and local access local accessroads 4,100 15,200 20,800 40,100 roads. Over 1,500 km of highways are Total 31,200 24,800 25,200 81,200 dual-carriagewayexpressways.

2.02 Network Classification. Venezuela'sroads are classifiedas follows: (a) arterial highways,which provide connectionsbetween regions and with neighboring countries; (b) local highways, which link populationcenters to arterial highways;(c) feeder roads; and (d) local accessroads, which provide access to rural areas. This classification, however, has lost much of its significance in recent years. New expresswayshave transformed some formerly arterial highways into essentiallylocal access roads; and improved local highways have taken an inter-regional role. In order to enable an appropriate redistributionof the administrativeresponsibilities for highways and roads, the functional classification of the networkneeds to be updated. The project will provide for a revision of the network classification (para. 3.07).

2.03 Traffic. Over 90% of the country's non-urbantraffic Box 2 (expressed in vehicle-km) is on the expressway and paved highway networks. The average daily traffic (ADT) on the TrafrcDeniLv paved highwaynetwork is high (about2,000 vehiclesper day, vpd), and about 12% of the paved networkhas an ADT above ADT(vL... i* 7,000 vpd. The distributionof the network by more detailed < 1000 15,400 S0 traffic categories is shown in Annex 2, Table 2.1. 1000-3000 8,000 25

2.04 Network Characteristics. Venezuela'sroad network 3000-7000 4,000 13 is relatively mature since more than 80% of the paved >7000 3,800 12 network is over 15 year old, and less than 7% is less than 6 Total 31,200 100 year old. Pavements are made of asphalt concrete; surface treatments are not common, even on low-trafficroads.

2.05 Network Maintenance Condition. A survey of the maintenancecondition of the paved network, carried out in 1991 for the preparationof the project, has shown that: 26% of the network was classified in good condition,and essentiallyrequired routine maintenance;54% was classifiedin regular condition, and essentiallyrequired or would soon require resurfacing; and 20% was classified in poor condition, and required substantialrehabilitation or reconstructionworks (Box 3 hereinafter). The distributionof the paved networkby class of traffic and road conditionis shown in Annex 2, Table 2.1. -6 - Box 3 B. Road Administration. Decentralization. Concessions NetworkCondition 2.06 Subsector Administration. The managementof the .. road network has been highly centralized in DGSVT. Highwayconstruction and maintenance programs are generally god 8,000 26 prepared centrally, and are funded (to the level of 90% of repular 17,000 54 total expenditures)through annual budget allocationsfrom the poor 6,200 20 NationalTreasury. In some cases, the states allocate a small portion of their situado to the financingof centrally-designed Totl 31,200 100 and programmed highway investments. States' financial contributions to feeder and local access roads are more significant(about 30%), but until recently, feeder road programs were also decided centrally (Annex 3, section B). This situationhas resulted in less than efficient road programs, giving higher priority to new highway, expressway or feeder roads constructionprograms at the expense of the maintenanceof the existingnetworks; in poorly designed rural roads programs with little consistencywith the needs of the local communitiesand with agricultural developmentobjectives; and in largely unpredictable budget allocations which have hampered the appropriateplanning and programmingof expendituresand the effective managementand maintenanceof the networks.

2.07 Recently, however, there has been a greater awareness of these problems and of the need to improve the maintenanceand to decentralizethe managementof the road system. The Government, in line with its broader decentralizationobjective, set-outby the DecentralizationAct of 1989, is committed to a reform of the highway administration.The DecentralizationAct has establishedthat: (a) states can have exclusivecompetence for the maintenanceand administrationof the roads, bridges and expressways in their territory; (b) states will progressively be given the responsibility for the construction and maintenanceof the local road networks; (c) the transfer of competencewill take place through agreements betweenthe central and the state governments;and (d) states have to annuallyprepare a coordinatedplan for investments,which must consider the specific amounts that will come from the central and local budgets (Annex 4, section B). Some state governments are now showing more interest in assuming highway maintenance responsibilities,provided adequate funding is available, either through tolls or through transfers from the NationalTreasury.

2.08 Decentralization. The Government has started to implement some elements of the DecentralizationAct. The AutonomousService for AgriculturalRoads (SAVA) was created to receive from DGSVT the responsibilities for "agricultural" feeder and local access roads. A national (interministerial)as well as regional and local committees,with representativesfrom the state and local governments, have been establishedto decentralize feeder and local road expenditure decisions. The Government,however, still needsto clearly define:(a) a new classificationof the country's road network, including the networks, the managementof which would be decentralized through SAVA, and the (interstate) network of national interest for which the central governmentwould retain at least some managementresponsibilities, (b) a policy and a plan to decentralizeresponsibilities for the local and the interstatehighways, includingthe functionsto be transferred and those to be retained at the central level; (c) consistentroad financingand fundingpolicies and systems(section C hereinafter);(d) the mechanisms to enforce (through regulation) or to encourage (for example through matching grants) appropriate policies, technicalnorms and standardsat the decentralizedlevel, in the national interest; and (e) a plan to assist the state governmentsin establishingappropriate technical and managementcapabilities to carry out their responsibilities,and to transfer and/or reorganizethe related technicalservices in MTC's state directorates (Annex 4, section D). The above would be important elements for the formulation and -7 - negotiationof decentralizationagreements with the state governments.The project wouldassist the central governmentin defining such policies and plans (paras. 3.06-3.07).

2.09 Expressway Concessions. MTC is studyingthe feasibilityof transferring responsibilitiesfor the constructionand/or operation, maintenanceand financingof expresswaysto the private sector. With the DecentralizationAct, however, the state governments, rather than MTC, have competenceto establish the concessions.MTC thereforeneeds to develop a modelconcession statute, includingrelated regulatory, evaluationand supervisorypolicies, mechanisms,criteria and methodologies,and to offer it to the states, under the decentralizationprogram, for inclusionin the respectivestate laws (Annex4, section D). MTC has establishedan expresswayconcession unit. The project wouldprovide technical assistanceto the unit for that purpose (para. 3.07).

C. Financing and Cost-Recovery

2.10 Road Cost Recovery, Demand Management. Road user charges in Venezuela essentially consist of a tax on petroleum products, tolls on some expressway sections and major bridges, and a vehicle ownership tax, which is levied by municipalities.Tolls, which until recently were exclusively collectedby the central government,have not been updated since these roads were opened; toll revenues therefore are insignificant. Similarly, vehicle ownership tax rates are outdated; the municipalities' revenues from these taxes contribute only a portion of their expenditureson urban street networks. Revenuesfrom the tax on motor vehicle fuels have, on average over recent years, exceededtotal central governmentexpenditures on roads. However prices of petroleum products are very low in Venezuela; they average about one-half of internationalparity prices (Table 1.3, Annex 1). If one considers this factor, there is no recovery of road costs and an implicitsubsidy to road users.

2.11 Agreementwas first reached with the Governmentunder the Structural AdjustmentLoan on a plan to progressively raise the prices of petroleum products to international levels. This program of phased price increases was to continueunder the Public EnterpriseReform Project (Loan no. 3223-VE). Progress was made under this plan until January 1992, when prices reached a level equivalentto about 50% of the internationalborder prices. However, the adverse impact of the gasoline and diesel price increases on the net disposable income of primarily the middle-classpopulation and the strong public reactions to these price increases have led the Government to postpone and slow down further price adjustments(Table 1.3, Annex 1).

2.12 The allocative impact of petroleum subsidiesis essentially related to the intensiveuse of fuel- inefficientprivate cars to the detriment of public transport. The impact on the inter-modal allocationof freight is insignificantsince there are no viable alternatives to trucking in general. Increasing traffic congestionand pollutionare the main consequencesof subsidizedfuel prices, particularly in urban areas. There are no significantimplications for road maintenanceexcept for inadequatecost recovery from road users.

2.13 Within this context, the main elements of an adequate road cost recovery and demand managementpolicy would be to: (a) aim to at least recover the short term marginal cost of road use by the different categories of vehicles, by maintaining appropriate road user charge levels through a combinationof taxes on petroleumproducts and on vehicleuse and/or ownership; (b) charge appropriate tolls on expressways,preferably through concessionsto private operators, responsiblefor operationand maintenance,capacity investments, and relatedfinancing; (c) use internationalmarket prices, in particular - 8 - for petroleumproducts, in evaluatingand selectingthe investmentsto be includedin the annual highway programs; and (d) formulate and implement adequate road policies and measures, including parking restraint and traffic management,to improve the managementof demand for road use in urban areas. The projectwould help the Governmentto develop and implementelements (a) to (c) (para. 3.08). A proposed Urban Transport project, which is currently under preparation, would help to implementelement (d).

2.14 HighwayMaintenance Funding. Largely insufficientresources have, in the past, been allocated to road maintenance, which led to the deterioration of the network (Table 1.4, Annex 1). The 1992 budget, however, includes much increased allocations for road maintenance. In order to secure appropriate, permanent funding for road maintenance, the Government has presented to Congress a proposal to create a Road Fund, which would receive part of the proceeds of gasoline taxation and be used partly for the maintenanceof the primary road network. Congress, however, has not yet acted on the proposal. If the proposal is not approved by Congress, alternative permanent funding mechanisms would be studied under the project and establishedin accordance with an agreed timetable (para. 3.08). In additionto taxes on petroleumproducts, the study would assessthe feasibilityof raising revenuesfrom alternativesources such as road tolls and vehicle use and/or ownership taxes, and of their redistribution to the states in accordancewith their expenditureresponsibilities.

D Organizationand Management

2.15 Subsector Organization. DGSVT is responsible for highway policy formulation, planning, progranmming,and for the supervisionand control of the highwayconstruction and maintenanceservices executed by contractors or by the state directorates. SAVA and its decentralized committees are responsiblefor the same functionsfor agriculturaland rural road systems,but since the technicalservices have not yet been reorganized, DGSVT still provides many of these services. State Directorates are responsiblemainly for maintenanceexecution and for works supervisionand control.

2.16 DGSVT is headed by a Director-General, who has direct support from: a Planning Office, which, in coordinationwith MTC's Planningand Budget Office, prepares and monitors the executionof annual programs and budgets; and from a SupportServices Office, which in coordinationwith MTC's AdministrationOffice is responsiblefor personneladministration and financialmanagement matters. With the transfer of rural road responsibilitiesto the newly-createdSAVA, DGSVT has now three departments: (a) the Highway Maintenance Department (DCV), responsible for highway maintenance policy formulation, planning, programming, and for the supervisionand control of the highway maintenance services executedby the state directorates;(b) the ConstructionDepartment, which is responsiblefor all DGSVT's new constructionworks; and (c) the Studiesand Projects Department,which is responsiblefor studies, engineeringdesign and laboratoryservices.

2.17 SAVA is still in the process of establishingits new organization. It is headed by a Director- General, who oversees four departments: (a) Studies and Projects; (b) Execution; (c) Equipment; and (d) Coordination.National policies and plans for agriculturalroads are approvedby an inter-ministerial National Council for Agricultural Roads, which is chaired by the Minister of Agriculture. Their implementationis the responsibilityof an OperationalCouncil, which is chaired by the Director-General of MTC, and which oversees SAVA's operations. The Director-General of SAVA is the Executive Secretaryof this OperationalCouncil. Regional Committees, which are chairedby the State Governors, are responsible for approving regional plans and programs in the respective states. The Directors of MTC's State Directoratesare the ExecutiveSecretaries of the RegionalCommittees. Regional plans and - 9 - programs are prepared in consultationwith Municipaland User Committees, and are submittedto the OperationalCommittee after approval by the RegionalCommittees.

2.18 The State Directoratesare headed by State Directors who report to MTC's Director-General. In general, state directorates are organized into five divisions responsible for: (a) new construction; (b) maintenance; (c) agricultural roads; (d) personnel; and (e) administration.The directorate's road maintenancework force is organized into several residencies,each headed by an engineer, who reports to the Chief of the MaintenanceDivision. The equipmentis managedat the state directoratelevel, where the workshops are located.

E. HighwavPlanning and Programming

2.19 SectorPlanning. MTC/DGSVT does not have the technicalcapabilities required for sectorpolicy formulationand planning. There are no well defined investmentand maintenancestrategies; nor economic criteria, evaluation methodologies and procedures to select projects and to prepare and evaluate investmentand maintenanceprograms. As a result, road programs and budgets tend to be driven by the availabilityof funds and by the priorities perceived at the decision-makinglevel, without the benefit of a thorough economic analysis. MTC/DGSVTneed to strengthen their planning capabilitiesto prepare annual and pluriannual road programs on the basis of appropriate technicaland economiccriteria, and to seek appropriatefunding commitments from the Governmentand other possiblefinanciers. The project would provide technicalassistance and training to MTC/DGSVTstaff to develop such planning capability under the decentralizationand the maintenanceplanning programs (paras. 3.07 and 3.09).

2.20 Maintenance Planning and Programming. With the deterioration of the network, the development, implementation and monitoring of appropriate network maintenance strategies and pluriannualand annual programshave becomethe most criticaltasks faced by DGSVT. The maintenance planning and programmingprocess, however, in order to be effective, requires appropriatepavement and bridge managementsystems (PMS and BMS), i.e. adequate informationon the condition and usage of the network, analytical tools to assess alternativemaintenance strategies under budget constraints, and a systematicapproach to prepare, evaluateand monitorpavement and bridge rehabilitationand maintenance programs. DGSVT needs to strengthen, complementand integrate its existing systems. In particular, its road inventory, pavement and bridge conditiondata, and traffic informationneed to be updated more systematically;computerized network and bridge data bases need to be developedand the data collection systems strengthened. Appropriate procedures, criteria and methodologies need to be defined and establishedto develop efficient networkmaintenance strategies and programs and to monitortheir impact on the condition of the network. At the engineering level, DGSVT needs to strengthen its capacity to make sound diagnostics of the pavement and bridge conditions, and to update its standards and methodologiesfor pavementand bridge rehabilitationand maintenanceengineering. The project would provide technicalassistance to DGSVT to develop and establish appropriatemanagement systems and to prepare and implementadequate network maintenancestrategies and programs (para. 3.09).

F. HighwayMaintenance Management

2.21 Maintenanceby Contract versus Force Account. Routine maintenance has generally been carried out under force-accountby the state directorate. However, ineffectivemanagement of equipment and shortagesof foreign exchangefor spare parts have contributedto the rapid deteriorationof the state - 10- directorates' machinery. Less than half of the fleet of about 1000 units is presently in operating conditions.In addition, the staff of the maintenancedistricts have been reduced from about 15,000in the early 1970s to about 3,000, and a large proportion of the remaining staff is near retirement. Present resources in staff and equipment combined would allow for the maintenanceof less than half of the networks.There is scope, therefore, in many of the state directorates, to contractout routine maintenance without affectingthe utilizationof the districts' force accountcapacities. DGSVT has undertaken a pilot project to assess the feasibility of such maintenance-by-contractprogram. The project would assist DGSVTin developing,on the basis of the experiencewith this pilot project, and implementinga strategy and a plan to contract out routine maintenance(para. 3.10).

2.22 Contract and Project Management Systems. MTC's state directorates and the states' public works departments,which have mainlycarried out maintenanceworks by force account, do not generally have all the technical capabilities required to effectively procure and manage rehabilitation and maintenancecontracts, or to supervise and control engineeringdesigns and civil works. DGSVT will thereforehave to: (a) clearly define the procedures, norms and methodologiesto be followedby the MTC state directorates and/or the states' public works departmentsfor procurement, contract management, engineering and works supervision, and project monitoring and reporting; (b) provide the technical assistanceand training programs necessary to strengthen the technical capabilitiesof MTC directorates and/or state public works departments;and (c) strengthen its own administrativeand technical systems, which are necessary to control the procurement and managementof contracts and the quality of the works, and to supervise and monitorthe execution of works. The project would provide assistance to DGSVT to develop, disseminate and/or establish such procedures, norms and systems, and to prepare and deliver the related training programs (paras. 3.10 & 3.12).

2.23 Personnel and Training. DGSVT and all the maintenance districts combined have a staff of about 4,000, of which 7% have had university-leveleducation. With the past restrictionsimposed on the recruitmentand managementof Governmentemployees, including freezes on hiring, and the insufficient attentiongiven to staff development,DGSVT's present staff is not adequatelyprepared to carry out their changingresponsibilities effectively. In order to strengthen its planning and implementationcapabilities, MTC/DGSVTwill need to make particular efforts in training its professional staff and management personnel in the areas of: (a) network maintenance planning and pavement and bridge management systems, includingdesign, monitoring and evaluation of network maintenancestrategies and programs and use of the HDM3 model, and techniques of pavement diagnostic, design and rehabilitation; (b) contract maintenanceand maintenanceadministration systems, includingprocurement, management and supervision of contracts, and monitoring of projects and programs; and (c) enviromnental management,including environmentalcost-effectiveness analyses and dissemination of environmental guidelinesfor highways. An appropriatetraining program, consistingof a series of courses, seminarsand conferencescovering the above areas has been prepared (Annex4, SectionE). The project wouldprovide assistanceto DGSVT to develop and implementthis program (para. 3.12).

G. Investment and Maintenance Expenditures

2.24 Historically, MTC's annual road expenditureshave historicallybeen quite variable, depending on the availabilityof Treasury funds; but on averagethey decreasedsubstantially during the 1980's. Total road expendituresdeclined from over US$700 million in 1982 to about US$100 million in 1989 and recovered to about US$400 million recently (Box 4 hereinafter, and Table 1.4, Annex 1). These expenditures,however, do not accountfor road expendituresmade by the states and municipalities,nor for those made by CVG. The recent cuts in road expenditureprograms have not only affectednew S AND MAINTENANCE constructionprograms, but also the maintenance programs. Maintenanceexpenditures, which were kept at a level of US$60-80 million until 1986, U- were drastically cut back during 1988-1991.It is only in 1992, that the maintenance budget has been restored, to about US$80million. sos ~~~~~~~~~~...... 2.25 Since rural roads responsibilities have been transferredfrom DGSVT to SAVA, DGSVT is left with only two main expenditureprograms: the highway rehabilitation and maintenance 4,0 program and the expresswaycompletion program. In the course of project preparation, DGSVT has developed a rehabilitation and maintenance strategy and pluriannual program for the paved too highway network, which was evaluated by the appraisalmission and found adequate(paras. 3.13 to 3.23). The proposed expressway completion program is shown in Table 1.5, Annex 1. A t W ffs XsW W 90 Vi 1 recent economicevaluation of the program shows that some of the proposedexpressway investments seem to be economicallyjustified while others Box 4 shouldbe analyzedfurther and possiblyrevised or postponed (Table 1.5, Annex 1). Since the Government has decided to seek the participation of the private sector in the financing of this program, the project would help to establish an appropriate regulatory framework for expresswayconcessions (para. 3.07). The Bank and DGSVT will review the road expenditureprograms annuallyover the implementationof the project (para. 3.09).

H. Environmental Manaeement

2.26 The Government has establishedthat all major civil works project should be subject to an appropriate environmentalimpact assessmentto ensure that they have no unacceptableill-effects on the inhabitantsor on the physical environmentin the project's area of influence; and that for those projects which are expectedto have negative impacts, the project budgets should include funds to remedy such adverse effects. Although DGSVT has, with consultant assistance, prepared environmental impact assessments for some highway projects, neither MTC nor DGSVT have established an institutional capacity to implementthe above regulations. In the course of the preparation of the project, MTC has prepared: (a) standards and guidelines for the preparation of environmentalimpact assessments for transport projects in general and for highway projects in particular; and (b) a plan and a timetable to assign the functionsof disseminatingand monitoringthe implementationof the standardsand guidelines to its PlanningOffice, and to establishwithin DGSVT an environmentalunit responsiblefor carrying out the environmental assessments of DGSVT's road programs. The project would provide technical assistanceand training to MTC to help implementthis plan (para. 3.11). - 12 -

III. THE PROJC

A. Project Origin. Rationaleand Objectives

3.01 Project origin. The project's concept originated from the conjunction of two major factors: (a) a review of the 1990-93 public sector investment program carried out by the Bank in 1990 (Report No. 8588-VE),showed that insufficientresources were allocatedto the maintenanceof the road networks;and (b) the 1989Decentralization Act, whichmandated the decentralizationof the management of the road system, and particularlythe maintenanceof the road networks. The preparation of the project was initiatedin early 1991.

3.02 Rationale for Bank Involveinent. Through this project, the Bank would help protect past investmentsin highways by establishingsustainable institutional mechanisms to ensure the appropriate maintenanceof the networkin the future. The emphasiswould be on efficient resource allocationin the sector, especially with regard to the balance between new constructionand maintenanceprograms, and on appropriateroad cost recovery. The Bank would help improvethe managementof the road sector, and in particular encourage accountability and better use of resources, by assisting the process of decentralizingthe maintenanceof the road networks and strengtheningthe highway policy formulation, planning and monitoringcapabilities of the central government.

3.03. Project Objectives. The project's primary objectivesare to:

(a) rehabilitate and maintain the national paved highway network, and

(b) establish sustainableinstitutional mechanisms to ensure effective road maintenance in the future within a frameworkof a decentralizedroad administration.

Other related objectives are to:

(c) develop and implementpolicies and mechanismsfor adequatefunding of road maintenance and efficient recovery of road costs;

(d) encourageprivate sector participationby contractingout routine maintenanceactivities and transferring expresswaysto private concessionaires;

(e) strengthenthe road maintenancecapabilities of operationalroad administrationunits, and the policy formulation,planning and monitoringsystems of MTC's highwaymaintenance office (DCV/DGSVT);and

(f) develop and improve compliancewith environmentalstandards in the transport sector, and particularlyfor highways. - 13 - B. Project Description

3.04 The project would consist of:

(a) a policy and institutional development program (about 2% of project cost), including technical assistance and training of staff, to: (a) prepare and implement a program to decentralize the maintenance of the road network and help transfer management of expressways to private concessionaires; (b) design and establish appropriate road cost- recovery and maintenance funding policies and mechanisms; (c) develop and establish a highway managementsystem to help DGSVT prepare and monitor efficient highway and bridge rehabilitationand maintenancestrategies, standardsand programs; (d) formulate and implementa plan to contract out maintenance;(e) strengthenthe technicalcapacities of MTC state directorates and state public works departmentsto manage and supervise maintenance contracts; and (f) establish a capability in MTC to develop, implement and monitor environmentalstandards and guidelinesfor roads;

(b) an investment program (72 % of project cost), consistingof the highest-priorityhighwayand bridge rehabilitationand resurfacing componentsof DGSVT's 1993-97program, including the rehabilitationof about 3,000 km and the resurfacingof about 4,800 km of highways;and

(c) a maintenance program (26% of project cost) consistingof the routine and other periodic maintenanceworks, which would be fully funded with local resources.

(a) Policy and Institutional Development Program

3.05 The policy and institutionaldevelopment program would consistof five action plans, to be carried out by MTC/DGSVTto achieve the above-mentionedobjectives, and a technical assistanceand training program to implement them effectively. These action plans and the related technical assistance and trainingprogram were developedby MTC and DGSVT in the course of project preparation. Agreement was reached during loan negotiationson: (a) the objectivesof the action plans and technical assistance and training program (paras. 3.06-3.12); (b) an ImplementationProgram detailingthe action plans and the related timetable (para 4.06); (c) the administrativeprocedures, technical and economic criteria and methodologiesincluded in an OperationalManual (OM); and (d) outline terms of reference (TOR) for the technical assistanceand training of staff.

3.06 Decentralization Plan. The objectiveof the decentralizationaction plan is to establisha phased process to decentralize the maintenance of the road networks, in accordance with the 1989 DecentralizationAct. The general policy is to gradually transfer expenditureresponsibilities as well as financing, personnel and equipmentto the states, but resources will be transferred only when the states demonstratethe capabilityto managethem efficiently.MTC's decentralizationstrategy therefore consists in: (a) entering into cooperation agreements with the states, which would define the modusoperandi during the transitionperiod, and the technicalassistance and training program and related organizational arrangementsand counterpartstaff needed to prepare the state administrationto assumeroad maintenance responsibilities;(b) providingtechnical assistance and trainingto the state administrationto define its legal responsibilitiesand establish the organizationfor road maintenance; (c) entering into decentralization agreements,which would define in particular: the respective expenditureand financingresponsibilities, includingperformance targets; the eligibility criteria for federal funds, technical norms, standards and - 14 - procedures to be followed by the state for network maintenance and expressway concessions, and the supervisory and monitoring arrangements; the organization of the state administration, including the conditionsand timetable for the transfer of personnel and assets; any further technical assistance and training of personnel to be provided by MTC; and any other conditions to the transfer of road maintenance responsibilities. The strategy would first be tested with three pilot states, with which cooperationagreements have already been signed, and to which some initial assistance is already being provided. The program would then be expandedto other states, taking into account the experience with the pilot projects.

3.07 Under the decentralizationplan, MTC/DGSVT would, with technical assistance: prepare a reclassificationof the road networks; specify DGSVT, SAVA and the states' future responsibilitiesin managingthe road networks; develop a plan and a timetable, includingpilot projects in three states, to graduallytransfer expenditureand financingresponsibilities, reassign personnel, reallocate facilitiesand equipment; strengthen the states' technical capabilitiesin road maintenanceplanning and management; and provide assistanceto the states in establishingconcessions for expressways.A state other than a pilot state would become eligible to participate in the technical assistance and training program financed by the Bank on the conditionsthat: (a) MTC and the Bank have agreed, taking into account the experience with the pilot states, that the state participate, and that the state administration has satisfactory organizationalstructure and counterpartstaff to implementthe technical assistanceand training program; and (b) the state has entered into a CooperationAgreement with MTC. A state would become eligible to participatein the investmentprogram financedby the Bank on the additionalconditions that: (c) MTC and the Bank have mutually determined that the state administrationhas adequate capabilities and resources to carry out the relevant project activities; and (d) the state has entered into satisfactory Decentralizationand State Project Agreementswith MTC (para. 4.02). MTC has prepared an adequate decentralizationframework agreement and a timetable to formalize the agreementswith the pilot states. MTC selected the states of Carabobo, Guarico, and Monagas as pilot states, and has entered into CooperationAgreements with them. MTC has also defined the details of the technical assistance and training program for the three states. Agreement was reached during loan negotiations on: (i) the timetableto develop and implementthe detailed decentralizationplan, as set forth in the Implementation Program (para. 4.06); (ii) the above eligibilitycriteria for state participation;and (iii) the selected pilot states.

3.08 Road Cost Recovery and Maintenance Funding. The objectives of this action plan are to: (i) formulate a coherent road cost-recoverypolicy, develop and establish appropriate cost-recovery mechanisms,determine and put into effect efficientuser charge and toll structures, and graduallyincrease cost-recovery levels from the various categories of road users to cover at least the costs of road rehabilitation and maintenance; and (ii) design and establish appropriate funding mechanismsfor road maintenance, which would secure the necessary resources for the adequate maintenance of the road networks. Such mechanismswould include an appropriate scheme to redistribute funds to the states in accordancewith their road operationand maintenanceresponsibilities. Prior to loan negotiations,MTC prepared: (a) a statement of policy for road cost-recovery,(b) the final draft TORs for the study, and (c) a timetable to develop, present to the Bank for comments, and thereafter implement an acceptable actionplan to establish appropriatecost-recovery and fundingmechanisms, which could encompass,inter alia, taxes on petroleum products, road tolls, and taxation of vehicle ownership and/or use, and be consistentwith the decentralizationprogram, and to graduallyadjust road user charges to at least recover rehabilitationand maintenancecosts, in accordancewith cost-recoverytargets to be set forth in the action plan. Agreement was reached during loan negotiations on: (d) a satisfactory cost-recovery policy statement, aimingto recover at least the rehabilitationand maintenancecosts; (e) the TORs for the study; - 15 - and (f) the timetableto develop, present and implementthe actionplan, as set forth in the Implementation Program; and (g) a mid-term review of the project, to be carried out during the third quarter of 1995, which could result in the suspensionof disbursementsor terminationof the loan if the Governmentwere to default on the above commitments.

3.09 Highway MaintenancePlanning and Programming.The objectivesof this action plan are to: (i) establishthe necessarytechnical capabilities within MTC/DGSVTto prepare efficientnational highway and bridge rehabilitationand maintenancepolicies, strategies,and pluriannualand annual expenditureand fundingprograms, monitor the maintenancecondition of the highway network, and to implementaxle- load regulations;and (ii) ensure that adequate priority is given to the rehabilitationand maintenanceof existingnetworks in DGSVT's annual and pluriannualprograms. DGSVT has prepared satisfactoryTORs to develop and establish effective pavementmanagement (PMS) and bridge management(BMS) systems through: reorganizingand expandingan existingroad data base; updating the methods and techniquesin use for pavement and bridge conditionsurveys and diagnostics,traffic analysis, pavement dimensioning and bridge design, cost-benefit analyses; establishingprocedures and analytical models to define and assess network maintenancestrategies and programs; and through strengtheningthe integrationof the various componentsof the systems. It was agreed during loan negotiationsthat MTC/DGSVTwould: (a) prepare a detailed plan, includingthe designs of a pavementmanagement and a bridge management systems, to prepare appropriate highway and bridge rehabilitationand maintenancestrategies, monitor the maintenancecondition of the highway network, and to implementaxle-load regulations; (b) update its pluriannualand prepare its annual road expenditureand funding programsin accordancewith policies and economiccriteria included in the OM; and (c) present these plans and programs to the Bank for comments; all in accordance with the actions and timetable set forth in the ImplementationProgram (para. 4.06).

3.10 Highway Maintenance Management. The objectivesof this action plan are to: (i) increasingly contract out highway maintenanceoperations to private contractors, rather than carrying them out by force account; (ii) strengthenthe technical capabilitiesof MTC/DGSVTstate directorates and/or of the state administrations'public works departmentsto manage their rehabilitationand maintenancecontracts and supervisethe works; and (iii) strengthen the capabilitiesof MTC/DGSVTto supervise and monitor the rehabilitationand maintenanceprograms, includingthrough the formulation and disseminationof appropriatenorms and standards. MTC has developeda strategy and prepared satisfactoryTORs to carry out these tasks with appropriate technical assistance. It was agreed during loan negotiations that MTC/DGSVT would: (a) develop and implementa plan to contract out maintenanceoperations; (b) strengthenthe technical capabilitiesof its state directoratesand/or of the state public works departments to manage contractsand supervise works; and (c) strengthen DGSVT/DCV's own program monitoring systems; all in accordance with the actions and timetable set forth in the ImplementationProgram (para. 4.06).

3.11 Environmental Management. The objective of this action plan is to assist MTC in developing institutionalcapabilities to carry out appropriateenvironmental impact analyses for all of their transport programs and projects, and to adopt and enforce appropriateenvironmental guidelines for highways and for transport in general. MTC has prepared a satisfactoryproposal, includingthe organizationaldesign and initialwork program for the proposed environmentalunit, as well as draft environmentalguidelines for the transport sector. It was agreed during loan negotiationsthat the Borrower would: (a) adopt appropriate environmentalguidelines for highways and for the transport sector; (b) assign MTC's Planning Officewith the functionsof disseminatingand monitoringthe implementationof the guidelines; and (c) establish an adequatelystaffed environmentalunit within DGSVT to carry out the environmental - 16 - assessments of the roads programs; all in accordance with the actions and timetable set forth in the ImplementationProgram (para. 4.06) and with MTC's environmentalmanagement plan dated May 1992.

3.12 Technical Assistanceand Training Program. MTC/DGSVThas prepared a technicalassistance and training plan for DGSVT head office and state directorate personnel, as well as for the highway personnelof the state administrations'public worksdepartments (Annex 4, section E). MTC/DGSVTwill contract technical assistance and organize and carry out training courses and seminars in the following areas: (a) network maintenance planning and monitoring, including pavement and bridge condition surveys, pavement and bridge managementsystems, techniques of pavement diagnostic, design and rehabilitation (including technical norms and standards), formulation and evaluation of network maintenancestrategies and programs (includingthrough the HDM3 model), and evaluationof individual investments;(b) contract maintenanceand maintenanceadministration systems, includingprocurement, management and supervision of contracts, and monitoring of projects and programs; and (c) environmentalmanagement, including environmental cost-benefit analyses and disseminationof the environmentalguidelines for highways. Agreement was reached during loan negotiationson: (a) outline terms of reference for the technicalassistance and training program; and (b) the preparation and review of annual training programs in accordancewith the actions and timetable set forth in the Implementation Program (para 4.06).

(b) Investment Program 4

3.13 The investment program would consist of highway Tehabilitationand resurfacing programs, including capacity increases, based on an appropriate network maintenance strategy developed by DGSVT, bridge and tunnel rehabilitationand repair, and highway signalling programs, and the related engineering and works supervision programs for 1993-97. The project incorporates DGSVT's entire 1993-97 rehabilitationand maintenanceprogram, with the exception of the rehabilitationcomponent of an ongoingIDB-financed project.

3.14 The network maintenance strategy and the pluriannualhighway rehabilitation and maintenance program were developed on the basis of methodologies which follow the HDM III evaluation methodologyand are consistentwith their present technologicaland institutionalcapabilities and with the available network information. In general, the selected maintenancestrategy consists of carrying out: (a) resurfacing works on sections which otherwise would soon reach a level of deteriorationrequiring extensive rehabilitation,through appropriatesurface treatment, or asphalt concrete overlay techniques, dependingupon traffic levels; (b) pavementrehabilitation works on sections which have alreadyreached or exceededtheir functionallife, through appropriatetechniques ranging from asphalt concreteoverlays to completereconstruction of pavement; and (c) routine maintenanceworks as needed, includingthrough patching and maintenanceof drainage systems, shoulders and signalling, on the entire paved networks.

3.15 The pluriannual investment program would consist of the following components: (a) rehabilitationof about 3,000 km of highways, includingwidening of about 100 km; (b) resurfacing of about 4,800 km of highways; (c) rehabilitationor repair of bridges totalingabout 500,000 m2 of deck area, and of tunnels totaling about 8,000 m in length; (d) signalling, includingpavement marking and vertical signalization,on about4,000 km of highways;and (e) related engineeringand works supervision. The detailed scopeof these programs is presented in Annex 5, and is summarizedin Table 3.1 hereafter. - 17 -

3.16 The first-year investment program, i.e. the works which would be initiated in 1993, would consistof the following:(a) rehabilitationof about 400 km of highways;(b) resurfacing of about 250 km of highways; (c) rehabilitation and repair of bridges totaling about 60,000 m2 of deck area, and (d) pavementmarkings on about 870 km of highways.The program is described in Annex 6. The related final engineeringdesigns have been reviewed and found satisfactory.

Table 3.1: Investment Program Summary (Kilometers)

Program Components 1993 1994 1995 1996 1997 Total Highway Rehabilitation 413 751 609 700 580 3,053 Highway Resurfacing 249 1,350 1,145 1,096 947 4,787 Capacity Increases 37 38 38 113 Bridge Rehabilitationand Repair 7.5 8.7 8.7 8.7 8.7 42 Tunnel Rehabilitationand Repair 5.5 4.5 2.6 1.2 1.2 15 Signalling 870 870 870 870 870 4350

(c) Routine Maintenance Program

3.17 The routine maintenancecomponent would consistof the normal, routine maintenanceoperations on the entirehighway network: (a) patchingof potholes(about 200,000 m3 of materialsover the five-year program; (b) cleaning of drainage systems and control of vegetation (on the entire network); (c) maintenanceof bridges (about450,000 m2 annually); and (d) maintenanceof horizontal and vertical signalization,and emergencyand other miscellaneousactivities. The detailed scope of these programs is shown in Annex 5, Section C, and is summarizedin Annex 1, Table 1.6.

3.18 It is expected,however, that due to the current lack of adequateinformation on the conditionof the networks and to the insufficientanalytical capabilities of DGSVT, the periodic maintenanceprograms will not be fully adequateuntil the pavementand bridge managementsystems includedin the policy and institutionaldevelopment program are in operation; and consequentlyadditional sections will further deteriorateto the point wherethey will need rehabilitation.The maintenancestrategies and programswill therefore be reviewed and updated annually, on the basis of the gradually improved informationand analyticaltools of the pavement and bridge managementsystems, implementationprogress and updated funding expectations,and reviewed by the Bank in accordancewith the actions and timetable set forth in the ImplementationProgram (para 4.06).

C. Project Cost and Financing

3.19 Project Cost. The total cost of the project is estimated at about US$840.0 million equivalent, includingUS$332.2 million for rehabilitationand resurfacing, US$17.0 million for capacity increases, US$ 102.4 for bridge and tunnel rehabilitation,US$18.7 for pavementmarking and signalling,US$27.6 million for engineeringand work supervision,US$218.3 million for routine maintenanceand US$13.7 million equivalentfor technicalassistance and training (of which about US$300,000is for policy support, US$4.5 million is for project preparation and implementationsupport, and US$8.9 million is for - 18 - institutionaldevelopment and capacity building). The foreign exchangecost componentis estimated at about US$294.0 million, or 35%, and the tax componentat about US$168.0 million, or 20%. Total project cost includesphysical contingenciesfor US$49.8 million or about 10% of investmentbase cost, and price contingenciesfor US$60.4 million (or about 11% of base cost plus physical contingencies) estimatedon the basis of the disbursementschedule and of the following forecast of price escalation for both local and foreign expendituresexpressed in US dollars: 2.8% in 1992, 3.9% in 1993-94and 3.8% thereafter. Cost estimates for civil works are based upon average per-kilometer costs supported by engineeringestimates and recent contract prices. Cost estimates for consultantservices are based upon prevailinglocal and foreign man-monthrates. The estimated costs of the individualproject components are detailed in Annex 5, aggregatedin Annex 1, Table 1.6, and summarizedin the followingtable.

Table 3.2: Estimated Project Costs and Finaneing (US$ million equivalent)

Project Components Local Foreign Total % Highway Rehabilitation 121.4 65.4 186.8 22 Highway Resurfacing 94.5 50.9 145.4 17 CapacityIncrease 11.0 6.0 17.0 2 Bridge & Tunnel Rehab. 66.6 35.8 102.4 12 Marking & Signalling 12.1 6.6 18.7 2 Routine& Emergency Maintenance 141.9 76.4 218.3 26 Engineeringand Supervision 17.9 9.7 27.6 3 TechnicalAssist. & Training 8.9 4.8 13.7 2

Total Base Cost 474.3 255.5 729.8 87 Physical Contingencies 32.4 17.4 49.8 6 Price Contingencies 39.3 21.1 60.4 7

Total Project Cost 546.0 294.0 840.0 100

Government 490.0 - 490.0 58 Inter-AmericanDevelopment Bank 56.0 144.0 200.0 24 World Bank - 150.0 150.0 18

Total Financing 546.0 294.0 840.0 100

3.20 Project Financing. The project would be financedfrom: (a) the proposed Bankloan of US$150.0 million (or 18% of the project cost); (b) a proposed new loan from the Inter-American Development Bank, of US$200.0million (or 24% of the project cost); and (c) Governmentresources for about US$490 million (or 58% of the project cost). A (small) portion of Governmentresources may be provided from state budgets, in those states whichmay meet at a future time the eligibilitycriteria for participatingunder - 19 - the investment program. The financing plan of the project is detailed in Annex 1, Table 1.6, and summarized in the Table 3.2 above. Agreement was reached during the negotiations on: (a) the Borrower's guarantee regarding all the necessary project counterpartfunds; and, in order to permit the timely implementationof urgent subprojects,(b) retroactivefinancing in an amountof not more than 10% of the loan amount for civil works, goods, consultantand training expendituresincurred after May 8, 1992 and not earlier than twelve months before the date of the loan agreement. A condition for loan effectivenesswould be that the Borrower has provided for adequatebudgetary allocations for the 1993 rehabilitationand maintenanceprograms of DCV.

D. Project Environmental Impact and Economic Evaluation

3.21 Environmental Impact. The project, which consists of the maintenanceor rehabilitation of existing roads, will not have a significant impact on the environment. Possible adverse effects could, nevertheless,result from quarrying, borrow pits or the disposal of used pavementmaterials. In order to reduce or mitigatesuch effects, MTC/DGSVThas completedappropriate environmental assessments for the first-year program of works, and will, as part of the above-mentionedenvironmental action plan, introduceappropriate norms and specificationsin the contractsfor engineeringand civil works, and carry out adequatesupervision and control.

3.22 Project Benefits. The project, by helping to retard the deterioration of the existing highway network through improved maintenancewould: (a) avoid further losses of valuable capital invested in public roads; and (b) contribute to growth in agriculture, industryand exports by substantiallyreducing the cost of road transport. It would also contributeto: (c) enhancedaccountability and more efficientuse of public resources in the highway subsector; and (d) mitigationof adverse environmentalimpacts of highway constructionand maintenance.

3.23 Economic Evaluation. The economic analysis of the identified rehabilitation and resurfacing works included in the first-year program has shown that the proposed works would have estimated economic internal rates of return (ERR) ranging from 34% to 74%, with an average rate of 53%. The net present value of the benefits of these investments,discounted at a 12% rate, would exceed a total of US$150.0 million (Annex 7). The sensitivityanalyses have shown that the investmentcosts wouldhave to be increasedby about 300% to reduce the ERR to 12%; and that a 20% increase of the investment costs together with a 20% reductionof vehicle operatingcost savings (VOCS)would reduce the ERR of the first-year program to about 30%, which is still acceptable. The economic rates of return for the remaining investments are expected to range from above 12% to about 100%, with most of them exceeding30%.

E. Project Risks

3.24 Project risks include: ineffective management of project by MTC/DGSVT; inadequate supervisionof works and contractsby the decentralizedunits; and insufficientallocation of resources by the Government. In order to minimize these risks, the project includes: (a) a well-defined project implementationprogram and necessary organizationalarrangements; (b) strengtheningof DGSVT's key planningand control responsibilitiesas well as implementationcapabilities of the decentralizedunits; and (c) a supervision and monitoring plan with annual reviews of DGSVT's expenditure and funding programs, and a mid-termdetailed review of project implementation. - 20 - IV. PROJECT IMPLEMENTATION

A. Institutional Responsibilities

4.01 The Federal Government, through MTC/DGSVT, would be responsiblefor implementingthe project, in accordancewith: (a) organizationalarrangements (section B); (b) an implementationprogram (sectionC); (c) procurementarrangements (section D); (d) disbursement,account and audit arrangements (section E); and (e) monitoringand reporting arrangements(section F), which have all been confirmed during negotiations,and for whichdetailed guidelines would be provided in an OperationalManual (OM), satisfactoryto the Bank. The Bank would monitor and supervise the implementationof the project in accordancewith a monitoring and supervisionplan (section F and Annex 8).

4.02 The Federal Government would implement most of the subprojects directly through MTC/DGSVT. Some subprojects, however, could be implementedby state administrations,upon the assumptionby the state of the road maintenanceresponsibilities. A state administrationcould implement a subprojecton the conditionsthat: (a) the Federal Governmentand the Bank have mutuallydetermined that the State has adequatecapabilities and resources to carry out the relevant project activities, and (b) the Federationand the State have enteredinto satisfactoryDecentralization and State Project Agreements. The DecentralizationAgreement would in particular define: (i) the respectiveresponsibilities of the State and the Federationregarding the operationand maintenanceof the highwaynetwork in the State; (ii) the respective responsibilitiesfor financingthese operations; (iii) the organization of the state's technical services which would be responsiblefor the works, and the timetablefor the transfer of personnel and/or physical assets from MTC state directorate; and (iv) the technical assistance and training programs required to provide the state with adequatetechnical capabilities to carry out its new responsibilities.The State Project Agreementwould in particular provide for: (v) State guarantee for counterpart funds and appropriatemechanisms to transfer federal funds, includingloan proceeds, for subprojectsto be financed out of the loan; (vi) State commitmentto carry out the relevant project activities, including routine maintenance, and to comply with the administrativeprocedures and the economic/technicalcriteria, norms, standards and methodologiesto be followed for the selection, engineering and execution of subprojects, includingprocurement, disbursements,accounting, auditing, monitoring and reporting, as defined in the OM; and (vii) State commitment to ensure the implementationof the policy and institutionaldevelopment program in the state. The Federal Government will ensure that the routine maintenance program is carried out in any state which, having assumed responsibility for routine maintenance,has not entered into a satisfactoryState Project Agreement with the Federation. It was agreed during loan negotiations that MTC would not transfer the execution of subprojects to state administrationsunless: (a) MTC and the Bank have mutually determined that the State has adequate capabilitiesand resources;and (b) MTC and the State have entered into Decentralizationand State Project Agreementssatisfactory to the Bank. A conditionfor loan effectivenesswould be that MTC has formally approvedthe OperationalManual.

B. Orgnizational Arangemnents

4.03 MTC would make appropriate organizationalarrangements to carry out the project efficiently. The Maintenance Directorate (DCV) of DGSVT would be responsible for the implementationof the investmentand maintenanceprograms, as well as for the developmentand implementationof the highway -21 - maintenanceplanning, programmingand managementsystems, and the related technical assistance and training programs, includingthose for the state administrations.MTC's Budget and Planning Office would be responsible for: (a) coordinatingthe decentralizationprogram; and (b) developingthe cost- recovery and maintenance funding policies and mechanisms.The existing task force for expressway concessions, which reports directly to the Minister, would assist the Budget and Planning Office in advising state governments on expressway concessions. DGSVT would be responsible for general coordinationand monitoringof the implementationof the project, and for reporting to the Bank.

4.04 It was agreed during loan negotiationsthat MTC would establish and maintain organizational arrangementsfor the efficient execution, coordinationand monitoring of the project, all with staffing, responsibilitiesand/or functions satisfactoryto the Bank. In this respect, Mit would: (a) establishtwo task forces under the supervision of the Chief of the Ministry's Planning Office to: (i) prepare and implementthe plan to decentralizehighway management,including the formulation and negotiation of agreementswith the states and the developmentand supervisionof the technical assistance and training programs; and (ii) develop the cost-recovery and maintenancefunding policies and mechanisms; and (b) assign a competentProject Coordinator in DGSVT for general project coordination,monitoring and reporting.

4.05 DGSVT would establish and maintaina Project ManagementUnit headed by a Project Manager, who would report directly to DCV's Director. DGSVT would also establish two task forces, with representatives from the various organizational units involved, to coordinate the development and implementationof: (a) the Pavement ManagementSystem; and (b) the Bridge ManagementSystem. It was agreedduring loan negotiationsthat DGSVTwould: (a) establishand maintaina Project Management Unit, with staffing, responsibilities and functions, and a Project Manager with qualifications and experience, satisfactory to the Bank; and (b) establish two task forces within DCV, with staffing, responsibilities and functions satisfactory to the Bank, to develop and implement the Pavement Managementand the Bridge ManagementSystems. The establishmentof the Project ManagementUnit and of the MTC and the DCV task forces and the employmentof the Project Coordinator would be conditionsof loan effectiveness.

C. Im[lementation Program

4.06 The Federal Governmentwould be committedto carry out, through MTC/DGSVT,the project in accordancewith the followingImplementation Program (1P),which was confirmedduring negotiations:

(A) Policy and Institutional Development Program

1. Development and Implementation of Plan to Decentralize Highway Management:

(a) MTC/DGSVTwill prepare a detailed plan, includinga timetable, to graduallydecentralize the managementof the road networks; reclassify the road networks; redefine DGSVT, SAVA and state administrativeand financingresponsibilities; reassign personnel; reallocate assets; develop appropriate road maintenancecapabilities at the decentralized levels; and assist the states in establishingconcessions for expressways, in accordance with TORs satisfactory to the Bank. MTC/DGSVTwill present the plan to the Bank for commentsby March 31, 1993; - 22 - (b) MTC/DGSVTwill thereafter implementthe plan in accordance with the timetable, taking into accountthe Bank's comments.

2. Design and Implementation of Road Cost Recoveryand MaintenanceFunding Mechanisns:

(a) MTC/DGSVTwill prepare a detailed plan, includinga timetable, to establish appropriatecost- recovery and funding mechanismsand to gradually adjust road user charges, in line with targets to be set forth in the plan, to at least recover road rehabilitation and maintenancecosts, in accordancewith TORs satisfactoryto the Bank; and will present it to the Bank for commentsby June 30, 1993;

(b) MTC/DGSVTwill thereafter implementthe plan in accordancewith the timetable, taking into accountthe Bank's comments.

3. Design and Implementation of Highway Maintenance Planning and Programming Systems:

(a) MTC/DGSVTwill prepare a detailed plan, includingan implementationtimetable, to establish pavementand bridge managementsystems, prepare appropriatenetwork maintenancestrategies and programs, monitor the highway network maintenancecondition, and implementaxle-load regulations,in accordancewith TORs satisfactoryto the Bank; and will present it to the Bank for commentsby September30, 1993;

(b) MTC/DGSVTwill thereafter implementthe plan in accordancewith the timetable, taking into account the Bank's comments.

(c) MTC/DGSVTwill update its pluriannual and prepare its annual road expenditureand funding programsin accordancewith policiesand economiccriteria set forth in the OM, and, by October 31, each year, present these programs to the Bank for comments.

4. Development and Implementation of a Plan for Highway Maintenance by Contract:

(a) MTC/DGSVTwill prepare a detailedplan, includinga timetable,to: (i) contract out maintenance operations; (ii) strengthenthe technicalcapabilities of MTC/DGSVTstate directoratesand/or of state public works departments to manage contracts and supervise works; and (iii) strengthen MTC/DGSVT'sown program monitoringsystems, in accordancewith TORs satisfactoryto the Bank; and will present it to the Bank for commentsby June 30, 1993;

(b) MTC/DGSVTwill thereafter implementthe plan in accordancewith the timetable, taking into accountthe Bank's comments.

5. Implementationof EnvironmentalManagement Plan:

(a) MTC/DGSVTwill, by June 30, 1993,have: (i) adoptedappropriate environmental guidelines for highways and for the transport sector; (ii) assignedMTC Planning Office with the functions of disseminatingand monitoring the implementationof the guidelines; and (iii) established an adequatelystaffed environmentalunit in DGSVT to carry out the environmentalassessments of the roads programs; all in accordancewith the functionsand responsibilitiesspecified in MTC's environmentalmanagement plan dated May 1992. - 23 - 6. TechnicalAssistance and Training of Staff:

(a) MTC/DGSVT, in order to carry out the above action programs with efficiency, will, by March 31, 1992, have contractedone or several consultingfirms in accordance with the Bank's Guidelines for the Use of Consultants(August 1981) and on the basis of terms of reference satisfactoryto the Bank.

(b) MTC/DGSVT will, by October 31 each year, present to the Bank for comments a training progran for the following year.

(B) Investment Program

7. Selection, Preparation and Economic Evaluation of Subprojects:

(a) DGSVT will select the road segmentsto be includedin its annual rehabilitationand resurfacing programs on the basis of: (i) the agreed networkmaintenance strategy and pluriannualprogram, as periodicallyupdated and refined consistentlywith the developmentof the pavementand bridge managementsystems; (ii) funding expectationsfor the given year; and (iii) appropriatetechnical and economiccriteria and methodologiesset forth in the OM.

(b) Prior to initiatingdetailed engineeringdesigns, DGSVT will prepare for each subproject a draft financing application providing information, in form and detail satisfactory to the Bank, on: (a) the analysis carried out and the rationale for selection of the road segment; (b) the road condition and traffic data; (c) the diagnosticof the problems and the recommendedengineering solutions; (d) the estimated cost of works; (e) the result of a preliminary economic evaluation; and (f) the proposed implementationschedule, all in accordancewith the OM; and present it to the Bank. The Bank will approve the financingof the engineeringunder the loan on the basis of a review of the draft financingapplications.

(c) After completingthe detailed engineering and prior to contracting the works, DGSVT shall update and finalize the financing applications as required to reflect the more accurate traffic projections, the selectedengineering solutions, and the final cost estimates, and present the final applications to the Bank. The Bank will approve the implementationand financing of the respectiverehabilitation and/or resurfacing investmentsunder the loan on the basis of a review of the final applications.

(d) All the investmentsincluded in the annual rehabilitationand resurfacing programs would have estimated economic internal rates of return exceeding 12%.

8. Preparationand Monitoringof Procurement and Execution Schedules:

(a) DGSVT will prepare annual procurementand execution schedulesfor the project investments, consistentwith its annual and pluriannualexpenditure and fundingprograms; and by October 31 each year present them to the Bank for comments.

(b) DGSVT will monitorthe implementationof the annualprocurement and executionschedules, and informthe Bank, through quarterlyprogress reports, of the achievementsrelative to the following procurementand executiontargets (in kilometers): - 24 - Table 4.1: Project Procurementand ExecutionTargets

Program Item Activity Unit 1993 1994 1995 1996 1997 Highway Rehabilitation Contracted Km 788 379 656 640 290 Executed Km 413 751 609 700 580 Highway Resurfacing Contracted Km 924 1247 1121 1021 474 Executed Km 249 1350 1145 1096 947 Bridge Rehabilitation Contracted 000 m2 95 70 70 70 35 Executed 000 m2 60 70 70 70 70 PavementMarking Executed Km 870 870 870 870 870 Routine Maintenance Patching 000 m3 50 50 40 30 30 Drainage 00OKm 30 30 30 30 30 Bridges 000 m2 450 450 450 450 450

(c) DGSVT will prepare and submit to the Bank, not later than December 31, 1994, a set of indicatorsand yearly targets for measuringthe maintenancecondition of the network.

D. Procurement

4.07 Procurementarrangements are summarizedin Table 4.2 on the next page.

4.08 All civil works contracts to be financed by the Bank and expected to be valued at more than US$3.0 million would be procured on the basis of InternationalCompetitive Bidding (ICB) procedures in accordancewith Bank Guidelinesfor Procurement(May 1992). Civil works contracts below US$3.0 million, up to an aggregate amount of US$160.0 million, would be procured under LCB procedures, which would be based on standard bidding documents to be approved by the Bank. The value of individual civil works contracts is expected to vary between US$1.0 and US$10.0 million for rehabilitationand between US$0.5 and US$3.0 million for resurfacing and other works (total cost about US$273.2 million). Goods estimatedto cost less than US$250,000per contract and not exceeding an aggregatedamount of US$1.0 million may be procuredthrough LCB proceduressatisfactory to the Bank. Goods not exceedingUS$50,000 per contract and US$500,000in aggegratemay be purchased through shopping procedures acceptable to the Bank. Consultants for detailed engineering, construction supervision, technical assistance and training programs would be selected and engaged following the Bank's Guidelinesfor the Use of Consultants(August 1981).

4.09 MTC/DGSVT would be the principal implementingagency, responsible for carrying out the project, includingall procurement,except for subprojectswhich wouldbe delegatedor transferredto state administrations which have met the corresponding criteria under the decentralization program. MTC/DGSVTorganization for and experience with procurementhave been reviewed during appraisal and found satisfactory.The Bank would review the organization and procurement and implementation capabilitiesof the state administrationsprior to approving state-managedsubprojects. The Borrower's - 25 - procurementregulations and procedureshave recentlybeen reviewedand found acceptablefor all methods of procurement proposed under the project. During project supervision,all ICB contracts, the first two and all other LCB contractsfor civil works estimatedto cost the equivalent of US$2,000,000 or more, and the first two LCB contracts for goods would be subject to the Bank's prior review of bidding documentsand bid evaluationreports. The review process would cover about 70% of the total value of the Bank-financedworks, goods and services. The balance of contracts would be subject to random ex-postreview by the Bank after contract awards. The above procurementarrangements were confirmed during loan negotiations.

Table 4.2: Procurement Method (USS million)

------Procurement Method - Project Element ICB LCB Other n.b.f. 1/ Total Civil Works 112.0 160.0 - 520.6 792.6 (56.0) (80.0) (136.0)

Equipment - - 0.5 2/ 0.5 1.0 (0.5) (0.5) Engineering/Supervision 17.0 3/ 16.7 33.7 (8.5) (8.5) TechnicalAssist./Training 9.0 3/ 3.7 12.7 (5.0) (5.0) Total 112.0 160.0 26.5 541.5 840.0 (Bank financed) (56.0) (80.0) (14.0) (150.0) i/ not Bank-financed, rehabilitation and maintenance works, goods and services 2/ shopping 3/ consulting services

E. Disbursements. Accounts and Auditing

4.10 The Bank would disburse for: (a) civil works, at the rate of 50% of expenditures;(b) equipment, at the rates of 100% of foreign expendituresand 100% of local expenditures(ex-factory cost, excluding taxes); (c) consultants' services at the rates of 50% of local expendituresfor consultants residing in Venezuelaand 100% of foreign expendituresfor other consultants;and (d) staff training at the rates of 50% of local expenditures for training in Venezuela, and 100% of foreign expenditures for training abroad. The allocationsof the proceeds of the loan are shown in the Table 4.3 hereinafter. Based upon experience with similar projects considered in the relevant standard profile for highway projects, the implementationperiod for the project is estimated at six years (Table 1.7, Annex 1). The Loan closing date would be December 31, 1998.

4.11 In order to reduce the interval during which MTC/DGSVTwould finance the Bank's share of project costs with their own resources, a Special Account(SA) in US dollars would be establishedin the Central Bank to cover both local and foreign currency expenditures. The Bank would deposit up to US$10.0 million into this account, and would replenish it for the amountof withdrawalson accountof eligible expendituresat the request of the Borrower. MTC/DGSVThave adequate accountingcontrols

0 - 26 - to enable disbursementsto be made on the basis of Statementsof Expenditures.Therefore, disbursements for expendituresagainst contracts valued at up to US$2.0 million for civil works and US$100,000 equivalentfor goods wouldbe made on the basisof Statementsof Expenditures.Documentation for these expenditureswill not be sent to the Bank but will be retained by MTC/DGSVTand be made available for inspection during project supervision missions, and be subject to auditing by external auditors. Expendituresfor contractsabove these limits wouldbe documented.Agreement was reached during loan negotiationson: (a) the above disbursementarrangements; and (b) MTC/DGSVTto retain independent auditors, acceptable to the Bank, to audit the project accounts, including the Special Account and Statementsof Expenditures,and to furnish to the Bankthe auditors' reports not later than six monthsafter the end of the fiscal year.

Table 4.3: Allocation of Loan Proceeds

Loan category Amount(US$) DisbursementRate

1. Civil Works 122,000,000 50% of expenditures 2. Equipment 500,000 100% of foreign expenditures 100% of local exp. (ex-factorycost) 3. Consultantsand Training 12,500,000 100% of foreign expenditures 50% of local expenditures 4. Unallocated 15,000,000

Total 150,000,000

F. Monitoring and Supervision Plan

4.12 DGSVT would, as part of the action program to strengthen contract managementand program monitoring,establish an appropriate system to monitor the implementationof the project, includingthe preparation of adequate information to report to MTC/DGSVTmanagement and to the Bank. It was agreed during negotiationsthat DGSVT wouldprepare and forward to the Bank quarterlyprogress reports satisfactoryto the Bank, not later than one month after the end of each quarter.

4.13 The Bank will have full responsibilityfor approving all the above documents and related actions by MTC/DGSVT.The project monitoringand supervisionplan is presented in Annex 8, together with estimatesof Bank supervisioninputs into key activities.The plan is based on an appropriatecoordination of Bank and IDB project monitoringand supervisionactivities.

4.14 The implementationof the project will be monitored against the set of actions and timetable relative to agreedprocurement and executiontargets, whichare recorded in the ImplementationProgram. A mid-term, detailed review of the implementationof the project will be carried out during the third quarter of 1995. The review will cover all the agreed actions, targets dates, and procurement and executiontargets includedin the ImplementationProgram, and the status of compliancewith all covenants of the Loan Agreement. Particular importance will be given to the Borrower's commitments to: (a) provide adequatefunds for maintenance,including counterpart funds for the project; (b) establishroad cost-recovery and maintenancefunding mechanisms; and (c) undertake the highway decentralization program. The Bank will have the right to exercise appropriate remedies, including suspension of disbursementsand terminationof the loan, if the Borrower has defaulted under the above conditions. - 27 - V. QR TSMENANDRECOMMENDATION

5.01 Agreementwas reached during loan negotiationson the following:

(a) developmentand implementationof the decentralizationplan, the eligibilitycriteria for state participationin project, and the pilot states (para. 3.07);

(b) cost-recoverypolicy statement, and TORs and timetableto design and implementan action plan to establish cost-recoveryand maintenancefunding mechanisms and to adjust road user charges (para.3.08);

(c) design and implementationof maintenanceplanning and programmingsystems, including pavementand bridge managementsystems (para. 3.09);

(d) preparation and annual review of DGSVT's pluriannual and annual road expenditureand funding programs, and related policies and criteria (para. 3.09);

(e) developmentand implementationof a plan to contract out maintenance,and to strengthen technicalcapabilities of decentralizedunits and DGSVT's monitoringsystem (para. 3.10);

(f) adoption of environmental guidelines and establishment of an environmental unit (para. 3.11);

(g) annual review of training programs (para. 3.12);

(h) Borrower guarantee for counterpart funds, and retroactive financing arrangements (para. 3.20);

(i) conditionsto transfer executionof subprojectsto state administrations(para. 4.02);

(j) organizationalarrangements for project execution(paras.4.03-4.05);

(k) implementationprogram, includingprocurement and executiontargets (para. 4.06);

O) procurementarrangements (paras. 4.07-4.09);

(m) disbursement, accountingand auditingarrangements (paras. 4.10-4.11);

(n) monitoringand reporting arrangements(paras. 4.12); and

(o) Bank supervisionand mid-term review of project implementation(para. 4.13-4.14).

5.02 The following would be conditionsfor loan effectiveness:

(a) the Borrowerhas providedfor adequatebudgetary allocations for DCV's 1993rehabilitation and maintenanceprograms (para. 3.20); - 28 - (b) MTC has formally approved the OperationalManual (para. 4.02); and

(c) the Project ManagementUnit and the MTC and DCV tasks forces have been established, and the Project Coordinator has been appointed(paras. 4.03-4.05).

5.03 Subject to the above, the project provides a suitablebasis for a Bank loan of US$150.0 million to the Republicof Venezuela.The terms would be 15 years, includingfive years of grace.

December 1, 1992 -29 - Annx Table I

Venez 'dalds ejpe (199vM

Rmagliftft PiVa Publis buaa TnKac Tadi. an1i- TOWs C . Tm" TIM vodll/ VUN4ZUULA 1,483 98 19 22 43 173 2,045

CArnTALhaWMr 622 31 a 48 9 36 76 DO4WFoedwal 382 27 7 26 4 19 468 MIMS"a 240 11 1 22 4 16 295

CVUfMuLRIOaM 244 9 2 35 6 27 325 Arm-a 102 3 1 14 2 10 134 Carabobo 133 5 1 19 3 14 177 Cojedas 153 - 2 - 1 13

LO$IAANOBR3CGON 24 67 370 3 1 6 43 Guwino 1i 1 - 6 1 5 33 Ap-w 5 1 2 - I 10

Cwnuo OCc)CNRALREGIoN 146 10 2 34 6 26 227 Fakon 34 3 7 1 5 52 LAn 75 4 1 16 3 12 111 Poagua 22 1 - 7 1 5 38 Yanacuy 14 1 - 4 1 3 24

ZAIMNARBGIoN 146 14 1 29 5 22 219 Zulu 146 14 1 29 5 22 219

Los APa RGtGON 135 9 2 30 5 22 205 atsin 14 1 - 4 1 3 24 Maida 35 2 1 7 1 6 54 Tachia 64 3 1 11 2 3 91 TrujUo 21 2 - S 1. 4 35

NoR OmUNTrALRtCION 87 8 1 24 4 18 143 Anuostodai 52 4 1 15 2 11 86 Manage. 16 1 - 4 1 3 27 lain. 1i 1 - 4 1 3 29

IPULtAERUION 17 2 1 2 - 1 24 Numvalpazt 17 2 1 2 1 24

GUAYANARGOK 55 3 1 14 2 10 90 Balvar 56 3 1 13 2 10 86

F. AianzcTerbioq 1 1 - - 1 - 1 F.D. AmnsuroTan y 1 - - 1 2 lqm"t 1992 - 30 - Annex 1 Table 1.2

Venezuela lflbM21 Manaeement Project

Road Densities in Latin America & Caribbean Countries

Total Roed Network (Knm) Main Highway Network

Density Per Million ToWe Paved Perct. Contay LeWth 100 1,000 USS Length Length Paved

_in thousnd) km Inhabilants (i PNB) (u thousand) (i thousand) (%) VEEUEJLA 51.2 S.4 4.0 0.9 20.5 17.7 37 Argeiina 212.3 7.7 7.1 3.2 36.5 27.0 74 Baeibdo. 1.6 3S8.4 6.4 1.5 1.3 1.3 100 Belice 2.0 8.7 12.5 10.9 1.8 .4 24 Bolivia 39.8 3.6 6.4 11.9 9.3 1.3 14 razil 1,316.3 15.5 9.9 5.8 64.6 45.2 70 hile 79.0 10.4 6.7 3.9 22.3 8.9 39 77.2 6.3 2.7 2.0 24.3 9.6 40 CombRca 28.5 55.9 11.4 9.6 4.7 3.0 63 DominicanRep. 17.2 35.1 2.8 2.9 3.4 2.4 71 Ecuador 37.9 13.3 4.2 3.6 3.4 3.3 40 kunatemaa 13.4 16.9 2.4 2.1 10.6 3.0 28 Haiti 4.0 14.3 0.7 2.3 2.4 .6 24 Honduras 12.0 10.3 2.9 4.1 6.0 1.6 27 Juamica 17.7 160.9 3.0 7.0 4.7 4.3 91 Mexico 212.6 10.S 2.3 1.4 43.5 40.5 93 Panama .6 11.3 4.1 2.1 3.4 3.0 37 Pauguay 24.3 6.0 7.4 5.9 11.2 1.6 15 Peru 53.5 4.6 3.2 3.2 27.3 7.1 26 Umguay 49.8 28.3 16.6 8.4 9.8 6.4 65 TotalLatin Americeand 2,213.3 11.3 6.3 3.3 511.6 251.6 49 The Caribbn

Sowu: Venezueia: MTC, 19SSData Other Couitrie: IBRD: Road Deteriorationin DevelopingCountries (1933)

S 1992 -31 - Annex I Table 1.3

Venezuela Mgbway MansgementProiect

Petroleum Products: Price Structure and Adiustment

a. PriceStuture ssof Julv10. 192

PremiumGaoline Regular Gaholin Diesel Oil | Bo % Bs % Bs% Ex-RefineryPrice 2.84 49 2.24 43 2.15 48 ConsumerTax 2.10 36 2.10 40 1.39 31 Land Transport& Distribution 0.31 5 0.31 6 0.31 7 Price to Retailer 5.2S 90 4.65 89 3.85 86 Retailer'sMargin 0.60 10 0.60 11 0.65 14 Retail Price (Bs) 5.85 100 5.25 100 4.50 100 Retail Price (USC) 9.0 8.1 7.0 InternationalPrice (USC) 17.0 16.4 14.6

Retailas a percentageof 53 49 48 InternationalPrice

b. Price AdMustment.June 1991-July 1992

Premium Gasoline Regular Gasoline Diesel Oil | Bs % | Bs % |Bs %

June 1991 3.65 100 3.45 100 2.S0 100 August 1991 3.90 107 3.70 107 2.75 110 October1991 4.40 121 4.20 122 3.25 130 December1991 4.90 134 4.70 136 3.75 1S0 Februay 1992 5.40 148 5.20 151 4.25 170 April 1992 5.75 158 5.20 151 4.40 176 June 1992 S.8S 160 S.25 152 4.S0 180

Source: Petroleumde Venoeua S.A.

September1992 - 32 - Annex 1 Table 1.4 Venezuela Highway Manag=mnt ProJect

Evolution of Road Expenditures, 198219IM

a. (mUlionBs.)

Year Highways Urban Roads Rural Roads Mainteanoce Total Exchange Rat

1982 1,679.9 635.8 443.7 262.9 3,022.3 4.3 1983 673.5 339.7 196.3 358.0 1,567.5 4.3 1984 232.8 160.3 7.1 462.1 862.3 7.5

198S 504.9 91.5 125.2 540.7 1,262.3 7.5 1986 2,024.6 401.4 698.3 874.5 4,003.2 14.5 1987 3,075.5 605.5 567.9 622.0 4,870.9 14.5 1988 5,655.6 1,003.3 599.6 294.9 7,549.0 1S.8

!989 2,226.6 465.9 45.2 188.3 2,926.0 29.2 1990 5,684.9 908.1 376.7 1,047.8 8,017.5 41.1

1991 14,432.5 2,361.1 3,067.9 2,076.8 21,938.3 SS.2 1992 I/ 18,0S8.S 2,187.2 - 5,488.0 25,733.7 65.0

b. (US$ million)

Year Highways Urban Roads Rural Roads Maintenance Total

1982 390.6 147.8 103.8 61.1 702.8

1983 156.6 79.0 45.6 83.2 364.5

1984 31.0 21.3 94 61.6 114.9

1985 67.3 12.2 16.6 72.0 168.3

1986 139.4 27.6 48.1 60.3 276.0 1987 212.1 41.7 39.2 42.9 335.8

1988 357.9 63.5 37.8 18.6 477.8

1989 76.2 15.9 1.S 6.4 100.0 1990 138.2 22.1 9.2 2S.5 19S.0 1"1 261.5 42.8 55.6 37.6 397.5

192 I/ 277.9 33.6 - 84.4 395.9

Source: MTC/DGSVT I/ revised budget data

Septernber IM2 -33 - Annex I Table 1.S

Venezuela Highway ManagMem,nt Project

Summary Results of Economic Evaluation of ExDresswav Projects

Expressway Name Results of Economic Evaluation Sensitivity Analysis

Section Invest Length NPVj/ B/C ERR Cost ERR Cost I/ (kn) (12%) (%) (%) (%) ROMULOBETANCOURT

Guaras-Guatire 2,056 13.0 730 1.34 15.6 + 20 13.3 Guaire-Caucagua 7,099 28.0 1,070 1.13 13.5 - 20 16.6 San Juan-Unare 486 19.0 1,867 3.98 41.8 + 20 36.4

JOSE ANTONIOPAEZ Barina-Ospino 6,560 119.5 1,238 1.17 13.8 - 20 16.7

SANCIsUoTOAL-LA F1UA San Cristobal-La Fria 7,103 64.0 1,179 1.15 13.6 - 20 17.2

CENTROOCCIDENTAL

Marin-El Chino-Moron 2,171 54.3 2,589 1.97 21.9 + 10 20.6

MUEDA-PANAMERCANA

Estanquez-ElVigia 3,302 20.5 8,438 3.12 31.4

CORO-CHURUGUARA

San Pablo-Churuguara 828 64.0 1,162 2.15 24.5 + 20 20.9

CIUDADLOSADA-KEMFS

Ciudad Losada-Ke-npis 4,860 32.5 4,339 1.78 19.5 + 20 16.9

CUMANA-PTO.LA CRUZ

Cumana-PTO. La Cruz 11,616 65.0 - - - -

VILLADE CURA-SANJUAN-DOS CA&sos

Villa Dc Cur&-SanJuan-Dos Caminos 2,210 55.0 1,411 1.52 17.6 + 10 16.6 S. FUNANDO-PTO PAE

San FmUando-PrO Pam 1,839 214.8 1,666 1.74 19.8 + 10 18.6 S-oure: Consultant Report, based on information provided by MTC I/ Net Present Value in miMlionsof Bolivares September 1992 -84- ANNEXI Table 1.6 VENEZUELA HIGHWAY MANAGEMENT PROJECT Project Cont and Financing Table

------Quantities ------eas Cost ------iancing%- ProjectComponent Uni Prfie Total 1603 164 1666 1ow 1007 1WS 1904 10 1m 1607 Totai Bank IDS Rehaimlon dt.1:12.Sem Km 02.0 283 140 143 0.0 12.0 13.2 0.0 0.0 20.0 .st.2:10.0em Km 60.0 326 86 140 100 OA 11.2 0.0 0.0 0.0 26.0 .d.3: 7.5em Km 61.0 707 247 140 120 100 100 16.1 8A 7.3 6.1 0.1 43.1 .d.4: 5.0em Km 60.0 400 100 100 100 100 0.0 60 5.0 1.0 6.0 20. .s1S: wftr. Km 26.0 1060 100 100 ON 300 0.0 2.5 2. 125 6.5 27.0 .st.10: 15.0cm Km 231.0 S3 14 40 3.2 11.3 0.0 0.0 0.0 14.6 .t.12: 10.0cm Km 100.0 1SS 07 45 40 10.7 7.2 7.4 0.0 0.0 25.2 .st.13:7.Scm Km 130.0 37 37 0.0 4J 0.0 0.0 0.0 48 wubta 61.2 3063 413 751 We 700 6O 38.8 3.4 4.3 23 20A 186 24% 32%

Resurking 1.6d: 7.5cm Km 33.0 1024 11 260 20 200 103 6.0 8. 6A 6.6 0.4 33. .1.7: 5.0cm Km 27.0 2416 24 6o0 eo0 600 6 0.0 102 18.2 16.2 10.1 65.3 .st.: r.fr. Km 18.0 86 360 200 200 106 0.0 6.3 3.6 3. 1.0 15.4 .st.14:7.S am Km 70.0 251 4S 06 SO 31 3.2 0.7 5.6 2.2 0.0 17.6 . d.15: 5.0am Km 56.0 239 Of 05 65 64 0.0 3.1 3.6 3.6 3.0 13.4 subtotal 30.4 4787 240 1360 1148 106 047 0.7 40.5 38.0 32.2 27.3 148.4 24% 32%

Ca#ayyin_creas Km 150 113 37 38 s8 0.0 0.0 5. 5.7 5.7 17.0 24% 32%

Rehabltabon of Orkdgg an Tunnel . bdidgerehab. 0Om2 315 160 60 40 40 40 40 9.5 12.6 12.6 12.6 12.J 604 . bndge rpak OOOrnm2 206 150 30 30 30 30 30 6.2 6.2 6.2 0.2 6.2 30.8 . tunnerehab. 00Om 77.7 152 5 4 26 13 13 4.3 3J 2.0 1.0 1.0 11. subtot 10.0 22.2 20. 10. 16.8 102.4 24% 32% maeodng& Signg . logwys Km 7.4 1000 200 200 200 200 200 1.8 1.5 1.5 1.5 1.5 7.4 .2-k1 Km 3.4 S 670 670 070 670 670 2.3 23 2.3 2.3 2.3 11.3 sAbtoal 4.3 4350 *70 870 870 870 870 3.7 3.7 3.7 3.7 3.7 18.7 24% 32% eng. ering Km 3.0% 2.1 3. 33. 2. 2.3 14.1 24% 32% upevsion % 3.0% 2.0 3.8 3.2 2.4 2.2 13. 24% 32% TotalR R&Sbaoast 7840 *62 2101 1754 176 1527 73.2 137A 115.5 60.0 1.7 407.

physicl aoting. 10.0% 7.3 13.8 11A 6.0 8.2 40J. priceeoning. 3.0% 3D% 3.8% 3J% 3J% 3.0 11.2 14.2 14.0 17.1 00.4 Totl ki. contingen1s 83.5 162. 141.2 113.6 100.8 6.1 24% 32% Rorne and Emergency Mairennc patehing OOm 860 200 SO SO 40 30 30 4.3 4.3 3.4 2.6 2I 170 dralnsgeAveg 000'm 450.0 1S0 30 30 30 30 SO 13.5 13.S 13.5 13.5 13.8 67 bride 000'2 65.0 2250 480 460 480 480 480 6.8 6.8 6. 6. 6.6 33.8 emegency& ow ls 1000. 1000 200 200 200 200 200 200 200 200 20.0 20.0 100.0 Subot 44 44.8 4.7 42. 42.6 218.3 0% 0%

Technica Aseaslance& Tralning .DCVsyams HNM 14.0 120 50 40 20 10 0.7 O 0.3 0.1 0.0 1.7 40% su.ves Is 100.0 38 10 10 1 5 6 1.0 1.0 0.8 O O 3.5 24% *quiptaelt Is 100.0 10 4 4 2 0.4 0.4 0.2 0.0 0.0 1.0 60% .decenbk TA HM9 10.0 240 60 60 SO 40 30 0J 0.8 O8 0.4 0.3 2.4 40% .wfronm.nt KM 10.0 60o s 30 0.3 0.1 0.0 0.0 0.0 O 40% .tanng tweek 0.5 9000 1000 2600 200 2000 1000 0. 1.3 1.3 1.0 0.5 48 40% subtoal 3. 4.1 L7 L2 1.1 13.7 40% Total Pi@e Coot 1318 211.2 107.J 158.7 151.0 840.0 18% 24% PiNANCINGPLAN - Govenmmnt 82.4 117.3 106.8 ON6 0.3 400.0 .wert budge 44.6 44A 43.7 42L 42J 218.3 kweti budget 7.0 728 LO U0.7 47A 271. - IDliean 26.1 83.8 40. 37.2 34.7 2000 24% - WooMSank ban cte_gy 1 (Cimk4 1J8. 3J8 32.0 2NA 24.2 137. 10% categry 2 (goods. eqsipmt and a*Ie) 0.2 0.2 0.1 0.0 0.0 O 0% egory3 (ccornoWa and bahi 2.1 J.4 LO 2.2 1.7 12.2 1% toWta 21.1 40.1 34U 28.0 20.0 150.0 18% Source: DCIDGT and mion edme Septembw1602 - 35- Annex 1 Table 1.7 VENEZUELA

IGHWAY MANAGEMENTPROlE

Loan DisbursementSchedule

Quarterly Bank Fiscal Year Disbursement CumulativeDisbursement End of Quarter (USSmillion) (USSmillion) % of Total

FY 1993 September30, 1992 December31, 1992 March 31, 1993 15.01" 15.0 10 June 30, 1993 5.0 20.0 13

FY 1994 September30, 1993 5.0 25.0 17 December31, 1993 5.0 30.0 20 March 31, 1994 5.0 35.0 23 June 30, 1994 5.0 40.0 27

FY 1995 September30, 1994 6.0 46.0 31 December31, 1994 7.0 53.0 35 March 31, 1995 8.0 61.0 41 June 30, 1995 9.0 70.0 47

FY 1996 September30, 1995 10.0 80.0 53 December31, 1995 10.0 90.0 60 March 31, 1996 10.0 100.0 67 June 30, 1996 10.0 110.0 73

FY 1997 September30, 1996 8.0 118.0 79 December31, 1996 8.0 126.0 84 March 31, 1997 8.0 134.0 89 June 30, 1997 6.0 140.0 93

FY 1998 September30, 1997 5.0 145.0 97 December31, 1997 5.0 147.0 98 March 31, 1998 4.0 149.0 99 June 30, 1998 4.0 150.0 100

1/ includingUS$10.0 million deposit into SpecialAccount.

December 1992 NINMSTRY 07 TRANSPORT AND CCOWNICATIONS ORG1XZATION

:2S' ...... \.;NI ..:S' .. SCeSR;+sS:S T E -

DIRECT.... G.NERA.

MINISTERIAL OFFICES

||Budget& ||Inspection Inter - Govt Information& |Legal | | Procurement | | Planning | | & Controller Coordination Public Relations Personnel

GENERALSECTORAL DIRECTORATES

[Land Roads Uater Administration Air CoInications Transport| || || Transport | |& Services Transport

STATE DIRECTORATES NTC

AUTONOMOUSENTERPRISES

Ferrocars Carca Pipeline Ports A4 |AIQUETIA I A VIASA Posts| Telecommunication ( Railways ) Metro National NationaL Shipping InternationaL Airline Co. Institute Institute Co Airport - 37 - Annex 2 Page I of 3

VENEZUELA

IGHWAY MANAGEMENTPROJEI

Assessment of Network Condition

1. In 1991, the whole of the road networkwas visuallyassessed by DCSVT accordingto the method oudined in the guideline 'Evaluaciony calificacionde la red vial".

A. Road Condition Rating

2. Based on the road conditionsurveys, using samplingtechniques (i.e., test sections) and pavement condition index evaluation method (PCI), the network was classified into 3 broad categories of road conditions,namely:

Total ConditionIndex (TC) Rating (as calculatedfrom the method)

0-250 Poor 250-300 Fair 300-500 Good

3. The indices are weighted figures obtained from taking into account and quantifyinga set of 5 parameters, distinguishingbetween:

(a) Pavementparameters which include: * pavement surface condition * drainagefeatures * right of way, and

(b) Signs and markings parameterswhich include: * vertical signs * horizontal markings - 38 - Annex2 Paee 2 of 3

B. TraMc Categories

4. Traffic volumeson the networkshave been groupedinto the following5 and 6 categoriesaccording to whether the roads are 2 lane highways or 2 x 2 lane expressways:

Two-Lane Highways 2 x 2 LaneExpressways Average Daily Traffic < 700 < 5,000 701 - 1,000 5,001 - 10,000 1,001 - 3,000 10,000 - 15,000 3,001 - 5,000 15,001 - 20,000 5,001 - 7,000 > 20,000 > 7,000

5. As maintenanceactions are predominantly governed by heavy traffic characteristics, the above categories will need to be adjusted with due consideration according to appropriate volumes of commercialvehicles.

C. Road Condition Matrix

6. The combinationof road conditionratings and traffic densities led to the following matrix which has been used for the definitionof the maintenanceand rehabilitationneeds or strategies(see Annex4). As can be seen from the matrix presented in Table 2-1 hereafter, and expressingthe total length of the network in terms of equivalenttwo-lane highways, the proportionsof good, fair and bad pavementson Venezuela'spaved network are, at present, as follows:

good condition 26.1% fair condition 54.3% bad condition 19.6% - 39 - Annex 2

Table 2.1: Road Condition Matrix

TRffic Volunm Road Condition Rating

Good Fair Poor Toal km Ekm ki s km s

2 LnZ w

< 700 2,456 8.2 7,140 24.0 2,840 9.5 12,334 41.9 701 - 1,000 775 2.6 1,609 5.4 659 2.2 3,043 10.2 1,000-3,000 2,101 7.1 4,456 15.0 1,402 4.7 7,950 26.7 3,000-5,000 S0 2.7 1,133 3.8 625 2.1 2,569 5.6 5,001-7,000 563 1.9 773 2.6 112 0.4 1,459 4.9 > 7,000 877 3.0 1,44 3.8 283 1.0 2,304 7.7

Total 7,585 25.6 16,250 S4.6 5,924 19.9 29,769 100

2x2 La Expnuuway

< 5,000 83 5.4 130 8.4 37 2.4 250 16.2 5,001-10,000 151 9.8 338 21.3 45 2.9 535 34.5 10,001-15,000 32 2.1 95 6.1 46 3.0 173 11.1 15,001-20,000 65 4.4 S8 5.7 U4 5.4 240 15.S > 20,000 165 10.7 127 3.1 S0 3.2 352 22.7

Total 500 32.3 713 5.1 262 16.9 1,5S0 100

Total Equivalet Two-Law Highways 8,585 26.1 17,336 54.3 6,449 19.6 32,869 100

Source: DCSVTIDCV

September 1992 - 40 - Annex 3 Page I of 3 VENEZUELA

HIGHVAY MANAGEMENTPROJECT

Network Maintenance and Rehabilitation Strategies

1. The road conditionmatrix shown in Annex 2 has been used as a basis for the definition of the maintenanceand rehabilitationstrategies to be retained for the program.

2. The strategies have been designed either to keep sound and good condition pavements in a sustainablyhigh level of service by removing all eventualsurface defects or to extend the useful lives of the pavementspresently in fair or poor conditionby providing additionalstrength, either through:

* resurfacing, using thin overlays, or * rehabilitation,using thick asphalticconcrete overlays

3. Basically, three main options have been retained dependingupon the road conditionevaluation:

(a) Pavement in good condition will only be subjected to normal routine or recurrent maintenance including eventual patching, drainage correction and signs or marking improvements. Typical pothole patching figures for recurrent maintenancehave been set from 3% to 5% on areas covered by the pavementsand from 1.5% to 2.5% on shoulders areas. Unit prices range from US$14,000 to US$20,000per km.

(b) Pavementin fair condition and with traffic volumesupwards of 700 vehicle/day,would call for resurfacing, in additionto normal routine maintenanceactivities. Resurfacinggenerally include light overlays consisting of either double surface dressing or asphaltic concrete carpets in thickness ranging from 5 to 7cm on pavement areas and from 3 to 4.4cm on shoulders area. In all cases, it was assumedthat only a proportion of the total pavement and/or shoulders areas, typically between 20% and 60%, would require resurfacing. Resurfacingunit costs range betweenUS$15,000 to US$33,000per km for 2 lane highways and from US$57,000to US$69,000US$/km for 2x2 lane expressways.

(c) Pavement in bad or poor condition would require rehabilitation in addition to normal routine maintenanceworks. Except for very low traffic volumes, below 700 vpd - where a double surface treatment would be satisfactory - rehabilitation works will consist of relatively thick overlay in asphaltic concrete ranging in thickness from 5 to 15cm on pavement area and from 3 to 12cm on shoulders areas. Unlike resurfacing works which only involve part of the total pavement area, rehabilitationoverlays will cover the full extensionof the road pavement. Unit costs for rehabilitationworks range from US$25,000 to US$92,000and from US$129,000to US$230,000for 2-lane and 2x2-lane expressway, respectively.

4. While the recurrent maintenanceworks will bring no significant improvementto the pavement structuralcapacity, the resurfacingand rehabilitationoptions are designedto provide extra strength to the pavement structure, increasingthe structuralnumber by an amountranging from 0.8 to 2.4. - 41 - Annex 3 Page 2 of 3

5. For simplicitypurposes, the resurfacing and rehabilitation alternatives have been identified by numbers ranging from 1 to 8 in the case of 2-lane highways, and from 10 to 15 in the case of 2x2 lane expressways.

6. The technical contents and respective costs of these alternativesare given in table 3.2.

7. The above unit cost can be generally broken down into:

16 to 31% for drainage, signs, and markings, and 68 to 84% for works on pavements.

8. The followingtable summarizesand reflectsthe interactionsbetween traffic levels, road conditions and the maintenanceinterventions needed to reduce the total cost of transport.

Table 3.1: Rehabilitaton and Maintenance Options

Road Condition Good Fair Poor Traffic RoutineMaintenance (rm) Resurfacing Rehabilitation 2 lane < 700 rm rm st. 5 701 - 1,000 rm st.8 st. 4 1,001-3,000 rm st. 7 st. 3 3,001 - 5,000 rm st.7 st. 2 5,001 - 7,000 rm st.6 st. 2 > 7,000 rm st. 6 st. 1 2x2 lane < 5,000 rm st. 15 st. 13 5,001 - 10,000 rm st. 15 st. 12 10,001 - 15,000 rm st. 14 st. 12 15,001 - 20,000 rm st. 14 st. 11 > 20,000 rm st. 14 St. 10 - 42 - Annex 3 Page 3 of 3

Table 312: Resurfadng and Rehabilitation Standards

N2 Laffie Descrivifonof Works 1 Unt Coat/kIn Resurfring (vpd) (USS x 1,000)

2-Lan Highways 8 700 - 1,000 + double surfacedressing over 20% of pavedam. is

7 1,000- 5,000 + double surfacedressing over 20% of paved ae 27 + Scm AC over 40% of paved area + 3cm AC over 40% of shoulderarea

6 > 5,000 + doublesurface dressing over 20% of paved area 33 + 7.5cm AC over 40% of paved area + 3cm AC over 40% of shoulderarea 2x2-Lane 15 < 10,000 + double surface dressing over 20% of paved area 56 + ScmAC over 40% of pavedarea + 3cm AC over 40% of shoulder aea

14 > 10,000 + double surfacedressing over 20% of paved area 70 + 7.5cm AC over 40% of paved area + 3em AC over 40% of shoulderarea Rehabilitntb

2-Lane 5 < 700 + double surfacedressing over 100% of paved area 25

4 700 - 1,000 + 5cm AC over 100% of paved area 50 + 3cm AC over 100% of shoulderaea

3 1,000 - 3,000 + 7.5cm AC over 100% of paved area 61 + 3cm AC over 100% of shoulderarea

2 3,000 - 7,000 + 10cm AC over 100%of paved area so + 7cm AC over 100% of shoulder area

1 > 7,000 + 12.5cm AC over 100% of paved area 92 + 10.5AC over 100% of shoulderarea

2x2-Lane 13 < 5,000 + 7.5cm AC over 100% of paved area 130 + 3cm AC over 100%of shoulderarea

12 5,000 - 15,000 + 12.5cm AC over 100% of paved area 160 + 8.5cm AC over 100% of shoulderarea

11 15,000 - 20,000 + 12.5cm AC over 100% of paved area 195 + 8.5cm AC over 100% of shoulderarea

10 > 20,000 + 15cmAC over 100%of paved area 231 + 12cmAC over 100%of shoulderarea

Source: DCSVTIDCVand mission ostimates I All standardsalso include patching of pothole, cleaning/rehabilitationof drainage systems,and pavement markingsand signalization.

August 1992 - 43 - Annex 4 Page I of 8 VENEZUELA

HIGHWAY MANAGEMENTPROJECI

Decentralization and Strengthening of Highway Management

A. Introduction

1. Before the DecentralizationAct of 1989, the management of the highway system was the responsibilityof the central government,under the Ministry of Transport and Communications(MTC). Most expenditureson roads were made by the central government,with the exceptionof the urban roads, which were responsibility of municipal governments. The small investments made by the state governmentswere generally made in coordinationwith and co-financedby MTC, or, for a small part of feeder roads investments,by the Ministryof Agriculture& Livestock (MAG).

2. The DecentralizationAct assignedmost highway maintenanceor investmentresponsibilities to state governments,either in exclusivityor in shared responsibilitywith the center. With a few exceptions where the state has taken over the operationand maintenanceof toll facilities,very littleprogress has yet been made in implementingthe DecentralizationAct. It is an importantobjective of this project to assist the Government in developing and in starting up an appropriate program for the decentralizationand strengtheningof highway management.

B. Prsent Distribution of Exnnditure and FlnancdngResnonsibfleies

3. The distribution of road expendituresbetween local and centralgovernment varies across states. Sincethere are no l -. -y - consolidated data on central and state governments' expendituresby state, an analysis was carried out by a Bank sector mission on the basis of data available at project level i : for four states: Carabobo, Falcdn, Yaracuy and Zulia CTable |i 1). In Zulia, the state governmentfinanced more than half of Nl the investment in roads (54%), while in Yaracuy the state government spent only 22%. State expenditures on urban roads represent almost half of total expendituresin roads and - , about 80% of the state budget devoted to roads, despite the fact that urban roads are the responsibilityof municipalities. Highways, freeways and bridges are almost entirely financed by the central governmentbudget. Rural roads rank second in state budget expenditureson roads, with 13% of total, but they are still mostly financedby MTC (40%). - 44 - Annex 4 Page 2 of 8 Table 4.1 - 1991 Road Expenditures In Carabobo, Falc6n, Yaracuy and Zulia (Bs.m) States State Budget State Budget Road type MTC (coordinated) (not coord.) Total Situado Carabobo 2515 0 683 3,198 6,806 Falcdn 824 216 0 1,040 3,957 Yaracuy 994 241 0 1,235 2,919 Zulia 1095 0 429 1,524 9,941 Urban Roads 648 311 924 1,883 Highways 750 0 55 805 Freeways 2459 0 0 2,459 Rural Roads 1291 110 97 1,498 Bridges 123 11 0 134 Other 23 25 0 48 Investment 4,920 312 851 6,082 Maintenance 509 144 262 915 Total 5,429 457 1,112 6,997 Source: Miuion estimate from local and central governmentsbudgets Note: espenditures were dassified according to project description,which may not correspond to MTC classification.

4. Central government financing is more intense in states with smaller than average per-capita income. If one uses car ownership as a proxy of state per-capita income, one finds that the largest MTC involvement(in per capita terms) is found in the poorest states (Table 2). On the other hand, state financingof road expenditureis relativelyhigher where Ministryof Transport's role is smaller. In Zulia, where the state governmentfinances 54% of road expenditure,the MTC financesonly Bs. 163per capita (US$2.7). In Yaracuy, the state financesonly 22% of the roads and MTC spendsBs. 2,222 (US$37)per capita.

5. In the states of Carabobo, Falcon, Yaracuy and Zulia, road expendituresrepresented 10%, 5%, 8% and 4% respectivelyof those states' budgets in 1991(Table 2). The states complementrather than substitutefor central governmentfinancing. For example, in Zulia, despite the large participationof the state in road financing (34%), the state has the lowest per capita expenditureon roads as well as the lowest share of the situado allocatedto this purpose. It seems that state governmentsdo follow MTC policies (rather than compensatefor the lack of MTC funds) which would be expectedsince states have little leverageon how the situado is allocatedand depend on the centerto decide on priority investments.

6. Althoughthe DecentralizationAct has changed the obligationto coordinatewith line ministries, many states still do it mostly for financial reasons. Two States of the sample still coordinatetheir entire road budget; the other two states appear to be more independent,but this conclusion may be more the result of how items are recorded in the budget rather than a real autonomyof state governments. In fact, some states still sign agreements (convenios) with MTC to coordinate their investment plans. For example, the state of Falc6n's 1991 agreement (Conveniopara la ejecuci6n del plan coordinadode inversiones ejerciclofiscal 1991) includes a total coordinated expenditure of Bs.272.5 m. of which Bs.57.5 m. are from MTC and Bs.215 m. from Falcdn State budget. - 45 - Annex 4 Page 3 of 8

Table 4.2: 1991 Per Capita Road Expenditures in Carabobo, Falc6n, Yaracuy and Zulia Carabobo Falcdn Yaracuy Zulia Total Per Capia Car fleet (Bs/1000inhab.) 92 57 37 66 70 MTC Expenditures(Bs/inhab) 548 1,039 2,221 163 564 Road state Expenditure(Bs/cap.) 470 361 627 192 336 as % of total state Exp. 46% 26% 22% 54% 37% as % of situado 10% 5% 8% 4% 7% Total State Expenditures. 22% 21% 37% 8% 18% Source: MTC and state statistics

C. The Legal Framework for Decentralization

7. In Venezuelathe assignmentof road responsibilitiesbetween levels of governmentis described in two laws: (i) the 1978 LORM (Ley Orgdnica del Regimen Municipal) delimits municipal responsibilities;and (ii) the 1989 LOD (Ley Orgdnicade Decentralisacidn)redistributes responsibilities between the states and the central government.

8. For the States, the LOD distinguishesbetween two types of competences:exclusive competence and joint competence.The main changes introducedby the law are as follows:

(a) the States will progressivelybe givenjoint competenceover the constructionand maintenanceof the road network of local interest (de interes estatal) although it does not specify the criteria that could be used to define this network. (Art. 4) This transfer will be carried out through legal agreements (convenios)between the central and the state governments(Art.6).

(b) LOD (Art.11) gives to the states exclusivecompetence for the maintenance, administrationand benefits of the roads, bridges and freeways(autopistas) that are on its territory. For the interstate roads this competencewill be exercisedjointly (mancomunidad)through convenios. It is generally understoodthat the conveniosmentioned in the law are agreementsbetween the states crossed by the interstate infrastructureand not between the states and the central government.

(c) each State annuallyprepares a coordinatedplan for investments(Art. 16). The plan must-specify the amounts that will come from central and local budgets. The difference with the previous situation is that the mandatory consultationwith the line ministry has been replaced by direct coordinationwith the nationalgovernment at the governor's convention.States have to spend at least 50% of their situado in investments(Art. 17). Among others are defined as investmentsthe programs for constructionand maintenanceof communicationnetwork and transport services. These investmentsmust also be coordinatedwith the municipal investmentplans. - 46 - Annex 4 Page 4 of 8

9. For municipalities,since 1978, the LORM (Art.36) states that municipalitieshave exclusive responsibilityfor the constructionand maintenanceof urban roads, managementof traffic, and of urban public transport services (it is not specifiedwhether it is regulationor direct provision). In addition,they have joint responsibilityfor the constructionand maintenanceof rural roads.

10. The interest of the states is clearly to assume responsibilityfor bridges and toll-ways, which can generatesubstantial revenues, and subcontracttheir administrationand maintenanceto privatefirms rather than maintain the entire road networks. The State of Zulia has already taken over the administrationof the bridge over the Maracaibolake, and some other states have plans to manage expresswaysand collect tolls. In the absence of regulation, state governmentscan (freely) impose fees and charges on road users and obtain sufficient income to maintain and operate them and leave a significantsurplus. The central governmenttherefore needs to organizethe decentralizationprocess. The project includes a component, the decentralizationprogram, and technical assistanceand training of staff, to assist the governmentin decentralizingthe managementof highways.

D. Government's Decentralization Plan

11. The Government has started to implement some elements of the DecentralizationAct. An Autonomous Service for Agricultural Roads (SAVA) was created to receive from DGSVT the responsibilitiesfor "agricultural' feeder and local access roads. A national (interministerial)as well as regional and local committees, with representativesfrom the state and local governments, have been establishedto decentralizefeeder and local road expendituredecisions. The Government,however, still needs to clearly define:

(a) a new classificationof the country's road network, includingthe networks, the managementof which would be decentralizedthrough SAVA, and the (interstate)network of nationalinterest for which the central governmentwould retain at least some managementresponsibilities;

(b) a policy and a plan to decentralize responsibilitiesfor the local and the interstate highways, includingthe functionsto be transferred and those to be retained at the central level;

(c) consistent road financingand funding policies and systems;

(d) the mechanismsto enforce, through regulation, or to encourage, for example through matching grants, appropriate policies, technical norms and standards at the decentralized level, in the interestof the nation; and

(e) a plan to assist the state governments in establishing appropriate technical and management capabilities to carry out their responsibilities, and to transfer and/or reorganize the related technical services in MTC's state directorates.

12. The objective of the decentralizationprogram is to prepare and implementa plan to gradually decentralizethe maintenanceof the road networks, in accordancewith the 1989Decentralization Act. The general policy is to gradually transfer expenditureresponsibilities as well as financing, personnel and equipmentto the states, but resourceswill be transferred only when the state demonstratethe capability to manage them efficiently.The decentralizationstrategy therefore consists in: - 47 - Annex 4 Page5 of 8

(a) entering into cooperation agreements with the states to define the modus operandi during the transition period;

(b) providing assistanceto the state to define its legal instrumentsand organizationalset-up for road maintenance;

(c) entering into decentralization agreements, which would define in particular: the respective expenditureand financingresponsibilities, including performance targets; the eligibilitycriteria for federal funds, technical norms, standards and procedures to be followed by the state for network maintenance and expressway concessions, and the supervisory and monitoring arrangements;the organizationof the state administration,including the conditionsand timetable for the transfer of personnel and assets; and the technical assistanceand training of personnel to be provided by MTC; and

(d) implementingthe agreed technical assistanceand training programs.

The strategy would first be tested with three pilot states (Carabobo, Guarico and Monagas), with which cooperationagreements have alreadybeen signed, and to which some initial assistanceis being provided. The program would then be expandedto other states, dependingupon the results of the pilot projects.

13. Under the decentralizationprogram, MTC/DGSVTwould, with technical assistance:

(a) prepare a reclassificationof the road networks;

(b) specify DGSVT, SAVA and the states' future responsibilitiesin managingthe road networks;

(c) develop a plan and a timetable, includingpilot projects in the three states, to graduallytransfer expenditureand financingresponsibilities, reassign personnel, reallocatefacilities and equipment;

(d) strengthen the pilot states' technicalcapabilities in road maintenanceplanning and management; and

(e) provide assistanceto the states in establishingconcessions for expressways.

14. As part of the decentralizationstrategy, MTC has defined:

(a) eligibilitycriteria for state participationfirst in the technicalassistance and trainingprogram, then in the program of works; they include: (i) the signing of a cooperationagreement with MTC to organize the decentralizationprocess; (ii) the promulgation of a state law by which the state assumes responsibilityfor the maintenanceof the road network in the state; and (iii) the signing of a Decentralizationand InstitutionalStrengthening Agreement with MTC which will clearly define rights and obligationsof the state and the central governmentin the transfer process.

(b) a framework agreement for negotiationswith the states;

(c) the three pilot states (Monagas, Guarico and Carabobo) and a timetable to formalize decentralizationagreements with the pilot states; and - 48 - Annex 4 Paze 6of 8

(d) an institutionalstrengthening program, includingtechnical assistance and training programs, and the detailed technical assistanceand training projects in the three pilot states.

15. MTC is studying the feasibility of transferring responsibilities for the construction and/or operation,maintenance and financingof expresswaysto the private sector. With the DecentralizationAct, however, the state governments,rather than MTC, have competenceto establish the concessions.MTC therefore needs to develop a model concession statute, including related regulatory, evaluation and supervisorypolicies, mechanisms,criteria and methodologies,and to propose it to the states, under the decentralizationprogram, for inclusionin the respectivestate laws. MTC has establishedan expressway concessionunit under the Minister. The project would provide technical assistance to the unit for that purpose.

E. Technical Assistance and Training Prozram

16. The objectivesof the institutionaldevelopment program are to:

(a) organize a national system for the managementof the maintenance of highways, including expressways,bridges and tunnels;

(b) strengthen the capabilities of the state governments to manage the maintenance of the road networks;

(c) help the decentralizationprocess and transfer of competence from the central to the state governments;

(d) train state governmentroad maintenancestaff; and

(e) strengthenthe capabilitiesof MTC to plan, normalize and monitor the maintenanceof the road networks, and to effectivelymanage the implementationof the project.

17. The program includesthree components:

- technicalassistance to the state governments;

- training of state governmentpersonnel;

- institutional strengthening of MTC.

(a) technical assistance to the state governments

18. The main problems identified in most state administrations are: (a) the lack of effective managementsystems, in particular in the areas of budget planning and monitoring, technico-economic criteria and methodologiesfor investmentproject design and evaluation,and operationsmanagement; and (b) the absence of adequatetechnical training for the staff. - 49 - Annex 4 Payg 7 of 8

19. The program of technicalassistance to the state governmentsaims at developingthe administrative and technical capabilities which are necessary to ensure the effective transfer of road maintenance responsibilities, including establishing adequate organizational arrangements, strengthening budget processes, and establishingappropriate planning and monitoringmechanisms to prepare and implement rational investmentand expenditureprograms in coordinationwith the central government.The program includes technicalassistance componentsto cover the following areas:

(a) organizationof road maintenanceservices;

(b) developmentand implementationof administrativeand budget systemsfor road maintenance;

(c) identification,design and evaluationof road maintenanceprojects, programmingand budgeting, includingdefinition and implementationof processes, criteria and methodologies;

(d) developmentand implementationof road databasesand informationsystems for the monitoring of the networks' condition; and

(e) specializedtechnical assistance in specifictechnical fields.

(b) training of state government personnel

20. The objectivesof this program are to:

(a) train groups of professionals in the programming and monitoring of road maintenance expenditures;

(b) disseminate appropriate methodologies for the formulation, evaluation, programming and budgeting of the road maintenance activities which will be the responsibility of the state governments;and

(c) disseminateappropriate technical norms and standardsfor the design, executionand supervision of road maintenanceprojects and programs, and appropriateprocedures and forms of contracts for procurement;

21. The program includes the following three main components:

(a) seminars for the training of trainers (centrally organized) and subsequent training of state professionalsin the formulation, managementand monitoringof road maintenanceprograms;

(b) a series of courses in engineeringdesign and technico-economicevaluation of road naintenance projects; and

(c) a series of courses in procurement and management of road maintenance contracts, and in supervisionand control of road maintenanceworks. - 50 - Annex 4 Paye 8 of 8 (c) Institutional strengthening of MTC

22. The main objective of this program is to strengthenthe Road MaintenanceDirection (DCV) of MTC in its strategic functions which will be critical to the success of the decentralizationprogram. In the short term, the objective is to strengthen its capacity to formulate, evaluate and manage the national highway maintenanceprogram, as well as to develop its capacity to manage the technical assistance program to the state administrations,and to formulate and disseminateappropriate technical norms and standards.In a secondstage, when operational responsibilitiesare increasinglytransferred to the states, emphasis will be given to strengthening DCV's policy formulation, planning, national network monitoring, normative, research and technologytransfer functions.

23. The program includes technicalassistance and training subprojectsin the following areas:

(a) preparation and evaluationof road maintenanceprojects and programs;

(b) coordinationand monitoringof program of technicalassistance to the state administrations;

(c) financial managementand monitoringof road maintenanceprojects and programs;

(d) procurement, contract managementand works supervisionand control;

(e) developmentand implementationof road database, network monitoringand project information systems; and

(f) specialized technical assistance in specific technical fields such as rehabilitation, repair and maintenanceof bridges and tunnels.

(d) technical assistance and trainine targets

24. The following table summarizes the technical assistance and training targets for the above institutionaldevelopment program:

Table 4.3: Technical Assistance and Training Tareets

Program Item Unit Total 1993 1994 1995 1996 1997 Tech. Asst. to States Man-month 240 60 60 50 40 30 Training of Trainers Train.-Wk 500 200 200 100 Training of State staff Train.-Wk 7000 500 2000 2000 1700 800 Tech. Asst. to MTC Man-month 120 50 40 20 10 Training of MTC staff Train.-wk 1500 300 300 300 300 300

25. A summary of the quantityand cost estimates for the technicalassistance and training program is presented in Table 1.6, Annex 1.

November 1992 - 51 - Annex 5 Page I of 4

VENEZUELA HIGHWAY MANAGEMENTPROJE Project Ouantities and Cost Estimates

A. HiEhwav Rehabilitation and Resurfadna Program 1. The quantitiesand cost estimatesof the works includedin this project have been assessedon the basis of the informationcontained in Annexes2 and 3, specifically:

* the matrix of road conditionversus traffic volumeand networkextension; * the definitionof maintenanceand rehabilitationstrategies, and * the unit costs for the rehabilitationand resurfacingoptions.

2. The total length of road sections to be resurfaced during the program has been set to about 4,800Km, i.e., 45% of the overall extensionof roads showing "fair condition", and having traffic volumesexceeding 700 vpd. This percentagerepresents the highestpriority portionof that sub-network and is indeedjustified, considering: (a) generalbudget constraints;and (b) a significantproportion of that particularnetwork at this time only requiresmaintenance interventions rather than resurfacing,but it shall receive resurfacing attention in due time, beyond the 5-year period of implementationof this project.

3. While the first year program is based on and duly justified by available engineeringdesign projects, the provisionmade for the followingyears programsare presently tentativein nature and shall be properly adjusted as the pavementmanagement system becomes operational.

4. Table5.1 hereaftersummarizes the breakdownof unit costspertaining to the maintenancestandards envisagedunder the programs. These costshave been used to evaluatethe total cost of the project and to assessthe economicrate of return of the rehabilitationand resurfacingsub-projects.

Table 5.1: Unit Costs for Maintenance & Rehabilitation Standards

Unit Cost in US$/Km x 1,000 Option Standard Patching Drainasph Overdhy Tot Sigalization (rounded) Resurfacing 6 3.59 1I.50 10.14 3.0 7 3.89 12.40 10.14 27.0 8 3.89 3.50 10.14 16.0 14 7.34 35.07 26.90 70.0 15 7.25 22.20 26.70 5S8.0 RYSIzaltatA 1 6.49 14.70 70.80 92.0 2 6.49 14.70 57.90 80.0 3 6.49 14.70 39.30 61.0 4 6.49 15.70 26.70 50.0 5 6.49 11.60 6.70 25.0 10 12.30 52.10 166.20 231.0 11 12.30 48.90 133.90 195.1 12 12.30 45.50 101.80 160.0 13 12.30 42.50 75.00 130.0

Source: DCSVTIDCV and mission egimates 5. Table 5.2 hereafter summarizesthe quantities and costs of the rehabilitationand resurfacing componentsof the program over the next five years. TableS2: Rebabililatioun*d Resurfawi, Ogantitesand Cost lstmates

Price Quantities Bse Cost (USS million)

Pmjct Component Unit US$th. Total 1993 1994 1995 1996 1997 1993 1994 1995 1996 1997 Total Rehabillatto s.ld: 12.5 cm Km 92.0 283 140 143 0.0 12.9 13.2 0.0 0.0 26.0 t.d.2:10.0 cm Km 80.0 326 86 140 100 6.8 11.2 8.0 0.0 0.0 26.0 st.3: 7.5 cm Km 61.0 707 247 140 120 100 100 15.1 8.5 7.3 6.1 6.1 43.1

.s.4: 5.0 cm Km 50.0 400 100 100 100 100 0.0 5.0 5.0 5.0 5.0 20.0 .d.5: surftr. Km 25.0 1,080 100 100 500 380 0.0 2.5 2.5 1.5 9.5 27.0 St.10: 15.0cm Km 231.0 63 14 49 3.2 11.3 0.0 0.0 0.0 14.6 s .1.2: 10.0cm Km 160.0 158 67 45 46 10.7 7.2 7.4 0.0 0.0 25.2 st.13: 7.5 ca Km 130.0 37 37 0.0 4.8 0.0 0.0 0.0 4.8

subtotal 61.2 3,053 413 751 609 700 580 35.8 63.4 43.3 23.6 20.6 186.8 Resurfacing .st.6: 7.5 cm Km 33.0 1,024 181 250 200 200 193 6.0 8.3 6.6 6.6 6.4 33.8 .s.7: 5.0 cm Km 27.0 2,419 24 600 600 600 595 0.6 16.2 16.2 16.2 16.1 65.3 .st.8: surf.tr. Km 18.0 855 350 200 200 105 0.0 6.3 3.6 3.6 1.9 15.4 t.1.4: 7.5 cm Km 70.0 251 45 95 80 31 3.2 6.7 5.6 2.2 0.0 17.6 .s.15: 5.0 cm Km 56.0 239 55 65 65 54 0.0 3.1 3.6 3.6 3.0 13.4

subtotal 30.4 4,787 249 1350 1145 1096 947 9.7 40.5 35.6 32.2 27.3 145.4

Capacity increscs Km 150 113 37 38 38 0.0 0.0 5.6 5.7 5.7 17.0

Soure: DCV/DGSVT andmission estimates

AugS 1992IM - 53 - Annex 5 Page 3 of 4

B. Bridge and Tunnel Rehabilitation Program

6. The total number of bridges on the road network in Venezuelais estimatedat about 6,000 units, 70% of which are more than 30 years old. The lack of adequatemaintenance and normal wear or fatigue have resulted in a very large proportionof structuresdeserving immediaterehabilitation or major repair works. A survey conductedon a sample of the highway network suggestedthat 30% of the bridges, having a span of more than 30 meters, required intensiverehabilitation works. It was therefore decided that this componentshould be incorporatedin the program.

7. For evaluationpurposes, the followingfigures are noteworthy:

* the respective costs of reconstruction,total rehabilitationand partial top priority repair of bridges amount to US$500,000, 110,000 and 40,000 per unit, respectively; * some 1,200 bridge structuresshould be adequatelydealt with, within the next 10 years, on accountof their vulnerablecondition.

8. Under the 5-year program, priority has been given to about half the total extensionof the needs, which represent some 340,000m2 of bridge area to be rehabilitatedor repaired, i.e., approximately650 to 700 bridges having an average individualoverall length of 70m by 8m wide. The following table shows the related quantity and cost estimatesby year.

Table 5.3: Rehabilitation of Bridges and Tunnels

Prka.IUki IB c a ie

Prcj.aCmqwuu Uait us" Thai 2993 2994 1995 199 2997 I993 2994 299 2996 299 TOW

R__blla. of rdgn and Tnmas

.MdgsuI.b. 00OM2 315 190 30 40 40 40 40 9.5 12.6 12.6 12.6 12.6 59.9

.g sps_i CODm2 205 110 30 30 30 30 30 6.2 6.2 6.2 6.2 6.2 30.

.wnl bsb. OWm. 77.7 152 5 45 26 13 13 4.3 3.5 2.0 IA IA 22.I

mAA1 19.9 22.2 20.8 19.3 19. 102.4

_:mm DCV/DGSVT ad lon sd_

9. Bridgesto be includedunder the program for rehabilitationand/or major repair works shall have been selected on the basis of appropriate evaluationprocedures - both technical and economical- and will be submittedto Bank's approval, using agreed applicationforms. - 54- Annex S Page 4 of 4

C. Routine Maintenance Program

10. The maintenance componentof the project involves about 30,000km of paved roads including expressways. The related activitiescomprise:

* pothole and crack patchingon the pavement; * cleaningand repair of drainage structures as well as verge side vegetationcontrol; * routine maintenanceworks on bridges; and * emergency and other intervention which might prove necessary during project implementation.

11. Quantity and cost estimates are as follows:

Table 5.4: Routine and Emergency Maintenance

Mm ~~~~~~Qmmkk. IBM C'" muS m

PwJ C _W- WtU USS TOal 1993 1994 1995 1996 1917 199 19 1999 199 197 Tod

RLuM ad EaWmty Miimm

.pschg W O0M3 85.0 MO 5 SD 40 30 30 4.3 4. 3.4 26 2.6 170

.dm_p & vwg O001m 430.0 15O 39 39 30 3X 30 13.5 135 134 135 13 67p

.bd OWM2 15.0 2.250 450 450 450 48 450 4 3.1

* in.owy A cam b 100.0 2,000 20 2 3. 3. 20.0 20.0 3. m00.e

3m5w 44* 44 4.7 4. 4.8 2183

Source: DCV/DGSVT aW.sku s im

12. The estimated total cost of maintenanceactivities amounts to US$218.3m over the five years implementationperiod, i.e., an average cost of approximatelyUS$1,450 per kIm,per year, broken down as follows:

* patchingof potholes and cracks (US$1S10/km) * maintenanceof drainage, vegetationcontrol (US$450/knm) * bridge maintenance(US$230/km) * emergencyand other works (US660/km)

September1992 - 55 - Annex 6 Page I of 3

VENEZUELA

HIGHWAYS MANAGEMENTPROJECT

Flrst-Year Rehabilitation and Resurfacing Program

A. Flrst-Year Rehabilitation Program

1. The first-year highwayrehabilitation program would consistof 19 road sections locatedin various regions of the country. The total length of these sections is about 531.6 km.

2. These sections and the related technical solutions were selected consistentlywith the network rehabilitationand maintenancestrategies and standardswhich are described in Annex 3. The proposed technical solutionsas well as alternativesolutions were also evaluated in economicterms (Annex 7).

3. The detailed engineeringdesigns of 10 road sections, totaling 214,4 km, have been completed between May and August 1992. The detailed designs of the remaining nine sections totaling 317.2 km have been completedbetween Septemberand October 1992.

4. The total estimated cost, based on the detailed engineeringdesigns which were completed by appraisaland on preliminary engineeringfor the other sections, is estimated at about US$45 million.

5. Bidsfor the first packageof the 10 road sectionsare scheduledto be called for in December 1992. Bids for the secondpackage would be invited in February 1993. Table 6.1 hereafter shows the scheduled bidding, executionstart-up and completiondates.

B. tlrst-Year Resurfacing Program

6. The first-year highway resurfacing program would also consist of 19 road sections located in various regions of the country. The total length of these sections is about 442.7 km.

7. These sections and the related technical solutions were selected consistently with the network rehabilitationand maintenancestrategies and standards which are described in Annex 3.

8. Preliminary engineeringdesigns have been completedby appraisal. Detailed engineeringwill be completedin December 1992. Bids for a first package of resurfacing works are scheduled to be called for in February 1993. Bids for the second packages would be invited in April 1993. All the first-year resurfacing works would be completedby the end of 1993. The total cost of this program is estimated at about US$17 million (Table 6.2). - 56 - Annex 6 Page 2 of 3

Table 6.1: Flrst-Year Highway Rehabilitation Program

Execution of Works

Lot No. Highway Section Length Completion Call for Start Completion Engineering Bid

I Alcabala De Veladero - Cruce L004 22.0 May 92 Dec 92 Feb 93 Jun 93

Km S9+500- El Roario 11.5 May 92 Dec 92 Feb 93 Jun 93 Crucc L004 - Km 20+300 20.3 May 92 Dec 92 Feb 93 Jun 93 Sta. Babara- Aguatay 27.0 May 92 Dec 92 Feb 93 Aug 93

CruceT013 - Sta. Baxtra 8.2 May 92 Dec 92 Fcb 93 Apr93

Bachrquero - Cdad, Ojeda 33.4 May 92 Dec 92 Feb 93 Aug 93 Paraguaipoa - Paaguachon 16.0 Jun 92 Dec 92 Feb 93 Jun 93 Toyar- Bailadores 13.0 Jul 92 Dec92 Fcb 93 Jun 93

Cdad. Ojeda - Bachaquero 33.4 Jul 92 Dec 92 Feb 93 Aug 93

Cataneja- Los Guayabitou 29.6 Aug 92 Dec 92 Feb 93 Aug93

Total 1 (kin): 214.4

2 La Cciba - Lim. Monagu 40.0 Sep 92 Feb 92 Apr 93 Oct 93

Crucero De Maturin - LA Cdiba 4.0 Sep 92 Feb 92 Apr 93 Oct 93 Lim, Portugueaa - Rio Masparro 9.0 Sep 92 Feb 93 Apr 93 Jul 93

San&re - Boca Del Tocuyo 17.0 Sep 9 2 Feb 93 Apr 93 Aug 93

Boca Del Tocuyo - San Juan De Los 18.3 Sep 9 2 Feb 93 Apr 93 Aug 93 Cayos

El Mil gro - El Pinal 32.0 Sep 9 2 Feb 93 Apr93 Sep 93 Emp. TOOl - LA Ceiba 34.9 Sep92 Fcb 93 Apr 93 Sep 93 ria Juana- Cdad, Ojeda 14.0 Sep 92 Feb 93 Apr 93 Jul 93

Emp L003 (Cabims) - Emb T017 10.0 Sep 92 Feb 93 Apr 93 Jul 93

Guanare- La Morita 44.0 Oct 92 Feb 93 Apr 93 Oct 93

Cop DeOro - Tariba 8.0 Oct 92 Feb 93 Apr93 Jul 93 Valderma - Ptc. Venezuela 50.0 Oct 92 Feb 93 Apr 93 Oct 93

Total + 2 531.6

Source: DGSVT - 57 - Annex 6 Pag, 3 of 3

Table 6.2: First-Year Highway Resurfacing Program

Section Description Length Traffio Cost (USS million)

LOOI PA San Luis - Emp T004 (El Tigre) 7.2 306 0.28 R007 ME Merida - San Javier Del Valle 5.0 2,439 0.19 T007 ME Mucuruba - Tabay 19.9 5,568 0.77

T007 ME Tabay - Merida 11.0 5,276 0.42 T007 ME Estanquez - Ptc, Victoria 10.0 5,142 0.38 T007 ME Santa Cruz - Tovar 14.8 3,712 0.57 T012 MI Carencro - Com TC T009 48.9 5,819 1.88

TOW Ml Guarenas-El Rodeo-CTC T012 47.7 10,381 1.83

T009 Ml Com TC T012 - Pin TC T012 2.5 10,381 0.10 T009 Ml FPC T012-Cruce LOOS(El Guapo) 56.1 6,024 2.16

T009 Ml El Guapo - Lim Anzoategui 61.5 1,161 2.37 R020 MI Emp T012 - Curiepe - Biorongo 18.5 1,100 0.71 ROll PO - Papelon 37.4 1.160 1.44 TOOSTA La Pedrmr - El Milagro 15.0 4,004 0.58

L007 TA Urmna - San Antonio 15.0 8,656 0.58

TOOl YA El Guayabo - Lim Carabobo 9.1 6,313 0.35

LOO1 YA Macagua - Agua Linda 13.1 7,372 O.SO L003 ZU Sta. Rita- Cabimas 32.0 2,100 1.23 L002 ZU Encontrados - Valderama 18.0 657 0.69 Total 442.7 527 17.03

Source: DGSVT

November 1992 - 58 - Annex 7 Page I of 5

VENEZU

HIGHWAYMANAGENMNT PROJECT

Economic Analysis of First Year Program

1. The economicanalysis of the first year rehabilitationprogram has been carried out usingthe HDM HI model and the most recent paved road standardsHDM-Eu Shell (HDMPAVED). The program is designedto perform an evaluationof a set of maintenancestandards applied to a paved road. It computes the road deteriorationand the costs streamsfor each of the maintenancestandards being evaluated,as well as the economicindicators used to compare these standards, i.e., present net values and economicrates of return.

A. AnalyiF

2. Analysis were conductedfor 17 road segmentstotalling 581.6km. An analysisperiod of 20 years was selected, the construction year for rehabilitation works being 1993. Net present values were calculatedusing a discount rate of 12% and all costs are expressed in US dollars.

B. Road Characteristics

3. The road characteristicsfor the 17 individualsegments were obtainedfrom road conditionsurveys and traffic counts undertakenby DGSVT in 1991. The followinginformation were generally available for each segment:

* geometricalfeatures, includingthe length, width, curvature and rise and fall parametersof the road section * surface condition, as rated using the PCI method, from which roughness values were derived * pavement constitution, with correspondingpresent structural number and subgrade CBR values * environmentalfeatures includingaverage altitude and rainfall values * daily traffic volumes and annual growth for each vehicle type

C. Vehide Qa3hdaCodst

4. The program assesses vehicle operating costs from the data entered to characterize the typical vehiclefleet in Venezuela. Appropriatevalues were selectedfor each vehicle type, and are givenin table 7.1 hereafter to illustratethe outputs to the model. - 59 - Annex7 Page 2 of S

Table 7.1: Vehicle Operating Costs (USS/Veh.x kin) 1/

Vebile Type % W'-2 W1-4 W1-6 W-85 Du-10 W1-15

Car 42 0.125 0.135 0.151 0.173 0.204 0.287 Car fo Ned 29.4 0.064 0.066 0.071 0.074 0.082 0.105 Lar Bus 1.1 0.529 0.55 0.608 0.672 0.750 1.005 MediumD 2.7 0.368 0.39 0.423 0.467 0.522 0.70 MediumTnack 19.4 0.306 0.332 0.373 0.424 0.482 0.642 KeavyTnuck 2.9 0.665 0.730 0.S1I 0.924 1.043 1.366 ArTculaldTnaek 2.5 0.871 0.945 1.067 1.219 1.387 1.S39 For typica mixed traffic n FeA. prognim 0.178 0.196 0.225 0.254 0.290 0.392

J/ TypiW VOC o C-2 Paved toed Ak-60m 2 nora laws

5. Typicalvehicle operating costs for mixedtraffic assuming lightly rolling terrain condition, can be approximatedas follows,as a functionof roadroughness:

RoughnessLevel IRI VOCVeh-Km(USS) 2 0.178 4 0.196 6 0.225 8 0.254 10 0.290 15 0.392

VOCcan be expressedby the followingrelationship: VOCin USS/vehx km = 0.155 *0-0617, r2-0-.

D. Maintenance and Rehabilitation - Financial and Economic Costs

6. Maintenanceand rehabilitationof financialcosts were obtainedfrom calculationperformed by DGSVT(Annex 5). Economiccosts were taken as beingequal to 1.39 timesthe financialcosts, the conversionfactors for the variouscomponents of rehabilitationworks being as follows:

Component Ratioof Economicto FinancialCosts Gasoline 2.60 Gasoil 3.30 Asphalt 2.50 Equipment 1.34 Qualifiedlabor 1.00 Unqualifiedlabor 0.55 Foreignexchange 1.36 - 60 - Annex 7 PiLge3 of S

7. Maintenanceand rehabilitationunit costs introducedin the program are summarizedbelow:

Descriptionof Works Financial Costs EconomicCosts Routine MaintenanceUS$/km 1,500 2,085 Patching US$/m2 2.9 4.03 Reseal: double surface treat US$/m2 3.4 4.73 Overlay: 75mm A.C. US$/m2 8.28 11.5 ReconstructionUS$/m 2 25 34.7

E. Maintenance Standards

8. For comparisonpurposes, five maintenancestandards have been selected, as described below:

Standard 1: is the base standardand correspondsto routinemaintenance including essentially very localizedrepairs of pavementand shoulderdefects as well as vegetation control and regular maintenanceof road drainage, verges and side slopes. This standard allows for reconstructionto eventuallytake place when the roughnesslevel reaches a critical value of 11 IRI.

Standard 2: correspondsto the rehabilitationproject as envisaged under the program, for each particular segment. It consistentlycall for a bituminousconcrete overlay ranging in thickness from 7.5 to 15cm depending upon traffic volume. Overlay works are assumed to take place after routine maintenance and adequate patching of all pavementdefects have been carried out.

atandard3: has been selected to represent the thinnest overlay envisageable for rehabilitation purposes, i.e., 50mm of asphalticconcrete. It is triggeredas soon as roughnesslevel reaches 4.5 IRI and is also preceded by all necessary routine maintenance and patching works.

standard : correspondsto the thickest overlay which could be envisaged under the program, i.e., assuming a 180mm thickness of asphaltic concrete comprising of a 120mm bituminousmacadam base course overlain by a 60mm asphaltic concrete wearing course. A responsivemechanism for triggering overlay was set at 4.5 IRI. Again, all routine repairs and patchingactivities are assumedto have been completedbefore overlay works are undertaken.

standard 5: allows for periodic resurfacing of the pavement, using a double-surfacetreatment triggeredat 7 years intervals. Prior to resealingoperations, normal maintenanceand pothole patching activitiesare supposedto have been implemented. - 61 - Annex 7 Page 4 of 5

F. Analysis and Results

9. From the analyses performed, the consolidatedeconomic rate of return for the first year program is estimated at 53%, the range of values obtainedfor individualroad segmentsextending from 34% to 74%, thus indicatingthat the proposed investmentsare timely and economicallyjustified.

10. The analyses further suggest that;

(a) the rehabilitation techniques using asphaltic concrete overlay in the range of thickness selectedfor the project, generally yield the highest net present values at a discount rate of 12%; and

(b) investmentcosts would have to be increased by over 300% for the internal rate of return to fall below 12%.

11. The following table summarizes the results of the economic evaluation, segment by segment, highlighting, in particular, total agency costs, traffic volumes, net present values and internal rates of return, for each individual road link.

September 1992 REHABILITATION PROGRAM SUMMARY TABLE OF ECONOMIC ANALYSIS

Rehabilitation Total Average Net Pre ent ERR

Daily A.C. Overlay Agency Cost Rehab. Coat Value of of the

Ident. Road Name Length Traffic Thicknes Standard of Rehsblit. per Km Rehab. Proj. Project

No. (Kin) Volume (cm) & Mill. S x 1000 at 12 % Disc. %

I Alcabala de Velader - Cruce L004 22.0 3,874 10.0 2 3.08 78.1 9.7 62

2 Km 59+500-ElRoario 11.5 3,400 10.0 2 1.45 78.1 4.6 54

*3 Cruco L004- Km 20 + 300 20.3

*4 Sta, Barbara - Agusaay 27.0

5 Cruce T013 - Su, Barbara 8.2 2,714 7.5 3 0.97 60.5 3.3 66

**6 Bachaquero- Cdad, Ojeds 33.4 5,428 10.0 12 9.02 84.5 10.8 38

7 Paraguaipoa - Paraguachon 16.0 2,238 7.5 3 1.62 60.5 4.1 52

8 Tovar - Biladorer 13.0 3,141 10.0 2 1.64 78.1 4.7 50

**9 Cdad, Ojeda - Bachequero 33.4 4,985 10.0 12 9.02 84.5 10.7 38

10 Catsneja - Los Ouayabitos 29.6 2,281 7.5 3 3.00 60.5 8.9 42 f

*11 La ceiba - Um. Monagas 40.0

12 Crucero De Maturin - LA Ceiba 40.0 2,621 7.5 3 4.61 60.5 14.1 66

13 ULm. Portuguea - Rio Masprao 9.0

14 S anre - Boca Del Tocuyo 17.0 7.5 3 60.5

15 Boca Del Tocuyo-San Juan De Los Cayoa 19.3 1,611 7.5 3 1.86 5.5 44

16 El Milagro - El Pinal 32.0 3,588 10.0 2 4.02 78.1 16.8 52

17 Enp. T001 - LA Ceiba 34.9 1,799 7.5 3 3.54 60.5 10.5 44

*5i8 Tia Juana - Cdad, Ojeda 14.0 13,079 15.0 10 4.26 121.7 8.7 52

19 Emp L003 (Cabimaa) - Emp T017 10.0 4,229 10.0 2 1.40 7S.1 3.7 66

20 Guanare - La Morit 44.0 2,478 7.5 3 5.22 60.5 22.1 72

21 Cops De Oro - Tariba 8.0 2,966 7.5 3 0.91 60.5 3.3 74

22 Valdernam - PEl Venezuela 50.0 1,420 7.5 2 5.07 60.5 10.6 34

TOTAL 532.6 3,638 8.9 4.1 60.69 72.1 152.1 53

* no informaton available *22 [an highways -_ - 63 - Annex 8 Page I gf 2 VENEZUELA

HIGHWAY MANAGEMENT PROJECT

Monitoring and Supervision Plan

1. MTC/DGSVTwould, as part of their action programs to strengthen contract managementand program monitoring, establish an appropriate system to monitor the implementationof the project, includingthe productionof adequateinformation to report to MTC/DGSVTmanagement and to the Bank, in accordancewith the specificationsincluded in agreed terms of reference. MTC/DGSVTwill prepare and forward to the Bank quarterlyprogress reports satisfactoryto the Bank, not later than one month after the end of each quarter.

2. In supervisingthe project's implementation,the Bank will particularly review, approve and/or comment on the following documents: (a) applicationforms for financing investmentsincluded in the annual rehabilitation, resurfacing, bridge, tunnel and signalingprograms; (b) annual procurement and execution programs; (c) procurement documentationfor civil works and equipment; (d) terms of reference, invitationletters, short-lists and draft contract for consultant services; and (e) the quarterly progress reports. In order to expedite the review of the above documentsby the Bank, a first level of review will be carried out by MTC/DGSVT'sproject managementunit prior to forwardingthe documents to the Bank.

3. The Bank will monitorthe implementationof the project, includingthe engineering,procurement and executionprograms and the actionprograms and related technicalassistance and training, against the physical and financial targets and timetables included in the ImplementationProgram. A mid-term, detailed review of the implementationof the project will be carried out in the third quarter of 1995. The review will cover all the agreed actions, targets dates, and execution targets included in the ImplementationProgram and the status of compliance with all covenants of the Loan Agreement. Particular importance will be given to: (a) the Borrower's commitmentto provide adequate funds for maintenance,including counterpart funds for the project, and to establishappropriate cost-recovery and funding mechanisms; and (b) MTC/DGSVT's performance under the agreed policy and institutional development action plan. The Bank will have the right to exercise appropriate remedies, including suspensionof disbursementsand terminationof the loan, if the Borrower has defaulted under the cost- recovery and funding conditions and/or the MTC/DGSVT's performanceunder the action plan is not satisfactory.

4. The Bank's supervisionand monitoringactivities will be coordinatedwith those of the Inter- AmericanDevelopment Bank with a view to avoid duplicationof efforts. In particular, joint supervision missionswill be scheduled so as to optimize staffing to the extent possible. The Bank will supervise and monitor the implementationof the project in accordancewith the Plainpresented on the next page. The estimatesof Bank supervisioninputs into key activities, which are shown in the table of this annex, take into considerationthe coordination with IDB and the expected support from MTC/DGSVT's project managementunit, as well as the need for staff training to carry out their tasks. - 64 - Annex 8 VENEZUELA Page 2 of 2

HIGHWAY MANAGEMENT PROJECT

Bank Supervision InRut into Key Activities

-_ . .. . - Approx. Key Activities Expected Skill Stf.lnput Dates Requirements staff-wks

1/93 Project Launch Workshop Highway Engineer 6.0 Transport Economist Disbursement Officer Procurement Ofricer

4/93 SupervisionMission: review status re. Highway Engineer 6.0 organizational arrangements and monitoring Institutional Speciaist ystems, contracting of TA, procurement of 1993 Transport Economist programs, budgets.

10/93 Supervision Mission: review progress under TA, Highway Engineer 8.0 staff training, engineering, procurement and civil Transport Economist works programs, and preparation of 1994 works Institutional/TrainingSpecialist programs.

4/94 SupervisionMission: review progress on ongoing Highway Engineer 6.0 institutional(decentralization), investment and Operations Assistant procurement programs, and accounting InstitutionalTraining Specialist documentation.

10/94 SupervisionMission: review progress under TA, Highway Engineer 6.0 staff training, engineering, procurement and civil Transport Economist works programs, preparation of 1995programs, Operations Assistant budget.

4/95 SupervisionMission: review progress on ongoing Highway Engineer 6.0 institutional(decentralization), investment and Transport Economist procurement programs, and accounting Institutional/TrainingSpecialist documentation.

9/95 SupervisionMission: mid-term review of the Highway Engineer 10.0 projea's implementation, incl. implementationof Transport Economist cost-recovery and funding action plan, and general Operations Assistant l______compliance with loan covenants. Institutional/Training Spocialist

FY97 Two SupervisionMissions Highway Engineer 10.0 Transport Economist Operations Assistant l

FY98 Two SupervisionMissions Highway Engineer 10.0 Transport Economist Operations Assistant

FY99 Loan Closing Highway Engineer 10.0 (Project completion report) Transport Economist Operations Assistant ove er .. - 65 - Annex 9 Page I of 2 VENEZUELA

HIGHWAYMANAGEMENT PROJEC

Selected Documents and Data Available In the Proiect Fille

Bank Mission Documents

1. Project Appraisal Mission Aide-Memoire,April 1992 2. Project Pre-AppraisalMission Aide-Memoire,November 1991 3. Final Executive Project SummaryPackage, April 1992 4. PavementManagement Consultant Report, P. Autret, May 1992 5. Private Financing ConsultantReport, C. Williams, May 1992 6. Evaluaciondel Programa de Autopistas,E. Barriga, Sep. 1991

Borrowers' Documents

7. Plano Plurianualde Mantenimientoe Rehabilitacionde Carreteras, Mayo 1991 8. Estrategia Para el MantenimientoRutinario, J. Caraballo, Junio 1992 9. Programa Plurianual MTC-BID-BIRF 10. Cronogramade Inversionen Autopistas 11. Recursos Fundo Vial, 1992-97 12. Cuadro de EjecucionPresupuestaria 83-91, DGSVT 13. PronosticoPresupuestario 92-97, DGSVT 14. Criterios de Seleccion de los DistintosComponentes 15. Propuesta Preliminar para la reglamentaciondel Proceso de Contratacion 16. Programa del lo. Ano, Carreteras, 15-07-92 17. Programa de Tuneles del lo. Ano 18. InformacionCORDIPLAN 19. Esquema de Seguimientode la Condicionde la Rede Vial Principal, Junio 1992 20. Terminos de Referencia Estudiospara Gerencia de Carreteras, Junio 11, 1992 21. Terminos de Referencia Estudiospara Gerenciade Puentes, Junio 11, 1992 22. Estudio de Cargos a los Usuarios, Terminos de Referencia, Junio 10, 1992 23. Politica de Recuperacionde Costos 24. Documento el Prestatarioy el Ejecutor 25. Participacionde los Usuarios en el Sector Transporte 26. Propuesta de Creacion de la Unidade de Credito Externo 27. Estrategia de Decentralizacione Transferenciade Competenclasa los Estados, 2-7-92 28. Programa de Privatizacionde Autopistas 29. Conveniode Transferencia, Desarollo Institucionaly Coordenacion,Agosto 1992 30. Decreto de Ley de Conservaciondel Estado de Aragua 31. Proyectos de AsistenciaTecnica, Estado de Monagas 32. Proyectos de AsistenciaTecnica, Estado de Carabobo -66 - Annex 9 Page 2 of 2

33. Programa de FortalecimientoInstitucional, Junio 1992 34. Estudios Complementariosdel Ferrocarril Caracas-PtoCabello, 1/8/92 35. Propuestapara la Creacion de la Oficina de GestionAmbiental en el MTC, Mayo 1992 36. Ley de Conservaciondel Estado de Guarico 37. Conveniode Transferencia, Desarollo Institucionaly Coordenaciondel Estado de Guarico 38. Informe Final, Consultoriade Procesos del Area de Planificaciony Proyectos del MTC 39. Documentode Politicas sobre Recuperacionde Costos de InfraestruturaVial, Octubre 15, 1992

November 1992 MAP SECTION

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