world bank document - documents & reports · pdf filein the amount of us$ 66.7 million to...

Document of

The World Bank

Report No. 17166 GU

PROJECT APPRAISAL DOCUMENT

ONA

PROPOSED LOAN

IN THE AMOUNT OF US$ 66.7 MILLION

TO THE

REPUBLIC OF GUATEMALA

FORA

RURAL AND MAIN ROADS PROJECT

November 18, 1997

Finance, Private Sector and InfrastructureCountry Management Unit TwoLatin America and the Caribbean Region

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CURRENCY EOUIVALENTSCurrency Unit = Quetzal (Q)

US$1.00 = Q6.19 (Nov. 14, 1997)

FISCAL YEARJanuary 1 to December 31

ABBREVIATIONS AND ACRONYMSADT Average Daily TrafficCABEI Central American Bank for Economic Integration (Banco Centroamericano de Integraci6n

Econ6mica)CAS 'Country Assistance StrategyCPPR Country Portfolio Performance ReviewDGC Roads Directorate (Direcci6n General de Caminos)EA Environmental AssessmentFARAH Financial Accounting, Reporting and Auditing HandbookFONAPAZ National Fund for Peace (Fondo Nacional para la Paz)FY IBRD's Fiscal Year (July 1 - June 30)HDM :Highway Design ModelIBRD International Bank for Reconstruction and Development (Banco Internacional de

Reconstrucci6n y Fomento)ICB International Competitive BiddingICR Implementation Completion ReportIDB Inter-American Development Bank (Banco Interamericano de Desarrollo)INFOM Municipal Development Institute (Instituto de Fomento Municipal)IRR Internal Rate of ReturnMCTOPV :Ministry of Communications, Transport, Public Works, and Housing (Ministerio de

Comunicaciones, Transporte, ObrasPzublicasy Vivienda)NCB National Competitive BiddingNGO Non-Governmental OrganizationOECF Overseas Economic Cooperation FundPCU Project Coordination UnitPHRD Policy Human Resource DevelopmentPMNT National Transport Master Plan (Plan Maestro Nacional de Transporte)SBD Standard Bidding DocumentsSEGEPLAN General Planning Secretariat (Secretaria General de Planificaci6n)SOE Statement of ExpensesTA Technical AssistanceTOR Terms of ReferenceUMAV UnidadMarquense deAsistencia VialUSAID US Agency for International DevelopmentUTD Departmental Technical Uriit (Unidad Tecnica Departamental)VOC Vehicle Operating CostsZONAPAZ Geographic area most affected by internal conflict before the December 1996 Peace Accords.

This area is made up of the Departments of Sololf, Totonicapan, Peten, Quiche,Huehuetenango, San Marcos, Chimaltenango, Alta Verapaz, and Baja Verapaz.

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Guatemala

Rural and Main Roads Project

TABLE OF CONTENTS

PageProject Financing Data 1BLOCK 1: PROJECT DESCRIPTION 2

1. PROJECT DEVELOPMENT OBJECTIVES 22. PROJECT COMPONENTS 23. BENEFITS AND TARGET POPULATION 34. INSTITUTIONAL AND IMPLEMENTATION ARRANGEMENTS 3

BLOCK 2: PROJECT RATIONALE 5

5. CAS OBJECTIVES SUPPORTED BY THE PROJECT 56. MAIN SECTOR ISSUES AND GOVERNMENT STRATEGY 57. SECTOR ISSUES TO BE ADDRESSED BY THE PROJECT AND STRATEGIC CHOICES 68. PROJECT ALTERNATIVES CONSIDERED AND REASONS FOR REJECTION 79. MAJOR RELATED PROJECTS FINANCED BY THE BANK AND/OR OTHER DEVELOPMENT AGENCIES 710. LESSONS LEARNED AND REFLECTED IN THE PROJECT DESIGN 711. INDICATIONS OF BORROWER COMMITMENT AND OWNERSHIP 812. VALUE ADDED OF BANK SUPPORT 8

BLOCK 3: SUMMARY PROJECT ASSESSMENTS 8

13. ECONOMIC ASSESSMENT 814. FINANCIAL ASSESSMENT 915. TECHNICAL ASSESSMENT 916. INSTrrUTIONAL ASSESSMENT 917. SOCIAL ASSESSMENT 1018. ENVIRONMENTAL ASSESSMENT 10

19. PARTICIPATORY APPROACH 11

20. SUSTAINABILrry 1121. CRITICAL RISKS 1222. POSSIBLE CONTROVERSIAL ASPECTS 13

BLOCK 4: MAIN LOAN CONDMONS 13

23. EFFECTIVENESS CONDITIONS 1324. OTHER 13

BLOCK 5: COMPLIANCE WITr BANK POLICIES 13

LIST OF ANNEXES

ANNEX 1: PROJECT DESIGN SUMMARYANNEX 2: DETAiLED PROJECT DESCRIPTIONANNEX 3: ESTIMATED PROJECT cosTsANNEX 4: SUMMARY ECONOMIC ANALYSISANNEX 5: FINANCIAL SUMMARYANNEx 6: PROCUREMENT AND DISBURSEMENT ARRANGEMENTSANNEx 7: PROJECT PROCESSING BUDGET AND SCHEDULEANNEx 8: DOCUMENTS IN THE PROJECT FILEANNEX 9: STATEMENT OF BANK GROUP OPERATIONS IN GUATEMALAANNEX 10: GUATEMALA AT A GLANCE

MAPS: IBRD 28966, 28967

Guatemala Rural and Main Roads ProjectINTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT

INTERNATIONAL DEVELOPMENT ASSOCIATION

Latin Amenca and the Caribbean Regional OfficeCentral America

Project Appraisal Document

GuatemalaRural and Main Roads

Date: 11/18/97 1 i Draft [x] FinalTask Manager: Guillermo Ruan Country Manager: Ms. Donna Dowsett-CoiroloProject ID: GT-PA-35737 Sector: TransportationLending Instrument: Specific Investment Loan PTI: [ Yes [x] No

Project Financing Data X Loan [] Credit I[ Guarantee [1 Other [Specify]

For Loans/Credits/Others:

Amount (US$): 66.7 millionProposed Terms: [ Multicurrency [x I Single currency

Grace period (years): 5 [] Standard Variable [ Fixed [x] LIBOR-basedYears to maturity: 20Commitment fee: 0.75%

p a S ...............................................................................................................................................Finncig lan(US i):

Source Local Foreign TotalGovernment 20.0 - 20.0CofinanciersIBRD/IDA 21.3 45.4 66.7OECF 26.4 23.4 49.8

Total 67.7 68.8 136.5..Bo.. r R bic. o...........................................................................................................................................................................................................

Responsible agency(ies): Ministry of Communications, Public Works and Transport (MCTOPV) and the MunicipalDevelopment Institute (INFOM) / the Association of Municipalities.Estimated disbursements (Bank FY/US$M): 1999 2000 2001 2002 2003

Annual 8.0 10.0 17.0 17.0 14.7

Cumulative 8.0 18.0 35.0 52.0 66.7

Expected effectiveness date: 6/1/1998 Closing date: 6/30/2003

Project Appraisal Document Page 2Country: Guatemala Project Title: Rural and Main Roads Project

Block 1: Project Description1. Project development objectives (see Annex 1 for key performance indicators):(i) supporting the long term process of building up the country's institutional capacity to administer and maintain rural

roads; (ii) improving the rural road system in the ZONAPAZ Region, Department of San Marcos (where the Govermnent isfocusing a major post-conflict development effort), critical to providing access to social and other public services andfostering economic development through integration to markets; and (iii) continuing to improve the efficiency of the mainand secondary road networks.

2. Project components (see Annex 2 for a detailed description and Annex 3 for a detailed cost breakdown):(i) development and implementation of a national rural roads and transport strategy; (ii) implementation of a pilot ruralroads component in the Department of San Marcos in the western part of the ZONAPAZ Region using innovativeinstitutional arrangements for maintenance and rehabilitation; and (iii) continued support, begun under an ongoing operation(Loan. 3002-GU), for rehabilitating the main and secondary road network. The project will be co-financed with OECF ofJapan. The following table summarizes total costs by component; a breakdown of costs supported by the Bank loan isavailable in Annex 3.

Costs % ofComponent Category (US$M) Total

PART A - Rural Roads

A.1 National Rural Roads and Transport Strategy Institution 0.5 0.4%Development and gradual implementation of a national rural roads and Buildingtransport strategy, through a participatory process that brings together themain stakeholders in the rural transport subsector. The strategy will aim tocalrify: (i) the legal and institutional arrangements for ownership andmanagement of rural roads; (ii) funding arrangements and cost sharingmechanisms for financing of rural roads construction, rehabilitation andmaintenance; and (iii) the role and functions of the national, municipal, and,local level in setting standards and coordinating rural roads and transport.

A.2 Rural Roads Pilot Component 29.7 21.8%The pilot project will focus on the highland Department of San Marcos (theAltiplano Marquense), one of the poorest and most remote areas inGuatemala, which was seriously affected during the years of civil conflict.The pilot will test innovative institutional arrangements to improve and Physical 24.8maintain the various levels of the rural road network in this Department.

The pilot has three distinct sub-components: (i) rehabilitation of the nationaland key departmental routes in the Altiplano Marquense; (ii) testing of new. Institution 3.8technologies for cost-effective strengthening of the surface of rural roads; Buildingand (iii) piloting a new institutional framework for the management andfinancing of municipal rural roads, involving both the development of localcontractors and microenterprises to rehabilitate and maintain works, and theprivate consulting industry to manage municipal roads. Other 1.1

At the national level, the Ministry of Communications, Public WorksTransport and Housing (MCTOPV) through its Roads Directorate (DGC),will be responsible for sub-components (i) and (ii), while the MunicipalDevelopment Institute (INFOM), with the participation of the municipalities,will be responsible for sub-component (iii). Institutional arrangements will

Project Appraisal Document Page 3Country: Guatemala Project Title: Rural and Main Roads ProJed

also involve municipalities, communities and the private sector. This pilotnational scale, a strategy for decentralizing the administration of rural roadsto local govermnents.

Consultant services will be provided to assist with the implementation of thepilot project, the preparation of final engineering designs and the supervisionof the works. A limited amount of office equipment, vehicles and tools willalso be financed under this component.

PART B. Main and Secondary Roads 88.5 64.8%

B.1 Main and Secondary Road RehabilitationThis component, cofinanced by OECF, will continue the ongoing Bank Physicalsupport to the country's main and secondary road network through therehabilitation/improvement of approximately 370 km of roads included in the IGovernment's road investment program;

B.2 Consultant ServicesThe provision of consultant services for works supervision, preparation of Institution 12.1final engineering designs, technical assistance and studies; and Building

B.3 EquipmentThe procurement of limited amount of office equipment and vehicles. Other 1 0

Contingencies 17.8 13.0%Total (including contingencies) 136.5 100.0%

3. Benefits and target population:The expected benefits are: (i) long term improvements in the way rural roads are administered in Guatemala; (ii) betteraccess to health, education and other public services for the predominantly poor population in the ZONAPAZ Region; (iii)improved access to markets and inputs for agricultural producers in the ZONAPAZ Region, and the consequent stimulationof economic activity and incomes; (iv) reduced transport costs on the main transport comndors and the resultant removal ofconstraints to economic activity, particularly within transport intensive industries; and (v) increased employment, both fromthe transport-induced economic activity as well as from the direct employment effects of the increased road construction andmaintenance works. In terms of quantifiable benefits, the net present value at 12% exceeds US$40 million and is clearly oneof the more beneficial investments that the Govermnent can undertake now.

The target population is: (i) the country as a whole, which benefits from a better administered rural roads system and froman improved road network along the main corridors; and (ii) the rural poor of ZONAPAZ Region who currently lackadequate access to public services and markets.

4. Institutional and implementation arrangements:lmplementation period: Five years (1998 - 2003).

Project coordination: The Project Coordination Unit (PCU) established in the MCTOPV to coordinate the activities of theongoing Bank Loan (3002-GU) will have the overall coordination responsibility for the new project. The PCU has beenincorporated into the permanent administrative structure of DGC (under the Planning Division). It directly assists thePlanning Division in matters related to the preparation of multiyear investment programs and in the coordination of theprojects financed by the Bank and the IDB. To support the PCU's increased worldoad, the project includes financing forconsultant services during the implementation of this project;


Executing agencies: There will be two national level executing agencies, INFOM and MCTOPV. INFOM, with supportfrom MCTOPV/DGC, will have primary responsibility for developing the national rural roads and transport strategy, andfor overseeing the Pilot municipal and community roads component which will be the responsibility of the Association ofMunicipalities. INFOM has experience coordinating national and local development efforts, and has been performing asimilar function in the water sector. At the local level, INFOM will assist the 12 municipalities in the Altiplano Marquenseto implement a new scheme for the management and financing of municipal and community roads. These municipalitieshave formed an association (Asociacion de Municipalidades del Altiplano Marquense) to pursue the development of theirarea. The association will contract out the planning, programming and management of the municipal roads within theirboundaries to consultants, who will constitute a permanent technical service unit (Unidad Marquense de Asistencia Vial-UMAV). The technical unit will also prepare, let and manage contracts on behalf of the members of the association. Theassociation will have a Board made up of representatives from the member municipalities, and the technical unit will reportto the Board. Technical assistance will be financed under the project to strengthen the association and empower its Board toassume its responsibilities effectively. Technical assistance will also be provided to the technical unit to ensure theestablishment of adequate systems and procedures. Also, technical assistance will be provided to the regional and nationaloffices of INFOM in order to strengthen their capacity to support these local level development efforts.

MCTOPV, through its Roads Directorate (DGC), will implement the main and secondary roads component of the project(Part B) as well as the national and departmental roads sub-components of the pilot component (Part A). DGC hasimproved its implementation capacity considerably during the last years with the assistance of the Bank under the ongoingproject (Loan 3002-GU), the IDB and other institutions, and currently possesses the capacity to successfully assume theseresponsibilities. DGC has reduced its staff from 20,000 to 5,000 in the last 4 years and introduced the use of privatecontractors in road maintenance activities. Currently, contractors perform 100% of the maintenance on the paved networkand 40% of the network classified as unpaved. A law creating a road maintenance fund was passed in December 1996. Thefund is supported by a fuel surcharge which provides a steady source of financing for road maintenance. To date, the fundhas operated efficiently and an additional increase in the fuel surcharge will become effective early in the new year in orderto increase the maintenance coverage of the network under DGC's responsibility. As a next stage in the strengthening ofDGC, the project will provide technical assistance to its 14 regional offices (Zonas Viales) to review their functions andinitiate the implementation of their changed roles in an environment of privatized road maintenance activities.

Accounting. financial reporting and auditing arrangements: Both executing agencies, INFOM and DGC are adequatelystaffed and equipped to carry out their basic functions; the project will include technical assistance to further strengthentheir financial management systems. Pursuant to normal Bank practice, an independent auditor acceptable to the Bank willbe contracted to carryout annual audits of the project following international audit standards. A multi-year audit contractwill be used to avoid the need to go through the consultant selection process annually, which often is the main cause ofdelays in the preparation and submission of the reports, and to ensure consistency on the presentation of the audit reports.Project accounts, special accounts and SOEs will be audited annually and the report will be submitted to the Bank withinfive months of the end of each fiscal year. The Bank's Financial Accounting and Reporting and Auditing Handbook(FARAH), published in January 1995, would be used by the auditors in accordance with current Bank guidelines.

Monitoring and evaluation arrangements: For rural roads, there is currently little or no systematic monitoring andevaluation. Developing such a system will be one of the key contributions of this project, and this will start with themonitoring of the Pilot component. Consultants, with the participation of the INFOM, DGC, the association and thecommunities within the pilot project have been retained to develop indicators to evaluate and provide information on: ruralroads conditions; beneficiary participation; population served; road contractor performance and development; staffing andtraining for municipal, INFOM and DGC managerial units; and planning, programming and budgeting. Surveys will becarried out to determine the effects of road improvements on agricultural production, transport costs, school attendance andthe use of health and social service facilities.

The Bank, INFOM and DGC will conduct formal reviews annually of the progress made in meeting the project'sdevelopment objectives. Participants in these reviews will include: the Governor of the Department of San Marcos; the


mayors of the municipalities included as pilots; Consejos de Desarrollo; a sample of beneficiaries; transport operators;NGO's; and DGC. The Pilot component's implementation schedule and monitoring indicators will be updated during thesereviews.

For the main roads component and for the project as a whole, the Planning Division of the DGC, through the PCU andINFOM, will prepare and submit to the Bank semiannual progress reports on the entire project. These reports will be sent tothe Bank within one month after the end of each semester and will describe: (i) progress during the previous semester in theimplementation and in the achievement of the objectives of the proposed project based on the performance indicators; (ii) anassessment of the problems and issues derived from the implementation of the project; (iii) updated implementation anddisbursement schedules for the following semester; and (iv) status of compliance with the legal covenants contained in theLoan Agreement.

The Bank will carry out about 3 full supervision missions annually. In addition, a mid-term review of the project would becarried out in the year 2001. An average of about 20 staff weeks would be required to supervise this project annually.Finally, MCTOPV will prepare and submit an Implementation Completion Report (ICR) on the project within six months ofthe loan closing date (6/30/2003).

Block 2: Project Rationale5. CAS objectives supported by the project:Document number and date of latest CAS discussion: Report 1445 1-GU of May 30, 1995.The 1995 CAS for Guatemala focuses on poverty alleviation, with special attention to support for the peace process. A newCAS is under preparation and will be presented for Board consideration in March 1998. It endorses the main themes of theearlier CAS and proposes new local development initiatives, particularly in the western part of the ZONAPAZ Region(Department of San Marcos). Improving road access for rural areas where the poor population affected by conflict areconcentrated, is a critical part of the poverty alleviation strategy. Road rehabilitation and maintenance are essential forintegrating the poor and largely indigenous rural communities into the modern economy, improving their access to publicservices, accelerating growth and consolidating peace. The project has benefited from prior economic and sector work onGuatemala, including a Poverty Assessment (Rep. No. 12313-GU, 1995) and Investing for Peace: A Public InvestmentReview (Rep. No. 16392-GU, 1997).

6. Main sector issues and Government strategy:Small network: Guatemala's classified road network is relatively small (14,000 km). It comprises nearly 4,000 km of mainand secondary roads (mostly paved) and 10,000 km of tertiary and rural roads (mostly unpaved, collector roads). Thisinfrastructure base is weak, even when compared to other Central American countries. For example, Costa Rica, althoughless than half the size of Guatemala and with shorter inter-city distances, has a classified road network that is more thantwice as large (35,600 Iam). Similarly, although Costa Rica's population is a little over one-third of Guatemala's, its roadservice index (11.1 km of roads per '000 persons) is many times higher than Guatemala's (1.2 km of roads per '000persons). The situation is particularly serious in the rural areas where, for example, the 12 municipalities in the pilot projecthave only 0.8 km of classified roads per '000 persons, all of which are in poor condition and largely impassable during therainy season.

Poor condition of road network: The Government, with the assistance of the Bank (ongoing Loan 3002-GU) and otherdonors, has been working to eliminate the rehabilitation backlog on the country's main and secondary road networks. Todate, considerable progress has been made in this regard. Starting with a relatively low 25 km of completed roadrehabilitation in 1995, the Government has taken steps to increase the completed kms to 45 in 1996 and most likely to about100 in 1997. However, a significant part (5 8%) of the main and secondary road network is still in need of rehabilitation.Consequently, transport costs remain high and service unreliable on large parts of the system. In a country with


mountainous terrain, long inter-city distances and no economic alternatives to road transport for most freight and passengertraffic, the road infrastructure is of major importance for growth and sustainable development. The proposed project wouldhelp eliminate about 15% of the current backlog in rehabilitation.

Multiple agencies and unclear responsibilities in rural roads: The rural roads sub-sector is characterized by a large numberof financing and implementing agencies, many of whom apply different standards for the same type of road. The outcome isan array of ad hoc, often insustainable interventions. Inadequate rural road access makes it difficult to deliver education,health, and other public services to the rural population, and constitutes a major disincentive to the production of surpluscrops, increase in rural productivity and incomes. The Government's plan to improve the administration of rural roadsentails the decentralization of several DGC services, the gradual transfer of some of these functions to local governments andthe strengthening of their capacity to effectively assume these additional responsibilities.

Main roads strategy exists but a straterv for rural roads is lacking: Guatemala's strategy for the entire road sector iscontained in the "Plan Maestro Nacional de Transporte" (PMNT) which was prepared with the Bank's assistance underLoan 3002-GU. Based on the PMNT, DGC prepared a four-year investment program (1997-2000) for the road sector,identifying key investments, maintenance needs and funding sources. The program supports (i) the decentralization of themanagement of the road network; (ii) the reorganization of MCTOPV and, more specifically, of DGC; (iii) increasedinvolvement of the private sector, particularly in road maintenance activities; (iv) the improvement of the road networkthrough the rehabilitation of 2,000 km of main and secondary roads and the construction and rehabilitation of 1,000 km ofrural roads; and (v) the implementation of a road maintenance program to cover the periodic and routine maintenance of1,000 km of rural roads. The PMNT however, does not address the many problems which affect the rural roads sub-sector.

7. Sector issues to be addressed by the project and strategic choices:The major issues that will be addressed under the project are:

(i) Strengthenmng capacity to administer and maintain rural roads: The country's capacity for administering and maintainingrural roads will be strengthened through the knowledge gained from the pilot component and the replicability of successfulapproaches, and from the formulation and implementation of a national rural roads and transport strategy. TheGovernment's plan to improve the administration of roads entails the transfer of responsibilities to local governments and thestrengthening of local government's capacity to carry out those responsibilities.

(ii) Imnproving aencv coordination: Particularly in the case of rural roads, the project will, through the support to thedevelopment of a national strategy for rural roads and transport, contribute to a more coherent set-up for the managementand financing of rural roads which would also bring increased coordination among donors and agencies in the rural roadssector.

(iii) Reducing transport costs : The current high transport costs in some key corridors will be reduced by the roadrehabilitation program. In addition, the use of ICB procedures under Loan 3002-GU has helped to reduce construction costson the main roads. For rural roads, the proposed procedures, technologies, and selection criteria will be used to promote costsavings.

(iv) Improving maintenance management and funding: The further decentralization of DGC, the expansion of contractmaintenance and the implementation of the road fund would continue to improve efficiency in the sector. However, while theroad fund is a more reliable source of funding, a significant amount of work remains to be done to establish procedures forpromoting least cost maintenance works and for long term sustainability of the fund itself.

(v) Improving accessibility: The pilot project will support improved road access in the ZONAPAZ Region.

Project Appraisal Document Page 7Country: Guatemala Project Tile: Rural and Main Roads Project

8. Project alternatives considered and reasons for rejection:(i) Smaller main and secondary road rehabilitation/improvement component. This was rejected as (i) rehabilitation of maincorridors (CAI - Interamerican Highway) is urgently required to prevent further deterioration and higher subsequentreconstruction costs; and (ii) MCTOPV's expenditure priority analysis, which was based on the recommendations of thePlan Maestro Nacional de Transporte (PMNT) and the economic studies (including Bank's HDM-II model) of thesubprojects to be financed under the loan, indicate the very substantial returns to investments m the type of rehabilitation andimprovement works proposed.

(ii) Lareer rural roads component. This was rejected in view of the fact that a strategy needs to be developed for rural roadsand transport. Although decentralization of responsibilities for administering and maintaining such roads makes sense, giventhe limited experience to date in Guatemala, it was decided instead to implement a pilot component in one of the departmentsin ZONAPAZ to inter alia develop such a strategy and to test imnovative approaches for the administration and maintenanceof rural roads. The rural road investments to be carried out in the context of the pilot project will be selected from amongsta large number of alternatives based on various economic and social criteria.

9. Major related projects financed by the Bank and/ or other development agencies (ongoing and planned).

Latest Form 590 Ratings:Sector issue Project IP DO

Bank-financedRehabilitation of Primary and Secondary Roads Secondary and Regional Roads Project S S

(Loan 3002-GU; US$25.0 M)Community Development for Peace Reconstruction and Community

Development ProjectOther development agenciesRoad Rehabilitation/Modernization 1DB (US$ 100 M)Road Construction/Rehabilitation CABEI (US$ 65 M)Rural Roads Rehabilitation KFW (US$ 7 M)

10. Lessons learned and reflected in the project design:Bankwide experience with rural roads development and maintenance has shown that the principal problems in achievingsustainable results have been: (i) institutional weaknesses, especially at sub-national levels of govermment; (ii) inadequatefunding coupled with unreliable and untimely budgetary releases; (in) excessive delays in the execution of works; (iv) lackof a firm national framework or strategy for rural roads, resulting in dispersed efforts, piecemeal interventions andinsufficient attention to institutional and financial refonn; (v) low priority accorded to road maintenance needs; and (vi)inadequate monitoring and evaluation of results. These lessons have been taken into account in the design of the rural roadscomponent of this project. Sub-national government capacity would be developed and strengthened under the pilot projectwith the participation of INFOM, and arrangements put in place to involve the private sector in areas where localgoverunent capacity is constrained. Cost-sharing arrangements for funding rural roads would be identified to increasefunding for maintenance. Project implementation in general is expected to improve since DGC has acquired experienceunder the ongoing roads loan (3002-U) with the use of Standard Bidding Documents (SBDs). Sector coordination wouldbe improved through the development of the national rural roads and transport strategy with the participation of INFOM andthe DGC. The need and importance of road maintenance would be emphasized through the implementation of the PilotProject and arrangements would be put in place to carry out maintenance activities on a sustainable basis. Finally,systematic monitoring and evaluation procedures have been included in the project.

Bank experience in Guatemala with roads projects has shown that the principal problems have been related to: (i) longeffectiveness delays; (ii) frequent changes of project coordinators; and (iii) procurement. These lessons have been taken intoaccount in the design of this project. The project includes a minimum number of conditions for effectiveness which wereagreed during negotiations; the integration of the project coordination unit under the Planning Division of DGC ensures

Project Appraisal Document Page 8Country Guatemala Project itle: Rural and Main Roads Project

continuity in the project coordination activities even if personnel changes occur; and, as mentioned earlier, the experience ofDGC with Bank SBDs will minimize procurement related problems during project implementation.

1 1. Indications of borrower commitment and ownership:Rural road development constitutes a major part of the Government's strategy for raising the living standards of the ruralpoor to comply with the targets contained in the Peace Accords signed in December 1996, which call for expenditures inrural infiastructure, including roads, in the amount of US$50 million annually over the period 1997-2000.The Borrower has prepared a comprehensive road investment program for the period 1997-2000, which includes therehabilitation of roads that will be financed under the proposed project, as well as others that are, or will be, financed byother agencies (IDB, CABEI) or by the Govermnent. Since the time of the first CPPR meeting held with the currentGovernment in March 1996, it expressed its commitment to include infrastructure investments in the ZONAPAZ Region. Tocarry out this program, the Government has increased its funding for road improvement. The Bank has also received strongexpressions of support from mnayors and other local government authorities in San Marcos, as well as from highly respectedrepresentatives of the local indigenous communities who have confirmed the importance of the project to them and theirdesire that implementation start as soon as possible.

12. Value added of Bank support:(i) The Bank has supported the development of the Guatemalan road sector for a number of years and has maintained animportant policy dialogue on the development and maintenance of the sector. Given the new challenges facing theGovernment in creating capacity to administer and maintain its rural roads, the Bank is well placed to assist these efforts,because of its considerable worldwide experience in this area.

(ii) The Bank was instrumental in focusing DGC's attention on the advantages of contracting out maintenance and ofincreasing maintenance funding on a sustainable basis. Bank experience with the design and implementation of road fundswill be useful in strengthening the maintenance funding arrangements now in place in Guatemala.

(iii) Among the various donors supporting the peace process in Guatemala, the Bank will be especially active in theDepartment of San Marcos (other donors are taking the lead elsewhere in the ZONAPAZ). The Bank's various activities inSan Marcos should provide a good basis for understanding the specific development issues and political economy of thatarea, and for offering effective implementation support.

Block 3: Summary Project Assessments (Detailed assessments are in the project file. See Annex 8)13. Economic Assessment (see Annex 4 for statistical tables):Rural Roads: The rural roads component will address the rehabilitation and maintenance requirements of three classes ofroads in rural areas: (i) national roads; (ii) departmental roads; and (iii) municipal and community roads. The first class ofroads was subjected to standard cost-benefit analysis. Under the project, multi-criteria analysis will be applied for selectionand justification of interventions on road classes (ii) and (iii) coupled with a strong element of consultation and localdecision-making, as well as cost-sharing arrangements.

Main and Secondary Roads: All the proposed works on the main and secondary systems were selected from the PMNT'srecommendations and subjected to a cost-benefit analysis, using the Bank's BDM-HI model, that is summarized in Annex4. All of the proposed rehabilitation works have satisfactory rates of return. The ERRs range from 24.4% to 51.8% withan overall weighted average rate of return of 29.3% as summarized below:

Links Length (Km) ERR(%o)

CAOlW:Cuatro Caminos -La Mesilla 154 28.0CAOlE: Don Justo - Desvio a Santa Elena Barilla 8 51.8

Project Appraisal Document Page 9Country: Guatemela Project Tile: Rural and Main Roads Project

RN12: El Monumento - Tacana - Tejutla 91 29.9RDESC52: Entronque CA09S - San Vicente Pacaya 8 24.4

Total: 261 29.3

Main assumptions:Traffic Growth: 5% p.a., consistent with present trends on the main and secondary networks but which may proveconservative, given the volume of traffic that could be generated from the road improvements.Vehicle Operating Costs (VOC): VOC with and without the road improvements are derived using the deterioration profilesfrom the HDM-l model, as calibrated for Guatemala.Maintenance: Adequate penodic and routine maintenance expenditures are included in the ERR calculations. Maintenanceactivities will be funded through the Road Fund.Economic Prices: All prices exclude taxes and duties. Given the degree of trade openness of the economy, no shadow pricesor exchange rate adjustment factors have been used.

Risk and Sensitivity Analysis: Standard Sensitivity test results show that the economic returns are robust, with the IRRremaining in the acceptable range.

Distributional impacts: Predominantly poor agncultural communities would be among the principal beneficiaries of therural road improvements. Most studies indicate that the income levels of these communities are typically well belownational averages. Furthermore, some of the indigenous areas to be served can be classified as being extremely poor asdescribed in the Bank's Poverty Report (Rep. No. 12313-GU) of April 17, 1995. For the main roads, the country as awhole would benefit from the reduced vehicle operating costs and consumption of imported spare parts. The reduced costswould also help to make Guatemala's exports more competitive, especially for low profit margin crops such as coffee andbananas, and would benefit both the urban and rural areas.

Fiscal impacts: The project's annual investment and recurrent costs represent very small shares of Government investments(< 0.5%/o); and of revenues from the transport sector. Similarly, future maintenance needs should not represent a fiscalburden because this activity will be funded from the Road Maintenance Fund.

14. Financial Assessment (see Annex 5):Financing plan: The project's financing plan is shown on the cover sheet. The proposed loan of US$66.7 million wouldcover 49% of project cost; OECF cofinancing would provide 36%, and the Govermnent would fund the balance.

Financial mana=ement and controls: The capacity exists at both INFOM and DGC for the preparation of adequate projectaccounts and financial reports. These will be audited by an independent auditor and sent to the Bank by May 31 each year.

Project cost: (details in Annex 3). Road rehabilitation represents the largest share of costs, and is based on detailed andpreliminary designs for main roads and indicative cost estimates for rural roads. Technical assistance amounts to about12% of project costs. The Government of Guatemala has agreed at negotiations to provide timely counterpart funds forproject implementation. Agreement has also been reached on maintenance funding arrangements for the rehabilitated roads.

15. Technical Assessment:Road construction, improvement and rehabilitation works on the main and secondary road networks are not technicallycomplex. The technical criteria agreed with MCTOPV for similar works under the ongoing Bank Loan 3002-GU will beused for the execution of these subprojects. For the rural roads component, design and work execution standards are underpreparation and will be included in the Operations Manual. Procedures are also in place for the efficient selection ofcontractors and consultants to implement the works. The use of the Standard Bidding Documents should help to minimizedelays in procurement.

16. Institutional Assessment:INFOM has undergone profound restructuring over the last 18 months, to strengthen its role as facilitator of local

Ptoject Appraisal Document Page 10Country: Guatemala Project Title: Rural and Main Roads Project

government initiatives. INFOM is a self supporting agency, with experienc as a financial intermediary and executor ofmultilateral agency-financed projects. Its principal functions within the project would be to assume a lead role in thedevelopment of the national rural roads and transport strategy and serve as a conduit of funds and overall coordinator of themunicipal and community roads sub-component of the pilot project. INFOM is the lead agency in the water sector and hasextensive experience with the management of external funds. Its main strength lies in its well developed financialmanagement system and in the commitment of its management to reform. Its weaknesses include the potential remnants ofan inefficient civil service bureaucracy and a top-down approach to institutional development. Technical assistance wouldbe provided to INFOM at headquarters to strengthen the capacity of its recently established unit for external assistance.The technical assistance will also strengthen the INFOM regional office in San Marcos to adequately develop its municipalcapacity building program as well as its ability to support and supervise the association and its private sector technical unit.

MCTOPV's capacity to rehabilitate the country's main and secondary road system has been steadily improving. The PCUresponsible for coordinating project implementation has been strengthened and procurement procedures have improved. ThePCU will be further strengthened by the provision of consultant services under the project to assist with projectimplementation. On the other hand, MCTOPV's capacity to implement rural road projects through the zonas viales needs tobe improved and support would be provided under the project to achieve that. In addition, MCTOPV's capacity for policyformulation needs to be strengthened, and TA would be provided for this. These technical assistance requirements have beenidentified and the termns of reference for the appropriate technical assistance and studies are in the project file. Theinstitutional capacity of the municipalities under the pilot project was found to be weak. Therefore, TA and training wouldbe provided as an integral part of the pilot project to build up the capacity to assume the responsibilities of administering therural road network that would be entrusted to them.

17. Social Assessment:The Government has placed high priority on the improvement of rural infrastructure as a means for meeting the challengesof the Peace Accords. The Department of San Marcos, located in the western part of the ZONAPAZ Region, is one of thepoorest and most remote departments of Guatemala, and has been selected by the Bank for several interventions andextensive analyses, including a social assessment, and demographic maps of much of the Department have been prepared.These studies form the basis for the justification of the proposed Reconstruction and Community Development Project.

The Rural and Main Roads Project will complement investments and improvements planned in ongoing and proposedprojects in San Marcos. The project will improve road access to the ZONAPAZ Region, enhancing the integrationpossibilities of the residents of that region to the country bringing with it improved social stability, in addition to promotingeconomic development. As part of project preparation, numerous meetings were held with the affected population,particularly those benefiting from the Pilot component, to inform and obtain feedback on the proposed project.Inplementation will also include a heavily participatory approach; details of consultations and participation to date, and asenvisaged during implementation and operation, are provided in Section 19 below.

18. Environmental Assessment: Environmental [] A [x ] B [ CCategory

In the case of the rural roads component, the proposed works will generally remain on existing road alignments andtherefore, the risks of additional negative impacts linked with human activities (i.e., motorization, deforestation, etc.) areminimal. In the case of any extensive paving or widening, environmental screening will be carried out and appropriateenvironmental guidelines will be part of all bidding documents and contracts. Supervision of the compliance with theguidelines will be included in the terms of reference of the consulting firm responsible for the supervision of the works.

The project will also assist DGC and the municipalities in developing and implementing sound strategies for environmentalmanagement of road projects, particularly rural roads. The strategy will include guidelines on: (i) procedures forenvironmental screening of projects at the identification stage; (ii) identification of environmental damages and design ofcorrective or mitigating measures; and (iii) technical specifications for work execution, with clear provisions to ensure that

Project Appraisal Document Page 11Country Guatemala Project Title: Rural and Main Roads Prqect

work methods are environmentally sound.

The main and secondary road subprojects involve largely road rehabilitation and improvements within existing rights-of wayand are expected to produce minimal environmental impacts and no resettlement actions. Assessed environmental mitigationactions required have been included in the project costs. Although no resettlement actions are envisaged as a result ofproject implementation, the Government, in keeping with Bank procedures, has developed a resettement policy to provideappropriate compensation to families or individuals who may be affected by any of the subprojects financed under the pilotDepartmental and Municipal Rural Roads subprojects. Finally, for cultural artifacts, while the probability of discovery isvery low, the SBDs for works would contain appropriate provisions to ensure that contractors comply with Government andBank procedures when and if needed.

19. Participatory Approach: Identification/Preparation Implementation OperationBeneficiaries/community groups COL COL COLInternediary NGOs IS/CON IS/CON IS/CONMunicipalities COL COL COLPrivate sector CON COL COLLegislators IS IS ISPopulation affected by resettlement CON COL COLOther Donors IS/CON IS/CON IS/CON

Consultation strategies being developed as part of the pilot component include early involvement of beneficiaries as part ofthe subproject selection criteria. Informed participation of indigenous peoples will be ensured and consultation withindigenous leaders has already been carried out. In line with the agreements reached in March, 1997 by the Governmentand the Bank regarding the Operational Directive on Indigenous Peoples, the project preparation team held meetings withthe Governor and mayors of the Department of San Marcos and the Consejos de Desarrollo to discuss the proposedcomponents to be financed under the project in that Department. So far, four meetings have been held on: (i) April 24, 1997with the participation of MCTOPV, the Govemor of San Marcos, the Consejo Regional and the Bank; (ii) April 30, 1997with the participation of the Governor of San Marcos, SEGEPLAN, the histituto de Fomento Municipal (INFOM), 11mayors and PHRD-funded consultants who worked on project preparation; (iii) May 9, 1997 with the participation ofmayors and the PHRD-funded consultants; and iv) July 9, 1997 with the association in Tejutla. Prior to the lastconsultation, road inventories and surveys had been carried out to determine inter alia the size of the road network and theneeds of the municipalities being considered for the pilot component. A two-day workshop was held in November 1997with the association, community representatives, and other stakeholders to work out details of the institutional and financialarrangements of the pilot municipal road component and the selection criteria to be implemented for choosing the municipalroads to be included under the pilot project. Additional community based workshops and consultations will be carried out inaccordance with the parameters of the agreements mentioned herein.

20. Sustainability:Implementation of this project would lead to the use of public resources for economically efficient purposes. It would alsoencourage the use of more appropriate road rehabilitation and maintenance technologies, and improve the quality of roadworks. Project implementation would, therefore, lead to designing and putting into practice better road maintenance andmanagement techniques for all road link classifications. In the case of rural roads, the sustainability issue would beaddressed as part of the implementation of the Pilot component which will ensure capacity at the local level and explorealternative cost-sharing mechanisms for municipal rural roads in a sustainable way. The pilot project has been designed to:(i) cover a specific geographical area to facilitate its design and supervision; (ii) include financing for technical assistanceand training to local governments, contractors and community groups so that their capacity to carry out road improvementand maintenance activities can be enhanced; (iii) include financing for the strengthening of the local institutionalarrangements; and (iv) foster local ownership by including inter alia the input of local communities in the criteria to beadopted for the selection of the rural roads to be incorporated in the pilot project. Taken together, this is a sustainablepackage as over time it would ensure that investments are properly maintained.


21. Critical Risks (see fourth column of Annex 1):Risk

Risk Rating Risk Minimization MeasureProject Outputs to DevelopmentObjectives

- Government policy with regard to the M - Government (INFOM) has agreed at negotiations to prepare andmanagement of rural roads is not promptly approve the mral roads strategy by December 31, 1999, and toformulated prepare an action plan for its implementation

- Local capacity to manage rural roads is M/H -Project will provide support and carry out a Pilot component tonot available or develops only slowly strengthen local capacity

- Local contractors/communities are unable M - Provide training to enhance the capabilities of contractors.to participate in the road rehabilitation / Facilitate contracting arrangements so that works can be contractedmaintenance program directly for small projects and the contracts are processed locally

Project Components to Outputs

- Counterpart funds are scarce or not M -Bank supervision mission to help ensure budgetary allocation ofreleased in a timely manner required counterpart funds and their timely release.

- Procurement problems delay project M - Experience of DGC with Bank procurement guidelines and SBDsimplementation will minimize risk. A seminar on procurement will be held as part of

project launching

- Difficulties develop in awarding small M - Procedures being developed for the implementation of the roadcontracts at the regional level and fund may help in developing local contracting practices and inprocessing payments promptly speeding up payments

- INFOM fails to progress in its reform M - INFOM's main tasks under the project are restrained to activitiesefforts. in which it has a proven track record and which are at the heart of

its business strategy, i.e., stakes are high for INFOM to pursuereform and efficiency in these areas.

- INFOM fails to provide adequate M - The private sector technical service unit will have professionalcapacity building support to the association staff financed by the association and the project. These staff will beand member associations. able to carry out their assigned functions without direct reliance on

INFOM.

- There are excessive delays in obtaining M - During negotiations the Bank was assured of the viability ofthe Association's legal status. obtaining the Association's legal status

- Political changes will increase risk of the H - In order to ensure constituency commitment to the institutionalassociation member municipalities failing arrangements, consultations have been broad-based and workshopsto provide funding for private sector included a wider range of stakeholders beyond the elected mayors.technical unit and counterpart funding.

P*ojc App- Dout Page 13Cou*rdt Gumtim Projd The: Rual and iM Rad. Prjec

Overall Project Risk MH High, M = Moderate, N = Negligible

22. Possible Controversial As ects: Ncoe

Block 4: Main Loan Conditions23. Effectiveness Conditions(1) Adequate staffing ofthe PCU(2) Approval of Operational Mau als for MCTOPV and INFOM(3) Signing of the Subsidiary Agreent beween the Borrower and INFOM

24. OtherMonitoring, Review and Reporting:

MCIOPV and INFOM will prepare and present to the Bank, not later than 30 days after the conclusion of eachsemester, a report on implemenion progres. MCTOPV, INFOM, and the Bank will conduct a muid4tem review ofthe project not later than May 31, 2001.

Disbursement Condition:No payments will be made towards niucipal roads rehabilitation and maintenance works unless: the Association ofMunicipalities of San Marcos has been established with functions and responsibilities satisfactory to the Bank; theAssociation Agreanent betwem INFOM and the Association has been executed; a framework, acceptable to theBank, to carfy out Pilot Mumcipal Rual Roads subprojects has been established by the Association; the Associationhas created its technical service unit in a mamer and with functions acceptable to the Bank; and the correspondingsubproject has met the criteria set forth in the INFOM Operational Manual.

Block 5: Compliace with Bank Policies[xl This podect complies with all applicable Bank policies.

[signature]Task Manager: o Ruan Country Manager: Donna Dowsett-Coirolo

Annex 1Guatemala Rural and Main Roads Project

Project Design Summary

Narrative Sumnmary Key Performance Indicators' Monitoring and Supervision Critical AssumptionsCAS Objective - CAS Objective to Bank

Mission1. Integrating poor/rural 1.1 rural communities in the 1.1 periodic surveys on - favorable conditions incommunities with large Pilot component with an satisfaction with transport project area includingindigenous populations into estimated total population of services and road sustainabiLity of Peacethe modern economy and 300,000 will have better infrastructure improvements Agreementsaccelerating the growth access to markets and public - Government provides fullprocess. services in pilot area support to the project and

1.2 maintenance works on the 1.2 DGC, INFOM and meets its rural roadsrehabilitated network under municipal statistics. obligation including itsthe pilot component will commitment to empowergenerate 200 permanent work municipalities to look after itsplaces road network

- favorable macro-economicconditions

Project Development (Development Objectives toObjectives CAS Objective)1. to support the long term At project completion 1.1 Performance audits of the - the Central Governmentprocess of building up the 1.1 pilot component's institutional arrangements and continues to recognize thatcountry's institutional capacity Technical Unit is fully semiannual reports on project efficient transportation isto administer and maintain operational and capable of implementation prepared by essential to poverty reductionrural roads; carrying out its functions of DGC and INFOM - Local govermments and

planning and monitoring communities developinvestments in the road ownership of the project andnetwork satisfactorily 1.2 monitoring of procurement fully support it1.2 procurement procedures actions - municipalities adopt afor municipalities are "maintenance culture" andstreamlined. 1.3 consultants' report(s) and assume their responsibility1.3 the functional and semiannual project for sustainable maintenancejurisdictional classification of implementation reports - adequate funding of roadroads is completed and programimplemented 1.4 INFOM's and pilot project - expeditious transfer of1.4 the funding mechanism for consultants' reports on the resources by centralmaintenance for the roads local road fund and DGC's Government to municipalitiesunder the pilot project is reports on the national road - favorable natural conditionsdeveloped and implemented fund in project area

1.5 consultants' reports and1.5 more than 10 local periodic surveys of contractorscontractors and consultants areparticipating in theimplementation of all projectcomponents 1.6 consultant's reports and1.6 more than 10 semiannual projectmicroenterprises are implementation reportsparticipating in routine prepared by INFOMmaintenance activities on thepilot project roads

2. Improving the rural road At project completion.. 2.1 Surveys, road conditionsystem in the ZONAPAZ 2.1 250 km of the national I inventories on all roads under I

Baseline and targeted values should be shown, with the latter divided into values expected at mid-tern, end of project and full impact.

Region (where the departmental and 375 km of the project and roadGovernment is focusing a the municipal road networks in completion reportsmajor post-onflict the Department of San Marcosdevelopment effort), critical to will be rehabilitated andproviding access to social and subject to a sustainableother public services and maintenance;fostering economic 2.2 100% of the cabeceras 2.2 works completed on alldevelopment through municipales in the pilot project roads under the project (roadintegration to markets. area will be interconnected by completion reports)

an improved road network;2.3 transport costs for 2.3 interviews with transportagricultural produce will operators and consumerdecrease by at least 10% from surveys in a sample of roads1997 level;2.4 passenger transport costs 2.4 idemwill decrease by at least 10%from 1997 level;

3. to continue the At project completion 3.1 road completion reportsimprovement of the main and 3.1 370 km of main and and semiannual projectsecondary road networks. secondary roads would have implementation reports

been rehabilitated/improved3.2 maintenance funding for 3.2 road fund annualthe rehabilitated roads is maintenance programsecured3.3 the various TA and studies 3.3 consultant's reports andunder the project are semiannual projectcompleted implementation reports3.4 the new functional 3.4 idemclassification of the roadnetwork is fully implemented

Project Outputs (Outputs to DevelopmentObjectives)

1. Improved rural and main At mid-term project review 1.1 consultant's reports and - Government policy withroads administration at the 1.1 work by the consultants to semiannual project regard to the management ofcentral and local levels develop the government's rural implementation reports rural roads is clearly

roads and transport strategy formulatedare well advanced and the pilot - the local constructionproject's technical unit has industry develops capacity tobeen established at the undertake the works underassociation and the TA to the projectstrengthen INFOM's capacity - communities willing toto administer municipal roads participate and commitis underway resources1.2 procurement procedures to 1.2 audit of procurement - coordination with othercontract local works have been actions programs enhances fundingtested possibilities for further1.3 consultants are working on 1.3 consultant's reports and improvements to the ruralthe new road classification for semiannual project roads and transport servicesthe entire network implementation reports1.4 work is underway to design 1.4 idemand implement a sustainablemaintenance fundingmechanism for municipalroads1.5 consultants are working on 1.5 idem

_ the various TA and studies to

improve the planning andadministration of the mainroad network includingmaintenance funding

At project completion1.1 Government strategy for 1.1 Government statement onmrual roads and transport has the adoption of the rural roadsbeen completed and adopted by strategy and consultant'sthe Government and the TA to reports on the implementationthe association and INFOM of the various TAhave been completed andimplemented1.2 procurement procedures 1.2 production of standardfor municipalities have been procurement documentsfully tested and adopted by themunicipalities under the pilotproject1.3 the new national road 1.3 production of documentclassification system has been and maps showing new roadcompleted and adopted for all classificationroad types1.4 work on sustainable road 1.4 consultant's report andmaintenance mechanisms at semiannual projectthe municipal level has been implementation reportscompleted and actions areunderway for its adoption andthe national road fund hasbeen strengthened1.5 TA and studies to improve 1.5 idemthe planning andadministration of the main andsecondary road networks arecompleted and fullimplementation is underway

2. Increased rual road access At mid-term review 2.1 road completion reportsand reduce transport costs in 2.1 250 km of rural roads and semiannual projectthe ZONAPAZ area in general (national, departmental and implementation reportsand in the pilot project area in municipal) rehabilitated/particular upgraded in the ZONAPAZ

Region2.1 idem

At project completion2.1 625 km of rural roadsrehabilitated/ upgraded in theZONAPAZ Region

3. Improved condition of main At mid-term review 3.1 idemand secondary roads 3.1 150 km of main and

secondary roads rehabilitatedand/or upgraded by the project

At project completion 3.1 idem3.1 370 km of main andsecondary roads rehabilitatedand/or upgraded by the project _

4. Increased private sector At mid-term review 4.1 semiannual projectinvolvement in the road sector 4.1 5 contracts have been let to implementation reports and

local contractors and 5 road surveys of contractormaintenance microenterprises development and performanceare being established in thepilot project area

At project completion 4.1 idem4.1 10 contracts were let tolocal contractors and 10microenterprises wereestablished in the pilot projectarea

Project Components (Components to Outputs)PART A - RURAL ROADS Assumptions1. Government's Rural Roads 1.1 Government's Rural Roads Project Implementation Plan - Counterpart funds areand Transport Strategy Strategy (US$0.5 M) (PIP) developed by the sufficient

Borrower and agreed to by the - Political commitment toBank implement institutional

2. Pilot Project 2.1 Pilot Project (US$29.7 M) changes continues2.1.1 Municipal & Community - No major procurementRoads (US$8.5 M) problems delay project2.1.2 DGC Rural Roads implementation(US$19.2 M) - No major difficulties in the2.1.3 Engineering Designs, awarding of small contractsTA, Equipment (US$2.0 M) at the regional level and

processing paymentsPART B - MAIN AND promptlySECONDARY ROADS - Political changes at the3. Road Rehabilitation and 3.1 Road Rehabilitation and municipal level do not affectImprovement Improvement (US$75.4 M) project implementation.

3.1.1 IBRD Financed(US$29.5 M)3.1.2 OECF Financed(US$45.9 M)

4. Engineering Designs, 4.1 Engineering Design,Supervision, TAs and other Supervision, TAs and OtherStudies Studies (US$ 12.1 M)

5. Equipment 5.1 Equipment (US$1.0 M)

6. Contingencies 6.1 Contingencies (US$17.8

TOTAL COST US$ 136.5 M

Annex 2

Guatemala Rural and Main Roads ProjectDetailed Project Description

PART A - RURAL ROADS

A.1 - National Rural Roads and Transport Strategv - US$ 0.5 million

The rural roads sub-sector has been characterized by multiple actors and a lack of standards and sustainable maintenancearrangements. Each actor has its own investment criteria and applies different rules for the same type of roads. Inventoriesin the Department of San Marcos indicate that there may be three times as many rural roads in Guatemala than arecurrently classified under DGC responsibility. There is no coherent set-up for maintenance of rural roads--rural roads arebuilt and rehabilitated, but are not maintained. This waste of resources poses a huge cost to the country, which isdisproportionately born by the poorest and weakest segments of society. This component would finance the support todevelopment of a national rural roads and transport strategy. The current national transport masterplan is sound as far as itgoes, but it refers only in passing to rural roads and transport. The national Municipal Development Institute (INFOM),with support from MCTOPV/DGC, will assume the lead role in developing the strategy using a participatory process,involving stakeholder representatives in working groups and workshops (e.g., the national association of municipalities, andrepresentatives of transport service providers, farmers group, the various funds, NGOs and donors). The strategydevelopment process will draw on past and current experiences in the rural roads sub-sector and directly build on and feedinto the pilot municipal rural roads component of the project. Technical assistance would be provided to INFOM and fundsmade available for studies and workshops.

A. 2 - Rural Roads Pilot Comronent- US$ 29.7 million

The pilot will be located in the Department of San Marcos, which is in the far western part of the ZONAPAZ Region.Project interventions focus on the area encompassing twelve municipalities in the Altiplano Marquense. The Altiplano isone of the poorest areas of Guatemala, and it was seriously affected during the years of civil conflict. Targets contained inthe recently signed Peace Accords, call for expenditures in rural infrastructure, including roads, in the amount of US$50million annually over the period 1997-2000. The proposed project would help to ensure that these planned expenditures, atleast in so far as rural roads are concemed, actually materialize. The area has reasonably high agricultural potential for theproduction of wheat, maize, potatoes, broccoli and temperate fruits.

The overall objective of the pilot component is to improve access by rural people to economic and social services. The pilotwill design, try out and gradually implement institutional arrangements for sustainable maintenance of the various levels ofthe rural road network in San Marcos. The institutional arrangements will involve DGC, the INFOM, municipalities,communities and the private sector. DGC is, and will continue to be, responsible for the national and departmental roads(220 km in The Altiplano). The municipalities in San Marcos, together with individual communities, will assume graduallythe responsibility for the remaining 1,100 km of the network.

The pilot has three distinct sub-components:

(i) rehabilitation of the national and departmental routes in the Altiplano Marquense;(ii) testing of new technologies for cost-effective strengthening of the surface of rural roads;(iii) piloting of a new institutional framework for management and financing of municipal rural roads. This

includes the support to the development of local contractors for the execution of works, and to the privateconsulting industry for management of municipal roads.

Sub-components (i) and (ii) will be the direct responsibility of DGC, while INFOM will be the national level agencycharged with sub-component (iii) with the participation of the Association of Municipalities.

Sub-Component (i): Rehabilitation of National and Departmental Routes in the Altiplano Marquense

The Altiplano has one national route (RN12) which runs from the departmental capital in the east (San Marcos) towards thenorthern part of the Department of San Marcos (Tacana), the Mexican border and the southern part of the Department ofHuehuetenango (Tectitan). This 91 km road, including the branch off to Tejutla, will be fully rehabilitated. It carries anaverage daily traffic (ADT) ranging from 350 vehicles near San Marcos, 250 at Tejutla and about 100 near Tacana. Thepopulation served by the road is estimated at 350,000 inhabitants most of whom are poor or very poor. The rehabilitationand improvement of the road will reduce travel time (it now takes 7 hours by bus during the dry season to go from SanMarcos to Tectitan) and ensure adequate all-weather access to the area. Additional road links will be identified from the160 km of departmental roads during the first and second year of the project. Most of these roads are in fair to poorcondition. In order for the municipalities to be able to focus on their legislated responsibility, which is the municipal roadsnetwork, the departmental network into which many of the municipal roads feed, must be in passable condition. About 50km of the departmental roads will be improved using new technologies (see component ii below). The remaining 110 km ofdepartmental roads will be rehabilitated to gravel standard. The project will also finance consultant services for thepreparation of final engineering designs of priority subprojects, to be identified during the first year of projectimplementation, and for the supervision of the works to be financed under this component.

Sub-Component (ii): New Technologies for Cost-effective Strengthening of Rural Roads

In the Altiplano, annual precipitation is very high. The rainfall causes great stress to all roads, but particularly to the earthand gravel roads in the hilly areas. DGC and the municipalities believe that surfacing of rural roads with low cost materialscould be more cost-efficient than gravelling which is the current method of rural road construction. The pilot willexperiment with the use of two to three technologies on 50 km of departmental roads at the cost of about US$ 50,000 to$75,000 per km. The performance, strength, maintenance requiremeits and costs of these technologies (materials) will beclosely monitored over time and will assist the Guatemalan road agencies to determine optimal technology choice in similarareas.

Sub-Component (iii): Institutional Framework for Municipal and Community Roads

'he centerpiece of the pilot project is the creation of sustainable arrangements for management and financing of local roadsin rural areas. This sub-component will introduce an innovative institutional framework for maintaining municipal ruralroads in the Altiplano of the Department of San Marcos, consistent with the govermment's policy of decentralization of localservice provision to municipalities.

There are twelve municipalities in the Altiplano Marquense, and the average municipal rural road network is 90 km(between 25 km and 200 km). These networks are too small to justify the build-up of technical capacity in eachmunicipality to manage roads. The municipalities therefore have grouped together in order to achieve scale and be able tocost-efficiently provide road infrastructure. In the first half of 1997, the twelve municipalities of the Altiplano agreed toform an association (the association) to pursue development of the area by seeking solutions to issues of common interest,such as roads. The association is in the final stages of obtaining its legal status. During a consultative event, the mayors ofthe twelve municipalities decided that this association will constitute the core entity for the management of municipal roadnetwork. This decision was subsequently confirmed by another consultation on July 3, 1997.

The planning, programming and management of municipal roads in the twelve municipalities will be contracted out to theprivate sector through the municipalities' association. The institutional framework for the management of the municipalroads is depicted in Figure 1 (attached). The twelve municipalities which constitute the association will form an assemblyof representatives of each municipality (e.g., mayor or councilor) and of some of the communities. The assembly willappoint an executive board with representatives from both groups. The Board will recommend cost-sharing arrangementsto the assembly, seek and manage funds. The Board will be headed by an Executive Director, appointed by the Assembly.

The Board will contract a private sector finn/unit to provide technical services to the association, and UMAV (UnidadMarquense de Asistencia Vial). UMAV will be responsible to the Board and will be paid directly by the association, i.e., bythe twelve municipalities. UMAV will provide technical advise to the municipalities and assist them in the drawing upmulti-annual maintenance and investment programs. It will also prepare, let and manage road contracts on behalf of themember municipalities and their communities.

INFOM, which is the national level agency in charge of municipal development and training, will serve as advisor to theBoard. DGC, which is the central sector agency for roads, will also be an advisor to the Board, represented through thechief engineer of the Zona Vial as well as a staff from the departmental technical unit (UTD). These advisors will facilitatethe coordination with the Departmental Development Council (el Consejo de Desarrollo Departamental).

UMAV will be constituted by a Guatemalan consulting firm. It is foreseen that replication of this set-up in otherdepartments will create a market for private sector finns in provision of services for the management of municipal roads.During the pilot phase, UMAV will be temporarily strengthened to allow for the setting up of systems and training of localcontractors in the rehabilitation and maintenance of municipal roads. Short-term technmcal assistance will also be providedto lend specialist support to the Board.

INFOM will be the national level agency responsible for the implementation of the component with the participation of theAssociation of Municipalities. The pilot project will provide an opportunity to further assess the suitability of INFOM as anational coordination unit for municipal rural roads. INFOM will assist the municipalities and the association byperforming four important functions:

i. channeling of funds: Bank funds will be transferred to INFOM through a special account to be maintained inthe Central Bank. It will transfer these funds to the road fund account of the association. The Board, with theassistance of the local INFOM office in San Marcos and UMAV, will periodically report to the office in charge ofexternal financing at INFOM;ii. technical assistance: INFOM will provide technical assistance and training to the association in accountingand assist the association in the supervision and monitoring of the UMAV. The DGC coordination unit will assistINFOM and the association in the recruitment of a private sector firm to the UMAV;iii. training: INFOM has long experience in the training of local governments and communities and will workclosely with the twelve municipalities to enhance their capacity to generate local resources, to plan and toeffectively manage their resources. INFOM will also work closely with the association to strengthen themanagement capacity of its Board; andiv. overall component management. INFOM will be the national level agency liaising with the association throughits coordinating unit Unidad Marquense de Asistencia Vial (UMAV). As such, INFOM will among other thingsperiodically provide technical and financial reports to the Bank.

In order to perform the above mentioned functions effectively, INFOM will be strengthened at both the national and locallevel. At the national level, a consultant will be recruited to assist INFOM to strengthen its external finance unit. Theconsultant will play a key role in the setting up of a cost-accounting system for the association and in the production offinancial and technical reports to the Bank. At the local level, INFOM will strengthen its office in San Marcos by recruitingan engineer, and a social worker/trainer. The engineer will monitor the performance of UMAV and liaise with UTD and themunicipalities. The trainer (social worker) will work closely with the individual municipalities and communities to ensurethat there is full understanding of the institutional rules and cost-sharing arrangements and support the municipalities intheir efforts to widen their local resource base.

PART B - MAIN AND SECONDARY ROADS

B.1 - Road Rehabilitation on the Main and Secondary Road Networks -US$ 75.4 million

This component will finance the rehabilitation and improvement of approximately 370 km of main, secondary and tertiaryroads. The component will also finance consulting services for engineering designs, works supervision, technical assistanceand studies and a limited amount of equipment (vehicles and computers for DGC).

The roads to be financed under this component are:

(i) CAlW (Inter-American Highway) Section: Cuatro Caminos-La MesiDa (Mexican Border) (154 km; US$ 25.OM -IBRD financing). This is a two lane section of the Inter-American Highway which crosses the country and connects it toMexico in the north and El Salvador and Honduras in the south. The road passes through the departments ofHuehuetenango and Totonicapan, which are part of the ZONAPAZ region. The average daily traffic (ADT) averages 2200vehicles in the section Cuatro Caminos-Huehuetenango (75 km) and 1800 vehicle in the section Huehuetenango-La Mesilla(78 km). Approximately 36% of the vehicles are trucks and buses. The road has a substandard cross section for this type ofroad (3.0 Mts. lane widths) and some of the sections are in poor condition. An intervention on the entire road length isrequired at this time to prevent further deterioration and higher subsequent reconstruction costs. The proposed works consistof the widening of the traffic lanes (from 3.0 Mts. to 3.6 Mts.), the reinforcement of the pavement structure, theimprovement of shoulders and drainage and the provision of adequate road signs. Because the road will be maintainedwithin the existing right-of-way, no land acquisition or resettlement actions will be necessary.

(ii) CAIW (Inter-American Highway) Section: Chimaltenango-Tecpan (36 Ian; US$ 11.4M OECF financing). This isa two-lane section of the Inter-American Highway connecting Guatemala to Mexico, El Salvador and Honduras. ADTaverages 7,000 vehicles (35% trucks and buses). The road is in poor condition and has a substandard cross-section for thistype of road (3.0 Mts. lane widths). The proposed works consist of the widening of the traffic lanes to 3.6 Mts. and the fullrehabilitation of the entire section. No significant changes to the horizontal and vertical aligmnents are proposed and,therefore, no land acquisition or resettlement actions will be necessary. A proposal exists to add climbing lanes at locationswhere the existing right-of-way allows.

(iii) CAlE (Interamerican Highway) Section: Don Justo-Branch Off to Santa Elena BariDas (8.0 kIn; US3.OM IBRDfinancing). This is a two-lane section of the Inter-American Highway near Guatemala City and serving international trafficbetween Guatemala and El Salvador and Honduras and commuters who reside in Santa Elena Barillas and otherneighboring localities and work in Guatemala City. ADT on this section is approximately 8000 vehicles (30% trucks andbuses). The proposed works consist in the widening of the road to four lanes within the existing right-of-way. Noexpropriation or resettlement actions are required.

(iv) RN7W Section: San Cristobal Verapaz-Sacapulas-Chiantlas (162 kun; US$34.6M; OECF financing). This two-lane earth road located in the heart of the ZONAPAZ Region crosses in an east-west direction the departments of AltaVerapaz, Quiche and Huehuetenango. The rehabilitation and improvement of this project is essential to improve its yearround passability and to integrate the area served by the road with the rest of the country. The proposed subprojectcomplements the road rehabilitation works to be financed by IDB for the north-south roads connecting the RN7W to the restof the road network. The existing road will be rehabilitated and some bridges reconstructed. In order to keep the costs low,the proposed design will maintain much of its current geometric standards including cross sections, the horizontal andvertical alignments.

(v) CA-9S - San Vicente Pacaya (8.0 kIn; US$1.5 M; IBRID financing). This earth road provides access to the town ofSan Vicente de Pacaya (population 10,000) located some 30 kmn to the south of Guatemala City and to the Pacaya Volcanolocated 5 km past the town. The town is a dormitory for people working in Guatemala City. The area surrounding thetown is agricultural with coffee, flowers and vegetables being the main products. The existing road is in poor conditionand its passability becomes a problem during the rainy season. The ADT on the road reaches 300 vehicles. The proposedworks include the rehabilitation and upgrading of the road (surface treatrnent/paving).

B.2 - Consultant Services for Suvervision of Works, Studies and Technical Assistance

The component will also finance consultant services for: (i) the supervision of the works; (ii) the preparation of finalengineering and other studies; and (iii) technical assistance. Terms of Reference for the TA to be financed are in the projectfile.

B.3 - EquiDment

This component will finance a limited amount of equipment (vehicles, computers) to support the normal activity of DGC.

FIGUVRE

MCTOP - MOM - Banco MundialPrograma de Carreteras y Caminos en la Zona Rural

Estructura Operativa del Proyecto Piloto

CONSEJO DBCTVO 1

(Oficina Cenual)lNFOM

Equipo Tecmico emal San Marcos) 7

INFOM .

. ~~~~~~~~~I A

Asociaion de M palidadesdd Altula=o Marouense

2 2 2 2 2 2 2 2 22 2. 20 00 0 0! 0 o 1 2 2 -2 21 4 5 6 7 8 9 0 3 4 6 9

1 COm D:o Por rede d Consejo de DsaoUo Ubano y PuRm de la Rseon VLPridedte del Consejo de Desarrollo Urbano y Rumal del Iecpart nto de San Marcos,Vce Mfiistro del Minisrio de Comunicaciones y Obras Publicas, C=rete de 1NFOM,Secruario Eecuidvo de la Presidencia y dos Alcaldes Representantes dce la Asociacion de Alcaldesdel antipano marquens.

gCodizo Municinio1201 San Marcos i12s TajUmulco1204 CoMirancizlo i2io Tcjutla1205 San Miguel Lxahuacan i=a Ixcbiguani1o1 Concpcioan Tutuapa 1i4 San Jose Ojetenam1207 Ta 1226 Sipacapa1202 Sibinal 1229 San Lorcnzo

Annex 3

Guatemala Rural and Main Roads ProjectEstimated Project Costs (US$ Million)

mn~~.

A.1: Design of Rural Roads and Transport Strategy 0.20 0.30 0.50 0.50 100

A.2: Pilot Component-Rehabilitation and Maintenance 15.25 14.47 29.72 25.46

A.2.1- Civil Works: 13.14 11.65 24.79 20.69* Municipal and Community Roads 3.93 1.68 5.61 4.77 85* National and Departmental Roads 9.21 9.97 19.18 15.92 83

A.2.2- Goods: 0.16 0.92 1.08 0.92* INFOMI the association 0.09 0.49 0.58 0.49 85* DGC's Zona Vial 0.07 0.43 0.50 0.43 85

A.2.3- Consultant Services: 1.47 1.90 3.37 3.37* TA for the association and INFOM 0.87 1.00 1.87 1.87 100. TA for DGC 0.60 0.90 1.50 1.50 100

A.2.4- INFOM's Management Fee 0.48 0.48 0.48 100

B.1 - Road Rehabilitation/Improvement: 38.49 36.91 75.40B.1.1 OECF Financed:

24.33 21.57 45.90* CAlW: Cbimaltenango-Tecpan (36 kIn) 6.02 5.33 11.35* RN7W: San Cristobal Verapaz-Chiantlas(161.8 kIn) 18.31 16.24 34.55

B.1.2 IBRD Financed: 14.16 15.34 29.50 24.49* CAIW: Cuatro Caminos - La Mesilla (158 kn) 12.00 13.00 25.00 20.75 83* CA9S San Vicente Pacaya (7.5 kn) 0.72 0.78 1.50 1.25 83* CAIE : Don Justo Desvio Santa Elena Barrillas (8.2 kIn) 1.44 1.56 3.00 2.49 83

B.2 Goods:a Equipment for DGC Headquarters 0.15 0.85 1.00 0.85 85

B.3 Consultant Services: 4.84 7.26 12.10 7.40* Works Supervision 3.44 5.16 8.60 3.90

IBRD Financed: 1.56 2.34 3.90 3.90 100OECF Financed: 1.88 2.82 4.70

* En Deseerin Technical AssistancetStudies 1L40 2.10 3.50 3.50 100

MWE~~~~- | IeA .~

Annex 4

Guatemala Rural and Main Roads ProjectSummary Economic Analysis

Background1. The roads scheduled for improvement are located primarily in Guatemala's zones of extreme poverty, including thedepartments of Huehuetenango, Quiche, Totonicapan, San Marcos, and Alta and Baja Verapaz. These departmentscontain about 30% of the country's land area and about 33% of its population. Completion of the project will lead to theimprovement of about 260 km of main roads. The proposed improvements are for road links located strategically on maintrade corridors, namely the Pan American Highway link between Mexico and Guatemala City, or in areas of considerableagricultural and tourism development potential, such as San Marcos or Huehuetenango.

2. Agriculture and related activities are the principal contributors to the economy in these departments. However, it isdifficult and costly to move regional products, especially fruits and vegetables, to ports and export markets because the roadnetwork is both limited in coverage and extremely poor in condition. This helps to depress farmgate prices and also makesit difficult to provide social and other essential services to the predominantly poor population in these departments. In SanMarcos for example, the consultants have estimated that there is about 100% difference in farmgate and market prices forsome of the commodities produced in the Department. There may be other factors but the poor road conditions havecertainly contributed to high agricultural production losses, and high transport costs, especially in the wet season, and lowoverall profitability of agriculture.

3. This situation led the Government to formulate a master plan (PM) to improve the road network to such an extentthat it could support rather than hinder economic activity and therefore help Guatemala compete internationally with itsNAFTA and Central American neighbors. The main and secondary roads to be improved under this project were selectedprimarily from the master plan and subsequently detailed feasibility studies were carried out (using the HDM3) to verifythe economic justification. Copies of the feasibility studies are in the Project Files and a detailed extract on the salientfeatures of the analysis are shown in table 4.1 of this annex. Due to its continuity with the rural roads improvements, themain assumptions and methodology for the analysis for route 12 is summarized here. Similar principles were followed forthe other main and secondary road links This led to an overall 29.3% economic rate of return estimate for the project's roadrehabilitation component.

Benefits and Beneficiaries

4. The investments, maintenance, and institutional strengthening arrangements supported by the project will provide awide range of benefits. These include (i) long term improvements in the management of the road network due partly to anincreased awareness of the role of maintenance; (ii) improved access for residents of the marginalized Departments tohealth, education, and other services; (iii) improved access to markets and services for agricultural producers; and (iv)significant reduction in transportation costs. The benefits from the road improvements can be quantified as they consistlargely of savings in voc accruing to road users. The voc were derived from recent DGC information on operating costs fortypical vehicles on roads in both good and poor conditions in Guatemala, after adjusting for taxes and duties. The vocsavings vary by vehicle type from 39% (for pickups) to 70% (for large trucks), which is not unusual given that the road willbe improved considerably under the project. Another quantifiable benefit that will accrue would be the savings in traveltime as the improved road surface will allow higher operating speeds. This is particularly true in the rainy season ascurrently the road is often impassable due to vehicles being stuck on the road.

Traffic

5. The traffic on route 12 varies primarily according to distances from the most important marketing centers (SanMarcos, San Pedro, Tacani) that influence it. The volume of vehicles per day (vpd) was determined by counts carried outperiodically by the DGC and updated on the basis of 4-day counts carried out by the consultants in May and July 1997. At

the same time a limited origin-destination study was carried out which showed that most trips were work or businessrelated. The traffic ranged by road section from 90 to 377 vpd and it consisted generally of 56% pickups and lightvehicles, 40% trucks, and about 4% buses. Traffic growth rates have been modest (about 3% pa) during the last 5 years;for the future they have been set at 4-6% pa. This is more in keeping with the expected growth of GDP and the increasingeconomic activities that are likely to follow the road improvement.

Economic Returns.

6. The internal rate of return for route 12 was estimated at 29.9%. As discussed above, this return is based primarilyon the quantifiable, vehicle related costs and benefit streams associated with the road improvement. There are other non-quantified benefits as, for example, the improved roads will help improve road safety by eliminating the hazardousconditions caused by large potholes, other road surface irregularities, and the lack of adequate shoulders and bus bays. Theimprovement works will also create employment for about 300 workers over a 24 month period. A summary statisticalabstract of the ERR and NPV determination and the sensitivity analysis is included as table 4.1, but the following is a briefoverview for all of the links.

Length ERRLink (In) (°/0)

CAOIW:Cuatro Caminos -La Mesilla 154 28.0CAOlE: Don Justo - Desvio a Santa Elena Barilla 8 51.8RN12: El Monumento - TacanA - Tejutla 91 29.9RDESC52: Entronque CA09S - San Vicente Pacaya 8 24.4

Totals 261 29.3

Distributional Impact.

7. The principal beneficiaries of the rural roads improvements will be the predominantly poor agriculturalcommunities. Most studies indicate that the income levels of these communities are typically well below national averages.Furthermore, most of the indigenous areas to be served can be classified as being extremely poor. For the main roads, thecountry as a whole will benefit from the reduced vehicle operating costs and consumption of imported spare parts. Thereduced transportation costs will also help to make Guatemala's exports more competitive, especially for low profit margincrops such as coffee and bananas and will benefit both the urban and rural areas.

Fiscal Impacts.

8. These will be overwhelmingly positive. The project's annual investment needs are small and represent very smallshares of both Government expenditures (< 0.5%) and of revenues from the license fees, fuel taxes, etc. recovered from thetransport sector (<1.0%). Similarly, the future maintenance needs will not represent a fiscal burden. This is becauseGuatemala has imposed an additional surcharge on fuels which is deposited directly into the Road Maintenance Fund(Fondo Vial) that is managed by MCTOPV. This is an adequate source of funds for the maintenance needs of the roads tobe rehabilitated under the project.

Annex 4 (Cont.)

Guatemala Rural and Main Roads ProjectTable 4.1: Characteristics and Sensitivity Analysis of Road Sections

Road SectionsRN12 RDESC52 CAOIW CAOIE

Length (Km) 91 8.1 154 8Economic Costs/Km 130 232 162 344($ '000)ERR (%) 29.9 24.4 28.0 51.8B/C Ratio @ 12% 1.72 1.97 1.88 4.2Surface type/condition:Existing: Unpaved Unpaved Paved Paved

-Condition Very Poor Very Poor Poor PoorIRI 12.5 12 8 8

Proposed: Paved Paved Paved PavedCondition Good Good Good GoodxRI 3.0 3.0 2.5 2.5

Traffic Range:Existing ADT 377-85 320 1361-2104 8122Generated Traffic 190-45 160

Main sources of benefitsNPV ($million) @12%:

Based on VOC 8.05 1.35 17.67 8.53Based on VOC and time

savings 8.61 1.41 18.67 na

Sensitivity Analysis: NPV ERR NPV ERR NPV ERR NPV ERR$mill (%) $Mil () $mill (%) $mill (%)

Base Case 8.61 29.9 1.41 24.4 18.6 28.0 8.5 51.8Costs +20% 7.31 25.3 1.14 20.9 14.4 22.9 8.0 45.3Benefits -20%/a 5.59 24.4 0.86 20.1 10.7 21.8 6.3 43.9Excl. Time 8.05 28.9 1.35 24.0 17.6 27.3 na naSwitching values:- on costs 230% 204% 87% 240%-onbenefits 43% 51% 47% 76%

Annex 5

Guatemala Rural and Main Roads Project

Financial Summary

Years Ending 2003(Indicate currency, umts and base year)

US dollars-millionItems Implementation Period

Project Costs: 98/99 99/00 00/01 01/02 02/03 TotalInvestment Costs 19.2 24.0 33.7 37.9 21.7 136.5

Total:__ _ _ _ _ ___ _ _ _ _

Financing Sources (0/oage of total projectcosts):

IBRD 8.0 10.0 17.0 17.0 14.7 66.7OCEF 8.0 10.0 11.9 14.9 5.0 49.8

Government 3.2 4.0 4.8 6.0 2.0 20.0Total: 19.2 24.0 33.7 37.9 21.7 136.5

Annex 6

Guatemala Rural and Main Roads ProjectProcurement and Disbursement Arrangements

Procurement

Procurement of works and goods will follow the "Guidelines for Procurement under IBRD and IDACredits, dated January 1995 and revised in January and August 1996. Standard Bidding Documents (SBDs) willbe used for all Bank financed procurement. Procurement of consultant services will follow the "Guidelines for theSelection and Employment of Consultants by World Bank Borrowers", dated January 1997. The procurementarrangements below were derived from the procurement plan which is in the project files.

The Pilot Project to be executed in the Department of San Marcos, would cover 12 municipalities. Two executingagencies (INFOM, the association and DGC) will be responsible for procuring the works and services contracts for:municipal roads; community roads; and departmental roads.

Table A shows the project costs and procurement arrangements. International competitive bidding (ICB)procedures will be used for work contracts of US $1.0 million or more, to be financed under Rural Roads-PilotProject and the Main and Secondary Roads components. For work contracts estimated to cost US $100,000 butless than US $1 million, national competitive bidding (NCB) procedures will be used. Work contracts less than$100,000 will be awarded on the basis of proposals obtained from at least three qualified domestic contractors.Formal prequaifications of contractors will be carried out for ICB contracts exceeding US $10 million. Smallmaintenance contracts under the Pilot Project, estimated to cost less than US $30,000 up to an aggregate of US$1.48 million, may be done through direct contracting with community organizations and microenterprises for roadmaintenance following special procedures outlined in paragraph 3.15 of the Guidelines and on the basis of referenceunit prices and standardized quantities; and three quotations in the case of local contractors. This procurementmodality would allow for (i) the participation of poor local communities in the direct management of small works;(ii) the formation of maintenance microenterprises; and (iii) the development of local contractors. Vehicles andoffice equipment to be procured under the project with a cost per contract of US $150,000 or more will be procuredusing ICB; individual contracts costing between US $25,000 and US $150,000 will be procured under NCB rules;and for individual contracts below US $25,000 national and international shopping procedures will be used basedon three quotations.

Preference for domestically manufactured goods. The provisions of paragraphs 2.54 and 2.55 of the Guidelines andAppendix thereto shall apply to goods manufactured in the territory of the Borrower.

Table B summarizes the prior review thresholds. In the case of works and goods, all ICB and NCB contracts willbe subject to prior review. For 3 quotations of contractors of works, the first two contracts to be awarded in eachcalendar year will be subjected to prior review. All ICB and NCB procured goods will be subjected to prior review.The first contracts will be subjected to prior review in the case of goods to be procured under National andInternational shopping methods. For consultant services, prior review will be needed for all contracts valued atmore than US$100,000 for firmsVnd all contracts with individuals costing more than US$50,000 equivalent. Forconsultant contracts valued at less than the amounts indicated above, prior review by the Bank will only cover thecorresponding terms of reference and short lists.

Consultancies. All consulting services financed through this loan will be contracted in accordance with theBank's Guidelines for the Use Consultants (January 1997). Consultants' services will be procured under contractsawarded following three different types of selection methods for Consultancies under the required conditions: (i)

Quality and Cost-Based Selection (QCBS); (ii) Quality Based Selection (QBS); and (iii) Selection Under a FixedBudget. The procurement plan provides information on the types of contracts under various categories.

Table A: Project Costs by Procurement Arrangements(in US$ million equivalent)

Expenditure Category Procurement Method Total Cost(including

contingencies)ICB NCB Other N.B.F

OECF1. Works

54.15 7.26 1.48 53.8 116.69(45.02) (6.13) (1.26) (52.41)

...........................................................................................................................I..................................................................... ................................

2. Equipment 0.55 1.23 0.53 2.31(0.47) (0.93) (0.47) (1.87)

..................................................................................................................................................................................................................................

3. Services 12.44 5.05 17.5(12.44) (12.44)

Total 54.70 8.49 14.45 58.85 136.5(45.5) (7.06) (14.17) (66.7)

Note: 1. N.B.F. = Not Bank-financed. Includes OECF financing and the corresponding DGC'scounterpart.

2. Figures in parenthesis are the amounts to be financed by the Bank loan3. Others include Direct Contracting, Local Shopping, Fixed Budget

Table B: Thresholds for Procurement Methods and Prior Review(US$, 000)

Expenditure Contract Value Procurement Contracts Subject toCategory (Threshold) Method Prior Review

1. Works > 1500 ICB All documentsUS$100-1500 NCB All documents<US$100 3 quotations in the case First two contracts in

of local contractors each calendar year

2. Goods >US$150 ICB All DocumentsUS$25-US$150 NCB All Documents<US$25 National and First Contract

.........................................................................................................................I..e .S......................................n...ion.....

3. ServicesFirms >US$100 As per January 1997 All documents

Guidelines on ConsultantServices

<US$100 As above TORs and short lists only

Individuals >US$50 As above All documents<US$50 As above TORs and short lists

only

Disbursement

Of the total US$ 136.5 million, 49% would be financed by the Bank, 36% by OECF, and the remaining amount tobe financed by the Government. Table C below shows the estimated disbursement from the Bank loan by fiscal yearand Table D shows the proposed project categories and allocations.

Table C: Estimated IBRD Disbursements (US$ Milhions)

Implementation FY 1999 2000 2001 | 2002 2003 |Annual I 8.0 10.0 17.0 17.0 14.7

Cumulative 8.0 18.0 35.0 52.0 66.7

Table D: Disbursement Cateeories

Category Amount of % of ExpenditureLoan to be financed by

Allocated IBRDU.S$ millions

Civil works for:

1-(a). Main and Secondary Roads 35.82 83Rehabilitation and Improvements

1-(b). National and Departmental Roads 4.59 831-(c). Municipal and Community Roads 4.77 85

Construction

Goods for:2-(a). the association 0.37 852-(b). the INFOM 0.12 852-(c). DGC's Regional Office 0.43 852-(d). DGC's Centrl Office 0.85 85

Consultant Services for:3-(a). Rural Roads Transport Strategy/ and 0.72 100

INFOM Consultants3-(b). Strengthening of the institutional

capacity of the Assistance 1.65 1003-(c). MCTOPV's Regional Offices 1.50 1003-(d). MCTOPV Headquarters 7.39 1003-(e)). INFOM's management Fee 0.48 100

Unallocated 8.01 as disbursedTotal 66.70

Special Account. In order to facilitate disbursements, the Government will establish two Special Accounts (forDGC and INFOM) in the Central Bank in Guatemala to be maintained in US Dollars. One of the accounts to bemanaged by MCTOPV, through DGC for the implementation of the project components under DGC'sresponsibility. The other will be managed by INFOM for the unplementation of the municipal road component ofthe pilot project and the development of the national rural road strategy. The initial deposit for the DGC managedSpecial Account will be US$ 3.5 million while the deposit for the INFOM managed special account will be US$750,000. These amounts are consistent with the expected disbursements of the project. The amount of eachauthorized allocation is the average of 4 months of expenditures that are expected to be paid from the account.

Replenishment of the accounts will be made monthly or when 20% of the authorized ceiling has been disbursed,whichever is earlier.

Documentation. Disbursements from the loan for the following types of contracts require full documentation: (i) allICB and NCB civil work contracts; (ii) goods to be procured under ICB and NCB; (iii) consulting contracts withfirms valued at US$100,000 (or equivalent) or more; and consulting contracts with individuals valued atUS$50,000 (or equivalent) or more. All other disbursements will be made against statement of expenditures(SOEs), for which full supporting documentation will be retained by MCTOPV, and made available to the Bank onrequest and for audit by external auditors.

Retroactive Financing. Retroactive financing, about US$ 6.5 million which represent about 10% of the Bankloan, will be provided for eligible expenditures incurred after project identification begins and within 12 monthsbefore the expected date of loan signing. Eligible expenditures will consist of services which support theobjectives/components of the project, as stated in Block 1, sections 1 and 2, and Annex 2. Retroactive financingmust follow Bank procurement and consultant guidelines.

Annex 7Guatemala Rural and Main Roads ProjectProject Processing Budget and Schedule

A. Project Budget (US$000) Planned Actual(At final PAD stage)

107.4 98.6B. Project Schedule Planned Actual

(At final PAD stage)

Tine taken to prepare the project (months) 12First Bank mission (identification) 7/15/1996Appraisal mission departure 6/ 16 /1997 6/29/1997Negotiations 10 / 6 /1997 11/04/1997Planned Date of Effectiveness 6/ 1 /1998 I_/119

Prepared by: Mnistry of Communications, Transport and Public Works (MCTOPV)

Bank staff who worked on the project included: Guillermo Ruan, Emmanuel James, Manzoor Rehman,Juan Carlos Mendoza, Martin Staab, Stephanie Sheldon (LCSFP); Reynaldo Pastor (LEGLA); ChristinaMalmberg Calvo (AFT1); Juan David Quintero, Maria Clara Mejia (LCSES).Peer reviewers were: Mirtha Pokomy and Jose Luis Irigoyen.

Annex 8GUATEMALA

Rural and Main Roads ProjectDocuments in the Project File

A. Project Implementation Plan

Direcci6n General de Caminos. October 1997. "Plan de Implantaci6n, Programna de Carreteras y Caminos en laZona Rural" (ZONAPAZ)

B. Bank Staff and Consultant Assessments

World Bank, 1997. "Public Investment Review: Guatemala: Investing for Peace"World Bank, 1995. "Guatemala: An Assessment of Poverty"World Bank, 1996. "Economic Note. Guatemala, Constraints to Non-Traditional Exporters".World Bank, 1997. "Notas Econ6micas, Consulta para el Plan de Desarrollo Indigena"World Bank, 1997. "Indigenous Peoples, Education and Language"Direcci6n General de Caminos, 1997. "Consultant Report: Estudio de la Ruta CAO1 Occidente Tramos: San

Lucas Chimaltenango y Chimaltenango-Tecpan"Direcci6n General de Caminos, 1997. "Consultant Report: Estudio Ruta Nacional 14. Tramos: Chimaltenango-

Escuintla"Direccion General de Caniinos. 1997. "Consultant Report: Plan de Acci6n y Manejo Ambiental de la

Rehabilitacion y Mantenimiento de la Ruta Nacional 14 Tramo: Chimaltenango-Escuintla"Direccion General de Caminos, 1997. "Consultant Report: Estudio de la Ruta Departamental 52 Tramo: CA09S-

San Vicente Pacaya"Direcci6n General de Caninos, 1997. "Consultant Report: Estudio de la Ruta RN12 San Marcos-Tacana y

Desvio a Tejutla"Direcci6n General de Caniinos. 1997, "Consultant Report: Estudio Ruta RN7W Tramo San Cristobal Verapaz-

Chiantla"Direcci6n General de Caminos. 1997, "Consultant Report: Estudio Ruta CAOIW Tramos Cuatro Caminos-

Huhuetenango y Huchuetenango-La Mesilla"Direccion General de Caminos. 1997, "Documento Base: Proyecto Piloto de Rehabilitacion y Mantenimiento de

Caminos en la Zona Rural"Grupo Consultor. 1997, "Seminario Taller: Proyecto Piloto de Mantenimiento de Caminos Rurales."GITEC. 1997. "Programa de Carreteras y Caniunos, Fase 1 de Preparaci6n"Summaries of Economic Evaluations for the following road sections to be financed by the Bank: (i) CAOl W:

Cuatro Caminos - La Mesilla; (ii) RN 12: El Monumento -Tacana - Tejutla; and (iii) RDESC52:Entronque CA09S - San Vicente Pacaya

C. Other

Ministerio de Comunicaciones, Transporte y Obras Publicas "Programa de Inversiones 1996-2000"Gobiemo de Guatemala, Programa de Gobiemo 1996-2000Programa de Paz: La Oportunidad para Guatemala. Informe preparado para la reuni6n del Grupo Consultivo

(Bruselas Enero 21-22, 1997)Direcci6n General de Caminos. 1995, "Informe de la Evaluaci6n del impacto del Proyecto de caminos de Acceso

de los Centros de Producci6n al Mercado"Instituto de Fomento Municipal, INFOM. 1996, "Manual de Presupuesto"SEGEPLAN, GTZ, y CIEN. 1995, "Memoria: Primer Foro Nacional de Decentralizaci6n." Guatemala

Annex 9Statement of Loans and Credits

A. Statement of Bank Loans & IDA Credits in Guatemala (as of November 14, 1997)

Amount in US$ Million(less cancellation)

Ln/Cr Fiscal Borrower Purpose Bank IDA Undis-Number Year bursed

21 Loans Closed

3003 1989 Guatemala Basic Education 18.79 6.463002 1989 Guatemala Secondary and Regional Roads 25.58 11.163534 1993 Guatemnla Social Investment Fund 20.00 6.413895 1995 Guatemala Integrated. Financial Mgmt 9.40 7.174167 1997 Guatemala Basic Ed Reform 33.0 33.04149 1997 Guatemala Private Participation Infr. TA 13.00 13.004225 1998 Guatemala Tax Administration TAL 28.20 28.20

* Not yet effective

B. Statement of IFC Investments Committed and Disbursed Portfolio (as of September 30, 1997)

Commiited DisbursedFC IFC-

FY Approval Company Loan Equity Quasi Partic Loan Equity Quasi Partic1993/96 Puerto Quetzal 8.19 0.00 4.46 28.68 8.19 0.00 4.46 28.68

1993 Vigua 8.94 0.00 0.00 0.00 8.94 0.00 0.00 0.00

1994 Basic Petroleum 9.09 4.00 0.00 5.45 9.09 4.00 0.00 5.45

1994 Fabrigas 5.25 0.00 1.00 0.00 5.25 0.00 1.00 0.00

1996 Pantaleon 20.00 0.00 0.00 0.00 20.00 0.00 0.00 0.00

Guatemala at a glanceLatin . .or-. .

POVERTY and SOCIAL :Amerca mlddie.Guatemata &Carb. Incomen': Development diamond,

Population mid.1996S(lo 109 4.5 1,':GNP per capita 196 ( .US$): 1 .470 .3,O710 .iLife expectancyGNP 1998 (bilIons U$). 16.0 1- 799 '11,987-

Average-annual groWt9 1O-4.6'

Population -. : 2 S 1 .7 14Labor force ,5). 3.5:- 2.3, GNP Gross2.3*

,, : ,i. :10 1 W .- W i e , , , - j - .: -p.r-.-i , -- , , p e r I N _ _ p rim aryMost reent estimat e(lmatest GW'e since 1.9...,. capta enrollment

Po,vertf headcoud t lde o..pop, aleUl,Urban population (cto.da 42,6:1' t 74- 8.Ufa expetancy atbirt( .. .6:

infantamorllity (prf 1,00) -:..- 44 . Access to sate waterC1lid malnutIton f¶ bf chide undr 5).. .77

Ccs to safe Wae o a 64 .. -. 'Illiteracy (%-population 8. la 4 13 Guate.-l.Gross prImary:enroi%mento.eirschoog-ag a , ,-,-... 4 1 0 - 1 0 -4 t

Fml, ...--.-<.- -i.-. ....... - I: ._ , g, , -:: . :'- - ' - ' 'i Guateria.Maie~~~~~~ 89 .. 105 - ~~~~~~~~~~~~Lower-mrkkdie-Income group

1878" £ > - $E: :EE S 1 06W ,.1996 -- g.; 1 -;9 9 ............................................................ ,, ........

GOP (bllions US$) : .. - . . - . ': . <' Economic ratiortwm9 1.GD, .4 .19 .

Exports of oods and srvicestGOP21.7 .11.9. 193 16.9Openness of economy

Gr domestic vg,.GP 4..3 10.5 ,' 68d . 8.5Grs national svinsGP: 14''' t '','- '. 8 - '' 11.0 -10

Current account bablnceGD-' -12 25: . -4.0 '. .Interes pvments6DP 0. -.2 2' S Investmnent

Tta deb/O . -. 27. 2:, .. 1 - ; 3

Pre,sent va'ue of8 debtlexpoit ....... - .. i nde.te-nes

(a ,.,ra eana grwt) ' - Guabena/a

GNPperca "'ta.. -09 -'. _.- 0.2 ' 30 2Exots' ofgoos ,n, ',wc -13' .':-7 .... ' j-',3.;7,"-'- -77" ' -5.'

STRUCTURE of the ECONOMY1975 1985 1995 1996

(% of GDP) Growth rates of output and Investtnent %)Agriculture .. .. 23.9 24.8 30

Industry .. .. 18.9 19.3 20 -Manufacturing .. .. 14.8 14.7 10 p

Services .. .. 57.2 55.9 0 .

.10 91 92 9 9g4 95 F5

Private consumption 78.9 82.6 85.7 88.1 -2

Generai government consumption 6.9 7.0 5.5 5. -4I -@-OImports of goods and services 23.5 13.0 25.5 24.1

197564 198646 1995 1996(average annual growh) Growth rates of exports and Imports (%)Agriculture 1.2 3.2 3.6 2.5 0

Industry 2.1 3.6 4.8 29 Manufacturing 2.1 26 3.2 1.9 2

Services 2.3 44 5.6 0.8

Private consumption 2.2 4.1 5.2 38 .1General govemment consumption 4.7 3.4 1.3 2.5Gross domestic investment -3.7 8.0 -2.9 -12.2 2lImports of goods and services -5.7 10.8 7.6 0.2 GDI2 ' GDPGross national product 1.9 3.6 3.1 12. 1 m

Nobt: 1996 data are preiminary estimates. Figures in itaicr s are for years other than those specified.S The diamonds show four key indicators in the country (an bold) compared with its income-group average, if data are missing, the diamond will

be incomplete.

Guatemala

PRICES and GOVERNMENT FINANCE1975 198 1895 1996

Domestic prices Inflation (%I(X change)Consumer prices 13.2 18.6 8.4 10.4Implicit GDP deflator 13.1 18.8 8.5 9.1140

Govemment finance 20(X of GDP) Current revenue .. .. 11.7 11.2 91 92 93 94 95 90

Current budget balance .. .. 2.9 2.4 GDP def, * CPIOverall surplusideficit .. .. 0.0 -0.6 - D _

TRADE1975 1985 1995 1996

(millions USS) Export and Import levels (mill. USS)Tqtal exports (fob) ., 1,060 2,156 2,224 4 000

Coffee 452 576 516Sugar .. 44 246 224 3,000Manufactures .. .. 603 649

Total imports (cif) *- 1,175 3,292 3,323 2.I0.Food as 8 607 645Fuel and energy .. 262 287 338 00Capital goods .. 197 832 813 o

Export priceindex(1987=100) .. 115 127 122 90 gl 92 93 94 95 9eImport price index (1987=100) .. 87 106 107 cE.pota mlimportsTerms of trade (1987=100) .. 132 119 113

BALANCE of PAYMENTS1975 1985 1996 1996

(millions US$) Curent account balance to GOP rato (I.)Exportsofgoodsandservices 783 1,161 2,800 2,975 0Imports of goods and services 860 1,257 3,727 3,788 o 9 93 Resource balance -78 -96 -928 -813 -2 I

Net income -66 -170 -159 -99 _4j 94Net current transfers 78 19 491 456

Current account balance, .before official capital transfers -65 -247 -595 -456

Financing items (net) 169 354 438 590Changes in net reserves -104 -107 157 -134 -10 .

Memo:Reserves including gold (mill. USS) 353 472 783 948Conversion rate (IocalSS) 1.0 1.2 5.8 6.1

EXTERNAL DEBT and RESOURCE FLOWS1975 1985 1996 1996

(millions US$) Compositon of total debt, 1996 (mill. USS)Total debt outstanding and disbursed 322 2,656 3,275 3,132

IBRD 39 225 158 200 AIDA 0 0 0 0 G 200

Total debt service 35 335 342 340IBRD 4 24 54 27 FIDA 0 0 121 0 F

Composiion of net resource flows DOfficial grants 3 27 10S 65 Il16Official creditors 23 139 -21Private creditors 27 2 10Foreign direct investment 80 62 75 80 |Portfolioequity 0 0 0 0 1105

World Bank programCommitments 26 45 0 9 A - IBRD E- BilateralDisbursements 7 49 13 69 B-IDA D- Other multiateral F - PrivatePrincipal repayments 1 13 40 13 C-IMF G-Short-termNetfiows 6 36 -26 56 __1

Interest payments 3 11 14 14Net transfers 3 24 -40 42

Development Economics 8J28/97

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