Compact Changes

The Connectivity Project was restructured in March 2009 to concentrate the entire project budget on the Northern Transnational Highway while eliminating all compact funding for the Network of Connecting Roads Activity. The need to restructure was driven by significant escalation of costs not anticipated during the 2006 due diligence process. The main reasons for the cost escalation include: 1) significant increases in oil and construction material costs; and, 2) feasibility studies for the road project were not yet complete during due diligence and compact signing (left as a condition precedent prior to authorizing disbursements for road construction). The Government of El Salvador committed to funding the Network of Connecting Roads Activity, confirming financing totaling more than $134 million.
In February 2010, FOMILENIO undertook a comprehensive mid-term review. Based on an assessment of performance and on updated projections of funding needs for various projects and activities, resources were reallocated among projects and activities to reach the maximum impact possible. The Human Development Project’s budget was increased by $6.7 million to further expand the Rural Electrification Activity and initiate job placement programs for formal and non-formal program graduates as part of the Education and Training Activity. The Connectivity Project’s $12.6 million increase helped cover contingency costs, finance the extension of the eastern-most segment of the Northern Transnational Highway, and finance environmental measures. The Productive Development Project was reduced by $15.6 million. Agricultural insurance, loan guarantees, financial intermediary technical assistance and the investment support fund (and associated administration costs) were eliminated or reduced as a response to the conclusion that (a) original compact objectives could be met or exceeded with a lower budget, and (b) no market demand materialized for the sub-activity. The M&E budget was also reduced by $3.6 million to correct an over-estimation of funding required for studies.
When the Government of El Salvador and MCC prepared an updated strategy for building out the Northern Transnational Highway in September 2011, the Government of El Salvador identified three important quality improvements it wanted to pursue. Additionally, the team updated contingency requirements for the project based on trends in commodity prices and projections of potential claims and cost increases, and identified a projected shortfall in the budget for right-of-way clearance. The resulting $13.9 million increase in funding requirements for the Connectivity Project was reallocated from cost savings on the Human Development and Productive Development projects.