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CURRENCY EQUIVALENTS

Cuirrency - Peso (Col$)US$1 _ Col$ 378 (End of June 1989)Col$ 1 million - US$ :.,645

WEIGHTS AND MEASURES

Metric System

ABBREVIATIONS

CFT Transport Finance CorporationCOLPUERTOS Colombian Port EnterpriseCONPES National Council for Economic and Social PolicyCORPES Regional Planning CouncilsDAAC Administrative Department for Civil AviationDAINCO Department for Intendencies and CommissariatsDIMAR General Directorate for Maritime and Port ActivitieeDNP National Planning DepartmentECOPETROL Colombian State Oil CompanyERR Economic Rate of ReturnESAP Advanced School of Public AdministrationFEDECAFE Federation of Coffee GrowersFNC Colombian National RailwaysFNCV National Agency for Feeder RoadsFONADE National Fund for Development ProjectsGRANCOLOMBIANA Grancolombiana Merchant FleetGRT Gross Regi3tered TonnageINCOMEX Colombian Institute for Foreign TradeINCORA Institute for Agrarian ReformIbPERENA National Institute for Renewable Natural ResourcesINTRA National Institue for TransportMOPT Ministry of Public Works and TransportPROEXPO Export Credit AgencySATENA National Territories Air ServicesSENARC Shipping Service of the Colombian NavySOE Statement of Expenditures

FISCAL YEAR

January 1 - December 31

FOR OMCIAL USE ONrLY

COLOMBIA

SECOND RURAL ROADS SECTOR PROJECT

LOAN AND PROJECT SUMHARY

Borrower and Beneficiary: Fondo Nacional de Caminos Vecinales (FNCV)

Amount: $55.0 million

Terms: Repayment in 17 years, inoluding 5 years of grace,with interest at the Bank's standard variable rate.

Proiect Objectives: The project's main objective is to expand markets andreduce poverty in rural areas by: (a) helping defineroad management functions and responsibilities ofnational, regional and local (municipal) authorities,and developing their activities; (b) contributing toimplement key policies in the roads sector, includingdecentralization of decision-making to localgovernments, maintenance management, and investmentprogramming, coordination and resource mobilization;(c) consolidating positive institution-buildingadvances in road management initiated under theprevious project (Loan 2668-CO); and (d) contributingto finance a balanced four-year investment andmaintenance program.

Project Description: The project is FNCV's 1990-1993 Investment andMaintenance Program. The main components are: (a)maintenance, including resurfacing works on 4,400 kmof roads; (b) improvement civil works along 1,650 kmof existing dry-weather roads, including completionof bridges and drainage structures; (c) constructioncivil works for 950 km of rural roads; (d) studies,including the review of road-funding strategies andengineering designs, and supervision of civil works;(e) spare parts to rehabilitate and operatemaintenance equipment; and (f) training, technicalassistance and other service- The project is basedon annually reviewed physical targets, expendituresand financing levels, chosen in accordance withagreed methods and criteria, an approach whichprovides the flexibility to adapt to changingdevelopmental priorities, especially now thatcoordination with local governments is mandated underthe new dee:euttalization scheme.

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

Proiect Benefits: The project will directly benefit the ruralpopulation and production by improving access tosocial and market services, and lowering farners' andconsumers' transport costs. Fqually Important, itwill facilitate the decentralization process in theroads sector, with FNCV, the regional and the localauthorities coordinating and jointly be.oming moreresponsive to rural road needs and priorities.

Risks: The ability and readiness of local governments toorganize, develop technical capability andeffectively manage the local road network isuncertain and carries some risk. The risk will bereduced by (a) drawing up, irmplementing andmonitoring annual action programs, tailored to eachlocal administration and acceptable to the Rank,aiming to achieve full-fledged transfer of roadmaintenance responsibilities; and (b) linking FNC'cofinancing to performance in implementing euchaction programs.

Estimated Project Costs: Foreign Local Total-$m---------- Million)---------

Civil Works and Maintenance 67.5 59.9 127.4Engineering Designs andCivil Works Supervision 4.2 5.1 9.3Training, Technical Assistanceand Other Services 0.8 0.9 1.7Equipment Repairs and Spare Pa-ts 1.0 0.4 1.4

Total Base Cost (mid-1989 prices) 73.5 66.3 139.8

Physical Contingencies 5.0 3.9 8.9Price Contingencies 5.4 3.0 8.4

Total Project Cost 83.9 73.2 157.1

Financing Plan: Foreign Local Total--------- …(S mill/on)----------

Proposed IBRD loan 55.0 -- 55.0Existing External Financing 11.9 -- 11.9Local funds 17.0 73.2 90.2

Total Financing 83.9 73.2 157.1

Estimated Disbursements:

B,.nk PY 1990 1991 1992 1993 1994 1995 1996(-S-----------(S million)-----------------

Annual 9.1 7.5 7.7 7.7 7.7 7.7 7.6Cumulat!ve 9.1 16.6 24.3 32.0 39.7 47.4 55.0

Rate of Return: A minimum of 12Z required for civil works sub-projectcomponents in the annual program, based on agreedeconomic and technical criteria. The ERR for civilworks included in the fiist year (1990) is 20Z.

Map: IBRD 21700

COLOMBTA

SECOND RURAL ROADS SECTOR PROJECT

STAFF APPRAISAL REPORT

Table of Contents

Page No

LOAN AND PROJECT SUMHARY ................................ (i)

T. THE TRANSPORT SECTOR .... 1

A. Backgrod ... 1B. The Transport Systemy sm...... 2C. Institutional Organization in the Transport Sector 3D. Fondo Nacional de Caminos Vecinales . . 4B. Bank Involvement in the Sector . . 6F. Country-Sector Strategy .. 7

II. MAIN ROAD SECTOR ISSUESS.....E.. ... ... .... ... 8

A. Institutional Organization. ... 8B. Inter-Agency Coordination ... 9C. Maintenance Management. . ... 9D. Planning and Funding of Expenditures .... 10

III. THE PROJECT .......................................................... 11

A. Project Origin and Objectives . . 11B. Project Description .................................. 12C. Rationale for Bank Involvement ....................... 16D. Description of Costs and Financing of Loan

Components ..... ................. 16E. Environmental Considerations and Economic

Justification .. 19F. Assessment of Issues and Risks . . 20

Continued

This report was prepared by Alberto Paz Estenssoro (transport economist) onthe basis of missions to Colombia during April and July 1989. Themissions comprised Messrs. A. Paz Estenssoro (mission leader) and J. AlonsoBiarge (road engineer).

IV. PROJECT IMPLEMENTATION DETAILS ...... ........ ** ........... 21

A. Sub-project Selection ................................ 21B. Implementation and Procurement .. ....... * ............. 22C. Disbursements, Accounting and Auditing ............... 25D. Monitoring ........................................... 26

V. RECOMMENDATIONS ..... 26

A. Agreements Confirmed ................................. 26B. Recommendation .. 28

LIST OF TABLES

1 Domestic Transport Demand (1980-1985)2 FNCV'S Road Network by Regional Jurisdiction3 Fleet of Road Vehicles by Type of Service (1985)4 Past and Ongoing Operations in Transport5 Project Costs6 Physical Targets of the Project7 Annual (1990) Routine Maintenance Program8 Annual (1990) Periodic Maintenance Program Under FNCV's Force

Account Effort9 Annual Provision (1990) for Emergency Maintenance of Roads.0 FNCV'S Sources and Application of Funds11 First Year Civil Works Program12 Loan Disbursement Schedule

ANNEXES

1. Summary of Decentralization Measures2. Regulation for Regional Coordination of the Roads Sub-sector3. Cofinancing Regulations for Local Governments4. Outline of Procedures for Selecting Construction and Improvement

Sub-projects, including Environmental Criteria5. Outline of Terms of Reference for Coordinating Technical Assistance

to Local and Regional Administrations6. Outline of Terms of Reference %or the Study of Road-Funding

Strategies7. Schedule of Main Events8. Project File Documents

CHARTS

1 Institutions with Involvement in the Transport Sector2 FNCV's Organizational Structure

COLOMBIA

SECOND RURAL ROADS SECTOR PROJECT

STAFF APPRAISAL REPORT

I. THE TRANSPORT SECTOR

A. Background

1.01 Colombia has grown over the past 10-15 years, under careful macro-economic management, at what by current Latin American standards is asatisfactory rate. The Government's strategy is to gradually open up trade,sustaining export expansion and diversifying out of coffee, avoidingexcessive dependence on a single commodity subject to wide internationalprice fluctuations. Such policies are expected to provide a more stablebase-source of foreign exchange earnings.

1.02 Beginning in the early 1950s, considerable effort was placed ondeveloping the transport network to provide access to productive regions andpopulated centers, and to handli foreign trade and passenger flows.Throughout the 19609, while transport was in its period of most intensedevelopment, the sector accounted for up to 602 of public sector investment,but ita share gradually declined to 25Z in the 1970s and to about 152 in the1980-1987 period.

1.03 Despite efforts to improve the basic infrastructure, transport costsremain high, reflecting not only the difficult physical characteristics ofthe country, the lack or shortage of modern transfer and transportfacilities, and the generally low efficiency of operators, but also the factthat the investment drive has not been balanced: infrastructure for farm-to-market access and intra-regional connections was not given the some priorityconsideration as for inter-regional connections and, today, are the weakerlinks in the domestic transport system. Access to many regions remainsdifficult in wet months, constraining agricultural and social development,because bridges and all-weather pavements have not yet been built. Ruraltransport services have also not evolved adequately, as consequence of poorsecondary and feeder road infrastructu.e, and regulations that limit themarket availability of vehicles to favor the highly protected vehicleassembly industry. Furthermore, maintenance of transport infrastruct.re,facilities and equipment received insufficient attention and funds. Hence,transport remains a development constraint in Colombia.

1.04 The Government's 1987-1990 Development Plan recognizes theimportance of providing access to rural areas which lack it, of improving theutilization of existing transport infrastructure capacity through adequatemaintenance, and of facilitating external competitiveness through theprovision of modern and efficient terminals. The success of the Government'smacro-economic and social policies hinge, to a certain extent, on thecountry's ability to haul goods efficiently, both within and to and fromColombia. To this end, aggressive programs of rural road construction,improvement and maintenance, and of rehabilitation and mainteuance of the

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main national highway network have been recently started by the NationalAgency for Feeder Roads (FNCV) and the Mir-istry of Public Works and Transport(MOPT), respectively.

1.05 Over the medium term, the Government's policies in transport are topreserve the capital stock in trcansport and continue to contribute toregional development and expansion of foreign trade. The progressiveupgrading of rural roads to standards that allow their maintenance along withthe actual carrying out of maintenance activities involves increasing andcontinuous labor-absorbing work. At the same time, studies are beingconducted to support decisions to modernize operations and expand capacity atports, to strengthen the involvement of departments and municipalities inroad activities, especially maintenance management, in the context of theadministrative decentralization process underway, and to streamlineregulations which affect transport.

B. The Transport System

Gener&l

1.06 Data on total freight and passengers mobilized in the country arenot reliable. INTRA estimates that in 1985 some 60 million tons were handledby the domestic transport system, of which a recent study conducted for FNCestimates that rail, road and river traffic reached some 35 million tons.The average freight transport distance for the three modes combined was 740km, reflecting the long distances that most freight has to travel inColombia. Road transport absorbs 902 of the total tonnage and traffic units(ton-km). An estimated 397 million passengers were handled by the transportsystem in 1985, with 53 km as average trif length. Again, road transport hasthe highest share, about 99Z of passengers and traffic units (passenger-km)of all three surface modes. Table 1 shows how traffic evolved in recentyears.

Roads and Road Transport

1.07 About 108,000 km of all types of roads are estimated to exist inColombia. Of this total, 10,385 km are paved (102), 66,930 km (62Z) aregravelled, and 30,700 km (28Z) are natural earth roads. From anadministrative point of view, 26,000 km are classified as national highways,with MOPT being responsible fo- their maintenance (para. 1.09). The rest ofthe networ. is not classified, responsibilities are not defined, roadcharacteristics are only partially known, and specialized un'ts do notgenerally exist in the regional and local administrations. The overallconsequence is that maintenance on about 82,000 km (76? of the total network)is either performed poorly or not performed.

1.08 Both freight and passenger road services are regulated by the Codeof Trade, which INTRA and the regional and local administrations enforce.Route assignment, monitoring of services, and rate making have, however,recently been decentralized to local governments. There are 1.2 millionvehicles registered in Colombia, but the number in actual use is not known asthose scrapped are not reported. Information for 1985 (Table 2) indicatesthat 76Z of the vehicles were for private use, 21? for public use and 32 forGovernment service. Public transport services are provided by private

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companies operating in a highly regulated environment: market entry iscontrolled, only companies are authorized to supply services, types ofservices are narrowly defined, and limited class of vehicles are permitted.Studies under the on-going Loan 2829-CO will evaluate and recommend thenecessary reforms. The fleet is predominantly made up ef single-axlevehicles.

C. Institutional Organization in the Transport Sector

1.09 Transport management in Colombia, to a large extent, falls under thepolicy authority of MOPT, wihh the major exceptions of: (a) secondary roads,nominally under regional jurisdiction; (b) municipal roads, nominally under1,040 local governments in the country; and (c) aviation, under theAdministrative Department for Civil Aviation (DAMC). In addition, MOPT isdirectly responsible for the construction and maintenance of the country'snational highway network. An autonomous national agency, FNCV, isresponsible for rural road construction, improvement and maintenance tosupplement the insufficient and often non-existent capacity in departmentsand municipalities to provide such services. Other sector operations andplanning at national level are delegated to several parastatal and autonomousagencies, including: the Colombian Port Enterprise (COLPUERTOS), which ownsand operates the public sector ports; the Colombian National Railways (FNC),which owns and operates the railva, system; and the National Inqtitute forTransport (INTRA), partly responsible for road transport regulation andenforcement.

1.10 Road, air and water transport se-,vices are predominantly supplied bythe private sector supplemented, in t'+ .sse of services to remote areas withlow traffic demand, by the Shipping S, -r ces of the Colombian Navy (SENARC)and the National Territories Air Services (SATENA), both under the Ministryof Defense. This Ministry also regulates maritime operations through itsGeneral Directorate for Maritime and Port Activities (DIMAR), and roadconstruction activities of the Department of Military Engineers, whethercarried out directly or as contractors. Chart 1 shows the agencies involvedat the different jurisdictional levels.

1.11 The Ministry of Economic Development regulstea the assembling ofvehicles in Colombia, determines and approves the import quotas, andestablishes and controls prices of some transport inputs. The ColombianInstitute for Foreign Trade (INCOMEX) is responsible for discretionallysetting import priorities and allocating licenses by class of goods within aquota regime and after ensuring full protection to the domestic industry.This licensing arrangement imposes constraints, among others, on the roadvehicle fleet characteristics and the operiting costs. The Export CreditAgency (PROEXPO) carries out transport facilitation studies and providesfinancing to support the resulting measures, and the Transport FinanceCorporation (CFT) provides financing for purchases of transport equipment andconstruction of passenger terminal buildings.

1.12 Also at the national level, the Planning Department (DNP) reviewsthe transport sector programs, including investments, and proposes new orrevised sector policies to the highest economic decision body in Government,the National Council for Economic and Social Policy (CONPES). Each agency ormode plans its own activities, sometimes with inadequate interaction with

other sector agencies and modes. In the past, an unsuccessful attempt wasmade to correct this situation by establishing the National "ransportCouncil, an ad-hoc group formed with representatives of sector agencies thathas seldom convened. A more strategically focused transport plan, programmedto be carried out by MOPT in 1989 with assistance from consultants under Bankfinancing (Loan 2829-CO), is expected to foster the required coordinationeffort.

1.13 At the regional level, the Secretariats for Public Works and theTransport Directorates are the main institutions with roles in transportwithin each department, intendency and commissariat.1 The Ministry ofAgriculture, the Institute for Agrarian Reform (INCORA), the Fund forIntegrated Rural Development (DRI), as well as the Administrative Departmentfor Intendencies and Commissariats (DAINCO) and the local governments, whichsince this year are headed by elected mayors, are also involved in transport,especially in roads and road transport services, though the network overwhich they should be responsible for maintenance is not defined. Moreover,in coffee producing areas, associations of producers also play, by default,an important role in road maintenance and improvements.

D. Fondo Nacional de Caminos Vecinales

Organizational and Operational Assessment

1.14 FNCV was created in 1960 ai part of MOPT's organizational structure.In 1972, it was reorganized as an autonomous agency. It is governed by aseven-member board chaired by the Minister of Public Works and Transport; itsother members are representatives of the Ministries of Agriculture andInterior and the Federation of Coffee Growers (FEDECAFE). s1&nagement iscarried out by a Director General who is appointed by Presidential Decree andis assisted by a General Secretary (functioning as Deputy Director General),two supporting units (Planning and Legal), and two line Sub-directorates(Engineering and Administration). Chart 2 shows FNCV's present organization.The Sub-directorate for Engineering is responsible for technical mattersrelated to programming, execution and monitoring of road works, includingthose carried out through the 25 Regional Offices. The Sub-directorate forAdministration monitors budget and cost accounts, stores and personnel.

1.15 Road works are generally carried out by FNCV through small Colombiancivil works contractors. The average construction and improvement contractis for about 15 km, and that for periodic maintenance and rehabilitation isfor about 100 km. Scattered small road civil works, including routinemaintenance works, and works in remote regions where tendering is notefficient are undertaken through direct contracts or FNCV's own force accounteffort, for which it owns a fleet of 917 units. FNCV's arrangements forcontract administration are adequate, especially afte: the technicalassistance provided in 1988-1989 under the BaLk's Rural Transport SectorProject (Loan 2668-CO). This assistance has strengthened the management

1/ All three are territorial jurisdictions, classified differentlyaccording to population and other distinctive characteristics, andheaded by appointed Governors or equivalent, under the authority of theMinistry of Government (internal affairs).

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system, through basic economic and engineering studies, improved supervisionand monitoring of works, and better coordination between headquarters and theregional offices. A key step in this process that improved the quality andmanagement of works was FNCV's decision to contract out most detailedengineering and works supervision to local consulting firms.

1.16 Efforts to improve management of FNCV's force account works,including maintenance, have not been as successful, for lack of adequateinformation and monitoring of the regional offices. This situation, however,is being corrected: (a) a detailed physical and condition inventory of some25,000 km of roads, the length and geographic distribution of which is givenin Table 3, has recently been prepared to provide the foundation for arealistic maintenance program; (b) a maintenance and equipment managementsystem has been developed and is being implemented; and (c) appropriate costaccounting records are beginning to be kept, monitored and used, supported bythe technical assistance consultants under Loan 2668-CO. Moreover, inpreparing for this next project, FNCV requested and obtained Governmentapproval to establish and adequately staff a division responsible formaintenance of FNCV's network of roads, and for assisting the localgovernments to develop maintenance management (paras. 1.17, 2.05 and 3.06).

1.17 FNCV has 2,300 employees, 600 of whom are hired for a fixed term.About two thirds are field laborers and some 102 are professional and higher-level staff. Close to 902 work in FNCV's regional offices. The revisedorganization, which will basically strengthen the regional offices and createthe Maintenance Division (paras. 1.16, 2.03 and 2.05) will increase thenumber of staff by about 22.

Programmin& and F'nancinR

1.18 Road investment and maintenance expenditures by MOPT and FNCV in1986 were $309 million, with 87Z spent on national highways and 132 on ruralroads. This level of annual expenditure is adequate for maintenance andrehabilitation of the two networks; additional funds are needed, however, forupgrading and expansion requirements, mostly in rural roads. Maintenancefunding requirements alone for the rewRinder of the rural roads in Colombia,if they had been built to suitable engineering standards, would be of theorder of $110 million. It will not be possible to reliably program roadworks and assess overall funding requirements until completion of thephysical and condition inventory of all the roads in Colombia and thesubsequent classification and allocation of management responsibilitiesbetween administration levels, which are objectives of the project (paras.3.02 and 3.27).

1.19 FNCV's activities have been funded through a combination ofresources, namely (a) Central Government contributions; (b) a share from theNational Roads Fund and the Civil Aviation Fund; (c) earmarked taxes on beerconsumption and road improvement-related increased property values; and (d)external and domestic loans. Over the 1980-1987 period, Central Governmentcontributions, which are grants from general revenues, averaged 272 of totalresources (17Z, if 1987 is not taken into account, given that year'sextraordinarily high Central Government contribution toward road expendituresunder the National Rehabilitation and Fight Against Poverty P:ograms). Themain source of funding during the sdme period was the share allocated to FNCV

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each year from the National Roads Fund, by law up to 102 its total amount,which is based on part of the motor fuel consumption tax revenues and whichrepresented 432 of the agency's funds (572, if 1987 is excluded). Earmarkedtaxes averaged 42 of the total funding available during 1980-1987 (52, if1987 is excluded), and external loans represented 21Z (162, if 1987 isexcluded). The rest had different sources, generally agreements withregional and local governments, and coffee growers' associations.

1.20 The amount of funds which regional and local governments spend onrural roads is not known, though construction seems to have taken preeminenceover maintenance. FNCV's fund allocations in the past were based oncommunity requests for road works which assigned priority to opening up of,and upgrading access to rural areas, and not on knowledge of the network'sphysical condition. Data from the condition inventory of about 25,000 km ofrural roads show that past investment efforts were not balanced betweenconstruction, improvement and maintenance activities, but rather focused onextending the network, even to the point of constructing roads withinsufficient technical specifications which were later difficult to maintain.This situation defines, to a large extent, the main priority which is toprogram the improvement of a large part of FNCV's network, and subsequentlyto maintain it.

1.21 Taxes on motor fuels, together with import duties and sales taxes onvehicles, spares and tires, tolls and license fees, constitute the system ofroad user charges in Colombia. A recent (1988) MOPT study estimated thatrevenues obtained through road user charges exceed by about 202 theassociated costs of maintaining, rehabilitating and upgrading the wholenetwork of roads, and are a source of general Government funding. Actualexpenditures are, however, below requirements (para. 1.18). In the case ofthe national highway network, for which complete data are available, revenuesfrom road user charges are about 502 above the corresponding costs. Thereis, however, a cross-subsidy element: light vehicles pay well above theircosts and heavy vehicles fall short of covering them.

E. Bank Involvement in the Sector

1.22 The Bank has played a major role in the development of Colombia'stransport system. Since 1950, about $968 million have been lent for 20transport projects, of which $562 million were for highways, $197 forrailways, $125 million for rural roads, $61 million for aviation, and $43million for ports. About $58 million of the tutal lending were cancelled, ofwhich the bulk (952) corresponded to railway loans. Table 4 lists the pastand on-going operations in the transport sector. The main strategy of theBank's lending has evolved from the support of capital-intensiveinfrastructure projects to the growing emphasis on, and support forinstitutional strengthening, improved management of sector agencies, andrehabilitation and maintenance of the infrastructure capital stock. Lendingfor highways and roads has also evolved from specific investment to sector-type or program financing, and performance of these projects is, overall,positive. Such change in strategy has not been possible to achieve in therailways sector, notwithstanding the support of seven Bank-financedoperations that performed poorly.

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1.23 Besides supporting construction and improvement of rural roadsthrough six Agricultural Projects, the Bank has approved two sector loanswith FNCV as borrower and executing agency. The first one (Loan 1966-CO, $33

million, 1981) financed part of a program of road construction andrehabilitation, the purchase of maintenance equipment and tools, and theprovision of technical assistance to strengthen the administration. The

project was successfully completed. The respective Project Completion Report2

highlights that implementation proceeded without major obstacles, albeit withdelays caused by difficulties in providing local funds, and that adequLattention was given to the institutional aspects of the project. The follow-up operation (Loan 2668-CO, $62 million, 1986) is financing part of FNCV'sprogram of construction, improvement and maintenance, the purchase and repairof equipment, and consulting services to supervise civil works and

technically strengthen the agency. Implementation is proceeding well andahead of schedule, as counterpart funds have been strongly supplemented under

two key programs of the present administration: the National Rehabilitationand Fight Against Poverty Programs. Host project objectives have largelybeen achieved even before the project is completed.

F. Country-Sector Strategy

1.24 The Bank's medium-term strategy for Colombia stresses revitalizinggrowth, maintaining external balance and creditworthiness, reducingunemployment and strengthening domestic resource mobilization. Implicit inthese strategies is the need to sustain export expansion, accelerateinvestments, especially ptivate investments, have a competitive and flexiblelabor market, and strengthen supply-oriented policies without relaxingcontrol over demand. Poverty alleviation strategies are also stronglyendorsed by the Bank.

1.25 For transport, a development letter submitted by the Government tothe Bank in April 1987, during negotiations of the Second National HighwaysSector Project (Loan 2829-CO), emphasizes a strategy for policy reform andinstitution building based ons (a) balanced use of existing transportalternatives, through adequate price signals to users and improvements in

marketing and distribution arrangements; (b) equitable treatment of modes and

users of infrastructure, through cost-based pricing policies; (c) lowertransport costs, by improved modal interfaces and higher efficiency inmanaging and regulating operations; (d) adequate investment priority toexport development, agricultural diversification and energy conservation andsubstitution, with emphasis on rehabilitation and maintenance; (e) increasedrole of the private sector, whenever comparative advantages prevail; and (f)

development of institutional and human resources, through comprehensivetraining programs. Measures, in line with these policies, are being actively

pursued with Bank support.

1.26 The Second National Highways Sector Project is helping to strengthenMOPT through financing part of its multi-year paving, rehabilitation andhighway safety programs. In addition, financing is being provided fortechnical assistance, training, and procurement of equipment. Implementationof this project is proceeding as programmed. FNCV's institutionalimplementation capacity has been strengthened and its multi-year investment

2/ Dated July 28, 1988.

program accelerated through the Rural Transport Sector Project. This projectis expected to be completed two years ahead of schedule. The third on-goingproject, Forts Rehabilitation, provides financing for repairs andreconstruction of quays, storage areas a,nd utilities, cargo handlingequipment, and consulting services for technical assistance, studies andtraining.

1.27 The subject of this report, the Second Rural Roads Sector Project,was programmed for an estimated $80 million loan. CONPES, however, whenauthorizing FNCV in late 1988 to request external financing from the Bank,set the loan amount at $55 million, based on overall public debt-managementconsiderations and concerns as to the ability of the Central Government tocontribute from general revenues to the project's counterpart funding. Athird highway sector project is being prepared with an estimated $200 millionloan. If it goes ahead, this project will provide for maintenance andcompletion of rehabilitation of the main highway network. Finally, aproposed Departmental Road Maintenance Project is under preparation, whichwill address the maintenance of secondary regional roads in a sample ofdepartments. The roads sector will then have in place --which is the Bank'ssector strategy-- a solid institutional base, with well-definedresponsibilities: MOPT responsible for the national (primary) highways,regional governments for departmental (secondary) roads, and localgovernments, with help from FNCV, for municipal (tertiary) roads. Otherprojects would then follow to consolidate and expand the experience gained,and to address the transport needs of foreign trade and the domesticdistribution of goods.

II. MAIN ROAD SECTOR ISSUES

2.01 Several issues relating to institutional organization, inter-agencycoordination, maintenance management, planning and funding of expenditureshave been identified in the rural roads sector. The broad country issue ofadministrative decentralization to local governments has also a major bearingon the solutions of sector issues, and efforts to implement a rural roadssystem for planning, scheduling, executing and costing maintenanceoperations, which began to be addressed under the Rural Transport SectorProject (Loan 2668-CO), need to be sustained.

A. Institutional Organization

2.02 As indicated above (paras. 1.07 and 1.09), responsibility forconstruction, improvement and maintenance of roads other than the nationalhighways is not defined in Colombia. A recent survey found that besidesdepartments, commissariats, intendencies and municipalities, about 15 otherinstitutions are involved with road construction and maintenance works. Thelack of clear definition of functions and responsibilities is likely to havecaused the long neglect of maintenance on secondary and rural roads. Inorder to address the institutional-organizational problem, key information isneeded about the length, characteristics, condition and type and volume ofdemand attended by each of the roads in the network which is not part of the

national system under HOPT. A part of these data has been collected andprocessed in the course of project preparation, and the remainder will becompleted during the implementation phase (para. 3.27).

2.03 An important concern during project implementation was the need toprogram a practical and coherent implementation of the Government'sadministrative decentralization policy in the rural roads sector,notwithstanding the lack of basic data and a framework of well-definedfunctions and responsibilities among the institutions involved. The maindecentralization regulations and actions undertaken and programmed to be bythe Government are summarized in Annex 1. After careful study of thesemeasures, FNCV decided that, for its dialogue with local governments to befruitful, its regional offices needed to be strengthened with sufficientdelegation of authority, qualified staff, procedures and resources forproviding technical assistance to local governments, ensuring adequateintergovernmental coordination, and supporting a rational decision-makingprocess (paras. 1.17, 3.04, 3.17 and 3.2C). The Bank agrees and will supportthis process with this project.

B. Inter-Agency Coordination

2.04 Of particular importance is the need to develop aLd implement cleararrangements to coordinate road investment and maintenance decisions. Thisneed became more crucial after the central Government decided in 1988 totransfer value added tax revenues to local governments and simultaneouslyrequired FNCV and local authorities to agree on priorities and cofinancing ofrural road works. Furthermore, as no mechanisms were established and inplace to effectively promote and achieve coordination among local andregional governments, other agencies and iNCV, these were developed by thelatter to frame its dialogue and cofinancing of mutually agreed investmentand maintenance activities. The corresponding regulation issued issummarized in Annex 2. The roles of the existing Regional Planning Councils(CORPES), the National Fund for Development Projects (FONADE), theDepartmental Investment Funds, and the recently created TerritorialDevelopment Corporation need equally to be adjusted; work on this is inprogress.

C. Maintenance Management

2.05 An area with clear scope for improvement is that of road maintenancemanagement. A first step is to inventory the physical and conditioncharacteristics of all the road network and identify the needs of eachadministrative level and individual jurisdiction. On this basis aquantitative and qualitative assessment of technical staff, equipment andfunds available for maintenance then needs to be carried out. Thisinformation, to be obtained under the project (paras. 3.04 and 3.05), willalso allow the required institutional strengthening of the local roadadministrations to be programmed, with emphasis on maintenance by contract,and the eventual and gradual phasing out of FNCV from such activities.Moreover, (as indicated in paras. 1.16 and 1.17), in the course of projectpreparation, FNCV made progress in establishing a Maintenance Division, withfull responsibility for maintenance planning and management, including

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updating the field inventory, developing and implementing key managementsystems, monitoring implementation of the maintenance program, and assistinglocal governments to develop and upgrade their road maintenance capabilitiesto eventually meet the assigned responsibilities (Annex 1 and para. 3.10).

2.06 The different institutions involved also need to coordinate theirmanagement efforts if they are to carry out maintenance to acceptable,country-wide standards of service, avoid duplication of field facilitiesincluding workshops, and efficiently use the specialized labor and equipment.At present, there are notorious inefficiencies caused by lack ofcoordination, for example: programming construction of the same or competingrural roads; tertiary rural roads with the same or higher engineeringstandards than more important secondary collector roads; and equipment fleetswith an inappropriate mix of the different types of units, poorly suited tomaintenance activities, and with low utilization rates. Additionally, MOPThas 23 regional distr.ict offices, each one staffed and possessing equipment,workshop facilities and stocks of spare parts, and operating in practicallythe same locations where FNCV's regional offices are established. Thoughinformation is sketchy and unreliable, all departments, commissariats andintendencies, and a large number of local governments also have workshops,mechanics, spare parts, tools and equipment of their own.

2.07 Routine maintenance activities on the secondary and rural roadnetwork, when performed, are mostly undertaken directly by FNCV and theregional and local road entities. As an exception, limited maintenance iscarried out by "lengthmen", that is, peasant workers contracted to assist inmaintaining short sections of roads. As routine maintenance has not beenperceived as a priority activity and its execution has not been based upon anadequately prepared and monitored program, there is little awareness of costsand accountability, The lack of data on costs and actual maintenance workperformed by FNCV's regional offices and regional and local administrationsdo not allow any meaningful quantitative assessment of costs andeffectiveness.

D. Planning and Funding of Expenditures

2.08 FNCV's arrangements for selecting and programming works on ruralroads are changing as a result of the decentralization process. Requestsformulated by communities, local governments and other regional bodies aswell as assessments made by FNCV's regional offices used to be the bases foridentifying possible road works, but the initiative has now been placedsquarely on the local governments. Each local government is expected toidentify possible road works and FNCV, jointly with other agencies involvedand regional authorities, is expected to review them, formulate alternatives,estimate costs and program the required actions, including studies, leadingto execution. To this end, specific methods and decision-making criteriahave been developed as part of the project preparation to evaluate anddetermine priorities of different road expenditures (Annex 4), ensurecoordination and secure financing (Annex 3), and establish the scope of therequired engineering studies.

2.09 The budgetary process in Colombia, as it applies to public nationalentities, has serious implications for management of the highways and roadssectors because of its lack of flexibility. Notwithstanding a recent

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revision to link the budget to investment and medium-term financing programs,the process is based on initial quotas cet for each agency's current andcapital expenditures, after global revenues have been estimated on accrualmethods for the fiscal year. FNCV, as other agencies, prepares then adetailed draft budget with funds for capital expenditures allocated on aproject-by-project basis. After discussions with Council for Fiscal Policy,created earlier in 1989,3 the capital and current budgets are combined andsent to Congress for approval as part of the General Budget. Once approved,the Council for Fiscal Policy still reviews and approves monthlyexpenditures. In recent years the allocation of budget funds to specificindividual projects, often insufficient initially, coupled to otherconstraints, has caused the practice of requesting additional resourcesimmediately after the budget has been approved. This has produceduncertainty, though often the additional resources ultimately obtained werelarge relative to the originally approved budget. Program budgeting andcoordination with regional and local governments are yet to be implementedacross the public sector, and are an important part of the Bank's economicdialogue with the Government.

2.10 FNCV's three main sources of funding, earmarked and quasi-earmarked4

resources, external loans and Central Government contributions, will expand,beginning in 1989, with local government funds resulting from the transfer ofvalue-added tax revenues under the decentralization scheme. In principle itis intended that earmarked and quasi-earmarked funds from sharing in thefuel, beer and airport tax revenues should cover debt-service and currentexpenditures. In 1988 they fell somewhat short, providing 292 of theavailable resources. External loans and central Government contributions,which in 1988 represented 33Z and 21? of total funding available,5 providedfor investment programs, with the latter source also covering the debt-service and current expenditures financing gap. Options for increasingFNCV's own resources relative to central Government funds, which aredifficult to predict, need to be reviewed. Such a review will be supportedby the project (para. 3.07) and, in order to be effective, will be carriedout after the new cofinancing arrangements and funding levels have been putinto practice and assessed.

2.11 The recent growing share of debt-service funding requirements andthe decreasing contribution of revenues from fixed earmarked tax sources haveplaced FNCV in a situation such that, beginning in 1990, it would not havebeen able to finance capital and maintenance expenditures unless additionalresources were provided. CONPES, at the time of authorizing FNCV to apply tothe Bank for this project's loan, and for this purpose only, approved theCentral Government's contribution of $60.6 million during the period1990-1993, earmarking it to assist in meeting the debt-service paymentobligations from past loans.

3/ Comprising the Minister of Finance and Public Credit, two ministers,the head of DNP and a Secretary to the Presidency.

4/ Funds from specific sources and variable revenue-sharing arrangements.

5/ Excluding funds in the budget of other agencies for which FNCV isexecut agency.

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III. THE PROJECT

A. Proiect Ori&in and Objectives

3.01 The project was preliminarily identified in the course ofimplementing FNCV's investment and maintenance program, which is partiallyfinanced by Loan 2668-CO. Both the National Rehabilitation and the FightAgainst Poverty Programs emphasize development, improvement and maintenanceof rural roads in an effort consistent with the Government's overall policiesof expanding exports, improving living conditions in rural areas and creatinga favorable environment for private investment, employment growth. and accessto social resources. Through a better, precisely defined and improvedinstitutional framework, the project will allow FNCV to be more effective inimplementing fundamental economic and social Government policies, includingthe decentralized decision-making process in the rural roads sector.

3.02 The main objective of the project is to contribute towards achievingthe country's economic and social goals, by:

(i) helping classify the road network and define functions andresponsibilities of national, regional and local (municipal)authorities, and develop, strengthen and organize accordinglytheir institutional capacity for managing rural road activities;

(ii) ensuring, over a realistic time frame, satisfactory implementationof key policies in the roads s3ctor, including those related tothe administrative decentralization process, road maintenance andinvestment programming, coordlination and resource mobilizationbetween agencies at different administrative levels;

(iii) consolidating positive institution-building advanceb in roadmanagement initiated by FNCV under the Rural Transport SectorProject (Loan 2668-CO) and during preparation of this project,especially in programming and supervision of civil works,strengthening of its Regional Offices and organizing themaintenance activities; and

(iv) contributing to the financing of a balanced four-year investmentand maintenance program.

B. Project Description

3.03 In the last ten years, the extension of the rural road networkunder FNCV is estimated to have grown at an average of close to 4Zannually, from about 16,300 km in 1979 to about 25,200 km at present. Morerecently, however, expansion of the network, far from completed, hasrightly given way to progressive improvement, rehabilitation andmaintenance of roads to adequate engineering and road-user standards which,in the past, were below requirements. The project is FNCV's 1990-1993Investment and Maintenance Program and has been designed as a sectorinvestment operation. Only selective construction of new roads has beenconsidered under the project, basically targeted to support efforts toalleviate rural poverty, increase production in agriculture and facilitate

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access to social services. An important part of the project, however, isrelated to road improvements through construction of small bridges anddrainage structures, which are lacking along existing roads. Improvement,construction and the substantive part of the periodic maintenance roadworks programmed for the network will be carried out under contract withnational and regional civil engineering construction firms. Routinemaintenance, some periodic maintenance, and emergency works to restoreservice to traffic in damaged road sections will be carried out throughFNCV's own force account. This will require that some units of FNCV'sequipment fleet be repaired under the project.

3.04 Investments in training, studies and supervision of civil works,and in institutional strengthening of FNCV itself and the local roadadministrations are also included in the project. The project will supportcompleting the physical and condition inventory of the road network, anddefining and structuring the institutional functions and managementresponsibilities in the roads sector. Technical assistance, includingtraining, to local administrations for road management, especiallymaintenance management, will be key to identify needs, assess present andrequired capabilities, and draw up action programs (para. 3.27) toeffectively maintain annually agreed sections of the network, andeventually the whole network. This assistance, supported b; the projectand focused on local governments as they become involved with the project'scivil works, will be provided by the Advanced School for PublicAdministration (ESAP), a specialized public sector training agency whichwill be under contract with FNCV, and by selected FNCV staff, guided, andwhen necessary reinforced, by consultants. The outline of terms ofreference is given in Annex 5. A wide spectrum of existing road managementpractices, technical knowledge, tools and procedures are available in FNCV,including methods for screening and programming of investments, design,construction, maintenance and supervision standards and specifications.They can and should be shared and used by all government administrationlevels, if the roads sector is to be run efficiently.

3.05 At the same time, FNCV will continue to strengthen its owninvestment programming and maintenance management capability, withparticular emphasis on training staff of the regional offices and therecently approved Maintenance Division (para. 2.05), and making furtherprogress towards implementing a maintenance management system. FNCV willprepare training programs with scope, schedule and beneficiariessatisfactory to the Bank, and which will be jointly reviewed by September30 every year. The maintenance management system, developed with financingfrom Loan 2668-CO, has begun to be operational with the integration of datafrom the field inventory of roads, and the programming and monitoring ofroad maintf.Aance activities. FNCV's regional offices will constitute thebackbone for assisting the decentralized decision-making process in theroads sector to secure consistency between local priorities and regionaland national objectives, provide adequate technical and economic input atlocal level, and define and coordinate with all agencies involved acoherent co-financing strategy. To this end, and during projectpreparation, the necessary regulation was issued creating a technicalcoordinating committee in each region chaired by the head of the respectiveFNCV regional office and made up of representatives from the regionalgovernment and other agencies with involvement in rural roads. Theregulation is shown in Annex 2.

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3.06 FNCV's regional offices will constitute the foundation upon whichto build the capability of local governments, and eventually of regionalgovernments, and ensure the smooth transfer of responsibilities under thedecentralization policy. To this effect, they will also discuss and agreeupon action programs with local governments under the guidance of theMaintenance Division, and will assist and monitor their implementation(para 3.27). The functions and staff positions of both the MaintenanceDivision and the regional offices have been approved, and are acceptable tothe Bank. In addition, the staff consisting of (a) nine engineers in theMaintenance Division, besides the Division Chief, and (b) at least threeroad civil engineers, an economic/planning analyst, and the necessaryadministrative and technical support personnel for each of the regionaloffices where road works are programmed to be carried out during the firstyear of project implementation (1990), were reviewed and found acceptableby the Bank. For subsequent years, and before considering whether civilworks sub-projects in any region are eligible, the Bank will also need toreview and be satisfied that the number and quality of staff in therespective FNCV regional office are adequate for the programmed amount ofwork. Consultants will also be hired for design and supervision of civilworks.

3.07 Although road user charges are estimated to more than cover thecosts presently associated with maintenance, rehabilitation and upgradingof the whole network of roads in Colombia (para. 1.21), these constitutepredominantly central Government general revenues.6 With time, the sectorhas had to rely increasingly on contributions from central governmentfunds, as earmarked revenues from fixed tax sources lose real value withtime. However, with the transfer of value added tax revenues to localgovernments, these will constitute another source able to finance roadworks. The project will include a study of FNCV's and the rural roadsfinancing structure with a view to creating new sources and updating orchanging others, where appropriate, and assessing the form and type ofcentral government contributions, if required.

3.08 The project amounts to an estimated $157.1 million7 during the1990-1993 period (Table 5), with maintenance road works accounting for39.02, construction for 25.5Z, improvements for 26.72, studies andsupervision for 6.7Z, technical assistance and training for 1.22, andequipment repairs and spare parts for 0.9Z. The project affords continuityto the prugram presently implemented under the Rural Transport SectorProject, though this time taking more specifically into account (a) theidentified road physical and management requirements; (b) a strategy toexpand routine maintenance coverage to larger segments of FNCV"ie network;(c) a strategy to balance the investment effort between road rehabilitationand construction, following national and regional objectives andpriorities; and (d) projections of sources and uses of funds. Investmentsfor the first year of the project were defined early in 1989, in time tocarry out the economic confirmation and engineering studies, the latterfinanced by the on-going Loan 2668-CO. Each investment in the yearly

6/ Except for revenues from tolls and vehicle registration fees.

7/ Excluding road investments in integrated rural development projects,which will continue to be funded under other agencies' budgets, andI clil d 1 ^ FNCV's si ervisi, .

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program and budget requires agreement from local governments (para. 2.04).Table 6 shows the physical targets of the project.

3.09 Under the project, routine maintenance will be strengthened andregularly carried out on an average of 6,500 km each year. The annualroutine maintenance program for the first year of the project (1990), shownin Table 7, is based on that part of the network which was built or isprogrammed to be built or upgraded to engineering st&ndards that makeeffective maintenance possible. Table 8 shows the part of the periodicmaintenance program, also for the first year of the project, that will becarried out directly by FNCV's own force account effort. Other maintenanceworks, especially surface grading, will also be carried out by FNCVresponding to or anticipating emergencies. An estimate prepared based onpast experience is shown in Table 9. Labor-based activities will becarried out through arrangements with "lengthmen" (para. 2.07) and locallabur cooperatives (known as micro-enterprises), thus fostering employmentcreation and private-sector involvement.

3.10 DNP established that the decentralization must aim at transferringthe responsibility for maintaining 'municipal' roads to local governments.The project will support the gradual transfer of such responsibilities tolocal authorities, beginning with that part of the network found suitablefor applying "lengthmen' or labor cooperative systems, once adequateinstitutional capability (technical, financial and managerial) is developedand in place. This, however, will be a long-term effort. Meanwhile,FNCV's new Maintenance Division (para. 2.05) will undertake to effectivelymanage maintenance on this agency's network, and to transfer know-how andassist strengthening the maintenance capability of local roadadministrations. Periodic maintenance, mainly regravelling of roads, hasbeen programmed to be carried out on an average 1,100 km each year duringthe 1990-1993 period, with priority assigned, again, to technicallyfinished roads. Roads to be regravelled by contract will be 'packaged' toform small networks, when technically practical, to attract the interestand stimulate the formation of regional firms, and to achieve economies ofscale. FNCV's regional offices will perform periodic maintenance underforce account where and when contracting proves not to be economic andefficient (e.g. scattered roads, remote and isolated areas). The projectalso entails improvement of about 1,650 km and construction of about 950 kmof roads, including about 1,100 m of simple short-span bridges and drainagestructures during the 1990-1993 period.

3.11 The project's average annual investment and maintenanceexpenditures programmed for 1990-1993 represent a real annual growth ofabout 5Z when compared with the 1980-1984 period. On the other hand, itwill be less than half the level of investment in 1987, a year ofexceptionally high FNCV capital expenditures in direct support of both theNational Rehabilitation and Fight Against Poverty Programs. During theproject's implementation period, however, the aggregate level of investmentand maintenance expenditures remains constant, in line with the strategy toshift emphasis from construction to less capital-intensive road maintenanceand improvement activities. Consistently with the policy of expanding thecontracted out road works, including maintenance, the project does notinclude new road construction and maintenance equipment. It does, however,include expenditures to rehabilitate existing equipment and build up astock of fast-consumption spare parts for FNCV's maintenance fleet. For

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routine maintenance, expenditures in real terms during the 1990-1993 periodare programmed to average several times the 1983-1988 levels, which wereclearly inadequate.

3.12 FNCV's expenditures will ve funded (Table 10) through: (a)earmarked revenues (0.22), from taxes on beer consumption and higher roadproperty values related to road improvements; (b) quasi-earmarked revenues(45.3Z), from taxes on vehicular fuel consumption and charges to airportusers; (c) local governments' and prizate entities' appropriations (6.1Z);(d) Central and regional governments' contributions (26.OZ); and (e)foreign loan disbursements (22.4%). The projected funding level takesinto account the amount authorized by CONPES for external financing for theproject (para. 1.26), and DNP's forecast of the evolution of relevant taxrevenues and central government contributions. Funding by localgovernments has been conservatively estimated based on official projectionsof value-added tax revenue transfers, preliminary discussions held withlocal authorities, and road priorities identified. This source, however,is likely to increase its share in total funding and reduce the generalrevenue contributions. Funding levels assumed to be provided underagreements with regional governments and the private sector, mainlyFEDECAFE, were also conservatively estimated following preliminarydiscussions on their involvement in the project, and past experience.

C. Rationale for Bank Involvement

3.13 In line with the country and sector strategies (paras. 1.24 to1.26), continuing the Bank's assistance to the rural roads sector willsupport policies designed primarily to reform and develop the requiredinstitutional framework and begin addressing the issues outlined in theprevious chapter, with one major objective: to effectively maintain andimprove the access of rural communities to social services and markets.The Bank is and has been the major source of assistance to FNCV and therural roads sector. Experience with two previous projects has been good,and management and staff are motivated and keen to further achieveinstitutional advances, under Bank financing, and help transfer technicaland management know-how to regional and local road authorities.

D. Description of Costs and Financing of Loan Components

3.14 The loan will finance certain components or a sub-set ofactivities of the project. The project, because it is based on annuallyreviewed physical targets, investment and maintenance expenditures, andfinancing levels and sources, provides the necessary flexibility to adaptto changing developmental circumstances and revised priorities, especiallynow that coordination with local governments is mandated under the newdecentralization regulations (para. 2.08). Of the $157.1 million estimatedas the cost of the project, the proposed loan of $55 million represents 352of the total. This amount, set by CONPES when authorizing FNCV to applyfor a Bank loan (para. 1.44), and the $11.9 million provided by the on-going Loan 2668-CO are below the project's foreign cost component of $83.9million. The remaining portion of the foreign costs, $17.0 million, willbe met by FNCV.

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(ii) Periodic maintenance, including resurfacing, of at least 2,100 kmby FNCV's own force account, with a cost including contingenciesof $8.9 million (6Z of the project's cost), and no loanfinancing;

(iii) Maintenance grading of at least 500 km of earth-surfaced dry-weather roads by FNCV's own force account, with a cost includingcontingencies of $4.4 million (3Z of the protect's cost), and noloan financing;

(iv) Periodic maintenance by contract, including resurfacing, of atleast 2,250 km, with a cost including contingencies of $27.2million (172 of the project's cost), and loan financing of $9.3million (172 of the loan);

(v) Improvement works by contract of at least 1,300 km of existingroads and completion of at least 1,100 m of bridges and drainagestructures, with a cost including contingencies of $37.9 million(242 of the project's cost), and loan financing of $20.8 million(382 of the loan);

(vi) Improvement works by PNCV's own force account of at least 300 km,with a cost including contingencies of $4.0 million (32 of theproject's cost), and no loan financing;

(vii) Construction works by contract of at least 800 km of rural roads.with a cost including contingencies of $38.1 million (24Z of theproject's cost), and loan financing of $18.7 million (342 of theloan);

(viii) Construction works by FNCV's own force account of at least 150km, with a cost including contingencies of $4.0 million (32 ofthe project's cost), and no loan financing;

(ix) Repair of existing units in FNCV's road maintenance equipmentfleet, and acquisition of a stock of fast consuming spare parts,with a cost including contingencies of $1.5 million (1? of theproject's cost), and loan financing of $1.0 million (0.5Z of theloan);

(x) Engineering designs and services for supervision of civilengineering works, with a cost including contingencies of $10.6million (72 of the project's cost), and loan financing for $4.8million (8.52 of the loan);

(xi) Training, technical assistance, including the review of road-funding strategies, and other services, with a cost includingcontingencies of $1.8 million (12 of the project's cost), andloan financing of $0.9 million (1.52 of the loan).

3.16 The table on the following page summarizes the estimated costs ofthe project's components8 and the relation with the parts to which loanfinancing will be applied. Details are given in Table 5.

8/ -ii ive of 18s i d duties estV kted to amount to $13 million

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Foreign Local Total BankCost Cost Cost Loan 2-($--------- ( S million) ------ ____

Maintenance Works 27.7 27.3 55.0 8.4 15.3Improvement Works 17.8 17.9 35.7 19.5 35.4Construction Works 22.0 14.7 36.7 15.8 28.7Engineering Designs &Civil V;rks Supervision 4.2 5.1 9.3 4.2 7.6Training, TechnicalAssistance & OtherServices 0.8 0.9 1.7 0.8 1.5Equipment Repairs &Spare Parts 1.0 0.4 1.4 1.0 1.8Total Base Cost (mid-1989 prices) 73.5 66.3 139.8 49.' 90.3Physical Contin;encies 5.0 3.9 8.9 2.9 5.3Price Contingencies 5.4 3.0 8.4 2.4 4.4TOTAL COST 83.9 73.2 157.1 55.0 100.0

3.17 The base costs are estimated at mid-1989 prices (June 30, 1989).Cost estimates for civil works, including periodic maintenance, take intoaccount FNCV's technical specifications for different roads, roadactivities and topographic conditions, and are based on a review ofrecently contracted unit prices in areas characterized for homogeneousquality and availability of road materials. The cost estimated forconsulting services is based on market rates for local and foreignconsultants. Past experience indicates that, given the simple nature ofthe civil engineeriwng road works involved in the project, the contractsfor design 'nd supervision attract competition from only local consultingfirms. Foxeign consultants have been estimated to assist in carrying outother studies and in providing technical assistance and training.Physical contingencies have been considered varying relative to the basecost of each type of civil engineering work involved; 102 forconstruction, 52 for improvements and 4Z for periodic maintenance. These,in turn, bear on cost estimates for supervision of civil works. Theprovisions for price escalation assume constant purchasing parity of theColombian currsncy over the project's life period and a projected foreignprice index variation of 2.72 p.a. from mid-1989 to mid-1990, 3.5% p.a.from mid-1990 to mid-1992, and 3.7Z p.a. from mid-1992 onwards. TheseGovernment projections do not differ significantly from those projected bythe Bank (3Z p.a. for 1987-1990, 4Z p.a. for 1990-2000).

3.18 (Jnder the broad-ranging decentralization regulations, PNCV isrequired to secure local cofinancing for capital and maintenanceexpenditures on rural roads, under cost-sharing conditions established byits Board of Directors. The cost-sharing formulae take into account theexpected level and the average cost of the different types of roadinvestments. Annex 3 shows the corresponding FNCV directive. Experiencewill indicate if the cost-sharing formulae need to be adjusted.

E. Environmental Considerations and Economic Justification

3.19 Long-standing regulations of the Colombian Government requirethat an ecological-environmental study be carried out prior to any action

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likely to cause deterioration of natural resources or the environment.Rather than carrying out such studies, the scope of which, as defined bythe specialized Government agency (INDERENA), often would have had highcosts, FNCV has normally chosen in the past to design construction ofroads avoiding culturally and environmentally sensitive areas. Suchconsiderations, however, were not linked to the economic evaluation andselection procedures agreed with the Bank under the previous projects, andhave not been systematically applied. In the co- se of projectpreparation, procedures have been developed to integrate environmental andeconomic considerations, from the initial screening stage through to thefinal selection and inclusion in the project, in line with thedecentralization policies and objectives. Details are given in Annex 4.Moreover, INDERENA will be involved when local priorities are reviewed atthe stage of regional cocrdination (para. 3.20), in areas sensitive to theenvironment. During appraisal, agreement was reached with FNCV on theevaluation procedures and criteria to be followed, and on the evidencerequired to be submitted to the Bank, for review of results obtained andconsideration of candidate construction and improvement sub-projects forloan financing.

3.20 A basic economic-environmental evaluation will be made for eachconstruction and improvement component, whether individual road or groupof roads in a specific area network, to be selected for inclusion in theproject's detailed annual budgets and, in the case of improvement works,for possible loan financing, beginning in 1990 and every year thereon.This evaluation will confirm the corresponding rel;.tive priority, afterhaving cleared the local screening and subsequent regional coordinationstages of the sub-project selection procedures. As a first step, thelocal governments screen community and other requests for road works,obtain pertinent basic economic, social and environmental data, anddetermine relative local priorities. As a second step, the screeningresults are reviewed for consistency and coordination by all theinterested parties: the respective local and regional administrationlevels, FNCV's regional office, and other institutions and agencies withinterests in the road sector such as Committees of Coffee Growers and theIntegrated Rural Development Fund. As a third step, the economic-environmental studies are made of each road investment that survives thisscreening to confirm or not their priority and inclusion in the project.The contracting of the engineering studies then follow.

3.21 For periodic maintenance components, a technical evaluation ofthe road conditions based on updated surveys will be required. Duringnegotiations, agreement was reached with FNCV that investments forimprovement and constcuction sub-projects will be selected only if theyyield economic rates of return (ERR) higher than 122, and after priorityallocation of funds to periodic and routine maintenance activities onroads built with sound technical criteria to all-weather traffic servicestandards.

3.22 The project will directly benefit the rural population ofColombia, not only by improving access to social and market services,integrating remote and isolated areas, and following a balancedinvestment-maintenance strategy, but mostly by guiding and facilitatingthe decentralization process in the roads sector, with FNCV, the onlyagency in the country with technical expertise on rural roads, and the

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local governments, jointly becoming more responsive to road needs andpriorities of the rural population of each municipality. Producer andconsumer surplus benefits derived from lower economic transport costs willbe quantified (mainly higher farm-gate prices for production, lower farm-gate costs for agricultural inputs, productivity increases,diversification of production, increases in area under cultivation,reduction of spoilage due to improved all-weather transit road conditions,and lower passenger transport costs). In certain areas where ruraltransport services are not competitive, the evaluation criteria allow forreductions in transportcosts which would not be fully passed along to farmers and otherproducers.

F. Assessment of Issues and Risks

3.23 This will be the third operation in the roads sector with FNCV asborrower and executing agency. It has been prepared on the basis ofexperience gained, particularly during implementation of the RuralTransport Sector Project, and involves simple proven civil engineeringtechniques. The project has been reviewed in depth and found acceptable.in view of the identified investment requirements, FNCV's managingcapability, and the competitive capacity of the construction industry.The implementation schedules for the project are in line with thosealready experienced in recent periods and under normal circumstances.9

3.24 There are two main issues connected to and dealt with under theprojecti the level of funding, particularly from two sources (local andcentral governments), and the institutional arrangements for effectivelocal participation in road planning and management.

3.25 As indicated (para 3.18), the cost-sharing formulae between FNCVand local governments for different road works have been established.However. it will be necessary to review the implementation results, and,if warranted, revise the formulae as these were defined, for practicalreasons, with limited consultation with local authorities. In addition toassessing the ability of local governments to cofinance road works, theCentral Government will be in a position to study and reform the ruralroads financing structure, and define its own funding contribution. Theresulting uncertainty is minimized by the agreement reached duringnegotiations that (a) the project and the adequacy of its fundingarrangements will be monitored and reviewed jointly with the Bank, by notlater than March 31 and September 30 of each year, beginning not laterthan March 31, 1990; and (b) based on the conclusions of the joint review,a program of actions to improve project implementation, acceptable to theBank, will be drawn up and carried out. Furthermore, agreement was alsoreached with the Government that, through DNP, it will review the findingsand recommendations of the study that FNCV will carry out by August 31,1990 (para.3.07 and Annex 6) on strategies to mobilize revenues for ruralroads, especially for maintenance, and that it will formulate, and discusswith the Bank, a program of actions, acceptable to the Bank, including the

9/ Disregarding the effect of exceptional efforts, funded in 1987, toimprove the road access to depressed areas through the Government'sNational Rehabilitation and Fight Against Poverty Programs.

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revision of funding sources for rural roads, by not later than December31, 1990.

3.26 A second issue relates to the readiness of local governments to(a) correctly use methods and procedures developed to locally identify andscreen possible road investments, in the context of the administrativedecentralization process, and (b) develop their capa!)ility to graduallyassume maintenance responsibilities (para. 3.10). Though the methods andprocedures are simple, the disposition of local governments to agree andcorrectly use them remains to be assessed in practice. Additionally, theinstitutional capacity of local and regional road authorities will have tobe developed and strengthened before the full-fledged transfer of roadmaintenance responsibilities can be achieved. Technical assistance andtraining for local road administrations (paras. 3.02 and 3.04), and FNCV'scofinancing available to performing local governments (para. 3.27) willreduce this element of uncertainty.

3.27 During negotiations, it was be agreed that: (a) no investmentsub-project will be included each year in the project's budget, beginningin 1990, unless the methods and procedures followed for evaluating itspriority and inclusion in the project and budget are consistent with thosedeveloped by FNCV and included in the project: (b) through MOPT, theGovernment will complete the condition inventory of all roads, exceptnational highways, by not later than July 31, 1990, will have afunctional-jurisdictional road classification proposal by not later thanOctober 31, 1990, and will lay down the corresponding regulation by notlater than January 31, 1991; and (c) with local administrations involvedin the project, FNCV will draw up action programs, beginning by not laterthan September 30, 1990, to develop capacity and assume, within areasonable time frame, full responsibility for maintenance management ofthe respective networks; such action programs to be reviewed and monitoredjointly twice a year by FNCV and the Bank, and when so required with thelocal administrations, by not later than March 31 and September 30 of eachyear, beginning not later than September 30, 1990.

IV. PROJECT IMPLEMENTATION DETAILS

A. Sub-project Selection

4.01 The loan will finance component sub-projects of the project,following criteria for selection already indicated (paras. 3.19 to 3.21).In accordance with the program approach adopted for both this project andthe Rural Transport Sector Project, some civil works and supervisioncontracts, selected and financed initially under the latter, may requirecompletion under this project, once Loan 2668-CO funds are depleted.Furthermore, the assistance to local administrations that will be providedby FNCV and consultants will need to start as early as possible, andpreferably before 1990, in order to help implement the new investmentscreening, programing and co-financing procedures (para. 3.18).Additionally, economic, environmental and engineering studies for a largenumber of improvement and constructlon civil engineering sub-projects, andengineering studies for periodic maintenance sub-projects have been and

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are being carried out under Loan 2668-CO. These have been revised forconsistency with new procedures, and will constitute the bulk of the roadworks financed by the project during the first year (1990), and the basisfor appraisal. The list is shown in Table 11. Other sub-projects will beadded in later years, following the findings of the twice-yearly jointreviews of the project (para. 3.25).

4.02 The Bank will review and approve every sub-project to be eligiblefor loan financing. In order to be considered for financing under theproposed loan, civil works sub-projects and other project components willhave to be technically and environmentally sound and economicallyjustified. Besides meeting the requirements for inclusion in the project(paras. 3.19 to 3.21, 3.25 to 3.27), during negotiations it was agreedthat no road improvement, construction or periodic maintenance sub-projectwill be selected for loan financing unless the corresponding, sufficientlydetailed engineering studies have been completed prior to actual tenderingof the works. With the resulting cost estimates, and also beforetendering, ?NCV will update the economic priority justification ofimprovement and construction sub-projects, and propose revisions, ifwarranted. Furthermore, it was agreed during appraisal of the project,and confirmed during negotiations, that, for civil works sub-projects inany particular region and year, beginning in 1991 and throughout theproject's implementation period, to be considered eligible for loanfinancing, the Bank will require to be satisfied with the implementationof the routine and periodic maintenance programs in the preceding year.

B. Implementation and Procurement

4.03 Implementation of the project will be the responsibility of FNCV,except for (a) the classification of the characteristics and condition ofall roads in Colombia which are not national highways, and the subsequentregulation of the institutional scope and functions of regional and localgovernments to manage them; and (b) the preparation and implementation ofa program revising the road funding structure and sources. Responsibilitywill lie with the Government, with the former implemented through MOPT andthe latter implemented through DNP according to agreed schedules (paras.3.25 and 3.27). Furthermore, and notwithstanding the primary role thatFNCV will play in transferring know-how and providing technical assistanceto local authorities for their gradual assumption of road managementfunctions (paras. 3.26 and 3.27), it will necessarily share theimplementation responsibility with the entities that choose toparticipate. The project, its financing and its implementation will bemonitored twice a year jointly with the Bank (paras. 3.25 and 3.27), withparticular attention given to the compliance wil. tnnual targets (Tables 6to 9), financing arrangements and funding available, and actualdisbursement performance.

4.04 The accessibility --for security reasons-- of areas where projector sub-project components are proposed will also be considered during thetwice-yearly reviews; loan financing will be directed to project or sub-project components in areas judged by the Government sufficientlyaccessible to allow implementation and Bank supervision (a changingsituation during implementation will warrant shifts in programmed loan-financed expenditures).

- 23 -

4.05 Implementation, hindered int the past by largely inflexibleallocations of funds *o 'ndividual sub-projects in the budget (para.2.09), will improve with funds allocated to specific activities or sub-programs (e.g. bridge construction, periodic maintenance, routinemaintenance, road improvement, road construction), or to specific regions(individual or grouped departments, commissariats and intendencies),rather than to individual sub-projects. The list of individual componentsub-projects for which the funds will be jointly allocated, will continueto be detailed in the budget for planning and performance evaluationreasons. During negotiations, agreement was reached that, beginning in1990. the Government will approve, and FNCV will submit its yearly budget,based on funding requirements of and allocations to specific activity orregional sub-programs, but continuing to identify the component sub-projects to the extent possible.

4.06 The schedule of main events for implementing the project,including key Bank processing steps, is shown in Annex 7. Appraisal wascarried out in April 1989, and presentation to the Bank's Board ofDirectors will be in November 1989. Loan effectiveness is expected byJanuary 1990. The project is expected to be completed in 1994, allowingfor late 1993 contracting of the last civil works sub-projects.

4.07 Procurement arrangements for components of the project to whichloan financing will be applied are shown below. The figures in bracketscorrespond to the estimated loan financing.

Procurement ProceduresLCB OTHER TOTAL----------$ million_-----------

-Maintenance Works 11.5 4.0 15.5(6.9) (2.4) (9.3)

-Improvement Works 34.8 --- 34.8(20.8) (---) (20.8)

-Construction Works 30.3 --- 30.3(18.2) (---) (18.2)

-Engineering Designs & --- 10.6 10.6Civil Works Supervision (---) (4.8) (4.8)

-Training, Technical --- 1.8 1.8Assistance & Other (---) (0.9) (0.9)Services

-Equipment Repairs &Spare Parts 0.4 1.0 1.4

(0.3) (0.7) (1.0)

Total 77.0 17.4 94.4(46.2) (8.8) (55.0)

4.08 Contracts for periodic maintenance and improvement road works,when geographically and technically practical, will combine roads in

- 24 -

different areas so as to promote competitiveness in the constructionindustry, and permit efficient scaling and scheduling of the work. Civilengineering works contracts estimated to individually cost less than theequivalent of $1.0 million but more than $53,000 equivalent, andindividual contracts for goods estimated to cost more than $25,000 butless than $100,000 equivalent, will be awarded, following the Bank'sguidelines for procurement, through local competitive bidding (LCB)procedures. Although not expected to occur, in the event of individualcivil engineering works contracts estimated to cost more than thee(uivalent of $1.0 million, and individual contracts for goods estimatedto cost more than the equivalent of $100,000, procurement will follow theBank's guidelines for International Competitive Bidding (ICB). Contractsfor civil engineering works estimated to cost the equivalent of $50,000 orless per contract, up to an aggregate amount not to exceed $5,000,000equivalent, and contracts for goods estimated to individually cost theequivalent of $25,000 or less, may be awarded through local shopping, thatis, following a procurement method based on comparing price quotationsfrom at least three bidders. With prior agreement of the Bank,proprietary items as part of individual supply contracts or as componentof individual equipment repair contracts may be awarded through directcontracting.

4.09 Prequalification of civil engineering contractors will be basedon FNCV's permanent register, and foreign contractors will be permitted toregister individually or in joint venture with local firms. Prior Bankreview of bidding documents, advertisements, evaluation of bids, and awardrecommendations will not be required for civil engineering works and goodscontracts. Sample bidding documents, however, were reviewed and agreedupon during negotiations, and will be normally used for procurement ofciv!l works. After completion of each contracting process, FNCV will sendto the Bank two copies of the bidding documents, the evaluation of bids,the bid award, and the legalized contract. The Bank will have the rightto reject the contract if the sub-project has not been previously declaredeligible for financing, or if the procurement procedures followed are notthose discussed and agreed upon during negotiations.

4.10 Services from consultants will be procured according to therelevant Bank guidelines. Individual consultants may be hired throughdirect contracting arrangements when their services are estimated to cost$20,000 equivalent or less. Terms of reference, letters of invitation andlists of qualified candidate firms or individual consultants will besubmitted for the Bank's prior review and acceptance. Subsequently, theevaluation of proposals and the recommendation for selection of aconsultant, as well as the related d:aft contract, will also be submittedfor prior review and acceptance by the Bank. For engineering designstudies and supervision of civil engineering works, standard terms ofreference and contract formats will need to be reviewed and accepted bythe Bank, prior to selecting and contracting the services of consultants.These procurement arrangements were agreed upon during negotiations.

4.11 Civil engineering works contracts of the project not financedunder the loan will be implemented through competitive procurementprocedures. Exceptions to this procedure will be considered only underspecial circumstances, such as when works are small and scattered and inremote locations, and when competitive bidding procedures have failed to

- 25 -

interest bidders or result in reasonable prices. Direct contracting willthen be considered, unless force account implementation could be justifiedas a more economic procedure, and be properly monitored. Duringnegotiations, it was agreed that the value amount and justification ofconstruction, improvement and periodic maintenance road works programmedto be carried out and carried out through direct contracts and forceaccount will be reviewed and monitored jointly twice a year by FNCV andthe Bank by not later than March 31 and September 30 of each year,beginning not later than March 31, 1990.

C. Disbursements, Accounting and Auditing

4.12 Disbursements will be made against the following categories ofeligible expenditures: (a) 60? of total expenditures under contracts forcivil engineering road works; (b) 45% of total expenditures underconsulting services contracts for engineering studies and supervision ofcivil works; (c) 1002 of foreign expenditures or 502 of local expendituresfor technical assistance and training services; and (d) 100X of foreignexpenditures or 802 of local expenditures for spare parts for FNCV'smaintenance equipment fleet.

4.13 The estimated schedule of disbursements is shown in Table 12.The Government's aim is to substantially complete the project'scommitments by December 1993, and the implementation schedule has beendeveloped on this basis. As experience shows that some slippage is likelyto occur, the disbursement profile adopted corresponds to the average ofBank-financed transport projects in Colombia, which i.- six and a halfyears. Consistent with this, the estimated loan closing date is December31, 1995.

4.14 To speed up reimbursement to FNCV for approved expenditures to befinanced by the loan, a Special Account will be opened in the Banco de laRepublica with an initial deposit of $5.0 million made from the loanaccount, a figure representing average loan-financed expenditures duringfour months, including advance payments to contractors. As implementationof the project will require disbursements against a large number of smallcontracts, applications for replenishment of the Special Account will besubmitted on the basis of periodic statements of expenditures (SOE) forall contracts valued at the equivalent of $1 million or less. Thisprocedure has proven satisfactory under the previous two projects. Duringnegotiations, agreement was reached on the terms and conditions foroperation of the Special Account.

4.15 In the course of preparing the project and supervising the on-going Rural Transport Sector Project, the accounting and internal controlsystems were reviewed and found satisfactory. Moreover, FNCV staff fromits Financing and Accounting Division have benefitted from specialtraining offered and conducted by the Bank's Loan and Trust FundsDepartment. In addition, FNCV's operations and accounts have regularlybeen audited by Colombia's Comptroller General's Office and found in goodorder. Recommendations by the auditors for improvement have focused onaccounting and monitoring of force account expenditures by FNCV's regionaloffices. Corrective actions are being implemented as part of thestrengthened and decentralized new roles of the regional offices. During

- 26 -

negotiations, it was agreed that FNCV will have its records and accounts,the Special Account, the Statements of Expenditures and all other project-related accounts audited each fiscal year in accordance with appropriateauditing principles applied by independent auditors, acceptable to theBank, and that annual audit reports will be prepared and forwarded to theBank not later than four months after the end of each fiscal year,beginning in 1990.

D. Monitoring

4.16 During negotiations, agreement was reached that FNCV --and, whenappropriate, DNP and MOPT-- and the Bank will jointly and from time totime review progress in implementing and regularly updating the project.Prior to each review, FNCV will orepare summary information on progress inachieving the project's objectives and components, and for each sub-project included in the project will have available for consultation allrelevant supporting documentation. For sub-projects included in eachrecurrent detailed period of the project but not yet under implementation,information will be provided on the selection process followed, theresults of the environmental-economic studies, the bidding, the evaluationand the award procedures, the bill of quantities and cost estimatesresulting from the engineering studies, the cost- sharing arrangementsmade, and the implementation schedule. For sub-projects and targets inthe later years of the project information on the status of identificationand selection will be provided. For sub-projects under implementation,information on actual and programmed physical and disbursement progressagainst the approved implementation schedule will also be included. Ofparticular importance will be the information on actual performance,programmed scope, productivity and costs of the routine and periodicmaintenance programs and sub-projects.

4.17 Furthermore, in order to monitor progress in preparing, updatingand implementing the project and other related action programs (paras.3.25, 3.27 and 4.11), agreement was reached during negotiations that FNCVwill provide information on the actual and programmed availability andexecution of budgetary funds. and on the composition and status ofprograms, sub-programs and portfolio of eub-projects, by region and typeof road activity, and any other reports and data that the Bank mayreasonably request.

V. AGREEMENTS AND RECOMMENDATIONS

A. Agreements Confirmed

5.01 The following agreements were confirmed during negotiations:

(i) FNCV will prepare training programs with scope, schedule andbeneficiaries satisfactory to the Bank, and which will be jointlyreviewed by September 30 every year (para. 3.05);

(ii) prior to considering eligibility of civil works sub-projects in

- 27 -

any region (department, commissariat and intendency), the Bank toreview and be satisfied with the number and quality of FNCV staffassigned to the respective regional office (para. 3.06);

(iii) the project, its implementation and funding to be monitored andreviewed jointly by FNCV and the Bank, by not later than March 31and September 30 of each year, beginning not later than March 31,1990; based on the conclusions of the joint review, a program ofactions to improve implementation, acceptable to the Bank, to bedrawn up and executed (paras. 3.25, 4.03, 4.11 and 4.16);

(lv) technical, economic and environmental evaluation methods andprocedures to be followed for selection and inclusion in theproject of construction, improvement and maintenance sub-projectsto be consistent, beginning in 1990, with those developed byFNCV; such methods and procedures to be revised, if warranted,during the joint, twice-yearly reviews by FNCV and the Bank,beginning in 1990 (pare. 3.27);

(v) evidence required to be submitted to the Bank for review andconsideration of candidate sub-projects for loan financing(paras. 3.19, 4.16 and 4.17);

(vi) investments for candidate construction and improvement sAb-projects to be selected for inclusion in the project only if theyyield ERRs higher than 122, and after priority allocation offunds to periodic and routine maintenance activities on roadsbuilt to all-weather traffic service standards (para. 3.21);

(vii) the Government, through DNP, to review the findings andrecommendations of the study, to be carried out by FNCV by notlater than August 31, 1990 (para. 3.25), on strategies tomobilize revenues for rural roads, especially for maintenance,and to formulate and discuss with the Bank a program of actions,acceptable to the Bark, including the revision of funding sourcesfor rural roads, by not later than December 31, 1990 (para.3.25):

(viii) the Government, through MOPT, to complete the condition inventoryof all roads, except national highways, by not later than July31, 1990, send to the Bank a functional-jurisdictional roadclassification proposal by not later than October 31, 1990, andput into effect or submit to Congress the correspondingregulation by not later than January 31, 1991 (para. 3.27);

(ix) together with local administrations involved in the project, FNCVto draw up, beginning not later than September 30, 1990, actionprograms to develop their capacity to assume, within a reasonabletime, full responsibility far managing maintenance of theirrespective networks; such action programs to be reviewed andmonitored as part of the joint, twice yearly reviews by FNCV andthe Bank, and when so required by the Bank with the localadministrations, beginning not later than September 30, 1990(para. 3.27);

- 28 -

(x) no construction, improvement or periolic maintenance sub-projectto be selected for loan financing unless the corresponding,sufficiently detailed engineering studies have been completedprior to actual tendering of the works (para. 4.02);

(xi) prior to considering eligibility of civil works sub-projects inany region (department, commissariat and intendency) for 1991 andevery year thereafter, the Bank to review and be satisfied withthe implementation performance of the respective routine andperiodic maintenance programs during each preceding year (para.4.02);

(xii) the accessibility of areas where project or sub-projectcomponents are proposed will be considered during the twice-yearly reviews, with loan financing directed to eligibleexpenditures in areas judged sufficiently accessible for projector sub-project implementation and supervision (para. 4.04);

(xiii) beginning in 1990, FNCV to prepare and submit its yearly budget,and the Government, through DNP, to approve the format, based onfunding requirements of activity or regional sub-programs, butcontinuing to identify the component sub-projects to the extentpossible (para. 4.05);

(xiv) procedures, arrangements and related matters for procurement ofcivil works and professional services (paras. 4.07 to 4.11);

(xv) contracts for periodic maintenance and improvement of roads, whengeographically and technically practical, will combine roads indifferent areas so as to promote competitiveness in theconstruction industry, and permit efficient scaling andscheduling of the work (para. 4.08);

(xvi) value and justification of road works proposed for directcontracting and force account procedures to be reviewed andmonitored in the joint, twice-yearly reviews by FNCV and theBank, beginning on March 31, 1990 (para. 4.11);

(xvii) terms and conditions for operating the Special Account (para.4.14); and

(xviii) independent auditors to audit FNCV's accounts, the SpecialAccount and all other project-related accounts, in accordancewith appropriate auditing principles, and to prepare and forwardto the Bank annual audit reports not later than four months afterthe end of each fiscal year, beginning in 1990 (para. 4.15).

B. Recommendation

5.02 Subject to the above, the project provides a suitable basis for aBank loan of $55.0 million. The terms will be 17 years including a five-year grace period.

COLOMBIA

SECOND RURAL ROADS SECTOR PROJECT

Domestic Transport Demand (1980-1985)

F R E I G B T (million)

YEAR ROAD RAIL RIVER TOTALTONS TON-KM TONS TON-KM TONS TON-KM TONS TON-KM

1980 26.7 18,025 1.9 882 2.0 1,287 30.6 20,1941981 27.4 20,816 1.4 641 1.9 1,140 30.7 22,5971982 28.1 22,321 1.1 562 2.0 1,287 31.2 24,1701983 28.8 21,485 1.2 665 2.0 1,140 32.0 23,2901984 29.5 22,130 1.3 745 1.9 1,287 32.7 24,1621985 30.0 22,793 1.3 774 2.1 1,382 33.4 24,9492 of Total(1985) 89.8 91.4 3.9 3.14 6.3 5.5 100.0 100.0

P A S S E N G E R S (million)

YEAR ROAD RAIL RIVER TOTALPASS PASS-KM PASS PASS-KM PASS PASS-KM PASS PASS-KM

1980 379.4 19,958 2.2 315 0.2 57 381.8 20,3301981 369.1 19,414 1.7 230 0.2 69 371.0 19,713198% 386.7 20,343 1.2 158 0.3 79 388.2 20,5801983 390.3 20,530 1.3 175 0.3 82 391.9 20,7871984 390.0 20,515 1.4 193 0.3 87 391.7 20,7951985 397.3 20,900 2.4 230 0.4 120 400.1 21,250

SOURCE: FNCV, based on estimates by MOPC and FNC.September 1988

- 30 -

TABLE 2

COLOMBIA

SECOND RURAL ROADS SECTOR PROJECT

Fleet of Road Vehicles by Type of Service (1985)

T Y P E O F S E R V I C E

JURISDICTION TOTAL PRIVATE PUBLIC OFFICIAL-------------------- (000)-

ANTIOQUIA 176.2 137.7 35.3 3.1ATLANTICO 60.4 43.3 15.5 1.6BOLIVAR 26.4 18.8 6.4 1.2BOYACA 33.3 20.8 12.0 .6CALDAS 31.1 23.4 6.9 .8CAQUETA 3.0 1.9 .8 .3CAUCA 14.7 10.7 3.3 .7CESAR 11.3 8.5 2.5 .3CHOCO .4 .1 .2 .1CORDOBA 18.9 10.2 8.2 .3CUNDINAMARCA 170.9 152.2 16.9 1.9D.E.BOGOTA 258.2 199.0 46.4 12.8GUAJIRA 6.8 4.2 2.4 .2HUILA 15.1 10.6 3.8 .6MAGDALENA 17.2 13.2 3.5 .6META 17.7 12.8 4.5 .4NARINO 17.5 10.6 6.6 .3NORTE DE SANTANDER 19.6 10.5 8.3 .8PUTUMAYO 1.6 1.0 .6 .1QUINDIO 18.7 13.7 4.6 .4RISARALDA 21.7 16.1 5.0 .6SAN ANDRES 2.6 1.3 1.2 --

SANTANDER 56.6 42.7 12.7 1.2SUCRE 9.3 5.9 3.2 .2TERRITORIOS NACIONALESt-AMAZONAS .1 -- -- --

-ARAUCA .3 -- .2 --

-CASANARE .8 .6 .1 --

-GUAVIARE -- -- __ --

-VICHADA -- -- -- --

TOLIMA 31.1 21.3 9.3 .6VALLE 154.5 112.8 34.2 7.5

TOTAL 1,196.0 903.9 254.6 37.2

SOURCE: INTRASeptember 1988

- 31 -

TABLE 3

COLOMBIA

SECOND RURAL ROADS SECTOR PROJECT

FNCV'S Road Netvork by Resional Jurisdiction

JURISDICTION LENGTH (K)

ANTIOQUIA 2.594ATLANTICO 251BOLIVAR 852BOYACA 2.485CALDAS 641CAQUETA 737CAUCA 862CESAR 453CHOCO 159CORDOBA 421CUNDINAMARCA 1.725GUAJIRA 425HUILA 1.878HAGDALEN& 653META 1.748NARINO 1.312NORTE DE SANTANDER 789PUTUMAYO 272QUINDIO 433RISARALDA 427SANTANDER 1.251SUCRE 795TERRITORIOS RACIONALES 868-AMAZONAS-ARAUCA-CASANARE-GUAINIA-GUAVIAR1-VAUPES-VICHADATOLIMA 1.218VALLE 1.001

t.OTAL 24.250

SOURCE: FNCVOctober 1988

- 32 -

TABLE 4

COLOMBIA

SECOND RURAL ROADS SECTOR PROJECT

Past and Ongoing Operations in Transport

ApprovedAmount

Sub Sector Loan;Credit Year tmillion Name

Highways 43-CO 1951 16.5 First Highway84-CO 1953 14.3 Second Highway144-CO 1956 16.5 Third Highway

05-CO/2C5-CO 1961 39.00 Fourth Highway550-CO 1968 17.20 Fifth Highway680-CO 1970 32.0 Sixth Highway1471-CO 1977 90.00 Seventh Highway2121-CO 1982 152.30 Highway Sector2829-CO 1987 180.30 Second Sector

Sub-Total 557.85

Rural Roads 1966-CO 1981 33.50 Rural Roads

Rural Transport 2668-CO 1986 62.00 Rural Transport

Railways 68-CO 1952 25.00 First Railway119-CO 1955 15.90 Second Railway267-CO 1960 5.40 Third Railway343-CO 1963 30.00 Fourth Railway551-CO 1968 18.30 Fifth Railway926-CO 1973 25.00 Sixth Railway2090-CO 1981 77.00 Seventh Railway

Sub-Total 196.60

Aviation Domestic1624-CO 1978 61.00 Aviation

Pipelines IFC-R76-66 1976 Loans to13.00 PROMIGAS S.A.

Equity in2.00 PROMIGAS S.A.

Sub-Total 15.00

Ports Ports2635-CO 1985 42.80 Rehabilitation

TOTAL 968.25

SOURCE: IBRD Files

- 33 -

TABLE 5

COLOMBIA

SECOND RURAL ROADS SECTOR PROJECT

Project Costs

1990 1991 1992 1993 TOTAL

…_________------…($ million)-----------------

Construction 15.3 13.7 7.2 3.9 40.1

Improvement 9.0 6.8 11.9 14.2 41.9

Periodic Maintenance 15.4 4.7 7.5 8.5 36.1

Routine Maintenance 4.0 4.8 5.6 6.4 20.8

Emergency Maintenance 1.8 1.3 0.8 0.5 4.4

Equipment Repairs andSpare Parts 0.6 0.6 0.2 0.0 1.4

Designs and Supervision 3.1 2.6 2.5 2.4 10.6

Technical Assistanceand Training 0.7 0.5 0.4 0.2 1.8

TOTAL 49.9 35.0 36.1 36.1 157.1

SOURCEs FNCVOctober 1989

- 34 -

TABLE 6

COLOMBIA

SECOND RURAL ROADS SECTOR PROJECT

Physical Targets of the Proiect

1990 1991 1992 1993 TOTAL

Construction:

Roads (km) 362 306 170 101 939

Canals (km) 2 - - - 2

Improvement:

Roads (km) 375 283 454 534 1,646

Bridges and Culverts (m) 72 172 403 473 1,120

Periodic Maintenance (km) 1.673 750 942 1,013 4,378

Routine Maintenance (km) 5,000 6,001 7,001 8,000 26,002

Emergency Maintenance (km) 210 150 95 66 521

SOURCEt FNCVApril 1989

COLOMBIA

SECOND RURAL ROADS SECTOR PROJECTAnnual (1990) Routine Maintenance Progrm

Culvert Bridge

Side Clearing Side Land Waterway Retaining

Vegetation Drainage and Scour Drainage Surface Slide and Scour Wells

Clearing Clearing Control Shnping Patching Grading Removal Control Repairs

Region (Kc) (Km) (units) (ml) (,2) (p8) (Km) (in) (units) (me)

Antioquia 100.2 e6 1506 les8 12730 2668 241.0 8425 32 2a9

Atlintico 28.6 22 70 2t9 2665 88 65.8 1021 5 27

Bolivar 68.6 74 89 1s5 11040 2208 208.9 8992 11 196

soya" 65.8 60 810 605 7700 1540 167.3 8801 7 105

Caidas 67.1 67 1069 1802 885 1677 168.0 686a 12 169

Caquet 97.1 s6 862 1402 12875 2476 221.8 6862 15 128

Cauca 102.8 Be 1124 1788 18050 2610 248.2 7987 16 219

C6sr 8B.0 S1 68 862 8740 746 77.7 18a8 1 84

C6rdoba 99.4 77 403 1520 11400 2260 211.8 6651 10 181

Cundin marce 118.6 99 856 1984 1s86o 2786 277.1 092 14 265

Choc6 68.1 48 164 946 7160 1480 182.2 4109 20 111 |

u aIjra 22.2 21 68 258 2510 602 58.0 1068 3 31 0

Hulls 48.4 as 86 8 768 6526 1065 108.4 3620 10 108

Magdplona 76.7 B6 62 1817 6177 1858 165.8 6282 21 182

S.'

Culvert BridgeSide Clearing Side Land Waterway Rtaining

Vegeation Drainage and Scour Drainago Surface Slide and Scour WSIsClearing Clearing Control Shaping Patching Grading Removal Control Ropairs

RelIon (Kl) (VA) (unite) (.8) (.2) (.2) (Kl) (.8) (units) (me)

Met 71.9 04 8 86 964 9170 1884 800.1 3410 8 74

NariRo 58.4 64 486 706 6726 184t 188.6 2878 5 76

N. de Santander 42.9 87 15 748 5245 1049 104.9 3627 B 108

PO_mYO 47.5 48 89 627 6060 1210 106.8 2179 7 46

Quindfo 68.6 el 8 69 1010 B l60 1680 166..4 4609 10 127

Riearalde 26.6 28 841 68 8020 604 61.6 1592 7 44

Santander 69.6 62 239 948 7800 1520 188.7 394J 7 108

Suare 6.4 6 16 69 726 146 16.0 265 1 7

Territorlog

Tel r.. 64.9 67 584 1048 6825 1505 157.6 4888 8 189

Vail* 47.8 41 240 820 6890 1078 76.8 8910 6 114

TOTAL 1468.9 1290 9990 28406 178027 86228 2499.6 108077 238 2847

Source: FNCVSeptembr 1989

COLOMBIA

SECOtND RUtAL ROADS SECTOR PROJECT

Annual (1090) Periodic Maintenance Program by FNCV u Own Force Account

Lined Bridge SideRegravelling Side Side Retaining Repair and Land Drainage Clearing

Vegetation and Surface Drainage Drainage Walls Scour Slide Reconstruc- ofCloering Compacting Grading Shaping Repair Rpaire Control Reoval tio: Culverte

Region (km) (kmn) (.8) (km) (62) (.8) (a) (.8) (units) (13) (a) (units)

Antloqui 62.0 48.0 42760 10? 820700 14175 S88 186 0.4 79470 1167 460

Atlintloo 2.4 1.2 1160 6 14778 602 1 1056 47

Bolivar 20.8 14.1 14006 85 10060 4658 116 67 26214 876

BoYcS 22.2 12.5 12162 49 181479 4948 64 48 0.0 16162 486 164

Cold" 15.0 10.0 9666 27 7969 8761 121 55 20682 266 814

Cquet 2.9 2.0 2020 6 15150 556 6 4 2727 64

Cume 9.8 6.5 6400 16 46000 2040 48 25 0.0 11160 172 108

Cigar 21.7 11.0 106"4 5 186090 4517 2 22 0.1 6178 485 87

Cirdoba 11.6 6.C 7960 20 59850 2494 6C 29 18466 216

Cundin_arca 81.4 19.6 19412 62 174878 7649 198 95 0.1 86608 607 262

Choci 6.1 4.5 4200 11 81500 1804 28 15 0.1 7007 118a 6

Cuajira 6.0 2.9 2900 12 37265 1816 9 9 8468 120

Hufla 4.2 8.0 2618 6 22968 1018 27 1s 0.1 4957 80 44

aglene 18.6 8.7 6606 27 76078 8a88 89 48 16140 288

Lined Bridge Side i5Regravelling Side Side Raining Rpalr and Land Drainage Clearing *

Vegtation and Surface Drainap Drainage Wall Scour Slide Recontruc- of " 0Clearing Cmacting Gradlno Shaping Repa Ir Repaire Control Removal tion Culvert.

Region (km) (km) (68) (km.) (o2) (.8) ( ) (.8) (unite) (.8) (a) (unite) ,0

mea 29.6 21.0 20440 61 15880 580? 22 a8 0.2 24766 U9 11$

NMriso 17.4 9.0 9081 40 105428 8786 27 2 0.1 9706 848 189

N. de Santnder 16.6 10.5 10416 88 92061 4086 107 52 19180 822

Putiumy. 8.5 2.5 2440 61680 68 2 4 2892 64 so

Quindio 67.6 49.0 48462 180 44821? 19889 84 198 74064 1648

Riear ldo U.5 19.0 16689 78 196082 7592 120 ?8 27244 667 410

Santander 17.5 12.5 12040 sO 90800 8679 62 86 0.1 18578 822 149

Sucre 9.2 4.6 4647 19 67500 1924 2 10 8678 166

TolIms 8.4 2.0 2045 6 19182 608 16 9 8628 66

Vaill 14.1 9.0 O860 27 77566 8408 91 44 0.1 16449 272 114

TOTAL 461.6 286.9 281866 908 2661062 102899 1989 1088 1.1 446771 878a 2446

Source: FNCVOctober 199

- 39 -

TABLE 9

COLOMBIA

SECOND RURAL ROADS SECTOR PROJECT

Annual Provision (1990) for Emergency Maintenance of Roads

Platform Land Slide Side DrainageLength Reconstruction Removal Reconstruction

Region (km) (km) (m3) (km)

Antioquia 20.3 5.6 33,500 6.0Atltntico 2.3 0.5 2,400 0.3Bolivar 9.8 4.0 23,540 4.1Boyact 25.1 6.1 31,000 4.2Caldas 7.2 2.1 13,000 2.7Caquet& 9.6 2.5 16,000 0.0Cauca 10.7 2.9 16,600 2.8Cdsar 6.9 2.0 13,300 2.6C6rdoba 7.2 1.9 10,800 1.8Cundinamarca 17.9 4.8 27,900 4.0Choc6 2.1 0.6 3,100 0.5Guajira 4.8 1.1 5,500 0.7Huila 14.3 3.9 23,100 4.1Magdalena 9.2 3.0 17,810 3.1Meta 16.6 3.8 17,700 2.0Narifo 12.6 3.0 14,100 1.7N/Santander 9.8 3.7 21,620 3.8Putumayo 3.4 1.0 6,600 1.3Quindlo 4.2 1.2 6,900 1.2Risaralda 3.8 0.9 5,000 0.7Santander 12.4 3.1 17,000 2.6Sucre 7.6 1.8 9,100 1.2TerritoriosTolima 12.0 3.1 17,800 2.9Valle 10.2 2.8 16,300 2.9TOTAL 240.0 65.4 369,670 57.2

Source: FNCVJuly 1989

- 40 -

TABLE 10

COLOMBIA

SECOND RURAL ROADS SECTOR PROJECT

FNCV'S Sources and Applications of Funds

(H Millions)

1990 1991 1992 !993

SOURCES

10? National Road Fund 27.80 28.70 29.50 30.40Government Contributionto Debt and Service 11.10 16.80 17.90 14.80New Loan 10.69 14.18 15.09 15.04Other, (Including SpecialGovernment Programs) 1.70 1.49 0.75 3.37

Municipal Funds 2.85 3.52 3.85 4.15Civil Av. Fund 2.30 2.30 2.20 2.20Agreements 0.74 0.74 0.75 0.76Beer Tax 0.16 0.14 0.12 0.10Property Tax 0.01 0.01 0.01 0.01

TOTAL 57.35 67.88 70.17 70.83

APPLICATIONS

Investments 28.54 34.85 36.46 36.83Debt Service (Govt.) 11.10 16.80 17.90 14.80Administration 8.00 8.06 8.13 8.20Debt Service (FNCV) 9.71 8.17 7.68 11.00

TOTAL 57.35 67.88 70.17 70.83

SOURCE: FNCV and Bank EstimatesOctobeL 1989

-41 - TABLE 11Page 1 of 4

COLOMBIA

SECOND RURAL ROADS SECTOR PROJECT

First Year Civil Works Program

Region Municipality Sub-Proiect Length (km)

Antioquia Taraza-Caceres Barro Blanco-El 10.6Calvario

Remedios Santa Isabel-Rio Mata 13.2Arboletes Carmelo-Lim. Cordoba 4.0

(Sector Garrapatas-Agua3 Vivas)

Atlantico Piojo Aguas Vivas-Saco 7.7Piojo Hibacharo-Piojo 5.0

Bolivar Nechi-Achi Villa Uribe-P.Nuevo- 25.0Las Flores

Simiti Simiti-San Luis-San 25.5Pablo (Sector Simiti-

San pablo- San Luis)Simiti Simiti-San Luis-San 20.5

Pablo (Sector CruceRamal)

Boyaca Labranzagrande Labranzagrande-Pisba 24.0Pisba (Sec kml5-Pisba)Pauna Ibacapi-Alto del 20.0

Sarval (Lim.Santander)

Ramiriqui Ramiriqui (km 24.07.5)-San Antonio-Fatima

Caldas Supia' La Clara-La Trina- 9.0Gaspar-Guascal

Samana El Chochal-El Bosque- 12.0El Abejorro (SectorKO-K 12)

Caqueta Montaflita La Union-Peneya- 6.0Solano (Sectorkml5-km2l)

Belen de los Aletones (km9)-Los 5.0Andequies AngelesSan Jose del Yurayaco-Fraguita- 3.0Fragua Angostura (Sec

kmlZ-Zabaletas)San Jose del San Jose-Yurayaco 23.0Fragua (km23)San Vicente S. Vicente-Lozada- 29.0

Llanos Yari (SeckiO-Los Pozos)

- 42 -TABLE 11Page 2 of 4

Region Municipality Sub-Prolect Length (km)

Cauca Sta. Rosa Sta. Rosa-La Marquesa 15.0Timbio Alto de S.Jose-Pan de 19.0

Azucar-El PorvenirCajibio- Dinde-El Playon 17.0Morales (Sector km9-km26)El Tambo Granada-La Paloma 20.0

Cesar Manaure Manaure-Sabana Rubia- 25.0Frontera

Curumani Curumani-Bobilandia 3.0(Sector K30-K33)

San Alberto El Pescado-La Cuabre 12.0

Cordoba Tierralta Palmira-El Diamante 12.0Tierralta Carepa-Saiza 10.4Pto. La Rica-Pto. Lopez- 4.8Libertador Tierradentro

Cundinamarca Yacopi Bilbao de Theran- 10.0LLano Mateo

Choco Acandi Titumate-Balboa-San 11.2Miguel-Acandi (Sectorkml7-kmK35)

Unguia Unguia-Sta. Maria 17.0(Sector km8-Sta.Maria)

Guajira Villanueva Villanueva-La 16.0Culebrera

Huila Algeciras-Pto. Aguas Claras-Santana 24.7Rico RamosSuaza Avispero-Alto 13.5

HorizonteBaraya Las Perlas-Rio Negro 8.0

Magdalena Fundacion La Cristalina Alta-La 10.0Galaxia

San Sebastian El Escudo-San 15.0Sebastian

El Dificil El Dificil-Bellavista 19.5Fundacion Santa Rosa-La 26.0

Cristalina Alta

Meta Vistahermosa Conexion Trochas 28 a 11.030-San Juan de Arama

Lejanias Naranjal-Guarumal 9.5

- 43 -

TABLE 11Page 3 of 4

Region Municipality Sub-Project Lengrh (km)

Nariflo Policarpa Remolino-Altamira 7.0Cumbal San Felipe-Tiuquer- 15.0

San JuanMallama El Guavo-La Oscurana 7.0

(Sector kmlO-kml7)El Rosario Remolino-El Rosario 15.0

(Sector kmlO-kml5)Los Andes Sotomayor-Aminda 25.0

Norte de El Carmen Guamalito-Culebritas- 12.0Santander Santa Ines (Sector

km8-Vegas de Aguilar)Tibu Versalles-Playa 7.0

CotizaOcafia Ocana-La Virgen-Lim. 14.0

Cesar (Sec PurgatorioLim. Cesar)

Labateca Labateca-La Angelina- 20.0Pamplona La legia

Chitaga-Toledo San Bernardo- 21.0Chucarima

Putumayo Kocoa Condagua-Yunguillo 6.0

Quindio Pijao Maravillas-El Salado- 8.0Valle del Chili

Genova Limites-San Juan 6.0Alto-Costa Rica

Genova El Cedral-La Maizema- 18.6La Topacia

Risaralda Pueblo Rico Regaderos-La Cumbre- 17.0Citru-Soaya-Danubio

Balboa San Luis-Cruces- 17.0Tambores-Esparta

La Celia La Celia-La Montoya- 15.0La Planta

Santander Guacamayo Guacamayo-Sta. Rita- 16.0Rio Oponcito

Pto. Wilches Sta. Catalina-Bocas 14.0del Rosario-Vijagual

La Paz Santa La Paz-Mirabueno- 24.0Helena Santa HelenaCimitarra Cimitarra-La India 28.0Saa Vicente Angosturas-Varsoria 8.2

- 44 -

TABLE 11Page 4 of 4

Region Municipalitv Sub-Project Length (km)

Sucre Majagual San Marcos-Majagual 30.0(Sector La Siernita-Majagual)

Since Since-Buenavista 26.4Buenavista

Territorios Puerto Inirida Rio Inirida-Rio 37.0Nacionales Guainia

Paz de Ariporo Teislandia-El Vergel 8.5Tamara-Sacama El Degredo-El Vergel 14.5Puerto Carreno El Progreso/Gaviotas 34.0

Tress Matas-RemediosPuerto Carrefio Guerima-Puerto 22.0

OrientePuerto Carreffo La Primavera-Puerto 40.0

Carreflo

Tolima Ataco Santiago Perez- 5.0Campohermoso

Ronceavalles Roncesvalles- 20.0Yerbabuena

Villarica La Colonia-Alto 7.0Altamizal

Caparral Chaparral-San Jose de 10.0las Hermosas

Valle Bolivar Catres-El Embarcadero 25.0

Sourcet FNCV

October 1989

- 45 -

TABLE 12

COLOMBIA

SECOND RURAL ROADS SECTOR PROJECT

Loan Disbursement Schedule1

($ Million)

Bank FY and Disbursed in CummulativeQuarter Ending Quarter FY Disbursement 21990 9.1March 31, 1990 7.52 7.5 14June 30, 1990 1.6 9.1 17

1991 7.5September 30, 1990 1.6 10.7 20December 31, 1990 1.6 12.3 22March 31, 1991 2.5 14.8 27June 30, 1991 1.8 16.6 30

1992 7.7September 30, 1991 1.7 18.3 33December 31, 1991 1.7 20.0 36March 31, 1992 2.5 22.5 41June 30, 1992 1.8 24.3 44

1993 7.7September 30, 1992 1.7 26.0 47December 31, 1992 1.7 27.7 50March 31, 1993 2.5 30.2 55June 30, 1993 1.8 32.0 58

1994 7.7September 30, 1993 1.7 33.7 61December 31, 1993 1.7 35.4 64March 31, 1994 2.5 37.9 69June 30, 1994 1.8 39.7 72

1995 7.7September 30, 1994 1.7 41.4 75December 31,1994 1.7 43.1 78March 31, 1995 2.5 45.6 83June 30, 1995 1.8 47.4 86

1996 7.6September 30, 1995 1.7 49.1 89December 31, 1995 1.7 50.8 92March 31, 1996 2.5 53.3 97June 30, 1996 1.7 55.0 100

SOURCE: FNCV and Bank EstimatesNovember 1988

1/ Corresponds with profile of Bank-financed transport projects inColombia

2/ Includes $5.0 for Special Account

- 46 -

ANNEX 1Page 1 of 2 COLOMBIA

SECOND RURAL ROADS SECTOR PROJECT

Summary of Decentralization Measures

Background

1. Administrative decentralization measures started back in 1983 witha fiscal reform (Law 14) which sought to strengthen local governmentfinances --mainly through increased property taxing powers--, and offsetthe long (40 year) declining share of local and regional fiscal revenues intotal tax resources. The lack of administrative capacity frustrated theeffort by preventing most local governments from regularly updating theproperty tax base and systematically applying the industry and commerce taxand the vehticle registration and licensing charges.

2. In 1986, new legislation (Law 12) provided for the transfer ofcertain responsibilities related to the supply of services in the water,sewerage, health, education, urban transport, urban development,agricultural extension, public works and social welfare sectors. At thesame time, the law transfers increasing shares of the national Value AddedTax 'VAT) revenues to local governments, from close to 212 in 1987(equivalent to $380 million) to the maximum of 502 projected for 1992(equivalent to $700 million). The formula for transferring such resov.rcesrewards local fiscal efforts and favors smaller jurisdictions (less than100,000 inhabitants). The law also stipulates that a fixed 74.2Z of theVAT transfers is to be used for investment and maintenance in specificpublic service facilities and areas, viz. rural roads, river ports,transport terminals, streets, market places, schools, health centers,retirement homes, rural and urban electrification, basin protectionreforestation, parks, cultural and sport facilities, and garbage disposal.

3. Based on Law 12 of 1986, the Government issued Decrees 77 to 81 in1987 identifying the public functions to be transferred to localgovernments from 14 centralized agencies and all five CORPES, and definingthe specific timetable for these changes to be completed. However,insufficient consideration was given to the administrative capacity oflocal governments to assume such responsibilities and, to close such gapsand continue implementing the decentralization process, a series ofregulations need to be proposed, some with effects across sectors andothers sector-specific.

4. Local governments are nominally responsible for maintaining thatpart of the rural roads network considered "municipal". However,substantial preparatory work needs to be undertaken before they are able toassume that function, and realistically, the full transfer is likely torequire a sustained, long-term effort. The extent and characteristics ofthe rural roads have to be inventoried for the network to be subsequentlyclassified and the functions of local and regional governments defined.Organizational structures have to be set up and staffed to deal with thetransferred road manngement functions, and technical, financial andadministrative capacity has to be developed accordingly. Meanwhile, the

- 47 -

ANNEX 1Page 2 of 2

existing decentralization regulations start the process of localparticipation in the decision-making process, and mandate FNCV to establishcost-financing arrangements for capital and maintenance expenditures on theroad network.

5. Notwithstanding the passing of laws and decrees, the studiescommissioned by Government agencies and the draft new regulations underpreparation, the major step towards actual administrative decentralizationwas taken in 1988, when local officials were elected by popular vote for atwo-year term, ceasing to be Central Government appointees.

Implementation To Date

6. Actual implementation of the decentralization policy is still atan early stage. The lack of administrative and technical capacity and oforganizational structure at the local level, as well as the role of theregional governments which was largely overlooked by the presentdecentralization regulations, is slowing down the process. An importantpiece of legislation calling for the creation of a new financialintermediary --the Territorial Developmen., Financial Corporation-- tochannnel credit financing to local governments has not yet been approved.Local governments, moreo-er, still lack clear guidelines for preparingannual budgets though a decree is being prepared laying down some groundrules. Likewise, regulations and practical guidelines have yet to be drawnup in some critical areas of administration such as co-financing,investment selection, management and other logistic arrangements.

7. A Cabinet-level task force --the Public Administration Re-organization Committee-- has been established and met several times duringthe past 18 months to deal primarily with the placement of personnel maderedundant by the organizational changes. Furthermore, an interagency taskforce has been established, with funding from UNDP, to oversee the ongoingprocess and make recommendations, especially to overcome constraints posedby weaknesses in administrative capacity at local level and inadequateintergovernmental coordination. This group is expected to come up with ablueprint for a nationwide system for monitoring implementation and atraining program aimed at strengthening the managing capabilities at thelocal level. Currently, training in accounting, budgeting and personnelmanagement is provided to staff of local governments, but much remains tobe done.

8. In the framework of Law 12 and Decree 77, and in the course ofpreparing the project subject of this report, FNCV developed standards andprocedures, and sought to adapt its organiza%ion and functions toeffectively begin implementing the decentralization policy in the ruralroads sector. Physical and condition characteristics of some 24,000 km ofrural roads were inventoried, a Maintenance Division was proposed withinits organizational structure, technical assistance and coordinatingfaculties were delegated to its Regional Offices and their staff wasincreased, formulae for cofinancing different road works with localgovernments were studied and approved, and procedures for identifying andcoordinating road investment and maintenance expenditures were prepared andhave been approved by decree (Annex 2).

- 48 -

ANNEX 2Page 1 of 3

COLOMBIA

SECOND RURAL ROADS SECTOR PROJECT

Regulation for Regional Coordination of the Roads Sub-sectorl

Decree by which Articles 72 and 73 of Decree 77 of 1988 areimplemented.

The President of the Republic of Colombia, in exercise of hisconstitutional powers, and especially those of Article 120, part 3 of theConstitution, decrees:

Article One.- Cofinancing Requests From Regional and Local Governments.With respect to articles 72 and 73 of Decree 77 of 1988, the heads

of regional and local governments will submit to the corresponding FNCVRegional Offices the requests for construction, improvement or maintenanceof rural roads for which there is interest and willingness to cofinance.The requests will include information on contributions or resourcesavailable or programmed for cofinancing.

Article Two.- Technical Council For Regional Coordination.In each of FNCV's Regional Offices a Technical Council For

Regional Coordination is hereby established with the following members: (a)the head of the FNCV Regional Office, who will chair it; (b) the head ofthe Departmental Planning Office or whoever fulfills such function, (c) thehead of the Departmental Public Works Secretariat or whoever fulfills suchfunction; (d) INCORA's Regional Manager; (e) the Regional Director for theIntegrated Rural Development Fund; and (f) a representative for SpecialGovernment Programs.

In each of FNCV's Regional Offices with functions in Commissariatsand Intendencies the respective Technical Council will have the followingmembers: (a) the head of the FNCV Regional Office, who will chair it; (b) arepresentative of DAINCO; (c) a representative of INCORA; and (d) arepresentative for Special Government Programs.

The Executive Secretary of the Technical Council will rest withthe Chief of the Engineering Section in each FNCV Regional Office.

Article Three.- Functions of the Technical Council For RegionalCoordination.

The Council will fulfill the following functions: (a) review andcomment upon the requests for cofinancing of road construction andimprovement civil works submitted to FNCV's Regional Offices by local andregional authorities, taking into account the cofinancing arrangementsestablished by FNCV's Board of Directors, and the priority programs of theNational Government; and (b) ensure the permanent exchange of informationbetween the different Government agencies in matters related toconstruction, improvement and maintenance of the secondary and tertiaryregional road network.

1/ (Free translation of Decree)

- 49 -ANNEX 2Page 2 of 3

Article Four.- Meetings of the Council.The Technical Council For Regional Coordination will ordinarily

meet every two months, and extraordinarily whenever convened by the head ofriiGV's Regional Office.

The Executive Secretary of the technical Council for regionalCoordination will report the results to FNCV's Director General by notlater than eight (8) days after the end of each meeting.

Article Five.- Approval of Programs and Projects.FNCV's Director General will review the recommendations of the

corresponding Technical Councils for Regional Coordination, and will decidewhich construction and improvement sub-projects or programs can becofinanced. Decisions made will be made not later than ninety (90) daysafter receiving the results of each meeting of the Technical Council forRegional Coordination, and will be reported to the corresponding head ofFNCV's Regional Office, the region's governor (or equivalent) and the localmayors.

Article Six.- Cofinancing.According to the regulation for cr-inancing issued by FNCV's Board

of Directors, the cofinancing contributions of regional and localgovernments may be made in: (a) budget resources; (b) equipment ormaterials; (c) labor; and (d) services for studies, engineering designs orcivil works supervision.

The contribution may be made for a whole progrr.m or for specificsub-projects of a program, including studies, engineering designs, civilworks, maintenance and supervision of road works.

Other public or private institutions may also contribute to thefinancing in the same manner.

Article Seven.- Maintenance.The responsibility for maintenance of the roads constructed and

improved corresponds to the cofinancing regional or local government.

Article Eight.- Property Revaluation.The regional or local government that cofinances a road program or

sub-project, once the works have been completed, will promote therevaluation of the properties that benefitted by the investment.

Article Nine.- Budget Programming.FNCV may submit its draft annual budget with funding allocations

for cofinancing aggregated for each region when the sub-projects have notbeen defined by FNCV's Director General by the deadline for its submissionin the budgeting process. Within the first ten (10) days following the endof each four-month period in the year, FNCV will send to DNP the list ofsub-projects approved.

Article Ten.- Environmental Statement and Studies.Corresponds to local and regional governments to request INDERENA

to define the areas where environmental studies are required prior to theexecution of rural road construction and improvement civil works. If suchstudies are needed, the agency responsible for executing the respective

- 50

ANNEX 2Page 3 of 3

investment program or sub-project will request the approval of scope ofstudy, and will carry out the environmental impact study, according to theregulation established in the National Code for Natural Resources.

Article Eleven.- Technical Requirements for Sub-project Execution.FNCV will issue technical standards for construction, improvement

and maintenance of rural roads which apply to all entities executingcofinanced road works.

Article Twelve.- Validity.This decree is valid from the moment of its publication and

supersedes other regulations.

April 1989

- 51 -

ANNEX 3Page 1 of 2

COLOMBIA

SECOND RURAL ROADS SECTOR PROJECT

Cofinancing Regulations for Local Governments1

The Board of Directors of the National Agency for Feeder Roads, inexercise of its legal powers, especially those assigned by Article 73 ofDecree 77 of 1987, resolves:

Article One.- Percentages of Construction and Improvement Costs to beCofinanced.

The percentage of cofinancing for construction and improvementsub-projects shall be calculated as follows: (a) For municipalities withless than 100,000 inhabitants, the sharing percentage mandated for eachlocal government will be equal to the value resulting from the VAT revenuestransferred each year and restricted to be used for investments, expressedin millions of pesos, divided by ten (10); (b) For municipalities withmore than 100,000 but less than 499,999 inhabitants, 20X of the sub-project's cost; (c) For Departments and Municipalities with 500,000 ormore inhabitants, 302 of the sub-project's cost; (d) For Intendencies andCommissariats, the percentage as in (a) above but applied to all the VATtransfer for investment.

Article Two.- Contribution.The minimum contribution of regional and local governments shall

be the result of applying the cofinancing percentage to the total cost ofthe road work.

When the sub-project execution extends over more than one fiscalperiod, the cofinancing contribution will extend proportionally to theprojected costs of the road work over such period, including adjustments tothe costs (for additional work and price adjustments).

For construction and improvement sub-projects, the contributionsfrom regional and local governments may be made in money or in equivalentworks, studies and supervision of works.

Article Three.- Contribution for Maintenance.The minimum contribution of regional and local governments toward

maintenance shall be: (a) For contract maintenance, the financialcontribution shall be set following the procedure and ruling spelled out inArticles One and Two, above. Labor contributed towards the FNCV-determinedcosts of maintenance activities may also be valued and accounted; (b) Forforce account maintenance, using FNCV staff and equipment, the contributionof regional and local governments shall not be less than the labor requiredfor mowing, cleaning of ditches and culverts, and, if required, materialsand other inputs.

1/ (Free translation of FNCV's Board of Directors Resolution 107, ofDecember 7, 1988)

- 52 -

ANNEX 3Page 2 of 2

Article Four.- Contribution for Force Account Construction.Though FNCV's equipment is primarily used for maintenance

activities, in exceptional cases earth moving works may be carried out overa maximum length of 3 km, in which case the regional or local governmentwill com it itself to supply materials and labor necessary for constructionof drainage elements under the direction of the respective FNCV RegionalOffice.

Article Five.- Contr4bution for Bridge- Construction.The cofinancing contribution of the regional or local government

shqall be determined in the same way as for road construction andimprovement. Besides money contributions, only the equivalent value ofrelated soil and design studies shall be accepted.

Article Six.- Contributions Above the Set Minimum and Central GovernmentPriority Programs.

FNCV shall give preference to those cofinancing requests submittedby regional and local governments which offer to contribute a higher shareof its total budgetted investment resources in the relevant fis-al periods,over and above the minima set in this Resolution, or to those which formpart of Central Government priority programs or projects.

Article Seven.- Implementation Norms.FNCV's Director General is responsible for issuing and adopting

procedures and norms to comply with the present Resolution.

Article Eight.- Validity.This Resolution is valid from the date of publication.

April 1989

- 53 -

ANNEX 4Page 1 of 3

COLOMBIA

SECOND RURAL ROADS SECTOR PROJECT

Outline of Procedures for Selecting Construction andImprovement Sub-proiects, Including Environmental Criterie

1. This annex outlines the procedures, spelled out in FNCV's"Methodology for Socio-economic Project Evaluation", to be consecutivelyfollowed to screen, pre-select and select individual road construction andimprovement investments (sub-projects) for inclusion in the project. Theyrepresent a coherent and systematic approach, supported by economic andenvironmental criteria, to evaluate road investments and determinepriorities. The procedures take into account the functions transferred tolocal administrations by recent decentralization regulations, as well asthe need for efficient coordination between different management levels(local, regional and national) in the roads sub-sector. The timing foreach step to produce the expected results is critical, as the finaldecisions need to made at the time of budget preparation, and engineeringstudies need to be carried out prior to the tendering of works.

2. Timely routine and periodic maintenance works on roads built withadequate technical standards, and the corresponding priority allocation offunds are to be decided on technical grounds, based upon regular level-of-service thresholds.

Local (municipal) Screening

3. The process begins with the identification of possible road worksmade through requests that will be submitted to the mayor or mayors withjurisdiction over the location of the proposed road works. These requests,usually formulated through representatives commissioned by interestedcommunities, are and will continue to be supplemented with those of otherlocal and regional parties and the mayors themselves. The proceduresrequire that requests be accompanied by general and easily obtainedinformation, which the mayor's office collects in a standard form tofacilitate processing. The information refers to (a) the characteristicsand location of the proposed road works (for example, estimated length forconstruction, type of terrain, bridges missing or unsafe, length of poorlydrained or hazardous sections), (b) the distance from the communal or othercenter to the nearest existing road, (c) the number, type and duration ofinterruptions to traffic services, (d) the present population, number andsize (by ranges) of farms, and area under cultivation, (e) the range ofservices presently available (for example, in health, education, banking,agriculture extension), (f) the basic infrastructure available (forexample,irrigation, aqueducts, electrification), and (g) the naturalforests, parks, reserves, flood plains, springs and river sources in thearea.

- 54 -

ANNEX 4Page 2 of 3

4. The standard form also includes est mates of costs, appropriate toeach region, topographic area and type of road work, which are provided toeach mayor by FNCV, through its Regional Offices, and a system of points torank the requests. With the ranked requests and the specific cost-sharingarrangements established by FNCV and corresponding to each municipality andtype of road work, the procedures require the mayors to review the localfinancing available and decide which sub-projects constitute localpriority, which can be postponed and which dropped. This step is to becompleted by March 31 of each year, for possible inclusion in the programand budget of the following year.

Regional Pre-selection

5. Road investment sub-projects screened as local priority by themayors are then sent to the Director of the corresponding FNCV RegionalOffice. The procedure at this stage requires that the local priorities andsupporting information be reviewed with a regional perspective, togetherwith relevant planning, environmental and public works policies andguidelines, data from the inventory on road conditions and, when available,each municipality's actual performance and programmed activities, as agreedunder the project, to gradually assume full management responsibility formaintaining the classified network of the rural roads (para. 2.25 and2.26). To this end, the head of each FNCV Regional Office is required toprepare a draft annual road works program, based on the lists of screenedlocal priorities, and convene and chair the meeting of the RegionalCommitte formed with representatives from the regional government(department, commissariat or intendency), usually the Secretary for PublicWorks or the Head of the Planning Unit, and the national and regionalagencies, special programs and private agencies with regional involvementin roads.

6. The Regional Committee is to meet every two months to ensurecoordination between local and regional objectives and priorities, anddetermine and monitor the contribution from the represented bodies towardscost financing, in addition to the funding committed from local sources.Particularly important to the task of the Regional Committee is theobjective of balancing the construction and improvement investment effortwith the capacity and expenditure effort for road maintenance. Hence,information on road conditions and activities carried out by the regionaladministrations, as well as on expenditures and funding available arecritical to the task of the Regional Committee that, through the head ofFNCV's Regional Offices, is required to submit to FNCV's management inBogota a revised draft annual work program for the region and itscorresponding financing. The procedure recommends that a list of "standby' sub-projects be considered, in case some of those in the draft programdo not meet the final requirements for inclusion in the project.

- 55 -

ANNEX 4Page 3 of 3

Evaluation and Selection

7. The next step requires that FNCV, through its Planning Unit,review the information received from each Regional Committee, with theobjective of ensuring consistency between local-regional and national roadinvestment priorities and policies. FNCV then proceeds to obtain theadditional field data, and carry out the investigations necessary toevaluate the economic costs and benefits of each possible sub-project. Thecosts and benefits, where appropriate, include those resulting fromenvironmental damage prevention works. These tasks are to be carried outby the Regional Offices, with support from, and in coordination with, asrequired, other agencies and FNCV units, and under guidance and supervisionfrom the Planning Unit. This unit has the economic and technicalexpertise, including an environmental planning and assessment group.

8. The approach followed to evaluate and establish priorities ofpossible sub-projects is based on the standard methodology for estimatingproducer and consumer surplus, costs, and economic return indicators. Thebenefits to be quantified are based on higher net economic value estimatesresulting from agricultural production, reduction of produce spoilage, andlower transport costs for people and non-agricultural goods. Whereappropriate, estimates of increased farming area, diversification ofagricultural production and increased yields are also quantified. Costsare those directly related with the proposed road civil works, includingthe environmental damage prevention elements, and their supervision andmaintenance, with other complementary investments, and with agriculturaland other production activities in the area of influence of each sub-project.

9. Sub-projects going through or close to biological diversityconservation areas and natural forest reserves are simply excluded fromconsideration. Those in or close to wetlands, indigeneous settlements andwatershed areas, or in terrains susceptible to erosion, land slides andflooding are subject to full environmental studies carried out byconsultants hired by PNCV under terms of reference and guidelines reviewedand approved by INDERENA. The studies and recommendations are alsoreviewed by INDERENA and support this agency's rejection or approval ofsub-projects.

- 56 -

ANNEX 5Page 1 of 3

COLOMBIA

SECOND RURAL ROADS SECTOR PROJECTl

Outline of Terms of Reference for CoordinatingTechnical Assistance to Local and Regional Administrations

Background

1. Colombia is estimated to have more than 55,000 km of secondary andtertiary roads nominally under regional and local administrations.Conditions of these roads are generally unsatisfactory because ofinadequate maintenance, combined with problems such as insufficientdrainage, incomplete engineering studies, and poor constructionspecifications and quality control. Practically all local administrationsas well as some regional ones do not have in their organizationsspecialized units responsible for managing the road networks. The problemis compounded by some 15 other institutions that, besides FNCV and theregional and local administrations, are involved with road construction andmaintenance.

2. Recent regulations issued (Law 12 of 1986 and Decrees 77 to 81 of1987) have energized the administrative decentralization policy, whichstarted back in 1983 with a fiscal reform (Law 14 of 1983), by identifyingthe public functions to be transferred to local governments, one of whichis the supply of road infrastructure. Central to the success of thedecentralization effort is the development or strengthening of theadministrative and technical capacity of local and regional governments toassume first and foremost maintenance management responsibilities, andeventually full road management functions. ESAP has already a strong rolein assisting the local governments to improve their financial management.

Objectives

3. The main objectives of the professional services are to structure,guide, coordinate and reinforce MOPT's and lNCV's efforts, throughtechnical assistance to local and regional administrations, to define anddevelop their institutional functions, organization and responsibilitiesfor managing the roads sub-sector, and especially maintenance of thenetwork. This assistance, focused primarily on local governments as theybecome involved in cofinancing civil works with FNCV, will be jointlyprovided, to a large extent, by ESAP, under contract with FNCV, andselected FNCV staff and consultants, as required. Furthermore, a widespectrum of existing road management practices, technical knowledge, toolsand procedures available in FNCV, including methods and systems forscreening, evaluating and programming of investments, standards andspecifications for designing, constructing and maintaining roads, bridgesand other structures, can and should be shared and used by all governmentadministration levels involved in road management activities.

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ANNEX 5Page 2 of 3

Scope of Services

4. The tasks shall include, but not necessarily be limited tot

(a) reviewing methods, procedures, standards and specificationsfor screening, evaluating, programming, contracting,designing, constructing, supervising, inspecting, maintainingand financing road infrastructure;

(b) assisting to implement the maintenance management system inall of FNCV's regional offices, and to adjust to lo:calconditions;

(c) reviewing and assessing the number, experience and possibleinvolvement of selected FNCV professional staff and othernational training agencies;

(d) assessing the present organization, staffing, equipment andother resources available for the roads sub-sector, andparticularly for road maintenance, of the local and regionaladministrations involved and likely to be involved with FNCVin road works during 1990-1993;

(e) identifying the road maintenance requirements and thecorresponding institution-building efforts needed, and drawingup, reviewing and updating action programs, in agreement withthe respective local and regional administrations, toeffectively maintain annually agreed sections of the network,and eventually the whole network;

(f) establishing and improving the organization and roadmaintenance management and operational procedures, to assistin carrying out continuous surveys of road conditions, performmaintenance activities, evaluate capacity available and obtainand use other data required to manage maintenance;

(g) assisting to implement the economic-environmental methods andprocedures to evaluate road investments;

(h) coordinating and providing the necessary training;

(i) assisting in carrying out maintenance and the related actions;and

(j) implementing a performance monitoring system covering alllevels of administration for rural roads.

5. The technical assistance will take into account initially thesections of the road network which are considered of higher maintenancepriority by each local and regional administration. Completion of the fullinventory of the rural road network in Colombia and the definition of roadmanagement responsibilities between national, regional and local

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ANNEX 5Page 3 of 3

administrations, a task which will be carried out by MOPT before December31, 19f,O, will permit the technical assistance to help program maintenanceand institution-building actions based on real priorities.

6. Training courses and seminars will be organized by region or, whentechnically and geographically practical, by group of regions. TheTraining Coordinator and ESAP will assess if it is warranted to secure theinvolvement of other national training agencies, such as the ServicioNacional de Aprendizaje.

Staffing

7. It is estimated that the following consultant specialists will berequired to lead and coordinate the staff of FNCV responsible fortransferring technical and managerial know-how to road units of local andregional governments:

Staff-months

Road Maintenance Engineer, experienced inpublic management of road maintenanceactivities and relevarnt maintenancemanagement systems; (head of the team) 36

Training Coordinator, experienced in planningand managing training programs, preferably inthe area of road maintenance and servicessupplied by regional/local administrations 24

Road Maintenance Management Specialists,experienced in programming and monitoringmaintenance performance, includingproductivity of activities, distribution ofequipment and manpower, costing and accounting 24

Reporting

8. Within two months of the starting date, the head of the team ofconsultants and the Training Coordinator will submit an Inception Reportstating the detailed work program and schedule. Following the submissionof this report, the Road Maintenance Engineer will submit at three-monthintervals (by mid-March, mid-June, mid-September and mid-December) briefprogress reports consisting basically of tables listing the staff involved,the work performed related to that programmed for the reporting period,and the updated program for the following 12 months. These reports will bereplaced by those generated as part of the maintenance management andperformance monitoring systems.

- 59 -

ANNEX 6Page 1 of 2

COLOMBIA

SECOND RURAL ROADS SECTOR PROJECT

Outline of Terms of Reference for the Study of Road-funding Strategies

Background

1. Road transport is part of a system characterized by privatevehicle operators and publicly owned and maintained infrastructure. Exceptfor tolls that are a form of direct payment of user-related costs, the useof infrastructure is generally paid for through taxes on vehicles andvehicle-operating inputs such as fuels, oil and tires. Colombia has suchsystem which, over the years, has changed both in its structure as well asin the level of the component charges. However, because data on roadexpenditures, revenue sources of funding and road characteristics areavailable only for the national administration level, only gross estimatescan be made for the regional and local administrative levels, and for thewhole road system.

2. Furthermore, at national level, earmarked revenues based on fixedtaxes have been eroded by inflation and are no longer significant; otherrevenue adjustments have often lagged behind inflation or alternativeeconomic values, have resulted from short rather than long term pricingpolicies or have been guided by other-than-economic reasons. FNCV has beenincreasingly forced to rely on funding from Central Government and othersources, which vary from year to year independently of the need fortransport services. This has, with time, contributed to weaken planningand programming of road expenditures. At the same time and only recently,municipal funding sources have become a reality.

Obiectives

3. The study will have the following two main objectives:

(a) to review the present structure and sources of fundingexpenditures in the roads sub-sector; and

(b) to evaluate and recommend strategies to define, revise andcreate funding sources and mechanisms for obtaining and

L collecting revenues sufficient to fully finance roadexpenditures.

Scope of Services

4. The study will be carried out during the second year of projectimplementation (calender 1991), under the supervision of DNP and in closecoordination with NOPT and FNCV. It would include, but not necessarily belimited to:

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ARMEX 6Page 2 of 2

(a) assessing future requirements of funds:

(b) reviewing available studies and procedures for allocating roadcosts to users;

(c) analyzing the present system of obtaining and collecting roaduser revenues; and

(d) evaluating strategies to implement changes in user revenues,* simplifying the system and efficiently contributing to finance

local and regional road expenditures.

5. The study will take into account the road funding requirements oflocal and regional governments, especially for maintenance, based on theirrespective functions and responsibilities, and after the road network hasbeen physically inventoried and legally classified. Competing claims forfunds available to local and regional governments will explicitly beconsidered. The study will be carried out over a seven-month period.

Staffing

6. The estimated professional staff requirements are as followss

Staff-months

Economist, experienced in estimatingvehicle user and road construction,rehabilitation and maintenance costs 6

Economist/Financial Analyst, experiencedin fiscal policies and legislation 7

HighwL_- Engineer, experienced indesigning and estimating road work costs 1

Lawyer, experienced in tax reform andpublic management 2

16

Reporting

7. A draft final report will be produced at the end of the fifthmonth. DNP will submit it to the Bank for review, and comments will beprovided to the consultants before the end of the sixth month. The finalreport will then be submitted before the end of the seventh month.

April 1989

- 61 - ANNEX 7

COLOMBIA

SECOND RURAL ROADS SECTOR PROJECT

Schedule of Main Events

Main Event Timing

1. Review studies, project funding, action September 1989, andprograms, sub-project selection, Every March andimplementation and monitoring; September from 1990agree on annual actions required to end of Project

2. Project presented to Bank's Board November 1989

3. Advertise initial civil works November 1989tenders

4. Begin technical assistance to November 1989local governments

5. Begin implementation of civil January 1990works contracts

6. Complete inventory of rural roads June 1990characteristics and conditions

7. Complete functional-jurisdictional September 1990classification of rural roade

8. Begin to formulate action programs with September 1990local administrations to maintain, andstrengthen capacity to maintain roads

9. Advertise new tenders for civil works October 1990

10. Legal allocation of responsibilities December 1990by jurisdiction

11. Complete study of road revenue fiscal December 1990strategies and agree on related actions

12. Implement new civil works January 1991

13. Advertise new tenders for civil works October 1991,IL 1992, and 1993

14. Implement new civil works January 1992, 1993and 1994.

15. Project completion 1994

16. Loan closing 1995

April 1989

- 62 -

ANNEX 8

COLOMBIA

SECOND RURAL ROADS SECTOR PROJECT

Project File Documents

1. Costs of FNCV's Maintenance Program (1990).

2. Summary of Road Requirements Based on Condition Inventory (1990).

3. First Year Program of Road Construction and Improvement (1990).

4. FNCV's Draft 1990 Budget.

5. Physical Targets and Investment Levels for 1990-1993.

6. Detail monthly Program of Road Construction and Improvement.

7. FNCV's Force Account Program for Routine and Periodic Haintenanceof Roads (1990).

8. Standard Bidding Documents for Civil Work. (September 1989).

9. Organization and Staffing of FNCV's Maintenance Division (August1989).

10. Methodology and Procedures for Preselection and Evaluation ofRural Roads (September 1989).

11. Standard Documents and Procedures for Hiring Consultant forSupervision and Design of Road Works (September l989s.

12. Decree Number 1300 of July 1988 Revised Organizational Structureof the National Fund for National Agency for Feeder Roads

13. INDERENA's Review and Approval of Environmental Analysis andStandard Terms of Reference for Environmental Studies.

14. Diagnostic on Decentralization and Actions, Including Trainingundertaken During Preparation of the Project.

15. Cofinancing Commitments (Letters of Intent) may by LocalGovernment for Projects Works.

16. Decree 1300 of July 1988 Establishing a New OrganizationalStruccure for FNCV.

17. Basic Regional Parameters for Preparation of Maintenance Program.

October 1989

COLOMBIASECOND RURAL ROADS SECTOR PROJECT

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