Peru - Second Road Construction Project

RESTRICTED T CW Y Report No. TO-481a REPOTS DE WITHIN L<qEWYEEK This report was prepared for 'use within the Bank and its affiliated organizations. They do not accept responsibility for its occuracy or completeness. The report may Inot be pulblishecl nor may it be quoted as representing their views. INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT INTERNATIONAL DEVELOPMENT ASSOCIATION APPRAISAL OF THE SECOND ROAD CONSTRUCTION PROJECT PERU August 12, 1965 Projects Department  CURRENCY EQUIVALENTS 1 US$ 2 6.8 Soles 1 Sol - 0. 037 US dollar Fiscal Year: July - June Units of Measurement 1 ton = 1 metric ton = 2204. 6 lbs. 1 gallon = 1 U. S. gallon = 3. 7853 liters 1 Hectare = 2.471 acres  PERU APPRAISAL OF THE SECOND ROAD COi"STRUCTION PROJECT Table of Contents Page SUMMARY lo INTRODUCTION 1 11 BACKGROUND 2 A. General 2 B. Transport in Peru 2 C. The Highway System 3 D. Highway Administration and 1Maintenance 5 III. THE PROJECT 5 Ae The Central Highway 5 B. Description of the Project 6 C. Design Standards of the Project Road 7 D. Execution 8 E. Continuation of the Maintenance Program 8 F. Engineering Services for Further Projects 8 G. List of Goods and Financing 9 IV. ECONOMIC JUSTIFICATION 11 A. Introduction 11 B. The Zone of Influence 11 Ce Reduction of Transport Costs 11 De Other Benefits 12 V. CONCLUSIONS AND PECONMENDUTIONS 13 Table 1 - Design Standards - Second Class Regional Highway Table 2 - Feasibility Studies being Carried Out Table 3 - Cost Estimates - Highway Project Table 4 - Traffic Projection - Economic Rate of Return MAP - Road Network  PERJ A.PPRAISA.L OF THE SECOND ROAD CONSTRUCTION PROJECT Summar The Government of Peru has asked the Bank to help finance the reconstruction and-construction of a 486-km section from La Oroya to Aguaytia, of the Central Highway which is one of the countryts major penetration roads. The project would upgrade or replace a narrow, wind- ing gravel road with sharp curves and steep grades. The last section of the same road, Aguaytia-Pucallpa, has been financed under Bank Loan 271-PE. ii. The cost of the project is estimated at US$55.6 million equivalent based on final survey and design of 80% of the road. The project includes amounts for advisory services to the Ministry, for a study of road users charges and funds for final engineering, mostly of further road projects for which feasibility studies are being carried out. Although the foreign ex- change component for construction work is 45 to 50%0, the Government has re- quested that the Bank finance 60% of the total cost and the Bank has agreed. iii. All contracts for construction would be awarded on the basis of international competitive bidding. Execution of the project would be the responsibility of the Ivinistry of Development and Public Works. Consultants will be retained to assist in the awarding of contracts and to supervise the execution of the projecto iv. The project road has been given high priority in the Coverdale 2e,.c Colpitts highway study of 1961, in the subsequent highway programs and in the draft report of Renardet-SAUTI for a highway investment program for the period 1966-1975. The traffic on the existing road tapers off from 700 vehicles per day near La Oroya to 125 vehicles per day near Aguaytiao The new road will sharply reduce transport costs. The rate of return on invest- ment is estimated to be about 13%. V, The project is technically sound, economically justified, and fcrms a suitable basis for a Bank loan of US$33 million. The loan would be foi 25 years including a grace period of six years.  P_RU APPRAISAL OF THE ShCOND ROAD CONSTRUCTION PROJECT I, INTRODUCTION 1. The Government of Peru has asked the Bank to help finance the reconstruction of the Central Highway from La Oroya to Aguaytia (486 km), 2. This would be the fourth highway loan by the Bank to Peru. The first loan (127-PE) of US$5 million was made in 1955 to help start the re- organization of the highway maintenance operations. 30 The second loan of US$5o5 million (271-PE), signed on December 3* 1960, covers the foreign exchange cost (50% of total) for reconstructing the section Aguaytia-Pulcallpa of the Central Highway (170 km). USAID is partioi- pating in the project by financing 80% of the local currency cost* The project is about 65% complete and will probably be finished late in 1966, about two years behind the original schedule; the delay is mainly due to t1le original underestimation of the difficulties of work execution arising from the remoteness of the area and the unfavorable climatic conditions. The quality of the work is satisfactory and, despite the delay, final costs are not likely to exceed the original cost estimates. 4. The third loan (300-PE) of US$10 million equivalent was signed on November 3, 1961, for the continuation and development of the maintenance program for the national road system of Peru. The firm of Renardet-SAUTI was appointed as consulting engineers and succeeded in obtaining close co-- operation of the Directorate of Highways. For the first time in Peru, a detailed inventory of highway conditions was completed, Systematic traff:LE counts are organized continuously in the country. 'MaLntenance equipment financed from the proceeds of the loan has been distributed over the main- tenance districts except for a portion for which orders have recently been placed. The implementation of the traffic laws regarding traffic weights still leaves much to be desired. However, with scales and other necessary equipment now being installed, implementation should proceed in 1965. The Economic Commission for Transportation Regulation which has authority to set tariffs for all modes of transportation was established, and is functioning, however not without encountering difficultieso Punds were also made avail- able in this loan for a Highway Study by Coverdale and Colpitts and receintLy for final engineering of La Oroya - Tingo Maria section of the present road project, and for road feasibility studies, 5. This report is based on (a) a feasibility study and 80% of the final engineering of the La Oroya-Aguaytia section by Brown & Root and Renardet-SAUTI, consultants to the Peruvian Ministry of Development and Public Works, (b) Coverdale & Colpittst Highway Study and the draft report of Renardet-SAUTIts investment plan for the highway sector, and (c) the findings of Bank supervision missions, of an appraisal mission in August 1964 and later visits to Peru.  -2- II. BACKGROUND A. General 6. Peru has an area of 1,300,000 sq. km, somewhat larger than the countries of the European Common Market combined. It has a population of 12 million, which is increasing rapidly at about 3% annually. The Andes mount?ino running north-south parallel to the coast divide the country into three dis- tinct zones, the dry and desert-like coastal strip to the west, the vast undeveloped tropical jungle to the east and the high mountainous plateaus of the "Sierra" in between. These topographic conditions make highway construc- tion and maintenance a difficult and costly task. 7. The many important cities in the arid coastal area, including the capital, Lima (about two million inhabitants), depend for their existence or rivers, dams and deep-water wells which supply water to irrigate the land. More than half the population of Peru lives in the Sierra, most of them under extremely difficult economic conditions. Along the eastern foothills of the Sierra is a rather narrow band of fertile land, called the "Ceja de Montana". This corridor varies fran 15 to 50 km in width. In this area at altitudes varying between 600 and 2,000 meters, the climate and soil are generally ccn- sidered suitable for agricultural production. The "selva" or jungle regiorn constitutes the valleys of the upper Amazon river and its tributaries. The soil of this areajunder a hot climate and abundant rainfall,produces a tropice.a forest and vegetation characteristic of jungle lands and transportation so far is primarily by river routes and air. B. Transport in Peru 8. The highway system, although still in the relatively early stages of development, constitutes the principal mode of transportation for both freight and passengers, Railways, inland waterways, and coastal shipping are of im- portance in several regions of the country. 9. With the opening of the new Lima-Callao International Airport late in 1960, international jet service has been initiated to Peru. There are over 20 airports in Peru regularly serviced by local airlines and numerous airstrips which give access to points in the selva. Domestic civil aviation is importart not only for passenger transport but also for movement of limited volumes of freight, particularly between the coastal region and the areas in the eastern foothills of the Andes mountain range. 10 The two major railroad systems in Peru are the Central Railway and the Southern Railway, both owned and operated by the Peruvian Corporation. The railways and the parallel highways are to a large extent complementary to each other, but on certain categories of freight the railways experience stiff com- petition. The Central Railway is paralleled by the road Callao-Lima-La Oroya, to which the La Oroya-Aguaytia section proposed in the present project is an extension. The Central Railway handloe-* or % million tons of freight and carries about 400,000 passengers per year. In 1963 the Bans -adoe a loan of US$13,250,000 to the Peruvian Corporation for the rehabilitation of tlAQ tract., the dieselization of traotion and the modernization of the Central and SoutIi<X  - 3 - Railways, The Cerro de Pasco Corporation operates a rail-line between the mining areas around Cerro de Pasco and La Oroya where part of the mineral ores are processed before being transferred by the Central Railway to Lima and the Port of Callao. This rail-line handling more than 700,000 tons of ores per year and about 200,000 passengers, parallels the Cerro de Pasco-La Oroya section of the project road. The private rail-line being mainly for trans- port of mining ores of its owning company, the paralleling road is complemenl- tary to the rail rather than competive. The private railway is obliged to serve passengers, but would not object if they were carried by buso Several other isolated railroads, mainly otmed by the State Rd lways, handle limited volumes of traffic and are generally in poor condition0 lie Callao is by far the most important seaport of Peru with an annual cargo volume of more than 4 million tons. There are ten other seaports sea+t- tered along the coast each with a volume of more than 100,000 tons per year. Of the numerous river ports and loading points only two handled more than 10,000 tons per year, Iquitos on the Amazon and Pucallpa on the Ucayali river, The lake port, Puno, on the Lake Titicaca handles more than 100,000 tons pe- year, mainly to and from Bolivia. 12. The highway transport industry has expanded rapidly in the last 10 years. The motor vehicle fleet has more than doubled between 1953 and 1963 from 90,000 to 210,000 vehicles, an annual increase of nearly 9%. Of the fleet about 40% are trucks and 6% buses. Most of the passenger cars are found in Lima and other cities in the coastal area. The average age of the fleet is high but is decreasing. Peru can still expect a considerable growth of hig?vwiay transport. Consultants estimate that the vehicle fleet will increase by abo-2t 8% annually, slightly faster than the expected growth of the national incomen this estimate seems reasonable. 13. The Government is considering the establishment of a Ministry of Transport in order to improve the coordination between the different modes of transportation, The establishment in 1961 of the Economic Commission for Transport Regulation has already been a step in the right direction. The establishment of a balanced system of user's taxes and rates and tariffs i5, however, not yet achieved (see paragraph 19). C. The Highway System 14. The road network consists today of about 41,000 km of highways, roads and trails, which according to the type of surfacing can be listed as follows: Paved roads (asphalt pavement) 4,200 km Gravel roads with base 6,800 km Dirt roads without base 15,000 km Trails 15,000 km The main network of roads is shown in the general map attached. 15. The principal highway is the Panamerican Highway along the coast, approximately 2,750 km in length. From the coast three major penetration roads  are planned to lead over the Sierra into the Ceja de Montana and the jungle. one in the north to Yurimaguas; one in the center, the Central Highway, Lirr.- Pucallpa, of which the project road forms part; and one in the south leadir& from Nazca to Cuzco and Puno with a branch to Puerto Maldonado. In order to open the potentially fertile Ceja de Montana, the Government is now promoting the so-called Carretera Marginal de la Selva, a highway parallel to the coast on the eastern slope of the Andes connecting valleys suitable for agriculturo and colonization. A reconnaissance survey for this road has now just been completed by the Government's consultants. 16. The annual investment in road construction and betterments during the period 1951-1960 averaged US$7 million with a maximum in the early fifties of about US$10 million. This rate of investment was much too low to solve in a reasonable time the needs of transportation in this vast, difficult countryc 17. In order to estimate the needs for further road investment in Peru, the Bank helped finance in 1961 a national highway study. The consultants, Coverdale and Colpitts, in their report dated October 31, 1961, concluded that in ten years 6,300 km of road should be improved and 3,000 km of new roads should be constructed. Costs were estimated at US$230 million. 18. Since President Belaunde's Government came into power in 1963, high- way construction has received much attentiono The Government has expressed its desire to launch as quickly as possible a large nationwide program of improve- ment and construction of roads, and the Bank, USAID and the Inter-American Development Bank have agreed to consider a coordinated approach to assist in financing such a program. The lending agencies agreed that each would help to finance a part of a road study program, consisting of an updating of Coverda'.e and Colpitts' report, and feasibility studies on suitable road sections. 1o that end, the Bank made available US$880,000 in 1963 from Loan 300-PE and ir March 1965 a technical assistance grant of US$300,000. In the meantime, before an over-all road investment program is completed and is taken as the basis for external financing, lending agencies agreed to consider financing of those road sections for which feasibility and engineering studies were being prepared under earlier arrangements, as was the case for the present road project. 19. The expenditures for highway construction have already increased markedly in the last few years from US$7 million in 1960 to US$26 million budgeted for 1965, of which US$8 million will be financed from loan funds. Presently, about half of the Governmentts own funds is derived from earmarked taxes and half from the general government revenues. The Government could reduce the amount needed from the general revenues considerably if it would take steps to increase the level of gasoline taxes, which obviously would be politically unpopular. The level of user charges also has important bearing on ensuring a fair competition between railway and highway transport. The present tax on regular gasoline is only SI 0.95 per gallon on a sales price of about SI 4.00 per gallon; on high-grade gasoline the tax is S/ 1.25 per gallon on a sales price of about S/ 5.50 per gallon. No taxes are levied on diesel oil. The need for raising road user's fiscal contribution has been discussed with the borrower. It is a condition of the loan that the Government will undertake *to carry out a review of road user costs and of fiscal revenues fror,  road user charges and present to the Bank, not later than six monThs from the si.gning of the loan, a more suitable overall level and structure of road user charges, as well as specific measures to attain such levels and to distribute charges equitably among the different types of road users. Satisfactory performance in this connection should be a major factor in determining sub- sequent lending for highway projects0 20, An economic mission to Peru sponsored by the Bank has just com- pleted its field investigation and will propose a revised investment plan for the entire transport sector0 D. Highway Administration and Maintenance 21. The Directorate of Highways in the Ministry of Development and Public Works is responsible for the construction and maintenance of the national road network. The Ministry of the Interior is responsible for en- forcement of traffic regulationso The Directorate of Highways has central divisions for administration, finance, planning and design, construction, bridges, laboratories, maintenance and equipment. Construction and mainte- nance work is supervised by an inspector general and six inspectors who direct the work carried out in 26 districtse 22. In recent years the highway maintenance organization has been materially strengthened with the financial assistance of the Bank. The ad- visory services rendered by consultants under Loan 300-PE were successful in organizing the maintenance and equipment divisions as well as in traffic en- gineering and planning. In view of the fact that the Government is planning an extensive highway program for which external financing will be sought, an extension of the consultants' contract has been agreed upon. The consultant's services will be extended to include programming, planning and road design. 23. Expenditures for maintenance and betterments are now at a satis- factory level. In 1965 they are budgeted at 298 million soles, representing on ave:rage an amount of S/ 20,000 per km or US$750 of the maintained roads e Assurances from the Government have been received that: a) these amounts will continue to be increased gradually in the future with the increase of traffie and the extension of the network, as envisaged in the loan agreement for 300-PE, b) the equipment depreciation fund established as a result of Loan 300-PE will continue to receive adequate yearly allocations to be used for replacement of obsolete equipment, and c) the traffic laws regarding traffic weights will be implemented (see paragraph 4). III. THE PROJECT A. The Central Highway 24. The Central Highway stretches over a total of 840 Ica between the Lima-Callao area on the Pacific Coast and Pucallpa, located on the Ucayali river, a tributary of the Amazon river, navigable for small crafts. From Lima, the highway climbs the Western slopes of the Andes mountains and reaches its highest point of 4,800 meters above sea level shortly before La Oroya (Km 190), an important mining center. Between La Oroya and Cerro de Pasco (Km 310) the road follows the Altiplano at an altitude of about 4,000 meters, From Cerro de Pasco, the road descends through a narrow valley to Huanuco  - 6 - (Km 430), at an elevation of 2,000 meters. After Huanuco, the road climbs the Carpish pass (Km 475) at 3,000 meters to descend into the Ceja de Montana around Tingo Maria (Km 565), After crossing the Cordillera Azul and passing through a spectacular gorge, it reaches the jungle plains approximately 50 km east of Aguaytia (Km 670) from where the road follows the almost horizcn.- tal terrain to Pucallpa (Km 840). 25. The section between Aguaytia and Pucallpa (170 km) is being recon- structed, under Loan 271-PE and a USAID loan, from a road impassable for most of the rainy season to a well-designed road paved with a double-surf2ce treatment. 26. The Peruvian Highway Department has been working for years on the improvement of the Central Highway from Lima over the Ticlio pass to La Oroya, The road is being built to standard specifications and paved with a bituminou3 carpet. Work is still going on at a slow pace and the quality of execution on some occasions has been unsatisfactory. The Ministry hopes to complete the section in 1965, but this may be optimistic. Cost to bring the road frcra Lima to La Oroya into satisfactory shape may be up to USXP4 million. 27. The condition of the remaining intermediate section of 486 km frocm La Oroya to Aguaytia, the present project, leaves much to be desired. Apart from periods of blockage of the road by landslides, the road is serviceable throughout the year. However, the road is winding and narrow, and has a rough surface over most of its length. In the section between Huanuco and Tingo Maria, there are over 85 km where only one-way traffic is allowed cn alternate days. 28. The project financed by Loan 271-PE included funds to carry out final engineering of the reconstruction of the road between Tingo iMaria and Aguaytia. This study was undertaken by the consultants, Brown and Root, em- ployed for the supervision of construction project Aguaytia-Pucallpa, After a change in the List of Goods of Loan 300-PE, the consultants employed for the maintenance program, Renardet-SAUTI, were charged with the final engineer- ing studies on the section La Oroya-Tingo Maria. These studies are completed. except those for the. 85 km section over the Carpish pass. These will be com- pleted in December 1965. Bo Description of the Project 29. The proposed project consists of: a) The construction and reconstruction of about 486 km of highway between La Oroya and Aguaytia, and engineering services in con- nection with the supervision of the execution. b) The continuation of the advisory services by consulting engi, neers provided for in Loan 300-PE for a further period of three years.and of a study on road-users taxes.  - 7 - c) Final engineering studies mostly for projects for which feasibility studies and preliminary engineering are being carried out with funds from Loan 300-PE and the Bank's technical assistance grant (see Table 2), but also for other roads of high priority. Co Design Standards and Cost Estimates of the Project Road 30. The construction and reconstruction of the Central Highway between La Oroya and Aguaytia will provide a better connection between Lima-Callao, the mining areas of La Oroya and Cerro de Pasco on the Altiplano, the Ceja de Montana on the eastern slopes of the Andes, and the jungle plains. Con- sultants prepared the designs for the road in close cooperation with the Directorate of Highways. The consultants' findings and recommendations, as well as the Ministry's opinion, have been taken into consideration. 31. The road is designed to the standards of Class II of the Peruvian highway classification (see Table 1). The design standards are satisfactorye Design speeds range from 40 km/h in mountainous terrain to 100 km/h on level terrain. The maximum grade will be 7%. Pavement width is 6 meters and shoulder width is 1,20 meters. On the section between La Oroya-Salcachupan, where traffic is heavy, an asphalt carpet has been proposed, whereas the section Salcachupan-Aguaytia has been designed writh a double-surface treat- ment. The reconstruction of the road between La Oroya and Cerro de Pasco (123 km) consists mainly of realigning sections, providing adequate base courses and paving. Between Cerro de Pasco and Huanuco (126 km) a new alignment has been chosen with moderate gradients to avoid the present excessive grades. The present road between Huanuco and Tingo Maria (130 km) leads over the Carpish pass. Extensive studies have been carried out by the consultants to investigate if a new alignment following the gorge of the Huallaga river would be feasible. The road along the gorge would need more than 2,000 meters of tunnels in areas where perpendicular rock walls prevent other solutions. Although it would give better road characteristics, the higher cost (by about US$5 million) of the Huallaga gorge alternative makes this solution unwarranted. The Mlnistry, although originally in favor of the Huallaga variant before the detailed study was made, concurs with this conclusion. The reconstruction of the existing road over the Carpish pass will include relocations of the alignment in many sections. The road between Tingo Maria and Aguaytia (105 km) will be reconstructed generally along the existing alignment. 32. The construction cost estimates are based on quantities derived from final engineering designs (except for the section over the Carpish pass) and unit prices based on cost analyses and on averages of recent highway con- tracts, The cost estimates include a 15% allowance for physical contin. gencies and for possible price increases. For the 85 km Carpish pass section,the estimates are based on preliminary engineering and the allowance for physical contingencies has therefore been raised to 20%. The foreign component of highway construction costs is estimated to be in the range of 45 to 50% depending on the extent of foreign contractors' participation in the project works. The estimsted foreign cost component is consistent with previous experience in Peru.  -8 D, aEecution 33, Execution of the project will be the responsibility of the Ministry- of Development and Public Works. Construction works will be carried out by contractors under unit-price contracts awarded on the basis of international comoetitive bidding. Bidding documents for the project road will be prepare'2. by consultants with the assistance of the Mvlinistry. All project construction work will be supervised in the field by consultants, who will engage a maxirurm number of Peruvian engineers. The project will be divided into 7 sectiorns, each section awarded on a separate contract. E. Continuation of the Maintenance Program 34. The Government will continue to finance the replacement of obsolete maintenance equipment with the help of the depreciation fund established as a condition of Loan 300-PEo The present services of the consulting engineers rb the Highway Department was terminated in May 1965. In order to continue these needed services, the project includes a provision for extension of the con- sultants' contract for a period of 3 years. Consultants will continue to give advice to the Ministry in the field of maintenance operation, equipment and management, and will extend their services to the field of programming, plar,n- ing and highwiay design. An amount of US$1.1 million has been included in the project for this purpose, of which $660,000 represents the foreign exchango costs of these services and will be covered by the loan. F. Engineering Services for Further Projects 35. A provision of US$1.8 million has been made for the foreign excrsngc cost out of a total of US$3.0 million for final engineering studiese These studies are mainly for highway projects, located in various parts of the country, for which feasibility studies and preliminary engineering are being undertaken with funds from Loan 300-PE and the technical assistance grant (see Table 2); they also include final engineering of other important roads of high priority included in the Peruvian 5-year highway program, to be mut71- ally agreed upon between the Borrower and the Bank.  - 9- G, List of Goods and Financing 36. The estimated cost of the project is summarized below (for detai-s see Table 3): Cost Estimate Financing Total Bank Loan Government (millions of US$) A. Highway Construction a) Construction and reconstruction of the La Oroya-Aguaytia road including 15% contingency 48.2 28.7 19.5 b) Supervision of works under a) 3.3 1.9 1.4 Sub-total 51.5 30.6 20.9 B. Advisory Services to Ministry and a Study of Road Users Charges 11 o.6 0.5 C. Engineering Further Highway Pro,ject Final engineering studies for projects for which feasibility studies are being carried out and also for other important roads 3.0 1.8 1.2 Total 55.6 33.0 22.6 37. The Government has asked the Bank to finance 60% of the construction cost of the highway project instead of the actual foreign exchange component of the project cost, which is estimated to be in the range of 45 to 50%, and 60% of the consultant's services. The Bank has agreed to do so. The Peruvian Government will finance the remaining cost, US$22.6 million equiva- lent and has given assurance that these funds will be made available 38. It is expected that the work will start at the beginning of 1966 and that construction will be completed in 1970. The annual expenditures are estimated as follows :  - 10 - Total Cost Bank Government (113$ million) (US$ million) n o 1966 9e3 ~ 5.5 3.8 101 1967 13.0 7.7 5.3 142 1968 14.3 8,5 5.8 153 1969 13e0 7.7 5.3 142 1970 6.0 3e6 2.4 64 Total 55,6 33*0 22,6 602  - 11 - IV. ECONOIffC JUSTIFICATION A. Introduction 39. The Coverdale and Colpitts study, the draft report of Renardet- SAUTI and the Ministry's highway investment programs all consider the Central Highway from Lima through La Oroya, Cerro de Pasco, Huanoco, Tingo Maria, Aguaytia to the headwaters of the Amazon river at Pucallpa as one of the principal arteries of Peru which needs to be improved. The Ministry is still engaged in bringing the section Lima-La Oroya up to standards, The Bank and AID previously made loans for the reconstruction of the section Aguaytia- Pucallpa. B. The Zone of Influence 40. A main problem of the Peruvian economy is how to increase agricul- tural production and to relieve the population pressure in the over-populated Sierra. The opening up of new lands in the Selva and to a limited extent in the Ceja de la Montana would considerably help to ease these problems. The natural conditions are favorable for the establishment of settlements and for the cultivation of a large variety of crops and the production of live- stock. These programs require much time, and in order to assure effective- ness of the agrarian reform which is currently under execution by the Government, there ought to be complementary investments, such as penetration roads and farm-to-market roads, as well as the reconstruction of the project road to Lima on which at present transportation costs are extremely high. 41. Development in the Tingo Maria-Pucallpa area has already been substantial. The Government has provided health services, schools and tech- nical agricultural assistance. Experimental farms for cattle, coffee, tea, rubber and other products were established, and land was made available to settlers on a long-term payment basis at 10 to 50 soles per hectare, very inexpensive in comparison to land suitable for agriculture in the Sierra or on the Coast (1,000 - 2,000 soles per hectare). The population of the region (about 80,000 inhabitants) increased tenfold in 20 years. Agricul- tural produce for export from the area in 1962 amounted to 50,000 metric tons and lumber to 60,000 metric tons. 42. The project will provide all year service to traffic at lower cost and will generate a further growth of the development of the area. Produc- tion is estimated by Govermment officials to double in the next decade. C. Reduction of Transport Costs 43. The project will sharply reduce transport costson one of the most traveled roads in Peru. Operating costs of a 6-ton truck on a very poor  - 12 - gravel road, such as the existing road, average about 6 to 7 soles per km. Because of the improved design standards and better pavement, it is estimated that on the reconstructed road these costs will be reduced at least by 40%. The expected percentage reduction is in line with the experience in similar road improvements in Peru and other countries. 44. Recent traffic counts made by the Ministry and the Consultants indicate that in 1964 about 700 vehicles traveled on the La Oroya end taper- ing off to about 125 vehicles daily on the Aguaytia end of the project. About 80% of these were trucks. For the future, it is assumed that the traffic volume will grow at about 6% per annum during the first 10 years of the 20 year service life of the improved road and 4% per annum thereafter. In addition to this normal growth, there would be new traffic generated by the improved road. An annual growth of 6% of this type of traffic is assumed for the first 5 year period following completion of the road. 45. If the savings in vehicle operating costs are applied to the estimated traffic in 1970, the year of completion of the project, the estimated savings in that year would amount to about 130 million soles. (See Table 4). The rate of return on the investment during the 20 year economic life of the project would be 13% per annum. D. Other Benefits 46. In addition, there will be other benefits which are not included in the above rate of return calculations because they cannot readily be expressed in monetary terms. Those most important include: a) The present road is so narrow and winding that larger and more efficient vehicles cannot be used. The reconstructed road by permitting the use of such vehicles will reduce transport costs. b) There will be substantial savings in time for both passengers and freight. The travel time of a truck from La Oroya to Aguaytia will be reduced from about 16 hours to 10 hours. The same truck could make more trips, thus reducing the number of vehicles needed and the investment in trucks. c) The road will improve access to the areas around Tingo Maria and Pucallpa, which should help stimulate further agricultural development and exploitation of lumber.  - 13 - V. CONCLUSIONS AND RECOMNDA-TIONS 47. The project will greatly improve the conditions for road transport on one of the most.important highways of Peru. The DMinistry of Development and Public Works will-be able to execute the project with the assistance cf consultants. 48. The project is technically sound, economically justified, and forms a suitable basis for a Bank loan of US$ 33 million, An appropriate term of the loan would be 25 years including a grace period of six years, in accord- ance with the construction period and the economic life of the investment. August 16, 1965  Table 1 PERU APPRAISAL OF THE SECOND ROAD CONSTRUCTION PROJECT Design Standards Second Class Regional Highway Topography Flat Rolling Mountainous Design speed 100 kph 70 kph 40 kph animum curve radius 300 mts. 150 mts. 60 mts. Stopping sight distance 150 mts. 100 mts. 50 mts. Vertical grade (over 300 mts.) 3% 4% 6% Vertical grade (under 300 mts.) 5% 6% 7% Roadway width 6.0 mts. 6.0 mts. 6.0 mts. Shoulder width: 1.2 mts. 1.2 mts. 1.2 mts. Slope of shoulders 3% 3% 3% Type of surface: La Oroya-Salcachupan asphalt asphalt asphalt carpet carpet carpet Sal6achup-an-Ag-uy.yatv doubl& double double bituininous bituminous bituminous Structures' Desi-gn-load H20-S16 H20-S16 H20-S16  Table 2 PERU APPRAISAL OF THE SECOND ROAD CONSTRUCTION PROJECT Feasibility Studies being Carried Out Financed from Loan 300-PE 1. Puente Fiscal - MoAuegua Total cost US$27,000 This 110 km long highway in the extreme south of Peru is the only section of the Panamerican Highway without asphalt paving. The road is moreover badly aligned. 2. Sicuani - Desaguadero Total cost US$115,000 This 00 km section of road is located between Cuzco and the Bolivian border. The existing road is badly aligned and lacks adequate paving. Financed from Technical Assi.stance Grant 3. Pasamayo - Section of the Panamerican Highway - Estimated cost US$50,000 This 15 km section of the Panamerican Highway, 40 km north of Lima alongside the Pacific Ocean, has an average daily traffic of about 1,000 vehicles0 It is constantly in danger of being blocked by sand slides in the tremendous sand dunes in which the road is located. The road is the sole conmection with the north of Peru. A thorough eng,ineering study must be carried out either to correct the deficiencies and prevent future slides or to design a new road bypassing the area. 4. Sullana - Paita Total cost US$25,000 Since the closing and removal of the railroad between the Port of Paita and Sullana, only desert trails are available on this 60 km connection. . 2Satipo - Via Central Total cost US$185,000 This important 115 km road section will connect two penetration roads leading from the Sierra into the Ceja de Montana. This road will form a part of the Carretera Marginal de la Selva.  Table 3 PERU Appraisal of the Second Road Project Cost Estimate In US$ I. Road Construction Im. Total Cost Million Soles million a) La Oroya-Cerro de Pasco 123 145 b) Cerro de Pasco-Salcachupan 64 150 c) Salcachupan-Pt. Rancho 84 1h5 d) Pt. Rancho-Pt. Cayumba 85 210 (Carpish Pass) e) Pt. Cayumba-Tingo Maria 25 52 f) Tingo Maria-Aguaytia 105 423 f)Tig Mra-gayi 1,12 Contingency: 15% 168 Sub-total 1,293 = 1,293 = 48.2 II. Supervision of roads under (I) 89 = 3.3 III. Advisory service to Ministry including study road users charges 30 = 1.1 IV. Engineering Future Road Projects 81 = 3.0 Total S/ 1,h93 $55.6  PERU APPRAISAL OF THE SECOND ROAD CONSTRUCTION PROJECT Traffic Projection and Estimates of Economic Savings Total Daily Daily Truck Savings Traffic Traffic Operating in ,Daily 1964 1970 Cost 1970 Lengthh Traffic Percentage Equivalent Equivalent Soles/Km in million (km) 1964 Trucks Trucks Trucks Old New Saving Soles 1. La Oroya - Desvio Tarma 23 700 60 490 750 5.0 3.0 2.0 13 2. Desvio Tarma - Cerro de Pasco 100 300 70 230 300 5.5 3.0 2.5 27 3. Cerro de Pasco - Salcachupan 64 250 80 210 270 7.0 3.6 3.4 21 4. Salcachupan - Huanuco 62 250 80 210 270 6e0 3.0 3.0 18 5. Huanuco - Puente Rancho 22 150 85 135 180 6.0 3.0 3.0 4 6. Via Carpish Pass 85 150 85 135 180 7.0 3.6 3.4 19 7. Puente Cayumba - Tingo Maria 25 150 85 135 180 6.o 3.0 3-0 8. Tingo Maria - Aguatia 105 125 85 110 150 7e5 3.6 3e9 22 486 129  X ~~~~~E C U A D O R / C O L O M B I A cTUMBE pos Vecdes N F ) ~~~~~~~ ~ ~~ ~~~~~~~~~~~~~~IOUITOSf_ Puca'6 /< B ogOb i) C,x / cute, CHCLAYO ; O. 6' r 0; W F' SAIn ~ ' AJ CA . RC. 40 d e r o \ \t . X bW <~~~~~To o t _______ Tococ.he $- B R A Z I L > N ,#? \-sF_ R Toc~~~~~~~~oche < C' c cLCochicodon . coYllP 1Psosconcho ' C gC ,robOl Tinqo Mor,o 'OIIO Ch)_ic Cooc iANUCO o- MA HLJANYCERROd QAt,e I I a OroYol oj 3 ___ ~ ~ ~ ~ ~ ~ o -9fi9Chos~hica a Concepcion \ } HUANCAYO \O pit,,, P.ertoi \ ^ \ > ~~~~~~~~~~~~~~~~~~~~~~~~Moldo,,odo9 / \_ ' tUZCO UCHO Pi-h MOCIluMQUGU FEBRUAR 1965ICA Chh9on1o Ism R ~~~~~~~P~~~~~uqu.0 ScurmMcsr,t PERU "Son / 0fCort ROAD NETWORK a m) r- Asphalt -od. L.aI, 271 PE rlAc G-cvl -od. Project -ond ,/laod5 --------- Di~t - d.REQUIPA / _ ~~~~~~~~~~~~~~-- Dirt roods __ ULO J~~~~~~~~~~~~~aoyo e Desodez *-------- --- --.. Propo-ed eo.ds _ M lrn Mollndo- ,t MOUEGUA .D R.il-eys a Iep ty _ Cor hto.nt.in. ZOOO meters and o-er 0 S0 fO 10 50 200 250 300 Km Az C _Conc~~~~orcdi 'a FEBRUARY 1965 1IBRD -912 R