Documentof The World Bank FOR OFFICIAL USEONLY ReportNo: 35050-NI PROJECTAPPRAISALDOCUMENT ONA PROPOSEDCREDIT INTHEAMOUNT OFSDR41.1MILLION (US$60MILLIONEQUIVALENT) TO THE REPUBLICOFNICARAGUA FORTHE FOURTHROADS REHABILITATION AND MAINTENANCE PROJECT May 9,2006 Finance, PrivateSectorDevelopmentand InfrastructureUnit CentralAmericaCountryManagementUnit LatinAmerica andthe CaribbeanRegion This document has a restricted distribution and may be used by recipients only in the performanceof their official duties. Its contents may not otherwisebe disclosed without World Bankauthorization. CURRENCYEQUIVALENTS (Exchange Rate Effective May, 2006) Currency Unit = CBrdoba (C$) US$1 = C$17.30 Fiscal Year: January 1-December 31 ABBREVIATIONSAND ACRONYMS AADT Annual Average Daily Traffic INTUR NicaraguanInstituteof Tourism BCIE Central AmericanBankfor Economic Integration Instiruro Nicaraguensede Turismo Banco Cenrroamericanode InregracidnEcondmica IRI InternationalRoadRoughnessIndex CAFTA Central America Free Trade Agreement ISN InterimStrategyNote CAS Counay Assistance Strategy LAC Latin AmericaandCaribbean COERCO RegionalHighway ConstructionAgencies ISMS Living Standards Measurement System Corporacidn de EmpresasRegionales deConstruccidn MARENA Ministry of Environmentand Natural Resources DANIDA DanishInternationalDevelopmentAgency MCC MillenniumChallenge Corporation DGA EnvironmentalDepartment MCT Ministry of ConsauctionandTransport Direccidn General Ambienral MDG Millennium DevelopmentGoals DPR DevelopmentPolicy Review MDRI Multi-lateral Debt Relief Initiative ENP National Companyof Ports MHCP Ministry of Finance EmpresaNacional de Puertos ME Microenterprise ERR EconomicRateof Return MIFIC Ministry of IndustryandCommerce ESMP Environmentaland SocialManagementPlan MTI Ministry ofTransportand Infrastructure FA FinancingAgreement (IDA Credit Agreement) NGO NonGovernmentalOrganization FARAH FinancialAccounting, Reporting& Auditing Handbook NPV Net ResentValue FM FinancialManagement W O N NicaraguanTechnicalNorm FOMAV RoadMaintenanceFund Norma Ticnica Obligatoria Nicaraguense Fond0de ManrenimienroVial PMR ProjectManagementRepolt GDP Gross Domestic Product PMS PavementManagementSystem GEF Global EnvironmentalFacility PND National DevelopmentPlan GON Governmentof Nicaragua Programa Nacionol de Desarrollo HDM Highway Designand MaintenanceModel PPMM RoadMaintenanceby Microenterprises HIPC Heavily IndebtedPoor Countries Proyectode Microempresas de ~anrenimiento IADB Inter-AmericanDevelopmentBank PRSC PovertyReductionSupport Credit ICA InvestmentClimte Assessment RAAS South Atlantic Autonomic Region ICR ImplementationCompletionReport RegidnAut6noma del ArldnricoSur IDA InternationalDevelopmentAssociation RED RoadEconomicDecision Model IDR Instituteof Rural Development SIAP ProjectBasedAccounting System Insriruro de DesarrolloRural SIGFA IntegratedGovernmentAccounting System IEG ImpactEvaluationGroup TA TechnicalAssistance IMF InternationalMonetaryFund UCP ProjectCoordinating Unit INEC NicaraguanInstituteof Statistics and Survey Unidad Coordinadora de Proyecto InsiiruroNicaraguensede Esradisricay Censo UNDP United NationsDevelopmentProgram INIFOM Institutefor Municipal Development VAT Value Added Tax lnsrituro de FomentoMunicipal voc Vehicle OperatingCost WB World Bank Vice President: PamelaCox Country Director: JaneArmitage Sector Director: Makhtar Diop SectorManager: Jose LuisIrigoyen Task TeamLeader: ErnrnanuelJames NICARAGUA FourthRoadsRehabilitationandMaintenanceProject CONTENTS Page A. STRATEGICCONTEXTANDRATIONALE .................................................................. 1 1. Country andsector issues.................................................................................................... 1 2. Rationale for Bank involvement.......................................................................................... 4 3. Higherlevel objectives to which the project contributes..................................................... 6 B PROJECT DESCRIPTION . .................................................................................................. 7 1. Lendinginstrument.............................................................................................................. 7 2. Project development objective andkey indicators .............................................................. 7 3. Project components.............................................................................................................. 8 4. Lessons learned andreflected inthe project design .......................................................... 10 5. Alternatives considered and reasons for rejection................................................. : 11 ........... C IMPLE~NTATION . ......................................................................................................... 11 1. Partnership arrangements................................................................................................... 11 2. Institutionalandimplementation arrangements................................................................. 11 3. Monitoring andevaluation of outcomeslresults ................................................................ 12 4. Sustainability ..................................................................................................................... 13 5. Criticalrisks andpossible controversial aspects ............................................................... 13 6. Lodcredit conditions andcovenants ............................................................................... 15 D. APPRAISAL SUMMARY .................................................................................................. 15 1. Economic andfinancial analyses....................................................................................... 15 2. Technical............................................................................................................................ 16 3. Fiduciary............................................................................................................................ 16 4. Social ................................................................................................................................. 17 5. Environment ...................................................................................................................... 18 6. Safeguard policies.............................................................................................................. 20 7. PolicyExceptions and Readiness...................................................................................... 21 Annex 1:CountryandSectoror ProgramBackground .......................................................... 22 FOROFFICIAL USE ONLY This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not be otherwise disclosed without World Bank authorization. Annex 2: Major Related ProjectsFinanced by the Bank andlor other Agencies ..................29 Annex 3: Results Framework and Monitoring ......................................................................... 30 Annex 4: DetailedProject Description ...................................................................................... 36 Annex 5: Project Costs ................................................................................................................ 45 Annex 6: ImplementationArrangements .................................................................................. 46 Annex 7: FinancialManagement and DisbursementArrangements ...................................... 51 Annex 8: Procurement Arrangements ....................................................................................... 57 Annex 9: Economic and Financial Analysis .............................................................................. 62 Annex 10: Safeguard Policy Issues ............................................................................................. 73 Annex 11:Project Preparation and Supervision ...................................................................... 77 Annex 12: Documents inthe Project File .................................................................................. 78 Annex 13: Statement of Loans and Credits .............................................................................. ~ 7 9 Annex 14: Country at a Glance .................................................................................................. 81 Map IBRD34552 ......................................................................................................................... 83 *. 11 NICARAGUA FOURTHROADS REHABILITATIONAND MAINTENANCE PROJECT PROJECT APPRAISAL DOCUMENT LATINAMERICA AND CARIBBEAN LCSFT Date: May 9,2006 Team Leader: Emmanuel A. James Country Director: Jane Annitage Sectors: Roads and highways (100%) Sector Director: MakhtarDiop Themes: Rural services andinfrastructure (P) Project ID: PO83952 Environmental screeningcategory: Partial Assessment Lending Instrument: Specific Investment Loan [ ] Loan [XI Credit [ ] Grant [ ] Guarantee [ ] Other: For LoanslCreditslOthers: Total Bankfinancing (US$m.): 60.00 Borrower: Republic of Nicaragua Nicaragua Responsible Agency: Ministry of Transport (MTI) Frente al Estadio Nacional Nicaragua Tel: 505 222 5913 eat@ibw.com.ni Project implementation period: Start June 30,2006 End: June 30,2011 ... 111 Expected effectiveness date: August 18,2006 Expected closingdate: December 31,2011 Does the project depart from the CAS incontent or other significant respects? Ref. PADA.3 [ ]Yes [XINO Does the project require any exceptions from Bankpolicies? Ref. PAD D.7 [ ]Yes [XINO Have these been approved by Bankmanagement? [ ]Yes 1 IN0 [ ]Yes IN0 Does the project include any criticalrisks rated "substantial" or "high"? Ref. PAD C.5 [XIYes [ ] N o Does the project meet the Regionalcriteria for readinessfor implementation? Ref. PAD D.7 [XIYes [ ] N o Project development objective Ref. PAD B.2, TechnicalAnnex 3 The ProjectDevelopment Objective is to supportthe Government of Nicaragua's broadbased economic growth andpoverty reduction planby relievingtransportation bottlenecks that currently hinder economic growth andprivate sector investment. The specific objectives are to support economic growth by: (i) expanding and complementing the previous focus on trunk roadsby improving aconnecting network of secondaryandruralroads which will be selectedin a manner that would lead to the creation of paved distributor networks that can better support economic activities of a given productive zone; (ii)helpingensure the sustainability of the road improvements, throughstrengtheningof maintenancepractices, and (iii) institution buildingand technical development inthe Ministryof Transport and Infrastructure (MTI) andthe Road Maintenance Fund(FOMAV). Project description [one-sentence surnrnu~of each corn~onent]Ref. PAD B.3.a, Technical Annex 4 Component 1:RoadRehabilitation(US$lO. 13 million): This component will finance the rehabilitation and the improvement of the following road segments: Diriamba-La Boquita- Casares (32km); LaVirgen-San Juan del Sur (19km). Component 2: RuralTransport Improvement (US$41.87 million): This component includes an adoquinesstabilization programfor approximately 320 kmof secondary andrural roadslocated mainly incompetitive zones I, I11andIV. Component 3: RoadMaintenance (US$7.64 million): This component includes provisions for routine andperiodic maintenancecontracts. It will be managedby MTIandthe FOMAV and includes subcomponentsfor routine andperiodic maintenance. Component 4: Studies, Goods, Technical Assistance, TrainingandConsultant Services (US$7.75 million): This component will help to implement the project andto better promote the development of the MTI, FOMAV andoverall roadsector management. Which safeguardpolicies are triggered, if any? Ref. PAD D.6, TechnicalAnnex 10 (i)Environmental assessment; (ii) Culturalproperty policy. Significant, non-standardconditions, ifany, for: Ref. PAD C.7 Boardpresentation: NONE i v Loadcredit effectiveness: Covenantsapplicable to project implementation: Disbursement conditions: a)No disbursements for the second year of the Road Rehabilitation Program until MTI and FOMAV prepare and sign a rolling, 3 year agreement, acceptableto the IDA that will govern the routine maintenance by microenterprisesprogram. b)No disbursements for the second year of the Road Rehabilitation and the Rural Transport Improvement Programs unless the funds collected in the prior year via the special fuel surcharge have been transferred ina timely manner to the FOMAV for its annual maintenance program. c) No disbursements for road maintenance by microenterprises until similar funding under the ThirdRoadsProject (CR-3464-NI) hasbeencommitted fully. d) No disbursements for the Road Rehabilitation Program unless the fines for vehicle overloading have been restoredto adequatelevels. e) No disbursement for the Road Rehabilitation Program until an account in local currency (Cuenta Escritural de Contraparte local) for the project's counterpart funds has been opened inthe Central Bank. The Cordoba equivalent of 3 months worth of counterpart funds should also be deposited therein. Monitoring Conditions: a) M T Iwill submit semi-annualperformance reports ina format to be agreed b) IDAwill carry out amid-termreview not later thanDecember 31,2008 V A. STRATEGICCONTEXTAND RATIONALE 1. Countryandsectorissues 1. Nicaragua is the largest country in Central America in terms of land area and has a population of around 5.4 million inhabitants. The population i s growing at an annual rate of 2.7 percent, most of whom are concentrated in the Pacific seaboard and Central highlands. Nicaragua has a small, open economy that depends heavily on trade and transportation since its exports represent around 20 percent of its GDP, while imports amount to 42 percent of GDP. The country's principal exports are coffee, shrimp, lobsters, beef, and sugar, which render the country very vulnerable to commodity price shocks. Non-traditional products represent around 40 percent of total merchandise exports. Nicaragua's most important trading partner is the United States (which accounts for about one-third of its total exports and imports), followed by other Central American countries. Europe absorbs around 25 percent of Nicaragua's exports and supplies 10percent of its imports. 2. Following a prior decade of economic and political instability, Nicaragua advanced far during the 1990s in restoring a stable, private sector-led market economy and in establishing a democratic, broadly participative form of government. Hyperinflation was halted in 1991 and economic growth re-emergedin 1994. Important structural changes that occurred during the last 10 years included (i) major decline in the size of government through cuts in government a spending, a reduced public sector labor force and the privatization or closure of most state- owned enterprises andof all public commercial banks, (ii) significant advances in the divestiture of public energy and telecommunications enterprises, reform of the social security system and modernization of public sector management, (iii) a significant opening up of the economy in responseto the reduction of trade barriers andimplementation of a convertible currency, and (iv) the substitution of public investment by private investment as the main source of capital accumulation. Another important structural change has been the growth of remittances and private capital inflows, coupled with the decline of Nicaragua's external debt burden. 3. With a per capita GDP of US$790 in 2004, Nicaragua is one of the poorest countries in LatinAmerica. Ithadbeenestimated inthe 2003 LivingStandardsMeasurement Survey (LSMS) that some 46 percent of the population lives below the poverty line, while 15 percent lives in extreme poverty. The incidence of poverty i s more than twice as highinruralareas (68 percent) as in urban areas (31 percent). While Nicaragua's social indicators are generally comparable to those observed in other lower income countries, it stands out by having a relatively high population growth rate and low education attainment levels. Additionally, in October 1998, Nicaragua was struck by hurricane Mitch, which caused major human and physical damage, especially to the road network. 4. The current Government of Nicaragua (GON) has designatedpoverty reduction as one of its priorities, and endorsedthe Highly Indebted Poor Countries (HIPC) initiative and the Poverty Reduction Strategy (PRSP) that was prepared in 2001. In so doing, it took on a great number of challenges in 2002 as it inherited a rather difficult economic situation, and was forced to apply a number of stringent measures in order to arrive at an agreement with the MF. Despite this adverse economic climate, Nicaragua made significant progress, notably its achievement of the HIPC initiative completion point in January 2004, which as a result helped to reduce the unsustainable foreign debt burdenthat Nicaragua bore. Its debt service was reduced to a third of what it paidpreviously; but it remainsconsiderableat 9%' of the value of its exports. 5. In addition, the IMF Board approved further debt relief for Nicaragua under the Multi- lateral Debt Relief Initiative (MDRI) inDecember2005. The World Bank's Boardalso approved MDRIdebt relief on March28, 2006 andplansto start implementationinFY07.While the relief provided by both initiatives greatly enhances its prospects for future fiscal stability, Nicaragua also has a significant domestic debt (about 25 percent of GDP) that continues to burden public finances anddeserves careful monitoring. 6. The GON has decided further to focus on economic growth as its vehicle for poverty reduction. It recognized also that a solid public-private partnership i s an essential element inthis strategy. It consequently designed a National Development Plan (NDP) that is focused on these principles. The economic growth sought through the NDP i s based on enhancing Nicaragua's economic competitiveness given its geographical position with respect to its main trading partners and its insertion into the global economy through recent free trade agreements. The associated strategy i s based on four fundamental aspects: (i) direct support to the enterprise sector, (ii) attraction of direct foreign investment, (iii) inclusion through the development social of humancapital, (iv) and investment incritical productive infrastructure. Box 1:Summary of PND 05-09 Key Results and Objectives by Strategic Areas Overall key results2005-2009 1. Reachanannualrateof growth of the economyof5 percentwhile sustainingmacroeconomicsstability. 2. Attain the 2009 milestones for reaching the Millennium Development Goals (MDGs) emphasizing extreme poverty reduction. 3. Double the value of exportsbetween2004 and 2010. 4. Improve the quality of 1200kmof the secondaryand rural road network by adoquin stabilization. 1 5. Attract additional foreign private investmentsof US$130Illillion annually. Objectivesby StrategicAreas Economic growth for poverty reduction (Area I): macroeconomic stability and economic growth. Sustain Emphasis is on improving the investment climate by making reforms to the regulatory framework for businesses needed to decrease bureaucratic costs, improve property rights, broaden financial services, promote exports, support clusters, increase the use of technology for agricultural production and promote environmentally sustainablegrowth. Human capital development and social protection (Area II): coverage and quality of services in Improve education and health, with an added focus on technical training and labor conditions, including child labor. On social protection, emphasis is on improving institutional coordination by consolidating multiple projects into key programsto increase access of vulnerablegroupsto basic social services. Productive and social public infrastructure (Area HI):Increasecoverage and quality of infrastructure to support economic growth and attain the MDG targets. Emphasis for productive infrastructure is on roads, ports and energy. Emphasisfor social infrastructure is on education, health, water and sanitation, and housing. Governance and state reforms (Area IV): Strengthen good governance by emphasizing the reform and modernizationof the justice system, respect to human rights, guarantee public safety, and support participation of civil society. Improve public financial management and modernize public procurementto increase efficiency and efficacy of the state, and to deepen transparency and accountability. Implement a national decentralization strategy to enhance the provisionof public services while maintaining fiscal stability. 'The debt servicewould haveremainedat 24% of the exports without HIPC 2 7. Nicaragua has been experiencing steady but modest economic growth since the early 2000s. The GON feels that its policies and economic reforms may best be attained through a sustained economic growth process and based on a market oriented economy that i s open and competitive internationally. Insupport of this goal, the Nicaraguan economy requires appropriate levels of transport infrastructure and the efficient delivery of transport services. However, according to the LSMS findings, overall a little above one-fifth (22.3%) of Nicaraguan households have access to a paved road; furthermore the household numbers are 7% for the extreme poor, 11% for the poor, and 30% for the non-poor. It is highly doubtful that such low levels of road infrastructure provision could support government development objectives effectively. Inreality, economic growth could becomeconstrained if key needs are not addressed soon. 8. The quality of road infrastructure i s the lowest in Central America. According to the Ministry of Transportation and Infrastructure (MTI), more than 75 percent of the total road network in Nicaragua is in poor condition; this however represents a considerable improvement during the last five years as conditions used to be decidedly worse. As detailed in Table 1, the trunk and collector roads have now been mostly restored to good conditionbut the overall poor figure i s due particularly to the abysmal conditionof the other categories (secondary, tertiary and unclassified roads) which together represent 87 percent of the total network. This largely reflects the use of inappropriate design and construction standards coupled with the inadequate maintenance regime that have in turn resulted in premature road deterioration. These findings suggest that the poor quality of roads, rather than their availability, is the principal bottleneck in this sub-sector. Also, Nicaragua has very limited transport modal choices. Its seaports are run down, the domestic air transport system i s in an infant state of development, and its railroad systemhas ceasedto exist. The most important transport bottlenecks inNicaragua therefore lie in the roads sector. Table 1:Road Condition by Category RoadCategory Lengths(km) Share ingoodlfair condition(1) 1.Trunk (asphalt) 1,752 74% 2. Collector (asphalt and 636 88% 1Iadnauin) 3. Ruralaxes (graveland 2,052 40% adoauinl I 4. Ruralall-weather 3,07 1 16% (mavellotherl 5. Unpavedand seasonal 11,525 6% Total 19,036 205% 9. The MTI's assessment of road network quality coincides with the perception by representativesfrom private enterprises as shown inFigure 1. Apart from Costa Rica, the quality of rural roads in Nicaragua i s perceived as being the worst in Central America. The situation i s slightly better in urban areas where half of the enterprises consider that road quality is good or fair.The poor condition of infrastructure, particularlyinruralareas, is amajor impediment to the 3 creation of a sound and attractive business environment for entrepreneurs. It also reduces the capacity to export (predominantly moved by land). Finally, low infrastructure quality affects transport safety, even though the accident rateinNicaraguai s lower than inother countries'. Figure 1:PrivateSector Perceptionsof RoadQuality inCentralAmerica I SMALL CITlESlRURALAREAS CAPITALLARGE CITIES Source: World Business Environment Survey, 2000 10. Transport services are inefficient in urban areas also, where 60 percent of the population lives. Although congestion is limited due to the relatively low traffic volumes, major cities show deficiencies in all aspects of traffic management. There is a pressing need to improve urban transport inthe interestsof the urbanpoor. Bus services are poorly organized andmost users find them to be highly unsatisfactory in terms of quality and safety (the average bus age exceeds 17 years). Although various feasibility studies for improving urban transport have already been completed, none have yet been implemented, possibly reflecting institutional and financial disagreementsbetweenthe central and the municipalgovernments. 2. Rationale for Bank involvement 11. The Bank's Country Assistance Strategy (CAS) for Nicaragua, which is known formally as the Interim Strategy Note (ISN), Report No. 32570-N1, was discussed and approved by the Board on August 4, 2005. The main objective of the ISN was to support the Government's programs for sustaining growth and reducing poverty as expressed in the NDP. As stated in the ISN, the provision of adequate road infrastructure continues to be of primary importance for poverty reduction and hence the inclusion of the Fourth Roads Project in the IDA lending program. The Fourth project falls under the productive and social public infrastructure area of the ISN results matrix, especially the targets related to the sustainability of maintenance and improvingruralaccess. 12. Nicaragua's total road network comprises almost 19,036km which yields a total road density similar to that found elsewhere in Central America and among countries with similar With 2,131 accidents in 2000, Nicaragua has a rate of 0.4 accidents per 1,000 people or 1.4% per vehicle. The worst countries in Central America for road safety are Costa Rica (17 accidents per 1,000 people or 13% per vehicle) and Panama(16 accidents per 1,000 people or 14% per vehicle). 4 levels of development. However, only about 15%of this roadnetwork is paved, which represents the lowest level in Central America. Nicaragua therefore lies in the lowest range in Central America for the density of paved roads (15% in comparison to the Central American average of 29%), the region being itself less endowed than countries at a similar level of development (31%1).~Overall, Nicaragua remains the least well endowed country in terms of infrastructure in the Region, given that only 22% of the population has access to a paved road, and only around 20% of the network is ingood or fair condition. 13. IDAinvolvementfor improving sector planningandexpenditure managementis essential as both the provision and maintenance of infrastructure leave a lot to be desired in Nicaragua, This was due to various factors in the recent past, especially inadequate maintenance funding levels, a weak construction industry and poor operations of service companies. In recent years, IDA has maintained a highlevel dialogue with the Authorities on these issues, especially on the budgetary and other funding mechanisms for maintenance, the need to improve the institutional framework, and on the advantages of increased private sector participation in infrastructure construction, operation and maintenance to the extent feasible. The poorly maintained road network places the major investments of the past 5 years at risk andprevents the development of least-costtransport services, especially inruralareas. 14. The provision of adequate road maintenance had encountered difficulties primarily because of the lack of a structured and well funded program. The Bank had advised the Government of the importance of such a program, and hadprovided seed funding for setting up the Nicaraguan Road Maintenance Fund (FOMAV) a few years back, under the previous Rehabilitation and Maintenance Projects. The FOMAV is a good example of the synergies that were developed between the Poverty Reduction Support Credit (PRSC) and the Road Rehabilitation and Maintenance Projects. The Government recently approved a law that ensures that the FOMAV will be financially self sustainable in the future, which was one of the prior actions neededfor PRSC second tranche release. The full establishment of the FOMAV and the use of private contractors that are awarded contracts via a public bid process represent the key componentsof anefficient solutionto this problem. 15. Furthermore, the increased regional competitiveness that i s expected to arise from the recent Central America Free Trade Agreement (CAFTA) agreement also heightens the urgency to address the road infrastructure deficit. A well developed and maintained road network is essential to maximizing Nicaragua's potential for dynamic, export led economic growth. To improve its prospects for competing under CAFTA, Nicaragua must overcome the hugebacklog of maintenance and investment in road infrastructure. The allied agenda of policy and institutional change in this sector will involve: (i) improving the quality of rural roads and ensuring year-round rural accessibility. Such road improvements should be part of a strategy aimed to strengthen rural-urban linkages and to foster commerce and agricultural development; (ii)designing mechanisms to protect infrastructure investments from bearing a disproportionate share of the burdenof periodic fiscal adjustments and conversely to increase investments if fiscal space allows it; (iii)promoting a suitable regulatory framework for private sector participation in the construction, operation and maintenanceof transport infrastructure; and (iv) improvingurban transportation systems. Values for 1999,with per capita GDP between 2000 and 4000 USD(PPP in 1999). 5 3. Higher level objectives to which the project contributes 16. This projectis included inthe ISNandis inline completely with the Bank's program for Nicaragua. It i s also consistent with the GON's poverty reduction rationale, since the deficiencies of road infrastructure constitute a limitation for economic growth in Nicaragua, by increasing transaction costs and rendering the economy less competitive than its neighbors. Both the CAS and the NDP promote sustaining economic growth as essentialbecause without it there would be little chance that progress could be made in meeting the other challenges facing the country, especially poverty reduction. 17. The GONhas madeclear its commitment to a strategy that emphasizes poverty reduction through broad basedgrowth. It has stressedthe importance of improving road infrastructure and maintenance in its key strategy documents and its commitment is further evidenced by the (i) establishment of the FOMAV and the recent approval of the law to assure its funding on a reliable basis, (ii) MTI's interest in pursuingthe improvement of the road network based on the more balanced approach followed under previous IDA projects which focused on both the maintenance, and rehabilitation of roads, and (iii) financing requests made at annual-donor conferences. Finally, the implementation performance of previous IDA transport projects has been one of the best in the region. This was especially impressive given the difficult prevailing political and macro-economic climate andthe needto deal with the adverseeffects of the various natural disasters (Hurricane Mitch, floods, and droughts) on the road network. The project will seek to continue fostering this efficient deploymentof publicresources. 18. As stated before, the most extensive and growth-crippling infrastructure bottlenecks in Nicaragua lie in the road sector. Key actions for removing these infrastructure bottlenecks that the project will support include: (i) Investments to improve and expand the paved road network to the levels of other low income comparator countries. Given the success of the trunk road rehabilitation programso far, the next order of priority is to improve the grid of secondary and major rural roads (the distributor network) that link to the trunk roads and serve the productive zones. The scaling up of existing adoquin road stabilization programs represents a cost-effective alternative to asphalt or gravel paving of roads, especially for the secondary network. Accordingly, this project, together with the two previous IDA Road Projects, will help the MTIto complete 630km or just over 50% of the PND's target of 1200kmof adoquin stabilization by 2009. The remainderwill be attained via projects financed by BCIE (175km), IDB (135km), Millennium Challenge (200km) and by the GON (60km). (ii) Emphasizing maintenance. It will be essential that the roads that have been rehabilitated are not left to deteriorate (as in the past) and once again allowed to become bottlenecks. A comprehensiveprogram of maintenance, includingthe guaranteeing of funding arrangements via the FOMAV and the use of least-cost public bid contractual approaches for works implementation represent an indispensable part of the strategy to increase paved road coverage. Even then, it will be many years before Nicaragua can close the gap inpaved roads compared to other countries inthe region; 6 (iii)Clarifying and strengthening sub-sector institutional arrangements: Although the IDA project that supported institutional restructuring has produced significant positive results, MTIis still affected by overall weaknesses in planning and programming. There i s still a need to develop MTI's basic capacity to carry out road condition inventories, to fully install the Pavement Management system, to seek least cost solutions to technical and engineering problems associatedwith road andbridge maintenance, as well as to help foster the development of the local consulting and contracting industries. Aside from MTI, the FOMAV needs appropriate technical assistance, particularly incontracting and procurement procedures so that it can develop the capacity eventually to managethe maintenance of the entire core road network. For overall sustainability and efficient road management, further analytical work is needed to identify the appropriate roles and responsibilities of the key players (both at central and local level, and including INIFOM, IDR and the municipalities) and to promote synergies while avoiding aduplicationof efforts. 19. IDA has been supporting Government strategies for addressing road infrastructure deficiencies with considerable success but there is still a long way to go. The strategies have been balanced in terms of the attention paid to both the provision of infrastructure and its subsequent maintenance. This Fourth Road Rehabilitation and Maintenance project will therefore seek to continue supporting the GON policies by helping to remove transport bottlenecks and boosting the productivity of public and private investments through the improvement of connecting networks of collector, secondary and rural roads in targeted areas with highproductive potential, and that have large numbers of poor residents. B. PROJECTDESCRIPTION 1. Lendinginstrument 20. The GONhas requesteda Specific Investment Credit, 2. Project developmentobjective andkey indicators 21. The overall objective of the project would be to support the GON's broad based economic growth and poverty reduction plan by relieving transportation bottlenecks that currently hinder economic growth and private sector investment. The specific objectives are to support economic growth by (i) expanding and complementing the previous focus on trunk roads by improving a connecting network of secondary and rural roads which will be selected in a manner that would lead to the creation of paved distributor networks (circuitos de distribucibn) that can better support economic activities of a given productive zone; (ii) ensure the helping sustainability of the road improvements, through strengthening of maintenance practices, and (iii)institutionbuildingandtechnical development inthe MTIand the FOMAV. 22. The achievement of the project objectives will be measured by the: (i) reductions in vehicle operating costs and time savings along the road corridors linkingthe productive zones; (ii) qualitative improvements to the network in terms of the km of roads assessed as being in good, fair or bad condition; (iii) of the participation of the private sector in road extent rehabilitation and maintenanceprograms as measured in terms of the numbers and value of the 7 contracts awarded; (iv) share of the budget allocated for road maintenance; and (v) number of rural communities provided with improved road access and generation of employment in all the components.The indicators are detailed further inAnnex 3. 3. Project components 23. The project would enhance IDA'S ongoing support for a) capacity building and institutional strengthening of MTI, b) the design and implementation of routine and periodic maintenanceprograms, and c) full operational establishment of the FOMAV. The project would support the improvement of some connector roads between the Panamerican highway and the Pacific coast as well as the stabilization of about 320km of secondary and rural roads. The balanced technical approach would continue along the same lines as the previous IDA projects, ensuring and emphasizing sustainability of all road improvements by capacity building and institutional support, and implementation of routine and periodic maintenance programs via microenterpise and private contractors for about 2,400km of roads. The project would also help the MTI to advance its program of decentralization of the road network and to provide the impetus for restoring fines for truck overloading to appropriate levels. These and other components are summarized in the table overleaf. Further description of the project components i s inAnnex 4. A map showing the locations of mainproject roads i s also included inthis report. 8 Table 2 Project Components - Component Indicative % of IDA COS& Total Financing WS$W ( U S W RoadRehabilitationPromam(5 lkm): for the 10.13 14.48 8.61 85 La Virgen-San Juan del Sur trunk secondary road (19km) and for the Diriamba-Casares- LaBoquita (32km) principal roadnetwork. Rural Transport Improvement Plan: 85 Stabilization of 320km of secondary and rural roadsinZones I, 111andIV. Road Maintenance Promam: for the 80 expansion of the program of routine maintenance by microenterprises (37 ME and2,400km) andfor the executionof about 80kmof periodic maintenanceby contract. Consultant Services; Institutional and 100 Technical Development Program: to assist the MTIto: (i) prepareannual roadimprovement programs; (ii)introduce HDM4, improve PMS and update its data base; (iii) expand the road maintenance by contract program; (iv) cany out MTI, ME and FOMAV staff training and capacity building; (v) advance the decentralization program; (vi) carry out feasibility andtransport sector studies, socio- economic monitoring, project supervision, designs, externalaudits; (vii) goods. Contingencies 2.52 3.64 1.94 77 TotalProject Costs 69.91 100.0 60.00 86 Total FinancingRequired 60.00 86 :: Costsare netofVAT andMunicipaltaxes (US$ 1.84millionequivalent) 9 4. Lessons learned and reflectedinthe project design 24. The IDA has recently completed a Development Policy Review (DPR) for Nicaragua (Report Number 29115-NI of December 3, 2005). The DPR's analysis of the determinants of growth identified public infrastructure development as a key for sustaining growth inNicaragua. Of all the growth determinants considered, it yielded the greatest growth pay-off in simulations that consider the implementation of more aggressive reforms compared to the outcome projected ifNicaragua was to continue to evolve according to historical trends. This means that Nicaraguan authorities need to focus on strategies for reducing the country's road infrastructure deficit. Other Bank analytical work such as the 2004 Investment Climate Assessment (ICA) confirmed this evaluation. 25. According to the Bank's4 study on the rural drivers of growth in Central America, education and infrastructure (particularly rural roads) were the first two pre-requisites that need to be provided to rural households in order stimulate economic growth and reduce poverty. The study concluded that infrastructure development may both raise growth and lower income inequality, thus implying that it may be a key win-win ingredient for poverty reduction. Infrastructure development will be pro-poor if it allows poorer individuals (especially in rural areas) to access additional productive opportunities. Furthermore, the 2006 World Development Report (WDR) also reinforces the importance of the role played by infrastructure for promoting growth with equity scenarios. 26. The applicable lessons learned from the ongoing projects and the experience of other donors who have been active inthe transport sector, especially DANIDA and the Inter-American Development Bank (IDB), indicate that despite the Government's typically overriding desire to rehabilitate as many roads as possible, emphasis should be placed on designing a balanced program that focuses on the sustainability of the investments. The main elements of sustainability are, (i)improving the planning, programming, implementation and financial sustainability of road maintenance; (ii) ensuring that attention i s paidto safety andenvironmental issues in the sector; (iii) supporting the line agencies in adapting to changed roles in a policy environment of decentralization and of greater private sector involvement; and (iv) promoting the development of the localconstruction industry. 27. Since the 1990sthe focus of investments in roads has rightly been on restoring the most heavily trafficked sections of the trunk road network. Hence, given the projects completed or underway, by early 2006 most of the trunk roads linking Managua to Honduras in the North, to Costa Rica in the South, to the port of El Rama in the East and to Corinto port in the West had beenrehabilitated. Subsequently, to better serve households and industry and to bolster economic competitiveness it has become necessary to invest in improvements to the secondary and rural roads, defined as the distributor network, connected to the trunk roads and that serve the locations where most products start their journey to the market, as well as to complete road linkages to the Atlantic coast. Drivers of SustainableRural Growth and Poverty Reduction in Central America, ESSD, 2003 10 5. Alternatives consideredand reasonsfor rejection 28. The GON cannot, at this time, address all the public investment needs countrywide, so it has chosen to focus on productive infrastructure. Inthe roadsector, this implies investment in all segments of the road network. However, by early 2006, the majority of the trunk road network had been rehabilitated. Currently less than 5% of the secondary road network is paved; therefore the approach proposed for the Fourth project focuses more on the secondary and rural roads connecting communities to the maintrunk network. This was the approach recommended by the DPR. C. I ~ P L E ~ N T A T I O N 1. Partnership arrangements 29. Various bi-lateral and multilateral financing institutions have, for some time, been supporting development programs in Nicaragua. In the transport sector the main ones are DANIDA, IDB, IDA, and BClE who have all worked on road infrastructure improvements. In IDA'Scurrent Third Road Rehabilitation and Maintenance Project CR-3464-NI, the road from Managua to ElRama was rehabilitated under parallel cofinancing for discrete road sections with DANIDA, and IDB. The proposed IDA project will complement the ongoing projects financed by the Millennium Challenge Corporation (MCC), IDB, BCIE, and the Nordic Fund that are located inthe productive zones. 2. Institutional and implementationarrangements 30. The project will be carried out by the same MTIunit that has managedthe previous IDA projects very well. Although MTI will retain overall project responsibility, it will prepare an agreement with the FOMAV that i s acceptable to the IDA for the implementation of the road maintenance program. This agreement will first cover the transition of the management of the routine maintenance by microenterprise program to the FOMAV by end of 2006, Subsequently, by mid2007 the MTIlFOMAV agreementwill include also the periodic maintenanceprogram. 31. IDA has gained significant experience in the sector in the past years having carried out three projects previously. The continuity of this intervention in itself would bring great benefits as most reforms require time to be well implemented. In the case of Nicaragua, the balanced approach between investment and sustainability, through the enhancement of maintenance microenterprises and the continued support to the FOMAV will help to ensure the overall program sustainability. The focus of this and previous IDA projects on maintenance was a determining factor in support of the GON's recently successful efforts to secure parliamentary approval of the reform to the FOMAV law required to secure its financing. Secondly, IDA i s the only agency that developed rehabilitation of secondary roads through stabilization with adoquines, acquiring a significant amount of experience of the whole process. This work has had a great impact and the GON wishes to develop it further and will do so under projects financed by IDA credits and by other donors including the MCC. Thirdly, through previous projects, IDA has helped to strengthen the MTI's capacity for planning, social and environmental analyses, and also improved the framework for stable growth of the local construction, contracting and 11 consulting industries through transparent procurement procedures and introduction of road maintenanceby contract management. 3. Monitoringandevaluation of outcomeslresults 32. Monitoring of project outputs and performance, along with annual audits and plans, will be undertaken by the UCP on an ongoing basis. Inaddition, the UCP will manage the final stage of the ongoing socio-economic impact evaluation study that i s focused on the rural roads improvement program. 33. The UCP already has a well functioning information and management system that was developed under the previous projects and that i s appropriate for the needs of this project. The UCP will report on both the physical and financial aspects of project implementation, thereby allowing the IDA to ascertain the implementation progress towards achieving the project development objectives. The UCP would provide: (a) subproject information, such as pertinent physical and financial data for each subproject; (b) financial management data, from which Statementsof Expenditure (SOEs) would be generated; and (c) project managementinformation, For sub-components to be managed eventually by the FOMAV, information gathering may be delegated to them, but ultimate responsibility for ensuring accuracy and timeliness will remain with the UCP. The UCP will make available monthly summary reports that can be made available to the IDA to monitor project performance indicators, review disbursements, as well as supervise implementation progress. 34. Detailed reports on the progress made under each of the project components will be preparedby the UCP on a quarterly basis and submitted for review to the IDA. These reports should measure performance against the results indicators in the results framework (see Annex 3), and, in addition to financial management and procurement reporting requirements, include information on (i) status of project execution, with detailed information on budget allocations, scope of the activities and results achieved, (ii) a summary of progress in the implementation of environmental and social measures, and (iii)an annex describing actual and potential developments likely to affect project implementation. The PCU has adequate capacity to carry out these tasks. 35. For assessing outcomes, it is intended to carry out (i) a mid-termreview, that would focus on a number of project performance indicators (to be determined during implementation) and make mid-course corrections, as needed, in project execution; and (ii) complete the impact evaluation as described in Annex 3. The impact evaluation will consist of the final re-survey of the treatment and control groups (defined under the Third Project) and a full analysis of the results of the entire study. Responsibility for execution of the survey and analysis will be contracted out to a specialized Nicaraguan agency (INEC) which has adequate experience in impact evaluation inthe transport field. The PCUwill also preparethe Project Completionreport and submit it to the IDA within 6 months of completion of the project's civil works components. 36. The project monitoringindicators andthe results framework are detailedinAnnex 3. 12 4. Sustainability 37. Sustainability will be enhancedthrough the strengthening of the MTI and the FOMAV, given the emphasis to be placed on planning and on developing adequate arrangements for road maintenance. The physical investments financed by the project (roads in particular) should receive adequate maintenance inorder to be sustainable. The Government has taken a major step forward in this direction by approving a modest fuel surcharge to fund the maintenanceprogram of the FOMAV that covers the core network. Some budgetary allocations will still be needed for MTIfor maintenance of seasonal roads andsomeother lesstraffickedsections of the network. 38. Given the advances made in terms of funding arrangements, priority will now be accorded to ensuring that the planning and implementation of maintenance, especially by contracts with micro-enterprises and private contractors, i s carried out in an efficient and transparent manner. The MTIhas so far done very well in terms of establishing 33 routine road maintenance microenterprises and managing their performance successfully. The challenge during the first years of project implementation will be to complete the transfer of this program to the FOMAV (as originally contemplatedby the IDA) andto expand it to 37 microenterprises. 39, Other factors affecting sustainability of road infrastructure, such as the control of vehicle overloading will also be addressed. The conditionality for the proposed Credit reflects this sustainability concern. The first step will include initiatives to restore fines for vehicle overloading to appropriate levels as well as to enforce them by expanding the use of mobile weigh stations alonghigh traffic routes. Subsequent steps will involve completing arrangements for the self financing of the operating costs of MTI's Vehicle Control Unit via a portion of the fines collected for violating the law on vehicle dimensions and overloading. The feasibility of establishing an automated electronic network linkingall of the weigh scales for both data control and monitoringpurposes will be also analyzed. The project will also include funds for continued training and technical assistancefor the strengthening of MTIand FOMAV staff that was begun under the previous IDA projects. The goal will be to help develop sound planning, investment, management andmaintenanceproceduresfor both institutions. 40. Sustainability will be enhanced through the strengthening of the MTI, the emphasis on planningandthe provisionof adequatebudgetsfor roadmaintenance. 5. Criticalrisksandpossiblecontroversialaspects 41. There are several factors of an economic, institutional, political or social nature that may affect the achievementof the project development goals. Nicaragua i s very susceptibleto natural disasters and its economy is highly vulnerable to external shocks. The economy has not grown enough in the recent past, thereby exacerbating the demand for basic necessities. Nicaragua's signingof the CAFTA with the United States is expected to provide a stimulus to key sectors of the economy and to foster competition. It should be noted too that the Government attained the H P C completion point conditions, despite going through a long period of political stagnation becauseof the precarious balanceof power inthe National Assembly, and i s quite experienced in dealing with challenges. Finally, unlike past attempts at establishing a command economy, the 13 GON development strategy places considerable emphasis on the economic growth to be generatedby the private sector. 14 6. Loadcreditconditions andcovenants BoardPresentation:None Effectiveness Condition: None 44. Other (classify according to covenanttypes used inthe Legal Agreements): Disbursement conditions: a) No disbursements for the second year of the Road Rehabilitation programuntil MTI and FOMAV prepareandsigna rolling, 3 year agreement, acceptableto the IDA that will govern the routine maintenanceby microenterprises program. b) No disbursements for the second year of the Road Rehabilitation and the RuralTransport Improvement programs unless the funds collected inthe prior year via the special fuel surcharge have beentransferred inatimely mannerto the FOMAV for its annual maintenance program. c) No disbursements for road maintenance by microenterprises until similar funding under the ThirdRoadsProject (Credit 3464-NI) has beencommitted fully. d) No disbursements for the Road Rehabilitation Program unless the fines for vehicle overloading havebeenrestoredto adequatelevels. e) No disbursement for the'Road Rehabilitation Program until an account in local currency (Cuenta Escritural de Contraparte local) for the project's counterpart funds has been opened in the CentralBank.The Cordoba equivalent of 3 months worth of counterpartfunds shouldalso be deposited therein. 45. Monitoring, reporting: a) MTIwill submit semi-annual performance reports ina format to be agreed b) IDA will carry out amid-termreview not later thanDecember 31,2008 D, APPRAISALSUMMARY 1. Economicandfinancialanalyses 46. The economic justification for the roads rehabilitation was carried out using the Banks HDM-4model and was based primarily on the quantifiedbenefits that can be attributed to the road improvements, in particular savings in vehicle operating costs, The economic rate of return was estimated at 61% for La Virgen-San Juan del Sur and 36% for Diriamba-Casares, with Net Present Value (NPV) of US$10.05 million and US$7.67 million respectively. For the rural (secondary and tertiary) roads stabilization, using a similar approach, about 1,849km of roads were analyzed using the Road Economic Decision Model (RED) model. The 320km that were identified and selected to be part of this program have an overall Economic Rate of Return 15 (ERR) of 34%, and an NPV of US$48 million at a discount rate of 12%. The overall average ERRfor theroadimprovement componentis estimatedat 35% as detailedinAnnex 9. 47. Although HDM-4 and RED are very good analytical models, some benefits from the project are by nature very difficult to quantify. Some of the most importantbenefits include time savings along the roadcorridors linkingthe areas of production with the areas of competitiveness and reduction in vehicle operating costs. In addition, many of the road links included in this project are needed to help foster local and foreign investment in productive zones. The maintenance component represents the execution of the routine and periodic maintenance programof over 2,480km of asphalted, adoquin andgravel roads. 48. The overall economic rate of return i s quite robust as demonstrated by the sensitivity analysis. If the investment is increased by 20%, the ERR would be reduced from 35% to 30%, the NPV from US$65.8 million to US$62.4 million and the cost-benefit relation from 1.3 to 1.1. If the benefits are reduced by 20% the ERR would be reduced to 25%, the NPV to US$56.5 million, and the cost-benefit relation to 1.1. 2. Technical 49. The proposed project includes basic road rehabilitation works, all completely within the existing rights of way. Shoulderswill be providedinbuilt-uplocations to help promote the safety of pedestrians and of non-motorized traffic. Standard, well known technologies will be used to avoid any negative environmental impact and construction costs will be minimized through the use of national andinternationalcompetitive biddingprocedures. 3. Fiduciary 50. Procurement. Procurement was managedrelatively well under the previous projects and no major issues emerged. For the proposedproject, standard bidding documents and largely the prevailing procurement method thresholds and prior review arrangements will be retained. Annex 8 has details on the procurement arrangements. The project will also provide technical assistance to strengthen the procurement unit in the MTI. Also retroactive financing for all components of the project, not to exceed US$3.0 million will be provided for expenditures incurred betweenJanuary 1,2006 and the date of the Financing Agreement (FA). This is needed to help ensureadherenceto the project implementation schedule. 51. Financial ~ a n ~ g e m e nThe MTI's performance has been acceptable so far in terms of t , IDA auditing and financial management requirements. The intention under this project is to strengthen the UCP to improve financial and managerial reporting. The required financial. managementassessment per OPlBP 10.02 has been substantially completed. The strengths of the existing capacity in this regard have been assessed and there are no major issues. Nevertheless, areas subject to improvement have been identified and the corresponding action plan detailing the necessary steps to be taken to continue the preparation of Financial Management Reports (FMR) has been agreed with project management. Annex 7 has more details on the financial managementarrangements. 16 52. Recently, under the Third Roads Project (CR-3464-NI), the MTI switched from using solely the project based system (SIAP) to the government wide SIGFA system and has encountered some problems with the transition5. Inparticular, there have been significant delays in the payments cycle due in part to this responsibility having been shifted somewhat to the Ministerio de Hacienda y Crkdito P6blico (MHCP), especially for the issuing of cheques. This means that supportingdocuments have to be processedby bothMTIand MHCPbefore payments can be issued and as a result bottlenecks have arisen. Furthermore, with the introduction of Budgetary Law 550, and its accompanying MHCP regulations, all externally financed projects are subject to budget ceilings that are not necessarily consistent with the requirements of the project's implementation schedule and that can no longer be automatically adjusted by MHCP. All budget adjustments have to be approved by the Asamblea Nacional. It seems that these problems may not be easily overcome andhenceMTIandMHCPagreed at negotiations to work jointly on resolving them. MTI and MHCP will also try to introduce and calibrate the SIGFA- PRO by end 2007, since it may be more consistent with IDA requirements for the production of FMRs. 53. Project administration will be undertaken by MTI under its established institutional structure. Accordingly, MTI's Project Coordinating Unit (Unidad Coordinadora de Proyectos - UCP) will be directly in charge of financial management (FM) tasks. These will basically include: (i)budget formulation and monitoring; (ii) flow management(including processing cash loan withdrawal applications); (iii) maintenance of accounting records; (iv) preparation of interimand year-end financial reports; (v) administration of underlyinginformationsystems; and (vi) arranging for execution of external audits. 54. The fact that MTIhas ongoing experience managingprojects financed by the IDA, IDB and other donors, for which it has administrative structures and systems in place, puts it in a good position to carry out FM functions. However, the FM capacity Assessment has identified project-specific actions to be executedwithin a timeframe to meet the IDA'Sminimumfiduciary requirements. 55. Following appraisal, adequate financial management arrangements were agreed with the MTI and the project's operational manual was updated. Hence, the FM arrangements satisfy minimum Bank requirements. Annex 7 describes in detail the FNI arrangements and the F%l action plan. 4. Social 56. Given the nature of the works, the rehabilitation of trunk and rural roads in long developed and well trafficked corridors, and based on the social and environmental screening that were carried out, no negative impacts are expected. Also, there will be no resettlement of people and the roads do not traverse any indigenous communities nor natural habitats. Under the previous IDA projects, the MTI had developed good environmental and social manuals and procedures that will be applied during project design and implementation. These manuals also Inreality,MTIis usingbothSIGFA andSIAP becauseit still needsthe latter systemfor financial recordingand generationofFMRs 17 include standardmitigation measures that are to be applied during construction. This will include consultation with street vendors prior to construction. 57. In the case of La Virgen-San Juan del Sur and Diriamba-Casares there will be an archaeological evaluation study duringthe project design phase. This is primarily for the case of chance-finds during project execution. The Nicaraguan Institute of Culture (INC) will be in charge of this evaluation. 58. During the preparation of the project local authorities were consulted regarding development plans and investments carried out in their territory, as well as investment priorities in road infrastructure. Other institutions were also consulted includingthe Nicaraguan Institute of Tourism (INTUR), NationalCompany of Ports (ENP) and the Institute of RuralDevelopment (DR). 59. The participation of Nongovernmental Organizations and other civil society organizations has taken place since the beginning of the project. Different social sectors in the project area such as associations of farmers, livestock producers, cooperatives of transportation, community leaders, community organizations, etc. were consulted during project identification and preparation by the MTI when carrying out the Environmental Assessment. The Environmental Impact Assessment and the Document of Environmental Impact were made public for civil society organizations review. Subsequently, a public presentation of the project was carried out so as to inform stakeholders and obtain their suggestions that were taken into account in the project. The public presentation was supportedby the Ministry of Environment andNatural Resources (MAWNA) and local Municipalities. Duringthe construction phasethere will be coordination with severalcivil society actors. 5. Environment Environmental aspect: Environmental Category B 60. The MTI's Division of Environmental Management carried out the environmental screening and assessment of all project roads. This assessment was done under the principles established in the Environmental Manual (Guia para la Categorizacidn y Definicidn de ~equerimientospura la Evuluacidn Ambiental y Social de Proyectos) which are based on World Bank Safeguard Policies (June 2003). This environmental manual categorizes the projects in three levels: (i) 1 includes those projects that have a small or low impact on the level environment andcan be managedwith the environmental standards as specified inMTImanuals, (ii) 2includesthoseprojectsthatrequireanenvironmentalimpactassessmenttoprovide level specific recommendationsfor work implementation and, (iii) level 3 includes those projects that could induce high environmental and social impacts and therefore require a detailed environmental impact assessment approved by MARENA. 61. The road rehabilitation and maintenance projects for La Virgen-San Juan del Sur and Diriamba-Casares qualifiedas Level 2, and all the projects for secondaryroads stabilization with adoquines qualifiedas projects of level 1that do not require the preparation of an Environmental Impact Assessment. A brief socio-environmental screening was carried out for the aduquin 18 projects. This evaluation established the requirements for compliance with the current environmental legislation, potential environmental impacts and steps to be followed for environmental mitigationmeasures. 62. For the road candidates included in the rural transport improvement plan, all the works will be carried out within the existing road platform and will not involve major earthworks. Based on completed environmental analysis, there will not in addition be any negative impact produced by this component. Adequate technical specifications to help guarantee the adherence to acceptable environmental practices during the construction will be included inthe civil works contracts. 63. The MTIhas completed the Environmental Assessment (EA) of the project in accordance with the stipulations of manualsand proceduresdeveloped under previous IDA projects, The EA for this project consists of the following four documents: (i) Estudio de Zmpacto Ambiental: Adoquinado del camino Nueva Guinea-Naciones Unidas (CORASCO, January 2006); (ii) Estudio Ambiental-Sociul: Rehabilitacio'n y ~ejoramientode la Carreteru Diriamba-Empalme La Boquita-Casares (INOCSA, January 2006); (iii) Ambiental-Social: Rehubilitacio'n y Estudio ~ejoramientode la Carretera La Virgen-SunJuan del Sur (INOCSA, January 2006); and (iv) Fichus Ambientules y de Cutegorizacio'nde Proyectos de Rehabilitucio'ny Adoquin~o(MTI- DGA, January 2006). All four of these environmental reports have been submittedto the Bank's Infoshop and have also been made public by MTI in Nicaragua. MTI also has at its disposal a wealth of other useful documentation, including: Guidelines to prepare environmental impact assessments; criteria to assess environmental impact; rural roads construction manual; environmental protection guidelines for roads construction and rehabilitation; World Bank environmental policies; Norma TdcnicaObligatoria Nicaraguense;general provisions for streets, roads and bridges construction; basic environmental standards for road construction; norms for the exploitation of material borrow pits; standards and ministerial resolutions for the basic provisions of hygiene and safety inthe work place; Central American Environmental Manual for road design, construction and maintenance; and the Social Management Manual-MTI. MARENAhas already grantedthe EnvironmentalPermitfor the project. 64. The firms implementing sub-projects should also comply with the provisions set in the following laws and decrees: Decree 45-94- permission and environmental impact assessment regulations, Decree 36-2002-Administration of the System of Permission and Environmental Impact Assessment in the Autonomous Regions of the Atlantic North and South, Decree 14-99- Regulation of ProtectedAreas, Decree 32-97-Regulation General for the Control of Emissions of the Motor Vehicles, Decree 78-2003 National Policy of Wetlands, Law 40 and Decree 52-97 Law of Municipalities andits Regulation, Law 445-Law of Property of Indigenous Communities, Law 402-Law of Rates and Forest Utilization, Law 277-Law of Supply of Hydrocarbons, Law 337-Law creative of the National System for the Prevention, Mitigation and Care of Disasters, Law 387-Decree 119-2001 Special Law on Exploration and Exploitation of Mines and its Regulation, Law 431-Law of Regimen and Vehicle Circulation, Decree 46-52 and 9-56-Law of Right of way and its Reform, Decree 1422-Law of Protection to the Cultural Heritage of the Nation, amongothers. 19 65. Duringprojectimplementation andwithin the framework of the ESMP,anenvironmental follow-up, monitoring and surveillance plan will be carried out. Its objective will be to control the application of each of the environmental mitigation measures, to define counteractive measures against unexpected environmental impacts, and to evaluate quantitatively and qualitatively, the ESMP level of compliance. The main actors responsible for the environmental follow-up and monitoring are: the contractor's environmental specialist, the environmental supervisor from the supervisory firm, and the environmental specialist from the MTI. This control team through joint periodic visits will monitor project activity, will prepare reports regarding levels of compliance with relevant environmental aspects, and will recommend corrective actions when needed. 66. There will be no major earthworks or alignment changes and hence no alternative routes considered. However, whenever justified for the rural roads, adoquines will be used for their improvement, Changingthe road surface to adoquin (instead of the former gravel surface) would have positive direct environmental impacts by (i) reducing erosion and high sediment runoff typical of gravel road surfaces (thereby producing less waterway sediments) and (ii) minimizing the use of borrow pits for repeatedly extracting new surfacing material for the routine and periodic maintenance activities requiredfor gravel roads. 6. Safeguard policies 67. The project is for road improvements along existing road alignments and does not involve major earth works or land acquisition. None of the road candidates involve crossing through protected areas or other environmentall; sensitive zones. Based on the specific environmental and social analyses completed so far and the modest scope of the improvements to be carried out, and its similarity to the previous three projects, the project was rated as a category B. The MTI already has acceptable manuals of practice for ensuring compliance with Banksafeguardrequirements. Safeguard PoliciesTriggered by the Project Yes No Environmental Assessment (OPIBPIGP 4.01) [XI 11 NaturalHabitats (OPIBP 4.04) [I [XI PestManagement (OP 4.09) [I [XI Cultural Property (OPN 11.03, beingrevised as OP 4.1 1) [XI [I InvoluntaryResettlement(OPIBP 4.12) [I Ex1 Indigenous Peoples(OD 4.20, beingrevised as OP 4.10) [I [XI Forests(OPIBP 4.36) [I [XI Safety of Dams (OPIBP 4.37) 11 [XI Projects inDisputedAreas (OPIBPIGP 7.60) [I [XI Projects on International Waterways (OPIBPIGP 7.50) [I [XI In addition, strategic regional environmental and social analyses were carried out that led to the definition of a suitable framework required prior to any future improvement of the road connection to the Atlantic Coast near Bluefields. 20 68. Based on the analyses completed and the scope of the road improvement, no involuntary resettlement is expected. In terms of Cultural Property the MTI Manuals include chance-find procedures although, given the minor earthworks involved this policy i s not expected to be triggered. Interms of Natural Habitats andForests policies, based on the assessment carried out, their findings and the project scope, no adverse impacts are expected. However, in the remote eventuality, the screening procedures to be followed under the project would help to ensure that appropriate actions are taken to mitigate any negative impacts. 7. Policy Exceptions andReadiness 69. The project requires no exceptions. The project is ready for implementation. 21 Annex 1: CountryandSectoror ProgramBackground NICARAGUA:FourthRoadsRehabilitationandMaintenanceProject Background 1. Nicaragua's road network totals 19,036km, of which only about 2,299km are asphalt paved primary roads while the vast majority consists largely of rural secondary or tertiary roads that are adoquin or gravel surfaced (3,362) or earthen(13,374km). Traffic levels vary widely but are generally in excess of 5,000 vehicles per day (vpd) on the trunk roads and upwards of 150 vpd on the secondary roads. The network's density (15.821100km) and service index (0.4km1000pop.) in terms of paved roads is among the lowest in Central America. Roughly consistent with the population distribution, more than 80% of the road network is located on the Pacific side of the country. By the end of the economic and politically difficult 1980s' with almost no resurfacing or reconstruction taking place, the network had deteriorated to the point where, as measuredby roughness indices and other factors, only about 12% of it was in good or fair condition. The roads inpoor condition included extensive segments of the north-south trunk road (Natural Corridor) betweenthe Honduran and Costa Ricanborders, as well as the east-west road linking Managua to the port of Rama. The inadequate andlor malfunctioning transport infrastructure served as a bottleneck for external as well as internal trade, thereby limiting the competitiveness of exports as well as discouraging the development of areas with agricultural potential. 2. According to the Development Policy Review: Sustaining Broad-Based Growth, (Report No. 29115-NI, December 2004). Nicaragua has a very Limited transport infrastructure endowment and compares unfavorably in the region. This report mentions several measures that could be taken to improve the country's transport infrastructure: P Expandthe pavedroadsnetwork to the levelof other low-income countries inthe region, provided it i s fiscally sustainable. Inorder to respond to the needs for rural infrastructure and increase the productivity in the agricultural sector it is recommended that the government focus in the near term on improving a total of 2,500km of distributor roads network that supportthe four mainproductive clusters. P Emphasize road maintenance in order to prevent premature deterioration, through comprehensive maintenance programs and guaranteeing financing for the Road Maintenance Fund(FOMAV). P Improve urban mobility by restructuring public transportation services as part of an integratedbus routes development and improvedtraffic administration. P Strengthenthe capability of the Ministry of Transport and Infrastructure (MTI), inorder for it to carry out road condition inventories, to identify least cost solutions, and to promote the development of localconsultancy services and industries. P Improveports andtheir associatedroad access 22 Mainsector issuesandGovernmentstrategy 3. Nicaragua has been experiencing steady economic growth since the early 2000s but it i s still the second poorest country in the hemisphere, with a 2004 GDP per capita of US$790. Government policies and economic reforms have as their principal objective economic growth and poverty reduction in Nicaragua. This may best be attained through a sustained economic growth process and based on a market oriented economy that is open and competitive internationally. In support of this goal, the Nicaraguan economy requires appropriate levels of transport infrastructure andthe efficient delivery of transport services. However, according to the 1999 LSMS findings (updated in 2002 and 2003), overall a little above one-fifth (22.3%) of Nicaraguan households have access to a paved road; furthermore the household numbers are 7% for the extreme poor, 11%for the poor, and 30% for the non-poor. It i s highly doubtful that such low levels of road infrastructure provision could support government development objectives effectively. Inreality, economic growthcouldbecome constrained if key needs are not addressed soon. Hence, among the key tasks for the sector are: (i) completing the rehabilitation of trunk roads, especially those connected to the Central American network and the principal regions of the country; (ii) implementation of a long term distributor (secondary and rural roads) stabilization program in productive and less poor areas; (iii) ensuring sustainability via the road maintenanceprogram. 4. The 1990's marked the beginning of the rebuildingperiod with the improvement of about 340km of primary roads and about 650km of rural roads, as well as the implementation of programs for routine and periodic maintenance by contract during the latter half of the decade. By mid 1998, it was estimated that over 17% of the network was in good or fair condition. However, Hurricane Mitch of October 1998 had unprecedented effects on the country, by adversely affecting over 850,000 people and causing some 2800 deaths. Sectorally, the more significant damages that produced lasting effects on the economy were concentrated on infrastructure, particularly the road network, and on agricultural production. In the road subsector Hurricane Mitch caused severe damages to about 2600km of the network, predominantly the literal shredding of most gravel roads in the Segovias and LeodChinandega and the partial or total destruction of 83 major bridges. The damages were so extensive that virtually allroad transport servicesbetween Managua and the Honduran border were interrupted. Fortunately, the Government, with assistance from donor countries, was able to restore basic traffic circulation in a few weeks; however the bottleneck effects still then lingered at the many roadside bypasses erected around damaged bridges. In sum, in terms of longitude but not necessarily location, Hurricane Mitch more than neutralized all of the road improvement gains made during the 1990s. However, the qualitatively better portions of the network fared reasonably well and it was estimated that, after the basic cleaning up and repairs carried out under the Emergency Programsof the various donors, about 15% of the total road network could be consideredby then to be ingood or fair condition. 5. Nicaraguahas a fleet of about 275,054 vehicles (an average of 0.05 vehicleslperson - one of the lowest in the region), which includes about 125,000 trucks and 14,952 buses. There i s limited recent data on the age of the vehicle fleet although it i s estimated that about 50% of the freight transport fleet is more than 10 years old. Land transport is by far the dominant mode for over 95% of freight and passenger movements. Preliminary estimates place road transport 23 volumes close to 5.7 billion vehicle-km per year, with almost 50% being performed by trucks andbuses. The provisionof freight transport services is fully private. All public enterprisesthat provided road transport services during the 1980s Socialist administration have been privatized. Operators are organized in transport cooperativesand there are 94 of these in the light and heavy duty segment of the freight market. Half of the freight operators are owner-drivers while the other half own, on average, a maximumof three trucks. Ingeneral, aside from the aged vehicles and poor road conditions, it is the combination of the mostly shoulder-less, two lane roads together with the ever present agricultural vehicles, cattle and non-motorized traffic that contribute to the relativelydifficult transport operating environment on the road network. 6. The MTI is responsible for managing the entire primary and rural road network, and for the operation and regulation of road, sea and air transport. In addition to managing road construction, its transport functions relate to the promulgation andimplementation of regulations relatingto the safety andefficiency of operation of all meansof public transport, by land, sea and air.Thisincludes establishing tariffs for interandintra-urban transport of passengers, authorizing licenses for the operation of vehicles and vessels on particular routes, including those temporarily in the national territory. MTI, formerly MCT - Ministerio de Construccio'n y Transporte, resulted from the 1997 implementation of administrative reforms, supported by the First IDA Transport Project (Cr-2871-NI) and InstitutionalDevelopment Project (Credit 2690- NI),that promoted the change to an agency less deeply involved inthe day to day activities of the sector, and more concerned with ensuring that the provision of services by others is closely related to the needs of the users, and preventing abuses in a more open and competitive environment. The future focus will thus be on the design and implementation of regulations regarding vehicle design and safety, driver competence and environmental controls. The regulatory role of MTI has been reduced to the minimum level necessary to help ensure safety and competitiveness in the provision of services. MTI has about 807 staff and their level of trainingvaries widely. At the highest levels, due to training programs financed under the Second and Third Projects (CR-3085-NI and 3464-NI), there is now a cohort of about 18 MTIstaff with post-graduatespecialist qualifications, very pertinent to the tasks for which they are responsible, while at the other extreme, there still remain many staff without any qualifications beyond secondary school. 7. Currently, the major issues affecting the road subsector are related largely to the (i) sheer size of the rehabilitation backlog, (ii)needfor strengthening the capacity of MTIand FOMAV to managea sustainableandcontinuous road maintenanceprogram, (iii) weaknessesinthe planning and budgeting process, and (iv) the challenges of decentralization of road network management. In order to address the rehabilitation backlog, based on an HDMderived prioritization of the overall road network needs, a US$620 million planfor the rehabilitationand maintenance of key segments of the road network during 2005 - 2009 has been formulated. Completion of this component will lead to the restoration to good condition of over 90% of the trunk or primary asphalt paved roads, and about 900km of departmental roads. The program includes also some US$200 million for the stabilization of rural (secondary or tertiary) roads, with a focus on the improvement of priority agricultural linked roads. The remainder of the program will be for bridge rehabilitation andperiodic maintenanceby contract. 24 8. The MTI i s currently preparing a decentralization plan for road network management in accordance to the central government's decision to transfer budgetary resources to the municipalities. In order to achieve this objective a two stage strategy is proposed. First, the National Government should transfer 10,OOOkm of dry season and secondary municipal roads to the AZcaZdias while MTIcontinues to manage the remainder of the road network. Subsequently, by the year 2010 when municipalities are expected to have acquired more experience and have improved their administrative capacities a further 2,065km of secondary and collector roads will be transferred to them. This will leave a core network of about 7,OOOkm to be managedby MTI. It is recommended that the MTI starts building relations with the Institute for Municipal Development (INIFOM) and with the municipalities inorder to be able to develop consensus on the design andimplementation of these kindsof programs. 9. In line with the commitments made at the 1999 Stockholm post-Hurricane Mitch conference, several of the projects in the program are already underway and are being financed by the IDB, DANIDA, European and Japanese governments, and other donors. This decade should continue to be one of recovery inthe road subsector inaccordance with the objectives set at the National Development Plan, the CAS and the PRSP. The MTI's very good performance under the current IDA projects andalso incarrying out the MitchEmergency Recovery programs with the various donors provides evidence of its ability to manage large programs in the short term, as the expenditure equivalent of almost one year's normal program was implemented within the 5 months post-Mitch. The challenges now relate to planning and managing a large program inthe medium and longer terms. 10. As the improvement programprogresses, it will be essential that the roads be maintained adequately in order to prevent premature deterioration. Nicaragua actually enjoyed a tradition of good maintenance in the past as prior to the turbulent 1980s, its road network was cited perennially for being the best kept in Central America. The problems arose primarily due to the adverse effects of the civil strife and political turmoil, the resultant shortages and economic crises, and weak planning and implementation arrangements in the 1980's. Currently, however, the situation can be characterized as one of a promising recovery. There have been significant improvements in the recent past with the introduction of routine maintenance by contract using microenterprises under the FirstIDA RoadRehabilitation andMaintenance Project (Credit 2871- NO, the establishment of the FOMAV andthe introductionof periodic maintenanceusingprivate contractors under the Second and Third IDA Project. The Government came acceptably close to fulfilling its annual commitments to IDA on the level of budgetary allocations for maintenance. However, in order to optimize performance, the allocations need to be releasedin a more timely manner and some of the limitations in the MTWOMAV that hamper the planning and implementation of maintenanceneed to be addressed. In terms of funding reliability, after many years of earnest attempts, the National Assembly on December 13, 2005, approved an amendment to the FOMAV law that would enable its program to be funded through fuel surcharges. The good implementation experience of IDA projects, coupled with conditionalities under the PRSC, provided the significant leverage neededfor attaining this goal. 11. The MTIintends to gradually increase the share of maintenance performed by contractors to a feasible maximum, and will continue to reduce the parastatals Regional Highway Construction Agencies (COERCO) to the minimum level needed for their deployment during 25 emergenciesor inlocations where there are still security problems or no other viable alternatives. There i s still muchroomfor improvement and to do so it will be necessary to develop further the MTI'scapacity to managemaintenanceby contract as well as to strengthenthe localconstruction industry. This includes developing MTI's capacity to carry out condition inventories of the roads, design and implement annual and multi-annual routine and periodic maintenance programs, as well as to seek least cost solutions to technical and engineering problems associated with road and bridge maintenance. MTI will require a long-term program of technical assistance to help accomplish all of these goals. 12. The fore-mentioned issues also resonate from a regional perspective, given the recently signed CAFTA agreement. A well-developed and well-maintained road infrastructure is crucial to maximize CAFTA potential for a dynamic export-led economic growth in the region. For most of the Central American countries, road quality remains inadequate and ranks lower than the LAC average. Road density i s low (3.8Km per 1,OOO people compared with 5.2 in LAC), while the share of paved roads i s way below countries with similar GDP per capita. Figure 1 Central America: Share of Paved Roads(%y 70.0% 1 I 60.0% 50.0% 40.0% 30.0% 20.0% 10.0% 0.0% *I 1999 Source: WBI 13. Guatemala exhibits the best road network in the region in spite of its limited density (1.3Km per 1,000 people). Nicaragua has the poorest quality of roads, with nearly 50 percent of the total road network unusable during the rainy season. In El Salvador only 8 percent of total unpaved roads (80 percent of total network), was classified as in good condition. Even Costa Rica, which outperforms its neighbors in most infrastructure indicators, shows a road quality below regional average. The overall poor quality of roads i s most likely to affect rural development andprice-competitiveness of agricultural goods. 14. The increasedregional competitiveness that is expected to arise from the recent CAFTA agreement also heightens the urgency to address road transport improvement issues. As discussed, Nicaraguai s lagging behind with a road infrastructure poorly adaptedto the demands likely to be imposed by CAFTA. Inorder to improve its prospects for competing under CAFTA, Nicaragua must overcome the huge backlog of maintenance and investment in road infrastructure. The allied agenda of policy and institutionalchange in this sector will involve: (i) 26 extending coverage in rural roads which have a high social rate of return (typically 14 to 31 percent for Bank projects). Such expansion should be part of a strategy aimed at strengthening rural-urban linkages and develop trade corridors; (ii)designing mechanisms to protect infrastructure investment from fiscal adjustments and to increase investments if fiscal space allows it; (iii) promoting a suitable regulatory framework for private sector participation in the construction, operation and maintenance of transport infrastructure, and (iv) improving urban transportation systems. 15. There are also significant equity considerations that are associated with road infrastructure development and that are relevant to Nicaragua. Calderh and ServCn (2004a) provide an empirical evaluation of the impact of infrastructure development on economic growth and income distribution for a large set of countries, including Nicaragua and other LAC countries. By infrastructure development, the authors consider not only the accumulation of physical infrastructure but also improvements in their quality. The authors conclude that infrastructure both raises growth and lowers income inequality, thus implying that infrastructure development may be a key win-win ingredient for poverty reduction. Infrastructure development will be pro-poor ifit allows poorer individuals (especially in rural areas) to access additional productive opportunities. Figure2 ChangesinGrowth and IncomeInequalityinLAC countriesdue to higher infrastructure development (inpercentages and basispoints) Growth Effects Redistribution Effects Country Stocks Quality Total Stocks Quality Total Argentina 2.2% 0.9% 3.2% -4.8 -1.6 -6.4 Bolivia 4.8% 1.0% 5.8% -10.2 -1.8 -12.0 Brazil 2.4% 1.9% 4.4% -5.2 -3.4 -8.6 27 Sector issuesto be addressedbv the Project and strategic choices 16. Road transportation is by far the dominant (if not often the only) mode for most freight movements in Nicaragua. Nicaragua no longer has a railroad and its seaports, though rundown, have adequate capacity to handle current traffic levels. Most of its exports are now headed for Atlantic destinations which means that Nicaragua has to use the ports in neighboring countries (Honduras and Costa Rica) for its foreign trade and partly as a result it has for long been subjected to periodic bouts of severe 'landlocked country treatment' by its neighbors. Nevertheless, for improved service characteristicsNicaragua has rehabilitated key sections of its trunk road network and thereby removed transport bottlenecks from the corridors leading to its own secondary port at El Rama, and along the North - South routes to ports in Honduras and Costa Rica. The rehabilitation of these corridors will help to reduce foreign trade costs. The next priority would be to improve transportation infrastructure along the selected secondary roads so as to facilitate their connection to export corridors andto productive agricultural areas and zones with high economic returns. These priority areas form a coherent programthat would go far in eliminatingthe road infrastructure constraints to economic growth. The proposedFourth project therefore addresses the following: (a) RoadMaintenance and Rehabilitation. The various links were selectedfor their economic importance and for their potential contribution to restoring efficient transportation on both trunk and secondary roads. In addition there will be an increase in routine road maintenance by microenterprises and a gradual transition of the said program from MTI to FOMAV management. (b) InstitutionalDevelopment andTraining. The proposed project would provide support for improving the planning, funding, and implementation of balanced road maintenance and rehabilitation programs as well as the appropriate training of MTI staff. Under the project, it will be necessary to continue programs started in the earlier IDA projects for strengthening the planning division, improving contract management, training staff inthe use of the HDM and other planning models, and the preparation of annual and multi- annualeconomically prioritizedroadimprovement programs. 28 Annex 2: Major Related Projects Financed by the Bank andlor other Agencies NICARAGUA: FourthRoadsRehabilitation andMaintenance Project I LastSupervision, SectorIssue Project (PSR*) Ratings (IDA-financed projectsonly) IP DO CR-2871-NI: RoadRehab. I HS HS Transport (i) Izapa-Le6n-Chinandega CR-3085-NI: RoadRehab. I1 HS H S (i) Portezuelo-Aeropuerto-SanBenito (29.70Km) (ii) Hurricane MitchEmergencyProgram CR-3464-NI: RoadRehab. I11 H S HS (i) Muhan -E1Rama(90.30Km) (ii) Las Piedrecitas-Izapa (62.6Km) (iii) Rural RoadsAdoquin (232Km) (iv) Routine and Periodic Maintenance, FOMAV and others. Other Development Agencies DANIDAfinanced: (i)Nandaime - Rivas - Peiias Blanca. San Mainandruralroads Benito - SanLorenzo. improvement (ii) RoadsProgram:RioBlancoSiuna- Feeder Puerto Cabezas. Esteli, Nueva Segovia, RAAN y RAAS. IDBfinanced: (i) REMEVIAL RoadImprovement (ii) PanAmerican Hwy. Rehab. (206Km) co-financed with (iii) SanLorenzo -Muhan (88Km) Nordic Funds. (iv) Tipitapa -Masaya(22Km) IDB/Nordic Funds Mainand feeder roads in Competitive Main andFeeder Zone 11:Chinandega-ElViejo -ElCongo Roads -Emp.Cosiguina.Telica-Malpaisillo, Chinadega-Corinto EUfinanced: Study and Rehab. Guayach-Jinotega. SpanishGovernment Ticuantepe-Masaya- Granada financed: BCIEMCxico. Chinandega-Guasaule. Adoquin: Santa Clara -Susucayan-ElJicaro. IPlDORatings: I S (HighlySatisfactory), S (Satisfactory), U(Unsatisfactory), HU(Highly isatisfactory) * ProjectStatusReport(PSR) 29 Annex 3: ResultsFramework and Monitoring NICARAGUA:FourthRoadsRehabilitation and MaintenanceProject PDO (i) Improvetranspon infrastructure along (i)projectCompletion:a10% At i)Topromotesectordevelopment key main roads increasein traffic volume andover :oak 15% reductioninvehicle operating costs ii)Tomaintainpublicsupportfor (ii) Improve secondary and rural roads; (ii)Increasedmobility for residents of vral road program andshow ruralcommunities widenceof meeting the long :xpressed needsof ruralpeople. iii)Promotetransportefficiencyand (iii) help ensure the sustainability of the (iii)Increasedshare (22%) of road iemonstrateeffective use of road road improvements network ingood andfair condition iser charges iv) DemonstrateMTIand FOMAV (iv) Institutional strengthening (iv) Incorporationof improved nstitutional growth managementandplanning procedures by MTIand FOMAV intermediateResults Useof ResultsMonitoring One per Component Component One: ComponentOne: ComponentOne: Kmof roadimprovedeachyear. Road RehabilitationProgram Evaluate MTIand overall GON 51kmof mainroads (Diriamba- performance Casares andLaVirgen -San Juandel Sur) improved by 2007 ComponentTwo: ComponentTwo : ComponentTwo: Kmof roadsstabilized eachyear. Rural Transport Improvement Verify compliance with agreed Number of contractorslMCA working Program: About 320 kmof rural targets. secondary and tertiary roads located mostly inzones I, 111andI V stabilized with adoquines andgravel by 2010 Component Three: ComponentThree: ComponentThree: Number of micro-enterprisesestablished RoutineandPeriodroad Maintenance Assess development of FOMAV Kmof roadsbeingmaintained Program: 37 micro-enterprises management capacity. establishedand maintaining2400 km. 80 kmof periodic maintenance completed by the endof 2010 by private contractors Component Four: ComponentFour: ComponentFour: Numberof MTIand FOMAV staff trained InstitutionalandTechnical Provide evidence of growth in inplanning andmgtcourses. Development Program: Preparation institutional capacity, Shareof roadnetworkcondition surveyed. of annual roadimprovement Dissemination workshops on project programs; (ii) expansionof HDM4 to monitoring and most of core network (4800km) and evaluation. updating of PMS (iv) 20 MTIstaff Share of road network transferredto trained; (v) complete workshops on DepartmentalandMunicipal management network decentralization and studies for control of truck overloading; (vi) continuationof monitoring and impact evaluation program; and (vii) completionof project supervision, detailed engineering; and feasibility studies. 30 0 0 0 r- m m 0 d r- m Y E 2 8 2 r- m 8 2 F; 8E N r- 2 m ca b * 0 m N W m - IC1 3 0 0 d c.l W m -vi 3 3 N W md 3 0 yr, vi m N IC) m v, c? 3 0 Y Socio economic monitoring of the RuralRoadsImprovement program 1. Under the previous project, CR-3464-NI, work had started in 2001 on establishing a baseline along 6 treatment and 6 control roads and subsequently in 2003 and 2005 for carrying out re-surveys so as to monitor socio-economic changes inthe area that may be attributed to the road improvement program. The overall objective of the socio-economic study was to collect baseline information on the targeted areas in order to establish their existing socio-economic conditions and social services access and to subsequently determine the size and nature of the benefits from ruraltransport infrastructure. 2. The analysis was to be based on the difference-in-differences methodology which compares the means of the changes, especially in headcount and extreme poverty levels for representative surveyed households along both treatment and control roads. A specialized Nicaraguan entity (INEC) was responsible for the study, design, survey and evaluation of the results. 3. The November 2001 baseline survey and the re-surveys were intended to establish benchmarksto determine the impact of roads on: a. Income levels of target communities andgroups; b. Education and health sectors, particularly access to schools at the primary level, quality of education, drop-out rate, access to health centers, and prevention programs, such as immunization andprenatal care; c. Agricultural economy: Volume, Productivity, production diversification, distribution channels andemployment; 4. The original plan was to complete the entire study by 2004; however due to delays inthe completion of the road improvements (udoquinprogram), this was not possible. 5. In Nicaragua, as in most developing countries, rural transport networks are still underdeveloped and of poor quality. Rural households, and particularly women, spend much time and effort on transport activities to fulfill their basic needs7Driven partly by the Millenium Development Goals (MDG)agenda, inrecent years the resultant emphasisfor assisting very poor populations through sustained rural development has led governments and donors to accelerate resource flows to rural infrastructure, with a large proportion being directed at improving transport infrastructure. 6. Developing a good rural roadinfrastructure network i s an essential requirement for rural development, although by itself it i s not sufficient to guarantee success. Without an adequate network, communities will lack the necessary physical access for basic domestic chores, agricultural activities, social and economic services and job opportunities. Without reliable Lebo, Jerry andSchelling, Dieter"Design andAppraisal of RuralTransport Infrastructure" EnsuringBasic Access for RuralCommunities,2001. TheWorld Bank 33 access to markets and productive resources, economic development stagnates, and poverty reduction initiatives cannot be sustained. 7. Poverty reductionstrategiesrequire a comprehensive framework for implementation. The simultaneous development of adequate rural infrastructure, productive sectors, social and economic services, an appropriate macroeconomic framework, and good governance and local ownership are required for rural poverty alleviation. Effective transport, as a complementary input to nearly every aspectof ruralactivity, is anessentialelement of ruralpoverty reduction. 8. Because transportation has a pervasive influence across a country's economy and its social fabric, it is hardto trace and measure the ultimate impact of transport interventions on the welfare of poor households. However, it is widely accepted that improvements in transport have the greatest impact on poor people when other sectoral interventions are also in place, and that without good transport linkages many of the other sectoral interventions may not reach their potential impacts. For example, well-staffed schools or health centers would be of minimal benefit to poor people who cannot get to them. 9. From a broader perspective, adequatetransport services can help reduce poverty in all its dimensions by stimulating economic and social development and inclusion by: creating opportunities for people to market their products and services, providingbetter access to schools andclinics; facilitatingthe access to informationthat is vital to social participation, inclusionand accountability; and enhancing the ability of government to provide basic services, including security, to the population at large. The availability year-round of reliable transportation can also greatly reduce vulnerability to household-level risks such as medical or family emergencies. 10. Transport i s a derived demand and hence improving it can be considered to reduce poverty not throughconsumption of transport itself but rather through improvingthe quality and security of access to work, markets and services, and by releasing or makingavailable increased resources for consumption andproduction. Tracing the poverty impacts of transport interventions i s thus a very complex challenge. 11. The selection of road candidates for IDA-financed transport projects is usually justified by relatively robust economic appraisal methodologies and no further analysis i s needed in this respect. However socio-economic monitoringcan enhancethe economic justification by tryingto (i) demonstrate how transport interventions contribute to the attainment of a country's poverty reduction objectives; and (ii) define ways in which the performance of the transport sector itself, especially for the delivery of rural transport services, can be improved. More generally, monitoring involves changes over time, not only in transport sector inputs (e.g. investment and maintenance costs, private expenditures) but also in outputs (road condition, extension), and sector outcomes (marketing of crops, access to health facilities, responsiveness to poor people's needs, and improved accountability for sector management) and poverty reduction outcomes (rural incomes, consumption, school attendance). 34 Methodology: 12. As mentioned before, the study is based on the difference-in-differences methodology. The design centers on a baseline and follow-up survey data for a sample of project (treatment) andnon-project (control) communities andhouseholds. collected at time t + k, in order to estimate the observed changed. A total of about 460 13. The baseline would measure difference in variables at time t, with another sample households were surveyed. Six "treatment" and six "control" roads were selected. Selection of appropriate controls was done through matched-comparison techniques. In theory, the control group, selected through matched-comparison techniques, is identical to the project group according to both observed and unobservedcharacteristics so that resulting outcomes inprogram communities can be attributed to the project intervention.' In this case control and treatment roads were selected so they would be in the same general geographical area and have similar poverty levels; they also have similar topography and road conditions, poverty level, and to the extent feasible the same amount of beneficiaries. 14. The idea was that one year after the "treatment" roads were completed, another survey would be done to quantify the impact of the road project inthe different variables to be analyzed, such as education, health, access to services, etc. The interview would be done for the same household in order to do a panel analysis. However, due to delays in project implementation it was decided to do a re-survey every 2 years and a final survey at least one year after all roads havebeentreated. Interestingly, there were some reported reductions inheadcount poverty levels along certain treatment and control roads following the 2003 re-survey. But at that time the road improvement programshadjust begunand hence it was premature to assign any causality (other than direct and indirect employment) to the road project. It was more likely a reflection of the overall decline inruralpoverty levels registered inNicaragua at that time. 15. All roads had been `treated' by end 2005 and the December 2005 re-survey should provide more interesting results from a transport perspective. It is planned to start doing an in- depth review of the findings of the 2005 re-survey as soon as data become available. However, the mainresults and conclusions of the socio-economic monitoring study will be drawn from the final re-survey that will be carried out in2007, during the implementation of the Fourthproject. DominiqueVande Walle, "Assessing the Poverty Impactof RuralRoadProjectsinVietnam", Annex 1.15 from "Evaluating the Impactof DevelopmentProjectson Poverty" by Judy L. Baker.The World Bank. 35 Annex 4: DetailedProjectDescription NICARAGUA: FourthRoadsRehabilitationandMaintenanceProject The project will include the following four components: Component 1:RoadRehabilitation- US$10.13million 1. This component will finance the rehabilitation andthe improvement of the following road segments: Diriamba-La Boquita-Casares (32km); La Virgen-San Juan del Sur (19h). 2. The road segment Diriamba-La Boquita-Casares was built inthe 1970s, and connects to one of the more important tourism areas of the country. This section i s currently very deteriorated with an IRI greater than 10 and it carries more than 1100 vehicles per day. The proposed works include recycling and stabilization in order to reduce costs and minimize any environmental impact, as well as improvingthe roadside drainage. 3. The road segment La Virgen-San Juan del Sur (19km) was built in the 1970s and connects key agricultural areas to the Pan American Highway. This section i s currently in poor condition with an IRIgreater than 8 and i s used by more than 1200vehicles per day. Similar to the above mentioned sections, the project will basically rehabilitate the deteriorated asphalt pavement and install adequate roadside drainage. Consultants will be hired to supervise project implementation. Component2: RuralTransportImprovement- US$41.87 million 4. Thiscomponent includes anadoquinesstabilization program for approximately 320kmof secondary and rural roads located mainly in productive zones I,IIIand IV. It will support Government strategiesfor the development of a roadnetworkin areas of higheconomic potential (agriculture, milk and dairy products and tourism) in order to promote development, improve standards of living, and employment generation. The works will be carried out by national or international private contractors and consultants. Based on previous IDA experience the adoquines stabilization program is cost effective and enables contractors and local community work groups called the ~ ~ d u l Comunitarios de Adoquines (MCA) to rapidly improve rural o s road conditions to a level where they become transitable year-round by vehicular and bicycle traffic. Due to Nicaragua's rainy weather, the use of adoquines i s more cost-effective than any other stabilization option. The use of adoquines also offer other positive characteristics such as: (i) productionaswellastheinstallationoftheudoquinesarelaborintensivetasks;(ii) use the the of imported inputs i s less than for any other road stabilization technique; (iii) the project cycle requires less logistical and managerial support; (iv) road maintenance requirements are reduced significantly after the stabilization process; and (v) there is little use of costly and heavy equipment duringexecution of works and also for maintenance. Given the mixed traffic (vehicle, bicycles, pedestrians) along the roads, the municipalities will be asked to build shoulders and pavedside walks along the improvedroads once the MTIhas completed the adoqu~nado. 36 Component 3: RoadMaintenance- US$7.64 million 5. This component includes provisions for routine and periodic maintenance contracts. Eventually, it will be managedjointly by MTI and the FOMAV. Table 1 shows a breakdown of the program. Periodic Maintenance. This sub-component includes US$3.05 million for the continued implementation of the periodic maintenance by contract program that began under the Second Road project. The program will help to promote the participation of private contractors in the road sector. Routine Maintenance by Microenterprises. This sub-component includes US$4.59 million to expand the microenterprises routine maintenance program that was initiated under the First Roads Project (CR-2871-NI) and the Second Roads Project (CR-3085-NI) and that i s currently under way with the Third Roads Project (CR-3464-NI). Inaddition, IDA will finance partially costs of training and supervision, promotional activities, materials for training, per diem, goods, operating costs and the required technical assistance. It i s expected that 4 additional microenterprises will be formed, reaching a total of 37 microenterprises, in order to cover the maintenanceof 2,400km. Component 4: Studies, Goods, Technical Assistance, Training and Consultant Services - US$7.75 million 6. This component will help to implement the project and to better promote the development of the road sector. It will include consultancy services for project supervision, for financial audits, feasibility studies, preparation and updating of detailed engineering. Given the supervision requirements of the project, four vehicles (pick-ups) will be purchased and provided for field operations. 7. It will provide training and institutional strengthening for various units of the MTI, for planning, road safety, environmental and social aspects (DGA) and for FOMAV staff (for microenterprises management); the MTI has already submitted an adequate training plan to the IDA. It will also fund socio-economic monitoring of the rural roads program that had begun under the Third Roads Project (CR-3464-NI) and provide technical assistance to the MTI including the holding of two workshops intended to help provide national and international expertise for designing the road decentralization program. Assistance will also be provided for MTI's efforts to restorethe fines for vehicle overloading to more appropriate levels. As shown in table 3, the fines have beenreducedto levels that cannot serve as an adequatedeterrent to vehicle overloading. In addition, this sub-component will also provide for the purchase of 4 mobile scales to help control vehicle axle loading. 8. This component will contribute to network development by helping to improve the planning and programming of the PMS (Pavement Management Systems) developed by the MTI's PlanningUnit.Assistance will be providedfor updatingof 3 year rolling investment plans using HDM and other Bank analytical planning models. Special attention will be given to the integration of environmental practices in the project cycle. The PMS Unit collects data, creates 37 archives of inputs, and gathers and conducts the analyses usingthe HDM-3 model. The data are analyzed and used to define homogenous road sections based on the traffic, the type of the pavement and the condition of the ways. All this helps the development of high-priority road maintenanceand improvement programs. 9. In terms of safeguard policies it will contribute to the institutional growth and improvement of the Environmental and Social Management Division (DGA) through the financing of specialized consultancy services that will support the preparation of policies and systems for environmental management, and updating of tools and instruments of environmental management The DGA has a vested interest in developing a strong role for environmental protection and to share its plans with other actors by organizing and financing workshops seminars andforums. The project will also support trainingof DGA personnel. 10. Consulting services will be needed mainly to carry out (i)feasibility studies, (ii) designs anddetailed engineering, and(iii)supervision of components 1and2 of the project. 11. A national andor international firm will be hired to perform annual financial audits for the Project. 12. In sum, the implementation of all project components is expected to provide year-round highquality access to about400,000 people. This is detailedintable4. 38 Table 1:Annual Goalsfor RoadMaintenance 6. IDA Financing(US$ millions) 0.60 2.40 2.51 0.60 7, IJlAProgram: Maintenanceby Contract 7.1 Kilometers 2,086 2,180 2,340 2,400 7.1.1 Routine Maintenance 2,086 2,140 2,300 2,400 7.1.1.1 Paved (Asphalt,Adoquines and Gravel) 2,086 2,140 2,300 2,400 - by Microenterprise 2,086 2,140 2,300 2,400 - OtherContracts (Modulos,etc) 7.1.2 Periodic Maintenance 0 40 40 0 7.1.2.1 Paved (Asphalt,Adoquines and Gravel) 0 40 40 0 7.1.2.2 Other 7.2 Total Cost (US$Millions) 0.75 3.00 3.14 0.75 7.2.1 Routine Maintenance 0.75 1.50 1.50 0.75 7.2.1.1 Paved (Asphalt,Adoquines and Gravel) 0.75 1.50 1.50 0.75 - Microenterprise 0.75 1.50 1.50 0.75 - Other (Modulos,etc) 7.2.2 Periodic Maintenance 0 1.5 1.64 0 7.2.2.1 Paved(Asphalt andAdoquines) 0 1.5 1.64 0 7.2.2.2 Other iote: Datahas beenroundedup regardingcosts and goals 39 Table 2: FOMAVWork Program 1 RosdSegment 1I bn%h oan) 1)NationalResourcesManagement Plan 400.20 1.I Paved Road Network I 160.68 1 I 40 TOTAL I 1,202.17 1 41 Table3: Vehicle OverloadingFines (NicaraguanCordoba) No. Type of Fine Resolution Transport General 02-2003 Law (Ley General de Cordoba Transporte) Cordoba 1 Lack o f Weights and Dimensions Certificate 750 100-200 2 Alteration of Weights and Dimensions 2,250 200-300 Certificate 3 Expirationo f Weights and Dimensions 300 100-200 removing excess loads 29 Lack of respect towards inspectors and MTI 0.0 200-300 personnel 30 Relapseon alteration o f Item land lack o f 0.0 400-600 respect towards personnel 31 Relapseon lacking Item 1 0.0 200-400 42 I I m d- I 0 - N N Annex 5: Project Costs NICARAGUA: FourthRoadsRehabilitation and Maintenance Project Local Foreign Total Project Cost By Component andlor Activity US us US $million $million $million 1.RoadRehabilitation 3.04 7.09 10.13 2. Rural Transport Improvement 24.12 17.75 41.87 3. RoadMaintenance 5.12 2.52 7.64 4. TA., Cons. Svcs., Goods, Training & Studies 0.39 7.36 7.75 Total BaselineCost 32.67 34.72 67.39 PhysicalandPriceContingencies 1.22 1.30 2.52 Total Project Costs' 33.89 36.02 69.91 Total Financing Required 33.89 36.02 69.91 Net of Taxes 45 Annex 6: ImplementationArrangements NICARAGUA:FourthRoadsRehabilitationandMaintenanceProject 1. The MTI will be responsible for the implementation of the project. However, all maintenance works will be delegatedor shared with the FOMAV so as to help establish it fully as a road maintenance agency that i s specialized in using private contractors and microenterprises. 2. The basic implementation arrangementshavebeendeveloped under the previous projects and have worked very well. The same technical team (UCP) of the MTI that managed the previous IDA projects will be responsible for day to day project management. Organization charts of the UCPandthe FOMAV are included inthis annex. Other tasks will include: Monitor, evaluate and report physical andfinancial progressof the project; Manage the selection of consultants to be engaged under the project (Le. prepare terms of reference (TOR), shortlist qualified firms, prepare letters of invitation and supplementarydocuments, invite proposals, define evaluation criteria, etc.); Manage the flow of project funds andmaintainall accounts for the project; Coordinate the preparation of the project's annualAudit Report and forward report to IDA; Ensure that the GON makes adequate budget allocations for the project, and that funds be madeavailable inatimely manner; Prepareand submit disbursementrequeststo IDA; Coordinate project preparation studies; Preparea project completion report. 3. It is worthwhile commenting a bit further on project management and implementation arrangements in Nicaragua. The IDA has never utilized any parallel consultant staffed Project Implementation Unit (PTU) for the management of any of the three previous road projects; instead the projects have been managed by Nicaraguan civil servants, led by a project coordination unit (UCP). The UCP serves as interlocutor with the IDA and the point of contact for all project transactions, including project supervision, studies, and institution buildingwithin the MTIas a whole andthe FOMAV. Within MTI, the UCP organizes and coordinates the input required from other MTI divisions (for example from MTI's Procurement, Planning, Environmental, Training, legal departments) that may be required for project implementation. UCP also organizes meetings and workshops with private sector representatives such as the construction andconsulting industry when neededto address specific issues. 46 4. For the project as a whole, all operating costs and administrative expenses are borne by the GON at standard civil service rates. For the UCP staff, there are no project-financed or other salary supplements. The three IDA transport projects have all been implemented very well and the Impact Evaluation Group (IEG) has supported a highly satisfactory rating for the recently completed Second Project (CR-3085-NI) and a similar rating will probably be assigned for the now substantively completed Third Project (CR-3464-NI). The key to success has been the commitment of boththe government and the IDA to makingit work. 5. From the outset, the Nicaragua projects were setup and managed under the "no-PIU" model and it has proven to be very successful, even though capacities were weak and experience with the IDA non-existent. The risks of this approach for a start up operation in a country known for rapid rotation of staff had been explained to the Nicaraguan counterparts at the outset. However, the then MTI leadership was enthused with the idea and promised to try to ensure stability and to keep the UCP staff (then called the Technical Support Team - TST) always involved andintegrated with the rest of the MTI. Inthis sense the Nicaragua program is aheadof the curve in terms of the IDA'Scurrent commitment to the reduction of the number of parallel PIUs as being one of the key actions the aid community could take to promote greater capacity development and increase aid effectiveness. Hence there has been a focus on sustainable institutional capacity development and a true strengthening of the MTI's systems and organization. 6. This approach has also enhancedthe productivity of project-financed consultants as there are no `staff consultants'; consultants are hired instead to work within and to provide technical assistance to specific MTI units or departments, e.g. for the deployment and calibration of the HDMwithin the Pavement Management unit, or to assess the performance of microenterprises for the Maintenance department, or, earlier on, to help design and setup the FOMAV. UCP manages these technical assistance initiatives as well as other standard local and foreign consulting inputs for studies, project supervision, audits, etc. Training programs were designed with MTIstaffing andprogram sustainability needs in mind, rather than mainly opportunities for more overseas trips. Hence, under the Second project a Master's program for a cadre of MTI staff was organized and carried out at a local university. MTI staff themselves now prepare project ICRs and also conducted most of the supporting analyses as well as the document preparation for the Fourthproject. 7. The "no-PIU" model i s now a well accepted concept in MTI, and the GON as a whole has been pushingthis model for the IDA and other donor financed projects in all sectors. Still, the main risk as perceived by donors probably arises from the tradition of staffing instability in Nicaragua as each administration usually tries to change key staff, especially those at director level, such as the head of the UCP (see organization chart in this Annex). While this risk will always exist, to some extent it can be mitigated by covenants requiring the selection and retention of qualified and experienced staff acceptable to the IDA for project management purposes. Ifthe implementationexperiencei s successful (andthis depends on close IDA support) then it is more likely that incoming administrations will respect the existing arrangementsas has occurred in Nicaragua. In this manner, a virtuous circle can be set in operation, i.e. a situation where the implementation paradigm is shifted towards organizational structures that 47 systematically foster more sustainable capacity development through greater use of and support for country institutions while ensuringtimely project implementation anddisbursement. 8. The approach to project management used for the transport projects could help to supplement weak government structures rather than supplant them or reduce opportunities for growth. Many of the negatives associated with PrUs could be thus avoided. These negatives include their (i) typically being staffed by technical advisers and established outside the regular government structures; (ii) assuming many routine ministerial functions; (iii) away the hiring most competent staff and creating friction over compensation levels within ministries; (iv) reluctance to share key operational know-how with local staff; (v) tendency to promote the illusion that they represent the tradeoff between rapid and efficient project implementation versus bottlenecks associated with long term capacity building in government institutions; (vi) duplication of ministry functions and capabilities; (vii) closed or `turnkey' management style whereby non-PIU staff inputs are minimized until the completed project is handed over to the government for operation and maintenance; (viii) tendency to foster perverse incentives, e.g. their presence can help to guarantee adequate project budget allocations; and (ix) serving as a vehicle for circumventing civil service rules and practices. All of this implies that, inthe reverse of the normal practice for too many projects, the rationale for establishing a PIU needs to be carefully examined ineachcase. 48 1 I L r I I I r U m E m 0 2 t m u UJ j cl) z o w a c 3m I 3 3 0 =3 T a a2Y-an a ~W r 1 Annex 7: FinancialManagementand DisbursementArrangements NICARAGUA: FourthRoadsRehabilitationand MaintenanceProject Summary Conclusionof FinancialManagementAssessment 1. The financial managementassessment (FMA)presentsthe following conclusions: (9 The executing agency, MTI, will be responsible for managing the fiduciary aspects of the proposed project, through the Project Coordinating Unit ("Unidad Coordinadora de Proyectos- UCP),locatedwithin Direcci6nGeneral de Vialidad of MTI. (ii) MTIhasadequateexperiencemanagingexternally-financedprojectsandagoodbasic administrative structure and staff, which puts it in a good position to take over the financial management (FM) functions of the proposed project (currently, MTI is managing the Third Road Rehabilitation and Maintenance Project CR-3464-NI financed by IDA). However, the F;MA has identified project-specific actions in order to strengthen the FM capacity of UCP and enable to it to carry out the financial activities of the proposed project effectively. (iii) Therefore,assumingthatMTIcarriesouttheproposedactionplanpresentedhere,it would have in place adequate financial management arrangements that meet the IDA'S fiduciary requirements to manage the specific financial activities of the proposed project. OrganizationalArrangements 2. The Borrower will be the Republic of Nicaragua, represented by the Ministerio de Hacienda y Crkdito Pdblico (MHCP). Overall project coordination and administration will fall under the Ministry of Transportation and Infrastructure (MTI). Within MTI, the Project Coordinating Unit ~`Un~dad Coordinadora de Proyectos" or UCP), in coordination with Direcci6nGeneral de Vialidad and Direcci6n General de Administracih y Finanzas of MTIand National Treasury of MHCP, will be directly in charge of financial management (FM) tasks for the proposed project. These will basically include: (i) formulation and monitoring; (ii) budget cash flow management (including processing credit withdrawal applications); (iii) maintenance of accounting records; (iv) preparation of within-year and year-end financial reports; (v) administration of underlying information systems; and (vi) arranging for execution of external audits. 3. The UCP is currently managing IDA'S Third Road Rehabilitation and Maintenance Project CR-3464-NI that is scheduled to be closed in August 2006. Therefore, based on the evaluation of the current financial arrangements, the level of experience, skills and number of financial management staff members within the unit, is considered adequate for the proposed fourth Project. It should be mentioned that UCP staff is dedicated to the IDA projects, and no additional staff needs have been identified because it is expected that this current staff will be retained. 51 4. On FOMAV's side, the principal activity is the road network maintenance management. This task is defined through an Annual Agreement between the MTIand the FOMAV. Through FOMAV the generation of employment i s encouraged, contracting services and activities of Routine Maintenance along the National and the Municipal Road Networks by hiring microenterprises integrated by people who reside in the same region where the maintenance is carried out and also by hiring private contractors. In order to obtain financial resources in a timely manner, it would be preferable for the FOMAV to have an operational account (revolving fund) assignedby the UCP. BudgetPlanning 5. The aggregate project expenditures will be incorporated by MTI into its multi-annual budget and be integrated into the annual budget formulation process. Between August and Septemberof each year, MTIwill prepare its tentative investment program for the next year. The program should be consistent with the budget policy provided by MHCP, be incorporated into the national public investment system(SNIP), and-once approved- be reflected inMTI's budget proposal. This budget, inturn, will be incorporatedby MHCP into the general statebudget for its submission to the Asamblea Nacional by eachOctober. 6. On the basis of the approved budget, MTI will adjust as needed its annual work and procurement plan (POA), which will be reviewedby the IDA. AccountingandFinancialReporting 7. AccountingPolicies and Procedures.The mainFMregulatory framework for the project will consist o f (i) Law 550 of Financial Management and Budget Regime ii)the annual Law of the General State Budget; (iii) MHCP instructives basedupon the cited laws; and (iv) the Unit's operating norms (operational manual). 8. Project-specific FMarrangementsthat are not contemplated inthe documents cited above will be documented in a concise FM section of the project's operational manual. Among others, specific reference will be made to: (i) the contractual and payment terms of road rehabilitation and improvement works; (ii) internal controls (e.g., payment terms and clearance of the advances) related to agreements with microenterprises; and (iii)the formats of project financial andaudit reports. 9. Information Systems. Since October 2001, the UCP Project has implemented an integrated information system "Sistema Integrado de Administracibn del Proyecto (SIAP)", satisfying the financial information requirements of the UCP and the IDA and it i s currently operating adequately. Nevertheless, some options are not being used and some changes to the initial design have to be updated in the system's operational manual. Inaddition, SIAP does not have an automatic link with the Government-wide integrated financial management system (SIGFA), resulting in additional steps to register budget execution and risk of lack of data consistency between both systems. An alternative to solve this problem is SIGFA's project module (SIGFAPRO), which is in its final adjustment stage. As the design structure of the system is similar to the SIAP, its implementation in the UCP should be relatively effortless. The 52 UCP is in discussions with MHCP about the potential implementation of the Government's integrated financial management systemto processprojects' financial transactions (SIGFAPRO). 10. Financial Reports. On a semestral basis, MTI will prepare and submit to the IDA an unaudited interim financial report for monitoring purposes only, containing: (i) statement of a sources and uses of funds and cash balances (with expenditures classified by subcomponent); (ii) a statement of budget execution per subcomponent (with expenditures classified by the major budgetary accounts); and (iii) a special account activity statement (including a copy of the bank statement) The interim financial reports will be submitted not later than 45 days after the end of each semester. 11. On an annual basis, MTI will prepare project financial statements including cumulative figures, for the year and as of the end of that year, of the financial statements cited in the previous paragraph. The financial statements will also include explanatory notes in accordance with the Cash Basis International Public Sector Accounting Standard (IPSAS), and MTI's assertion that credit funds were usedinaccordancewith the intendedpurposes as specified inthe Financing Agreement. These financial statements, once audited, will be submitted to the IDA not later than six months after the end of the Government's fiscal year (which equals the calendar year). 12. The supporting documentation from the semestral and annual financial statements will be maintained in MTI's premises, and made easily accessible to IDA supervision missions and to external auditors. Flow of Funds 13. IDA Disbursement Methods. Credit proceeds will be withdrawn by MTI using two methods: a) Advances subject to monthly Statement of Expenditures (SOEs) properly identifying the payments relatedto contracts subject to the IDA'Sprior review (see Annex 8). At any time, the SOE supporting records will be available for review by the external auditors and IDA supervision missions. b) For certain large contracts of works estimated in US$10.2 million (if required under the applicable procurement procedures), there may be a need for the use of direct payments or special commitment procedures. The minimum value of applications for direct payments will be 20% of the authorized advance allocation (see below). 14. Should the need arise during implementation for other procedures, the JDA will evaluate it and, ifgranted, agree to revise, updateor reissuethe Disbursement Letter. 15. IDA Designated Account. MHCP's National Treasury will open and maintain a segregated account in US Dollars in the Central Bank of Nicaragua, to be used exclusively for deposits and withdrawals of credit proceeds for eligible expenditures. After the designated account has been opened, MTI will submit its first disbursement request to the IDA. For 53 subsequent withdrawals, MTI will submit the disbursement request along with the mentioned SOEs. At any time, the undocumented advance to the designated account cannot exceed the tentative authorized allocation of USS.0 million. 16. Disbursement Deadline Date. Four months after the closing date specified in the Financing Agreement. 17. Flow of Funds I n General. Payments to providers will be madeby two methods: - a) For large payments that exceed MTI's rotating fund thresholds, the National Treasury will pay directly out of the Designated Account to the provider in accordance with instructions to be submitted by the UCP. b) For other payments, UCP would open an operational account in C6rdobas that would receive transfers of funds from the Designated Account for subsequent payment to providers of eligible expenditures. The operational account would function as a rotating fundwith periodic advancesanddocumentation of expenditures. 18. The processing of payments in US Dollars through the Central Bank and with the revolving funds takes approximately 15 days in normal conditions, which is considered reasonable. When abnormal situations arise due to lack of budgetary allocation andlor lack of fluidity in the internal proceedings of preparation and document review in the Centers of Responsibility (review, authorization and approval of the requests), the disbursement delays could last up to 60 days. This situation highlights the need for budget and cash flow programming adequately linked to the procurement planning and contract management functions. 19. Flow of Funds -Specifics.The contracting and payment terms for transport activities has to be detailed and updated inthe project's operational manual. Inthe current Credit 3464-NI, MTI's Direccionde Vialidad sends the works progressreports with the support documentation to the UCP, who reviews, records andprepares the CUC (Comprobante Unico Contable) and sends to MHCP to processthe payment. The same process applies to FOMAV. 54 IDA DisbursementSchedule[basedoncosttables] Expenditure Credit Category Amount FinancingPercentage (inUS$millions) 1.RoadRehabilitation: 8.61 85% a) Diriamba - Casares 5.17 b) LaVirgen-SanJuandel Sur 3.44 2. RuralTransportImprovement 35.59 85% 3. Roadmaintenance 6.11 a) Routine (Microenterprises) 3.67 80% b)Periodic 2.44 80% 4. Goodsandmaterials 0.31 85% 5. TA, Studies, Consultantssv'cs 7.00 100% 6. Training 0.44 a) MTI& FOMAV Staff 0.34 100% b)Microenterprises 0.10 80% 7. Unallocated 1.94 Total 60.00 AuditArrangements 20. Internal Audit. Inview of the limited capacity in MTI's internal audit department, UCP will require aproject- specific internal audit contract (outsourced). 21. External Audit. The annual project financial statements prepared by UCP will be audited following International Standards on Auditing (ISA), by an independent firm and in accordance with terms of reference(TORS), bothacceptableto the IDA. 22. The IDA'S audit policy, documented in "Guidelines: Annual financial reporting and auditing for World bank-financed projects" will be applicable to the project. This means, that in terms of audit opinion on project accounting records maintained by the project, a single audit opinion covering: (i) program financial statements, (ii) account statement, and (iii) special adequacy of supporting documentation maintained by UCP and FOMAV in respect of expenditures claimed for reimbursement via transaction-basedprocedures and eligibility of such expenditures for financing under the respective FinancingAgreement (FA) for the IDA Credit will be required. 23. In addition to the audit opinion, the auditors will have to present the managementletter, covering: (i) weaknesses noted by the auditors in the internal control systems of the project, (ii) cases of application of inappropriate accounting policies and practices, (iii) regarding issues 55 general compliance with broad covenants, and (iv) any other matters that the auditors consider should be brought to the attention of the Borrower. 24. While the audit reports are to be issued annually and submitted to the IDA no later than six months after the end of eachfiscal year, the external auditors are expectedto performat least one review visit per quarter, producing management letters accordingly. Depending on the date of project effectiveness, it i s possiblethat the first audit will cover the period from effectiveness to the endof the next fiscal year (if the period is no more than 18 months). 25, The audits will be co-financed with credit proceeds under the "consultant services" category. The UCP will appoint the external auditors within four months after signingof the FA. Each audit contract is expectedto cover at leasttwo reporting periods. FinancialManagementActionPlan Action Responsible Completion Entit 1.UpdateFMsection of the project March 30,2006 operational manual. 2. Finalize audit TORSandthe format of the March 30,2006 semestral interimfinancial report (FMRs). 3. Strengthenproject specific internal audit 4 months after function. signingFA 4. Arrange with MHCP to begin MTI 4 months after implementation of the SIGFAPRO according to specific requirements. I1signingFA 5. Contract external auditors. MTI 4 months after signingFA 26. FM SupervisionPlan. An IDA FM Specialist should perform a supervision mission prior to effectiveness to verify the organization and staffing strengthening of UCP and the FM system. After effectiveness, the FM Specialist must review the annual audit reports, should review the financial sections of the semestral interim financial reports, and should perform at least one supervision mission per year. 56 Annex 8: Procurement Arrangements NICARAGUA: FourthRoadsRehabilitation andMaintenance Project A. General 1. Procurement for the proposed project would be carried out in accordance with the World Bank's "Guidelines: Procurement under IBRD Loans and IDA Credits" dated May 2004, "Guidelines: Selection and Employment of Consultants by World Bank Borrowers" dated May 2004, and the provisions stipulated in the Legal Agreement. The various items under different expenditure categories are described in general below. For each contract to be financed by the Loan, the different procurement methods or consultant selection methods, the need for pre- qualification, estimated costs, prior review requirements, and time frame are agreedbetween the Borrower and the IDA in the Procurement Plan. The Procurement Plan will be updatedat least annually or as required to reflect the actual project implementation needs and improvements in institutionalcapacity. 2. Procurement of Works: Works required for the project, which would include rehabilitation and upgrading of existing roads, would be procured using the Bank's Standard Bidding Documents (SBD) for all ICB and SBD agreed with the IDA for NCB and shopping (model Requestfor Quotations - RfQ). Inthe specific case of microenterprises already providing road maintenance routine services to municipalities under the previous Roads Rehabilitation project (Cr-3464-NI) financed by the IDA, contracts with those microenterprises will be extended subject to verification that they have been providing the required maintenance services satisfactorily. 3. Procurement of Goods: Goods procured under this project will include computer hardware and software, office furniture andequipment, vehicles, etc. The goods will be procured usingthe Bank's StandardBiddingDocuments (SBD) for all ICB and SBD agreedwith the IDA for NCB andshopping(model Requestfor Quotations - RfQ). 4. Procurement of Non-Consulting Services: Non-Consulting Services required for training activities such as workshops, hotel and transport services, as well as other services as neededwill be procured usingSBD or model RfQ agreedwith the IDA. 5. Selection of Consultants: Consulting firms and individual consultants will be hired under the project to provide services such as performance audits and project technical support services, engineering design and supervision, impact evaluation studies, diagnostics, financial and procurement audits, advisory services from individual consultants, supervision, etc. Advertisements requesting expressions of interest will be published in either national or international newspapers, depending on the estimated amounts of the contracts, and NGOs will be selectedthrough a competitive process as per the IDA Consultant Guidelines. 6. Training: Training would include costs of training facilities, transport and per diem of trainees, training fees, training materials, costs of logistics, transportation, materials, etc would be procured to theextent possible following IDA procurement procedures applied to goods using agreedstandarddocuments for NCB or RfQ. 57 7, Operational Costs: Operational costs havebeenidentifiedinthe procurement plan. 8. The procurement procedures and SBDs to be used for each procurement method, as well as model contracts for works, goods and consulting services procured, are presented in the Project's Operations Manual. 9. Thresholds recommended for the use of each method discussed above are identified in the table below. These thresholds will be reviewed annually when the capacity i s reassessed during procurement post-review missions. As indicated in paragraph 1 above, the agreed procurement plan will determine which contractswill be subject to IDA prior review. Thresholds for Procurement Methodsand Prior Review Contract value Expenditure thresholda Procurement method Contractssubject toprior review >1,500 ICB All Works ........................................................................ 150to 1,500 ................................................................................................................................................................................................. NCB Firsttwo contracts Shovving II Firsttwo contracts Direct Contracting 1 >150 ICB IAll All 50 to 150 NCB Firsttwo contracts Goods Shopping First two contracts Regardless of value Direct contracting All >200 QCBSlQBWBSILCSI All contracts above $100,000 Consulting <200 QCBSIQBSIFBSILCS (firms)a ........................................................................ .............................................................................. K Q S Regardless of value Single Source Consulting Regardless of value Section V inthe All contracts above $50,000 (individual)a 1 Guidelines Note: QCBS =Quality- andCost-BasedSelf tion QBS =Quality-BasedSelection FBS = Fixed Budget Selection LCS=Least-CostSelection CQS =SelectionBasedon Consultants`Qualifications B. Assessment of the agency's capacity to implement procurement 10. An assessment of the capacity of the Ministry of Transport and Infrastructure (MTI) to implement procurement actions for the Third Road Rehabilitation and Maintenance Project was carried out by a Bank Procurement Specialist in June 2000. Since then, Bank procurement specialists have been carryingout procurement supervision for the implementation of the project, A Bank procurement specialist visited MTI and FOMAV to assess the present situation as it concerns present staff available to carry out procurement for the proposed project. The assessment reviewed the organizational structure for implementingthe project and the interaction between the project's staff responsible for procurement and MTI's Department for Administration and Finance. The assessment reviewed the three main components of the 58 program, plus operational costs. These components will require procurement of small civil works, consulting services and goods. 11. Overall financial management and administration will be under the responsibility of MTI's Administrative Directorate. Inthis context, MTI will be responsible for supervising the implementation of all procurement for the project. These arrangementshave worked well under the Third Road and Rehabilitation Project and throughout the implementation of the project the staff at MTIandFOMAV acquired adequateprocurement capacity. 12. Inlight of the pastexperienceofMTIwith IDA-financedprojects, the overallproject risk for procurement is AVERAGE. C.Procurement Plan 13. The Borrower has developed a procurement planfor project implementation that provides the basis for the procurement methods. This planwas agreedbetween the Borrower and the IDA team, following extensive discussions. It will be available in the project's database and in the Bank's external website. The procurement plan will be updated in agreement with the UCP annually or as required to reflect the actual project implementation needs and improvements in institutionalcapacity. D.Frequency ofProcurementSupervision 14. Inaddition to thepriorreview supervision to becarried out bythe IDA it is recommendedthat procurement supervision take place once a year. 15. Organization, Staffing and Functions: The procurement staff at both MTIand FOMAV is consideredadequateto implement the procurement activities listed inthe ProcurementPlan. 16. Sumort and Control Systems: MTIand FOMAV have auditing procedures inplace and a good database for monitoringprocurement activities. 17. Record Keeping: BothMTIandthe FOMAVhave properrecordkeeping. 59 E.Detailsofthe Procurement Arrangement involvinginternationalcompetition. 1. Goodsand Works and non consultingservices. a. List of contract Packages which will be procuredfollowing ICB and Direct contracting: 1 2 3 1 4 I S 1 fi I 7 8 9 Ref Contract Estimated Procurement P-Q Domestic Review Expected Comments No. (Description) cost Method Preference by IDA Bid- (yedno) (Prior I Post) Opening Date May 2006 June 2006 Jan 2007 Jan 2007 Jan 2007 Jan 2007 Jan 2007 Jan 2007 Jan 2007 March 2006 March Road 2006 maintenance NA Road ente rises maintenance NA Road ~ maintenance NA Road maintenance NA Road ente rises maintenance NA Road ~ maintenance $3.0M DC No No Prior NA Road maintenance $606,000 DC No No Prior NA Road entemrises maintenance 60 2. Consulting Services. (a) List of Consulting Assignments with short-list of internationalfirms. l,r... 1 2 3 4 5 6 7 Ref. No. Description of Estimated Selection Review Expected Comments Assignment cost Method byIDA ~ (Prior I Submission Post) 1 Works $264,822 QCBS Prior May 2006 supervision 2 Works $446,016 QCBS Prior June 2006 supervision 3 Works $421,882 QCBS Prior Dec 2006 supervision 4 Works $894,234 QCBS Prior Dec 2006 supervision 5 Works $773,017 QCBS Prior Dec 2006 supervision 6 Works $586,343 QCBS Prior April supervision 2006 7 Works $289,815 QCBS Prior April supervision 2006 8 Works $813,050 QCBS Prior April supervision 2006 (b) Consultancy services estimated to cost above $100,000 per contract and Single Source selection of consultants(firms) will be subject to prior review by the IDA. (c) Short lists composed entirely of national consultants: Short lists of consultantsfor services estimated to cost less than $200,000 equivalent per contract, may be composed entirely of national consultants in accordance with the provisions of paragraph 2.7 of the Consultant Guidelines. 61 Annex 9: Economic and FinancialAnalysis NICARAGUA: FourthRoadsRehabilitationandMaintenanceProject Benefits and Costs Summary Background 1. The project components consist of the rehabilitation, improvement and maintenance of selected primary, secondary and rural roads, and an institutional strengthening component that will offer a wide range of benefits to Nicaragua. The maintenance component represents the continuing implementation of the program for priority routine andperiodic maintenancethat was developed under the First, Second and ThirdHighways projects, where the Highway Design and Maintenance Model (HDM-HI) as well as the Roads Economic Decision Making Model (RED) were usedfor the economic analysis. All together, the support provided by the project to improve the processes for planning and programming of road improvement works, more participation of private contractors, effective planning for routine maintenance and the priority accorded to maintenancewill help guaranteemore effective use of public funds inthe roadsector andhelp to achieve the CAS objectives. Also the institutional component will help guarantee that the improvements achieved with the project will be sustainable and that the MTIwill be in a better position to confront the challenges of modernization. The overall project Economic Rate of Return (ERR) is 35% and the Net Present Value (NPV), at 12 percent discount rate, i s US$65.8 million. Table 1summarizesthe project economic analysis indicators. Table 1:Economic Analysis Summary Benefits Diriarnba-Casares- BoquitaRehabilitation 14.48 (US$ million) LaVirgen - SanJuandel SurRehabilitation 10.26 RuralRoads Adoquin 87.58 RuralRoadsAdoquin (MCA) 10.13 Total 122.45 costs Diriamba-Casxes - BoquitaRehabilitation 6.09 (US$ million) LaVirgen - SanJuandel SurRehabilitation 4.04 RuralRoadsAdoquin 37.77 RuralRoadsAdoquin (MCA) 4.10 Total 52.00 Net Benefits Diriarnba-Casares- BoquitaRehabilitation 10.05 (US$million) LaVirgen SanJuandeiSurRehabilitation - 7.67 RuralRoadsAdoquin 40.87 RuralRoadsAdoquin (MCA) 7.23 Total 65.83 Economic Rateof Return Diriamba-Casxes - BoquitaRehabilitation 36% (8) LaVirgen - SanJuandel SurRehabilitation 61% RuralRoadsAdoquin 30% RuralRoadsAdoquin (MCA) 58% Tntnl 35% Primary Roads 2. The selected roads have a significant economic importance for Nicaraguan and Central American commerce. The roads Diriamba - Casares - L a Boquita and La Virgen - San Juan del 62 Sur have also a high tourism potential and a detailed economic evaluation was done using the HDM-IIImodelto completethe economicjustificationof theproposedimprovements. MainAssumptions Traffic 3. The derivation of the daily traffic on these links was basedon 3 day traffic counts for 12 hours and pro-rated to 24 hours, that was completed by MTI. The traffic composition indicates 18% heavy vehicles on the first link and 31% heavy vehicles on the second link. The evaluation of the historical annual traffic growth rate for bothlinks yields an annual growth of 4%, which is considered a conservative figure but was usedalso to represent the future traffic growth rate. Benefits and Beneficiaries 4. The benefits obtainedfrom the rehabilitation works are directly related to savings inroad user costs. The vehicle operating costs savings were derived from a recent MTIstudy of vehicle operating costs (VOC) on roads in good and poor condition in Nicaragua, after making the necessaryadjustmentsfor taxes and subsidies. The results indicate that the costs savings vary by vehicle type, ranging from 39% for pickups to 50% for heavy trucks, which is not surprising since the project would improve the condition of the roads considerably. Other quantifiable benefits included in the flow of net benefits are the savings in travel times due to the increased travel speeds on the rehabilitated roads. 5. The project will generate other benefits that are difficult to quantify, such as: (i) improvements of the management of the road network due to more emphasis being given to maintenanceactivities; (ii) better access to agricultural and tourism zones; (iii) improvedcomfort andsafety of roadtransportservices; and(iv) road safety improvements. Roadsafety benefits are especially important for the Diriamba - Casares - La Boquita link that has deteriorated to the point of creating safety hazards on its initial 20km. The rehabilitation works will also generate employment for around 1,100 workers duringthe estimated constructionperiodof 48 months, Sensitivity and Switching Values Economic Evaluation Results 6. The economic evaluation results for the Diriamba - Casares - La Boquita link yield an Economic Rate of Return @RR)of 36% and for the La Virgen - San Juan del Sur link an ERR of 61%. The Net Present Value (NPV), at 12 percent discount rate, of the first link is US$7.67 million and of the second link i s US$lO.OS million. The ERR was computed considering rehabilitation costs, appropriate routine and periodic maintenance costs and savings in vehicle operating costs andtravel times. 7. The sensitivity analysis considered: (i) in benefits by 20% and (ii) in decrease increase investment costs by 20%, yielding an ERR of 29.8% and 28.6% percent respectively for the first link, and 51.4% and 49.5% respectively for the second link. The switching values analysis 63 indicates that in order to produce a NPV equal to zero, investment costs needto be multipliedby 1.6 on the fist link and by 2.3 on the second link, or benefits multipliedby 0.35 on the fist link andby 0.65 onthe secondlink.Table 2 summarizesthe economic analysis. Table 2: Primary RoadsEconomicEvaluationResults ERR (96) million) ERR(%) million) BaseCase 36.0 7.67 61.0 10.05 costs +20% 29.8 6.60 51.4 9.42 Benefits-20% 28.6 5.07 49.5 7.41 Without Time Savings 32.7 6.52 58.1 9.43 - costs (9-6) 158 232 - Benefits (96) 35 65 RuralRoads 8. The improvement of ruralroads is an important component of the Government's poverty reduction andgrowth strategy. The objectives of improvingruralroads are to reduce the costs of production, provide a better market price for the producers, and to facilitate the export of such products, reducing travel times and vehicle operation costs, and facilitating, at the same time, the delivery of social services. This component focuses attention on the connecting of communities with an average population of 11,600 inhabitants to main highways that are important for the needs of the poor rural communities and for the restoration of effective transport communications. Normally almost 60% to 70% of the time of a trip for an ordinary journey of residents of poor communities begins and terminates along these rural roads. The inadequate provision and the poor quality of most rural roads have been well documented in Nicaragua. According to the LSMS study done in 1999, in general, a little more than a fifth (22%) of Nicaraguanhomeshave access to a paved road, also, the same study indicated that the proportion 64 reducesto 6% in the case of the poor homes inthe countryside. For that reason, the objectives of economic growth and poverty reduction will be difficult to achieve without the qualitative improvements of ruralroads. 9. The secondary andtertiary road network inNicaragua was heavily damagedby Hurricane Mitch and its improvement forms a fundamental component for the restoration of transport services, especially inthe countryside. The roads targeted for project support are mainly located in zones with a good potential for agricultural production and the development of other key productive clusters. The selection of the rural roads to be part of the project was done on the basis of a positive NPV, at a discount rate of 12%, the populations served, the economic potential of the zones in consideration and the degree of connectivity with other rural and main roads. The levels of traffic in those rural roads have a range between 50 and 400 AADT. Of the total evaluated network (l,849km), approximately 243km of sections with higher traffic will be stabilized with adoquines. The use of adoquines provides additional benefits to the largely unskilled rural populations because it is a highly labor intensive approach to road improvement. The municipalities will be asked to buildshoulders along the improved roads once the MTIhas completed the adoquinado 10. The definition and the economic evaluation of the program of improvement of rural roads was made applying the Roads Economic Decision Model (RED), developed by the World Bankfor the Africa RoadManagementInitiative, which adopts the consumersurplus approachto estimate the project benefits. The RED model evaluates net benefits of project alternatives, which are characterized by the average level of service provided over the evaluation period; the corresponding road user costs are compared using the HDM-3 model relations. Table 3 presents the unit vehicle operating costs for sevenvehicle types for different roughnesslevels. Table3: VehicleOperatingCosts(US$IT(m) Source: PMS and MTI. 11. The rural roads program was divided into two subcomponents. The first subcomponent consists of the improvement of rural roads with adoquines, usingprivate contractors, located in: (i) I,includingtheDepartmentsofGranada,Masaya,Carazo,RivasandManagua,since Zone this zone, besides having a high level of poverty, is a zone with dense population and high tourism and economic potential; and (ii) IV, including the departments of Chontales, Zone 65 Boaco, and Rio San Juan which have a high productive potential for agricultural and dairy products. The Poverty Map of Nicaraguaof 2000 and the WorldBankPoverty Evaluation Report of 2000 indicate that inZone I, 51% of the population is poor and 16% is inextreme poverty and in zone IV, 66% of the population is poor and 16% is in extreme poverty, which can be compared with the rest of the country where 50% of the population i s poor and 20% is in extreme poverty. Table 4 presentsthe Nicaragua poverty indicators by Department. Table4: NicaraguaPovertyIndicators Rio SanJuan 69,804 49,882 71% 25,369 36% Boaco 136,656 93,174 68% 44,787 33% Matagalpa 382,342 259,586 68% 121,852 32% RAAS 270.323 177.884 66% 83.109 31% Source: INEC 2001. 12. The second subcomponentconsists of the adoquines stabilization of rural road segments, by means of Community Groups (MCA). This program consists of pavingroad sections of short length, with labor from groups of people of the beneficiary community, formed and trained by MTI social promoters, with experience inthis type of social activity. In 2004, a pilot project of adoquin stabilizations was carried out with MCA, which has been considered successful, since it involved the execution of the project by the community, municipalities, producers and local investors, and brought direct benefits to the community as well as a sense of ownership of the program on the part of the community. Road sections located on 18 different municipalities were selected considering historical requests of the population, productive potential of the benefited zones, traffic and condition of the roads. To a large extent the sections selectedto be includingin this subcomponent are in Zones Iand IV, nevertheless, there are a few sections in this subcomponent that belongto zones 11and 111. 66 13, The 217.4 kilometers of roadsto beincludinginthe first subcomponent of the program of improvement of rural roads, were divided in 13 homogenous sections. The traffic data for these sections was obtained from the Pavement Management System (PMS). The condition of each section was verified by means of field visits to each municipality and road section by a group of specialists with environmental, economic and engineering backgrounds. Roughness measurements were made by the PMS unit. Tables 5,6, and 7 present the overall network condition andtraffic statistics. Table5: NetworkConditiononZonesIandIV (km) IRioSanJuan 1 I 23.88 I 229.36 I 24.79 I 278.03 I Rivas 111.46 215.66 327.12 Total 0.00 264.56 936.54 647.83 1,848.92 Table 6: NetworkTrafficonZonesIandIV (km) 1 TOTAL (krn) 1,661.41 I 187.51 1 1,848.92 Table7: NetworkConditionandTrafficonZonesIandIV (km) Condition Traffic (AADT) Good Fair Poor Total I200 189.05 1,251.94 1,440.99 >200 75.5 332.43 407.93 Total 0.00 264.55 1,584.37 1,848.92 14. The priorities amongroad sections were derived on the basis of the requestspresentedto the MTIthrough governmental institutions and local governments, among them the Secretary of the Presidency, Ministry of Tourism and the municipalities. These priorities were categorized in 67 three global categories (high, average and low priority) and those ratings were compared later with the priorities given by the economic analysis to help establish a compatibility of the economic analysis with the perceived priorities. Table 8 presents the network length per perceived priorities. Table 8: Zone Iand Zone IV - PerceivedPriority (km) AADT High Medium Low Total >200 52.14 56.39 90.37 198.9 - <200 55.02 59.56 50.5 165.08 Total 107.16 115.95 140.87 363.98 15. The homogenous road sections were evaluated by means of evaluating representative road classes that are function of: traffic (3 levels), condition (3 levels), geometry (3 types) and roadwidth (2 types). Table 9 presentsthe project alternatives considered and unitcosts. Table 9: Project Alternatives and Unit Costs Regravelling and 15 cmcement stabilization (6.0 meters wide). 15,000 2.50 Adoquin (5.5 meters wide including borders) for traffic 120,000 21.82 50>AADT<200: Adoquin (6.0 meters wide including borders) for traffic 130,000 21.67 AADT>200 16. The roughness of the existing roads was estimated to vary from 10 IRI(good condition) to a 20 IRI(poor condition), roughness measurements done on (adoquin stabilized) roads show roughness values ranging from4 to 5 IRI,and the average roughness of asphalt paved roads was considered to be 3.5 IRI. In addition, the corresponding routine maintenance and annualized periodic maintenance costs needed to maintain a road in good condition were estimated, It was estimated at around US$1,300h-year for adoquin pavements with 6.0 meters, US$1,2OOUn- year for adoquin pavements with 5.5 meters, US$2,000/km-year for dirt roads and US$4,000/km-year for gravel roads. The economic evaluation was done for an evaluation period of 20 years, adiscount rate of 1296, anda traffic growth rate of 4%. 17. The traffic levels that yield a NPV higher than zero were determined. The economic investment costs are US$130,000km for adoquin pavement with 6.0 meters wide, US$120,0OOUn for adoquin pavements with 5.5 meters wide. For the traffic levels that do not justify adoquin pavement, the recommendedroad work is regravelling with cement stabilization with a thickness of 15 cm on a 6.0 meters wide road and with a cost of US$15,00O/km. Table 10 presentsthe recommendedproject alternatives per traffic range. 68 Table 10: RecommendedProject Alternatives I Traffic 1 RecommendedRoadWorks 1InvestmentCost1 AADT < 50 Regravellingwith cement stabilization 15 cm(6.0 meters wide). US$15,000Un 50 120vpd) rural road that has fallen into severe disrepair and needs to be rehabilitated. It mostly serves well fenced cattle farmlands and there are no sensitive social or environmental issues. The second segment Naciones Unidas - San Francisco (34.6km) is a dry season trail that enters the Cerro Silva forest reserve and is located on mostly gently rolling terrain with only 2 small rivers crossing (Las Milpas and El Limdn). The final section, San Francisco - Taleno - Las Pavas - Bluefields (39.lkm) crosses the protected forests and also a Ramsar Wetlands site that circumscribes Bluefields town andbay. Currently, there is an existing unpaved road alignment that restricts the passage of motorized vehicles between Naciones Unidas andBluefields mainly to the dry season. 12. As part of project preparation, the MTIcarried out a comprehensive Environmental and Social strategic analysis (RESA) of the key environmental and social factors affecting the development of the road from NuevaGuinea to Bluefields, especially the section from Naciones Unidas to Bluefields. In addition, with DANIDA support, the MTIhas completed the feasibility study and preliminary engineering for the entire route. The issues identified were discussed on the basis of the E S A and Feasibility study reports during two Washington-Managua video- conferences on September 8 and 9,2005, the first of which includedrepresentatives of the MTI, Bank, DANIDA, the CarlBro and Roughton consulting firms, and many stakeholder groups. Subsequently, there was a follow-up video conference between MTI, DANIDA and the Bank on October 11, 2005 at which the issues were further refined, especially those related to the environmental and social pre-requisites for Naciones Unidas -Bluefields section. 13. Nueva Guinea-Naciones Unidas: In the September 9, 2005 video-conference, it was agreed in principle that the IDA would finance the upgrading (adoquin stabilization) of only the road segment between the towns of Nueva Guinea and Naciones Unidas, as part of the Fourth Roads Project. This road improvement i s regarded to be a low-risk Category `B' from an environmental and social standpoint because (i) an all-weather road (passable by all types of vehicles) already exists between Nueva Guinea and Naciones Unidas; (ii) the road passes through areas that have already been long established and settled; and (iii)by terminating within 75 the town of Naciones Unidas, it would remain some 10-15kmfrom the boundary of the Cerro Silva Reserve. In fact, changing the road surface from gravel to adoquin (cobble) pavement would have positive direct environmental impacts by (i) reducing erosion and high sediment runoff from the road surface (with less waterway sedimentation), and (ii) minimizing the use of borrow pits to obtain new surfacing material for routine and periodic maintenance activities. Also, the Nueva Guinea-Naciones Unidas road segment is considered to be economically justified on its own, even without considering the much more environmentally sensitive Naciones Unidas-Bluefields segment. 14. NacionesUnidas-Bluefields:Beginning from about 20ktn East of Naciones Unidas, the road segment between Naciones Unidas and Bluefields, i s considered to be environmentally highly sensitive because it passes through the Cerro Silva Forest Reserve and subsequently the Bluefields RAMSAR Wetlands Site at a location between Taleno and Bluefields town. This road section i s not included in the project. However, it would be appropriate if MTI and MARENA were to identify more precisely the activities that a conservation project could support, in advance of any potential future Naciones Unidas-Bluefields road project. The cost estimates for the activities should take into account that much of the technical work has already been recently carried out by other programs (including the MesoamericanBiological Corridor). For example, a Management Plan for the Cerro Silva Reserve has been drafted, but not agreed upon, due to a lack of consensus on management responsibilities and land use zones (particularly between MARENA and the indigenous communities). Similarly, there is a general understanding that titling of the indigenous community lands at this point requires mostly political will, rather than any expensive technical work (which has mostly already been done). This should be discussed further with the key actors involved in the region and sustainable development plans for the general project area should be developed. These plans could largely be taken "off the shelf' and implemented, without repeating most of the preparation that has already taken place under other projects. 76 Annex 11:ProjectPreparationandSupervision NICARAGUA:FourthRoadsRehabilitationandMaintenanceProject Planned Actual PCNreview 11/03/2005 11/03/2005 InitialPID to PIC 1211612005 InitialISDS to PIC 1211612005 Appraisal 03/14/2006 0311512006 Negotiations 05/02/2006 05/02/2006 Board/RVP approval 06/08/2006 Planneddate of effectiveness 0811812006 Planned date of mid-termreview 1213112008 Planned closing date 12/31/2011 Key institutions responsiblefor preparation of the project: Ministryof Transport andInfrastructure (MTI) Bankstaff andconsultantswho worked onthe project included: Name Title Unit E.James Task TeamLeader LCSFT E.Correa Sr. Social Specialist LCSEO I.Escolano ProcurementSpecialist LCOPR E.Roman Financial Management Specialist LCOAA D.Graham Sr. Environmental Specialist LCSEN R. Cunningham Senior Finance Officer LOAGl G. Ledec LeadEcologist LCSEN J. Kamine Counsel LEGLA M.Mallo Team Assistant LCSFT , 77 Annex 12: Documentsinthe ProjectFile NICARAGUA:FourthRoadsRehabilitationandMaintenanceProject A. ProjectImplementationPlan Manual de Operaciones del Cuarto Convenio de Crddito, MTI. B. BankStaff Assesment 1. Evaluacidn Tdcnico - Econcimicadel 10s Caminos no Pavimentados del las zonas de competitividad I, y IV. II C. Other 1. Estudios y diseiios: Carreteras Diriamba - Casares y La Virgen - San Juan del Sur. Diciembre2005. 2. Apoyo a1 Programa del Sector Transporte 2004 - 2008, DANIDA, a1 30 de Octubre del 2005. 3. Norrhas Ambientales Biisicas para la Construccibn Vial (NIC-2000); MTI, UnidadAmbiental. 4 Estudio de Impact0 Ambiental: Adoquinado del camino Nueva Guinea-Naciones Unidas (CORASCO, January 2006). 5. Estudio Ambiental-Social: Rehabilitacion y Mejoramiento de la Carretera Diriamba-Empalme LaBoquita-Casares(INCOSA, January 2006). 6. Estudio Ambiental-Social: Rehabilitacicin y Mejoramiento de la Carretera La Virgen-San Juan del Sur (INCOSA, January 2006). 7. Fichas Ambientales y de Categorizacicin de Proyectos de Rehabilitacih y Adoquinado (MTI-DGA, January 2006). 8. Programa de Capacitacicin con el IV Convenio de Crddito, MTI, Managua, Setiembredel 2005. 9. Evaluacibn de 10s procesos de Presupuesto, Flujo de Fondos y Sistemas Informiiticos, German Escobar y UCPIMTI, Diciembre 2005. 78 Annex 13: Statementof Loansand Credits NICARAGUA:FourthRoadsRehabilitationandMaintenanceProject ~~ Differencebetween expectedandactual OriginalAmount in US$Millions disbursements ProjectID Ey Purpose IBRD IDA SF GEF Cancel. Undisb. Orig. Frm.Rev'd PO82885 2004 NICARAGUA PRSCI 0.00 70.00 0.00 0.00 0.00 36.03 -1.03 0.00 PO78891 2004 NIPUBLIC SECTOR TA 0.00 23.50 0.00 0.00 0.00 23.36 0.00 0.00 PO73246 2003 NIOffgrid RuralElectrification(PERZA) 0.00 12.00 0.00 0.00 0.00 15.81 2.53 0.00 PO56018 2002 NILAND~ M ~ I S ~ A TPROJECT I O N 0.00 32.60 0.00 0.00 0.00 35.41 1.57 0.00 PO64906 2001 NIPovertyRed.&LocalDev.FISE 0.00 60.00 0.00 0.00 0.00 34.28 27.28 -9.72 PO64916 2001 NINaturalDisasterVulnerabilityReduc 0.00 13.50 0.00 0.00 0.00 11.35 9.61 0.00 PO55823 2001 NISECONDRURALMUNICIPALDEV. 0.00 28.70 0.00 0.00 0.00 13.03 19.77 0.00 PROJECT PO68673 2001 NIRoadRehab.andMaintenance111 0.00 75.00 0.00 0.00 0.00 26.88 -55.98 0.00 PO70016 2001 NICompetitivenessLIL 0.00 5.00 0.00 0.00 0.00 3.27 2.36 0.00 PO64915 2000 NIAG TECHN & RURALEDU(APL) 0.00 23.63 0.00 0.00 0.00 5.37 7.57 0.00 PO56087 2000 NIPensionandFinanc.MarketReformTA 0.00 8.00 0.00 0.00 0.00 1.21 -5.73 0.09 PO49296 2000 NIECONOMICMANAGEMENTTAC 0.00 20.90 0.00 0.00 0.00 1.16 -19.09 0.00 PO55853 2000 NI- COMMUNICATION REFORM 0.00 15.90 0.00 0.00 0.00 1.06 1.71 0.00 PO50513 2000 NISECONDBASICEDUCATION 0.00 52.50 0.00 0.00 0.00 7.66 -45.23 0.00 PROJECT PO52080 1999 NIFORESTRY 0.00 9.00 ' 0.00 0.00 0.00 0.64 1.08 0.00 PO35753 1998 NIHEALTHSECT I1 0.00 24.00 0.00 0.00 0.00 2.21 1.81 0.00 PO53705 1998 NITRANSPORT I1 0.00 47.40 0.00 0.00 0.00 1.41 2.06 0.00 PO41790 1997 GEFNIAtlantic BiologicalCorridor 0.00 0.00 0.00 7.10 0.00 1.85 7.16 5.06 Total: 0.00 521.63 0.00 7.10 0.00 221.99 - 42.55 - 4.57 NICARAGUA STATEMENTOF IFC's HeldandDisbursedPortfolio InMillions of US Dollars Committed Disbursed IFC IFC FYApproval Company Loan Equity Quasi Partic. Loan Equity Quasi Partic. 2000 Finarca 0.80 0.00 0.00 0.00 0.80 0.00 0.00 0.00 1998 Frutan 0.39 0.36 0.00 0.00 0.39 0.00 0.00 0.00 1998 LaColonia 1.13 0.00 0.50 0.00 1.13 0.00 0.50 0.00 1999 SEFDicegsa 0.50 0.00 0.00 0.00 0.50 0.00 0.00 0.00 Totalportfilio: 2.82 0.36 0.50 0.00 2.82 0.00 0.50 0.00 79 ApprovalsPendingCommitment FY Approval Company Loan Equity Quasi Partic. 2004 BancaConfia 0.01 0.00 0.00 0.00 Total pendingcommitment: 0.01 0.00 0.00 0.00 80 Annex 14: Countryata Glance NICARAGUA:FourthRoadsRehabilitationandMaintenanceProject Latin POVERTYand SOCIAL America Low- Nicaragua & Carib. income Developmentdiamond. 2004 Populatm,mid-year (miirons) 56 541 2,338 GNIpercapita(At/as method, US$j 790 3,600 510 Lifeexpectancy GNI(Atlasmethad, US$bl//ions) 4 4 1,948 1,184 T Averageannual growth, 1998-04 Population (%) 2 5 14 1.8 Laborforce (%) 3 1 09 2.1 GNI Gross per pnmac) Most recent estimate (latest year available, 1998-04) capita enrollmenl Poverty (% ofpopulabon belownabonaimvertvirnej 48 Urbanpopulation (% of f o f ~ ~ u / a t i o n j 58 77 31 Lifeexpectancyat birth (yearst 69 71 58 Infant motlalily (per 1,000irve biflhsj 30 28 79 Childminutrition (% ofchiMrenunder5) 10 44 Access to improvedwater source Access to animprovedwater source (% Ofpopu/abm) 81 89 75 Literacy (% ofpopulationaqe 1st;) 77 89 61 - Grosspnmatyenrollment (% ofSchool-aqemuiafon) 108 123 94 Nicaragua Mal8 109 126 101 Low-incomearwD ~ Female 108 122 88 KEYECONOMICRATIOSand LONG-TERMTRENDS 1984 1994 2M13 2004 Economicratios. GDP (US$bi///msj 3 1 3 0 4 1 4.4 GrosscapitalformationlGDP 22.2 204 37 1 35.7 Exportsof qoodsandServlceslGDP 164 156 24 1 21.9 Trade GrossdomesticsavinqYGDP 9.2 3 8 108 10.1 GrossnationalsavinqslGDP 3 4 -104 210 23.2 Current account b a W G D P -22 0 -305 -177 -15.5 InterestpaynentslGDP 11 3 2 1 3 Told deWGDP 1542 402 9 1672 Totaldebt serv@elexports 184 39 9 148 Presentvalueof W G D P 376 Presentvalueof debtieXP0rtS 1119 Indebtedness 1984-94 1994-04 2003 2004 2004-08 (averaqeannualqrowth) -21 4 1 2 3 3 7 4.2 -Nicaragua -46 -03 1 4 2.1 Ewportsof go& andservices 3 6 9 2 8 1 1 9 2.2 STRUCTUREof the ECONOMY '984 ::: 2; 2: :::: 1994 2003 2004 (% of GDPj Agriculture Industry Manufacturing 25.4 16.9 14.3 13.8 Services 43.3 55.9 56.9 58.2 Householdfinalconsumptionexpenditure 55.4 86.1 73.6 74.4 Generalgov'tfinalconsumptionexpenditure 35.3 10.1 15.6 15.5 Importsof goods and services 29.5 32.2 50.4 47.5 -GCF '-6GDP 1 (averageannualaroWh) 1988-94 1994-04 2004 Growthof exports and imports(%) I AgriCUltUr8 -1.0 4.2 3.2 0.2 3oT Industry -3.2 4.1 2.4 0.5 / 2 a i A Manufacturing -4.1 4.4 2.1 -0.3 Services -2.0 4.0 1.9 6.5 10 Householdfinalconsumptionexpenditure 3.4 1.6 0.9 3.4 0 Generalgov't finalconsumptim expenditure -10.8 6.6 1.3 7.6 -10 Gross capitalformation -7.2 10.3 2.4 3.0 -Exports &lm)orts Importsof goods and services Note:2004dataarepreliminaryestimates. This tablewas producedf r m the Development Economics LDBdatabase. * Thediamondsshowfour keyindicatorsin thecountry (in bold)comparedwith itsincome-groupaverage. Ifdataare missing,the diamondwill beincomplete. 81 PRICESand GOVERNMENTflNANCE 1984 1994 2003 2004 Domesticprices (% change) Consumerprices 36.4 7.8 7.3 6.7 ImplicitGDP deflator 39.0 80.1 6.9 7.1 Governmentfinance (% of GDP, includesCurrentgrants) Current revenue 12.5 16.2 16.7 Currentbudgetbalance -0.8 0.5 4.3 Overallsurpluddeficit -6.2 -6.7 -3.7 ~ GDPdeflator +CPI TRADE I 1984 1994 2003 2004 (US$m7lions) Exportand importlevels(US mill.) Total exports(fob) 413 335 m5 631 cotfee 122 73 86 Shrimpand lobster 13 42 69 Manufactures 58 117 286 321 Total imports(ci0 .Food 825 867 1,m8 1,653 107 188 460 Fuelandenergy 145 123 194 Capitalgoods 238 218 362 286 Exportpriceindex (2000=7W) 92 97 93 100 Importpriceindex ~ZLW0=7W) 49 84 111 115 Tens of trade (ZOGiklW) 166 115 84 87 BALANCEof PAYMENTS 1984 1994 2003 2004 (US$ m'//ions) Currentaccountbalanceto GDP(%) 1 Exportsof goods andservices 462 463 853 907 Importsof goods andservices 884 949 2,004 2,056 Resourcebalance -423 -486 .1,151 .1,148 Net income -263 -472 -106 -96 Netcurrenttransfers 0 50 528 Currentaccountbalance -686 -908 -731 -676 Financingitems (net) 601 976 738 696 Changesinnet reserves 85 -69 -7 -20 Memo: Reservesincludinggold(US$mi/lions) 141 447 524 Conversionrate (DfC, /mUUS$) 2.89E-9 6.7 15.1 15.9 EXTERNALDEBTand RESOURCEFLOWS 1984 1994 2003 2004 (US$mii/ions) ompositionof 2003debt(US4 mill.) Total debt outstandinganddisbursed 4,807 I1,996 6,915 IBRD 134 76 0 IDA 59 254 998 Totaldebt service 86 207 205 l8RD 15 25 0 IDA 0 3 3 Compositionof net resourceflows Officialgrants 56 181 495 Officialcreditors 344 245 162 Privatecreditors 11 -6 28 Foreigndirect investment(net inflows) 0 47 201 Portfolioequity(net inflows) 0 0 0 Worid Bank program Commitments 0 68 27 . IBRD -- ~* E-Bilateral Disbursements 22 52 112 B* IDA D Othermuftilateral ~ F Private Principalrepayments 7 19 0 C IMF- G Shortden Netflows 15 33 112 Interestpayments 9 9 3 Nettransfers 7 24 109 Note:Thistablewas producedfromthe DevelopmentEconomicsLDBdatabase. 8/25/05 82 IBRD 34552 87° 86° 85° 84° 83° NICARAGUA 15° FOURTH ROAD MAINTENANCE (RíoSegovia) 15° Río Coco Wani AND REHABILITATION PROJECT Waspam Bilwaskarma Lagoon Cayos ROADS UNDER THE REHABILITATION Raiti Miskitos PROGRAM OF THE PROJECT H O N D U R A S Río Islands THIRD PROJECT ROADS Wawa ZONES UNDER THE RURAL TRANSPORT IMPROVEMENT PLAN: Tuara REGÍON AUTONOMISTA ZONE I Pahara Bocay ATLÁNTICO NORTE ZONE III Lagoon ZONE IV Tuapí 14° Teotecacinte Río Bonanza PUERTO CABEZAS 14° JINOTEGA La Constancia PAN AMERICAN HIGHWAY Jalapa La Rosita Karata Lagoon MAIN PAVED ROADS Las Manos NUEVA El Salto Río Murra ALL-WEATHER ROADS (GRAVEL) Santa Maria SEGOVIA Siuna DRY WEATHER ROADS Susucayam OCTOCAL Río Bambana Wounta PRINCIPAL PORTS Totogalpa Quilali ZONE III Lagoon OTHER PORTS SOMOTO MADRIZ San Juan Limbaica To San Palacaguinade Rio Coco La Vigía Prinzapolca INTERNATIONAL AIRPORT Salvador Pueblo Nuevo Condego Puerto Isabel SECONDARY AIRPORTS San Pedro INLAND WATERWAYS Gulf of ESTELÍ Makantaka Fonseca To San RIVERS Salvador Limay ESTELÍ Río Tuma Río C a r i b b e a n SELECTED TOWNS Guasaule JINOTEGA El Tuma Grande de Somotillo Matagalpa S e a 13° Potosi MATAGALPA San Pedro 13° DEPARTMENT CAPITALS Rio Grande CHINANDEGA MATAGALPA del Norte NATIONAL CAPITAL V. 15 Julio (Pte. Rio Blanco Río Kurinwás Puerto El Sauce Matiguas Estero Real) Sébaco DEPARTMENT BOUNDARIES Morazán LEÓN INTERNATIONAL BOUNDARIES Mina El Muy Muy Limón Ciudad REGÍON AUTONOMISTA Darío Esquipulas ALTITUDES IN METERS: CHINANDEGA Malpaisillo Chichigalpa S. José de ATLÁNTICO SUR Los Remates Nauawás Santa Lucía 2000 Salto Grande Corinto Telica 500 LÉON BOACO Monotombo BOACO Río 200 Camoapa Poneloya Lake San Jacunti Siquia Perlas 0 Managua Comalapa CHONTALES Lagoon Salinas Grandes Izapa San Benito Santo Domingo Puerto Sandino La Libertad EL Rama MANAGUA San Lorenzo JUIGALPA Río Mico 0 20 40 60 80 100 El Tránsito Managua Bridge Rio Airport Sto. Tomas Muhan Villa San Escondido 12° MASAYA Francisco MANAGUA Lovago BLUEFIELDS El Bluff 12° KILOMETERS Pto. La Gateada MASAYA Acoyapa GRANADA Díaz This map was produced by the Map Design Unit of The World Bank. Diriamba ZONE IV Bluefields San Ubaldo GRANADA The boundaries, colors, denominations and any other information Bay shown on this map do not imply, on the part of The World Bank JINOTEPE Masachapa Group, any judgment on the legal status of any territory, or any Nandaime endorsement or acceptance of such boundaries. CARAZO Nueva Guinea La Boquito Casar de Casares Morrito Altagracia Rio PuntaGorda 90 86 82 78 PACIFIC 18 18 El Astillero Moyagalpa Lake Punta Gorda Nancimí BELIZE OCEAN RIVAS MEXICO San Miguelito ZONE I RIVAS La Virgen Nicaragua ATLANTIC Punta GUATEMALA HONDURAS OCEAN San Juan del Sur Peñas Blancas Morillo Gorda Bay 14 14 SAN CARLOS EL RÍO SAN NICARAGUA SALVADOR 11° To San JUAN 11° Jose San Juan del Norte 10 PACIFIC COSTA RICA PANAMA 10 C O S TA R I C A Río San Juan OCEAN COLOMBIA 87° 86° 85° 84° 83° 90 86 82 MARCH 2006