Thailand - National Highway Project

RESTRICTED Report No. TO-355a This report was prepared for use within the Bank and its affiliated organizations. They do not accept responsibility for its accuracy or completeness. The report may not be published nor may it be quoted as representing their views. INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT INTERNATIONAL DEVELOPMENT ASSOCIATION APPRAISAL OF A NATIONAL HIGHWAY PROJECT THAILAND May 16, 1963 Department of Technical Operations  Currency Equivalents Free Exchange Rate (recent average) Baht 20.80 = US$ 1.00 Baht 1,00 - US$ 0.05 Baht 1,000,000 = US$M8,100 Fiscal Year October 1 to September 30  THAILAND APPRAISAL OF A NATIONAL HIGHWAY PROJECT Table of Contents Page SUYMARY i-ii I. INTRODUCTION 1 II. BACKGROUND INFORPMTION 1-2 A. Geographic and Demographic 1 B. Modes of Transportation 2 III. THE HIGHWAY SYSTEM 3-6 A. General Classification and Condition of Roads 3 B. Highway Responsibilities and Management 3 C. Growth and Characteristics of Vehicle Fleet 4 D. Future Highway Development Plans 5 IV. THE PROJECT 6-14 A. General Description 6 B. Project Road Description, Design, Execution and Costs 7 C. Highway Maintenance Requirements and Miscellaneous Items 10 D. Consulting Services and Costs 12 E. Summary of Costs and Financing 13 F. Loan Components and Probable Annual Disbursements 14 V. ECONOMIC JUSTIFICATION 14-19 A. General 14 B. The Assessment of Economic Benefits 15 C. The Project Roads 16 D. Further Road Studies and Engineering 19 VI. CONCLUSIONS AND RECON7ENDATIONS 20  ANEXES Annex A: Assessment of Economic Benefits Annex B: Roads to be Studied and Engineered for Future Bank Consideration Tables 1: The National Highway System, 1962 2: Design Standards for Highways 3: Proposed Organization for Department of Highways 4: Expenditures and Appropriations, Department of Highways, 1958-63 5: Motor Vehicle Registrations Composition and Growth 6: Proposed Eight-Year Highway Development 7: Tentative Bank Portion of Eight-Year Highway Development Program 8: Cost Estimate for Typical Road Construction 9: Estimated Costs of Construction 10: List of Maintenance Equipment Required 11: Estimated Costs of Engineering and Training Map 1: Thailand: Physical and Political Map 2: Thailand: National Highway System  ThIULND APPRAISAL OF A 1NATIONAL HIGHWADY PROGRAM SUM4kRY i. The Government of the Kingdom of Thailand has requested the Bankts assistance in financing the following highway project: a) the improvement of existing and the construction of new primary national roads totaling 628 km in length; b) the purchase of mechanical equioment to improve and modernize the highway maintenance organization; c) the purchase of accounting machines, instruments, and other miscellaneous items of technical equip- ment; d) consulting engineering services in connection with the project, -nd the technical training of Thai person-nel. ii. The total cost of the project has been estimated at about US$62.6 million equivalent of which the foreign exchange costs total about US434.1 inillion equivalent including an allowance for construction contingencies. A Bank loan of US035 million is proposed to cover the estimated foreign ex- chaange costs and to provide for possible further unforeseen contingencies. Tlis willbe the first Bank loan for highways in Thailand. The executing agency will be the Department of Highways of the Ministry of Communications. iii. Cost estimates and the foreign component of costs are only approxi- mate; they will be checked in the early stages of the project by consulting engineers. Substantial deviations in the assumed foreign exchange costs are not expected; however, arrangements have been discussed auring loan negotiations for adapting the proposed loan amount to revised estimates and for ensuring the adequate financing of the project. iv. rhe registration of motor vehicles in Thailand has more than tripled over the past 10 years. The present trunk highway network, although fairly extensive in length, is below desirable technical standards, with less than 25% paved. Vehicle operating costs are high over the majority of roads.  - ii - V. With a view to improving the countryts road network, the Government is embarking on an 8-Year Highway Development Program and has asked the Bank to consider financing a substantial part of the development program on a long- term basis. The part of the program presented to the Bank for consideration totals some 1,662 km of road improvement and construction at a total cost of approximately US$110 million equivalent. The road works included in the present project constitute the first and most important phase of the program presented to the Bank. vi. Further Bank investment in subsequent phases of the highway develop- ment program has been tentatively discussed with the Government and would pro- vide for possible future loans totaling about US$30 - 35 million equivalent. vii. The road works included in the proposed project are economically sound and can be justified by the reduction in vehicle operating costs alone over the improved roads compared with the existing roads. The justification would still be satisfactory if there were a substantial increase in construc- tion costs. Additional economic benefits will accrue from the stimulus to agricu'tural production. viii. Consulting engineers, satisfactory to the Bank, will be retained by the Government to undertake the design, contract documentation and supervision of the 628 km of project works. Their services will also include the engineer- ing and economic studies of a further 1,034 km of roads with a view to possible future B?nk financing as mentioned in paragraph (vi) above. ix. Contracts for construction of the road works included in the project will be awarded on the basis of international coinpetitive bidding. The probable duration of the works will be about four years commencing early 1964. x. The proposed loan includes an amount of US$6.8 million equivalent for the purchase of new ilighway maintenance equipment and spare parts. Consulting engineers will be advising the Department of Highways on general reorganization with particular emphasis on highway maintenance. xi. Agreement was reached during loan negotiations on the points detailed in paragraph 100 of the appraisal report. The project is suitable for a Bank loan of US$35 million equivalent with a 20-year term including a 5-year period of grace.  THAILAND APPRAISAL OF A NATIONAL HIGHWiAY PROJECT I. INTRODUCTION 1. The Government of the Kingdom of Thailand has requested the Bank's assistance in financing a highway project comprising the improvement and ex- pansion of the national road network, the purchase of field and office equip- ment, and the services of consulting engineers. The project is described in greater detail in Section IV of this report. A Bank loan of USV,35 million equivalent is pronosed to cover the estimated foreign exchange costs, and wiould be the first Bank loan for highways in Thailand. 2. The road wTorks included in the proposed project total 628 km and constitute the first and most important phase of a larger highway development program presented by the Government to the Bank for consideration in July 1962. The larger program provides for the improvement and construction ul- timately of seven roads totaling 1,662 km in length, with an estimated total cost o-f annroximately USllO million, and in turn forms part of the Govern- ment's proposed eight-year highway development program commencing 1963 and estimated to cost around US'hIOO million equivalent. 3. This appraisal report is based on the findings of a Bank mission to Thailand in July-August 1962, and upon material prepared by the Department of Highi"ays and the National Economic Development Board of the Government follow- ing advice and assistance given by a previous Bank mission in 1961. The present nroject details and the tentative phasing of the balance of the Bank portion of the development Drogram were confirmed in correspondence between the Government and the Bank during December 1962. II. BACKGROUND INFORTMATION A) Geographic and Demographic 4. Thailand covers an area of approximately 510,000 km2 (almost as large as France) between latitude 60 N and 200 N. It is bordered by Burma in the west, Laos in the north, Cambodia in the east, and by the Gulf of Thailand and Malaya in the south (see Map 1). 5. Geographically, economically, and politically, Thailand is divided into four regions: Northern, Northeastern, Central and Southern. The Northern region is generally characterized by mountain ranges running roughly north- south; it is rich in agricultural products, timber and minerals. The North- eastern region is a relatively flat plateau forming part of the catchment basin of the Hlekong river. Although largely underdeveloped it produces a substantial quantity of mixed agricultural products and livestock. The Central region in- cludes the wet lowland plains of the Chao Phya river and constitutes one of the major rice nroducing areas in the world. The Southern region includes the major part of the isthmus linking Thailand with lMalaya, and produces large quantities of tin and rubber.  - 2 - 6. Thailand's climate is generally tropical, but the uplands of the North- ern region enjoy a somewhat more temperate climate. There is a pronounced rainy season between June and October throughout most of the country; road construc- tion, especially earthwork, is difficult during the height of the rainy season. 7. The present population of Thailand has been estimated at approximate- ly 28 million and is increasing at about 3% annually. Apart from a noticeable concentration around Bangkok and the central plains, the population is fairly well distributed throughout the country. About 85% of the wiorking population is employed in agriculture. B) Modes of Transportation 8. Few statistics are available to indicate the distribution of passenger and freight traffic between different modes of transportation. The State-owned railway and highway systems appear to carry the major share of traffic, the former handling mostly long-haul bulk goods and the latter the shorter haul of miscellaneous commodities. A diversion of less-than-carload goods from rail to highway has been increasingly noticeable from 1957. 9. Individual modes of transportation are already operating at a high capacity, and lack of capacity in one mode cannot easily be compensated for by inereased use of other facilities. All modes of transportation appear in need of some improvement or expansion to meet future traffic requirements, but more especially the highway system. 10. The highway system will be described in detail later. Briefly, the netwyork comprises about 9,000 km of trunk highways (of which only 2,500 km are paved) and some 7,000 km of low standard intra-provincial and rural roads. MlIotor vehicles number 110,000, about half of which are trucks and buses. 11. The Thailand State Railway system consists of about 3,500 km of meter- gauge mainline track radiating from Bangkok and connecting with the Cambodian and Malayan rail systems. A six-year improvement program was started in 1961 to increase the carrying capacity and operating efficiency of the railway. The pro- gram is scheduled for completion in 1966, and is being partially financed by a Bank loan of US'`14.6 million (Loan No. 280-TH). The West German Government is assisting financially in the construction of 188 km of new line near Korat. 12. Thailand has an extensive inland waterways system of about 1,600 km in length concentrated largely in the flat Central region of the country. This mode of transnort is particularly suitable for the movement of bulk cargo such as paddy, rice, petroleum products, timber and construction materials within the area, where soil conditions would make road construction difficult and expensive. 13. Coastal shipping is used extensively along the 2,000 km coastline of Thailand, particularly in the southern part of the isthmus. The development of a modern highwJay system is somewhat reducing the amount of general cargo trans- norted by coastal shipping, particularly from areas within convenient truck- haul distance of Bangkok. 14. The Government is aware of the need for effective transport coordina- tion, particularly between the competing road and rail systems. A Transport Board has been established within the Ministry of Cormunications and some regu- latory measures have already been introduced with a view to providing an orderly and coordinated development of the principal modes of transportation.  III. THE HIGHWAY SYSTEM A. General Classification and Condition 9. Roads 15. A distinction is drawn betweef highways of national importance and provincial highways, Responsibility for, the two classes is vested in dif- ferent Government authorities, the former in the Ministry of Communications, and the latter in the Ministry of Interior. 16. The national highway system is roughly sub-divided into a primary and secondary system (see Map 2); a breakdown of the total length by regions and type of surface is given in Table 1. 17. For design purposes, national highways are classified into five types according to anticipated future traffic volumes (see Table 2). Only few, however, of the present roads conform to these standards. About 75% of the national system is at present unpaved, a typical road having a narrow loose laterite surface, with poor alignment and weak timber bridges. B. Higt2way Responsibilities end Management 18. The construction, improvement and maintenance of the national highway system is the responsibility of the Department of Highways within the IvMinistry of Communications. Most highway construction work is undertaken by contract, some departmentally. Plainten.nce activities suffer from inadequate central control and coordination, a lack of trained engineers, insufficient modern maintenance equipment, and too much activity in new construction. A reorgan- ization of the DepErtment is expected to commence in early 1963 and be com- pleted within a period of two years with the assistance of foreign consultants. The proposed scheme for reorganization is satisfactory and is indicated in Table 3. 19. Total annual expenditures of the Department of Highways, excluding financing by USAID, increased from a level in 1958 of around US$14 million equivalent, which included USQt4.5 million for maintenance, to about US$25 million equivalent in 1962, including US$5.6 million for maintenance (see Table 4). The 1962 figure for highway expenditures represented about 6%-7% of the total Government budget. USAID funds expended on road and bridge con- struction averaged about US$8 million annually over the five years ending 1961, and are believed to have increased substantially in more recent years. 20. The Public Works Depcrtment (PWD) of the IJinistry of Interior is re- sponsible for the construction, improvement and maintenance of provincial roads, public buildings, wpter supply and other public works in the 71 provinces of the country. Past expenditure of the PIND on provincial roads and bridges is believed not to have exceeded about US$3-4 million equivalent annually over recent few years. Maintenance of the provincial road network is extremely poor or non-existent.  - 4 - 21. A reorganization of the P'0D was recently instituted with the ultimate object of creating nine regional highway centers throughout the country, each with its own equipment pool, workshops, warehouses, office buildings, etc. One such center has been established at Khonkaen in the northeast and plans are in hand for establishing the next two centers, one at Songkhla in the south and the other at Chiengmai in the north. The Government is currently preparing an application to the Bank for assistance in financing these two regional centers. Their establishment would complement the proposed national highway project by enabling the PWD to improve and expand the provincial road network in the vicinity of tlfo of the project roads. 22. The Irrigation Department of the Ministry of Agriculture constructs limited lengths of low standard service roads, which are usually open to the public, but whose primary function is to provide access for the operation and maintenance of irrigation canals and headworks. Expenditures of the Department on this class of road are believed not to exceed about US$1-2 million equiva- lent annually. C. Growth and Characteristics of Vehicle Fleet 23. Records of vehicle registration in Thailand indicate that the number of vehicles has more than tripled in the past ten years (Table 5). At the end of 1961 the total number of vehicles registered in the country, excluding motor cycles and motor tricycles, was about 109,000, almost half of this number in the Bangkok area. The present vehicle fleet is composed of about 51% cars, 12% buses and 37% trucks; more than three-quarters of the total nmmber of cars, however, is registered in the Bangkok area. The trend in composition over the past ten years has been for cars to continue making up approximately one-half of the total vehicle fleet, while buses have reduced proportionately and trucks have increased. Gross revenues from road-user taxes currently yield about US$25 million equivalent annually, an amount substantially higher than road maintenance expenditures. 24. The present growth rate of the total vehicle fleet is about 9% per annuum. An estimated projection of the numbers of motor vehicles in different classes is indicated in Table 5, conservatively resulting in a doubling of the vehicle fleet in the next 10-year period. 25. Trunk roads in provincial areas carry a high proportion of truck and bus traffic, normally ranging from 60% to 90% of the average daily traffic. Trucks are typically of the two or three-axle type with capacities of about 5 to 7 tons, and are often adapted for carrying passengers in addition to freight. Roads in the vicinities of towns and villages also carry large num- bers of bicycles. 26. Satisfactory legislation for the regulation of motor vehicle weights and dimensions w.s introduced in 1960. Dual-tired axle loads are limited to eight metric tons and vehicle widths to 2.50 meters. Some initial difficulties, however, are being experienced in implermenting the regulations. So far, three check weighing stations have been set up near Bangkok and more are proposed throughout the country in the near future to ensure better implementation.  - 5 - 27. There is a strong current trend towards greater Governmental control of highway transportation in Thailand, At present, however, trucking and passenger transport are still carried out predominantly by private companies or by small independent owner-operators usually with only one or two vehicles, and subject to no regulption except vehicle registretion. Keen competition for freight and passengers often results in an inadequate level of transport charges, in turn reflecting in low standards of vehicle maintenance and con- sequential poor and unreliable service to the shipper or traveler. 28. With a view to controlling and improving public trucking facilities, the Government introduced regulatory measures at the end of 1962 which included: (i) a comprehensive freight tariff schedule intended to cover true costs, (ii) the proviso that trucking companies should own not less than ten trucks, and (iii) a requirement that truckers should apply to the Ministry of Communica- tions for a license to operate over any particular route. 29. There are two well-organized motor transport companies based in Bangkok, the Express Transportation Organization (ETO) and the Transport Compcny (TC), both Government-owned autonomous agencies. The Government was advised recently on their reorganization and operation by foreign transport experts provided under the auspices of the Colombo Plan and the International Labor Office (ILO). The ETO was established in 1953; it operates a public trucking service with about 500 vehicles, a few buses, an inland waterway service, gasoline stations, a printing press, and an insurance business. The ETO has a monopoly on certain trucking activities, for example: cargo pick-up and delivery at 96 railway stetions; through freight to Laos; transportation of tobacco and cigarettes for the Government Tobacco Monopoly, etc. Other public truckers may participate in these activities only under contract with ETO and upon payment of a fee. 30. The Transport Company (TO) was established by the Government as early as 1932 for the stated purpose of providing intercity highway passenger trans- portation and controlling bus fares throughout the country. Present fares, charged in accordance with a published tariff, are about the same as third class rail fares. The activities of the TC have expanded considerably since its inception; passenger transport facilities in thirty provinces around Bang- kok have now been nationalized under the company and there are indications of an even wider nationalization soon to come. D. Future Highway Development Plans 31. The Depsrtment of Highways, in cooperation with the Bureau of Budget and the N2tional Economic Development Board, has prepared an overall 8-year national highway development program commencing 1963 which provides for the improvement of about [,000 km of existing highway and the construction of 1,500 km of new highways at a total cost of about US$h00 million. The program was formally approved by the Government in July 1962. Although possibly too am- bitious, particularly with regard to the 8-year estimated completion period, it nevertheless constitutes the first comprehensive, long-range, highway devel- opment plan in Thailand designed to meet the country's future economic, polit- ical, social and military recluirerrients.  - 6 - 32. A ten to twelve year period instead of eight for completion of the program would be more realistic and would require an average annual construc- tion expenditure of about US$30-36 million equiivalent. This annual level of highway construction expenditure, although higher than that of the Department of Highways during recent years, is considered to be within the capacity of potentially available technical resources for the following reasons: (i) a proposed reorganization of the Department should provide for relatively greater efficiency and higher capacity; (ii) a technical training program is expected to increase substantially the number of skilled personnel; (iii) consulting engineering firms will be employed to undertake the bulk of the technical studies, design and supervision of the program, thus relieving to some extent the work load on the Department; (iv) construction forces in Thailand are ex- pected to be strengthened by widely publicizing parts of the program for bid- ding on an international basis. 33. A summary of the highway development program with estimated costs and anticipated sources of funds is given in Table 6. It will be noted that foreign lending agencies are expected to play a major role in financing the program. The Bank is being requested to consider the financing of 1,660 km of road construction or improvement totaling about US$110 million over a period of some eight years (see Table 7). The present project constitutes the first phase of the suggested Bank program and includes the engineering and construction of 628 km of road and the engineering of the balance with a view to poss-ble further Bank lending. Further Bank investment in subsequent phases of the highway development program has been tenatively discussed with the Government and would provide for possible future loans totaling about US$30 - 35 million equivalent. IV. THE PROJECT A. General Description 3h. The project comprises the following: a) The improvement of existing and the construction of new sections of three national primary highways totaling 628 km; the estimated cost of the work is US$46.9 million equivalent of which the foreign component is US$21.1 million. The foreign costs of consulting services in connection with this work will be approximately US$3.0 million equivalent. b) The purchase of mechanical equipment to improve and modernize the national highway maintenance organi- zation, involving a foreign currency outlay of US$6.8 million equivalent. c) The purchase of accounting machines, instruments and other miscellaneous items of technical equip- ment, at a foreign cost of US$0.3 million equivalent.  - 7 - d) Other consulting engineering services, including the engineering and economic studies of a further 1,034 kmn of roads (see Map 2) with a view to possible future Bank-financing, and the technical training abroad of selected Thai personnel. The foreign costs are estimated at US$2.9 million equivalent. B. Project Road Description, Design, Execution, and Costs 35. The project provides for constructing or improving the following three roads to the standards indicated: Class Length (Table 2) (km) 1) Chiengmai-Lampoon-Lampang I, II 105 2) Songkhla-Klong Ngae-Naradhiwat I, II 257 3) Nakorn Pathom-.Huahin-Prajuab I, II 266 628 Chiengmai - Lampang Highway 36. Chiengmai, with a population of about 100,000, is the second largest city in Thailand, and an important agricultural, commercial and cultural center. It is separated from the proposed and partially completed international trunk route leading northward from Bangkok throuLgh Lampang and Chiengmai into Burma by two parallel mountain ranges running roughly north- south. The project road will connect Chiengmai with the international trunk road by the shortest practical route. 37. The existing road between Chiengmai and Lampoon, 27 Ion in length, is narrow, poorly aligned and heavily built up on both sides. Under the project, it will be widened and improved to Class I standard and will be re-located entirely to by-pass heavily congested villages. The section from Lampoon to Lampang is of entirely new construction, 78 km in length, crossing the two mountain ranges in an east-westerly direction to make a connection with the international trunk road at Lampang. It will be built to Class II standards. Construction of a 16 Ikn length eastwards from Lampoon is now nearing completion by the Department of Highways' own forces; the balance of the works will be completed by contract. Songkhla - Naradhiwat Highway 38. Songkhla, Pattani and Naradhiwat are three thriving community centers and seaports in southern Thailand which lack good road facilities. The exist- ing main road linking these ports and serving parts of their hinterlands is narrow, poorly aligned, and for the most part, unsurfaced or surfaced only with laterite. A load limit of six tons for trucks is enforced over most of its length. Construction and improvement work now in progress with the Depart- mentfs own forces on a 30 Im section of road would be phased out and completed by contract if a Bank loan were forthcoming. Under a USAID-financed project, local contractors are replacing old wooden bridges with modern reinforced structures over a 204 km length of the road. The 53 Im section south frs;n Songhkla carries ovjer 1.000 vehicles per day and will be built to Class I standards) the remaining length to Class II staLdards0  Nakorn Pathom - Prajuab Highway 39. The existing highway linking Bangkok with areas to the southwest is inadequate for the heavy traffic using it, particularly at its northern end. Improvement to the 55 km section from Bangkok to Nakorn Pathom is expected to commence in 1963 with financial assistance from the U.S. The section of highway included in the project extends southward from Nakorn Pathom, a dis- tance of 266 km over low flat terrain. Old timber bridges have recently been replaced with modern concrete structures under a USAID project, but the earth- works, roadway width, and surfacing are still substandard. 40. The project provides for improving the 175 km length south from Nakorn Pathom to Class I standard and the following 91 km down to Prajuab to Class II standard. Further studies of the cost and justification for extending the road improvement beyond Prajuab are also included in the project with a view to pos- sible Bank-financing at a later stage. Design and Execution 41. Available engineering studies are limited and only of a preliminary nature for the bulk of the road improvement work included in the project. Designs in some detail, however, were prepared originally for the new construc- tion work between Lampoon-Lampang and for a part of the Songkhla road, totaling about 100 km. These designs need thorough review and revision to adapt them to the new highway design standards introduced in 1962 (see Table 2). 42. The project studies and designs so far have been made by the Depart- ment of Highways with some assistance from a foreign consulting firm whose con- tract has now lapsed. The Department intends to appoint new consulting engi- neers to undertake the revision and completion of designs, the preparation of bidding documents, and the supervision of project works. 43. The proposed design standards of Table (2) are generally satisfactory but somewhat extravagant if the so-called "desirable" standards are used for the traffic volumes indicated in the respective classes. The Department has agreed to construct the project roads to the lower or "Minimum" standards, with the earthworks of Class II roads being built to "desirable" widths in order to facilitate future pavement widening as traffic increases. These standards are considered adequate for the traffic volumes forecast; they were con- firmed during loan negotiations. 44. Bidding and contract documentation for the Bank-financed construction would be similar to that currently in use on highway works financed by USAID under the supervision of U.S. consulting engineers. The documentation is bas- ically satisfactory; details would be subject to approval by the Bank prior to advertising for bids. Bidding would be on a unit price basis and open to in- ternational competition; the approximate size of individual contracts was discussed during negotiations with a view to ensuring their being sufficiently attractive to foreign construction companies. The construction period is ex- pected to be about four years, commencing early 1964.  - 9 - 45. There are about thirteen qualified domestic bridge construction com- panies in Thailand capable of both designing and constructing complicated bridge structures. Most of these firms developed over the past six or seven years since the inception of the USAID bridge replacement program. About five or six domestic highway construction companies have the capacity and ex- perience to undertake major works similar to those included in the project. Three foreign contracting companies are currently working on highways in Thai- land. iHore foreign companies will be needed, however, to undertake the high- way development program; it would be beneficial to the domestic construction industry if these foreign companies were to work in joint venture with the smaller local counterparts. Construction Cost Estimates and Foreign Component 46. The Department's cost estimates for highway construction and improve- ment are only preliminary. They are considered sufficiently accurate for the purpose of commencing lending operations for highway financing in Thailand since a) ample contingency allowances have been included in the cost of the project, and b) an undertaking has been sought from the Government to finance any shortfall in both local and foreign currency cost. As will be shown later, the economic justification is ample enough to allow for a substantial increase in construction cost without prejudicing the justification. 47. Estimates of the principal quantities of work to be executed have been based upon original engineering drawings for new construction (with some allowance for the changes in design standards) and upon recently compiled road inventories for the imDrovement of existing roads. The quantities for such items as sub-base, base and paving lend themselves to fairly accurate estima- tion. These items account for about 60% of the estimated project cost net of contingencies. A further possible variable has been virtually eliminated, since major bridges have already been completed on 470 km, or 75% of the proj- ect road length. 48. The unit 'orices used in estimating are realistic; they are based upon, but slightly higher than, the average unit )rices recently submitted by domestic and foreign construction companies for similw- highway work in Thailand. 49. A typical construction cost estimate for a section of project road is given in Table 8. Incorporated in the cost estimates are provisions of 10% on the principal work items for such minor miscellaneous work as land clearing, minor betterments, traffic signs, etc., and also a contingency allowance of 25% for possible additional quantities of trork or other cost increases. No specific allowance has been included for escalation or possible inflationary trends during the construction period since general cost indices have been re'sonably stable in Thailand over the past 5 years. 50. Construction costs per km for highway improvement in the flat and rolling terrain traversed by the major length of the project roads averages around US,60,COO, including contingencies but excluding the cost of engineering and supervision. The average cost of newr construction over the difficult moun- tainous Lampoon - Lampang section is estimated at about US:200,000 per km, almost half of which is accounted for in heavy earthworks.  - 10 - 51. No detailed study has yet been made of the foreign component of cost of highway construction in Thailand. Construction equipment, fuel, steel, asphalt, explosives and many other important highway construction elements must be imported; only cement is now produced locally in sufficient quantities to meet the country's requirements. Inquiries among highway contractors and con- sulting engineers in Thailand, and a comparison with similar conditions in other countries, suggest that an appropriate foreign component of cost of con- struction would be somewhat more than 50% if executed by foreign contractors and about 40% by domestic companies. It has been assumed that from one-half to two-thirds of the work would be carried out by foreign companies, and a corresponding proportion of 45% of total cost has been tentatively used in assessing foreign currency requirements. 52. On the above basis, the foreign component of construction cost for the three project roads is US$21.1 million equivalent, including the contin- gency allowance. Estimates of total construction cost with a breakdown into probable annual local and foreign currency requirements are given in Table 9. The annual requirements assume construction work to commence early in 196h, the intervening period being taken up with engineering and bidding of the most important sections of road. 53. As mentioned above, the loan amount has been based upon construction cost estimates and a foreign component of construction cost which are only ap- proximate. These two factors will be determined more accurately by the con- sulting engineers in the early stages of the project. It was emphasized to the Government delegation during loan negotiations that if after a check by the consultants of cost estimates and foreign component: a) the proposed loan amount proves too large, then the surplus amount either be cancelled or, with the Bank's approval, applied to a subsequent phase of highway construction; and b) if the proposed loan amount proves too small, then the percentage of Bank participation in project expenditures shall be reduced accordingly and the Government shall make good arny shortfall in foreign or local currency as required. C. Highway M4aintenance Requirements, and 1iscellaneous Items 54. Highway maintenance operations in Thailand have never been highly mechanized; the maintenance equipment presently available is mostly old and inefficient in operation. The purchase of US$6.8 million of new maintenance equipment and spare parts (see Table 10) is included in the loan amount for the purpose of replacing existing itemis of old equipment and mechanizing main- tenance operations to a higher degree. Procurement procedures were discussed and agreed during loan negotiations.  - L. - 55. Field forces of the Department of Highways maintain the national network and also engage in some new construction and improvement. They are organized into about 50 Districts which in turn are grouped into 12 Field Divisions. Technical and financial supervision of the Field Divisions is only loosely exercised through a central I1aintenance Division in Bangkok. Central Workshop and Equipment Divisions in Bangkok undertake major over- hauls of equipment for those Field Divisions not having adequate repair facilities of their own. 56. A proposed reorganization of the Department over the next twTo to three years with the advice of consulting experts is expected to correct the present lack of headquarter control and guidance. Field Divisions will gradually withdraw from all construction work and will concentrate upon high- way maintenance. Surplus heavy road construction equipment, unsuitable for maintenance, will be made available to contracting companies. 57. With little change, the existing field organization forms a suitable basis for developing the highvay maintenance effort of the Department. There are already small workshops for performing routine servicing of equipment and simple mechanical repairs in each Field District; ten of the twelve Field Divisions have more substantial and better equipped workshops, three of Tihich are capable of handling heavy repairs of construction and maintenance equip- ment. U.S. aid funds amounting to almost US7'200,000 have been expended on mechanic's hand tools and shop machinery during recent years. An effort has also been made to initiate a training program for maintenance engineers, mechanics, operators and supervisory personnel with the advice of the Depart- mentts previous consulting engineers. 58. The Department is in the process of appointing competent consulting engineers acceptable to the Bank to help draw up and implement an adequate future highway maintenance program. The consultants' scope of work will in- clude advice on organizing Ilaintenance and Equipment Divisions within the Department, a review of and recommendations for improving present maintenance procedures, and the continuation of the training program for personnel. This work forms part of the general consulting services directed toward reorgan- izing the whole Department and referred to again in para 63 below. 59. The Government is fully cognizant of the need for an increased maintenance effort if the full benefit of an improved highway network is to be realized. This is reflected in the planned future allocations to highway maintenance by the Budget Bureau. Past expenditures and planned operational budget allocations show a rise from the level of $500-600 equivalent per kil- ometer of road maintained during the past few years to around ^1,000 per kil- ometer in five years' time. The relatively high increase is partly accounted for by allowances for deferred maintenance and betterments. 6o. Included in the loan amount is the sum of US"300,000 equivalent for the purchase of mechanized accounting machines to improve the present ineffi- cient manual methods of budget control, contracting, warehouse and cost ac- counting, and to provide also for the purchase of surveying and other tech- nical equipment.  - 12 - D. Consulting Services and Costs 61. Consulting engineers were assisting the Department of Highways from 1959 under an agreeraent with the U. S. Government. The engineering contract was allowed to lapse in mid-1962. The scope of work covered advice and assist- ance to the Department in planning a national highway system compatible with the economic needs of the country. Only a few improvements are noticeable from thlese services, however--mainly in the fields of soil mechanics, equip- ment repair and servicing, and with some slight improvement in planning opera- tions. It is desirable that consulting engineering advisory services be con- tinued along similar but more effective lines. 62. In 1962, under the auspices of USAID, a U. S. consulting firm, Public Administration Service (PAS), made a study of the organization and administra- tion of the Department of Highways with particular reference to the financial and administrative aspects. The PAS report contains many useful recommlenda- tions for improving highway management by the Department, and could be accepted as a basis for introducing such improvements as are desirable in connection with Bank lending to Thailand for highways. The report proposes in essence, the institution of three Deputy Directorates of Administration, Engineering, and Operations (see Table 3). 63. USAID has contracted and will finance the servicesof PAS for an initial period of two years commencing January 1963 to advise on the organiza- tion of the Deputy Directorate of Administration. The Department will appoint a further conpetent consulting engineering firrn, acceptable to the Bank, to complement the services of PAS and advise on the organization of the Deputy Directorates of Engineering and Operations, with particular enphasis on high- way maintenance. The Government has requested the Bank to assist in financing the cost of such services. In liaison with USAID, the Bank has already assist- ed the Government in drawing up suitable terms of reference. During loan nego- tiations, it was confirmed that a reorganization of the Department of IHighlways will be carried out along the lines of the PAS recommendations. 64. The Department proposes appointing further consulting engineers acceptable to the Bank to undertake highway studies, design, documentation, and the supervision of construction work included in the project; the Bank has also assisted in drawing up suitable terms of reference for this work. Sub- sequent phases of any Bank financing for highway construction in Thailand, would be decided after consideration of the interim engineering and economic studies of the five additional sections of road to be carried out under the present project (see Annex B). 65. The sum of US$5.9 million equivalent has been included in the loan amount to cover the estirnated foreign costs of the various engineering services described, and also to provide for the technical training outside Thailand of selected local personnel, at an approximate foreign cost of about USUl00,000 equivalent. The latter item has been included at the request of the Govern- ment and indicates an awareness of the greater future need for properly quali- fied and trained Thai engineers in the implementation of its highway develop- ment program. It is felt that such a training program will be useful and should be encouraged. The total sumfor engineering and training is composed of the following items;  - 13 - (i) US$3.0 million equivalent for the studies, engineering and supervision of construction and improvement of the three project roads (totaling 628 km and estimated to cost US$46.9 million) included in the first phase of the program (reference para 42); (ii) US$2.3 million equivalent for the studies, engineer- ing and contract documentation for a further 1034 km roads (estim,ated at $53.8 million) to be constructed in subsequent phases of the program (reference para 64); (iii) US$0.5 million equivalent for a firm of consulting en- gineers to advise the Department of Highways for an initial two-year period in its reorganization program, with particular emphasis on the development of an efficient highway maintenance organization (reference para 63); (iv) US$100,000 equivalent to finance the cost of sending selected Thai engineering graduates abroad for tech- nical training courses with approved State Highway organizations in Europe or the U.S.A. 66. The costs of engineering services are only approximate; they have been assessed mainly on a percentage of construction cost basis and checked roughly against anticipated man-months of work required. They are comparable with the cost of similar work and are considered reasonable. For details and a breakdown into annual amounts see Table 11. E. Summary of Costs and Financing 67. A summary of the project costs is given below: US$ million equivalent Total Local Foreign 1) Road construction and improvement 46.9 25.8 21.1 2) Road maintenance equipment 6.8 1/ 6.8 3) Accounting machines, instruments, etc. 0.3 - 0.3 4) Engineering services and training 8.6 2.7 5.9 TOTAL: 62.6 28.5 1/ 1/ Planned allocations to the Department's operational budget for highway maintenance 1963 through 1966 total approximately US$34 million equivalent.  - 14 - 68. The foreign costs of the project constitute the subject of the Governmentts application to the Bank for financing. The local costs of the project, including construction, maintenance and engineering, would be fi- nanced from regular annual budget appropriations to the Department of High- ways. No difficulties are envisaged, and an assurance of the prompt applica- tion of funds and other resources to the project was given during loan negotiations. F. Loan Components and Probable Annual Disbursements 69. The proposed loan would provide for financing the following items, with an appropriate additional allowance for unforeseen contingencies: US$ million equivalent 1) Road construction and improvement 21.1 2) Road maintenance equipment 6.8 3) Accounting machines, instruments, etc. 0.3 4) Engineering services and training 5.9 5) Unallocated contingency allowance 1/.9 TOTAL 35.O 1/ An allowance applicable to any item and additional to the 25% contingency allowance included in item 1). 70. Assuming the loan to be declared effective in the first half of 1963, the annual disbursement rate would probably be as follows: 1963 1964 1965 1966 1967 Total 3.6- 9.7 r79 7.1 5.9 35.0 $ million V. ECONOMIC JUSTIFICATION A. General 71. Over the ten years ending 1960, the annual increase in Thailand's Gross National Product was about 5% at constant prices; there is evidence of a somewhat higher growth rate in more recent years. The country's present principal export commodities are rice, rubber and tin. 72. The index (1953 - 100) of total agricultural production, including forestries and fisherires, has increased by about 50% over the past ten years; spectacular increases have taken place in the production of maize, cassava, and kenaf (jute), while future prospects appear good for increased rubber out- put. The value of manufactured goods and mining products has also shown a steady increase over the past five years, while over the same period the value of private capital invested in construction increased by about 50%.  - 15 - 73. The economy is expected to continue expanding at a high rate and will create even greater demands on existing transportation facilities. There are grounds to believe that demands for highway transportation are increasing at a more rapid rate than for alternative modes, the principal of which are rail and inland waterway. 74. The proposed project represents a major effort on the part of the Thai Government to make good the deficiencies in the country's highway facil- ities. The three roads to be constructed or improved under the project are considered by the Government to be among those of highest priority in con- tributing to the economic and social integration of the country. B. The Assessment of Economic Benefits 75. The benefits accruing to the national economy from the construction or improvement of the project roads are many and varied. They include, among others: increased output and improved quality in agriculture and industry; the opening up of new areas for population settlement; the reduction in trans- portation costs, travel time, and accident rates; the longer life and quicker turn-around of motor vehicles resulting in greater usage of the vehicle fleet; the social integration of isolated communities, particularly in the south near the Malayan border; facilitating administration, and a general broadening of the economic and social horizons of the population. 76. General qualitative impressions on the economic justification of the project have been confirmed by comparing those benefits most easily quantifi- able over some future period with the proposed capitel investment in each road. The two principal benefits which have been considered are the savings in trans- portation costs and the value of increased agricultural production stimulated by the project works. Available basic data are scanty but permit a reasonable assessment of transportation benefits; agricultural benefits are more difficult to assess. 77. Estimated reductions in vehicle operating cost range from about 18% to about 26% after completion of the project works. Conservative estimates of traffic growth generate sufficient benefits from reduced vehicle operating costs alone to provide satisfactory returns on invested capital over the assumed economic lives of the project roads. Part I of Annex A indicates the method of comparing the present values of vehicle operating savings with total capital investment, and includes a summary of the basic data used. 78. Because of the approximate nature of the construction cost estimates, further economic analyses have been made to check the effect of increased costs. If the construction contingency allowance is increased from 25% to 50%, the rate of return from savings in vehicle operating costs alone is still satis- factory for all project road improvements, although only marginal at around 7%-8% for the Chiengmai-Lampoon section. However, additional benefits from reduced accidents, property damage and travel time for production workers, would satisfactorily enhance the justification for this section, which is now heavily built-up and congested wgith cyclists and pedestrians.  - 16 - 79. Supplemental benefits deriving from the stimulus to agricultural production upon completion of the project roads contribute further to their economic justification. Part II of Annex A gives an indication of the esti- mated additional area brought under crop within a period of 8-10 years after completion of the project roads. Although the project investment is not the only investment required for a full realization of the expected increases in agricultural production, these increases are dependent to some extent, upon adequate trunk highways through the regions concerned. C. The Project Roads Chiengmai-Lampoon-Lampang Highway 80. The area around Chiengmai supports a higher concentration of persons per arable hectare than any other part of the country. The relative isolation of the community from the rest of the country because of inadequate transpor- tation facilities has tended to deprive the people of the marketing opportuni- ties existing outside the region and has also hindered the development of in- dustry in the area. In addition to producing typical upland crops such as vegetables, fruits and tobacco, the immediate service area of the highway is one of the most important centers of livestock in the country, accounting for nearly one fifth of the pig production. The forests of this region also have large timber resources including teak. 81. The proposed 27 Im highway improvement between Chiengmai and Lampoon traverses a fertile river valley which is well-developed; the 78 km section between Lampoon and Lampang crosses mostly mountainous terrain with some undeveloped fertile valleys betwqeen high mountain ridges. In addition to serving these potentially productive agricultural areas, the new road section would provide a more convenient and economic connection with the international trunk route running nortlhwards from Bangkok to the northern provinces and Burma. It would eliminate the necessity of traversing the extremely diffi- cult mountainous terrain on the presently existing track via Thern, the im- provement of which to satisfactory standards is impracticable within reasonable cost limits. 82. The railway from Bangkok terminates at Chiengmai, running between Lampang and Lampoon although on a different alignment from the proposed high- way. The railway in this section has many steep grades and sharp curves, making operating conditions difficult and restricting the size of trains. Improvement of the existing alignment would be difficult and costly, and no major investment in this respect is proposed in the State Railway's 6-year Improvement Program, 1961 - 1966. Construction of the highway would help meet the growing and diversified transportation requirements of the region. It is likely that the railway would retain most of its present category of long-haul bulk freight originating in the area, such as lumber, rice, crushed stone, charcoal, sugar, cement, etc., while the more flexible highway facility is expected to attract traffic in soft fruit, short-haul freight and passengers, in addition to generating traffic from new activities such as upland cropping. An important social and administrative benefit would be a closer integration than now exists of the three large population centers of Chiengmai, Lampoon and Lampang.  - 17 - 83. The average traffic volume in 1962 on the Chiengmai-Lampoon section of road was 670 vehicles a day, about 60% of which were trucks and buses. Nor- mal traffic has been assumed to grow at a declining annual rate which would re- sult in a doubling of traffic volume over the next ten years--a reasonable assumption for a region with such high development potential. Savings on ve- hicle operating costs of about 18% are expected after completion of the im- provement and are alone sufficient to provide a return of about 9%, on the total investment in the road, including the cost of land, engineering, and interest during construction (see Annex A). 8h. Construction of the new 78 km Lampoon-Lampang section of road is justified as an essential link in the development of Thailand's modern high_ way system. It will comrlement the existing railway facility and will result in a closer integration than now exists of large and important commu- nity centers, in addition to facilitating the exploitation of new agricultural and forest lands. It is reasonable to expect that about 300 vehicles per day will use the road immediately after opening. A meaningful quantitative analy- sis of the resulting economic benefits from this road section is not possible with available statistical data and the justification has therefore been based more upon a broad qualitative judgment. Songkhla-Naradhiwat Highway 85. This project road, 255 km in length, joins three important towns and seaports, namely, Songkhla, Pattani and Naradhiwat. Its service area includes the four largest rubber producing provinces of the country, which in themselves account for almost two-thirds of the country's total rubber production. Other products of the area are fruit, coconut, rice and fish. 86. Almost one million people live within 10 km of the existing road, only half of which is open to traffic throughout the year. The improvement of the existing road and its completion to all-weather standards would greatly facilitate the movement of commodities between the ports and their hinterlands, thereby contributing toward reduced production costs of agricultural cornmodi- ties, particularly of rubber, from within the area. Two irrigation projects have recently been completed in the Pattani province and others are under way in the provinces of Songkhla and Naradhiwat. Improvement and expansion of the feeder-road system in the Songkhla area is now under active consideration. Completion of these schemes will substantially increase the demand for better trunk highway facilities. The existing railway in the south does not serve the area traversed by the project road except near Songkhla. 87. A re-planting program for rubber is already underway in the area. This program, together with the expansion of new planting stimulated by the construction of the project road and proposed feeder-roads is likely to re- sult in a doubling of rubber output in about 15 years' time from the four provinces served; further details are given in Annex A.  - 18 - 88. Traffic volumes in 1962 on the existing road between Songkhla and Klong Ngae ranged from about 1,200 to 800 vehicles per day, about 55% of which were heavy trucks and buses. The remainder of the road carried traffic rang- ing from about 360 to 220 vehicles per day. Average savings of about 26% in vehicle onerating costs are expected after completion of the project road im- provement. A modest traffic growth over the assumed economic life of the road will r-sult in a return on total capital investment of about 15% from savings in vehicle operating costs alone (see Annex A). Supplemental agricultural benefits, mainly from increased rubber output, provide additional justification. Nakorn Pathom - Prajuab HighTray 89. The Government places high priority in improving the highway connec- tion between Bangkok and the southern region of Thailand. Improvement of the 55 km section between Bangkok and Nakorn Pathom will be commenced shortly with the financial assist-'nce of USAID. The project provides for a continuation of the high-Tay improvement southw-ard from Nakorn Rathom for 266 kE in the first phase of Bank-financed operations. 90. The region is presently served by both road and rail systems which run rou ghly parallel for about 500 km south from Bangkok. In earlier times, goods and passenger traffic moved almost solely by rail, and consequently the larger community centers are all located at fairly regular intervals along the railway. The road system appears to have developed essentially as a series of feeders to these railheads, the feeders ultimately becoming connected at their extremities to form a continous route. As highway transport developed and became more efficient, rail transport gradually gave way to competitive truck and bus services over an ever expanding area from Bangkok as center. 91. It is significant that although alternative rail transport is avail- able, even the present poor road facility carries traffic volumes (80% of which are trucks and buses) ranging gradually down from about 1,300 vehicles a day 100 km from Bangkok to about 400 vehicles a day near Prajuab, 300 km from Bangkok. A large proportion of this traffic is through traffic to or from Bangkok, indicating the high demand for a trunk road facility in addition to a rail facility within an approximate radius of 300 km from Bangkok. Near Drajuab and further south, the highway traffic pattern changes, with much less through traffic but with a marked build-up near railheads, indicating an in- creasing preference for rail transport beyond this approximate radius at the present time. 92. The project road between Nakorn Pathom and Prajuab (and also the alternative rail facility) is occasionally flooded and impassable over low- lying sections during the rainy season, causing delays of up to three or four days. The project works provide for raising the road in these sections and generally strengthening and widening the pavement and earthworks. Savings in road vehicle operating costs of at least 18% are expected after improvement. These savings applied to projected traffic over the useful economic life of the road would alone provide a return of about 17% on total investment (see Annex A).  - 19 - 93. In December 1962, the Bank loaned US$3.4 million to the Government to assist in financing an irrigation project near Petchburi, with the prime objective of increasing the output of paddy, bananas, fruit and vegetables. The bulk of this produce will probably be transported over the project road for absorption in the Bangkok market or for export. The proposed road im- provement will further increase the benefits deriving from the irrigation project, in addition to providing an incentive for greater agricultural activity in other parts of its service area (see Annex A). D. Further Road Studies and Engineering 94. In addition to the three sections of road reviewed-above, the pro- posed project includes the field survey, engineering studies, design and preparation of bidding documents by consulting engineers for five other road sections totaling 1,034 km in length. All the roads are open to traffic, al- though some for only part of the year; the necessary works generally involve improvement of the existing road to appropriate standards with the possible relocation of some sections. 95. The roads are considered by the Government to have a high priority and are all proposed for construction in the 8-year Highway Development Pro- gram. The consulting engineers would prepare interim reports, including all relevant economic and cost data, which would be presented to the Bank for consideration in connection with the possible financing of subsequent phases of the highway program. 96. Scarcity of statistical data at present precludes anything more than a broad qualitative judgment to be made concerning the economic justifica- tion for individual road investment. Rough estimates of construction costs are given in Table 6, and a brief description of each road with a summary of agricultural and traffic data in Annex B. A review of these data, supported by field inspections of most of the roads, indicates reasonable prospects of their suitability for future Bank financing, and justifies their inclusion in the project for further study and design. 97. In view of the scarcity of statistical data and of the importance of such data in determining priorities of construction within the 8-year highway development program and in facilitating further Bank lending opera- tions, assurances were sought from the Government during negotiations that adequate arrangements would be made within the Department of Highways for the collection, processing and recording of statistics relevant to the economic and technical aspects of the highway development program. The Government will be assisted in developing such arrangements by the consultants referred to in paragraphs 63 and 64.  - 20 - VI. CONCLUSIONS AND REOMIYENDATIONS 98. Although engineering is only preliminary and cost estimates approxi- mate, the project is considered suitable for commencing Bank lending opera- tions for highways in Thailand. No serious deviations are expected from the estimates presented in the appraisal report but adequate measures for adjust- ing to any such deviations and for ensuring adequate project financing were discussed during loan negotiations. 99. The project is economically justified from the resulting reduction in vehicle operating costs over the improved roads; additional economic bene- fits will accrue from the stimulus to agricultural production. The justifica- tion is still satisfactonr with an allowance for substantial increases in the cost estimates. An important social and administrative aspect of some of the project roads is the closer integration of relatively isolated communities. 100. Agreement was reached during loan negotiations on the points men- tioned below: a) design st,andards for the project roads (paragraph 43); b) procurement procedures and contract documentation; the size of individual construction contrac-ts, and the tenta- tive program of construction (paragraphs 44, 54); c) the measures to be taken for adjusting the loan amount to revised cost estimates and foreign component (paragraph 53); d) that the Government would promptly provide adequate funds and other resources required in connection with the project (paragraphs 53, 68); e) the highway maintenance equipment items, the accounting machines and other technical equipment to be purchased from the proceeds of the loan (paragraphs 54,60); f) the appointment of consulting engineers with appropriate terms of reference for the different categories of project work (paragraphs 58, 61-66); g) the reorganization of the Department of HighIrays along the lines recormmended in the PAS report of 1962 (paragraph 63); h) arrangements for the collection of statistical data relevant to the economic appraisal of highway projects (paragraph 97). 101. The project is considered suitable for a Bank loan of US$35 million equivalent; a suitable term would be 20 years with a 5-year period of grace.  ANNEX A Page . THAILAND NATIONAL HIGHIWAY PROJECT Assessment of Economic Benefits I. REDUCED TRANSPORTATION COSTS A. General 1. The Highway Department in Thailand has only recently started compiling statistical data relating to traffic volumes, transportation costs, volumes and values of commodities moved, etc. Existing data are scanty, but nevertheless, are considered sufficient to give some meaningful quantitative impression of the economic benefits accruing to the economy from savings in transportation costs over the newly constructed project roads compared with existing unimproved roads. B. Vehicle Operating Savings 2. Wgith the assistance of consulting engineers, the Department has drawn up a comprehensive table of motor vehicle operating costs at different running speeds on roads with different surface conditions, widths, gradients, curvature, etc. The table is based upon a U.S. AASHO(-) publication ac