PROJECT INFORMATION DOCUMENT (PID) CONCEPT STAGE Report No.: AB2164 Project Name

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1 Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized PROJECT INFORMATION DOCUMENT (PID) CONCEPT STAGE Report No.: AB2164 Project Name AR Santa Fe Road Infrastructure Region LATIN AMERICA AND CARIBBEAN Sector Roads and highways (100%) Project ID P Borrower(s) Ministry of Finance, Province of Santa Fe Implementing Agency Dirección Provincial de Vialidad, Province of Santa Fe Subsecretaría de Proyectos de Inversión y Financiamiento Externo Argentina Tel: (54-342) Environment Category [ ] A [X] B [ ] C [ ] FI [ ] TBD (to be determined) Date PID Prepared February 10, 2006 Estimated Date of April 25, 2006 Appraisal Authorization Estimated Date of Board July 29, 2006 Approval 1. Key development issues and rationale for Bank involvement Overview: Argentina s recovery from the deep economic crises of has been impressive. Sparked by increased exports and a gradual increase of consumption, GDP has recovered to the pre-crises level, growing at an average rate of 8.5% between 2003 and The recovery has been pro-poor as incomes of the poor have grown faster during the upturn than the average for the population as a whole. The challenge for Argentina is to build on the strong recovery laying the foundations for sustainable, more equitable shared economic growth. Restoring public investment in a sustainable and efficient path to remove infrastructure bottlenecks fostering productivity and increasing competitiveness are necessary conditions to achieve sustained high rates of economic growth. The Province of Santa Fe within the Argentine context: the Province of Santa Fe (PSA) with an area of 133,007 km2 and a population of 3.2 million accounts for, respectively, 4.8% and 8.9% of Argentina s size and population. The Province favorable location in the Center Region (comprised by Córdoba, Entre Ríos and Santa Fe) along 700 kms of navigable waterways (Hidrovía Paraguay-Paraná) provides the most convenient gateway for Argentina s agricultural exports. Besides, it is in the heart of a land corridor that connects the south of Brazil with ports in the north of Chile. The PSA has enjoyed, since 2003, an average rate of growth of 6.5% and is currently the second largest provincial economy in Argentina. Table 1 compares the evolution of a series of economic indicators in the PSA and Argentina.

2 Table 1: Economic indicators SANTA FE ARGENTINA EXPORTS (million of USD and change between 2004 and 2003) Primary products (wheat, soybean) 930 6, % 6.0% Agroindustrial (soybean oil, sunflower oil, flour) 5,229 11, % 19.7% Industrial 875 9, % 24% Total 7,169 34,550 INDUSTRIAL PRODUCTION (first semester of 2005 vs 2004) Industrial Monthly Estimator 7.4% 7.4% UNEMPLOYMENT Unemployment rate (average of Gran Rosario and Gran Santa Fe) POVERTY Percentage of population under the poverty line 12.5% 13.0% 41.6% 40.2% Source: Sintesis de Coyuntura Económica Provincial, Ministerio de Hacienda y Finanzas, Santa Fe The PSA is making substantial progress toward diversifying its economy with the emergence of industrial clusters (Rafaela being the most cited example) dedicated to the production of auto parts, agricultural machinery and dairy products. However, the primary sector and the agroindustrial exports continue to drive its economy. The PSA accounts for 43% of Argentina s agroindustrial exports and is the largest exporter of soybean oil in the world (47% of world exports in 2004). During the period , agricultural lands increased 70% in the provinces of northern Argentina 1. In the PSA, the expansion of the agricultural frontier has concentrated in the north of the province, which is the poorest and the most difficult to access region. The production of this region needs to get to the export gateways and industrial processing plants located in the southeast of the province. The increased dynamism experienced by local and rural economies in the PSA depends on higher rates of physical mobility and a reliable transport network. The current state of road infrastructure and the extremely inefficient service provided by the railroad Belgrano Cargas causes significant logistics costs reducing the likelihood of future expansions of the agricultural production. All sectors of the economy face serious transport and logistics problems. The competitiveness of the agro-businesses established in the center and north regions is affected by the poor condition of the road corridors to the ports of Gran Rosario and the city of Santa Fe. Given the nature of the productive activities in the PSA, the road network is heavily congested during the harvest 1 Argentina :Agriculture and Rural Development. The World Bank, Even though the PSA is considered a Central Province, for the cited study, Santa Fe is considered a northern province.

3 months and the limited success of intermodal transport is creating social problems 2 for towns located near ports. The pattern of economic development in the PSA resembles the one observed for the whole country. A high share of the population (around 35%) and level of economic activity concentrates in one city (Rosario in the PSA and Buenos Aires in Argentina). Rosario has concentrated the PSA s industrial production since the beginning of the twentieth century. It displaced the city of Santa Fe as the main export gateway when dredging in the Parana River and the size of ships became a barrier to access to ports. The PSA wants to reduce the concentration of economic activity around the city of Rosario and considers alternative road corridors (Road 19 being the most important) and the relocation of the Port of Santa Fe as priorities in its infrastructure plans. In order to address transport and logistics issues, the PSA has been concentrating efforts to design and implement an agenda to increase the efficiency of the road sector. The change started during the 90s, when the national government decided to decentralize expenditures and financing responsibilities to the provinces. The PSA has been gradually transforming its operations within the road sector, transferring the execution of works to private contractors, focusing the capacity of its road agency towards more efficient planning, and the prioritization of investments based on cost-efficient criteria. The conversion of the National Highway 19 in a four lane road is a key component of the PSA s strategic plan to improve the efficiency of the road sector, reduce the concentration of the provincial road network towards the city of Rosario and improve the reliability of a bi-oceanic corridor that links the Center Region with demand centers. Given that National Highway 19 is a key component of a bi-oceanic corridor, improvements in competitiveness will not be restricted to the Province of Santa Fe, having positive effects on economic growth in neighboring provinces as well as in Brazil and Chile who make intensive use of this road to transport their bilateral trade 3. An indication of the importance of National Highway 19 to the PSA is the fact that the road is owned by the federal government but the PSA is still willing to finance the improvement of this road. The PSA will be able to finance, execute and supervise the construction of parallel carriage ways along National Highway 19 based on an agreement ( Convenio ) signed with the federal road agency ( Vialidad Nacional ) which lays out the conditions for the intervention of the PSA. According to said agreement, both parties will sign a complementary agreement specifying how and when the federal government will reimburse the PSA the construction expenses. The sustainability of this investment will remain the responsibility of the existent toll road concessionaire 4 who has the legal obligation to cover the maintenance costs of new roads built 2 Mayors of small towns have complained about the influx of sex workers during the harvest months as trucks usually wait for days before delivering their load to ports. 3 There is another bi-oceanic corridor with a road segments in the PSA and it connects the cities of Villa Maria (Province of Cordoba) with Rosario in the PSA. The Federal Government is currently adding capacity to this road (National Highway 9). Due to lack of project execution capabilities, the Federal Government opted to add capacity only to National Highway 9, relegating capacity expansions in National Highway The current concessionaire, Vial3 S.A, was awarded on October 2003, is a concession that is not under renegotiation, and is expected to expire as originally planned in 2008.

4 within the concession corridor. Tolls for the use of National Highway 19 will be adjusted to maintain the financial and economic equilibrium as defined in the concession contract The current fiscal situation of the PSA marks a stark contrast compared to the period between 1999 and From 2002 the PSA has had growing overall balances (primary surplus minus interest payments) that are estimated to have reached 19.8% of total revenues in 2005 and the total debt stock was reduced 28.8% between 2002 and If the favorable macroeconomic framework and prudent fiscal management continues in the next few years, the projections indicate there is sufficient fiscal space to accommodate the PSA s road improvement program. The budget of the PSA s road department reached a peak of US$ 78 million in 1998, fell to a minimum of US$ 2 million in 2002 when all construction and maintenance activities were halted and recovered to US$ 79 million in The overall and specific objectives of this operation are in line with the Country Assistance Strategy (CAS) to be discussed by the Board in April 2006, which contemplates the improvement of infrastructure assets as key to sustained economic growth and reduction of the incidence of poverty. By enhancing the quality and performance of provincial road corridors and networks, transport costs are expected to be substantially reduced thus contributing to foster regional productivity and competitiveness. In addition to the long term impact of infrastructure on growth, they are of particular relevance at this time for Santa Fe and the Center Region, given the favorable terms of trade of Argentine commodities and the emergence of productive clusters. This project fits adequately in the Bank s road strategy in Argentina. The Bank is implementing an integrated vision, working both at the federal and provincial levels, helping Argentina increase the availability and reliability of road assets. By working with the federal and provincial governments, it is possible to improve the major roads as well as feeder roads having a network based approach. The Bank s road strategy goes far beyond the financing of road assets. It pays particular attention to the following areas: (i) sustainability and quality of expenditures: to place infrastructure investments within a broader fiscal framework in an attempt to ensure that investment and maintenance expenditures do not suffer the stop-and-go pattern that has often characterized them in the past, and that they are consistent with broader fiscal and debt management policy (ii) performance based programs: relying on CREMAs to improve the efficient delivery of road services, (iii) incentives to avoid excessive prices: working with government agencies to improve the design of bidding documents; and (iv) road safety: an area that needs urgent improvements and has not been yet prioritized by the national and provincial road agencies. The most recent road investment loan approved by the Bank (7301AR) includes a component to finance the rehabilitation of roads in the PSA through CREMA schemes. The roads to be improved cover, for the most part, the northern region of the PSA and are connected to the National Highway 19. Thus, both projects complement each other and seek to implement a strategy to build an efficient road network in the PSA. Building on the experience obtained in other Bank projects that addressed institutional problems in provincial road agencies, and at the request of the PSA, the proposed project will include an 5 Source: Ministerio de Hacienda, Province of Santa Fe.

5 institutional component aimed at increasing the road agency s capacity to design and implement a road safety program. Despite its relevance 6, road safety has not attracted enough attention and resources both at the national and provincial levels. In the context of this project, the National Highway 19 will be taken as a pilot but a comprehensive program that includes minor works in hot spots, public awareness campaigns, inclusion of road safety activities in schools and training of public servants will be developed. Considering the institutional capabilities beyond the road sector, the PSA wants to improve its capacity to develop a strategic plan to foster economic growth in lagged regions, having a more balanced growth across regions in the province. Even though an improved road network will be a key component to reach lagged regions, open new markets and improve competitiveness, there is a need to have a clear vision and conduct a planning exercise to identify needs and the most efficient policies to overcome those needs. 2. Proposed objective(s) The proposed project aims at fostering the Province of Santa Fe competitiveness and economic growth through increasing the availability of road assets. Adding capacity to a key component of a major bi-oceanic corridor that links the Province of Santa Fe and the Center Region with Chile and Brazil will reduce logistics costs, facilitate access to major regional consumption and export markets, create new business opportunities and foster the effective economic integration of the Center Region provinces. The project also aims at providing institutional support to the Province of Santa Fe to achieve the following specific objectives: (a) improve road safety by implementing a comprehensive action plan, (b) reinforce the Province s planning capacity to foster economic growth in lagged regions; and (d) set up a system to measure logistics costs in the Province of Santa Fe and design benchmarks to identify infrastructure and trade facilitation constraints 3. Preliminary description To meet the proposed Development Objectives two main components were preliminarily identified based on a proposed Loan amount of US$126.7 million and a maximum financing percentage of 75%: Component 1 Construction of a parallel carriage way along the National Highway 19 in the Province of Santa Fe, converting it into a four lane road, with two lanes in each direction. (Estimated cost US$159 million of which US$116.7 million would be financed by the Bank Loan). A total of km will be constructed, linking the towns of Santo Tomé in Santa Fe with San Francisco in the Province of Córdoba. The existing carriage way will be used for West- East traffic flow while the new lanes will carry East-West traffic. Preliminary designs are being 6 According to the Institute of Road Safety (ISEV), the costs directly associated with road accidents in Argentina represented 1.75% of the GDP in 2005.

6 prepared by three engineering consulting firms and the Government of the Province of Santa Fe is coordinating the work with the environmental and social experts to make sure Bank safeguards are enforced. Component 2 Institutional Strengthening (Estimated cost US$10 million). In line with the objective to increase the availability of road assets to create an efficient road network capable of effectively accompany a process of economic growth, this component will support the following institutional building program: (i) Increase the capacity within the Provincial Road Agency to design and implement a road safety program. Argentina is one of the countries with the highest incidence of fatal road accidents. Despite this fact, provincial road agencies do not have adequate plans to improve road safety and Santa Fe is no exception. The objective is to help the road agency to implement a comprehensive road safety program in the PSA. In the context of this project, National Highway 19 will be taken as a pilot but a comprehensive program that may nclude minor works in hot spots, public campaigns, inclusion of road safety activities in schools and training of public servants will be developed. (ii) Reinforce the planning capacity of the PSA to elaborate a new strategic development plan to foster growth in lagged regions of the province. The PSA has enjoyed high rates of growth in the last three years, but growth has been uneven across regions. With the objective of having a more balanced growth, the province has requested guidance to elaborate a new strategic development plan. The first step of this plan would be to define a vision for the PSA followed by an assessment of the infrastructure demand needs derived from the strategic vision, matching them with the existing supply and measuring the gaps or infrastructure bottlenecks. The second step would be to make a portfolio of projects, coordinate its prioritization with the relevant levels of government (national, municipal) and provide a menu of possible financing options. (iii) Systemic measurement of logistics costs in the PSA. The PSA has significant competitive advantages in production of agroindustrial products. However, in order to gain new export markets, in particular for high value added products, the PSA needs to reduce its logistics costs. All available logistics cost estimates are aggregated at the country level which makes it difficult for provincial governments to assess their relative position through benchmarks. A series of studies will be conducted to: measure logistics costs in the PSA (ideally to be extended to the Center Region through agreements with Córdoba and Entre Ríos) through firm-level surveys. The surveys will allow the identification of infrastructure bottlenecks or trade facilitation practices that hinder the optimization of logistics costs and will provide valuable inputs for the identification of investment policies and regulations with high economic impacts. Social and Environmental Management & World Bank safeguards: Based on a screening exercise carried out by the project team, safeguard issues have been preliminarily identified. The project is proposed to be Category B for environmental purposes. The project is located in a highly intervened area with little or nonexistent natural habitats or native vegetation. Most impacts will be localized and associated with the current and future right-of-way. Most areas on both sides of

7 the existing road are under intensive agricultural production (soy, corn, cattle ranching). As most of the current and future traffic consists of long distance, international trucks, induced development issues are expected to be minimal. Social issues will be associated manly with (i) resettlement of some dwellings, small businesses, and rural schools (an initial count has identified the need to relocate three houses, two small road-side businesses and two provincial rural schools); and (ii) the socioeconomic impact of three by-passes which would need social programs in the affected communities. There are no indigenous peoples along the road. In summary, the following safeguards will be triggered: Environmental Assessment, Involuntary Resettlement, and Physical Cultural Property. A stand-alone Environmental Assessment will be prepared to address issues such as road safety, construction management, archaeological survey and chance finding procedures, landscaping measures, and alignment of by-passes. A Social Assessment will be carried out in communities affected by by-passes and an intensive consultation program will be implemented. An environmental manual for road construction is already available, based on the environmental manual prepared at the federal level. The provincial Road Agency has a functioning environmental unit. 4. Safeguard policies that might apply Based on a screening exercise carried out by the project team, safeguard issues have been preliminarily identified. The project is proposed to be Category B for environmental purposes. The project is located in a highly intervened area with little or nonexistent natural habitats or native vegetation. Most impacts will be localized and associated with the current and future right-of-way. Most areas on both sides of the existing road are under intensive agricultural production (soy, corn, cattle ranching). As most of the current and future traffic consists of long distance, international trucks, induced development issues are expected to be minimal. Social issues will be associated manly with (i) resettlement of some dwellings, small businesses, and rural schools (an initial count has identified the need to relocate three houses, two small road-side businesses and two provincial rural schools); and (ii) the socioeconomic impact of three by-passes which would need social programs in the affected communities. There are no indigenous peoples along the road. In summary, the following safeguards will be triggered: Environmental Assessment, Involuntary Resettlement, and Physical Cultural Property. A stand-alone Environmental Assessment will be prepared to address issues such as road safety, construction management, archaeological survey and chance finding procedures, landscaping measures, and alignment of by-passes. A Social Assessment will be carried out in communities affected by by-passes and an intensive consultation program will be implemented. An environmental manual for road construction is already available, based on the environmental manual prepared at the federal level. The provincial Road Agency has a functioning environmental unit.

8 5. Tentative financing Source: ($m.) BORROWER 42.3 INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT Total Contact point Contact: Tomas S. Serebrisky Title: Infrastructure Economist Tel: (202) Fax: (202)