El Salvador - Third Highway Project (supplementary)

LokPJ 521 -ES RESTRICTED Report No. TO-509a This report was prepared for use within the Bank and its affiliated organizations. They do not accept responsibility for its accuracy or completeness. The report may not be published nor may it be quoted as representing their views. INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT INTERNATIONAL DEVELOPMENT ASSOCIATION APPRAISAL OF THE REVISED THIRD HIGHWAY PROJECT EL SALVADOR November 8, 1967 Projects Department  CURRENCY EQUIVALENTS US $1.00 = 2.50 Colones (%) Colon 1 = US $0.40 Colones 1,000,000 = US $h00,000 FISCAL YEAR January 1 -December 31 WEIGHTS AND MEASURES Metric British/U.S.: Metric Equivalents 1 mile (Trm) = 1.6 kilometers (ki) 1 foot (ft) = 30.5 centimeters (cm) 1 acre = 0.h0 hectare (ha) 1 imnerial gallon (IG) = 1.20 US gallons (gal) = .55 liters (1.) 1 ton (tn) = 1.12 US short tons (sh tn) = 1.02 metric tons (n.t.)  EL SALVADOR APPRAISAL OF THE REVISED THIRD HIGHIAY PROJECT TABLE OF CONTENTS Page No. STJNS4ARY i - ii '. BhACKGROUlD 1 2. REVISED COST ESTIAATES 3 3. EXECUTION 5 ECONOMTIC JUSTIFICATION 6 A. Trun- Roads 6 B. Feeder Roads 7 'D. CONGLUSEior 9 LIST OF TABLES 1. Cost Estimates and Status of Project 2. Design Standards 3. Traffic Pro,ection h. Feeder Roads - Benefit Summary KAP This report is based on the findings of several missions to El Salvador by Messrs. J. D. North and F. C. Soges, engineers, W. A. Wapenhans, agricultural economist, and H. Adler and K. Miuber, transport economists.  EL SALVADOR APPRAISAL OF THE REVISED THIRD HIGIWAY PROJECT SUT4ARY i. On November 2, 1962, the Association granted a Development Credit of $8.0 million to the Republic of El Salvador (Credit 31-ES) for a project with a total estimated cost of about $13.5 m]illion, which inc'luded: (a) improvement and construction of seven trunk roads and four feeder roads; (b) maintenance reorganization; and (c) engineering services for (a) and (b), The Credit became effective on April 8, 1963. ii. At the end of 196h, the Government asked the Association to agree to upgrade the design standards of two trunk roads, San Salvador-Acajutla and Santa Tecla-La Libertad, because of the rapid increase of traffic, and to deo lete the feeder roads from the project in order to stay as close as possible to the original cost estimates. The change in the description of the project was approved by the Executive Directors on December 23, 1964. iii. The change in the project description was not formalized because the Government subsequently requested the Association to reinstate the feeder roads in the project and asked it to provide additional funds to cover in- creased costs for (a) the upgraded design standards of the two trunik roads and (b) the reinstatement of the feeder roads, for which the cost estimates had been increased on the basis of more detailed information resulting from the completion of detailed engineering. iv. Negotiations for a supplementany loan of US$ 2.8 million took place in Decermber 1965 on the basis of cost estimates then available. Approval of the supplementary foreign borrowing by the El Salvador National Assembly TwTas only obtained in MYay 1967, and then only with a reservation which needed to be clarified. Recent estimates, based on fuller engineering data and con- struction experience, are higher than the 1965 estimates, amounting to US$ 20.5 million and indicate that the additional foreign exchange requirement is $4.1 million. However, due to the further delay that would probablly ensue in ob- taining National Assembly approval for an increased amount of loan, the Govern- ment has agreed to provide the additional foreign exchange requirements above those covered by the proposed supplementary loan of US$ 2.8 million. v. The execution of the project is behind schedule but otherwise sat- isfactory. The Government was assisted by a US consulting firm in design and supervision of construction, and engaged another US firm to continue super- vision after December 31, 1966. Detailed engineering is complete and con- struction contracts have been awarded for 60% of the road works in the revised project; these works are substantially complete. vi. The revised project is technically feasible, and economically ad- vantageous. It is scheduled to be completed by lafto 1970.  - ii - vii. During loan negotiations in 1965, the Government confirmed its undertakings under Credit 31-ES and gave assurance that the necessary local funds would be appropriated. As total estimated costs have risen since negotiations, the Government has reconfirmed the availability of local funds, and also that part of the increased foreign exchange cost which would not be met by the proposed supplementary loan. viii. The revised project provides a suitable basis for a Bank loan of $2.8 million equivalent to supplement the $8 million equivalent provided under Credit 31-ES. A term of 23 years, including a four-year period of grace, would be appropriate for the loan. 0 0  - 1 - EL SALVADOR APPRAISAL OF THiE REVISED THIRD BIGI-MYWAY PROJECT I. BACKGROUND 1.1 On Noveriber 2, 1962, the Association granted a Development Credit of $8 million to the Republic of El Salvador (Credit 31-ES) for a third highw-ay project originally estimated to cost about $13.5 million. It con- sisted of: (a) the improvement, construction or reconstruction of seven trunk roads and four feeder roads; (b) improvement of the maintenance organization for the Coastal 0 lHighway, and (c) engineering services required for the above. The project was appraised in Report No. TO-3h1Oa of October 11, 1962. 1.2 The Credit became effective on April 8, 1963, and it was expected that the project would be completed by the end of l1966. However, by letter of October 9, 1964, the Government askNed the Association to agree to raising of the design standards of the San Salvador-Acajutla and Santa Tecla-La Libertad trunk roads, the higher design standards being required by a rapid increase in traffic. Tn order to release fumds to meet the increased costs involved, the Government proposed to delete from the project the four feeder roads, originally estimated to cost US$ 1.95 million, on which work had not been started. Specifically, the Government recuested the agreement of the Association to: (a) raising of the design standard of the eight kilometer section Santa Tecla-La Cuchilla of the San Salvador-Acajutla road to a divided four-lane highway; (b) upgrading of the paving from a bitumLnous doub'le surface treatment to an asphalt concrete carpet over the Santa Tecla-Acajutla and Santa Tecla-La Libertad roads; (c) upgrading the design beyond primary suandards on the section La Cuchilla-Sonsonate of the San Salvador-Acajutla road, in- cluding the improvement of the road junction at La Cuchilla; and (d) deferring of the construction of the four feeder roads. 1.3 The Government's request was presented to the Executive Directors in the President's Report No. P-411 of December 11, 196h, and approved by them on December 23, 1964. The Government of El Salvador was informed accordingly.  1.4 Before the proposed changes were formalized, the Government de- cided to retain the feeder roads in the project because of their importance to the economy and to finance their construction wTith its own resources. Shortly thereafter, in May 1965, an earthquake struck San Salvador, the capital of the counatry, and the Government had to reconsider the allocation of its resources in order to meet the costs of emergency fork and reconstruc- tion. Consequently, by letter of June lh, 1965, the Government requested the Association to provide additional funds for the project, in order to retain both the feeder roads and higher standards for the trunk roads, and to maintain the original 61%/39% financing ratio between IDA and the Govern- ment. 1.5 Following the Government's request, negotiations took place in December 1965 for a revision of the project and a supplementary loan of US$ 2.8 million. Howvever, authorization for the Government to sign the sup- plementary loan was only obtained in May 1967 from the NCational Assembly, and then only with a reservation which needed to be clarified. Therefore, presentation of the supple:oentary loan to the Executi-Ve Directors for ap- proval was delay-ed. 1.6 Detailed engineering has been completed for all project roads. Seven construction contracts representing about 45 of the revised construc- tion project have been completed; two more contracts representing about ]$g of the revised construction project are more than 70' complete. Awarding of contracts for the remaining road works has been held up pending availability of the supplementary financing. Conpleted construction is generally satis- factory. 1.7 Credit 31-ES also financed the foreign exchange cost of a four- year program of maintenance and betterment of the Coastal Highway, which ended on December 31, 1966. Adequate maintenance procedures have been established under this program and the results have been satisfactory. The maintenance organization Twhich has been established should continue to operate satisfactorily in the future, and the lessons learned therefrom are gradually being put into practice on the rest of the national high-way system. 1.8 Disbursement from Credit 31-ES totalled US$ 6.8 million as of October31, 1967. The status of the revised project is shown in Table 1, and the revised design standards agreed upon with the Government in Table 2.  -3- II. REVISED COST ESTIMATES 2.1 The following table summarizes the preliminary cost estimates of the original project in 1962, the cost estimates used during the negotia- tions in 1965 for the US$ 2.8 million supplementary loan, and the present cost estimates of the proposed revised project including both the proposed changes in design standards and the feeder roads (for details, see Table 1). Cost Estimates/ (In Thousand US$ Equivalent) 0 Original Project Revised Project Revised Project 1962 1965 1967 - Total Foreign Total Foreign Total Foreignr Cost Cost Cost Cost Cost Cost A. Construction (a) Trunk Roads 8,850 12,210 13,465 (b) Feeder Roads 1,950 3 260 -- 3 890 T03800 6,590 lF,h7o 9,425 7 10,587 B. Maintenance 1,310 625 1,275 575 1,256 460 C. Consultants 1,390 785 1,500 800 1,850 1,050 TOTAL 13,500 8,000 18,245 10,800 20,461 12,097 say 20,500 12,100 1/ In this Table, the contingency allowances have been distributed among the various items to permit an easier comparison. 2.2 The original cost estimates were based on a feasibility study and preliminary engineering, and for some feeder roads on reconnaissance engineer- ing only. They included a contingency allowance of 20% on construction and 8% on maintenance. The revised construction cost estimates used during nego- tiations in 1965 were based on contract prices for work in hand (plus a con- tingency allowance of 5% for uncompleted work under these contracts), and on consultants' estimates derived from detailed engineering for works yet to be started. The estimates for works yet to be started included an allowance of 10% for price and quantity contingencies. The amount of US$ 2.8 million for the supplementary loan was determined on the basis of these estimates. How- ever, since then, the estimated cost of the project has further increased. The 1967 estimates are considered reliable as they are based on the actual  cost of completed works, on contract unit prices for work in hand adjusted for estimated final Twork ouantities, and on consultants' estimates for the remaining works, revised and updated by the Roads Department and including a 10% allowance for price and quantity increases. The higher cost of roads no. 1 and no. 2 (Table 1) is prinarily due to their asphalt concrete sur- facing and upgraded design standards. The increase in the final cost of road no. 6 and the estimated cost of the feeder roads is due partly to a substantial underestimate of earthwork quantities in the original project, which was based on a rough reconnaissance of the terrain and partly to heavy slides during construction which could not be anticipated in the engi- neering. The increase in the estlimated cost of road no. 3 is primarily due to revisions in the original engineering on the basis of construction expe- 0 rience with recent works. All costs on remaining works are affected by increases in unit prices since 1962. 2.3 There hare been no major changes in the proportion of the imported elements of highwa-r constructilon from the time of the original project, and the foreign currency cooponent of cost remains at about 60%. On thlis basis, the foreign cost of the revised project would be about US$ 12.1 million, which would justify additlonal lending of t 4.1 rr.illion. However, negotia- tions were conducted in 1965 on the basis of additional lending of $ 2.8 million and legislative approval' Ilas been obtained in El Salvador for a loan of that amount. In order to avoid the additional delay which would be in- curred by,r resubmission to the Legislature of loan documents in a higher amount, the Government has proposed, and the Bank concurs that the loan be maintained at the level of $ 2.8 million as originally negotiated. The level of Bank/IDA participation in construction expenditures will be ad- justed downward to between 40!t and 50% as appropriate when bids f1or the remaining works have been analyzed. The Government is prepared to cover the expenditures in excess of the Bank/IDA share from its own resources. 0  III. EXECUTION 3.1 The Highlwniay Department is responsible for the execution of the project. The detailed engineering, including specifications and conitract documents, has been prepared by Tippets-Abbett-7lIcCarthy-Stratton, U.S. consultants, who, until December 31, 1966, were also in charge of super- vision of the construction work and responsible for advising the Highway Department on the maAntenance of the Coastal HighwazaF. The Government has appointed Brown and Root, U.S. consultarits. to supervise construction work from January 1, 1967. Construction is b-y contract let on the basis of international corrmpetitl-ve bidding. In order to mirinimize costs through better com,petition, the remainsing works will be divided into five sections, and two bids will be called, at different times, for groups of three and two work sections. Contractors will be permitted to bid each time for one or nmore sections, which will enable sraaller regionally based corntractros to comripete with larger international firns. 3.2 Works now under contract will ke conpleted earlv in 1968. The first call for tenders for the remaining works will be made shortly, and the whole project should be comrpleted by late 1970.  - 6 - IV. COCI.'IIC JUSTTFTCATIOPI A. Trunk Roads 4.1 lconomic analyses were made on three trunk roads in the paragraphs below to check wThether they are still justified with increased costs. Theyr are: The Santa Tecla-Acajutla and Santa Tecla-la Libertad highwa-Y7s, on which construction standards have been raised, and the Sonzacate-San Jorge highway on which the cost increase has been substantial although no upgrad- ing of design standards is involved. As construction worlks on four other roads included in the original project are alreadiE,r completed, no attermpt to review the _ustification of these roads is made in this report. Santa Tecla-Acajutla and Santa Tec'a-La Libertad The original appraisal of the pro,ect was based on the assumiption that traffic would grow at an annual rate of 9D betweenr 1961 and 1970. Be- t'ween 1961 and 1966, howrever, the actual annual traffic growth exceeded those projections substantially, ranging between 1h4 and 2h4 on different sections of the Santa Tecla-Acjceutla road and an average of 28% on the Santa Tecla-La Libertad road (see Ta'le 3). 4;.3 These higher than anticipated traffic volumes now justify higher design standards on both roads. Upgrading the pavemient from a bituminous double surface treatment to an asphalt concrete carpet is necessary to ac- commodate the projeczed traffic and to reduce road maintenance costs. The widening of the Santa Tecla-La Cuchilla section of the Santa Tecla-Acajutla road to a four-lane highway is needed to prevent serious congestion, which otherwise would ha,-e taken place soon after completion of the originally planned two-lane highway,. _1-h .kThe rates of return, based on quantifiable economic benefits, have 0 been reassessed taking into account the higher construction costs and apply- ing the originally estimated unit savings in vehicle operating costs (US 0.o4 per 1Ic for passenger cars and US 1.6A, per l-m for corMmercial vehicles) to the revised traffic forecasts. These unit savings have been confirmed by recent misslons. Except for the Santa Tecla-La Cuchilla section, mentioned above, the following annu-l traffi.c growth rates have been projected: 10% between 1966-197S, declining thereafter to 7% and 5%J for 1977-1981 and i982-i986 respectively. These assumptions are conservative cormipared to the actual growth rates experienced in recent -ears. Tra.f Ic on the La Cuchilla-Sonso- nate section has not been projected bey.-ond 1977, as the capacity of the improved road (6,000 vehicles per day) will -then be reached, and additional investment would be necessarv to acco2modate additional traffic. In view of the existing high traffic voluzme and the sLowing dowvn in traffic growth rate experienced in the recent past, traffic on the four-lane Santa Tecla-La Cuchilla section is anti.cipated to grcw at a somewhat lower rate: B% per annum between 1966 and 1975 and 6f between 1976 and 1985.  -7- 4.5 Hi,her benefits from the increased traffic generally offset the cost increase due to the rise in design standards. Benefits from savings in transport costs alone, projected over a 20-year assumed economic life of the road sections included in the project, result in the following returns on the investment cost for individual' sections of these twqo trunk roads: i. Santa Tecla-Acajutla 16% of which: Santa Tecla-La Cuchilla 10% La Cuchilla-Sonsonate 214% Sonsonate-Acajutla 114 ii. Santa Tecla-La Libertad 10% These returns are satisfactory. In addition, they do not incllide any allow- ance for time savings to freight and passengers or for avoiding the increas- ing congestion costs that would occur (particularly on the Santa Tec'La-La Cuchilla section) if the investment was not made. Sonzacate-San Jorge 4.6 This road will provide a 16 killometer shorter link for through traffic between Santa Ana and the seaport of Acajutla, wghich at present uses a detour along Lake Coatepeque. For the traffic on the existing, low-stand- ard road benefits consist of savings in vehicle operating costs of about US