Docvcent of

The World Bank

FOR OmCLAL USE ONLY

Report No. 8602

PROJECT COMPLETION REPORT

COSTA RICA

FIFTH HIGHWAY PROJECT(LOAN 1845-CR)

MAY 4, 1990

Infrastructure and Energy Operations DivisionCountry Department ItLatin America and the Caribbean Regional Office

This document has a resticted distibution and may be used by ripients only In the perfonnauc oftheir offia duies Its contents may not otherwise be dilosed without Word Bank autoriation.

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CURRENCY EQUIVALENTS(As of May 1969)

Currency Unit - Colon (C)US$1.00 G C 80.7C1.00 US$0.01Cl,OOO,OOO - US$10.000

WEIGHTS AND MEASURES

1 meter (m) - 3.28 feet (ft)1 kilometer (km) - 0.62 mile (mi)1 kilogram (kg) - 2.2 pounds (lbs)1 hectare (ha) 2.47 acres

GLOSSARY OF ABBREVLkFIONS

DGA - General Directorate of TrainingDGM - General Directorate of MaintenanceDGP - General Directorate of PlanningDGV - General Directorate of HighwaysIDB - Inter-American Development BankMOPT - Mlnistry of Public Works and Trans ortRRPU - Road Rehabilitation and Planning UnitSDM - Sub-Division of MaintenanceSDE - Sub-Division of Equipment

THE WORLD BANK FOR OFICIAL US ONyWashington. D.C. 20433

US.A

OUac* a$ DictGwaiOpratumn Evuluatu

May 4, 1990

MEMORANDUM TO THE EXECUTIVE DIRECTORS AND THE PRESIDENT

SUBJECT: Project Completion Report on Costa Rica Fifth HighwayProject (Loan 1845-CR)

Attached, for information, is a copy of a report entitled"Project Completion Report on Costa Rica Fifth Highway Project (Loan1845-CR)" prepared by the Latin America and the Caribbean RegionalOffice. No audit of this project has been made by the OperAtionsEvaluation Department at this time.

Attachment

This document has a rstricd distribution and may be used by pecipients only In the performanceof their official duties. Its contents may not othaerw'e be discloed without World Bank authofizatlon.

FoR omcIAL USE ONLY

PROJECT COMPL9 TON R

COSTA RICAFIFTH HIGHWAY PROJECT

(LOAN 1845-CR)

TABLE OF CONET

Page No.

PREFACE ............... ......................... iBASIC DATA SHEET ............... ........................ iEVALUATION SUMMR .. iv

I. INTRODUCTION ................ ........................ 1

II. PROJECT IDENTIFICATION. PREPARATION, AND OBJECTIVES 2

III. PROJECT IMPLEMENTATION .. 3

IV. COMPLIANCE WITH THE MAJOR COVENANTS . . 6

V. INSTITUTIONAL DEVELOPMENT AND PERFORMANCE OF THE BORROWER 7

VI. PERFORMANCE OF THE BANK . . 7

VII. PROJECT COSTS AND DISBURSEMENTS .. 8

VIII. ECONOMIC EVALUATION. 9

IX. COCLUSIONS.. 9

TABLE 1-PROJECT COSTS AND FINANCING .11

TABLE 2-SUMMARY OF APPRAISAL ESTIMATED AND FINAL ECONOMICRATES OF RETURN .12

TABLE 3-RELATED BANK LOANS .13

TABLE 4-PROJECT IMPLEMENTATION .14

MAP IBRD 14807

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.

PROJECT COKPLETION REPORT

COSTA RICAFIFTH HIGHWAY PROJECT

(LOAN 1845-CR)

PREFACE

This is the Project Completion Report (PCR) for the FifthHighway Project in Costa Rica for which Loan 1845-CR in the amount ofUS$30.0 million was approved on May 15, 1980. The loan was closed onDecember 31, 1986, three years behind schedule. It was fullydisbursed and the last disbursement was on October 9, 1987.

The PCR was prepared by Bank staff based on that prepared bythe Borrower and the documentation available in the LAC InformationCenter.

This PCR was read by the Operations Evaluation Department(OED). The draft PCR was sent to the Borrower by the region forcomments and the minor comments of the Borrower have been incorporatedin the text. Subsequently, OED sent the revised draft to the Borrowerfor comments on February 20, 1990. No comments were received.

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ZROJ 0==LOZNREZWRT

COSTA RICAFIFTH HIGHWAY PROJECT

(LOAN 1845-CR)

BASIC 2AT SHEET

KEY PROJECT MA

Item Appraisal Expectation Actual

Total Project Cost (US$ million) 43.3 43.1Cost Overrun (Z) - -0.5Financing (US$ million)Government 13.3 13.1IBRD 30.0 30.0Total 43.3 43.1

Completion date 6/30184 7/30/87Economic Rate of Return +50t 38Z

Cumulative Disbursements----------------USS million. IBRD FY------------------81 82 83 84 85 86 87

Appraisal estimate 7.5 17.4 27.3 30.0 - -

Actual - - 1.0 10.0 14.3 25.8 30.0Actual as Z ofEstimate - - 3.0 33.0 48.0 86.0 100.0

Other Project Data

Planned Actual

Identification 5/79Preparation 10178-8/79Appraisal 10/79Negotiations 4/80 4/80Board Approval 5/20180 5/15/80Signature 5/27180Effectiveness 9/80 10/81Closing Date 12/31/84 12/31/86Completion Date 6/84 7/87Borrower Republic of Costa RicaExecuting Agency Ministry of Public Works and

Transport (MOPT)Follow-on Project A Transport Sector Project is under

preparation

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STAFF INPUTS(staff weeks)

FY79 FY80 FY81 FY82 Y83 FY84 FY85 FY86 FY87 F88 TOTAL

Preappraisal 29.9 3.3 3.3Appraisal 46.2 46 .2Negotiation 4.0 4.0Supervision .2 9.0 14.1 14.3 14.5 9.8 13.6 6.5 5.2 87.3Other 2.0 .4 1.8 2.8 5.3

Subtotal 30.1 54.2 9.0 14.1 16.1 17.3 9.8 13.6 6.5 5.2 176.0

Mission Data

Staff Date ofItem Date Staff Weeks Weeks Report Status

Familiarization 04178 Z .25 .5 --

Preparation 10178 2 1.25 2.5 11/23 --

Preparation 02/79 1 1.5 1.5 --

Preparation 03179 4 1.5 6.0 --

Preparation 07179 1 .5 5 __Subtotal 11

Appraisal 10/79 6 2 12 04180 --

Post-Appraisal 10/79 1 1.5 1.5 11/78 --Supervision 08/80 1 3 3 11/80 1Supervision 03181 1 .5 .5 05/81 2Supervision 08/81 2 1 2 09/81 2Supervision 10/81 2 .75 1.5 11/81 2Supervision 12/81 2 .75 1.5 01/82 2Supervision 03/82 1 1 1 04182 2Supervision 05/82 3 .5 1.5 05/82 --Supervision 08/82 3 1 3 09/82 2Supervision 1/83 1 .14 .14 02/83 2Supervision 06/83 2 .5 1 06/83 2Supervision 09/83 3 .5 1.5 10/83 2Supervision 12/83 2 .5 1 01/84 2Supervision 02/84 2 1 2 03/84 2Supervision 04/84 3 .5 1.5 04/84 2Supervision 12/84 1 1.5 1.5 12/84 2Supervision 05/85 2 1 2 05/85 2Supervision 12/8S 2 1 2 01/86 3Supervision 05/86 3 1 3 06/86 3Supervision 08/86 __ 08/86 2Supervision 07/87 2 1 2 07/87 1

Subtotal 45.1

TOTAL 56.1

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PROJC COL N REPORT

COSTA RICAFIFTH HIGHWAY PROJECT

(IOAN 1845-CR)

EVALUATION SUMIARY

Introduction and Obiective

1. During the execution of the Fourth Highway Project it becameclex.r MOPT had neglected road maintenance. The backlog of rehabilita-tion of the main roads increased. With the aim of bringing this situa-tion under control, the Bank and the Borrower began to consider afollow-up project focusing primarily on road rehabilitation and main-tenance in the context of an overall five-year improvement and mainte-nance program.

2. The project objectives were to:

- strengthen the maintenance capacity of the GeneralDirectorate of Highway's (DGV) and improve maintenanceplanning and management for the reclassified (expanded)national network;

- rehabilitate and improve a number of primary and sec-ondary roads with outmoded technical characteristics;and

-support the gradual delegation of maintenance responsi-bility for the rural roads (from MOPT) to the Cantons.

Implementation Experience and Results

3. The project got off to a slow start (para. 3.01). It wascompleted about three yeers behind schedule and did not fully achieveits objectives (para. 6.03).

4. Because of the financial difficulties faced by the Governmentin providing counterpart funds, the project scope was reduced (para.3.03) and the funds thus freed were used to complete the priorityworks on the San Jose-Sequirres road (para. 3.06).

5. The scope of the Maintenance and Training component of theproject was ambitious and it achieved a mixed success (3.08).

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6. The maintenance management system to improve road main:enanceoperations faced serious implementation delays and is still not fullyoperational (para. 3.10).

7. The Borrower and the executing agency were not able to complyfully with some of the major convenants for reasons outlined in para-graphs 4.01 through 4.03.

8. The project laid the framework for the planning and executionof road maintenance but suffered from ineffective coordination withinKOPT (para. 5.01).

9. Another contribution of the project to institutional develop-ment was the establishment of a Road Rehabilitation and ProgrammingUnit (RRPU) for the syste3atic programing and execution of rehabili-tation works (para. 5.02).

Sustaipak i

10. Rates of return for the completed Road Rehabilitation andImprovement Program range from 221 to 741 as compared with the apprai-sal estimated range of 22% to 156X. The largest disparity occurred inthe San Josecito-Naranjo subproject. Originally this road was toyield a rate of return of 1561. By project completion, it was esti-mated that the rate would drop to 54Z. This difference was due pri-marily to the 204X increase in cost.

Findings and Lessons

11. The Bank, set ambitious targets for the maintenance of roadsand equipment. Whereas the financial and economic difficulties facedby the Government (which was the main reason for reducing the scope ofroad rehabilitation (para. 3.04)) were largely unforeseen at the timeof appraisal, a fuller appreciation of the institutional shortcomingsof MOPT (para. 3.09) would probably have led to more modest targetsand to smoother project implementation. Additionally, more intensiveinvolvement of MOPT at the project preparation phase would have con-tributed to the project's overall success and its sustainability.

12. The Bank's performance was primarily lackluster in the en-forcement of covenants aimed at improving MOPT's operations. Therewere 25 district covenants of operational relevance in the Loan Agree-ment. It should have been evident right from the start that thisexcessive number of covenants was going to be difficult to enforce.At least during the 1983 reduction in scope of the project, the Bankshould have re-evaluated, in conjunction with MOPT, the objectives itwas trying to achieve through the covenants. By not being selective,the Bank tried to do too much in too short a time frame and the proj -ect did not fully achieve its objectives.

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PROJECT C0MPLETI0 REIM

COSTA RICAFIFTH HIGHWAY PRtOJECT

(LO"N 1845-CR)

I. INTRODUCTION

1.01 The Transport Sector plays an important role in the economy ofCosta Rica. Although the railway serves some of the banana plantations,roads are the main mode of internal transportation in Costa Rica. Roadtransport has clear competitive advantage over rail because of the shorttransport hauls involved and the absence of large volumes of bulk traffic

* (suitable for haulage by rail). Roads account for about 922 of freightton-km and 98? of pass-km generated in the country. Overall sectorinvestments during 1975-88 averaged about 2.2? of the GDP. The sectoradded an average of 4.4? to the GDP during this period.

1.02 Bank involvement in the highway subsector began in 1961 with theFirst Highway Project (Loan 299-CR/Credit 10-CR) which assisted in definingthe National Highway Program (NHP) and financed the NHP's first stage. Itincluded maintenance and construction equipment. A second Bank project(Loan 299-CR) was undertaken in 1970, to link the rich agriculturalhl'iterland between the port of Limon aad Sequirres. The next priority wasto link Sequirres to the capital, San Jose. In order to evaluate theoptimum solution for doing this (all the proposed alignment alternativesfor the road passed through mountainous terrain) the Highway StudiesProject (Loan 872-CR) of 1972 financed the studies for the feasibility ofthe improvement/reconstruction of the road and its detailed engineering.These studies were the technical basis or the Fourth Highway Project (Loan1187-CR) whose objective was to provide the capital and the Central Valley(the country's dominant economic region) with a direct link - Limon, aswell as to strengthen MOPT's supervision capabilities.

1.03 Pi tdy as a result of the observed deterioration in roadmaintenance which occurred during implementation of the Fourth HighwayProject, the Government adopted new sulisector priorities emphasizingmaintenance of the existing highway network. rehabilitation and impro'e.'mentof old or inadequate roads and redirecting construction and improvementworks toward rural roads. This desirable shift in priorities recognizedtwo growing concerns in the country: (i) large parts of the rural roadsserving primarily the rich cattle grazing and agricultural areas (coffeeand fruit) had deteriorated to the extent that access was difficult evenduring the dry seasons; and (ii) the main highwavs e.g. the Pan Americanand the roads linking the capital to the three main cities in the CentralValley, were in advanced stages of deterioration. The Fifth HighwayProject was designed to enhance the Government's capability to make theabove mentioned shift and support the Ministry of Public Works andTransport (MOPT) efforts to reclassify the road network with the objectiveof defining the maintenance responsibilities of MOPT and the Cantons(municipalities). Defining the responsibilities of MOPT and Cantons wasconsidered an essential first step in laying the foundation for planningand programming of maintenance works as well as setting up the basis forrealistic budget proposals to carry out the programmed work. Inretrospect, this proved to be an ambitious objective (para. 3.08) and metwith only partial success.

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1.04 During project preparation, both the Government and the Bankrealized that in order to achieve the shift away from traditionalconstruction to road maintenance implied the preparation an" execution ofmany small subprojects. for which the required mix of administrative andsupervision skills was lacking in MuPT. Therefore to support furtherinstitutional strengthening. technical assistance was provided but theresults achieved were mixed. Although MOPT has demonstrated the ability toformulate institutional goals and policies, the other key element ofinstitutional development i.e., implementing the goals and policies inorder to achieve the desired results, still needs considerable nurturing.

II. PROJECT IDENTIFICATION. PREPARATION AND OBJECTIVES

2.01 During the execution of the Fourth Highway project it became clearMOPT had neglected road maintenance. The backlog of rehabilitation of themain roads increased. With the aim of bringing this situation uwdercontrol, the bank and the Borrower began to consider a follow-up projectfocusing primarily on road rehabilitation and maintenance in the context ofan overall five-year improvement and maintenance program.

2.02 The p,-oject objecLives were to:

- strengthen the maintenance capacity of the General Directorate ofHighway's (DGV) and improve maintenanice planning and managementfor the reclassified (expanded) national network;

- rehabilitate and improve a number of primary and secondary roadswith outmoded technical characteristics: and

- support the gradual delegation of maintenance responsibility forthe rural roads (from MOPT) to the Cantons.

2.03 In order to achieve the foregoing obJectives, the projectconsisted of:

a) Road Rehabilitation and Improvement

- rehabilitation or reconstruction (civil works and relatedengineering and supervision) of approximately 420 km ofprimary and secondary roads as part of the first phase(1981-1983) of MOPT's Five-Year Program which also hadfinancing from other sources; and

- establishment. w.th related technical assistance, of a RoadRehabilitation Planning Unit in the DGV to plan, evaluate andprogram the rehabilitation and improvement of subprojectsincluded in MOPT's Five-Year Program.

b) Maintenance and Training

- implementation of MOPT's Maintenance Program (1981-1985) toensure adequate maintenance of the reclassified nationalnetwork and to assist the Cantons in achieving an acceptablelevel of competence for the maintenance on the rural network;

- implementation of a series of coordinated measures to buildup and upgrade the maintenar._e capability of MOPT, includings

-renewal and limited expansion of the equipment fleetand supporting facilitiest

-organizational and administrative improvements toimplement a maintenance management system and provisionof related technical assistance; and

-training of approximately 1,500 technical andadministrative personnel, with emphasis on on-the-jobtraining, and provii ion of related technical assistance.

2.04 The project was appraised in October 1979. Negotiations took placeon April 14, 1980. There were no outstanding issues. On May 15, 1980, theExecutive Directors approved a loan ot US$30 million. Project costs, aspresented in the Appraisal Report, are shown on Table 1.

III. PROJECT IMPLEMENTATION

A. Conditions of Effectiveness and Proiect Initiation

3.01 The conditions of loan effectiveness were: (i) the establishmentof the Road Rehabilitation Planning Unit (RRPU) and its staffing with asenior engineer and a senior economist; and (ii) reclassification of thenetwork to define the respective maintenance responsibilities of MOPT andthe Cantons. Whereas the Road Planning Unit was established withoutsignificant delays, the approval of the loan and of the enablinglegislation for reclassifying the road network (the Highway Law Amendments)faced delays in the National Assembly. Seventeen months after Boardapproval, the loan and the enabling legislation for reclassifying thenetwork were approved in September 1981. The loan became effective inOctober 1981.

B. Project Execution

Road Rehabilitation and Improvement Component

3.03 The works were scheduled to begin in the fall of 1981 but lack ofcounterpart funds delayed commencement until 1983. Because of theeconomic recession of 1981-84, the Government faced considerable fiscaldifficulties and as no significant improvement in the fiscal situation wasapparent. the Borrower and the Bank agreed to reduce the scope %, worksunder the project. The Board approved an amendment on June 9, 1983,reducing the planned rehabilitation of 420 kms to about 180 kms. Thereduced scope freed US$10.3 million in project costs which were reallocatedto the completion of the economically vital San Jose-Sequirres Highway. Theworks for this road had begun under the Fourth Highway Project (Loan1187-CR) but had experienced cost-overruns and delays. The road was onlypartially completed. Completion of the road had high priority in view ofthe role that the highway plays as the country's most significantimport/export corridor; it accounts for about 70% of Costa Rica's importand export tonnage.

3.04 The works were executed in two phases to take into account theGovernment's limited ability to provide counterpart funds. The first phase(about 100 km) was executed without major problems. The execution of thesecond phase was delayed significantly primarily because of slow andcumbersome contracting procedures followed by the Government. Contractsfor the 80 kms of works in the second phase were not signed till late 1984.Insufficient counterpart funds continued to plague the execution of thesecond phase through May 1987 t'hen the works were finally completed 19monthls behind scheduled. The total number of kilometers rehabilitatedduring both phases was 180 as agreed under the amendment.

3.05 A local engineering consulting firm provided the field supervisionfor the rehabilitation works. Because of MOPT's weak supervision capacity,the Ministry and the Bank agreed to redefine the consultant's role toinclude full responsibility over supervision and financial control of theworks when the scope of rehabilitation was reduced.

3.06 Works on the San Jose-Sequirres road were completed afterresolving several problems which arose during execution. A seriousunderestimation of earthworks, nevertheless, led to a cost overrun ofapproximately US$8 million dollars. Continuing financial difficulties inthe country ruled out all the needed supplementary assistance from theGovernment. The short fall of USS5.4 million needed to complete the workswas eventually funded by the United States Agency for InternationalDevelopment. The Project Completion Report on the Fourth Highway Projectdated April 17, 1985, reviews critically the implementation problemsarising during execution of the works for this road.

Maintenance and Training Component

3.07 The Maintenance and Training Component sought to develop capacityfor adequate maintenance of the national network and to assist the Cantonsin developing maintenance capability for the rural roads. This componentalso sought to strengthen MOPT's own maintenance capabilities throughrenewal and expansion of the equipment fleet, provision of technicalassistance for improving the methods and procedures for the management ofmaintenance, as well as training of field and headquarters personnel.

3.08 The Maintenance and Training Component was developed based on anInter-American Development Bank (IDB) financed study carried out by aconsultant consortium in 1981. The same consortium was selected to providetechnical assistance for this component. In retrospect, the scope of thiscomponent was also ambitious. The major issue arising duringimplementation was poor coordination as reviewed below although difficultinterpersonal relations between 'he consultants and MOPT staff alsocontributed to less than satisfactory achievement of results under thiscomponent.

3.09 In order to upgrade MOPT's equipment fleet, procurement of roadmaintenance equipment (US$4 million) and the repair of about 150 units(US$9,333 per unit) was provided for. However. late in 1982, KOPT adopteda new policy giving preference to contracting out major equipment overhaulsand doing more periodic road maintenance also on contract. This policyrecognized two shortcomings within MOPT: (a) the Equipment Directoratecharged with equipment overhauls had limited capacity, and (b) MOPT could

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not execute all the periodic maintenance of roads on force account.Therefore. MOPT was to concentrate on routine maintenance of roads andlighter equipment repairs in line with the capacity of its workshops.Operationally, this meant that the procurement of equipment for heavierworks took on a lower priority. Furthermore, the condition inv-ntory ofmaintenance equipment compiled by consultants (para.3.08) had earlierindicated that several units then in disuse could berefurbished/rehabilitated economically. Therefore, the proceeds of theloan marked for procurement were reallocated to refurbishing/rehabilitatingexisting units. however, in arriving at this decision, the complexcontracting procedures for equipment rehabilitation and MOPT's cumbersomebureaucracy were not fully grasped and these contributed to theunsatisfactory progress achieved. Additionally, frequent changes of theDirectors of the Equipment led to a loss of control over equipment repairs.By the end of the project, 151 units had been overhauled and 49 units hadbeen rehabilitated. The total cost for the 200 units was US$6.5 million,an increase of 25O0 in per-unit cost (US$32,500 per unit as compared withthe appraisal estimated US$9,300 per-unit cost). A pa-t of the explanationfor the increase in costs was the practice of cannibalizing the unitsscheduled for repairs to keep the other equipment functioning. Thus, bythe time these units arrived in the workshops. their rehabilitation/refurbishing were already greater than the estimates in the conditioninventory carried out by consultants.

3.10 The technical assistance provided under this com:.onent developed amaintenance management system for maintenance planning, programming andevaluation of road maintenance. The technical assistance also designed thereorganization of the General Directorate of Maintenance (DGM) giving itresponsibility for all maintenance activities. But DGM's authority was notclearly defined. Over a year after DGM's reorganization, maintenanceactivities continued to be controlled by the DGV via regional engineersbecause DGM was unable to coordinate maintenance activities in the field.When DGM did gain control, it continued to be burdened with ambiguousauthority to carry-out its functions. As a result, the maintenancemanagement system designed to guide field personnel in scheduling,directing, reporting and controlling maintenance operations faced seriousimplementation delays and is still not fully operational. The proposedTransport Sector Project provides for full implementation of themaintenance management system.

3.11 The training provided under the project showed mixed rest'lts aswell. The General Directorate of Training (DGA) was successful in trainingmid-level personnel. However, long delays in government processing ofprocurement for training equipment hindered efforts to train fieldpersonnel. Out of 970 MOPT road and equipment maintenance personneloriginally scheduled to be trained from 1981 through 1985. only 230received the training. The program itself did not start until early 1983.Additionally, the overall quality of the courses was less thansatisfactory. Of the originally allocated US$0.9 million, only US$0.1million was used for training of field personnel.

Other

3.12 Although not foreseen during appraisal, a computer system waspurchased late in 1983 with funds from Category 9 (created by the Loan

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Amendment dated December 6, 1982) at a final cost of US$0.6 million, toallow MOPT to improve the technical aspects of maintenance and to implementthe maintenance management system. The benefits yielded from the use ofthis equipment were marginal and, as mentioned above, the maintenancemanagement system is still not fully operational.

IV. COMPLIANCE WITH THE MAJOR COVENANTS

4.01 The main thrust of the covenants was to enable MOPT to bettermanage its operations and enhance the project's sustainability. However,despite the appointment of a full time project coordinator, it would seemthat the mid-level management within MOPT viewed compliance with largenumber of covenants more as Bank's bureaucratic requirements than the toolsto improve the efficiency of the Ministry's operations: there were 25 majorcovenants in the Loan Agreement. Only since 1987 (with the creation withinMOPT of a General Directorate of External Financing reporting to theDirector General of Public Works, MOPT's Chief Engineer. and thereorganization of the maintenance entities) has the mid-level managementbegun to appreciate that the purpose of the main covenants, was to improvethe ineffective administrative structure of MOPT.

4.02 The main covenants pertained to (a) the adequate funding (Section3.01(a)) and satisfactory execution of the agreed maintenance program(Section 3.01(b)); (b) classification of the equipment fleet according towhether it was used to maintain the National or the Cantonal roads(Section 3.05(d)) and preparation of detailed programs for the maintenanceof roads in the regional directorates according to whether they wereclassified as National or Cantonal (Section 3.05); (c) maintenance ofrecords for project progress monitoring (Section 3.10(b)) and establishinga cost accounting system to enable cl.ar determination of costs for thevarious maintenance and rehabilitatioa activities on the National andCantonal roads (Section 4.02(b)); (d) adequate maintenance of the equipmentfleet (Sections 4.03(c) and (d)) and establishment of appropriatelyequipped workshops and spare parts inventories for timely maintenance ofthe equipment fleet: (e) the devolution of maintenance responsibilities forthe Cantonal roads to the Cantons (Section 4.04(b)); and (f) theenforcement of vehicle dimensions and weights regulations (Section 4.06(a)and (b). In addition to overall poor project coordination, confusion overthe objectives of the covenants were mainly responsible for the mixedcompliance.

4.03 Continuing difficulties with local funds and the ill definedresponsibilities for the maintenance of roads through 1987 clearlycompromised full compliance with Sections 3.01(a) and (b) of the LoanAgreement as discussed in Section III of this PCR. Weak management andfrequent changes at the level of Director in the Equipment MaintenanceDirectorate were largely responsible for partial compliance (para. 3.09 and3.10) with Sections 3.05(d). 3.06, 4.03(c) and 4.03(d) of the LoanAgreement. Full compliance with Sections 3.10(b) and 4.02(b) was hinderedby MOPT's own buresucratic procedures and prevailing norms for costaccounting which, while adequate for keeping track of MOPT's budget inbroad categories, had little operational relevance. The maintenancemanagement system established the basis for clearly accounting for the

various maintenance and rehabilitation activities, but since it is stillnot fully operational (para. 3.10), the budget costs allocated to thevarious activities and those actually experienced are difficult toreconcile accurately. The main reason for less than full compliance withSection 4.04(b) of the Loan Agreement was that the devolution ofmaintenance responsibilities to the Cantons is a politically sensitiveissue. The Cantons remain reluctant to assume responsibility for themaintenance of their roads in the absence of appropriate changes in revenuesharing with the Go-ernment. And lastly, the enforcemeu;t of vehicledimensions and weight regulations, despite earlier compliance, has come toa standstill since early 1986 for lack of funds to repair the broken downweigh bridges.

V. INSTITUTIONAL DEVELOPMENT AND PERFORMANCE OF THE BORROWER

5.01 The project laid the framework for planning and execution of roadmaintenance but suffered most from ineffective coordination within MOPT.Planning and programming tools such as the maintenance management system.although not fully operational, laid the foundatitn for systematic deliveryof road maintenance services. Nonetheless. frequent changes of top levelpersonnel, particularly in the DGM, and lukewarm support for improving theefficiency of maintenance operations on the part of some of the Directorsas well as continuing budgetary constrains are responsible to a largeextent for the less than satisfactory improvement in the overallmaintenance situation. A significant institutional development in roadmaintenance occurred in 1987 when the entities responsible for roadmaintenance and equipment were reorganized, their responsibilitiesredefined and their status raised within MOPT's organizational hierarchy.The newly created Sub-Division of Maintenance (SDM) and the Sub-Division ofEquipment (SDE) now report to MOPT's Chief Engineer. the Director Generalof the Public Works Division, thus providing the basis for the effectivecoordination of maintenance and reducing the scope for internal conflictswhich contributed to the mixed success of the project. In retrospect, ifthe Borrower had implemented this reorganization earlier, costs could havebeen contained. particularly for completing the rehabilitation of equipment(para. 3.09) and delays could have been reduced in improving the managementof maintenance (para. 3.10).

5.02 The establishment of the RRPU within DGV was another contributionto institutional development for the systematic programming and executionof rehabilitation works. The unit was later transferred to the GeneralDirectorate of Planning. This unit's personnel training was completed andthe personnel acquired the planned level of competency to performeffectively. Unfortunately the units programming responsibilities wereabsorbed by the Division of Public Works within DGV; thereby weakening thisunit.

VI. PERFORMANCE OF THE BANK

6.01 Bank performance was less than satisfactory although the Bank wasresponsive in resolving the implementation problems as they arose. A casein point in support of the latter is the sensitivity shown by the Bank inresponding to the financial difficulties faced by the Government and thesubsequent reduction in the scope of the project to accommodate the limited

capability of the Government for providing counterpart funds. Another casein point is the allocation of funds freed by the reduction in project scopeto the completion of the San Jose-Sequirres Highway. Bank performancecould have been better if a miore penetrating evaluation of MOPT'sinstitutional weaknesses had been undertaken during appraisal or at leastduring the process of amending the project. The Bank focus duringsupervision appears to have been on finding engineering solutions toimplementation problems and it appears that the institutional issuesreceived less attention. With a prior history cf cost overruns andimplementation delays, the Bank should have paid more attention toimproving MOPT's organizational performance and developing its managementcapacity.

6.02 The Bank, set ambitious targets for the maintenance of roads andequipment. Whereas the financial and economic difficulties faced by theGovernment (which was the main reason for reducing the scope of roadrehabilitation (para. 3.04)) were largely unforeseen at the time ofappraisal, a fuller appreciation of the institutional shortcomings of MOPT(para. 3.09) would probably have led to more modest targets and to smootherproject implementation. Additionally, more intensive involvement of MOPTat the project preparation phase would have contributed to the project'soverall success and its sustainability.

6.03 The Bank's performance was particularly lackluster in theenforcement of covenants aimed at improving MOPT's operations. There were25 distinct covenants of operational relevance in the Loan Agreement. Itshould have been evident right from the start that this excessive number ofcovenants was going to be difficult to enforce. At least during the 1983reduction in scope of the project, the Bank should have re-evaluated, inconjunction with MOPT, the objectives it was trying to achieve through thecovenants. By not being selective, the Bank tried to do too much in tooshort a time frame and the project did not fully achieve its objectives.

VII. PROJECT COSTS AND DISBURSEMENTS

7.01 The project was amended in 1983 and its scope was reduced (para.3.03). Therefore the comparison of costs which follows is for illustrativepurposes. Table 1 shows that the appraisal estimated project cost ofUS$43.3 million compared with the actual cost of US$43.1 millionexperienced at completion. Overall, the apprsioal estimated costs of thetwo major components, Road Rehabilitation and Improvements and Roadtaintenance of the national network also did not change appreciably fromthose experienced at project completion. Although the difference betweenthe appraisal estimated total costs and those experienced at completion areless than 1Z, there are significant cost variations among the subcomponentsfor reasons explained in Section III of this PCR.

7.02 The appraisal estimated total cost of the Road Rehabilitation andImprovement component was US$33.6 million of which the rehabilitation sub-component of 417 km was estimated at US$31.7 million or about US$76,000 perkm. At completion the cost was US$33.3 milliot of which the Bank financedUS$21.3 million (64Z). The actual cost of the road rehabilitation sub-component. after reduction of scope to 180 kms. was US$13.7 million orabout US$79,000 per km. which represented a modest unit cost increase of 4t

over the appraisal estimate. For the completion of the San Jose-Sequirresroad. the estimated cost of US$10.3 million (para. 3.04) when the projectwas amended compares unfavorably with the US$18.4 million actuallyexperienced. Despite the significant cost overrun (attributed largely tothe underestimation of quantities) the San Jose-Sequirres, the road waseconomically justified as explained in the PCR on the Fourth HighwayProject dated April 17, 1985.

7.03 Concerning the maintenance and training component of the project,the appraisal estimated cost was about the same as actually experienced,i.e. US$9.7 million vs. US$9.1 million. The Bank financed 912 of theoverall cost vs. the appraisal estimate of 92X. The largest sub-component.procurement of equipment, was reallocated to rehabilitation of existingmaintenance equipment (para. 3.09).

VIII. ECONOMIC EVALUATION

8.01 The Borrower performed the ex-post economic analysis of thecompleted project using the same methodology used at the time of appraisal.The model used for the analysis was the Highway Design and MaintenanceModel III. which takes into account the geometrics, terrain type, physicalcharacteristics and condition of the roadway, maintenance policies, trafficvolumes, and based on these, computes road user savings. The original ex-post evaluation was performed in May 1987. In September of the same year,the Borrower prepared a revised analysis to take into account the Bank'scomments.

8.02 Rates of return for the completed Road Rehabilitation andImprovement Program are shown in Table 2 and these range from 22Z to 74Z ascompared with the appraisal estimated range of 22Z to 156Z. The largestdisparity occurred in the San Josecito-Naranjo subproject. Originally,this road was to yield a rate of return of 1562. By project completion, itwas estimated that the rate would drop to 54?. This difference was dueprimarily to the 2041 increase in cost.

IX. CONCLUSIONS

9.01 Although at the time of Board presentation, Costa Rica was in aperiod of economic prosperity, the economy deteriorated significantlybetween 1981-84 with serious repercussions on the Government's revenues.This created the crisis in the availability of counterpart funds whichplayed a major role in the Borrower and the Bank's decision to reduce thescope of the roads to be rehabilitated from 420 km to about 180 kms, andthe addition of the San Jose-Sequirres road to the project works which wereparalyzed because of lack of funds to complete the remaining sections.

9.02 The works under the project were completed and the quality of thecompleted works is considered to be satisfactory. The progress of projectexecution was affected by lack of counterpart funds, ineffectivecoordination and cumbersome procurement procedures. The less thansatisfactory results, particularly of the maintenance equipmentrehabilitation component, are partly attributed to this. When the decisionwas made to allocate funds from equipment procurement to refurbishing/rehabilitating existing units (para.3.09), the Borrower's local procurement

- 10 -

procedures should have been evaluated carefully and the required amendmentssought for ensuring the component's success. Difficulties also arose incompleting the San Jose-Sequirres road.

9.03 The !mxecution of the Maintenanre and Training component ran intomajor difficulties and the overall results are considered less thansatisfactory. During much of the project execution period, the authorityand responsibilities of the various divisions within MOPT continued to beill defined and as a result, project coordination suffered and themaintenance operations were not administered well. In retrospect, acritical evaluation of MOPT's institutional shortcomings during appraisal(or at least during the project amendment process) should have been madeand remedial solutions incorporated in the project in order to ensurereasonable probability for achieving its objectivez. The project'sobjectives were overly ambitious in relation to MOPT's administrative andmanagerial capabilities.

9.04 MOPT and the consultants providing the technical assistance underthe maintenance component were unable to develop a productive relationship.The unsatisfactory Borrower-technical assistance relationship also impededprogress of the training for equipment operators and mechanics.

9.05 MOPT's compliance with the major covenants of the Loan Agreementwas mixed for the reasons outlined in the paragraph 4.03. While thecovenants were clearly focused on achieving operationally relevant targets,the Bank seems to have tried to do too much in too short a space of time inthe prevailing environment of fragmented decision making in MOPT.Particularly with regard to making the Cantons financially andoperationally responsible for the maintenance of Cantonal roads, the Bankseems to have underestimated the complexity of the problems it sought toresolve through legal covenants. Thus, while legally the maintenanceresponsibilities were reallocated between MOPT and the Cantons, the overallstate of road maintenance has not improved significantly. A clear lessonfrom this project is that lasting institutional changes need a carefullydesigned longer term strategy to which the Borrower should be fullycommitted.

July 10, 1989

KOhbi:nam

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- 12 -

TABLE 2

COSTA RICA

FIFTH HIGHWAY PROJECT 9LOAN 1845-CR)

PROJECT COMPLETION REPORT

Summary of Appraisal Estimated and Final Economic Rates of Return

Percent of Ex-post FinalSubproiect Total Investment Estimate Estimate

Guacimo-Rio Jimenez 2.2 24 22

San Josecito-Naranjo 5.6 54 156

Barba-Santa Barbara 1.7 46 65

Liberia-Santa Cruz 8.2 22 71

Canas-Tilaran 1.5 74 110

- 13 -

TABLE 3

COSTA RICA

FIFTH HIGHWAY PROJECT (LOAN 1845-CR)

PROJECT COMPLETION REPORT

Related Bank Loans

Year ofLoan Purwose Approval Status

1187-CR to finance civil 1975 completed with fundsworks identified in from Loan 1845-CRLoan 872-CR

872-CR to finance highway 1972 completedfeasibility andengineeringstudies

664-CR to finance construction 1970 completedof Siquirres-Limon road

299-CR to finance 1st stage of 1961 completedthe National Highway Plan

- 14 -

TABLE 4

COSTA RICA

FIFTH HIGHWAY PROJECT (LOAN 1845-CR)

PROJECT COMPLETION REPORT

Protect ImPlementation

Appraisal Actual (orIndicators Estimate PCR Estizste)

1. Road Rehabilitation 420 kms 180 kms

2. San Jose-Siquirres -- US$18.4 million-Total CostRoad Construction (US$10.6 million-Disbursed

3. Maintenance Equipment US$4.0 million 200 units repairedof equipment tobe purchased. 150units to be repaired

4. Training of Personnel 970 persons 230 persons

5. Pttrchase of computer -- purchasedEquipment

U I iJ %N V'~ A>N 19E0

.it- a-a*,0_ N I C A RAG U A COSTA RICA<WA > ,, , V_._ ...... /'/ \ \ ''1 NATFIFTH HIGHWAY PROJECT

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sDesi ^ '_,n *'"' @°- . aN rf , 900, 1 R |

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