Argentina - Highway Construction and Maintenance Project

ff RETUR:Dt J D X H t CIRCULATING COPY R WPORTSDEN K TO BE RETURNED TO REPORTS DESI R E S T R 1 C T E D ONE WEEK IN CENTRAL FILES R e p o r t N o. TO-286a E RETURN TO REPORTS DESIC This roport was prepared for use within the Bank. It may not b* published nor may it be quoted as representing the Bank's views. The Bank accepts no responsibility for the accuracy or completeness of the contents of the report. INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT APPRAISAL OF A HIGHWAY CONSTRUCTION AND MAINTENANCE PROJECT ARGENTINA June 20, 1961 Department of Technical Operations  APPROXIMATE CURRENCY EQUIVALENTS U.S. $1. 00 = 83 pesos l/ 1 peso = 1.2 U. S. cents 1 million pesos = U.S. $12, 500 _/ free market rate  ARGENTINA APPRAISAL OF A HIGHWAY CONSTRUCTION AND MAINTENANCE PROJECT TABLE OF CONTENTS Page SUTMARY i I. INTRODUCTION 1 II. BACKGROUND 2 General 2 Present Transport Situation 2 Present Road Transnort Situation 2 Transport Program h Agency Responsible for Roads 4 Maintenance of Roads 6 III,e THE ROAD PROGRAII AND THE PROPOSED PROJECT 6 The Ten-Year Program 6 Proposed Bank Project 7 Execution of the Project 8 Cost Estimates 9 Economic Justification 10 IV, CONCLUSIONS AND RECOTRENDATIONS 11 ANNEXES: 1. Vehicle Fleet 2. Revenues for Highway Program 3. Roads in Project 4. Summary of Purchases for Maintenance Equipment, etc. 5, Benefit Cost Ratios Bank Project 6. Construction and Expenditure Schedule for Bank Projects' Not yet available MAP  SUTO4ARY i.i The Argentine Goverrment has asked for a Bank loan of U3$h845 million to help finance its current 10-year highway program, The proceeds of a loan would be used to cover the foreign exchange cost of a project consisting of: a) the reconstruction and improvement of about 2565 km of various road sections costing about US$95 milli-on equiv- alent, of which US$33.5 million would be in foreign ex- change, including US$1b4 million for engineering; and b) the purchase of urgently needed road maintenance equip- ment, workshop machinery, and instruments to an amount of about US$15 million in foreign exchange. ii. Argentinals deteriorated and deficient transport system hampers the countryts economic growth. The 10-year road reconstruction and improvement program, of which the Bank project forms part, is urgently needed to improve transport conditions, iii. Poor service of the country's railways has led to increased demand for highway transport. The heavy trucks used to meet this demand have led to deterioration of the roads which were not designed for this heavy traffic, and put an increasing burden on the road maintenance organization which is inade- quately equipped to fulfill its task properly. iv. The autonomous agency responsible for road construiction and mainte- nance, the Direccion Nacional de Vialidad (Vialidad), is well organized and its management and staff competent in general. It is suffering from understaffing, particularly in the lower echelons and therefore a satisfactory arrangement with qualified consultants for over-all supervision of the Bank project is a condition of the loan agreement. v. The execution of the project is estimated to take about four years. The annual expenditures for the project, amounting to an average of US$2[ mil- lion, would be about 15% of Vialidad's annual revenues and about 35% of its annual expenditures on its 10-year improvement program as planned at present. Recently obtained outside financing from DLF and Eximbank is likely to lead to an expansion or acceleration of the 10-year program. vio The project will form a useful contribution to the improvement of Argentina's road system by both the reconditioning and upgrading of standards of the existing routes and their improved maintenance. The benefit cost ratios, based on actual 1960 traffic and estimated 1970 traffic, indicate a favorable return on the investment. viio The proposed project is sound and considered suitable for a Bank loan of US$h8.5 million. A term of 16 years, including a h-year period of grace, is appropriate.  ARGENTINA APPRAISAL OF A HIGHrJAY CONSTRUCTION AND MAINTENTANCE PROJECT I. INTRODUCTION 1. The Argentine Government has asked the Bank for a loan of US$48.5 million to help finance its current highway program. The proceeds of the loan are to be used to cover the foreign exchange cost of a project consisting of: a) the reconstruction and improvement of a number of road sections, totaling about 2565 km costing about US$95 million equivalent, of which about US$33e5 million would be in foreign currency including US$1e4 million for engi- neering; and b) the purchase of urgent'y needed road maintenance equip- ment, weighing equipment for axle-load control, workshop machinozy, and instruments, the foreign currency cost of which would amount to about US$15 million. 2. Since Argentinats deteriorated and deficient transport system seri- ously hampers economic recovery and further development, the Government ob- tained in 1960 from the United Nations Special Fund financial assistance for an over-all Transport Survey. The Bank was asked to act as Executing Agent to organize and supervise this study which started in July 1960 and is expec- ted to be completed by the end of 1961. The study is being carried out by an international team of experts composed as follows: a) Six members of the Italian consulting firm SAUTI, spe- cialists in highway planning and construction; b) Four members of the Dutch consulting firm tEDECO, spe- cialists in railway operations, ports and inland ship- ping; c) Five members of the U. S. consulting firm Coverdale & Colpitts, specialists in railway equipment, rates and tariffs, and traffic engineering; and d) Five individual specialists in the fields of general economics, transportation economics, labor relations, and statistics appointed by the Bank. All specialists have Argentine counterparts. The whole operation is headed by a Technical Director who was appointed by the Bank. 3. Although the final report of the Transport Survey will not be ready before the end of 1961, a report on the first phase of the survey was issued in January 1961, and additional information is becoming available as the sur- vey progresses. Furthermore, the U. S. consulting firm TANS is employed by the Government to collect and check information and cost estimates for various specific highway projects presented, or to be presented, to the DLF, Eximbank and the Bank. Therefore, only two short visits of Bank staff in March and Ya; 1961 were necessary for the appraisal of the project, and this report is based to a considerable extent on the findings of the various experts mentioned abov3a,  - 2 - II. 3ACKGRCUND General 4. For the Argentine economy, industry and agriculture are of about equal importance, each accounting for about one-quarter of the Gross National Product. It is characteristic of Argentina that agricultural activities are concentrated in several well developed regions, separated by large areas which have a very low population density. The different conditions in the populated areas as to climate, soil, topography and historical factors have affected the manner and intensity of the exploitation of local natural re- sources. Therefore, with regard to the prevailing livestock and agricultural activities, there is a sharp differentiation between geo-economic regions, each with a well defined output of specific products. 5. Primary and secondary industries are not evenly spread throughout the country or located close to scurces of basic supply, but are concentrated in the east-central area, in particular along the Atlantic coast of the prov- ince of Buenos Aires where also all of the country's main ports are located. 6. This situation calls for an intensive exchange of goods between the numerous regions of various economic activity, and thus for a well developed, reliable transport system. Such a system is presently lacking, to the detri- ment of Argentina's economic development. The Government rightly considers the re-establishment and further expansion of its transport system of top priority, and it is for this reason that it has initiated the over-all Transport Survey. Present Transport Situation 7. The country's railway system has been historically, and still is, by far the most important carrier of both goods and passengers. Its route length of about 42,300 km makes it the world's fourth largest single system. Until 1947, when the private railway systems were nationalized, the railway network had served the country's needs well, without financial losses to the private owners. But after nationalization, due to Government pressure, irresponsible management in both technical and financial fields has led to the present very unsatisfactory condition. For 1961, total cash transfers from the Government budget to the Railways are estimated at about Arg. Pesos 17 billion, to cover an operating deficit of about Arg. Pesos 9 billion, investments and other cost which the Railways are not able to finance themselves. This amount of Argo Pesos 17 billion, represents about three-quarters of the total budget deficit, and is the major element in the Government's budget problems. Even worse, the bad physical cot.dition of the property makes it impossible for the Railway to meet growing demands, thus hampering the country's economic growth and forcing traffic to road transport. This accentuates the Railway's unsatisfactory financial position and at the same time places a heavy burden on the highway transport system, which it is not yet ready to handle because of the poor condition of both roads and vehicles. Present Road Transport Situation 8. Because of the extensive railway network, which is particularly dense in the central-east area, the highway network has not been well develoned.  -3- 9. After increased activities during the earlier war years 1939 to 1942, highway construction decreased gradually and almost came to a standstill in 1957. Giving the average annual construction rate in the 1934-1938 period an index of 100, the index first increased and later declined as follows: Provincial Network with National Network Federal Financial ParticiPation Average 1934-1938 100 100 1939-1942 124 32 1943 81 28 1947 35 13 1952 14 8 1957 5 3 10. Because of continuous inflation, annual bldgetary appropriations were consistently inadequate to cover the cost of routine maintenance. Moreover, because of inadequate railway service, the demand for highway transport in- creased sharnly leading to the use of heavy trucks for which the roads were not designed, resulting in the destruction of the roads. 11. The classification of the national highway network as of 1960 (see Map) is summarized below: Improved Basic Earth Roads Total Paved *(,aveI) Grad4g and Trails