RESIRICTED Report No. PTR-59a Public Disclosure Authorized This report was prepared for use within the Bank and its affiliated organizations. They do not accept responsibility for its accuracyor completeness.The report may not be published nor may it be quoted as representing their views.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 Public Disclosure Authorized

APPRAISAL OF

A ROAD RECONSTRUCTION PROJECT

EARTHQUAKE AREA)

PERU Public Disclosure Authorized

August 24, 1970 Public Disclosure Authorized

Transportation Projects Department CurrencY Eanvalentat

Currency Units - Soles Sole 1 - US$0.026 Solea 38.7 - US$1.00

Units of Weights and easuwes: Metric

Metric:i US &2uiralentg

1 Idlometer (kim) 0.62 Pu.2es (ad) 1 meter (m) - 3.28 feet (ft) 1 square kilaeter (sq kim) 0.386 square miles (sq mi) 1 metric ton (m ton) - 0.98 lg ton - 1.1 US short ten

Abbr6viations and Acronym

MTC - ItLnistry of Transort and Comicatucios PC - Peruvian Corporation UNDP - United Natians Development rograane PERU

APPRAISAL OF A ROAD RECONSTRUCTIONPROJECT (EARTHQUAKEAREA)

Table of Contents

Page No.

SUMMARYAND CONCLUSIONS ...... i

1. INTRODUCTION ...... 1

2. BACKGROUND ...... 2

A. Economic Setting ...... 2 B. Transport Conditions ...... 3 C. The Effect of the Earthquake ...... 3

3. THE PROJECT ...... 5

A. Feasibility Study and Detailed Engineering 6 B. Road Construction ...... 6 C. Technical Assistance ...... 8 D. Local Cost Financing ...... 9 S. Disbursement Schedule ...... 9 F. Procurement and Disbursements ...... 9 G. Execution ...... 9

4. JUSTIFICATION ...... 10

5. RECOMMENDATIONS...... 11

TABLES

i - Preliminary Disbursement Schedule 2 - TentativeCost Estimates

MAPS

1 - PERU 2 - Callejon de Huaylas Area

This report was prepared by Messrs. E. Schaefer (consultant) and Mr. H.J. Van Helden (transport advisor to the Transportation Projects Department).

SUMMARY

i. Shortly after the earthquake of May 31, 1970, the Government of Peru asked the Bank's help in financingrehabilitation, the total cost of which may amount to several hundred millions of dollars. ii. A Bank mission visited Peru a few weeks after the event, and identified a road project for improved access to and within the Callejon de Huaylas, a valley high in the Andes which is the area most heavily affected by the disaster. Access to this valley had been difficult even before the earthquake; of the three possible routes, one was a cumbersome rail and road combination, and the two other access roads were well below standard for existing traffic. The railway section of the first route is now destroyed and will not be rebuilt; the other roads, although now pass- able again for traffic, have deterioratedfurther because of many land- slides caused by the earthquake. Reconstructionand improvementof some or all of the access routes is of high priority. iii. Before the most economic road solution to provide access can be defined, a feasibilitystudy must be made, and the selected solution en- gineered in detail. iv. In view of the special circumstances,the US$30 million loan is being made at an earlier stage than usual, so as to assure the Government that Bank funds for construction of the selected project will be available when the studies are completed. The loan will cover: (a) 80% of the cost of consultants for the feasibilityand detailed engineeringstudies, and of consultantsto help the highway department improve its overall maintenance and betterment operations; (b) 67% of the cost of the road reconstruction (still to be defined), for wnich an amount of about US$22 million is ten- tatively set aside in the loan; and (c) US$5 million for capitalizedin- terest and commitment charges over a five year period. Disbursementfor constructionwill not be made until a project has been agreed between the Governmnentand the Bank and has been adequately prepared. The total cost of the project is estimated (very tentatively)at almost US$37 million equivalent (exclud 4ng capitalizedinterest and other charges); the foreign exchange costs of this will be about US$20 million equivalent. v. In the event the amount set aside for reconstructionproves to be in excess of that needed for the project selected, the balance would be used for another high priority road project in Peru, to be selected by agreement between the Government and the Bank. vi. Developmentof the economic potential of the Callejon de Huaylas was earlier impaired by unfavorabletransportation conditions. Improved access to and within the area will help revitalize the economy of the Callejon, upon which are dependent the half a million people who suffered most severely from the earthquake. - ii - vii. Road conditions in Peru are unsatisfactoryin general. Because of inadequatebudget allocationsfor road maintenance,the system has deterio- rated in recent years, and a serious maintenancebacklog now exists. To help the highway department improve its maintenance and bettermentopera- tions, technicalassistance to this departmentis included in the project. viii. Because of the special circumstances,a 30 year term including a 10 year period of grace would be suitable. PERU

APPRAISAL OF A ROADRECONSTRUCTION PROJECT (EARTHQUAKEAREA)

1. INTRODUCTION

1.01 The Government of Peru has asked for the Bank's help in financ- ing the rehabilitationof the Peruvian economy following the recent earth- quake disaster. A Bank mission visited Peru from June 17-27, 1970 to identify a priority project which would contribute to restoring and im- proving living conditions in the area most affected by the earthquake. The mission concluded that financing a project to reconstructand improve the main roads leading to and within the Callejon de Huaylas, a valley high in the Andes, would help meet the Government'srequest.

1.02 Feasibilityand detailed engineering studies will be required before the optimum solution for improved road access and its cost can be determined. In the special circumstances,a procedure is proposed where- by the Government is assured, through a loan made at an earlier stage than would be usual, that the Bank will make funds available for the eventual project. The loan will cover:

Feasibilityand detailed engineering studies US$1.8 million

Technical assistance to the Highway Department for maintenance and betterment operations 1.2

Road reconstruction,including supervisionby con- sultants 22.0

Capitalized interest and commitment charges over a five year period 5.0

30.0

1.03 The Bank has made a total of ten loans to Peru for transporta- tion projects, and problems have been experiencedwith a number of them. Loans of US$2.5 million and US$6.575 million were made in 1952 and 1958 respectively (57-PE and 208-PE) for expansion of the port of Callao. Al- though delays were encounteredbecause of difficultieswith contractors and others, the projects produced good facilities. US$3.1 million (373-PE) was lent in 1964 for the port of Paita and US$9.1 million (446-PE)in 1966 for the port of Pisco; both projects have been virtually completed. Since January 1970 all ports have been managed by a Port Authority created along lines agreed with the Bank. Two loans (190-PE and 334-PE) totaling US$28.25 million were made in 1958 and 1963 to the Peruvian Corporation, a private company which owns and operates the country'smost important railways (para. 2.04). The project was successful from both physical and economic points - 2 -

of view, but interferencewith wage and rate policies by the previous Gov- ernment caused continual financial problems for the Corporation. The fi- nancial position of the Corporation,though still unsatisfactory,has how- ever improved in the past year. Four road loans have been made, namely US$5 million and US$10 million for road maintenance in 1955 and 1961 re- spectively (127-PE and 300-PE); US$5.5 million in 1960 (271-PE) for the Aguaytia-Pucallparoad; and US$33 million in 1965 (425-PE) for the La Oroya- Aguaytia road. The Aguaytia-Pucallparoad is located between the Selva and the foothillsof the Andes. Soils and climatic conditions (rainfall of up to 6 meters annually) are extremely difficult, and no previous ex- perience was available to draw from in designing and executing the road. The road was only 80% completedwhen loan funds were exhausted in 1967; at that time the Governmentwas not able to raise funds to continue the works. Extensive failures are continuing to occur in the work done and up to US$8 million has been estimated for the cost of repairing and completing the highway. The Government has recently initiated legal proceedings a- gainst the consultant,the contractorsand highway department officials following the report of an investigatingcommittee. The Bank has requested the Government to ensure that all impedimentsdelaying the repair and com- pletion of the road are expeditiouslyremoved. Difficultieswere also encounteredwith the La Oroya road; until recently the Government was not able to make adequate budgetary provision for the work and, furthermore, the cost of this road was seriously underestimated. An understandingwas reached with the Government in 1969 to scale down the project to the funds available by deferring part of the improvementsfor a year or two. (See memorandum to the Executive Directors of November 14, 1969, dealing with the problems). The road maintenance projects were initially successful but in recent years maintenance has deteriorated,mainly because of shortage of budgetary funds.

1.04 The Government is conscious of the need to strengthen its planning in the transport sector. It has applied to the UNDP for financing of a technical assistance project, which would provide a team of some 10 trans- portation experts to work within the planning division of the Ministry of Transport and Communications. It is expected that the Bank will be asked to be Executing Agency for this project. The Government also recognizes that road maintenance and betterment operations must be improved and there- fore an amount of US$1.2 million for technical assistance is included in the proposed loan.

1.05 This report is based on findings of the above Bank mission, con- sisting of Messrs. E. Schaefer (consultant)and H. J. Van Helden, transport advisor to the TransportationProjects Department and author of this report. The report was edited by Miss Soifer.

2. BACKGROUND

A. Economic Setting 2.01 Peru is the third largest country in Latin America, with a popu- lation of 13.6 million in an area of 1.3 million sq km (slightlylarger -3-

than the countriesof the European Common Market combined). Bordered by Ecuador and Colombia in the north, Brazil and Bolivia in the east, and Chile in the south, it has a Pacific coastlineof 2,250 km (Map 1). The Andes, one of the world's highest mountain ranges, closely parallel the coast over its entire length and divide the country into a narrow coastal region (Costa), the mountains (Sierra)and eastern plains (Selva). Because of the extreme ruggedness of the Andes, access to valleys in the Sierra and the Selva plains is extremely difficult and costly. Lima, the capital and the country's commercial center, is on the coast.

B. Transport Conditions

2.02 The Pan-AmericanHighway, between the mountains and the coast, is the country'smain surface route. Many small ports along the coast accommodate coastal shipping and fishery; the latter is one of the country's two main sources of foreign exchange earnings, the other being copper. Callao, 11 km from Lima, is the main port and handles about 4 million tons annually. A very high percentage of trade is sea-borne. The Pan-American Highway, which connects Peru with Ecuador and Chile, and the road and rail links with Bolivia, which carry relatively little traffic, are the only international land transport connections.

2.03 Many roads (mostly low grade) run from the Pan-American Highway into the Andes; only a few roads connect the Sierra with the Selva, which has a widely scattered population. There are a few river ports on tribu- taries of the Amazon River, the mouth of which is on the Atlantic Ocean, some 3,400 to 4,300 km distant.

2.04 A number of railways exist of which only those owned and operated by the foreign-ownedPeruvian Corporation (PC) are of real importance. Of the PC system, one line connects Lima with an important mining area near Cerro de Pasco and another connects the port of Matarani in the south with Bolivia, via a steamer service across Lake Titicaca. Less important is the 168 km line crw-tEedand operated by the Santa Corporation,which runs from Chimbote to Huallanca and La Galgada in the Andes mountain range.

2.05 About 60% of the country's inland freight traffic and over 90% of passenger traffic is carried by road; coastal shipping carries about 30% of dom-esticfreight. Road conditions,however, are poor. Road con- struction is costly, partly because of the extremely difficult topography and the unstable soil conditions. In addition, road maintenancehas been neelected in recent years, due largely to the lack of adequate budgetary allocations. Of the 50,000 km road network, only 10% is asphalted, 16% is gravel, and 74% is unpaved earth; only 25% of the network is all-weather.

C. The Effect of the Earthquake

2.06 The earthquake of May 31, 1970, was one of the worst disasters in the history of Latin America. About 1,400,000 people were affected, and the official count now reports some 30,000 dead, 20,000 missing and 150,000 - 4 -

injured. The epicenter was about 380 km northwest of Lima, at a distance of about 50 km from the coast, opposite the port of Chimbote. The earth- quake affected an area of 77,000 sq km extending 700 kms along the coast from south of Lima to the port of Trujillo and 110 kms inland.

2.07 The effects of the earthquakewere threefold: (a) avalanchesof ice, stone and mud, which covered whole towns and villages, and disrupted power supply and communications;(b) tremors, which caused homes and build- ings to crumble and slides to block roads; and (c) compactionof subsoils, causing ground water levels to rise and flood areas near the coast. The area of greatest damage is in the Department of Ancash, between the towns of Pativilca and Chimbote on the coast and the Cordillera Blanca, a branch of the western Andes. Especially hard hit was that part of the Santa River valley known as the Callejon de Huaylas, which is flanked by the Cordillera Blanca to the east and the Cordillera Negra to the west.

2.08 The main accesses to the Callejon de Huaylas were the Santa Rail- way and two low-grade roads from the coast (Map 2). The railway, built in part almost a hundred years ago, was damaged by the earthquake. The main line is being repaired for light traffic, but not the branch from Chuqui- cara to Huallanca in the Callejon de Huaylas, which was destroyed. Present plans are to abandon this branchlineand eventually to replace the whole railway by a road. The two roads are the 149 km Casma-Huarazand the 207 km Pativilca-Huaraz,which were both damaged. Crews have cleared slides and have repaired structures and the roads are open again, but only for single-lanetraffic on many sections.

2.09 Both roads start at the Pan-AmericanHighway and ascend the CordilleraNegra through a series of sharp curves with roadways which narrow to an effectivewidth of only one lane in many places. They were tracks which had been gradually improved over the years; the alignments follow contours to minimize earthmoving. The surface is compacted clay (with gravel in some areas) but some sections have no surfacing at all. The Casma-Huarazroad crosses the Cordilleraat a 4,200 m pass and de- cends to Huaraz (altitude3,120 m). Near the coast it has 30 km of asphalt pavement, in poor condition. The Pativilca-Huarazroad follows the valley of the Pativilca river and climbs sharply to Lake Conococha (altitude4,080 m) by means of a dangerous zigzag. Both roads, already dangerous before the earthquake, are now even more hazardous. Before considerable amounts are spent on further upgrading to better charac- teristics, location studies are needed to see whether better alignments can be found.

2.10 The 106 km section between Huallanca and Carhuaz in the Callejon de Huaylas has suffered the most damage. It follows the Santa River, con- necting the towns of Huallanca, Caraz, Yungay, Carhuaz and Huaraz. The avalanche which buried the towns of Yungay and Ranrahirca partially des- troyed the section north of Carhuaz, and it is now proposed to relocate this entire section. The 30 km section between Carhuaz and Huaraz, which is still open to traffic, has two lanes and a compacted clay and gravel surface. 2.11 The Callejon is an intensivelycultivated valley, and is very attractiveto tourists because of its great scenic beauty and pleasant climate;however, access has always been difficult. To avoid the danger- ous Casma or Pativilca roads, many travellersfrom Lima went via the Pan- American Highway to Chimbote (417 km north of Lima), then 140 kms via the Santa Railway to Huallanca,and then by the Callejon road to their destina- tion in the valley. Before the earthquake,average daily traffic was 200 vehicles between Pativilca and Huaraz, 160 vehicles between Casma and Huaraz, and 300 vehicles on the Callejon road between Huaraz and Carhuaz. The Santa Railway carried 240,000 passengersand 36,000 tons of freight in 1967; about half of this trafficwas between Chimbote and Huallanca. Passenger traffic has been stable in recent years, but freight traffic declined sharp- ly from a high of 154,000 tons in 1958.

2.12 A feasibilitystudy of the Chimbote access route was made by consultants (TUDOR-CIASA,US/Peru) in 1966. They recommendeda program for replacing the Santa Railway with a highway, beginning with the inland branch- es of the railway. This recommendationseems even more applicableto pre- sent conditionsnow that the Chuquicara-Huallancabranch has been destroyed. On the other hand, few people live in the area traversedby that branch, and the power plant in Huallanca can be reached by a service road. Improvement of the Pativilca and/or Casma roads may be expected to lead to higher traf- fic volumes on these roads since both roads provide a much shorter connection with Lima.

2.13 Present informationis insufficientto justify a selection of the best route or routes into the Callejon. A study is needed to compare the costs and benefits of three possible access routes from Chimbote, Casma and Pativilca,and to determine the appropriatestandards for each of these roads, which all go through extremely difficult terrain.

3. THE PROJECT

3.01 The project can best be defined as: "To improve access to and within the earthquakedisaster area, the Callejon de Huaylas." It consists of three parts:

I. Feasibilitystudy and detailed engineeringof the main roads leading to and within the Callejon de Huaylas, subdividedinto:

(i) a feasibilitystudy, including location studies of the most difficult sections of all three routes; and

(ii) detailed engineeringof the road or roads selected as a result of the feasibilitystudy. - 6 -

II. Reconstructionand improvementof the selected road(s), in- cluding supervisionby consultants and, possibly, such other high priority roads as may be agreed between the borrower and the Bank.

III. Technical assistance for the Highway Department to improve maintenance and betterment operations.

A. Feasibility Study and Detailed Engineering

3.02 The scope of the feasibilitystudy will be to prepare prelimi- nary cost estimates for each of the three possible routes and to compare the costs and benefits of each route or combinationof routes, taking account of various possible alternativesfor design standards. To provide a sound basis for decision making, the study should include about 270 km of location surveys to determine the best engineering solution for the following sections:

(a) Chuguicara-Carhuaz(126 km)

The advantage of relocating the highway on the Cordillera Negra side of the valley is to be investigated.

(b) Chacchan-Huaraz(65 km)

This section of the Casma-Huaraz road has dangerously sharp curves and steep grades. The case for a better solution for crossing the Cordillera Negra should be studied.

(c) Chasquitambo-LakeConococha (80 km)

The present location of this section of the Pativilca-Conococha road is unsatisfactory. A more gradual ascent to Lake Cono- cocha should be sought.

3.03 The cost of the feasibilitystudy, including location studies, is estimated at US$700,000. The cost of the detailed engineering of the Chimbote road, the Casma road and the Pativilca road is estimated at US$1 million, US$500,000 and US$800,000 respectively. Detailed engineering will be started when the best access route (or routes) has been selected by the Government in agreement with the Bank on the basis of the feasibi- lity study recommendations. It is unlikely that major improvementsof all three routes will prove justified and therefore,only part of the above amounts will be needed for engineering (Table 2).

B. Road Construction

3.04 The mission made the following rough constructioncost estimates using the Peruvian second category highway standards as a basis. The fea- sibility study will aim at establishingmore economic standards for these roads: Pativilca-HuarazRoad (207 km)

Estimateswere based on a 6 m asphalt surface and shoulders varying from 0.75 to 1.20 m, depending on topography. Since annual rainfall in the mountains is 760 mm (occurringduring five months), and only 15 mm on the coast, it was assumed that only the mountainoussections would be surfaced with asphalt concrete, while the first 70 km from Pativilcawould have a double surface treatment. Taking recoverablesections of the existing road into consideration,the cost would be about US$22 million.

Casma-HuarazRoad (149 km)

The same standardswere assumed as for the Pativilca road. The first 30 km, starting from Casma, are asphalt paved, and since the surface is in poor condition it was assumed that a double surface treatmentwould be applied in this section. For the rest of the road, only a new crushed rock base course would be provided. Taking usable portions of the existing road into consideration,the cost would be about US$11 mdllion.

Carhuaz-HuarazRoad (30 km)

This portion of the Callejon road will have more traffic than any of the access roads, due to the local traffic in the valley. A 6 m asphalt concrete surfacewas assumed and 1.8 m shoulders, although it may be desirable to increase the width of the road surface to 6.6 m and the shoulders to 2.4 m. The cost of this road section would be about US$4 million.

Chimbote-Carhuaz(216 km)

The cost of the Chimbote-Carhuazroad was not examined in as great detail, but assuming similar conditions and standards, the cost of an asphalt surfaced road would be about US$26 million.

3.05 Recommendationsas to the compositionof the project are to be made in the proposed feasibilitystudy, which will probably suggest a combination of major and minor improvementsof more than one road or road sections. It is tentativelyassumed that a constructionproject costing about US$30 million will result from the study. Assuming that the foreign currency cost of the feasibilitystudy and detailed engineeringwould amount to about US$1.8 mil- lion, and that of technical assistance to the Highway Department about US$1.2 million, about US$22 million of the US$30 million loan (of which US$5 million is for capitalizedinterest and commitment charges over a five year period) would be left for participationin the cost of the constructionelement of - 8 - the project. Since it is not feasible to estimate the actual cost of super- vision by consultantsbefore the size of the reconstructionproject is known, supervision costs and an unallocateditem are consideredto be included in the above US$22 million (see Table 2).

3.06 For previous road constructionprojects in Peru the foreign currency component was estimated at 50%; the Bank contributionfor the last road project (425-PE)was 60%, which included some local cost financ- ing. Because of the special circumstances,a Bank contributionof 67% of constructioncost is now proposed. If the above US$22 million is more than needed for improved road access to the disaster valley, the balance would (subject to agreementbetween the Government and the Bank) be used for some other high priority road project elsewhere in Peru. In this connection the Government is drafting a five-yearhighway investment program, and has a- greed to seek the Bank's comments thereon before formally adopting it.

C. Technical Assistance

3.07 It is proposed to provide in the loan US$1.2 million for a tech- nical assistance program, estimated to cost US$1.5 million. Road conditions are poor in general, and well below the standards expected in a country at Peru's stage of development. Under previous loans, the Bank has financed assistance by consultants to the highway department for improving its organi- zation and maintenanceoperations, but much of the effect of this assistance has been dissipated by the lack of budgetary funds for maintenance in recent years. The Government had neither the funds nor the administrativecapacity to undertake an ambitious road constructionprogram without neglecting main- tenance of the existing network. Because of inadequateplanning and design, there were heavy cost overruns on new road projects, leading to further diver- sion of funds from maintenanceto construction. As a result, the consultants' recommendationscould not be implemented,much equipment became idle due to lack of spare parts, and asphalt pavements deterioratedbecause of neglected maintenance. A serious backlog in road maintenanceexists.

3.08 The Government intends to limit new constructionstarts for some years in order to complete on-going works, and to introduce a sound mainte- nance and betterment program for existing roads. To achieve this, further technicalassistance to the highway department is needed, initially at headquartersand then, in addition, in the field. To avoid spreading the technicalassistance too thinly, assistance in the field will be limited to two pilot zones, to be selected and agreed upon between the Government and the Bank once the consultantshave made their recommendations. The Govern- ment plans to spend more on road maintenance, and has agreed that within five years its maintenancebudget will have reached a level adequate to meet the maintenance requirementsdetermined on the advice of the consultants. - 9-

D. Local Currency Cost Financing

3.09 On the basis of the rough cost estimates mentioned above, the cost of the project to the Governmentwould be less than US$12 million; namely US$450,000 for studies, about US$300,000for subsistenceand other local currency costs for the technicalassistance team, and one third of US$33 million for construction,including supervision and an unallocated item. In addition to providing for maintenanceneeds (para 3.08), the Government has given assurances that adequate funds for the project will be set aside in the budget. The annual expendituresin local currency for the project should, assuming a continuation of the improved fiscal program, be within the financial means of the Government.

E. Disbursement Schedule

3.10 Because of uncertaintiesas to what project will eventually result from the studies, the disbursementschedule, presented in Table 1, is only tentative.

F. Procurement and Disbursement

3.11 Construction contracts will be awarded on the basis of inter- national competitivebidding, in accordancewith the Bank's guidelines for procurement. Bids will not be invited until detailed engineeringof the road(s) selected on the basis of the feasibilitystudy is completed, and agreement reached between the Governmentand the Bank as to what the constructionproject will be; until then loan disbursementswill be limited to studies and technical assistance. It is proposed that loan disbursements cover 80% of the consultants'costs for such studies and assistanceand 67% of expenditureson reconstruction,including supervisionby consultants. Because reconstructionwork will not start until feasibilitystudy and engineeringhave been completed,commitment charges related to reconstruct- ion will not accrue for the first year.

G. Execulton

3.12 Until recently,management of the transportsector in general, and of the department responsiblefor highways in particular, left much to be desired. Over the last year the new Governmenttook the first steps to improve the situationby bringing all the various subsectorstogether under the newly constitutedMinistry of Transport and Communications(MTC), by increasingmaintenance outlays, and by concentratingon completing ongoing priority works. Within this new Ministry, the General Directorate for Land Transport will be responsiblefor execution of the project. The Governmentwill select consultantsfor studies, supervisionof construction and technical assistance, subject to Bank concurrence. Terms of reference for the studies have already been agreed with the Government. - 10 -

4. JUSTIFICATION

4.01 It is not possible to present a quantitativeeconomic analysis of the proposed project at this time. The feasibilitystudy and detailed en- gineeringmust be completed to obtain reasonablyfirm cost estimates. In- formation in the followingparagraphs provides some qualitative support that an economicallyjustified project will emerge from the studies.

4.02 The Callejon de Huaylas is part of the Ancash administrativede- partment,with its capital, Huaraz, located in the center of the worst affected disaster area. The 1970 population of the departmentis estimated at 750,000, of which about 500,000 live in the Sierra, about 200,000 in Chimbote on the coast (this town has also been very heavily damaged) and the balance in other small coastal towns. In the Sierra there is some small-scale coal mining, but most people are employed in agriculture. Much of this is only subsistence farming, partly due to poor land communications with potential markets in Lima, Chimbote and other coastal towns.

4.03 Because of unfavorable climatic conditions along the coast, with an annual rainfall of only 15 mm and very little sunshine, coastal towns must be supplied with foodstuffs from elsewhere. The valley has a good climate, with abundant sunshine and an annual rainfall of about 0.75 m. Produce grown includes fruits, barley, maize, wheat, potatoes and other vegetables. There are also cattle pastures and some forestry. Good possibilitiesexist for improved small-scaleirrigation, and there are indicationsthat agriculturalproduction could expand to serve markets outside the Sierra if land transport conditionswere more favorable. Be- cause of the poor road conditions,however, transport costs in the Sierra, and between the Sierra and the coast, are among the highest in the coun- try, about three times those prevailing on asphalted roads on the coast. Rail tariffs to Chimbote are lower, but the distance from Carhuaz via that route to Lima is 200 km or 50% longer than via the Pativilca road.

4.04 The pleasant climate and beautiful scenery are also favorable for the developmentof tourism. Mountain climbing and skiing already attract tourists to this "Peruvian Switzerland",as do the many hot springs claimed to have medicinal value. There are also interesting folklore and archae- logical monuments. The further developmentof tourism is hampered by poor land communications.

4.05 In 1965, Renardet/Sauti(consulting engineers, Italy) recommended starting improvementsof the Casma-Huarazroad and the Pativilca-Huarazroad in 1967 and 1970 respectively;however, their suggested standardswere much lower than those now being consideredby the Government. Both roads were scheduled in earlier drafts of the present Government'sdevelopment plan to be undertaken in 1973 and 1972, respectively. The scheduling did not, of course, take account of the complete disruption of the Carhuaz-Huallanca- Chimbote route. There is now no obvious case for giving the highest priority to the restorationof this connectionwith the valley. Huallanca is a - 11 - town of only 5,000 people, and few people live in the gorge traversedby the railway. Although constructionof a road may be justified,the question is to what standards such a road should be built. The fact that the now destroyedrailway was already there before motorized road transportexisted, may well have delayed improvingthe other access roads. To select the eco- nomically optimum solution, the access problem should now be reviewed as a whole.

4.06 Selecting the most economic design standards for Andean terrain is a major problem. An importantaspect of the proposed feasibilitystudy is to select economicallyacceptable design standards for each possible route.

4.07 Notwithstandingunsatisfactory alignment and physical condition of the Pativilca and Casma roads, even before the earthquakethese roads carried some 200 and 160 vehicles daily. Because of the many landslides caused by the earthquake,driving conditionshave greatly deteriorated. In addition, the previous railway trafficwill divert to the above roads, and much of this diverted trafficwill remain. Induced traffic will also result since improved roads will encourage agriculturalproduction in the Callejon de Huaylas area. In the future, air transport to the Sierra may play a role, particularlyfor tourism (there are plans to improve the airport near Huaraz); however, total trafficvolumes on all three existing routes had alreadypassed the point where air transportalone would have been the most economic transportmode. There is no doubt that the total of existing, diverted and induced traffic that will result from efforts to rehabilitate and revitalizethe Callejon de Huaylas will call for better roads than exist- ed before the earthquake, and have now deterioratedfurther as a result of the earthquakes. Therefore there is every reason to believe that a satis- factory and economicallyviable project will result from the feasibility study and will be constructedunder the project.

5. RECOMMENDATIONS

5.01 During loan negotiationsagreement was reachedwith the Government on the fo'lowingprinciple points:

(a) Should surplus constructionfunds remain, they may be utilized for a high-priority road project to be agreed between the Government and the Bank (para. 3.06);

(b) Bids for constructionwill not be invited until agreementon the compositionof the reconstructionproject has been reached between the Governmentand the Bank and detailed engineeringcompleted (para. 3.11);

(c) The Government will review its road programwith the Bank before the formal adoption of its Five Year Plan (para 3.06); - 12 -

(d) The Government intends to gradually increase its annual budget allocations for highway maintenance to a level adequate for the needs of the country's highway system (para 3.08); and

(e) The Government will set aside in its annual budget adequate funds for the reconstructionproject (para 3.09).

5.02 A loan of US$30 million is recommended,including an amount of up to US$5 million for capitalizedinterest and commitment charges over a period of five years. Because of the special circumstancesprevailing as a result of the earthquake,a 30 year term, including a ten year period of grace, would be suitable.

Auguwt 24, 1970 TABLE 1

PERU

APPRAISAL OF A ROADRBCONSTRUCTION PROJECT

(EARTHQUAKEAREA)

Prelimina Disbursement Schedule (in US$ millions)

Calendar Years Total

1971 1972 1973 1974 1975

I. Engineering and Technical Assistance

(i) Feasibility Stud / 0.6 0.6 (ii) Detailed Engineering ' 1.2 1.2 (iii) TechnicalAssistance 0.6 0.6 U.

2.4 0.6 3.0

II. Constructio__ 2.1 .9 50 5.0 4.0 22.0

Total disbursed 4.5 6.5 5.0 5.0 4.0 25.0

III. Interest and Commitment Charges 0.15 0.70 1.10 1.40 1.65 5.0

30.0

/ rounded figures

/ includingconstruction supervision and an unallocateditem of US$ 1 million

August 21, 1970

TABIE 2

PERU

APPRAISAL OF A ROAD RECONSTRUCTIONPROJECT

(EARTHQUAKEAREA)

TentativeCost Estimates (in US$ equivalent) Bank Government Total Financed Financed

I. Studies and Technical Assistance

(i) FeasibilityStudy (includinglocation studies) 700,000 560,000 140,000

(ii) Detailed Engineering

Chimbote-Huaraz 1,000,000 Casma-Huaraz 500,000 Pativilca-Huaraz 800,000

I4aximumtotal wouldbe: 2,300,000

Assumed to be actually spent: 1,550,000 l,240i,000 310,000

(iii) TechnicalAssistance 1,-3O,000 1,200,000 300,000 Subtotal: 3,750,000 3,000,000 750,000

II. Road Reconstruction, (includingsupervision by consultantsand unallocated) 3,00Q,000 22,000,000 11,000,000

-f-i. CapitalizedInterest and CommitmentCharges 5,000,000 5.000,000 _

Total: 41,750,000 30,000,000 11,750,000

August 21, 1970

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