Honduras - Eighth Highway Project

Document of The World Bank FILE COPY FOR OFFICIAL USE ONLY Report No. 297lb-HO STAFF APPRAISAL REPORT EIGHTH HIGHWAY PROJECT HONDURAS August 6, 1980 Projects Department Latin America and the Caribbean Regional Office This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without Worldi Bank authorization.  Currency Equivalents Currency Unit = Lempira (L) US$1.00 = L 2.00 L = US$0.50 L 1,000,000 = US$500,000 Fiscal Year January 1 - December 31 System of Weights and Measures: Metric Metric British/US Equivalent 1 meter (m) = 3.28 feet 1 kilometer (km) 2 = 0.62 mile 1 square kilometer (km ) = 0.386 square mile 1 hectare (ha) = 2.47 acres 1 metric ton (m ton) = 2.205 pounds Acronyms and Abbreviations ADT - Average Daily Traffic CABEI - Central American Bank for Economic Integration CIDA - Canadian International Development Agency COHDEFOR - Corporacion Hondurena de Desarrollo Forestal CONSUPLANE - Consejo Superior de Planificacion Economica DGH - Directorate General for Highways DGM - Directorate General for Maintenance of Highways and Airports DGT - Directorate General for Transport ENP - Empresa Nacional Portuaria FNH - Ferrocarril Nacional de Honduras ICB - International Competitive Bidding IDB - Inter-American Development Bank IHCAFE - Instituto Hondureno del Cafe INFOP - Instituto Nacional de Formacion Profesional MTPU - Mechanical Training Production Unit RTPU - Road Training Production Unit SECOPT - Secretaria de Comunicaciones, Obras Publicas y Transporte UNDP - United Nations Development Programme UN/OPE - United Nations Office of Project Execution USAID - US Agency for International Development voc - Vehicle Operating Cost vpd - Vehicles Per Day  HONDURAS EIGHTH HIGHWAY PROJECT FOR OFFICIAL USE ONLY STAFF APPRAISAL REPORT TABLE OF CONTENTS Page No. I. THE TRANSPORT SECTOR ................................. 1 A. General . ........... .................1............ B. The Transport System ............................ 1 C. Transport Planning, Coordination and Financing .. 3 II. THE HIGHWAY SUBSECTOR ............ .................... 5 A. The Highway Network ........... .. ................. 5 B. Traffic Growth and the Road Transport Industry .. 5 C. Highway Administration 6.................... 6 D. Highway Planning and Financing . ................. 7 E. Highway Engineering * ............ ................. 8 F. Highway Construction ..... ........... .. .. ........... . 8 G. Highway Maintenance and Training ................ 9 H. Feeder Roads .................................... 11 III. PAST AND ONGOING BANK ASSISTANCE TO THE HIGHWAY SUBSECTOR ...... ............................ 12 A. Past Projects ............ ....................... 12 B. Ongoing Projects ...... ......... ............... . 13 IV. THE. PROJECT .......................................... 14 A. Objectives and Description of Project Components 14 B. Cost Estimates and Financing ..................... 20 C. Implementation .................................. 22 D. Procurement and Disbursements ................... 22 E. Monitoring ....... ............................... 23 F. Project Risks ...... ............................. 24 G. Environmental Impact ..... ....................... 24 V. ECONOMIC EVALUATION .................................. 24 A. Feeder Roads Program ..... ....................... 25 B. Improvement of Secondary Roads ..... ............. 25 C. Highway Maintenance Program ..................... 26 VI. AGREEMENTS REACHED AND RECOMMENDATION ................ 28 This report is based on the findings of an appraisal mission which visited Honduras in December 1979 and March 1980. The mission comprised Messrs. Lars Nordin (Economist), Raul Paraud (Engineer), Andrew Mackie (Equipment Specialist/Consultant) and Rodolfo Elmore (Engineer/Consultant). Messrs. Giuseppe Morra (Training Specialist), Enrique Pinilla (Engineer) and Ossi Rahkonen (Economist) participated in the preappraisal mission in October 1979. The report htas been edited by Miss Virginia R. Foster. This document has a restricted distribution and may be used by recipients only in the performance Of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.  TABLE OF CONTENTS (Continued) Page No. TABLES 1.1 Areas of Major Valleys .................................. 30 1.2 Urban Population Centers - 1978 .............. 0 ........... 31 1.3 Honduras National Railway: Traffic and Finance 1970-1979 32 1.4 Dry Cargo Traffic at Principal Ports 1970-1979 .33 1.5 Passenger and Cargo Traffic at Major Airports 1970-1979 34 1.6 Public Investments in Transport 1972-1979 .... 35 2.1 Development of the Highway Network 1960-1979 .. 36 2.2 Highway Investment Program 1980-1984 ........ 37 2.3 Road User Charges 1972-1979 .38 2.4 Condition and Age of Maintenance Fleet 1979 .39 4.1 Design Standards for Secondary and Feeder Roads .......... 40 4.2 Staffing of the Feeder Roads Section and Field Offices 1981-1984 ........................... .... 41 4.3 Road Condition of DGM Network (1980) ..................... 42 4.4 Estimated Recurrent Budget Requirements for Maintenance Program 1981-1984 ..... ........... .... .................... 43 4.5 Tentative List of Maintenance and Training Equipment to be Procured under the Project .... ................... 44 4.6 Maintenance Personnel to be Trained ........... o ........ 45 4.7 Training of Maintenance Personnel - Capital and Technical Assistance Expenditures o .... o . .............. 46 4.8 Training Component - Recurrent Expenditures ......... ...... 47 4.9 Tentative Disbursement Schedule ........................ 48 5.1 Summary Presentation of Feeder Roads in Group I ....... 49 5.2 Example of Economic Return Calculation for Feeder Roads 50-52 5.3 Benefit/Cost Streams for Improvement of Secondary Roads ........................ ... ............ 53 5.4 Sensitivity Analysis for Improvement of Secondary Roads ........... ............................ 54 5.5 Road Conditions without Highway Maintenance Program 1981-1984 ... .......................................... 55 ,5.6 Road Conditions with Highway Maintenance Program 1981-1984 56 5.7 Average Daily Traffic 1977 and Annual Growth Rates 57 5.8 Estimated Average Daily Traffic for Period 1980-1984 58 5.9 Vehicle Operating Costs 1980 .59 5.10 Vehicle Operating Costs with and without Highway Maintenance Program 1981-1984 .60 5.11 Hours Saved and Time Cost Savings ....................... 61 5.12 Economic Return Analysis for Highway Maintenance Program 1981-1984 .......................... o .............. 62 ANNEXES 1 Outline of Terms of Reference for Technical Assistance for Highway Maintenance ............... o.......... ......... . 63 2 Outline of Terms of Reference for Technical Assistance for the Training Program for Road Maintenance Personnel ... 70 3 Evaluation of Feeder Roads in the Guayape Valley ....... o.. 78 4 Related Documents and Data Available in the Project File... 88  TABLE OF CONTENTS (Continued) CHARTS 1 - World Bank 21177 - Organization Chart of the Secretariat for Commu- nications, Public Works and Transport 2 - World Bank 21179 - Organization Chart of the Directorate General for Highways 3 - World Bank 21178 - Organization Chart of the Directorate General for Maintenance of Highways and Airports 4 - World Bank 21595 - Four-Year Training Program 1981-1984 - Implementation Schedule 5 - World Bank 21596 - Project Implementation Schedule MAP IBRD 14823R - Honduras - Main Highway Network   I. THE TRANSPORT SECTOR A. General 2 1.01 With its 112,088 km , Honduras is the second largest country in Central America (Map IBRD 14823R). Land suitable for agriculture represents about 25% of ithe total area and is located in several valley systems (Table 1.1) and in the northern coastal plain. Forest production is largely concentrated in the Olancho area and extending north. Coffee is produced in the hilly areas of central and western Honduras between 700 and 1,200 meters above sea level. Cattle raising is common in central and western Honduras and the north- eastern coastal plain. Banana plantations are located in the Sula valley and the northern coastal plain. 1.02 Honduras' population in 1978 was about 3.4 million (Table 1.2); two-thirds of this population live in rural areas and one-third in the cities. Tegucigalpa is the capital and administrative center with a 1978 population of 410,000. The second largest city, San Pedro Sula with a 1978 population of 315,000, is the industrial center of the country with about half of the manufacturing output. San Pedro Sula and Tegucigalpa together are estimated to account for 75% of all manufacturing in 1979. 1.03 Agricultural and industrial developments in Honduras have been dominated by the Sula valley and the northern coastal strip with a regional economy centered on San Pedro Sula some 60 km from the main port of Puerto Cortes on the Atlantic coast. The largest valley, Aguan, also faces the Atlantic coast in the northeast and will soon be connected with the rest of the country by modern roads. It has good soils and rainfall and offers good prospects for agricultural development. The Guayape valley in the center of the country to the east of Tegucigalpa is connected with the capital by a road which was recently paved under the Seventh Highway Project, and its further development will be secured by agricultural and rural roads projects now being implemented under the Guayape Regional Development Project. The Choluteca valley, although historically important, has less potential because of insuf- ficient rainf'all. 1.04 The primary road network connects all major producing areas with the capital and with the ports. Future transport will essentially be directed at supporting the full development of the regional economies of the valleys. The continuing development of secondary and feeder roads is necessary to support increased production and to improve the living conditions of the peasants and the farmers. B. The Transport System (i) Highways 1.05 Distances in Honduras are relatively short and the terrain is rugged, which has resulted in an almost total reliance on roads and road transport, except in thes northern coastal strip where railways specializing in banana transport opesrate. The primary road network is centered around the cities of San Pedro SuLa and Tegucigalpa. Most of the important agricultural areas have all-weather road access to major urban areas and to ports.  - 2 - 1.06 The development of the primary road network has virtually been completed, and the emphasis is now focused on secondary and feeder road development and on proper maintenance programs to protect past investments in the road network. Ongoing and planned feeder road programs are centered on the development of areas with agricultural potential. The Highway Subsector is discussed in full in Chapter II. (ii) Railways 1.07 Three narrow gauge railways operate in the north serving primarily the banana plantations in the Sula valley and the northern coastal strip. Their combined total length is 992 km. The Government-owned Ferrocarril Nacional de Honduras (FNH) connects the Atlantic port of Puerto Cortes with San Pedro Sula and the upper Sula valley. Its total network is 203 km. FNH transports sawn timber and agricultural imports and exports. The former Tela Railway operates a 343-km network and serves the plantations of the eastern Sula valley and part of the coastal strip. It is connected with both Puerto Cortes and the banana pier at the port of Tela and was acquired by the Government in 1975 from the United Brands Company in Tela. Finally, the former Standard Fruit Railroad is a 446-km network serving banana plantations on the coastal strip between Tela and Balfate and using the port of La Ceiba as the outlet for banana exports. This railway is also owned by the Government, but, because of its 0.91 m gauge, there is no connection to the other two railways that have a 1.07 m gauge. Basically a viable operation, the railways suffered from Hurricane Fifi in 1974, which caused large amounts of damage and reduced banana shipments from damaged plantations. The resulting heavy operational deficits in 1974 and 1975 have since decreased, and a net operating surplus was achieved in 1979 (Table 1.3). With captive banana traffic, basically better suited for railways than for highways, and simple operation, the railways should be able to avoid deficit problems while keeping tariffs at a reasonable level. (iii) Ports 1.08 There are four ports on the Atlantic coast: Puerto Cortes, Tela, La Ceiba, and Puerto Castilla. On the Pacific coast, there is a deepwater anchorage at Amapala on the island of El Tigre and a new mainland port at San Lorenzo. All ports are operated by the National Port Authority (Empresa Nacional Portuaria (ENP)), a semiautonomous Government organization which was so successful in developing the port of Puerto Cortes that it was later directed to manage all ports. 1.09 Excluding liquid cargo, the ocean-borne foreign trade of the country increased from 1.5 million tons in 1975 to 2.6 million tons in 1979 after recovering from the decline in 1974 and 1975 due to Hurricane Fifi (Table 1.4). Export tonnages dominated by bananas and timber are almost three times as great as import tonnages. In 1978, bananas were 52% of export cargo while timber was 19%. Import tonnages are more evenly distributed among machinery, foodstuffs, chemical products, fertilizer, grain, paper and manufactures.  - 3 - 1.10 Puerto Cortes is the principal port of the country, accounting for 1.6 million tons or 63% of dry cargo in 1979. La Ceiba followed with 21%, mostly bananas. Tela accounted for 10%, again mostly bananas, while San Lorenzo handled 6%, most of which was timber. Puerto Castilla does not yet handle traffic of any significance, but is likely to take over banana traffic from La Ceiba once it is linked by road with the plantations. La Ceiba is not well sheltered and has insufficient depth for modern ships. The construction of the new port at Puerto Castilla will be completed in late 1981 to handle the increasing Aguan valley traffic as well as the output from the timber and chip mill at Corocito. The new port of San Lorenzo was completed in 1978 and will continue to serve as a major timber outlet; it will also handle expected sugar and molasses exports from the Choluteca valley. Puerto Cortes will continue to be the main port of Honduras since it faces Europe and North America, is well sheltered, and has good facilities and road connections to the rest of Honduras and other Central American countries. (iv) Air Services 1.11 The two major private airlines, SAHSA and TAN, have merged, and their operations have been consolidated. They now provide domestic service and international service to New Orleans, Managua, San Jose, Panama, Miami, Belize and Mexico City. There are also two smaller airlines (Aerovias Nacionales de Honduras and Lineas Aereas Nacionales) providing domestic service to 13 cities, including the Bay Islands. Starting in April 1980, a foreign airline, Air Florida, is also providing Tegucigalpa and SaLn Pedro Sula with international service to Miami. 1.12 The Villeda Morales international airport at San Pedro Sula has a good runway of 2,800 m, but the Toncontin international airport at Tegucigalpa is less satisfactory, with only a 1,930 m runway, barely-adequate for modern jets. A new airport for Tegucigalpa near Talanga is being discussed, but is not likely to be of high priority in the Government's investment program. With the completion of the Western Highway and the road between Tegucigalpa and San Pedro Sula, domestic air traffic declined after the peak year of 1969 since private automobiles and a good intercity bus and truck service have diverted a large portion of air traffic, especially between Tegucigalpa and San Pedro Sula. Total air traffic is given in Table 1.5. C. Transport Planning, Coordination and Financing 1.13 The Secretaria de Comunicaciones, Obras Publicas y Transporte (SECOPT) is responsible for highway planning. The major basis for highway investment planning is the Bank-financed 1978-1987 Highway Master Plan pre- pared in 1977 by consultants (TAMS, USA). The economic analysis of projects is well understood within SECOPT, and the road investment program is increas- ingly well justified on the basis of engineering and economic feasibility studies. However, SECOPT still has limited capacity for identification and selection of projects based on specified criteria and for across-the- board planning. For this reason, full sector lending is not yet feasible. The present project was prepared as part of a five-year highway inlvestment program which will be updated and reviewed periodically in the course of project implementation (para 2.13).  - 4 - 1.14 Port planning is the responsibility of ENP, a semiautonomous organization under SECOPT. ENP has developed a rolling five-year plan that includes economic, engineering and financial analysis. A modern management structure, together with fringe benefits such as subsidized housing and training programs, has enabled ENP to retain competent staff and upgrade younger staff. 1.15 The railways (FNH) are also a semiautonomous organization under SECOPT, which handles a rather stable operation specializing in moving bananas to the Atlantic ports with little traffic growth. FNH planning is thus largely limited to forecasting revenues and operating expenses. Its capital budget is small, and its planning staff is adequate. 1.16 Airport planning is the responsibility of SECOPT, but receives and requires little attention since distances are short and road transport has largely overtaken the need for planning new investment in domestic airports. 1.17 Highways and ports consume most of the transport investments in Honduras and require continuous planning. Highways accounted for 72% and the ports for 27% of the 1979 budget expenditures for transport (Table 1.6). The substantial increase in highway investments in 1978 and 1979 was due mainly to the construction of the Bank-financed Talanga-Juticalpa-Catacamas road. 1.18 The Consejo Superior de Planificacion Economica (CONSUPLANE) prepares the five-year investment plan for Honduras in close cooperation with the different Ministries. CONSUPLANE deals with intersectoral as well as intra- sectoral matters, such as those within the transport sector. The Transport Division within CONSUPLANE and the Sectoral Planning Unit within SECOPT have been supported by foreign and national advisers over the last few years since it was not possible to recruit enough qualified personnel to staff both institutions. Technical assistance has played an important role in strengthen- ing the transport sector planning effort. Both institutions are now function- ing largely without technical assistance. 1.19 Highways dominate the transport sector, and intermodal considerations are not a major concern. Whatever coordination is required among roads, airports and the semiautonomous railroads and ports is handled through ad hoc meetings or direct contacts among the heads of the agencies. 1.20 In view of the large investments in the El Cajon hydroelectric project within the five-year investment program for Honduras, the Government is aware of the need for careful investment planning. It has, therefore, in consultation with the International Monetary Fund (IMF) and the Bank, estab- lished an overall investment ceiling, and, based on a Bank review of sectoral investment plans, it appears that the overall program provides good inter- sectoral balance.  Ii. THE HIGHWAY SUBSECTOR A. The Highway Network 2.01 The total length of the road network in Honduras in Ij79 was about 8,540 km, of which 1,610 km were paved (Table 2.1). A major effort to expand the roatd network was started in the mid-1950s; by 1960, there were about 3,230 km of roads, of which only 110 km were paved. The genesrally rough topography of the country, characterized by several mountain ranges, makes the development of the road infrastructure difficult and expensive. There are road connections among the main population centers and with the neighboring countries, although the sparsely populated area of the east has few roads. Several road projects are under way to cross the mountains to connect the southern and the northern network; all productive areas will then be linked by an all-weather road network. The backbone of the existing network is the north-south road which, starting at the San Lorenzo Port on the Pacific Ocean, passes through Tegucigalpa and San Pedro Sula, reaching the port of Puerto Cortes on the Caribbean Sea. 2.02 The Government is aware that, with the primary system practically completed, it should concentrate on the expansion and improvement of the secondary and feeder road systems so that the road network as a whole could fulfill its development purposes. The Highway Master Plan (December 1977) confirmed thal: emphasis in the future should be on small-scale improvements, with special attention to deferred maintenance and construction of new low standard roads to serve agricultural areas. The National Transport Plan for the period 1979-1983, prepared by the Government, reflects the recommendations of the Highway Master Plan. B. Traffic Growth and the Road Transport Industry 2.03 During the decade from 1968 to 1978, there was a steady growth of road transport. The vehicle fleet grew by 190% from 24,750 to 71,980. The heavy increase led the Government to enact a Land Transport Law in February 1976, permitting the regulation of freight and passenger transport to organize the transport industry in Honduras and to improve its competitiveness in the region. 2.04 The law is being followed, and detailed regulations have been prepared by the Directorate General for Transport (DGT) in SECOPT. The regulations enacted so far include, on the passenger transport side, fares, routes, entry, capacity, and vehicle types. For freight transport, the registration and vehicle weight control have been regulated. 2.05 The passenger transport service by bus is excellent, with modern equipment, frequent service and moderate tariffs. Freight transport service is also good, and the competition is keen. Local freight transport is dominated by independent owner operators, while companies and cooperatives compete for regional and international traffic.  - 6 - 2.06 Enforcement of regulations regarding weights and dimensions started in 1977 following the construction of 13 weighing stations along the main routes with assistance from the Central American Bank for Economic Integration (CABEI). Overloading of trucks has since gradually been reduced, and DGT now estimates overloading to be between 10% and 25% as opposed to between 30% and 60% before 1977. Further improvements are expected, and, during negotia- tions, the Government confirmed that it would continue the control of weights and dimensions of vehicles using the national roads so that they would be kept within the limits provided by the laws and regulations of Honduras. C. Highway Administration 2.07 SECOPT (Chart 1) is in charge of planning, designing, constructing and maintaining all roads in the country, except for a few roads being built by the Instituto Hondureno del Cafe (IHCAFE) to connect the coffee plantations with the main network and by the Corporacion Hondurena de Desarrollo Forestal (COHDEFOR) for forestry development. SECOPT's highway activities are carried out through two general Directorates: the Directorate General for Highways (DGH, Chart 2), which designs and constructs roads, and the Directorate General for Maintenance of Highways and Airports (DGM, Chart 3), which maintains the main road network. 2.08 SECOPT normally engages consultants for design and supervision of construction. DGH coordinates the consultants' activities from Tegucigalpa. Maintenance works are carried out by force account by DGM through eight maintenance districts. 2.09 Over the last three years, the Government undertook a number of reforms in highway administration such as improvement of highway maintenance practices and strengthening of planning. Improvements in highway administra- tion are being achieved with the assistance of individual consultants or consulting firms. For instance, (a) a Highway Master Plan has been prepared and is being widely used for highway investment planning; (b) a training program for highway personnel, which started under the Seventh Highway Project, would be expanded substantially under the present project; and (c) consultants (GITEC, Germany) have been engaged to carry out studies for reorganizing DGH and its soils and materials laboratories and for improving operations of the local construction industry. 2.10 The improvement of the highway administration is somewhat hampered by the low salary scales for civil servants, which has caused many of the qualified and trained staff of SECOPT to leave for better opportunities in the private sector. Under the Seventh Highway Project, SECOPT agreed to prepare a plan of incentives to retain and attract qualified personnel. 2.11 The financial implications of a revision of the salary scales for SECOPT personnel have far-reaching effects for the whole public sector and would run against current efforts to keep the lid on public expenditures, especially recurrent operating expenses. In order to retain an adequate number of engineers and technicians, SECOPT has been authorized to contract qualified personnel at higher salaries than those paid to the civil servants. SECOPT's yearly budget includes a global amount for this purpose. In 1979, out of a total of 70 engineers and 55 engineering students engaged in high- way works, SECOPT had 17 engineers and five engineering students employed on  - 7 - this basis. Considering the constraints mentioned above, the present arrange- ments can be considered adequate. The covenant of Loan Agreement 1341T-HO/ 1342-HO (Seventh Highway Project) concerning SECOPT staffing is thus substan- tially complied with. During negotiations, the Government confirmed that it would consult periodically with the Bank to ensure continued adequate staffing of SECOPT. D. Highway Planning and Financing 2.12 The highway planning process has improved over the years by having the Highway MaLster Plan as one of the main bases for selection and programing of projects. The next important improvement would be to provide systematic collection of traffic data to support continuing planning. The 13 weighing stations throughout Honduras are equipped with traffic counters, and DGT is preparing administrative procedures for the systematic collection and evaluation of traffic data. During negotiations, the Government confirmed that SECOPT would establish a countrywide system of traffic counts by January 1, 1982. Updated traffic data is a necessary input to the continuous improvement of' highway planning. 2.13 The current highway investment program (Table 2.2) takes into account overall funding limitations for the period 1980-1984. The program shows a considerable decline in new construction as well as an absolute reduction in highway investments starting in 1982. The program is well balanced and correctly reflects the increased emphasis on small scale improve- ments, with special attention to deferred maintenance and construction of new low standard f'eeder roads. During negotiations, the Government confirmed that it would exchange views annually with the Bank on the continuing appro- priateness of the highway investment program. The Government also confirmed that SECOPT would update the Highway Master Plan by June 30, 1983. 2.14 Road users paid taxes and user charges at about L 29 mill-ion in 1979, of which fuel taxes accounted for some L 16 million (Table 2.3). Road maintenance expenditures in 1979 were about L 19 million, but are pro- jected to increase in the future (para 4.13). The retail price of gasoline is L 3.60 (US$1.80) per gallon and, for diesel fuel, it is L 2.10 (US$1.05) per gallon, about average for Central America and above the average world price. The Bank is financing a petroleum pricing and taxation study under the Petroleum Expl]oration Promotion Project. This study is expected to provide the Honduran Government with the basis for achieving an adequate petroleum products pricing system. The level of road user charges is broadly adequate, covering all r ecurrent highway maintenance expenditures as well as some 10% of the capital expenditures in 1979. The objectives for the next five years are for full coverage of recurrent expenditures and an increasing share of capital expenditures as construction of major projects declines. The Government is, for budgetary reasons, anxious to increase its revenues from the hiLghway subsector and is considering the implementation of a road toll system where the traffic warrants. Moderate tolls on the most trafficked roads would not be detrimental. The potential inefficiencies of the collection system have been discussed with the Government. All allocations for highway expenditures are channeled through the normal budgetary process, and there is no road fund or earmarking of road user charges.  -8- E. Highway Engineering 2.15 Highway design work is partially carried out by local or joint ventures of local/foreign consulting firms and partially by DGH. The consult- ing industry has grown substantially in the last, few years, and now there are several competent local highway design firms. With the increased activity and strengthening of the local firms, the foreign firms, which, until the early 1970s, dominated the industry, are being progressively phased out; at present, they are used mainly as advisers or for very specialized studies. 2.16 In order to reduce costs, and in view of the increasing demands of highway designs, DGH has expanded its highway design department so that a substantial portion of the design work is now being carried out directly by DGH staff or by independent engineers who have their own survey crews and are contracted on the basis of km of final designs per month. The latter procedure has proved to be effective and economical. 2.17 DGH has a set of geometric design standards for road construction which takes into account the type of terrain and the traffic; these standards have been coordinated with those agreed upon for the five Central American countries. The use of seismographic methods has been established to improve soil investigations, and the results have been provided to the contractors for their estimates. In addition, Loan 1341T-HO/1342-HO finances laboratory equipment for strengthening the Tegucigalpa and San Pedro Sula laboratories. The latter has been completed, but the Tegucigalpa laboratory building is not expected to be completed until 1981. Consultants GITEC (para 2.09) are assisting DGH in preparing the list of equipment to be purchased. F. Highway Construction 2.18 Highway construction is generally carried out by unit price contracts awarded through competitive bidding. Some minor improvements and construction of feeder roads are performed by force account. The total investment in 1979 for force account works was estimated at L 5.5 million, or about 5% of the total highway expenditures. 2.19 The Honduran Chamber of the Construction Industry has registered some 11 local firms specialized in highway works with working capacities ranging froTm US$50,000 to US$500,000 per year; in addition, there are a nj-.aber of -Fmall firms that carry out minor bridge, culvert and earth works. There r' -- jso about six foreign and joint ventures of local/foreign firms with permanent offices in Honduras that normally submit bids and obtain contracts for major construction works. Honduras has no restrictions against foreign contractors bidding for Government-financed contracts. Contractors may import equipt-nt and materials free of customs duties, but the equipment must be re-exported upon completion of contracted works; if it remains in the country, customs duties must be paid. Supervision of construction of externally financed works is normally carried out by consultants, while Government-financed works are usually supervised by DGH staff. 2.20 Registration and prequalification of local and foreign contractors are normally required for highway works. The "Colegio de Ingenieros Civiles" maintains a register of contractors, and, for the submission of bids, a  - 9 - certificate of registration from the "Colegio" is required. This rule applies to both local and foreign contractors; the latter have not had any problems regarding their registration. 2.21 The construction industry is facing a number of problems generated in part by the uneven flow of Government funds for highway works an,d the long delays in payment to the contractors. The Bank, under Loan 1341T-H0/1342-HO, is financing a study by consultants GITEC to identify the construction industry's problems and to recommend solutions. During negotiations, the Government confirmed that the consultants' recommendations would be given due consideration and that it would advise the Bank, by June 30, 1981, of its proposed actions resulting from these recommendations. G. Highway Maintenance and Training (i) Highway Maintenance 2.22 SECOPT is aware of the importance of good maintenance of its road network, and, in order to increase the efficiency of maintenance operations, DGM was reorganized as a separate directorate in early 1976. 2.23 Routine highway maintenance is carried out by DGM by force account through its eight maintenance districts (Chart 3). Each district has its own technical staff, equipment and limited repair facilities; when major equipment repairs are needed, they are carried out in the two regional workshops in Tegucigalpa an,d San Pedro Sula. The Tegucigalpa workshop has been recently expanded with a new building, and the new San Pedro Sula regional workshop was substantiaLlly completed in May 1980. Loan 1341T-HO/1342-HO provides for equipment for both workshops. Since the completion and operation of the San Pedro Sula workshop are essential for the proper repair of the equipment in use or to be used in northern Honduras, disbursements for all maintenance equipment and spare parts under the present project would be made conditional upon the workshop being in operation. 2.24 The main problem facing DGM is the shortage of maintenance equipment, for which international lending agencies have made limited contributions (IBRD US$1.0 million in 1961, IDB US$2.6 million in 1971, Export-Import Bank US$1.2 million in 1973 and IBRD US$2.8 million in 1976). These amounts, coupled with some suppliers' credits and limited budgetary allocations, provided DGM with its current fleet, which is aging because of intensive use and inadequate repair systems. The present fleet, comprising about 690 units, has an average age of seven years: about 363 units are in working condition, 55 need minor repairs, 174 require major repairs, and 98 should be scrapped (Table 2.4). The above figures reflect the lack of preventive maintenance, resulting in an average availability of equipment between 40% and 50%. The average level of annual purchases of maintenance equipment for 1977-1980 has been albout L 1.6 million which, considering the age of the fleet, was not sufficient for the replacement of wornout units. The project would provide for financing of the renewal and expansion of the fleet (para 4.14). In addition, procedures for systematic equipment renewal would be established (para 4.17) for future purchases. Budgetary allocations would be substantially increased to carry out SECOPT's maintenance program (para 4.13).  - 10 - 2.25 For proper operation of the maintenance equipment, the timely supply of spare parts is essential, and such supply has been slow. The main bottlenecl- is the fact that all Government supplies have to be procured through a Central Supply Office in Tegucigalpa. Since it appears that excluding this office from procurement of Bank-financed goods may not be feasible within the Honduran procedures, the Government, in May 1980, decided to create within SECOPT a branch of the Central Supply Office to expedite the purchase of spare parts. During negotiations, the Government confirmed that SECOPT would, by January 1, 1981, define the functions and operating procedures for this branch and there- after monitor the performance and inform the Bank. 2.26 During recent years, DGM has been under pressure to assist local authorities in the maintenance of many local roads and other public works (schools, market places, dikes, etc.). Scarce maintenance equipment has been diverted to these works, thus upsetting the implementation of planned mainte- nance programs. The Government recognized the need for a special capacity to support local authorities and, in late 1978, created the "Regional Development Boards" (Juntas Regionales de Desarrollo) for which equipment worth about US$5.5 million has been purchased and special funds have been allocated (the 1980 allocation is US$1.25 million); the operation of the equipment and supervision of the works are under the control of DGM. 2.27 Another important measure to alleviate the burden on DGM was taken in December 1979 through Presidential Decree No. 0720; in essence, the Decree states that a road can be accepted by DGM for maintenance only when it is fully completed. This saves DGM from having to take responsibility for partially or poorly built roads undertaken by local authorities. In the long run, the measure not only will bring about an improvement of the condition of the road network, but also will facilitate the maintenance of new roads. 2.28 In early 1978, SECOPT contracted consultants Roy Jorgensen Associates Inc. (USA), under the Seventh Highway Project, to assist in improving mainte- nance planning and management. The consultants' main tasks were to (a) estab- lish a pilot district in which the system would be tested; (b) establish a system of preventive maintenance for equipment; (c) organize the workshops; and (d) pre- pare an inventory of existing equipment and, on that basis, prepare lists of maintenance and workshop equipment needs. Improvement of field maintenance operations in the pilot region has been completed and is being extended to the other maintenance districts. However, the equipment preventive maintenance and the workshop organization program have been only partially implemented because of the shortage of funds and delays in completing the workshop rehabilitation program. The project would provide additional technical assistance, including training, to complete the upgrading of SECOPT maintenance practices. (ii) Training 2.29 SECOPT senior level staff are generally capable, but low and middle level personnel are not always sufficiently trained and often use inefficient work methods. All current SECOPT training activities are carried out by  - 11 - DGM's Training Department (established under the Sixth Highway Project) and by INFOP (Instituto Nacional de Formacion Profesional), which carries out basic training for workshop personnel (para 4.21). Although SECOPT's Training Department activities have been hampered by a shortage of funds, instructors and training equipment, the Department has been active in preparing 16 audio- visual courses Aiud one self-instructional manual and in showing training films to road foremen, equipment operators, mechanics, welders and unskilled workers. These presentations were followed up by field sessions of practical application conducted by supervisors. In addition, some short training courses for engineers, automechanics and electricians have been carried out through private firms. The training activities developed by DGM over the last three years would be substantially strengthened and expanded under the project (paras 4.18 to 4.21). H. Feeder Roads 2.30 In 1976, the Bank and the Government entered into an agreement for promoting and testing labor-based construction methods under the "Substitu- tion of Equipment for Labor" research project supported by nine Bank member countries. For this purpose, in 1976, the Bank provided a grant of US$200,000 and also a US$200,000 allocation under the Sixth Highway Project. The pilot program carried out over the 1976-1978 period not only showed that new construc- tion techniques could be developed for labor-based feeder road works but also demonstrated the social impact of these works. With the assistance of consul- tants GITEC, the Government constructed about 170 km of feeder roads between 1977 and 1978, all located in the southwest region (Choluteca) where the population density is high and the incomes are low. 2.31 The growing interest of the Government for the above-mentioned type of works was demonstrated in early 1978 when a new Depart-ment of Labor-Based Road Construction was created under DGH. The Bank, in view of the success of the program, reallocated US$1.0 million, under the Seventh Highway Project, for financing the construction of about 280 km of additional feeder roads during 1979-1980. These roads are located in the same southwest region in which the pilot project was developed and are proceeding satisfactorily. Maintenance of the feeder roads constructed using labor-intensive methods is satisfactorily carried out following the same methods. 2.32 With the expansion of feeder road construction to less densely populated valleys where unemployment and poverty are less pronounced, more use of equipment and greater reliance on small contractors is appropriate. Domestic contractors will carry out most of the works. However, labor-based construction will continue over the next few years, financed by the Government, IDB and USAID. 2.33 The Government's concern to improve rural access has to be seen in the context of overall agriculture and rural development policies of the country. It is intimately connected with the Land Reform Act of 1975, a key program of the Government, which enables the land to be divided once it is served by transport infrastructure.  - 12 - III. PAST AND ONGOING BANK ASSISTANCE TO THE HIGHWAY SUBSECTOR A. Past Projects 3.01 In 1955, a loan of US$4.2 million (135-HO) was made to finance the reorganization and strengthening of the Highway Department, including some maintenance equipment and technical assistance. Three years later, a loan of US$5.5 million (195-HO) was made, primarily to reconstruct the main roads between San Pedro Sula and Puerto Cortes, and between Tegucigalpa and the Inter-American Highway. This project also included the construction of bridges on the Western Highway between Chamelecon and Santa Rosa to make the highway passable during the rainy season. All work under these projects was successfully completed. 3.02 The first IDA Credit of US$9 million (1-HO) was made in 1961 to finance (a) improvements of sections of the Western Highway between Chamelecon and Santa Rosa to gravel standard and the construction of an extension to the highway from Santa Rosa to the El Salvador border; (b) construction of feeder road connections with the Western Highway; (c) continued technical assistance for highway maintenance initiated under the first loan; and (d) a highway transportation survey to prepare a long-term road investment program. The survey was carried out by Stanford Research Institute, and the report was issued in 1962. The extension of the Western Highway was completed in 1964, and other construction works were completed in 1967. 3.03 In 1965, a credit of US$3.5 million (71-HO) and a loan of US$6 million (400-HO) were made to finance reconstruction of the North road from Tegucigalpa to Potrerillos; works were completed in 1971. The Operations and Evaluation Department (OED) Audit Report (No. 641 dated February 20, 1975) concludes that the North Road Project was successful and broadly met its objectives; the Audit Report recommended more frequent supervision, mainly in the early stages of implementation. 3.04 In 1967, a loan of US$8.6 million (495-HO) was made to finance (a) reconstruction of the remaining sections of the Western Highway and paving over its full length and (b) feasibility studies for feeder roads and for the Tegucigalpa-Juticalpa road. Feasibility studies were completed in 1970, and reconstruction and paving works were completed in 1972. The OED report (No. 672 dated March 27, 1975) concludes that, although the reconstruction of the highway proceeded well and the quality of the works was good, the closing of the border with El Salvador resulted in an important decline of traffic. This development, together with cost overruns, reduced the rate of return of the project to a level which, in retrospect, made the investment questionable; however, the project road did help to connect the region with the rest of the country. 3.05 In 1973, a loan of US$18.8 million (896-HO) was made to finance (a) reconstruction of the Tegucigalpa-Talanga Road; (b) improvement of a secondary road and 80 km of feeder roads; (c) economic and technical studies for about 330 km of feeder roads; (d) technical assistance for transport planning; and (e) a training program for the staff of the Highway Department.  - 13 - The reconstrucl:ion of the iegucigalpa-Talanga road (the main project compo- nent) was comp'Leted on schedule in February 1979, and the other project components, except for minor engineering works scheduled for completion in May 1980, have also been completed. The cost of civil works came quite close to appra:Lsal estimates, which made it possible to allocate some of the unused contingencies to assist in urgent rehabilitation of sGme 250 km of roads in the Atlantic coastal region to repair the damages caused by Hurricane Fifi in September 1974. The Completion Report on the Sixth Highway Project is dated January 23, 1980; it concludes that the project was successful and met its main objectives. The Project Performance Audit Report is being prepared. B. Ongoing Projects 3.06 Loan 1341T-HO/1342-HO, amounting to US$35.0 million, was signed on December 16, 1976 and comprises the following: (i) The reconstruction, including paving, of the Talanga-Juticalpa- Catacamas road (about 155 km). Works are expected to be completed on schedule by the third quarter of 1980; (ii) Purchase of maintenance, workshop and laboratory equipment. The maintenance equipment has been purchased and the purchase of workshop and laboratory equipment is now under way with the exception of equipment for the Tegucigalpa laboratory, which is being delayed pending the completion of appropriate facilities for its installation; (iii) Consulting services for: (a) preparation of a Highway Master Plan - completed in late 1977; (b) technical assistance to DGH and DGM, including training for engineers and technicians and fellowships abroad. The technical assistance to DGM and the training program are being carried out; the assistance to DGH started in January 1980; (c) technical assistance to DGH for the local construction industry; study is in progress; and (d) studies in the area of influence of the Talanga-JutiLcalpa- Catacamas road in the Guayape Valley, with a view to the integrated rural development of the area. The study originally contemplated under this project is being car- ried out with financing from the Canadian International Development Agency (CIDA), and, therefore, the avai;Lable allocation of US$500,000 will be utilized over the period 1980-1981 for a feasibility study of an irrigation project in the Telica area of the Guayape Valley, which wou:Ld be complementary to the general rural development program in the area.  - 14 - 3.07 The Seventh Highway Project is 80% completed. Current estimates of completion costs are quite close to appraisal estimates. The project initiated considerable advances in maintenance; these advances, however, have to be pursued and consolidated. The project was revised to include the 1979-1980 tranche of SECOPT's program for the improvement of rural roads through labor-intensive methods (para 2.31). 3.08 Loan 1576-HO (Guayape Regional Development Project), amounting to US$10.5 million, was signed on June 16, 1978 and included an amount of about US$0.9 million for the construction of some 35 km of feeder roads to ensure all weather connection between farms and the existing secondary road network. Road construction and maintenance have begun. IV. THE PROJECT A. Objectives and Description of Project Components 4.01 The project, the components of which are included in the National Transport Plan and thus form part of the National Development Plan, supports the following main project objectives: (a) to facilitate the access to and from rural areas through better secondary and feeder roads; (b) to protect past investments in the highway network through improvement of maintenance operations; and (c) to continue the institutional improvements undertaken under previous projects to strengthen highway administration and maintenance to meet the requirements of the expanding road transport subsector. 4.02 The project comprises the following components: (a) construction of about 350 km of feeder roads to be built within selected agricultural valleys; (b) improvement of about 115 km of secondary roads; (c) purchase of maintenance and workshop equipment, including spare parts; (d) technical assistance for implementing a maintenance management system for scheduling and controlling the maintenance activities; and (e) technical assistance for training DGM staff. These components are described in detail below.  - 15 - (i) Feeder Roads Program 1981-1984 4.03 The Htonduran Government is embarking on a large feeder roads program (about 500 km per year) to improve rural access. This program is well coordinated with the ongoing efforts in the agricultural sector to increase agricuLtural production. The program is assisted by USAID, IDB, and the World Bank. In order to minimize the risk for overlapping, close cooperation has been established between the Government and the lending institutions. This cooperation has resulted in an agreed regional as well as time separation of the works to be financed by the different agencies. The Bank would finance some 350 km of feeder roads under the project, half of which (in the Guayape, Yoro and La Masica valleys) have already been selected and evaluated. The remainder would be selected and evaluated following the metho- dology presented below (para 5.03). IDB would finance road works in the Comayagua, Yoro and La Masica valleys, and, in the the latter two, an under- standing has been reached that IDB would handle the early part of the program and the Bank the later. USAID would finance road works in other vaLleys in the western part oi the country. Because of the importance of the feeder roads program and the Bank's interest in maintaining a dialogue on labor-based techniques, the Government confirmed during negotiations that it would exchange views with the Bank annually on the status of its entire feeder roads program and on the operations of the Department of Labor-Based Road Construction. 4.04 The subprogram included under the project would be implemented as follows: Group I would comprise the construction of about 165 km of roads located in the three valleys (Guayape, Yoro and La Masica), for which engineer- ing and economic evaluation have been completed. Since the roads would be constructed to low standards (Table 4.1), "minimum" engineering has been prepared by the Design Department of DGH, providing an adequate basis for cost estimates and contract documents. The economic evaluation was prepared by DGH and consultants GITEC in cooperation with the Ministry of Natural Resources and CONSUPLANE. 4.05 The remaining roads, totaling about 185 km, would be defined in agree- ment with the Bank, using the methodology for the economic evaluation developed by GITEC for Group I. During negotiations, the Government confirmed that, by December 31, 1980, and each June 30 thereafter, it would submit to the Bank for comments the list of feeder roads to be constructed in the following year, including their final engineering and economic justification. 4.06 The subprogram would be managed by a special Feeder Roads Section to be created within DGH's existing Project Unit carrying out the implementation of the Seventh Highway Project. Field operations would be supervised by offices to be created within the section, one for each valley. The project would finance vehicles for this supervision. The tentative staffin,g of the Feeder Roads Section and of the field offices, all to be financed by SECOPT, is shown in Table 4.2. A condition for disbursement under the feeder roads component requires that the Feeder Roads Section has been establishLed and that a civil engineer, with qualifications and experience satisfactory to the Bank, has been appointed as its head.  - 16 - (ii) Improvement of Three Secondary Roads 4.07 The project comprises the improvement of three existing secondary roads which are included in the Government's 1980-1984 program and were selected by SECOPT as high priority investments. The alignment generally follows the existing roads except for a few realignments which were required to improve winding or dangerous sections. The design standards for the roads are shown in Table 4.1. A general description of the roads follows. 4.08 The Rio Dulce-El Porvenir Road (48 km). This road branches off from the Rio Dulce Bridge, close to the town of Talanga, on the Bank-financed Tegucigalpa-Catacamas road. The engineering has been prepared by INGECO, a local consulting firm, with financing provided under Loan 896-HO. At present, the traffic runs over an old track which requires improvement; the horizontal alignment is generally good except for a section about 2.6 km long where a re- alignment is proposed. For the remaining 45.4 km, the alignment follows the existing road. However, because some sections of the road are flooded during the rainy season, the grade would be raised on these sections and a complete drainage system would be built. The existing bridges would be utilized, and a 0.15 m gravel sub-base would be laid. 4.09 The Danli-Santa Maria Road_(47 km). The project road starts at the City of Danli which is connected with Tegucigalpa by a recently completed two-lane paved road. The project road, when improved, will facilitate the existing traffic conditions and contribute to the development of the adjacent agricultural valleys. The topography of the area is generally flat except for a section of about 10 km in mountainous terrain. Detailed engineering for the road was prepared in 1976 by local consultants CONASH; realignments totaling about 14 km to improve difficult sections are included in the project. All existing bridges would be utilized, and the necessary additional drainage works would be carried out. Because of the substantial differences of traffic volumes along the road, it has been subdivided into two well defined sections with different design standards. A description follows: (a) Danli-Puente Los Almendros Section (29 km). This section, where the present traffic volume is relatively high (about 900 vpd), would be upgraded from gravel to a double bituminous surface treatment; a 10 m wide platform would be built with a 7 m wide surface. The traffic drops substantially before reaching the bridge over the Los Almendros river; therefore, this one-lane bridge which has a total span of 102.00 m would not be widened at this stage. (b) Puente Los Almendros-Santa Maria Section (18 km). The traffic volume going to Santa Maria and intermediate points is substantially lower than that in the first section (about 300 vpd); therefore, the design standards for this second section have been reduced. A 7.00 m platform would be built and the present earth surface would be upgraded to gravel standards. 4.10 The Telica-San Francisco de La Paz Road (20 km). The initial 6 km of this road are rather mountainous, but the topography becomes flat and roll- ing thereafter. A 7.70 m platform would be built, a gravel sub-base would be laid and some missing culverts would be built. Realignments have been pro- posed for the initial mountainous section and for the stretches of road with  - 1, - smooth topography where , realignment would substantially improve the traffic conditions without causing unduly high cost increases. The engineering has been prepared by Cerna y Maier, a local consulting firm, with financing pro- vided under Loau 896-HO. Telica, the starting point of the project road, is located along the Bank-financed Juticalpa-Catacamas road in the Ol<ncho region. It is envisagetd that a good cross-country connecting road will nave to be built in the f'uture to provide safe transport between the north and the Guayape valley. The improvement of the Telica-San Francisco de La Paz road would be the initial step toward such a connecting road. IDB is assisting in the financing of roads and forestry development projects in the northern region, and the Bank is financing the construction of the Puerto Castilla Port which will be the outlet for the production of this area. (iii) Four-Year Maintenance and Training Program (1981-1984) (a) The Maintenance Program 4.11 The development of highway maintenance capacity is a long-standing objective of Bank lending to Honduras. The maintenance components of previous projects have helped to build up DGM's organization and to establish its logistic support system. Maintenance requirements are expanding because of the growth in the length of the network and in the volume of the traffic, and are also chanlging in scope; the network is aging and more attention has to be given to pavement resealing and rehabilitation. The proposed project would expand the capacity of DGM and give particular emphasis to increasing its efficiency through better management, better use and upkeep of equipment, and training of personnel. The road inventory prepared in 1979 indicates that the maintenance network for which DGM is responsible comprises 6,460 km and would grow by almost 40% to 8,960 km by 1984. 4.12 Over the last two years, SECOPT has developed and adopted a mainte- nance management system (para 2.28) for scheduling and controlling its annual program of maintenance activities. The improved procedures were tested in Maintenance District No. 1 and are being introduced countrywide. The project would support the introduction of the system and its conscilidation throughout DGM's organization. The system covers routine maintenaLnce only, but would be expanded to cover periodic maintenance also when the districts have acquired the needed technical expertise in programing activities. 4.13 The implementation of an annual maintenance program would require the level of funding shown in Table 4.4. The 1980 approved budget of L 20.8 million is based on a detailed working program prepared by the consultants, and the 1981-1984 figures resulted from projecting the expenditures consiclering a gradual improvement and a moderate expansion of the road network. The total forecast expenditures are as follows: In Lempiras Year January 1980 1981 26.9 million 1982 26.9 million 1983 27.6 million 1984 27.5 million  - 18 - 4.14 The expansion and renewal of the equipment fleet would be a basic factor for the improvement of maintenance operations and the success of the proposed project. Net additional requirements were obtained from an analysis of the condition of the existing fleet and the capacity required annually to carry out the specified level of activities. The present project would com- prise the purchase of the recommended list of maintenance equipment which, including the training equipment (para 4.20), amounts to a total of US$8.4 mil- lion (Table 4.5); spare parts for preventive maintenance totaling US$1.57 mil- lion; US$0.93 million worth of spare parts for equipment rehabilitation; and US$0.13 million for additional workshop equipment. The amounts required for spare parts and workshop equipment have been determined on the basis of tentative lists prepared by SECOPT and consultants. 4.15 To assist SECOPT in carrying out the maintenance and training prog- rams, the present project would provide for the financing of a specialized consulting firm that would continue and expand the technical assistance prog- ram initiated under the Seventh Highway Project. During negotiations, the Government confirmed that it would engage specialized consultants to assist in carrying out the maintenance and training programs under terms and conditions satisfactory to the Bank. Draft terms of reference for consultants are given in Annex 1. 4.16 In view of DGM's urgency for rehabilitating some equipment units to carry out maintenance operations through 1980 and mid-1981, before the Bank- financed equipment is expected to be available, SECOPT obtained, under a recent USAID loan, an allocation of US$750,000 for rehabilitation of about 50 equipment units, to be carried out through the workshops of the local equipment dealers. 4.17 The Government does not have an established policy for periodic renewal of maintenance equipment, and this renewal has normally been financed through loans from international agencies (para. 2.24). This pattern of lump renewal is not conducive to continuity in maintenance operations. During negotiations, the Government confirmed that, by January 15, 1982, it would submit to the Bank for comments a proposal for systematic funding for the renewal of maintenance equipment starting from January 1, 1983. (b) The Training Program 4.18 The four-year (1981-1984) program would continue training activities undertaken under the Sixth and Seventh Highway Projects and would be especially addressed to road foremen, equipment operators, drivers and mechanical staff. The program aims at improving the productivity of some 700 staff (Table 4.6) and includes the strengthening of SECOPT's Training Department, the establish- ment of a Road Training Production Unit (RTPU) for the training of road foremen and equipment operators/drivers and a Mechanical Training Production Unit (MTPU) for the training of mechanical personnel, the purchasing of training equipment and materials, the recruitment of training specialists and instructors, the organization of seminars for middle and high level maintenance staff, and a short course abroad for three staff members of the Training Department.  - 19 - 4.19 Training of foremen would be carried out mostly in the field by adopting a system of training through production. RTPU would be set up to implement training while, at the same time, carrying out rehabilitation/mainte- nance operations on specific road sections within SECOPT's annual maintenance program. The trainees assigned to RTPU would thus be trained under actual working condi..ons. Training of mechanics would be conducted mostly at MPTU in the Las Torres regional workshop in Tegucigalpa. In addition to some general courses, the training of mechanical staff is focused on the repair of worn and broken-down equipment, under the supervision of experienced mechani- cal instructors, thus enhancing SECOPT's equipment maintenance capabilities and raising the level of equipment availability. SECOPT would be required to provide adequate spare parts for the training of mechanics throughout the duration of the program. Seminars on different topics related to maintenance management, accounting and administration would be conducted periodically for middle and high level maintenance staff by technical assistance experts. During negotiations, the Government confirmed that it would establish and equip RTPU and MTPU by June 30, 1981 and would provide adequate funds for their operation in line with the estimated requirements given in Tables 4.7 and 4.8. 4.20 Limited physical training facilities would be built at Las Torres regional workshop for the training of mechanics. Training equipment and mate- rials varying from heavy items, such as a motor grader, a loader, and a roller, to workshop equipment and tools and audio-visual training aids, would also be provided through the loan. All the training activities would be coordinated by the Training Department, which would initially be assisted by seven expatri- ate specialists (a training adviser, the chief of RTPU, the chief of MTPU, and four instructors). SECOPT would assign, as counterparts, two senior tech- nicians (RTPU and MTPU), two chief mechanics, two senior equipment operators, and one warehouse instructor. They would work closely with the training specialists, and it is expected that they would take over after the specialists' assignment is completed to follow up and consolidate action taken during the four-year program. The terms of reference for technical assistance services for training are in Annex 2. To foster the necessary coordination, it is expected that one consulting firm would provide the technical assistance for maintenance and training under two separate terms of reference. Chart 4 shows the proposed implementation schedule for the training program to be financed under the project; this schedule and the above terms of reference were reviewed and agreed with the Government during negotiations. 4.21 By a Decree dated December 1972, the Government created the Instituto Nacional de Formacion Profesional (INFOP) as a center to carry out and supervise all training activities in the country. Since INFOP has not yet the installed capacity for training all levels of personnel, SECOPT and INFOP have agreed that the training of road foremen, operators and skilled mechanics; would be carried out through SECOPT's Training Department and under the technical assistance component of the project.  - 20 - B. Cost Estimates and Financing 4.22 The total cost of the project is estimated at US$40.84 million with a foreign exchange component of US$28 million (about 69%) that would be financed through a Bank loan of US$28 million and a local component of US$12.84 million to be financed by the Government. In addition, the Govern- ment would support an increased level of operating expenditures for main- tenance (para 4.13). UNDP has been consulted on the possibility of providing funds for the technical assistance component, but funds could not be made available in time for this project. 4.23 A summary of project costs is shown on the following page. The estimated costs of the secondary roads (average cost US$80,000/km) are based on completed engineering studies and current unit prices for similar works; the costs for feeder roads (estimated on average at US$20,000/km) are based on completed engineering studies for half of the roads, with the resulting average cost applied to the overall length. These average costs/km are considered reasonable. The costs for road maintenance equipment, including spare parts, have been estimated on the basis of detailed lists prepared by consultants. These costs include local preparation and delivery charges but exclude import taxes. Because even the fuel and lubricants are tax exempt for project works, the local tax content of the project cost is negligible. The cost estimates for consulting services are based on recent contracts awarded for similar works as well as on man-month rates for similar services provided by Hondurans or joint ventures of Honduran and foreign firms. 4.24 The foreign exchange component for the improvement of secondary roads was estimated at 60%. For the construction of feeder roads, which are likely to be constructed using various labor/equipment mixes, the estimated foreign exchange component was 50%. For consulting services for super- vision of construction, it was estimated at 50%, assuming a limited foreign participation, and, for the technical assistance component, it was estimated at 80% because of a larger foreign participation. For the supervision of construction, technical assistance and training components, the estimated expenditures are for 350 man-months of services by foreign consultants and 220 man-months by local consultants, for a total of US$3.8 million equivalent or an average cost of US$6,700 per man-month. The foreign consultant costs average US$8,900 per man-month for salary and benefits, overhead and air fares. Local consultant fees are US$3,000 per man-month. The training component includes three fellowships abroad for professional staff at a cost of US$8,000 each. The various consulting services would require a total of about 570 man-months. The foreign exchange component for the purchase of equipment and spare parts was estimated at 90% assuming that transportation, storage and other charges could amount to 10% of total costs. 4.25 A physical contingency of 10% has been included to cover increases in road construction or rehabilitation quantities. About 25% of the project base cost has been calculated for foreign and local price contingencies over the implementation period for equipment, civil works and consultants, assuming inflation rates as shown at the bottom of the cost table.  - 21 - Project Cost Estimates Estimated Foreign Local Foreign Total Local Foreigl Total Exchange (Lempiras Millions) (US$ U-lllions) % A. ROAD CONSTRUCTION AND IMPROVEMENT 1. Construction of 350 km of feeder roaLds 7.00 7.00 14.00 3.50 3.50 7.00 50 2. Improvement of Secondary Roads (a) Rio Dulce-El Porvenir 1.30 2.00 3.30 0.65 1.00 1.65 60 (b) Danli-Santa Maria 4.60 7.00 11.60 2.30 3.50 5.80 60 (c) Telica-San Francisco de La Paz 1.36 2.04 3.40 0.68 1.02 1.70 60 3. Supervision of civil works (a) Engineering Services 1.62 1.60 3.22 0.81 0.80 1.61 50 (b) Vehicles 0.02 0.18 0.20 0.01 0.09 0.10 90 Subtotal 15.90 19.82 35.72 7.95 9.91 17.86 B. MAINTENANCE PRO3GRAM (1981-1984) 1. Equipment and Spare Parts (a) Maintenance equipment 1.58 14.30 15.88 0.79 7.15 7.94 90 (b) Training equipment 0.10 0.80 0.90 0.05 0.40 0.45 90 (c) Spare parts for pre- ventive maintenance 0.32 2.82 3.14 0.16 1.41 1.57 90 (d) Spare parts for rehab. of equipment 0.18 1.68 1.86 0.09 0.84 0.93 90 (e) Workshop equipment 0.02 0.24 0.26 0.01 0.12 0.13 90 Subtotal 2.20 19.84 22.04 1.10 9.92 11.02 2. Technical Assistance (a) For road maintenance 0.50 1.96 2.46 0.25 0.95 1.20 80 (b) For training program 0.30 1.24 1.54 0.15 0.65 0.80 80 Subtotal 0.80 3.20 4.00 0.40 1.60 2.00 Base Cost (Jan 1980) 18.90 42.86 61.76 9.45 21.4:3 30.88 C. CONTINGENCIES (a) Physical (10% of A) 1.60 1.98 3.58 0.80 0.99 1.79 55 (b) Escalation (25% of base cost + C(a)) 5.18 11.16 16.34 2.59 5.58 8.17 68 Subtotal 6.78 13.14 19.92 3.39 6.57 9.96 Total 25.68 56.00 81.68 12.84 28.00 40.84 Price Adjustment as follows: Civil works, equipment and technical assistance: 1980 10.5% (local and foreign components) 1981 9.0% 1982 8.0% 1983-84 7.0%  - 22 - C. Implementation 4.26 SECOPT would be responsible for project implementation through its Directorates as follows: (a) DGH for the construction of feeder roads and improvement of secondary roads as well as supervision of construction. For the feeder roads component, the supervision would be carried out by DGH, but consultants would be engaged for supervising the improvement of secondary roads. (b) DGM for carrying out the maintenance and the training programs with technical assistance provided under the project. 4.27 As shown in the schedule presented in Chart 5, the project would be implemented over the four-year period 1981-1984. Bids for the construction or improvement of roads could be invited in late 1980 so that actual construc- tion works could start in early 1981. The project implementation schedule was reviewed and agreed during negotiations. D. Procurement and Disbursements 4.28 Procurement under the project would be in accordance with the Bank "Guidelines for Procurement." The maintenance and training equipment, totaling about US$11.0 million, would be procured through international competitive bidding (ICB). However, contracts with an estimated cost below US$50,000 and within an overall ceiling of US$500,000 would be advertised locally in accord- ance with SECOPT regulations, which are satisfactory to the Bank. Spare parts for specific makes of equipment would be procured directly from established dealers under the same regulations for individual orders-of less than US$50,000. Contracts for the purchase of goods amounting to US$50,000 equivalent, or less, would be reviewed ex-post by the Bank. About 30 contracts of that size would fall under this limit, representing about 15% of the corresponding project expenditures. 4.29 Feeder roads works totaling about US$7.0 million would be carried out by local contractors or by DGH's field offices, using equipment rented from local equipment owners submitting bids for such rental. This method has been implemented successfully in a USAID-financed feeder roads program and in a Bank-financed regional development project, both in the Guayape Valley. Contracts for improvements of secondary roads, totaling about US$9.1 million, would be awarded through ICB among prequalified contractors. Because the roads to be improved are located far apart and would be executed concurrently, separate bids would be invited for the Rio Dulce-El Porvenir road (total cost about US$1.65 million), the Telica-S.F. de La Paz road (total cost about US$1.7 million), and the Danli-Santa Maria road (total cost about US$5.8 million). Contracts for civil works amounting to US$200,000 or less would be reviewed ex-post by the Bank. Their number is roughly estimated at 30% of the total, representing about 15% of the corresponding project expenditures. During negotiations, the bidding and contracting arrangements for the civil works component of the project were discussed and agreed with the Government.  - 23 - 4.30 Consultants for supervision of construction of the secondary roads would be engaged under terms and conditions satisfactory to the Bank. This was agreed during negotiations. The technical assistance services for the maintenance and training programs would be the continuation of the works now under way under the Seventh Highway Project and would continue to be carried out by expatr.'tes. The personnel training program for maintenance would rely upon a group of expatriates who would prepare Honduran personnel to follow up on the program. 4.31 Project expenditures eligible for disbursement from the Bank loan would be as follows: (a) 55% of total expenditures for (i) civil works for the construction of iEeeder roads; (ii) civil works for the improvement of secondary roadLs; and (iii) consultant services for supervision of civil works; (b) 80% of total expenditures for the consultant services for technical assistance for the maintenance and training programs; and (c) 100% of foreign expenditures for (i) the purchase of equipment, vehicles, spare parts and workshop tools; and (ii) seminars and training abroad. 4.32 No retroactive financing is provided. A tentative disbursement schedule is given in Table 4.9; disbursements would be made against normal documentation. The closing date would be June 30, 1985. E. Monitoring 4.33 The progress of the project would be monitored against the implemen- tation schedules and financing requirements established at appraisal. In addition, the following indicators would be monitored to assess advances toward the project objectives: (a) utilization of maintenance equipment; (b) implementation of the annual maintenance programs for routine and periodic maintenance leading to improved road standards according to the physical targets shown in Table 5.6; (c) budgeting of adequate funds for the maintenance and civil works programs; (d) number of trainees participating in the personnel training program to achieve the targets shown in SECOPT's report on the maintenance component, dated November 1979 (Table 4.6); and (e) traffic surveys to be carried out periodically on the primary, secondary and tertiary road systems as comparedL with appraisal projections.  - 24 - The purpose of project indicators and the scope of related reporting require- ments were discussed and agreed during negotiations. F. Project Risks 4.34 The improvement of secondary roads does not involve any special risk; the engineering has been completed and the construction industry is able to carry out works of the proposed size. The construction or improvement of 350 km of feeder roads involves a certain amount of risk because SECOPT is embarking on a large feeder roads construction program (1981-1984) which could exceed DGH's capacity for carrying out this type of work; the risk has been dealt with by dividing the feeder roads among the three executing units for IDB, USAID and Bank works (para 4.03), by providing additional staffing of DGH (para 4.06), and by annual reviews of SECOPT's entire feeder roads program (para 4.03). The implementation of the maintenance component should not involve special risks since the project provides the necessary equipment for a good maintenance of the road network as well as a strong component of technical assistance to ensure that road maintenance and equipment operations are carried out according to the programed activities. In view of current fiscal constraints in Honduras, there is some risk that counterpart funds for the project, as well as funds for recurrent maintenance expenditures, may not be provided in a timely manner. The requirements for funds have been carefully analyzed with planning and financial authorities to comply with the overall fiscal program, and the details of annual budgetary requirements were confirmed during negotiations. The funding risk would also be lessened by close monitor- ing and by the agreed annual review between the Bank and the Government of the overall investment program and its financing prospects (para 2.13). G. Environmental Impact 4.35 The road maintenance and the road improvement components of the project are expected to have a beneficial environmental impact since they would control soil erosion through proper drainage works on roads already existing. The feeder roads component would open new roads, often along existing tracks. A negative environmental impact might be expected in road sections passing through mountainous terrain, and SECOPT would ensure that special attention would be paid to drainage work in order to minimize soil erosion. V. ECONOMIC EVALUATION 5.01 The main components of the project, i.e., the feeder roads program, the secondary roads, and the maintenance program, are distinct in scope and objectives and are, for that reason, treated as three different projects, each with its own analysis and economic return given below. All of them form part of a well balanced highway investment program (para 2.13), while the feeder roads program is also intimately connected with the Government's agricultural and rural development policies (para 4.03).  - 25 - A. Feeder Roads Program (i) General 5.02 The feeder roads component (about 23% of the project) to be financed by the Bank consists of some 350 km to improve rural access to areas with predominantly small farms and to facilitate the transportatiorn of mainly agricultural produce to the market. Because of the keen competition in the transport industry (para 2.05), most of the benefits resulting from reduced transportation costs are expected to be passed on to the rural population. The population would also benefit from improved access to schools, health and other public facilities. (ii) Road Selection and Economic Justification 5.03 The identification of roads proposed for Bank financing in the three valleys selected by the Ministry of Natural Resources (Guayape, La Masica and Yoro) was based on a screening and ranking system developed jointly by CONSUPLANE, SECOPT, the Ministry of Natural Resources and GITEC, consultants employed by DGH. The system is based on field data for population, road density and aLgricultural production and takes into account economiLc, distri- butive and scocio-political factors. In total, some 50 roads were studied, out of which less than half passed the screening procedures and were ranked high enough to be subject to the final economic evaluation. The criterion for final project: selection was that the economic rate of return shouLd at least equal the opportunity cost of capital in Honduras, estimated at some 11%. The benefits included in the evaluation were: (i) producer surplus from increased agricultural production; (ii) cost savings to non-agricultural goods traffic; and (iii) timae savings for passenger traffic. The benefit and cost streams were analyzed over a 10-year period. 5.04 Results of the economic evaluation are summarized in Table 5.1 for Group I roads (para 4.04), while examples of the more detailed calculations undertaken for individual roads are given in Table 5.2. Except for two or three marginal cases, all roads have substantial positive net present values, and the economic rates of return typically exceed 20%. An important part of the benefits consists of producer surplus, and Annex 3 outlines the basis for these estimates for roads located in the most important valley - Guayape. Similar evaluations were also undertaken in other project valleys. (iii) Sensitivity Analysis and Risk 5.05 The switching values at which the economic rates of return for the roads as a group would be less than 11% are either a cost increase of 135% or a decrease in benefits of 60%; both changes are far above any reasonably expected variation in the key parameters used. B. Improvement of Secondary Roads (i) General 5.06 The secondary roads to be improved (about 35% of the project) are included in the National Transport Plan and have been subjected to feasibility studies based on costs obtained from detailed engineering and beriefits estimated from actual traffic counts.  - 26 - (ii) Project Benefits 5.07 The project benefits considered consist of vehicle operating cost savings as a result of improved road standards. Although not quantified by the consultant who did the analysis, the time cost savings for commercial vehicle operators as a result of increased average speed over the roads are an additional benefit and would thus further increase the economic returns given below. The vehicle operating costs with and without the project were calculated separately for passenger cars, buses and trucks over good, fair, and bad road conditions for flat, rolling and mountainous terrain. The traffic forecasts and corres- ponding benefit streams for vehicle operating cost savings are given for each road in Table 5.3. Typically, the improvements of the project roads have been estimated to result in a reduction of vehicle operating costs for cars (L 0.29 per km) by 33%, for buses (L 0.47 per km) by 35% and for trucks (L 0.78 per km) by 41%. Reductions in vehicle operating costs to existing traffic and its normal growth represent by far the largest benefit component (91% of total benefits). Benefits to generated traffic (9% of total) have been estimated in the conventional manner as half of the cost reductions accruing per vehicle-km for existing traffic. The benefits from cost savings are likely to go ini- tially to transporters, but, because of the keen competition in the transport industry, it is expected that, over time, most of the benefits will be passed on to the rural population served by these roads. The users will, in addition, benefit from the improved level of transport services. (iii) Project Costs 5.08 For the purposes of calculating the economic return, total project costs have been adjusted by excluding price contingencies. (iv) Economic Justification 5.09 Based on the above costs and benefits, the economic returns for the three roads are calculated as follows: Economic Return Rio Dulce-El Porvenir 18% Danli-Santa Maria 16% Telica-San Francisco de la Paz 18% (v) Sensitivity Analysis and Risk 5.10 A standard sensitivity analysis was performed by increasing the costs by 10%, decreasing the benefits by 20%, and a combination of the two. The results are shown in Table 5.4 and indicate that, under the worst circum- stances considered, i.e., a simultaneous increase in costs by 10% and decrease in benefits by 20%, the economic return drops to its lowest value, 13%, for the Danli-Santa Maria road, which is still well above the 11% opportunity cost of capital. C. Highway Maintenance Program (i) General 5.11 The economic evaluation of the maintenance and training program (about 42% of the project) compares total maintenance costs and road user costs with and without the project. The analysis of the program covers  - 27 - the period from 1980 to 1984, assuming that, after 1984, the Government would budget as current expenditures the expenses necessary to replace the equipment units annually as their economic life expires (para 4.17). In the economic evaluation, the residual value of the new equipment under the project has been deducted at the end of year 1984. (ii) Road Network and Condition 5.12 Using the results of the DGM road condition survey, all principal, secondary and feeder roads were classified according to three surface types (paved, gravel and earth) and within each type according to levels of surface condition (good, fair and bad) (Table 4.3). 5.13 Road conditions would improve or deteriorate depending on the resources available to routine and periodic (major) maintenance activities according to the Maintenance Management System developed by SECOPT and its Consultants. Without the proposed maintenance program, DGM would continue to pursue its minimum maintenance policy, and, gradually, the road conditions would change from 50% good, 30% fair and 20% bad in 1980 to 35% good, 30% fair and 35% bad in 1984. With the maintenance program, road conditions would improve to 64% good, 20% fair, and 16% bad. The distribution of the network by type of road and surface condition between 1980 and 1984 with and without the maintenance program is shown in Tables 5.5 and 5.6. (iii) Vehicle Operating Costs 5.14 Based on traffic data given in the Highway Master Plan, the 1977 average daily traffic and growth rates were calculated (Table 5.7) and the traffic broke!n down by road and vehicle types for the years 1980-1.984 (Table 5.8). The vehicle operating cost for each type of vehicle over each type of road was calculated based on the extensive analysis made in the Highway Master Plan and updated to January 1980 cost level by applying the actual cost increases since 1977 to each component making up the vehicle operating cost, i.e., fuel, lubricants, tires, spare parts, vehic:Le costs and labor. The resulting vehicle operating costs are given in Table 5.9. (iv) Maintenance Costs 5.15 About 55 different maintenance activities were analyzed by frequency and cost for different road types to establish the maintenance costs with and without the project. These costs were based on the resources required for each activity for labor, equipment and material and calculated according to the Maintenance Management System developed by the consultants. (v) Economic Justification 5.16 The economic benefits from the maintenance program are the savings in vehicle operating costs due to the gradually improved road standards and the time cost savings for commercial vehicle operators. The vehicle operating cost savings (Table 5.10) were derived from the above road standards (Tables 5.5 and 5.6), the corresponding vehicle operating costs (Table 5.9) and the annual traffic (Table 5.8). Similarly, the time cost savings were estimated from the  - 28 - increase in average speeds and an application of the average wage rates for operators to the resulting time savings for commercial vehicles (Table 5.11). Matched with the economic costs of the program, the above benefits produce a 70% economic return, or 63% without time cost savings (Table 5.12). (vi) Sensitivity Analysis and Risk 5.17 The sensitivity of the economic return to a number of variations to the benefits and costs was tested. The results, shown in Table 5.12, indicate that the economic return would drop to 19% under the worst circumstances considered, i.e., an increase in cost by 25%, a decrease in benefits by 25% and excluding time cost savings. The risk of this happening is considered small, and the economic return remains highly satisfactory. 5.18 Because of the composiiton of the project, the calculation of an overall economic return for the whole project is not possible. However, for the secondary roads and the maintenance program, which are fully defined and which constitute 77% of the total project, an overall economic return would be about 47%. The project is well justified. VI. AGREEMENTS REACHED AND RECOMMENDATION 6.01 During negotiations, agreement was reached with the Government on the following principal points: (a) to continue the control of weights and dimensions of vehicles using the national roads so that they would be kept within the limits provided by the laws and regulations of Honduras (para 2.06); (b) to consult periodically with the Bank to ensure continued adequate staffing of SECOPT (para 2.11); (c) to establish a countrywide system of traffic counts by January 1, 1982 (para 2.12); (d) to exchange views annually with the Bank on the continuing appro- priateness of the highway investment program (para. 2.13); (e) to update the Highway Master Plan by June 30, 1983 (para 2.13); (f) to give due consideration to the recommendations of the consultants engaged for the review of the construction industry and to advise the Bank, by June 30, 1981, of its proposed actions resulting from these recommendations (para 2.21); (g) to define the functions of, and operating procedures for, the branch, within SECOPT, of the Central Supply Office by January 1, 1981 and, thereafter, to monitor the performance for the purchase of spare parts and inform the Bank (para 2.25); (h) to exchange views annually with the Bank on the status of its entire feeder roads program and on the operations of the Department of Labor-Based Road Construction (para 4.03);  - 29 - (i) to submit to the Bank for comments, by December 31, 1980 and each June 30 thereafter, the list of feeder roads to be constructed in the following year, including their economic justification (para 4.05); (j) to engage specialized consultants to assist in carrying out the maintenance and training programs under terms and conditions satis- factory to the Bank (para 4.15); (k) to submit to the Bank for comments, not later than January 15, 1982, a proposal for systematic funding for the renewal of maintenance equipment starting from January 1, 1983 (para 4.17); (1) to establish and equip RTPU and MTPU by June 30, 1981 and to provide adequate funds for their operation in line with the estimated require- ments (para 4.19); (m) to carry out the project according to the agreed implemen- tation schedules (paras 4.20 and 4.27); (n) to carry out the civil works component of the project according to the agreed bidding and contracting arrangements (para 4.29); (o) to engage consultants to supervise the construction of the secondary roads under terms and conditions satisfactory to the Bank (para 4.30); and (p) to monitor progress of the works on a continuing basis according to the agreed project indicators and to meet reporting requirements (para 4.33). 6.02 The following would be conditions for disbursement for the corres- ponding components of the project: (a) disbursement for all maintenance equipment and spare parts would be subject to the San Pedro Sula workshop being in operation (para 2.23); and (b) disbursement for the feeder roads component would be subject to the Feeder Roads Section being established and a civil engineer, with qualifications and experience satisfactory to the Bank, being appointed as its head (para 4.06). 6.03 Subjiect to the above, the project provides a suitable basis for a Bank loan of US$28.0 million equivalent. The term would be 20 years, including a five- year grace period. August 6, 19i80  - 30 - TABLE 1.1 HONDURAS EIGHTH HIGHWAY PROJECT Areas of Major Valleys Valley Area Km % Total Aguan 2,288.2 21.9 Sula 1,840.0 17.6 Guayape 1,160.0 11.1 Choluteca 973.0 9.3 Agalta 605.6 5.8 Paulaya 580.0 5.6 Comayagua 533.8 5.1 La Masica 688.1 6.6 Siria 363.8 3.5 Talanga 329.1 3.2 Nacaome 322.0 3.1 Yoro 270.6 2.6 Jamastran 261.3 2.5 Danli-El Paraiso 214.4 2.1 Total 10,429.9 100.0 Source: Ministerio de Recursos Naturales - Planning Directorate - 1979 April 1980  TABLE 1.2 - 31 - HONDURAS EIGHTH HIGHWAY PROJECT Urban Population Centers - 1978 1978 Urban Department Population Main City/Town (1000 Hab.) Francisco Morazan 410.3 Tegucigalpa Cortes 315.2 San Pedro Sula Atlantida 81.9 La Ceiba Yoro 64.0 El Progreso Comayagua 54.5 Colmayagua Choluteca 47.4 Choluteca Olanchc 33.6 Juticalpa Other 176.1 Total Urban 1,183.0 Total Rural 2,256.0 Total National 3,439.0 Source: Unidad de Analisis Demografico, Depto. Estadistica, CONSUPLANE April L980  - 32 - TABLE 1.3 HONDURAS EIGHTH HIGHWAY PROJECT Honduras National Railway: Traffic and Finance 1970-1979 1/ Total-/ Net Total Operating Operating Year Cargo Passengers Revenues Expenses Deficit (-) (Metric Tons) (1000 Lps.) (1000 Lps.) (1000 Lps.) 1970 510,359 106,769 4,130 2,753 1,377 1971 591,010 102,948 4,146 3,661 485 1972 546,724 76,051 3,410 3,624 - 214 1973 619,378 78,452 4,069 3,659 410 1974 446,348 92,991 3,264 4,277 -1,013 1975 340,932 100,398 2,408 3,449 -1,041 1976 382,991 130,118 3,910 4,526 - 616 1977 460,066 144,312 4,930 4,993 - 63 1978 385,708 160,327 4,703 4,990 - 287 1979 462,546 128,397 5,133 4,956 + 178 1/ Includes depreciation and debt service. Source: Ferrocarril Nacional de Honduras April 1980  - 33 - TABLE 1.4 HONDURAS EIGHTH HIGHWAY PROJECT Drv Cargo -/ Traffic at Principal Ports -/ 1970-1979 (Thousands of M. Tons) Year Pto. Cortes Tela La Ceiba Amapala Total 1970 880 210 366 128 1,584 1971 1,080 315 369 82 1,846 1972 1,069 250 374 206 1,899 1973 1,169 206 381 209 1,965 1974 1,013 215 313 168 1,709 1975 1,015 102 236 134 1,4187 1976 1,028 187 355 161 1,7:31 1977 1,300 178 415 149 2,042 1978 1,341 193 439 152 2,125 1979 1,602 268 537 155 2/ 2,562 1/ Excludes petroleum and molasses. 2/ Puerto Castilla will be completed in late 1981 3/ Includes 89,000 tons for San Lorenzo Source: Informes Estadisticos Anuales y Trimestrales - Empresa Nacional Portuaria. April 1980  HONDURAS EIGHTH HIGHWAY PROJECT Passenger and Cargo Traffic at Major Airports 1970-1979 ------- Tegucigalpa -- ------ ----- San Pedro Sula ------ - --- Total ------- Year Passengers Cargo Passengers Cargo Passengers Cargo (1,000) (1,000 Lbs.) (1,000) (1,000 Lbs.) (1,000) (1,000 Lbs.) Dom. Int. Dom. Int. Dom. Int. Dom. Int. Dom. Int. Dom. Int. 1970 142 71 10,323 8,057 139 62 9,313 7,341 281 133 19,636 15,398 1971 98 76 8,403 7,453 95 55 7,356 7,950 193 131 15,759 15,403 1972 72 80 4,967 6,369 56 53 4,242 7,360 128 133 9,209 13,729 4 1973 58 85 4,136 6,079 41 62 2,809 7,033 99 147 6,945 13,112 1974 58 97 3,356 6,862 43 66 1,982 7,327 102 163 5,338 14,189 1975 48 96 1,901 6,534 36 66 1,212 7,759 *84 162 3,113 14,293 1976 45 98 1,595 8,728 38 74 938 9,656 83 172 2,533 18,384 1977 59 113 1,341 12,091 42 81 746 12,111 101 194 2,087 24,202 1978 71 136 1,341 13,568 49 91 576 13,032 120 227 1,917 26,600 1979 62 153 750 15,871 85 88 1,476 14,012 147 241 2,226 29,883 Source: Estadisticas de Transporte Aereo 1978 Direcci6n General de Aeronautica Civil, SECOPT May 1980 M- 'J1  TABLE