PROJECT INFORMATION DOCUMENT (PID) CONCEPT STAGE Report No.: AB5489 Project Name. Norte Grande Transport Infrastructure Development Project Region

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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.: AB5489 Project Name Norte Grande Transport Infrastructure Development Project Region LATIN AMERICA AND CARIBBEAN Sector Roads and highways (70%); Sub-national government administration (20%); General transportation sector (10%) Themes: Infrastructure services for private sector development (50%); Trade facilitation and market access (30%); Rural services and infrastructure (20%) Project ID P Borrower(s) REPUBLIC OF ARGENTINA Implementing Agency Ministry of Federal Planning, Public Investment and Services Environment Category [ ] A [X] B [ ] C [ ] FI [ ] TBD (to be determined) Date PID Prepared February 18, 2010 Estimated Date of May 10, 2010 Appraisal Authorization Estimated Date of Board August 24, 2010 Approval 1. Key development issues and rationale for Bank involvement Background 1. Despite Argentina s recent recovery from one of the most severe losses of income and downturns in living standards on record, extreme poverty and inequality remain persistent problems. Argentina s recovery from the deep economic crisis of has been impressive. Sparked by increased exports and consumption, GDP has surpassed the pre-crisis level, growing at an average rate of around 9 % between 2003 and 2007, and reaching 6% in 2009 despite the global economic crisis. The recovery has been pro-poor as earnings of the low income segments of the population have grown faster during the upturn than the average for the population as a whole and poverty rates have been reduced from 58% in 2002 to 23.4% in Unemployment has declined from the peak of 20 percent in 2002, during the crisis, to below 10 percent in The halving of poverty from 58 percent in 2003 to 23.4 percent in 2007, lifting more than 11 million Argentines out of poverty, has moved Argentina closer toward achievement of the Millennium Development Goals (MDG), but these impressive statistics mask persisting levels of inequality which despite reductions in poverty have continued to widen in recent years While shifting their focus from recovery to sustainability, the Government of Argentina (GoA) has focused on maintaining economic stability while fostering social inclusion through various measures, including investment in infrastructure. The GoA s challenge of preserving strides made against poverty has been made more daunting by the onset of the world s worst 1 National Institute of Statistics (INDEC). 2 Country Partnership Strategy

2 economic crisis since the Great Depression. Argentina is better positioned to confront this crisis than in the past, but the country s ability to implement countercyclical policies is limited by weak access to external financial sources as well as global uncertainty. The GoA has taken advantage of its partnership with the Bank to implement innovative social safety net programs not only in response to the ongoing economic crises but also to mitigate the long term trend in rising inequality. In addition, the GoA has prioritized infrastructure development as a tool to reduce social inequality and as a means to overcome potential bottlenecks to competitiveness. Investment in infrastructure doubled every year for several years following the economic crisis, and has continued to grow vigorously despite the recent economic slowdown. For example, investment in hydraulic and sanitation infrastructure was over US$220 million and US$300 million, respectively, in The infrastructure investment program is not only a key component of countercyclical economic stimulus but also an essential means of tackling endemic poverty and inequality in different regions of Argentina. 3. The Norte Grande region epitomizes the marginalization, underdevelopment and extreme poverty enduring in parts of Argentina notwithstanding the economic recovery. Norte Grande includes the nine provinces of Catamarca, Chaco, Corrientes, Formosa, Jujuy, Misiones, Tucumán, Salta and Santiago del Estero. Although it covers one-third of the national territory and comprises approximately 7.5 million people, representing 21 percent of the population, Norte Grande produces only 10 percent of the Gross Domestic Product (GDP) and 8 percent of the country s total exports. In contrast with declining national poverty levels, poverty in Norte Grande stands at 48 percent of the population (3.6 million people), with 24.6 percent of the population (1.85 million people) living in extreme poverty. A recent Bank Provincial Development Index for Argentina compiled measures of poverty and deficits of social and basic infrastructure services to classify the twenty-four provinces of Argentina. The results of this analysis put the nine provinces of Norte Grande in the bottom ten spots, indicating their disparity compared to the rest of Argentina. Moreover, the illiteracy rate at 5.4 percent is more than double the national average, the infant mortality rate at 16.2 per 1000 live births is above the national average at 13.3 per 1000 and the proportion of homes with Basic Unsatisfied Needs (Necesidades Básicas Insatisfechas, NBI) is 18.6 percent compared to the national average of 14.3 percent. 3 The driving force of the local economy is export-oriented agriculture, with the exception of Catamarca, where mining is the predominant activity; however, deficient transport infrastructure as well as climate instability, leading to flooding and droughts, have hurt production and hindered regional competitiveness. In general, Norte Grande does not possess the infrastructure base necessary to make strides towards reducing the region s poverty and inequality as much of the population lacks access to basic infrastructure services. The following table highlights the region s backwardness compared to the country as a whole. Province Population 4 Extreme poverty incidence 5 Infant mortality 6 Maternal mortality % 7 Primary school completion 8 Water coverage 9 Sewerage coverage 10 Solid waste collection 11 3 The NBI is a method of measuring poverty, widely employed by the Economic Commission for Latin American and the Caribbean (CEPAL), using indicators directly related to four areas of people s basic needs, namely shelter, sanitation, education and minimum income. Specifically in Argentina, those meeting the conditions of NBI include: (i) more than three people living in one room; (ii) accommodation in makeshift housing or tenancy; (iii) lack of a flushing toilet in the house; and (iv) families with any child between the ages of 6 and 12 who does not go to school. 4 National Census of Population and Housing (2001)

3 Catamarca 330, Chaco 978, Corrientes 924, Formosa 483, Jujuy 608, Misiones 957, Salta 1,068, St. del Estero 799, Tucuman 1,332, ARGENTINA 35,878, Key Development and Sector Issues 4. Transport infrastructure deficits, and the great distances from the key commercial and consumption centers of the country are key development constraints for the Norte Grande region which place the region at a significant competitive disadvantage. The table below from ongoing Bank analytical work in the logistics sector shows the distances for five provinces in the North East from the main centers of Buenos Aires, Santa Fe (Rosario), Cordoba and Mendoza. Regarding transport costs, according to a recent study by the UIA these represent 75% of the total cost without processing of the mineral ore and 35% of the cost of the mineral produced. Argentina has a strong centralization of commercial activity: 3 provinces (Cordoba, Santa Fe, and Buenos Aires) represent around 50% of GDP, generate 68% of national exports, and account for almost 75% of industrial establishments in Argentina. The distances separating the main centers of production of the provinces of Norte Grande and the small relative volume of production vis-à-vis the more productive regions, puts the region at a disadvantage with respect to the supply of transport. This manifests itself in poor services, delays and in higher costs of transport. This situation is exacerbated in the harvest season, since it takes place simultaneously in the said regions. The most important cargo movements that originate in the Norte Grande have two main destinations: the ports of Rosario and Buenos Aires in the case of exports; and major consumption centers (Buenos Aires, Cordoba and Rosario) for production for the local market. This places significant pressures and needs in the transport infrastructure connecting the regions (national routes) and on the provincial roads that connect within the provinces to the origin sources. 5. Despite its transport disadvantages, the region remains highly productive with great economic potential from agricultural and industrial bases. The region has rich and diverse natural resources and has vast areas that are conducive for agricultural crops and fruit trees. The region has a significant level of cultivation of sugarcane, and a frontier has expanded strongly for soybean cultivation. Further, the provinces of Misiones, Jujuy and Salta represent 90% of the country s tobacco production. Citrus fruits have a significant competitive advantage for Norte Grande, and much of the region s production is exported. An analysis of the export port 5 The Household Survey (Encuesta Permanente de Hogares, 2006) measures those whose income is below the value of a basic food basket. 6 Per 1,000 live births. Ministry of Health, Department of Statistics and Health Information (2006) 7 Per 1,000 live births. Ibid. 8 % of people over 12 years of age. Household Survey (2006) 9 Access to service % from the National Census of Population and Housing (2001). 10 Ibid. 11 Ibid.

4 destination for citrus fruits for example indicated Campana, Buenos Aires, San Pedro, Zarate and Rosario as the main centers. This places a significant burden on ensuring maximum efficiency from the transport sector with managed transport costs to keep the market costs of the region s products competitive, and faster delivery times. The region also has significant forest resources in the areas of sub-andean sierras. Also, linked to the agricultural activity is heavy involvement in the mining and processing of raw materials. Among the mineral and energy resources, the main ones are: copper ore, oil and gas. In terms of industries, Agribusiness tops the list of large enterprises: mills, processors and marketers of citrus, and tobacco companies are among the most important. Next in importance are the companies exploiting mineral resources and hydrocarbons, for example in Catamarca and Salta. It is also important to note the existence of a vibrant industrial metalworking industry (auto parts and machinery), and the growing importance of wine production and tourism in reference to services. 6. Investments in transport infrastructure are a critical intervention towards overcoming constraints to agricultural, mineral and industrial competitiveness. This is line with the contributions to improved economic and living conditions through improved accessibility (to health centers, schools and other administrative function centers), improved safety, improved social equity and reduced regional isolation. In order to fully tap the potential of the Norte Grande region outlined in the previous paragraph, and to bridge the infrastructure deficiency gaps and sense of isolation for the highly impoverished region, investments in transport infrastructure would provide a much needed boost, and act as a catalyst for economic development and improved standards of living. 2. Proposed objective(s) 7. The overall project development objective is to improve transport efficiency, accessibility and safety on provincial roads in the Norte Grande region. This will in turn contribute to the overall higher objective of contributing to economic development and other related goals of reducing social inequities, reducing isolation and improving regional development and integration while preserving the environment. Additionally, investments in transport infrastructure will generate employment opportunities, particularly for the rural poor. 8. The proposed operation will also aim at strengthening the institutional capacity of road agencies in participating provinces, in particular by: (i) strengthening the planning process to support the preparation and implementation of comprehensive multi-year road programs; (ii) introducing the use of new planning tools to develop sustainable and cost effective road management strategies; and (iii) bring about the required technical capabilities in the provincial road agencies to allow for the introduction of new management strategies, gradually supporting their transformation into results-oriented organizations with enhanced capacities (planning, administration and supervision of contracts, environmental and social management, road safety management, etc.). 3. Preliminary description 9. Lending Instrument: The proposed Project would be funded through a US$350 million SIL (final amount still under consideration by the GoA) with US$150 million in counterpart financing from the GoA (final amount to be determined), available to the Norte Grande

5 provinces on a demand driven basis after complying with certain qualifying criteria. The criteria for prioritizing requests, and ceiling amounts would be determined during project preparation 10. Project Components. The proposed Project will have three main components: (i) Rehabilitation and Reconstruction of Provincial Roads; (ii) Road Sector Management and Institutional Strengthening; and (iii) Project Management and Technical Assistance to Participating Provinces. 11. Component 1: Rehabilitation and Reconstruction of Provincial Roads (Amount TBD): The first component would be a civil works component that will include the rehabilitation, upgrading and reconstruction of road pavements, including associated shoulder, sidewalks, drainage, lighting and auxiliary works plus road safety works. Rehabilitation works for the pavement structure will involve the replacement of deficient structural layers (surface and base) while Reconstruction works will involve the replacement of deficient structural layers for the whole road pavement structure (including surface, base and sub-base layers). Three provinces have already been identified with eligible works for funding which will achieve its readiness stage before appraisal under this component including: (1) Province of Chaco: Provincial Road No. 3; segment Pampa del Indio Villa Río Bermejito (Ruta Provincial No. 3, Tramo Pampa del Indio Villa Río Bermejito); (2) Province of Tucuman: Provincial road No. 304; segment Los Gutiérrez Urueña River (Ruta Provincial 304, Tramo Los Gutiérrez Río Urueña), Provincial road No. 307; segment Acheral Tafi del Valle ( Ruta Provincial 307, Tramo Acheral y Tafí del Valle ); and (3) Province of Misiones: Provincial Roads No. 221 and 222. Additional provincial roads are being prepared for presentation by the provinces and to be declared eligible during the loan implementation stage. 12. Component 2: Road Sector Management and Institutional Strengthening (Amount TBD): The second component of the project would be technical assistance to address the strengthening of institutions in charge of managing the provincial road network and contribute to more efficient and modern road asset management programmes to ensure the sustainability of the investments (including the following areas: planning, administration and supervision of contracts, environmental and social management, road safety management, etc.). This component would also finance tools for an enhanced articulation of the different planning levels (municipal, provincial, regional, national) for land transport and to build up information systems for more effective planning. Additionally, the Bank team has proposed the Borrower to consider the inclusion under this component of a pilot program of microenterprises for road maintenance, as a means to address the challenge of keeping up with road maintenance of the secondary and tertiary provincial roads in the Norte Grande region, as well as a tool for employment generation. 12 By generating employment opportunities for the poor through road maintenance activities, these pilots would increase the developmental impact of infrastructure investments in the region, serving as a more direct tool for addressing the challenge of high rates of rural 12 Road maintenance is the most labor-intensive of all infrastructure investments. A recent World Bank study has estimated that, albeit limited in scope, routine maintenance works can generate up to 500 jobs per US$ million invested and can act as a safety net mechanism for the rural poor, through the use of specialized microenterprises. See Tuck, L., Schwartz, J. and Andres, L. (2009) Crisis in LAC: Infrastructure Investment and the Potential for Employment Generation.

6 poverty and exclusion, through social intervention strategies focused on vulnerable sectors of the population such as indigenous population and women. 13. Component 3: Project Management and Technical Assistance to Participating Provinces (Amount TBD): A third proposed component would be a Project Management component to finance needed staff resources and other operational expenditures in the implementation agency to ensure smooth management of the project, as well as technical assistance to participating provinces to facilitate Project coordination during implementation. Funding for necessary training for provincial staff and associated consulting services for design and supervision work (including ad-hoc specific technical assistances to perform strategic studies, feasibility studies, project designs, economic impact studies and others) would also fall under this component. 4. Safeguard policies that might apply Safeguard Policies Triggered by the Project Yes No TBD Environmental Assessment (OP/BP 4.01) [X] [ ] Natural Habitats (OP/BP 4.04) [X] [ ] Pest Management (OP 4.09) [X] [ ] Physical Cultural Resources (OP/BP 4.11) [X] [ ] Involuntary Resettlement (OP/BP 4.12) [X] [ ] Indigenous Peoples ( OP/BP 4.10) [X] [ ] Forests (OP/BP 4.36) [ ] [X] Safety of Dams (OP/BP 4.37) [ ] [X] Projects in Disputed Areas (OP/BP 7.60) * [ ] [X] Projects on International Waterways (OP/BP 7.50) [ ] [X] Piloting the Use of Borrower Systems to Address Environmental and Social Issues in Bank-Supported Projects (OP/BP 4.00) [ ] [X] 5. Tentative financing Source: ($m.) Borrower International Bank for Reconstruction and Development Total Contact point Contact: Veronica I. Raffo (Task Team Leader) Title: Infrastructure Specialist Tel: vraffo@worldbank.org * By supporting the proposed project, the Bank does not intend to prejudice the final determination of the parties claims on the disputed areas

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