Papua New Guinea - Highway Project

LA 6q5M-PAG FILE COPY RESTRICTED Report No. PTR-51a 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 The report may not be published nor may it be quoted as representing their views.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 A HIGHWAY PROJECT TERRITORY OF PAPUA AND NEW GUINEA May Z7, 1970 Transportation Projects Department  CURRENCY EQUIVALENTS Currency Unit = Australian $ (A$) (divided into 100 cents) US$1 - A$0.89 A$1 - US$1.12 A$1 Million - US$1,120,000 FISCAL YEAR July 1 - June 30 Systems of Weights and Measures: British/U.S. British/U.S.: Metric Equivalents 1 mile (mi) = 1.6 kilometers (km) 1 foot (ft) = 30.5 centimeters (cm) 2 1 square mile (sq mi) = 2.59 square kilometers (kmi) 1 long ton (lg ton) = 1.02 metric tons (m ton) 1 short ton (sh ton) = 0.91 metric ton (m ton) Abbreviations used in the Report The Government - The Government of Australia The Territory - The Territory of Papua and New Guinea The Administration - The Administration of the Territory of Papua and New Guinea PWD - Department of Public Works (of the Territory) CDW - Commonwealth Department of Works (of Australia) 1964 Survey Mission - The Economic Survey Mission to the Territory sponsored by the Bank in 1963/64 UNDP Consultants - Consultants for the 1968-69 UNDP- financed Transport Survey vpd - Vehicles per day (both directions included) NRT - Net Registered Tonnage voc - Vehicle operating costs  TERRITORY OF PAPUA AND NEW GUINEA HIGHWAY PROJECT TABLE OF CONTENTS Page No. SUMMARY AND CONCLUSIONS ..................................i 1. INTRODIUCTION ............................................. 1 2. BACKGROUND INFORMATION ...................................1 A. Geographic and Demographic ..........................1 B. The Economy ......................................... 1 C. The Highlands ....................................... 2 I). The Transportation Sector ........................... 3 F. Transport Administration and Planning .... ........... 5 3. THE HIGHWAY SYSTEM ....................................... 6 A. The Highway Network ................................. 6 B. Highway Traffic ..................................... 6 C. Hlighwav Administration .............................. 7 D. Highway Planning .................................... 8 E. Highway Financing ................................... 9 F. Engineering and Execution of Highway Work .... ....... 10 4. THE PROJECT .............................................. 10 A. G(eneral D)escription and Purpose ..................... 10 B. Roads to be Improved and Developed .................. 12 C. Roads to be Engineered .............................. 13 D. Engineering and Supervision of Project Works ... ..... 14 E. Iechnical Assistance ................................ 14 F. Fellowships ......................................... 14 G. Cost Estimate anl 'Off-Shore' Component of Cost ..... 15 Fl. Project Execution and Financing ..................... 17 I. Disbursement ........................................ 18 This report was written by Messrs. P. 0. Malone (Engineer), R.D. Fletcher (Economist) and i. Hansen (Economist) on the basis of an appraisal mission in l)ecember 1969.  -2- I'age No. 5. ECONOMIC EVALUATION .................................... 18 A. General ........................................... 13 B. The South Wahgi Highway ........................... 19 C. The Southern Highlands flighway .... ................ 20 D. Second Access to the Highlands .... ................ 21 6. RECOMIIENDATIONS ........................................ 2 TABLES 1. Freight Movements on the hlighlands Highway 2. Mileages of Trafficable Vehicular Roads - 1967 3. Vehicle Fleet 4. Air Freight Movements at Highland Airports 1963-8 5. Administration Expenditures on Roads and Bridges 6. Revenues from Use and Ownership of Vehicles 7. PWD Design Standards 8. Highway Project - Cost Estimate 9. Traffic Volumes on Project Roads 1069-91 10. Typical Vehicle Operating Costs 11. Maintenance and Vehicle Operating Costs on Project Roads 12. Economic Evaluation of Project Roads ANNEX Details of Roads to be Improved and Developed MAP Papua and New Cuinea - Highwav Project.  PAPUA AND NEW GUINEA APPRAISAL OF A HIGHWAY PROJECT SUMMARY AND CONCLUSIONS i. This report appraises a project for improvement of the road system within the Highlands of the interior of Papua and New Guinea, and for development of a new road access to the Highlands from the coast. ii. Historically, the Territory of Papua and New Guinea developed from the coast inland, and the economy, even today, is based largely on enclaves which developed around ports in earlier years. An exception to this pattern of coastal enclaves are the Highlands, a fertile and in- creasingly important area in the western part of the interior of the Territory, where development, supported initially by the aeroplane, started only a few decades ago. iii. The road system developed with the economy. Much of the sys- tem is therefore contained within coastal enclaves and comprises separate sub-systems radiating from ports and generally terminating a short dis- tance inland. The exception is the 'Highlands Highway' completed about four years ago; it is a road over 300 miles long running from the port of Lae, on the northeast coast of the Territory, to the Highlands, and specifically to Mount Hagen, the administrative and commercial center of the western part of the Highlands. This road is tortuous, often diffi- cult for trucks to negotiate, and is frequently closed because of land slides, yet it currently forms the only vehicular access to this impor- tant area. iv. The economy of the Highlands is booming. Consultants who re- cently carried out a UNDP-financed transport survey for which the Bank was executing agency forecast that the economy of the area would maintain a rate of growth of at least 10% per annum during the coming decade. V. Although the opening of the Highlands Highway reduced freight costs from the coast and led to a marked shift from air to road in the tonnages moved into the Highlands, road freight is still too expensive and there is need for better roads in the area and for a more reliable access from the coast. The Territory's Development Program for 1969-1973 thus rightly gives priority in the transportation sector to improvement of roads within and to the Highlands. This priority was endorsed by the UNDP Consultants and is now reflected in the project which this report appraises. vi. ln detail, the project - the first Bank Group project in the transportation sector in the Territory - comprlses improvement or devel- opment of, and engineering services for, 93 miles of road in the High- lands and engineering of a further 135 miles of road, including that for a new road access to the Highlands from the coast at Madang. There are also small provisions for technical assistance and for fellowships. The project is estimated to cost about US$ 13.1 million equivalent, of which  - ii - about 88% would be for road construction and associated services and about 10% for detailed engineering. The rates of return on the invest- ment in individual roads vary between 15% and 40%, the higher rate of return being due to substantial route shortening on one road. vii. The Territory uses Australian currency and the conventional breakdown of project costs into "local" and "foreign" currency elements is not applicable. An "off-shore" element of cost has been defined as including costs originating in Australia and other overseas countries and was calculated at US$9.0 million equivalent (or about 70% of project cost). viii. Engineering of the civil works was carried out both by consul- tants and by the Department of Public Works (PWD), and is virtually com- plete. Retroactive financing of this item (representing about 5% of project cost) is recommended. The Department intends to retain consultants to supervise the work and to carry out the detailed engineering of the ad- ditional roads. ix. The PWD intends to group the civil works into three contracts, ranging in size from $ 2.1 million to $ 3.7 million with bidders being given the option of bidding for any one or more contracts. There are no indigenous contractors in the Territory capable of executing more than minor works; there are however, locallv-based foreign (mainlv Australian) contractors who should be attracted by the size of the proposed contracts. The latter should attract, also, large foreign firms not yet established in the Territory. Procurement will be in accordance with the Bank's guidelines. x. The PWD would be the agency responsible for executing the project. The UNDP Consultants recently recommended changes in the organization of the Department and in its procedures, and the Government has notified the Bank Group of its intention to effect certain changes in these aspects of the Department, taking into account the Consultants' recommendations. xi. The project is suitable for Bank Group financing totaling US$ 9.0 million equivalent, the estimated "off-shore" element of project cost; the proportion financed by the Bank should be repayable over 20 years, with a four-year grace period. Costs in the Territory of the project would be financed from the Territory's budget.  1. INTRODUCTION 1.01 The Government of Australia ('the Government') has asked the Bank and the Association to help finance a highway project in the Terri- tory of Papua and New Guinea ('the Territory'). The proposed project is estimated to cost about A$ 11.7 million (US$ 13.1 million equivalent), of which the road construction and associated services would account for about 88%. The 'off-shore' element of project cost is estimated at about US$ 9.0 million equivalent. This would be the first Bank Group lending in the transportation sector. 1.02 The origin of the project can be traced back some six or seven years. In 1963/64 the Bank sponsored an Economic Survey Mission to the Territory (the '1964 Survey Mission'). In 1967, the Bank sent an eco- nomic mission to review developments since the Survey Mission and follow- ing this latter mission, the Bank assisted the Government prepare a re- quest to the UNDP to help finance a Transport Survey in the Territory; such a survey was carried out in 1968/69 with the Bank as executing agency. The consultants for the Survey (the 'UNDP Consultants') - Sir William Halcrow and Partners, UK - endorsed the current policy of the Administration of the Territory ('the Administration'), which assigns investment priority in the transportation sector to development of the highway system. The project is based on the findings of the Survey, and the civil works and engineering included in the project represent, in general, the highest priorities in the consultants' recommended highway development program. 1.03 This report has been prepared by Messrs. P.O. Malone (engineer), R.D. Fletcher (economist) and H. Hansen (economist), who appraised the project in December, 1969. 2. BACKGROUND INFORMATION A. Geographic and Demographic 2.01 The Territory consists of Papua, which is a dependency of Australia, and New Guinea, which is administered by Australia as a trusteeship of the United Nationis. Physically it comprises the eastern half of the island of New Guinea and some 600 islands, and has a land area of about 184,000 sq mi (about the same size as Iraq, Spain or Sweden) spread over some 800,000 sq mi of the western Pacific Ocean. The indigenous population numbers about 2.3 million and is growing at 2.4% p.a. The non-indigenous population numbers about 40,000 and has been increasing by more than 6% p.a. over the past decade. B. The Economy 2.02 The Territory is at an early stage of development, with an economy based on primary production. The non-monetized sector, which provides the indigenous population with most of its necessities, ac- counts for about 50% of the GNP and is growing at an estimated 2% p.a.  - 2 -- The monetized sector is valued at about A$ 200 million and has been grow- ing at more than 10% p.a. in real terms, over the last 15 years; in this sector, agriculture, livestock rearing and fisheries account for more than 30%, while administration and professional services - performed mainly by expatriates - account for a further 23%. The economy is heavily dependent on external trade; imports are currentlv valued at about A$ 150 million p.a., whilst exports, mainly coffee, cocoa and coconut palm products, are valued at about A$ 70 million p.a. including A$ 10 million of re-exports. 2.03 The per capita GNP of the indigenous population is about A$ 90 p.a. (US$ 100 p.a.), whilst that of the expatriates is about AS 3,600 p.a. (US$ 4,000 p.a. - roughly the level in the United States). C. The Highlands 2.04 Historically economic activity in the Territory was based on centers such as Rabaul (New Britain), Port Moresby (Papua), and Lae and Madang (New Guinea), which were traditionally supplied by sea, but later by air also. These centers were, however, no more than economic enclaves, and little development took place in the interior of the Territorv. 2.05 In the last few decades the economic potential of the interior, notably of the Highlands in the west-central part of the Territory, has been recognized. Economic activity there was initially supported almost entirely by air. Gradually, however, a road was developed from the port of Lae, and was completed about 1966. Today the road - the so-called 'Highlands Highway' - runs 327 miles from Lae to Mount Hagen, the admin- strative center of the Western Highlands District, providing a land access, albeit a somewhat difficult and unreliable one, (para. 4.09), to the High- lands and to the estimated one million people living there. 2.06 The Highlands consist essentially of four districts, with dis- trict administrations located at Goroka, Kundiawa, Mount Hagen and Mendi. At present the cash economies of these districts are relativelv undeveloped, but rapid development of cash crops, notably tea, coffee and pyrethrum, is taking place, and will be accompanied by development of light manufactur- ing industries and of tourism. The UNDP Consultants estimated that during the coming decade economic growth of the area will be maintained at a mini- num of 10% p.a. 2.07 With nearly half of the Territory's population living in the area, and with the favorable forecast of sustained economic growth, the Highlands appear poised to play a major role in the economic development of the Territory. The proposed project would concentrate on needed road access to, and road improvement within, the Highlands.  -3- D. The Transportation Sector a. General 2.08 The terrain of the 'mainland' of the Territory is unfavorable for development of land transportation inwards from the ports. Generally the coastal plain is narrow and is terminated abruptly by formidable mountain ranges; even where the plain extends some distance inland, as in the south-western part of the mainland, it tends to be intersected by major rivers and to be low-lying and swampy. As a result the major trade movements are external. Both the value of this external trade (para. 2.02), and the tonnage are unbalanced, the tonnage of imports being about 2-1/2 times that of exports. On the Highlands highway, the imbalance is even greater; in 1968, for example, freight inland from Lae was about 82,000 tons, while that outwards was some 25,000 tons, a ratio of 3 to 1. In 1969, the imbalance was greater, 107,000 tons inwards and 26,000 tons outwards - a ratio in excess of 4 to 1. Further details on these and other freight movements on the Highway are given in Table 1. b. HighwAy ransport 2.09 Before World War II road transport played a very minor role in the Territory. Since the War, however, the road system has been expanded considerably, but nevertheless it is still comparatively limited for a countrv the size of the Territory. Lack of reliable data on the extent of the system year by year since the War precludes a calculation of an- nual growth, but it is estimated that the system mileage of about 7,500 miles (Table 2) in 1967 - the last time that the roads were inventoried - represents a four-fold increase during the post-War period. The vehicle fleet, more than half of which consists of motor cars, station wagons and motorcycles, has increased by about 17% p.a. since 1963 and now numbers more than 25,000 (Table 3). c. Ports and Ship inS 2.10 The Territory has about 50 ports of various sizes, eight of which (Port Moresby, Lae, Madang, Wewak, Samarai, on the mainland, and Rabaul, Kavieng and Lorengau on the islands) handle overseas trade. In addition there are numerous jetties and beach landing points for coastal vessels. Cargo handled at the major ports totaled 1.3 million tons in 1967/68, representing an annual increase of about 11.5% over the previous five years. Imports handled at the major ports increased by about 16% p.a. over this period, while exports increased by only 8% p.a. 2.11 Overseas shipping services are provided by nine companies. Coastal and inter-island services are provided by those companies and by about 140 small vessels, (average size about 40 NRT), mostly owned and operated by trading companies and plantation owners for their own use; only irregularly do they provide public service.  - 4 - 2.12 The UNDP Consultants proposed that the Harbours Board, which was established in 1967 following a recommendation of the 1964 Survey mission, should extend its responsibility to seven secondary ports, in addition to the six major ports already under its jurisdiction. The Consultants further proposed investments of A$ 5.2 million in the main ports and of A$ 4.4 million in other ports, these investments to be financed in part by increases in port charges and license fees. The Government is still studying the Consultants' report and to date has taken no action on these specific proposals. It is, however, actively considering extension of the Harbour Board's responsibility to four of the seven secondary ports named by the Consultants. d. Civil Aviation 2.13 Air transport is the major mode of passenger travel both in- ternally and between the Territory and other countries; passenger traffic has been increasing steadily by about 16% p.a. in recent years. Freight is also moved by air, particularly to the more isolated areas, but the importance of air freight has declined substantially in recent years (para. 2.16). 2.14 Airports and airstrips numbered 395 in June 1968, but only two, those at Port Moresby and Lae, are used for scheduled international flights; only the airport at Port Moresby can handle the largest jet aircraft. The Territory is adequately served by international flights. Internally, scheduled services are operated by five companies, and charter services by those five and by a further 16 companies, licensed for charter operations only. 2.15 Although air services are provided almost exclusively by Australian companies, fares and freight rates in the Territory are much higher than those obtaining in Australia. This is because the airline companies have to carry the burden of flying some commercially unprofit- able routes, in order to meet the administrative needs of the Territory. E. Transport Coordination 2.16 The manner in which transportation developed in the Territory in earlier years provided little danger of inter-modal competition. Re- cent developments, however, have cut across earlier modal monopolies and have had a considerable effect on the balance between modes. The exten- sion of the road system into the Highlands, previously an area monopolized by air transport, provides the most striking example of such developments. Air transport into the Highlands grew at a vigorous pace until about 1964. At that time the Highlands Highway was being constructed and it was com- pleted by about 1966/67. In the period 1964/68 although the tonnage of freight into the Highlands increased by about 20% p.a., the tonnage air- freighted to Highlands airports declined by about 22% p.a. (see Table 4). Most of the air freight to the Highlands was flown from Madang; a second- ary effect of this shift from air to road, and therefore to the port of Lae, is an under-utilization of facilities - wharves, hotels, commercial installations - at Madang.  -5- 2.17 The above example indicates that coordination of investment between modes must now be considered seriously in the Territory; it also indicates that the whole transportation system relevant to a proposed investment should be defined and, ideally, the implications for each mode quantified. Unfortunately in the Territory it is not always pos- sible to identify modal costs on a comparable basis because of limited statistical information and because the three relevant transport modes, air, road and sea (there are no railways) are often subject to different degrees of market freedom, taxation and subsidy. 2.18 The UNDP Consultants recognized these shortcomings. With a view to increasing the scope for rational investment decisions in the sector as a whole, the consultants recommended that (i) collection of relevant statistical information on a contlnuing basis and (ii) a study of the inequalities of treatment of modes, should both be made part of the responsibility of the proposed Department of Transportation (para. 2.20). F. Transport Administration and Planning 2.19 Prior to 1967, responsibility for transportation was shared among several departments of the Administration and Government. In that year a Coordinator of Transport was appointed, and in 1968 a Directorate of Transport was set up and given responsibility for policy and planning in all forms of land and sea transport, air transport remaining largely within the jurisdiction of the Government Department of Civil Aviation. 2.20 The UNDP Consultants recommended the immediate establishment of a Department of Transportation broadly on the lines recommended by the 1964 Survey Mission. The main functions of this Department - which would be directly responsible to the Administration - would be: (i) to develop policy for land, sea and air transportation throughout the Territory; (ii) to undertake the necessary economic studies and surveys related to all modes; (iii) to prepare, evaluate and revise as necessary the capital and recurrent expenditure plans for all modes to meet the requirements of consumers, operators and departments of the Administration, and (iv) to regulate and administer each of the modes. The Consultants' recommendations on the Department of Transportation were acceptable to Government, but they are still considering the detailed arrangements for the establishment of the Department.  2.21 Specifically as regardls highwavs the Department of Transporta- tion, would operate in conjunction with the Public Works Department (PWD), the department responsible, inter alia, for most of the road contruction and major road maintenance in the Territory. The Department of Transpor- tation would define highway needs in broad terms; these needs would then be designed and costed by the PWD as specific projects. Such projects would then be considered by the Department of Transportation on economic grounds, and in the context of other modes, and if acceptable, would be forwarded to the Administration for consideration (para. 3.08). In brief, the Depart- ment of Transportation would supply the economic expertise for the develop- ment of highway projects, and the PWD would continue to supply the technical expertise. This is a reasonable arrangement. 3. THF HIGHWAY SYSTEM A. The Highway Network 3.01 Rural roads in the Territory are currently classified as (i) primary, (ii) major secondary, (iii) secondary, (iv) feeder, (v) access, and (vi) intermittent access, according to the physical characteristics of road and pavement and to whether the road is considered 'seasonal' or all-weather. This classification represents a gradation of standard from a 28-ft road with a pavement of width not less than 18 ft ('primary'), to a motorable track, generally unpaved and wlth no uniform engineering char- acteristics ('intermittent access'). 3.02 Details of the Territory highway system, based on an inventory compiled in 1967, are given in Table 2. The total length, including urban roads, was then about 7,500 miles. The system is concentrated in coastal enclaves and the Highlands Highway network, and any ratios on coverage would not fairly reflect the uneven distribution. B. Highway Traffic 3.03 As a result of a general absence of inter-district roads, freight traffic is at a low level, and haulage is over relatively short distances. An exception is the Highlands Highway which carries an average traffic of about 200 vpd, much of it heavy trucks to and from the coast. Trucks are mainly owned and operated by trading firms to meet their own needs, and little service is available for public use. 3.04 Because of the disparity between export and import tonnages for the Territory as a whole, road freight movements are unbalanced; this im- balance, combined with a lack of public transport and with the poor con- dition of many roads, makes for high road freight charges of up to A$ 0.33 (US$ 0.37 equivalent) per ton mile. Road traffic statistics in terms of passenger miles and ton miles are not available, but high rates of in- crease in the number of vehicles registered in recent years (Table 3) are indicative of a rapid growth of both passenger and freight traffic. This  - 7 - lack of statistical data is a deficiency which should be rectified in the ifterests of logical planning of transportation facilities. An assurance that information on road traffic would henceforth be collected on a regu- lar basis was obtained during negotiations. C. Highway Administration 3.05 Responsibility for construction of all roads (other than private roads built, for example, by timber or plantation companies), and mainte- nance of the more important rural ones, is shared between the PWD and the Commonwealth Department of Works, (CDW), Australia's federal works organi- sation; the PWD, however, executes the greater part of this work. Main- tenance of less important rural roads and of urban roads is the respon- sibilitv of the Territory's Department of District Administration and of local councils. The system is generally adequately maintained, and assurances were obtained at negotiations that maintenance would continue at a satisfactory level and that weights and dimensions of vehicles permitted to use the system would be compatible with its physical and structural properties. 3.06 The PWD - the Department which would be responsible for execut- ing the proposed project - is a competent but relatively small department; it consists of about 400 professionals, sub-professionals and administra- tive personnel, mainly Australian, and a labor force of about 2,000. To supplement the resources of the PWD, the Administration uses CDW both as a consultant and as construction agency. 3.07 The UNDP Consultants, in late 1969, recommended that CDW be gradually phased out of work in the Territory, to enable the PWD to func- tion properly as a sole works organization, and that control of works should be concentrated more in the Territory and less in Australia. Gov- ernment has already delegated some measure of responsibility for control of works to the Administration, but the pace of delegation should be quickened. To this end Government, taking into account the UNDP Con- sultants' report, (i) is pursuing a policy which will gradually phase out CDW working in the Territory, thus enabling PWD to assume responsibility for all public works, (ii) is reorganising PWD, will review its organisational needs annually, and will staff the Department accordingly, (iii) in the interests of retaining valuable expertise for the benefit of the Territory, will take steps to reduce turnover of expatriate staff in the Department, (iv) will define and implement the financial, administrative and operational procedures needed to obtain maximum efficiency in the PWD, and (v) is expanding PWD's training program to cover all levels in the Department.  - 8 - Assurances on Government's intentions on (i) through (v), above, and on a broad timetable for their implementation, were obtained during negotiations. D. Highway Planning 3.08 The planning procedure involves initial submission by any con- cerned agency, public or private, of an identifled project to the Co- ordinator of Transportation (the forerunner of the Department of Transpor- tation). Assuming that the project is technically and economically feasible and the impact on other modes is acceptable, the project is referred to the Administrator (of the Territory). If the Administrator accepts the sub- mission the project is included on a "needs list" which must be approved by the Minister of External Territories before the project may be admitted for inclusion on the works program. Approval (i) to proceed with design and (ii) for construction, requires separate subsequent application to the Minister. This is a lengthy and somewhat cumbersome procedure, which leads to inefficient working and frustration in the Territory; it is one that the UNDP consultants consider should be simplified (para. 3.07). 3.09 The five-year development program proposed by the Administration for the period 1969/73 has as its prime objective in the transportation sector the extension of the existing highway system to at least a minimum network connecting major population, production and resource areas to the ports and where necessary to each other. The preliminary allocation for the transportation sector within the program is A$ 154 million, of which about two-thirds is for highways. The UNDP Consultants endorsed this in- vestment generally in the transportation sector and specifically on high- ways; compared with the Administration's five-year program the Consultants' recommendations involve only a minor change in emphasis from urban to rural roads. 3.10 The Consultants' proposals over the five-year period for highway development were as follows:  - 9 - (i) construction of 333 miles of interregional roads 1/ - A$ 31 million (ii) construction and upgrading of 382 miles of district trunk roads - A$ 22 million (iii) feeder roads - A$ 8 million (iv) urban roads - A$ 6 million (v) rural development roads - A$ 10 million (vi) road maintenance - A$ 29 million (vii) miscellaneous - A$ 3 million - A$109 million 1/ This classification, 'interregional road', 'district trunk road' etc., represents a revision of the existing classification (para. 3.01), proposed by the UNDP Consultants. In broad terms, inter- regional road would correspond with the existing 'primary' classi- fication, 'district trunk' with existing 'major secondary' and isecondary', 'feeder road' classification would remain the same, and 'rural development' would correspond with the existing 'access' and 'intermittent access' classification. This program would represent an increase of about 60% in expenditure on highways compared with recent years. The proposed project would support the program by helping finance work on 228 miles of the 333 miles in (i) above (93 miles of construction and 135 miles of detailed engineering). E. Highway Financing 3.11 Funds for public road construction and for main road maintenance are provided from the Territory's annual budget. Funds for minor and district road maintenance are provided by the local Government Councils concerned. 3.12 Over the past few years Administration expenditure on roads, excluding PWD Administration costs, has averaged about A$ 11 million an- nually (Table 5). Revenues from use and ownership of motor vehicles over the same period have amounted to only about a quarter of expenditures (Table 6). The UNDP Consultants consider that such revenues should con- tinue to be confined to petroleum products, vehicles, vehicle spares and vehicle registration but recommend that the duty on petroleum products should be gradually increased so that total revenues would amount to about A$ 10 million (i.e. a fourfold increase) by 1977/8, a level which would approximate to road maintenance expenditure in that year and one  - 10 - which appears appropriate at the presenf stage of The Territory's devel- opment. The Administration has already taken the first step to implement this recommendation by increasing, in late 1969, the duty on motor fuel. 3.13 Funds to meet expenditures on highways under the Five-Year De- velopment Program will continue to be supplied from the Territory budget, which is in any case largely financed by Australia. The financing pro- posals, over the five-year period, envisage about 10% funding from inter- national sources. F. Engineering and Execution of Hi hway Work 3.14 Engineering standards for highway work adopted by the PWD in recent years have at times been controlled more by limitations of finance and possibly by the necessity to 'tailor' design to suit the limitations of labor-intensive working than by technical considerations. The Depart- ment has, however, recently adopted geometric and structural standards more appropriate than previously to the traffic, current and projected, on the Territory's highway system (Table 7). These standards are gen- erally in accordance with those recommended by the UNDP Consultants and appear adequate. 3.15 Engineering of highway work is carried out by the PWD, by CDW (acting as consultants for the PWD) and bv Australian consulting firms with branches in the Territory. The quality of the englneering is satis- factory, the performance of the consulting firms being particularlv im- pressive. 3.16 Construction of major roads is carried out both bv contract and departmentally, the latter being generally confined to improvement of ex- isting roads. Some work is carried out by unpaid labor on a self-help basis, generally to provide motorable tracks to small communities. 3.17 There are no indigenous contractors, per se, in the Territory capable of executing more than minor work. There are, however, about 35 locally-based foreign (mainly Australian) contracting firms, four of which are considered capable of executing work to a value in excess of A$ 1 million per annum using only their own resources currently employed in the Territory. Virtually all the firms with parent organizations over- seas could increase the size of their operations in the Territory, if necessary. The response of the contracting industry to date has been sufficient to ensure reasonable rates for highway work, and genuine com- petition resulting in keen tendering can be expected to continue. 4. THE PROJECT A. General Description and Purpose 4.01 The project would comprise (see Map);  - 11 - (i) Improvement of the Wahgi Valley section of the Highlands Highway by: (a) construction of about 47 miles of new road between Kundiawa and Kagamuga, generally on a new alignment and generally to a gravel standard; (b) surfacing of the existing road, about five miles, be- tween Kagamuga and Mount Hagen. (ii) Improvement and development of the road westwards from Mount Hagen (the Southern Highlands Highway) by: (a) reconstruction of the six-mile section from Mount Hagen to Togoba to a gravel standard; (b) completion of the new Togoba-Mendi road by construc- tion of the 35-mile section between Kaupena and Assissi to a gravel. standard. (iii) Engineering and supervision of (i) and (ii); (iv) Engineering of nine miles of the Wahgi Valley section not included in (i) above; (v) Engineering of about 125 miles for a second road access to the Highlands from the coast at Madang; (vi) Technical assistance to help implement organizational and administrative changes in the PWD and to assist in training; (vii) Fellowships for nationals of the Territory to provide train- ing on subjects related to transportation in general, and to public works in particular. 4.02 The purpose of the project is four-fold: (i) to reduce road transport costs between the Highlands and the coast; (ii) to provide the area west of Mount Hagen, and centered on Mendi, with a reliable road link to the Highlands Highway, and hence ultimately to reduce transport costs between the Mendi area and the coast; (111) to prepare for construction of a new, and more reliable, road access to the Highlands from the coast; and (iv) to help the Department of Transportation and the PWD with organizational, administrative and training problems as both departments prepare to assume an increasingly important role in the Territory's development.  B. Roads to be Improved and_Developed 4.03 The proposed road improvement and development, totaling 93 miles, would be centered on Mount Hagen, the administrative center of the Western Highlands District. To the east of Mount Hagen, In the valley of the Wahgi River, the proposed road - the so-called South Wahgi Highwav - would start at Kundiawa and would represent, in effect, a reconstruction, with 30, route shortening, of the last 85 miles of the Highlands Highway. To the west of Mount Hagen, the proposed work would complete a road, on a new alignment around the southern side of Mount Giluwe, to Mendi, the most westerly administrative and commercial center in the Highlands. The pro- posed works are described in greater detail in the Annex. 4.04 Civil works under the project to the east of Mount Hagen would be on two sections, Kundiawa-Minj and Kudjip-Mount Hagen. There is already a road between Minj and Kudjip which was constructed some years ago to a relatively low standard but on an alignment which generally follows that now being adopted for the South Wahgi Highway. It was confirmed during negotiations that the Administration intends to reconstruct the Minj-Kudjip section within the next few years to standards compatible with those being used for the rest of the Highway, (see also para. 4.08). Temporarv use of the existing Minj-Kudjip road, pending its reconstruction, to link up adjoining sections constructed under the project would not seriously affect traffic using the Highway. 4.05 Traffic projections indicate that it would be economical to surface all the reconstructed road from Kundiawa to Mount Hagen. The Administration recognizes this but, in view of other investment needs which would also yield a satisfactory return, it is concerned that sur- facing would concentrate available capital unduly on the South Wahgi High- way. The Administration plans therefore, and the project includes, surfac- ing only of: (i) the heavily-trafficked five-mile Kagamuga-Mount Hagen section, and (ii) a short length, (about 2,000 ft), of embankment in the Kundiawa-Minj section which will act as a weir and which will be overtopped in times of heavy flooding, (Annex, para 4). The remainder of the South Wahgi Highway will be developed to gravel standards only at this time, surfacing being deferred for a few years. Assuming that the gravelled sections were adequately maintained in the interim, this is acceptable. 4.06 Project works to the west of Mount Hagen, on the so-called Southern Highlands Highway, would be in two sections, Mount Hagen-Togoba (6 miles) and Kaupena-Assissi (35 miles). Work on the remaining sections is already virtually complete, having been carried out over the past year or so both by contract and by force account.  - 13 - 4.07 On the Kaupena-Assissi section the alignment is over the lower slopes of Mt. Giluwe, and the terrain is rugged. The design standards originally adopted by PWD were "secondary/hilly" and "secondary/mountainous" (Table 7). The latter standard however, requires a formation width of only 24 ft, which combined with the steep gradients necessary would be too narrow for heavy two-way traffic. It had subsequently been agreed with Government that "secondary/hilly" standards (which require an embankment width of 28 ft) would be generally adopted for this section, such standards being relaxed only in exceptional circumstances where their adoption could be proven to be grossly uneconomical. This was confirmed during negotiations. C. Roads to be Engineered 4.08 Roads to be engineered under the project would be (i) the Minj- Kudjip section of the South Wahgi Highway (para. 4.04) and (ii) the Madang- Kundiawa road, (125 miles), a new road which is to become the second road access to the Highlands. 4.09 Improvement of land access to the Highlands from the coast is a matter of great concern to the administration since the only existing land access to this economically-Important area is the Highlands Highway which is long and tortuous and subject to frequent closure due to landslides, particularly on the unstable Daulo and Kassam passes. The feasibility of a second access has been under study for some time. In 1965, the PWD commissioned consultants (Laurie and Montgomerie-Australia) to report on the technical feasibility of a new road to the Highlands from the port of Madang on the northern coast of the mainland. During 1968/69, both the technical and economic feasibilities of improved road access to the High- lands were studied as part of the UNDP Transport Survey. The UNDP Con- sultants considered the feasibility of (i) improving the existing Highlands Highway and (ii) providing an entirely new access from the coast; for (11), they examined five possible alignments, four originating from Madang, the fifth from the Gulf of Papua on the south side of the mainland where a new port, at Paia, would be required if that alignment were adopted. Taking into account the results of the 1965 study, the UNDP Consultants found that one of the routes from Madang, the Bundi route, (named after the mountain pass which it would cross) was the most feasible and they recommended that this route be developed as the second road access to the Highlands at an estimated cost of about A$ 15 million. 4.10 The Government has recently agreed that the Bundi route should 1)e developed as the new access. This new route would cross the mountainous area between the Highlands and the northern coast at its narrowest point and would traverse only one mountain rarge (the pass being at a height of 9,100 ft). It would then join the existing Highlands Highway at Kundiawa, whence road construction under the project would commence (para. 4.04), and would thus avoid the Daulo and Kassam passes. Moreover, Kundiawa, currently 242 miles by road from the coast, at Lae, would be brought by the Bundi route to 132 miles from the coast, at Madang, a shortening of 110 miles.  - 14 - 4.11 The report of the UNDP Consultants, counled with that of the 1965 technical feasibilitv studv, provide adequate feasibility for the proposed second road access to the Highlands on the Bundi alignment. The detailed engineering of this access has therefore been included in the project. 4.12 The PWD has proposed that the second access be built to tertiary standards (Table 7). In the terrain of the Bundi route, this would imply, inter alia, a formation width of 22 ft, which would be too narrow for the heavy traffic, much of it trucks, that would use the road. The Government subsequently agreed that secondary standards should generally be used in the design of this access, and this was confirmed during negotiations. D. Engineering and Supervision of Project Works 4.13 Detailed engineering of road works included in the project is virtually complete. Engineering of the South Wahgi Highway, with the ex- ception of the five-mile Kagamuga-Mount Hagen section, was carried out by consultants, (Bull & Collier; Willing, English and Devin; Mackerras and Frame; all of Australia). Engineering of the Kagamuga-Mount Hagen section and of all the work proposed on the Southern Highlands Highway was carried out by the PWD in conformity with its policy of providing engineering train- ing for its staff, and of avoiding the expense of using consultants when- ever work is within the physical and technical capability of the Department. 4.14 The PWD intends to retain consultants to supervise all construc- tion included in the project and for the detailed engineering yet to be carried out; an assurance to this effect was obtained during negotiations. Consultants for supervision are likely to be selected from the firms mentioned in the previous paragraph, any of whom would be satisfactorv to the Bank and Association. E. Technical Assistance 4.15 The terms of reference for the UNDP Transport Survev required the consultants, in Part 1 of the Survey, to study inter alia the policies and procedures for investment planning in the transportation sector, as a whole and by modes, and to make recommendations on improvements needed in the organization of agencies responsible for administration, operations, regula- tion and planning in each transport mode, and also on the organization re- quired to develop and implement coordinated transport policy and planning. In Part 2 of the Survey the consultants were required to focus in greater detail on the organization and policies of the PWD specifically in relation to the highway program, and to make recommendations on changes in organiza- tional structure, staffing requirements, recruitment and training policies, and administrative procedures which would be necessarv to carry out the program. 4.16 Government is reorganising the PWD and intends to implement revised procedures and a broader training program in the Department, (para. 3.07). It is improbable that the Government and Administration would have the necessary professional expertise to spare to help implement these measures. The project provides therefore for two man-vears of management  - 15 - consultant services to assist in the implemeutation of the revised pro- cedures and of the enlarged training program. F. Fellowships 4.17 In the coming years the Administration will inevitably play a more important role in the formulation of Territory policy. The establish- ment of a Department of Transportation to formulate transport policy and to coordinate investment in the sector would be indicative of this trend. Specifically as regards public works, if, as the Government intends, the role of the CDW is reduced the PWD will inevitably assume greater stature and responsibility as part of the process of becoming the sole works author- ity. 4.18 The key personnel in the transportation sector and in the PWD are currently expatriate and, in the context of the long-term goals, efforts should now be made to train nationals of the Territory. In line with these objectives the project provides for about ten man-years of fellowships to help train Papuans and New Guineans in transportation and public works for the specific tasks which lie ahead. The Territory has limited academic facilities for training in the relevant disciplines / and lacks those for practical training at post-graduate level. The project therefore provides for overseas fellowships. The management consultant to be retained under Technical Assistance should provide useful advice on the selection of suit- able candidates for the fellowships. G. Cost Estimate and 'Off-Shore' Component of Cost 4.19 Cost estimates for the civil works were prepared by the PWD and were derived from detailed engineering and from unit rates for comparable road construction projects, notably that for the recently-completed Togoba- Kaugel section of the Mount Hagen-Mendi road. The estimates appear rea- sonable. 4.20 Engineering services for the civil works comprise both engineer- ing and supervision of all new road sections. Detailed engineering is virtually complete and has been financed by Government; retroactive finan- cing of this element of the project is therefore recommended (see para. 4.28). The project cost estimate includes the actual cost of engineering carried out by consultants (generally 6.0% - 6.5% of estimated construction cost) and a notional figure, agreed at negotiations, for detailed engineering carried out departmentally, (generally 5.5% - 6.0% of estimated construction cost). Supervision costs used in the project cost estimate were based on recent experience in the Highlands and have been set at about 3% of estimated construction cost. 1/ The University of Papua and New Guinea, at Port Moresby, does not presently include an engineering faculty. Technical education at tertiary level is provided only by the Higher Technical Institute at Lae, an institution established only three years ago, and which has not to date provided any technical graduates.  - 16 - 4.21 For consultant services for engineering of the second access to the Highlands and of the Minj-Kudjip section of the South Wahgi Highway, the cost has been estimated at 6% of estimated construction cost. For the proposed technical assistance, the estimate has been based on the costs obtaining in the recent UNDP Transport Survey. The allowance for fellow- ships is in accordance with recent Bank experience. 4.22 The Territory uses Australian currency and the conventiaonl breakdown of project costs into "local" and "foreign" currency elements is not applicable. An "off-shore" element of cost has therefore been defined as including costs originating in Australia and other overseas countries. The 'off-shore' component of civil works was estimated at about 65% of total cost, and of consulting services at about 80%. 4.23 A summary of the project cost estimate is as follows; fuller details are given in Table 8. Australian $(000's) US$ (000's) Off- Off Off- Shore Com- Territory shore Total Territorv shore Total ponent Civil works on the South Wahgi and Southern Highlands Highway, including engineering and 11 supervision 2,990 6,030 9,020 3,340 6,760 10,100 67%- Detailed engineer- ing of other roads 210 840 1,050 240 940 1.180 80% Technical Assistance 20 70 90 20 80 100 80% Fellowships - 50 50 - 50 50 100% 3,220 6,990 10,210 3,600 7,830 11,430 Contingencies Physical (10%) 320 700 1,020 360 780 1,140 Price Escalation (5%) 160 350 510 180 390 570 3,700 8,040 11,740 4,140 9,000 13,140 1/ A weighted figure for construction and engineering services.  - 17 - 4.24 A contingency allowance of 10% has been included for possible quantitv increases; in view of the detailed engineering carried out for the civil works; this is considered sufficient. A further contingency allowance of 5% has been included for price escalation during the execution of the project; because of the relatively short contract periods proposed and in the light of recent experience of cost increases in the Territory this is considered adequate. H. Proiect Execution and Financing 4.25 The PWD would be responsible for execution of the project. It proposes to group the civil works into three contracts: i) Kundiawa-Minj (25.2 miles, estimated construction cost, excluding contingencies, US$3,510,000); ii) Kudjip-Mount Hagen (26.3 miles, US$2,090,000); iii) Mount Hagen-Togoba and Kaupena-Assissi (41.6 miles, US$3,660,000), with bidders being given the option of bidding for any one or more sections. The size of the construction contracts and the option of bidding for all the work should be attractive both to locally-based foreign firms (para. 3.17) and to large firms not yet established in the Territory. 4.26 Construction contracts would be awarded on the basis of inter- national competitive bidding. An assurance was obtained during negotiations that there are no regulations or policies in the Territory which would pre- vent compliance with the Bank's Guidelines for Procurement. 4.27 Prequalification of bidders for the civil works is complete, and bidding documents have been issued. The works are expected to start in late 1970, with a construction period of three years. Detailed engineering of the second access to the Highlands and of the Minj-Kudjip road is also scheduled to start in late 1970 and is expected to take about one year. 4.28 The 'off-shore' cost of the project would be covered by the proposed Bank Group financing; cost in the Territorv would be met from the Administra- tion budget and no problems are envisaged as this is supported by Australia. On this basis and assuming the schedule referred to in the previous para- graph, requirements of Bank Group funds under the project would be as follows: Fiscal Year (Bank and Government) 1970/71 1971/72 1972/73 1973/74 Total Amount (US$ million equivalent) 2.7 2.1 1.9 2.3 9.0  - 18 - 4.29 Financing retroactive to April 29, 1969, of expenditure totaling about US$540,000 (off-shore element US$430,000) and representing about 5% of project cost would be required for expenditures incurred on detailed engineering of the civil works. The Government's intention to carry out this work prior to the planned project appraisal in late 1969 was discussed .Vuring the pre-appraisal mission to the Territory in April 1969. I. Disbursement 4.30 Loan and Credit funds would be dlsbursed on the basis of: i) 65% of actual payments to contractors for civil works; ii) 80% of the actual payments to consultants for engineering, supervision and technical assistance; iii) 80% of the agreed cost of engineering carried out by the PWD; and iv) 100% of the actual 'off-shore' payments (other than normal salary) to individuals selected for overseas fellowships. Any surplus of funds provided under the proposed Loan and Credit should be cancelled. 5. ECONOMIC EVALUATION A. General 5.01 The civil works and engineering included in the proposed project relate to the existing road system within the Highlands of the Territory and to the proposed new road to the Highlands from the coast. The Highlands are very important to the Territory both politically and economically. They are populous, and are expected to maintain a high rate of economic growth during the coming decade (paras. 2.06 and 2.07). Assuming a rate of growth of at least 10% p.a. as forecast by the UNDP consultants and assuming continued dependence on imports, growth in income would imply high traffic growth rates. Surveys carried out bv the PWD in 1968 and 1969 indicate that traffic on the main roads in the Highlands averages about 200 vpd, and that tonnage of freight moved inland from the coast is currently increasing by about 28% p.a. (Table 1). Vehicle registration statistics also confirm a high rate of growth of traffic registrations in the High- lands having increased by about 25% p.a. in the period 1963-1967 (Table 3). In the economic evaluation of the proposed project growth of traffic in and to the Highlands has been set at 20% p.a. through 1971, declining thereafter to about 7% p.a. in 1987 (Table 9). In view of the data cited above, these growth rates are considered modest.  - 19 - 5.02 Benefits arising from the project would consist of savings in transport costs and on road maintenance. On the South Wahgi Highway (paras. 4.04, 4.05) and on the proposed second road access to the Highlands (paras. 4.09 et seq.), transport costs would be reduced because of improved surfaces and of route shortenings. Typical vehicle operating co8ts for varying terrain and type of road are indicated in Table 10; vehicle operat- ing costs for specific sections of project roads, together with details of route shortenings and of road maintenance costs, are indicated in Table 11. On the Southern Highlands Highway (paras. 4.06 and 4.07) most of the savings would accrue from a diversion of freigh traffic from air to road. 5.03 The project would probably produce additional benefits. Since competition between road hauliers based in the Highlands is very keen, a reduction in transport costs should lead almost immediately to lowering of freight rates to the Highlands from the coast bv one or two cents per pound (or about 25%); such a reduction would generate additional economic activity and traffic, which however are difficult to estimate. Benefits from generated traffic have therefore not been included except in the case of the Southern Highlands tHighwav, where modest traffic generation has been assumed, more- over the proposed road works would help relieve population pressure, par- ticularly in the heavily populated Chimbu District centered at Kundiawa, and help the Administratlon extend social facilities, such as schools and health centers, but these benefits, likewise, are difficult to quantify. No attempt has been made in the evaluntion to include these or other secondary benefits, although in the present state of development in the Territory these will be substantlal. B. The South Wahgi Hlgijw#y 5.04 The area of influence of the reconstructed road would be most immediately the Wahgi Valley, which contains a large population and also the largest single area of high-class land available in the Territory for early development of tea and coffee. This region also has considerable potential for development of light manufacturing industries and of tourism, centered ac Mount Hagen. Since all road traffic between the coast and areas to the south and west of Mount Hagen will use this road, the influence of the proposed reconstruction would extend to the Western and Southern Hiighlands as well. 5.05 Average traffic on the existing road is currently about 150-200 vpd, including some 30-40 heavv lorries operating to and from Lae. The live-mile section of the road between Mount Hagen and Kagamuga (close to which Mount liagen airport is located) experiences traffic of about 1,000 vpd. The traffic growth rates adopted in the evaluation of specific sec- tions of the road are indicated in Table 9. 5.06 Only readily quantiflable benefits have been used in the economic evaluation; these include reduction in vehicle operating costs due to im- proved running surfaces and to a route shortening totaling 25 miles in 85 miles (Or 30%), and a reduction in road maintenance costs. Comparison of these quantifiable benefits with the construction cost indicates that the  - 20- project would have a rate of return of about 40% overall, whilst the rates of return for individual sections range from 33% to about 50% (Table 12). These high rates of return are due to the substantial route shortening which would result, coupled with the relatively heavler traffic volume and the poor condition of the existing road. The sensitivity of these results to variations in the basic assumptions such as (i) 20% lower traffic growth rates and (ii) 20%' higher vehicle operating costs on the new road, has been examined; this examination indicates (Table 12) that even under this combination of unfavorable assumptions the proposed works on the South Waghi Highway would still have a rate of return of about 33% overall. The proposed investment is therefore considered amply justified and is, in fact, overdue. C. The Southern Highlands Highwav 5.07 The Southern Highlands has a population of about 200,000 and has been one of the least developed districts in the Territory. In 1966, for example, cash crop production totaled only A$ 9,000 or about 50 per person, whilst the number of registered commercial vehicles was only 34. However, rapid development is now taking place and is expected to continue; the Territory's Department of Agriculture has estimated, for instance, the cash crop production would grow by almost 80% p.a. between 1966 and 1971. 5.08 The existing road link between Mount Hagen and Mendi goes around the north side of Mount Giluwe and is essentially an access track in very poor condition; it is usually impassable during the rains, often up to five months of the year. Its condition is so poor that even when open, the road freight rates for the 76-mile journey between Mendi and Mount Hagen are about 800 per ton mile, compared to about 160 per ton mile from Mount Hagen to Lae. 5.09 Through traffic from Mount Hagen to Mendi on the present road is about 11 vpd, mostly lorries; for the seven miles between Mount Hagen and Togoba, traffic is close to 300 vpd, consisting of local and through traffic to Mendi and other towns north of Mount Giluwe. Freight carried bv air currently accounts for more than half of the freight delivered to Mendi, and amounted to about 2000 sh tons in the first 10 months of 1969. The economic evaluation assumes that air freight and road freight to Mendi would grow by 20% p.a. up to 1971. It further assumes, based on the ex- perience at Mount Hagen consequent on the completion of the Highlands High- way, that after opening of the new road, 80% of freight presentlv carried by air to Mendi would be diverted to road and moreover, that there would be a generation of through traffic to Mendi as a result of a decline in the freight rate from the coast to a level of about 164 per ton mile (the current rates from the coast to Mendi are about 65t per ton mile by air). The volume of generated traffic is estimated to be 50% of the normal and diverted through traffic in the opening year. 5.10 The benefits arising from the proposed construction have been as- sumed to be savings in vehicle operating cost, transport cost savings on diverted air freight, and road maintenance savings; in addition, some benefits  - 21 - (less than 4% of total first-year benefits) would accrue from traffic genera- tion. Together these benefits imply a rate of return of 15% on the total investment in the Southern Highlands Highway, that is including investment in sections already completed; under the least favorable assumptions for traffic growth and vehicle operating cost savings, the rate of return would be 12%. If the construction costs of the already completed sections are regarded as 'sunk' costs then the rates of return would be 21% and 18% respectively. The road would therefore be justified as an overall invest- ment and even more strongly as an incremental investment. D. Second Access to the Highlands 5.11 The UNDP consultants recommended construction of a second access road to the Highlands along the Bundi route (para. 4.09), and the Government has recently accepted the consultants' reconmendation. 5.12 The proposed alignment would start at the outskirts of Madang and for the first 50 miles would climb gradually up the valley of the Nuru River to Yakumbu. The area between Madang and Yakumbu has a sizeable popu- lation which engages to some extent in cash cropping (cocoa and copra). From Yakumbu the road would ascend to more than 9,000 ft, to pass through the saddle in the mountain range and then would descend through the heavily- populated Chimbu Valley to Kundiawa. Between Yakumbu and the saddle the area appears suitable for cattle raising, robusta coffee growing and timber production; in the Chimbu Valley a network of low-standard roads has already been built by community labor, and coffee and pyrethrum are established as commercial crops. 5.13 The economic evaluation assumes that because of a route shortening of 110 miles, all through traffic between the coast and points in the High- lands west of Kundiawa would divert over the Bundi route, and further that this traffic would grow at 20% p.a. through 1971, gradually declining to 7% p.a. by 1987. It is likely also that part of the traffic destined for the length between Goroka and Kundiawa would also be diverted on the Bundi route. 5.14 The benefits which would arise from the proposed construction have been assumed to be vehicle operating cost savings applicable to the diverted road traffic together with road maintenance savings, although the latter would be small since the existing route would have to be maintained even after opening of the new route. Benefits from local traffic generation are also likely but quantification of these is difficult and has not been attempted. 5.15 Assuming a construction cost of about A$15 million, the rate of return on the proposed investment in the Bundi route is estimated at 19% (Table 12); the investment in detailed engineering is therefore clearly justified. The construction of this road could form the principal element of a subsequent Bank Group-financed project.  - 22 - 6. RECOMMENDATIONS 6.01 During negotiations assurances were obtained, (i) on the Government's intentions relating to (a) reorganisation and staffing of the PWD, (b) modification of the Department's procedures and (c) an expansion of its training program (para. 3.07), and (ii) that there are no regulationjs or policies in the Territory which would militate against awards under the project in accordance with the requirements of the Bank's Guidelines for Procurement (para. 4.26), and (iii) on the standards to be adopted for the Southern Ilighlands Highway (para. 4.07) and for the proposed second access to the Highlands (para. 4.12). 6.02 The proposed project constitutes a suitable basis for Bank Group assistance totaling US$9 million. The terms for the proportion financed by the Bank should include a four-year grace period, (to allow for the proposed construction and contractual maintenance), followed by a repayment period of 20 years, the assumed economic life of the civil works.  TABLE 1 TERRITORY OF PAPUA AND NEW GUINEA - HIGHWAY PROJECT FREIGHT MOVEMENTS ON THE HIGHLANDS HIG(IRAY - TONS per YEAR Kainantu/ W.H.D.y Goroka/ Kundiawa/ Mount Exccept Destination Lae Chauve Minjaanz Hagep Mt. Hagn S.H.D. Tota3 Origin Lae 3 Oct. 1968 (9880)sl 42276 11752 28028 52 - 82108 Nov. 1969 (7176)j/ 57148 12948 34632 1352 780 106860 Kainantu/Goroka/Chauve Oct. 1966 13832 6396 4732 9880 52 - 3k892 Nov. 1969 16796 10608 10504 6188 312 44408 Kundiawa4inj/Banz Gct. 1968 3120 2132 13624 780 52 - 19708 Nov. 1969 2756 1924 50244 1248 - 260 11232 Mount Ha en Oct.-1968 8060 2080 676 (1248)Y 6344 4316 21476 Nov. 1969 6084 1092 884 ( 728) Y 8684 4212 20956 W.H.DYexcept Mt. Hagen Oct. 1968 p - 312 3016 - - 3328 Nov. 1969 624 156 104 1508 - _ 2392 S.H. D . Oct. 1968 - - - 468 4 _ 468 Nov. 1969 104 - 52 416 - - 572 Total Oct. 1968 -Z5012 52884 31096 42172 6500 4316 161980 Nov. 1969 26364 70928 29536 43992 10348 5252 186420 1/ Western Highlands District: covers the area generally north and west of Mount Hagen, the administrative center of the District. 2/ Southern Highlands District: covers the area generally south and west of Mendi, the administrative center of the District. Because of the few roads west of Mendi, tonnage to and from the Southern Highlands District is virtually the same as that to and from Mendi itself. 3/ Local traffic not included in totals. Source: Directorate of Transport  TELRRITORY OF PAPIJA AND NWhF. GUTiZA - H IGGEDAY PROJECT YILEAGES OF TRAFFICABLE VEHICUTLAR ROADS - 1967 TYPE OF ROAD Major Intermittent TOTAL D I S T R I C T Urban Pri-mary Secondary Secondary Feeder Access Access tLES PAPUA - Western 6 _ 1 _ 2 5 359 373 Gulf 2 _ 2 _ _ 18 8 30 Central 67 10 31 46 1 200 201 696 Milne Bay 7 1 59 8 11 121 - 207 Northern 6 - 13 67 19 96 91 292 Southern Highlards 3 _ - _ 122 -90 35 550 TOTAL PAPUA 91 11 106 121 295 830 694 2,148 NEW GUINEA - &a3tern Highlands 24 - - 92 95 751 80 1,042 .vez'ern Highlands 12 _ 6 92 352 227 36 725 East Sepik) 40 - 4 90 53 112 554 853 Madang 25 2 75 17 52 151 106 428 Morobe 41 - 39 96 110 84 40 410 lWvest New Britain) 3 30 4 13 86 311 61 548 East New Britain) New Ireland 14 - - 192 57 205 188 656 Bougainville 1 _ 19 _ 86 330 136 572 Manus 4 _ 22 10 1S 52 TOTAL NEW' GUINEA 204 32 147 634 891 2,1l1 1,217 5,286 TOTAL PAP3A AND ,E W GU1'E.A 295 43 253 735 1,186 3,0111 7,434 NOTE: Ch5,ribu DistrIct (District Headquarters Kundiawa) was not included separately in the inventory. The road mileages in Chimbu are included, in the Table, in those shown for the Eastern Highlands District. SOURCE: Transport and Cor?umnication, T?1G Bulletin N1o. 6 - based cn 1967 Road Imrentory W INv  TABLE 3 TERRITORY OF PAPUA AND NEW GUINEA - HIGHWAY PROJECT VEHICLE FLEEET - NUMBER OF VEHICLES ON REGISTER 1963 - 1968 (as oFt Decemnber 31) Annual Growth Vehicle Type 1963 1964 1965 1966 1967 1968 Rate 196367 &t Motor Cars 4930 5517 6072 6888 8377 10123 14 (15) Highlands 218 248 na 341 512 na 24 Other Districts 4712 5269 na 6547 7865 na 14 Station Wagons 872 1127 1460 1650 2155 2812 25 (26) Highlands 63 107 na 182 232 na 39 Other Districts 809 1020 na 1468 1923 na 24 Motorcycles 558 684 896 1136 1520 2035 29 Highlands 177 183 na 258 278 na 12 Other Districts 381 501 na 878 1242 na 34 Tractors LI 430 523 598 699 990 1111 23 IHighlands 82 109 na 175 296 na 38 Other Districts 348 41k na 524 694 na 19 Ccnmercial Vehicles 4742 5199 6286 6888 7654 9378 12 (15) Highlands 534 637 na 966 1309 na 25 Other Districts 4208 4562 na 5922 6345 na U Total 11532 13050 15312 17261 20696 25459 16 (17) Highlands 1074 128k na 1922 2627 na 25 Other Districts 10458 11766 na 15339 18069 na 15 A large number of tractors are not subject to canpulsory registration and are therefore not included in these figures. y Figures in brackets indicate growth over period 1963-68. Source: Transport and Comunication, TPNG Bulletins Nos. 2-6  TABLE 4 TERRITORY OF PAPUA AND NEW GUINEA - HIGHWAY PROJECT AIR FREIGHT MODEMENTS (Short Tons) AT HIGHLAND AIRPORTS 1963-8 Year Ended June 30 Averago arowth p.a. Airport 1963 1964 1965, e. 1966. 1967 1968 1969 1964-8- Kainantu 1909 2536 535 38 20 60 -61% Goroka 12687 15382 14112 10688 3849 1786 -42% MinJ 960 889 1187 596 4116 133 -38% Banz 2145 3580 3353 4881 273 504 -38% Mount Hagen 7899 11168 15341 15770 11205 6926 -11% Wabag 785 681 748 1200 1188 881 + 7% Wapenamanda 547 889 1166 1199 1749 1615 +16% Mledi 544 - 1187 1696 1947 1644 1723 2000V/ +10% Total 27476 36312 38138 36319 22805 13628 -22% I/ January-October only Source: Directorate of Transport - TPNG  TABLE 5 2ERRITQRY OF PAPUA & NEW GUINEA - H3HWAY PROJECT AD_iISTRATION ENDrES ON ROADS AND ERIDGES ($ Australian tOO()) 1965/6 1966/7 1967/8 1968/9 1969/7-0' Iavestment 4,863 5,29 2 4,956 5 9 5900 a) Trunk Roads 1,367 3,888 ' 2,194 3,349 3,588 b) Other Roads & Bridges 3,496 1,404 2,762 1,920 2,312 Maintenance 3,982 4,185 5,1149 6,050 6,638 P.W.D. Adninistration 3,352 3,715 5,740 7,317 7,644 Total 12,197 13,192 15,845 18,436 20,182 Amount appropriated. Actual wxpenditure not known. Source: Directorate of Transport - TPNG  TABLE 6 TERRITORY oF PAPUA & NEW GUnIEA - H5MHWAY PROJECT REVENUES FROM USE & OWNERSHIP OF VEHICLES (A$ 000) Year Vehicle Thvort tutties TOTAL Reg-taaion Petroleum Motor Vehicles Spare Parts - Fees Products- 1958/59 143 319 284 82 828 1959/60 156 291 261 61 769 1960/61 176 343 342 60 921 1961/62 205 351 370 60 986 1962/63 225 431 458 88 1,202 1963/64 252 434 500 62 1,248 1964/65 299 530 732 88 1,649 1965/66 374 643 1,050 127 2,194 1966/67 451 749 1,215 159 2,574 1967/68 535 875 1,207 179 2,796 1968/69 628 n.a. n.a. n.a. n.a. Sources Directorate of Tranaport, TPNG  TMRITORY OF PAPUA A.TD NA GUINEA - HIGH,4AY PROJECT DESIN STAIIDARDS (i) Geometric Design Absolute Normal Max. Length Absolute lMax. Length Form- Pave- Speed Yin Radius Maximun at Normal Yaximum at Abs. Max. ation ment (mph) of Horizontal Gradient Maximum. Gradient Gradient Width Width Curvature (%) Gradient (%) (ft) (ft) (ft) (ft) (ft) 1/ Primary/Flat-Rolling 50 800 4 6,000 7 3,000 34-A0 22 Primary/Hilly 40 500 6 4,000 8 2,000 32-38 22 Primary/Mountainous 25-30 170 8 1,600 10 800 26 20 1/ Secondary/Flat-Rolling 40 500 6 4L,000 8 2,000 34 20 Secondary/Hilly 30 250 8 2,000 10 1,000 28 20 Secondary/Mountainous 20-30 100 10 1,500 12 750 24 18 1/ Tertiary/Flat-Rolling 40 500 6 4,000 8 2,000 28 12 Tertiary/Fllly 20 100 10 1,500 12 750 22 12 Tertiary/1Mlountainous 15 60 12 1,000 14 500 22 12 1/ 'Primary' standard implies 500-5000 vpd within ten years of design year; 'Secondary' implies 100-500 vpd; and 'Tertiary' 30-100 vpd. (ii) Structural (a) Loading N.A.A.S.R.A. H20-S16-44 loading (b) Width Bridges up to 150 ft total length, 24 ft carriageway; bridges of total length 150 ft or greater, 12 ft carriageway.  TABLE 8 TERRITORY OF PAPUA AND iEW GUINEA - HIGIMAY PROJECT PROJECT COST ESTIMATE A$ ('000's) US$ (0'OO's) Off- Territory Offshore Total Territory Of7-ihore Total shore Compo- nent :vTVIL WORKS South Wahgi Highway Kundiawa-Minj section 1,090 2,050 3,140 1,210 2,300 3,510) Kudjip-Kagamuga section 570 1,070 1,640 630 1,200 1,830) Kagamuga-Mount Hagen section 70 150 220 90 160 250) ! 65% Southern Highlands Highway ) Mount Hagen-Togoba section 210 410 620 240 460 700) Kaupena-Assissi section 920 1,730 2,650 1,020 1,950 2,970) CONSULTANT SERVICES Engineering of civil works 90 400 490 110 )h0 550) Supervision of civil works 50 210 260 5D 240 290) Engineering of 1Minj-Kudjip section of South Wahgi Highway 10 L0 50 10 50 60) Engineering of a second road ) access to Highlands 200 800 1,000 220 900 1,120) Technical Assistance 10 80 90 20 80 100) ?ELU3WSHIPS - 50 50 - 50 50) 100% 3,220 6,990 10,210 3,600 7,830 11,430 CONTINGENCIES Physical (10%) 320 700 1,020 360 780 1,140 Price escalation (5%) 160 350 510 180 390 570 3,700 8,040 11,740 4,140 9,000 13,140 NOTE: Apportionment of total cost between territory and offshore elements, and conversion between currencies, are not exact due to rounding. March 13, 1970  TERRI'ORY O' \PUA AND NEW GUINEA - HIGHWAY PROJECT ASSU