World Bank Document · Document of The World Bank FOR OFFICIAL USE ONLY FILE Report No. 5080 PROJECT COMPLETION REPORT HONDURAS SEVENTH HIGHWAY PROJECT (LOAN 1341-HO/1342-T-HO) May

Document of

The World Bank

FOR OFFICIAL USE ONLY FILE

Report No. 5080

PROJECT COMPLETION REPORT

HONDURAS SEVENTH HIGHWAY PROJECT

(LOAN 1341-HO/1342-T-HO)

May 14, 1984

Operations Evaluation Department

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

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FOR OFFICIAL USE ONLY

HONDURAS

SEVENTH HIGHWAY PROJECT (LOAN 1341-HO/1342-T-HO)


TABLE OF CONTENTS

Page No.

PREFACE . ................................................ i

BASIC DATA SHEET . .......................................

MISSION DATA . ..........................................

HIGHLIGHTS .i.

HIGLIGTS............................................. i

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

II. PROJECT PREPARATION, APPRAISAL AND NEGOTIATIONS ........ 1

III. PROJECT EXECUTION ... ..................................... 2

IV. COST ESTIMATES AND DISBURSEMENTS ....................... 10

V. ECONOMIC EVALUATION . . .................... 12

VI. PERFORMANCE OF THE BORROWER ..... ....................... 13

VII. ROLE OF THE BANK ....... ................................ 14

VIII. CONCLUSIONS ............................................ 15

TABLES

1. Costs of Civil Works per Km (US$) ...................... 172. Comparison Between the Appraisal and Final Cost .......... 18

ANNEX

Borrower Comments . . . 19

MAP

IBRD 14823R (PCR)

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

HONDURAS



PREFACE

The following is a Project Completion Report on the Honduras Seventh HighwayProject for which loans in the amount of US$35.0 million (US$7.0 million onThird Window Terms and US$28.0 million on Standard Terms) were approved bythe Executive Directors on November 23, 1976. The loans are about 96%disbursed. About US$0.7 million are not committed and would be cancelled.The Loan closed on December 31, 1983.

This Completion Report was prepared by the Bank's Latin America and theCaribbean Regional Office and is based on information obtained from theMinutes of the Board Meeting, LAC Information Center, Appraisal ReportNo. 12353a-HO, staff supervision reports, consultants' final reports andreports from the Project Unit in the Secretariat of Communications,Public Works and Transport (SECOPT).

In accordance with the revised procedures for project performance auditreporting, this Completion Report was read by the Operations EvaluationDepartment but was not audited by OED staff. The draft Completion Reportwas sent to the Borrower, Comments received are presented as an annexand have been incorporated in the text of the report.

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HONDURAS



BASIC DATA SHEET

Key Project Data

AppraisalItem Estimates Actual

Total Project Cost (US$ million) 51.2 51.3 1/Loan Amount (US$ million) 35.0 35.0Disbursed (04-10-84) 35.0 33.4Estimated Economic Rates of Return (%):

Talanga-Juticalpa Road 16 21Juticalpa-Catacamas Road 11 12

Date Physical Components Completed 6-81 12-83Financial Performance - FairInstitutional Performance FairProportion of Time Overrun (%) 56

Other Project Data

OriginalItem Plan Actual

First Mention in Files or Timetables 06-02-75Appraisal - 07-76Negotiations 09-08-76 10-20-76Board Approval 10-26-76 11-23-76Loan Agreement - 12-16-76Effectiveness 03-16-77 05-20-77Closing Date 12-31-81 12-31-83Borrower Republic of HondurasExecuting Agency Secretariat for Communications,

Public Works and Transportation (SECOPT)Fiscal Year of the Borrower January 1 - December 31Follow-on Project

Name Eighth Highway ProjectLoan Number 1901-HOAmount (US$ million) 28.0Loan Agreement 09-29-80

1/ As explained throughout this report, some project components have beendeleted while others have been added. A meaningful comparison of finalcosts with appraisal estimates can be done only for individual components ofthe project.

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HONDURAS



MISSION DATA 1/

Month/ No. of No. of Staff/ Date ofType Year Weeks Persons Weeks Report

Preparation 05-75 1 2 2 06-02-75Preparation 08-75 1 2 2 09-03-75Preparation 10-75 1 1 1 10-28-75Preparation 01-76 1 2 2 02-06-76Appraisal 02-76 2 4 8 07-27-76Post-Appraisal 09-76 1 1 1 09-29-76Supervision 01-77 1 1 1 01-21-77Limited Supervision 2/ 03-77 0.5 1 0.5 04-20-77Supervision 07-77 1 3 3 08-05-77Supervision 02-78 1 2 2 03-06-78Supervision 05-78 1 2 2 06-05-78Supervision 01-79 1 4 4 03-01-79Limited Supervision 3/ 03-79 1 1 1 06-01-79Supervision 06-79 2 3 6 07-16-79Technical Assistance 4/ 06-79 2 1 2 08-08-79Supervision 09-79 2 3 6 11-08-79Limited Supervision 5/ 10-79 1 1 1 11-12-79Supervision 08-80 1 1 1 09-24-80Supervision 02-81 2 1 2 03-10-81Supervision 05-81 1.5 3 4.5 06-09-81Supervision 03-82 2 3 6 04-13-82Supervision 08-82 0.5 1 0.5 09-01-82Supervision 03-83 1 2 2 05-05-83

TOTAL SUPERVISION EFFORT

FY1977 FY1978 FY1979 FY1980 FY1981 FY1982 FY1983 (cont.)Staff Weeks 3.4 21.4 12.8 8.1 17.2 9.3 15.0

1/ Most of these missions included work for the Sixth and Eighth HighwayProjects.

2/ To supervise the preparation of the Highway Master Plan.3/ To supervise the labor-intensive Feeder Road Construction component.4/ A Bank-appointed consultant visited Honduras to assist SECOPT in carrying

out its commitment regarding personnel incentives.5/ To supervise the training component of the technical assistance to the

Directorate General for Roads and Airports Maintenance (DGMCA).

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HONDURAS



HIGHLIGHTS

The Seventh Highway Project was successful in achieving its main objective ofreconstructing the Talanga-Juticalpa-Catacamas road. This was done at a cost13% below appraisal estimates, in spite of the additional costs brought aboutby the upgrading of the standards of the Juticalpa-Catacamas section(para 3.05) and the need to carry out substantial repair works on the projectroad (para 3.07). The ex-post economic evaluation yielded estimated rates ofreturn for the Talanga-Juticalpa and the Juticalpa-Catacamas road sections of21% and 12% respectively, confirming the probable viability of the project(para 5.03).

During the execution of the civil works, the Borrower initiated changes inthe design standards of the Juticalpa-Catacamas road and in the alignment ofthe Talanga-Guaimaca road without prior Bank consultation. In the firstcase, the Bank found the changes justified and accepted their inclusion inthe project (para 3.05). However, in the case of the new alignment for theTalanga-Guaimaca road, which necessitated a new bridge 54m long, the Bank didnot fully accept the Government's arguments for the change and did not agreeto finance the new bridge from the proceeds of the Loan (para 3.03).

Two civil works contractors presented claims to the Borrower, for diversereasons (paras 3.03 and 3.05).

Loan funds freed because of the lower-than-expected cost of civil works andthe deletion from the project of the Telica Dam Study (para 3.15) werereallocated to the construction of three access roads connecting the mainroad to the towns of Campamento, Juticalpa and Catacamas (para 3.08); to theconstruction of a 6.05 km road between Catacamas and the Escuela Nacional deAgricultura (para 3.09); to the purchase of additional equipment and spareparts for the country's highway maintenance program (para 3.15); and to theLabor-Intensive Road Construction Program (para 3.16).

The following discussion summarizes the main aspects of the TechnicalAssistance elements included in the project:

(a) Transport Planning. A Highway Master Plan was developed underthe project (paras 3.11 and 3.12).

(b) Technical Assistance to the Directorate General for Roads(DGC). This technical assistance focused on the organizationand equipment of laboratories. Its training element washampered by the slow progress in laboratory construction andshortage of supplies. Two practical courses were offered and,

in addition, four laboratory technicians attended specializedcourses in Mexico (paras 3.13, 3.17 and 3.18).

(c) Technical Assistance for the Directorate General for Road andAirport Maintenance (DGMCA). The consultants helped tointroduce a system for road maintenance and equipmentmanagement in a Pilot District. However, implementation of thesystem at the national level was postponed and is being carriedout under the follow-on Eighth Highway Project (paras 3.19,3.20 and 3.21).

(d) Technical Assistance to the Construction Industry. Consultantscarried out a study identifying the mDst serious bottlenecksfaced by the industry. However, since the study is still beingreviewed, the technical assistance that should have emanatedfrom it has not been carried out.

The lessons to be learned from the project, identified in this Report, referto:

(a) the need to examine cost estimates in future projects inHonduras more carefully;

(b) the need for future Bank supervision to increase emphasisfollowing through on the institution-building aspects of theprojects, after securing prior Government commitment;

(c) the difficulties inherent in establishing an efficient roadmaintenance system in countries greatly lacking in staff andfacilities; and

(d) the need for continuation of the Bank's efforts to identify andimplement appropriate technologies in labor-abundant countries.

HONDURAS



I. INTRODUCTION

1.01 Honduras, with an area of 115,200 km2, is the second largest of thefive Central American countries. The generally rough topography, character-ized by several mountain ranges, makes the development of the road infra-structure difficult and expensive. Significant road development in Hondurasstarted only in the mid-1960s, and, during the last decade, major effortswere made to extend and improve the network. Roads now interconnect majorpopulation centers; however, parts of the country, especially the east andnortheast, have poor access and low road density. The present networkconsists of about 8,545 km, of which 1,716 are paved. Its backbone is thenorth-south road which, starting at the San Lorenzo Port on the PacificOcean, passes through Tegucigalpa and San Pedro Sula, reaching Puerto Corteson the Caribbean Sea (Map IBRD 14823R (PCR)).

1.02 Over the past 25 years, the Bank has been involved continuouslywith highway development in Honduras. Since 1955, eight highway projectshave been approved, with loans and credits amounting to US$88 millionequivalent. With the reconstruction of the Talanga-Juticalpa-Catacamas road,financed under the subject project, the primary road network has been largelycompleted. The emphasis of investment in the road subsector has now shiftedtoward the expansion and improvement of the secondary and feeder roads andthe maintenance of the system. This policy, supported by the Highway MasterPlan (December 1977) prepared under the Seventh Highway Project (para 3.11),provided the basis for the formulation of the ongoing Eighth Highway Project(Loan 1901-HO), under which about 350 km of feeder roads located in selected,agriculturally productive valleys are being constructed and about 115 km ofexisting secondary roads are being improved.

1.03 This project completion report is based on information obtained fromthe Minutes of the Board Meeting, the LAC Information Center, AppraisalReport No. 12353a-HO, staff supervision reports, consultants' final reportsand reports from the Project Unit in the Secretariat of Communications,Public Works and Transport (SECOPT).

II. PROJECT PREPARATION, APPRAISAL AND NEGOTIATIONS

2.01 The civil works components of the project constitute the second

tranche of the reconstruction of the Tegucigalpa-Talanga-Juticalpa-Catacamashighway corridor; reconstruction of the first tranche (Tegucigalpa-Talanga)was financed under the Sixth Highway Project (Loan 896-HO) and completed inFebruary 1977. The feasibility study for the Tegucigalpa-Talanga-Juticalparoad was prepared by U.K. consultants, with financing provided by the Central

American Bank for Economic Integration (CABEI) and the U.K. Government. Thestudy was completed in 1971 and updated by the Sectoral Planning Office ofSECOPT in late 1975. Detailed engineering was prepared by the sameconsultants and completed in 1973. For the Juticalpa-Catacamas section, thefeasibility study and detailed engineering were prepared in 1974-75 by USconsultants, with financing provided under Loan 896-HO.

2.02 The project was appraised in February 1976. The issues paper,circulated on April 7, 1976, dealt mainly with the question of the investmentnecessary for the development of the area of influence of the project road.In particular, the paper discussed the possibility of excluding from theproject the reconstruction of the Juticalpa-Catacamas road to release fundsfor a comprehensive study of the Guayape Valley development and for theconstruction of the feeder roads program that would emanate from such study.The Decision Memorandum, issued on April 30, 1976, stated that it would notbe advisable to postpone reconstruction of the Juticalpa-Catacamas road inorder to have funds for feeder roads since the logical first step inimproving the Guayape Valley roads was to reconstruct the Juticalpa-Catacamasroad. Thus, reconstruction of the road was retained in the project, althoughloan funds were also allocated for a study of the development of the GuayapeValley. Loan negotiations took place in October 1976; the loans, amountingto US$35.0 million (US$7 million on Third Window Terms and US$28 million onStandard Terms), were approved by the Executive Directors on November 23,1976 and became effective on May 20, 1977.

2.03 The components of the project and their estimated costs as given inthe Appraisal Report, are shown in the tabulation on the next page.

III. PROJECT EXECUTION

Civil Works

3.01 Invitations for prequalification of contractors were issued inAugust, 1976, following Bank guidelines on procurement. Nineteen firms (onelocal, 18 foreign) were prequalified and, on December 23, 1976, SECOPT issuedthe invitations to submit bids for one or more of the four sections intowhich the project road had been subdivided. Contracts were awarded asfollows:

(a) Section II 1/, Talanga-Guaimaca (33.1 km), to a French-Honduranjoint venture;

(b) Sections III and IV, Guaimaca-Rio Guayape (33.9 km) and RioGuayape-Juticalpa (47.0 km), to a US contractor; and

(c) Section V, Jutlcalpa-Catacamas (38.3 km) to an Italian firm.

1/ Section I was the Tegucigalpa-Talanga road financed under the SixthHighway Project.

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ForeignUS$ Millions Exchange

Local Foreign Total Component (%)

a) Road Reconstruction, includingRight-of-Way 10.1 21.0 31.1 68

b) Supervision of Construction(522 man/months) 1.2 1.3 2.5 50

c) Study of an Integrated DevelopmentProgram for the Guayape Valley(33 man/months) 0.1 0.5 0.6 80

d) Preparation of a Highway Master Plan(56 man/months) 0.1 0.3 0.4 80

e) Procurement of:- Maintenance, Workshop and

Laboratory Equipment 0.3 2.2 2.5 90- Spare Parts - 0.3 0.3 100

f) Technical Assistance to SECOPT(65 man/months) 0.1 0.3 0.4 80

g) Technical Assistance to the LocalConstruction Industry(20 man/months) - 0.1 0.1 80 2/

Total Base Costs 11.9 260 7. 68

h) Contingencies: Physical (about 10%of Item (a)) 1.0 2.1 3.1Price Adjustment (about 27% ofbase costs)- For Civil Works 3.0 6.3 9.3- For Equipment Purchases - 0.3 0.3- For Consulting Services 0.3 0.3 0.6

Total 16.2 35.0 51.2 68

3.02 Although the Italian firm was the lowest bidder for Section II, thecontract, with the Bank's concurrence, was awarded to the French-Honduranjoint venture to give an opportunity to new companies to establish themselvesin the country. The basic value of contracts awarded for civil works wasabout US$28.0 million, 10% below the appraisal estimate of US$31.0 million(excluding contingencies).

3.03 The reconstruction of the Talanga-Guaimaca Road (Section II) beganin September 1977 and thereafter proceeded ahead of schedule. In February1978, a Bank mission found that, over a 10-km road section, works were

2/ Local costs amounting to about US$20,000 not shown because of rounding offigures.

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proceeding on a revised alignment that was about 3 km longer than theoriginal design, necessitating the construction of a new bridge 54 m long.The change was initiated without prior consultation with the Bank. Althoughthe new alignment provided somewhat better geometrics, the Bank did not fullyaccept the Governments's arguments for the change and did not agree to thefinancing of the cost of the new bridge from the proceeds of the Loan. Thedesign and construction of the bridge were therefore financed from theGovernment's own resources. The Talanga-Guaimaca road section wassuccessfully completed in May 1979 at a total cost of US$6.1 million--aboutUS$184,000 per km--and the quality of works was considered good. Immediatelyafter the completion of works, the French partner of the joint venturesubmitted claims totaling about US$1.1 million as compensation for costsincurred because of the shortage of fuel in the country during theconstruction period and the execution of works not covered by the contract;the supervision consultants had not approved these extra works, which werenot part of the design. The Directorate General for Roads (DGC) did notaccept these claims. Following this refusal, the French partner of the civilventure inititated arbitration procedures through the International Chamberof Commerce in Paris. Although the Government reiterated its refusal of theclaims to the appointed arbitrator, the case still has not been resolved.3 /

3.04 Works on the Guaimaca-Rio Guayape road (Section III) weresatisfactorily completed in September 1979 at a total cost of US$8.7 million,or about US$250,000 per km. After the completion of works on Section III,the US contractor encountered financial difficulties, causing delays in theimplementation of works on the Rio Guayape-Juticalpa road (Section IV). Thefirm stopped work in March 1981, and the contractor's insurer assumed theresponsibility for carrying out the contracted works through subcontractors.This road section was expected to be completed by early 1983, but, because ofa shortage of bitumen coupled with some financial and organizational problemsof the subcontractors, it was completed in December, 1983. The Governmentinvoked the penalty clause for late completion. Total cost of theRio-Guayape-Juticalpa road was US$13.8 million, or US$241,000 per km.3/

3.05 Construction of Section V (Juticalpa-Catacamas) by the Italian firmwas carried out on schedule and completed by the end of 1980 at a total costof US$8.4 million, or about US$221,000 per km. In early 1978, a Bank missionfound that SECOPT had upgraded the design standards to make them homogeneouswith those for the Talanga-Juticalpa section. The changes in standards,introduced without prior consultation with the Bank, were based on a sub-stantial increase in traffic volumes with respect to appraisal estimates.The Bank, based on what SECOPT submitted, post-facto, accepted the changes,and the Loan Agreement was amended accordingly. After completion of works in1982, the contractor submitted claims to the Government for about US$2.0 mil-lion, alleging increased costs because of the execution of works not coveredby the contract and higher-than-expected labor costs. Part of these claimswas accepted by the Government but not made effective because the contractordidnot submit required evidence.

3.06 The supervision of the civil works was carried out by a jointventure of Honduran, Nicaraguan and Costa Rican firms. During the early

3/ See the Borrower's comment on this paragraph (Annex I).

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stages of project implementation, its performance was hampered by inadequatecoordination between the Project Unit, the DGC and the supervisory group,

leading to an excessive turnover of personnel within this group. These

shortcomings resulted in decisions being taken without a clear definition of

who was responsible for monitoring compliance with Bank procedures. As a

result, Bank approval was not solicited by the Government regarding changes

in civil works (paras 3.03 and 3.05). During 1979, SECOPT undertook the

improvement of supervision and of the Project Unit including a substantial

change in staff, and the clear definition of the functions and

responsibilities of each of the above-mentioned groups. These actionsimproved the consultants' performance, which was generally adequate. The

estimated total cost of supervision (US$3.3 million) was 32% above theappraisal estimate and represents 10% of the cost of the civil works. The

cost overrun was caused by delays in the completion of the civil works, which

necessitated a two and a half years extension of the consultants' services.

3.07 Exceptionally heavy rains during August and September of 1979

caused serious damage and landslides on all sections of the Tegucigalpa-Catacamas road. Some repairs were carried out by contract on a cost-plus fee

nasis by the US contractor for Sections III and IV. However, based on

further assessment of the condition of the road, the Bank and SECOPTconcluded that, in order to prevent possible serious deterioration,additional repair and maintenance works along the Tegucigalpa-Catacamas roadshould be included in the project. Initially, SECOPT proposed, and the Bank

agreed, to award the contract for the repairs to the US contractor, but, inview of the firms's financial problems, the contract for an amount of US$1.36million was awarded to a local contractor following local competitive bidding

procedures acceptable to the Bank. Works were completed by November 1983. A

local firm was retained for the supervision of the repair works at a total

cost of US$187,000. This amount represents 14% of the civil works, which is

adequate. In general, there is a minimum supervision effort that is required

regardless of the size of the civil works. Therefore, for small projects,

the cost of supervision represents a higher proportion of the cost of civil

works.

3.08 Because of the lower-than-expected costs of civil works

(para 3.02), loan funds became available for other uses. Early in 1980,

SECOPT proposed, and the Bank agreed, to use uncommitted loan funds for theconstruction of three access roads connecting the main road and the towns of

Campamento (2.17 km), Juticalpa (3.17 km) and Catacamas (1.29 km). The Bank

initially asked SECOPT to request proposals from the US and the Italian

contractors responsible for Sections IV and V respectively for carrying out

these works; however, since the Italian firm had barely enough equipment to

complete its section of the main road, the contracts were signed with the USfirm. Construction of the access roads to Campamento and Juticalpa stopped

in March 1981 because of the financial difficulties of the contractor, whenworks were about 30% complete. At that time, construction of the access road

to Catacamas had not yet started. The contractor's insurance company also

took over these projects, which were completed by the end of June 1983, at anestimated total cost of US$1.4 million (about US$210,000 per km).

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3.09 In December 1980, SECOPT proposed the construction a 6.05-km roadbetween Catacamas and ENA (Escuela Nacional de Agricultura). The Bank, afterreviewing the feasibility study report, approved the inclusion of this roadin the project. Following local bidding procedures acceptable to the Bank, acontract was signed in October 1982. Works were completed satisfactorily inNovember, 1983 at a total cost of US$1.06 million (about US$175,000 per km).A local firm was retained for the supervision of this element of theproject. Total cost of supervision was US$159,000, or 15% of the civilworks.

3.10 Table 1 summarizes information regarding the cost per km of thedifferent roads included in the project. Appraisal estimates of the cost perkm of the Talanga-Juticalpa road were excessive. Although the substantialrepairs that had to be carried out after the heavy rains of 1979 (para 3.07)were naturally not envisaged at the time of appraisal, final costs are stillbelow appraisal estimates. The repair costs have been mostly concentrated onthe Guaimaca-Juticalpa section, raising its cost substantially above the costper km of the Talanga-Guaimaca section.

Transport Planning

3.11 The Bank, under the technical assistance component of Loan 896-HO,financed a transport planning study which was carried out by US consultants.The study, completed in late 1976, laid the groundwork and provided the basicdata needed to prepare a Highway Master Plan under the project. The sameconsultants were retained to develop the Plan, which was satisfactorilycompleted at the end of 1977. Under the Plan, covering in detail the1978-1982 period, priority was given to small scale improvements of the trunknetwork, with special attention to deferred maintenance and to theconstruction of secondary and low standard feeder roads to serve agriculturalareas. The priorities identified under the plan served as the basis fordefining the Eighth Highway Project.

3.12 Loan funds were also used to extend the consultants' servicesinitiated under the Sixth Highway Project in the area of training staff oftwo offices within SECOPT (the General Directorate for Transport and theSectoral Planning Office). The consultants' report emphasized that qualifiedstaff, as well as a sustained planning effort, would be required by SECOPTfor the successful implementation of the Plan. In view of thisconsideration, and also recognizing institutional weaknesses within SECOPT,the Bank agreed to the use of about US$100,000 of loan funds to hire anexperienced Honduran transport economist for a three-year period. Despitethese efforts, improvements in planning capabilities were not adequatelyincorporated within SECOPT's institutional structure. Most of thedifficulties can be attributed to lack of qualified staff.4/ The total costof the transport planning element of the project, including the hiring of thelocal economist, was about US$522,000, as compared with the appraisalestimate of US$475,000.

4/ The Borrower attributes the difficulties to the provision of technicalassitance to separate departments within SECOPT, instead of focusing on acoordinated planning unit.

Purchase of Maintenance, Workshop and Laboratory Equipment

3.13 The loan included funds for the purchase of the most urgently

needed maintenance, workshop and laboratory equipment through internationalcompetitive bidding. By early 1980, the procurement of maintenanceequipment and spare parts, as originally envisaged, had been completed.However, the exclusion from the project of the Telica Dam Study (para 3.15)freed loan funds which, at the Government's request, were reallocated to thepurchase of additional maintenance equipment and spare parts. Deliveries areexpected to be completed in 1984; the total cost of this component isUS$3.3 million.

3.14 For the purchase of workshop and laboratory equipment, Section4 (b) of the Loan Agreement states that no disbursement would be made untilSECOPT had provided facilities, satisfactory to the Bank, for the installa-tion of the equipment. To this effect, the Borrower undertook to build alaboratory and a workshop in San Pedro Sula and to improve the existinglaboratory in Tegucigalpa. The works proceeded extremely slowly because ofmanagerial problems, shortage of funds and inadequate design of the San PedroSula workshop, which required substantial revisions to make it functional.The necessary installations became operational between mid-1982 and early1983. The Bank, aware of the time-consuming process of equipment procurementin Honduras, agreed that the invitation to bid for the equipment might takeplace before the buildings were completed, reconfirming, at the same time,the above-mentioned condition for disbursement. Procurement of workshopequipment has been completed at a total cost of about US$569,000, whileprocurement of laboratory equipment was completed by December 1983 at a costof about US$293,000.

Telica Dam Study

3.15 The original Loan Agreement included funds for a study of the inte-grated development program of the Guayape Valley. In mid-1978, the Bank wasinformed that the Canadian International Development Association (CIDA) hadmade a formal proposal for carrying out the study. The proposal wasaccepted, and the US$500,000 allocated for that purpose became available forother uses. In July 1979, SECOPT proposed, and the Bank agreed, to useUS$100,000 of those funds for the engineering studies of the Catacamas-Culmiroad. By the end of 1979, after lengthy debates, the Bank agreed with theMinistry of Natural Resources (MNR) on the use of the remaining funds for astudy of the Telica Dam site in the Guayape region with the purpose ofinvestigating its potential for irrigation, domestic water supply, floodcontrol and hydropower development. The Loan Agreement was modifiedaccordingly. A Bank Agricultural Division, in charge of this component,agreed, in mid-1980, to MNR's selection of a French-Honduran consulting firmfor carrying out the study. The consultants' proposal included a foreignexchange requirement of US$720,000, which was made available under Category5 (a) of the revised allocation of proceeds of the Loan. However, since thestudy was never started, the Bank informed the Borrower, in November 1982,that, since it was clear that the study could not be completed before theloan's closing date, the Bank would no longer consider its financing under

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the Project. The Bank recommended, and the Borrower agreed to, a realloca-tion of the loan proceeds to finance much needed equipment and spare partsfor its highway maintenance program.

Labor Intensive Road Construction Program

3.16 In February 1976, the Bank agreed to a Government proposal topromote the development of labor-intensive technology for low volume feederroad construction and maintenance. To support the launching of the labor-based construction program, a two-year, US$400,000 technical assistancescheme was established, financed in equal parts by the Government of Hondurasand by the Bank's research program for appropriate construction technol-ogies. The scheme was initiated in March 1976 with the arrival inTegucigalpa of the German consultants who, working with Honduran publicsector engineers and economists in a newly created "Feeder Roads Unit,"provided assistance to develop the organization and methods of roadselection, construction, supervision and administration, suitable to labor-intensive techniques. The program soon gained substantial local acceptance,and about 150 km of roads were built between 1976 and 1978. In January 1978,the Ministry transformed the Feeder Roads Unit into a "Department ofLabor-Intensive Construction" within DGV. Since the contract for consultantservices was to expire in September 1978, the Government, in May 1978,proposed to the Bank the extension of the program for an additional two-yearperiod with financing for extension of the consultant services andacquisition of equipment, using the surplus funds that resulted from highwayconstruction cost savings due to both lower-than-expected base costs andlower incidence of cost escalation. The Bank agreed, and the second part ofthe program was included in the project in September 1978. The LoanAgreement was changed accordingly, and the proceeds of the loan were revisedto allocate US$1.0 million to the program. A Final Report issued by theconsultants points out that the work performed under the 1976-1980Labor-Intensive Road Construction Program resulted in the construction orimprovement of over 330 km of all-weather rural access roads to the Hondurannetwork. The program, now also covering the maintenance of rural roads, isproceeding well, funded by its own resources as well as by several bi-lateraland multi-lateral agencies.

Technical Assistance to the Directorate General for Roads (DGC)

3.17 In November 1980, a German firm was selected to carry out thistechnical assistance which included, inter-alia, a study of DGC's HumanResources and Institutional Improvements, especially the organization andequipment of laboratories. The training aspects of the technical assistancewere scheduled to take place after the laboratory buildings were completedand the new equipment installed. However, because of slow progress on thelaboratory constructions and shortages of training supplies, the trainingprogram, conducted in May and June of 1980, suffered from inadequatefacilities, equipment and textbooks.5 / Two practical courses on Soils andMaterials Mechanics were offered to Taboratory engineers and assistants. Theconsultants' final report of August 1980 contains recommendations regardingtraining of laboratory personnel in the aspects of organization, planning and

5/ The Borrower attributes the problem to delays in contracting consultantsand supply shortages.

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3.13 The loan included funds for the purchase of the most urgentlyneeded maintenance, workshop and laboratory equipment through internationalcompetitive bidding. By early 1980, the procurement of maintenanceequipment and spare parts, as originally envisaged, had been completed.However, the exclusion from the project of the Telica Dam Study (para 3.15)freed loan funds which, at the Government's request, were reallocated to thepurchase of additional maintenance equipment and spare parts. Deliveries areexpected to be completed in 1984; the total cost of this component isUS$3.3 million.


Telica Dam Study


the Project. The Bank recommended, and the Borrower agreed to, a realloca-tion of the loan proceeds to finance-much needed equipment and spare partsfor its highway maintenance program.






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3.13 The loan included funds for the purchase of the most urgentlyneeded maintenance, workshop and laboratory equipment through internationalcompetitive bidding. By early 1980, the procurement of maintenanceequipment and spare parts, as originally envisaged, had been completed.However, the exclusion from the project of the Telica Dam Study (para 3.15)freed loan funds which, at the Government's request, were reallocated to thepurchase of additional maintenance equipment and spare parts. Deliveries areexpected to be completed in 1984; the total cost of this component isUS$3.3 million.


Telica Dam Study


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the Project. The Bank recommended, and the Borrower agreed to, a realloca-tion of the loan proceeds to finance much needed equipment and spare partsfor its highway maintenance program.






control of road construction which SECOPT is endeavoring to carry out. To

this effect, an experienced local engineer has been appointed as Chief of the

Geotechnical Department and is currently implementing the consultants'recommendations. The cost of this component was US$116,000.

3.18 Also, under the training program, SECOPT reached an agreement withthe Mexican Secretariat of Public Works (SAHOP) to send four laboratorytechnicians to Mexico, with transportation and cost-of-living expenses paidfrom loan proceeds. The trainees attended a special six-month (April/September 1981) course at a total cost of about US$17,000.

Technical Assistance for the Directorate General for Road and AirportMaintenance (DGMCA)

3.19 This technical assistance was carried out by the consultants (US)between May 1978 and November 1980. Its main objective was to design andintroduce a system for road maintenance and equipment management for at leastone year in a Pilot District before extending the system at the nationallevel. Periodic meetings and lectures chaired by the consultants were carriedout to implement and test new management procedures. In addition, 18 membersof the DGMCA, comprising engineers, administrators and executives, made one-week training trips to the United States to observe the implementation ofroad maintenance and equipment management systems in several districts of thestates of Maryland and New Mexico.

3.20 The first program was completed satisfactorily but, when the systemwas considered suitable for implementation at the national level, theconsultants were asked by SECOPT to postpone its introduction to otherdistricts and to concentrate on studies required for the preparation of theEighth Highway Project. This postponement resulted in the extension of thecontract by four months. Furthermore, because of the delay in thepreparation of the contract for the continuation of the consultants' servicesunder the Eighth Project, SECOPT requested a new three-month extension, whichwas agreed by the Bank, to ensure the continuity of this technicalassistance.

3.21 A final report, presented by the consultants in June 1981, liststhe objectives partially achieved under the Seventh Highway Project andexpected to be consolidated under the ongoing Eighth Highway Project. Amongthem:

(a) the implementation of a new system for maintenance and equip-ment administration comprising the programing, execution,control and evaluation of the work performed;

(b) the simplification of data collection and field reports;

(c) the study of a new costing system;

(d) the centralization of data to be used as a management tool;and

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(e) the reduction of the delays experienced in the procurement ofspare parts with the creation of an office of the Proveeduria dela Republica (Central Procurement Office) attached to DGMCA.

3.22 The final cost of the technical assistance to DGMCA was aboutUS$694,000, which, added to the cost of the technical assistance to DGC andto the scholarship program (paras 3.17 and 3.18), represents a total cost ofabout US$827,000, 74% above the appraisal estimate of US$475,000. Thissubstantial increase in cost is mostly due to the extension of the scope andduration of the work by the US consultants (paras 3.19 and 3.20).

Technical Assistance to the Construction Industry

3.23 In compliance with Section 3.04 of the Loan Agreement, theBorrower, in November 1977, signed an agreement with the Honduran Chamber ofConstruction Industry for assisting in the carrying out of an aid program tothe local construction industry. German consultants were selected to providethis technical assistance, and the contract was signed in August 1979. Aconsultants' report identified the most serious physical and financialbottlenecks faced by the industry and made specific recommendations leadingto increasing the predictability of future work and the availability oftimely credit supply. However, the technical assistance to the constructionindustry that should have emanated from the consultants' study was notcarried out. The report is presently being reviewed by the Honduran Chamberof Construction Industry and SECOPT. Their recommendations will be discussedwith the Honduran Government in the near future since Loan 1901-HO estab-lishes the obligation of the Borrower to act on the report's recommenda-tions. The total cost of this project component was US$226,000, 64% abovethe appraisal estimate of US$138,000.

IV. COST ESTIMATES AND DISBURSEMENTS

4.01 A comparison between appraisal and final cost estimates (includingcontingencies) is shown in Table 2. The final cost of the original projectitems which remained in the project is currently estimated at about US$44.0million, including normal contingency allowances, some US$7.2 million (14%)less than the appraisal estimate. The remaining funds were used for newproject elements (Labor Intensive Road Construction Program, access roads,etc.) or for increasing the scope of the original ones. Bank participationremained at 68% of the total project cost, as estimated during the appraisal.

4.02 Disbursements lagged considerably behind appraisal estimates duringthe first year-and-a-half of project implementation, as shown in thefollowing tabulation. A four-month delay in starting the construction of theTalanga-Juticalpa road, indecision on the use of the Guayape Study funds,delays caused by a contractor's financial problems, and additional procure-ment of maintenance equipment and civil works also contributed to the dis-bursement delays. The acceleration of disbursements in 1979 reflects theon-schedule completion of most of the project's original civil works, by farthe largest element of the project.

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Disbursements(US$ millions)

Appraisal Actual as % ofFY Estimates Actual Appraisal

1977 50 - 01978 7.00 40 61979 18.50 16.84 911980 29.00 23.35 811981 34.00 27.70 821982 35.00 29.70 851983 - 33.40 6/ _

4.03 The allocation of loan proceeds has been revised four times, asshown below, to provide for the Labor Intensive Program and other projectrevisions.

(US$'000) RevisionsCategories Original First Second Third Fourth

9/78 1/81 2/82 1/83

A. Civil Works 21,000 21,000 25,500 26,350 26,350

B. Equipment for MaintenanceWorkshop and Laboratories 2,500 2,500 3,050 3,020 4,175

C. Consultant Services

(i) Design and supervision ofPart A and B of theProject 1,300 1,300 1,500 1,875 1,875

(ii) Transport Planning (Part D) 300 300 440 540 444

(iii) Technical Assistance toDEC and DGMCA (Part E) 300 300 805 725 725

(iv) Technical Assistance toconstruction industry(Part E) 100 100 250 220 220

(v) Guayape Study (Part G) 500 500 820 820 96

(vi) Labor-Intensive Program(Part H) - 1,000 1,000 1,115 1,115

(vii) Unallocated 9,000 8,000 1.635 335 -

Total 35,000 35,000 35,000 35,000 35,000

6/ As of April 10, 1984 about US$1.3 million of Loan 1341-HO and US$0.3million of Loan 1342-T-HO were still undisbursed. Current estimates ofthe final cost of the project suggest that about US$0.7 million are notcommitted and would be cancelled.

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4.04 The original Closing Date, December 31, 1981, was extended twicefirst to June 30, 1983 and finally to December 31, 1983.

V. ECONOMIC EVALUATION

5.01 The upgrading of the gravel Talanga-Catacamas road was justified atappraisal on the basis of quantifiable benefits accruing to road users mainlyfrom reduced vehicle operating costs which would result from improvements inroad design and surface characteristics and from a 13.2-km shortening of theTalanga-Juticalpa Section.

5.02 The economic reevaluation of the project road was based on amethodology similar to the one used at appraisal. However, certainassumptions have been modified, as follows:

(a) Savings in Maintenance Costs

The appraisal estimated that the difference in maintenanceexpenditures for the "with" and "without" project cases wouldresult in a net additional economic cost for the project.However, given the present level of traffic (about 700 vehiclesper day), an assumption of net savings from reduced maintenancecosts seems more realistic. Since the results of the economicanalysis were not sensitive to different assumptions aboutmaintenance costs, they were ignored in the economicreevaluation.

(b) Projected Traffic Growth

Projected traffic growth at the time of the appraisal washeavily based on the possible development of the forestindustry in the Olancho region, which was expected to belimited by a rapid rate of exhaustion of resources. Therefore,the appraisal projected a conservative average annual trafficgrowth rate of 5% for the first ten years of the lifetime ofthe project and 4% thereafter, although the historical trafficgrowth rate in the years preceding the appraisal had been about8% p.a. Traffic counts carried out by SECOPT in March 1983show that actual traffic levels in the Talanga-Juticalpa andthe Juticalpa-Catacamas road section are 13% and 7%, respec-tively, above those expected at appraisal for that year. Thishigher-than-expected traffic is explained by the developmenttaking place in the several valleys in the area of influence ofthe project road. Therefore, in spite of the modest growth ofthe forest industry, the economic reevaluation has been basedon a projected annual traffic growth of 6% for the first 10years of the project and 5% thereafter.

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5.03 The ex-post economic evaluation yielded estimated economic rates ofreturn (ERR) of 21% for the Talanga-Juticalpa road and 12% for the Juticalpa-Catacamas road, versus the 16% and 11% respectively estimated at appraisal.The substantial difference in the ex-ante and ex-post ERR for the Talanga-Juticalpa road is due to an actual and projected traffic growth above thatestimated at appraisal and to a final cost of construction 16% below theappraisal estimate 7/. In the case of the Juticalpa-Catacamas road, theextra benefits brought about by the higher traffic growth were mostly offsetby a real cost of construction 23% above that envisaged at the time ofappraisal. This cost increase was due to the adoption of a higher designstandard than that agreed at appraisal (para 3.05).

VI. PERFORMANCE OF THE BORROWER

6.01 The performance of the Borrower, except for the changes in roaddesigns initiated without previous consultation with the Bank, can beconsidered as generally satisfactory. Regarding the contractors' claims, theBorrower is reviewing their different elements and is prepared to satisfythose claims found justified. Following are the major covenants and theBorrower's efforts to comply.

6.02 "Section 3.08 (a). Except as the Bank shall otherwise agree, theBorrower shall: not later than June 30, 1977, submit to the bank a detailedplan setting forth the action to be taken by the Borrower, including, withoutlimitation, the provision of adequate incentives, in order to recruit andretain the services of qualified personnel for DGC and DGMCA."

The covenant was partially fulfilled. After several postponementsof the deadline to submit the above mentioned plan, the Bank sent,in July 1979, a consultant to assist SECOPT in this matter (thecost of these services did not come from loan proceeds). As aninterim solution to the implementation of the Plan's recommenda-tions, the Government strengthened SECOPT's capabilities by con-tracting advisors at salaries higher than the civil service scale.

6.03 Section 4.03 (a). The Borrower shall: (i) cause all national roadsof the Borrower to be adequately maintained and cause all necessary repairsthereof to be made, all in accordance with sound engineering practices;(ii) cause all maintenance equipment of the Borrower to be adequatelymaintained and cause all necessary repairs and renewals thereof to be made,all in accordance with sound engineering practice; (iii) cause existingrepair workshops to be adequately maintained, particularly by improving, notlater than December 31, 1977 and in manner satisfactory to the Bank, theequipment repair and laboratory facilities at Tegucigalpa and San Pedro Sula

7/ The comparison between actual and appraisal estimated costs (including

contingencies) was made in constant 1982 prices.

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(including disposal of obsolete equipment presently stockpiled therein); and(iv) provide, promptly as needed, the funds, facilities, services and otherresources required for the foregoing."

The Borrower partially complied with the preceding covenant.Compliance with item (i) is expected to improve after the equipmentfinanced under the Seventh and Eighth Highway Projects is inoperation. The continuation under the Eighth Highway Project ofthe technical assistance in this area is also expected tostrengthen the capabilities of DGMCA and improve maintenanceoperations. Compliance with item (ii) is also expected under theEighth Highway Project. Regarding item (iii), the San Pedro Sulalaboratory, the Tegucigalpa workshop, the San Pedro Sula workshopand the Tegucigalpa laboratory are operational. Some equipmentremains to be delivered by the supplier to the San Pedro Sulalaboratory. The delay in complying with item (iii) was mainly theresult of temporary lack of compliance with item (iv).

6.04 "Section 4.03 (b) (i). The Borrower shall take all necessary actionto: not later than June 30, 1977 or such date as shall be acceptable to theBank, cause the dimensions and weights of the vehicles using the nationalroads of the Borrower to be kept within the limits provided by the laws andregulations of the Borrower."

SECOPT complied well in advance with the preceding covenant.Enforcement of maximum weights and dimensions of vehicles startedon January 6, 1977, and the program is being continued success-fully. Currently there are 13 weighing stations in operation.

VII. ROLE OF THE BANK

7.01 The Bank was significantly involved in project identification andpreparation by inclusion of feasibility studies under the preceding SixthHighway Project and by participation in review of subsequent designs andstudies which were financed by others. The scope and size of this, theSeventh Highway Project, were within SECOPT's administrative capabilities.The original implementation schedule was reasonable, but additional works andprocurement of equipment described in preceding chapters delayed completionbeyond the originally envisaged date.

7.02 The Bank, during project implementation, showed the necessaryflexibility to reassign funds released by the lower-than-expected civil workscosts and by the deletion from the project of the Guayape Valley Study. Atthe same time, in the case of the changes in road design standards andalignments initiated by the Borrower without prior consultation, the Bank'sresponse was adequately firm. The Bank accepted those changes that werejustified, as well as part of the already started realignment for whichsubstantial costs had already been incurred. However, it refused to financea new bridge, leaving to the Borrower the responsibility of bearing most ofthe cost of the Government's decision.

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VIII. CONCLUSIONS

8.01 The Seventh Highway Project was successful in achieving its mainobjective of completing the second tranche of the Tegucigalpa-Catacamashighway, with an estimated rate of return above that expected at appraisal.In addition, the well chosen technical assistance elements resulted in someimprovements in the area of road maintenance and transport planning which areexpected to continue under the Eighth Highway Project. However, because ofthe Borrower's financial and staffing constraints, planning efforts, namelythe updating of the Highway Master Plan completed under the project, were notpursued. The Government was committed, under the Eighth Highway Project, toupdate the Plan, using its own resources. Because of financial constraints,the Government requested that surplus funds from the Seventh Highway Projectbe reallocated to finance the updating of the Plan. The Bank did not agreeto this request, but waived the Borrower's obligation to update the Planunder the Eighth Highway Project. In the case of the implementation of amaintenance system at national level, results continue to be below expecta-tions, with budgetary constraints and delays in equipment and spare partsprocurement contributing to the slow pace of achievement in this area.

8.02 There are several lessons to be learned from this project:

(a) One particular lesson can be learned from the fact thatappraisals of the last three Highway Projects in Hondurassubstantially overestimated the cost of civil works. Thispattern suggests that, in the future, the Bank should examinecost estimates in Honduras more carefully in order to improvethe planning process of resource allocations.

(b) In addition, future Bank project supervision should give moreemphasis to the institution-building aspects of its technicalassistance components. The Seventh Highway Project had, as themain objective of its transport planning element, the prepara-tion of a Highway Master Plan. However, the plan, by itself,becomes a temporary tool if the planning agency does notdevelop the necessary capabilities to monitor and update it ina continuous and systematic way. Although the projectmarginally provided for such needs, supervision efforts focusedon the civil works component and did not pay early attention tothe detrimental effects that the lack of coordination of theproject executing units of the different lending agencies werehaving on the technical assistance for planning.

(c) Another lesson to be learned from this project refers to thedifficulties inherent in establishing an efficient roadmaintenance system in countries greatly lacking in staff andfacilities. The Bank should be less optimistic in this area,

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realizing that the development of such a system is a slow andtortuous process that can be achieved only over a longer term.In addition, the Bank should consider the possibility, infuture projects, of reducing the emphasis on the implementationof over-sophisticated management information systems. Thefocus, as a first step, should be on developing, from thein-place system, high standard field work together with simpleforms for reporting inputs so that physical targets and costscan be readily controlled and that realistic planning andbudgeting can be carried out. The introduction of suchimprovements should be preceded by some measure of success intraining the necessary local staff.

(d) A final lesson can be derived from the implementation of theLabor-Intensive Program for road construction in Honduras. Thesuccess of the program, coupled with the substantialinstitution-building that accompanied it, indicates that theBank should continue with its efforts to identify and implementappropriate technologies in labor-abundant countries.

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TABLE 1HONDURAS



Costs of Civil Works per km (US$)

Appraisal Original Final

Road Section Estimate 1/ Contract Costs

Talanga-Guaimaca (33 km) ) 187,100 194,006 2/

Guaimaca-Rio Guayape (34 km) ) 303,800 ) 266,619 2/-3/) ) 263,205 6/

Rio Guayape-Juticalpa (48 km) ) ) 241,400 3/

Juticalpa-Catacamas (38 km) 198,700 222,340 4/ 233,003 2/-4/

Access Roads - 219,000 210,000 5/

Catacamas - ENA - 167,600 175,000

1/ Including physical and price contingencies2/ Including repair works contracted with a local firm (para 3.07)3/ Including the supplementary contract signed with the US contractor to carry out

additional works on these road sections (para 3.07)4/ Design standards were raised to make this road homogeneous with the

Talanga-Juticalpa Road (para 3.05)5/ Includes the cost of installing main water pipes and access connections to

houses6/ US$195,488/km was the original contract value excluding the additional works

later contracted (para 3.07)

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TABLE 2HONDURAS



Comparison Between the Appraisal and Final Cost Estimates

Total Cost Estimates Increase/

Appraisal 1/ Final Decreases(US$ million)

A. Civil Works

(a) Talanga-Catacamas Road 42.54 37.00 -13(b) Tegucigalpa-Catacamas

repair works - 1.36 -(c) ENA road 1.06 -

(d) Access roads - 1.40 -

B. Maintenance Equipment 2.82 3.30 +17

C. Workshop Equipment .56 .57 + 2

D. Laboratory Equipment .14 .29 +107

E. Consultant Services

(a) Construction supervision 3.30 3.65 +11(b) Transport planning .48 .52 + 8(c) Technical assistances to DGV and .48 .83 +73

DGMAC(d) Technical assistance to the

construction industry .14 .23 +64(e) Guayape Valley Int.Dev.Project .75 - -

(f) Catamacas-Culmi engineering study - .12(g) Labor-Intensive Program - .92

Total 51.21 51.25

1/ Including contingencies

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AnnexPage 1 of 5

HONDURAS



Translation Incoming telex to the World Bank from SECOPT

April 10, 1984

Mr. Shiv S. Kapur, Director, OED

Dear Sir:

As requested we are intorming you of our agreement with thecontents of the Project Completion Report (for Loans 1341/1342-HO); we attachbelow certain suggestions which we feel are appropriate, though we leave itto your judgement as to whether to include them or not.

Page iii: eliminate note 2, "Estimated date."

Page v:

- paragraph 2, line 7: change length from 55 m to 54 m.

- paragraph 3: it is not the case that two contractors sued 1/;only the Dumez Company sued the Government, while the Cogefar Company umade aclaim to the DGC.

- paragraph 4, line 6: change the length of the road built betweenCatacamas and the Escuela Nacional de Agricultura from 6.6 km to 6.05 km.

- Comment: no reference is made to the project to correct theother deficiencies of the Tegucigalpa-Catacamas highway.

Page vi, paragraph 2, line 1: replace "Direccion General deCarreteras" by "Direccion General de Caminos."

Page 1, Introduction, paragraph 1.01, line 11: replace 1,610 by"1,716 are paved."

Paragraph 2.02.

- Line 10: it would improve the report to say "reconstruction ofthe Juticalpa-Catacamas road."

- Line 13: it would be better to say "the decision to reconstructthe road was retained."

1/T.N. The report does not use the word "sued," but the distinctionintended in this comment makes little sense unless translated inthis way. In any event, the writer's comment applies only to theSpanish version.

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AnnexPage 2 of 5

Paragraph 3.01. It is suggested that the, paragraph be written asfollows:

"Invitations for prequalifioation of contractors were issued inAugust 1976 in accordance with the World Bank guidelines on procurementincluded in the Loan Agreement. Nineteen construction firms wereprequalified among which were one Honduran company seso 4.ated with a foreigncompany.

On December 20, 1976 the Secretariat in a written communicationinformed the prequalified firms (regarding) their participation in one ormore of the four sections into which the project had been subdivided. On

December 23, the invitation to bid was published in the largest dailyHonduran newspapers. Contracts were awarded as follows:

(a) Section II, Talanga-Guaimaca (33.1 km) to a French-Hondurancompany;

(b) Sections III and IV, Guaimaca-Rio Guayape (33.9 km) and RioGuayape-Juticalpa (47 km) to a U.S. contractor; and

(c) Section V, Juticalpa-Catacamas (38.32 km) to an Italian firm."

Paragraph 3.03.

- Line 2: replace October by September.

- Line 7: change 55 m to 54 m.

Page 5, paragraph 3.03. It is suggested that the (remainder ofthe) paragraph read as follows:

"...French partner in the joint venture presented claims for atotal of about US$1.1 million as oompensation for additional costsincurred in executing the work, which according to the contractorshould have been recognized by the Government in addition to theunit prices established in the contract. SECOPT having consultedthe DGC and the consultants did not accept these claims; followingthis refusal.... in Paris. The position of the Honduran Governmentwas to refuse arbitration on the basis that the claim was presentedby only one of the partners in the joint venture."

Paragraph 3.04, line 8: change text to:

... using subcontractors. It was expected that the remaining workwould be completed by early 1983 but because of the financialproblems of the insurer and the organizational problems of thesubcontractors the work was only completed in December 1983. TheGovernment invoked the penalty clause for late completion.

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AnnexPage 3 of 5

The total cost of the Rio Guayape-Juticalpa section and accessroads (para. 3.08) was US$13.08 million, or US$241,000 per km."Paragraph 3.05, line 12. Change text to:

"... works in 1982, the contractor subnitted clai,na to the DGC forapproximately US$2 million, alleging increased costs resulting fromexecution of works. Part of these claims was accepted by DGC butwas not settled before the due date because the contractor did notpresent the necessary supporting documents."

Paragraph 3.06. It is suggested that the start of paragraph bechanged as follows:

"The supervision of the civil works was carried out b} a -onsortiumof Central American firms consisting of one company each iromHonduras, Nicaragua and Costa Rica. During the early stages ofproject implementation, its performance was hampered by inadequatecoordination between the Project Unit, the DGC and the supervisorygroup, leading to an excessive turnover of personnel within thisgroup. These shortcomings..."

Ibid., page 6, line 2. Change text to "...undertook theimprovement of supervision and of the Project Unit, including a substantialchange..."

- Line 7. Change text to: "...(US$3.3 million) was 32% above the

- Line 10. Change text to: "... a two and a half year extensionof the consultants' services, which represented an increase of 63% in theoriginal period of services."

Paragraph 3.07

- Line 2. Change to: "... caused serious damage and destructionon various sections of the Tegucigalpa-Catacamas road."

- Line 8. Change text to: ... repairs and maintenance on thesaid road."

- Line 15. Change text to: ... the works were concluded inNovember 1983."

- Lines 15 to 17. Change text to: "... a local firm was retainedfor the supervision of the repair works at a final cost of US$182,000."

Paragraph 3.08.

- Line 6. Change text to: "... towns of Campamento (2.17 km),Juticalpa (3.17 km) and Catacamas (1.29 ki)."

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AnnexPage 4 of 5

- Line 17. Change text to: "...these projects which werecompleted in December 1983 at a final cost of US$1.4 million (aboutUS$210,000 per km)."

Paragraph 3.09.

- Line 6. Change text to: "...the work was completedsatisfactorily in November 1983, the final length of the project being 6.05km at a total cost of US$1.06 million (US$175,000 per km)."

- Line 10. Change text to: "... the total cost of supervision wasUS$159,000, or 15% of the civil works."

Paragraph 3.12.

- Line 3. Change text to: "...training staff of the twodepartments within SECOPT (the General Directorate for Transport and theGeneral Directorate of Sectoral Planning)."

Ibid., page 8, line 2. It is suggested that the paragraphs bedivided at this point and the text changed to:

"Part of the difficulties in the transport planning component ofthe project can be attributed to the use of separate consultingservices instead of focusing on a coordinated planning unit. Thetotal cost of the planning element, including the hiring of a localeconomist, was US$522,000 as compared with the appraisal estimateof US$475,000.

Paragraph 3.14, last line. Change to: "...cost of US$293,000."

Paragraph 3.16, line 18. Change to: "...withing DGV given thatthe final contract..."

Ibid., page 9, line 1. Change to: "...the consultant services andacquisition of equipment for this program, using the surplus funds thatresulted from highway construction cost savings due to lower-than-expectedbase costs and the effects of a reduction in cost increases. The Bank..."

Paragraph 3.17.

- Line 8. Change to: "...equipment installed. Owing to delaysin the contracting of consultants and the supply shortages, the trainingprogram

- Line 17. Change to: "... to this effect the DGC has appointeda civil engineer with adequate experience as head of the GeotechnicsDepartment, who is currently implementing the consultants' recommendations.The cost of ... "

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AnnexPage 5 of 5

Page 12, paragraph 4.02, last line. Change to: "...(whichconstitutes) the largest element of the project, namely 74%."

Page 17, paragraph 8.01, line 13. Change "excendentarlo" to*excedente."2/

Page 18, paragraph (b), line 15. Change "Proyecto" to"proyectos ."3/

Page 18, paragraph (c), line 13. (The recommendation is merely tomake a small change in the order of works in Spanish, which does not affectthe English version, namely "high standard field work.")

Page 19. Change lengths of road sections in accordance with thechanges in paragraph 3.01 of the report.

Regards,

Edwin Roberto LeivaDirector General

2/ In English both words mean "surplus."3/ In the English version "project" cannot be made plural but in the

Spanish text the change should be made if more than one project isinvolved.

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Documents

World Bank Document · Document of The World Bank FOR OFFICIAL USE ONLY FILE Report No. 5080 PROJECT COMPLETION REPORT HONDURAS SEVENTH HIGHWAY PROJECT (LOAN 1341-HO/1342-T-HO) May