Honduras - Western Highway Paving Project

RESTRICTED Report No. TO-584a RTd REPORTS DESK W ITHI1 IN | W EKthis 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 The report may not be published nor may it be quoted as representing their views.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 WESTERN HIGHWAY PAVING PROJECT HONDURAS May 3, 1967 Projects Department  CURRENCY EQUIVALENTS US $1. 00 =2 Lempiras (L) Lempira 1 =US $0. 50 Lempira 1, 000, 000 =US $500, 000 FISCAL YEAR January 1 -December 31 WEIGHTS AND MEASURES Metric BRITISH/METRIC EQUIVALENTS 1 mile =1. 6 kilometers 1 foot =30. 5 centimeters 1 acre =0.41 hectares 1 imperial gallon = 1. ZO U. S. gallon = 4. 54 liters 1 ton = 1. 12 U. S. short ton = 1. 02 metric ton  HONDURAS APPRAISAL OF THE WESTERN HIGHWAY PAVING PROJECT Table of Contents Page No. SUMMARY i 1. INTRODUCTION 1 2. BACKGROUND 2 A. General 2 B. Transport System 2 C. The Highway System 4 D. Highway Administration and Maintenance 4 E. Government's Road Cost and Road User Contribution 6 F. Investment Plans for Transportation 7 3. THE PROJECT El A. Description 8 B. Design Standards 10 C. Execution 10 D. Cost Estimate and Financing 11 4. ECONOMIC JUSTIFICATION 13 A. Importance of the Western Region 13 B. Savings in Transportation Costs 14 (a) Traffic Projection 14 (b) Estimated Rates of Return 15 C. Other Benefits 15 D. Feasibility Studies 16 (a) Feeder Roads in the Western Highway Service Area 16 (b) North-Eastern Highway 17 5. CONCLUSION AND RECOMMENDATIONS 1i TABLES: 1. Motor Vehicles Registered, 1950-1965; Forecast for 1969, 1974, 1984 2. Expenditures on Highways, 1959-65 3. Taxes Collected from Road Transportation (196o-1965) 4. Design Standards of Alignment Geometry 5. Cost Estimates 6. Per cent of Total Production Produced in Western Region (1963) 7. Traffic Projection 8. Estimates of Vehicle Operating Costs CHART MAP This report is based on the findings of a mission to Honduras consisting of Messrs. Soges, Park and Huber of the Bank.  HONDURAS APPRAISAL OF THE WESTERN HIGHWAY PAVING PROJECT SUMbARY i. The Government of Honduras has asked the Bank to help finance a highway project in the Western Region. This would be the fifth highway project by the Bank/IDA in Honduras. ii. The project consists of: (1) the reconstruction of sections totalling 37 kms of the Western Highway between Chamelecon and La Entrada, and the paving and bituminous surfacing of the Highway between Chamelecon and the El Salvador border (247 kms); (2) the supervision of construction of the above work; (3) feasibility studies for feeder roads in the service area of the Western Highway, (4) a feasibility study for reconstruction of the North- Eastern Highway between Tegucigalpa and Juticalpa (130 kms) iii. Total project costs are estimated at US$ 12.6 million equivalent. The proposed loan of US$ 8.6 million represents the presently estimated foreign exchange cost component of the project. The balance will be provided by the Government. The project is expected to be completed by mid-1971. iv. Execution of the project will be the responsibility of the Highway Department within the Ministry of Communications and Public Works. Engineer- ing consultants, Brown & Root, S.A., have prepared designs for the construction works, and are expected to be retained to provide the remaining services for the construction project. Consultants satisfactory to the Bank will also be employed for the feasibility studies. v. The project has high priority in the country's road development program. Paving of the Western Highway will reduce transport costs and prevent a rapid rise in transport and road maintenance costs that would otherwise occur in the near future. The rate of economic return on the investment from savings in transport costs alone ranges from 11 per cent to 25 per cent for various sections according to traffic volumes and terrain, with an overall rate of return on the project of 14 per cent, which is satisfactory. vi. The project constitutes a suitable basis for a Bank loan in the amount of US$ 8.6 million equivalent. A suitable loan term would be 20 years including a five-year period of grace.  HONDURAS APPRAISAL OF THE WESTERN HIGHWAY PAVING PROJECT 1. INTRODUCTION 1.1 The Government of Honduras has submitted an application to the Bank to help finance (i) the completion of the Western Highway from Chamelecon to the El Salvador border to a paved standard throughout its length (247 kms), and (ii) feasibility studies for additional feeder roads to serve the Western Highway, and for a section of the North-Eastern Highway. 1.2 This will be the fifth highway project for Honduras for which the Bank/IDA finance has been made available. In 1955 a loan of US$ 4.2 million (No. 135-HO) was made to finance the establishment of a road maintenance organization. Three years later a loan of US$ 5.5 million (No. 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 it passable during the rainy season. All work under these projects has been successfully completed. 1.3 The first IDA Credit of US$ 9 million (No. 1-HO) was made in 1961 to finance (a) the 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) the construction of feeder roads to the Western Highway; (c) the strengthening of the highway maintenance organization initiated under the first loan; and (d) a highway transportation survey to prepare a long-term road invest- ment program. The survey was carried out by Stanford Research Institute and was finished in 1962. The extension of the Western Highway was completed in 1964; other construction works on the Western Highway and the feeder roads are nearing completion. 1.4 In 1965 a credit of US$ 3.5 million (No. 71-HO) and a loan of US$ 6 million (No. 400-HO) were made to finance reconstruction of the North Road from Tegucigalpa to Potrerillos. The first contracts for construction of the northern section of this road have recently been awarded; however, the call for tenders for the remaining road sections was delayed as the Government had requested the Bank/IDA to consider an alternative alignment. This issue has now been resolved. 1.5 This appraisal report is based on a feasibility study of the Western Highway paving project prepared by the Government's consultants, Brown & Root (U.S.), the findings of a Bank appraisal mission in June 1966 consisting of Messrs. Soges (Engineer), Park and Huber (Economists), and subsequent studies by the consultants in September/December 1966.  - 2 - 2. BACKGROUNDT A. General 2.1 With a land area of 44,480 square miles, Honduras is nearly three times the size of Switzerland and is the second largest of the five Central American countries. It has a population of 2.3 million which has been growing at an average of 3.4% per annum over the last five years. 2.2 The growth rate of Honduras' gross national product, which in the recent past was 4.5% annually, increased sharply to 6.4% in 1964 and to an estimated rate of 10% in 1965 as a result of an export boom. The country's per capita GNP (about US$ 200 equivalent) is the lowest of the Central American countries. The transport and communications sector contributed only 6% of the gross domestic product in recent years, which reflects the low degree of development of this sector. 2.3 The terrain is rugged and traversed by many rivers and streams. Together with the tropical climate this makes the construction and main- tenance of the road system difficult and expensive. B. Transport System 2.4 The inadequate transportation infrastructure is one of the major obstacles to economic development in Honduras. The country only recently started to construct a modern highway network to connect the major producing and consuming centers, as well as to open new areas for cultivation. In view of the under-developed state of the transport system, Honduras will have to devote an important part of its resources to this sector for many years to come. 2.5 Honduras has three railway lines extending nearly 1,200 kms, all located on the north coast adjacent to the major ports and consequently serving only a very small area. Two lines are owned by fruit companies and are used primarily for shipping bananas to the Caribbean ports and to transport imported supplies to the plantations. The National Railways, owned and operated by the Government, has only about 130 kms of line but accounts for about 50% of the passenger and 32% of the cargo traffic of the railways. 2.6 Due to the lack of adequate land transportation facilities, air service plays a vital role, and for many remote areas provides the only modern means of transport. Honduras has an extensive air transport network serving 32 communities on a schedule basis, supplemented by taxi services to practically all parts of the country. The bulk of the traffic moves within the triangular area between Tegucigalpa, San Pedro Sula and La Ceiba. As a result of the recent improvement of the highway system, the air services to some areas have been discontinued. Nevertheless, the total traffic volume - especially for passengers - has been steadily increasing.  - 3 - 2.7 Sea transport on the Caribbean and Pacific coasts complements the road and rail transport. Completion of the Northern Highway as well as of the Western Highway to El Salvador is expected to increase the traffic volume of the port of Puerto Cortes. The Bank recently made a loan to finance the expansion of this port (No. 463-HO). 2.8 Road transport activities have expanded rapidly in the last 15 years. The total vehicle fleet increased between 1950 and 1965 from about 3,000 to 18,700 vehicles (see Table 1), which represents an annual growth rate of over 12%. The large percentage (54%) of trucks and buses in the total vehicle fleet is, in part, a reflection of the Government's policy to encourage commercial road traffic through favorable tax devices (no import duties on commercial vehicles, lower import duty on diesel fuel than on gasoline, lower user tax on commercial vehicles). 2.9 In view of the improvement and expansion of Honduras' highway network and the extensive construction program to be executed in the near future, a continuation of the past trend of rapid growth of the highway industry is likely. With seven vehicles per 1,000 population at present, Honduras has by far the lowest level of vehicles per capita of the Central American countries (Guatemala 11, El Salvador 12, Nicaragua 11, Costa Rica 20). The Central American Transportation Study, carried out in 1965 by a consortium of consultants under the auspices of the Central American Bank for Economic Integration (CABEI), projected an increase of the Honduran vehicle fleet at an average rate of 7.5% per annum. 2.10 As in the case of many developing countries, road transport in Honduras is dominated by individual owner-drivers and competition among them is keen. There is no public regulation of the industry; licenses are freely available at a small fee and rates are not prescribed. At present there seems to be no need for introducing regulations restricting compe- tition in this sector. 2.11 Annual government investment expenditures in transport doubled between 1955 and 1963 from L 12.4 million to L 24.4 million. Highways accounted for about 90% of the total, the remainder being about equally divided between air transport and the publicly owned railway. 2.12 Transport coordination is not a major policy issue in Honduras. Competition between the various modes, with the exception of some road- air competition, has been quite limited as the railroads serve only a small part of the country along the Atlantic coast, while neither coastal shipping nor inland water transportation is of any significance. There is, however, a need to increase road user charges to an adequate level in view of the major step-up in road transport investment currently under consideration. (see paragraphs 2.18 to 2.21)  -4- C. The Highway System 2.13 No significant development of the Honduran highway network took place until the middle 1950's. During the past ten years the Government has made great efforts to improve and expand the highway system. The result is an increase in the total length of the road network from 1,570 kms in 1953 to about 3,600 kms in 1965. As shown below, about 430 kms, or 12% of the network, are paved. Even with the increased length of roads, the density of the network is by far the lowest in Central America. 1/ While there are now road connections between the major population centers, many parts of the country, mainly in the north-east, have no roads. Length in km - 1965 Paved Unpaved Total Trunk Roads 342 335 677 Principal Roads 88 381 469 Secondary Roads - 899 899 Feeder Roads - 1,598 1,598 Total- 430 3,213 3,643 D. Highway Administration and Maintenance 2.14 Overall responsibility for the nation's highway system rests with the Ministry of Communications and Works. Within the Ministry, the Planning Unit prepares long term investment programs and is also responsible for the coordination of planning in all fields of transportation. The Unit works in close cooperation with the National Economic Council, an inter-Minister- ial planning body which reports directly to the President. The Highway Department of the Ministry is responsible for the construction and main- tenance of roads. 2.15 The organization of the Highway Department is shown in the annexed chart. The Department has separate divisions for engineering, administration, road maintenance equipment and road maintenance. All major design and construction work is let to consultants and contractors. During Loan/Credit negotiations for the North Road Project (Credit 71-HO, Loan 400-Ho) the Government agreed to carry out a number of important reforms in the highway administration, some of which were previously recommended by consultants employed under Credit 1-HO. These reforms include improvement of road maintenance practices and maintenance cost accounting procedures, relaxation of cumbersome financial procedures for the procurement of supplies and spare parts for maintenance equipment, the establishment of a mobile highway patrol with police authority to 1/ The length of the network in km per sq. km is 0.031 in Honduras and 0.147 in El Salvador, where the density is the highest.  -5- enforce traffic regulations, the strengthening of the Planning Unit within the Ministry, and the institution of a civil service system of professional staff to ensure a stable staff and continuity in the Highway Department's operation. Progress on most of these matters is satisfactory. Road maintenance practices are improving and adequate maintenance cost accounting methods have been adopted, procedures for procurement of supplies and spare parts have been improved, the Planning Unit has been strengthened, and the civil service bill is presently being submitted to the national assembly for enactment. 2.16 Early in 1964 the Government issued a decree limiting the permissible weight of vehicles. Unfortunately, it did not indicate clearly the axle load limits. Importation of vehicles with excessive axle ratings is not restricted; moreover, vehicles with acceptable axle ratings are often overloaded. Thus in practice a high percentage of the axle loads are above the designed bearing capacity of the roads. If roads had to be built to resist these excessive axle loads, construction costs would increase, in particular the cost of pavement. Such cost increases could not be justified on the basis of the relatively low volume of goods and passenger traffic on the road system. LThe lack of adequate regulations and enforcement will result in a rapid deterioration of the roads and will increase maintenance and repair costs, if remedial action is not taken] ....I The Higlmay Department is aware of this situation and has included in its budget for 1967 the cost of personnel to operate five portable weigh scales, gnd plans are being made to install permanent weighing stations by 1968. During loan negotiations, assurances were obtained from the Government that the decree of 1964 will be revised by December 31, 1968, in consultation with the Bank, to prescribe axle load limits consistent with sound design practices, and that restrictions satisfactory to the Bank will be established for the future importation of vehicles with high axle ratings, and implemented in accordance with a fixed schedule. Under the terms of the Loan/Credit agreements for the North Road project the Government agreed to enforce traffic regulations. This is not being done effectively, and during loan negotiations agreement was obtainqd that the enforcement agency will be strengthened by December 31, 19681- 2.17 Highway maintenance is the responsibility of the seven maintenance districts which are grouped into two divisions, one for the North and one for the South. Each district has its own technical and administrative staff, equipment, workshops and service facilities. In recent years the training and equipping of the highway maintenance organization has been materially strengthened with financial assistance from the Bank and IDA. Allocations for highway maintenance have increased slowly (see Table 2) and the condition of the roads has improved. Expenditures presently range from L 600 to 2,000 per km per annum (US$ 300 to 1,000 equivalent), which is considered reasonable at this stage of the country's transport development.  - 6 - However, most of the highway maintenance equipment was purchased before 1960, out of the proceeds of Loan No. 135-HO; this equipment is now over-age and requires major repair and renewal. During loan negotiations, assu-rances were obtained from the Government that budgetary allocations for highway maintenance will continue to be increased consistent with the extension of the highway system and the increase of traffic. In addition, agreement was reached with the Government that it will undertake a program to renew the highway maintenance equipment through its own budget. E. Government's Road Cost and Road User Contribution 2.18 The Government's annual expenditures on roads (excluding city streets) between 1959 to 1965 ranged from L 11.0 million to L 16.4 million (see Table 2). Maintenance accounted for about 25% of the total. Annual construction expenditures ranged widely because of fluctuations in the availability of foreign assistance funds. 2.19 To determine the adequacy of road user contributions, the cost of the road system to the Government, including depreciation based on appropriate periods of economic life, interest, maintenance and adminis- trative costs was estimated on the basis of available data. The estimate indicates that the Government's road cost for 1964 was about L 20 million, as follows: L Million Annual Depreciation of road system 8.8 Interest (10% p.a.) 7.6 Maintenance and Administration Cost 3.8 Total 20.2 2.20 Taxes and other charges from road users such as the motor fuel tax, vehicle ownership tax, license fees, etc., amounted to about L 6.7 million in 1964 (see Table 3). Since, however, part of the charges collected are from city street traffic they should be segregated from those of the inter-urban traffic. On the evidence available, it appears that about two-thirds of the total taxes collected, or about L 4.4 million, have been contributed by non-city traffic. On this basis, road user charges cover about 20% of the Government's annual cost of the highway system. 2.21 There is little doubt of the need to collect more taxes from users of the nation's road system to help meet the Government's costs for building, improving and maintaining the road system, particularly in view of the planned rapid expansion of road investment. The Central American Transportation Study arrived at a similar conclusion regarding the road user contributions in Honduras. There are various possibilities for increasing  - 7 - road user taxes. The diesel fuel tax, which is only about 10% of the pump- head price, could be raised. Moreover, there are no import tariffs currently in force on trucks, buses, and Jeeps, aside from the consular fee of 8% of FOB value of vehicles. Even for private automobiles, the total of import duties and sales tax amounts to only about 35% to 45% of FOB value depending on price. The Government agreed during negotiations to make the necessary arrangements to assist the Bank in the organization and carrying out of a road user charges study, either on a national or a regional basis. It was further agreed that the recommendations of the road user charges study -- whether limited to Honduras or regional -- will be discussed with the Bank with a view to agreeing on a time table for the appropriate revisicn of the. road user charges system. Pending the outcome of such study, the Government is considering the possibility of introducing an immediate increase of up to 50% in the present level of road user charges, as described in paragraph 2.20. F. Investment Plans for Transportation 2.22 The Government's current five-year plan, 1965-69, calls for a total investment in transportation facilities of over L 180 million which is more than 37% of the total public investment envisaged for the plan period, (about L 481 million). More than 80% of the transport investment, or over L 146 million, is programmed for construction and improvement of the country's road network. The annual level of road investment is projected to increase from L 17.4 million in 1965 to L 40.7 million in 1969. 2.23 Due, however, to the slow start in implementing the plan and lack of project preparation, the actual results obtained during 1965, the first year of the plan, were far short of the target; against planned expenditures on roads of L 17.4 million only L 7.5 million was spent. Moreover, it appears that the plan is not operative; investments are presently carried out on the basis of annual budgetary appropriations. The 1967 budget calls for an expenditure of about L 38 million on roads. Taking into account past performance and the country's capacity to execute road projects, the planned level of investment for 1967 may be difficult to attain. The recent Bank economic mission to Central America considered that the reasonable level of investment in the road sector for 1967 would be about L 26 million. 2.24 In view of the inadequacy of the country's road system, provision of a satisfactory basic network will require sustained efforts over at least the next decade. The emphasis placed by the Government on road construction and improvement, therefore, is correct. However, in order to ensure that actual preparation of road projects is based on sound economic considerations, the Government has agreed that the Bank will be consulted from time to time on the development of future road programs.  - 8 - 3. THE PROJECT A. Description 3.1 The project consists of the following parts (see Map): (i) the reconstruction of sections totalling 37 kms of the Western Highway between Chamelecon and La Entrada, and the paving and bituminous surfacing of the Highway between Chamelecon and the El Salvador border (247 kms); (ii) the supervision of construction of the above work; (iii) feasibility studies for feeder roads in the service area of the Western Highway: (iv) a feasibility study for reconstruction of the North- Eastern Highway between Tegucigalpa and Juticalpa (130 kms) (i) The Reconstruction and Paving of the Western Highway 3.2 The Western Highway extends from Chamelecon on the North Road (Central American Inter-regional Highway No. 5) to Nueva Ocotepeque on the El Salvador border. The North Road from Chamelecon to Puerto Cortes was reconstructed and bituminous paved under Loan 195-HO, and the rest of the North Road south of Chamelecon is being reconstructed and bituminous paved under Credit 71-HO and Loan 400-HO. At the other end of the Western Highway, the road from the border to Tejutla in El Salvador is being reconstructed and bituminous paved under Credit 31-ES. 3.3 The Western Highway is part of the Central American Inter- regional Highway No. 4, which links the Honduran Atlantic plain with the El Salvadorian road system serving the densely populated Pacific slopes of the Central American isthmus. For the most part, the highway traverses hilly and mountainous terrain through small valleys and across substantial streams. The continental divide is crossed near Nueva Ocotepeque. 3.4 The Western Highway has been under construction and improvement uninterruptedly since 1955. Sections totalling 71 kms between Chamelecon and Santa Rosa (150 kms) were improved to gravel standard and twelve bridges were built under Loan 195-HO. Under Credit 1-HO the highway was extended from Santa Rosa to the El Salvador border (97 kms) to a gravel standard, and additional sections totalling 42 kms between La Entrada and Santa Rosa are being improved and gravel surfaced. Thus, the Western Highway has been improved in stages over the last decade to a fully engineered, gravel-surfaced stendard except for about 37 kms of unimproved sections between Chamelecon and La Entrada. Under the proposed project, the remaining 37 kms of unimproved sections would be reconstructed, and the whole highway between Chamelecon and the El Salvador border would be paved.  - 9 - (ii) Supervision of Construction 3.5 Engineering consultants satisfactory to the Bank, Brown and Root (USA), have completed the detailed engineering for the reconstruction of the 37 kms of unimproved road sections between Chamelecon and La Entrada, and have carried out pavement designs for the whole Highway necessary for the preparation of contract documents. The same consultants are expected to be retained (a) to prepare contract documents; (b) to assist the Government in the awarding of contracts; (c) to recheck the design of the pavement as the work proceeds; and (d) to supervise construction. (iii) Feasibility Studies for Feeder Roads in the Western Region 3.6 The Highway Department has prepared the detailed design for ten feeder roads totalling 144 kms in the Western Region. The project includes an assessment by consultants of the economic justification for the construction of these roads and feasibility studies for about 100 kms of additional feeder roads to determine relative priorities and to define a program for the development of a feeder road system in the Western Region. (iv) Feasibility Study for the Reconstruction of the North-Eastern Highway 3.7 The North-Eastern Highway (see Map) when completed will be one of the most important trunk roads in Honduras. It will link Tegucigalpa, the capital, with the northern coastal area through branches from Juticalpa to Olanchito and LaCeiba, and to Puerto Castilla. The present road between Tegucigalpa and Juticalpa is narrow and winding, with sharp curves, steep grades, and poor earth or gravel surfacing. The road is particularly difficult between Tegucigalpa and Talanga (about 40 kms) where it crosses rugged mountainous terrain and where the traffic is heaviest. This road section will most probably be relocated under a new design, the suggested new alignment branching off the North Road at the Rio del Hombre. The feasibil- ity study in the proposed project for the Tegucigalpa-Juticalpa section will provide the basis on which to select the best road alignment, to define design standards, to establish preliminary construction cost estimates, and to evaluate the economic merits of the project. 3.8 The reconstruction and bituminous paving of the Rio del Hombre- Talanga section of the road and the improvement and gravel surfacing of the Talanga-Juticalpa section were given high priority in the ten-year highway program recommended in the Stanford Study of 1962. The reconstruction and improvement of these road sections and the extension of the road to Puerto Castilla are included in the Highway Department's basic highway program for the period 1968-1973. Although the time schedules devised by the Department appear optimistic, it is considered appropriate to proceed at this time with studies of the North-Eastern Highway in view of the length of time involved  - 10 - in the project preparation. Engineering consultants have already been com- missioned to carry out a feasibility study under CABET auspices for the future road sections between Juticalpa and Puerto Castilla. B. Design Standards 3.9 The geometric design standards of the Western Highway, as built, are shown in Table 4. Design speeds range from 45 kms per hour in mountain- ous terrain to 80 kms per hour in level terrain. Maximum grades are 10%. The standards are appropriate for the traffic requirements and the terrain. The road will have ample capacity to accommodate forecast traffic volumes, during the 15 years of its expected useful economic life. 3.10 The pavement structure, including a surfacing of 2.5 cm thickness of asphalt, is designed for the projected traffic on the assumption that the axle weight regulations discussed in paragraph 2.16 will be establihsed and enforced. The design allows for stage development so that the pavement can be strengthened as the traffic grows. The pavement over some sections will probably require strengthening by a second asphalt overlay or some alternative method after about six years of service life. The need for the strengthening will have to be determined with more certainty at that time on the basis of the actual development of traffic and the physical behaviour of the pavement. The Government has agreed that the need for strengthening will be examined from time to time, and, that strengthening will be carried out as appropriate. C. Execution 3.11 Execution of the project will be the responsibility of the Highway Department within the Ministry of Communications and Public Works. Unit price type contracts for construction will be let on the basis of inter- national competitive bidding. No difficulty is anticipated in getting suitable contractors to carry out the project. It is expected that construction will start at the beginning of 1968, and that the project will be completed by mid-1971. Engineering consultants satisfactory to the Bank will be employed for all engineering services involved in the project.  D. Cost Estimate and Financing 3.12 The estimated total cost of the project is US$12.6 million equivalent. The foreign exchange component is presently estimated at 70% on construction and 50% on engineering. The estimate is summarized below (for details see Table 5). The proposed Bank loan would cover about 705 of the total cost of the project and the Government would finance the balance. Total Estimated Foreign Currency Cost Component IL 1,000) (us$ 1,000) (us$ 1,000) equivalent equivalent A. Construction 18,500 9,250 6,500 (70%) B. Engineering Services 1,600 800 400 (50%) C. Contingencies (i) quantity (15%) 2,800 1,40o 950 (ii) price (10%) 2,300 1,150 750 Total 25,200 12,600 8,600 3.13 The disbursement procedures will be as follows. For construction (Table 5, Category A) the Bank will disburse 70 percent of total expenditures (this percentage being fixed on the basis of the presently estimated foreign exchange component thereof); if construction costs are lower than estimated, any surplus funds remaining in the loan account would be cancelled. If construction costs are higher than estimated, the Bank may, at its option, establish such other (and lower) percentage as will permit the Bank to spread disbursements throughout the construction period. For Engineering Services (Table 5, Category B) the Bank will disburse 100 percent of the foreign exchange cost thereof. 3.14 The constructior, cost estimates are based on work quantities derived from the designs discussed in paragraph 3.5 and on unit prices determined from cost analyses taking into account prices for similar works recently tendered on the North Road project in Honduras. Import taxes and consular fees are excluded from the estimates, as it is normal practice in Honduras to exempt public work contracts from such taxes and duties. The foreign exchange includes use of imported equipment, fuel and materials, foreign personnel and overhead, and the profits of foreign contractors and consultants.  - 12 - 3.15 Average pavement thickness requirements were determined for the purpose of the cost estimates on the basis of soil strength values applicable to typical soil formations. The thickness of the pavement to be actually built will be determined as construction proceeds on the basis of more detailed soil strength values. The exact amount of gravel materials from the road surface which can be recovered for incorporation into the pavement structure will also be determined in the course of construction, as wqell as the amount of necessary reshaping and reconditioning works of the existing road surface prior to surfacing. A 15% allowance on construction costs is included in the estimates to cover possible work quantity variations. A further 10% allowance on all costs is also included to cover possible price increases over the construction period. Construction costs in Honduras during the past years have increased only moderately. The allowances for quantity and cost contingencies are considered adequate. 3.16 On the basis of the construction program discussed in para. 3.11, the annual expenditures are estimated as follows: Forecasted Expenditures Foreign Currency Total Component, Year L 1,000 U.S.$1,000 Equivalent 1967 200 50 1968 7,000 2,400 1969 8,000 2,750 1970 8,ooo 2,75o 1971 2,000 650 Totals 25,200 8,600  - 13 - 4. ECONOMIC JUSTIFICATION A. Importance of the lWestern Region 4.1 The zone of influence of the Western Highway, the Western Region, stretches from the El Salvador border in the south along the Guatemala border in the west to the Carribean coast in the north. Economic development currently is centered around San Pedro Sula and Puerto Cortes in the north. The develop- ment of the southern part has received considerable stimulus from the construct- ion of the gravel road to the El Salvador border in the recent years, but the development is still in the early stage. 4.2 The terrain varies greatly along the highway. The fertile Sula Valley at the northern end is a wide open tropical plain at sea level. The northern half of the highway generally follows the course of the Chamelecon River. Here the terrain and climate conditions are favorable for agricul- ture. In the southern half, the highway crosses various plateaus, narrow valleys and passes over a 7,000 foot mountain range near the El Salvador border. The terrain in this part is less favorable for agricultural produc- tion. The climate varies with the altitude and is generally hot and humid in the northern plain and temperate in the mountainous southern part. During the rainy season (May through October in the south and May through January in the north) heavy rainfalls make road maintenance costly and difficult. 4.3 The Western Region which covers only about 16% of the country's total area is the most heavily populated, accounting for nearly 35% of the country's population. The population density in the Departments of Cortes and Copan is the highest in Honduras and the population growth in these Departments is considerably higher than the national average. 4.4 The zone of influence of the highway includes important centers of economic activity in Honduras. The importance of the region may be illus- trated by its contribution to the total production in major agricultural commodities. More than 40% of the country's production of tobacco, sugar, coffee and rice originates in this area (see Table 6). 4.5 Furthermore, in 1963 the Western Region produced 47% of the country's total industrial output as well as 26% of the total forest pro- duction. In 1963 agricu'ltural land utilization in Copan, Cortes and Santa Barbara was the highest in Honduras. Additional land use is expected for products such as lumber, along the western side of the highway between San Pedro and Copan, sugar cane in Cortes and Santa Barbara, and corn and beans throughout the whole area. 4.6 The Western Region is a major supplier of many of the main Honduran export products to El Salvador (forest products, corn, beans, cattle, tobacco, other agricultural and some industrial products). The trade between Honduras and El Salvador has been increasing considerably since the construction of the Western Highway extension to the Salvadorian border a few years ago.  - 14 - B. Savings in Transportation Costs 4.7 The proposed improvement and pavement of the Western Highway will reduce vehicle operating cost by about 22% to 28%. On the basis of a rather conservative estimate of future traffic, the reduction in transport costs during the assumed economic life of the project of 15 years would produce an average annual rate of return of about 14% on the cost of the project, which is satisfactory. The details and the basis of the estimate are explained below. (a) Traffic Projection 4.8 According to the consultants' traffic counts at the Quimistan station, 50 kms west of Chamelecon, the daily traffic volume has grown from 120 in 1960 to 275 in 1965, or at an annual rate of growth of nearly 20%. Traffic counts on the newly built Western Highway extension are available only starting from March 1965, as the new road has been open to traffic only since 1964. The average daily traffic during March 1965 of 128 vehicles has increased to 170 in March 1966, or by 30%. It would be unwise to base the traffic forecast on the increase registered in one year. But it appears that the traffic growth on the Western Highway extension to the El Salvador border will be very large in the next 5 to 10 years due to the increasing trade with El Salvador. The reconstruction of El Salvador's connecting North Road will provide an asphalt paved through route from the Pacific coast in El Salvador to the Atlantic shore in Honduras. 4.9 The forecast rate of traffic growth used in this report is consid- erably below the historic trend observed in the Chamelecon-Santa Rosa section, but somewhat above the average for the country as a whole because of the known potential of this road as an international link. For the sections Chamelecon-La Entrada and La Entrada-Santa Rosa which are part of the original Western Highway, and on which the present traffic volumes are comparatively large, normal annual traffic growth rates are assumed to be 15% from now to 1970, declining thereafter to 10%, 8% and 6% for the respective 5-year periods up to 1985. For generated traffic, annual growth rates have been estimated at 5% and 2% for 1970-75 and 1976-80, respectively. Somewhat higher annual growth rates are anticipated for the sections Santa Rosa-La Labor and La Labor-El Salvador border (Western HighwTay Extension) which were only recently opened to traffic. The annual growth rates for normal traffic are estimated at 15% from now to 1970, 12% for 1971-75, 10% for 1976-80 and 7% for 1981-85. Generated traffic is expected to grow at 5% and 2% p.a. between 1970-75 and 1976-80, respectively (see Table 7).  - 15 - (b) Estimated Rates of Return 4.10 As the present conditions of the road vary considerably between different sections and also because of the different types of terrain which the sections of the road traverse, the present and future costs of vehicle operation and, therefore, the savings in vehicle operation costs, are ex- pected to differ between sections. On the basis of the consultants' detailed investigation the savings in vehicle operating cost per km are estimated to range from 7 centavos to 14 centavos (see Tab'le 8). 4.11 The savings in vehicle operating costs will produce rates of re- turn ranging from 11% to 25% for individual sections, all of which are ade- qluate to justify the proposed investment. The estimated rates of return by sections are showm as follows: Section 1, Chamelecon - La Entrada 106 km 11% Section 2, La Entrada - Santa Rosa 43 km 25% Section 3, Santa Rosa - La Labor 54 km 12% Section 4, La Labor - El Salvador Border 43 km 15% 4.12 Section 2 produces the highest return despite the fact that the traffic volume on this section is somewhat lower than on Section 1. This is caused by the mountainous terrain which makes vehicle operating costs on the present road very high, while after the completion of the proposed project they will come more into line with those on other sections. A similar ex- planation applies to Section 4, which has a slightly lower volume of traffic than Section 3 but a higher rate of return. The overall return of the pro- posed project is about 14% per annum. C. Other Benefits 4.13 There are other benefits from the project, such as savings in road maintenance costs, time savings to both passenger and freight, and closer national and regional integration. However, apart from savings in road maintenance costs, these benefits are not readily quantifiable. Maintenance savings account only for a small fraction of total benefits and are estimated to increase from some L 70,000 in 1970 to L 170,000 in 1975, remaining at that level over the lifetime of the project. If these benefits are included in the rate of return calculation, it would increase by less than 1%. 4.14 Although the northern end of the highway has been in use for many years the through connection between Chamelecon and the El Salvador border was only opened in 1964. Hence, it is too early to make a detailed assess- ment of the development benefits which may be attributed to the latter work. However, there is evidence that the road construction has been instrumental in bringing about various favorable social and economic changes in its service areas.  - 16 - 4.15 The most rapid development has been taking place in the San Pedro Sula area which, within the past few years, has become one of the important industrial and agricultural centers of Honduras. The city of San Pedro Sula, just beyond the northern end of the Western Highway has grown into an impor- tant marketing center for agricultural and forestry products originating in the Sula Valley. 4.16 Important social and economic changes are taking place in the whole border area south of Santa Rosa. Previously, what little trade there was in this region was principally directed to El Salvador over primitive trails; today the area is becoming more closely integrated with the national as well as the Central American markets and is developing into an important center for trade and production. The road construction substantially contributed to this favorable change. 4.17 In the more isolated region in the southern part, the Western High- way and its feeder roads have made it possible to provide improved educational, medical and administrative facilities. Since 1962, 27 new schools and 15 public clinics were opened in the region (partly financed by Alliance for Progress funds) at a cost of some 1.1 million Lempiras. Moreover, the Govern- ment, in cooperation with the Banco de Fomento, has started to provide technical and financial assistance to farmers. 4.18 Easier access to El Salvador as well as to home markets in Honduras has presumably been instrumental in inducing substantial increases in cash crop production, primarily tobacco, corn and beans. Santa Rosa de Copan is developing into a regional center for tobacco production and marketing. Coffee production benefitted materially from the reduction in transportation costs not only for marketing the final product (the change from mule and air to road transportation has reduced transport costs by up to 75%) but also for cheaper inputs, such as fertilizer, which is being used to an increasing extent in coffee growing. Exploitation of lumber resources has begun recently and appears to be developing into an important activity in the area. 4.19 The rapid expansion in productive activities accompanied by a process of closer national and interregional integration of the Western Region is only a beginning. Paving the Western Highway will further stimulate both the exploitation of the region's resources and the process of integration. D. Feasibility Studies (a) Feeder Roads in the Western Highway Service Area 4.20 In order to exploit fully the agricultural potential and to further strengthen the integration process of the Western Region, the feeder road system must be expanded in the near future. At present some feeder roads are under construction (partly financed by IDA credit 1-HO), and final engineering has been completed on some additional feeder roads, but no feasibility study for a feeder road system for the whole Western Region is available. Although  - 17 - the Western Highway project is justified on its own merits, a feeder road systen would substantially increase its benefits. Therefore, a feasibility study for such roads appears economically justified. (b) North-Eastern Highway 4.21 A low standard road connects the Honduran center of lumber produc- tion located in the area around Juticalpa with Tegucigalpa. It is not adequate for the heavy traffic, which consists mainly of lumber transport. The service area of the road has considerable lumber resources as well as possibilities for increasing agricultural production. The improvement of this road is scheduled for the 1968-73 period and is considered to be one of the high priority projects. Together with the Juticalpa-Puerto Castilla road, this will provide a needed additional link between the capital city and the Atlantic coast.  - 18 - 5. CONCLUSIONS AND RECO1MIMENDATIONS 5.1 The project will greatly improve the conditions of road transport on the Honduran section of one of the principal Central American Inter- regional Highways and will enhance economic development in the potentially rich Western Region of Honduras. It is well planned, technically feasible and will yield a good economic return on the investment from lower transport costs alone. 5.2 The Highway Department within the Ministry of Communications and Public Works will be able to execute the project with the assistance of consultants; construction will be carried out by contractors in accordance with procedures satisfactory to the Bank. The amount of the loan represents the presently estimated foreign exchange cost component of the project and the balance will be provided by the Government. 5.3 The project constitutes a suitable basis for a Bank loan of US$ 8.6 million. An appropriate loan term would be 20 years including a five-year period of grace. May 3, 1967  Table 1 HONDURAS IESTERN HIGHWAY PAVING PROJECT MOTOR VEHICLES RmISTERED, 1950 - 1965; FORECASTS FOR 1969, 1974, 1984 Year Total Passenger Cars Buses Trucks Other 1950 3,174 1,319 57 1,798 -- 1951 3,519 1,492 56 1,971 -- 1952 4,416 1,853 59 2,504 -- 1953 5,506 2,338 84 3,084 __ 1954 6,,440 2,907 75 3,1458 -- 1955 7,722 3,737 788 3,174 23 1956 8,188 3,932 771 3,453 32 1957 8,568 4,240 750 3,554 24 1958 9,940 14621 1,099 3,743 477 1959 10,1464 5,063 1,184 3,828 389 1960 10,989 5,505 1,269 3,914 301 1961 11,338 5,680 1,334 4,001 323 1962 11,606 5,850 1,407 4,025 324 1963 14,329 7,476 1,661 4,881 311 1964 16,002 8,759 1,217 5,909 117 1965 18,700 n.a. n.a. n.a. n.a. 1969 24,900 1) 1974 36,200 1) 1984 66,700 1) 1) Forecast by TSC Study Source: Direccion General de Estadistica y Censos  Table 2 HONDURAS IESTERN HIGHWAY PAVING PROJECT EXPENDITURES ON HIGHWAYS, 1959-65 (Lempiras millions) Year Construction Maintenance Total 1959 11.1 3.4 1h.5 1960 12.6 3.8 16.4 1961 9.9 3.2 13.1 1962 10.8 2.9 13.7 1963 9.7 3.0 12.7 1964 10.9 3.7 14.6 1965 7.5 3.5 11.0 1966 n.a. 4.6 * 1967 n.a. 4.7 * * Budget provisions Source: Brown & Root, Consultants  HONDURAS WESTERN HIGHWAY PAVIINJG PROJECT Taxes Collected from Road Transportation (1960-1965) (L empiras Thousands) 1960 1961 1962 1963 1964 1965 Gasoline import duty 3,842.0 3,659.o 3,931.0 3,957.0 4,189,0 4,470.0 Diesel import duty 3/ 67.0 74.0 187.0 229.0 241.5 389.0 Registration fees 29.8 17.4 19.4 23.5 31.4 39.3 Ownership tax 374.8 402.1 444.2 534.2 612.3 690.4 Sales tax 377.1 382.1 471.7 549.1 739.7 930.3 Driver's license fees 36.1 20.0 35.0 19.1 39.5 59.9 License plate charges 54.3 72.9 80.3 93.8 106.9 120.0 Inspection charges 53.7 60.3 65.1 77.8 87.0 96.7 Subtotal 4,834.8 4,687.8 5,233.7 5,483.5 6,047.3 6,795.6 Import tariffs on vehicles and parts n.a, n.a. n.a. n.a. 675.5 n.a. Total n.a. n.a. n.a. n.a. 6,722.8 n.a. 1/ Not including vehicle import duties because of lack of data, except for 1964. 2/ Mission estimate. 3/ Except for 1964 mission estimate. Source: National Economic Development Council, Mission estimates.  Table 4 HONDURAS WESTERN HIGHWAY PAVING PROJECT DESIGN STANDARDS OF ALIGNMENT GEOMETRY ----------Type of Terrain------------ Item Description Level Rolling Mountainous Design Speed 80 kph 60 kph 45 kph Minimum Curve, Radius 190 m. 95 m. 48 m. Stopping Sight Distance, Min. 100 m. 80 m. 60 m. Maximum Grade 3 % 6 % 10 % Subgrade Width* 11 m. 11 m. 11 m. Width of Right-of-lWay 40 m. 40 m. 40 m. Structures Min. Width, face-to-face curbs 7.92 m. *-* 7.92 m. 7.92 m. Min. Width, face-to-face rails 9.12 m. ** 9.12 m. 9.12 m. Design Load, Chamelecon-Santa Rosa Section H15-S12 H15-S12 H15-S12 Design Load, Santa Rosa-El Salvador border section H17-S12 H17-S12 H17-S12 * Plus widening for curvature Plus widening at special locations Source: Brown & Root, S.A. DESIGN STANDARDS OF PAVEMENT Pavement Width 6.70 m. Surface Type 2.5 cm. asphalt concrete Shoulder lidth 1.40 m. Design Axle Load 9.50 ton Design Method AASHO - U. S. Corps of Engineers  Table i HONDURAS WESTERIN HIGHWAY PAVING PROJECT COST ESTDIATES US$ 1,000 L. 1,000 equivalent A. Construction (i) Improvement of the alignment of road sections, totalling 37 kms, between Chamelecon and La Entrada 3,000 1,500 (ii) Paving of the Western Highwiay between Chamelecon and the El Salvador border, 247 kms 15,500 7,75o Total, construction: 18,500 9,250 B. Engineering Services (i) Preparation of tender docu- ments for, and supervision of construction project 1,200 600 (ii) Feasibility studies and preliminary engineering for feeder roads in the Western area and for the Tegucigalpa- Juticalpa road 400 200 Total, engineering services: 1,600 800 C. Contingencies (i) For work quantity variations, about 15 per cent of construction cost 2,800 1,h00 (ii) For price increases, about 10 per cent on all costs 2,300 1,150 Total, contingencies 5,100 2,550 Grand Total 25,200 12,600  Table6 HOI\DURAS IJESTERN HIGHIAY PAVING PROJECT Per cent of Total Production Produced in Western Region (1963) Agricultural Products Tobacco 91% Sugar 60% Coffee 47% Rice 41% Corn 37l Other Agricultural Products 35% Bananas 33% Milk 32% Beans 29% Meat 23% Source: TSC, Central American Transportation Study  HONDURAS WESTERN HIGHWAY PAVING PROJECT Traffic Projection Actual 1966 Projected in truck unit equivalent Converted into equiv. Length Counted of truck 1 9 7 5 1 9 8 0 1 9 8 5 km Vehicles units **2 Gener- Gener- Gener- **________ 1970 Normal ated Total Normal ated Total Normal ated Total Sect. 1 Chamelecon- La Entrada* 106 300 250 440 700 180 880 1030 390 1420 1500 390 1890 a. Chamelecon- Cofradia 15 519 h35 - - - - _ - - - - b. Cofradia- Quimistan 35 275 230 - - - - - - - - - - c. Quimistan- La Entrada 56 252 210 - Sect. 2 La Entrada- Santa Rosa 43 230 190 330 530 140 670 780 300 1080 1140 300 1-440 Sect. 3 Santa Rosa- Ia Labor 55 128 107 190 330 80 410 530 190 720 810 190 1000 Sect. 4 La Labor- El Sal- vador Border 43 122 102 190 330 80 410 530 190 720 810 190 1000 The traffic volume for Sect. 1 as a whole from Chamelecon to La Entrada is the weighted average of the three sub-sections a, b and c as shown above. **/ Composition of traffic: 25% passenger cars and 75% commercial vehicles - trucks and buses. 49-SH/ An average conversion ratio of 3 passenger cars to one commercial vehicle is used.  Table 8 HONDURAS W4ESTERN HIGHWAY PAVING PROJECT Estimates of Vehicle Operating Costs Existing Road After Improvement Cost of Cost of Vehicle* Vehicle*Y Running Operation Running Operation Savings in Speed per Im Speed ner Im Operating Section km/h (centavos) km/h (centavos) Costs (2-h) 1. Chamelecon-La Entrada 48 32 63 25 7 2. La Entrada-Santa Rosa 21 50 26 36 14 3. Santa Rosa-La Labor 4l 41 47 30 11 4. La Labor-El Salvador Border 28 50 33 36 14 */ Average truck: Diesel motor, two axle, 8 ton carrying capacity.  HONDURAS ORGANIZATION OF THE HIGHWAY DEPARTMENT MINISTRY OF COMMUNICATIONS AND PUBLIC WORKS HIGHWAY DEPARTMENT PLANNING UNIT LEGAL ADVISOR CS A ENGINEERING ADMINISTRATION EQUIPMENT ROAD MAINTENANCE ROAD MAINTENANCE DEPARTMENT DEPARTMENT MAINTENANCE NORTHERN ZONE SOUTHERN ZONE (DESIGN AND CONSTRUCTION) EQUIPMENT 3 MAINTENANCE 4 MAINTENANCE SHOPS DISTRICTS DISTRICTS (R)IBRD - 3080  T- gt C~~u// of Hionduras P,o CnstaI . C A RI/SE A N- SE A ' orenCihlos El |0\) 0P , D ao idw Lo E spero n c rm5oo. 2 .:r \' ,~~~-~~ Colwmoncoguc/_ GHONDURAS