# Applying IPF to Road Transport

Regional proposals for transport projects are initiated with the submission of draft regional investment pre-project proposals (pre-ARI), which are developed at the regional level with the participation of representatives of the Ministerio de Obras Públicas (Ministry of Public Works) (MOP) subnational offices, Secretarías Regionales Ministeriales (SEREMI). These initial proposals are considered jointly by regional and national planners. SEREMI sends several regional projects on for consideration to MDS to follow the process of ongoing project appraisal and RATE. While the national government may decide to fund projects with a RATE other than RS, regional projects require an RS designation.<sup>14</sup> The MOP determines which of the projects that received an MDS favorable recommendation (RS) will be sent further for funding to the Ministry of Finance. In the MOP's prioritization methodology, projects are classified as medium, high or low priority based on considerations of strategic relevance, completeness of information, and alignment with regional development plans. Projects selected by the MOP are sent to the Ministry of Finance for review. On approval, a decree is issued by the Ministry of Finance to commit financial resources and initiate project execution. To modify the list of projects, MOP must send its revised prioritized list to the Ministry of Finance to be approved and included in a new decree.

## Transport Policy Goals and Road Project Criteria

The processes of transport project prioritization described above hinge on two primary inputs: project cost-benefit analysis and qualitative assessment of project alignment with medium- and long-term regional and national transport development plans. The former – CBA – is based on a sophisticated approach to assessing road project lifecycle costs, namely the Highway Development and Management (HDM-III/4) tool.

The latter involves consideration of Chile’s transport policy goals. Road density in Chile lags behind other Latin America and OECD countries, partly due to low overall population density but high concentration in Santiago and Valparaiso. The road network’s size (approximately 78,000 kms in 2010) has not significantly changed since 1990, though the share of paved roads has increased from 13.8 to 23.3 percent. This pilot application of IPF considers inter-urban road projects intended to extend the road network and link urban areas. Specifically, the pilot was applied to 50 projects in the BIP that met basic requirements (mentioned below) to be included in the IPF pilot, including HDM-3 data and the existence of a CBA.<sup>15</sup> Road repositioning projects were excluded from the pilot.

## Road Transport Project Sample

The sample of 50 interurban road transport projects to which IPF was applied includes only a set that has reached Execution status in the SNI. Additionally, this set has passed the basic profitability test of having IRRs of at least 6% and have been judged to align with transport policy goals.

> 14 The Organic Law on Financial Administration of the State, Article 19, requires only that a project’s profitability be analyzed, but does not require project profitability. The Organic Constitutional Law on Government and Regional Administration (19175), Article 75 states that projects financed with regional funds require an RS RATE.

> 15 Special classifications exempt some projects from requiring CBA (e.g., projects in extreme zones, projects with expected volumes of less than 400 vehicles per day).

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