Report Number ::: ICRRICRR1283612836 ICR Review IEG Independent Evaluation Group

1. Project Data: Date Posted ::: 02/12/2008

PROJ ID ::: P057538 Appraisal Actual Project Name ::: Road Reconstruction Project Costs (((US$M(US$MUS$M):):):): 106.8 118.2 And Improvement Country ::: LoanLoan////CreditCredit (((US$M(US$MUS$M):):):): 66.5 73.2 Sector Board ::: TR Cofinancing (((US$M(US$MUS$M):):):): 32.0 31.0 SectorSector( (((ssss):):):): Roads and highways (90%) Central government administration (10%)

ThemeTheme( (((ssss):):):): Natural disaster management (50% - P) Rural services and infrastructure (50% - P) LLL/ L///CC Number::: C3432 Board Approval Date ::: 11/07/2000 Partners involved ::: Spain, Nordic Closing Date ::: 03/31/2006 09/30/2007 Development Fund

Evaluator ::: Panel Reviewer ::: Group Manager ::: GroupGroup:::: Kavita Mathur Peter Nigel Freeman Alain A. Barbu IEGSG

2. Project Objectives and Components:

a. Objectives: The objectives of the project were to: (a) to restore roads damaged by Hurricane Mitch; (b) to improve trade corridors; and (c) to establish a sustainable and accountable financial and institutional set-up for the road subsector.

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

No

c. Components (or Key Conditions in the case of DPLs, as appropriate): Road Reconstruction, Rehabilitation and Improvement (appraisal US$68.8 million; completion US$91.8 million). This component aimed at financing: (i) rehabilitation of Tegucigalpa – Danli Highway (84 km.); (ii) rehabilitation of Jícaro Galán – El Amatillo Highway (40.2 km.); (iii) reconstruction and rehabilitation of Santa Rita- road (46.5 km.); (iv) improvement of San Lorenzo – (45 km.); and (v) improvement of Rio Dulce – El Porvenir road ( 46.5 km.). 1. Rural Roads and Bridges Program (appraisal US$8.5 million; completion US$4.9 million). This component financed the reconstruction/rehabilitation of 550 linear meters of bridges, including the rehabilitation of 100 kilometers of high priority rural roads. 2. Road Maintenance Pilot Project (appraisal US$4.0 million; completion US$7.8 million). This component aimed at financing a pilot project of routine maintenance of main roads (between 900 and 1100 kilometers), with the participation of local communities through the formation of micro-enterprises. 3. Consultant Services, Technical Assistance, Training (appraisal US$11.5 million; completion US$13.3 million). This component included the financing of: (i) consultants for the supervision of the works carried out under components 1, 2 and 3; (ii) technical assistance to the Ministry of Public Works, Transport and Housing (SOPTRAVI), including the Management Planning and Evaluation Unit (UPEG) and the Environmental Unit (UGA); (iii) technical assistance to strengthen the Road Fund organization; (iv) technical assistance to complete the work begun under Credit 2458-HO on the rationalization of the railways; (v) technical assistance for the implementation and monitoring of the Road Maintenance Pilot Project; (vi) implementation of a training program for SOPTRAVI and Road Fund; and (vii) contracting of a consulting firm for the Project Coordination Unit (PCU). 4. Goods (appraisal US$1.2 million; completion US$0.3 million). This component aimed at financing a limited amount of goods for SOPTRAVI (pavement evaluation equipment, vehicles, and computers) and for the Road Fund (computers, vehicles). 5. Audit fees (appraisal US$0.1 million; completion US$0.2 million). Revised Components : Due to a shift in government priorities and a renewed focus on the Regional Integration Program PPP (Plan Puebla Panama), the rehabilitation and upgrading of the Northern Highway became a major sector priority for the GOH. Funds were reallocated from the San Lorenzo-Olanchito road to Taulabe – La Barca road.

d. Comments on Project Cost, Financing, Borrower Contribution, and Dates: The actual credit amount of US$73.2 million is higher than the appraisal amount of US$66.5 million due to exchange rate fluctuations. The credit was fully disbursed. The project was amended twice. First, in December 2005 to: (a) reallocate funds for road maintenance by micro-enterprises, following the highly satisfactory performance of the road maintenance pilot program (targets were increased from 900 km to 1,670 km); (b) extend the loan closing date from March 31, 2006 to June 30, 2007, to complete the additional routine maintenance micro-enterprise program and the trade corridor improvements; and (c) increase the aggregate ceiling for civil works contracts procured through micro-enterprises from US$4.6 million to US$8.0 million. Second, in January 2007 to include Taulabe-La Barca road improvement and to limit the scope of San Lorenzo-Olanchito road improvement to only studies.

3. Relevance of Objectives & Design: In October 1998 Hurricane Mitch struck the country and caused major devastation. The cost of damage incurred on roads, bridges and telecommunication infrastructure was estimated to about US$571.4 million (11 % of the GDP). Nearly 60% of the road network was affected; 100 bridges were either destroyed or severely damaged. The main trade road corridors suffered extensive damage. The project objectives were consistent with the Country Assistance Strategy (1999 CAS) which aimed to support the Government of Honduras (GOH) medium term reconstruction program while laying the groundwork for a stronger economy and a more equitable distribution of the benefits of growth. The project development objectives are directly relevant to three of the four pillars of the current CAS (2006): competitiveness, sustainability, and macroeconomic stability. The project components were appropriately designed to achieve the project development objectives. Their design was based on comprehensive technical, economic and fiduciary assessments. An additional feature of the project design was the improved bridge design intended to be resistant to future hurricanes of comparable magnitude. Safeguard issues were properly addressed. The project design stipulated that bidding on some of the proposed works could not go ahead until the completion of either a satisfactory environmental impact analysis (the case of San Lorenzo to Olanchito) or an acceptable resettlement plan (El Negrito to Portillo de Chancaya and Rio Dulce to El Porvenir) was in place. Overall, relevance was high.

4. Achievement of Objectives (Efficacy): To restore roads damaged by Hurricane Mitch - rated High.  The project assisted in the reconstruction/rehabilitation of 102 km of high priority rural roads and 566 linear meters of bridges, exceeding the appraisal targets. The new bridge structures are designed to be resilient in the face of future hurricanes of comparable magnitude.  The reconstruction/rehabilitation of roads and bridges restored traffic in key rural areas that were cut off as a result of the hurricane.  Short-term employment was generated through the execution of small civil works.

To improve trade corridors - rated Susbtantial.  About 236 km out of the 262 km (90%) of the five major road sections were rehabilitated / reconstructed. This was mainly due to: (a) the cancellation of San Lorenzo – Olanchito section (45 km) the funds for which were reallocated to Taulabe - La Barca section (53 km); and, (ii) the high cost increases experienced in Tegucigalpa - Danli section, resulting in construction of 50 km compared to the target of 84 km.  The rehabilitation of Jicaro Galan - El Amatillo highway improved the connection between Honduras and El Salvador, a critical element in the Plan Puebla-Panama road regional integration program. Vehicle operating costs were reduced by 7% and average daily traffic has increased from 2,430 in 1999 to 3,263 in 2005.  The rehabilitation of Santa Rita-Yoro road has reduced vehicle operating costs by 21% and increased average daily traffic from 1,275 in 1999 to 1,957 in 2005. This section is the main link connecting Yoro to San Pedro de Sula and .  Rio Dulce - El Porvenir road improvement enhanced the connection of the central part of the country with the Aguan River Valley and Puerto Castilla on the Caribbean Sea. Vehicle operating costs were reduced by 51% and average daily traffic increased from 800 in 1999 to 1,202 in 2005.  The rehabilitation of Tegucigalpa - Danli section improved the connection between Honduras and Nicaragua. Also, this road is used by Nicaragua to access Puerto Cortez, the main Honduran port on the Caribbean Sea, for the export of coffee and other products. Works in this section reduced vehicle operating costs by 24% and increased average daily traffic from 2,500 to 3,190 in 2007. To establish a sustainable and accountable financial and institutional set-up for the road subsector - rated Substantial.  The institutional capacity of the Road Fund has improved substantially. Fewer delays were experienced in the contracting of works. The operation and administrative overhead of the Road Fund was within the mandated ceiling of 2.5% of the expenditures. However, the target for the percentage of road maintenance was not met. By 2007, 95% of paved road maintenance was funded whereas only 40% of unpaved was covered. The average coverage achieved was about 65% compared to a target of 70%.  The capacity of the Management Planning and Evaluation Unit (UPEG) was improved through the establishment of a comprehensive management information system and training on road management tools such as the Highway Design and Maintenance Model (HDM).  The project provided Technical Assistance for the restructuring of DGC of SOPTRAVI.

5. Efficiency (not applicable to DPLs): At appraisal, an economic analysis was carried out for each road section under the improved trade corridors component, using the HDM model. The average Economic Rate of Return (ERR) was estimated as 27.3%. The ERR's for individual road sections ranged from 23% to 34%. At completion, ex-post economic evaluations were carried out for the five road sections (San Lorenzo – Olanchito road section was replaced by Taulabe – La Barca) using the HDM 4 model. The benefits quantified were reduction in vehicle operating cost and travel time savings accruing from the improvements. The average ex-post 33.9%. With respect to the Rural Roads and Bridges Program, the rural roads were chosen so as to ensure an overall positive NPV for the program at a 10% discount rate. No ex -post economic analyses for these rural roads was carried out.

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

Rate Available? Point Value Coverage/Scope*

Appraisal Yes 27.3% 64.4%

ICR estimate Yes 33.9% 77.6% * Refers to percent of total project cost for which ERR/FRR was calculated.

6. Outcome: The project objectives were highly relevant to the Bank's Country Assistance Strategies and the Government priorities. The project objective was substantially achieved and efficiency is substantial. The project outcome is rated satisfactory. aaa.a... Outcome Rating ::: Satisfactory

7. Rationale for Risk to Development Outcome Rating: The main risks to development outcome is the risk of future hurricane hit and the adequacy of maintenance funding for national and rural roads . The risk of future hurricane hit is partly reduced by the new bridge structures designed to be resilient in the face of future hurricanes of comparable magnitude . Regarding the adequacy of maintenance funding, at project completion 95% of the paved road network maintenance was covered by the road fund and only 40% of the unpaved network was covered. For this reason, there is a moderate risk to development outcome arising from any future shortfalls in the provision of maintenance funding.

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

8. Assessment of Bank Performance: The Bank’s performance during preparation was highly satisfactory. The Bank responded efficiently to the Government's request for assistance following hurricane Mitch. The Bank provided exemplary guidance to the Government in designing the strategies to make the Road Fund operational, creation of the micro-enterprises program, and innovative use of private sector management consultants in the PIU. The Bank performance during supervision was highly satisfactory. The Bank assisted in the scaling up of the micro-enterprise program. The environmental assessment for the San Lorenzo – Olanchito road was handled adequately. The resettlement action plan for Taulabe – La Barca was also handled adequately. Overall, the Bank Performance is rated highly satisfactory. aaa.a... Ensuring Quality ---at -atatat----EntryEntryEntry::::Highly Satisfactory

bbb.b... Quality of Supervision ::: Highly Satisfactory

ccc.c... Overall Bank Performance ::: Highly Satisfactory

9. Assessment of Borrower Performance: The Government passed adequate legislation and introduced other measures to facilitate reforms and improve the financial position of the Road Fund. These included (i) restructuring of the DGC, (ii) the outsourcing of periodic and routine maintenance for the road network to the private sector; and (iii) adopting new procedures and guidelines for road environmental and social assessments. The main shortcomings were: (a) the Government did not transfer funds to the Road Fund in accordance with the Law and failed to provide the resources necessary to meet the maintenance targets agreed under the Project; (b) the Government was also slow to approve the contracts for project management (i.e. outsourcing of PCU) and external auditing. This caused initial delays, as the credit was approved in November 2000 and only became effective in November 2001, despite the urgent need for the rehabilitation works. The Government Performance is therefore rated Moderately Satisfactory. The overall performance of SOPTRAVI and the Road Fund is rated satisfactory. No major procurement problems arose and bidding was undertaken for the most part in a timely fashion. Financial management was carried out in a largely satisfactory way. Monitoring and evaluation arrangements were generally satisfactory. The overall borrower performance is rated satisfactory. aaa.a... Government Performance ::: Moderately Satisfactory

bbb.b... Implementing Agency Performance ::: Satisfactory

ccc.c... Overall Borrower Performance ::: Satisfactory

10. M&E Design, Implementation, & Utilization: M&E design was satisfactory. At appraisal, both output and outcome indicators were included to monitor the achievement of the PDOs. These included reduction in vehicle operating cost by 35%, reduction in travel time by 20%. To measure the efficacy of the Road Fund, PAD included the target that the Road Fund would finance the maintenance of 70% of the national road network (main, secondary and feeder roads). M&E implementation and utilization was moderately satisfactory. During implementation, the monitoring of achievement of outputs was carried out and documented on a regular basis. However, this was not done consistently for the measurement of outcomes. Some “ad hoc” studies were carried out. Also, the project was to provide SOPTRAVI assistance in designing and implementing a M&E system for the transport sector as a whole. However, only the first phase was implemented which included purchasing the equipment and designing the inputs, outputs and outcomes indicators. aaa.a... M&E Quality Rating ::: Modest

11. Other Issues (Safeguards, Fiduciary, Unintended Positive and Negative Impacts): Safeguards (a) Environmental : The project was expected to have limited negative impact on the environment and was appropriately assigned category B for Environmental Assessment. The adverse impacts expected were emission of pollutants by the construction equipment and the asphalt mixing plants, environmental disturbances at quarries, erosion, and run-offs, traffic safety at construction sites, etc. Mitigation measures were to be included in the bidding documents and in the civil works contracts. As part of the environmental assessment, a study (the Honduran Emerald Habitat Study) was commenced during appraisal to assess the impact of the improvement works of the San Lorenzo-Olanchito road on the habitat of a rare bird specie known as the Honduran emerald hummingbird (Amazilia Luciae). During implementation, the capacity of UGA was enhanced. All civil works carried out under the Project were regularly assessed for compliance with GOH and Project specific requirements. The project also supported the implementation of the Honduran Emerald Hummingbird action plan before the start up of works in the San Lorenzo – Olanchito section. The preparation of the action plan took much longer than anticipated. By project closing all activities in the plan were completed. (b) Resettlement : Resettlement Plans, consistent with Bank's OD 4.30 Involuntary Resettlement were prepared at appraisal to deal with a limited number of resettlement and land acquisition cases on the Santa Rita-Yoro Road road (section: El Negrito-Portillo de Chancaya) and on the Rio Dulce-El Porvenir road. During implementation, the project followed the Resettlement Plans. An issue however arose in regard to the resettlement plan prepared in October 2004 for the Taulabe to La Barca road section. Bank's safeguards review (September 2005) found this plan to be deficient in regard to Bank guidelines concerning the compensation of affected parties. Therefore a remedial resettlement plan was prepared. The Government undertook remedial actions and the road resettlement activities were successfully completed and in full conformity with Bank requirements. Financial Management: External audits were carried out in accordance with International Standards of Auditing annually and the reports submitted were found to be free of major qualifications and submitted in a timely manner. Unintended Impacts : The creation of micro-enterprises for routine road maintenance not only helped the routine maintenance of rural roads but the training in organization skills, team work, accounting and enterprise administration has enabled them to get involved in community activities such as cleaning of schools, sports centers, police stations and churches; transport of patients and corpses; and repair of schools.

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

Bank Performance ::: Highly Satisfactory Highly Satisfactory

Borrower Performance ::: Satisfactory Satisfactory Quality of ICR ::: Satisfactory

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

13. Lessons:

 Road maintenance by micro-enterprises can be an efficient management strategy and can also contribute to social development and poverty reduction. This type of program is cost-effective and has good social and economic impacts on the beneficiary zones such as development of organizational skills and diversification of productive activities (for example 44% of the micro-enterprises sold the trash picked up from roads to recycling plants).

 In order achieve more reliable road maintenance funding, there needs to be a sound policy and institutional framework. Ensuring up-front the basic legislative requirements for the provision of dedicated funding is a necessary but not sufficient condition to improve maintenance funding. The project experience shows the need for prioritization within a constrained resource framework.

 Where there is weak capacity, an externally managed Project Coordination Unit (PCU) can help increase efficiency in project implementation by bringing in new skills that might otherwise not have been available.

 The reconstruction of the infrastructure damaged by hurricanes is imperative but the designs of and locations for replacement infrastructure should take into account the probability of similar future events.

14. Assessment Recommended? Yes No

15. Comments on Quality of ICR:

Overall, the ICR is clearly written and easy to follow and it covers all of the essential elements. However there are a few shortcomings: (i) inconsistency in the ratings in the data sheet section C2 and main text; (ii) failure to provide a clear breakdown between IDA, the Borrower and other financiers of the cost split at appraisal (approval); and (iii) the ICR does not mention if the technical assistance to complete the work begun under Credit 2458-HO on the rationalization of the railways was completed and whether it was satisfactory. aaa.a...QualityQuality of ICR Rating ::: Satisfactory