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Document of The World Bank
FOR OFFICIAL USE ONLY
Report No: 39105-CL
PROJECT APPRAISAL DOCUMENT
ON A
PROPOSED LOAN
IN THE AMOUNT OF U S $ l 1.7 MILLION
TO THE
REPUBLIC OF CHILE
FOR THE
INSTITUTIONAL STRENGTHENING OF THE MINISTRY OF PUBLIC WORKS
TECHNICAL ASSISTANCE PROJECT
May 15,2007
Sustainable Development Department Transport Unit Latin America and the Caribbean Region
This document has a restricted distribution and may be used by recipients only in the performance o f their official duties. I t s contents may not otherwise be disclosed without World Bank authorization.
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CHILE - GOVERNMENT FISCAL YEAR January 1 - December 31
BP CAIGG CFAA CGR CPI CPS C O N A M A CQ DCF D P L FDI FM GDP GEF GIS GNP HH HIPC IADB IBRD I C B IDA IFC IMF IT IUFR JSAN LCS LDP M&E MDGs MIF M O F
CURRENCY EQUIVALENTS (Exchange Rate Effective as o f November 30,2006)
CLP 530.84=US$l .OO
WEIGHTS AND MEASURES Metric System
ABBREVIATIONS AND ACRONYMS
Bank Policy General Government Internal Auditing Country Financial Accountability Assessment Controller General o f the Republic Consumer Price Index Country Partnership Strategy National Commission for the Environment Consultants’ Qualifications Accounting and Finance Unit Development Policy Loan Foreign Direct Investment Financial Management Gross Domestic Product Global Environment Facility Geographic Information System Gross National Product Herfindahl-Hirschman Index Heavily Indebted Poor Countries Inter-American Development Bank International Bank for Reconstruction and Development International Competitive Bidding International Development Association International Finance Corporation International Monetary Fund Information Technology Interim Un-audited Financial Reports Joint Staff Assessment Note Least-Cost Selection Letter o f Development Policy Monitoring and Evaluation Millennium Development Goals Multilateral Investment Fund Ministry o f Finance
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M O P W N C B OECD OP P A D P I U PDO PMS
QCBS R&D SEE SOE sss TAL T P M
QBS
FOR OFFICIAL USE ONLY Ministry o f Public Works National Competitive Bidding Organization for Economic Cooperation and Development Operational Procedure Project Appraisal Document Project Imp1 ementation Unit Project Development Objective Project Management System Quality-Based Selection Quality and Cost-Based Selection Research and Development Strategic Environmental Assessment Statement o f Expenditure Sole-Sourced Selection Technical Assistance Loan Monetary Policy Rate
Vice President: Pamela Cox Country Director: Axe l van Trotsenburg Sector Director: Laura Tuck Sector Manager: Jose Luis Irigoyen Sector Leader: Juan Gaviria Task Team Leader: Jordan Schwartz
This document has a restricted distribution and may be used by recipients only in the performance o f their off icial duties. I t s contents may not be otherwise disclosed without Wor ld Bank authorization.
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REPUBLIC OF CHILE Ministry o f Public Works Institutional Strengthening Technical Assistance Project
I . STRATEGIC CONTEXT AND RATIONALE .............................................................. 1 Country and sector issues ................................................................................................ 1 Rationale for Bank Involvement ..................................................................................... 3 Role o f the World Bank and Consistency with Country Partnership Strategy ............... 4
I1 . PROJECT DESCRIPTION ............................................................................................ 5
Project development objective and key indicators .......................................................... 6 Project components ......................................................................................................... 7
Component 1 : Integrated Planning ............................................................................. 8 Component 2: Standards, Contracts, Competitiveness ............................................ 10 Component 3: Project Management .......................................................................... 11 Component 4: Strengthening o f Regulation or Oversight (“Fiscalizaci6n”) ............ 12 Component 5: Organizational Reform ...................................................................... 14
Lessons learned and reflected in the project design ...................................................... 16 I11 . IMPLEMENTATION ................................................................................................. 17
Partnership arrangements.. ............................................................................................ 17 Implementation arrangements ....................................................................................... 18
Sustainability ................................................................................................................. 18 Critical r isks and possible controversial aspects ........................................................... 18
IV . APPRAISAL SUMMARY ......................................................................................... 20 Economic and financial analyses .................................................................................. 20 Technical ....................................................................................................................... 20 Fiduciary ....................................................................................................................... 20 Social and Environmental Impacts ............................................................................... 21 Safeguard policies ......................................................................................................... 22 Policy Exceptions and Readiness .................................................................................. 22
Annex 1: Country and Sector or Program Background .................................................... 23 Recent Economic Developments in Chile .................................................................... 23 Latest Government Plan for Growth ............................................................................. 24
ANNEX 2: MAJOR RELATED PROJECTS FINANCED BY THE BANK AND/OR OTHER AGENCIES ........................................................................................................ 26 Annex 3: Results Framework and Monitoring .................................................................. 27 Annex 4: Detailed Project Description ............................................................................. 31 Annex 6: Implementation Arrangements .......................................................................... 35 ANNEX 7: F I N A N C I A L MANAGEMENT AND DISBURSEMENT ARRANGEMENTS .......................................................................................................... 36 Annex 8: Procurement Arrangements ............................................................................... 41 Annex 9 : Economic and Financial Analysis ..................................................................... 47 Annex 10: Safeguard Policy Issues ................................................................................... 51 Annex 1 1 : Project Preparation and Supervision ............................................................... 52 Annex 12: Documents in the Project Fi le ......................................................................... 53
Lending instrument ......................................................................................................... 6
Monitoring and evaluation o f outcomes/results ............................................................ 18 . . .
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ANNEX 14: Key Components o f MOPW’s Proposed Road Concession program ......... 55 ANNEX 15: COUNTRY AT A GLANCE ....................................................................... 57 ANNEX 16: MAP OF CHILE - IBRD 33386 ..................... .............................. ......... .... 59
List of Figures FIGURE 1 : GROWTH IN CHILE’S PRIVATE FINANCING OF INFRASTRUCTURE, 1995 TO 2005.. .2 FIGURE 2: RELATIONSHIP OF PROPOSED MOPW REFORMS ....I.......I.....III.....I..........................II...II 8 FIGURE 3: ORGANIZATIONAL CHART OF MINISTRY OF PUBLIC WORKS’ PROGRAM
MANAGEMENT TEAM FOR INSTITUTIONAL REFORM ........................................................... 35
List of Tables TABLE 1 : CHILE MACROECONOMIC SUMMARY AND FUTURE OUTLOOK 2003-2009 ...........,,. 24
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REPUBLIC OF CHILE MINISTRY OF PUBLIC WORKS INTITUTIONAL REFORM
PROJECT APPRAISAL DOCUMENT
Source Local Foreign BORROWER 23.7 INTERNATIONAL BANK FOR 11.7
Team Leader: Jordan Schwartz Sectors: Transportation, Water Resources Themes: Infra other
Total 23.' 11.'
Date: May 15,2007 Country Director: A x e l van Trotsenburg Sector ManagedDirector: Jose Luis IrigoyedLaura Tuck Project ID: P102931 Lending Instrument: Technical Assistance Loan
Project Financing Data [XI Loan [ ] Credit [ ] Grant [ 3 Guarantee [ 3 Other:
RECONSTRUCTION AND DEVELOPMENT
Total: Financing Gap
For Loans/Credits/Others: Total Project Cost (US$m.): Cofinancing:
0.0 0.r 23.7 11.7 35.1
35.4
Total BankFinancing (US$m.): 11.7 Proposed Terms: Fixed-spread Loan with principal repayments linked to commitments, payable in 20 years, including a 5-year grace period.
Responsible Agency: Ministry o f Public Works
Project Implementation Period: Start: January 1,2008 (expected effectiveness date) End: July 1,2012 Expected closing date: January 31 , 2013 Sector Unit Estimate of Resources Required for Preparation and Approval
Estimate of Resource Requirements (US$)
Identification and Preparation Expenses to
Date (US$) Source of Funds
Bank Budget 42,000 2 10,000 Trust Funds 0 0
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Estimate of Bank funds required for preparation and approval relative to 1 [ ] 50% [ ] 75% [ XI 100% [ ] < 50% o r >
1 500% [ ] 125% [ ] 150%
FY 2008 2009 2010 2011 Annual 1.5 4.0 4.0 1.7 Cumulat ive 5.5 9.5 11.2
I s approval for any policy exception sought f rom the Board? Does the project include any critical r isks rated “substantial” or high? Re$ PAD C.5 Does the project meet Regional criteria for readiness for implementation?
[ ]Yes [XINO [ ]Yes [XINO
[XIYes [ ]No
2012 2013 0 0 0 0.5 11.7
Project Development objective Re$ PAD B.2 The Project Development Objective i s to assist the Government in achieving a sustainable and integrated approach to the planning o f infrastructure; levels o f service standards for infrastructure as wel l as model contracts and procedures that promote competition and assign risks appropriately; an integrated project management process; a regulatory framework for a l l o f MOPW’s sectors o f responsibility that increases consumer confidence in infrastructure service provision; and the legal and organizational separation o f the areas o f planning, contracting, execution and regulation o f infrastructure provision. Project Description Re$ PAD B.3 Component 1 - Integrated Planning: This component w i l l enhance MOPW’s medium-term and long- term planning processes for infrastructure investments, both at the national and sub-national levels. Supply-chain and territorial approaches to planning w i l l be integrated so as to enhance basic service delivery, and strengthen the productive potential o f each territory. Component 2 - Standards, Contracts and Competition: This component wi l l establish standards o f service for public works contracts so as to bring greater efficiency and accountability to investments. In addition, this component wi l l assess the variables o f contract design and bidding processes against their ability to generate competition and investment results. This wil l result in model contracts and improved bidding procedures for each sub-sector in MOPW’s portfolio. Component 3 - Integrated Project Management: This component w i l l involve the development o f a new approach to project management which encapsulates the entire “life-cycle” o f a project so as to increase quality o f management, availability o f investment information and the institutional and individual accountability for results. Component 4 - Strengthening of Regulation or Oversight (“Fiscalizacidn”): This component w i l l support the strengthening o f oversight functions for public works contracts and concessions. Sub- components w i l l include the development o f implementing rules and regulations for oversight; the drafting o f an operations manual to lay out the procedures that comprise the process o f ”jiscalizacidn ” and renegotiation; and the development o f economic and financial models and their accompanying regulatory accounting manuals in key selected sub-sectors o f the MOPW’s portfolio. Component 5 - Organizational Reform: This component w i l l provide for the regulatory and institutional separation o f the MOPW’s planning, contracting, execution o f works and regulatory activities. This w i l l be done through the drafting o f regulatory and legal text and the establishment o f institutional arrangements and support systems.
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I Which safeguard policies are triggered, if any? Re$ PAD 0.6, Technical Annex 10 This project triggers none of the Bank’s environmental and social policies Significant, non-standard conditions, if any, for Board Presentation. Re$ PAD C. 7
1 None I
... V l l l
I. STRATEGIC CONTEXT AND RATIONALE
Country and sector issues
1. In the early 199Os, the Government o f Chile took stock o f i t s infrastructure needs and estimated i t s infrastructure deficit at U S $ l 1 bi l l ion with additional losses due to lack o f competitiveness o f US$1.7 bi l l ion annually.’ In determining how to respond to this need for massive investments and significant improvements in service delivery, the Government also recognized that the public sector did not have the resources to carry out the major works required, nor could i t commit i t s budgetary resources exclusively to infrastructure investments given the country’s social investment needs.
2. To help face this challenge, the Government first called on the private sector to take part in the building, maintenance and operation o f major road works. Thus, the Chilean Concessions System was born, allowing the private sector to finance economically profitable projects and recover their investment primarily through direct charges to users. In the years since its inception, the concession program has expanded both in terms o f sectors and design. Sectorally, Chile now has what may be the world’s most extensive concession program encompassing roads, ports, railroads, bridges, tunnels, reservoirs, jails and canals. In addition, the current l i s t o f projects to be concessioned includes hospitals and even public plazas and sports stadiums. Chile’s concession program uses a variety o f structures to allocate risk and to achieve financial-economic equilibrium, including explicit transfers from government, revenue and volume guarantees, shadow tolls and entirely user fee-based contracts. To reflect these different risk-sharing arrangements, the Government has experimented with bidding under least cost variables, least net present values and lowest cost subsidy requirements.
3. As the figure below illustrates, the Ministry o f Public Works’ concessions portfolio-including roads and highways, bridges, airports, dams, canals, prisons, and other public edifices-has risen from about 450 bi l l ion pesos in 1995 to over 1 tr i l l ion pesos in 2005 in real terms. More strikingly, the share o f private sector participation in those yearly investment levels has r isen from 9 percent to 65 percent over the course o f the last decade.
’ See: Concesioneschile.com
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Figure 1: Growth in Chile’s Private Financing of Infrastructure, 1995 to 2005
Source: Cuenta de Gesti6n MOPWTT 2005
4. The public and private infrastructure expenditures graphed above represent about 2 percent o f Chile’s GDP per year.* Those investments levels-in tandem with electricity sector unbundling, telecommunications liberalization, municipal water and sanitation privatizations, and a separate port concessioning program-represent a financial commitment to infrastructure services beyond that o f any other country in Latin America. At between 5 and 7 percent o f GDP per year, Chile’s total infrastructure investment levels-all sectors, public and private-are similar to the expenditure levels o f East Asia’s higher performing economies. Chile’s average growth level over the last 15 years has also outpaced most o f the rest o f Latin America due to a convergence o f strong economic policies, including this stable commitment to infrastructure investment.
5. There i s widespread agreement that a substantial part o f Chile’s infrastructure deficit would not have been reduced over the past decade, concomitantly with the strengthening o f public finances, without concessions and other public-private partnerships. The concessioning program in particular has attracted global attention due to i t s depth-larger than the public finance component o f public works in recent years, and breadth-covering such varied sectors as highways, airports and jails.
6. In addition to the growing concessions program, over the last two years the Government o f Chile has announced a significant expansion in the public financing o f infrastructure. The intent i s to provide Chile’s regions and export products with greater access to markets and to further improve the levels o f basic services for Chilean consumers. The administration recognizes that both i t s growing public investment and concessioning programs wil l require greater attention in terms o f planning, contract
Sectors covered by Min is t ry o f Public Works include transport assets such as inter-urban roads, urban roads, highways, bridges, and airports; water resource infrastructure such as dams, storm drainage systems, and canals; rural infrastructure such as small water systems, ferry landings, and fishing ports; and public buildings such as jails, hospitals, and schools.
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design, project management and oversight in order for them to maximize their potential as contributors to higher growth levels.
Rationale for Bank Involvement
7. The current administration has identified specific constraints to the operations and institutional structure o f the M O P W that i t believes wil l need to be addressed in order for Chile to reach a new level o f efficiency and accountability in infrastructure investment. Those challenges include:
Pla nn ing : 0
0
0
Lack o f medium and long-term planning with an integrated geographic perspective oriented to the competitiveness o f Chile’s productive sectors. Low level o f interaction with other relevant stakeholders in infrastructure sector and a lack o f societal or consumer voice in project planning. Investment programs which are contract-driven rather than integrated along a supply chain, leading to coordination difficulties and inefficient expenditures.
Standards, Contracts and Competition: 0 Lack o f explicit service standards embedded in concessions or public works
due to an historic focus on input-driven rather than performance-based contracts. Uneven levels o f competition during bidding processes for either concessions or public works exacerbated by lack o f information correlating outcomes to contract size, structure, design elements or bidding procedures
0
Project Management: 0 Low levels o f accountability related to project outcomes due to an atomized
approach to project management wi th different individuals responsible for each stage o f project development. Poor availability o f information about project costs, contract management or design and construction issues.
0
Oversight and Regulation: 0 Institutional inability to provide effective oversight o f contracts and
concessions according to agreed upon levels o f service, let alone cost elements . Lack o f ability to consider consumer concerns or even to assure public access to information in the oversight o f services.
0
Organizational Reform: An organizational structure that does not provide for clear separation o f roles and responsibilities among the four major areas o f activities-planning, contract design, project management and regulation.
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8. Measures to address these challenges make up the core components o f the Institutional Strengthening Program for the Ministry o f Public Works. The Government o f Chile has requested that this reform initiative be supported with a Technical Assistance Loan (TAL) from the World Bank. The operation focuses on strategic interventions that reflect the Bank’s infrastructure lending and technical assistance program throughout many Middle Income Countries. Integrated planning, rational project management, appropriate public-private contract design, and regulatory structures that protect both consumers and investors are areas o f core competence for the Bank.
9. The Government o f Chile has requested the Bank’s involvement in this initiative in order to leverage the Bank’s experience in logistics and territorial planning, the design and execution o f public-private contracts, in project management and in the development o f regulatory frameworks for infrastructure. In addition, the Bank offers a comparative advantage in i t s ability to draw upon global knowledge, sustain a policy dialogue, and exploit synergies wi th other operations and technical support including, but not limited to, the Infrastructure for Territorial Development Project, the Transantiago Urban Transport D P L and TAL, and the fee-for-service technical assistance on the valuation o f contingent liabilities in infrastructure. Finally, both the Ministry o f Finance and the Ministry o f Public Works were attracted by the synergies that could be gained from having both a D P L and a Technical Assistance Loan to finance the key components o f Institutional Strengthening Program. The thematic and substantive linkage o f the two projects provides an effective framework for monitoring and evaluating the implementation o f the reform program.
Role of the World Bank and Consistency with Country Partnership Strategy
10. By supporting the implementation o f the Government’s Institutional Strengthening Program, the proposed TAL i s in line with the goals and strategic approach set out in the current joint IBRD-IFC Country Partnership Strategy (CPS). The objective o f the joint CPS i s to support Chile’s efforts to converge with OECD income levels and living standards by (i) accelerating growth and (ii) building a more equitable society. The Bank Group strategy i s based on the maintenance o f close engagement wi th the authorities, which in recent years has yielded important results in support o f key Government programs and through flexible, timely support that advances Chile’s development vision and leverages the Bank’s comparative advantage in strategic sectors and global experience in difficult development challenges.
The Bank has worked closely wi th the authorities to identify areas where i t might be best prepared to support these objectives: innovation and business climate; education; social protection; regional development; environmental management; and, centrally, infrastructure and public services. The proposed project reflects these priorities supporting the drive for greater growth, efficiency and accountability in infrastructure investment.
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11. PROJECT DESCRIPTION
1 1. The Ministry o f Public Works represents, in many ways, a linchpin in the Chilean economy. I t s own budget o f approximately US$1.25 bi l l ion makes i t one o f the largest financiers o f construction in the country. The additional US$600 mi l l ion to $1.1 bi l l ion per year in concession investments that it leverages makes i t the primary driver o f public- private partnerships in the country. I t s rural infrastructure programs provide direct services for much o f the country’s poor. I t s efforts at monitoring contracts and concessions provide users with their primary source o f protection. Perhaps most profoundly, the infrastructure network that i t builds underpins the competitiveness o f most major industries in Chile.
12. With an economic mandate as broad and deep as that o f the Ministry o f Public Works, i t i s hard to understate the benefits o f higher levels o f efficiency in works; more service-oriented contracts; a better use o f integrated planning to avoid white elephants and maximize the value o f money for investment; and o f greater transparency, oversight and consumer voice. Logistics costs represent a clear example o f the scope o f potential benefits from better transport planning and project implementation. The World Bank has estimated Chilean logistics costs as a share o f GDP at 16 percent as compared to OECD countries/comparators who spend on average 10 to 11 percent o f GDP. If better intermodal linkages through more effective planning and project implementation decreased the logistics burden by so much as 1 percent, that economic windfall alone would be approximately 20 times the cost o f the proposed reform. More importantly, Chilean producers would benefit from the lower costs o f transport services which would contribute to greater competitiveness, job creation and growth.
13. Even though MOPW’s investments generally, and concessions in particular, have contributed to closing Chile’s infrastructure deficit, many economic analysts as well as the current Government believe that the leveraging o f the private sector can be hr ther improved as can the use o f public resources for works projects. Concerns about bias and inefficiency in concession design and oversight have recently r isen to the surface despite the outside world’s positive assessment o f Chile’s concession program. In particular, the growing frequency and size o f concession renegotiations through “complementary agreements” (convenios complementarios) i s attracting increasing coverage in the Chilean news media. As the existing Concessions Law does not allow the Ministry or an oversight body to recalculate tariffs based on a regulatory accounting o f costs, these renegotiations create uncertainty about the value for money being achieved in the investments.
14. Interventions to correct these inefficiencies and concerns fall f i rst and foremost to the Ministry o f Public Works (MOPW) since i t i s the primary agency responsible for planning, developing and constructing public infrastructure in support o f the economic and social development o f the country. Moreover, the M O P W i s in charge of the maintenance, operation and administration o f these public works as well as the design
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and implementation o f almost all concession^.^ From the administration’s perspective, the best way to address these concerns i s to modernize the internal processes o f the MOPW; assure that i t s investments are linked to regional and national plans for growth; reorient contracts toward outputs; strengthen the oversight capacity for all contracts and concessions; and increase the role o f the consumer in every stage o f project development and operation. MOP W’s institutional strengthening program therefore focuses on developing processes for integrated regional and supply chain planning, redesigning contracts to include service standards and strengthen competitive bid procedures; improving project management, and expand regulatory capacity o f both contracts and concessions.
Lending instrument
15. The selected lending instrument i s an investment loan in the form o f technical assistance to finance consultancy services, capacity building and training. The TAL w i l l parallel a Development Policy Loan (DPL) that sets out the Prior Actions and Objectives o f the Institutional Strengthening Program. The TAL was selected as the most appropriate lending instrument to accompany the D P L as i t allows the Borrower to develop the tools and carry out the necessary analytical work to properly design, prepare and implement the reform, as well as to train Ministry staff in the use o f new procedures. The five-year duration offers the opportunity to ensure the Bank‘s continued involvement in the process providing continuity and a partnership with an institution that brings global experience in each component o f reform. These are viewed as essential for the success of such an ambitious reform initiative.
Project development objective and key indicators
16. The Project Development Objective i s to assist the Government in achieving a sustainable and integrated approach to the planning o f infrastructure; levels o f service standards for infrastructure as well as model contracts and procedures that promote competition and assign risks appropriately; an integrated project management process; a regulatory framework for all o f MOPW’s sectors o f responsibility that increases consumer confidence in infrastructure service provision; and the legal and organizational separation o f the areas o f planning, contracting, execution and regulation o f infrastructure provision.
17. Output and Outcome Indicators for monitoring the progress o f the objectives o f the project are described in Annex 3. They relate closely to the activities financed under this TAL as described in the Project Components text below. The methodology for calculating the baseline and subsequent indicators wil l be updated to reflect the availability and reliability o f data as well as the most appropriate approach for monitoring o f change. The baseline for each indicator will be determined during the first four
O f transport, water resource and public building contracts, only ports are concessioned and monitored by a separate agency. There are separate regulatory agencies for privatized utilities such as water supply, telecommunications and energy.
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months o f the project after effectiveness. The project wil l also monitor progress towards the expected outcomes through specific indicators for each o f the components. These indicators w i l l be as follows:
, 18.
e
e
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e
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Medium-Term Outcome Indicators:
Share o f projects approved based on integrated planning methodology. (Component 1) Share o f works contracts and concessions based on measurable, output-oriented standards and greater competition in bidding supported by fair risk-sharing arrangements embedded in contracts and consumer-responsive service targets. Reductions in unit costs for core contracts. (Component 2) Reduction in variance between unit values for constructiodinvestment established at contract signature and final values at project execution. (Component 3) Greater responsiveness to consumer concerns related to levels o f service; and greater oversight o f performance by public sector service providers as well as concessionaires. (Component 4) A legal and organizational framework in place that provides for clear separation o f roles and responsibilities. (Component 5)
Project components
19. The proposed project wil l provide support for the primary elements o f reform o f the Ministry o f Public Works-Chile’s primary source o f investment and concessioning o f infrastructure. From the planning o f infrastructure through to the regulation o f contracts, the Institutional Strengthening Program covers each stage in the on-going activities o f the Ministry and seeks to sustain those changes through a new organizational structure. The Figure below outlines the main components o f the TAL as they relate to the core business o f M O P W and i t s organizational structure.
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20. The proposed o~erat~or i has five c ~ ~ p o ~ ~ n t s , four o f ~ h i c h address the core aspects o f ~ ~ ~ ~ ~ ’ s business acti~rities: p l a ~ n ~ n ~ ; s e ~ ~ i ~ ~ staildards for c o n t r a ~ ~ s ~ arid conduct in^ bids; ~ i a ~ i a g ~ ~ ~ projects; rtrid r e ~ ~ ~ a ~ i n ~ or ~ v c r ~ e e i n ~ (““la . ~ ~ c ~ ~ ~ ~ ~ c ~ ~ ~ de”) both ~onces~ iQns and p ~ ~ ~ j c works. A fifth c ~ ~ n ~ Q ~ e n t , ~ r ~ a ~ i ~ ~ t i o ~ i a l Refomi, wil l bring coherence to the p r ~ ~ ~ r a ~ t ~ r ~ ~ u ~ ~ the d e ~ / ~ ~ o ~ ~ e n t o f a legal and o ~ ~ a n ~ ~ a t i ~ ~ ~ a l ~ t ~ u c t u r e that defines the new roles and r c s ~ ~ o n s ~ b ~ l i t ~ e s o f thc ~ ~ P ~ . Each ~ Q ~ e s p ~ ~ d ~ n ~ ~ o ~ ~ ~ o n e r i ~ i s ~ e s ~ r ~ b e d in more detail below,
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bottlenecks and increase sectoral competitiveness; (b) provide assistance for the activities related to the preparation o f i t s long-term strategy; (c) and support the Ministry’s institutional reform related to planning functions that wil l address both internal organization structure/incentives as well as efficiency in use o f resources. The latest international best practices in the areas o f supply chain integration and territorial development wil l be considered. Both o f these schools o f planning look at regional development beyond political borders and across sectoral interventions and seek synergies in investment. This technical assistance wil l be divided in two sub-components: (i) the design o f a long-term planning process; (ii) and the implementation o f this process.
Sub-component 1.1 - Design of a Long-Term Planning Process: The f i rst sub-component wil l include all consultancies needed for the design o f the methodology o f the planning process and the Ministry’s strategy. Eligible activities wil l include: (i) design and preparation o f a methodology for the planning process o f infrastructure investments, at the strategic level (national level and long-term planning) as well as at the tactical level (sub-national level and medium-term planning). These studies are fimdamental as their outputs wi l l constitute the inputs o f the downstream plans. In particular, these consultancies w i l l help determine the characteristics o f the tactical infrastructure plans (geographic area, period covered by the plan) as well as some o f the changes which w i l l have to be implemented by the Ministry; (ii) design o f strategic environmental assessment methodologies to be included in the planning p r o c e ~ s ; ~ (iii) design o f a strategy o f transition towards the new planning approach and design o f the approach to monitoring the planning process. In addition, it i s possible, based on a concept already approved by the Ministry, C O N A M A (Chile’s national environment agency), and the Global Environment Facility (GEF), that a supplemental grant financed by the GEF on “Integrating Biodiversity Conservation in Infrastructure Planning” wil l finance complementary activities focusing on methodologies to minimize biodiversity impacts.
Sub-component 1.2 - Implementation of a Long-Term Planning Process: The second sub-component w i l l help the MOPW implement the planning reform designed and detailed by the first component. Implementation wil l be carried out by MOPW staff with the support o f three individual consultants providing assistance in the areas o f planning, environmental assessment and legal/regulatory development as well as some accompanying consulting services. The consultants services w i l l include, more specifically: (i) development o f the strategic national infrastructure plans; (ii) development o f the tactical infrastructure plans based on the methodology developed in the first sub-component; (iii) design and
Strategic environmental assessment (SEA) i s a flexible tool for including environmental and social considerations into policies, plans, and programs at the earliest stages o f decision-making. SEA extends the application o f environmental assessments f rom projects to policies, programs, and plans. Ideally, SEA is participatory. I t i s flexible, and can have a sectoral focus (e.g., transport), geographic focus (e.g., a nation o r region), budgetary focus (e.g., the impact o f cumulative planned investments o r expenditures), o r po l icy focus (e.g., the impact o f trade, fiscal, o r investment promotion pol icy reform).
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implementation o f an information system, database and Geographic Information System (GIs); (iv) logistics-related studies; (v) design o f the ministry’s policy in the areas o f transport and water resources management through the writing and publication o f white books; (vi) implementation o f the transition strategy towards the new planning process, including an internal and external communication plan, the dissemination o f the various infrastructure plans, and institutional strengthening activities realized through the organization o f workshops, courses and seminars.
Component 2: Standards, Con tracts, Competitiveness
24. The objective o f this component i s to develop levels o f service standards for infrastructure and establish the use o f model contracts and procedures that promote competition and allow for the appropriate assignment o f risks.
25. In the area o f infrastructure concessions, the Ministry o f Public Works has found that i t has been unable to negotiate change orders from a position o f knowledge. While advocating for the creation o f an independent regulatory body (Superintendent o f Public Works-see below), the MOPW recognizes that a new oversight agency i s not enough; greater information i s required on each concession and works contract, and, more fundamentally, the contracts themselves need to be more oriented toward output or performance indicators rather than input or detailed investment mandates in order to meet the expectations o f users.
26. Taken together, the group o f tasks related to standards, contracts and competitiveness sets out to transform the bases o f Chile’s contractual relations with concessionaires as well as companies involved in the construction, operation, and o f maintenance o f infrastructure, moving from an input focus to an ou tpu t -o r results- orientation. Service standards wil l drive the new approach to contract design and wil l thus become the primary focus o f contract oversight and regulation. Likewise, for public works contracts, the M O P W is planning to migrate from short-term (3-5 year), input- defined maintenance contracts for individual roads toward longer term (1 3- 17 year) road “conservation” concessions for road network^.^ In implementing contracts, the Ministry o f Public Works further intends to review its process for bid solicitation and award so as to maximize competition and minimize collusion.
27. service standards; and (ii) contracts and competitiveness processes.
This component w i l l be divided in two sub-components: (i) establishment o f
Sub-component 2. I - Establishment of Service Standards: The first sub-component o f Standards, Contract, and Competition i s focused around the establishment o f Service Standards. Once an International
’ Annex 14 provides a detailed description o f a l l the primary elements o f these new types o f conservation concessions and contrasts them with MOPW’s standard concessioning program for higher volume roads.
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Benchmarking o f best practices in the use o f output or performance-based contracts (in MOPW-specific sub-sectors) has been completed, M O P W will utilize TAL resources to establish a methodology for setting, evaluating and updating i t s own standards o f service. This methodology wil l allow for the development o f a Standards-of-Service Manual that assigns standards according to:
0 Type o f contract (e.g., concession, maintenance contract, construction contracts)
0 Sub-sector (e.g., highways, rural roads, airports, prisons, drainage systems)
0 Cost or cost categories and demand levels.
Subsequently, the TAL w i l l finance a consultancy to train staff and to pi lot the application o f the Service Standards Manual to the process o f planning, designing and contracting works and concessions.
Sub-component 2.2 - Contracts and Competitive Processes: In parallel to the establishment o f service standards, the TAL will finance an analysis o f MOPW's current contracts and bid processes as well as those used in international best practices. In order to analyze the impact o f different elements o f MOPW's contracts and competitive procedures (i.e., bidding and selection), the TAL wil l finance the development o f a database o f contracts and concessions. A further consultancy wil l use the database to assess the variables o f contract design and bidding process against their ability to generate competition and investment results. Based upon these analyses, model contracts w i l l be designed for each primary type o f contract and each sub-sector. The model contracts w i l l serve as component pieces for a virtual contract design tool in which MOPW project managers can draw upon the core components to compile the primary foundations o f new contracts.
Component 3: Project Management
28. The objective o f this component i s to design and implement an Integrated Project Management procedure and to carry out the transition between the existing and traditional project management procedures to the new one.
29. The current approach to Project Management at M O P W i s best described as antiquated. Separate managers are utilized, according to area o f micro-specialization, for each stage in the development o f a project: feasibility, design, construction, monitoring. This provides for disjointed implementation, stress on communication among teams, and lack o f accountability. I t also inhibits the accurate collection o f information about an investment, making regulation difficult.
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30. The component contains two subcomponents: (i) design o f an Integrated Project Management model; and (ii) Implementation o f the new Integrated Project Management model.
Sub-component 3.1 - Design of an Integrated Project Management Model: The first component includes the detailed design o f the new Project Management model building on the MOPW’s existing conceptual design. The design wil l include technical aspects, procedures, human resources, and the establishment o f information and software tools to accompany the new Project Management model. The fundamental aspect o f the design o f this model is that it will be applied through a dynamic process. I t i s understood that the change proposed wil l be conducted through a hands-on trial and error approach, since lack o f experience and applicability o f the proposals need validating through their trial in project execution. As such, the design process includes application o f an initial preliminary model design on pi lot projects and the application o f an annual (or higher frequency) adjustment mechanism that wil l take lessons learnt on the pi lot project to adjust the preliminary Project Management Model. This on-going trial and error approach should finally lead to the final adoption o f the Project Management Model.
Sub-component 3.2 - Implementation of the New Integrated Project Management Model: The second component includes a Communications Plan, a Capacity Building plan, and technical assistances to accompany the implementation o f the Project Management Model. The idea i s that implementation will be carried out by the M O P W staff wi th the support o f specialized individual consultants that wil l support implementation, based on the designs developed in the f i rst subcomponent. In addition, a Communications Strategy wil l be executed to ensure that the new Project Management Model and i t s application are discussed fully within M O P W and with relevant stakeholders. This activity w i l l include presentations, workshops and preparation o f dissemination material. Finally, a Capacity Building Plan wil l be develop to ensure that the staff has the necessary training to be able to adapt to the new Project Management model.
Component 4: Strengthening of Regulation or Oversight PFiscalizacibn’?
31. The objective o f this component i s to increase consumer confidence in infrastructure service provision by developing a regulatory framework (Fiscalizacidn) for al l o f MOPW’s sectors o f responsibility which i s implemented by an institution that is independent o f the planning and contracting process.
32. Despite the large portion o f investments in Chile’s infrastructure that are undertaken by private concessionaires, there i s currently no independent regulatory body overseeing road, bridge, airport or public building contracts. The M O P W has found that i t s own ability to assess real costs i s hindered by i t s limited ability to access information, exacerbated by the input-orientation o f concession design. W h i l e the massive private
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investments program to date has contributed to Chile’s competitiveness and growth, concerns have grown recently about the asymmetry o f renegotiations to the favor o f the private sector; the lack o f transparency in contracts; the lack o f consumer voice in the design and oversight o f the quality o f the infrastructure service provided; and the potential for rent-seeking by service providers given the lack o f information and regulation.
33. Chile’s current administration has taken the initiative in addressing these imbalances in the market by drafting a new law to create a Superintendent o f Public Works and by instigating a process for redesigning new public works and concessions contracts according to output or performance-based criteria. In the interim, the Government has established a semi-independent Directorate o f Regulation (Fiscalizacidn) with i t s own budget from Ministry o f Finance, a former Minister o f Housing as i t s head, a staff o f 40 and offices separate from the Ministry o f Public Works. The exclusive role o f this office i s to oversee concessions and public works contracts. By the standards o f global transport sector management, this i s already an unusually bold step in the direction o f separating roles and responsibilities o f public agencies.
34. The primary responsibility o f the Directorate o f Fiscalizacidn (cum Superintendent) wil l be the monitoring o f public works contracts as well as private contracts/concessions vis-&vis the service standards that are established by the Ministry o f Public Works. However, the role o f the Superintendent wil l not be restricted to the enforcement o f service standards. I t w i l l also have an important role in renegotiation processes (“convenios complementarios“). During renegotiations, the Superintendent wil l issue an opinion assessing whether the new terms proposed in the renegotiation are reasonable, based on the output o f an analytical model that simulates the economic and financial equilibrium o f the concessionaire.
35. This work i s o f increasing importance given the frequency, size and public exposure o f renegotiations. A recent analysis o f MOPW’s concession renegotiation process found that each concession on average was subjected to two “convenios complementarios” during i t s lifecycle. This means that the investment requirements and payment schedules for nearly al l concessions have been repeatedly altered without symmetrical access to information about costs or performance on the part o f a regulatory agency or any public body responsive to consumer and taxpayer concerns. Many o f these renegotiations findamentally redefine the scope o f work for which the concessionaires originally bid.
36. The Bank wil l support the Superintendent in several key aspects related to i t s ability to monitor performance against services standards. These wil l include: (i) development o f implementing rules and regulations that define the Superintendent’s scope o f responsibilities; (ii) drafting o f an operations manual, to lay out the procedures that comprise the process o f Fiscalizacidn and renegotiation; and (iii) designing economic and financial models and their accompanying regulatory accounting manuals for Public-Private Partnerships in airports and public buildings to complement the work that the Ministry and IDB will finance for the roads sector.
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37. Financing from an IDB Multilateral Investment Fund grant wil l help the Superintendent complement this component with training and capacity building o f staff, information systems implementation, and the implementation o f an outreach program for consumer complaints and consultations.
Component 5: Organizational Reform
38 . Underpinning the process o f reform described in the first four components i s a cross-cutting reform o f the MOPW as a single organization. The World Bank w i l l support both sub-components o f this task which encompass the definition o f institutional arrangements as well as the “normative” or regulatory framework that establishes those arrangements.
39. The objective o f this component i s to separate, both in terms o f regulations and functions, the areas o f planning, contracting, execution and regulation o f infrastructure provision in order to allow for a system o f checks and balances according to a rational and transparent assignment o f roles and responsibilities. This w i l l be done through the drafting of regulatory and/or legal text and the establishment o f institutional arrangements and support systems.,
Sub-component 5. I: Norms and Regulations The proposed legal packages to be presented to Congress wil l require considerable consultations and redrafting as they work through the legislative process. By prior experience, each bill goes through on average five revision, each with i t s own costs related to consultations. The Bank has been asked to finance the revision process o f four out o f five o f laws that have already been drafted, including the Law for the Creation o f the Superintendent o f Public Works (“Ley de Superintendencia de Obras Publicas”) as well as amendments to the Concessions Law, the Storm Drainage Law (Rainwater Law or “Ley de Aguas Lluvias”), and the Rural Water Supply Law (“Ley de Agua Potable Rural”) and/or The Law on Dams and Reservoirs (“Ley de Embalses”).
On March 19, 2007, the President o f Chile announced her administration’s intention to enshrine the organizational changes under consideration at MOPW- as defined in this TAL-in a new Ministerial Law for .Public Works (“Ley Organica del Ministerio de Obras Pziblicas”). This endeavor wil l need to anticipate the structure and procedures for each step o f the lifecycle o f activities o f the MOPW. The Bank w i l l finance about ha l f o f the cost o f this endeavor
The Min is t ry o f Public Works will finance, with its own budget, several initiatives that support the modernization o f the ministry’s activities and the overall reform. These tasks include Information Systems renewal; updating o f Human Resource policies and practices; improvements in General Services; and Management Control systems updating al l w i th the support o f Change Management contracts. The financing o f these additional tasks i s estimated to cost US$22.9 mil l ion. MOPW’s Project Management Team will coordinate a l l o f these activities along with those that are described in the PAD as the core o f the MOPW’s Institutional Strengthening Program.
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which wil l include the use o f legal experts, coordinating with the institutional development team in the drafting and consultation process needed to present the amended law to Congress. In the event that legal passage i s found to be impracticable for any or all o f the aforementioned normative changes, the component w i l l finance the drafting o f regulatory pronouncements (e.g., decrees) intended to approximate the legal reforms.
The objective o f this sub-component i s to improve the quality o f norms and regulations, reduce the cost o f compliance and make MOPW’s regulations more accessible to the users and to the public; and to improve the regulatory framework for each element o f the core business o f the MOPW.
Sub-component 5.2: Organizational Development A full implementation in the change o f processes envisioned in the first four components would result in new working relations, changes in the definition and relationship o f entire working units, a revised matrix structure for project management and reporting, and the definition o f new skill requirements. The MOPW envisions contracting a reputable international firm with experience in organizational change and business process re-engineering to undertake the core institutional development work associated with MOPW’s reform. The Bank will finance a consultancy to provide a high-level definition o f the alternative arrangements in accordance with the proposed legal changes and to write the Terms o f Reference for the larger, more detailed consultancy.
In addition, MOPW has requested that the Bank finance a large portion (about 50 percent) o f the cost o f defining the work scope and institutional arrangements for a new integrated Water Resource Directorate. This task stands alone from the other institutional arrangements since i t i s dependent upon on-going discussions with other agencies dependent on water resources, namely agriculture, fisheries and municipal water and sanitation services as well as the newly created Environment Ministry. The Bank’s financed portion w i l l thus focus on the integrating and coordinating aspects o f the proposed unit, resulting in a strategy for the institutionalization o f a unified oversight body. The final definition wi l l be financed by MOPW.
Finally, the Ministry o f Public Works has identified a series o f initiatives required to provide a baseline o f norms, implementing rules and regulations that wi l l give l i f e to the Ministerial Law. The steps in this process include creating a cadastre or registry o f existing norms; and clarifying the procedures that regulate the creation, evaluation and approval o f new projects; creation o f the systems and procedures for populating, maintaining, disseminating and updating information systems; implementation o f those procedures; and the creation o f a web-based database o f the new norms and procedures. The Bank has been asked to finance a small portion o f these processes, particularly related to the procedures for creating new implementing rules and regulations.
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The objective o f this sub-component i s to create an organizational structure that provides checks and balances and assigns separate roles and responsibilities for planning, contracting, executing and regulating MOPW’s areas o f activities.
Sub-comuonent ‘5.3: Human Resource and Information Technolorn Suuuort for Organizational Reform In order to underpin the Institutional Strengthening Program with the necessary support systems, M O P W has committed i t se l f to developing a human resource program, including incentive structures and reporting relationships, which match the evolving structure and functions o f the Ministry. Likewise, the technology requirements that support the reform o f a large, geographically diverse and complex government agency such as MOPW are being developed. These include, but are not limited to financial information systems, project planning programs, hardware and software for integrated project management and oversight, data and resource management systems, Geographic Information Systems as well as internal and external information access portals. This sub-component wi l l fund the development o f basic plans for incorporating the human resource and information technology programs into the overall Institutional Strengthening initiative.
40. The preceding five components describe specific supporting activities currently envisioned for the Institutional Reform Program. Given the evolving nature o f the initiative and the necessity to respond to institutional and external constraints and opportunities, the Bank-financed project will include flexibility to finance studies, training and/or technical support provided the resources are utilized in support o f the objectives for one or more o f the five components defined above.
Lessons learned and reflected in the project design
41. The design o f this project takes into account the experiences gained and challenges felt by the three most recent infrastructure projects (Santiago Urban Transport DPL, Santiago Urban Transport Technical Assistance Loan and Infrastructure for Territorial Development Loan), as well as infrastructure technical assistance loans implemented in other Latin American countries. These lessons may be summarized as follows:
0 Commitment o f the Government to the Bank’s operations i s crucial. Past projects have ensured this commitment from the start through close with the implementing agencies in project design. However, this does not always capture the political r isks associated with reforms. Sufficient commitment to launch the Program and to initiate reform o f internal processes and structures has come from the MOPW itself, wi th budgetary support from Ministry o f Finance. The TAL’S link to the DPL helps to raise the political profile o f the project and to spread the responsibility for success to other key Cabinet ministries-particularly the Ministry o f Finance. Moreover, a policy-level statement from the President, who
16
has explicitly called for the Institutional Strengthening o f the Ministry, provides a basis for pursuit o f the legislative underpinnings o f the reform. Over the medium term, the reform itself has to become part o f a broad-based discussion about the efficiency, efficacy and responsiveness o f government to the demands of domestic and industrial consumers.
0 Stability o f the implementation unit staff i s essential. Some recent operations have been delayed due to frequent changes o f the team in charge of the implementation. Rather than relying on a coordination unit staffed largely with consultants or outside contractors, the TAL wil l utilize, and further train, core M O P W staff for fiduciary, procurement and legal oversight rather than create a free-floating PIU. 'MOPW has already appointed the key members o f the Project Management Team and they have begun training in Bank procurement and project management procedures.
0 Even with Chile's deserved reputation for technical, legal, financial and economic skills, capacity building i s required in public institutions in order for reforms to be implemented properly. The TAL specifically addresses this issue, reform by reform, with detailed plans for capacity building in the areas o f planning, contract design, regulation and project management.
0 Creating consensus among the various stakeholders o f a project i s central to successful implementation. This lesson i s particularly important for an initiative that involves different approaches to planning, and greater regulation and transparency o f works contracts and concessions. Over the past year, the Government has begun the process o f consultations with key stakeholders inside and outside o f Government-particularly surrounding the creation o f the Directorate for Oversight (Fiscalizacidn) and in the preparation o f the bills amending the Law on Concessions and creating the Superintendency o f Public Works. Further consensus wil l be achieved on planned reforms through the organization o f workshops and seminars with consumer groups, investment groups, construction associations, the relevant chambers o f commerce and with the introduction o f international best practices. Financing for this capacity and consensus building i s included in the TAL.
111. IMPLEMENTATION
Partnership arrangements
42. The proposed Technical Assistance wil l be financed by the World Bank and the Government o f Chile and no partnership arrangements are envisaged for the Project beyond the commitments to co-financing from the Government. However, close collaboration with IDB Multilateral Investment Fund will be established in order to ensure that activities under Component 4 (Fiscalizacidn) are adequately coordinated.
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Implementation arrangements
43. M O P W will be the project implementing entity. The Accounting and Finance Department, Direccidn de Contabilidad y Finanzas (DCF) will be responsible for project financial management: accounting and financial reporting, budgeting, internal control, treasury operations and external audit. M O P W financial management system wil l be used for project financial management. Bank purpose reporting wil l be built upon information extracted from MOPW’s financial management system.
Monitor ing and evaluation of outcomeshesults
44. Crucial for the goal o f achieving strong results i s a sharp focus on a sound monitoring and evaluation (M&E) system for the project. Responsibility for M&E will be shared by the DCF and the technical teams in charge o f each component. Monitoring instruments include progress reports with progress and outcome indicators; as well as user surveys. Monitoring and evaluation results w i l l feed back into the decision-making analysis to improve project performance (please refer to Annex 3 for further details.)
45. MOPW has requested that the Bank, as part o f i t s supervisory responsibilities, undertake regular technical missions for substantive discussions, monitoring and evaluation and implementation support throughout the progress o f the reform. These visits should occur at least on a bi-annual basis.
Sus tainability
46. Financial sustainability o f this project i s ensured through the disproportionate returns expected given the cost o f the reform. Estimates o f the costs and benefits are described in detail in Annex 9. Institutional sustainability o f the reform i s best assured through the legal and regulatory structure that this project intends to establish that wi l l define the organization’s responsibilities and structure. I t wil l be supported by the creation, within MOPW, o f a Project Management Team devoted to the coordination and management o f the reform program. Environmental sustainability, while not a requirement o f the project per se, i s a key area included in the Integrated Planning Component o f the project which seeks to strengthen environmental assessment, environmental cost calculation, mitigation processes and public consultation processes.
Crit ical risks and possible controversial aspects
47. matrix below.
The proposed project is not without risks. Those are described in detail in the
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Risks Risk Mitigation Measures Risk Rating with
Mitigati on
Modest Loss of ministerial champion for reform due to political changes.
Broadening of planning approach slows down project pipeline and hinders investment flows.
First, the TAL i s supported by a DPL which provides higher political profile for the reforms as well as explicit commitments toward the monitoring and evaluation of progress for each of the underlying tasks that comprise the Institutional Strengthening Program. Second, many important tasks included in the TAL are not part o f the political agenda or subjected to debate with concessionaires, namely improvements to the planning function, project management approach and changes in road contract design mechanisms. Third, the most politically sensitive reform initiativeincreased role of independent regulation of concessions-has been directly championed by President Bachelet. The bills to create the Superintendency of Public Works and amend the Concession Law have been drafted and are currently under Cabinet review.
Re-balancing of risks in concession design and strengthening o f regulation result in declining interest of private sector in investment.
The bills creating the Superintendency of Public Works and amending the Concessions Law are not approved by
To component development objectives Significant training and capacity building wil l be provided so that project staff can develop a greater understanding o f planning tools at al l levels o f the organization. In addition, the planning training wil l be linked to that for integrated project managers so as deepen the application of the new planning tools. Finally, a realistic transition period should allow a pipeline of projects to develop under current approaches, then through short-term and regional plans and, finally, through longer-term and more integrated plans. The project includes a concession design component that looks at appropriate risk-sharing from both economic and financial perspective. Second, the project comprises a detailed analysis o f all MOPW contractual results as well as a market study that informs MOPW of characteristics of local and international markets, by sector. Th is wil l allow the design of contracts that maximize competition and maintain equilibrium between risks and rewards from the perspective of investors/operators. Finally, a parallel series of diagnoses wil l be conducted on bid procedures. The results of this analysis wil l be incorporated into the next generation of contract designs and bidding processes of the Ministry so as to assure attractive contracts, fair risk-sharing and maximum competition for the bids. The President o f the Republic, the Minister and the administration have engaged in extensive stakeholder consultations to draft a legal package that i s both compelling to consumer groups, the general public, representatives of the majority coalition and to many key elements of the private sector, including the Chamber of Construction.
Congress Congress wil l not pass into law a new organizational structure for MOPW
The President of the Republic has offered a public commitment to the reform agenda and has specifically called for a new Ley Orgunica-that is, a Law on the Organizational Structure o f MOPW. In addition, a separate proposed law for the Superintendency of Public Works enhances the possibility o f a fundamental reform being enacted prior to a full legal change for the Ministry. Finally, in the event that legal reform i s not practicable, MOPW will focus on the signficant institutional and procedural changes that can be undertaken without a change in the law (e.g., conversion of contracts to outputkesults orientation, new bidding procedures to maximize corruption, strengthening o f integrated planning and project management processes, and the oversight rights of the Directorate
I Unit for Oversight or Fiscalizacidn). Overall Risk Rating:
Modest
Modest
Modest
Modest
Modest
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IV. APPRAISAL SUMMARY
Economic and financial analyses
48. The proposed project i s considered highly cost-effective. The project’s financial impact i s considered sustainable, as the project costs should be more than compensated by improved capacity reflected in fiscal savings and efficiency gains. Annex 9 presents a summary o f all costs related to strengthening and modernizing the Ministry o f Public Works as well as an estimate o f the benefits associated with greater administrative efficiency, more competitive and cost effective contracts, fewer costly renegotiations and, most importantly, lower logistics costs for Chile’s shippers and producers.
Technical
49. The technical merits o f the project design have been examined by the Bank over the course o f the project preparation and are considered to be sound and in l ine with international standards. The selected approach reflects international experience and best practices in the areas o f planning, integrated project management, contract design, infrastructure regulation, and institutional reform.
Fiduciary
50. Country systems w i l l be used for project implementation through M O P W financial management arrangements, which satisfactorily meet wi th Bank requirements. Adequate arrangements are also in place for Bank purpose reporting. Financial management Risk i s Low.
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Social and Environmental Impacts
51. In Chile, the social impacts o f investment programs such as land acquisition, resettlement or public health are categorized as components o f environmental impacts and so this assessment combines social and environmental aspects under one heading.
52. The Bank recognizes that the Ministry o f Public Works, l ike any agency involved in the financing o f infrastructure projects, plays a central role in the environmentally and socially sustainable development o f Chile’s economy. Nonetheless, i t i s the Bank’s view that this loan wil l result in no negative poverty, social or environmental impacts. In order to leverage the opportunity o f the reform, the Bank and the Ministry have incorporated into the Institutional Strengthening Program-supported by the proposed Technical Assistance Loan-several tasks aimed at lessening the social and environmental impacts o f public works. The tasks call for assessing and strengthening the areas o f impact assessment, contract design and oversight as well as the feedback mechanism for consumers and third parties affected by project development. In addition, the Integrated Planning Component o f the reform program i s intended to introduce two rounds o f public consultations into the early stages o f investment planning so as to minimize negative social impacts and maximize consumer benefits.
53. Overall, the Bank has found that Chile has a strong system o f social and environmental safeguards, particularly in terms o f the legal and pol icy environment. Projects are categorized according to potential risk, magnitude and importance o f social and environmental impacts, similar to the World Bank’s approach. Currently, two different types o f environmental assessments are carried out, based on project category. A full Environmental Impact Study i s required for projects which pose potential adverse impacts on health, natural resources, entail major resettlement o f population, are located near protected areas or have a high potential o f affecting the scenic value o f an area or could potentially alter areas o f high cultural or historical value. Projects that do not pose potentially adverse impacts are subject to more limited Environmental Impact assessments. In addition to the EA legislation, projects have to comply with specific environmental and natural resources legislation according to their particular setting. These specific norms refer to projects that can involve:
Cutting trees in or near forested areas; Construction activities in or near wetlands; Activities which imply impacts on local fauna; Land use plans imply additional restrictions on subproject location; Water r ights must be available for all water supply systems; Wastewater treatment plants entail additional health permits; Projects near cultural property sites follow specific legislations; and Construction activities require permits for burrow pits, quarries and extraction o f river materials.
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54. Based on the strong legal and policy environment, and the Government's commitment to addressing environmental and social impacts, Chile i s a strong candidate for making use o f the country's own systems and gradually reducing the prescriptive approach to safeguards in Bank-funded operations. This i s expected to bring about a more sustainable and consistent approach to safeguards at the country level, with reduced transaction costs and improved quality and consistency in individual operations.
~~ ~~
Safeguard Policies Triggered by the Project Environmental Assessment (OP/BP/GP 4.01) Natural Habitats (OP/BP 4.04) Pest Management (OP 4.09) Cultural Property (OPN 1 1.03, being revised as OP 4.1 1)
Safeguard policies
Yes N o 0 (XI 0 (XI 0 (XI 0 (XI
55. policies.
This project triggers none o f the Bank's environmental or social safeguard
Involuntary Resettlement (OPIBP 4.12) Indigenous Peoples (OD 4.20, being revised as OP 4.10) Forests (OP/BP 4.36) Safety o f Dams (OP/BP 4.37) Proiects in DisDuted Areas (OP/BP/GP 7.60)
0 (XI 0 (XI 0 (XI 0 (XI .
(?z> 0
Policy Exceptions and Readiness
56. Assistance Loan.
N o Policy exceptions are required for the implementation o f this Technical
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ANNEX 1: COUNTRY AND SECTOR OR PROGRAM BACKGROUND
Recent Economic Developments in Chile
57. Over the past four years, the Chilean economy has reestablished solid economic growth, fueled by robust domestic demand and record high copper prices. GDP growth accelerated from 2 - 3 percent in 2001 and 2002 to 5.7 percent in 2005. Growth in 2006 slowed to 4.0 percent. Macroeconomic indicators also demonstrate a strong overall performance with declining levels o f debt to GDP, rapidly increasing average income levels, and low and stable inflation. On March 11, 2006 Michelle Bachelet succeeded Ricardo Lagos as Chile’s elected President-the fourth successive representative o f the Concertacidn coalition to hold the office since 1990. The new government reaffirmed i t s commitment to the prudent macroeconomic management and the outward oriented economy o f previous administrations while expanding access to public services that wil l help more Chileans contribute to the country’s growth and development.
58. The latest IMF Article IV Review completed in September 2006 commended Chilean authorities for their continued implementation o f sound policies based on a cautious fiscal rule, a good inflation targeting framework, and trade liberalization. The IMF noted that these policies, combined with a solid financial system, have led to sustained economic growth and contributed to poverty reduction. With a disciplined fiscal policy, a monetary policy that i s s t i l l described as “neutral,” and hard currency earnings expanding as a result o f historically high commodity prices, the Government’s primary concern has become the achievement o f higher growth standards.
59. Looking ahead, the medium-term macroeconomic projections o f the Chilean authorities are for real GDP growth to stabilize at about 5 percent per annum, which i t considers the country’s sustainable growth rate (Table 1). The strong macroeconomic framework provides a solid basis for these growth projections, wi th stabilization policies having enhanced the country’s growth prospects. Public savings have grown to the point where the country i s a net creditor and the Government’s credibility as a debt issuer in international markets has been further enhanced. Adverse shocks would be counterbalanced by the Government’s ability to pursue counter-cyclical fiscal policies, thereby reducing macroeconomic instability and ensuring the sustainability o f social expenditures. In turn, the country i s expected to reap the socio-economic benefits o f the increased social expenditures since the early- 1990s in terms o f higher human capital and productivity.
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Table 1: Chile Macroeconomic Summary and Future Outlook 2003-2009
(in percent, unless otherwise stated) -- actual -- est. -- proj. -- 2003 2004 2005 2006 2007 2008 2009
National Accounts GDP growth Domestic demand
Population (millions)
Balance o f payments Current account (X o f GDP) Imports o f goods and services (% o f GDP) Exports o f goods and services (% o f GDP)
External indicators Total external debt (% o f GDP) Exchange rate (pa) Ps:US$
Inflation Annual Change in CPI (EOP)
Fiscal (Central government)
3.9 4.9
15.8
-1.3 32.1 36.3
58.4 69 1
1.1
6.0 5.7 7.5 11.0
16.0 16.1
1.7 0.6 31.3 33.1 40.6 41.9
45.8 39.0 610 560
2.4 3.7
4.0 5.0 5.0 6.0 6.3 5.3
16.5 16.6 16.8
3.6 -0.1 3.2 30.4 30.3 25.4 45.0 39.0 36.9
32.3 27.2 25.7 530 ... . . .
2.6 3.4 2.9
5.4 5.3
17.0
1.9 25.1 34.1
24.3 . , .
3.0
Overall balance to GDP I/ -0.4 2.1 4.7 7.9 4.4 1.1 0.4 Note: (est.) Estimated; (proj.) Projections. Source: Banco Central de Chile, DIPRES, World Bank and IMF projections
60. Chile’s actual medium-term growth could well be higher than projected in the authorities’ baseline scenario depending on how effectively the challenges are met. Chile has an enviable macroeconomic pol icy environment, solid financial sector and laudable institutions. The challenge now i s to foster policies that encourage innovation; enhance educational quality and attainment for all Chileans, and provide adequate physical infrastructure for growth. One area o f focus i s the continued strengthening o f the framework for infrastructure investment and service delivery. The proposed reform o f the Ministry o f Public Works i s integral to this aim, as i t i s designed to improve growth prospects by improving administrative efficiency, reducing subsidies and contingent liabilities, and strengthening the competition framework in the infrastructure sector.
Latest Government Plan for Growth
61. To boost job creation and growth, President Bachelet created the “Infrastructure Development for Competitiveness Plan” at the inception o f her administration to ensure that public infrastructure can help different productive sectors be more e f f i ~ i e n t . ~ The Plan calls for a US$115 mi l l ion increase in public spending on infrastructure in 2007, and i t marks the first step in an ambitious program over four years, from 2007 to 2010. The
’See: Government Announcement - http://www.chileangovernment.gov,cl/index,php?option=com_content&tas~view&id= 1 143 &Itemid=:!
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Plan depends significantly on private sector involvement, through improved collaboration-in announcing the Plan, the President noted that the Public Works Ministry would be supervising infrastructure concessions worth US$2.2 bi l l ion between 2007 and 2010-and through tax incentives to stimulate private investment in public roads.
62. On March 1 3‘h, 2007, the Government announced the details o f i t s “Chile Invests” Plan that provided details on the context in which this greater emphasis on infrastructure investment would be carried out.* The new plan includes an initiative entitled, “Creating a More Agile Government,” which directly calls for the modernization o f the Ministry o f Public Works and describes the key points o f the Institutional Strengthening Program. The Plan calls for a new legal structure for the Ministry that separates out responsibilities for roles and functions (e.g., planning, contract design, execution, oversight); strengthens technical capacities (e.g., through integrated project management); and creates the Superintendency o f Public Works to regulate contracts and concessions.
63. Several other initiatives described in the new growth plan also support the objectives and components o f the reform. Under “Accelerating Investments,” the President outlines a program for improving the execution and quality o f public investments. This includes better planning coordination, greater oversight o f investments and maximizing the competitive bidding processes in public works contracting-all core elements in the Institutional Strengthening Initiative. Under “Expanding Human and Capital Innovation,” the Presidency refers to the need for integrated plans for the development o f key clusters or supply chains (“clusters claws”), such as the fishing, forestry, and mining industries. This concept i s central to the Integrated Planning initiative underway at the Ministry o f Public Works and the specific analysis referred to in the Growth Plan wil l serve as the basis for the f i rst set o f integrated investment plans undertaken at MOP W. Finally, “Making Chile a Tourism Destination” describes the importance o f efficient and effective transport networks that link the regions-a primary concern o f M O P W as it embarks on i t s institutional strengthening program.
See: “Las 27 medidas que daran un nuevo impulso a la economia,” Noticia Destacada de la Presidencia (March 13*, 2007). Full text: http://www.gobiemo.cVnoticias/detalle.asp?ida~iculo=5802
25
ANNEX 2: MAJOR RELATED PROJECTS FINANCED BY THE BANK AND/OR OTHER AGENCIES
Project
Infrastructure for Territorial Development Investment Loan
Donor IP & DO* Ratings
IP: U I DO: MU World Bank
Santiago Urban Transport Technical Assistance Loan Santiago Urban Transport Development Policy Loan Contingent Liabilities Fee-for-Service Phase 1 Contingent Liabilities Fee-for-Service Phase 2
World Bank
World Bank World Bank NIA World Bank NIA
IP: MS I DO: S
IP: S /DO: S
*IP stands for “Implementation” and DO stands for “Development Objective”
Sustainable Transport and Air Quality for Santiago
Development Independent Oversight System for Service Quality in Public Works
26
GEF NIA
IADB NIA
ANNEX 3: RESULTS FRAMEWORK AND MONITORING
Over-all Project Development Objective
The objective o f the Project is to assist the Borrower in achieving a sustainable and integrated approach to the planning o f infrastructure; levels o f service standards for infrastructure as we l l as model contracts and procedures that promote competition and assign risks appropriately; an integrated project management process; a regulatory framework for a l l o f MOPW’s sectors o f responsibility that increases consumer confidence in infrastructure service provision; and organizational separation o f the areas o f planning, contracting, execution and regulation o f infrastructure provision.
Outcome Indicators for Government’s Program
Increased return o f infrastructure projects due to the new planning methodology
D Greater competition in bidding supported by fair risk-sharing arrangements embedded in contracts and consumer-responsive service targets Greater responsiveness to consumer concerns related to levels o f service; and greater oversight o f performance by public sector service providers as we l l as concessionaires Reduction in variance between values established at contract signature and final values at project execution Normative and organizational structure that provides clear separation and definit ion o f roles and responsibilities for planning, contracting, works execution and oversight.
Use o f Outcome Information
To monitor progress against original goals o f reform.
27
Intermediate Results - One per Component
Component 1 Design and implementation o f an integrated territorial-based planning process
Component 2 Development o f levels o f service standards for infrastructure and establish the use o f model contracts and procedures to promote competition and to assign risks appropriately
Component 3 Design and implementation o f an Integrated Project Management Mode l to cover a l l projects in the M O P W portfol io
Component 4 Develop a regulatory framework for a l l infrastructure services to be implemented by an institution that i s independent o f the planning and contracting process.
Component 5 To institutionally and normatively separate the areas o f planning, contracting, execution and regulation o f MOPW’s sectors in order to al low for a system o f checks and balances according to a rational and transparent assignment o f roles and resnonsibilities.
Results Indicators for Each Component
Number o f infrastructure projects whose implementation has started and which have been planned through the designed methodology Number o f studies achieved and approved by the director o f the “Gerencia de Proyecto ” Strategic and Tactical plans approved
Share o f works contracts and concessions that are based o n measurable, output-oriented standards (% use o f new contract mechanisms)
(Average numbers o f bids by type o f contract and sub-sector & changes in the HH Index for M O P W vs. HH Index for Chile construction industry). Input f rom consumer groups and other stakeholders during contract design process (numbers o f consultations and % o f contracts that benefit f rom input).
Increased competition in bidding.
Number o f projects managed through the new Integrated Project Management model
Audit o f responsiveness to consumer complaints and claims. Application o f rulings o f Superintendent vis-a-vis service standards compliance.
Progress in drafting o f new rules and regulations Public availability o f a l l rules and regulations
Use of Results Monitoring
Y 1-5: Determine increased return o f infrastructure projects due to the new planning methodology
Y 1-5: Determine greater competition in bidding supported by fair risk- sharing arrangements embedded in contracts and consumer-responsive service targets
Y 1-5: Reduction in variance between values established at contract signature and f inal values at project execution: (i) execution time; (ii) project costs.
~~
Y 1-5: Determine the existence o f greater responsiveness to consumer concerns related to levels o f service; and greater oversight o f performance by public sector service providers as wel l as concessionaires
Y 1-5: Audi t o f the public dissemination system and review in progress o f implementing rules and regulations
28
+ ca
t-
vi L
I *
m L
I h
Y
0 m
ANNEX 4: DETAILED PROJECT DESCRIPTION
Component 1: Integrated Planning
Design of a long term planning process Design and preparation o f a methodology for the planning process o f infiastructure investments, at the strategic level (national level and long-term planning) as well as at the tactical level (sub-national level and medium-term planning). Analysis, approach, adaptation, and validation o f Strategic Environmental Evaluation (SEE) to be incorporated into the planning process. Implementation strategy for incorporating SEE into the planning process Design o f a "transition strategy" to operationalize the use o f the new planning methodology, including the centralization o f al l the planning units that are currently within each technical directorate and consideration o f the required changes in the implementing rules and regulations
e
Implementation o f the long term planning process Update o f the Infrastructure Master Plan Logistics and clusters study Input/Output matrix study Elaboration, update and incorporation o f policies (transport, land use, white book on interurban transport) Elaboration, update and incorporation o f policies (water resources, white book on water) Implementation o f planning process at tactical level (regional and sectoral plans for infrastructure investment, medium and long term) Technical expert on planning issues Technical expert on environmental issues Technical expert on legal issues Facilitator (change management issues) External and internal communication plan (coordinate with "change management" team) Capacity and knowledge buildingtraining (12 workshops, 30 missions, 30 specific courses) GIS (geographic information system) Information systems for territorial planning
Component 2: Standards, Contracts and Competition
Establishmet of Service Standards
e International Benchmarking in use o f performance-based contracts Establishment o f a methodology for creating, evaluating and updating standards- of- s ervi c e
31
0 Establishment o f basic standards-of-service manual per type and per sector which establishes minimum levels against technical and cost standards, beginning with operator-user interface Implementation o f service standards in the processes o f planning, design, contracting, construction and maintenance
0
Contracts Improvement International benchmark o f best practice in standardization o f contracts Historic database and analysis o f contractual components and areas o f standardization correlated to outcomes, by sector and by type o f contract Analysis o f appropriate risk allocation (political, financial, economic, regulatory, and construction related) by sector and type Analysis o f industry (market) structure in relation to competitiveness o f bidding; and o f bid solicitation process to maximize competition and minimize collusion, by sector and type Design o f model contracts and processes incorporating service standards, by type (e.g. PPP, full concession, public financing) and by sector (e.g., roads, airports, water resource infra, drainage, public buildings, ferry docks and fishing ports). Based on inputs from analysis o f outcomes, risk allocation and competitiveness
Design, construction and implementation o f an interactive database to facilitate the design o f contracts by utilizing the classification o f standard and variable components
Component 3: Integrated Project Management
Design of an Integrated Project Management System 0
0
Design o f a new integrated project management system Design and implementation o f a results based model for human resource management Selection and implementation o f information technology tools for integrated project management
Implementation o f the new Integrated Project Management System 0 Technical expert (PMS) 0 Facilitator (change management issues) 0
0 Training
External and internal communication plan (coordinate with "Change Management" team)
32
Component 4: Regulatory Strengthening (Fiscalizacion)
Support for the organizational development o f the Superintendency o f Public Works Development o f regulatory and oversight processes Information systems Development o f mechanisms for stakeholder (users and investors) involvement in the oversight function Evaluation and dissemination o f results Elaboration o f Operations Manual for the Superintendent Development o f an economic & financial model and a regulatory accounting manual for: airports, prisons, public buildings, urban transport, interurban transport, and dams International benchmarking on regulation and oversight o f quality o f service in infrastructure works and workshop on the topic
Component 5: Organizational Reform
Norms and Regulations 0 Consultations and Revisions: “Ley de Superintendencia de Obras Publicas,”
amendments to the “Ley de Concesiones” and “Leyes de Aguas Lluvia, de Agua Potable Rural y de Embalses” Drafting and Presentation o f the amended Ministerial Law for Public Works (Ley Orgdnica de Obras Ptiblicas) Cadastre and audit o f all norms applicable to MOPW‘s activities Processes to evaluate the generation, evaluation and approval o f new norms
0
0
0
Institutional Development 0
0
0
New institutional design including structure and functions Implementation o f new institutional arrangements Design and implementation o f rules and regulations necessary for the establishment o f the General Water Directorate
Human Resources and Information Systems 0
0
Design o f a performance based HR management system Design o f information system for support o f new organizational structure
Project Audit and Additional Activities
0 Project audit and additional activities (consultancies and training) related to the project’s objectives
3 3
ANNEX 5: PROJECT COSTS
cost (Oo0 Component $US)
64. The following table presents an overview o f the project costs according to sources o f funds. In the Ministry o f Public Works’ internal Program Document, the single component which below i s called “Institutional Reform,” i s referred to as the separate components o f “Normative Laws and Regulations” and “Institutional Development” into order to reflect the internal management arrangements for the sub-components. A contingency o f 5 percent i s covered by counterpart financing.
World Local ** Bank
Integrated Planning 7,585 I 4,1001 3,485 Standards, Contracts and Competit ion
Project audit and additional activities* I 300 1 300 I
4.850 I 3.250 I 1.600 Integrated Project Management Regulatory Strengthening (Fiscalizacion) Organizational Reform
I Total MOP/Bank Institutional Strengthening Program 1 35,355 1 11,700 1 23,655
Includes an estimated US$lOO,OOO interest for PPF funds
** Includes ID6 project
4,000 750 3,250 6,228 1,400 4,828 6.500 1.900 4.600
Administrative costs (1 5%) e Contingencies (5%) 5.893 I - 1 5.893
-_ creating, evaluating and updating standards-of-service. Standards Contracts and Competition: International benchmark o f best practice in I 200,000
PPF Task Integrated Planning: Design and preparation o f a methodology for the planning process o f infrastructure investments, at the strategic level (national level and long-term planning) as we l l as at the tactical level (sub-national level and
cost (US$) 250,000
66. presented in Annex 8.
For detailed cost estimates for each planned activity, see Procurement Plan
Standards, Contracts and Competition: Establishment o f a methodology for
34
400.000
standardization o f contracts Organizational Reform: Design o f a performance based HR management system
Total Potential PPF Resources Used: 150,000
1,000,000
ANNEX 6: IMPLEMENTATION ARRANGEMENTS
67. Management and Oversight: The Ministry o f Public Works has put in place a Program Management Team for the express purposes o f managing the Institutional Reform process. The team i s headed by the Director o f Finance and reports directly to the Minister o f Public Works. An Advisor (“asesor”) to the Minister has been hired as the day-to-day coordinator and he has been given access to consulting fbnds for technical support. The Minister and the Chief o f Cabinet provide guidance to the team on a regular basis. By placing the responsibility for the Institutional Strengthening under the management o f the Director o f Finance, the initiative i s better able to retain close l i n k s to the Ministry o f Finance and to remain focused on the economic and fiscal implications o f the reform. The Ministry o f Finance i s regularly kept abreast o f progress.
68. Financial Management and Procurement: M O P W w i l l be the project implementing entity. The Accounting and Finance Unit, Direccion de Contabilidad y Finanzas (DCyF) wi l l be responsible for project financial management: accounting and financial reporting, budgeting, internal control, treasury operations and external audit. MOPW’s financial management system wil l be used for project financial management. The Ministry’s Manager o f General Services has hired a dedicated staff, trained in business administration, to assist the task teams with procurement. During preparation o f the project, the staff received training in Bank procurement and worked closely with Bank FM staff to establishing systems for appropriate financial management.
69. Technical Supervision: At the technical level, each component o f reform i s being led by a Technical Specialist with a supporting team. These staff members are a mixture o f senior ministerial staff and advisors who have been brought in for the particular ski l ls . The education level, technical ski l ls and background o f the component managers are o f very high caliber.
Figure 3: Organizational Chart of Ministry of Public Works’ Program Management Team for Institutional Reform
P r o c u n m e n t Special ist
p q Coodinator I
35
ANNEX 7: FINANCIAL MANAGEMENT AND DISBURSEMENT ARRANGEMENTS
70. The Financial Management arrangements for loan implementation satisfactorily meet Bank FM requirements and are fully embedded in Chile Financial Management Country Systems. The FM risk for the operation i s low.
71. Project budgeting, accounting and treasury functions wil l be managed by MOPW’s Accounting and Finance Unit (DCF) and implemented through MOPW’s financial management system used for the execution o f national budget resources. Bank purpose reporting wil l be based upon Excel spreadsheets extracted from MOPW’s system and w i l l be reconciled with the balances o f MOPW’s financial management system.
Country Background
72. As spelled out in the 2005 Country Financial Accountability Assessment (CFAA), Chile scores high on financial management outputs in fiscal discipline, transparency and supporting efficiency in operations because underlying all financial management operations are clear rules, strict adherence to the rules, dedicated and qualified staff and management which rewards ethical and efficient behavior and there i s a matching o f responsibility with accountability given the decentralization o f financial management to the service agencies.
73, Given this high financial management performance and strong institutional capacity, Chile country financial management risk i s l ow and the execution o f Bank funded operations i s usually fully incorporated in the country systems for budget formulation, budget execution, accounting and treasury. The Bank i s currently working with IDB and the Government to use country systems for Bank purpose reporting and to harmonize those reporting requirements with IDB’s.
Strengths
74. MOPW’s Accounting and Finance Unit, Direccidn de Contabilidad y Finanzas capacities are satisfactory for the financial management aspects o f the project. The Unit i s staffed with qualified and experienced professionals and adequate segregation o f duties i s embedded in the organizational structure. The use o f country systems wil l also help implementing smoothly the project, particularly at inception where staff wi l l already be familiar with processes, rules and systems.
Risk Assessment and Mitigation
75. Overall FM risk at entry i s low. Overall FM risk consists o f Inherent Risk (country level and entity level) and Project Control Risk (Budgeting, Accounting, Internal Control, Flow o f funds, Financial Reporting, and Auditing). Considering the high
36
quality o f FM used for the project, Inherent and Control Risk components are low and no specific mitigating measure i s required.
Implementation Arrangements
76. M O P W w i l l be the project implementing entity. The Accounting and Finance Unit, Direccidn de Contubilidud y Finunzus (DCF) wil l be responsible for project financial management: accounting and financial reporting, budgeting, internal control, treasury operations and external audit. MOPW’s financial management system will be used for project financial management.
Budgeting, Accounting and Financial Reporting
77. M O P W financial management system wil l be used for project budgeting, accounting and treasury functions. Internal control w i l l rely on the controls embedded in MOPW system and the other components o f Chilean public sector internal control framework.
78. M O P W financial management system w i l l also be used to feed Bank purpose project financial reporting. Data wil l be extracted from the system through Excel export and feed the preparation o f project financial reports and Statements o f Expenditures (SOEs). Those reports wil l reflect project categories, components and sources o f funding. Project financial reports w i l l be prepared by the DCF.
79. Project financial reports will consist o f annual financial statements and semiannual Interim Unaudited Financial Reports (IUFRs) as part o f project progress reports. Annual financial statements will be on accrual basis; compliant with Public Sector Accounting Standards’; and subject to annual audit. IUFRs wil l be reviewed through Bank supervision.
80. The formats o f Financial Statements and IUFRs have been agreed with the Bank during negotiations and are incorporated in to the Minutes o f Negotiations. IUFRs should include:
Sources and uses o f funds: source and uses o f funds, for each semester and cumulative (uses by category), and uses o f funds by component; Physical progress: Allocated budget and financial execution compared to physical progress and results achieved.
Chile authorities are intending to harmonize Public Sector Standards with IFAC Public Sector Accounting 9
Standards - Source: Chile CFAA.
37
Disbursement Arrangements
8 1. Disbursement Methods that may be used under the Loan are (i) Reimbursement; and (ii) Direct Payment. The minimum value for applications for direct payments and reimbursements w i l l be US$250,000.
82. with each application for withdrawal as set out below:
Supporting documentation for project eligible expenditures should be provided
Reimbursements: (a) Statements o f Expenditures (SOEs) for expenditures below the following thresholds: Payments for Goods against contracts valued at US$350,000 or less; payments for Consultant Services against contracts valued at US$50,000 or less for individual consultants and payments for f i r m s against contracts valued at US$200,000 or less; all non consultant services, and training related expenses.
(b) Records (e.g.: copies o f receipts, supplier/consultants invoices, contracts) for al l expenditures above those thresholds specified above.
All consolidated SOE documentation wil l be maintained by MOPW- D C Y T for post- review and audit purposes for up to one year after the final withdrawal from the loan account.
Direct Pavments: records (e.g.: copies o f receipts, supplier/ contractors invoices).
83. approval o f country’s financing parameters for Chile.
New Bank Policy Framework for El igibi l i ty o f Expenditures applies due to Bank
84. MOPW-DCF w i l l request access to the Bank’s Client Connection webpage to access the 2380 Form and to perform the reconciliation process periodically between their bank account and the resources received f i om the different sources.
85. A7.1
Loan proceeds w i l l be disbursed against the expenditure categories given in table
38
Goods. non-consultants’ services. 10.6 100% Consultants’ services and Training Ref ind o f the Project Preparation Advance
Front-end Fee
Premia for Interest Rate Caps and Interest Rate Collars
1 . 1 2 Amount Payable pursuant to Section 2.07 (a) o f the General
Conditions Amount Payable pursuant to
Section 2.04 o f the Agreement Amount Payable pursuant to
Section 2.08 o f the Agreement Total project costs with Bank financing 11.7
1, Includes project audit and additional activities which combined represent an estimated us$200,000.
2. Includes US$l million in PPF funds to finance consultancies and training under the project and US$ 100,000 o f interest on those PPF funds.
Internal Control
86. Chile Government internal control consists o f (i) financial control embedded in the financial management system and FM rules and practices established through the PFM legal ffamework; and (ii) internal audit. Government internal audit i s carried out by Units located in each Ministry and coordinated by the Council for General Government Internal Auditing (CAIGG). Chile Government internal control performance i s high, as reflected in the CFAA.
External Audit Arrangements
87. Project annual financial statements will be audited by an acceptable auditor, in accordance with auditing standards and specific terms o f reference acceptable to the Bank. Annual audit wi l l cover all funding and expenditures reported in the project financial statements. Audit reports wil l be due within six months following the end o f the reported year (Due date: June 30 following the end o f the reported period). The standard period to be covered i s the calendar year. I t i s proposed that Chile’s Supreme Audit Institution, the “Contraloria General de la Republica” (CGR) be the external auditor for the project. CGR has satisfactorily performed external audits in the Bank portfolio in Chile. Given the high reliance and quality o f CGR audits and the high performance o f Chile public financial management, a single audit opinion over the project financial statements will be required. If due to any unforeseeable circumstances, CGR i s not able to perform the audit o f the project, a private sector auditor acceptable to the Bank may be hired and financed f fom the proceeds o f the Loan.
Supervision Plan
88. Project FM Supervision plan i s presented in the tabled below. The supervision scope wil l be adjusted by the assigned FMS according to the fiduciary performance and updated risk
39
40
ANNEX 8: PROCUREMENT ARRANGEMENTS
A. General
89. Procurement for the proposed project would be carried out in accordance with the World Bank's "Guidelines: Procurement under IBRD Loans and IDA Credits" dated M a y 2004, revised October 2006; and "Guidelines: Selection and Employment o f Consultants by World Bank Borrowers'' dated May 2004, revised October 2006, and the provisions stipulated in the Legal Agreement. The various items under different expenditure categories are described in general below. For each contract to be financed by the Loan, the different procurement methods or consultant selection methods, the estimated costs, prior review requirements, and time frame are agreed between the Borrower and the Bank in the Procurement Plan. The Procurement Plan wil l be updated at least annually or as required to reflect the actual project implementation needs and improvements in institutional capacity.
90. made centrally at DCF''.
Procurement implementation: all the procurement under the project wi l l be
91. Procurement of Works: No civil works are expected under the Project.
92. Procurement of Goods: No goods are expected under the Project. However, if IT equipment or other items are needed the goods wil l be procured using Chilecompra's Convenio Marco based on comparison o f at least three quotations when the individual cost o f the items i s less than $350,000.
93. Procurement o f Services (other than consultant services): all contracts for services not related to consultant services (logistics, organization o f seminars, workshops, travel, printing services) may be procured under the same methodologies and thresholds specified for goods.
94. Selection of Consultants: Consulting Services under this project would include services to be provided by f i rms, such as: (i) technical assistance for the design and implementation a long-term planning process, (ii) establishment o f service standards for infrastructure, (iii) design and implementation o f an integrated project management and (iv) development o f a regulatory framework (Fiscalizacidn) for all infrastructure services. Consulting Services under this project would also include services to be provided by individuals, such as: (i) technical assistance, (ii) legal assistance, and iii) training. All contracts will be procured using Bank's Guidelines for the hiring o f consultants. Single source selection (SSS) procedures may be used, without prior agreement o f the Bank, for hiring consultant services estimated to cost less than US$lOO,OOO", or with prior
Io DCF Direccion de Contabilidad y Finanzas (Accounting and Finance Unit) I' The hiring o f consultant f i r m s with estimated cost less than US$lOO,OOO wil l be generally hired by DCF using national procedures which include advertisement and processing through Chilecompra Portal: such procedures - that may include open competition are not consistent with the shortlisting procedures as specified in the Bank's guidelines but in Chile such procedures ensure transparency and quality services and therefore, the Bank would allow the direct contracting o f the firms thus selected.
41
approval by the Bank, when the services meet the requirements o f paragraphs 3 , l O o f the Consultants’ Guidelines and the estimated cost i s above such threshold, for assignments when only one firm i s qualified or has experience o f exceptional worth.
Category
Goods
Consultants’ services ( f i rms)
Consultants’ services (individuals)
95. The short l i s t o f consultants in contracts estimated to cost less than $500,000 equivalent, per contract, may be comprised entirely o f national consultants, in accordance with the provisions o f paragraph 2.7 o f the Consultant Guidelines. Specialized advisory services would be provided by individual consultants selected by comparison o f qualifications o f at least three candidates and hired in accordance with the provisions o f paragraph 5.1 to 5.3 o f the Consultant Guidelines. Individual consultants may be selected sole-source with prior approval o f the Bank in accordance with provisions o f paragraphs 5.4 o f the Consultants Guidelines.
Contract value Procurement Contracts subject (thresholds US%) method to prior review 5350,000 Convenio Marco or First two
Shopping > 300,000 QCBS, QBS or SS All < 200,000 LCS, FC, CQ First one for each
< 100,000 ss None > 50,000 or sole See Section V o f All source Guidelines
Guidelines
procedure
50,000 See Section V o f None
96. Opera t ing Costs: would be procured using the implementing agency’s administrative procedures, which were reviewed and found acceptable to the Bank. This includes transportation fares, travel expenses and per diem, either related to training or supervision activities.
97. Use o f Ch i leCompra: in addition to the eventual use o f convenios marc0 as an alternative to shopping procedure under ChileCompra, the system would also be used for advertising invitations to bid and requests o f expression o f interest for consultants, and to publish information on contract award, as mandated by local legislation.
98. Thresholds f o r procurement methods and reviews: the thresholds for procurement methods and prior review wil l be defined in the procurement plan. The following thresholds wil l be taken into account in the design o f the procurement plan for selection o f methods and for the review by the Bank.
Note: QCBS = Quality- and Cost-Based Selection; QBS = Quality-based Selection; L C S = Least-Cost Selection; CQ = Selection Based on Consultants’ Qualifications.
42
B. Procurement Plan
99. The Procurement Plan (shown further below) for the project covers the first 18 months o f project implementation. This initial version was discussed during Appraisal: the plan anticipates the contracting o f about 20 consultancies wi th f i r m s and 5 with individual consultants. There i s no procurement o f goods planned in this first version o f the plan.
100. The Procurement Plan w i l l be available in the project’s database and in the Bank’s external website. I t wi l l be updated in agreement with the Project Team annually or as early as required to reflect the actual project implementation needs and improvements in institutional capacity.
C. Capacity Assessment and Frequency of Procurement Supervision
101. An assessment o f the capacity o f the DCF o f M O P W has been carried out by the regional procurement team o f the World Bank. The Procurement Capacity Assessment report was prepared on the basis o f review that took place in Santiago in March 2007. The assessment reviewed the organizational structure for implementing the project and the coordination among the different units that would be participating in the project implementation.
102. On the basis o f such a review, i t i s concluded that there i s no need to establish a specialized procurement unit within the DCF; the project would have an Administrative Coordination that would liaise wi th the technical units o f the M O P W and w i l l support the contracting activities. Additionally, the procurement unit was recently reinforced to support effectively the implementation o f procurement procedures activities under the project and there i s certainty that w i l l manage the procurement implementation without difficulties.
103. Staff in the procurement unit participated in a training activity - sponsored by CONICYT - and i s familiar with the Guidelines and procurement procedures. Consequently, the overall risk assessment o f the implementing unit i s low, and would require post-review mission only once a year. The Bank’s expost review shall cover no less than 1 in 10 contracts signed.
D. Special Provisions in Chile
104. compatibility o f the national laws with the Bank’s Guidelines:
The following are the special provisions normally used in Chile to ensure
a. The lowest evaluated bid shall be selected for contract award. b. There shall be no prescribed minimum number o f bids or proposals to be
submitted in order for a contract to be subsequently awarded. c. Chilecompru convenio marc0 may be used as an alternative to N C B or shopping
provided that the implementing agency compares at least three prices o f items or
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44
6BC I
S8.C i i t
NO
SBC I
68% NO
NO
45
46
ANNEX 9: ECONOMIC AND FINANCIAL ANALYSIS
105. Economic and Financial Rate o f Return analysis i s generally not applicable for Technical Assistance Projects. Nonetheless, because o f the MOPW’s pivotal role in supporting the economic activity o f Chile, the total cost o f the Institutional Strengthening initiative i s worth considering in the context o f the potential benefits.
106. Costs: Below i s a breakdown o f the estimated costs o f reforming the Ministry.
Source and Use of Funds
Source: MOPW and World Bank Institutional Strengthening Program Team
107. Benefits: A review o f the objectives o f the Institutional Strengthening program reveals a “pyramid” o f potential benefits in increasing order o f economic significance. That is, the smallest potential benefits are on top and the greatest, or most valuable, benefits are below.
, ’Administrative A Efficiency of -. MOPW
Reduction in Cost of Subsidies & Renegotiations
Lower Unit Costs of Concessions
Operational & Investment Efficiency of Public Works’
Contracts
108. Placing estimates o f these benefits against the costs o f institutional strengthening and reform provides an illustration o f the scope o f the potential economic returns o f the M O P W Institutional Strengthening Program. The ratios below assume the full cost o f the reform, including the Bank’s portion o f the Institutional Strengthening Program, counterpart financing for the key components plus the planned M O P W financing o f all other modernization costs (such as improvements in information technology, human
47
resource and general services) as well as the administration and contingency costs associated with all o f those primary costs.
Administrative Efficiency o f MOPW:
109. The Ministry o f Public Works spends about US$120 mi l l ion per year on administrative costs. If the planned reforms-particularly those related to Integrated Project Management and the complementary systems implementation being rolled out by the Ministry-are able to drive efficiency gains in the design, contracting and implementation o f works equal to 15 percent o f administrative activities, the entire reform wil l pay for i t se l f in less than five years.
Reduction in Cost o f Subsidies and Renegotiations:
110. Another motivation for the reform i s the increasing frequency, size and publicity surrounding Chile’s concession renegotiations, and, relatedly, the potential cost o f MOPW’s revenue and traffic guarantees for concessions. As presented in the Table below, the Ministry o f Finance and the World Bank have estimated the present value o f potential expenditures on guarantees at US$5.2 billion-about 72 percent o f the total expenditure f iom existing concessions. Clearly, the triggering o f al l guarantees i s an almost impossible scenario to imagine in Chile’s current economic and political condition. Nonetheless, the value o f remaining subsidies and payments for services i s in itself US$2.4 bi l l ion and the Government has spent around US$777 mi l l ion in renegotiation commitments to date-about 11 percent o f the total value o f the concessions program.
Table Summary o f cost of MOPW’s concessions program, January 2007
Million US dollars
Revenue guarantees: Present value o f Present value o f
remaining Spending in subsidies and renegotiations to Maximum Estimated
investment payments for date possible Remaining services future obligations
expenditure
Total current MOPW 7,175 2,358 777 5,22 1 264 Concessions
Projects being bid 56 1 93 n.a. 423 5
Source: Hacienda, Wor ld Bank Study of Contingent Liabilities. Notes: (1) n.a. means not applicable. (2) Estimated investment is based on winning bidders’ technical offers.
1 1 1. Because o f these potentially large liabilities, the Ministry o f Finance has decided to establish a process for closely monitoring MOPW’s program o f guarantees and the related renegotiations. The Government i s convinced that greater oversight o f concessionaires’ performance against contracted service standards and better information
48
about the true unit costs o f original investments w i l l help to reduce the frequency and unit costs o f “convenios complementarios.’’
Operational & Investment Efficiency o f Concessions and Contracts:
112. The Ministry o f Public Works currently manages an annual budget o f about US$1.2 bi l l ion for expenditures on public works and leverages an additional US$600 mi l l ion to U S $ l -10 mi l l ion on privately financed concessions. The concessionaires’ financing portion i s a reflection o f the contribution o f user fees to the cost o f constructing, maintaining and operating infrastructure assets under the MOPW’s jurisdiction. One o f the primary motivations, or objectives o f the Institutional Strengthening Program, i s to seek greater efficiency and accountability in public and private investment contracting, that i s to eliminate “gold-plating” (Le., over-investment in otherwise necessary assets) and the construction o f “white elephants” (Le. investments in unnecessary assets). This wil l be done through a combination o f the strengthening o f oversight mechanisms and improved Planning processes that look at demand for infrastructure services across an entire region and logistics chain.
1 13. The contractual design, bidding procedure and regulatory reforms are intended to make MOPW’s concessioning program more efficient. As can be seen from the Diagram below, that program has varied in value from US$600 mi l l ion to U S $ l . l b i l l ion per annum in recent years. A 15 percent gain in the value for money from these contracts could lead to US$lOO mi l l ion per year savings.
1 14. In addition, operational and investment efficiencies o f rehabilitation and maintenance works are a primary target o f the “Standards, Contracts and Competition” initiative o f MOPW’s reform program which seeks to establish output-oriented contracts and greater competition in the bid selection and award process. A review o f performance-based road conservation contracts conducted by the World Bank in 2005 shows that performance-based rehabilitation and maintenance contracts can save between 15 and 30 percent o f total expenditures when compared with standard short-term contracts, once contractual costs and agency contributions are considered. W h i l e M O P W i s moving toward a deeper form o f conversion from short-term input oriented contracts to longer-term output driven contracts, and intends to apply the same approach across al l sectors, a 15 percent savings for the roads and highways portion (70 percent o f budget) o f MOPW’s public expenditures would be around US$126 mi l l ion per year.
49
Diagram: Private investment in MOPW-sector concessions
1 .o
0.9
0.8
0 7
0.6
0 5
0.4
0.3
0.2
0.1
0.0
1 +Investment in concessions, % of GDP
+Investment in concessions, US$ million
T 1’400
k 4 , 1 1200
t
1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 20032004 20052006
Source: Hacienda.
Reduction in Chile’s Logistics Costs Burden:
1 15. One o f the most important l i n k s between the Institutional Strengthening initiative and the Govemment’s growth program i s the desire to increase Chile’s competitiveness. The best proxy for the competitiveness o f Chile’s products, from the perspective of the services provided by MOPW, i s logistics costs: the burden borne by shippers for transporting, storing and transferring goods. The World Bank has estimated Chilean logistics costs as a share o f GDP at 16 percent as compared to OECD competitors who spend on average 10 to 11 percent o f GDP.12 If better intermodal linkages through more effective planning and project implementation decreased the logistics burden on f i r m s by so much as 10 percent, that economic windfall alone would be US$2.3 billion. Indirectly, but more importantly, Chilean producers would be able to reinvest a large portion o f the savings from the lower cost o f transport services which would contribute to greater competitiveness, job creation and growth.
Increased Public Confidence in Basic Service Provision Model:
116. W h i l e increased public confidence in the way in which Chile contracts and manages basic service provision cannot be quantified, its political and social benefits are o f first-order importance to the current Administration. In trying to govern a nation with extraordinarily high income disparities, a growing sense o f democratic entitlement, and increasingly vocal frustration from the high cost o f services, the Government sees the responsiveness to consumer concerns in the design and execution o f works and contracts as an invaluable objective o f the proposed reforms.
’’ These estimates do not consider ocean shipping contribution to logistics and do not weight for differences between nations’ baskets of goods produced and consumed. Economies that are dependent upon the shipment o f low-value goods, such as commodities, may have higher over-all logistics costs than countries that primarily move higher value-added goods.
50
ANNEX 10: SAFEGUARD POLICY ISSUES
1 17. The Category C Rating o f this project and i t s complete lack o f involvement in the financing o f design work related to any particular project mean that safeguard policies are not triggered.
118. Although the project i s not obligated per se to address Safeguard Policy Issues, the Bank recognizes that Ministry o f Public Works, l ike any agency involved in the financing o f infrastructure projects, plays a central role in the environmentally and socially sustainable development o f Chile’s economy. In recognition o f this, the Bank and the Ministry have incorporated into the project central components related to the assessment and protection o f the environment and have broadened as well as the deepening o f the role o f societal contribution to the design and regulation o f works. The strengthening o f environmental assessment and its integration into the planning process combined with the development o f procedures for public hearings related to planned investments i s described in more detail in the Component Description section o f the PAD.
51
ANNEX 11: PROJECT PREPARATION AND SUPERVISION
Preparation schedule: 9 PCN meeting: August 10,2006 . PPF Clearance: October 2006 . Pre-appraisal/Appraisal: March 12 - 23, 2007
PPF Initiation (Chile): May 2007 . Quality Enhancement Review: March 26,2007 Decision Meeting: April 9, 2007 . Negotiations: May 3 - 4,2007 . Board presentation: June 14,2007
Team composition: . Jordan Schwartz . Jose Luis Guasch . Andres Pizarro . Tomas Serebrisky . Julieta Abad . Emily Sinnott . Carter Brandon . Nicolas Serrie . Marta Molares-Halberg Ana Maria Grofsmacht . Alexandre Arrobbio Alejandro Solanot Xiomara Morel
Task Team Leader, Senior Infrastructure Specialist, LCSTR Senior Adviser, LCSSD Senior Transport Specialist, LCSTR Senior Infrastructure Economist, LCSTR Consultant - Transport & Logistics, LCSTR Country Economist, LCSPE Sector LeadedEnvironment Specialist, LCSSD JPA - Transport, LCSTR Lead Counsel, LEGLA Procurement Specialist, LCSPT Senior Financial Management Specialist, LCSFM Financial Management Specialist, LCSFM Senior Finance Officer, L O A G l
Peer Reviewers: . . . Daniel Benitez, Economist, IEF
Antonio Estache, Senior Advisor, INFVP Russell Muir, Lead Economist, CICAP
Key institutions responsible for preparation o f the project: Ministry o f Public Works.
Bank funds expended to date on project preparation for both the TAL and the DPL: Bank resources: US$ 180,000 Trust funds: US$ 0 Total: US$ 180.000
Estimated Approval and Supervision costs for both the TAL and the DPL: Remaining costs to approval: US$ 30,000 Estimated annual supervision cost: U S $ 120,000
52
ANNEX 12: DOCUMENTS IN THE PROJECT FILE
European Central Bank. 2003. Public Sector Efficiency: An International Comparison.
Galetovic, Alejandro and de Mello, Luz. 2005. Strengthening Regulation in Chile: The Case o f Network Industries.
IADB. 2007. Memorando de Donantes: Desarrollo de un Sistema de Fiscal izacih de l a Calidad de las Obras Publicas.
Ministry o f Public Works (Chile). 2006. Plan de Infraestructura para l a Competitividad.
Ministry o f Public Works (Chile). 2007. Proyecto de Fortalecimiento Institucional del Ministerio de Obras Publicas: Documento de Programa.
Ministry o f Public Works (Chile). 2007. Mejoramiento, Rehabilitacibn y Conservacibn Red Vial, IV Regi6n. Consultant Report commissioned by the Directorate o f Roads.
OECD Observer. 2006. Chile, S t i l l a Latin Tiger?
OECD. 2005. Economic Survey o f Chile.
Riquelme, Luis. Indicadores de Calidad y Eficiencia del Estado. Universidad de Chile, Departamento de Ingenieria.
Waissbluth, Mario. 2006. La Reforma del Estado en Chile 1990-2005: D e la Confrontacih a1 Consenso. Universidad de Chile, Departamento de Ingenieria,
World Bank. 2004. Project Appraisal Document Chile Infrastructure for Territorial Development Project.
World Bank. 2005. Project Appraisal Document Santiago Urban Transport Technical Assistance Project
World Bank. 2007. Draft Chile Country Partnership Strategy 2007-201 1.
World Bank. 2007. Draft Report, Chile Contingent Liabilities Fee-for-Service.
53
ANNEX 13: STATEMENT OF LOANS AND CREDITS
Difference between expected and actual disbunements
PmjectID FY Purpose mm IDA SF GEF Cancel. Undisb. Ong. F m . Rev'd
Original Amount in USS Millions
PO86689 2006 CLSantiago Urban Transport TAL 4.80 0.00 0.00 0.00 0.00 4 29 3.34 0 00 PO88498 2006 CLTertiary Edu. Fin. for Results APLl 25. I 3 0.00 0.00 0.00 0.00 21 07 3.49 0.00 PO76807 2005 CLlnfrasuucture for Territorial Dvlmpt 50.26 0.00 0.00 0.00 0.00 46.81 16.75 0.00 PO73985 2004 GEF C L Sus Trans & A i r Quality Santiago 0.00 0.00 0.00 6.98 0.00 1.85 6.62 0.00 PO82035 2004 CLSocial Protection TA Loan 10.71 0.00 0.00 0.00 0.00 2.90 1.59 0.00 PO68271 2002 CLLifelong Learning and Training Proj 75.75 0.00 0 00 0.00 0.00 39.40 35.63 0 00 PO69259 2002 CL Pub Expenditure Management 23 23 0 00 0 00 0.00 0.00 1.13 24.36 0.00
Total I89 88 0.00 0 00 6.98 0.00 I1745 91.78 0 00
CHILE STATEMENT OF IFC's
Held and Disbursed Portfolio In Million of US Dollars
Dlrbursed Commited
IFC IFC FY Approval Company Loan Equity Quasi Panic. Loan Equity Quasi Partic.
1991 Aconcagua 0.00 6.00 0.00 0.00 0.00 6.00 0.00 0.00 1993 Aconcagua 0.00 0.45 0.00 0.00 0 00 0.45 0.00 0 00 1989 Escondida 0.00 7.48 0.00 0.00 0.00 7.48 0.00 0.00 I999 Escondida 0.00 0.00 14.00 0.00 0.00 0.00 10.25 0.00 1996 FEPASA 0.00 3.58 0.00 0.00 0.00 3.58 0.00 0.00 2005 Factorline 5.00 0.00 0.00 0.00 5.00 0.00 0.00 0.00 2005 La Higuera 35.00 0.00 10.00 115.00 0.00 0.00 0.00 0.00 2005 Lignum 0.00 6.50 0.00 0.00 0.00 0.17 0.00 0.00 1996 Proa Fund 0.00 2.86 0.00 0.00 0.00 2.86 0.00 0.00 2005 Proa n 0.00 1 I .oo 0.00 0.00 0.00 2.36 0.00 0.00 2000 San Antonio 0.00 3.70 0.00 0.00 0.00 3.70 0.00 0.00 2002 San Vicente 14.10 0.00 0.00 0.00 14.10 0.00 0.00 0.00 2004 Sonda 0.00 10.00 0.00 0.00 0.00 10.00 0 00 0 00
TFSA 0 00 I 5 5 0.00 0.00 0.00 1.55 0.00 0.00 2003 U. Diego Portals 7.20 0 00 0.00 0.00 7.10 0.00 0.00 0.00
Total Portfolio. 61 30 53 I 2 24 00 115.00 26.20 38.15 10.25 0.00
Amrovslr mndine commiment FY Approval Company Loan Equity Quasi Partic
2004 Gas Atacama 0 08 0 0 05 0 I 3
Total Pending Commiunent 0 08 0 0 05 0 I 3
54
ANNEX 14: KEY COMPONENTS OF MOPW’S PROPOSED ROAD CONCESSION PROGRAM
From Inputs to Service Standards
Element of Comparison
Type o f works
Term
Init ial Investment
Init ial Investment Level
Length o f Concession (km) Type o f Contract
Territorial Management
Expropriation
Environmental Management
TMDA Sources o f Income
Subsidies Mandatory Special Services
Complementary Services
Force Majeur Risks
Traffic Risks Management
Maintenance and Transfer) focused on
majeur when amounts insured are in d with the amount for rehabilitation
mandatory CaDital markets demand IMG
I and maintenance o f infrastructure I Traffic risks will continue to exist and I capital markets will also demand IMG
55
Element of Comparison I Level o f Maintenance
Concessions for Inter-urban Roads
Maintenance i s less relevant as we are dealing with new works and structures
Service Regulation
Financial Risks
Level o f Control / Oversight
Importance o f Fines
Currently not subject to levels o f service
Financiers demands are DSCR > 1 S x for self-financing-projects and l . l x with IMG Self-auditing i s not explicit. Level o f control must be high.
M a i n dissuasive mechanism
Contract Flexibi l i ty Flexible when dealing w i th new o r complementary works
Concessions for Road Network Conservation
Type o f Contractors
mportant to maintain the requested levels and ,tandards o f service. Special attention should be ;iven to b ig and uncertain life-span structures bridges, viaducts)
Should be subject to levels o f service taking into account technical aspects o f the roads and levels o f satisfaction o f usersiclients
Financiers demands should be DSCR o f 1.2 x with IMG due to the existence o f periodic maintenance in the course o f l i fe o f the road Processes o f self-auditing wil l be required. These will facilitate controls, especially fiscal controls and those carried out by each IT0 Dissuasive and eventually contingent when levels o f service are not being complied Flexible to adjust to standard changes caused by alterations in traffic volumes. A l l o w the revision of economic conditions o f contracts Firms with experience in maintenance management and not necessarily coming f rom the road sector, opening the possibil i ty to new agents, especially medium enterprises
Construction Company w i th extensive experience developing mega road projects and project finance
56
ANNEX 15: COUNTRY AT A GLANCE
P O V E R T V a n d S O C I A L
2 0 0 6 Po pu la l i o n , m id-yea I (m iiliona) G N I p a r capi ta (Atlas me thod . U S $ ) G N I (At las me thod . U S $ blilionsJ
A v a r s g a annual g rowth , 1099.06
P o p u l a t i o n 1 % ) L a b o r fo rce 1 % )
M o s t r e c e n t e s t i m a t a ( l a t e s t y a a r a v a l l a b l e , 1 0 9 9 ~ 0 6 )
Pover t y (% o f p o p u l e t i o o be low nat ional p o v a r l y l ine) U r b a n popu la t i on 1% o f l o t e l p o p u l e t i o n ) L i f e expec tancy at bi r th ( y e a r s 1 I n fan t mor ta l i ty (pe r 1 . 0 0 0 l i ve b r t h s ) Ch l i d ma lnu t r i t i on 1% o f ch i l d ren u n d e r 5) A c c a s r Io a n lmprovad w a t e r s o u r c e I% o l p o p u i e l i o n ) L i t e racy (% o f p o p u l a t i o n age 1 5 t ) G r o a s p r imary enrol lment (% o f s c h o o l - a g e popu la t i on )
Male F e m a l e
K E Y E C O N O M I C R A T 1 0 8 a n d L O N G - T E R M T R E N D S
1 9 8 6
G D P ( U S $ billions) 1 8 . 5
G r o s s c a p i t ~ l f o r m s t i o n l G D P E x p o r t s a f g a o d a a n d s a r v l c a s i G D P G r a s s d o m e s t i c s a v l n g s l G D P G r o s s na t i ona l s a v i n g s l G D P
C u r r e n t a c c o u n t b a l a n c e i G D P Interest p a y m a n t s i G D P T o t a l d s b t l G D P T o t a l d e b t se rv i ce lexpor t s P resen t value o f d e b t l G D P Present va lue o f deb t iexpor t s
1 7 2 2 8 1 1 9 8
7 8
0 9 1 2 3 8
1986.96 1996.06 (average a n n u e l growth ) G D P 7 8 3 7 G D P p e r capi ta 5 8 2 4 E x p o r t s o f g o o d s a n d se rv i ces 1 0 7 8 7
C h i l e
1 8 . 3 5 , 8 7 0
9 5 . 7
1 1 1 .o
1 9 8 8 7 8
8 1
0 8 1 0 4 108 t o t
e 6
1096
7 1 3
2 8 . 2 2 9 . 3 2 8 . 4 2 5 . 0
-1 .e 1 . 7
30 .0 2 4 3
2 0 0 6
5 7 4 . 5 3 5
L a t l n A r n e r l c a h C a r i b .
5 5 1 4 , 0 0 8 2 , 2 1 0
1 .4 2 . 2
7 7 7 2 2 7
7 0 1 0 0
1 1 9 1 2 1 1 1 7
2 0 0 6
1 1 8 . 0
2 2 . 4 4 1 . 0 3 0 0 2 3 . 5
1 . 1 0 . 9
3 7 . 8
2 0 0 6 ( S )
4 0 3 1 4 2
U p p a r . mlddle. inoom.
s e e 5 . 8 2 5 3 , 3 8 8
0 8 1 2
72 6 9 2 3
7 0 4 9 4
1 0 7 1 0 8 1 0 8
200ll(.)
1 4 5 8
2 2 5 4 5 0 3 4 8 2 4 0
3 8 0 3
3 3 1
2006.09
5 2
L i fe e x p e c t a n c y
G N i G r D l s p e r p r imary capi ta en ro l lmen t
A C C E S S l o i m p r o v e d wa te r Liource
----Chda Upper -m,dd ls -mcom e group
T r a d e
T D o m e s t i c c a p,ta I sav ings fo rma t ion
I
I n d e b t e d n e s s
----Chile Upper- rn idd ls . ,ncorne g r o u p
S T R U C T U R E o f t h a E C O N O M Y
I% o f G D P ) Agr l cu l l u re Indus t r y
Se rv i ces Manufacturing
3 7 5 35 3 4 0 0 4 5 0 1 8 2 1 8 1 1 4 8 1 2 8 5 4 8 5 5 5 5 5 9 5 1 1
H o u s e h o l d f i n a l C o n i u m p t lon expend i tu re 6 7 0 6 1 2 5 8 2 5 5 0 G e n e r a l g o v t f ina l c o n s u m p t i o n s r p e n d i t u r a 1 3 4 1 0 4 10 0 1 0 1 Impor t s o f g o o d s a n d se rv l cas 2 5 7 2 7 1 3 3 1 3 0 4
(ave rage a n n u a l g r o w r h l Ag r i cu l tu re I n d u r t r v
M a n ufa c lu r i ng 8 0 5 7 5 4 2 5 s s r v , c s s 7 7 1 9 8 0 4 8
HouBeho ld f inal c o n i u m p l l on expend i tu rs 8 0 3 8 7 9 7 1 G e n e r a l g o v t f i n a l c o n s u m p t i o n expend i tu re 2 8 3 4 5 3 3 8 G r o s s oap i ta l f o rma t ion 1 4 2 3 5 2 3 0 4 4 Impor t s o f g o o d s a n d 8ervices 1 4 3 8 5 1 7 7 9 4 G r o s s na t i ona l Droduct 8 4 2 0 4 3 - 3 3
I I N o t e 2 0 0 8 data are pre l im ina ry e s t i m a t e s . Th i s tab le w a s p r o d u c e d f rom t h e D e v e l o p m e n t E c o n o m i c s L D B d a t a b a s e . C e n t r a l B a n k o f Ch l l e a n d Ch i l e ' s B u d g e t O f f i ce
* T h e d i a m o n d s show fou r k e y i nd i ca to rs in t h e c o u n t r y ( in bo ld ) c o m p a r e d wi th its i n c o m e - g r o u p ave rage If da ta are m i s s i n g , t he d i a m o n d w l l l b e i ncom plate
57
MAP SECTION
AAtt ttaaccaa
mmaa
DDeesseerrtt
AAnn
ddee
ssMM
oouu
nntt aa
ii nnss
AAnn
ddee
ssMM
oouu
nntt aa
ii nnss
Nevado OjosNevado Ojosdel Saladodel Salado(6,880 m)(6,880 m)
1313
1212
1111
1010
99
88
7766
55
44
33
22
11
REGIONS OF CHILEREGIONS OF CHILE
AricaArica
VVallenarallenar
OvalleOvalle
ChillChilláánn
VVictoriaictoria
OsorOsornono
PuerPuertotoQuelliQuellióónn
PuerPuerto Aisto Aiséénn
ManatialesManatiales
PuerPuertotoYYungayungay
CalamaCalama
TTocopillaocopilla
SANTIAGOSANTIAGO
13
12
11
10
9
8
76
5
4
3
2
1
ARAPACÁ
ANTOFAGASTA
ATACAMA
COQUIMBO
VALPARAÍSO
REGIÓN METROPOLITANADE SANTIAGO
LIBERTADOR GEN.BERNADO O’HIGGINS
MAULE
BÍO-BÍO
ARAUCANÍA
LOS LAGOS
AISÉN DEL GEN. CARLOSIBÁÑEZ DEL CAMPO
MAGALLANES Y ANTÁRTICACHILENA
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
13.
REGIONS OF CHILE
Iquique
Antofagasta
Copiapo
La Serena
Valparaíso
Concepcíon
Temuco
Puerto Montt
Coihaique
PuntaArenas
Talca
Rancagua
Arica
Vallenar
Ovalle
Chillán
Victoria
Osorno
PuertoQuellión
Puerto Aisén
Manatiales
PuertoYungay
Calama
Tocopilla
SANTIAGO
ARGENTINA
BOLIVIA
PARAGUAY
PERU
URU
GUAY
Cape Horn
Strait ofMagellan
PACIFIC OCEAN
ATLANTICOCEAN
To San Sebastián
To Río Gallegos
To Paso
Río Mayo
To Nahuel Huapí
To BardasBlancas
To Villa Nueva
To Rodeo
To Fiambalá
To Salta
To Uyuni
To Corque
To La PazTo
Tacna
To Tolar
Grande
To Las Lajas
Attaca
ma
Desert
An
de
sM
ou
nt a
i ns
An
de
sM
ou
nt a
i ns
Nevado Ojosdel Salado(6,880 m)
85°W 80°W 75°W 70°W 65°W 60°W
40°S
35°S
30°S
25°S
50°S
45°S
40°S
35°S
30°S
25°S
20°S
80°W 75°W 70°W 65°W 60°W 55°W 50°W
CHILE
This map was produced by the Map Design Unit of The World Bank. The boundaries, colors, denominations and any other informationshown on this map do not imply, on the part of The World BankGroup, any judgment on the legal status of any territory, or anyendorsement or acceptance of such boundaries.
0 200 400
0 200 400 Miles
600 Kilometers
IBRD 33386
SEPTEMBER 2004
CHILESELECTED CITIES AND TOWNS
REGION CAPITALS
NATIONAL CAPITAL
RIVERS
MAIN ROADS
RAILROADS
REGION BOUNDARIES
INTERNATIONAL BOUNDARIES
FALKLAND ISLANDS (ISLAS MALVINAS)A DISPUTE CONCERNING SOVEREIGNTY OVER THE
ISLANDS EXISTS BETWEEN ARGENTINA WHICH CLAIMSTHIS SOVEREIGNTY AND THE U.K. WHICH ADMINISTERS
THE ISLANDS.