World Bank Document...approach, adoquines road rehabilitation was all carried out ostly m using MCAs. Only 12 private contractors were hired in total and 272 MCAs were created. At

Document of The World Bank

Report No: ICR00003395

IMPLEMENTATION COMPLETION AND RESULTS REPORT

(IDA-41850 IDA-47360 IDA-H5710)

ON A

CREDIT IDA-41850

IN THE AMOUNT OF SDR 41.1 MILLION (US$ 60 MILLION EQUIVALENT)

CREDIT IDA-47360

IN THE AMOUNT OF SDR 5 MILLION (US$ 7.5 MILLION EQUIVALENT)

IDA GRANT IDA- IDA-H5710

IN THE AMOUNT OF SDR 21 MILLION (US$ 31.8 MILLION EQUIVALENT)

INCLUDING SDR 9.4 MILLION (US$14.3 MILLION EQUIVALENT)

IN PILOT CRISIS RESPONSE WINDOW (CRW) RESOURCES

TO THE

REPUBLIC OF NICARAGUA

FOR A

FOURTH ROADS REHABILITATION AND MAINTENANCE PROJECT

March 27, 2015

Transport and ICT Global Practice Central American Country Management Unit Latin America and the Caribbean Region

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

CURRENCY EQUIVALENTS

(Exchange Rate Effective September 30, 2014)

Currency Unit = Cordoba (C$) C$1.00 = US$0.038 US$1.00 = C$26.25

FISCAL YEAR

January 1 – December 31

ABBREVIATIONS AND ACRONYMS

AF Additional Financing BCIE Central American Bank for Economic Integration CAS Country Assistance Strategy CRW Crisis Response Window COERCO Regional Highway Construction Agencies

Corporación de Empresas Regionales de Construcción DANIDA Danish International Development Agency DGA Environmental Directorate

Dirección General Ambiental DGAF DID-PSM

Financial and Administration Directorate Dirección General Administrativa y Financiera Difference-in-Differences with Propensity Score Matching

ERR Economic Rate of Return ESMP Environmental and Social Management Plan FA Financing Agreement (IDA Credit Agreement) FARAH Financial Accounting, Reporting & Auditing Handbook FM Financial Management FOMAV Road Maintenance Fund

Fondo de Mantenimiento Vial GDP Gross Domestic Product GON Government of Nicaragua HDM Highway Design and Maintenance Model HIPC Heavily Indebted Poor Countries IADB Inter-American Development Bank ICR Implementation Completion Report IDA International Development Association IE Impact Evaluation IMF International Monetary Fund IRI International Road Roughness Index ISN Interim Strategy Note LSMS Living Standards Measurement System

ii

MCAs Adoquines Community Modules Modulos Comunitarios de Adoquinados

MCC Millennium Challenge Corporation MDG Millennium Development Goals ME Microenterprise MTI Ministry of Transport and Infrastructure NCB NPV

National Competitive Bidding Net Present Value.

PCU Project Coordinating Unit PDO Project Development Objective PMS PND

Pavement Management System National Development Plan Programa Nacional de Desarrollo

PPMM Road Maintenance by Microenterprise Proyecto de Microempresas de Mantenimiento

RED Road Economic Decision Model SIGFAPRO Integrated Financial Management System TA Technical Assistance VOC Vehicle Operating Cost VPD Vehicle per day WB World Bank

Senior Global Practice Director: Pierre Guislain Practice Manager: Aurelio Menendez

Project Team Leader: Stephen Muzira ICR Team Leader: Sevara Melibaeva

iii

NICARAGUA Fourth Roads Rehabilitation and Maintenance Project

CONTENTS

Data Sheet A. Basic Information B. Key Dates C. Ratings Summary D. Sector and Theme Codes E. Bank Staff F. Results Framework Analysis G. Ratings of Project Performance in ISRs H. Restructuring I. Disbursement Graph 1. Project Context, Development Objectives, and Design…………………………………………1 2. Key Factors Affecting Implementation and Outcomes .................................................. 8 3. Assessment of Outcomes .............................................................................................. 14 4. Assessment of Risk to Development Outcome ............................................................. 24 5. Assessment of Bank and Borrower Performance ......................................................... 24 6. Lessons Learned............................................................................................................ 27 7. Comments on Issues Raised by Borrower/Implementing Agencies/Partners............... 29 Annex 1. Project Costs and Financing .............................................................................. 30 Annex 2 .Outputs by Component...................................................................................... 32 Annex 3. Economic and Financial Analysis ..................................................................... 35 Annex 4. Bank Lending and Implementation Support/Supervision Processes ................. 41 Annex 5. Beneficiary Survey Results ............................................................................... 43 Annex 6. Stakeholder Workshop Report and Results ....................................................... 44 Annex 7. Summary of Borrower's ICR and/or Comments on Draft ICR ......................... 46 Annex 8. Comments of Cofinanciers and Other Partners/Stakeholders ........................... 56 Annex 9. List of Supporting Documents .......................................................................... 57 Annex 10. Impact Evaluation Study ................................................................................. 58 Annex 11. Adoquines Community Modules (MCAs) ...................................................... 73 Annex 12. Findings of “Roads to Agency” Study on Nicaragua rural roads projects (2006-2017) ..................................................................................................... 80 Annex 13. Institutional Organization of MTI ................................................................... 82 MAP .................................................................................................................................. 83

iv

A. Basic Information

Country: Nicaragua Project Name: Fourth Roads Rehabilitation and Maintenance Project

Project ID: P083952 L/C/TF Number(s): IDA-41850, IDA-47360, IDA-H5710

ICR Date: 01/20/2015 ICR Type: Core ICR

Lending Instrument: SIL Borrower: GOVERNMENT OF NICARAGUA

Original Total Commitment:

XDR 41.10M Disbursed Amount: XDR 65.27M

Revised Amount: XDR 65.36M Environmental Category: B Implementing Agencies: Ministerio de Transporte e Infraestructura (MTI) Cofinanciers and Other External Partners: None B. Key Dates

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

Concept Review: 11/03/2005 Effectiveness: 01/09/2007 01/09/2007

Appraisal: 03/15/2006 Restructuring(s):

10/10/2008 04/07/2010 06/01/2010 05/25/2011 08/13/2012 06/05/2013 04/30/2014 09/29/2014

Approval: 06/08/2006 Mid-term Review: Closing: 12/31/2011 09/30/2014 C. Ratings Summary C.1 Performance Rating by ICR Outcomes: Highly Satisfactory Risk to Development Outcome: Moderate Bank Performance: Satisfactory Borrower Performance: Satisfactory

v

C.2 Detailed Ratings of Bank and Borrower Performance (by ICR) Bank Ratings Borrower Ratings

Quality at Entry: Satisfactory Government: Satisfactory

Quality of Supervision: Satisfactory Implementing Agency/Agencies: Highly Satisfactory

Overall Bank Performance: Satisfactory Overall Borrower

Performance: Satisfactory

C.3 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:

Highly Satisfactory

D. Sector and Theme Codes Original Actual

Sector Code (as % of total Bank financing) Central government administration 11 11 Rural and Inter-Urban Roads and Highways 89 89

Theme Code (as % of total Bank financing) Infrastructure services for private sector development 40 40 Micro, Small and Medium Enterprise support 20 20 Rural services and infrastructure 40 40 E. Bank Staff

Positions At ICR At Approval Vice President: Jorge Familiar Calderon Pamela Cox Country Director: J. Humberto Lopez Jane Armitage Sector Manager: Aurelio Menendez Jose Luis Irigoyen Project Team Leader: Stephen Muzira Emmanuel James ICR Team Leader: Sevara Melibaeva ICR Primary Author: Oswaldo Patiño Team Assistant Licette Moncayo

vi

F. Results Framework Analysis Project Development Objectives (from Project Appraisal Document) From the PAD: The Project Development Objective is to support the Government of Nicaragua's broad based economic growth and poverty reduction plan by relieving transportation bottlenecks that currently hinder economic growth and private sector investment. The specific objectives are to support economic growth by: (i) expanding and complementing the previous focus on trunk roads by improving a connecting network of secondary and rural roads; (ii) helping ensure the sustainability of the road improvements, through strengthening of maintenance practices, and (iii) institution building and technical development in the Ministry of Transport and Infrastructure (MTI) and the Road Maintenance Fund (FOMAV). From the Credit Agreement: The objectives of the project are: (a) to improve the Recipient’s transport infrastructure along selected main road corridors; (b) to improve access to productive zones and to rural communities; and (c) to ensure the sustainability of the road improvements carried out under the project. The objectives in the Credit Agreement will be the basis of evaluation. Revised Project Development Objectives (as approved by original approving authority) Not applicable. (a) PDO Indicator(s) 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: Increase in traffic volumes and reduction in vehicle operating costs Value (quantitative or qualitative)

Vpd = 380 IRI = 8

Vpd = 460 (21%) IRI = 3.5

Vpd = 480

Vpd = 480 (26%) IRI = 2.6

Date achieved 06/08/2006 12/31/2011 12/31/2012 09/30/2014

Comments (incl. % achievement)

104% exceeded (original); 100% achieved (revised). The target for traffic volumes was increased at restructuring as part of Additional Financing (AF) approved on June 1, 2010, as the project closing date was extended by one year and the traffic was expected to increase further. At the time of AF, the actual value for traffic volumes was already at 440 Vpd. The IRI has also been achieved at 2.6, exceeding the target of 3.5.

Indicator 2: Increased mobility for residents of rural communities Value (quantitative or qualitative)

0 bdt

500bdt

300bdt 320 bdt

Date achieved 06/08/2006 12/31/2011 12/31/2012 09/30/2014

vii


64% achieved (original); 107% achieved (revised). The target value for bdt was reduced at restructuring as part of AF as a result of projections obtained based on a sample of rural roads rehabilitated with adoquines.

Indicator 3: Increased share of road network in good and fair condition Value (quantitative or qualitative)

20% 3,928km

22% 4,188km

N/A 23.3% 4,436km

Date achieved 06/08/2006 12/31/2011 09/30/2014 Comments (incl. % achievement)

106% achieved. The indicator measures the project roads as a share of classified road network size.

Indicator 4: Incorporation of improved management and planning procedures by MTI and FOMAV

Value (quantitative or qualitative)

HDM and RED model increasingly applied (% of program affected): 0%

50%

N/A 100%


200% achieved.

Indicator 5: Share of rural population with access to an all-season road Value (quantitative or qualitative)

28% (at time of the Additional Financing)

None N/A 38%

Date achieved 06/01/2010 06/01/2010 09/30/2014


The actual value increased from the baseline by 35%. The indicator measures share of rural population living within 2km of an all-season paved road in the country. This core indicator was added at Additional Financing but a target value was not assigned.

(b) Intermediate Outcome Indicator(s) Component 1: Roads Rehabilitation and Improvement

Indicator Baseline Value Original Target

Values (from approval documents)

Formally Revised Target Values



Indicator 1: Km of roads improved each year Value (quantitative or qualitative)

0 51km N/A 52km


100% achieved.

viii

Component 2: Rural Transport Improvement

Indicator Baseline Value

Original Target Values (from

approval documents)




Indicator 2: Km of roads stabilized (total) Value (quantitative or qualitative)

0 320km 320km 361km

Date achieved 06/08/2006 12/31/2011 12/31/2012 09/30/2014


113% achieved. The indicator was revised at AF from “Km of roads stabilized each year” to “Km of roads stabilized (total).” The target was reduced to 198 km during April 7, 2010 restructuring, and reinstated back to 320 km at the time of AF on June 1, 2010.

Indicator 3: Number of contractors /MCAs working Value (quantitative or qualitative)

Contractors & MCAs < 4

Contractors & MCAs = 42

N/A Contractors = 12 MCAs = 272

Date achieved 06/08/2006 12/31/2011 09/30/2014


670% achieved (total of 284 contractor & MCAs working). The original target was based on the expectation that 320 km of rural secondary or tertiary roads will be improved mostly by private contractors, and only a few by MCA modules (community approach). Given the success of the MCA approach, adoquines road rehabilitation was all carried out mostly using MCAs. Only 12 private contractors were hired in total and 272 MCAs were created. At appraisal, the success of MCA method was not expected to lead to its full adoption by MTI, which explains such low original target. The baseline at AF was also changed to 0 instead of < 4.

Component 3: Routine and Periodic Maintenance






Indicator 4: Number of micro-enterprises established total (cumulatively) Value (quantitative or qualitative)

33 37 N/A 52


140% achieved.

Indicator 5: Km of roads being maintained (routine with microenterprises) Value (Quantitative or Qualitative)

2,086km 2,400km 2,700km 3,200km

Date achieved 06/08/2006 12/31/2011 12/31/2012 09/30/2014 Comments (incl. %

133% achieved (original); 118% achieved (revised). The target was revised to 2,700 km during AF, due to more rapid progress than anticipated

ix






Achievement) originally. The actual value in 2010 for the indicator was reported at 2,573 km, already exceeding original target of 2,400 km at the time.

Indicator 6: Km of roads being maintained (periodic maintenance) Value (quantitative or Qualitative)

0km 80km 95km

Date achieved 06/01/2010 12/31/2012 09/30/2014


118% achieved. This indicator was introduced during AF approved to measure progress of roads receiving periodic maintenance, in addition to the already existing indicator above which accounts for routine maintenance. The road sections that received periodic maintenance under the project were North Highway section (47 km), road sections Paraiso – Puente Olama (14 km), San Francisco – Camoapa – Rancho Rojo (25 km) and Muham – Rama Highway (9 km).

Component 4: Studies, Technical Assistance and Training






Indicator 7: Number of FOMAV and MTI staff trained in planning and mgmt courses


0 6 40 45

Date achieved 06/08/2006 12/31/2011 12/31/2012 09/30/2014


750% achieved (original); 112% achieved (revised). The target was revised during AF as the progress was greater than expected at appraisal of the original project. In 2010, the actual value for the indicator was already at 26, exceeding the original target.

Indicator 8: Share of road network condition surveyed Value (quantitative or qualitative)

0 33% 35% 99%

Date achieved 06/08/2006 12/31/2011 12/31/2012 04/09/2014


300% achieved (original); 280% achieved (revised). The entire network has been inventoried and coded in ArcGis. The target was revised during AF as the progress was greater than expected at appraisal of the original project. In 2010, the actual value for the indicator was already at 33%, exceeding the original target.

Indicator 9: Number of training workshops attended by MTI/FOMAV staff Value (quantitative or qualitative)

0 6 4 4

Date achieved 06/08/2006 12/31/2011 12/31/2012 04/09/2014

x







67% achieved (original); 100% achieved (revised). This indicator was revised in the AF Project Paper from formerly “Dissemination workshops on project monitoring and evaluation” to “Number of training workshops attended by MTI/FOMAV staff”, and its target was changed from 6 to 4.

Indicator 10: Share of Road Network transferred to Departments and Municipal Management


1% 15% Dropped

Date achieved 06/08/2006 12/31/2011 06/01/2010


This indicator was dropped at the time of AF due to being no longer relevant and applicable as the maintenance of classified road network was under full responsibility of FOMAV, and the local roads were already under the municipal management.

G. Ratings of Project Performance in ISRs

No. Date ISR Archived DO IP

Actual Disbursements (USD millions)

1 06/23/2006 Satisfactory Satisfactory 0.00 2 12/01/2006 Satisfactory Satisfactory 0.00 3 02/12/2007 Satisfactory Satisfactory 0.00 4 06/21/2007 Satisfactory Satisfactory 5.00 5 12/11/2007 Satisfactory Satisfactory 6.14 6 06/25/2008 Moderately Satisfactory Moderately Satisfactory 9.68 7 12/10/2008 Satisfactory Satisfactory 14.62 8 06/18/2009 Satisfactory Satisfactory 26.19 9 07/30/2009 Satisfactory Satisfactory 29.17

10 04/22/2010 Satisfactory Satisfactory 51.46 11 02/18/2011 Satisfactory Satisfactory 65.43 12 07/29/2011 Satisfactory Satisfactory 74.11 13 03/27/2012 Satisfactory Satisfactory 86.50 14 10/04/2012 Satisfactory Satisfactory 93.09 15 04/09/2013 Highly Satisfactory Satisfactory 95.65 16 10/28/2013 Highly Satisfactory Satisfactory 98.21 17 05/10/2014 Highly Satisfactory Satisfactory 100.45

xi

H. Restructuring (if any)

Restructuring Date(s)

Board Approved

PDO Change

ISR Ratings at Restructuring

Amount Disbursed at

Restructuring in USD millions

Reason for Restructuring & Key Changes Made DO IP

10/10/2008 N MS MS 12.62

Amendment to the Financing Agreement to reflect the use of Force Account as an additional procurement method for the implementation of civil works under the Project.

04/07/2010 N S S 51.46

Reallocation of proceeds among the various categories and the modification of one intermediate outcome indicator (“km of rural roads stabilized” under component 2 Rural Transport Improvement was reduced from 320km to 198km).

06/01/2010 S S 54.33

Additional financing to cover unpredicted cost overruns of the original project. In addition, the following modifications were made: (i) intermediate outcome indicator “km of rural roads stabilized” under component 2 Rural Transport Improvement was revised back upwards to 320km; (ii) new PDO indicator (“share of rural population with access to an all-season road”) was introduced; (iii) targets for two PDO indicator were revised (“increase in traffic volumes” and number of bicycles for “increased mobility for residents of rural communities”); and (iv) closing date was extended to December 31, 2012.

05/25/2011 S S 71.32

Reallocation of proceeds among various categories that had undisbursed amounts of funds remaining that have been either 100% completed or have been reduced (specifically reassignment of funds from Categories 1-AI Works, 2 Goods, 3 Consulting Services, 4-

xii

Restructuring Date(s)

Board Approved

PDO Change

ISR Ratings at Restructuring

Amount Disbursed at

Restructuring in USD millions

Reason for Restructuring & Key Changes Made DO IP

A Training and 4-B Training to Works in Categories 1-B, 1-C and 1-D).

08/14/2012 N S S 91.28 Extension of closing date from December 31, 2012, to June 30, 2014.

06/05/2013 HS S 96.59

Reallocation of proceeds for the Grant H571-0 NI under the unallocated category to the works category 1(a), and among other eligible project disbursement categories to enable successful project completion.

04/30/2014 HS S 100.45 Extension of closing date from June 30, 2014 to September 30, 2014.

09/29/2014 HS S 102.14

Reallocation of grant proceeds from Category 1-A to Category 4-A in the amount of SDR 7,744.00 and cancelation of the undisbursed balance under IDA H5710-NI in the amount of SDR 1.7 million. Reasons for cancelation: (i) lack of sufficient time to receive any procured goods before project closing date; and (ii) project achieved its PDO and all results targets, therefore further extension was not necessary.

xiii

I. Disbursement Profile

xiv

1. Project Context, Development Objectives, and Design 1.1 Context at Appraisal

Country and Sector Background

1. At appraisal, Nicaragua was the largest country in Central America in terms of land area and a population of around 5.4 million. The population was growing at an annual rate of 2.7 percent, concentrated mostly on the Pacific seaboard and in the Central highlands. Nicaragua had a small, open economy that depended heavily on trade and transport, considering that its exports represented around 20 percent of its Gross Domestic Product (GDP), while imports amounted to 42 percent of GDP. The country’s principal exports were coffee, shrimp, lobster, beef, and sugar, which made the country very vulnerable to commodity price shocks. Non-traditional products represented around 40 percent of total merchandise exports. Nicaragua’s most important trading partner was the United States (accounting for about one-third of the country’s total exports and imports), followed by other Central American countries. Europe absorbed around 25 percent of Nicaragua’s exports and supplied 10 percent of its imports.

2. With a per capita GDP of US$790 in 2004, Nicaragua was one of the poorest countries in Latin America. It was estimated in the 2003 Living Standards Measurement Survey (LSMS) that some 46 percent of the population lived below the poverty line, while 15 percent lived in extreme poverty. The incidence of poverty was more than twice as high in rural areas (68 percent) as in urban areas (31 percent). While Nicaragua’s social indicators were generally comparable to those observed in other lower-income countries, it stood out for its relatively high population growth rate and low educational attainment levels. Additionally, in October 1998, Nicaragua was struck by Hurricane Mitch, which caused major human and physical damages, especially to the road network.

3. At the time of project preparation, the Government of Nicaragua (GON) designated poverty reduction as one of its priorities, and endorsed the Heavily Indebted Poor Countries (HIPC) initiative and the Poverty Reduction Strategy (PRSP) drafted in 2001. In doing so, it took on a great number of challenges in 2002 as it inherited a rather difficult economic situation and was forced to apply a number of strict measures in order to arrive at an agreement with the International Monetary Fund (IMF).

4. The quality of Nicaragua’s road infrastructure was the lowest in Central America. According to the Ministry of Transportation and Infrastructure (MTI), in 2006, more than 75 percent of the total road network in Nicaragua was in poor condition. This reflected the use of inappropriate design and construction standards, coupled with the inadequate maintenance regime that resulted in premature road deterioration. These findings suggested that poor road quality was the principal bottleneck in the transport sector. Nicaragua also had limited transport modality choices. Its seaports were run down, the domestic air transport system was in a nascent state of development, and its railroad system had ceased to exist. The most important transport bottlenecks in Nicaragua therefore lie in the roads sector.

1

5. The MTI’s assessment of road network quality showed that poor infrastructure condition was a major impediment to the creation of a sound and attractive business environment for entrepreneurs, particularly in rural areas. It also reduced the capacity to export (predominantly overland). Finally, low infrastructure quality affected transport safety, even though the accident rate in Nicaragua was lower than in other countries at the time.1'

6. At appraisal, Nicaragua’s road network was total of 19,036 km, of which only about 2,299 km were asphalt-paved primary roads, while the vast majority consisted largely of rural secondary or tertiary roads that were surfaced with adoquines (concrete cobblestones)2 or gravel (3,362 km) or dirt (13,374 km). Traffic levels varied widely, but were generally in excess of 5,000 vehicles per day (vpd) on the trunk roads, and upwards of 150 vpd on the secondary roads. The roads in poor condition included extensive segments of the north-south trunk road (Natural Corridor) between the Honduran and Costa Rican borders, as well as the east-west road linking Managua to the port of Rama. The inadequate and/or malfunctioning transport infrastructure created a bottleneck for external as well as internal trade, thereby limiting the competitiveness of exports as well as discouraging the development of areas with agricultural potential. Overall, Nicaragua remained the least well-endowed country in the region in terms of infrastructure, given that only 22 percent of the population at the time had access to a paved road, and only around 20 percent of the network was in good or fair condition.

Rationale for Bank Assistance

7. The World Bank’s long-term engagement in the transport sector in Nicaragua since 1997 had helped to deepen the understanding of transport issues in the country and allowed for the strengthening of the transport sector across the board. During the course of this continuous engagement, innovative and low-cost road stabilization programs applying adoquines were introduced and mainstreamed, and sound periodic and routine maintenance policies were implemented. To address the issue of inadequate road maintenance due to the lack of structured and well-funded program, the World Bank advised the Government of the importance of such a program and provided seed funding to support the establishment of the Road Maintenance Fund (FOMAV) under the previous Second and Third Rehabilitation and Maintenance Projects3. The establishment of FOMAV was a good example of the synergies that have been developed between the Poverty Reduction Support Credit (PRSC) and the transport projects. The Government approved a law that ensured that the FOMAV was financially self-sustainable in the long term. The operation of the FOMAV and the involvement of the private sector in periodic and routine maintenance via a public bidding process represented the key elements for an efficient

1 With 2,131 accidents in 2000, Nicaragua had a rate of 0.4 accidents per 1,000 people or 1.4% per vehicle. The worst countries in Central America for road safety are Costa Rica (17 accidents per 1,000 people or 13% per vehicle) and Panama (16 accidents per 1,000 people or 14% per vehicle). 2 Cobblestones are concrete-like paving blocks that are precast in an offsite factory location, with the raw materials being cement, fine aggregates, coarse aggregates, filler, and water. 3 The Second Road Rehabilitation and Maintenance Project (P053705, closed on June 24, 2005), and the Third Road Rehabilitation and Maintenance Project (P068673, closed on June 30, 2007).

2

solution towards adequate provision of road maintenance and sustainability of the road infrastructure.

8. The Fourth Roads Rehabilitation and Maintenance Project was expected to complement the two previous Bank financed road projects, which would have allowed the MTI to complete 630 km, or just over 50 percent of the National Development Plan (Programa Nacional de Desarrollo, PND) target of 1,200 km of trunk and adoquin-stabilized roads by 2009. The remaining roads were planned to be completed at the time of appraisal by the projects financed by Central American Bank for Economic Integration (BCIE) - 175 km, Inter-American Development Bank (IADB) - 135 km, Millennium Challenge Corporation (MCC)-200 km, and the GON - 60 km.

9. The World Bank's Country Assistance Strategy (CAS)4 for Nicaragua was discussed and approved by the Board on August 4, 2005. The main objective of the CAS was to support the Government’s programs for sustaining growth and reducing poverty, as expressed in the Nicaragua’s National Development Plan. The provision of adequate road infrastructure continued to be of primary importance for poverty reduction; hence, the Fourth Roads Rehabilitation and Maintenance Project was included in the International Development Association (IDA) lending program. The project was categorized under the Productive and Social Public Infrastructure area, especially in the targets related to the sustainability of maintenance and improving rural access.

10. An Additional Financing (AF) for the project was included under the Progress Report on the World Bank Group’s 2009 Country Partnership Strategy (CPS)5 under Pillar II (pro-poor investment in delivery of basic services). The AF was approved by the Board on June 1, 2010.

1.2 Original Project Development Objectives (PDO) and Key Indicators

11. The Project Development Objectives (PDO) stated in the Project Appraisal Document (PAD) differ slightly from the one in the Credit Agreement. Given this discrepancy, the Credit Agreement PDO is treated as prevalent for the purposes of this Implementation Completion and Results Report (ICR). The original PDO as stated in the Credit Agreement was the following: (a) to improve the Recipient’s transport infrastructure along selected main road corridors; (b) to improve access to productive zones and to rural communities; and (c) to ensure the sustainability of the road improvements carried out under the project.

12. As stated in the PAD, the PDO was “to support the Government of Nicaragua's broad- based economic growth and poverty reduction plan by relieving transportation bottlenecks that currently hinder economic growth and private sector investment.” The specific objectives were to support economic growth by: (i) expanding and complementing the previous focus on trunk roads by improving a connecting network of secondary and rural roads; (ii) helping ensure the sustainability of the road improvements, through strengthening of maintenance practices;, and (iii) institution building and technical

4 Interim Strategy Note (ISN) (2005) Report No. 32570-N1, April 4. 5 Country Partnership Strategy (2009) Report No. 51616-NI, December 4.

3

development in the Ministry of Transport and Infrastructure (MTI) and the Road Maintenance Fund (FOMAV).

13. The original outcome indicators as presented in Annex 3 of the PAD were the following: (i) increase in traffic volume and reduction in vehicle operating costs; (ii) increased mobility for residents of rural communities; (iii) increased share of road network in good and fair condition; and (iv) incorporation of improved management and planning procedures by MTI and FOMAV. The outcome indicators as presented in the main text of the PAD were: (i) reductions in vehicle operating costs and time savings along the road corridors linking the productive zones; (ii) qualitative improvements to the network in terms of the km of roads assessed as being in good, fair or bad condition; (iii) extent of the participation of the private sector in road rehabilitation and maintenance programs as measured in terms of the numbers and value of the contracts awarded; (iv) share of the budget allocated for road maintenance; and (v) number of rural communities provided with improved road access and generation of employment in all the components. 6

1.3 Revised PDO (as approved by original approving authority) and Key Indicators, and Reasons/Justification

14. There were no changes made to the PDO. Nevertheless, it is important to highlight that there were some discrepancies in the way the PDO was set forth in the PAD itself between the main text and the results framework, and between the PAD and the Credit Agreement. The PDO given in the AF Project Paper is aligned with that stated in the Credit Agreement. As such, this ICR presents the analysis and assessment of outcomes based on the PDO as stated in the Credit Agreement.

15. Revised Key Indicators: At the time of Additional Financing approved on June 1, 2010, the following revisions to the PDO outcome indicators were made:

a) New PDO outcome indicator was introduced (indicator 5) to measure “share of rural population with access to an all season road” to monitor the improvements in accessibility of target population to road infrastructure in the country. This was a core indicator required for all IDA operations, referring to the number of people living within 2 km of an all season road;

b) Traffic volumes target for the PDO indicator “increase in traffic volumes and reduction in vehicle operating costs” (indicator 1) was increased from 460 vehicles per day (vpd) to 480 vpd, as the project closing date was extended by one year and the traffic was expected to increase further; and

c) The target value for PDO indicator “increased mobility for residents of rural communities” (indicator 2) was reduced from 500 bicycle daily traffic (bdt) to 300 bdt

6 There are inconsistencies in the PAD between the list of PDO indicators in the main text (paragraph 22) and Annex 3. The project team used the PDO indicators presented in Annex 3 for implementation status reporting throughout the course of implementation, and hence the ICR analysis is based on the indicators as presented in Annex3 of the PAD.

4

as a result of projections obtained based on a sample of rural roads rehabilitated with adoquines.

16. The other two PDO outcome indicators remained unchanged.

1.4 Main Beneficiaries

17. The PAD identified as the main beneficiaries those people living (within two km of an all-season road) due to increased availability of economic opportunities, and the generation of better access to markets and employment opportunities. The latter was expected to be generated through the: (i) rehabilitation of trunk roads; (ii) rural road improvement through Adoquines Community Modules (MCA)7; (iii) periodic maintenance of roads that had been previously rehabilitated; and (iii) creation of routine maintenance microenterprises, administered by the FOMAV. The implementation of all project components was expected to provide year-round high-quality access and improve mobility to about 400,000 people.

1.5 Original Components

18. The original project comprises the following components (as defined in the PAD, approved by the Board of Directors of the World Bank on June 8, 2006):

Component 1: Road Rehabilitation and Improvement (US$10.13 million). This component financed the rehabilitation and improvement of the following road segments: Diriamba-La Boquita-Casares (32 km) principal road network; La Virgen-San Juan del Sur (19 km) secondary trunk road in Zones I, II, and IV.

Component 2: Rural Transport Improvement (US$41.87 million). This component included an adoquin stabilization program for approximately 320 km of secondary and tertiary rural roads located mainly in Production Zones I, III, and IV.

Component 3: Road Maintenance (US$7.64 million). This component included provisions for periodic (US$3.05 million) and maintenance (US$4.59 million) contracts. It was expected that four additional microenterprises would be formed, for a total of 37 microenterprises, in order to cover the maintenance of 2,400 km of secondary trunk and/or tertiary roads.

Component 4: Studies, Goods, Technical Assistance, Training, and Consultancy Services (US$7.75 million). This component included consultancy services for project supervision, financial audits, feasibility studies, preparation and updating of detailed engineering. It would provide training and institutional strengthening to various MTI units for planning, road safety, environmental, and social aspects (DGA- Environmental Directorate); and to FOMAV staff for microenterprise management. The component would contribute to

7 MCA modules are local entities formed under the leadership of local mayors, with each MCA staffed by a board of five directors to perform a specific road-upgrading task. MCAs join together and use economies of scale to hire an earthworks contractor and a cobblestone supplier. Individually, each MCA hires its own local labor in order to construct a specified stretch of road. The MCA personnel receive technical support and training from MTI from inception, and have an MTI supervisor and promoter accompanying them throughout the implementation process.

5

network development by helping to improve the planning and programming of the PMS (Pavement Management System) developed by the MTI’s Planning Unit. 1.6 Revised Components

19. Components 2, 3, and 4 were revised at the time of Additional Financing (AF), approved by the Board of Directors of the World Bank on June 1, 2010. As a result, the amended components were as follows:8

Component 2: Rural Transport Improvement (US$81.44 million). Implementation of restoration works for gravel or adoquin (concrete cobblestone) stabilization standards on approximately 320 kilometers of secondary and tertiary rural roads, all within the existing right of way. Due to cost overruns, the cost of this component increased and only 198 km could be stabilized with the financing allocated under the original project. Additional resources were allocated under the AF to this component to complete the remaining roads out of originally planned 320 km.

Component 3: Road Routine and Periodic Maintenance (US$13.84 million). 1. Implementation of routine maintenance works on approximately 2,700 kilometers of trunk, secondary, and/or tertiary roads; and 2. Implementation of periodic maintenance works on an additional 47 kilometers of selected main roads, in order to meet the established periodic maintenance target of 80 kilometers of selected main roads, all within the existing right of way.

Component 4: Studies, Goods, Technical Assistance, Training, and Consultancy Services, as needed (US$7.58 million):

a) Monitoring the performance of project components; the management and supervision of civil works contracts; the design and implementation of training programs, technical audits, surveys on traffic origin and destination, transport sector reviews; building of the MTI’s capacity for technical, social, and environmental analysis; holding of workshops on road network decentralization; design and implementation of reforms to vehicle overloading regulations; building the FOMAV’s capacity for road maintenance management; and preparation of the implementation completion report on the project.

b) Design and supervision of the overall road maintenance program by contractors, including, inter alia: (a) training for: (i) the staff of the MTI and FOMAV; and (ii) the microenterprises, as required; and (b) the operation of FOMAV, including the design of promotional activities.

c) The improvement of the MTI’s planning and programming capacity, including the integration of environmental and social practices into the planning cycle.

d) The preparation of feasibility studies and detailed engineering for road rehabilitation, improvement, and maintenance works to be carried out under the project, and supervision thereof.

8 Annex 2 presents a detailed comparison of original components and the revised components at the AF.

6

1.7 Other Significant Changes

20. The project underwent eight restructurings and received Additional Financing. The first restructuring took place on October 10, 2008, at the request of the GON to reflect the use of Force Account as an additional procurement method for the implementation of civil works under the Project.

21. Increase in construction costs in Nicaragua led to the second restructuring on April 7, 2010, as due to high costs the funds available under component 2 could only finance 198 km of rural roads stabilization with adoquines instead of 320 km originally planned. Thus, the intermediate indicator target for “km of rural roads stabilized” under the Rural Transport Improvement component 2 was reduced from 320 to 198 km. At the same time, the Borrower was requesting additional financing to achieve the originally planned target and cover the financing gap, and the Bank team was underway to prepare the Additional Financing. However, the financing was not confirmed at the time and the restructuring to reallocate proceeds among categories was going ahead anyway; therefore, the Bank team made a decision to reduce the target to ensure that the PDO and implementation progress ratings were not affected while the AF was being requested.

22. Shortly after the project was restructured the AF was confirmed, and on June 1, 2010, the Bank Board of Directors approved US$39.3 million equivalent to cover the existing project financing gap, given the increase in construction costs due to worldwide price escalation in oil and commodities. This constituted an IDA grant for SDR 21 million (US$31.8 million equivalent) and IDA credit for SDR 5 million (US$7.5 million equivalent). The project results framework was revised9 and the closing date was extended to December 31, 2012. US$14.3 million equivalent of the AF IDA funds were financed through the pilot Crisis Response Window (CRW) resources, with the following distribution: US$7.5 million credit and US$6.8 million grant. Nicaragua’s economy at the time was severely impacted by the global economic crisis of 2009; therefore, given the nature of this project was considered as a response to the crisis, the CRW resources benefitted the project in order to address the impact on the poor.

23. The project closing date was further extended two more times: (i) due to the delays in the procurement of contractor for the road construction works on the Nueva Guinea – Naciones Unidas section financed under the AF, the closing date was extended from December 31, 2012 to June 30, 2014 (extension approved on August 14, 2012); and (ii) to allow three additional months for using uncommitted US$2.3 million to procure adoquines (concrete cobblestones) to be used on existing project sites and to procure vehicles for supervision of works, the project closing was extended from June 30, 2014 to September 30, 2014 (extension approved on April 30, 2014).

24. Other restructuring included reallocation of proceeds among various categories to allow efficient completion of the project activities, carried out on May 25, 2011, and June 5, 2013. The last restructuring took place on September 29, 2014, to cancel the undisbursed balance under IDA Credit H5710-NI in the amount of SDR 1.7 million due to lack of

9 The changes introduced to the RF as part of the AF are detailed in Annex 2 and sections 1.3 and 2.3 of ICR.

7

sufficient time to receive any procured goods before project closing date and given that the project achieved its PDO and all results targets.

2. Key Factors Affecting Implementation and Outcomes 2.1 Project Preparation, Design, and Quality at Entry

25. Soundness of the Background Analysis. The project responded to an analysis of the national context and reflected the experiences of previous well-performing projects, the Second and Third Road Rehabilitation and Maintenance Projects (P053705 and P068673 respectively), both with highly satisfactory performance. These projects have also been noted as a success in the country and the Government considers the Bank to be a key development partner in its effort to meet the country’s infrastructure challenges in the road sector.

26. Like its predecessors, the Fourth Roads project continued to focus on key sector areas, including investments in improving and expanding the trunk and rural road network (including investments in the now widespread and highly successful stabilization program for adoquines, or concrete cobblestones, and routine microenterprise maintenance programs, which are unprecedented in geographical scope and build on local labor for construction and maintenance); ensuring funding and sustainability of maintenance schemes; and strengthening the sector’s institutional arrangements. Furthermore, the project design incorporated lessons learned from previous projects and experiences from similar projects in Latin American countries.

27. Adequacy of Government Commitment. The project enjoyed the strong support of the GON, since transport was a high priority among other sectors, as reflected in Nicaragua’s National Development Plan (PND) and in the CAS (ISN 2005) at that time. The GON made clear its commitment to a strategy that emphasizes poverty reduction through broad based growth and stressed the importance of improving road infrastructure and maintenance in its key strategy documents. The GON commitment was further evidenced by the (i) establishment of the FOMAV and the approval of the law to assure its reliable funding, (ii) MTI’s interest to pursue the road network improvement based on the more balanced approach followed under preceding Bank-financed projects which focused on both the maintenance and rehabilitation; and (iii) financing requests made at annual-donor conferences.

28. Assessment of Risks: the overall risk of the project was rated as Modest at entry. In general, the project’s potential risks and the measures to mitigate them were identified and incorporated adequately in the project design, which facilitated smooth project implementation as well as the achievement of the project outcome envisaged at appraisal. Though many risks were rated substantial or modest at entry, they were either mitigated successfully or did not arise during implementation: (i) the risk of inadequate and unreliable provision of counterpart funds flagged as substantial didn’t emerge as the allocation of funding by the Government and the Municipalities for the MCA modules was continuous; (ii) the risk that local contractors would perform poorly in the implementation of the adoquines road stabilization program was found modest at design, but turned out to

8

be low as MCAs acted as local entities formed under the leadership of local mayors and included local staff to manage, supervise, and implement the adoquines roads program successfully; and (iii) the risk that the MTI/FOMAV had limitations in managing an expanded program of road maintenance by private contractors was rated modest, but turned to be low, since FOMAV not only continued with the program but also created a greater number of microenterprises to maintain the 3,200 km of the road network.

29. Assessment of Project Design. The project PDO as designed was clear and reasonable and its outcomes were adequately attributable to the operation. The project objectives were important for the country and sector and furthered the CAS (ISN 2005) and NDP priorities by addressing the deficiencies of road infrastructure. The most extensive and growth-crippling infrastructure bottlenecks in Nicaragua were in the road sector. The project design was responsive to these priorities and supported the following actions for removing these bottlenecks: (i) expansion of rural road stabilization programs with adoquines to improve and expand further the paved road network; (ii) emphasizing maintenance by setting up comprehensive maintenance programs; and (iii) boosting the productivity of public and private investments through improvement of connecting networks of collector, secondary and rural roads in targeted areas with high productive potential, and that have large numbers of poor residents. The PDO was also consistent with the GON’s poverty reduction rationale, since the MCA modules contributed to generation of employment opportunities by empowering local municipalities and beneficiary communities through the implementation thereof and enhanced mobility and accessibility of rural population to an all-season paved road.

2.2 Implementation

30. Project implementation, including compliance with both the original project and its AF, was satisfactory. Implementation was also rated satisfactory in all of the Implementation Status Reports (ISR), and highly satisfactory in the last ISR. In general, the project was implemented smoothly and efficiently by the MIT’s Project Coordinating Unit (PCU), with the support of the different Directorates of the MTI (DGA, Financial and Administrative Directorate (DGAF), etc.). The PCU had amassed considerable experience through the implementation of several transport projects and developed an adequate technical capacity in project planning, procurement and safeguards. It also provided technical advice and shared knowledge with the MCA’s beneficiary municipalities for the implementation of Rural Transport Improvement (Component 2) in safeguards, financial, and procurement procedures. It is worth mentioning that there were some events that occurred during the project’s life and delayed the implementation. These were as follows:

Factors outside the Control of the Government

31. The increase in construction costs in Nicaragua led to a project restructuring. A worldwide escalation of oil and commodity prices resulted in an increase in construction costs in Nicaragua following the project start-up. The analysis undertaken during project implementation showed that all key cost drivers under Component 2 suffered major increases between 2004 and 2009: cement (99 percent), adoquines (cobblestones) (50 percent), and transport costs (150 percent), among other factors. For this reason, the project

9

was restructured in March 25, 2010, allocating most of the funds to Category 1 “works,” reducing allocation of funds to Component 4 (Technical Assistance and Consultancy Services). With the AF, approved in June 2010, Component 4 was given back the funds reallocated under the restructuring in order to achieve the proposed intermediate outcomes established at appraisal. In the end, the reallocation of funds did not at all affect project implementation or the intermediate outcome targets.

Factors generally subject to Government Control

32. Change in the procurement method for earthworks services and the supply of adoquines under the MCA prolonged the Project implementation period. The contracting of MCAs required a special procurement method, which was confirmed and agreed at appraisal. The initial procurement method for the MCAs was through price comparison or shopping for both earthworks and pavement with adoquines. At Additional Financing, the Bank team recommended that the contracting of earthworks and the supply of adoquines be subject to a National Competitive Bidding (NCB) process at the municipal level, due to high contract amounts, which were less than US$1.5 million per contract, and due to the high demand of MCA modules, totalling 272 in all. The operational guidelines and bidding documents were thus adjusted in order to: (i) ensure transparency and competitiveness; and (ii) benefit from economies of scale, contract prices, and administrative effort. As a result, the MCA implementation period was increased by two to three months, on average, per module.

33. The AF introduced several changes to the project structure. These were: (i) partial adjustments to the road sections included under Component 2 to ensure the consistency of the overall package of works, as well as their economic, procurement, financial, social, and environmental viability; (ii) revision of the institutional strengthening and capacity-building program, respecting the main components defined under the original project but reviewing the overall scope of activities to ensure that these continue to be relevant, given existing institutional needs; (iii) reallocation of funds between components and categories, to compensate for prior reallocations under the original project; (iv) slight modifications to the financing plan; (v) reestablishment of the original intermediate outcome under Component 2 (MCA modules) of 320 km of rural secondary and tertiary roads (which had been reduced to 198 km after restructuring); (vi) adjustments to existing institutional arrangements, particularly with regard to procurement, financial management, and safeguards; (vii) incorporation of the project’s core indicator (number of rural people with access to an all-season road) into the project’s overall monitoring and evaluation framework; and (viii) allocation of funds under Component 4 for a new survey to update the original baseline measure taken in 2000 by the Living Standards Measurement Household Survey. The AF included a revision of the operational guidelines and procurement plans to complete all works. To ensure sustainability of the MCA modules, the AF also introduced the microenterprise maintenance system implemented by FOMAV.

34. Effect of the Additional Financing on intermediate outcomes. As shown in Table 1, the AF was needed in order to achieve the project original target values, as the project restructuring only permitted to rehabilitate 198 km of rural roads stabilized with adoquines instead of 320 km, and to intervene in only 33 km of road periodic maintenance, out of the

10

80 km envisaged at appraisal. Also, it was required to continue with the institutional strengthening and capacity building of both MTI and FOMAV staff.

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

35. Design. Project M&E was planned against the project results framework (formerly the logical framework) designed at appraisal. The PDO outcome and intermediate results indicators were adequately and comprehensively designed at appraisal from a technical, social, and sustainability standpoint. The indicators were properly aligned with the PDO and components, as designed and presented in Annex 3 of the PAD. The WB was proactive to recognize during implementation that results framework could be further improved and took advantage of the Additional Financing approved on June 1, 2015, to revise some PDO level targets. Specifically, the PDO target of increased mobility for resident of rural communities was too optimistic, with expectation of 500 bicycle daily traffic (bdt) on the adoquines rural roads at project completion. Therefore, the WB modified the target by reducing it to 300 bdt. It is also important to note that this indicator is more of an impact indicator and hence should be measured three years after project completion to allow more time to be fully realized and reach a higher target. Additionally, the WB incorporated the fifth PDO indicator (share of rural people with access to an all-season road) to measure the project impact on accessibility of target population to year-round road infrastructure. This was a core indicator required for all IDA operations, referring to the number of people living within 2 km of an all season paved road. However, the indicator was not assigned a target value, and the baseline for the indicator was taken from the 2000 Living Standards Measurement Household Survey results for the entire country. Although the indicator would have provided a stronger evidence if it were confined to the project areas of influence rather the entire country, it still provides an adequate measure of impact, and the project’s contribution towards this impact is direct with 361 km of roads paved in the populated rural areas.

36. The WB also took advantage of the AF to adjust the target values for a few other intermediate indicators to ensure that the results framework was more adequate to reflect the rapid implementation progress than expected at appraisal and the allocation of additional resources under the AF. These included: (i) target for “Km of roads being maintained (routine with microenterprises)” was increased from 2,400 to 2,700 km (the actual value in June 2010 was reported at 2,573 km, already exceeding); (ii) the target for “number of FOMAV and MTI staff trained in planning and mgmt courses” was revised from 6 to 40 staff (in 2010 the actual was already at 26, exceeding the original target); and (iii) the target for “share of road network condition surveyed” was raised from 33 percent to 35 percent (by 2010, the actual value already reached the target of 33 percent). Other changes introduced during the AF were amendment in intermediate outcome indicators: (i) “Km of roads being maintained (periodic maintenance)” was added as a new intermediate indicator for component 3; (ii) intermediate indicator under component 4 on “dissemination workshops on project monitoring and evaluation” was rephrased to “number of training workshops attended by MTI/FOMAV staff road” and its target was reduced from 6 to 4 workshops; (iii) component 4 intermediate indicator on “share of road network transferred to Departmental” was dropped due to being no longer relevant and applicable as the maintenance of classified road network was under full responsibility of FOMAV, and the

11

local roads were already under the municipal management; (iv) the intermediate indicator under component 2 was revised slightly from “Km of roads stabilized each year” to “Km of roads stabilized (total)”, and its original target of 320 km was reinstated (it was reduced to 198 km after restructuring due to cost overruns approved on April 7, 2010).

37. Implementation and Use. The MTI’s planning division was in charge of collecting, analyzing, and reporting project performance indicators. It had a team that collected project data indicators and performed the ex-ante economic evaluation at appraisal. The WB had access to the data necessary to analyze performance and detect issues. The Bank used this information to satisfactorily carry out the project’s restructuring and prepare the AF. The results framework matrix was adjusted accordingly, especially at the appraisal of the AF.

38. Nevertheless, at the stakeholder workshop, there was an evaluation of the M&E framework and it was found that despite the technical merit of the indicators, the complexity of the performance measurements required is not commensurate with the capacity of the PCU and other MTI Directorates to collect data and calculate the indicators on a periodic basis. The preparation of the ex-post evaluation using HDM-4 and Red Models at project completion also experienced some delays in providing the necessary inputs to finalize the ICR’s economic evaluation. Going forward, the MTI and its Directorates will be strengthened in the implementation of the M&E system to ensure that indicators are adequately measured and reported on a regular basis. The follow-up project will provide technical assistance to the MTI in M&E.

39. The WB carried out a non-experimental Impact Evaluation of the Rural Roads Project on welfare and education in September 2013 to evaluate the project’s impacts. The objective of the impact evaluation was to measure the beneficiaries’ change in welfare outcome attributable to the project (the findings of this study are summarized in Section 3.2 and in Annex 10).

2.4 Safeguard and Fiduciary Compliance

40. Safeguards. Project preparation with regards to safeguard aspects was carried out in accordance with Bank guidelines and reflected in the Project’s Operational Manual. Two safeguards—Environmental Assessment (OP/BP 4.01) and Physical Cultural Resources (OP/BP 4.11)—were triggered under the original project and were maintained under the AF. The project was rated as a Category B. At appraisal, the MTI had acceptable manuals for ensuring compliance with Bank safeguard requirements.

41. Project performance was consistently rated satisfactory for compliance with these safeguard policies for both the original project and its AF. Furthermore, the MTI’s PCU and the DGA satisfactorily applied the guidelines for the Road Rehabilitation and Improvement, the Rural Transport Improvement, and the Routine and Periodic Maintenance components. During implementation, the project did not involve any major negative environmental impacts because it rehabilitated and maintained existing road infrastructure, thereby not expanding into previously untraversed areas of high ecological importance. Occupational health and safety standards were generally observed to be satisfactory, construction sites were well maintained and borrow pits were for the most

12

part, well rehabilitated. It is worth noting that the Bank provided extensive institutional strengthening in environmental management to the MTI, the FOMAV, and at a municipal level for the implementation of the MCA modules.

42. Social safeguards, involuntary resettlement, and indigenous peoples. These policies were not triggered because no new roads were being constructed and the existing roads were rehabilitated and maintained within their right of way.

43. Procurement. The special procurement method for contracting the MCAs was confirmed at appraisal. Performance in this area was generally adequate, except for some delays in processing and contracting the earthworks and adoquin supply by MCA staff. These procedures took longer than expected due to a change in the procurement method from three quotes to an NCB process. The World Bank provided active supervision and training to MCA community staff and addressed these delays. For the AF, the World Bank carried out an Independent Procurement Review of the project, and its findings were incorporated into the operational manual and the guidelines for MCAs. In general, procurement supervision, including ex-post evaluations and field visits, found no significant deviation from World Bank policies under the Road Rehabilitation and Rural Transport Improvement components.

44. Financial management. The financial management performed by the MTI’s DGAF was satisfactory, since the General Directorate maintained in general adequate financial arrangements and applied sound financial management practices throughout the implementation of both the original project and AF. These included adequate internal controls and the use of the Integrated Financial Management System (SIGFAPRO) module to perform the reconciliation of accounts, track transfers and performance of MCAs, providing useful and timely information for monitoring purposes by the MTI’s PCU and the Bank. The DGAF has maintained qualified and experienced key operational staff, adequate processes and procedures, and a satisfactory information reporting system generally on time or with small delays in the submission of the IFRs to the Bank. Project interim financial reports and financial audits were submitted in a timely manner. External project audits were carried out on an annual basis, determining the adequacy of the accounting system and internal controls by the MTI-DGAF. Audits presented had unqualified opinions, although some internal control issues were identified. These issues were addressed by the PCU.

2.5 Post-Completion Operation/Next Phase

45. The transition arrangements for the post-project operations have been put in place in terms of ensuring sustainability of the roads rehabilitated under the project. Currently, the FOMAV maintains 3,200 km of trunk, secondary, and tertiary roads through 52 microenterprises. FOMAV is self-sustainable with a steady flow of internal resources generated from the diesel and gasoline levies. The roads rehabilitated under the project have already been included in the FOMAV operational plan. The FOMAV hires private contractors via public bidding processes, which also represents a key element of an efficient strategy toward the adequate provision of road maintenance, especially the roads rehabilitated under the project. This well-functioning arrangements have been set in

13

motion through the continuous dialogue during this and previous Bank financed project in the road sector, including the establishment and institutional strengthening of FOMAV.

46. In addition, the satisfactory performance of the currently ongoing Bank-financed Rural Roads Infrastructure Improvement Project (P123441 – IDA-50280 and IDA-H7440) is an important factor attesting to the efficient mechanisms in place for routine and periodic maintenance and the well-established capacity of FOMAV to date. The ongoing project has also been focusing on the sustainability of the MCAs after the construction works are completed by supporting FOMAV in training and engaging them in maintenance works of rural roads.

3. Assessment of Outcomes 3.1 Relevance of Objectives, Design, and Implementation Rating: High

47. The relevance of the PDOs is considered high. The PDOs have remained aligned with the country’s goal to improve economic growth and reduce poverty and with current priorities of the GON. In Nicaragua, most of the poor live in rural areas and many in remote communities where access to basic services is still constrained by very limited infrastructure, including rural roads. The project was consistent with the 2005 CAS under the productive and social public infrastructure area of the results matrix, especially in regards to targets on the sustainability of maintenance and improving rural access. Furthermore, improving road access for rural areas continued to be part of the GON’s poverty alleviation strategy and was aligned with the key pillars of the CPS (2009). The PDO remain consistent with the current CPS (2012) for Nicaragua, which emphasizes the need for rural road rehabilitation and sustainable road maintenance programs among the priorities.

48. The relevance of project design is rated high. Besides being in line with the country’s priorities at the time of appraisal, the project investment components were directly linked to the PDO and the intermediate outcome indicators. The lending instrument was the Specific Investment Credit (SIL) and was found appropriate given the successful approach of previous projects. The implementation arrangements were adopted using the same institutional setup up as in preceding projects, which had proven to be effective, highly relevant and ensured the continuity. In addition, the Bank team took into account the changed circumstances – the increase in construction costs – and responded promptly by processing an AF in June 2010. This action was highly relevant as it permitted not only closing the financing gap and achieving outcomes that had temporarily suffered due to cost increases, but also improving the results framework to ensure that the indicators and their targets were aligned with the PDO and the components even more strongly.

14

3.2 Achievement of Project Development Objectives

Rating: High (original) and High (revised)

49. Overall, the project has benefited more than 785,000 people (direct beneficiaries) with the improved road sections, providing access for local populations to markets and services, and bettering transit conditions and the reliability on the road network that is being maintained throughout the country. The MCAs model with the predominant use of local labor, materials, and technology, has also been highly successful in generating short-term employment opportunities, enhancing technical and entrepreneurial skills, and fostering community ownership of rural roads.

PDO 1: Improve the Recipient’s Transport Infrastructure along Selected Main Road Corridors – High (original) and High (revised)

50. The selected road corridor improvements had significant impacts on the economic welfare of the beneficiaries: rural populations (poor and non-poor), agricultural producers, and transporters, as evidenced further (see Impact Evaluation Results). This was achieved through rehabilitation of a total of 52 km (target of 51 km) of trunk and secondary roads, exceeding the originally targeted 51 km. Given that most of the works were undertaken with a focus on the productive regions of the country, this output contributed towards attaining economic development and poverty reduction. (Annex 2 provides details on outputs by component.)

51. The rehabilitation of La Virgen-San Juan de Sur (19.25 km of secondary trunk road) and Diriamba-Casares-La Boquita (32.32 km of trunk corridor road) benefited the Rivas and Carazo Departments and the municipalities of Rivas, San Juan del Sur and Diriamba, respectively. The implemented works in these road sections have extended the life of the pavement for an estimate of 20 years and the average roughness (IRI-International Road Roughness Index) has been reduced from 8 in 2006 to 2.6 in 2014, exceeding the target of 3.5. This is reflected in major benefits in terms of reduction in vehicle operating costs and increased average daily traffic from 380 in 2006 to 480 vehicles per day (vpd) at closing, exceeding the original target of 460 vpd and meeting the revised target of 480 vpd.

52. La Virgen-San Juan del Sur road is the main link between key agricultural areas and the Pan-American Highway, while Diriamba-Casares-La Boquita road connects one of the country most important tourism area. In general, these road corridors are now in conditions to better support connectivity with the productive regions of the country, as envisaged at appraisal.

53. Thus, the project contributed to PDO 1 – improving the Recipient’s transport infrastructure along selected road corridors – to high extent against both the original and revised targets.

15

PDO 2: Improve Access to Productive Zones and to Rural Communities – Substantial (original) and High (revised)

54. By project completion, a total of 361 km of rural roads paved with adoquines had been rehabilitated, exceeding the target of 320 km and providing access to productive zones and rural communities, including access to the infrastructure-deficient Atlantic Region with a new 24 km road section between Nueva Guinea and Naciones Unidas. The completion of these adoquin-paved roads contributes to improving the country’s competitiveness and export capacity of productive zones (main agricultural products: coffee, milk, beans, and sugar cane). Now, with a faster and reliable access the products are delivered in better condition, which is a critical factor for cattle and motion-damage-sensitive agricultural produce.

55. The rural road stabilization with adoquines played an important role towards achievement of the World Bank’s shared prosperity goal by providing access to rural communities to a year-round high-quality access to a paved road. As a result, the project contributed directly to the overall increase of the paved roads in the populated rural areas with 361 km of paved rural roads, and hence to the increase of share of population living within two km from a paved road, which increased from 28 percent at the time of AF to 38 percent at project completion, constituting 989,162 people. Although the indicator would have provided a stronger evidence if it were confined to the project areas of influence rather the entire country, it still provides an adequate measure of impact, and the project’s contribution towards this impact is direct with 361 km of roads paved in the populated rural areas. Moreover, it is accurate to note that 100 percent of population who were living within two km from the project financed rural roads gained access to an all-season paved road after the project.

56. Construction of adoquin-paved roads using the MCA model10, a community based approach for rural road works implementation, has provided a number of direct social benefits to local people, such as: (i) generation of short-term employment opportunities in the road construction; (ii) promotion of entrepreneurial spirit and development of technical capacity at the local level; (iii) engendering ownership through the participation of local mayors and residents during the construction stage; (iv) creating sustainability during the operation and maintenance stage through rural microenterprises; (v) using of predominantly local labor; and (vi) stimulating an opportunity for mainstreaming gender into the adoquin construction process. Total of 12 contractors, private contractors and the MTI’s public agency the Regional Highway Construction Agency (COERCO), completed pavement of 107 km of rural roads with adoquines, and a total of 272 MCAs were formed to complete the remaining rural roads with adoquines, together exceeding the original target of total of 12 MCA/contractors.

57. Increased mobility of residents in rural communities. The improved riding surface of the roads with adoquines generated non-motorized transport by means of bicycles. The MTI reports that community residents started using bicycles when the road stabilization was completed, and hence the bicycle daily traffic (bdt) has grown from near zero before

10 Annex 11 provides a detailed description of the MCA approach adopted by the project.

16

the project to over 320 bdt, exceeding the revised (reduced) target of 300 bdt. As mentioned earlier, the original PDO target of 500 bdt was too optimistic and thus was reduced (see section 2.3 above). Non-motorized transport facilitation (bicycle traffic) is another advantage of the road stabilization with adoquines over the gravel roads, which enables a cost-effective modality for improving the rural mobility. (Annex 2 provides details on outputs by component).

58. The MCA model is now one of the key pillars in the transport sector in Nicaragua due to the strong results on the ground in terms of benefits from improved mobility, promotion of economic development and shared prosperity.

59. The project achieved PDO 2 to high extent against the revised target for the number of bicycle daily traffic and in regards to share of population with access to an all-season road. Against the original indicator targets, the project overwhelmingly exceeded all original output targets and provided benefits discussed above. However, given the project’s modest contribution towards achievement of an original target for bicycle traffic, which was too optimistic and notionally set at appraisal, the achievement of PDO 2 against original targets is rated lower, i.e. substantial.

Specific Objective 3: Ensure the Sustainability of the Road Improvements Carried Out under the Project - High

60. At project completion, the FOMAV carried out routine maintenance on 3,200 km of roads, exceeding the revised (increased) target of 2,700 km, which included the 413 km of trunk, secondary, and tertiary roads rehabilitated under the project. Routine maintenance was carried out by 52 routine maintenance microenterprises. Under the project FOMAV established 19 additional routine maintenance microenterprises, bringing the total number of microenterprises managed and supervised by FOMAV to 52, exceeding the target of 37. These microenterprises are providing sustainability not only to the road improvements carried out by the project but also to the whole road network administered by FOMAV. In addition, 95 km of roads underwent periodic maintenance implemented by FOMAV, exceeding the end target of 80 km.

61. It is worth noting that the project supported improving FOMAV’s planning, technical and financial capacity. Initially at inception, the FOMAV depended mainly on a small annual government budgetary allocation and some financing from multilateral banks, at less than US$2.4 million per year. After the amendment was approved in December 13, 2005, with the support of the previous Third Roads project, allowing FOMAV to receive funding from fuel surcharges, the maintenance budget grew considerably. With the support and continued sector dialogue carried out under the Fourth Project, a total allocation to FOMAV reached US$46 million per year by 2014. This increased funding for maintenance allowed reaching the target of 23.3 percent or 4,435 km of total classified 19,036 km network being in good and fair condition, exceeding the target of 4,187 km or 22 percent of roads being in good and fair condition proposed at appraisal.

62. In summary, the following activities supported by the project also contributed to the successful achievement of this objective: (i) the continued approval of legislation for

17

FOMAV’s funding via the tax levy of a surcharge on fuels (16 cents per gallon on diesel and gasoline); (ii) the priority given to performance of periodic road maintenance by private contractors and routine road maintenance by local microenterprises; and (iii) the training and capacity building of the FOMAV staff and specific trainings provided in various areas to microentrepreneurs. Both MTI and FOMAV fully adopted the use of HDM and RED models in their road maintenance and development program, which contributed to improving technical, planning and management capacity of the institutions.

63. Thus, the project contributed to PDO 3 – ensuring the sustainability of the road improvement investments – to high extent.

Impact Evaluation Results

64. An impact study was carried out to estimate the impacts of average income and school enrolment using both the simple DID-PSM (Difference-in-Differences with Propensity Score Matching) model and DID-PSM with covariates, resulting with similar conclusions. It is important to note that the DID estimator measures how much greater (or smaller) was the impact of the rural road project on the treatment group compared to that in the control group. A 2005 baseline and a 2011 ex-post evaluation were used (see Annex 10).

65. The main findings for income are that the project had a strong positive impact on the total average income of the intervened municipalities. The simple DID matching showed that on average, and holding all else constant, being part of the rural roads project increases by 26.5 percent the monthly average income of the population of the intervened municipality. This finding proved to be significant at the 90 percent confidence level. According to simple DID regression, rural roads improvement increases monthly average income by around C$861.96 (equivalent to US$34.25). Similarly, when the covariates were added to the simple DID model; the impact increases and becomes significant at the 95 percent confidence level. According to this model, on average participation in the rural roads project had a 28.5 percent positive impact on the average income of the population in the municipalities where the project was implemented. Moreover, this model found that rural roads improvement increases monthly average income by around C$876.80 (US$34.84).

66. When the income was broken down by gender, it was found that the project had a more significant and greater impact on women’s income than on men’s. On average women’s income in the intervened municipalities is estimated to increase 77 percent (according to the simple model) or 82 percent (under the DID with covariates) due to the implementation of the rural road project. In other words, due to the rural roads implementation women’s monthly average income in the targeted municipalities increased C$1,125 (equivalent to US$44.7) under the simple model and C$1,160 (about US$46.1) according to DID-PSM with covariates. These results proved to be very significant. The impact on men’s monthly average income was unclear. Nevertheless, men’s overall average monthly income remained higher than that of women.

67. The study found no evidence that the project had a positive impact on school enrolment. This result is contrary to what was expected. The study suggested that richer

18

ex-ante and ex-post data is needed to investigate in more depth the possible reasons for the findings; for example, using more disaggregated observations of the community of household units, including information on interventions by other institutions, and evaluating much longer-term impacts.

Split Evaluation of Outcomes

68. At the time of AF approved in June 2010, a restructuring was carried out to introduce a new PDO outcome indicator and to revise targets of two PDO indicators (target for Indicator 1: “Increase in traffic volumes and reduction in vehicle operating costs” was increased from 460 vpd to 480 vpd and target for Indicator 2: “Increased mobility for residents of rural communities” was reduced from 500 bdt to 300 bdt). Thus, the achievement of outcomes has been evaluated against the original and revised targets before and after the changes were made for PDO 1 and PDO 2 respectively (Table 1 below summarizes the analysis).

Table 1. Assessment of Efficacy Pre- and Post- Restructuring

PDO Indicator Targets Actual Values Percent Achieved

Aggregate Rating of Efficacy: Original Efficacy – High; Revised Efficacy - High

Specific Objective 1: to improve the Recipient’s transport infrastructure along selected main road corridors Rating (against original target): High Rating (against revised target): High (i) to improve the Recipient’s transport infrastructure along selected main road corridors

Original: 460 vpd and 3.5 IRI Revised: 480 vpd and 3.5 IRI

Actual value: 480 vpd and 2.6 IRI

Original: 105% Revised: 100%

Specific Objective 2: to improve access to productive zones and to rural communities Rating (against original target): Substantial Rating (against revised target): High (ii) increased mobility for residents of rural communities

Original: 500 bdt Revised: 300 bdt

Actual value: 320 bdt

Original: 64% Revised: 107%

(v) share of rural population with access to an all-season road

Revised: Target not defined

Actual value: 38% Revised: 35% increase from the baseline (achieved 100%)

Specific Objective 3: to ensure the sustainability of the road improvements carried out under the project Rating: High (iii) increased share of road network in good and fair condition

Original: 22%

Actual value: 23.3%

Achieved 106%

(iv) incorporation of improved management and planning procedures by MTI and FOMAV

Original: 50% of program applies HDM and RED models

Actual value: 100%

200% achieved

19

3.3 Efficiency

Rating: High

69. Major benefits to the population were realized from the Road Rehabilitation component through improvement of road condition on 32.32 km Diriamba – La Boquita road section and on 19.25 km La Virgen – San Juan del Sur road section. Specifically, the International Roughness Index (IRI) on Diriamba – La Boquita road section was reduced from 10 to 2.3 and on La Virgen – San Juan del Sur road from 8 to 2.8, associated with significant travel time savings and reduction in vehicle operating costs (VOC) on both roads. The actual capital costs were US$200,000 per kilometre for Diriamba – La Boquita and US$236,500 per kilometre on La Virgen – San Juan del Sur, with only the latter exceeding the appraisal estimate by 18 percent.

70. Despite the cost overruns, the Economic Internal Rate of Return (EIRR) still remains positive for both the Diriamba – La Boquita road section at 27.8 percent, and the La Virgen – San Juan del Sur section at 46.4 percent. The Net Present Value (NPV) at 12 percent discount rate for the section Diriamba – La Boquita resulted in US$9.1 million (based on VOC and time savings), which is 37.73 percent lower than was estimated at appraisal but still significantly viable. For the section La Virgen – San Juan del Sur the NPV is estimated at US$18.18 million (based on VOC and time savings), which is significantly higher than expected at appraisal. The higher than expected return on the La Virgen – San Juan del Sur road can be explained by the rise of tourist developments in the southern region where the section is located.

71. The benefits to the population realized from the Rural Transport Improvement component through stabilization with adoquines and improvement of road condition on 361 km of rural roads were significant. Specifically, the IRI on these roads was reduced from about 16 to 6.7, associated with significant travel time savings and reduction in VOC. The VOC savings were more significant for heavy vehicles, which contributes to reduction in production costs, which is one of the main objectives of improving rural roads.

72. At appraisal, it was estimated that improvement of 320.2 km of rural roads would require a total investment of US$41.256 million, which would yield a NPV of US$48 million and an EIRR of 34 percent. However, the cost overruns and the addition of new road sections resulted in the need of additional financing. As a result, despite the cost overruns, the investment on 198 km under the original project yielded a positive NPV of US$129 million and a EIRR of 54 percent, while the for the road sections under the Additional Financing the ex-post analysis yielded a NPV of US$53.38, and an EIRR of 34 percent.

73. Although there were cost overruns, the economic returns were significant for the major infrastructure components and have all been completed. Therefore, the efficiency is rated high.

20

3.4 Justification for the Overall Rating Rating: Highly Satisfactory

74. Relevance. The relevance of the project objectives and design remains high and is supported by the similar follow-up operations in the transport sector. The GON’s commitment has been high at appraisal, additional financing and completion, and the project objectives have been aligned with the priorities in the CAS (both 2005 and 2009) and the National Development Plan.

75. Efficacy. The overall efficacy is rated high against the revised targets as evidenced by the achievement of all the PDO outcomes, given the project: (i) improved transport infrastructure along selected road corridors evidenced by the significant reductions in VOC (as a result IRI decreasing to 2.5) and the major increase of traffic to 480 vpd; (ii) improved access to productive zones and to rural communities through provision of additional 361 km of rural adoquin roads and thus contributing to the increased share of populations living within two km of an all-season paved road and increased rural mobility with bicycle usage reaching 320 bdt; and (iii) ensured the sustainability of the road improvements carried out under the project with share of roads in good and fair condition increasing to 23.3 percent, and the MTI and FOMAV fully adopting the HDM and RED models for managing road network maintenance and development. Against the original targets, the aggregated efficacy is also rated high considering, given that the project achieved or overwhelmingly exceeded all original PDO outcome and output targets, except the original target for bicycle traffic, which did not have any adverse impact on the PDO achievement and overall project outcome.

76. Efficiency. The project efficiency is rated high as the economic assessment of the overall investments yield high returns and all activities and outputs included in the project were fully implemented and achieved.

Table 2. Weighted Average of the Outcome Ratings

Against Original PDOs (pre-2010 AF)

(High Relevance, High Efficacy,

High Efficiency)

Against Revised PDOs (post-2010 AF)

(High Relevance, High Efficacy,

High Efficiency)

Overall

Rating Value* 6 6 Weight (% disbursed) 54% 46% 100% Weighted value 3.24 2.76 6

Final Rating Highly Satisfactory

* Assigned rating values: Highly Satisfactory=6, Satisfactory=5, Moderately Satisfactory=4, Moderately Unsatisfactory=3, Unsatisfactory=2, and Highly Unsatisfactory=1.

77. There were no shortcomings in the project’s achievement of its objectives, in its efficiency and relevance. Based on the weighted ratings against PDO presented in Table 2 above before and after Additional Financing restructuring, the overall outcome is rated highly satisfactory.

21

3.5 Overarching Themes, Other Outcomes and Impacts (a) Impacts on Poverty, Gender Aspects, and Social Development

78. Impacts on poverty through job creation in rural areas. Employment-intensive construction and maintenance offers the opportunity for the absorption of low- or semi-skilled individuals, bringing into the employment fold normally employment-marginalized groups like women and youths. The MCA model used local community labor, and was very successful in generating short-term employment, enhancing technical and entrepreneurial skills, and engendering a sense of community ownership of the roads.

79. The MCA model created 648,000 temporary jobs. Under the model, women’s participation increased from 10 to 34 percent in board membership positions; and to 15 percent of the total employed. Besides creating job opportunities in the short term, the MCAs were found to have contributed to technology transfer, skill building, and ownership creation (Muzira and Hernandez de Diaz 2013. Thus, the MCA model has a great impact on poverty reduction in rural areas (see Annex 11: Community Adoquin Model (MCA)

80. Gender inclusion. Component 2 of the project—Rural Transport Improvement—included a cobblestone (adoquines) stabilization program for approximately 361 km of secondary and rural roads, out of which 272 km were performed by MCA modules. These MCA promoted the participation of female engineers, accountants, traffic controllers, and field workers. Additionally, as a response to the request from families headed by women, training courses for MCA activities were designed to recruit women and mitigate and counteract cultural resistance to women working in road construction and maintenance. With the assistance of the Bank team, the MCA approach was improved from previous projects and appropriate guidelines were designed in order to incorporate and promote women’s participation.

81. The MTI made significant efforts to provide equal opportunities for women in the field. This was evidenced by the fact that women were recruited to act as presidents of the MCAs, supervise works, work as treasurers, act as a traffic controllers, work as pavement fillers, and, in a few cases, install the adoquines. This MTI policy improved management, transparency, and performance of the MCAs executed during project implementation. This was done by delegating the management to the municipalities and to the beneficiary communities, transferring the funds to local MCA staff, and providing continued technical support and training by UCP staff. Despite encouragement from the MTI and the project, current participation of women in MCA totals just 15 percent.

82. The Bank carried out a Road to Agency study under the Umbrella Facility for Gender Equality, which looked at the effect of women’s participation in road construction and maintenance and in the promotion of rural economic activities on a women’s agency11. The main conclusion of the study was that women’s integration into rural road projects

11 “Agency” here refers to self-esteem, the ability for a person, or agent, to act for herself or himself.

22

enhances their agency, and thus, that projects should capitalize on this. The key internal and external enablers of agency that emerged from the qualitative research are also presented in this study. The countries included in the study were Argentina, Nicaragua, and Peru. The project was taken as the case study for Nicaragua and a summary of the key findings is presented in Annex 12.

(b) Institutional Change/Strengthening

83. The project made significant contributions to the institutional strengthening of the transport sector in Nicaragua. In particular, the project:

(a) Provided a Master’s Degree in Roads to both MTI (24) and FOMAV (2) staff members. (b) Provided technical assistance for the strengthening of procurement, planning,

operations, and environment to MTI and FOMAV staff members. (c) Assisted in the development of the MTI’s new website upgrade by training 5 staff

members. (d) Improved the capacity to resolve social and environmental safeguards issues by

training MTI (22) and FOMAV (18) staff members from the environmental and social units.

(e) Strengthened the capacity of MTI staff through the provision of a graduate degree in “designs, evaluation, and management of investments projects, with an emphasis on transportation infrastructure” to MTI (13) and FOMAV (1) staff members.

(f) Strengthened FOMAV’s capacity to monitor rural maintenance microenterprises based on the results payment indicator model, through consultancy services for improvements in the microenterprise system.

(g) Carried out training sessions for microenterprise staff on issues of public health, gender, the environment, and cooperation.

84. It is worth mentioning that the capacity-building provided to the FOMAV has been satisfactorily implemented and its staff has considerably improved its operational capacity in several areas, including: financial management, planning, road asset management, social and environmental safeguards, reporting and monitoring, and economic evaluation using the HDM-4 and Red Models, especially related to periodic road maintenance. A South-to-South visit was also provided for the maintenance staff team, who travelled to Peru to learn and share experiences under the microenterprises model. The FOMAV now has the capacity to administer, supervise, and make payments to microenterprises based on the results indicators scheme financed with project funds.

(c) Other Unintended Outcomes and Impacts (positive or negative) N/A 3.6 Summary of Findings of Beneficiary Survey and/or Stakeholder Workshops

85. MCA beneficiaries’ experiences and perceptions. A focus group was organized to document the experience and perceptions of beneficiaries of projects carried out under the MCA modality. It was directed at members of the board of directors of various MCA

23

modules and included interviews with members of the PCU of the MTI-World Bank project, as well as information collected from field visits. The focus group was carried out in November 2012 at the MTI’s facilities. A total of 41 boards of directors’ members from MCA modules participated from several road samples. The participants had a positive perception of the MCA modules, mentioning the following key aspects: knowledge transfer; creation of direct and indirect jobs; capacity building in entrepreneurship; leadership skills; and the participation of local population in the engagement and execution of works.

86. Stakeholder workshop. The project team carried out a workshop with stakeholders on November 26, 2014, in order to obtain their impressions and lessons learned, principally with key staff from the MTI, FOMAV, and UCP. This workshop had excellent results, seeking to transmit the lessons learned by the MTI staff. These lessons will improve the design of future transport projects in Nicaragua. The findings of this workshop are presented in Annex 6, and the lessons learned are reflected in this ICR. The Workshop Report is available in the Bank’s project files.

4. Assessment of Risk to Development Outcome Rating: Moderate

87. The risk to development outcome is “Moderate”. At the end of the Fourth Rehabilitation and Maintenance Project, Bank involvement had been through the financing and implementation of several transport projects and as a strategic partner of the Nicaraguan Government for more than 17 years, benefiting public transport sector agencies and raising the expectations of the local communities with regard to the quality of the transportation system, especially with the innovative MCA modules. Moreover, the MTI and FOMAV have gained significant experience in planning, project implementation, safeguards, road asset management, and economic evaluation. The FOMAV is currently self-sustainable, covering more than 3,200 km with 52 microenterprises funded by taxes levied on gasoline and diesel.

5. Assessment of Bank and Borrower Performance 5.1 Bank Performance (a) Bank Performance in Ensuring Quality at Entry Rating: Satisfactory

88. Overall, the Bank’s performance during preparation and appraisal was satisfactory. The project benefited from experience and lessons learned from previous projects. The technical approach was continued along the same lines as in the previous Bank financed projects by: (i) ensuring and emphasizing the sustainability of all road improvements; (ii) providing capacity-building and institutional support; and (iii) incorporating financing for routine and periodic maintenance programs, through the FOMAV, via microenterprises and private contractors. Discussions and consultations with project team members during

24

preparation improved the design and procedures of the environmental and social aspects of the Rural Transport Improvement component, especially the operational manuals and safeguard guidelines for the MCA modules. The MCA’s procurement strategy for contracting adoquines and earthworks was also revised and changed to NCB, ensuring greater transparency and efficiency at the municipal level. This change, moving away from the three quotes methodology, was a plus in the execution of the modules.

89. The project was also designed based on the government’s development strategy and in the framework of the CAS (ISN 2005) and donor transport strategy. In this respect, there was a strong Bank effort to coordinate its interventions in the transport sector with ongoing efforts from other international financial organizations, particularly the MCC, DANIDA, BCIE, and the IADB, in order to finalize important key road sections located in productive zones. The project’s institutional setup was the same: the MTI’s PCU, which had managed previous Bank financed projects in a highly satisfactory manner. Quality at entry of the original project is therefore rated satisfactory.

(b) Quality of Supervision Rating: Satisfactory 90. The Bank provided constant support to the MTI’s PCU and the FOMAV, and to the various MTI departments, such as DGA, DGAF, and the Procurement Unit, in the safeguards and fiduciary areas. The Bank team carried out multiple workshops and visited these directorates, units, and FOMAV to ensure adequate project implementation. The Bank also provided special training on the use of the HDM4 and RED models for economic analysis to the staff of the Transportation Directorate of the MTI, as well as the FOMAV. The Bank team carried out at least two missions per year, in which it directly met with the MTI’s PCU staff members and other directorates’ staff, providing technical advice and sharing knowledge. When needed, the Bank deployed specialists, particularly in the procurement, environmental, and social areas.

91. The Bank was proactive in undertaking project restructuring due to cost overruns and evaluating the need for additional financing to meet the targets envisaged originally at project appraisal. The Bank also monitored the project’s Civil Works component, enabling it to satisfactorily achieve the outcomes and outputs, successfully attaining sustained results on the ground.

92. The Bank took the excellent initiative of obtaining financing from the Umbrella Facility for Gender Equality to carry out a Road to Agency Study (see Annex 12 for summary of study findings). The study measured the impact of the project’s road interventions on gender agency, and reported satisfactory results for the actions taken with regard to gender through MCA modules in the transport sector of Nicaragua and other countries. The results of this study showed just how successful gender policies were under the MCA model, compared to other road projects.

25

(c) Justification of Rating for Overall Bank Performance Rating: Satisfactory

93. Rating is considered satisfactory due to the Bank’s solid performance in ensuring an adequate design at entry and high quality of supervision, particularly in the following aspects: (i) proactive response to project restructuring and preparation of AF; (ii) continuous training and monitoring in safeguards and fiduciary areas; (iii) development and improvement of the MCA model through the promotion of gender strategies and generation of employment at the community level; and (iv) achieving project results on the ground and carrying out project road investments via microenterprises.

5.2 Borrower Performance (a) Government Performance Rating: Satisfactory

94. Government performance is rated satisfactory. GON showed a firm commitment to the project and its Additional Financing throughout the design and implementation stages. It allocated sufficient counterpart resources to credit/grants operations and maintained the flow of funds to FOMAV, which provides road maintenance to the rehabilitated road network.

95. The project was also well-received at the municipal level. Local mayors were highly pleased with the MCA modules. The project also attracted strong interest from community groups and the local population because of its benefits in terms of community participation, direct and indirect job creation, and gender strategies. In many communities, beneficiary demand for these modules has exceeded project resources. Communities and municipalities also contributed toward covering the costs of the works.

(b) Implementing Agency or Agencies Performance Rating: Highly Satisfactory

96. The performance of the Implementing Agency -the MTI’s PCU- is rated highly satisfactory, both in terms of its general institutional capacity and its effective management of the project (technical, fiduciary, and safeguards). The PCU was committed to achieving the project development objectives. The staff of the PCU showed a high institutional capacity to handle project implementation, as well as providing solid coordination with the DGA, DGAF, Procurement Unit, and the municipalities responsible for executing the MCA modules. As a result, the project was well managed, and implementation issues were solved promptly and adequately, including procurement and fiduciary responsibilities, which were carried out satisfactorily. Relationships between the different stakeholders, including the local municipalities and communities in charge of the MCAs, were smooth, and the PCU was able to play a coordinating role among the different stakeholders in the implementation of MCAs, executing more than 320 km of roads.

26

97. The PCU managed and supervised the myriad MCA agreements between the MTI and local mayors and selected local participants living in the vicinity of the road (there are approximately 30 MCA contracts per 28 km of roads with adoquines). The use of specific operational manuals and guidelines ensured consistency in the solutions proposed and procedures to be applied by the PCU and its staff in the field. The MCA manual established guidelines, organization, and functions, project cycle implementation phases, obligations, and procurement, safeguards, and environmental procedures.

(c) Justification of Rating for Overall Borrower Performance Rating: Satisfactory

98. The satisfactory rating of the Borrower and its implementing agency is justified on the basis of the following: (i) a satisfactory record in implementing the project and achieving its PDOs; (ii) the endorsement of key features of the project, namely the participatory approach in MCA modules; the use of community participation; job creation through modules and microenterprises for road maintenance; and (iii) the GON’s keen interest in ensuring the continuity of subsequent projects in the transport sector.

6. Lessons Learned

99. The long term track record of the Bank’s engagement and coordinated efforts in the country’s road sub-sector provides robust platform for well performing performance of projects. World Bank’s continued presence in the transport sector helped to strengthen and enhance supervision effectiveness and deepen understanding of road sub-sector issues in Nicaragua. The Bank has had an active presence in the sub-sector since 1997 with consistent objectives. This continued presence has allowed for the strengthening of the transport sector across the board through the introduction of innovative road stabilization programs and sound periodic and routine road maintenance policies involving private sector participation through the FOMAV.

100. A functional Road Maintenance Fund is a key pillar for long-term sustainability of the road sector. The creation, strengthening and supervision of a mechanism to finance periodic and routine road maintenance works through private contractors has had a strong impact in promoting long-term sustainability of the road sector and preserving the World Bank financed investments. This mechanism was implemented as follows: first, preparing and approving a Road Maintenance Fund law; second, establishing an official agency; third, using World Bank’s seed funding for the first years of operation. In addition, carrying out institutional strengthening to enable the commencement of routine maintenance by private contractors and the building of public support for the FOMAV. Forth, amending the FOMAV’s law to incorporate a reliable funding mechanism such as the tax levy of a surcharge on fuels (16 cents per gallon on diesel and gasoline); and finally, securing MTI support to strengthen the capacity of the FOMAV with resources from each subsequent credit/grant agreements since its inception, to have the FOMAV fully functional.

27

101. Application of the innovative adoquines and MCA model is highly appropriate for rural road improvements with emphasis on the poor regions. The MCA model application is cost-effective and generates social benefits. The economic return of this road rehabilitation method using adoquines reduced maintenance costs and enhanced the participation of local municipalities, communities and private local businesses. It also uses local technology and materials, supports bicycle traffic, and has a very low environmental impact. The model has proved to be a very effective instrument to generate productive short-term employment for skilled and unskilled workers from the communities, through the mobilization of local resources (material, labor, and technology), expansion of community and local involvement in planning and decision making, and the organization of the municipalities and communities in addressing local needs. Most of the adoquines roads built with previous Bank financed projects are still in use and in fairly good conditions, acting as main communication road to the beneficiary municipalities. Thus, the application of the MCA model provides accessibility, generates job opportunities and improves living standards in the beneficiary communities.

102. Projects that promote women’s participation generate important benefits to the recipient population. The project encouraged the participation of women in the community-run adoquines paving tasks with the main functions of MCA’s presidents, works supervision, treasurers, traffic controllers, and pavement joint fillers. During the course of the project, employment for women rose by 15 percent. Besides these short-term employment opportunities for women, the project contributed towards increased income, technology transfer, skills building and community ownership creation, and to the enhancement of their agency’s ability to make effective choices and transform these choices into desired outcomes. Women participants in roads work and rural productive activities reported increased self-esteem, self-confidence, decision-making capacity, leadership and assertiveness, as a result conquering new skills and know-how and participating in public spheres of community engagement. This initiative highlights the importance of promoting women‘s genuine and active participation in project activities.

103. To encourage impact evaluations in transport projects, significant support and assistance should be incorporated in the project design. It has proven to be strenuous to include impact evaluation studies in the projects financed either by the Countries themselves or by the multilateral community. The Borrower Countries usually have difficulties visualizing or explaining to society the benefits of investing time and money in such learning. The World Bank could actively encourage the borrowers to include impact evaluation in projects by offering meaningful technical guidance or non-reimbursable technical assistance to cover totally or partially the cost of the study.

104. Detailed operational manual and guidelines for implementing MCAs. Operational manuals and guidelines for MCAs were essential tools for the successful implementation of the rural road stabilization component. These guidelines required updates from time to time based on module development and implementation in situ. The procedures and guidelines must be accompanied by specific training, especially in the procurement, environmental, social, and financial management areas, when dealing with decentralized execution and semi-skilled workers in rural areas. The MTI staff adequately carried out the

28

training of local mayors and local MCA staff. These elements should be considered in the project design.

105. The use of Modulos Comunitarios de Adoquinado (MCAs) is a technically feasible method that also provides a number of employment and skills building benefits. Through the Project, the MTI promoted MCA, which involve the use of local labor-based methods and residents as an alternative aimed at guaranteeing employment and empowering beneficiary communities. The MCA model proved to: (i) create job opportunities in the short term; (ii) contribute toward technology transfer and the building of technical skills; (iii) engender a sense of community and ownership of the roads, with participation from local mayors and residents, thus increasing sustainability; and (iv) present cost control advantages, since beneficiary communities may make extra contributions (mainly labor) to the works in order to stay within budget. Labor-intensive methods implemented through the MCAs have proven to be technically feasible for a wide range of activities in the improvement works for adoquin roads, and generally produced the same quality of product as alternative road rehabilitation methods.

106. Creation of rural road maintenance microenterprises based on trained staff of MCAs can help ensure sustainability of the model after the construction. One of the main concerns in regards to the MCAs is the sustainability of the model once construction works are completed. While the MCA workers have gained new skills transferrable to new jobs, they can also be used for the maintenance of the rehabilitated rural roads. Rural road maintenance is the responsibility of the FOMAV, which currently uses local people to create road maintenance microenterprises. The FOMAV can form microenterprises using the same MCAs that constructed the adoquin roads for the road maintenance afterwards.

7. Comments on Issues Raised by Borrower/Implementing Agencies/Partners (a) Borrower/Implementing Agencies

107. There were not comments or issues raised by the Borrower or implementing agency. The Borrower’s ICR is presented in Annex 7.

(b) Cofinanciers N/A (c) Other Partners and Stakeholders (e.g., NGOs/private sector/civil society) N/A

29

Annex 1. Project Costs and Financing

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

Components

CR-4185-NI Loa – Appraisal Estimate (US$

million)

CR-4185-NI Restructured

(CD approval April 07, 2010)

CR-4736-NI; IDA H5710 Additional

Financing - Appraisal Estimate

(US$ million)

Total Amount 10=6+9

CR-4185-NI Real - Latest Loan Appraisal Estimate

(US$ million)

CR-4736-NI; IDA H5710

Real - Latest Additional Financing -

Appraisal Estimate (US$ million)

Total Real Amount CR-4185-NI + CR-4736-

NI/H571-0-NI

GoN (1)

BM (2)

Total 3=1+2

GoN (4)

BM (5)

Total 6=4+5

GoN (7)

BM (8)

Total 9=7+8

GoN (11)

BM (12)

Total 13=11+12

GoN (14)

BM (15)

Total 16=14+15

GoN (17)

BM (18)

Total 19=17+18

1. Road Rehabilitation 1.52 8.61 10.13 1.75 9.92 11.67 0 11.67 1.84 11.85 13.69 0.00 1.84 11.85 13.69 2. Rural Transport Improvement 6.28 35.59 41.87 7.09 40.19 47.28 5.12 29.04 34.16 81.44 8.55 42.00 50.55 5.62 30.56 36.18 14.17 72.56 86.73 3. Road Maintenance 1.53 6.11 7.64 1.53 6.11 7.64 1.24 4.96 6.2 13.84 0.22 7.09 7.31 4.95 4.95 0.22 12.04 12.26

4. TA.,Cons.Svcs.,Goods, Training & Studies 0 7.75 7.75 0.00 3.32 3.32

0.00 4.26 4.26 7.58 5.52 2.59 8.11 0.33

1.99 2.32 5.85 4.58 10.43 Total Baseline cost 9.33 58.06 67.39 10.37 59.54 69.91 6.37 38.25 44.62 114.53 16.13 63.53 79.66 5.95 37.50 43.45 22.08 101.03 123.11

Contingencies 0.58 1.94 2.52 0 0.19 0.62 0.81 0.81 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00

Total Project Costs (net of taxes) 9.91 60 69.91 69.91 6.13 39.3 45.43 115.34 16.13 63.53 79.66 5.95 37.50 43.45 22.08 101.03 123.11

30

(b) Financing

Source of Funds Type

of Cofinancing

Appraisal Estimate

(USD millions)

Actual/Latest Estimate

(USD millions)

Percentage of

Appraisal

Borrower 9.91 16.13 162.76 Borrower at Additional Financing 6.13 5.95 97.23 International Development Association (IDA-4185) Credit 60.00 63.53 106

Additional IDA Credit (IDA47360) Credit 7.47 7.79 104 Additional IDA Grant (IDA H571) Grant 31.83 29.71 93 Total Financing 115.34 123.11 106.74

31

Annex 2 .Outputs by Component

Intermediate Outcomes Intermediate Outcome Indicators Outputs Achieved

Original Additional Financing Original Additional

Financing

Component One: Road Rehabilitation and Improvement: Rehabilitation and improvement of the Diriamba – Casares road and the La Virgen – San Juan del Sur road.

Component One: Km of road improved each year: (Roads completed).

Output Achieved: 52km of main roads improved. All non-rural roads targeted were improved / rehabilitated to a desirable standard.

Component Two: Rural Transport Improvement: Restoration to gravel or adoquin (concrete cobblestone) standards of approximately 320 kilometers of secondary and tertiary rural roads.

Rural Transport Improvement: Carrying out of restoration works to gravel or cobblestone stabilization standards of approximately 320 kilometers of secondary and tertiary rural roads, all within the existing right of way.

Component Two: Km of roads stabilized each year. Number of contractors/MCA working.

Km of roads stabilized (total) Number of Contractors / MCAs working

Output Achieved: 361km of rural roads stabilized. Under the original credit 198km were implemented, and with the additional financing 163km. Contractors (12) &MCAs (272) = 284 12 contractors (4 with the original project and 8 with the additional financing) were hired mainly for earthworks, though some were contracted to undertake works fully. 272 MCAs were conformed for paving 254 km of the roads with cobblestone (115 with the original project and 157 with the additional financing).

Component Three: Routine and Periodic Maintenance: Routine and periodic maintenance of approximately 2,480 kilometers of trunk, secondary and/or tertiary roads. This component includes the routine and periodic maintenance of approximately 2,480 kilometers of trunk, secondary and/or tertiary roads.

Routine and Periodic Maintenance: 1.Carrying out of routine maintenance works of approximately 2,700 kilometers of trunk, secondary and/or tertiary roads; and 2. Carrying out of periodic maintenance works of an additional 47 kilometers of selected main roads, in order to complete the established target of periodic maintenance of 80 kilometers of selected main roads, all within the existing right of way.

Component Three: Number of microenterprises established. Km of roads being maintained.

Number of micro-enterprises established. Km of roads being maintained (routine with micro-enterprises) Km of roads being maintained (periodic maintenance)

Output Achieved: 52 microenterprises (ME) established. Routine maintenance is executed by 52 MEs serving 3,200km. 3,200km of roads being maintained (routine with microenterprises). Those 3,200km are trunk, secondary and tertiary roads. Since 2012 the Routine Maintenance Program has been executing with complete financing of FOMAV. 95 Km of roads being maintained that received periodic maintenance.

32



Financing

Component Four: Studies, Technical Assistance and Training: Provision of consultants’ services, equipment and training, as needed for: 1. Monitoring the performance of the components of the Project, the management and supervision of civil work contracts, the design and implementation of training programs, technical audits, surveys on traffic origin and destination, transport sector reviews, the strengthening of MTI’s capacity for technical, social and environmental analysis, holding of workshops on road network decentralization, designing and implementing reforms to the vehicle overloading regulations, strengthening the capacity of the FOMAV for road maintenance management, and the preparation of the implementation completion report of the Project.

Studies, Technical Assistance and Training: Provision of consultants' services, equipment and training, as needed for: 1. Monitoring the performance of the components of the Project, including the updating of the project’s core indicator as set forth in the Amended Operational Manual, the management and supervision of civil work contracts, the design and implementation of training programs, technical audits, transport sector reviews, the strengthening of MTI' s capacity for technical, social and environmental analysis, holding of workshops on road network decentralization, designing and undertaking preparatory work for reforms in the area of axle-load control, strengthening the capacity of the FOMAV for road maintenance management, and the preparation of

Component Four: Number of MTI and FOMAV staff trained in planning and management courses. Share of road network condition surveyed. Dissemination workshops on project monitoring and evaluation. Share of road network transferred to Departmental and Municipal management

Number of MTI and FOMAV staff trained in planning and management courses. Share of road network condition surveyed. Number of training workshops attended by MTI/FOMAV staff [dropped]

Output Achieved: 45 of MTI and FOMAV staff trained in planning and management courses. Three courses on planning and management were held, of the participants 3 were FOMAV staff and 42 MTI. Additionally, 4 workshops of Social and Environmental Safeguards were imparted to both MTI (18) and FOMAV’s (22) staff. 99% Share of road network surveyed. The entire network has been inventoried and coded in ArcGis. 4 training workshops attended by MTI/FOMAV staff. These trainings included: a Masters in Roads ( 24 MTI Staff and 2 FOMAV), MTI’s new Webpage upgrade (5 MTI Staff), Graduate degree in Design, Evaluation and Management of Investment projects with emphasis in Transport Infrastructure (13 MTI Staff and 1 FOMAV Staff) and a Technical Assistance in Social and Environmental Safeguards (22 MTI staff and 18 FOMAV staff).

33



Financing

2. Design and supervision of the overall road maintenance program by contractors, including, inter alia: (a) the training for: (i) the staff of MTI and the FOMAV; and (ii) the Microenterprises, required thereto; and (b) the operation of the FOMAV, including the design of promotional activities. 3. The improvement of the planning and programming capacity of MTI, including the integration of environmental and social practices in the planning cycle. 4. The preparation of feasibility studies and detailed engineering for the road rehabilitation, improvement and maintenance works to be carried out under the Project and supervision thereof.

the implementation completion report of the project. 2. Design and supervision of the overall road maintenance program by contractors, including, inter alia: (a) the training for: (i) the staff of MTI and the FOMAV; and (ii) the Microenterprises, required thereto; and (b) the operation of the FOMAV, including the design of promotional activities. 3. The improvement of the planning and programming capacity of MTI, including the integration of environmental and social practices in the planning cycle. 4. The preparation of feasibility studies and detailed engineering for the road rehabilitation, improvement and maintenance works to be carried out under the project and supervision thereof.

Output Achieved: FOMAV’s contractors carried out design and supervision of road maintenance program. Output Achieved: Training and workshops for staff of MTI and FOMAV were imparted as well as for staff of microenterprises. Output Achieved: FOMAV maintenance operations are carried out satisfactorily. Output Achieved: Technical assistance and training were provided to MTI staff in the areas of: planning and programming, and on environmental and social practices, especially for MCAs implementation. Output Achieved: Project financed all the feasibility studies, detailed engineering studies and supervision for main road rehabilitation and rural road improvements through MCAs.

34

Annex 3. Economic and Financial Analysis 1. At appraisal the economic analysis for the original project included two components a) Road Rehabilitation and Improvement and b) Rural Transport Improvement. For the Road Rehabilitation component the evaluation was carried out using Highway Design and Maintenance Model (HDM-3), which simulated life cycle conditions and costs and provided economic decision criteria for multiple road design and maintenance alternatives. With regard to secondary and tertiary roads (rural roads), the economic analysis was developed using the Road Economic Decision Model (RED), which simulated life cycle conditions and costs, and provided economic decision criteria for low traffic road construction and maintenance activities. 2. In April 2010, the project received Additional Financing (AF) in the amount of US$39.3 million to finance the remaining civil works, which had not been completed due to cost overruns resulting from the significant escalation of worldwide construction commodity and petroleum prices, and the civil works on new added rural road sections. An updated economic analysis was carried out for the existing and newly added rural road sections during appraisal of AF using the RED model. 3. The ex-post economic evaluation follows the two methodologies used for the ex-antes in the original project and the AF. Road Rehabilitation Component 4. Significant benefits to the population were realized from the Road Rehabilitation component through improvement of road condition on 32.32 km Diriamba – La Boquita road section and on 19.25 km La Virgen – San Juan del Sur road section. Specifically, the International Roughness Index (IRI) on Diriamba – La Boquita road section was reduced from 10 to 2.3 and on La Virgen – San Juan del Sur road from 8 to 2.8, associated with significant travel time savings and reduction in vehicle operating costs (VOC) on both roads. The actual capital costs were US$200,000 per kilometer for Diriamba – La Boquita and US$236,500 per kilometer on La Virgen – San Juan del Sur, with only the latter exceeding the appraisal estimate by 18 percent. 5. The ex-post analysis for the component was carried out using actual construction costs, estimated maintenance costs and vehicle count survey (3 days 12 hours and 2 day 24 hours, December 2014). Despite the cost overruns, the Economic Internal Rate of Return (EIRR) still remains positive for both the Diriamba – La Boquita road section at 27.8 percent, and the La Virgen – San Juan del Sur section at 46.4 percent, which compared to appraisal estimates are 8.12 percent and 14.6 percent lower respectively, as presented in Table 1 below. 6. The Net Present Value (NPV) at 12 percent discount rate for the section Diriamba – La Boquita resulted in US$4.06 million (based only on VOC) and US$9.1 million (based on VOC and time savings), with the latter 18.65 percent higher than expected at appraisal, and the former 37.73 percent lower than expected. For the section La Virgen – San Juan del Sur the NPV is estimated at US$11.94 million (based on VOC) and US$18.18 million (based on VOC and time savings), both significantly higher than expected at appraisal.

35

7. Sensitivity Analysis. A sensitivity analysis was also carried out considering a 20 percent increase in costs, and the same percentage of reduction in benefits, yielding an EIRR of 24.2 percent considering the increase of costs and 23.4 percent if benefits are lower for the first road section; and 40.9 percent and 39.8 percent for the second section in the same order.

Table 1: Primary Roads Economic Evaluation Results Diriamba-Casares-Boquita La Virgen - San Juan del Sur

EXANTES EXPOST EXANTES EXPOST Length (km) 32 32.32 19 19.25 Economic Costs (US$ 000/km) 200 199.35 200 236.58 EIRR (%)* 36 27.8 61 46.4 Benefit-Cost Ratio @ 12% 1.91 1.578 4.28 3.969 Surface Type Asphalt Asphalt Asphalt DTS Condition Poor Good Poor Good Roughness (IRI)** 10 2.3 8 2.8 Traffic (AADT)*** 1,286 1,482 1,394 3,112 Heavy Vehicles 341 211 205 277 NPV**** (US$ million) @ 12% Based only on VOC***** 6.52 4.064 9.43 11.904 Based on VOC and Time Savings 7.67 9.095 10.05 18.183

Sensitivity Analysis EXANTES EXPOST EXANTES EXPOST

EIRR (%)

NPV (US$

millions)

EIRR (%)

NPV (US$

millions)

EIRR (%)

NPV (US$

millions)

EIRR (%)

NPV (US$

millions) Base Case 36 7.67 27.8 9.095 61 10.05 46.4 18.18 Costs + 20% 29.8 6.6 24.2 7.97 51.4 9.42 40.9 17.29 Benefits - 20% 28.6 5.07 23.4 6.15 49.5 7.41 39.8 13.65

Without Time Savings 32.7 6.52 19.9 4.06 58.1 9.43 37.8 11.90 *Economic Rate of Return **Roughness index ***Annual Average Daily Traffic **** Net Present Value *****Vehicle Operation Cost 8. Traffic Volumes. By 2014, the Average Annual Daily Traffic (AADT) has increased by 15 percent since 2006 on the Diriamba – La Boquita and by 123 percent on the La Virgen – San Juan de Sur, representing an annual growth of 1.88 percent and 15.3 percent respectively. The AADT growth rate on the road section Diriamba – La Boquita was 2.12 percent lower than the 4 percent growth rate expected; but the traffic growth on the La Virgen – San Juan del Sur section was 11.38 percent higher annually than expected. 9. This can be explained by the rise of tourist developments taking place in the southern region where the La Virgen – San Juan del Sur is located.

36

Rural Transport Improvement Component 10. At appraisal, it was estimated that improvement of 320.20 km of rural roads would require a total investment of US$41.256 million, which would yield a NPV of US$48 million and an EIRR of 34 percent. As explained above, cost overruns and the addition of new road sections resulted in the need of additional financing. As a result, of the 320 km planned, 198 km were completed under the original financing and 163 km were constructed under the AF, resulting in completion of a total of 361 km under the Rural Road Improvement component. 11. Significant benefits to the population were realized from the Rural Transport Improvement component through stabilization with adoquines and improvement of road condition on 361 km of rural roads. Specifically, the IRI on these roads was reduced from about 16 to 6.7, associated with significant travel time savings and reduction in VOC. The VOC savings were more significant for heavy vehicles, which contributes to reduction in production costs, which is one of the main objectives of improving rural roads. The VOC was reduced by almost 50 percent for cars, 55 percent for buses, 52 percent for light trucks, and 49 percent for medium and articulated trucks (see Table 2 below).

Table 2: Vehicle Operating Costs (US$/Km) 2014 prices Roughness

(IRI) Car Pick up Bus Light

Truck Medium

Truck Heavy Truck

Articulated Truck

2 0.13 0.14 0.34 0.25 0.38 0.52 0.78 4 0.13 0.15 0.37 0.27 0.40 0.54 0.82 6 0.14 0.16 0.42 0.30 0.44 0.58 0.88 7 0.15 0.17 0.44 0.31 0.45 0.59 0.91 8 0.15 0.17 0.46 0.32 0.47 0.61 0.94

10 0.17 0.19 0.50 0.35 0.51 0.65 1.02 12 0.18 0.20 0.55 0.38 0.55 0.70 1.11 14 0.20 0.22 0.60 0.42 0.60 0.76 1.21 16 0.21 0.24 0.65 0.45 0.64 0.82 1.31 17 0.22 0.25 0.68 0.47 0.67 0.85 1.36 18 0.23 0.26 0.70 0.48 0.69 0.89 1.41 20 0.24 0.27 0.75 0.52 0.74 0.95 1.51

Source: MTI COV 2014 12. The ex-post analysis was carried out considering actual construction costs, maintenance costs and the vehicle count survey data collected during the months of December 2014 and January 2015 (5 day counts of 12 hours, and for some selected road sections a 2 day count of 24 hours were conducted). The counts included all road sections, except the small road section on Corn Island. 13. Due to increases in construction costs, only a total of 198 Km were constructed under the original project, nonetheless the investment yielded a positive NPV of US$129 million and a EIRR of 54 percent as presented in Table 3 below.

37

Table 3: Roads Financed under Original Project

Road Name Length AADT Roughness Investmen

t (US$ M)

NPV (US$ mln)

EIRR (%) (km) 2014 2006 2014

Emp. Aposentillo - Aposentillo 8.1 692 17.6 6.68 1.34 3.33 49 Quebrada Honda - San Francisco Libre- Las Delicias 5 390 13.8 6.52 1.05 0.93 27

PROINCASA - Masaya- Cofradía 4 2266 16.2 6.91 0.60 7.35 175

Emp. Zambrano - Masaya- Tisma 12 689 18.85 6.69 1.96 9.28 79

Tisma - Tisma/Masaya Fase II 5.46 4539 19.2 6.60 0.34 21.77 821

San Antonio - Gregorio(Buena Vista) 5.81 855 20 7.68 0.94 4.85 84

Empalme Casares - Huehuete 3 437 19 7.43 0.44 1.08 49

Tola – Nancimí 4.3 921 14.7 7.05 0.82 2.34 54

Nacascolo-Talanguera 1.86 1843 17.5 6.02 0.21 2.30 160

Las Delicias –Container 4.91 2284 16 7.23 1.31 4.79 64

El Quino - Santa Cruz-Mérida 6.5 1001 19.1 6.41 1.26 5.71 76 San Jorge - Empalme Buenos Aires- Popoyuapa 5.17 1386 10.4 7.93 0.78 0.71 28 Las Lajitas - Cuapa, San Fco de cuapa - El Carmen 5 403 16.6 6.33 1.14 0.91 26 Las Lajitas - Cuapa, El Carmen - Llano grande 5 403 16.6 6.33 1.11 0.94 27 Juigalpa-La Libertad, Comunidad Vigia-San Marcos 5.8 1278 12.83 6.28 1.09 3.18 55 Juigalpa - La Libertad, Cosmatillo-La curva 8.2 1278 12.83 6.28 1.70 4.35 50

Juigalpa - Emp. Betulia-La Libertad 10.02 1278 12.83 6.28 3.17 4.39 34 Santo Tomás -Empalme San Pedro de Lóvago- San Pedro de Lóvago 10.62 916 18 6.85 2.93 6.49 46 Teustepe- San José de los Remates,Teustepe - Emp. San Diego 11.5 208 18.8 7.23 2.40 1.58 24 La Subasta-Camoapa, La Subasta-El cambio 9.4 800 12 5.98 2.20 1.89 27 Palacaguina - Telpaneca- San Juan del Río Coco Tramo I 10.83 665 17.01 6.83 3.92 4.17 30 Palacaguina - Telpaneca- San Juan del Río Coco Tramo II 12.25 665 17.01 6.83 3.97 5.11 33 San Juan del río Coco- Comunidad Quibuto 5.07 665 17.01 6.83 1.18 2.51 44

Colonia Ruben Darío - PROLACSA 1.6 2278 19 7.80 0.52 2.88 89

Matagalpa - Sistema Penitenciario 1.17 556 19 7.32 0.11 0.87 119

Emp. Chaguitilo - Hortitech 1.16 1182 19 7.43 0.06 1.47 355

Estelí - Sistema Penitenciario 1.3 721 19 6.61 0.11 0.65 96

Estelí-Llanos de Colón Tramo I 11.5 868 18 6.36 3.27 7.89 48

Estelí-Llanos de Colón Tramo II 11.77 868 18 6.36 3.62 7.85 45

Estelí-Llanos de Colón Tramo III 9.87 868 18 6.36 1.79 7.64 72

Total Network 198.16 16.80 6.78 45.33 129.21 54%

38

14. The ex-ante economic analysis for the road section under the Additional Financing yielded a NPV of US$18.66 million and a EIRR of 20 percent, while the results of the ex-post analysis yielded a NPV of US$53.38, 186 percent higher than the ex-ante estimate; and an EIRR of 34 percent, also higher than expected by 14 percent (see the results in Table 4 below).

Table 4: Roads Financed under Additional Financing

Road Name Length (km)

Roughness Daily Traffic Investment

(US$ M) NPV (US$ mln)

EIRR (%) 2010 2014 2014

Nueva Guinea - Naciones Unidas 18.56 16.2 6.35 453 7.65 3.85 21 Nueva Guinea - Colonia La Esperanza 3 16.2 6.49 626 0.95 1.41 36 Nueva Guinea- Colonia El Paraisito 3 16.2 6.21 274 0.95 0.27 17 Rancho Rojo - Emp. Murra- La Calamidad 10 15.95 6.40 503 2.21 1.74 26 Teustepe/Sn José de los Remates Tramo II 13.42 18.8 6.57 208 2.97 1.83 23 La Subasta-Camoapa Tramo II 8 12 5.98 800 1.62 1.82 31 Santa Lucía – Boaco 4.91 19 7.43 242 1.38 0.08 13 La Subasta - Camoapa, sección San Benito- 3.89 12 5.98 800 0.94 0.75 26 Las Lajitas - Cuapa Tramo III 8.5 16.6 5.96 403 1.98 1.58 26 Quebrada Honda- San Francisco Libre- Las Delicias 6.72 13.8 6.52 390 1.61 1.08 24 Cuyalí - Empalme Las Cruces 15.73 16.3 6.22 956 2.75 11.77 73 Emp. Las Cruces - Las Praderas- Pantasma 11.5 15.6 7.20 998 1.80 7.47 71 Cuyalí - Abisinia-Puente la Pavona 26.58 12.6 6.07 608 5.15 7.20 35 Las Pampas- Las Delicias 2.2 16 6.29 2284 0.48 2.41 81 La Flor – Moyogalpa 4.5 20.2 6.77 229 1.08 1.30 32 Santa Cruz – Balgue 4.5 21 6.53 403 1.15 3.40 55 El Jicaral - Sta. Rosa del Peñón 6.41 15 6.25 252 2.22 0.14 13 Palacaguina - Telpaneca- San Juan del Río Coco, Telpaneca-Quibuto 10.59 17 6.78 665 2.42 5.30 45 Total Network 162.01 16.14 6.45 39.32 53.38 34%

15. Explanation of cost overruns for the adoquines stabilization. A detailed analysis of cost overrun reasons for the adoquines stabilization was undertaken during AF, revealing that on average, the transport, provision and laying of the adoquines (at 51 percent) constituted the biggest percentage of the total cost. The cement treated base is typically the next highest cost component (17 percent) followed by earthworks (15 percent), concrete kerbs and drains (10 percent), cross-drainage culverts and other drainage structures (5 percent) and others (2 percent). Therefore, the cement (used in the preparation of adoquines, in the cement treated base, in the concrete kerbs and drains, and in the cross drainage and other drainage structures) was a major cost driving element. A more detailed breakdown in the cost components of the adoquines provision and laying indicated that the purchase cost of the adoquines contributed 60 percent to their total price; transport costs (of the adoquines and sand) contributed 15 percent; the sand itself 3 percent; and others 22 percent

39

(labor, other related works). For the cement treated base, cement contributed on average some 53 percent of the cement treated base costs. Summary of Ex-Post Economic Returns 16. Overall, the project financed activities have resulted in improved condition of road infrastructure translated into benefits to the users in terms of travel time savings and reduced vehicle operating costs. The following table summarizes the economic analysis of the two main components. The overall ex-post NPV for the project, using a 12 percent discount rate, has been estimated at US$209.9 million with an average EIRR of 40.5 percent.

Table 5: Economic Analysis Summary

NPV (US$ mln)

EIRR (%)

Road Rehabilitation Component Diriamba – La Boquita road section 9.1 27.8 La Virgen – San Juan del Sur 18.2 46.4

Rural Road Improvement Component

Road sections under original project financing 129.2 54 Road sections under additional financing 53.4 34

Total 209.9 40.5

40

Annex 4. Bank Lending and Implementation Support/Supervision Processes

(a) Task Team members

Names Title Unit Responsibility/ Specialty

Lending Rodrigo Archondo-Callao Senior Highway Engineer GTIDR Transport Elena Correa Consultant GSURR Consultant Irani G. Escolano Consultant GGODR Consultant Douglas J. Graham Senior Environmental Specialist GENDR Environment Emmanuel A. James Program Coordinator AFTTR - HIS TTL Jorge Kamine Counsel LEGLA-HIS LEGAL George Campos Ledec Lead Ecologist GENDR Environment Maria Constancia Mallo Senior Investigator INTOP Enrique Antonio Roman Financial Management Specialist GGODR Financial Mgt. Morag N. Van Praag Senior Finance Officer CTRDM - His Financial Mgt. Supervision/ICR Irani G. Escolano Consultant GGODR Consultant Augusto Garcia Senior Operations Officer GFADR Operations Emmanuel A. James Program Coordinator AFTTR - HIS Team Lead Ralf-Michael Kaltheier Senior Transport Economist LCSTR - HIS Team Lead Alvaro Larrea Senior Procurement Specialist GGODR Procurement George Campos Ledec Lead Ecologist GENDR Environment Coleen R. Littlejohn Senior Operations Officer AFRDE Operations Stephen Muzira Senior Transport Engineer GTIDR Team Lead Anemarie Guth Proite Procurement Specialist LCSPT - HIS Procurement Enrique Antonio Roman Financial Management Specialist GGODR Financial Mgt. Tatiana Cristina O. de Abreu Souza

Finance Officer WFALN Financial Mgt.

Sevara Melibaeva Transport Economist GTIDR Team Lead Francisco Rodriguez Senior Procurement Specialist GGODR Procurement Jason Jacques Paiement Social Development Specialist LCSSO Social Safeguards Daniel Mira-Salama Senior Environmental Specialist GCCPT Environment Noreen Beg Senior Environmental Specialist GENDR Environment Licette Moncayo Program Assistant GTIDR Team Assistant

41

http://isearch.worldbank.org/oui?qterm=GGODR

(b) Staff Time and Cost

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

No. of staff weeks USD Thousands

(including travel and consultant costs)

Lending FY04 1.48 4.90 FY05 0.00 0.21 FY06 21.06 105.12 FY07 0.05 0.25 FY08 0.00

Total: 22.59 110.48 Supervision/ICR

FY04 0.00 FY05 0.00 FY06 3.54 2.21 FY07 21.23 106.12 FY08 20.29 128.83 FY09 13.21 105.90 FY10 22.99 102.98 FY11 40.77 180.78 FY12 29.23 131.35 FY13 15.40 87.68 FY14 14.18 82.24 FY15 9.00 57.01

Total: 189.84 985.1

42

Annex 5. Beneficiary Survey Results

N.A.

43

Annex 6. Stakeholder Workshop Report and Results 1. Background: On November 27, 2014, a Stakeholder Workshop on Lessons Learned from the IV Rehabilitation and Maintenance Road Project was carried out a part of the ICR’s project preparation, and attended by the staff of the MTI, PCU and FOMAV, and the Mayor of the Municipality of San Francisco Libre. The results of the workshop were incorporated throughout the text of the ICR and a report of the workshop is in the project files. 2. Objective. The objective of the workshop was to: (i) identify the positive or negative factors that affected the project during implementation and (ii) to draw lessons learned for design and operation of future projects. 3. Methodology developed. The workshop’s methodology was divided into two sections, the first for the identification of the positive or negative factors and the second to share knowledge on lessons learned among participants. Based on an agenda previously agreed, the dialogue tackled the implementation aspects/issues by component: (i) road rehabilitation, (ii) rural road improvement (MCAs), (iii) road periodic maintenance and (iv) technical assistance. 4. For the lessons learned, the following areas of analysis were established: (i) institutional framework, (ii) technical design, (iii) results framework, (iv) procurement, (v) management of environmental and social aspects, (vi) monitoring and evaluation and (vii) sustainability. 5. Participants. The workshop was organized with the MTI’s PCU. About 26 participants attended the workshop, (4) from UCP, (16) from MTI – Department of Road Conservation, DGAF, Procurement Division, Monitoring and Evaluation Unit, Social and Environmental Division-, (3) FOMAV, (2) MCAs, and (1) the Mayor from the Municipality of San Francisco Libre. 6. Results. The workshop was very successful in terms of a very active participation, discussion and knowledge sharing. Results to highlight are: (i) excellent dialogue and coordination among different units, departments and division of MTI, (ii) establishment of a good team at UCP with technical capacity and organized by components, (iii) capacity building to MTI staff, especially to the MCA’s technical group and good guidelines, and operational manual, (iv) continuous training and support from the Bank team in the safeguard area and on environmental and social aspects, and (v) support and technical assistance to FOMAV staff through the project funds and Bank team. 7. Lessons learned. The main lessons learned from the project, as perceived by the MTI team, were:

(i) Consultation to stakeholders in every stage of the project cycle. (ii) Due to unexpected or unforeseen factors - cost overruns- related to the cost of

civil works, carefully study the project design cost estimate and allocate a percentage for unallocated funds in the credit/grants.

44

(iii) Strengthen project teams in environmental and social safeguards to reduce risks during implementation.

(iv) Maintain a good communications strategy with the technical areas with MTI’s Directorates that are involved in the project implementation cycle.

(v) Develop Social and Environmental guidelines and operational manuals for implementing MCAs and provide workshops and training to the beneficiary community personal for rural road empowerment and ownership.

(vi) Consider a gender approach during the design phase of the project to guide participation and define the role of women in the work of MCAs.

(vii) Continue with MCA modules approach as provider of short-term employment in the rural areas.

(viii) Build and develop sound bidding documents to ensure success of the procurement process and selection of good private contractors.

(ix) Continue with the promotion of creating local routine microenterprises to generate permanent employment.

(x) Encourage routine maintenance through the creation rural road microenterprise based on trained staff at MCAs modules.

8. These were the key elements mentioned during the workshop with MTI and FOMAV staff. The complete workshop’s report is available in the project files.

45

Annex 7. Summary of Borrower's ICR and/or Comments on Draft ICR

I. Evaluación del Diseño y del Desarrollo de los objetivos

La asociación Internacional de Fomento del Banco Mundial aprobó el convenio de crédito No. CR-4185-NI destinado para la implementación del IV Proyecto de Rehabilitación y Mantenimiento de Carreteras por un monto de 41.10 millones en Derechos Especiales de Giro, equivalente a US$ 60 millones, proyecto que entró en vigor a partir de febrero 2007. Así mismo el Banco Mundial aprobó el 1ro de Junio 2010 un financiamiento adicional, suscrito el 6 de Julio 2010 con el Convenio No. 4736-NI por un monto de 5 millones en Derechos Especiales de Giro, equivalente aproximadamente a US$ 7.6 millones en carácter de Crédito y H571-NI por un monto de 21 millones en Derechos Especiales de Giro, equivalente aproximadamente a US$ 31.7 millones en carácter de donación El objetivo global del proyecto fue apoyar el crecimiento económico basado ancho del GON y plan de reducción de pobreza relevando los cuellos de botella de transporte que actualmente impida crecimiento económico e inversión del sector privado. Las obras y acciones del Proyecto perseguían los siguientes resultados:

• Mejorar la infraestructura del transporte del Beneficiario junto a corredores de carreteras importantes seleccionados.

• Mejorar el acceso a las zonas productivas y a las comunidades rurales • Garantizar la sostenibilidad de las mejoras de las carreteras llevadas a cabo en

virtud del Proyecto Par cumplir con estos objetivos se plantearon los siguientes componentes. Parte A: Rehabilitación y Mejora de Carreteras Rehabilitación y mejora de la carretera Diriamba – Casares y la carretera de La Virgen – San Juan del Sur. Parte B: Mejora del Transporte Rural Restauración a estándares de gravilla o adoquín de aproximadamente 320 kilómetros de carreteras rurales secundarias y terciarias. Apoyará las estrategias Gubernamentales para el desarrollo de una red de caminos en las áreas de potencial económico alto (la agricultura, leche y producto lácteos y turismo) para promover el desarrollo, mejorar normas de vivir, y generación del empleo. Parte C: Mantenimiento Periódico y Rutinario Mantenimiento periódico y Rutinario de aproximadamente 2480 kilómetros de carreteras principales y caminos secundarios y/o terciarios. El Mantenimiento rutinario por Microempresas. Incluye US$4.59 millón para extender el programa de Microempresas de mantenimiento rutinario que se comenzó bajo el Primer Proyecto de los Caminos (CR-2871-NI) y continuó con el Segundo y Tercer Proyecto (CR-

46

3085-NI) y (CR-3464-NI), respectivamente. Con la implementación del CR-4185-NI, se espera dar continuidad a dicho programa con la formación de 4 microempresas adicionales para alcanzar un total de 37 microempresas y que logren cubrir el mantenimiento de 2,400km. Sin embargo, este programa contempla el traslado de las Microempresas Asociativas de Mantenimiento Rutinario hacia el Fondo de Mantenimiento Vial (FOMAV), el cual asumirá con fondos propios la ejecución del programa. Parte D: Estudios, Asistencia Técnica y Capacitación Disposición de servicios de consultoría, equipo y capacitación.

II. Logro de los objetivos y rendimientos

2.1. Resultado y logro de los objetivos Los resultados y logros obtenidos mediante la implementación del Proyecto son satisfactorios ya que se logró ejecutar el 100% de la totalidad del préstamo, a pesar que durante su ejecución se ejecutó una reestructuración del mismo además de un financiamiento adicional. De acuerdo a los objetivos planteados, en la ejecución del proyecto se logró rehabilitar las carreteras Diriamba – La Boquita – Casares (32.32Km) y La Virgen – San Juan del Sur (19.25 Km) las cuales forman parte de carreteras importantes para el desarrollo del Turismo Nacional. Con esta intervención, se logró cumplir en un 100% con el objetivo propuesto. En cumplimiento al segundo objetivo del Proyecto, se logró la construcción de 198.25 Km de carretera con superficie de rodamiento de Adoquín de Concreto con la ejecución del convenio Original CR-4185-NI; y 163.03 Km con la ejecución del Financiamiento Adicional CR-4736-NI para un total de 361.25 Km de Carretera en la Zona Rural y Productiva del País. Se ejecutó un total de 37.53 km de mantenimiento periódico en los tramos: La Hormiga de Oro – Rancho Rojo y Nagarote - Izapa con la ejecución del convenio Original CR-4185-NI y 47 Km en la Carretera Panamericana Norte con la ejecución del Financiamiento Adicional CR-4736-NI; para un total de 84.53 Km. En mantenimiento rutinario ejecutado con microempresas asociativas se ejecutó un total de 2400 Km con la ejecución del convenio original CR-4185-NI cumpliendo así en un 100% con la meta establecida y 2,618 Km con la ejecución del Financiamiento Adicional CR-4736-NI; para un total de 5,102.53 km del componente de mantenimiento periódico y rutinario. 2.2. Resultados por componente Parte A: Rehabilitación y Mejora de Carreteras Durante la implementación del componente de rehabilitación y mejora se mejoraron un total de 52 kilómetros de carreteras principales.

47

Parte B: Mejora del Transporte Rural Dentro del componente de mejora del transporte rural se han mejorado un total de 361 km de caminos rurales. 198 km en el marco del crédito original y 163 km del financiamiento adicional. Así mismo se ejecutaron 5 contratos principalmente para movimientos de tierra (3 con el proyecto original y 2 con el financiamiento adicional) cabe señalar que algunos fueron contratados para llevar a cabo las obras en su totalidad. Adicionalmente con durante la implementación del componente se conformaron 272 Módulos de caminos Adoquinados para la pavimentación de las calles con adoquines de los cuales 115 en el marco del proyecto original y 157 con el financiamiento adicional. Parte C: Mantenimiento Periódico y Rutinario Para el cierre del Proyecto, durante la implementación del componente C se establecieron 51 microempresas establecidas, las mismas que realizan mantenimiento rutinario para 3,200 km. Y 84 km se mantiene a través de un mantenimiento periódico. Parte D: Estudios, Asistencia Técnica y Capacitación Dentro del componente D se han capacitado 45 funcionarios del MTI y FOMAV en materia de planificación y gestión. Se realizaron tres cursos sobre planificación y gestión, de los participantes eran 3 FOMAV personal y 42 MTI. Además, 4 talleres de salvaguardas sociales y ambientales fueron impartidas tanto MTI (18) y (22) El personal del FOMAV. Se ha inventariado y codificado toda la red bajo el sistema ArcGis. Adicionalmente se han realizado 4 talleres de capacitación atendidos por personal de MTI / FOMAV. Estas capacitaciones incluyen: una Maestría en Carreteras (24 MTI Personal y 2 FOMAV), nueva actualización de la página Web de MTI (5 MTI Personal), Postgrado en Diseño, Evaluación y Gestión de Proyectos de Inversión con énfasis en Infraestructura de Transporte (13 MTI Personal y 1 FOMAV personal) y una asistencia técnica en Salvaguardias ambientales (22 funcionarios del MTI y FOMAV 18 funcionarios) y Social.

III. Impacto en el desarrollo institucional

Mediante la eficiente utilización de los recursos destinados para el fortalecimiento Institucional. Se logró capacitar tanto a personal del MTI como de FOMAV en diversas áreas como son la administración vial, salvaguardas sociales y ambientales, manejo de algunos programas de informática. Se logró se logró capacitar a las Microempresas, en temas de Los temas fueron Salud Pública, Género, Medioambiente, Actualización en Cooperativismo, Técnicas Empresariales, Técnicas de Mantenimiento Vial. Adicionalmente se adquirió equipos computacionales software y vehículos para equipar diferentes Direcciones. A continuación se detallan las consultorías que se llevaron a cabo en el marco de la implementación del Proyecto, las que no se llevaron a cabo, las capacitaciones realizadas y los bienes adquiridos.

48

a) Consultorías Asistencia Técnica sobre Salvaguardas Sociales y Ambientales MTI. A

sugerencia de los especialistas del Banco Mundial se llevaron a cabo dos consultorías individuales en lugar de una para separar la capacitación en temas de salvaguardas ambientales de las sociales. Se realizaron talleres para 18 funcionarios de la Unidad de Gestión Ambiental de la institución y a personal de diferentes alcaldías municipales.

Evaluación de Impacto CR-4185-NI. Se firmó contrato con Roughton International Limited para la evaluación de impacto del IV Proyecto. La firma presentó un informe final con los impactos obtenidos en la primera etapa de la ejecución del IV Proyecto que fueron financiados con el convenio original.

Actualización de Línea Base Indicador de Accesibilidad tramos Financiamiento Adicional. Se firmó contrato con Roughton International Limited para el levantamiento de la línea base del Financiamiento Adicional del IV Proyecto. La firma presentó un informe final con los resultados base de los indicadores establecidos en los términos de referencia.

Estudio sobre Microempresas de Mantenimiento Vial, Diagnóstico y Recomendaciones para una Mejor Efectividad. Se llevó a cabo una consultoría para diagnosticar la situación actual del programa, de tal manera que permita observar las debilidades del mismo, determinar la caracterización de las vías objeto de atención por las microempresas y finalmente proporcionar recomendaciones que una vez implementadas, conlleve a mejorar la eficiencia del Programa en todos los aspectos. Para este fin se contrató al consultor José Yeng Chong.

Consultoría para Asistencia Técnica sobre Salvaguardas Sociales y Ambientales FOMAV. Se llevaron a cabo dos consultorías, una en salvaguardas sociales y otra en salvaguardas ambientales donde se capacitó a 22 funcionarios del FOMAV. En ambos casos se contrataron consultores individuales.

Especialistas en Hidrotecnia. En misión de evaluación de Marzo 2012, se acordó la contratación de un especialista en Hidrotecnia para la revisión de los diseños finales de los tramos del nuevo proyecto y la calidad de las obras de los tramos en ejecución.

Especialista en Suelos y Pavimentos. En misión de evaluación de Marzo 2012, se acordó la contratación de especialista en Geotecnia para la revisión de los diseños finales de los tramos del nuevo proyecto y la calidad de las obras de los tramos en ejecución.

Especialista en Adquisiciones. La UCP solicitó la contratación de una consultora especialista en procesos de adquisiciones de los MCA para apoyar los procesos de licitación de bienes, obras y servicios que realizan los Módulos comunitarios. El contrato tuvo un plazo de 1 año y posteriormente renovado financiado con fondos del V Proyecto.

49

b) Consultorías que no se llevaron a cabo Servicios en Control de Calidad para tramos de Jinotega, Boaco y Chontales.

La supervisión de los proyectos fue realizada directamente por el personal del MTI y el control de calidad lo realizó el equipo de especialistas de laboratorio de la institución.

Asistencia Técnica sobre Control de Cargas (área de pesos y dimensiones). El

proceso fue declarado desierto en dos ocasiones por falta de expresiones de interés, por tal razón se decidió modificar los términos de referencia para incluirla en el Proyecto de Mejoramiento de Infraestructura Vial Rural.

Asistencia Técnica sobre Planificación y Programación de Inversiones Viales.

La consultoría no se desarrolló ya que se llevaba a cabo la elaboración del Plan Nacional de Transporte financiado con la cooperación Japonesa.

c) Capacitaciones Maestría en Vías Terrestres. Se llevó a cabo la capacitación de 26 funcionarios

del MTI con fondos del convenio para lo cual se firmó contrato con la Universidad Nacional de Ingeniería (UNI) por un monto de US$ 350,586.05 y una duración de 2.7 años.

Capacitación a Personal del MTI Sobre Actualización Página Web. Consultoría Finalizada. El MTI ha realizado el proceso de adquisición respectivo y se adjudicó a un Consultor Individual. El consultor ya ha impartido las capacitaciones respectivas a un total de 5 funcionarios del MTI.

Capacitación Microempresas (04 Talleres FOMAV). Se realizaron cuatro

talleres para miembros de las microempresas asociativas del FOMAV. Los temas fueron Salud Pública, Género, Medioambiente, Actualización en Cooperativismo, Técnicas Empresariales, Técnicas de Mantenimiento Vial.

Posgrado en Formulación, Evaluación y Administración de Proyectos de

Inversión con énfasis en Infraestructura de Transporte MTI/FOMAV. El postgrado estuvo dirigido a 13 funcionarios del MTI y 1 funcionario del FOMAV para fortalecer los conocimientos en el área de planificación y elaboración de proyectos, evaluación financiera y económica de proyectos con énfasis en Infraestructura de Transporte. El Contrato fue suscrito con la UNI.

d) Bienes Adquiridos Como parte del Fortalecimiento Institucional se realizaron procesos para la adquisición de bienes necesarios para el buen desarrollo del proyecto, de acuerdo al siguiente detalle:

50

Cuadro 1. Bienes adquiridos para el desarrollo del Proyecto Producto Empresa Adjudicada Monto Detalle

Libreros para archivo de la UCP BM CARPINTERÍA ESPINOZA

C$ 119,872.35 Cinco (5) libreros de plywood de pino curado de 3/4

Camionetas Pick Up 4x4 Doble Cabina

GRUPO Q DE NICARAGUA, S.A

C$2,382,265.89 Cuatro (4) Camionetas Nissan Frontier año 2012

Densímetros nucleares

GORA, S,.A, C$ 583,402.86 Dos (2) densímetros nucleares

Equipos y accesorios (lote n° 01): equipos de computación y accesorios

VARGAS Y COMPAÑÍA

C$ 321,555.00 Diez (10) Computadoras de Escritorio H.P Compaq

Equipos y accesorios (lote n° 02): equipos de computación y accesorios

COMERCIAL SAN PABLO, S.A

C$ 480,691.08 Quince (15) Computadoras Portátiles Dell

Equipos y accesorios (lote n° 03): impresora formato ancho y equipo multifuncional

PRODUCTIVE BUSINESS SOLUTIONS NICARAGUA (PBS)

C$ 1,140,400.74

Fotocopiadora Multifuncional PBS C$ 171,981.68 Una (1) Fotocopiadora XEROX

GPS de Mano INVERSIONES RIGUERO

C$ 32,540.4 Dos (2) GPS de Mano Garmin Montana 650

Mobiliario de las Oficinas (10 Libreros)

COMBISERSA C$ 180,500.00 Diez (10) libreros de plywood de pino

12 cámaras digitales ARGUELLO COMERCIAL

C$ 84,361.81 Doce (12) cámaras digitales 16 Megapixeles Fujifilm

Adquisición de Cámara de Video y Cámara Profesional

HUMBERTO ROMERO C$ 224,440.00 Una (1) Cámara fotográfica NIKON, Una (1) Cámara de video CANON

Cámara de Video COMERCIAL SAN PABLO

C$ 200,071.40 Una (1) Cámara de video SONY

Microbús para giras de campo AUTONICA C$ 1,479,009.23 Un (1) Microbús Nissan Civilian W41

IV. Principales factores que afectaron la implementación y resultados

A continuación se detallan los factores y limitaciones que afectaron la implementación del Proyecto y sus resultados. 5.1. Factores clave de éxito Entre los principales factores claves identificados que permitieron alcanzar los resultados del Proyecto tenemos: (i) óptima coordinación entre las áreas involucradas, (ii) conformación de un buen equipo de trabajo, con personal capacitado a nivel técnico-administrativo según componentes. En los siguientes párrafos describimos los factores claves identificados por cada componente del Proyecto.

a. En el componente de Rehabilitación Vial, se identificaron los siguientes:

51

(i) Contar con los documentos técnicos y legales de calidad. (ii) Contar con un buen equipo técnico de trabajo. (iii) Contratistas con capacidad gerencial para ejecutar las obras. (iv) Mantener la baja rotación del personal en el MTI, garantizando la sostenibilidad

del proceso. (v) Tener procesos detallados, una línea de comunicación constante con los diferentes

departamentos del MTI y una excelente coordinación inter-institucional con las agencias o departamentos con respecto a los alcances del proyecto.

(vi) Llevar a cabo procesos de licitación efectivos en tiempo y forma y obtener con anterioridad los permisos ambientales antes del inicio de obras.

b. En el componente de Mejora del Transporta Rural, se identificaron los siguientes:

(i) Promover una coordinación óptima entre las áreas funcionales claves del MTI

como son: planificación, adquisiciones, asesoría legal, recursos externos, DGAF y la DGA.

(ii) Implementar el entrenamiento y supervisión por parte de la UCP en el desarrollo de capacidades administrativas y técnicas adquiridas por los miembros de los MCA.

(iii) Generar procesos de licitaciones adecuados y transparentes incorporando el método de NCB en los MCAs para el suministro y transporte de adoquines y movimiento de tierra.

(iv) Generar capacidades institucionales en los municipios en procesos de adquisiciones y contrataciones para la adquisición del suministro de adoquines, y movimiento de tierra.

(v) Incorporar el enfoque de género para desarrollar la gestión administrativa y técnica en el desarrollo de los MCAs.

(vi) Obtener facilidades técnicas por parte de los municipios para implementar proyectos en sus territorios (Derecho a la vía, banco de materiales, permisos ambientales, etc.).

c. En el componente de Mantenimiento periódico y rutinario (FOMAV), se identificaron

los siguientes: (i) Capacitar a los miembros de las microempresas de mantenimiento rutinario en

organización, capacitación y género, (ii) Incorporar en el desarrollo del trabajo de las microempresas la evaluación del

desempeño basada en indicadores de resultados (iii) Ampliar la cobertura en la red vial de mantenimiento, FOMAV tenía inicialmente

34 microempresas, actualmente cuenta 52 microempresas que cubren la red básica de carreteras nacional.

(iv) Establecer un sistema de pago en la microempresas basado en la tipología de del camino.

(v) Capacitar en la formulación de proyectos de mantenimiento periódico en vías prioritarias.

d. En el componente de Estudios, asistencia técnica y capacitación, se identificaron los

siguientes: 52

(i) Capacitar en evaluación económica y calibración de los modelos HDM-IV y del

modelo Red. (ii) Cumplir con la legislación ambiental nacional y las políticas de salvaguardias del

Banco. (iii) Contar con personal capacitado para la revisión de estudios, revisión de TdRs y

pliegos de bases. (iv) Contar con asistencia técnica permanente por parte de los consultores externos. (v) Desarrollar capacidades en educación ambiental en coordinación con el área de

gestión ambiental y la UCP, implementando módulos comunitarios de adoquinado, así como un postgrado y maestría en transporte realizados.

1.2. Principales limitaciones En los siguientes párrafos describimos las limitaciones identificadas por cada componente del Proyecto:

a. En el componente de Rehabilitación Vial, se identificaron los siguientes:

(i) Marco normativo no favorable (La ley del derecho de vía).

b. En el componente de Mejora del Transporte Rural, se identificaron los siguientes: (i) Indefinición de los costos unitarios de los MCA. (ii) Poca capacidad técnica en la instalación y suministro de adoquines. (iii) Insuficiente suministro de materiales de construcción (por ejemplo: contar con

tubos de drenaje para mejorar el sistema de drenaje) (iv) Poca flexibilidad de la guía operativa de MCA no incorporó la coordinación entre

las distintas áreas.

c. En el componente de Mantenimiento Periódico y Rutinario (FOMAV), se tuvieron: (i) Equipamiento y herramientas de trabajo obsoletos. (ii) Demora en los reembolsos por parte del área de administración.

d. En el componente de Estudios, asistencia técnica y capacitación, se identificaron los siguientes:

(i) Infraestructura y equipos obsoletos y en mal estado para la realización de los estudios y supervisión.

(ii) Insuficiente capacitación para todas las direcciones. (iii) Insuficiente recursos para el fortalecimiento institucional del MTI.

5.3 Lecciones Aprendidas Las lecciones aprendidas y/o recomendaciones identificadas con respecto a la ejecución del proyecto y sus resultados, se definieron de acuerdo a siete (07) puntos de análisis: (i) marco institucional, (ii) diseño técnico del componente, (iii) marco de resultados, (iv) adquisiciones y contrataciones, (v) gestión social y ambiental, (vi) monitoreo y evaluación, y (vii) sostenibilidad.

53

En los siguientes párrafos describimos las principales lecciones aprendidas y/o recomendaciones por cada componente del Proyecto identificadas. a. En el componente de Rehabilitación Vial, se identificaron las siguientes:

(i) Sobre el marco institucional. Mantener una buena comunicación entre las instituciones relacionadas con el proyecto pues esto permite obtener mejores resultados.

(ii) Sobre el diseño técnico del componente, Formular de los alcances del proyecto se debe realizar considerando todos los factores que influirán en la etapa de implementación del proyecto.

(iii) Sobre el marco de resultado. Involucrar a la UCP en la elaboración del marco de resultados (metas e indicadores) del proyecto desde el inicio de la formulación, la elaboración de los indicadores, a fin de que se entiendan claramente las metas establecidas originalmente.

(iv) Sobre las adquisiciones y contrataciones. Elaborar documentos técnicos y legales de calidad, y manejar las políticas del Banco para garantizar el éxito de los procesos de licitación y contratación depende de la elaboración de documentos técnicos y legales de calidad, pero también del conocimiento y manejo de las políticas del Banco y organismos similares.

(v) Sobre gestión social y ambiental. Promover la reforma de la ley de derecho de vía que se ajusta a la calidad y demanda de los proyectos.

(vi) Sobre monitoreo y evaluación (M&E). Implementar las políticas de los organismos financieros aunados a la política de seguimiento y control del gobierno a través de distintos sistemas, permitiendo tener un permanente monitoreo al cumplimiento de los indicadores de las metas.

(vii) Sobre la sostenibilidad del FOMAV. Formular proyectos hasta el nivel de doble tratamiento e involucrar al FOMAV para mejorar el nivel de servicio, la sostenibilidad y calidad de las vías a intervenir.

b. En el componente de Mejora del Transporte Rural, se identificaron los siguientes:

(i) Sobre el marco institucional. Contemplar el enfoque de género en los Proyectos que oriente la intervención y definición del rol de las mujeres en los trabajos de MCA y en otros ámbitos.

(ii) Sobre la gestión social y ambiental. Capacitar en el uso y manejo de los bancos de materiales por parte de las UGA.

(iii) Sobre M&E. Promover la interrelación de las instituciones involucradas en el desarrollo de la capacidad técnica y administrativa de los miembros de las juntas directivas.

c. En el componente de Mantenimiento Periódico y Rutinario (FOMAV), se identificaron los siguientes:

(i) Sobre el marco institucional. Manejar una cartera de proyectos definida y priorizada con alcances, costos y rentabilidad.

(ii) Sobre el diseño técnico de los componentes. Incorporar tecnologías nuevas para el mantenimiento de los caminos.

(iii) Sobre la gestión social. Promover la creación de un mayor número de microempresas de mantenimiento de carreteras incluyendo las rurales (de 34 a 52)

54

ha generado empleo y mayor eficiencia de costos en la supervisión de los contratos por resultados.

(iv) Sobre el M&E. Contar con una herramienta técnica para el seguimiento de proyectos ya que estos se realizan de forma manual.

(v) Sobre la sostenibilidad. Destinar mayores recursos para poder ampliar la cobertura de la red con un mantenimiento rutinario por las microempresas.

d. En el componente de Estudios, asistencia técnica y capacitación, se identificaron los

siguientes: (i) Sobre el marco institucional. Involucrar a las diferentes direcciones del MTI en la

definición y evaluación de indicadores de resultado e impacto. (ii) Sobre el diseño técnico. Establecer montos por subcomponentes en cada una de

las áreas, además se debe incorporar equipos actualizados para supervisión de los estudios.

(iii) Sobre gestión ambiental y social. Sistematizar las buenas prácticas en el manejo socio-ambientales que ha tenido el Proyecto.

(iv) Sobre el M&E. Realizar un monitoreo y seguimiento semanal a los convenios, contratos, programas y/o proyectos con el Banco, a través de la creación de matrices incorporándolas en un sistema de seguimiento y monitoreo.

55

Annex 8. Comments of Cofinanciers and Other Partners/Stakeholders N/A

56

Annex 9. List of Supporting Documents 1. The World Bank (2006) Project Appraisal Document on a Proposed Credit in the

Amount of SDR 41.1 million (US$ 60 million equivalent) to the Republic of Nicaragua for the Fourth Roads Rehabilitation and Maintenance Project, Report No: 35050-NI, May.

2. The World Bank (2011) Restructuring Paper on a Proposed Project Restructuring of Fourth Roads Rehabilitation and Maintenance Project, Credit CR-4185-NI, May 9, 2006 to the Government of Nicaragua, May.

3. The World Bank (2010) Project Paper on an Propose Additional Grant in the Amount of SDR 21 million (US$ 31.8 million equivalent) and Proposed Additional Credit in the Amount of SDR 5 million (US$ 7.5 million equivalent) including SDR 9.4 million (US$ 14.3 million equivalent) in pilot crisis response window (CRW) Resources to the Republic of Nicaragua for the Fourth Roads Rehabilitation and Maintenance Project Report No: 53964-NI, April.

4. Aide Memoirs for Project Supervision missions 2006-2014.

5. Project Implementation Status Report, Project Files.

6. Jiménez, Bexi Francina Mota (2013) Impact Evaluation of Rural Roads Project in Nicaragua. Impacts on Welfare and Education, September.

7. Muzira, Stephen and Hernandez de Diaz, Damaris (2014) Rethinking Infrastructure Delivery: Case Study of a Green, Inclusive, and Cost-effective Road Program in Nicaragua, June.

8. Casabonne, Ursula; Jiménez, Bexi and Müller, Miriam (2014) Roads to Agency. Effects of Enhancing Women’s Participation in Rural Roads Projects on Agency a Comparative Assessment of Rural Transport Projects in Argentina, Nicaragua and Peru, draft version, October.

9. Report on Workshop on Lessons Learned, November 27, 2014.

57

Annex 10. Impact Evaluation Study

I. Introduction

Investments in infrastructure, especially in rural roads, have been an important part of the World Bank’s strategies of fighting against poverty and increasing shared prosperity. Some suggest that transportation infrastructure triggers economic development through reductions in transport and a trade cost, which leads to upgraded access to markets, and social services. Van de Walle (2008) added that it also fosters and improves agricultural production, alters production decisions, stimulates off-farm diversification and other income-earning opportunities, and encourages migration. It is clear to most experts the importance that transport and rural roads projects have to boost economic and social development. Notwithstanding, there is little empirical studies that estimate the magnitude of its benefits. Most studies focus in doing before and after estimations on the treated (intervened) units, still without accurate counterfactuals it is likely that the results are not trustworthy. The assumption behind this “Naïve comparisons” is that without the project implementation the outcome wouldn’t have changed - which is a questionably a hypothesis (Andres et al, 2013). As mentioned by Rand (2011) “although there has been a substantial amount of work to evaluate the impact of infrastructure improvements on different socio-economic indicators. Most of these evaluations have been qualitative in nature, maybe due to the large data requirements and methodological difficulties faced when carrying out solid quantitative assessments of infrastructure investments”. Nonetheless, this paper as well as other innovative impact evaluations, uses robust econometric models to assess the real impact rural roads projects have on their beneficiaries. The main objective of impact evaluation of a program is to identify the extent to which the program has changed outcomes of its treated subjects. In other words, impact of the program on participants is measured by the change in welfare outcome that is attributed only to the program (Cuong, 2011). However, one of the main obstacles in estimating rural roads impacts is the problem raised by the non-random placement (endogenous placement and self-selection bias) of the targeted areas of the project. Some authors such as Van de Walle and Mu 2011, Ravallion and Chen 2005, Lokshin and Yemtsov 2005 have successfully used a difference-in-difference approach in combination with propensity score matching technique to control for initial conditions and time variant factors that simultaneously influence the placement of roads and it subsequent growth rates. Similarly, Khandker et al. (2009) use a fixed-effects regression method, with regression controls for initial conditions (Rand, 2011). This study follows a similar methodology to evaluate the impact that the Fourth Roads Rehabilitation and Maintenance Project had on monthly average income and school enrollment in the intervened municipalities of Nicaragua, using year 2005 as baseline period and 2011 as ex-post. A combination of 2005 Population and Household Census, 2005 Living Standards Measurement Survey (LSMS) and the Trimestral Household Survey (THS), as well as statistics from the Ministry of Education were used as main sources of information for the study.

58

Due to the lack of more recent data, this study is focuses on the project’s impact two years after the rural roads were done. This imposes a certain amount of limitations because impacts in the very short run might be deceiving. For instance, Van de Walle (2011) on her study of rural roads rehabilitation in Vietnam finds no effect on market frequency, service availability and employment rate two year after the program was completed. Conversely, she does finds significant impacts when reproducing the study four years after the project completion.

II. Data

The data used in this study has been selected from the 2005 Population and Household Census, 2005 Living Standards Measurement Survey (LSMS) and the Trimestral Household Survey (THS) of the trimester October/December 201112 from the National Institute of Development Information (Instituto Nacional de Información de Desarrollo – INIDE). Additionally, the study used enrollment data from the Nicaraguan Ministry of Education (Ministerio de Educación – MINED) of 2004 and 2011. The main purpose of the study is to observe the impact that the rural roads project had on welfare and human capital of its beneficiary municipalities. To capture these two dimensions, the variables average monthly income and school enrollment where selected as key dependent variables. Given data availability, 2005 (as ex-ante) and 2011 (as ex-post) are the periods this report is based on. Response (dependent) variables Y1. Average Monthly Real Income: LSMS 2005 and THS 2011 served to estimate the monthly average income of municipalities. Although these surveys are designed to be representative at the national level, this is the closest available estimate of municipal income. The sample size of each survey is 36,642 and 30,845 individuals, respectively. The monthly income was estimated for persons of 10 years and above and it was distributed by sex. This variable is not only monetary income, but it also includes income in species13. Given that income of 2005 must be comparable to that of 2011, both incomes have been put into values of 2006, using the Nicaraguan Central Bank’s deflator14. Y2. School Enrollment: this variable was obtained from the 2005 Population and Household Census and MINED for enrollment of 2011. Additionally, the data was distributed by sex. Given that the sources of enrollment data ex-ante and ex-post data were not the same (due to data availability), regressions using enrollment of 2004 and enrollment of 2011, both from MINED, were also ran to prove robustness of the estimations. Explanatory (independent) variables All of the independent variables for ex-ante were selected from the 2005 Population and Household Census, and ex-post from the 2011 THS. These variables were: total population,

12 These surveys can be found at www.inide.gob.ni, under “Encuesta de Medición del Nivel de Vida 2005” y “Encuesta Continua de Hogares 2011, trimestre octubre-diciembre”.

13 By income in species the study refers to the opportunity cost of any subside or agricultural goods that were used for personal consumption. For instance, if the interviewee received breakfast, books or uniforms from the Ministry of Education, estimations are made on how much they would have expended and those “savings” are accounted as part of their income.

14 The study used the 2006 deflator to be consistent with the Central Bank of Nicaragua’s publication of GDP deflator of 2006. 59

population density, literacy rate, poverty rate, extreme poverty rate, percentage of people that work in agricultural activity, percentage of indigenous people 15 , average age, percentage of people living in rural area, and a dummy variable to assess whether the major of the municipality is from the same party of the Nicaraguan President during 200516.

III. Methodology

Impact evaluation methods seek to state whether a specific project had effects on its beneficiaries, and that those effects can be attributed to the project itself and not to other surrounding conditions. Many specialists have come to the conclusion that infrastructure impacts, and especially rural roads, have multiple difficulties inherent in estimating the magnitude of the effects attributable to the project. Problems arise due to the endogeneity of much infrastructural development and the many other factors that are at work (Binswanger et al., 1993; Jalan and Ravallion, 1998). “Not allowing for initial conditions ─ both time-invariant and time-varying ─ and the way in which infrastructure is allocated to specific regions will tend to bias impact estimates, often downwards in poor areas. The most common criticisms of past impact evaluations of roads are that they did not have appropriate comparison groups; that the results were not likely to be robust to unobserved factors influencing both program placement, subsequent growth, and outcomes; and that they did not follow projects long enough to capture full impacts “ 17(Walle, 2008). Moreover, another problem that affects this kind of estimations is the spillover effects. “Infrastructure projects may have positive or negative externalities to neighbors. For example, road projects can affect relatively wide geographic areas making it difficult to identify appropriate comparison units. Choosing comparison units geographically distant from treated units can minimize the spillover effects; however, this may risk that groups differ substantially on important covariates. Failure to account for such spillovers risks producing biased impact estimates” (Andres et al, 2013). Therefore, a reliable evaluation methodology needs to correct for the potential sources of selection bias through a careful selection of control or counterfactual observations. Furthermore, given that roads may have dispersed effects on many factors, rich information on conditions prior to the intervention must be available (Walle, 2008). This paper intends to evaluate the possible impacts of improved rural roads on monthly average income of individuals in a determined municipality and school enrollment of boys and girls in Nicaragua. To do so, selection of appropriate control and treatment groups is extremely important.

15 Currently there are 10 indigenous groups in Nicaragua: In the Autonomous Regions of the Caribbean Coast they are Miskito, Sumo or Mayagnas, Rama, Garifuna, Creoles and Mestizos. While in the Pacific, Central and North of Nicaragua the Chorotegas, Cacaoperas, Nahoas and Xiu-Sutiabas are established. According to 2005 Census, around 9% of the population was considered to be indigenous.

16 Enrique Bolaños Geyer, from the Constitutionalist Liberal Party (Partido Liberal Constitucionalista – PLC) was the constitutional president of Nicaragua from 2002 to 2007.

17 For a brief summary of some general issues affecting the design of impact evaluation of rural roads, see Van de Walle (2008) Impact Evaluation of Rural Road Projects, section I.

60

Selection of treatment group The IV Roads Rehabilitation and Maintenance Project, as already stated, started in 2006 and finished in 2011. However, not all roads were done simultaneously. By the end of 2009, 89.19% of the roads initially targeted in the project already started their operations, but only 51.35% of them the works already ended (see Figure 2). Given that the latest data available was the 2011 THS, this study only focuses on municipalities in which road works were finished by the end of 2009. The idea behind, is to leave at least two years to measure any possible impact that the project might have on average income and school enrollment. Selection of counterfactual (control group) As mention before, selection of an accurate control group is essential in determining robustness of the estimation results. To identify the municipalities that will be part of the counterfactual, it is important to understand how the process of prioritization of the roads to be intervened is done; given that such are not randomly selected. According to MTI, the selection is done following three main factors: i) high poverty level, ii) dense population and iii) high agricultural and economic potential. Propensity score matching (PSM)18 technique including the above mentioned factors as well as other general variables was used to identify the municipalities that would serve as control groups. The reasoning behind this technique is to find, from a large group of nonparticipants, individuals (municipalities in this case) that are observationally similar to participants in terms of initial characteristics not affected by the program. What this method does is to create a probability model, in which given a set of observable characteristics it will attribute a probability of each individual (municipality) to be selected as part of the intervention (rural roads project). Participants are then matched, following different criteria, with non-participant on the basis of these probabilities or propensity scores. For the purpose of this study stratification or interval matching were used (refer to Box 1). According to the findings of PSM model, 35 municipalities were selected as potential counterfactuals and the balancing property was satisfied in all cases. Poverty rate, percentage of people dedicated to agricultural production, and the dummy variable to assess if the major of a municipality was from the same party as the Nicaraguan President at the time, proved to be significant determinants of whether the municipality was going to be beneficiary of the rural road project. However, due to lack of follow-up data for all of these 52 municipalities (35 control and 17 treatment), impacts of rural roads on income where estimated on a subsample of 43 municipalities (dropping 4 treatment and 5 control municipalities. As for the estimation of

18 For more detailed information refer to Handbook on Impact Evaluation (Shahidur R. Khandker, Gayatri B. Koolwal and Hussain A. Samad).

89.19%

51.35%

0%

20%

40%

60%

80%

100%

2006 2007 2008 2009 2010 2011 2012

Figure 1. Interventions timeline

Start Phase End Phase

61

the impacts on school enrollment a subsample of 47 were kept (drooping 2 treatment and 3 control municipalities. Nonetheless the balancing proprieties were met, and the difference in means in control and treatment group was not statically significant (table 1, 2 and 3 shows the difference in means of the main variables in the baseline period) 19 . Thus, confirming that the counterfactual municipalities are relatively similar to those that were intervened. Additionally, to prove consistency, the PSM was performed in different ways by excluding one or more of the baseline characteristics, or exchanging variables to measure similar aspects (population vs. population density). In all cases the results remained the same, and the control municipalities remained constant.

Box 1: Matching Participants to Nonparticipants – Propensity Score Matching Different matching criteria can be used to assign participants to non-participants on the basis of the propensity score. Doing so entails calculating a weight for each matched participant- nonparticipant set. As discussed below, the choice of a particular matching technique may therefore affect the resulting program estimate through the weights assigned: ■ Nearest-neighbor matching. One of the most frequently used matching techniques is NN matching, where each treatment unit is matched to the comparison unit with the closest propensity score. One can also choose n nearest neighbors and do matching (usually n = 5 is used). Matching can be done with or without replacement. Matching with replacement, for example, means that the same nonparticipant can be used as a match for different participants. ■ Caliper or radius matching. One problem with NN matching is that the difference in propensity scores for a participant and its closest nonparticipant neighbor may still be very high. This situation results in poor matches and can be avoided by imposing a threshold or “tolerance” on the maximum propensity score distance (caliper). This procedure therefore involves matching with replacement, only among propensity scores within a certain range. A higher number of dropped nonparticipants is likely, however, potentially increasing the chance of sampling bias. ■ Stratification or interval matching. This procedure partitions the common support into different strata (or intervals) and calculates the program’s impact within each interval. Specifically, within each interval, the program effect is the mean difference in outcomes between treated and control observations. A weighted average of these interval impact estimates yields the overall program impact, taking the share of participants in each interval as the weights. ■ Kernel and local linear matching. One risk with the methods just described is that only a small subset of nonparticipants will ultimately satisfy the criteria to fall within the common support and thus construct the counterfactual outcome. Nonparametric matching estimators such as kernel matching and LLM use a weighted average of all nonparticipants to construct the counterfactual match for each participant. LLM, in contrast, estimates a nonparametric locally weighted (lowest) regression of the comparison group outcome in the neighborhood of each treatment observation (Heckman, Ichimura, and Todd 1997). Kernel matching is analogous to regression on a constant term, whereas LLM uses a constant and a slope term, so it is “linear.” LLM can include a faster rate of convergence near boundary points (see Fan 1992, 1993). Source: Handbook on Impact Evaluation, Quantitative methods and practices. Shahidur R. Khandker, Gayatri B. Koolwal and Hussain A. Samad

19 Annex 2-5 show the data that was collected for the impact estimation by municipality.

62

Table 1. Summary of means of explanatory (baseline) variables

Table 2. Summary of means of explanatory (baseline) variables used for estimating impacts on average monthly real income

Table 3. Summary of means of explanatory (baseline) variables used for estimating impacts

on school enrollment

Characteristics Control Treatment Difference p-value Obs Mean Std. Dev Obs Mean Std. Dev

Population (a) 35 61,845 157,578 17 39,396 40,024 22,449 0.57 % population dedicated to agricultural activity (a) 35 23.50 14.92 17 24.13 13.54 (0.63) 0.88 Illiteracy rate (a) 35 21.50 9.31 17 21.01 9.11 0.49 0.86 Poverty rate 35 62.39 9.86 17 61.56 10.72 0.83 0.78 Extreme Poverty rate 35 30.04 9.79 17 293.81 10.60 (263.77) 0.94 % indigenous people 35 2.23 4.06 17 3.52 5.18 (1.29) 0.33 Average Age (a) 35 25.69 0.99 17 25.71 1.16 (0.02) 0.95 % living in rural areas (a) 35 44.59 25.05 17 44.20 17.36 0.39 0.95 % of women (a) 35 50.66 1.26 17 50.59 1.20 0.07 0.86 Municipalities governed by PLC 35 0.31 0.47 17 0.35 0.49 (0.04) 0.76 Inference: *** p<0.01, ** p<0.05, * p<0.1

Characteristics Control Treatment

Difference p-value Obs Mean Std. Dev Obs Mean Std. Dev Population (a) 30 70,757 168,92 13 49,238 41,089 21,519 0.65 % population dedicated to agricultural activity (a)

30 23.26 15.08 13 23.10 10.30 0.16 0.97

Illiteracy rate (a) 30 22.32 9.79 13 20.45 8.39 1.87 0.55 Poverty rate 30 63.35 10.18 13 60.34 10.94 3.01 0.39 Extreme Poverty rate 30 31.06 10.08 13 28.52 11.0.2 2.54 0.47 % indigenous people 30 2.29 4.39 13 3.84 5.54 (1.55) 0.33 Average Age (a) 30 25.58 0.94 13 25.41 1.26 0.17 0.63 % living in rural areas (a) 30 45.20 25.86 13 42.76 15.49 2.44 0.75 % of women (a) 30 50.72 1.26 13 50.62 1.23 0.10 0.81 Municipalities governed by PLC 30 0.30 0.47 13 0.38 0.51 (0.08) 0.60 Inference: *** p<0.01, ** p<0.05, * p<0.1

Characteristics Control Treatment Difference p-value Obs Mean Std. Dev Obs Mean Std. Dev Population (a) 32 67,066 164,028 15 43,920 40,550.23 23,146 0.59 % population dedicated to agricultural activity (a)

32 23.89 15.31 15 22.37 10.02 1.52 0.72

Illiteracy rate (a) 32 22.12 9.49 15 20.09 8.47 2.03 0.48 Poverty rate 32 63.09 9.92 15 60.23 10.39 2.86 0.37 Extreme Poverty rate 32 30.79 9.81 15 28.46 10.31 2.33 0.46 % indigenous people 32 2.31 4.25 15 3.94 5.39 (1.63) 0.27 Average Age (a) 32 25.61 0.95 15 25.56 1.36 0.05 0.88 % living in rural areas (a) 32 45.53 25.04 15 42.21 18.56 3.32 0.64 % of women (a) 32 50.64 1.27 15 50.60 1.22 0.04 0.92 Municipalities governed by PLC 32 0.34 0.48 15 0.33 0.49 0.01 0.95 Inference: *** p<0.01, ** p<0.05, * p<0.1

63

Estimation models For this quasi-experimental evaluation, two estimation methods were used: i) difference-in-differences with propensity score matching (DID-PSM) and ii) DID-PSM with covariates. The latter is one the most popular methods in impact evaluation designs20. The DID model assume that without the project’s intervention final outcomes of the treatment group would have changed by the same amount as the control group. Therefore, any deviation in the treatment group from the trend followed by the comparison group is estimated as the projects impact. This model combined with PSM has proved to perform well in comparison to an experimental benchmark (Cuong, 2011; Van de Walle, 2008; Smith and Todd, 2005; Van de Walle and Cratty, 2002; Dehejia and Wabha, 1999). According to Cuong, this method has two main advantages: i) it allows correcting for the selection of the program based on unobservable time invariant variables (unobserved heterogeneity), while at the same time controls for the observable characteristics of the observations; ii) difference-in-differences with PSM can be regarded as nonparametric method, which avoid the functional form assumptions invoked by parametric methods. As previously mentioned, the first model is a simple DID-PSM estimator; that is given by the following expression:

𝐷𝐷𝐷𝐷𝐷𝐷 = 𝐸𝐸 (𝑌𝑌1𝑇𝑇 − 𝑌𝑌0𝑇𝑇|𝑇𝑇1 = 1) − 𝐸𝐸 (𝑌𝑌1𝐶𝐶 − 𝑌𝑌0𝐶𝐶|𝑇𝑇1 = 0) (1) In this equation, 𝑡𝑡 = 0 refers to period before the program was implemented and 𝑡𝑡 = 1 period after the program execution. Similarly, 𝑌𝑌𝑡𝑡𝑇𝑇 and 𝑌𝑌𝑡𝑡𝐶𝐶 represent the respective outcomes for the program participant and nonparticipants in period 𝑡𝑡; 𝑇𝑇1 = 1 denotes presence of the program and 𝑇𝑇1 = 0 identifies the control municipalities at 𝑡𝑡 = 1 . However, before the DID estimator is calculated, the PSM is ran beforehand and the municipalities that are out of the common support area are eliminated. Thereafter, DID-PSM with covariates regression is executed. This model comes to mitigate risks from the assumption that there are no time variant characteristics that affect either the control or treatment group. The following equation shows how this model is estimated:

𝑌𝑌𝑖𝑖𝑡𝑡 = 𝛽𝛽0 + 𝛽𝛽1𝐷𝐷𝑖𝑖𝑡𝑡 + 𝛽𝛽2𝑡𝑡 + 𝜷𝜷𝟑𝟑𝒕𝒕 ∙ 𝑫𝑫𝒊𝒊𝒕𝒕 + 𝛽𝛽𝑖𝑖Χ𝑖𝑖𝑡𝑡 + 𝜀𝜀𝑖𝑖𝑡𝑡 (2) Here, 𝑫𝑫𝒊𝒊𝒕𝒕 is a dummy to identify the municipalities that are part of the treatment and the control group respectively. 𝒕𝒕 is a dummy to identify if the data is from Ex-Ante (2005) or Ex-Post (2011) period. 𝚾𝚾𝒊𝒊𝒕𝒕 is all time variant characteristics that where included in the model (covariates) that might be influencing the possible differences among control and treatment group. 𝒕𝒕 ∙ 𝑫𝑫𝒊𝒊𝒕𝒕 is an interaction term from the dummy of treatment and control

20 For detailed information on the remaining possible models that could be used in impact evaluations refer to Handbook on Impact Evaluation (Shahidur R. Khandker, Gayatri B. Koolwal and Hussain A. Samad).

64

group and the dummy of period. Holding all else constant, the average impact of the project in the treatment group will be capture by β3. To test for robustness, the study will include a difference in difference model with Fixed Effects (FE). This design instead of using the ordinary OLS shown in equation (2) it adds to control for unobserved and time invariant characteristics that may be influencing the outcome variable. This model is particularly important given that the databases that are being used do not include as many characteristics as they should and because the limited number of observations that are being studied. (Box 2 shows a summary of other possible impact evaluation designs).

Box 2: Additional Methods to Impact Evaluations Instrumental Variable Method Instrumental variable (IV) methods allow for endogeneity in individual participation, program placement, or both. With panel data, IV methods can allow for time-varying selection bias. Measurement error that results in attenuation bias can also be resolved through this procedure. The IV approach involves finding a variable (or instrument) that is highly correlated with program placement or participation but that is not correlated with unobserved characteristics affecting outcomes. Instruments can be constructed from program design (Khandker et al, 2010). This method has been used jointly with DID proving to be very robust but at the same time very difficult to implement. Regression Discontinuity Method In a non-experimental setting, program eligibility rules can sometimes be used as instruments for exogenously identifying participants and nonparticipants. To establish comparability, one can use participants and nonparticipants within a certain neighborhood of the eligibility threshold as the relevant sample for estimating the treatment impact. Known as regression discontinuity (RD), this method allows observed as well as unobserved heterogeneity to be accounted for. Although the cut off or eligibility threshold can be defined non parametrically, the cut off has in practice traditionally been defined through an instrument. Concerns with the RD approach include the possibility that eligibility rules will not be adhered to consistently, as well as the potential for eligibility rules to change over time. (Khandker et al, 2010). Pipeline Method Pipeline comparisons exploit variation in the timing of program implementation, using as a comparison group eligible participants who have not yet received the program. One additional empirical strategy considered by program evaluators is to exploit data on program expansion along a given route (for example, an infrastructure project such as water, transport, or communication networks) to compare outcomes for eligible participants at different sides of the project boundary as the program is phased in. This method involves a combination of pipeline and RD approaches that could yield interesting comparisons over time. (Khandker et al, 2010). Dynamic panel data In a situation where longitudinal data on households or communities is available for at least three periods, it may be possible to implement a dynamic panel data growth model to estimate the impacts of roads on income or consumption growth. It is more difficult to explore impacts of policy changes as it clearly raises the further concern that the changes in program placement are endogenous to outcome changes even when it is plausible that the initial assignment is exogenous (conditional on observable controls). Moreover, it is not common to find longitudinal data with at least three points in time and information on road access for a particular road project area that one wants to evaluate. (Van de Walle, 2008).

65

IV. Findings

To estimate the impacts of average income and school enrollment both the simple DID-PSM model and DID PSM with covariates were performed, resulting with similar conclusions. It is important to note that the DID estimator measures how much greater (or smaller) was the impact of the rural road project on the treatment group compared to that in the control group. The main findings are summarized below: Income As expected, the project had a strong positive impact on the total average income of the intervened municipalities. The simple DID matching found that on average and holding all else constant, being part of the rural roads project increases by 26.5% the monthly average income of the population of the intervened municipality. This finding proved to be significant at the 90% confidence level. According to simple DD regression, rural roads improvement increases monthly average income by around C$21 861.96 (equivalent to US$34.25). Similarly, when the covariates were added to the simple DID model, the impact increases and becomes significant at the 95% confidence level. According to this model, on average participation in the rural roads project had a 28.5% positive impact on the average income of the population in the municipalities were the project was implemented. Moreover, this model found that rural roads improvement increases monthly average income by around C$ 876.80 (US$ 34.84). When the income is broken down by sex, it is found that the Fourth Roads Rehabilitation and Maintenance Project had a greater and more significant impact on women’s income than those in men. As shown in table 4, on average women’s income in the intervened municipalities is estimated to increase 77% (according the simple model) or 82% (under the DID with covariates) due to the implementation of the rural road project. In other words, due to the rural roads implementation women’s monthly average income in the targeted municipalities increased C$ 1,125 (equivalent to US$ 44.7) under the simple model and C$ 1,159.9 (about US$ 46.08) according to DID-PSM with covariates. These results proved to be very significant. It should be noted that income on 2005 and 2011 are adjusted to reflect those of 2006. On the other hand, impacts on men’s monthly average income where unclear, thus the results fail to reject the hypothesis that change on men’s income in the intervened municipalities was the same as the change in the municipalities used as counterfactual. Nonetheless, men average monthly income remained being higher before and after the project, as well as in the treatment and control groups. In general, real income did follow an uprising trend in all municipalities studied, according to Nicaragua’s economy grew 22% from 2005 to 2011. Figure 2 shows the difference among treatment and control groups average real monthly income.

21 NIO- Nicaraguan Cordoba

66

Table 4. Estimated impacts on average monthly income

Simple DID Model DID with covariates

Coef. Std. Error P >|t| Coef. Std. Error P >|t|

Average real annual income (logged) 0.265 0.157 0.094* 0.29 0.12 0.018** Average real annual income (C$) 862 503.94 0.091* 877 408.83 0.035** Women average real annual income (logged) 0.766 0.250 0.003*** 0.82 0.19 0.000*** Women average real annual income (C$) 1125 509.69 0.030** 1160 420.57 0.007*** Men average real annual income (logged) 0.079 0.170 0.644 0.08 0.14 0.553 Men Average real annual income (C$) 517 623.28 0.409 500 533.53 0.352

Inference: *** p < 0.01; ** p <0.05; * p < 0.1

67

Figure 2. Average comparison of monthly real income

Women Men

Total

School Enrollment As mentioned earlier, theory suggests that improved roads would have a positive impact in school enrollment. This mainly because it is expected that transportation cost and time will be reduced, facilitating access to social services such as education. Other authors suggest that improvements of roads conditions and accessibility to education can lead to enhancements in human capital, which then, in turn could translate into increases in productivity and income (Broegaard et al., 2011). However, both the simple DID-PSM model and with covariate showed ambiguous results. In both models, the project seemed to have no clear impact among the treatment and control groups (Table 5). Similar findings were obtained Cuong (2011), using the same DD with PSM design for a rural roads project in Vietnam. Cuong’s study finds no statically significant average effect of rural road access on the proportion of children attending to primary school (Andres et al. 2012) When comparing 2005 with 2011, it is found that enrollment among girls in both control and treatment groups decreased. Initially, enrollment among the municipalities of the counterfactual was greater than in the targeted municipalities. Although the gap between

68

these two groups contracted, the change in enrollment attributable to the improvement of road was not statistically different from the change that the counterfactual municipalities experienced. On the contrary, boys’ school enrollment in the municipalities intervened increased by 5%, and in the control municipalities decreased 3%. Despite of that, impacts on boys’ school enrollment remained not statistically significant. Similar to what was found in girls’ enrollment, the control group had a much higher enrollment rate than the treatment group ex-ante. Although, this indicator experienced an increase, the gap remains high. Figure 3 shows the difference among treatment and control groups on school enrollment.

Table 5. Estimated impacts on school enrollment

Simple DID Model DID with covariates

Coef. Std. Error P >|t| Coef. Std. Error P >|t|

Total School Enrollment (logged) 0.072 0.478 0.881 0.071 0.050 0.156 Total School Enrollment (headcount) 1,348 19000 0.16 2,076 1961.30 0.293 Girls School Enrollment (logged) 0.06 0.48 0.90 0.06 0.05 0.270 Girls School Enrollment (headcount) 683 9378.79 0.94 1,055 1124.53 0.351 Boys School Enrollment (logged) 0.09 0.48 0.86 0.09 0.05 0.093* Boys School Enrollment (headcount) 665 9259.78 0.94 1,021 842.18 0.229

Inference: *** p < 0.01; ** p <0.05; * p < 0.1

Figure 3. Average comparison of school enrollment Girls Boys

Total

69

V. Robustness

To verify the consistency of these results, fixed effects (FE) model was added to the DID with PSM design. Income and school enrollment are variables that are affected by a wide range of factor, thus there is a high chance of omitted variable bias in the above presented regression outputs. However, under the assumption that the variables that could not be included in this study remain constant over the two periods, the fixed effect model helps to correct for this bias .The assumption behind these models is to control not only for unobserved time invariant heterogeneity but also for heterogeneity in observed characteristics in a two-period setting. As shown in table 6 the result of running fixed effect to the DID model were quite similar from the ones shown in section V. In most of the cases in the (FE) with covariates, the coefficients presented a slight increase. For instance, according to the previous model on average, and holding other factors constant, the rural road improvement had a positive impact, by increasing the average monthly income around C$ 1,270.5 of the people in the treated municipalities. However, in the FE this impact was greater, around C$1362 (equivalent to US$ 54.11). Note that the difference relatively small, confirming the results of the estimated impacts of the DID –PSM with covariates. As previously mentioned, to prove robustness of school enrollment, the simple DID-PSM, the model including covariates and the FE was run with the 2004 and 2011 enrollment data, both from the MINED. It was found that the results were not statistically significant for all cases, reaffirming the ambiguous effect the rural road project had on school enrollment for boys and girls in Nicaragua.

Table 6. Estimated impacts in monthly average income & school enrollment with Fixed Effects model

FE DID Model with covariate

Coef. Std. Error P >|t|

Average real annual income (logged) 0.307 0.112 0.01***

Average real annual income (C$) 1,014.70 426.154 0.023**

Women average real annual income (logged) 0.7934 0.182 0.000***

Women average real annual income (C$) 1,194.72 414.870 0.007***

Men average real annual income (logged) 0.11503 0.144 0.430

Men Average real annual income (C$) 772.59 565.860 0.181

Total School Enrollment (logged) 0.057 0.014 0.175

Total School Enrollment (headcount) 666.043 1137.168 0.561

Girls School Enrollment (logged) 0.045 0.042 0.288

Girls School Enrollment (headcount) 271.701 620.414 0.664

Boys School Enrollment (logged) 0.069 0.416 0.107

Boys School Enrollment (headcount) 394.342 524.393 0.457

Inference: *** p < 0.01; ** p <0.05; * p < 0.1

70

VI. Conclusion and recommendations

Although, the majority of Nicaraguan household remain without access to paved roads, this study finds that the Fourth Roads Rehabilitation and Maintenance had a positive impact on the welfare of its beneficiaries. Women’s income increased due to the effects of improved rural roads, meanwhile, men’s income increased but the increase was not statistically different from the increase in men’ monthly average income in the control group. Nevertheless, the gap between men and women’s income remain high. On average, men’s monthly income was 45% higher than that of women. On the other hand the study found no evidence that the rural road project had positive impacts on school enrollment. This result contradicts what theory suggests. However, most of the impacts these kinds of projects have are likely to be heavily dependent on the existence of complementary factors such as other social and physical infrastructure. Physical distance to school is one of the major barriers to participation for children in rural areas. However, although connectivity is improved by rehabilitation of rural roads, factors such as efficient public transportation and number of school in the surroundings of the intervened community play a key role in evidencing a real impact in school enrollment. According to Van de Walle (2008), “in absence of such complementary factors, new or improved roads may simply facilitate and hasten population out migration. That still constitutes a benefit, but it is a qualitative different benefit and not (typically) the intended one from a rural road project”. After implementing a before and after methodology in the communities that were part of the Fourth Roads Rehabilitation and Maintenance Project, Roughton International (2013) found that in the intervened roads i) traffic increased on average 33%, ii) operation cost of vehicles decreased 32.8%, and iii) travel time decreased 49.8%. Nonetheless, it was also found that school infrastructure remained constant since 2006. However, to investigate more in depth the possible reasons for this finding, richer ex-ante and ex-post data is need. This paper was done having municipalities as observation units, but more disaggregated observations – at community or household level – are needed to enhance the robustness and credibility of the findings. Although, using Living Standards Measurement Surveys result in a more economically accessible option to elaborate impact evaluations. Geo- referential data is needed to identify in a more precise matter the optimal counterfactual group. With the appropriate methodology and rich datasets, more in-depth, detailed and credible conclusions of impact evaluation may be reached and used by policy makers and donor organizations to design the ideal development strategy that the country needs. It is also important to evaluate the long run impacts that the Fourth Roads Rehabilitation and Maintenance Project. As previously mentioned, this paper only evaluates the very short run impacts (two years after the project was completed), however, it is crucial to estimate whether these findings hold on a much longer term (four to five years after the project completion). Some studies as such as Khandker and Koolwal (2011) and Van de Walle (2011) found significant changes on the impact estimates, some were strengthen while others attenuated.

71

VII. References

World Bank, (2013). Impact evaluation of rural roads project in Nicaragua. Impacts on welfare and education (detail of reference are in project files).

72

Annex 11. Adoquines Community Modules (MCAs)22 1. Community Adoquine Modules (MCAs) The MCAs represent a community development approach for the construction of the adoquine roads under a collaborative arrangement between a MTI, local mayors, and selected local participants living in the vicinity of those roads. The MCAs are legally constituted and accredited by the municipal authorities, which are co-responsible for work execution. The Nicaraguan MTI and the World Bank started to implement this modality in 2004 through a pilot project with 32 MCAs contracted to pave 28 kilometers of roads with adoquines. MCAs under the Fourth Roads Project and its Additional Financing have paved a total of over 361 kilometers. The length paved for individual road sections ranges from 1 to 27 kilometers with an average paved road section length of 7 kilometers. Execution with this model is particularly fast once drainage and earthworks are completed, with a typical implementation time of six months for a 5-kilometer section. There are no noted challenges with paving long lengths, and the only restricting factor is the functional classification of the road and extent of earthworks. All roads paved with adoquines under the project fall into the secondary/collector road classification. 2. How the MCAs Approach Works in the Program How the MCA approach works in the program was as follows: First, the local authorities, in consultation with MTI, agree on the priority roads to be evaluated at the national level for priority intervention. Once roads have been approved into the project, a legally binding agreement is signed between MTI and the local mayor describing the works to be undertaken and the modality to be followed in executing the works. Afterward, the municipal authorities organize a meeting to call on community members that meet the qualifications for particular posts to present themselves for grouping into MCAs. The MCAs then duly undertake work in conjunction with the local mayors as well as MTI. The ministry provides a promoter to carry out training of MCAs as well as a supervisor who accompanies the MCAs throughout project implementation. Each individual MCA attends to a road project with a maximum length of 3 kilometers (originally 1.5 kilometers but ramped up to reduce administrative burden). Project size for each MAC was established to mitigate fiduciary concerns, with each MCA having a contractual ceiling of US$500,000. Also, the municipal authorities are jointly responsible with the MCAs for the implementation of the works undertaken by the MCAs under their jurisdiction. As such, the contract awarded to each MCA is signed jointly by MTI, as the contracting party, and the mayor and the president of the MCA on the other hand (as the contracted party). The MCAs in turn undertake their own contracting. For local labor, they can contract workers directly or use subcontractors. However for earthworks and for the supply of adoquines, MCAs working on the same road stretch jointly procure these services to benefit from economies of scale, contract prices, and administrative effort. For these

22 Rethinking Infrastructure Delivery: Case Study of a Green, Inclusive, and Cost-effective Road Program in Nicaragua, June 2014. Stephen Muzira and Damaris Hernandez de Diaz.

73

group MCA contracts, the mayor(s) and presidents of all the contracting MCAs are the contracting party and the earthworks contractor or adoquines supplier is the contracted party. The contracting of the earthworks contractors and the adoquines suppliers follow national competitive bidding procedures (contract amounts less than US$1.5 million) to ensure transparency and competition. Any minor works (less than US$25,000) are contracted on a shopping basis. 3. Organization and Functioning of the MCAs a. Objectives of MCAs The stated objectives of the MCA include the following: (i) to promote development at the local level in different social sectors; (ii) to strengthen the organization and self-management of the group; (iii) to develop projects with a social impact quickly and with tangible benefits; (iv) to support the municipal administration for the benefit of the community; and (v) to create temporary employment taking advantage of available local labor. The PCU developed together with Bank´s team the guidelines for the functioning of the MCA are described in the Operational Manual of the IV Roads Rehabilitation and Maintenance Project of the MTI-World Bank MCA. The main contents of these guidelines were the following: (i) structure of the MCA; (ii) contracting steps; (iii) standards and procedures for financial management and reporting; (iv) guidelines for procurement procedures; (v) internal regulations of the MCA; and (vi) functions of the board of directors and accountant of the MCA. b. Structure and Set-Up Contractual commitments between the MTI and the Municipality are set out through a signed agreement, wherein the responsibilities of each of the parties (MTI and municipality) are defined, including an emphasis on the economic contribution expected of the municipality to carry out the work. The MCA, in coordination with MTI and the municipalities, is in charge of directing, managing, and executing the adoquine pavement projects described in the agreement and in the contract signed between MTI and the mayor’s office and the MCA legal representative. The same states that the MCAs are responsible for execution, supervision, contracting, and procurement of goods and services for the following pavement works: (i) earthwork; (ii) pavement structure; (iii) minor drainage works; and (iv) signage (vertical and horizontal). c. Strengthening of the MCA The PCU and MTI (UCP-WB-MTI), in coordination with the MTI General Directorate of Financial Administration, is responsible for supporting the MCA and mayoral office personnel involved in the project so that during project execution the personnel carry out their work efficiently, transparently, and in an orderly manner. Once the MCA is contracted, the PCU carries out training for the board of directors, the MCA accountant, and mayoral office personnel involved in the project. The training is

74

divided into three basic areas: (i) organizational aspects, (ii) physical implementation aspects, and (iii) financial management aspects. MCA Monitoring The UCP-WB-MTI supervisors and project liaison monitor the MCA’s physical and financial execution to ensure quality and compliance with established norms until MCA completion. 4. Cost of Paving with the MCAs Figure 1 shows a historical comparison of the costs of paving a road with adoquines in the Nicaragua roads project depending on the modality of construction. All costs have been adjusted to 2012 US dollar prices.

Figure 1: Cost of Adoquine Paving Using Different MCA Modalities

At an average economic cost of about US$262,000 per kilometer, the MCA modality works out to be the cheapest way to construct the adoquine roads. Not surprisingly, the modality with private contractors at an average economic cost of US$386,000 per kilometer (47 percent more expensive than the MCA cost) works out to be the most expensive. The force account option falls midway between the two. This may be surprising given that traditionally a force account arrangement is more costly than outsourcing works to the private sector. The difference arises from the fact that the force account in Nicaragua is provided by COERCO, which is well organized throughout the Nicaragua region and operates on commercial principles. On a cautionary basis, these results should not be interpreted unreasonably. It is obvious that the private contractors have higher overhead costs to factor into their costing including all nominal salaries and benefits of staff, other administrative and home office support overheads, and margin for profit to stay in business. These overheads do not feature in the cost structure for the MCAs, except insofar as the MCAs need to provide compensation and other mandatory legal benefits for workers during the project implementation phase. According to MTI, one other mitigating circumstance in cost reduction through MCAs is the saving in the waste/loss factor for handling of the adoquines, with private contractors

288,294 262,229

386,231

305,987

-

50,000

100,000

150,000

200,000

250,000

300,000

350,000

400,000

450,000

All Modalities MCAs only Private Contractor Only Force account only

Economic Cost/km (2012 US$)

75

operating at 7 percent while MCAs operate at only 1 percent. The present discussion is useful only to document that paving with MCAs is an economically viable alternative. Project experience in Nicaragua has also shown that with the right due diligence in place, quality and pace of execution are not compromised by opting for the MCA alternative. 5. Employment Opportunities Under the MCAs Unemployment is a serious and growing problem in many developing countries. Paid work has the potential to provide people with a route out of poverty. Even when temporary, the opportunity for employment may provide workers with a boost that takes them out of their previous unfavorable economic condition, leaving them with new skills, new self-belief, and possibilities of further opportunity. The construction and maintenance of road infrastructure has long been viewed as one of the most promising sectors for large-scale pro-poor job creation. The International Labour Organization uses the term employment-intensive for such scenarios, which it defines as the optimal use of labor to reach maximum effect on employment, while paying due regard to cost and quality issues. Employment-intensive construction and maintenance offers the opportunity for the absorption of low or semi-skilled individuals, and bring into the employment fold normally employment-marginalized groups like women and youth. Through the Fourth Roads Project (and its AF), 8,922 temporary jobs were created during the period 2007 to 2012 under the MCA model. Table 1 shows only the direct jobs created for MCA board directors and direct workers for the MCA model. If the whole project employment numbers are to be taken into consideration, the results would need to incorporate the employment supported for private contractors on asphalt rehabilitation and periodic maintenance road contracts, private contractors on adoquine roads, workers supported under the force account, private earthworks contractors, adoquine manufacturers, other suppliers, and transporters. If these numbers are taken into consideration, the number of jobs created is estimated to be almost doubled (about 18,000 total direct jobs created).

Table 1. Employment in MCA Adoquine Contracts (Fourth Roads Project and Its Additional Financing)

Project No. MCAs Board men Board

women

Total employed

men

Total employed

women

Total employed

Total employed % women

No. % No. % No. No. No. Fourth Roads 120 400 71% 160 29% 2,792 327 3,119 10% AF (IV) 152 489 64% 273 36% 4,946 857 5,803 15%

Total 272 889 67% 433 33% 7,738 1,184 8,922 13%

Note: AF = Additional Financing. The total amount of money spent on the MCA roads only in the Fourth Roads Project and its AF is about US$49 million. With this information, and assuming a conservative 10,000 jobs created for the MCA model in total (including ancillary jobs on earthworks contracts, adoquine suppliers, and transporters), the employment generation effect of the MCA model works out at 204 direct jobs per US$1 million of investment or 68 annualized direct jobs per US$1 million investment. This is in line with the findings of Tuck, Schwartz, and Andres (2009), which noted that about 40 jobs are created per US$1 million for

76

infrastructure capital investment projects. However, as expected, it is short of the estimated 200 to 500 annualized direct jobs created for every US$1 million spent in rural road maintenance projects. Since the employment drastically falls upon road construction completion, the sustainability of the employment effects can be sustained in one of three ways: (i) workers use the skills gained to obtain similar construction work in the project area or other locality; (ii) workers gain entrepreneurial spirit and skills and invest earnings in new business or opportunity, either individually or as part of a group; and (iii) workers get assimilated into routine maintenance microenterprises since the roads will need to be maintained after the road construction. The last option is currently being explored by the maintenance agency FOMAV in Nicaragua. 6. Mainstreaming Gender in the MCAs In Nicaragua, management and labor in the infrastructure construction sector have historically been predominantly a male domain with men particularly taking up the bulk of the labor provision. This trend has been changing in recent years as women graduate with civil engineering degrees and related qualifications. However, cultural barriers still prevent the full incorporation of women in this sector, specifically in labor-intensive activities. It is obvious that there are a number of gender-related issues and impacts surrounding rural road projects. For one, the peculiarity of rural contexts lends itself to a situation where women may not have a strong voice, especially in male-dominated cultures (Caballero and Alcahausi 2007). Also, women have an unnecessarily heavier transport burden than men, and are more likely than men to travel for health and education purposes. They spend considerable time waiting for transportation and are unduly affected by delays or costs in accessing emergency, obstetric, and postnatal care (World Bank 2010a). Being thus affected by transport decisions and policy, women have an integral role to play in rural infrastructure development. For the adoquine roads projects, their participation to date has been integral to ongoing and completed project successes. MTI has made significant efforts to provide equal opportunity for women in this field. This can be evidenced by the fact that women are often recruited to be the presidents of the MCAs, supervise the works, work as the treasurers, act as traffic controllers, work as pavement joint fillers, and, in a few cases, place the adoquines. Also, as Table 4 shows, women’s participation in total has been increasing from the 10 percent in the original Fourth Roads Project to 15 percent in the AF (to September 2012), where 20 percent of the labor forces was women. On an even more positive note, over the course of the Fourth Roads Project, 33 percent of the overall board positions for the MCAs—including both principal office holders and members—were filled by women (See distribution by role in Figure 2).

77

Figure 2: MCA Board of Directors Positions by Gender

Source: Information provided by UCP and MTI.

For the board of directors, the post of president was split, with 72 percent men and 28 percent women. Men occupied 93 percent of board secretary positions; the secretaries act as the site foremen of the construction work, a job historically dominated by men. A majority—58 percent—of treasurers have been women. It is heartening to note that such a high percentage of the sensitive treasurer positions have been occupied by women in the absence of any quotas or mandates. For the post of board member one, responsible for field oversight, the predominance is again men, with 76 percent. In the case of board member two, who acts as the stock keeper, occupancy is more balanced, with 46 percent women. Under the follow up project, actions are being undertaken on the following gender-related themes of interest: • Gender impact evaluation: this reviews the impact that women have had on project

design, implementation, and success (quality, cost, time). • Gender user satisfaction surveys: these will solicit the views of women in implemented

projects to learn how they have benefited from project initiatives. • Gender monitoring: progress on women’s integration into projects is monitored and

evaluated and deliberate efforts are made to increase this percentage. 7. MCA Beneficiaries Experiences and Perceptions A focus group was organized to document the experiences and perceptions of beneficiaries for projects carried out under the MCA modality. It was directed to members of the board of directors of various MCA and includes interviews with members of the UCP of the MTI-WB project as well as information collected from field visits. The focus group was carried out on Wednesday, November 14, 2012, in MTI facilities. A total of 41 members of the boards of directors of the MCAs participated from the following sample road sections: Telpaneca–Quibuto; Camoapa–Boaco; Santa Lucia–Boaco; Santa Cruz–Balgue; Moyogalpa–La Flor; Cuyalí–Abisinia, and Cuyalí–Las Cruces. The participants in the focus group and the personnel interviewed have a positive perception of the projects executed under the MCA modality. The main positive aspects mentioned by the participants include the following:

78

• Knowledge transfer (the majority of MCA contracts were awarded to a recent

engineering graduate or to university seniors who gained new skills and knowledge that will serve them in the working world).

• Creation of direct and indirect employment, including inclusion of youth in formal labor.

• Capacity building in entrepreneurship and leadership skills (more specifically, the presidents, and other members of the board of directors develop an interdisciplinary profile that allows them to enter into the labor market with an added value or create their own business).

• High local population participation and engagement in the execution of the works.

8. Opinion of the Beneficiaries about the MCA Modality

In order to gather information on beneficiaries, various adoquine roads were visited. During the visit to the road section Telpaneca–Quibuto, there were positive opinions of the target population and the municipal authorities with regard to the adoquine MCA model. Among the key benefits noted by the beneficiaries are the resolution of transportation issues and the generation of both direct and indirect employment. The visit to Telpaneca–Quibuto coincided with the inauguration of this road section, in which the mayors of Telpaneca and San Juan del Río Coco Laguna participated, as did the population of the neighboring communities: Los Lirios and El Pericón y Apaguique. During the inauguration, satisfaction with the construction of the project road was expressed by members of the community. In a visit to the road sections of La Subasta–Camoapa, San Benito–Urban Area Camoapa, and Rancho Rojo–La Calamidad (road section one), a meeting was held with municipal councillors, who expressed their satisfaction with the adoquine program. These officials were of the view that the MCAs should be used to execute urban projects that the Camoapa Municipality is planning (MCAs should be constituted as microenterprises). They also highlighted the importance of the adoquine road sections that have benefited the population of Camoapa’s estimated 53,000 inhabitants. In particular, one beneficiary noted, “Agricultural production has increased because various roads now join the productive areas of the livestock sector, considerably reducing transport times to the two important milk collectors in Masiguito and San Francisco.” In separate user satisfaction work, a resident and beneficiary of one of the adoquine pavement roads put the impacts more clearly on herself and on others related to her with the following words: “I'm glad I got to see this project come to fruition. I normally travel with fear on the bike with my husband, since the road gets very slippery with the rain. However, now that you are working on the road, things are improving….My grandchildren go to school. However, when the road is impassable, the bus cannot pick them up, and they have to walk the long distance to school. Things will get better when the road is improved. It will also be good to improve the quality of service of buses when the road is completed”.

79

Annex 12. Findings of “Roads to Agency” Study on Nicaragua rural roads projects (2006-2017) 23 The “Fourth Roads Rehabilitation and Maintenance Project” approved in May 2006, and the “Rural Roads Infrastructure Improvement Project” referred to as the Fifth Roads Project, approved in December 2011 aim to improving the access of the rural population living to markets and social and administrative services and supporting generation of short-term employment opportunities for the rural population living in the project areas. The projects promoted women’s participation in community-run Modulos Comunitarios de Adoquinados (MCAs) that were perform road upgrading tasks (Box 1). Women have been recruited to serve as presidents of the MCAs, supervise the works, and act as treasurers, traffic controllers, pavement joint fillers mostly. Women’s participation4 in total has been increasing from the 10 percent in the original 4th Project to 15 percent in the Additional Financing of the 4th Project, and more recently to 34 percent under the 5th Project. Over the course of the 4th Project, 34 percent of the Board membership positions for the modules were filled by women. Table 1 and Figure 1 show the share of jobs created through the MCAs (direct jobs created for MCA board directors and direct workers for the MCA model – not including project employment supported for private contractors on asphalt rehabilitation and periodic maintenance road contracts, private contractors on cobblestone roads, workers supported under the force account, private earthworks contractors, cobblestone manufacturers, other suppliers and transporters).

Table 1. Employment in MCA contracts

23 By Ursula Casabonne, Bexi Jiménez and Miriam Müller, version October 26, 2014.

Box 1. Modulos Comunitarios de Adoquinados (MCAs) MCAs are local entities formed under the leadership of local mayors with each MCA staffed by a board of 5 directors (with the president of each MCA as the legal representative) to perform a specific road upgrading task. MCAs join together and use economies of scale to contract an earthworks contractor and a cobblestones supplier. Individually, each MCA hires its own local labor in order to construct a specified stretch of road. The MCA personnel receive technical support and training from MTI from inception, and have an MTI supervisor and promoter accompanying them throughout the implementation process. Cobblestones are concrete-like paving blocks that are precast in an offsite factory location with the raw materials being cement, fine aggregates, coarse aggregates, filler and water. The MCAs have generated employment opportunities in the short term, contributing towards technology transfer, building technical skills, and creating a sense of community and ownership for the roads (Muzira and Hernandez de Diaz 2013). The current project, Additional Financing of the Fifth Rural Roads Infrastructure Improvement Project (AF V) continues implementation of the MCA model in rural roads in Nicaragua. Moreover, it will pilot a results-based minor routine maintenance targeting a total of 75 km on the cobblestones roads by converting MCA members into small micro-enterprises aimed at making the MCA model more sustainable.

80

Figure 1. Structure of MCA Board of Directors (IV Roads, AF IV, V Roads)

Formation of MCAs is based on the selection of local labor, for which MTI works closely with the mayors of each municipality, convening with the community and using records of the unemployed in the area and in the communities surrounding the location where the work is to be performed. The municipality must make an announcement to the community to fill the Occupational Sheets, in order to assess availability of the existing workforce. The people selected to form the Board, with the support of the Municipality and MTI will then constitute a Board of Directors to serve as representative of the module for construction of pavement in their municipality. The Board then subcontracts the remaining workers who are going to be part of the MCA.

81

Annex 13. Institutional Organization of MTI

DIRECCIÓN SUPERIOR

Auditoria Interna

Centro de Atención al Público y Acceso a la

Información

Relaciones Públicas

División General de Planificación

División de Políticas y Planes

de Desarrollo

División de Control Técnico

Dirección General de Vialidad

Dirección de Construcción Vial

Unidad Coordinadora de Recursos (BID)

Dirección General de Transporte Terrestre Dirección General de

Transporte Acuático

Dirección General de Normas de la Construcción y Desarrollo Urbano

Dirección de Registro Nacional de Concesiones

Dirección de Desarrollo Marítimo Portuario

Dirección de Seguridad y Regulación

Acuática

Dirección de Desarrollo

Urbano

Dirección Control de la

Construcción y Registro

Dirección de Estudios y Normas de Construción

División de Preinversión

Dirección de Coordinación de

Delegaciones

División Financiera

División Administrativa

División de Personal

Dirección de Control de Calidad de

Materiales de Construcción

Asesorìa Legal

Unidad Tecnica de Enlace Para Desastres

División de Gestión y Desarrollo

División de Administración

Vial

Unidad Coordinadora de Recursos (BM)

Unidad Coordinadora

Recursos (BCIE)

Dirección de Regulación de

Transporte

Dirección de Administración de

concesiones

División General de Recursos Humanos

Dirección de Operaciones

Unidad de Gestión Ambiental

División de Tecnología de la

Información

Oficina de Quejas

Delegaciones Departamentales

Contrataciones Menores Atención a Conflicto

División de Adquisiciones

Dpto. Caminos Municipales

División General de Planificación

82

MAP

83