Document of The World Bank FOR OFFICIAL USE ONLY Public Disclosure Authorized Report No: 36421 PROJECT APPRAISAL DOCUMENT ON A Public Disclosure Authorized PROPOSED LOAN IN THE AMOUNT OF US$74 MILLION TO THE REPUBLIC OF PARAGUAY FOR A ROAD MAINTENANCE PROJECT Public Disclosure Authorized July 24,2006 Finance, Private Sector Development and Infrastructure Department Argentina, Chile, Paraguay and Uruguay Country Management Unit Latin America and the Caribbean Region Public Disclosure Authorized This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization. CURRENCY EQUIVALENTS (Exchange Rate Effective June 30,2006) Currency Unit = Paraguayan Guaranies US$l = PYG5’570 FISCAL YEAR January 1 - December 31 ABBREVIATIONS AND ACRONYMS CAS Country Assistance Strategy CIF Cost, Insurance and Freight DAI MOPC’s Internal Audit Directorate (Direccidn de Auditoria Interna) DAJ VMOPC’s Legal Directorate (Direccidn de Asuntos Juridicos) DAT VMOPC’s Technical Assistance Directorate (Direccidn de Asesoria Ticnica) DC Road Maintenance Department (Departamento de Conservacidn) DCP VMAF’s Aid Management Directorate (Direccidn de Cridito Pziblico) DCST Traffic Security and Control Directorate (Direccidn de Control y Seguridad de Transito) DCV Directorate ofRural Roads (Direccidn de Caminos Vecinales) DF VMAF’s Finance Directorate (Direccidn de Finanzas) DINATRAN National Directorate of Transport (Direccidn Nacional de Transporte) DPE VMAF’s Economic Planning Directorate (Direccidn de Planijkacidn Econdmica) DV Directorate of Highways (Direccidn de Vialidad) EP Pavement Evaluation Department (Departamento de Evaluacidn de Pavimento) EU/UA MOPC’s Environmental Unit (Unidad Ambiental) FOB Free On Board GMANS Performance-based Road Maintenance Contracts (Contrato de Gestidn y Mantenimiento por Nivel de Servicio) GOP Government ofParaguay GTZ German Technical Cooperation Agency (Gessellschaft fur Technische Zusammenarbeit) FOR OFFICIAL USE ONLY HDM Highways Design & Maintenance Standards Model IBRD International Bank for Reconstruction and Development ICB International Competitive Bidding IDB Inter-American Development Bank IERR Internal Economic Rate ofReturn ILO International Labor Organization IRI International Roughness Index JBIC Japan Bank for International Cooperation LAC Latin America and the Caribbean MOF Ministry ofFinance (Ministerio de Hacienda) MOPC Ministry ofPublic Works and Communications (Ministerio de Obras Publicas y Comunicaciones) PC Traffic Police (Policia Caminera) PSP Private Sector Participation S IAMV Integrated Road Maintenance Management System SIVIPAR Paraguay’s Road Infrastructure System (Sistema de Infraestructura Vial del Paraguay) UBI Patrimony Unit (Unidad de Bienes Inmobiliarios) uoc MOPC’s Procurement Unit (Unidad Operativa de Contrataciones) UP Toll Unit (Unidad de Peajes y Pesajes) UPGP Project Preparation Unit (Unidad de Preparacibn y Gestibn del Proyecto) VMOPC MOPC’s Vice-Ministry ofPublic Works and Communications (Vice-Ministerio de Obras Publicas y Comunicaciones) VMAF MOPC’s Vice-Ministry ofAdministration and Finance (Vice-Ministerio de Administracibn y Finanzas) Vice President: Pamela Cox Country Director: Axel van Trotsenburg Sector Director Makhtar Diop Sector Manager: Jose Luis Irigoyen Sector Leader Juan Gaviria Task Team Leader: Andres G. Pizarro This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not be otherwise disclosed without World Bank authorization. PARAGUAY Road Maintenance CONTENTS Page A . STRATEGIC CONTEXT AND RATIONALE ................................................................. 1 1. Country and sector issues .................................................................................................... 1 2 . Rationale for Bank involvement ......................................................................................... 4 3 . Higher level objectives to which the project contributes .................................................... 5 B. PROJECT DESCRIPTION ................................................................................................. 5 1. Lending instrument ............................................................................................................. 5 2 . Project development objective and key indicators .............................................................. 5 3 . Project components ............................................................................................................. 7 4 Lessons learned and reflected in the project design............................................................ 9 5 . Alternatives considered and reasons for rejection ............................................................ 10 C. IMPLEMENTATION ........................................................................................................ 12 1. Partnership arrangements .................................................................................................. 12 2 . Institutional and implementation arrangements.. .............................................................. 13 3. Monitoring and evaluation ofoutcomes/results., .............................................................. 13 4 . Sustalnablllty........................................................................................................................ 14 5 . Critical risks and possible controversial aspects ............................................................... 15 6 . Loadcredit conditions and covenants ............................................................................... 17 D. APPRAISAL SUMMARY ................................................................................................. 18 1. Economic and financial analyses ...................................................................................... 18 2 . Technical ........................................................................................................................... 19 3 . Fiscal ................................................................................................................................. 20 4 . Fiduciary ........................................................................................................................... 20 5 . Social................................................................................................................................. 20 6 . Environment...................................................................................................................... 22 7 . Governance ....................................................................................................................... 23 8 . Safeguard policies ............................................................................................................. 24 9 . Policy Exceptions and Readiness ...................................................................................... 24 Annex 1: Country and Sector Background .............................................................................. 25 Annex 2: Major Related Projects Financed by the Bank and/or other Agencies ................. 35 Annex 3: Results Framework and Monitoring ........................................................................ 36 Annex 4: Detailed Project Description...................................................................................... 43 Annex 5: Project Costs ............................................................................................................... 53 Annex 6: Implementation Arrangements ................................................................................. 54 Annex 7: Financial Management and Disbursement Arrangements ..................................... 59 Annex 8: Procurement Arrangements ...................................................................................... 67 Annex 9: Economic and Financial Analysis ............................................................................. 74 Annex 10: Safeguard Policy Issues ............................................................................................ 92 Annex 11: Infrastructure and Public Spending..................................................................... 114 Annex 12: Social Evaluation of the Component of Improvement and Maintenance of the Unpaved Road Network ........................................................................................................... 119 Annex 13: Improved Governance Framework and Project Action Plan ............................ 135 Annex 14: Project Preparation and Supervision ................................................................... 160 Annex 15: Documents in the Project File ............................................................................... 161 Annex 16: Statement of Loans and Credits ............................................................................ 164 Annex 17: Country at a Glance ............................................................................................... 165 Annex 18: Letter of Sector Policy............................................................................................ 167 Annex 19: Maps IBRD 34798, IBRD 34799, IBRD 3480, IBRD 3481 ................................. 171 .. 11 PARAGUAY ROAD MAINTENANCE PROJECT APPRAISAL DOCUMENT LATIN AMERICA AND CARIBBEAN