Document of The World Bank

Report No: 37924 – MX

IMPLEMENTATION COMPLETION AND RESULTS REPORT

(IBRD 7042)

ON A

LOAN/ CREDIT IN THE AMOUNT OF

US$218.00 MILLION

TO

UNITED MEXICAN STATES

FOR A

FEDERAL HIGHWAY MAINTENANCE PROJECT

May 28, 2007 Sustainable Development Department Colombia and Mexico Country Management Unit Latin America and the Caribbean Region This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.

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CURRENCY EQUIVALENTS

(Exchange Rate Effective)

Currency Unit = Mexican Peso

MX$1.00 = US$0.0922 US$ 1.00 = MX$10.84

FISCAL YEAR

ABBREVIATIONS AND ACRONYMS

BANOBRAS BRP CAPUFE CAS CreMa DGCC DO ENA ERR FARAC FHMP GOM HDM HFP HMP HRTS IBRD ICB ICR IF IMT IRR ISR MIRR MTR NAFTA NCB NPV PAD PDO

Banco Nacional de Obras y Servicios Públicos, S.N.C. Bridge Rehabilitation Program Public Toll Roads Agency (Caminos y Puentes Federales) Country Assistance Strategy Maintenance and Rehabilitation Contract (Contrato de Recuperación y Mantenimiento) Peral Directorate for Mainteance of Roads (Dirección General de Concesión de Carreteras) Development Objective National Toll Road Authority Economic Rate of Return Toll Roads Restructuring Agency Federal Highway Maintenance Project Government of Mexico Highway Design and Maintenance Standard Model Highway Finance Project Highway Maintenance Program Highway Rehabilitation and Traffic Safety Project International Bank for Reconstruction and Development International Competitive Bidding Implementation Completion Report Implementation Framework Mexican Institute for Transport (Instituto Mexicano del Transporte) Internal Rate of Return Implementation Status Results and Report Modified Internal Rate of Return Mid-Term Review North American Free Trade Agreement National Competitive Bidding Net Present Value Project Appraisal Document Project Development Objective

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PPCM PROPIMI PSR QAG RED RoW SCT SHCP SISTER TESOFE ToR TTL UAC VOC WDCS

Pilot Project for Comprehensive Maintenance by Contract Proyecto Piloto de Mantenimiento Integral Project Status Report Quality Assurance Group Road Economic Decision Model Right-of-Way Secretariat of Communications and Transport (Secretaría de Comunicaciones y Transporte) Secretariat of Finance (Secretaría de Hacienda y Crédito Público) Simulation Model of Highway Maintenance Strategies (Simulation de Stratégies d’Entretien Routier) Treasury of the Federation (Tesorería de la Federación) Terms of Reference Task Team Leader Unidad de Autopistas de Cuota Vehicle Operating Cost Weight and Dimensions Control Stations

Vice President: Acting Country Director:

Sector Manager: Project Team Leader:

ICR Team Leader:

Pamela Cox Makhtar Diop José Luis Irigoyen Mauricio Cuellar Mauricio Cuellar

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Mexico FEDERAL HIGHWAY MAINTENANCE PROJECT

CONTENTS

1. Basic Information.......................................................................................................... 42. Key Dates ....................................................................................................................... 43. Ratings Summary.......................................................................................................... 44. Sector and Theme Codes .............................................................................................. 55. Bank Staff ...................................................................................................................... 56. Project Context, Development Objectives and Design .............................................. 67. Key Factors Affecting Implementation and Outcomes ........................................... 118. Assessment of Outcomes............................................................................................. 209. Assessment of Risk to Development Outcome.......................................................... 2710. Assessment of Bank and Borrower Performance .................................................. 2711. Lessons Learned........................................................................................................ 3212. Comments on Issues Raised by Borrower/Implementing Agencies/Partners ..... 36Annex 1. Results Framework Analysis ......................................................................... 39Annex 2. Restructuring .................................................................................................. 42Annex 3. Project Costs and Financing .......................................................................... 43Annex 5. Economic and Financial Analysis.................................................................. 52Annex 6. Bank Lending and Implementation Support/ Supervision Processes....... 56Annex 7. Detailed Ratings and Bank and Borrower Performance ............................ 59Annex 8. Beneficiary Survey Results ............................................................................ 60Annex 9. Stakeholder Workshop Report and Results ................................................. 61Annex 10. Summary of Borrower’s ICR and/or Comments on Draft ICR.............. 62Annex 11. Comments of Cofinanciers and Other Partners/Stakeholders ................. 64Annex 12. List of Supporting Documents .................................................................... 65Annex 13. Expost Evaluation from SCT...................................................................... 66

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1. Basic Information

Country: Mexico Project Name: Federal Highway Maintenance Project

Project ID: P065779 L/C/TF Number(s): IBRD-70420 ICR Date: 05/28/2007 ICR Type: Core ICR Lending Instrument: SIL Borrower: BANOBRAS Original Total Commitment: USD 218.0M Disbursed Amount: USD 218.0 M.

Environmental Category: B (Partial Assessment) Implementing Agencies: Secretaría de Comunicaciones y Transporte Cofinanciers and Other External Partners: None

2. Key Dates

Process Date Process Original Date Revised / Actual Date(s)

Concept Review: 07/08/1999 Effectiveness: 03/15/2001 11/05/2001 Appraisal: 06/12/2000 Restructuring(s): Approval: 12/14/2000 Mid-term Review: 11/20/2003 05/12/2004 Closing: 06/30/2005 11/30/2006

3. Ratings Summary

3.1 Performance Rating by ICR

Outcomes: Satisfactory Risk to Development Outcome: Moderate Bank Performance: Satisfactory Borrower Performance: Satisfactory

3.2 Quality at Entry and Implementation Performance Indicators

Implementation Performance Indicators QAG Assessments (if any) Rating: Potential Problem Project at any time (Yes/No):

No

Quality at Entry (QEA):

None

Problem Project at any time (Yes/No): No

Quality of Supervision (QSA):

None

DO rating before Closing/Inactive status:

Satisfactory

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4. Sector and Theme Codes

Original Actual Sector Code (as % of total Bank financing) Central Government administration 2 2 Roads and highways 98 98

Original Priority Actual Priority Theme Code (Primary/Secondary) Other financial and private sector development Secondary Secondary Export development and competitiveness Primary Primary Regional integration Primary Primary

5. Bank Staff

Positions At ICR At Approval Vice President: Pamela Cox David de Ferranti Country Director: Makhtar Diop Olivier Lafourcade Sector Manager: Jose Luis Irigoyen Jeffery Gutman Project Team Leader:

Mauricio Cuellar

Jose Maria Alonso-Biarge

ICR Team Leader: Mauricio Cuellar ICR Primary Authors:

Jose María Alonso-Biarge Benjamin Santa Maria

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6. Project Context, Development Objectives and Design

6.1 Context at Appraisal The project supported the overall Country Assistance Strategy (CAS) objectives related to removing obstacles to sustainable growth and maintaining macroeconomic stability in the context of globalization. Specifically, it supported the Government and Bank strategies to: (i) remove impediments to private sector growth and competitiveness, and (ii) ensure the provision of quality infrastructure. Road transport was at the time of appraisal and still is the dominant mode for both passenger and freight transportation in Mexico. Within the context of North American Free Trade Agreement (NAFTA), traffic growth on roads comprising the major trade corridors, estimated then at about 10% annually, was expected to continue at a similar rate or higher. The Bank project targeted the following main issues: (i) the persistent challenge to avoid the deterioration of the condition of the national road network in the face of seriously constrained budgets and the need for institutional and financial reforms to ensure sustainability, (ii) the declining condition of the national network as traffic levels increase faster than capital works could be funded, (iii) the growth of similar maintenance and capacity issues at the state level as at federal level, exacerbated by the lack of a clear decentralization policy, and (iv) the low level and poor quality of access for low income rural populations in the most isolated parts of the country. The 1999 road condition inventory showed a network that could not support national development goals efficiently due to the fact that Government had not been allocating sufficient funds to maintain or to modernize the road network. Based on economic and governmental priorities, the Secretariat of Communications and Transport (SCT) had prepared a plan for management of the federal highway network seeking to: (i) adequately manage the federal network, (ii) support institutional reforms required for the development of better road network management practices, and (iii) focus investments on road rehabilitation and maintenance. The proposed project was focused mainly on maintenance and rehabilitation needs of the SCT managed federal highway network. It would improve road maintenance management through rehabilitation and maintenance contracts, the introduction of a pilot program of comprehensive maintenance by contract and the implementation of the last version of the Highway Design and Maintenance Model (HDM-4) for road rehabilitation and maintenance planning and programming, developed under sponsorship from the Bank and other international and national (UK, Sweden, Chile) institutions. Finally, to a limited extent, it could also help in the definition and design of a mechanism for maintenance financing, evaluation of roads to decentralize, and the financial restructuring for toll roads.

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6.2 Original Project Development Objectives (PDO) and Key Indicators

The proposed project has been designed to assist the Government in providing Mexico with a road transport system that can support the needs of a rapidly modernizing and expanding economy and to enable meeting the NAFTA competitive challenges. The overarching development objective is to improve transport efficiency on the road network. Complementary objectives include: (i) improving SCT's rehabilitation and maintenance planning performance; and (ii) enhancing private-sector participation in road maintenance.

The key performance indicators included: (i) reduction of Vehicle Operating Cost (VOC) in project roads (an average reduction of 20% compared with the current costs); (ii) improvement in the condition of roads after rehabilitation in terms of roughness reduction; (iii) timely preparation of annual highway and bridge rehabilitation and maintenance programs; and (iv) progress achieved in the design and implementation of highway financing and decentralization strategies.

6.3 Revised PDO (as approved by original approving authority) and Key Indicators, and reasons/justification

The original project development objectives and key indicators did not change during project implementation.

6.4 Main Beneficiaries

The project benefits were to accrue primarily to direct road users. They would benefit primarily from the reduced VOC and increased safety. The population in the corridors served by the project roads would benefit from eventual reduction in the price of transported commodities as the reduction in transport costs would be passed on to shippers. STC would also benefit by the implementation of new planning tools and the testing of an innovative cost-efficient approach to outsource road maintenance. This would also provide development of state of the art practices in the sector among governmental agencies. The project benefits were not revised during project implementation.

6.5 Original Components

The project included five main components at a total cost of US$ 309.0 million. The share of Bank financing was equivalent to 70.5% of the total project cost (US$ 218.0 million). The Loan was to finance 70% of the total cost of components 1, 3 and 5, and 100% of the total cost of Components (4). The original project components were the following:

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Component 1. Highway Rehabilitation and Maintenance – US$ 245.00 million total cost- [Loan US$ 171.5 million]. (Total cost includes civil works, and consulting services for design and supervision). The project was to support SCT’s selected sub-projects under the Highway Maintenance Program (HMP) and the Bridge Rehabilitation Program (BRP) both annually prepared and implemented by the SCT´s General Directorate for Maintenance of Roads (DGCC) along key segments of the federal highway network. Sub-projects from those programs were to be selected for project financing based on the following criteria: (i) have an Economic Rate of Return (ERR), calculated in accordance with a method reasonable to the Bank, of at least 12 percent; (ii) neither have significant negative environmental or social implications nor require changes in the road geometrical design; and (iii) have a structural design life of at least 15 years in the case of highway rehabilitation sub-projects. This component comprised four sub-components: Part A1. Rehabilitation of about 1,000 km of highways [US$ 150 million – Loan US$ 105.0 million]. The works were designed to improve the base, sub-base and pavement bearing capacity. Rehabilitation works also included the improvement/repair of drainage and sub-drainage systems and shoulders. Part A2. Periodic maintenance of about 1,200 km [US$ 60 million – Loan US$ 42 million]. The works were designed to protect the pavement life-service and improve the physical conditions of the surface, shoulders and drainage ditches. Part A3. Rehabilitation of 100 bridges [US$ 20 million- Loan US$ 14.00 million]. The works were designed to ensure the superstructure capacity to support the loads imposed by heavy traffic, and adapt bridge width to that of the road they are part of; repair/reinforce the superstructure, pillars, supports, the structural elements, and their protection against erosion, as needed. Part A4. Consultancy services for the supervision of the 2001-2003 DGCC’s HMP and BRP [US$ 15 million –Loan US$ 10.5 million]. This component was to be directly managed by DGCC’s Directorate of Supervision and Control (central offices) but implemented at the SCT Centers in the States, which are responsible for the execution of the works through civil works contractors. Component 2. Pilot Project for Comprehensive Maintenance by Contract – US$ 19.50 million total cost [Loan US$ 13.65 million]. (Total cost included civil works and consulting services for design and implementation). On a pilot basis through contracts with private sector companies, this three-year program included routine and periodic maintenance activities, rehabilitation of selected segments of roads and several bridges, some minor works, preparation of short term implementation programs, assistance and information to road users and the police in case of accidents, training, and management of the program. The component comprised two sub-components:

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Part. B1. Civil works [US$ 18 million – Loan US$ 12.60 million]. This sub-component was to be split into two contracts (covering 242.5 km. two-lane highways), one for each state crossed (Tlaxcala and Guanajuato). Contracts were to cover the following activities: (i) routine maintenance in both routes; (ii) periodic maintenance in 50 km per contract, (iii) rehabilitation up to 15 km in each route and other priority actions, depending on deficiencies detected, in the first year of the contract; (iv) rehabilitation of bridges in both routes as needed; (v) minor works; (vi) program management; and (vii) training for maintenance professionals and specialists of the public and private sectors. Part B2. Provision of consulting services for work supervision and for preparing and managing the program [US$ 1.5 million – Loan US$ 1.05 million]. Component 3. Vehicle Weight and Dimensions Control Stations – US$ 4.50 million total cost [Loan US$ 3.15 million] (Total cost includes civil works, and supervision). Under this component, on a pilot basis, two fixed weigh stations were to be established at strategically located points on roads with the highest volumes of heavy vehicles (one single station for northbound traffic, on the route to the US border in Nuevo Laredo, and one twin station to serve both traffic directions for another route in the state of Queretaro), including acceleration and deceleration lanes. Component 4. Institutional Strengthening – US$ 4.00 million total cost [Loan US$ 4.0 million] (Total cost included consulting services, training, and goods). This component was to finance specific technical assistance activities to SCT grouped in five sub-components: Part D1. Implementing the HDM-4 in the DGCC and its departmental offices to improve road maintenance management [US$ 1.70 million – Loan US$ 1.70 million]. The objective was to gradually complement and replace the existing system for maintenance planning (SISTER) with a more comprehensive network planning tool including strategic planning, programming and project evaluation, for a better control of operational costs and allocation of resources. Part D2. Developing a strategy for decentralizing road administration [US$ 0.60 million – Loan US$ 0.60 million]. This sub-component would support the decentralization strategy selected by the Government from the different alternatives proposed by another study prepared by the Bank. Part D3. Implementing a road financing mechanism and resource mobilization strategies [US$ 0.50 million – Loan US$ 0.50 million]. This sub-component would support the implementation of the action plan for a road financing strategy which had been proposed by another study financed by the previous Bank project, Highway Rehabilitation and Traffic Safety (HRTS).

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Part D4. Supporting the implementation of the Government strategy on the toll road system [US$ 1.0 million - Loan US$ 1.0 million]. This sub-component would assist the Government in implementing the recommended strategy from the alternatives to be proposed by the Highway Finance Project, preparation of which had started.

Part D5. Training for staff in the SCT directorates involved in the project [US$ 0.20 million - Loan US$ 0.20 million]. This sub-component would include formal training courses, attendance at conferences and study tours, both in Mexico and abroad. Component 5. Contingencies – US$ 33.82 million [Loan US$ 23.52 million]. Front-end fee IBRD – US$ 2.18 million. TOTAL COST: US$ 309.0 million [Loan US$ 218 million].

6.6 Revised Components

Component 2. Pilot Project for Comprehensive Maintenance by Contract (PPCM) This component was revised during project implementation to include other highways instead of the road sections considered in the Project Appraisal Document (PAD). The initial routes included were Road 136, a two-lane highway in the State of Tlaxcala (121 km) and the road Irapuato –La Piedad (121.5 km equivalent of a two-lane road) in the State of Guanajuato. They were replaced by the highway section between Querétaro and San Luis Potosí, (a four-lane highway of 225 km, or 450 two-lane road equivalent) crossing the states of Querétaro (including about additional 55 km of feeder roads) Guanajuato and San Luis Potosí. This section is part of the highway linking México City with the USA border in Nuevo Laredo, one of the most important and with the highest traffic volume in the highway network. This change also substantially widened the scope of the program increasing the percentage of reconstruction works and therefore, the cost of the component. These changes required the Loan and Guarantee Agreements to be amended. Component 3. Vehicle Weight and Dimensions Control Stations Given the delays in project effectiveness and the urgency for the SCT to start this program, the stations included in the PAD and the Legal Documents, Palmillas and Nuevo Laredo, to be financed by the Loan, were started and completed by the Borrower with local funds. The equipment for both stations was also purchased and installed with local funds. Since no new stations were proposed to be financed by the Loan, the funds initially assigned to this component were reallocated to other categories, mostly to category 2 to finance the cost overruns of the PPCM. Details of these and other reallocations between components are described in section 6.7 below.

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6.7 Other significant changes

6.7.1 Since the original works of Components 2 and 3 were mentioned in the loan legal documents, the changes mentioned in para. 6.6 above required amendments to the Loan and Guarantee Agreements. 6.7.2 Given the delay in starting program implementation, the Closing Date was extended from June 30, 2005 to November 30, 2006 to allow the completion of the PPCM and its supervision, and to complete the implementation of the HDM-4 model in the DGCC. 6.7.3 At the time of the project mid-term review, loan funds allocated to Components 3 and to consulting services under Component 4 had not been disbursed; this fact triggered a fund reallocation to cover the growing financial gap of Component 2 created by the extension of the road length and its scope. For details on reallocation of loan funds, see Annex 3.

7. Key Factors Affecting Implementation and Outcomes

7.1 Project Preparation, Design and Quality at Entry (including whether lessons of earlier operations were taken into account, risks and their mitigations identified, and adequacy of participatory processes, as applicable):

7.1.1 Project Preparation. The project objectives were consistent with the objectives of the CAS discussed by the Board on June 8, 1999, responding to the overall objective of sustainable growth and macroeconomic stability, and Government priorities. 7.1.2 Project Design and Quality at Entry. The project design was in principle based on the results of the previous HRTS, particularly on the need to continue support for two components of that project: (i) the SCT´s HMP and BRP; and (ii) the implementation of the recommendations of a study under the project on weight and dimensions control of vehicles, which resulted in the acquisition of 37 mobile scales under the HRTS project, but no fixed scales, highly recommended by the study. As a consequence, the design of the new Project included Component 1, for financing the 2001-2004 HMP and BRP, and Component, 3 a pilot program for the installation of two weight and dimensions control stations. In addition, the Bank’s team proposed two innovations that represented best practices in the road sector world wide: (i) the introduction of a Pilot Program for Comprehensive Maintenance by Contract (PPCM, Component 2). Never used before in Mexico, the pilot would test the use of a multi-year contract for provision of all the maintenance and rehabilitation works and the operational and user-related services needed to manage and provide high quality service to users traveling along a portion of a road corridor. Directly related to one of the project development objectives--enhancing private sector participation in road maintenance-- the pilot would demonstrate how maintenance

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management could be made more efficient; and (ii) the implementation of the HDM-4 in the DGCC to improve road management in the SCT Centers in the States. The HDM-4 would replace the existing model SISTER, which had been implemented in 1994 with Bank financing under a previous project, but it was becoming obsolete and difficult to implement in the SCT Centers. At first, the Borrower showed some resistance to include these innovations in the Project. In the case of the PPCM, the DGCC was contracting separately routine and periodic maintenance without the other proposed subcomponents of the proposed PPCM and was satisfied with the procedures used and the results achieved. In addition, the routine and periodic maintenance contracts were annual, while the new concept required multiyear budgeting. Likewise, in the case of the HDM-4, they were using as a planning and programming tool the SISTER and were satisfied with the results. However, besides the HDM-4 being a more sophisticated and, technologically speaking, a more advanced tool, the SISTER lacks the capabilities for prediction of road conditions of the HDM-4, which has a wider range of functionality including strategic planning, programming and project evaluation. Moreover, the SCT wanted to implement the SISTER also in the SCT Centers in the States. This had serious complications for a model almost obsolete and subject to the payment of royalties. The HDM-4 did not have these drawbacks. After discussing both issues extensively with the DGCC representatives, they accepted the proposal to include both innovations in the Project, together with technical assistance to: (i) develop a strategy for road decentralization; (ii) implement a road financing mechanism (as a second phase of the study carried out under the previous project); and (iii) implement a strategy for toll road management. An environmental assessment model, also developed under the previous project, was adopted for its application during project implementation. Concerning resettlement and other social issues, the type of works included in the Project, to be carried out within the Right-of-Way (RoW) of the roads concerned, did not entail any resettlement of population. Moreover STC´s internal regulations did not allow the project executing agency (DGCC) to undertake works that required land acquisition, occupy land beyond the original RoW or any involuntary resettlement. Nevertheless, at the insistence of the Bank´s Legal Department, a social assessment was carried out and an “Implementation Framework (IF)” comprising technical, social and environmental criteria was prepared and included in the Project as an Annex to the Legal Agreements. The IF required “previous submission” to the Bank of the HMP and BRP (which included more works than those to be financed by the Project); “proof of compliance” by the SCT with supporting information that all subprojects met the agreed criteria; “verification” letter confirming that there was no land acquisition nor resettlement, and “annual

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reviews” by the Bank supervision team of compliance with the social, environmental and other policies. The above outlined process demonstrates the Bank’s team collaborated closely with the client in the definition of the project components and was thorough and methodical during project appraisal. Some studies on decentralization and toll roads were started by the Bank during project’s preparation. The project implementation arrangements devised were simple, relaying on existing institutions, SHCP (the Guarantor), BANOBRAS (the Borrower), and SCT-DGCC (the Implementing Agency), familiar with Bank highway projects. The project was designed within a participatory framework defined by the SCT 2001-2004 HMP and BRP. Finally, the project risks were clearly pointed out in the PAD: the potential for fiscal imbalances in the short to medium-term, macroeconomic and financial stability, unexpected deterioration in social conditions, and budgetary constraints. Suitable risk-mitigating factors as well as a favorable policy environment were put in place. The project specific risk mitigation measures included: (i) a high percentage of Bank financing participation (70%) to help mitigate risks associated with budgetary restrictions; (ii) the introduction of a cost-effective approach to comprehensive maintenance by contract, to improve PSP and allow to have long term maintenance contracts; (iii) the implementation of the HDM-4 to improve efficiency in the use of scarce resources; and (iv) a study of alternative mechanisms to finance the highway sector. In summary, the quality of project design was appropriate, the preparation took into account the Bank’s safeguards policies and the risks were appropriately addressed and assessed in the project design. Both ex ante and ex post economic analysis have been carried out and the ex-post results are consistent with those at the appraisal stage. For all the reasons stated above we consider Quality at Entry is Satisfactory.

7.2 Implementation (including any project changes/restructuring, mid-term review, Project at Risk status, and actions taken, as applicable):

7.2.1 Implementation. The Loan was approved by the Board and on December 14, 2000 and signed the following day, only 15 days after the inauguration of a new Government, indicating the importance of the Project to the new Administration. Strong political support by the new Government was also confirmed by the timely and adequate allocation of funding throughout project implementation. Project implementation was expected to start in April of 2001 and to be completed by December 31, 2004, a total of 45 months. However project effectiveness took about 11

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months, due to the Borrower delays in submitting to the Bank the Legal Opinions as requested by the Bank´s Legal Department. The Bank granted three extensions for Loan Effectiveness, from the original date in March 2001 to the final declaration of effectiveness on November 5, 2001. The original loan closing date was June 30, 2005, but given some delays in the implementation hence completion of the PPCM three year-contract and the HDM-4 implementation, an extension of the closing date was required. November 30, 2006 was then selected as the closing date in order to provide technical assistance and follow up the two key project components. The entire loan was disbursed by the original closing date, therefore, activities carried out in the subsequent extension, were financed with local funds. Despite the 11 months-effectiveness delay, and, even with the increase of costs (total project cost was US$332.2 million versus the original US$309 million) the actual project implementation period was 49 months (versus 45 months initially estimated), only four months more than expected. 7.2.2 Mid-term Review (MTR). A mid-term project review was carried out in May 2004. Initially scheduled for November 2003, it was postponed to take into account the delay in effectiveness, allowing for more progress in project implementation. At the time of the MTR, the HMP and BRP of 2001, 2002 and 2003 were completed and the 2004 programs were progressing very satisfactorily. About US157.5 million had been disbursed out of US$171.5 available in the loan for this component. Ten rehabilitation and pavement reconstruction contracts in nine different states, with a total cost of about US$40 million had been tendered under ICB. The MTR mission made field visits to the PPCM and to the two most important internationally tendered works (in the states of Mexico and Guanajuato), which together composed more than 37% (77% including the PPCM) of the total of works tendered under ICB, in economic terms. Execution and supervision of all works were considered satisfactory. The Pilot Program of Comprehensive Maintenance (PPCM) between Querétaro and San Luis had been split in three contracts (one for each state crossed). Progress on these contracts was less than originally scheduled due to the following reasons: first, the DGCC, in agreement with the three SCT Centers concerned, had substantially widened the scope of the program; second, an additional clause was included in the bidding documents (with Bank’s no objection) to make it possible for Mexican firms without experience in comprehensive maintenance to participate in the bidding process, through an association, or under technical assistance, with firms with the requested experience; and third, unforeseeable problems in the evaluation and awarding of bids. After these problems were overcome and the contracts finally awarded, implementation started at the end of 2003. At the MTR, implementation of the PPCM was already slightly ahead of schedule with respect to 2004, but still delayed with respect to the original program. Nevertheless, the prospects for improvement were positive.

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The action plan to implement the HDM-4 was progressing satisfactorily albeit more slowly than expected. Data collection to run the model had been completed in the states of Chiapas and Morelos, chosen as pilots. Construction of the two Weight-and-Dimensions Control Stations (WDCS) included in the PAD and the Legal Documents, to be financed by the Loan, Palmillas and Nuevo Laredo, had been built by the Borrower with local funds. The equipment for both stations had also been purchased and installed with local funds. Therefore, the objective of the Project to promote and support the implementation of the WDCS had been met. Concerning other institutional components, there was no significant progress either in the implementation of the road fund or in the decentralization to the states of the secondary network, both matters related to each other. With respect to toll roads, Unidad de Autopistas de Cuota (UAC) was in the last phase of evaluation of proposals to carry out the study on “Strategic Planning for the National Motorway System”. All procurement, financial management and safeguards measures were in place and carried out in line with agreements at negotiations. No special actions were considered necessary. 7.2.3 Project at Risk status. The Project was never at risk nor was it a problem project and compliance with legal conditions, development objectives and implementation was consistently rated satisfactory. Most of the project critical risks envisioned at appraisal were moderate and remained so along project implementation. This is the case of the enforcement of weight and dimensions regulations, the preparation of bidding documents for the PPCM and the improvements in maintenance management and procurement procedures.

7.3 Monitoring and Evaluation (M&E) Design, Implementation and Utilization

The results framework was adequate. There were clear time-bound PDOs and intermediate outcome indicators, appropriate to the objectives of the operation. The SCT prepared the monitoring and evaluation instruments at the time of project preparation and included in the legal documents. The SCT prepared and issued biannual reports, in March and September of each year, summarizing progress in project implementation. The reports included progress against the previous annual project implementation schedule, level and composition of the SCT road maintenance budget, performance against the project monitoring indicators, and final selection of sub-projects for project financing. SCT also prepared the updated information to be discussed in the Annual Reviews. A mid-term project review was carried out in May 2004 with the results described in 7.2.2. The SCT also sent to the Bank the reporting required by the “Implementation Framework” described in 7.1.2.

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On the Bank´s side, timely Project Status Reports (PSRs) or Implementation Status Results and Report (ISRs) were prepared with the findings and project status after each supervision mission. Therefore, the project monitoring and evaluation was satisfactory.

7.4 Safeguard and Fiduciary Compliance

The Borrower and the Implementing Agency had experience in applying and enforcing Bank’s guidelines given its management of previous Bank operations. Furthermore, the project complied with Bank’s safeguards policies and developed key tools to enhance project overall outcomes. Audit reports were timely sent to the Bank according to Loan Agreement. The project legal documents specified a series of protective measures designed to minimize the risk of unwanted social impacts. Such measures included a mandatory Bank prior review of a sample of sub-projects. The bidding documents for civil works included environmental specifications to mitigate the negative environmental impacts due to the contractors’ actions and increase the positive impacts where possible. In order to address social issues, a Social Assessment was carried out to detect possible negative impacts and enhance access to the expected benefits of the project. During implementation, the project works were also screened by a qualified social specialist—who was also member of ad hoc supervision missions—to ensure compliance with social and environmental policies as described above in para. 7.1.2. Standard bidding documents for Mexico were reviewed and agreed. Procurement thresholds under the Loan were set at preparation and included in the Legal Documents. The threshold for mandatory International Competitive Bidding (ICB) procedures was established at US$10 million. The PAD expected total amount for contracts under ICB was US$98.15 million. No contract under the project other than the three of the PPCM reached the US$10 million threshold. Nevertheless, the DGCC tendered under ICB 10 rehabilitation / reconstruction contracts with costs ranging between US$ 1.8 and 6.8 million, totaling US$37.5 million, which together with the US$62.5 million of the three contracts for the PPCM amounted to a total of US$100 million tendered under ICB, slightly higher than the figure in the PAD. Nevertheless, no foreign firms participated in the bidding process, indicating that the ICB threshold was low to attract interest from foreign contractors, with the exception of the three contracts for the PPCM. In general, SCT followed an orderly and transparent procurement process for awarding the contracts, particularly those of a major magnitude. Standard documents were revised during implementation to adapt them to the PPCM characteristics. Since there were no local contractors with experience in this type of contracts, the prospect was that the

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contracts would be awarded to foreign firms. This would diminish competition and prevent local firms from acquiring experience for future similar contracts. To avoid these two inconveniences and increase competitiveness and participation of local contractors participation, a clause was introduced in the bidding documents that allowed Mexican firms without experience in comprehensive maintenance contracts to participate in the bidding process through an association, or under technical assistance, with firms with the requested experience. This solved the problem, but was one major reason for the delay in program implementation. The most difficult procurement case was the contract for supervision of the PPCM, with only one consulting firm or consortium bidding to manage the three contracts of the program. The supervision contract was expected to be signed in January 2004. However, at the mid-term review (May 2004), with the contractors working at full speed, the contract for supervision had not yet been signed. Apart from other bureaucratic reasons, the main reason was that only one consortium had been qualified at the technical evaluation stage and the Mexican procurement policy required in that case declaring void the process and starting it again. Since Bank policy is to award the contract even if there is only one qualified bidder, the Bank insisted on awarding the contract. The DGCC agreed to award the contract after consultations with its legal department and other institutions. Once the DGCC agreed to award the contract, the consultants agreed to start working immediately, with the agreement that the SCT would sign the contracts with retroactive effects to the date in which the tasks actually started.

7.5 Post-completion Operation/Next Phase

The sustainability of the project will depend on the extent to which the Government continues to maintain the project roads and bridges after their rehabilitation, and the continued application of the improved highway management system. Expectations are more than promising as the Government has consistently dedicated sufficient budget to these tasks. Moreover, the Government allocated significantly more resources to maintenance than was provided by the Bank project. As an example, the estimated project cost at appraisal was US$309 million while the final cost was US$333.2, with the Government covering the difference. As loan funds were totally disbursed in 2005, the 2006 fiscal year program was financed completely with local funds, and SCT devised a strategy to continue planning and implementing programs with local funds in 2006 and beyond. Furthermore, during the period of project implementation 2001/2005 the total government investment in maintenance and rehabilitation was US$ 2,324.6 million, of which the loan (US$218 million) only represents 9.4%. One important thing to take into account is that loan funds in Mexico are not additional, meaning that the SHCP allocates resources to the different Secretariats independently of the amounts of the loans received. This means that, for the executing agency, the value added of Bank’s loans lies in the technical or managerial improvements that the

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corresponding projects can achieve and that otherwise the DGCC would not be able to attain or be authorized to implement. Nevertheless, the loans also contribute to maintain or slightly increase the level of resources allocated by the SCT for maintenance and rehabilitation as shown in the graph below.

Maintenance and Rehabilitation Expenditures 1994 - 2006

0

1000

2000

3000

4000

5000

6000

7000

1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

Mill

ions

of M

exic

an P

esos

In this way, the Loan helped to allocate additional expenditures for rehabilitation and maintenance within the SCT’s budget throughout project implementation. The graph above shows actual expenditures by fiscal year program, these amounts represent the initial budget allocation plus additional budgets assigned during the second half of the year, which supplement maintenance and rehabilitation expenditures. In 2006 the supplement raised the level of the maintenance budget to 6,429 million Mexican Pesos, higher than the one in 2005 allocations and the highest since 1995, the year of the Mexican fiscal crisis. The budget for 2007 is so far 6,732 million Mexican Pesos, pending the supplement in the second half of the year, meaning that this year maintenance and rehabilitation budget would be the highest ever. With the trend in budget the prospect for financial sustainability are high. Furthermore, the Government has launched the PPS (Proyecto de Prestación de Servicios) Program, a build-operate-and maintain scheme, 20-year toll concession program, the content of which resembles the PPCM with more intensive reconstruction works and including modernization of the roads concerned. The first contracts have

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already been awarded and the modernization and maintenance works started. This Program, transferring responsibility of one part of the federal network to the private sector, will contribute to alleviate the maintenance needs of the DGCC and therefore to the project sustainability. With the implementation of the different funding schemes, both the government and the Bank are looking for innovative alternatives to secure funding sources, and increase private participation, in order to enhance the road network and expand its multi-year comprehensive maintenance approach. Last, but not least, the introduction of new technologies both for planning and programming (HDM-4), and for more efficient contract execution and management (PPCM) provide additional support for the strong likelihood of Project sustainability. However, two issues that remain to be resolved and could be addressed through a new operation are: (i) the introduction of new mechanisms for a sustainable highway maintenance financing at the state level, and (ii) the implementation of a decentralization strategy of the federal complementary network to the States, following the recommendation of the study carried out by the Bank at the request of the Borrower (see Annex 4). The SCT and the DGCC in particular, recognize the value added of Bank projects and the general good results of this Project. SCT has expressed interest in a follow-on operation which could include a component on comprehensive maintenance based on results, similar to the CReMa contracts successfully implemented in Argentina and other South American countries. The following topics, among others could be discussed for inclusion in the new operation: (i) comprehensive maintenance by contract, perhaps with output-based contracts; (ii) implementation of the HDM-4 in the SCT Centers in the States; (iii) road safety focused on mitigation of risk in hazardous points; and (iv) assistance to the Government in decentralization and improvement of the public management of toll roads. A follow-on operation, based on the same premises and lending instruments as this Project, could be prepared rapidly and provide continuity and sustained support to reduce transport costs in a key trade-related network, as the STC is interested in working with the Bank to follow on these issues. The expectations for such a new loan are now reasonably high. The Secretary of Transport and Communications and the Bank Regional Vice-president and their teams met on April 19, 2007 to discuss how the Bank could support Mexico’s transport infrastructure and logistics, as important factors for increased, sustained growth. Highway maintenance and operation was considered a priority, taking into account that approximately 85% of freight travels are by highway and vehicle operating costs are higher than in comparative countries. There is a need for substantial modernization and

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paving of the road network and also substantial room to improve the public management of the toll road network through institutional reforms.

8. Assessment of Outcomes

8.1 Relevance of Objectives, Design and Implementation

The objectives of this operation were relevant to the development priorities of the country as specified in the CAS. The project was designed to assist the Government in providing Mexico with a road transport system that can support the needs of a rapidly modernizing and expanding economy and to enable meeting the NAFTA competitive challenges. The overarching development objective was to improve road transport efficiency. Complementary objectives included: (i) improving SCT's rehabilitation and maintenance planning performance; and (ii) enhancing private-sector participation in road maintenance. The project components were designed to achieve the objectives set forth, and to be consistent with sectoral needs, and, at the same time, to take into consideration project implementation requirements and SCT’s long-term development needs. Through the adequate manage of the federal network, the support of institutional reforms required for the development of better road network management practices, and the focus investments on road rehabilitation and maintenance, the identified components were successfully addressed. For instance, Components 1 and 2 enhanced private-sector participation in road maintenance and Component 2, together with the implementation of HDM-4 improved rehabilitation and maintenance planning and executing performance. Component 3 also contributed to a better use of the road network helping to control vehicle weight excesses. Furthermore, project components reflected the lessons learned in previous transport projects in the country mainly the previous road project, HRTS, as explained in 7.1.2. They were also realistic in terms of the capabilities of the implementing agency, well known through the implementation of the HRTS. Those capabilities were enhanced with the implementation of HDM-4, seminars and study tours abroad. 8.2 Achievement of Project Development Objectives (including brief discussion of causal linkages between outputs and outcomes, with details on outputs in Annex 4): Even though the project ran for one and a half years longer than originally planned (partially because of the need of following the PPCM contracts and the HDM implementation process and subsequent technical assistance) the project substantially achieved the stated DOs. The Project improved transport efficiency of the road network, developed SCT’s rehabilitation and maintenance planning tools, and enhanced private-sector participation in highway maintenance and therefore it is rated as satisfactory.

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The principal outcome served the key recipient of project benefits (DGCC) whose needs were addressed in the project’s components. DGCC has after the project better control of operational costs and the tools for improving resources allocation. Furthermore, there were not private firms in Mexico with experience and technical capacity on comprehensive road maintenance, and the project was instrumental in starting to fill this gap. Regarding the road condition, the graph and table below show the increase in daily traffic given the economic and spatial growth due to several policies, such as NAFTA, and it clearly states how the condition of the network was not only maintained but improved. 57 percent of the network was recorded as being in good and fair condition in 1999, with a further 43 percent being in poor and very poor condition. By the end of 2005, the share of the network in poor and very poor condition fell down to 22 percent, leaving 78 percent in fair/good condition (compared to a target of 75 percent). It is estimated that in ten years, half of the network will have been recovered. To sum up, the project overall outcome was a network that can support national development goals efficiently.

NETWORK CONDITION 1994-2005

43

57

45

55

49

51

49

51

53

47

57

43

61

39

66

34

70

30

72

28

75

25

78

22

1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005

Good and Fair Poor/Very Poor

The Project was fully funded throughout implementation, and resulted in an increase in the length of the federal road network in good condition, and in an institutional capacity improvement. The physical aims, in terms of kilometers of road rehabilitated and maintained were fully accomplished, particularly if we take into account that, in the project period, the total amount invested by the SCT in maintenance (routine, periodic, rehabilitation, emergency) was US$2,324 million or more than 10 times the loan amount. The table below compares km of roads by condition and traffic level between 1999 and 2005. The table illustrates projects results enabling interesting conclusions: a substantial improvement of condition of road especially those carrying high levels of traffic; and a

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substantial increase in levels of traffic along the federal network. These two conclusions are well linked with the premises cited in 6.1.

Evolution of Daily Traffic and Network condition 1999 - 2005

Overall, project exceeded some physical outputs and met the stated DOs. Having achieved their physical objectives, the output for Component (1) is rated as Satisfactory as civil works were completed in terms of quality and cost. DGCC policy has given priority to periodic maintenance preventing an increase of the roads in poor condition. Furthermore, it is worth noting that SCT carried out routine maintenance on the whole network with its own resources and that in the project period the total amount invested in maintenance was US$ 2,324 million, more than ten times the loan amount. Component (2) In this case, the PPMC included 432.9 km of a section of one of the most important highways and with higher traffic volume in the country (the one linking México City with the US border in Nuevo Laredo) and a much more intensive reconstruction works as required by the highway condition, against 242.5 km in the PAD. For those two reasons, the total cost of this component was finally 62.5 million or about three times the estimated cost in the PAD, which was supposed to include only periodic maintenance and moderate rehabilitation. The excess in cost was covered partially by savings in Component 1 and the resources from Component 3 and unallocated resources. Given that: (i) this was an innovative component, initially resisted and afterwards fully accepted by the Borrower (as explained in 7.1.2); (ii) it was successfully implemented; (iii) it was carried out with extensive participation of Mexican firms, thanks to a clause introduced in the bidding documents to allow them to participate in the bidding process assisted by experts in this type of contracts; (iv) it left a useful experience in both the DGCC and the private sector; and (v) its success can be measured by the interest of other non-participant Mexican states in implementing a similar program, and other government institutions as UAC, BANOBRAS, FARAC and CAPUFE, this component is rated Highly Satisfactory.

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The PPMC included an inventory of and assistance to accidents. The 2004-2005 databases on traffic fatalities available in SCT´s centers in Guanajuato and San Luis Potosi (the states with the longest sections in the PPMC) showed that new highway conditions, weed control and signposts are not only allowing for a reduction in vehicle operating costs (VOC), but bringing the road accidents rate down. Reduced accidents provide a strong incentive for continued Government on the program With regard to Component (3), although this component was entirely financed with local funds, it accomplished its part of the DO and therefore, it is rated Satisfactory. The output of the institutional strengthening Component (4) is rated as Highly Satisfactory for the implementation of the HDM-4 model as an innovative tool that allows better planning, and Moderately Satisfactory for the other studies related with the decentralization and sustainable financing road, mainly because this road financing mechanism was not accomplished given external factors beyond SCT control, which involves a sustained dialogue on fiscal federalism in the country. To successfully address the topic of decentralization and road funding it is necessary to escalate the level of discussion beyond SCT. Despite the fact that strategies and methodologies from one study financed by the Bank were discussed with the Federal and subnational governments and the private sector with no objections, implementation of road decentralization was not started during project implementation by the Borrower. This Project financed a contract for consulting services to carry out the “Strategic Planning for the National Motorway System”. The study analyzed and proposed alternatives to improve the CAPUFE-FARAC system. Close to its conclusion, the UAC and the consultants presented and discussed with the Bank their findings and preliminary conclusions. The final output of the study is a tangible contribution as feedback for higher-level policy debates. Regarding training, also relevant to the project objectives were the two study tours organized by the project Task Team Leader (TTL) for staff of the SCT, with the support of Spanish highway institutions. The first tour, which took place in October 2001 to meet in Madrid and Barcelona with highway authorities and experts and visiting work sites along 1,200 km of highways, involved 14 staff from the DGCC and the SCT Centers in the States and the TTL. The objective was to provide the Mexicans with the opportunity to learn first hand of the experience in Spain with comprehensive maintenance contracts. The second, also in Spain, was held a few months later and involved staff from the UAC and the Bank, including the project TTL. In this case the visit was to the National Toll Road Authority (ENA), a public institution in charge of the three toll motorways that had to be rescued by the Spanish Government, a similar case to the 23 toll highways rescued by the Mexican Government and put under the Toll Road Restructuring Agency

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(FARAC) management. The visit included the ENA central offices in Madrid and their regional offices in Asturias and Galicia regions and field visits to the Campomanes-León and La Coruña-Pontevedra motorways. The rescued motorways in Spain were later re-privatized, once they had been made profitable again under ENA management. Both study tours were very successful and their findings taken into account in the respective components of the Project. Concerning the HDM-4, a training course was held (with the Bank specialist as technical director and lecturer) to show the contents, applications, management and capacity of the model, prior to its implementation in DGCC. The course was attended by staff from SCT and all other areas of government involved in road management, including UAC (the unit in charge of toll roads within STC), FARAC, rural roads units and the Transport Mexican Institute. The course was a great success and, due to the interest of the concerned authorities, the level of participants had to be raised from 16 (seven of them belonging to the working group within SCT in charge of the model implementation) to 32.

8.3 Efficiency (Net Present Value/ Economic Rate of Return, Cost Effectiveness, e.g. unit rate norms, least cost, and comparisons; and Financial Rate of Return):

At appraisal, SCT assessed each section to be maintained or rehabilitated during the first year of the project (2001) using road user costs estimated with the HDM-3 Model (the previous version of the model), which were incorporated into the SISTER for planning purposes, and the Road Economic Decision (RED) Model for economic evaluation. The resulting rates of return for the sub-projects in the first year rehabilitation and maintenance program were higher than the required 12% minimum. The analysis also showed that the Net Present Value (NPV) of the first year program was US$250 million with a global IRR of 114%. The result of the ex post economic analysis 1 of the first year rehabilitation and maintenance program is a NPV of US$256 million with an IRR of 102.9%. Overall, for the periodic maintenance works of the included in the PAD, the ex post economic analysis similarly shows very positive results, with a NPV US$696.8 million and an IRR of 102.9%. For all the road rehabilitation works included in the PAD, the ex post economic analysis revealed an IRR of 135%. Therefore, final figures are similar to what was estimated at appraisal, confirming the project economic feasibility (IRR figures for programs with a large content of maintenance usually are very high, showing the high profitability of this type of projects).

1 Evaluación Ex Post del Credito 7042-ME “Proyecto de Mantenimiento de Carreteras Federales”, Annex 12: Sopporting documents.

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Benefits are likely higher than estimated in the analysis. Additional project benefits, such as more reliable and safer transport services and the removal of major constraints to integrating Mexico into the regional economic block (NAFTA), were not considered in the cost-benefit analysis. No economic evaluation was carried out for the institutional strengthening activities.

8.4 Justification of Overall Outcome Rating Rating: Satisfactory

Overall, project outcomes are strong, and budget allocations for the rehabilitation and maintenance of the highway sector kept the level required for a sustainable recuperation of the network condition (see para. 7.5). Table in 8.2 shows the great success of this and previous projects in improving the federal network condition. The PPMC was also a great success as well as the implementation of the HDM-4 as a tool to improve maintenance planning and programming. As a consequence, economic transport links between the country northern and central regions have been consolidated enhancing the country’s key export corridor (Mexico City-Nuevo Laredo), and some constraints to integrate the country into the regional economic block (NAFTA) have been removed. Continued investment in key trade-related highway, Mexico will be able to keep its commercial competitiveness. As a result of the Project and the institutional arrangements it introduced include: (i) enhancing contracting out to improve efficiency through the HMP and BRP programs as well as the PPMC, compared to force account execution (now practically extinguished in the DGCC), (ii) improving contract management procedures through the PPCM, allowing for the future introduction of rehabilitation and maintenance contracts based on results and multiyear budgeting and (iii) improving planning practices (HDM-4) based on economically prioritized annual plans.

8.5 Overarching Themes, Other Outcomes and Impacts

(a) Poverty Impacts, Gender Aspects, and Social Development (NA) (b) Institutional Change/Strengthening (particularly with reference to impacts on longer-term capacity and institutional development) The overall institutional development change is rated as Satisfactory. It is worth noting that the results achieved were the result of a long-term relationship between the Government and the Bank. During project implementation, diverse major changes were achieved, such as enhancing private sector participation, using multi-year comprehensive maintenance by contract, and improving planning and programming through the implementation of the HDM-4 as a regular planning tool in the DGCC.

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In the case of multi-annual comprehensive maintenance by contract, by transferring responsibility and risk for the management, maintenance, and operation of the road to the contractor, it gives the contractor the incentive to develop solutions that take into account the costs of managing the assets over its entire life. It is worth noting also that the FARAC is considering both the PPMC and the HDM-4 for use on the toll highway management under its responsibility. The institutional changes achieved with the Project are expected to be sustainable due to the strong ownership demonstrated by the implementing agency. Maintenance and rehabilitation budgets have been fairly stable and moderately growing as explained in paragraph 7.5. With the PPS concession program, recently launched by the Government, comprising modernization and maintenance of the network, part of the maintenance of the actual network under DGCC will be transferred to the private sector. If the current trend in maintenance budgeting remains, the DGCC will have sufficient resources to support 100% of the basic network in good or fair condition by 2012 or before. Looking to the future, if network is decentralized new financing mechanisms, like a road fund, will be necessary to meet the management and financial needs of sub-nationals taking over the decentralized roads. In summary, while a road fund or similar mechanism may not be necessary for maintenance and rehabilitation, it is essential to implement the decentralization of the Federal Complementary Network. (c) Other Unintended Outcomes and Impacts (positive or negative) Through the implementation of the Project and the successful completion of the DO’s there were several unintended outcomes identified, mostly regarding the innovative alternatives for contracting. Some of the most relevant were: (i) States developed great interest towards the possibility of replying the STC experience at the municipal level, replicating PPCM contracts; (ii) other federal agencies as the Public Toll Roads Agency (CAPUFE) and Banco Nacional de Obras y Servicios Públicos (BANOBRAS) were also very encouraged to explore and implement innovative contracting and planning mechanisms understanding the user-oriented approach, rather than the previous infrastructure based mechanisms; and (iii) local contractors developed skills regarding the multiyear comprehensive road maintenance approach. 8.6 Summary of Findings of Beneficiary Survey and/or Stakeholder Workshops The SCT center in San Luis Potosi carried out a first customer/user survey on highways as public service, which revealed high level of satisfaction with the maintenance standards, level of service and road user assistance reached under the PPCM. The survey results are consistent with the drop in road accidents rate in San Luis Potosi and also in Guanajuato due to new highway conditions. Also, the assistance to accidents provided by

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the PPCM with in-road personnel calling the closest hospital or medical assistance center or helping the users involved in case of minor or no injuries, requesting towing and auto-repair workshops to provide assistance to the affected, reporting to the police or simply providing useful information helped to mitigate the seriousness of accidents, and incidents in general, within the highway domain. Furthermore, a two-day seminar was conducted in San Miguel Allende in 2005 and another in San Luis Potosi in 2006 to discuss progress, best practices, strengths, benefits, weaknesses, and disseminate the lessons learned with the pilot program of comprehensive maintenance by contract, PPCM. SCT directorates, representatives from BANOBRAS and other institutions dealing with road management at the federal and state levels, contractors, and selected road users were invited and attended. Some of the main findings encountered were the good results of the pilot program and the possibility to implement alternative mechanisms of contracting to secure or stabilize comprehensive maintenance programs (See annex 9 for more detail). The reinforcement of the message of accommodating infrastructure to provide safe and comfortable usage, understanding the priority the users have, was similarly an important finding. Finally, on November 23, 2006, a one-day project completion workshop with the participation of SCT, BANOBRAS and SHCP was held at the Bank’ Office in Mexico City to discuss project outcomes and outputs as the basis for the preparation of the ICR. The conclusions of all the events concurred in the overall project success.

9. Assessment of Risk to Development Outcome Rating: Modest In light of SCT institutional capacity, risk to the development outcome remained Modest throughout project implementation. Project risks were clear and responsive to the Borrower’s circumstances and the maintenance strategy adopted prevented from further deterioration of the network. These measures and changes in key policies contributed to get the highway network in a better condition by 2006. Also, with the project, the DGCC improved its budgeting, planning and control operations in maintenance and rehabilitation.

10. Assessment of Bank and Borrower Performance

10.1 Bank Performance

(a) Bank Performance in Ensuring Quality at Entry Rating: Satisfactory As explained in paragraph 7.1.2, Bank performance was satisfactory in ensuring Quality at Entry. The Bank assigned a qualified team with extensive experience in the road sector,

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and with an appropriate skill mix that delivered a well designed project, providing the Bank’s expertise and bringing value added. The Bank’s performance assisting the Borrower in identifying and appraising the project consistent with the CAS, to support Mexico’s economic and sectoral policies, was Satisfactory. Moreover, the Bank provided advice and technical assistance in key areas, implementing worldwide best practices. The Bank’s staff correctly assessed the Government’s policies. The Bank staff worked closely with the Borrower in project preparation, technical design and economic evaluation during several preparation missions. The preparation team successfully introduced innovative designs and tools such as the PPCM and the HDM-4, which were not familiar to the client, initially encountering some degree of resilience. The Bank team was successful in convincing the Borrower to include both innovations which have proven successful in the Mexican context. The Bank further provided technical value added during project preparation (and part of implementation) through several studies concerning decentralization and toll road management (see Annex 4). The total project preparation time was 45 staff weeks. The Loan agreement was signed on December 15, 2000 and the Project was declared effective on November 5, 2001. Although effectiveness was an initial issue, once overcome, the project outcome was Satisfactory. To sum up, the quantity, quality and skill mix of the Bank staff appointed to the project preparation was appropriate, the relationship with the Borrower was well handled, and there were no shortcomings in any aspect of the project preparation process. (b) Quality of Supervision Rating: Satisfactory The supervision teams were kept relatively small, comprising a skill mix of highway engineers and transport and social and fiduciary specialists. This was an adequate mix considering the nature of the project and the broad experience of the specialists involved. Supervision allowed for a timely identification of issues and a valuable assessment of project progress to overcome implementation difficulties, like during the contracting process of the supervision of the PPCM. The Bank’s advice and follow-up letters helped SCT to take decisions and actions that materialized in the final stages of the Project, especially due to the fact that the TTL and part of the team was based in the field, providing prompt and sound input. The Bank has provided strong support during supervision in multiple areas, including the following activities: (i) As part of field visits, technical advise during the construction of the works; (ii) Technical support for the preparation, bidding process and execution of the PPCM

contracts;

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(iii) Continuous technical advice during the implementation of the HDM-Model including guidelines for the preparation of term of references;

(iv) Technical advice for the preparation of terms of reference and follow-up on the study “Strategic Planning for the National Motorway System”, which was important to build consensus about the design of the new Public-Private-Partnership (PPP) scheme and to proposed alternatives to improve the CAPUFE-FARAC system.

The project had two task team leaders over the course of the project cycle. The first, a Lead Highway Engineer, with ample experience in the project matters (and who had managed the last phase of the HRTS project), was responsible for project preparation, appraisal, and part of implementation. Upon the TTL’s mandatory retirement in 2003, leadership of the team was taken over by a member of the project team, a Senior Transport Specialist based in the Bank’s Country Office in Mexico. The former TTL continued as consultant, advising and working with the project team for one additional year. The latter TTL continued to manage the project, through the completion of the ICR, with the assistance of the former TTL. There were no issues identified by the Bank or Government in the transition between the TTLs. The supervision team also included a social specialist in charge of supervising compliance with the “Implementation Framework” described in paragraph 7.1.2 and a highway specialist in HDM-4 to advise the DGCC in its implementation, a financial management specialist and procurement specialist to oversee fiduciary compliance. The project execution was supervised regularly, Missions were sent to the field twice a year, with additional regular Bank support provided by the TTL in the Bank office in Mexico. Progress and ratings were adequately reported in the Implementation Status Results and Reports (ISRs). The total time devoted to project supervision was 110 staff weeks, including the Implementation Completion Report (ICR) drafting; an average of 16 staff weeks per year. This level of supervision was adequate. Nonetheless, as stated in the SCT report (see Annex10), they would have liked longer supervision missions to cover equally innovative and conventional components. This would have required more resources allocated by the Bank to project supervision (see Section 12 for details). For years 2005 and 2006 the role of the Bank was mainly to supervise the PPCM and to follow up the implementation of HDM-4, given that the Project was coming to closure and disbursements were very low. For 2007, staff weeks and budget devoted were mainly to study follow-up operations and the preparation of this ICR. The management, procurement reviews and post-reviews, flow of project disbursement, and financial decisions were made competently. There were no known deviations from Bank policies or procedures, and loan conditions were adhered to at all times. To sum up, project supervision was Satisfactory.

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(c) Justification of Rating for Overall Bank Performance Rating: Satisfactory The Bank’s overall performance is assessed as Satisfactory for the reasons outlined above. In retrospect, the quantity, quality and skill mix of the Bank staff appointed to project preparation and implementation stages was appropriate. The Bank team engaged in a sustained dialogue with SCT during project preparation and provided timely attention to the client’s requests, while adhering to agreed procedures and maintaining good control of the project and monitoring quality. It is worth noting that the Bank was influential in introducing innovations such as the road comprehensive maintenance by contract and the implementation of the HDM-4, which initially the Government resisted during project preparation, as they had been working previously with a different tool, and were comfortable with its results. SCT accepted and implemented the innovations and the positive results have built SCT ownership of the innovations. The Bank team also assured that the project was well documented and records appropriately kept in the DGCC files. The above rating is consistent with the mentioned results.

10.2 Borrower Performance

(a) Government Performance Rating: Satisfactory Government performance was Satisfactory. Project preparation was led actively by the Guarantor (SHCP) in close coordination with the Borrower (BANOBRAS), and the Implementing Agency (the DGCC of the SCT) all participating in a competent and timely manner. Although this split in responsibilities created some bureaucratic bottlenecks in project administration procedures, the government teams were fully committed to the project objectives and properly identified the main issues and risks. The Government’s budget allocation was appropriate. The priority given to infrastructure maintenance in the annual federal budgets was demonstrated by timely allocations of funds disbursed in parallel to Bank disbursements, ensuring a smooth implementation pace. During the first years of project implementation, BANOBRAS was going through an internal restructuring process. Since it was the institution in charge of clearing and sending to the Bank the results of the procurement processes, during its restructuring the

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review and clearance of bidding documents, evaluations and award proposals took more time than expected, particularly concerning contracts tendered under ICB. Although the overall disbursement performance was Satisfactory, SCT pointed to some delays by the Bank’s Disbursement Office in delivering the funds. However, SCT demonstrated its interest in keeping disbursements on track, and with the Bank’s commitment and review of procedures, the situation improved notably. In summary, the Government agencies involved demonstrated good technical capacity and knowledge of Bank´s policies and procedures. (b) Implementing Agency or Agencies Performance Rating: Satisfactory Secretaría de Comunicaciones y Transporte. Implementing Agency performance was Satisfactory. A very committed and qualified key team in the SCT that had participated in previous Bank operations continued to participate in project preparation and in the implementation stage. This team worked closely with the Bank to identify and elaborate highway maintenance issues, and define the scope and structure of the project. Overall, SCT’s commitment during project preparation and implementation was constant. As commented before, during project preparation, the SCT was not enthusiastic with the introduction in the Project of innovative components such as comprehensive road maintenance by contract and the implementation of the HDM-4 in the DGCC. This new method required different data to be collected, other procedures, and a different management method. However, following more discussions with the Bank team, SCT realized the enhancing power of the proposed methods and carried out these innovations in a suitable and successful manner during implementation. Furthermore, the Implementing Agency managed all factors under its control satisfactorily, and ensured continuity of its staff to support and improve project implementation pace. Progress reports, withdrawal applications, and audits were submitted in a timely manner. The bidding processes carried out by SCT were consistently in compliance with Bank’s procurement guidelines. Annual procurement reviews found no deviations or significant procurement problems. SCT also maintain agreed standards for financial management as shown in the consistent positive ratings in the Bank’s supervision reports. Particularly noteworthy was the level of effort by SCT and its Centers in the States to successfully implement innovations as the PPCM and the HDM-4, which is consistent with a Satisfactory rating. (c) Justification of Rating for Overall Borrower Performance

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Rating: Satisfactory The Borrower’s overall performance is assessed as Satisfactory for the reasons outlined above. The Government showed its commitment towards the project through the six years of design and implementation. The Implementing Agency managed all factors under its control satisfactorily. The overall commitment of agencies concerned with the project (mainly SHCP, BANOBRAS, and SCT) is consistent with the rating, as reflected in the timely provision of counterpart funds for the project and the suitable implementation of the project components.

11. Lessons Learned

A large body of relevant experiences can be drawn from project implementation, some of which are consistent with those from similar projects.

Project-Specific Budgeting. Contracting and road management innovations can improve maintenance budgeting practices as well. The two innovations introduced by the Project, the PPMC and the HDM-4, contributed to improve DGCC´s maintenance budgeting, as explained below. First, the PPMC, a three year comprehensive maintenance program required three years for implementation and therefore, its contracting made necessary the approval of a multiyear budget until then not used by the DGCC in its contracts. The introduction of multiyear contracts will allow in SCT to tender bigger works in the future, which until now have been split in different contracts to allow for execution in one year and a half for budgetary reasons (there is a six month grace period to end the works contracted out in the previous fiscal year). Second, the HDM-4 requires improved and expanded inventories and basic data on road condition and allows for in-depth analyses of current asset capacity and condition, service demand over a considerable horizon, detailed assessments, and multi-year maintenance plans. Funding for road maintenance becomes more stable when the planning process improves and enough resources are allocated to projects. When analysis tools like the HDM-4 are available, alternative maintenance approaches can be evaluated economically to decide the best budget policy. Well-designed multi-year comprehensive maintenance contracts could eventually be a feasible means to increase efficacy in public service and could contribute to easing budgetary constraints.

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Program of Comprehensive maintenance by contract. This type of programs should be first tested by means of a pilot contract, as was the case in this Project, which allowed the collection of important road data and experiences to be applied in future programs, either input or output-based. In the case of the program under this project, the routine maintenance share was originally 30%, periodic maintenance was 50%, reconstruction was 9%, and highways signposts represented 10.5%. A SCT recommendation at the end of the program was that the share of routine maintenance in future similar contracts should be higher, not less than 50%. In this respect, it is worth to mention that the PPCM, as designed, had a routine and periodic maintenance share of about 80% (see above), which was modified at the request of the SCT Centers with the changes described in sections 6.6 and 8.2 above (different roads and additional reconstruction). Nevertheless, the scope of the works under these programs will always be subject to the condition of the selected roads for inclusion in the program. Building on the lessons of the PPCM, the key measure of success in this type of program is scope and procedures, as follows: Previous conditions: (i) the condition of the network should be rightly assessed before either input-based

(unit prices and lump sums) or output-based contracts (by results) are prepared and tendered; otherwise, rehabilitation activities could have a much higher cost than estimated, particularly if there has been road deterioration since appraisal and more reconstruction needs, which could require a substantial budget increase, and;

(ii) management and information systems must be used for maintenance planning. Contracting: (iii) the contracts should be long enough to allow for a minimum period of three years

of maintenance after reconstruction or rehabilitation, (iv) it is advisable to test either output-based contracting or mixed input and output-

based contracting, before deciding the best approach for a particular road network and agency.

Supervision: (v) Terms of Reference for supervision of comprehensive maintenance contracts should

be timely and carefully prepared in order to award the supervision contract before the works and services are contracted out. The consulting firms must have prior experience in supervising similar contracts.

Procurement. Innovative schemes are highly demanding in terms of procurement, particularly when drafting standard bidding documents and building capacity to manage electronic bidding are coincident, as in the case of this Project. Hiring consultancy firms

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with broad experience in maintenance by contract to assist the Borrower in drafting bidding documents can be very useful to adapting the documents to the country circumstances. Thresholds for ICB in countries like Mexico must be high, given the existence in the country of a powerful construction industry, which makes competition for foreign firms very difficult. Therefore, civil works should be grouped in packages of value over the threshold for ICB, in order to attract foreign firms. The possible lack of expertise of local contractors in the case of comprehensive maintenance could be covered by requesting that the bidding documents included technical specialists with experience in this type of works. Decentralization and financing mechanisms. Decentralization is the process of moving from a centralized or deconcentrated administration (SCT and SCT Centers) to decentralized institutions (the States) for service delivery. It is an important step in the consolidation of democratic processes as it brings the decision making process closer to the affected citizens. It is in sum a political step that is decided and implemented on the basis of political criteria. The Government of Mexico took the political decision to decentralize part of the Federal Complementary Network, of about 19,000 km, to the States under the 1995-2000 National Development Plan. This decision coincided with current trends in other modern countries to limit the federal government ownership to the main highways. This first attempt ended in failure. The main reasons were that SHCP did not transfer additional funds to the States to manage the part of the network that was decentralized. During project preparation, the SCT asked the Bank to prepare a study (“Analysis of Highway Decentralization Models for the Development of a Decentralization Strategy in México”) outlining the relevant experiences of other countries in Europe, South America and the US before trying again to initiate the decentralization of the Federal Complementary Road Network. This process and the contents of the study are described in more detail in Annex 4. The final objective of the overall analysis was to draw up a set of recommendations on the process to be followed in the next road-decentralization attempt, so that the most appropriate plan could be prepared for Mexico.

The study was completed in April 2001, when the Project had already been approved and the Loan signed, and it recommended to resolve the following points before management and ownership of the Federal Complementary Network of Roads were transferred to the corresponding states: (i) the exact identification of the highways to be transferred to each state and their improvement and maintenance requirements; (ii) the willingness of the states to receive the transferred network; (iii) the capacity of the states to manage the transferred network; and (iv) the source and guarantee of availability of the resources needed for management. It also suggested to establish Mixed Working Groups SCT-States, one for each state, to discuss and agree on the details and schedule of the

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decentralization process. These steps were to be undertaken with the support and resources of the Project, but at that time there was no the political willingness, either in SCT or SHCP, to go ahead with the recommendations. The analysis showed in particular that ensuring the availability of financial resources to meet the management needs of the administrations that will become owners is a determining factor in the success of the decentralization process. One additional factor in the case of Mexico is that, once the network management is decentralized, current legislation makes it very difficult to decentralize ownership to the states if the funds they need to manage the network have to be provided by the federal administration.

The lesson here is that once the political decision to decentralize part or the entire road network is made, sustainable financing mechanisms have to be established and to ensure that sufficient resources will allow the owners of the decentralized network to adequately manage it. Only during the process of establishing those mechanisms, the decentralization should be temporary funded by other sources of funds. The resources to be transferred or made available to the states or decentralized institutions, in a sustainable manner, could be provided by a road fund or similar mechanism (see Annex 4). If the decentralization continues to be supported by a future Bank’s project, a discussion with the corresponding authorities (in the case of this project, the SCT, the SHCP and the Federal Congress) must take into account not only methodological considerations, but the broader context of the country’s political organization and the realistic level of fiscal decentralization intented. Social Assessments. When no negative social impacts are expected in maintenance and rehabilitation projects, social assessments during preparation should be much less comprehensive that in other type of projects, particularly in high capacity middle income countries like Mexico. In these cases, it should be enough to agree during negotiations on a template to be used during project implementation concerning social issues. Public voice model. A public voice model, as the one being used by the SCT Center in San Luis Potosi, can be an effective road user tool to exercise influence over the type and quality of service, thereby applying pressure to improve get public services. Feedback from road users and the public in general on quality of service should be included in comprehensive maintenance by contract projects to encourage accountability.

Wide General Application Innovations (concepts and technologies). The introduction of innovations either as concepts (comprehensive maintenance by contract) and technology (the HDM-4 Model replacing the SISTER) is always desirable to improve road management, but it is advisable to adapt the implementation schedule to the country conditions, because new concepts and technology require time for introducing and adjusting them to the existing

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more traditional schemes. Furthermore, new technologies are highly demanding in terms of data and resources. Responsiveness to the client under intermediation arrangements. The Bank and the Borrower (BANOBRAS) have to be responsive to the client particularly in terms of: (i) amendments concerning reallocation of funds among components during implementation, (ii) issuing documents, especially those related to no objections and validation of disbursements, and to the translation of these expenditures into Bank disbursement. Processing has to be fast, especially in the case of a middle-income decentralized country like Mexico.

12. Comments on Issues Raised by Borrower/Implementing Agencies/Partners

(a) Borrower/implementing agencies Annex 10 includes an excerpt of the report sent by the Implementing Agency (SCT) summarizing the history and execution of the Project and the lessons learned from it during the implementation of the different components. A summary of these comments on the report are as follows: The report, longer than usual (28 pages), is very comprehensive and includes key data on the multiple aspects of the Project. It rightly compares the final outputs and costs with the ones in the PAD, and lists all contracts awarded during implementation with their respective final costs, either if they were financed with loan and/or local funds. It shows that the loan disbursements, started in 2001, allowed for consistent road maintenance and rehabilitation funding contributing to avoiding accelerated deterioration of the network. SCT describes the implementation of the Project in similar terms to the ones in this ICR and considers it a success. Concerning the PROPIMI (acronym in Spanish for the PPCM) the SCT considers it a successful experience, to the point that the SCT Centers support the implementation of further programs of this type and the road users have shown great satisfaction with the results, some even with letters of appreciation. For future programs, the SCT recommends to reduce the reconstruction works subcomponent of the PPCM and increase maintenance and rehabilitation, as originally planned at project preparation. In the original program about 80% of the cost was for those activities and the SCT Centers were the ones who introduced a bigger proportion of reconstruction or major rehabilitation works, justified by the condition of the highways selected. Another recommendation is that the bidding documents for innovative programs be prepared at appraisal and discussed and agreed at negotiations. This will be possible in future PPCMs, based on the experience on this one. Another issue in the report is the delay in processing no objections of studies and consulting services. This can be a consequence of the long process to submit the no-objection requests to the Bank, a process that started in the DGCC or the UAC and

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continued through the SCT Budget Department and BANOBRAS, which reviewed the ToRs and cleared the bidding documents before sending them to the Bank. There were also delays originated in the corresponding units of the Implementing Agency in preparing the ToRs (as the Aide Memoirs show). The SCT also advises in the report to strengthen the mechanisms and procedures to speed up payments to beneficiaries, particularly advance payments for future operations, and to timely transfer to TESOFE (Treasury of the Mexican Federation) of all reimbursements according to the agreed pari passu. The SCT also recommends in the report that the Bank should allocate more resources to supervision in future projects to allow for more and longer supervision missions, as well as to appoint as TTL a specialist in the project components. The former recommendation probably links back to a time when supervision missions were two to three weeks long with quarterly frequency. Neither the current supervision budgets nor the staff is now in such numbers to allow that type of supervision. Nevertheless, even with less time and resources, but with sufficient highly specialized staff, the Banks team managed to introduce two important innovations, which were closely supervised throughout the implementation period. A total 77% of civil works contracted under ICB procedures were visited. In addition, issues like the decentralization, road fund and toll roads were also frequently and some times intensively discussed with the corresponding SCT units during supervision missions. Several studies were as well carried out by the team during the project period. Civil works under ICB were also visited. A member of the team, a Transport Specialist later on the project TTL, was working at the Bank Mexico office and therefore available to address any incidence in project implementation. It should be noted as well that the supervision team checked from time to time the quality of supervision of works by the SCT, which was organized in three technical layers: the DGCC, the SCT Centers and consulting firms and found it satisfactory. The recommendation of the SCT has a very positive side. It confirms the interest of the Implementing Agency in the technical assistance and expertise that the Bank projects carry with them. Concerning the comment on the TTLs, this is a recommendation more with a view on the way the Bank made supervision in the past. The completed project was first managed by a seasoned Lead Highway Engineer with more than 40 years of experience in highways in the public and private sector, out of them more than 12 years managing Bank projects at the time of project preparation. When he retired from the Bank in 2003, he was replaced by a Senior Transport Specialist located in the Mexico office, (himself a team member so then) with more than 25 years of experience in transport planning in the public and private sector, and with 8 years supporting and managing Bank’ operations. The former TTL continued in the team as consultant for one year more, until practically all loan funds were totally disbursed. Under the two TTL’s management two innovations were introduced in Mexico by the project.

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Finally, the report explains that an ex-post economic evaluation of projects included in the PAD was undertaken with the HDM, with results similar to the ones in the ex-ante analysis, demonstrating that the implemented subprojects continued being profitable from an economic standpoint. (b) Cofinanciers (NA) (c) Other partners and stakeholders (e.g. NGOs/private sector/civil society) (NA)

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Annex 1. Results Framework Analysis

Project Development Objectives (from Project Appraisal Document):

The project was designed to assist the Government in providing Mexico with a road transport system that can support the needs of a rapidly modernizing and expanding economy and to enable meeting the competitiveness challenges of NAFTA. The overarching development objective was to improve the transport efficiency of the road network. Complementary objectives included: (i) improving SCT's rehabilitation and maintenance planning performance; and (ii) enhancing private-sector participation in road maintenance.

Revised Project Development Objectives (as approved by original approving authority): The original Project Development Objectives did not change during project implementation. (a) PDO Indicator(s) - from Project Appraisal Document

Indicator Baseline Value

Original Target Values (from

approval documents)

Formally Revised

Target Values

Actual Value Achieved at Completion or Target

Years

Indicator 1 : Reduction in VOC on project roads (an average reduction of 20% compared with current value)

Value (quantitative or qualitative)

3.18 $/km 3.13 $/km

Date achieved 11/17/2000 03/31/2006

Comments (incl. % achievement)

This indicator was not 100% achieved. However, there is an important reduction in VOC ($0.05/km). The target of 20% was too ambitious.

Indicator 2 : Improvement in the condition of roads after rehabilitation in terms of roughness reduction

Value (quantitative or Qualitative)

57% of the network is in good and fair condition

75% of the network is in good and fair

78% of the network is in good and fair condition

Date achieved 11/17/2000 04/04/2005 03/31/2006

Comments (incl. % achievement)

The target value of this indicator was 100% achieved

Indicator 3 : Timely preparation of HMP and BRP economically prioritized annual plans

Value (quantitative or Qualitative)

Annual planning is timely prepared

Annual plans will be prepared using HDM-4 model

Annual planning is timely prepared using the SISTER and, starting in 2007, it was prepared with the use of the

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using the SISTER Model

HDM-4 Model.

Date achieved 11/17/2000 09/15/2003 12/31/2005

Comments (incl. % achievement)

This target value of this indicator was achieved two years ahead of schedule, pointing to the strong ownership and sustainability of the institutional changes supported by the Project.

Indicator 4 : Amount invested and number of contracts managed annually, including the comprehensive maintenance contracts

Value (quantitative or Qualitative)

39 contracts for HMP at a cost of about US$ 17.4 million were tendered under NCB.

9 construction contracts in 9 states with a total cost of US$40 million, plus pilot program at a cost of about US$60 million split into 3 contracts, under ICB. 10 rehabilitation & maintenance contracts between US$10 & 3 million under NCB.

Date achieved 11/17/2000 03/31/2006

Comments (incl. % achievement)

The target value of this indicator was 100% achieved

(b) Intermediate Outcome Indicator(s) - from Project Appraisal Document

Indicator Baseline Value

Original Target Values (from approval

documents)

Formally Revised

Target Values

Actual Value Achieved at Completion or Target

Years Indicator 1 : Rehabilitation km Value (quantitative or Qualitative)

1,000 km 1,000 km 1,129.8 km

Date achieved 11/17/2000 03/15/2001 11/30/2006

Comments (incl. % achievement)

The target value of this indicator was exceeded. .

Indicator 2 : Bridge Rehabilitation Value (quantitative or Qualitative)

100 units 100 units 45 units

Date achieved 11/17/2000 03/15/2001 11/30/2006 Comments (incl. %

The original target was for the whole program and not exclusively for Bank’s project. Therefore the original target was achieved adding the rehabilitation of 55

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achievement) bridges that were financed with SCT funds in 2005. .

Indicator 3 : Periodic maintenance Value (quantitative or Qualitative)

25,155,2 km

25,155.2 km 35,147.7 km

Date achieved 11/17/2000 03/15/2001 11/30/2006

Comments (incl. % achievement)

Physical outputs with WB funding were exceeded during implementation. This was an important strengthening of the Periodic maintenance component.

Indicator 4 : Routine maintenance Value (quantitative or Qualitative)

45,605.8 km

45,605.8 km 43,345.2 km

Date achieved 11/17/2000 03/15/2001 11/30/2006

Comments (incl. % achievement)

Overall routine maintenance was financed with SCT funds. Routine maintenance has to be given yearly to the entire road network. Some kms have been transferred to the toll road network.

Indicator 5 : Attention to conflict points – Road Safety Value (quantitative or Qualitative)

380 points 380 points 684 points

Date achieved 11/17/2000 03/15/2001 11/30/2006

Comments (incl. % achievement)

SCT continued the positive trend in given attention to conflict points. The target was exceeded.

Indicator 6 : Comprehensive maintenance (routine, periodic and minor rehabilitation)

Value (quantitative or Qualitative)

242.9 km 242.9 km 432.9 km

432.9 km

Date achieved 11/17/2000 03/15/2001 12/16/2004 11/30/2006

Comments (incl. % achievement)

Target value for this indicator was exceeded. Initial road sections were replaced by the highway section between Queretaro and San Luis Potosi, (a four-lane highway of 225 km) crossing the states of Queretaro, plus 55 km of feeder roads to Gto. and SLP.

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Annex 2. Restructuring

Not Applicable

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Annex 3. Project Costs and Financing

(a) Project Cost by Component (in USD Million equivalent)

Components Appraisal Estimate (USD M)

Actual/Latest Estimate (USD M)

Percentage of

AppraisalI. Highway maintenance and rehabilitation: 171.5 173.39 101.1(i) rehabilitation 105.0 (ii) Periodic maintenance 42.0 (iii) Bridge rehabilitation 14.0 (iv) Supervision 10.5 II. Pilot program of comprehensive maintenance (routine, periodic and minor rehabilitation) by contract of an additional 240 km two lane road:

13.65

41.18

274.0

(i) Civil works 12.6 (ii) Consulting services 1.05

III. Construction of 2 (one single, plus one twin) weight-and dimensions control stations:

3.15

0.0

0.0

IV. Institutional strengthening provision of technical assistance and training for: 4.0 1.24 29.5

(i) Installing the HDFM-4 Model 1.7 (ii) Developing a strategy for decentralization of road administration 0.6

(iii) Implementing a road financing mechanism 0.5 (iv) Implementing the selected strategy on toll roads

1.0

(v) Training 0.20 V. Contingencies: 23.52 Physical Contingencies 0.0 Price Contingencies 0.0 Total Baseline Costs 215.81 215.81 Project Preparation Facility (PPF) 0.0 Front-end fee IBRD 2.18 2.18

Total Financing Required 218.0 218.0 (b) Financing The total amount invested in road maintenance (routine and periodic) and rehabilitation and bridge rehabilitation was US$ 2,324 million, more than 10 times the loan amount.

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(c) Disbursement Profile The loan had a delay of one year in starting its disbursements, due to delays in procurement processes. During MTR it has disbursed 60% of the total loan.

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Annex 4. Output by Component As discussed below, the output for Component (1) is rated Satisfactory as civil works were completed in terms of quality and cost, and for Component (2) is Highly Satisfactory considering its condition of pilot program and final success. Component (3) is rated Satisfactory because, although it was finally financed with local resources, project objectives in this area were accomplished. The output of the institutional strengthening Component (4) is also rated as Satisfactory. The following paragraphs explain in more depth the rational for these ratings. For each component, the PAD and ICR costs are presented in the paragraphs below. The costs represent the Bank financing as planned in the PAD and the actual Bank financing as presented in this ICR. Component 1. Highway Rehabilitation and Maintenance – [PAD US$ 171.50 million – ICR US$ 173.39 million]. Specific sections to be rehabilitated or to receive periodic maintenance were programmed and tendered by the SCT to private contractors. Physical and financial targets for 2001-2005 were established through an Implementation Letter submitted by the SCT to the Bank for approval. The SCT carried out the selected subprojects under the HMP and the BRP with due diligence and efficiency, and in conformity with appropriate engineering, technical, social, environmental, financial, and administrative standards and practices. The road sections that were subject to rehabilitation and maintenance were satisfactorily completed. The physical outputs are described in detail below. Part A1. Rehabilitation of about 1,000 km of highways. The works improved the base, sub-base and pavement bearing capacity. Rehabilitation works included the improvement/repair of drainage and sub-drainage systems and of hard-shoulders. The physical output was 519.8 km with different levels of pavement reconstruction (and 568 km financed with local resources). While less kilometers than those estimated in the PAD were rehabilitated or reconstructed, this was due in part to higher deterioration than expected in some roads and, more importantly, to the DGCC policy of giving priority to periodic maintenance over reconstruction / rehabilitation to prevent that the roads in fair condition deteriorated and fell into the poor condition category. This is a good policy, which resulted in a significant increase in the roads treated under periodic maintenance and also a significant decrease in the reconstruction or major rehabilitation works, as reflected in Part A2 below. Part A2. Periodic maintenance of about 1,200 km. The works protected the pavement life-service and improved the physical conditions of the surface, shoulders and drainage ditches. The final physical output with Bank’s funding was exceeded during implementation, reaching 3,011.6 km about 2.5 times the estimated in the PAD. This

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largely compensates the decrease in the length of roads with major rehabilitation in Part A1. Part A3. Rehabilitation of 100 bridges. The works ensured the superstructure capacity to support the loads imposed by heavy traffic, and adapted its width to that of the road they are part of; they included repair/reinforcement of the superstructure, pillars, supports and other structural elements, and their protection against erosion, if needed. The final physical output was 45 bridges. An additional 55 bridges were rehabilitated with local resources. It is worth noting that the SCT carried out maintenance and rehabilitation in the whole network with its own resources and that, in the 2001-2005 period, the total amount invested in road maintenance (routine and periodic) and rehabilitation and bridge rehabilitation was US$2,324 million, more than 10 times the loan amount. Part A4. Consultancy services for the supervision of the selected subprojects by DGCC’s HMP and BRP. This subcomponent was directly managed by the DGCC Directorate of Supervision and Control (central offices) but performed at each of the participating SCT centers responsible for the execution of the works through civil works contractors.

Component 2. Pilot Project for Comprehensive Maintenance by Contract – [PAD US$ 13.65 million – ICR US$ 41.18 million]. This three year program included routine and periodic maintenance activities, rehabilitation of selected segments of roads and of bridges, some minor works, preparation of short term work programs, training and management of the programs, and assistance and information to road users and the police in case of accidents.

Before the project, there were not private firms in Mexico with experience and technical capacity in comprehensive road maintenance. To open the way for local contractors to participate in the bidding process, a clause was introduced in the bidding documents allowing local contractors, complying with all other requirements in those documents, to participate in the bidding process if they hired, during the entire contract execution, qualified technical specialists to cover their lack of the needed expertise. The pilot program was implemented with very good results in terms of road improvement, reliability and users satisfaction. In addition to the completion of works and services, the program has proven been shown to improve planning practices. Similar programs will be implemented in all states and in the total federal network, including toll highways. Part. B1. Civil works. The final program covered a total length of 432.9 km, a substantial increase for the 242.5 km estimated in the PAD at the time of project preparation. These works were split into three contracts, one for each state crossed by the selected corridor: Queretaro (covering 113.8 km), Guanajuato (covering 176.0 km) and San Luis Potosi

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(covering 143.1 km). The average actual cost was about US$34,000/km per year, a reasonable figure, justified by the substantial reconstruction works included, particularly in the State of San Luis Potosi. As a consequence, the total cost of this component was finally US$62.5 million or about three times the estimated cost in the PAD, which was supposed to include only periodic maintenance and moderate rehabilitation. The excess in cost was covered partially by savings in Component 1, resources of Component 3 and the amount estimated in the PAD for contingencies. Part B2. Provision of consulting services for work supervision, monitoring, reporting activities, and for preparing and managing the program. Component 3. Vehicle Weight and Dimensions Control Stations – [PAD US$ 3.15 – ICR US$ 0.00 million]. Given the delay in the effectiveness, this component was implemented with local funds. Thus, its part in the DOs was accomplished. No new stations were proposed to be financed by the Loan, therefore, the amount originally allocated to this component was reallocated to other disbursement categories, mostly to the PPMC. Component 4. Institutional Strengthening – [PAD US$ 4.00 million – ICR US$ 1.24 million]. Under this component, specific technical assistance activities to SCT grouped in five sub-components would be financed. Mixed results were achieved as explained below. Loan funds not used in this component were reallocated to other disbursement categories. The final outputs were the following: Part D1. Implementing the HDM-4 in the DGCC and its departmental offices to improve road maintenance management. The output was a computerized road management system comprising systematic collection and analysis, pavement management, economic analysis and, finally, a prioritized road investment program. Data to run the model was collected under contract in the states of Chiapas and Morelos, chosen as pilots. Additionally, 9 contracts were awarded to collect data on roughness, deflections, data base management and maintenance strategy definition. This technical assistance has established the routine for future data collection and data base management, substantially improving these practices in the DGCC. At the time of the closing date, the HDM-4 was being tested in the DGCC and being used to compare the results for the 2007 budget with the ones achieved with the SISTER. The HDM-4 will definitively replace the SISTER for the preparation of the 2008 budget and onward. Subsequently, HDM-4 will be implemented in the SCT Centers in the States. SCT will measure the irregularities (IRI) of the overall network every two years, alternating roughness and deflection figures to monitor physical conditions. This is another positive consequence of the HDM-4 implementation, since this data are essential to run the program. As stated above, in the preparation of the 2007 program the two systems will be used to define the annual program: SISTER as the basic, by the last time,

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and HDM-4 for a comparative economic evaluation. IRI measuring will also allow for international comparisons. The main outputs of the HDM-4 implementation were: (i) a pavement management system designed to be managed together with the HDM-

4; (ii) a road network database that covers the entire road network managed by DGCC

(around 45,000 km) including data on roughness, deflections, surface distress and traffic; and

(iii) an effective and state /of/ the art tool for road planning and programming. The HDM-4 implementation involved the following steps: (i) definition of a working group to carry out the implementation; (ii) HDM-4 training; (iii) definition of vehicle fleet characteristics; (iv) testing a pilot network economic evaluation for the Morelos State road network; (v) collection of road network roughness, deflections, surface distress and traffic data; (vi) development of a pavement management system; (vii) incorporation into the road network database of, network inventory, roughness,

deflections, surface distress and traffic data; and (viii) support for structuring the network economic evaluation and facilitating the

presentation of the HDM-4 results. The HDM-4 implementation was supported by the following 9 consultancy service contracts:

Contract Actual Number Amount Amount Progress

Study Contracts (Million Pesos)

(Million Pesos) (%)

HDM-4 Training and Familiarization 1 0.61 0.61 100% Vehicle Fleet Characteristics Definition 1 0.26 0.26 100% Network Surveys for Pilot Network Economic Evaluation in Morelos State 4 1.91 1.91 100% DGCC Network Roughness Survey 1 3.21 3.31 100% DGCC Network Deflection Survey 1 3.93 3.93 100% Development of Pavement Management System and Support for HDM-4 use 1 2.16 2.40 100% Total 12.08 12.42

During the last quarter of 2006, the DGCC, with the assistance of consultants, carried out a network economic evaluation using HDM-4 to: (i) continue testing the system and compare its results with SISTER results; (ii) fine-tune the HDM-4 economic evaluation methodology; and (iii) adapt the pavement management system to be able to create customized planning and programming reports.

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Part D2. Developing a strategy for decentralizing road administration. Though this sub-component was not completed, SCT did progress in the always difficult process of road decentralization. During project preparation, a study entitled “Analysis of Highway Decentralization Models for the Development of a Decentralization Strategy in Mexico” was prepared by the Bank at the request of the SCT. After a failed attempt to decentralize its Federal Complementary Road Network in 1995-96, SCT decided to review the relevant experiences of countries in Europe, South America and the US before trying again attempting to decentralize its network. SCT requested that the Bank analyze the experiences of a specific group of countries (France, Germany, Spain, and the United Kingdom in Europe, the United States in North America, and Argentina and Brazil in South America), in addition to analyzing of the Mexican experience. The final objective of the overall analysis was to draw up a set of recommendations on the process to be followed in the next road-decentralization initiative.

The analysis was carried out by the Bank. The team was comprised of staff from the Bank’s central Transport and Urban Unit, and led and coordinated by the TTL of the Road Maintenance Project, a Lead Highway Engineer with experience in this matter. The Bank team was assisted by consultants and contributors from France, Germany, Spain, the United Kingdom and the Bank´s Latin America Transport Cluster. The data on Mexico were provided by a local civil engineer, consultant with extensive experience in Mexican road administration. The results of the analysis were supported by the UAC (Unidad de Autopistas de Cuota), the Toll Road Unit in the SCT.

The study analyzed the technical and institutional aspects of different highway decentralization models. It was split into four Sections and included eight Annexes. The Sections were as follows: (1) Current organization and operation of highway management in Mexico; (2) Decentralizing road administration: analysis of experiences in different countries; (3) Issues to be considered when defining the decentralization model and developing strategies for its implementation; and (4) Action plan for decentralizing the Mexican Federal Complementary Highway Network to the State.

Among their conclusions, the study recommended to resolve the following points before management and ownership of the Federal Complementary Network were transferred to the corresponding states: (i) the exact identification of the highways to be transferred to each state and their improvement and maintenance requirements; (ii) the willingness of the states to receive the transferred network; (iii) the ability of the states to manage the transferred network; and (iv) the source and guarantee of availability of the resources needed to manage the decentralized network.

These steps were to be undertaken with the support and resources of this Project, but SCT opted to delay decentralization of the road network because it became not a priority for the new administration. Nevertheless, with local funds, the SCT managed to implement some of the recommendations of the study, such as training and transfer to the municipalities of some road sections in urban areas.

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Part D3. Implementing a road financing mechanism and resource mobilization strategies. The Project provided resources to support the recommendations of a study carried out by consultants financed by the previous HRTS project. The study proposed the creation of a Road Fund based on earmarking a percentage of fuel revenues for road reconstruction and maintenance, which had been in the institutional agenda of SCT for a long time. However, the highest authorities of SCT at the time of project implementation did not consider it a priority (because of external factors beyond SCT’s control) and therefore, this sub-component was not implemented. Given the acceptable level of resources annually allocated to maintenance and rehabilitation and the fact that SCT has started a concession program of toll roads for modernization, rehabilitation and maintenance, it could be that the Fund was not a priority in the sense of financing road modernization and maintenance. However, since decentralization requires important resources to be transferred or made available to the states, the road fund, or a similar mechanism, would facilitate the process. Given the current focus of the Government on the modernization of the basic network, it is uncertain that the decentralization and the fund will be implemented in the short term. Part D4. Implementing the Government strategy on toll roads. Even before this Project was effective, the UAC was interested in a possible future Bank operation including reorganization of FARAC (which would manage the toll network) and Public Toll Roads Agency (CAPUFE) (which would operate it, but monitored by FARAC). Preparation of this new operation was delayed but several studies have been carried out to support it, including with assistance from the Bank, and the new Government has expressed interest in continuing Bank support for the implementation of such a restructuring. The first of those studies were carried out by the Bank shortly after the approval of this Project, with the assistance, as a consultant, of the Technical Director of ENA, the National Toll Road Authority in Spain. The TTLs of this Project and the HFP participated in the study, coordinated by the former. This study, called “Análisis de la situación de las autopistas de cuota en México y recomendaciones para su fortalecimiento, Febrero 2001”, analyzed all aspects of management of the toll road networks administered by CAPUFE and FARAC, trying to find some possible technical and administrative actions to improve service to the users and maximize efficiency in expenditures and in the use of both networks. The second study (“Aspectos Administrativos, Técnicos, Operativos y Comerciales de las Autopistas de Cuota en México bajo Jurisdicción Federal”) was carried out in May 2003 by the former TTL of this Project, as a consultant assisting the new TTL. The study, as its title in Spanish indicates, analysed the technical, operational and commercial aspects of the toll road systems under CAPUFE and FARAC administration. The study concluded with the proposal of a plan to reform the CAPUFE-FARAC system and identifying key aspects to take into account for the reform of CAPUFE.

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In the same line, this Project financed a contract for consulting services to carry out the “Strategic Planning for the National Motorway System”. The study analyzed and proposed alternatives to improve the CAPUFE-FARAC system. Close to its conclusion, the UAC and the consultants presented and discussed with the Bank their findings and preliminary conclusions. The final output of the study is a tangible contribution as feedback for higher-level policy debates. Also as part of the support to the preparation of the HFP, the same TTL/ Consultant carried out with data provided by the UAC and CAPUFE two additional short studies. One to estimate the actual annual budget necessary to maintain the FARAC network and the other to calculate the overall benefits of reducing the toll rate in some toll highways with sensitivity enough to absorb traffic from the parallel free highways with traffic volumes much higher than the tolled ones. Part D5. Staff training for the SCT and its Directorates. The training was provided by consultants and the Bank specialist to implement and operate the HDM-4 in the DGCC, as well as study tours abroad for SCT directorates to exchange experiences with similar organizations in other countries, particularly concerning comprehensive maintenance by contract and toll road concessions. V. Contingencies [PAD US$ 23.5 million – ICR US$ 0.0 million]. The amount allocated to this component was reallocated to other components, mostly to the PPCM.

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Annex 5. Economic and Financial Analysis

An economic analysis was carried out based on the appraisal parameters in order to properly compare ex ante and ex post results. Among those parameters are indicators (road works characteristics, network traffic data, unit road-user costs, surface quality index, and vehicle operating costs), economic evaluation parameters and evaluation period (ten years for rehabilitation works and five years for periodic maintenance works). Project benefits such as more reliable and safer transport services and the removal of major constraints to integrate into the regional economic block (NAFTA) were not considered in the cost-benefit analysis. No economic evaluation was attempted for the institutional strengthening activities. At appraisal, SCT assessed each section to be maintained or rehabilitated during the first year of the project (2001) using road user costs estimated with the HDM-3 Model that were incorporated into the SISTER for planning purposes and the RED Model for economic evaluation. The resulting rates of return for the rehabilitation and maintenance program were greater than the 12% minimum required. The NPV and IRR for each road are shown in the tables below. The first table refers to the first year rehabilitation program, and the second to the first year periodic maintenance program.

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First Year Periodic Maintenance ProgramEx-Ante Ex-Post

Length Cost NPV IRR Length Cost NPV IRRRoad (km) (M US$) (M US$) (%) (km) (M US$) (M US$) (%)Leon-Aguascalientes (2 Cpos). 15.8 0.49 2.5 222% 15.2 0.84 4.1 216%Mexicali-Tecate * 18.0 1.49 3.6 118%Mexicali-Tecate * 4.0 0.21 0.3 77%Lim. Edos. Tab./Camp.-Cescarcega 30.0 0.63 0.3 40% 30.0 0.80 0.4 36%Delicias-Chihuahua (Cpo. B) 17.0 0.55 1.0 97% 17.0 0.69 1.2 93%Saltillo-Monterrey (Cpo. A) 17.6 0.49 2.6 234% 17.6 1.17 6.4 172%Colima-T. Tecoman (Cpo. A) 4.0 0.17 0.2 64% 4.0 0.34 0.3 54%Colima-T. Tecoman (Cpo. A) 4.5 0.17 0.2 74% 4.5 0.33 0.4 66%Colima-T. Tecoman (Cpo. B) 3.0 0.06 0.2 138% 3.0 0.07 0.2 152%Gom. Pa.-Li.Edo.Dgo./Chi.(2 Cps.) 30.0 1.08 2.6 118% 30.0 0.48 3.8 332%Celaya-Salamanca * 24.0 0.77 8.0 418%Queretaro-San Luis Potosi (Cp. B) 22.0 0.71 2.7 175% 22.0 1.37 4.8 160%Acapulco-Zihuatanejo 5.0 0.26 0.6 114% 8.0 0.84 1.7 70%Acapulco-Zihuatanejo 9.0 0.47 1.1 120% 9.0 1.41 1.7 48%Iguala-Chilpancingo 16.0 0.46 2.1 202% 17.5 1.61 3.3 104%Guadalajara-Lim. Edos. Jal./Zac. 31.0 1.33 0.6 34% 31.0 2.00 1.4 46%Toluca-Cd. Altamirano 31.0 1.60 2.2 75% 30.7 1.41 1.7 68%Libramiento Norte De Zamora ** 7.0 0.30 0.4 78% 7.0 2.25 3.3 47%Cuernavaca-Lim. Edos. Mor./Gro. 4.0 0.10 0.3 131% 16.0 0.66 1.2 93%Matehuala-Saltillo ** 30.0 1.29 4.2 151% 30.0 2.90 14.4 119%Oaxaca-Tehuantepec 7.0 0.23 0.2 62% 7.0 0.47 0.4 51%Ent. San Hipolito-Tehuacan 20.0 1.17 6.6 242% 20.0 1.30 13.2 265%San Juan Del Rio-Xilitla ** 12.0 0.52 0.2 31% 11.5 3.60 0.0 20%Reforma Agraria-Puerto Juarez 9.0 0.39 0.1 26% 9.0 0.35 0.2 44%San Luis Potosi-Ojuelos * 5.0 0.22 0.1 29%Lim. Edos. Chis./Tab.-El Bellote 9.0 0.28 0.9 152% 9.0 0.45 1.0 108%Est. Gonzalez-Ent. Llera De Canales 30.0 0.97 1.6 87% 23.0 1.13 1.3 65%Lim. Edos. Mex./Tlax.-Apizaco 13.0 0.40 2.3 252% 13.0 1.20 3.7 144%Cd. Aleman-Sayula 9.0 0.75 1.5 104% 9.5 0.89 3.6 118%Merida-Puerto Juarez 69.0 2.23 1.1 36% 69.0 3.26 0.8 25%Lim. Edos. Jal./Zac.-Jalpa 20.0 1.38 0.9 45% 14.0 0.74 1.3 61%Total 525.9 21.14 51.3 117% 477.5 32.55 75.7 89%* Road work not executed** Rehabilitation done instead of periodic maintenance

The average cost of the rehabilitation is US$ 138,000 per km and the average cost of the periodic maintenance is US$ 59,000 per km. The table below presents a comparison of the road works unit costs estimated at appraisal in 2001 and the current unit costs in 2005, all costs expressed in 2005 US Dollars, which shows that the unit costs increased on average by 6 percent, a reasonable increase given the increase during this period of labor and materials.

At project completion, the condition of the federal highways had improved, especially the basic network. In 1999, 57% of the network was in good to fair condition, and in 2005 this percentage had increased to 78%. At appraisal, it was estimated that the percentage of network in good and fair condition in 2004 would be 75%. The following table shows the federal network length by condition and traffic in 1999 and in 2005.

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The following table shows the 2005 federal network length and its physical conditions for each state.

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Mexico Federal Network in 2005

Network Length (km) Network Condition

(%) State Corridor Basic Secondary TOTAL Good Fair Bad

AGUASCALIENTES 82.33 115.14 174.56 372.03 55 45 0

BAJA CALIFORNIA 628.26 255.38 554.78 1,438.42 24 59 17

BAJA CALIFORNIA SUR 937.35 133.27 129.24 1,199.86 31 54 15

CAMPECHE 635.19 175.15 436.45 1,246.79 26 58 16

COAHUILA 481.03 594.81 435.70 1,511.54 27 56 17

COLIMA 48.30 102.60 123.98 274.88 73 27 0

CHIAPAS 497.89 1,191.41 494.86 2,184.16 6 56 38

CHIHUAHUA 304.00 749.83 1,070.59 2,124.42 26 61 13

DISTRITO FEDERAL 0.00 39.38 61.70 101.08 0 0

DURANGO 283.70 458.30 1,207.60 1,949.60 11 54 35

GUANAJUATO 208.21 181.84 635.55 1,025.60 36 38 26

GUERRERO 0.00 828.51 1,063.18 1,891.69 15 42 43

HIDALGO 34.68 276.27 432.06 743.01 20 55 25

JALISCO 145.89 994.86 871.87 2,012.62 19 53 28

MEXICO 48.65 298.54 420.26 767.45 28 55 17

MICHOACAN 233.45 1,203.70 819.17 2,256.32 8 57 35

MORELOS 33.00 108.10 116.84 257.94 24 62 14

NAYARIT 111.46 261.32 383.52 756.30 38 55 7

NUEVO LEON 381.97 523.22 234.90 1,140.09 44 37 19

OAXACA 511.39 690.83 1,575.25 2,777.47 28 44 28

PUEBLA 203.82 453.08 388.67 1,045.57 22 57 21

QUERETARO 13.20 42.90 396.00 452.10 42 50 8

QUINTANA ROO 403.00 76.60 320.00 799.60 28 70 2

SAN LUIS POTOSI 660.02 90.26 853.59 1,603.87 23 56 21

SINALOA 341.18 420.22 56.30 817.70 33 61 6

SONORA 602.58 593.00 496.43 1,692.01 22 61 17

TABASCO 240.69 184.27 175.94 600.90 34 55 11

TAMAULIPAS 759.31 568.80 891.47 2,219.58 20 64 16

TLAXCALA 135.45 92.55 311.14 539.14 36 58 6

VERACRUZ 691.78 722.40 977.33 2,391.51 15 55 30

YUCATAN 150.37 192.25 915.36 1,257.98 30 57 13

ZACATECAS 224.95 794.54 482.00 1,501.49 35 55 10

Total 10,033.09 13,413.33 17,506.29 40,952.70 24 54 22

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Annex 6. Bank Lending and Implementation Support/ Supervision Processes

(a) Task Team Members Names Title Unit Responsibility/Specialty

Lending

Jose Alonso-Biarge Lead Highway Specialist

LCSTR Task Team Leader

Robin Carruthers Lead Transport Economist MNSSD Transport Economist

Ivy Cheng Consultant EASTE Alonso Zarzar Senior Social Scientist LCSSO Social specialist Richard Clifford Sector Leader SASEI Jeffrey Gutman Sector Manager LCSTR

Walter Vergara Lead Chemical Engineer LCSEN Environmental

specialist

Guillermo Unda Transport Specialist - Consultant LCSTR

Lea Braslavsky Lead Procurement Specialist LCSPT Procurement

Victor Ordonez

Financial Management Specialist

LCSFM

Operations

Supervision/ICR

Jose Alonso-Biarge Lead Highway Specialist Consultant

LCSTR

Task Team Leader 2001-2003 2003-2005 ICR primary author

Mauricio Cuellar Senior Transport Specialist

LCSTR

Task Team Leader 2003-2007

Rodrigo Archondo-Callao

Lead Highway Engineer- HDM-4 Specialist

TUDTR

HDM-4 monitoring

Maria E. Castro-Munoz Sr. Social Scientist LCSSO Social safeguards compliance

Lea Braslavsky Lead Procurement Specialist LCSPT Procurement

Efraim Jimenez Lead Procurement Specialist LCSPT Procurement

Gabriel Penaloza Procurement Analyst LCSPT Operations Victor Ordonez

Financial Management Specialist

LCSFM

Operations

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Fatima Galarraga Elias Language Team Assistant

LCSSD

Administration

Karina M. Kashiwamoto Language Program Assistant LCSSD Administration

Rosa Maria Hernandez- Fernandez

Extended Term Temporary LCSTR Administration

Benjamin Santa Maria Consultant

LCSEG

ICR primary author

(b) Ratings of Project Performance in ISRs No. Date ISR Archived IP DO Actual Disbursements (USD M) 1 12/21/2000 Satisfactory Satisfactory 0.00 2 04/25/2001 Satisfactory Satisfactory 0.00 3 06/26/2001 Satisfactory Satisfactory 0.00 4 11/27/2001 Satisfactory Satisfactory 2.18 5 03/04/2002 Satisfactory Satisfactory 11.10 6 05/28/2002 Satisfactory Satisfactory 15.64 7 11/27/2002 Satisfactory Satisfactory 44.59 8 05/28/2003 Satisfactory Satisfactory 97.42 9 11/26/2003 Satisfactory Satisfactory 122.96 10 05/28/2004 Satisfactory Satisfactory 157.48 11 11/30/2004 Satisfactory Satisfactory 182.88 12 05/02/2005 Satisfactory Satisfactory 198.30 13 05/15/2006 Satisfactory Satisfactory 218.00 14 12/10/2006 Satisfactory Satisfactory 218.00(c) Staff Time and Cost

Staff Time and Cost (Bank Budget Only) Stage of Project Cycle

No. of staff weeks USD Thousands (including travel and

consultant costs)

Lending FY00 30 138.65 FY01 15 106.24

Total: 45 244.89Supervision/ICR

FY01 5 39.77FY02 21 93.00FY03 19 84.29

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FY04 22 71.84FY05 15 72.08FY06 18 49.12FY07 10 62.94

Total: 110 473,04

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Annex 7. Detailed Ratings and Bank and Borrower Performance

Bank Ratings Borrower Ratings

Ensuring Quality at Entry: Satisfactory

Government:

Satisfactory

Quality of Supervision: Satisfactory Implementing Agency/Agencies:

Satisfactory

Overall Bank Performance:

Satisfactory Overall Borrower Performance:

Satisfactory

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Annex 8. Beneficiary Survey Results

Not Applicable

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Annex 9. Stakeholder Workshop Report and Results

A two day project workshop on FHMP was held in the city of San Miguel Allende in 2005. With about the same features and participants, a one-day project completion workshop was held in the city of San Luis Potosi in 2006. In both cases, participants included SCT directors and heads of centers in the states, contractors, one supervision representative, and the members of the Bank mission. Assessments by each of the three participant SCT’s centers of the comprehensive maintenance pilot program were presented, which included advantages and weaknesses of the program implemented. The main conclusions were the following:

(i) the following version of the pilot program should be broader to allow more knowledge of comprehensive maintenance;

(ii) in future comprehensive maintenance programs, it is advisable to extend the contracting term;

(iii) should the next stage of comprehensive maintenance be implemented, a trade off between periodic and routine maintenance must be accomplished;

(iv) based on technical, economic and statistic criterion, annual plans and monthly programming should be formulated and reflected in the invitations to tender for contracting works;

(v) on future programs, it should be advisable to rule out sub-contracting; (vi) an alternative form of bidding different from unit prices, and based on

performance standards, should be also tested; (vii) technical specifications and implementation rules for comprehensive

maintenance should be prepared; and (viii) design and implementation of a global management system for comprehensive

maintenance in SCT. Finally, on November 23, a one-day project completion workshop was held at Bank Office in Mexico City. Participants included representatives from the Borrower (SHCP, Banobras) and the executing agency (SCT directors and heads of centers in the states involved in the FHMP), and the members of the Bank mission. This workshop organized as a round-table was an opportunity to discuss and elaborate on events that modified effectiveness and completion dates, relevant changes/over-runs/reallocation of funds among components during project implementation, project results relative to project objectives, a comparative ex ante and ex post economic evaluation and the reason of differences, the final value of PDO and intermediate outcome indicators, project sustainability and lessons learned (both project specific and of wide general application). The overall conclusion was that given its results and the quality of the outcomes this project should be rated as Satisfactory by the Bank.

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Annex 10. Summary of Borrower’s ICR and/or Comments on Draft ICR (Original in Spanish)

The Loan’s disbursement process started in 2001, allowing for investment in road maintenance and therefore avoiding the accelerated deterioration of the network. As compared to the PAD, as of December 31, 2005, physical project outputs were as follows: Component (1) 251%, PROPIMI 178%; reconstruction 52%; and bridge rehabilitation 45%. The implementation of HDM-4 Model for road maintenance and rehabilitation planning was, together with the PROPIMI, the innovative feature introduced by the project in Mexico. The HDM-4 will allow for the preparation of the 2008 HMP, with the help of a state-of-the-art technology and software, based on the following information. IRI measurements carried out in late 2006; highway condition inventory, annually assessed by the SCT centers in the States; and traffic data and deflection results of late 2006. The contracting process of the PROPIMI faced some problems due to the lack of expertise in this type of contract in the local construction industry. At the request of the SCT and contractor associations, the participation of local contractors in the tendering process was allowed introducing in the bidding documents the condition for the inexperienced firms in comprehensive maintenance to include in their teams experts in this type of contracts. Another substantial change in the program was the replacement of the initial roads in the program by the corridor Querétaro-San Luis, which required an amendment to the project legal documents, clearance of which by the local institution took more time than expected. Finally, the directors of the SCT Centers concerned substantially expanded the scope of the reconstruction works in the program to the point that the final total cost of the program was tripled. Nevertheless the PROPIMI was a successful experience rated as Satisfactory. The SCT Centers support the implementation of further programs of this type and the road users showed great satisfaction with the results. For future programs, the SCT recommends to reduce the reconstruction works subcomponent of the program and increase maintenance and rehabilitation. Another recommendation is that the bidding documents be prepared during project preparation and discussed and agreed at negotiations. It was not possible to make performance securities effective in the case of 10 contracts. To restrain the participation of contractors with low economic capacity, in future operations it is necessary to request other type of bond guaranties that can be made immediately effective. The investments estimated in the 2001-2005 HMP (including works not funded with Loan resources) amounted 23,807.1 million of Mexican pesos, equivalent to 2,324.6 million of dollars. The Bank covered only a 9.4 percent of this program. The total project cost financed by the Bank experienced in increase of 7.8%, basically

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due to the cost of the three PROPIMI contracts. In terms of Bank’s share, the project goal was reached taking into account the last reallocation cleared. In general, the project was suitably implemented, despite the delays caused by the gap between the PROPIMI implementation schedule and the disbursement requests. There were some delays in processing no objections of studies and consulting services, mainly due to cumbersome internal procedures and the delays in preparing the corresponding terms of reference, which resulted in less project funds finally allocated to implement them. SCT also advises for future operations to strengthen the mechanisms and procedures to speed up payments to beneficiaries, particularly advance payments, and to timely transfer to TESOFE all reimbursements according to the pari passu agreed with the Federal Government. Procurement thresholds agreed were accomplished. With respect to works under ICB, it is worth noting SCT’s commitment to accomplish all thresholds set forth, despite the fact that most of the civil works tendered amounted less than the US$ 10 million threshold (except for the PROPIMI contracts). This allowed the Project to fulfill the total amount of contracts tendered under ICB procedures agreed at negotiations. The SCT recommends that the Bank allocates more resources to supervision in future projects to allow for more and longer supervision missions, as well as to appoint as TTL a specialist in the project components. The ex post economic evaluation of projects included in PAD was undertaken with the HDM, with results similar to the ones in the ex-ante analysis demonstrating that the subprojects implemented continue being profitable from an economic standpoint.

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Annex 11. Comments of Cofinanciers and Other Partners/Stakeholders Not applicable.

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Annex 12. List of Supporting Documents ICR of Loan 3628-ME Highway Rehabilitation and Safety Project Staff Appraisal Report Minutes of Negotiations Loan Agreement Guarantee Agreement Amendments to Legal Documents Aide-Memoires Project Status Reports from SAP’ Ex post Procurement Review (2006) ICR from SCT – February 2007 (Evaluación ex post del Crédito 7042-ME, Proyecto de Mantenimiento de Carreteras Federales) “Analysis of Highway Decentralization Models for the Development of a Decentralization Strategy in Mexico” “Análisis de la situación de las autopistas de cuota en México y recomendaciones para su fortalecimiento, Febrero 2001” “Aspectos Administrativos, Técnicos, Operativos y Comerciales de las Autopistas de Cuota en México bajo Jurisdicción Federal” “Strategic Planning for the National Motorway System” Evaluación Ex Post del Crédito 7042-ME “Proyecto de Mantenimiento de Carreteras Federales”

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Annex 13. Expost Evaluation from SCT

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68

69

70

71

72

73

74

75

76

77

78

79

80

81

82

83

84

85

86

87

88

89

90

91

92

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