Thailand - Third Highway Project

,.Xy \3 5- 17y, RESTRICTED Report No. P-594 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 The report may not be published noir may it be quoted as representing their views. INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT R:EPORT AND RECOMMENDATION OF THE PRESIDENT | EIUXU w TO THE REPOR DES EXECUTIVE DIRECTORS ON A PROPOSED LOAN TO THE KINGDOM OF THAILAND FOR A THIRD NATIONAL HIGHWAY PROJECT May 9, 1968  INTERNATIONAL BANK FOR RECONSTRUCTIONi Ai,D DEVELOI4ENT REPORT AND RMCOJIENDATION OF THE PRESIDENT Tn THE EXECUTIVE DIRECTORS ON A PRIOP0SED LOAN TO THE KINGDOM OF THAILAND FOR A THIRD NATIONAL HIGTWAY PROJET 1. I submit the following report and recommendation on a propoXed loan in an amount in -various currencies equivalent to U.S. $29 million to the Kcingdom of Thailand for a Third Highway Project. PART I - HISTORICAL 2. The Bank has made two loans totaling $61 million for highway projects in Thailand. The first Highway Project loan of $25 million (341-TH) which helped finance the construction of about 328 km. of roads also included financing for consulting services to help reorganize the Department of Highways, technical training for Thai personnel abroad and the preparation of studies of a substantial part of the roads included in the Second Highway Project. It also financed the feasibility study and the engineering of one of the roads included in the proposed Tlhird Highway Project. After a slowty start the project has progressed satisfactorily and is expected to be completed towards the end of this year, about 6 months behind schedule. The second loan of $36 million, (455-TH), helped finance the construction and improvement of about 770 km. of roads and included a provision for consultinc services to supervise construction and for the preparation of feasibility studies and detailed enigineering of roads for a future project. The project is proceeding satisfac-torily and contracts in progress cover about 90 percent. of the work. 3. Road transportation has grown remarkably in Thailand during the last ten years, and is expected to continue to grow at a rate of about 13 percent a year for the foreseeable future. The existing highway system, although much improved in the last five -ears, is inadequate to handle present traffic requirements. The Government has placed high priority on highway construction and improvement in the Second Development Plan (1967-71). The "Highway Construction and Improvement Plan 1965-1971" which forms a part of the Development Plan, envisages the investment of about $400 million for the construction and reconstruction of some 4,500 km. of roads in the period. The two highways included in the Third Highway Project are an integral part of the Plan. 4. The Bank of Thailand has agreed to participate in the financing of the project and would, if the proposed loan is approved, purchase a strip of maturities totaling $25 million. This would bring the total amount of financing provided by the Bank of Thailand for projects assisted by Bank loans to $59 million.  -2- 5. The invitation to negotiate the proposed loan was delayed pending the Government's agreement to the terms of reference for a transportation coordination study which is to be financed by U.S. AID. Agreement on the terms of reference has now been reached and the study is expected to begin within the next 3-4 months. Negotiations took place in Washington between April 8 and April 12, 1968. The Government was represented by 11 E. Buchana Atthakor, the Ambassador of Thailand and Hr. Uthai Vodhigula, Director General of the Department of Highways. 6. The proposed loan would be the nineteenth Bank loan to Thailand, of which eleven are fully disbursed. The following is a summary statement of Bank loans to Thailand as at MTarch 31, 1968: (U.S. $ million) Principal Un- Year Number Borrower Purpose Amount disbursed Fully disbursed loans 137.4 1963 341-TH Kingdom of Thailand National Highways 25.0 6.9 1964 394-TH Kingdom of Thailand TMeklong Irrigation 22.0 9.5 1965 406-TH Yanhee Electricity Power 6.0 0.1 Authority 1966 455-TH Kingdom of Thailand National Highways 36.0 27.8 471-TH Kingdom of Thailand Vocational riducation 6.0 6.o 1967 489-TH Yanhee Electricity Power 5.0 4.6 Authority 1967 514-TH Kingdom of Thailand Phasom Dam - Irrigation 26.0 25.9 Total (less cancellations): 263.4 of which has been repaid to Bank and Others 45.3 Total now outstanding: 218.1 Amount sold: 33.9 of which has been repaid: 9.4 24.5 Total now held by the Bank: 193.6 Total undisbursed 80.8 No IDA credits have been made to Thailand.  - 3 - 7. Progress under Bank-financed projects in Thailand has generally been satisfactory. Complicated procurement procedures caused some delay in making disbursements from the 1961 Railway Loan (280-TH), but the Loan is now fully disbursed. The Industrial Finance Corporation of Thailand (IFCT) was slow to submit projects for financing under Loan 370-TH, and the undisbursed balance of the Loan, $1.5 million, has now been cancelled. 8. There are no Bank operations in prospect in Thailand for the next few months. At the request of the Government the Bank appraised a railway project in November 1967. The project has been delayed because of difficulties encountered by the Government in evaluating bids for the supply of diesel locomotives. M-loreover, it is not yet certain whether the Government will confirm its intention to seek a Bank loan for the project or obtain financing through suppliers' credits. A mission is now in Thailand to appraise the Phasom Dam Power Project. PART II - DESCRIPTION OF THE PROPOSED LOAN 9. Borrower: Kingdom of Thailand. Amount: U.S. $29 million equivalent in various currencies. Purpose: To assist in financing the construction and improvement of two primary highways totaling about 480 km.; consulting services for the supervision of construction and detailed engineering of about 635 km. of feeder roads; overseas training of technical staff of the Department of Highways. Amortization: Semi-annual instalments from October 15, 1972 to April 15, 1988. Interest: 6-1/4h,; per annum. Commitment charges: 3/4 of 1%  PAIRT III - THE PROJECT 10. An appraisal report entitled "Appraisal of a Third Highway Project - Thailand" (TO-630a) on the proposed project is attached. 11. The Government's Second Five-Year Development Plan makes provision for substantial infrastructure investments to facilitate the growrth of the national product, which is assumed to average about 8 per- cent per annum between 1967 and 1971. Agricultural production is likely to grow at a somewhat slower pace, wjhile manufacturing, mining and transport are expected to grow at rates close to 13 percent. The growth of the total vehicle fleet has averaged 13 percent between 1959 and 1966, with the annual growth rate for trucks at 16 percent, for cars 12 percent and for buses 6 percent. As the National Highway System has improved, the propor- tion of vehicles registered outside the Bangkok Metropolitan area rose from 43 percent in 1959 to 47 percent in 1966. 12. The project is part of a comprehensive program of highway improvements in the Plan and includes the improvement and construction of two highways totaling about 480 km. Both highways form part of the arterial links between Bangkok and the northern and northwestern regions of Thailand and cross some of the most fertile agricuiltural lands of the Central Plain. The project also includes the detailed engineering of about 635 km. of feeder roads selected on the basis of the potential for agricultural development in the service areas. Consulting services for construction supervision and overseas training of Thai technical staff from the Department of Highway are also provided for in the project. 13. The estimated cost of the project is U.S. $59.6 million. The proposed loan would finance the foreign exchange costs of road construction and improvement, estimated at about 48 percent of the total cost of this work, including a 15 percent contingency allowance and the foreign exchange costs of consulting services and overseas training of staff from the Department of Highways. The balance of the funds needed to complete the project would be provided by the Government. 14. The project will be administered by the Department of Highways of the MIinistry of National Development. Assistance provided under the first two Bank loans and from other sources has substantially increased the capacity of the Department of Highways to plan and carry out projects included in the Second Development Plan and to maintain the national highway system. Reorganization of the Department has been completed and operating and administrative procedures have been considerably improved. The program for local and overseas training for Thai technical personnel  is being expanded. Feasibility studies and detailed engineering of one of the project roads were undertaken by consultants under Loan 341-TH and of the other by consultants financed by U.S. AID. Agreement has been reached on the design standards of the roads to be improved and constructed. 15. The road works included in the project are justified economically from the resulting reduction in transportation costs. The rate of return for the Bang Pa In - Nakorn Sawan Highway is estimated at 25 percent and the rate of return for the Saraburi - Lomsak Highway is 27 percent0 In calculating the rate of return, past and projected use of the roads by military traffic was excluded to ensure that the proposed investments were justified on the basis of civilian needs. 16. Construction work will be carried out by contractors under unit price contracts awarded after international competitive bidding. Because negotiations for the proposed loan were held up on account of the delays in reaching agreement on the terms of reference for the transportation coordination study, the Department of Highways proceeded to award contracts for all four sections of the Saraburi - Lomsak Highway totaling $20.9 million. In placing these contracts the Department followed prescribed international competitive procedures, but were advised that the Bank was under no obligation to finance these contracts and that if the loan were approved the Bank would not finance any expenditures incurred before the <pjroposed loan was signed. 17. The rapid expansion of transport facilities in the last few years, particularly in the road transport industry and the level of the investment expenditures proposed for the future have emphasized the need for a careful assessment of the optimal allocation of resources between the competing modes of transport. To help the Government determine appropriate bases of user charges for the various modes of transport and provide guidance on closer coordination of transport policy, the Government is making arrangements to have a transport coordination study carried out which U.S. AID has agreed to finance. The study is expected to be completed in the second half of 1969. PART IV - LEAL FT'TSTRUTMTTS AND AUTHORITY 18. The draft Loan Agreement between the Bank and the Kingdom of Thailand and the Report of the Committee provided for in Article III, Section 4(iii) of the Articles of Agreement are being distributed to the DXecutive Directors separately. The Draft Agreement conforms substantially to the usual pattern for projects of this kind.  -6- PART V - THF ECOINTMY 19. A report on "Current Economic Position and Prospects of Thailandtt (AS 130a) was distributed to the EXecutive Directors on June 1l, 1967. A brief resume of the report, and a review