RESTRICTED RETURN TO Re REPORTS DESK WH153 WITHIN Vol. 5 __1QE WEECK
This report was prepared for use within the Bank and its affiliated organizations. Public Disclosure Authorized 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 The report may not be published nor may it be quoted as representing their views.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 Public Disclosure Authorized
ECONOMIC ]?OSITION AND PROSPECTS OF
PARAGUAY
(In five volumes)
VOLUME V
Public Disclosure Authorized Annex IV: Transportation in the Paraguayan Economy
December. 27, 1965 Public Disclosure Authorized
estern Hemisphere Department CURRENCY EQUIVALENTS
Unit Guarani (a7')
US$1 r=126 a$1 = US $0. 008 (I 1, 000 = US $7. 94 (I 1, OOt), 000 = US $7, 936.50 TRANSPORTATION IN THE PARAGUAYAN ECONOMY
ANNEX IV: ECONOMIC POSITION AND PROSPECTS OF PARAGUAY
TABLE OF CONTENTS
Page N 0
STJiMARY AND CONCLUSIONS ...... i
I. INTRODUCTION ...... 1
II. RIVER TRANSPORT ...... 5
A. The Navigability of Paraguay's Rivers ...... 6 B. River Ports ...... 8 C. River Fleet ...... 10 D. Flota Mercante del Estado ...... 11
III. HIGHWAY TRANSPORT ...... 15
IV. THE PARAGUAYAN STATE RAILROAD ...... 24
LIST OF TEXT TABLES AND 1MAPS
Following Page No. Section I: Table 1 Exports of Paraguay by Product and Country of Destination, 1963 and Projection by Product to 1970 1 Map 1 Population of Paraguay 2 Map 2 Mapa de la Republica del Paraguay, II;.O.P.C. 3
Section II: Table 1 Identified Passes on the Paraguay River Between Confluencia and Asuncion 7 Map Rio Paraguay, Entre Asuncion y Confluencia 7 Table 2 Duration of Water Levels in the Paraguay River 7 Table 3 Increase in Navigability of the Paraguay River from Deepening Channel 8 Table 4 Ships of the Flota Mercante del Estado, 1964 11 Table 5 Participation of F.M.E. in Transport of Paraguay's Foreign Trade 12 Table 6 Exchange Earnings of F.M.E., 1964 12 Table 7 Financial Results of F.M.E. Vessel Operations, 1963 13 TABLE OF CONTENTS (Continued)
LIST OF TEXT TABLES AND MS Continued)
Followig Pe Noo,
Section III: Table 1 Highway Distances in Paraguay 15 Table 2 Road Network by Type of Construction 15 Table 3 Days Miajor 'Routes Closed from Rain, 1964 19 Table 4 Revenue from Gasoline Taxes and Similar Duties, 1964 20
Section IV: Map 1 Ferrocarril Central del Paraguay 24 Table 1 Personnel of the FCAL Railroad 25 Table 2 Traffic of the PCAL Railway 26 Table 3 Annual Profit and Loss 26
Table 4 Balances of the Ferrocarril Presidente - Carlos Antonio Lopez 26 Table 5 Average Monthly Train-Kilometers, 1964 26 Table 6 Development of Railroad Costs, 1962-64 27 Table 7 Railroad Freight Traffic With Argentina and Total Commerce 30 Table 8 Tons of Railroad Freight Received and Originated 30 Table 9 Projected Railway Revenues and Expenditures 31 SUNN ARY AID CONCLUSIONS
1. Transport in recent years has absorbed the largest share of the resources available to the public sector for investment. Within transport, road construction has been given first priority. To judge the efficacy of past investments, the viability of the present trans- port system, and to indicate guidelines for future transport investments and policy, it is necessary to keep in mind a number of the salient characteristics of Paraguay's geography and economy:
(a) Paraguay is a land-locked country linked to the Atlantic Ocean by the Parana-Paraguay River. The great bulk of the country's imports and exports overseas are transhipped at Buenos Aires. The cost of the transhipment plus freight rates between Beunos Aires and Asuncion make total transport costs for these goods high. The Paraguay River is subject to sharp seasonal and cyclical fluctuations in depth, at times requiring a second transhipment below Asuncion when the water level is low. It may well be, however, that significant improvements are possible in the navigability of the river.
(b) To the west of the Paraguay River the country is nearly perfectly flat, while to the east the land is flat or rolling. Iuch of the land is poorly drained and heavy rainfall makes road maintenance difficult and costly because most roads have not been built to all- weather standards. Construction materials are scarce and no petroleum has been found.
(c) Total population is only about 2 million and is poorly distributed. While the immense Chaco to the west of the Paraguay River is literally empty, population is concentrated around Asuncion and in a narrow corridor stretching southeast from Asuncion toward Encarnacion, characterized by minifundia.
(d) The economy is based primarily on agricultural, livestock, and forestry production, both for domestic consumption and for the critically important exports. These sectors are also the key to the future growth of the economy, especially livestock and agricultural exports.
(e) Distances among the populated centers, especially to the east of the Paraguay River, are relatively short. - ii -
2. Taking into account these characteristics, it is immediately evident that trucks and buses will provide nearly all the internal trans- port that Paraguay requires. W4hile river transport filled this role in the past, the distances are far too short and the traffic volumes too light for river craft to be able to compete with trucks once adequate roads exist.
3. The roads which have been selected in recent years for con- struction and improvement are intended to open up new lands for. coloni- zation and to provide land routes for exports and imports to reduce dependence on river transport through Argentina. The choice of routes has in general been good. It is recommended, however, that efforts be made to consolidate the advances already made and to obtain as much benefit as possible from the roads which have been constructed. This implies:
(a) An adequat;e maintenance program to protect present roads and a rigid enforcement of vehicle axle-weights.
(b) Dedication of most resources to the construction and improvement of feeder roads to important main trunk roads rather than concentrating on costly new long penetration routes.
4. Because of the presently low traffic volumes on most of the country's roads, road improvement, leading eventually to paving, should 'be coordinated closely with traffic increases. Stage construction is especially appropriate in Paraguay, but for this to be successful it is essential that all work be concentrated on what will eventually be the definitive routes.
5. The selection of future roads to be constructed and the timing of progressive road improvement are no longer intuitively obvious. For this reason an adequate planning mechanism is required which at present does not exist. Paraguay must continue to spend large sums on roads for the itdOfitite future and planning'is essential if a high economic return on these investments is to be obtained.
6. Although there is a railroad line between Asuncion and Encarnacion, it is desirable that this mode of transport be phased out over the next three to five years and that railroad traffic be absorbed by trucks and buses. Despite the intelligent management of the railroad since it was bought from the British, it is clear that the railway is uneconomical and that attempts to keep it in service would become increasingly burdensome for the government.
7. The basic mode of transport for Paraguay's exports and imports will continue to be river transport for some time to come. Steps should be taken, however, to increase the efficiency of this mode so as to permit regular service at a lower total cost. The most important areas in this regard are the following: - iii -
(a) A study will shortly start to determine if improvements in the navigability of the Paraguay River are technically and economically feasible. Should the results of this study be positive, a program shculLd immediateLy be prepared to make maximum use of the potential of the river. UJntil the study is completed, care should be taken to assure that any investments made are compatible with the possibility of an unfavorable result.
(b) The capacity of the port of Azuncion should be increased.
(c) The causes of the high cost of transhipment at Buenos Aires should be investigated and appropriate measures adopted. An alternative transhipment port in Uruguay should be developed.
(d) Measures are necessary to reduce the presently onerous requirements for the use of the Parana-Paraguay River.
(e) Future acquisitions of vessels for use on the rivers should take carefully into account the economic trade-off between the advantages of using ships of large capacity and the cost of transhipment up-river during low water. All ship purchases for the Paraguay River should be postponed until the study on the possibility of navigational improvement is finished.
8. While most of the country's exports and imports will be trans- ported on the rivers, the highway from Asuncion through Puerto Presidente Stroessner which terminates in the Brazilian port of Paranagua, on the Atlantic Ocean, offers a promising alternate for a few products, especially perishable items, provided the road is improved on the Brazilian side. I. I'TRODUCTION
1. There is surprising unanimity among the many economists who have studied Paraguayis economic development and have recommended poli- cies to hasten it as to the strategy which is appropriate at this time to break the prolonged period of near stagnation. The strategy which is recommended concentrates primarily on the expansion of agricultural ex- ports as being that sector of the economy capable of exercising a sig- nificant impact on growth throughout the entire nation. This unanimity of opinion is a considerable help to the transport planner because it provides him with a good base on which to evaluate the adequacy of the present transport system as well as the areas where the return on new transport investments would be high. Unfortunately, however, while agricultural exports have been projected product by product, so that estimates of the tonnages to be moved are available for various years in the future, practically no work has been done to determine the geographical regions within Paraguay from which this increased production must come. Without this information, it is extremely difficult to determine which of the internal roads should be given priority because of the contribu- tion which they could make to facilitating exports.
2., Table 1 shows the tonnage exports of different products in 1963 as well as the destination of these goods. In the same Table are shown the projected tonnages of these products in 1970. These, however, have not been distributed by country of destination, as no detailed market s-tudies have been carried out. As can be seen in this Table, total ex- ports were 311,000 tons in 1963 and increased to 39S,000 tons in 1964X The major part of this increase was the sharp jump in log and lumber exports to Argentina between the two years.
3. Projected exports for 1970 are estimated at 539,000 tons, an increase of 73 percent over total 1963 exports and of 36 percent over 1964 exports. The relative importance of log and lumber exports falls from around 50 percent of total exports in 1963 and 55 percent of exports in 1964 to about 45 percent of the projected exports for 1970. Of the total projected increase in tonnage exports of 143,000 tons between 1964 and 1970, only 27,000 tons is due to increases in logs and lumber, with the remainder of the increase distributed among a wide range of agricul- tural products.
4. These significant changes in the composition of exports imply that the relative importance of Argentina as a market for Paraguay's products will fall while that of Europe and the United States will Annex IV, Section I
TABLE, 1
EXPORTS OF PARAGUAY BY PRODUCT AND COUNTRY OF DESTINATION. 1963 AND PROJECTION BY PRODUCT TO 1970 (Tons)
France Argentina Uruguay Brazil Chile United England Holland Germany Belgium Other Total 1964 Projeetion States Spain, Italy Countries 1963 1970 Switzerland 1/
Sawn lumber 12,377 7,335 - - - 5 6 - _ 1 19,724 26,964 33,000 Logs 116,546 9,952 8,010 ------134,508 189,110 210,000 Meat products 349 - 323 10 10,348 8,670 916 877 958 1,053 23,504 23,046 39,000 Cow ^ides 308 - 8 - 879 177 2,704 1,390 802 1,3-4 7,572 7,355 11,000 Livestock by-products 33 - - - 863 - 68 106 99 799 1,968 3,601 Other skins and hides ------205 1,100 2/ Tobacco 25 349 - - 40 - 1,720 580 2,657 4,666 10,037 12,658 19,500 Industrial seeds 104 - - _ _ _ 5,196 1,000 1,929 2,590 10,819 11,775 18,000 Corn - - - - 1,646 3,190 4,836 9,144 26,000 Mate 6,730 858 - - - - - 1 4 115 7,708 10,275 12,000 Fresh Fruit 7,228 - - - - 443 - 183 - - 7,854 6,926 16,000 Coffee 2,950 413 - - 1,134 - 210 - 1,478 44 6,229 4,952 5,630 Cotton fibers 1,432 1,025 - - izO1 372 353 927 1,735 2,920 8,865 9,655 20,000 Sugar ------600 3,708 7,000 11,308 2,400 3,000 Alcohol, liquors 83 - - 1 - - - 84 173 180 Coconut oil 2,101 415 881 544 - - - 648 - 3,170 7,759 5,793) Tung oil - 11 - 16 1,110 225 398 200 741 1,754 4,455 5,876 19,000 Ricino oil 5 57 ------62 144) Essential oils 42 - 21 - 127 36 45 31 53 24 379 434 650 Oil seed cakes - - - 200 - - 2,559 1,987 1,238 8,164 14,148 22,036 52,000 Extract of quebracho - 50 - - 21,831 - 766 - 1,835 - 24,482 33,797 35,000 Hearts of oalm 96 ------96 104 160 Wild animal pelts 123 - - - 64 4 1 4 - 4 200 246 - Other products 1,00 33 14 - 6 907 13 1522 9.386 17,870
Total 1963 151,532 20,498 9,252 771 36,511 9,932 15,563 9,41 18,896 38,723 311,119 Total 1964 234,471 23,487 S/ S/ 46,786 8,895 15,507 5,912 14,269 A/ 46,728 396,055 Pj^oj. 1970 539,290 a/ No exrorts were registered to Bolivia or Peru in 1963. Exports to Mexico were 2 tons. 2/ Includes Projection of 'Wild animal pelts." S/ Included in "Other Countries." 41 Switzerland i%cluded in "Other countries."
Source: Central Bank of Paraguay. Projections for 1970 prepared by the World Bank Mission staff. - 2 - increase. This, from the point of view of transport necessities, implies in turn that emphasis should be given to improving Paraguay's maritime transport to these continents: river ports, especially Asuncion, will need additional capacity; river channels should be improved (wyhere this is feasible) to permit year-round operation of larger ships; direct service between Paraguay and the United States and Europe should be used whenever it is more economical than the costly delays occasioned by t:cans- shipment in Argentina. Fortunately, the sharp increase which is foreseen in Paraguayts tonnage exports will necessitate better maritime transport and the increased tra.fic density will Justify the establIshment of more economical direct service overseas. To the extent that it proves possible to reduce costs and cargo losses in transhipment in Bienos Aires and M4onte- video, this should also reduce transport charges and improve the position of Paraguayan exports.
5. For these important increases in agricultural exports, improve- ments in internal transport within Paraguay will also be needed.. Agri- cultural output can be increased both by increasing yields on presently cultivated land and by bringing new land into production. For both5 more and better roads are essential: to increase yields it is necessary to be able to bring technical assistance, fertilizers, better seeds, etc,.. to the farms; to exploit new land, penetration roads must be constructed. And obviously enough, roads are also a prerequisite to be able to transport the output which is produced to the export ports on the rivers..
b. While agricultural exports represent the mnost promisi-ng area to spark eccnomic development in Paraguay, transport investments and policies must also consider a number of other important national objec- tives. As can be seen in Map 1, present population in Paraguay is con- centrated immediately around Asuncion and in a narrow band extending from the capital to-the southeast to the city of Encarnacion. This densely populated region is characterized by minifundia on worn-out soils, re- sulting in severe rural poverty and a migratolry flow toward Asuncion. Yet Paraguay is blessed with excellent virgin soils along the Parana Riirer and in the northern frontier region with Brazil to the east of the Paraguay River. To the west, the literally unpopulated Chaeo offers cpportunities for livestock development while to the south, along the northern shore of the Parana River significant increases in cattle pro- ductioni are also possible0
7. Under these circumstances, it is clear that efforts must be made to resettle the rural population by offering land to colonists willi-ng to leave the presently overpopulated regions around Asuncionl For this colonization effort to be successful, and for rural income to be increased, the colonists will need considerable support and must be assured f road communications to permit them to market their cash crops. This, in part, was the motive behind the investments made in the roads between AsuIncion and Puerto Presidente Stroessner, on the Parana River; betw:een Asuncion and Encarnacion; between Concepcion, on the Paraguay River to the n.orthl PARAGUAY POPULATION
I.-~~~~~~~~~~18
1 '-\____s 26%S~~~~~~~~1
40 PARAGUAY 3.0%
V c' 86 ', ,5 348 2.7% _
\ ~ ~~ ~~/ J /
31 9 2.4 2.8%
la~~r,L,AI 306 , _ '257 4 .X .['\ 189, 12 5 19G2 poDulatiom iil thousands 2.2% J 4.5% 208 DVGe).artbent (Dasec on samoile V O? f4 '/ u stimates) 5'--3-1-6 -v?L 2 3 25%°XAveraqje popuiation increase 0 ( 2.o/ - I bctweecn 1950 aiid 1962 / 1.33 %1%
58 -928 - 1. I 0/ 2.8S04 22.5%,
DUECE.;IBlR 19G5 IDRD-1686 - 3 - of Asuncion, and Pedro Juan Caballero, on the frontier with Brazil; and in the Trans-Chaco road, which slashes more than 700 kms. across the Chaco to the Bolivian border (see Map 2).
3. The problem which arises, however, is that the resources which are available in Paraguay for road construction are severely limited, and to the extent possible, roads should be built which serve both the coloni.- zation effort and the drive for increased agricultural exports. To date, *the investments made are largely consistent with these dual objectives, although serious doubt can be raised regarding that part of the Trans- Chaco road between the Menonite colonies and the Bolivian border.
'3. In the future, however, conflict may arise, due in part to a third objective of Paraguayls transport policy. In the past, Paraguay?s commerce has been largely confined to trade with Argentina and Paraguay's only communications with the rest of the world were through Argentina. Paraguay understandably desires to reduce this dependence on Argentina by opening a series of alternative exits, which in part motivated the choice of the Trans-Chaco route as well as the roads to Puerto Pres-deiate Stroessner and to Pedro Juan Caballero, both of which are on the Brazilian border. At Puerto Presidente Stroessner, the Paraguayan highway crosses the Parana River by a new international bridge and connects with a Brazilian road leading to the port of Paranagua, on the Atlantic Ocean, thus providing Paraguay with an alternative route for exports to the UJnited States and Europe. But while Paraguay's economy complements that of Argentina, and opportunities exist for increased trade, it is largely competitive with the Brazilian economy and it is difficult to foresee possibilities of greatly increased commerce with that country despite the international highways which have been built.
ILo. Furthermoe, it appears quite clear that Paraguay's most econ- omical export route at the present and for the foreseeable future is by river. The roads which thus would contribute most to increasing exports are roads leading from the productive regions, including regions being colonized, to the port of Asuncion or to other appropriate ports of exit. An exception to this generalization, however, is the route from Astuncion to Encarnacion, as in the future it is probable that land transport be- tween Paraguay and Argentina for perishable products such as fresh fruit will prove to be economical. This land transport could be entirely by highway or could be- by highway within Paraguay and by railroad within Argentina, with transhipment between the two media at Posadas, across the Parana River from Encarnacion.
11. This type of transport orientation, recommended as being most appropriate for Paraguay's economic development, concentrates on road transport for transport within the country and on river transport for the great bulk of the exports and imports. For reasons which are explained fully in Section IV of this Annex, it is not believed that the railroad between Asuncion and Encarnacion should continue operating for more than 62" 61'" 60 59' 53' 57' 56' 55 A
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five years. Neither is it believed that internal river transport within Paraguay, except to distant ports along the Paraguay Rivar to the north of the Apa River, can or should be developed. As roads con-tinue to be built, internal cabotage along the rivers will diminish at the same time that more and more export and import tonnage is transported over them. Internally, the distances are too short and the traffic densities too lowgi for river transport to offer an economical alternative to the roads. II. RIVER TRANSPORT
12. In analyzing river transport in Paraguay, a key element which musit not be overlooked is the intimate interrelationship among the navigability of the rivers and the possibilities of improvement through dredging and channeling; the appropr-ate size and composition of the river fleet; and the geographic location, characteristics, and required capacity of the ports. Decisions should not be taken in any one of these three areas without adequate recognition of the implications for the other areas,
13. The general objective of policies and inivestments in river trans- port is quite clear: the transport cost of the country's exports and im- ports is reduced if larger ships are able to operate directly to efficient. modern ports through wyhich is channeled Faraguay's international conmerce, For this to be possible, attention must first be directed at the basic problem of the navigability of the rivers, principally the Paraguay River. This river, the major route to the outside world, is subject to violent and unpredictable annual and cyclical fluctuations in the water level and hence in the s-ize of ship which can reach Asuncion. At the present time a major study is under way to determine if it is possible to maintain throughout the year a deeper channel to Asuncion so that ships drawing around ten feet of water can prov-de nearly uninterrupted service.
L4. Once the results of this critically important study are known; it will be possible to prepare a long-range investment program for port development and also to determine rationally the composition of the river fleet which is appropriate for Paraguay's trade. Should it be found that major improvements in the navigability of the Paraguay River are techni- cally and economically feasible, then the country can concentrate its investments in vessels which make full use of the greater water depth. Cn the contrary. if it should be found that little can be done with the river itself, and Paraguay must adjust to re-occurring periods of' low water, consideration miglht well be given to the desirability of developing a new port to the south of Asuncion which could be reached with greater reliability by the privately owned ships of around 1,000 tons which provide direct service to Europe and the United States. Such a port would also be used as a transhipment point to transfer cargo to and from smaller vessels which could reach Asuncion and ports even further to the north during low water.
15,. The difficulties of the present river transport situation are perhaps best illustrated by the fact that such small and presumably un- economic ships find it comPIercially feasible to transport Paraguayan cargo across the ocean. This situation can only be explained by the very high alternative transhipment costs and losses of cargo at Buenos Aires and Montevideo. Every effort needs to be made to reduce these high costs and losses rather than accept them as unavoidable and place primary reliance on the high cost small transoceanic shins. In this connection - 6- - negotiations should be entered into promptly with Argentina and Uruguay to reduce costs and losses in the course of transhipment and to persevere in the joint efforts with Brazil to develop an alternative land route via Paranagua.
.6. At the present time it is premature to anticipate the results of the study being made of the Paraguay River. For this reason it is desir..ble to maintain maximum flexibility in the inrestments made during the next few years until the navigability study has been comple' ed. It is essential to avoid new major commitments which may be found to be uneconomical within three years.
A... The Navigability of Paraguay's Rivers t.7. At Confluencia, 1,240 kms. upstream from Buenos Aires, the Parana River branihes into two major rivers which form the southern and part of the western boundaries of Paraguay. The branch which continues northward, separating Argentina and Paraguay, is the Paraguay River, which passes by Asuncion 390 kmis, north of Confluencia. Between Asuncion and the moutlh of the Apa River, 928 kims. from Confluencia, the river is entire- ly within Paraguay. Beyond the Apa River, the Paraguay River forms the eastern boundary of Paraguay, separating it from Brazil. The river itself continues to be navigable for many kilometers more: minerals are embarked near Corumba, on the border between Brazil and Bolivia, 1,530 ktis. from Confluencia, and are shipped to ports on the River Plate.
7.8. The second branch of the Parana iiver continues under the same name and runs nearly directly east from Confluencia for around 360 kms. to Encarnacion. Then it turns north and continues to be navigable to within 40 kms. of the Guaira Falls, about 460 kms. from Encarnacion. Above the falls the river extends northward through Brazil and is navigabie, but cargo must be transferredl around the falls by truck.
'19.. In 1941 a convention was signed which obligates Argentina to maintain a channel in the Parana-Paraguay River with a minimum depth of 21 feet betwieen Buenos Aires and Rosario, 19 feet between Rosario and the city- of Parana, and 10 feet between Parana and Corrientes, near Conf'luencia. Above Corrientes, the minimum depth on the Paraguay River was to be 6 feet, but as this is clearly inadequate for efficient transport to Asuncion, the principle of maintaining a minimum depth of 10 feet was established at a meeting of experts o;f Paraguay and Argentina in February 1964.
20. The difficulty which maintaining a depth of 10 feet in the channel between Confluencia and Asuncion represents is clear from Table 1, which is taken from an excellent study of river transport in Paraguay prepared by- the Secretaria Tecnica de Planificacion. Despite the fact that five passes are indicated between Con.fluencia and Alberdi, 207 kms. upstream from Con- fluencia, with a minimum depth of 6 1/2 or 7 feet at low water, the Secre- taria Tecnica believes, on the basis of other studies, that there is a -7-
minimum depth of 10 feet in this sector even in low water. The real problem is further nor-th, especially at Villeta, where a minimum depth of only 5 feet is noted in Table 1, and whose location can be noted in -the accompanying map as being about 40 krns. south of ksuncion. North of Asuncion there are additional passes which restrict the draft of vessels which can navigaue in this sector, but clearly the major problem to be solved, if it is technically and economically feasible, is the deepening of the channel between Alberdi and Asuncion.
21. The severe restrictions which these passes impose on river transport to Asuncion can be seen in Table 2, '.3hich is also taken from the study of the Secretaria Tecnica. Th-s table shows, for the years 1957 through 1963, the days in each year expressed as cumulative percent- ages of the year, that the Paraguay River maintained different water levels. The scale which is used is the Asuncion Scale and from this has been calculated the depth at Villeta, which is the limiting pass be, eei± Confluencia and Asuncion, In analyzing Table 2 it should be pointed out that several of the ships of the Paraguayan state shipping line, Flota Nercante del Estado, drawi more than 11 feet of water while the bulk of the newer cargo vessels draw slightly more than 8 feet (2,5 meters).
22. On the average over the seven years, ships drawing 11.1 feet of water could navigate the Villeta pass only 67 percent of the time and those drawing 7.9 feet less than 89 percent of the time. These averages, however, 'hide the enormous variations from year to year within the period. In the exceptionally dry year of 1962, for example, ships drawing 11.1 feet of water could not pass Villeta at any time and ships drawing 7.9 feet less than half the time. In these circumstances it was necessary to tranship cargo below the restrictive passes to and from smaller vessels or to utilize only a fraction of the cargo capacity of the larger ships so as to permit 'tham to pass the shoals. Both of these alternatives obviously increase transport costs significantly.
23.. A study is financed by a grant from the Special Fund of the United Nations of $688,000, to which the Paraguayan government iuill add $850oooo, to'deterimine the technical feasibility of cha,neliug and regulating the Paraguay River between Asuncion and Confluencia is being launched. Over a period of around four years technicians from Paraguay and from other countries will study the topography of the river, will make scale-model laboratory studies, and will design channeling con-- structions for a specific river pass. Then the works recommended will actually be constructed under the program to test the results of the theoretical studies. In this regard the Special Fund program goes far beyond the long series of' previous studies which never led to empirical tests. If the test carried out at one pass is successful, a basis would exist to prepare a long-range program of river improvement and to request international financing, Annex IV,
TABLE 1
Identified Passes on the Paraguay River bett.een Confluencia and Asuncion
Kms. from Depth in Length Width Bottom Sector Confluencia 'onfluencia Low Water (meters) (meters) Alberdi (km.207): (feet) Guaicuru 56 7 70 40 sand Tacuru 60 7 80 30 sand Naranjito 70 6s 70 50 sand Bernejo 82 6- 120 70 sand Ramirez 126 7 80 50 sand
Sector Alberdi - Asuncion (km.390):
Emilia 263 8 140 70 sand Mortero 277 6-1 80 50 sand Paraiso 284 8 60 50 sand Laguna 31.0 8 170 80 sand Guyrati 341 61 220 30 sand&rock Ita-Piru 343 4 90 40 rockc Angostura 3)46 7 70 40 sand Villeta 351 5 90 30 sand San Antonio 364 8 70 50 rock lledin 367 8 40 60 sand Purificacion 383 6 80 30 sand
Source: Secretaria Tecnica de Planificacion, "Estudio sobre el Transporte Fluvial en el Paraguay" (June 1964), Tables I-A and I-B. E~~~~~~~~~~tr d o . I.- -. Ao At
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TABLE 2
Duration of Wrater Levels in the Paragua7, River (cumulative percentages)
Depth Using Depth at Average the Asurscion Villeta 1957 1958 1959 1960 1961 1962 1963 1957-63 Scale (meters) (feet)
5.50 0.0 15.1 8.8 0.0 9o1 0n0 0.0 5,9 5.00 13.3 23.5 51.3 1.2 23.2 0.0 0.0 16,5 4.50 30.2 38.2 67.8 6S2 27.0 0o0 0.0 24.0 4.00 53.1 58.0 82.3 11,8 32.7 0,0 2.6 34.4 3.50 68.0 79.6 93,0 52.7 40.4 0,0 15,6 49.6 3,00 78.7 83.0 96.5 84.0 45.4 0e0 1837 60.0 2.510 1141 86.0 89.8 98e5 95,5 60.7 0.0 42.3 67,4 2,00 9.5 90.3 92.8 100.0 98.0 78,2 17,6 57.8 76,5 1.50 7.9 100l0 100.0 100,0 96,5 47,2 6805 89e0 1l00 6.3 100.0 73,7 76.0 92.0 0050 4.7 88,5 95.2 97.9 0°00 100.0 io00M0 100,0
Note: The depth at Villeta was determained by equating a depth of 0.70 meters on the Asuncion scale with a depth of 5.3 feet at Ville-ta,
S'ource: Secretaria Tecnica de Planificacion, "Estudio sobre el Transporte Fluvial en el Paraguay" (June 1964), Table I-G. - 8 -
24. Table 3 indicates the importance which deepening the channel to Asuncion would have for Paraguay in terms of the inc.ease in the number of days which ships of varying draft cou'Ld navigate the Villeta pass, If the Villeta pass were deepened by one meter, ships drawirg 11.1 feet of water could have reached Asuncion an additional 79 days each year on the average over the period 1957-1963. In 1962 the impact would have been far more dramatic: another meter's depth would have increased the number of days ships drawing 7.9 feet of water cou'd navigate the pass frorm 172 days to 313 days.
25. For these reasons it is clear that the present study is of critical importance for the future of river transport in Paraguay. The persons who are carrying it out are cautiously optimistic and there is partial evidence on the basis of constructions made to protect a historical moniument from river erosion to the south that the study's outcome may be favorable. it is therefore recommended that decisions regarding either ports or ships for the Paraguay River be taken with a criterion of minimizing the possible risk of error should the Special Fund study of the river be either favor- able or unfavorable. 26. The Parana River, from the point where it joins the Paraguay River at Confluencia, is navigable to within some 40 kms. of the Guaira Falls arournd the southern and western perimeters of Paraguay. This river, however, presents considerably more problems for navigation than does the l'araguay River because of the swift current and shoals. In general it should be accepted that for the foreseeable future the draft of vessels using the Parana will be limited to six feet. 2i. Although river transport ig the past has had some importance on other rivers in Paraguay, there is every likelihood that it will continue t;o diminish and will eventually disappear as the country's road network continues to expand. The only major exception which is anticipated to this generalization is the use of these rivers to transport logs. E; River Ports
24. The anticipated 2elative decline in internal river transport in general in Paraguay at the same time that export and import tonnage trars- ported by river increases, coupled with a continuing tendency toward the use of even larger ships, indicates that the importance of a very few ports will increase in relation to the rest. Because of Asuncion's geographical position at the focal point of a road network which fans out from there to the east, southeast, northeast and northwest, this port should logically become increasingly important, provided that the river study indicates that an adequate channel can be kept open to it during most of the year. Annex IV,
TABLE 3
Increase in Navigability of the Paraguay River froia Deepening Channel (in days)
Depth at Historical Experience Increase in Days Navigable Deepening Villeta Days Days Not Channel At Villeta by (feet) Navigable Navigable 0.50 meters I meter 1.50 metel's
A) Average.over the period 1957 - 1963:
11.1 246 119 33 79 88 9.5 279 86 46 55 78 7.9 325 40 9 33 40
B) For the year 1962:
11.1 0 365 64 172 269 9.5 64 301 108 205 259 7.9 172 193 97 141 183
Source: Secretaria Tecnica de Planificacion, "Estudio sobre el
Transporte Fluvial en el Paraguay" (June 1964),
Table IV-A - 9 -
29. For a period of perhaps five years the port of Asuncion has operated beyond its effective economic capacity. Although there are at present 585 meters of quay in the port, the effective berthing space for general cargo has been reduced to 385 meters because of the construc- tion of the administration building and passenger terminal needed for the heavy passenger traffic. As a result, river cargo ships are obligated to wait frequently long periods of time before being able to dock, greatly increasing river transport costs. Fluctuations in the water level of the river accentiuate the problem by creating backlogs of cargo which must be moved when the water level increasese As the port clears around nine- tenths of the country's import volume and roughly one-third of the exports, the problem is serious and has grave detrimental effects on the entire economy. Considering the important increases wlhich are anticipated in the tonnage of exports and imports projected for future years, it is esserJtial that the capacity of the port be increased.
30. The WJorld Bank has approved in principle a loan to finance the import component and part of the local costs of a port improvernent program for Asuncion. The port expansion program is sound and it is desirable that it be executed as soon as possible. 'Whatever the results of the Special Fund study of the river, the port of Asuncion will continue to be a key port and will require the additional 320 meters of quay which are contemplated. Should the results of the river navigability study be favorable, additional expansion will be necessary in the future.
310 Paraguay is also considering minor investments in a new port where the Parana and Paraguay Rivers join at Confluencia. This port would serve as an export port for the southern part of the country and a transhipment point for cargo to and from ports on the Parana River throughout the year and for ports further north on the Paraguay River when the water level falls. The projected port would also serve as a loading point for lumber which is; rafted down the Parana and which at present is loaded at Corrientes, in Argentina. Because of administrative dispositions of the Argentine government, Paraguay is not allowed to raft lumber to the south of Corrientes, and as a result this important traffic is carried on Argentine ships because it is treated as internal cabotage within Argenti-ria. With the projected port the lumber could be loaded cnto Paraguayan ships for transport down the Parana-Paraguay River to Buenos Aires.
32. The idea of the projected port is sound. Furthermore, the Paraguayan authorities correctly intend to maintain the investments at a minimum until the results of the Special Fund study are known and until t.affic is developed. Any new port, because of the necessity to build housing and administrative buildings, is costly, and it is desirable to minimize tha present commitment at Confluencia. Furthermore, since there are no immediate plans to colonize the immediate hinterland of the projected - 10 - port, due especially to the relatively small short-run econoraic potential of this region, little traffic would be generated in the surrounding area, Looking toward -the future, however, it is probable that the port would have increasing importance.
33. Considering the relatively short distance of around 350 kns. be- tween the projected port at Confluencia and the port of Encarnacion, on the Parana River, it is not desirable to make costly investments in the latter port. Furthermore, t'he ships which are appropriate for the shallow water and swift currents of the Parana River are not economical for transport between Confluencia and Buenos Aires, so that tranship- ment is indicated at Confluencia in any case. For these reasons it appears desirable to plan to use the proposed new port at Confluencia in the future as the natural export point for the entire southern portion of Paraguay, with highway transport to the port from the production areas. The highways presently be_ng constructed by the Command of Engineers of the Paragua;yan Army are consistent with this objective.
3h. With the construction of the new Route 5 between Concepcion and Pedro Juan Caballero, on the Brazilian border, it is probable that new investments will be required in the port of Concepcion, some 300 kms. to the north of Asuncion. The city of Concepcion, wahich has been declin- ing in recent years because of inadequate road access, should receive considerable impulse from the highways presently being constructed, In addition, it is probable that the port will be utilized by Brazilian goods in transit to and from Argentina, as this joint highway-river route should prove more economical than transport across Brazil to the port of Santos, with ocean transport to Buenos Aires.
C. River Fleet i5. Discussions of the appropriate vessels for Paraguay's diverse river transport needs have frequently centered on a search for "the" ideal ship. This debate is obviously futile and should be recast into a discussion of the appropriate composition of the river fleet, taking explicitLy into account the different navigation conditions of the rivers which serve Paraguay.
36. For the Parana:River it appears that the recent acquisitions of the Flota Mercante del Estado, two small cargo ships of 350 tons capaci-vy and shallow draft, are appropriate and should prove useful for this sector when they arrive from Europe. Similarly, the small cargo ship built by the Paraguayan Navy, with a capacity of 280 tons when the ship draws six feet of water, appears to be apt for the shoals and swift current of the Parana. None of these ships is economical for service below Confluencia because of their small capacity and powerful engines, so that the goods they transport should be transhipped at the new port projected at the union of the Parana and Paraguay Rivers for shipment to Argentina or overseas. - 11 -
.37. Types of ships appropriate for the Paraguay River can best be cleterminecd when the results of the Special Fund study are knoowr. It should be kept in mind, however, that it is likely that a ship can be economical on this river even though it cannot always recch Asuncion. Here there is an important playoff between the lower trarnsport costs wihich are permitted by a relatively larger ship and the higher costs which must be incurred when, because of low water, goods must be transhipped or the vessel must use only part of its capacity to lighiten the draft in navigating the passes. Clearly enough, the key variable in such a calculation is the number of davs during which these difficulties will arise, and it is precisely this question which the Special Fund study is designed to answer.
3-8. Because of the success of large, shallow-draft barges in trans- porting minerals from Corumba to River Plate ports even during lou water in the Paraguay River, this type of craft has been recommended for genel7al application in Paraguay's trade. While it is true that these barges do not encounter major problems from the periodic fluctuations in the water level, their other characteristics make them of doubtful value for genera"L use. Paraguay does not hlave the large tonnages of bulk products in its commerce for which this type of vessel is clearly economical, and for smal'l shipments of many assorted products these barges would not appear to be economical. It is desirable, nevertheless, that an open mind be maintained and that further acquisitions of all vessels be subjected to far more analysis than perhaps has occurred in the past.
.39. Ships of around L,000 tons capacity belonging to a Dutch company and to a joint Dutch-Paraguayan company presently provide regular' and direct service between Paraguay and the United States and Europe. Despite thle small capacitr of these ships,, which inevitably occasions higher costs than those of. larger oceangoing vessels, they are popular with exporters and importers for many types of cargo because they obviate the necessity for transhipment in the River Plate. It is doubtful that for all products this type of direct service can or should replace the alternative of joint river-ocean service with transhipment down-river, but its development shoul(d be encouraged whenever the shipping corpanies f'ind it profitable to expand their operations (see paragraph 15,above). T'he remarkable incidence of Holland as a customer (or at least agent) f'or Paraguay's exports indicates the benefits which can be derived from these direct communications. Finally, the participation of Paraguayan capital in the joint shipping company, motivated perhaps to permit the company to be registered within the Latin American Free Trade Association, is also a favorable development in the transport field.
ID. Flota Mercante del Estado
ho. The merchant fleet operated by the Flota Mercante del Estado is the most modern in Latin America. As can be seen in Table 4h 2 of its 12 cargo ships were incorporated in 1960 and 1961, as is also true of the 3 tankers ancd the livestock ship. The rufrigerated ship Joined the fleet in 1962. Annex IV, TiABLE 14
Ships of the Flota Mercante del Estat_ - 1964
Namle tf Ship Type of Ship Year Incorporated Draft Cargo Capacity Origin (feet) (metric tons)
FParaguari Cargo ship 19L8 1106 850 U. S. A. Ygurey Cargo ship 1968 11n6 850 U. S. A. YFr^ia Cargo ship 1968 11i6 850 U. S. A. Rie glanco Cargo ship 1960 8.3 1o000 Spain Plrabebe Cargo shi,t 1960 S o3 1,000 Spain SaIt del Guaira Cargo ship 1960 8.3 1,000 Spain Olimpo Cargo ship 1961 8.3 1)000 Spain Rio Apa Cargo ship 1961 8.3 1)000 Spain Yhagny Cargo ship 1961 8&3 1,000 Japan Ric Negro Cargo ship 1961 803 1,000 Japan Crrraneros Cargo ship 1961 8.3 1,000 Japan Parana Cargo ship 1961 88.3 1,000 Japan Chaqueno Livestock 1961 8.3 700 Japan Jeiui Refriaerated 1962 6.1 900 Spain Lago Y pacarai Tanker 19Lt 11.6 850 U. S. A. Lago Ypoa Tanker 1961 107 1,087 Spain Lago Vera Tanker 1961 8.3 1,350 Japan Itacurubi Tug 1960 60O0 Japan Ita Kyry Tug 1960 6.o0 - Japan Ita Ybate Tug -- Englald Ita Piru Tug -- Holland Ita Piru II Tug -- Spain La Valentinas Lighter 1960 1961 500 Spain Cu,rupayty Lighter 19(0 1961 500 Spain TLyuti Lighter 1960 1961 500 Spain 7 atayiba Lighter 1960 19a1 500 Spain Pikysy ry Lighter 1960 1961 500 Spain Ytcrtre Lighter L36 Holland Source: Secretaria Tecrica d3 Planificacion, "Sstudio sobre el Transport Fluv`al on el Para,uay" (junc 196L), Table III-C. - 12 -
11i. This river fleet is used to transport goods which enter Paragua-yrs trade with Argentina and Uruguay and also for goods transhipped in Buenos Aires to destinations overseas. Table 5 showJs the impact of the new fneet on the percentages of Paraguay's exports and imports carried by the Flota Mercante del Estado between 1955 and 1963. In i955 the F.M.E. carried less than 5 percent of the country's exports and 24 percent of the imports. These percentages had increased in 1963 to 23 and hl percent for export3 tnd imports, respectively.
42. Despite the greatly incieased participation of the F.M.E. in the carriago of Paraguay's foreign trade, it is doubtful that the contri- bution of the fleet to the balance of payments has been large. In Table 6 the expenditures of the fleet in 1964 which represent foreign exchange costs are compared with the total revenues, showing net exchange earnings of V,177 million, around $L.4 million. This estimate, made 'oy the Central Bank of Paraguay, does not differ greatly from the estimate made by the F.M.E., which calculated that it had earned $1.6 million in foreign exchange in that year. Neither estimate, however, takes into account the amortization of the vessels. Although any figure for depreciation is open to considerable discussio:n, a reasonable estimate for the F.M.E. fleet may be around $500,000 per year, so that the net exchange earnings may have. been around $1 million in 1964.
43. Even this estimate, however, must be qualified. In the first place, even though all of Paraguay's commerce had been transported in foreign vessels, these ships would have incurred costs in Paraguay for pilot charges, lighterage, stevedoring, port dues, etc. For this reason it is not correct to measure the foreign exchange costs of the F.MNE. against its total revenue without correcting for the local costs of foreign carri.ers. If this adjustment were introduced, the net foreign exchange earnings of F.M.E. would be reduced.
44. On the other hand, if Paraguay did not have its own fleet it is likely that freight rates would be higher than they are at present. In this case it would be reasonable to use Paraguay's freight bill at these higher rates instead of the real earnings of F.M.Eo as the basis for the calculation. This type of adjustment would increase the estimate of the exchange earning of F.ME. Finally, should freight rates be significantly higher, there might well be a detrimental impact on Paraguay's exports, nrid these exchange losses should be considered in determining the contributi.on of the Paraguayan fleet to the balance of payrnents.
45. Despite the problems involved in absorbing a large number of new vessels and despite the excaptionally low water in the Paraguay Rivrer in the last few years, which occasioned high operating costs for the F.M.E., the financial results of the state fleet have been reasonably satisfactory. In 1963 the FoM.E. showed a profit of 5 million and in 1964 this increased to nearly (.rI8 million, These profits would have been considerably higher if' Paraguay were not o'liged to pay high pilot dues to Argentina for ther Annex IV,
TABLE 5
Participation of F.M.E, in Transport of Paraguay's Foreign Trade
(metric tons)
E X P O R T S I M P O R T S Years Total Carried by Percent Total Carried by Percent F.M.E. F.M.E.
1955 256,189 11,791 4.6 ji741o3z 41,967 24e1 1956 358n709 a3r273 6.5 197,14C 469635 23.7 1957 316,593 15g436 4.9 192,235 36,o43 18t: 7 1958 314l,629 2s393 3.6 232,902 42,866 19*2 1959 236,192 16,135 6.8 227,243 35v489 15Q6 1960 299,372 22a027 7.4 244,938 38,151 15 (6 1961 3413L49 65,966 19*3 273;901 90,372 33e.O 1962 350,44L5 83,654 23.9 287,346 139,363 48 5
1963 311)11 9 72,942 23.4 295,685 128;969 43.6
Source~:: Secretaria Tecnioa de Planificacion, "Estudio sobre el Transporte Fluvial en el Paraguay" (June 1964), Table ITII-D Annex IVJ
TAB,LE 6
Exchange Earnings of 7. M. E. - 1964
(thousands of guaranies)
Vessel operating revenue, less 306,988 freight commissions
Vessel operating costs which represent expenditure,s in foreign exchange:
Fuel 100l 23,672 Repairs 85 19,100 Fort loading and unloading 75 31,702 Pilot charges 100 25,299 Insurance premiums 100 11,990 Luibr-icants 100 6?L75 Towing charges 100 9,847 Port clearance 100 1,981
Sub-Total 130,066
Estimated exchange earnings 176,922
Vessel operating costs which represent expenditures in local currency 89,345
Vessel operating profit, withzut ccnsidering deDreciation 87,577
Source: Central Bank of Paraguay - 13 - privilege of using the Parana-Paraguay River: in 1964 these charges amounted to more than /25 million, considerably greater than the total profit of F.;I4E. in that year, Compared with the heavy losses of other state-owned fleets in some South American countries, the F.MI.E has done well,
46. A deeper analysis of the FoMoE. cos s and expenditures qualifies somewhat the initial favorable impression'!,/ In the first place, the amount of depreciation included in the costs considerably understates the real cost to the economy. In 1964 FMI.E. included onlYy 38 million for this concept9 '10 percent of the value attributed to its ships in the balance statement, The asset figure, however, covers only the ships already paid for in full plus that part of the value of the remaining ships which has been amortized. The rest of the value of the ships on which payments are still being made is carried in the balance sheet in separate accounts and no depreciation charges against this value are in- cluded in the cost statement, despite the fact that the ships are owned and operated by F.M.E. If it is assumed that $500,000 represents a reasonab'Le annual depreciation charge, an additional 025 million should be added to the costs and the 1964 profit of ~18 million would be transformed into a loss of 07 million, approximately $56,000. This loss, however, is not large when related to total revenue in that year of $2.5 million.
47. In the second place, an analysis of the ship operating accounts shows that the profits realized from the transport of petroleum produr:ts cover the losses of most of the res-t of the operations. This can be seen clearly in Table 7, where the operating profits or losses for each ship in 1963 are shown. The costs here include general administration but not depreciation. Of the 12 cargo ships, nine showed operating losses. Only the fact that the three t;ankers had total operating profits of 042 million made it possible for the entire fleet to show an operating profit of 024 million. In 1963 the average freight revenue per ton was Al,170 for all exports and /2,230 for petroleum exports. Petroleum is thus being used to subsidize exports and probably other imports as well, although here the fact that imports usually pay a rate based on cubic meters rather than weight tonnage makes comparisons more ambiguous. Petroleum, however, is also an important input for transport internally within Paragilay and will become increasingly so as the road network is developed, so that the economic impact of the F.M.E. rate policy should be analyzed carefully.
48. F.M.E. correctly attempts to construct a rate structure which will yield sufficient revenue to permit it to operate at a profit and must also
1/ These figures based on F.M.E. accounts differ somewhat from those in Table 6 prepared by the Central Bank. Annex IV,
TABLE 7
Financial Results af F. M, E. Vessel OperatiQns -- 1.963
(Guaranies)
Type of Ship Number of Operating Profit Ships or L.;ss
Cargo ships 9 - 1,%475;,161
Cargo ships 3 + 29060;789
Livestock ship 1 + 1.J525,,177
Refrigerated ship 1 - 3,339j553
Tanke.rs 3 + 41589,,886
Lighters 6 7,;o6299t1
Totals 23, + 242297g837
a/ CGsts of general addministratJicn are included but not depreciation.
Source: Flota Mercante del Estado. - 14 -
consider its competitors, especially the Argentinian rive-r fleet, whicri operates at a loss. It imay well be, howjever, that rates could be increased~ slightly so as to cover total F.M.E. costs and restructured in order to lessen the sharp differenice betwseen petroleum rates and rates on other products without a significant traffic loss to caripeting lines and without a sigrnificantly detrimen-tal impact on Paragua- t s export possibilities, To the degree that this is possible it would appoar to be the direction in which rat;e policy should move.
h9.0 Despite these qualifications and comments, it appears that F,MVE, is on the whole proving to be a desirable asset for the Paraauayan economyc Its effectiveness might well be increased if an alternative to Buenos Aires can be found as a transh:Lpment port on the River Plate. The most obvious choice would be Montevideo, considering the large number of shipping lines which provide service from there to the rest of the world. At present there are problems which prevent utilizing this alternative, primarily related to difficulties in giving exporters through bills of lading from Asuncion to final destinations overseas and the very high labor costs0 Being essentially a land-locked country and having to depend on trans- shipment in other countries for one's exports and imports is inevitably a frustrating experience. Paraguay has striven to reduce past dependence on Argentina in its transport by constructing highways to both Brazil and Bolivia. A further desirable development, potentially of greater import- ance than the land connections, would be the establishment of an efficient transhipment point in Uruguay. This possibility should be promptly explored. Simultaneously3 efforts to reduce costs and losses in transhipment at Buenos Aires and the development of an effective alternative port at Paranagua should be continued. - 15 -
I.I H:GIVAY TRANSPORT
50. Paraguay is a natural for highway transportation. The topography is by and large flat or rolling to the east of the Paragulay River and nearly perfectly flat to the west in the Chaco, so that both construction and vehic:Le operating costs are low. Distances are short, as can be seen -n Table 1, below, and except for the region irmediately around Asuncion, population density is low. The land, by and laige, is also homogeneous, so that production is generated evenly throughout broad areas. To transpor;t this type of evenly distributed production, primarily of agricultural commodities, road transport is the most appoopriate mode, given its relatively greater flexibility as compared with either railroad or river transport.
51. Paraguay is not, however, a road transport paradise, as severaJ important problems do exist. In the first place, much of the land is low and poorly drained, so that extensive embanlanents are required for many roads in order to avoid inundation and to decrease road maintenance tihich is extremely difficult during the rainy season. This problem, nevertheless, would also affect rail transport if it were to be considered as a possible transport alternative. In the second place, construction materials are scarce and poorly distributed, and their transport increases the cost of road construction and maintenance. Except for one deposit near the Paraguay River, for example, there is no gravel along the more than 700 kms. of the Trans-Chaco road. In the third place, no petroleum has been found in Paraguay and it is necessary to import both asphalt for construction of roads and fuel for all vehicles.
52. Despite these difficulties, highway transport is rapidly becoming the fundamental mode for all transport within Paraguay and will eventually replace nearly all river transport except to the farthest northern reaches of the country a]ong the Paraguay River. While river transport will continue for a long time to come to be the basic route used for exports, it cannot compete with highway transport within the country because of the short distances involved and the low traffic voDilaes.
53. The Paraguayan government is aware of the importance of better roads to spread and to intensify economic development and large sums have been spent on road investments over the past years. The country has also received important foreign assistance to develop its road system frorm the United States and from international agencies, as these organisms have also been convinced of the high return on these investments. Table 2, below, showrs the results of these efforts: Paraguay's road network has increased from a total of 220 kins. in 1938 to 1,185 kms. in 1956 and to 4,1865 kms. in 196b. While the number of kilometers of asphalted roads only increased from 74 kms. to 87 kms. between 1945 and 1956, since that time the total paved kilometers have increased to 421. Of this, the paved route to Puerto Presidente Stroessner, 327 k:ms., represented the most important component. The paving of Route I between Paraguari and Encarnacion will add slightly more than 300 kms. to the paved part of the country's highway system. Annex IV
TABLE 1
Highw4ay Distances in Paraguay (kilometers)
Route 1: Asuncion to Route 4: San Ignacio to
Paraguari 63 Pilar 156 Caapucu 41 Paso de Patria 217 San Igancio 226 Cnel. Bogado 319 Route 2: Asuncion to
Cnel. Oviedo 134 Cnel, Oviedo to Pto. Pte. Stroessner 327
Villarrica 44 Route 5: ConcepcIon to Caazapa 96 Horqueta 45 Route 10: Pto. Rosario to Cerro Cora 212 Pedro Juan Caballero 244 San Estanislao 71 Salta del Guaira 261 Route 9 (Trans-Chaco): Asuncion to
Route 3: Asuncion to Villa Hayes 36 Filadelfia 439 Arroyos y Esteros 59 Cnele Garay 759 San Estanislao 140
Coronel Oviedo to
San Estanislao 120 Nueva Germania 220 Union Route 5 370 Annex IV,
TABLE 2
ROAD NETIWORK BY TYPE OF CONSTRUCTION
Years Asphalt Gravel Dirt Total.
1938 -- 159.8 60.h 220.2
19L45 7L.h 354.8 245.0 674.2
1950 77.9 474..4 278.2 830.5 1955 84.9 513.7 547.0 1,15.6 1956 87.2 523.3 57t.1 1,18h.6
1957 100.7 573.8 719.5 1,394.0 1958 120.5 585.4 935.5 1,6l1.b
1959 130.5 589.8 1,003.0 1,723.3
1960 184.5 653.1 1,307.5 2,145.1 1961 213.3 705.7 1,536.9 2,455.9
1962 213.3 780.8 1,837.9 2,832.0
1963 311.9 811.9 1,997.9 3,121 5 1964 421.0 898.2 2,865.8 1,185.0
Source: Secretaria Tecnica de Planificacion - 16 -
54. The number of motor vehicles has also increased substanitially over the past years, although data are not available to know with exactitude the number of vehicles in the country. Orders of magnitude, however, of the present vehicle park and its growth can be ootained from the following Table:
195h 1958 1962
Automobiles, pickups, jeeps 3,300 6,045 9,700
Trucks 2,094 3,746 2,800 Buses 312 671 _2,000
Totals 5,706 10,162 114,500
Source: 1954 and 1958: 1959 report on Paraguay of the World Bank.
1962: Sofrerail report. In this figure, administrative and military vehicles are not included. The estimates are obviously not comparable, as it is clearly impossible that the number of trucks fell by one-fourth between 1958 and 1962.
55. Data on tonnages and ton-kilometers of freight trarnsported by highway are not available. Neither is there adequate informaticn about the number of vehicles which pass over the different highway routes. Although considerable information on vehicle circulation is collected at toll stations and check-points, it is not centralized so as to be of use for economic planning.
56. In evaluating the effort which has been made in Paraguay to improve the road network, as well as the plans for future investments, it is desirable to consider explicitly the following points: 1) the routes which have been selected for construction or improvement; 2) the technical standards which are applied, i.e., the kind of road which is built; and 3) highway maintenance. Each of these points will be discussed in turn.
.576 The basic objectives of the routes which have been selected for constimction and improvement in recent years are to provide land access to potentially rich, but isolated, regions and to reduce the countryt s - 17 -
dependence on export routes which pass through Argentina. The choice of the individual routes has been rational and it appears that the economi3 payoff on the investments made is already reasoiably high aild can be expected to increase as time goes on. Thle general spatial pattern, with major routes leading from Asuncion to the northwest across the Chaco, to the east to Puerto Presidente Stroessner, and to the southeast to Encarnaciorl, is logical and these roads will unquestionably form basic e'ements of' the future prinary road network.
58. No program is contemplated for paving the road from Asuncion across the Chaco nor should it be considered uintil livestock production and highway traffic in this region has increased srfficiently to justify the investment which would be required. The road from Asuncion to Puerto Presidente Stroessner is completely paved. While the paving of Route I, between Paraguari and Encarnacion is expected to yield an adequate rate of return to justify the approximately US$8 million equivalent being invested for this purpose, doubt could be raised about the desirability of other investments of this magnitude for similar purposes in the near future. Route I is a key route in Paraguay, linking the Capital with Encarnacion, and its improvement will ease the transition from present use of railroad transport in this region to complete dependence on highway transport. One of the important factors leading to the decision to imprcve this road was that it had not been built to all-weather standards which had the effect of paralyzing traffic during the rainy season.
59. From now on, the selection of routes will not be intuitively obvious and long range planning is essential. At present, work is under way on the construction of major new roads in several areas, and it is convenient to examine briefly their selection. Using PL-480 funds a road is being constructed. nearly due north from Coronel Oviedo, on the highway to Puerto Presidente Stroessner, which will eventually counect with Route 5, between Concepcion and Pedro Juan Caballero. The choice of this road is good, as it provides a land route between Concepcion and Asuncion and opens up new land for cultivation. The part now under construction will form part of the future north-south longitudinal highway between the Brazilian border in the north and Encarnacion in the south. Plans have also been made to improve a section of this same longitudinal route from Coronel Oviedo south to Villarrica, the main sugar producing region, which is obviously of high priority (see Section IV, on Railroad).
60. In the north the Command of Engineers of the Paraguayan Army, with support from the Department of Defense of the United States, is constructing a road from Co-acepcion to Pedro Juan Caballero to replace the old Route 5 in most of its length. This route is also a high priority road and its construction is justified. In addition to providing better - 18 -
access to rich agricultural land (including Paraguay's coffee-growing region), the road will serve as an export route for Brazil, as Brazillan products can be placed aboard ship in Concepcion for transport on the Paraguay River to Buenos Aires.
61. Construction and improvement is also being carried out on Route 3, between Asuncion and San Estanislao, which is on the north-south longi- tudinal road. Again, this choice is good, as this route passes through the region where the production of coconuts, from which oil is extracted for export, is concentrated. This road will also reduce the distance by land from Concepcion to Asuncion, and will also reduce the congestion on the entrance to Asuncion along Route 2, between Asuuicion and Coronel Oviedo.
62. In the south the Command of Engineers is working on road con- struction and improvement on the route which parallels the Parana River and connects Paso de Patria, Laureles, and San Ignacio. Should a new port be built at Ita-Piru, this road would provide land access to it for the exports of these commnunities.
63. Finally, the construction of lesser routes which parallel the railroad and also those -which improve access to the new colonies north of Encarnacion is unquestionably of importance and investments being made are justified. This same judgment can in general be made about the routes being constructed or improved between the Paraguay River and the new longitudinal north-south route, such as that between Puerto Rosario and San Estanislao.
6h. Other routes, however, have a more questionable economic value at the present time, although they may have political significance. The new road under construction from Y5butuy east to Salto del Guaira5 iRoute 10, for example, appears premnature from an economic point of view. Although this road opens access to new land, its construction could better be postponed. Similarly, the construction of a new road along the Paraguay River from Villeta south would ceem to have a lower priority at the present time, although undoubtedly this route will be necessary some time in the future. The problem here is that the region between Villeta and Pilar has a lower economic potential for immediate exploitation than does land along the Parana River.
6,5. The doubts regarding the convenience or necessity, from an economic standpoint, of immediate investments in what are essentially new long penetration roads, reflect a basic criterion regarding the present purpose of highway investments. During the last ten years great importance has rightfully been given to this type of investment, most notably on the route between Asuncion and Puerto Presidente Stroessner. The construction of this type of road, which continues at the present time on the important north-south route, has absorbed a considerable part of the resources available to the public sector. It would appear logical and desirable, at this juncture, to attempt to maximize the - 19 - benefits from the routes which already have been constructed. As yet, practically the only use given the Asuncion-Puerto President Stroessner road, for example, is a result of the strip development along its length to the east of Coronel Oviedo. The highway itself, however, is paved and is capable of permitting economic year-round transport far in excess of present traffic. Rather than dedicate scarce resources to long and expensive new penetration roads, as that between I4butuy and Sa]to del Guaira, it would appear preferable to give more emphasis to shorter access roads to the major routes which already have been constructed. In this way, a higher economic return can be obtained from the substantial infrastructure which is already present but is little utilized. Later, as the economy responds to past investments and the value of agricultural exports begins to increaLse, a better base will exist to permit the finan- cing of longer and most costly penetration roads. The objective which is recommended, in other words, is to consolidate the advances which have already been made rather than to give exaggerated emphasis to wholly new routes which will be lit;tle used initially and some of which will be difficult to maintain. It is encouraging to note that initial steps are being taken in this direction by virtue of a United Nations Special Fund study now under way in the southern part of Paraguay. The purpose of the study is to select areas having the highest agricultural and forestry potential and to recommend a system of tertiary and secondary roads to develop this potential.
66. Interruptions in transport, such as those mentioned above in connection with Route I, are unquestionably costly to the Paraguayan economy as they introduce considerable uncertainty into the marketing process and reduce the utilization of motor vehicles. Table 3 shows the number of days major routes were closed during 1964, varying from 25 days on Route 6 to 55 days on the Trans-Chaco. However undesirable these interruptions may be, decisions on additional paving and other investment to minimize such interruptions should be made only after careful consideration of the costs and benefits involved, with particular reference to the present and prospective traffic density. The same sort of careful case-by-case evaluation will be required with respect to construction of new bridges and the replacement of various existent timber bridges by concrete structures.
67. In general, the basic criterion which appears appropriate to guide road investments in Paraguay is that of planned progressive improve- ment over many years on the basis of stage construction geared to traffic needs. This criterion Should be applied not only to the improvement of the major arterial routes, but also to the major penetration roads TABLE 3
Days Major Routes Closed from Rain - 1964
Jan. Feb. Mar. April May June July Aug. SeDt. Oct. Nov. Dec. Total
1 Asuncion-Encarnacion 2 - 1 7 1 1 2 6 6 1 3 1 31
2 Asuncion-Cnel. Oviedo A s p h a 1 t
3 Asuncion-San Esta- nislao U n de r C o n s t r u c t i o n 4 Paso de Patria-San Ignacio 3 - 2 7 2 1 2 4 7 1 3 2 34 5 Concepcion-'Pedro Juan Caballero 1 4 2 3 5 2 1 3 4 2 4 2 33 6 Encarnacion-Capitan Meza 1 - 1 6 1 1 2 3 6 1 2 1 25 7 Cnel. Oviedo-Pto. Pte. Stroessner 2 2 3 6 1 4 3 6 4 2 4 1 38
8 Villarrica-Caazapa - 1 1 7 1 1 3 5 5 1 5 2 32 9 Trans-Chaco 2 4 4 9 4 4 2 8 7 2 6 3 55 lO Rosario-San Estanislao1 4 2 7 2 3 2 6 6 1 5 2 41 11 San Pedro-Nueva Germania 1 4 2 7 2 3 2 5 3 1 3 3 36
Source: Direccicn General de Vialidad - 20 - presently under construction and to the development of a pattern of Seeder roads, Therefore, it is essential that the layout of routes be selected with great care so that all the work will be concentrated on what will eventually be the definitive path of a high quality road, Moreover, each phase of highway construction and improvement should be carried out anticipating the following stages. 68, It is essential that a definite program be developed which recognizes the magnitude of the resources which must be dedicated to maintenance (in order to consolidate the advances which have already been made in road construction). The financial resource requirements for an adequate maintenance program are not yet known with any exactitude and any figures which might be set down at this point might be misleading. A good deal of study has already been done by the Ministry of Public Works and by a Brazilian consulting firm entrusted with this task. Estimates of maintenance requirements per kilometer of roads of different types should soon become available. Using them as a starting point, combined with accurate cost accounting procedures and with the addition of the amounts that will need to be invested in the acquisition of additional maintenance equipment, it should be possible within a year or two to evaluate the financial resource requirements of an adequate maintenance program. When this has been done, the next step would be to compare the financial resource requirements with the fund availabilities for this purpose. The next few paragraphs examine the sources and probable magni- tudes of funds that could be applied to maintenance work.
69. Despite the limited number of motor vehicles operating in Paraguay, there is indication that the taxes presently being paid by high- way users through fuel taxes and highway tolls are more than sufficient to cover the cost of maintaining the primary road system and may also be sufficient to pay a significant part of road amortization. Table 4 shows the sums received in 196h. from import taxes and excise taxes on fuels, lubricants and tires, in addition to a small amount from fines for traffic infractions. These taxes, which do not include import duties on vehicles, totalled in 1964 more than 0163 million, Unfortunately, however, a number of the items included in Table 4 include taxes paid by industrial users of petroleum products in addition to highway users. Without a special study of the use which is made of imported petroleum products, there is no way of knowing what part of the total of 161 million was paid by high- way users. As the list does not include taxes which clearly affect only household or industrial consumers of fuel, it is possible that $ioo mill-ion or perhaps more of the total is paid by highway users. This estimate appears reasonable, pending a more thorough study, as one-half of the price of gasoline in Paraguay (X15 per liter) is composed of taxes. To this estimated total of $100 million should be added an additional $20 million which is received from highway tolls, so that the probable user charges in 1964 exceeded $120 million. Annex iV TPBLE 4
Revenue from Gasoline Taxes and Similar Duaties - 1964
Item Tax Base Revenue (Guaranies)
Import duties and import surcharges:
2201 c Duty on gasoline and kerosene, Law 667 and 1285 of December 16, 1962 5,048,677
d Duty on gasoline and other fuels, Law 215 3,052,529
e Duty on lubricants and tires 1,614,636
Internal excise taxes:
2307 a Tax on gasoline - Account 32 66,676,538
b Tax on gasoline for the amortization of highway bonds, Law 336 12,590,316
Tax of 00.75 per liter on all fuels 3,147,575
Tax of 0.75 per liter on all fuels 3,147,604
Tax of %0.25 per liter on all fuels 34,308,201
2406 Tax of %o.60 per liter on kerosene, gas-o-l and diesel-oil, Acct. 1609 31,685,722
Sub-Total ...... 161,271,798
Fines for infractions of traffic regulations 1,833,576
Highway tolls -- approximately 20,000,000
Total. 183,105,37b
Source: Secretaria Tefcnica de Planificacion. - 21 -
70. The taxes paid on fuels by highway users are not destined to highway construction and maintenance. Instead, these investments are financed primarily from other sources, principally two surcharges of 5 percent and 2 1/2 percent on imports into the country. In 1964 these two surcharges ylielded respectively Al35.6 million and 058.7 million. The first of these surcharges is earmarked to provide the necessary counterpart funds for the improvement and paving of the Paraguari - Encarnacion road. In viewi of the fact that the accruals in the Speciai Account set up for this purpose have appeared to be somewhat excessive in relation to the requirements, limited releases from that Special Account have been utilized for other purposes including, particularly, amortization of the debt contracted for the construction of the Trans- Chaco road. As the pace of the work on the Paraguari - Encarnacion road is increased, such releases may have to be curtailed; and after the Paraguari - Encarnacion road has been completed, it will remain to be seen whether the 5 perceInt surcharge will continue to be in effect.
71. In principle it would appear desirable to channe'L the receipts from the specific highway user taxes to the highway maintenance and con- struction Drogram rather than to depend on import duties on all products for this purpose. In this way, permanent and stable financing would be available to carry out a long-term highway construction plan, and also to provide necessary funds for the progressive improvement of the roads which already have been built.
7?2 Maintenance of strictly local roads has been decentralized for many years in Paraguay uider regional and local "Juntas Viales0 " There are, at present, 14 regional juntas, 13 to the east of the Paraguay River and one in Olimpo in the Chaco. The most important of the regional juni-tas includes Asuncion and the surrounding towns and has some 40 local juntas under its jurisdiction. The regional juntas are composed of members named by executive decree on basis of nominations proposed by the delegates of the government in the different departments into which Paragaay is divided. The members of the local juntas are named by the regional juntas. The work of the juntas is coordinated by the Direccion General de Juntas Viales of the Ilinistry of Public Works and Communications, which also approves the annual investment plans which the juntas prepare and provides technical assistance in cdetermining road layout and in designing and constructing bridges and other structures.
73. The juntas have as resources both labor and money. Under Para- guayan law, all males between the ages of 20 and 50 are required to work a certain number of days each year on road maintenance and improvement or to pay a tax which liberates them from the labor requirement. The liberation tax is based on the minimum legal wage, which is 0233 per day in Asuncion and 0199 per day in the interior regions of the country. - 22 -
Both the labor requirements and the liberation tax vary by age group and are at the present as follows:
Age Group Number of Days Liberation Tax of Work per Year per Year
20-30 6 2 daily wages
30-40 5 1.65 daily wages
40-50 4 1.35 daily wages
74. Although labor is not transferred from one locality to another, there is some transfer of funds, as all juntas transfer a part of the receipts from the liberation tax to the Direccion General de Juntas Viales to finance the services which it provides and the local juntas theoretically transfer a part of their receipts to the regional juntas. While a large percentage of the males in the interior parts of the country fulfill the labor requirement, in the capital nearly everyone pays the liberation tax.
75, Intuitively, a system which uses local resources for the mainte- ance and improvement of local roads is appealing. Problems have arisen, however, which make the system, as it is presently organized, undesirable. The Ministry of Public Works and Communications has prepared proposed revisions in the existing system.which should tend to overcome difficulties such as the following. In the first place, since the control of the compliance of both the labor requirement and the liberation tax are the responsibility of local authorities, the system is subject to political abuse. At present, the number of persons who neither work nor pay the liberation tax is extremely high, which understandably introduces a demoralizing element which undermines the entire program.
76. In the second place, for a number of technical reasons, the labor contribution which is made by many males is of little real value to the country. Because of the low density of population in most regions of Paraguay, men who decide to work must be transported a considerable distance to the point where work is being carried out. Furthermore, since the major work which is required is to transfer dirt from the sides of the roads to the center, so as to open drainage ditches while rebuild- ing the terraplane, it is best done by powZer scrapers, restricting the use of hand labor to the bridges and other structures.
77. For these reasons, the Ministry has proposed the abandonment of the legal labor requirements and to apply universally the type of tax which is permitted as a substitute at present. Strict enforcement, how- ever, would permit lowering the present tax for the liberation from labor by perhaps 30 percent while still increasing significantly the total tax - 23 -
yield. The money obtained would be used to acquire and operate appropriate machinery, principally scrapers, which could be distributed and administered on a zonal basis under the appropriate authority to be determined by the ongoing survey of the maintenance functi.on. Greater attention would a'lso be given to technical assistance to the regional and local jiultas in preparing the arnual work programs so as to assure that the work done is of high priority for the locality. Comamunities would still be asked to contribute materials, principally fuel for machinery and labor, but this would be organized on a voluntary basis by the juntas. The Ministry believes that the total effectiveness of this desirable local responsibility for the maintenance and imp:ovement of local roads can be increased under this type of voluntary system. While the concept of what is essentially a head tax on males between 20 and 50 years of age is open to criticism, it appears clear that changes in the present system are desirable.
78. In summary, Paraguay has recognized the importance ol batter !land communications in its economic development and has dedicated the major part of the resources available to the governLment in recent years to this objective. The investment of these funds, with few exceptions, has beer, wise and the country has been successful in doing a great deal with what are relatively small amounts of money0 For the immediate future, it is reccmmended that Paraguay strive to consolidate the gains that have been made so as to obtain as high a return as possible on the investments already carried out. Piincipally, this recommendation means that greate~r attention should be given to the construction of shorter feeder roads to provide access to the major national routes and to assure adequate maintenance of the present road system. While the construction of new major roads is justified, the selection of the routes should be based on detailed feasibility studies. 'hen construction is undertaken on new roads which will, in the future, form elements of the primary road system, construction should be of sufficiently high quality to permit progressive improvement over time without the need for major reconstruction or for the adoption of new route paths. - 24 -
IV. THE PARAGUAYAN STATE RAILROAD
79. The Paraguay State Railroad is unique in Latin America: it is the only railroad whose efficienc.r has increased after being taken over from British owner-operators. Although the ra-ilroad, which extends from Asuncion to Encarnacion, on the Parana River, alas initiated by the Paraguayan government in 1856, the assets were sold by the government in 1887 to British interests and the Paraguay Central Railway Company was formed. At that time the railroad stretched onlly 150 kilometers from Asuncion to Villarrica, but by 1913 the line had been extended to Pacu- Cua, six kms. beyond Encarnacion, where railroad cars were ferried across the Parana River to continue on over the Argentine railwayr system to Buenos Aires. Although the Paraguay system was originally wide gauige, the gauge was changed to standard gauge by 1912 to permit through service to the Argentine capital. By 1919 the system was completed in its present form when the branch which leaves from San Salvador, 170 kms. from Asuncion, had reached Abai, 63 lkns. to the northeast from the point where it leaves the main line. The present system thus has 376 kms. o-' main line from Asuncion to Pacu-Cua and 63 kms. of branch line.
80. The Paraguay Central Railway operated uneventfully until 1957, when a dirt road was opened between Asurncion and Encarnacion. Although this road runs considerably to the west of the railway line for most of its trajectory, the impact of highway competition on the railroad's financial situation was dramatic and substarntial losses were incurred in 1958 and 1959. Tn July of 1959 the company suspended its service altogether, but the government then intervened and to allow operations to continue, accepted responsibility for the operating deficit, which wuas at that time about (2 million a month. Negotiations between the company and the Paraguayan government for the sale of the railroad culminated in October of 1961 when a price of '6200,000 was agreed upon, payable over ten years and without interest, and the Paraguayan government took over the railroad.
81 For more than two years the railroad continued operating with a rather informal and ambiguous legal status which was clarified in February 1964 with the promulgation of Decree-Law No. 36h. This decree created the Presidente Carlos Antonio Lopez Railroad to administer the assets which had been purchased from the Paraguay Central Railway Company. A board of three directors was established, named by the Executive on the basis of nominations from the Ministries of Justice and Labor, Treasury and Public Works ancd Communications. Since the government purchased the railroad in 1961 the chief executive and present president of the Board of Directors has been Enrique Barrail, a civil engineer and Undersecretary of the Ministry of Public Works and Communications. Day to day administration _ _ / / . ' F A A / ' t~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~/ '
W: /-. AACUE .~ gPE Al A R. *11918, i i " - Sf H B E /a r D, N >,ENCA I ' '' *' \-'X a- g,/ ,z,
.t / BCSCADA L___\/ L CD:HEN - , L . W) D- t/ > ENC Att~~~~~~~~~~~~~~~~~~~~~~~~~~~/DA
5 ;eg|/ FERROCARRIL CENTRAL
! ' \^ ,, U ZONAS DE I N F L U E N C IA S ESC I SMa is the responsibility of the Manager of the railroad. The railroad maintains its relations with the government through the Miniistry of Public lWorks and Communications but has complete operating autonomy. Government ratification of its actions is required only for increases in rates and fares and when the railroad solicits internal or foreign loans. 'The annual operating and capital budgets of the railroad are also submitted to the Executive for approval. 82. The chief executive of the railroad, Enrique Barrail, has carried out a heroic effort to save the railroad. Aided by a comprehension on the part of the railroad workers rarely found in any part of the world, impressive reductions were made in persormel, as can be seen in Table 1: 83. Similar efforts were made on the commercial side to increase revenue and to reduce costs. Uneconomic passenger trains wThich operated for short distances out of Asuncion were eliminated and this traffic was absorbed by buses. Rates and fares, which had been increased continu- ously during the 1950's both because of the inflation during that period and in an attempt to increase revenue, were reduced in order to compete with trucks and buses. In August of 1960 passenger fares were reduced to the level they had reached in 1958, wiping out the intervening increases. Freight rates were also selectively decreased and through rates between Asuncion and Encarnacion were reduced substantially in order to compete lirth trucls. New traffic was actively sought, at the same time that expenditures were cut to a bare minimum. 84. The results of these efforts can be seen in Tables 2 and 3. The development of traffic is Dresented in Table 2, where the number of passengers, passenger-kilometers, average distance travelled, number of tons, ton-kilometers and average length of haul are shown. While the number of passengers transported in 1964 was less than half that in 1956/57, the total passenger-kilometers was actually greater, reflect- ing the increase in the average distance traveled from 33 1cms. to 71 kms. resulting from the suppression of the suburban service and the application of low passenger fares. On the freight side, the average length of haul decreased between 1956/57 and 1964 from 207 to 181 kms. as the trucks picked up much of the Asuncion-Encarnacion traffic. The fall in ton- kilometers, therefore, was dramatic, over 20 percent between 1956/57 and 1964 and over 40 percent between 1949/50 and 1964. In 1964, however, tonnage was up more than 19 percent over 1963 and ton-kilometers, which had fluctuated around 16-18 million between 1958/59 and 1963, increased to more than 20 million, practically returning to the figure of 1957/58. Annex IV,, TABLE 1 PERSONNEL OF THE PCAL RAILROAD 1955-:L956 1,548 1956-:L957 1,502 1957-:L958 1,477 1959 1,363 1960 1,194 196:L 1,082 1962 951 1963 882 1964 827 Source: 1955 to 1958: Secretaria Tecnica de Planificacion, "Estudio Sobre el Ferrocarril Ceiitral del Paraguay", April 1964, Table XIII. 1959 to 1964: PCAL Railroad - 26 - 85. The annual profit and loss results from 1950 to 196)4 are presented in Table 3. While the operating ratio was reasonably good through 195L4, a loss was incurred in 1955. After two years of respite in 1956 and 1957, in which revenue increaFed appreciably, losses began again in 1953 and increased disastrously through 1960, reaching 76 percent of revenue in that year. Because of the highway competition, -the railroad lost a substantial amount of traffic, and was urnable to increase revenue through rate and fare increases at the same time that costs continued to climb. In 1963 expenditures were cut 16 percent in relation to those in 1962 and the operating loss was slashed from 027 million to 08 million, but in 196)4 the loss again increased to nearly 013 million. 86. Despite the fact that traffic increased in 19614 over 1961 and revenue between the two years increased nearly 19 peroent, the outlook for the railroad is grim. While the 1964 loss of 012.7 million is not large (US$102,000) and is far less than the losses incurred between 1959 and 1962, there is every indication that the financial situation will deteriorate gravely and could become a serious burden on the national economy. Although the railroad is being administered efficiently and wisely, it appears impossible that any management action can turn the tide of inevitable events and hold down the operating loss even to the level attained in 1964. 87. The serious financial problems already encountered are evident in Table 4, where the balances of the PCAL Railroad are presented. On the asset side the steady decline in "materials in warehouses and in traisit" indicates the reduction in spare parts which have been consumed and not replaced. On the liabilities side, the railroad owed its workers V18 million at the end of 1964, equal to nearly two and one-half months' salaries. The debt to the retirement system had increased by that date to more than 053 million, and a loan from the Central Bank in June of 1965 of 5)43 million eased the situation only temporarily, while at the same time providing an uneasy portent of the future. The cash problem of the railways was worsened by the fact that the government did not pay for all the services rendered to it by the railroad, and by December 196), a debt of nearly 022 million had accumAulated, an increase of more than 05 million during that year. Since the revenue in the profit and loss statement includes this theoretical income from the government, the operating statement does not accurately reflect the real financial difficulties which occurred. 88. The reasons supporting the assertion that the railroad is no longer a financially viable unit are various and should be analyzed careftilly. a) Traffic density is extremely low, In 1964 the railroad trans- ported only 20.4 million ton-kilometers of revenue freight, which, on the average over its )439 jms. of way, represents only slightly more than )46,000 ton-kilometers per kilometer of way. Passenger-kilometers are nearly double the ton-kilometers but produce only about two-thirds as much revenre. In Table 5 it can be seen that the sum of the passenger and mixed train-k-lo. Annex IV, TABLE 2 TRAFFIC OF THE PCAL RAILWAY Passen- Number of Ton- Revenue Averr.ge ger-kms. pass. Average kms. tons Length Years (000) (000) distance (000) (0oo) of Haul 1949/50 61,871 2.128.7 29.0 35.0o47 186.4 185 1950151 57.684 2.028.4 28.4 31.207 175.2 178 1951/52 66.813 2.256.8 29.7 34.549 178.6 193 19?52/53 60.353 2.061.2 29.3 29.324 148.2 197 1953/54 56.618 2.0oo84 28.2 29.378 142.6 206 1954/55 47.840 1.695.9 28.2 26.694 125.5 20Y 1955/56 39.025 1.28O.2 30.5 25.186 121-3 209 1956/57 38.963 1.184.9 32.8 25.847 124.3 207 1957/58 34.294 1o069.8 32.1 20.715 107.9 192 1958/59 31.170 979.9 31.8 18.144 103,7 175 1959/60 30.563 953.4 32.0 16.253 90.8 179 1960/61 36.709 817.4 44.5 16.809 86n,2 195 19?61/62 36.234 523.7 70.1 16.459 99,8 188 1962 36,234 504-7 71.8 16.459 91.2 130 1963 38.065 566.7 67.2 18.169 94,7 192 1964 39.377 551.3 71.4 20.389 112,8 182 Source: Secretaria Tecnica de Planificacion Annex IV TABLE 3 ANNUAL IROFIT AUd IQSS- Praoits or Losses Years Revenue ExpEnditures Abso1uVe % of Revenue 1950 8.1 6.8 3,3 16 195. 11.2 9.7 13 1952 19.2 16,6 2.6 14 1953 35.8 30,8 5,Q 14 1954 50.5 46a. 4.4 9 1955 63.3 69.0 v $7 9 1956 75.7 74.2 T!i 2 1957 97.4 94,8 2,6 3 1958 97.2 109,4 1.2 13 1959 95.0 145.7 w$Q7 53 1960 86.8 1534 - 46.3 76 1961 10o.7 131% - ?6,0 26 1962 109.3 136.5 r ?7, 25 1963 105.9 114.1 v 8.2 8 1964 125.7 138,4 r 12,7 10 Source; 1J50 to 1962: Secretaria Tecp#&a de Planificacion, 4$tudio Sobro el FerrcWril ftitral del Paraguay", April 1964, Table XII. 1$63 and 1964: Annual pvoji-s r c ioes statements, PAL Railway. TABLJE 4 TABLEh ~~~~~Annex=FLL IV, BALANCES OF TiE FERROCARPRIL PRESIDENTE CARLOS'ANTONIO LOPEZ (thousands of T of each year) A S S E T S CAPITAL AND LIABILITIES 30 June 31 Dec. 31 Dec. 31 Dec. 30 June 31 Dec. 31 Dec 31 Dec. 1961 1962 1963 1964 1961 1962 1963 1964 Fixed assets 965,310 125,357 125,458 966,614 Capital 997,297 132,192 132,192 973,083 Cash & bank acots. 4,791 1,122 1,323 1,764 Liabilities: Materials in warehouses Various accts. 52,o52 and in transit 17,685 12,707 11,720 10,255 Government 7;,541 Wages & salaries 13,165 17,978 17,976 Various accts: Pensions 19,544 37,683 53,576 Argentine rys. 3,370 Current accts. 7,770 2,667 6,742 6,947 Current accts. 2,374 3,574 5,313 National govt. 3,327 16,611 21,838 Other obligations 4.,600 4h758 Transitory accts. 883 781 1,145 Transitory accounts 788 190 138 Loss during period 33,788 25,370 / 8,212 12,699 Unpaid interest 18,993 Debt to main office 8s553 Loss previous periods 25,370 33,582 TOTAL 1,056,890 171,433 196,217 1,054,844 1,056,890 171,433 196,217 1,J054Ab)4 iJ Does not include payments to former owners of the Paraguay Central Railway Co. g/ Novemnber 1961 to December 31, 1962 Source: PCAL Railroad. Anriex IV TABLE 5 AVERAGE IMONTHLY TRAIN-KITOMETERS - 1964 Number of Train- Trains Kilometers Passenger trains 28 10,360 Mixed trains 78 6,612 Sub-total 106 16,972 Freight trains 80 14,680 Total 186 31,652 Source: P.C.A.L. Railroad Annex IV - 27 - meters exceeds the freight train-kilometers. Since the mixed trains are operated primarily to provide passenger service, it is probable that this service has a greater total cost than that of freight service. b) The average distance t1ie ave;age passenger travels and the average longth of haul of the average ton transoorted are both low. From Table 2 it can be seen that the average passenger voyage has remained aboiut 70 kilometers since i961/62 while the average length of haul has averaged about 190 kilometers since 1957/58. These distances, taken together with the low traffic density, are too low for econoraic railroad transport. 1tile the use of averages is frequently tre4cherous, it appears clear in this instance that little of the present railroad transport could be reta.ined if adequate alternative highway transport existed. c) There appear to be no reasons to expect or even hope for sig- nificant increases in traffic. W,aile the traffic increased in 1964 over 1963 the rise in freight transpcrted is due in large part to the exceptionally unfavorable navigation conditions by river in that year. The paving of the Asuncion-Ricarnacion route in the sector between Paraguari and Encarna..ion and of the highway between ViLlarrica and Coronel Oviedo must inevitlably produce further transfers of freight and passengers to the highway. Because of the faster service provided by the highwTay, only with significant reductions in freight rates and passenger fares could present traffic ever, be maintainaed, but these reductions would decrease total revenue without reducing CGsts and the financial situation of the railroad would inevitably deteriorate. In this regard it should be noted that the present commercial velocity of railroad freight transport is only ar-ound 13 k.-ilometers per hour, and the timetable for passengei service between Asuncion and Encarnacion indicates that- the trip takes 14 hours theoretically wlhile in practice it is frequently from two to f'our hours longer. The railroad line, furthermore, follows low land for muc-h of its route which because of poor drainage is unsuitable for intensive agriculture and will continue to be used primarily for livestock, so that there is again little liklelihood of new traffic vjhich will emerge. d) Railroad costs must inevitably increase above the levels reached in 1964, which in turn were already higher than in 1963. Table 6 shows the development of costs in 1962, 1963 and 1964. The extreme austerity of the last few yrears has resulted in considerable deferred maintenance of bothll equipment and way, so that only with an increase in these items can the rail- road even continue operating. Personnel has been reduced to a bare minimrum and no further economies o' importance can be expected. e) No reasonable investment Drogram can either improve service significantly or reduce costs appreciably. The railroad at the present time is essentially the same as it was 50 years ago; the previous owners made practically no new investments over many decades. Nearly 400 kilometers of the way have rails more than 5() years old, of which around 120 kilometers are more Annex IV, TABLE 6 DEVELOPMENT OF RAILROAD COSTS, 1962-1964 (Thousands of- 7 D e ach year) November 1961a,/ to Dec. 1962 1962 1963 1.961i M'aintenance of Way and structures 43,839 38,300 29,509 339L,22 Maintenance of locomotives 12,114 o,600 30,492 11,7`5 Maintenance of coaches 7,704 6.700 4,644 4,425 Iviainteinance of freight cars 4,807 4,200 3,130 4,116 Operation of locomotives 35,121 30,600 32,440 37,461 Operation of vehicles 2,482 2,200 1,625 i4229 Traffic 32,241 28,200 25,200 25,665 F'erry terminal Pacu-Cua 1,096 1,000 1,119 924 General expenses 16,784 14,700 5,924 19,355 Totals 156,188 136,500 114,083 138;361 a/ The costs for the 14-month period from November 1961 to December 1962 have been reduced proportionately to coincide with the total. obtained for 1962 from a different source and which is shown. in Table 3. Source: Annual statements of the PCAL Railway and the Secretaria Tecnica de Planificacion. Alnex IV - 28 - than 60 years old and another 150 kilometers more than 70 years old. Some 225 kilometers of rail are laid on sleepers extended directly on the ground with- out ballast of any sort. On another 50 kilometers the sleepers are laid on sand and on 40 kilometers on coarsely cut stones. For nearly the entire e-xtension of the way the joints have sunk and breaks in the rails are becoming increasingly frequent. Isolated renovation of particular sections would thus make no significant contribution toward permitting higher train speeds as the cleficiencies of' the way are completely generalized. .89. All the locomotives use steam power and all but tiwo use firewood as fuel. On June 1, 1965, the railroad had 19 loconotives in use or being repaired. Of these, 16 were built between 1910 and 191.!., one was acquired second-hand in 1954 and recently two locomotives which burn petroleum were acquired from Argentina. The situation with passenger coaches and freight cars is similar: much of the equipment is m-iore than 50 years old and rea'.rs are becoming inc:-easingly more difficult and costly. There are no automat-ic couplings and only the passenger coaches are equipped with air brakes; the freight cars are bralked by hand. 90. It is thus clear that investments in the way, motive power or roll- ing stock in isolation cannot improve the present problems which beset the railroad. Only if substantial investments were undertaken simultaneously in all these areas could service be improved. Because of the low traffic volumes, however, such a massive reconstruction program could not possibly be jus- t;ified. A report by SOFRERAIL in 1963 indicated that the rail-road would have to invest 0381 million in first priority locomotives, rail cars, freight cars ard passenger coaches, the equivalent of 15.25 ll'lion francs. A six-r,man JaDanese rmission estimated in 1964 that investments in the way to permit the railroad to continue operating indefinitely would be 0889 million, the equ-v- alent of 7 million dollars. A modernization program, therefore, would be around 01?270 million, more than 10 million dollars. Even if the railroad were able to obtain financing which would cost no more than seven per cent annually between interest and debt amortization, these charges would reach 090 million a year, more than 70 per cent of total railroad revenues in 1964. Without these irivestments the railroad can continue to offer service for only a few more years, and wit'h steadily increasing costs. 91.. The cost of transporting by highway all of the present railroad traffic should not be higher and might be significantly less than the cost by railroad. The Secretaria Tecnica de Planificacion analyzed the costs and traffic of the railroad for the financial year July 1, 1960 to June 30, 1961 and estimated that the cost was 01.45 per passenger-kilometer and 03.98 per revenae ton-kilometer. Although the relation between these two estimates seems intuIi- tively to indicate that the estimate for passengers is too low in relation to freight, these same estimates can be applied to the traffic for 1964. ApplyinL the estimated cost per passenger-kilometer to the 39.4 million passenger- kilometers in that year gives a total cost for passenger service of 057,130 - 29 - thousand, while multiplying the estimated cost per ton-kilometer by the total of 20.4 million ton-kilometers gives a cost for that service of 81,192 thousand and a total cost for both services of 9138,322 thousand, In Table 6 the total railroad costs for -3964 were shown to be V138,36l thousand, thus "ending some credence to the usefulness of the costs estimated for 1960-61. 92j Costs of transporting freight and passengers by highway in Paraguay can only be estimated with a considerable margin of error. Tn Chapter 4, "Sectores Transportes y Comunicaciones", of the Paraguayan development plan, it is indicated that the average passenger fare per kilometer is 0,140 in micros and 00.78 in autobuses, while the average freight rate per ton-kilometer by truck is 03. These estimates are clearly lower than the estimated costs by railroad. Applying the higher passenger fare, Xl.L0 to total 1964 railroad passenger-ki'lometers and the estimated truck rate to total ton-kilometers gives a total alternative highway transport cost of 116.4 million, some 022 million less than the actual 1964 railroad costs. 93. Although a useful exercise to fix orders of magnitude, this type of calculation is obviously crude, as it is based on highway fre .ght rates and passenger fares and these may be considerably less than the real costs to the economy. Highway users do not cover all the costs of maintaining the highways whereas the estimated railroad costs inc'lude maintenance of the way. It is believed, however, that this rough compari.- son of the two transport media is useful even though inexact. In the first place, average railroad costs must inevitably increase as more and more traffic is lost to the highways and deferred maintenance can no longer be postponed. In the second place, the highways which will divert the railroad traffic will be built inevitably, so that the real economic alternative is whether to depend solely on highway transport or whether to maintain in addition railroad capacity. 94. For the reasons which have been indicated it is concluded here that (i) no administrative measures could be taken by the railway manage- ment to permit the company to meet its costs; (ii) no reasonable invest.- ment program can be devised which would permit the railroad to improve its service or to reduce significantly its operating costs: (iii) the alterrative cost of carrying out present railroad transport by highway would be lower than the cost by railroad; and (iv) the railroad should be operated with the objectlve of discontinuing its service entirely within a reasonable period of time, perhaps five years or less. 95. Abandoning a state-owned railroad, especially one which offers international service and is one of the few transport outlets of a mediterranean country, is obviously difficult. Continuing operations for several years more will also be difficult, both financially and physically, given the present state of the plant and equipment. Each of these aspects deserves comment. Annex IV - 30- 96. Paraguay's historical isolation from the rest of the world has been reduced significantly in recent years. The country r.ow has a modern merchant fleet capable of transporting the greater part of its commerce with Argentina. A paved international higiway has been opened to the east to Puerto Preeidente Stroessner, whence a route stretclhes across southern Brazil to the Port of Paranagua on the Atlantic Ocean. This route may well become important for the export of perishable products to the United States and Europe in the future. A second international highway cuts northwest across the Chaco to t'he Bolivian border. A third international route from Asuncion to Ericarnacion, across the Argentine border from Posadas, is being paved. W1ork is underway on a fourth road to improve transport between Concepcion and Pedro Juan Caballero, on the frontler with Brazil to the north. Jet planes link Asuncion with other continents and flights to Argentina and Brazil are frequent0 97. The railroad thus no longer represents the vital link it signified in the past, as now alternatives are offered by river, highway and air transport. The cargo which moves over the railroad is restricted exc'lusively to exports and imports in Paraguay's commerce with Argentina, as no goods transported via this route are transshipped for embarlkation overseas. Even in th1is co-merce, furthermore, the total tonnage carried by the railroad represents a small percentage as compared with that transported by river. Table 7 presents the tonnage carried by the railroad to and from Argentina between 1960 and 1964 as well as the total commerce during the same period between the two count'ries. As can be appreciated in this table, the railroad has carried on the average less than 5'0 of exports and imnorts in this trade. 9S. While the elimination of international railroad transport should not affect significantly Paraguay's commerce with Argentina, as goods presently transported by rail could be shipped by truck to Encarnacion, ferried across the Parana Faver and lcaded onto the Argentine railroad in Posadas, the elininae- tion of this service within Paraguay would affect seriously the commuanities which presently depend on it for access to the rest of the countryr. In Table 8 is shaon the tonnage originated and received in each station along the railway in 1963 and 1964. The stations, in turn, have been c'assified according to whether they presently have highway access or not, but this classification is extremely crude and in a number of instances may be incorrect. In addition5 where it is indicated that highway access exists, the roads are frequently of extremely poor quality and are interrupted when there is rain. Finally, even though a station may have access by road, the road connection to the points with which it presently interchanges freight may be much longer than the railroad distance. 99-, Railroad transport should only be discontinued after the highways between Paraguari and Ehcarnacion and between Villarrica and Coronel Oviedo have been completed. In addition, physical access must be provided to the points which presently depend solely on railroad transport. The principal TABLE 7 Allnex IV, RAILROAD FREIGHT TRAFFIC !WITH ARGENTTINA AND TOTAL COC-DEIRCE (in tons) 1960 1961 1962 1963 1964 Exports to Argentina by railroad: Logs 470 1,256 642 75 427 Sawn lumber 5,437 8,4o4 5,029 2,715 6,700 Yerba mate 1,951 453 - 123 1,081 Fruit 633 1,°34 1,194 1,635 2,393 Corn - 2,057 Tung oil - 924 General cargo - 193 __- Total 8,491 11,347 7,058 4,548 13,582 Total exports to Argentina 158,985 198,902 200,300 151,532 234,471 Imports from Argentina by railroad: Livestock 125 169 h32 381 549 Salt - 270 1,880 520 1,742 Flour - 185 568 19335 6,ol4 Fruit 282 174 465 563 596 Vegetables - - 335 - 1,442 General cargo 206 322 485 573 Toual 613 1,120 4,165 3,372 12,533 Total imports from Argentina 100,396 108,119 50,1441 111,255 135,957 Source: SOFRERATL and PC 4.IRailwey iinnex iv TABLE 8 TONS OF RAILROAD FRE:GHT RECEIVED AND ORIGINATED (tons.' 1963 1964 Railroad staticns which have Originated Received Originated Receivred highway access: Asuncion - Port 925 8,341 608 3,105 Asuncion - Freight 6,696 23,144 6,783 34,413 Tablada 4 108 175 260 j. Botanico 24 516 51 42 Luque 40 1,281 48 1,763 Yuquyry 1 7 1 11 Aregua 82 5,771 276 4,951 Patino - 7 - 8 Ypacarai 1,192 10,076 2,!433 4,673 Pirayu 24 72 85 108 Cerro Leon 24 - 9 _ Paraguari 72 173 67 358 Coronel Martinez 8 34 3 '.3 Villarrica 4,373 3,212 4,919 4,115 I4aciel 1,671 210 1,982 2-98 San Pedrc 1,693 351 1,244 307 General Artigas 2,244 357 1,468 313 Isla Alta 64 35 26 44 Coronel Bogado 644 357 416 1,258 Carmen 1,731 312 1,009 228 EPcarnacion 23,200 8,275 23,254 10,4O6 Pacu-Cua 2,823 4,737 11,675 13,890 Numi 801 86 715 38 Genera' E.A. Caray 617 275 861 56 Kilometro 37 (branch) 833 450 295 45 General 1Morinigo 2,272 120 2,839 91 Sub-TotaL (52,058) (68,316) (61,242) (80,854) Railroad stations to which higlhw.ay access must be provided: Escobar 63 24 15 20 Sapucai 173 352 1,272 383 Caballero 515 176 308 158 Ybytymi 1,131 92 398 51 Tebicuary 11,168 12,965 14,965 13,41? F.P, Cardozo 9,476 16 10,341 8 San Salvador 98 85 25 74 Tturbe 4,378 5,825 4,218 8,289 Sosa 109 395 263 578 Yegros 2,936 573 3,710 663 isla Saca 1,309 57 2,34b 90 Yaty 2,664 1,097 2,901 1,278 Salitre-Cue 428 157 551 84 Abai 3,945 300 3,157 268 Annex TV - 31 - problem areas are perhaps those between Paraguari and Coronel Martinez (approximately 60 kilometers), between F.F. Cardozo and Villarrica (9 1kilo- meters), and between Villarrica and San Pedro (anproximately 130 kilomcters). Ideally the access roads could utilize the present railroad way, begirnning construction in San Pedro and working north, while continuin, railroad service from Asuncion to the point the new road has reaclhed, but this is obviously not a simple solution. lfO0. Even if the railroad is operated for the next fe'x years with the objective of discontinuing service as soon as is feasible, sericus -financial difficulties will be experienced in the interim. Table 9 presents revenues and expenditures in 1963 and 1964 and projects both to 1966/67 to indicate the order of magnitude of the deficit which can be e:rpected during those years. The projected operating loss for this period is 032.7 million, compired with 08.2 million in 1963 and 012,7 million in 196h. To this operating loss should be added the q7 million which will be paid to the former oimers of the railroad duaring each of the years 1966 and 1967, (though this will have to be paid wnhether the railway continues to furction or not). To firnance this loss the railroads receive the proceeds from a special ta: on insurance premiu.ms, which should yield around 010 million annually, butone-third of these proceeds nust be given to the Central Bank to amortize the loan received bar the railroad in 1965 to reduce part of its debt to the pension program, so that the net loss to be finarced should reach sone 033 million. This pro- jection assumes that the government will pay the railroad for the services rendered to it and also that the present debt to the pension pro-ram and the railroad workers will remain constant. 101. No projection has been made for the years after 1967, but it is quite clear that the financial situation of the railroads will rapidly dis- integrate. Once the key highways linking Asuncion and Encarnacion, on the one hand, and Coronel Oviedo and Villarrica, on the other, are completed, rail- road traffic and revenue should drop significantly. Costs, however, will not falL; on the contrary, they wi'll climb rapidly as the way and rolling stocktr require ever greater maintenance outlays. By 1969/70 the deficit could quite conceivably be double that in 1966//67. 102, Cn the basis of the preceding analysis the following recomnendaticns are made: a) A decision should be made immediately at the highest levels of the Paraguayan government to disconuinue all railroad service just as soon as adequate alternative transport capacity exists for those communities which presently must rely on the railroad. b) The railroad should continue to operate for three to five years. while the key highways between Asuncion and Incarnacion and between Annex_IVjl_TV TA'BLE 9 PROJECTED RAIT: AY REVEUES AND EXPENDITURES _thousands of 0 Average Average Revenue: 1963 1964 1966-67 Ex enditieres: 1963 196Li 1966 67 Freig,ht 55,141 65,322 60,000 Waaes and salaries 84,446 91, 2U 92LC,00 Passengers LI0,,346 j4,240 40l,000 Fuel and lubricants 15',702 25,783 28,COO Baggage and e>press 4,,99 5,286 51000 Materials conservation of7 Tele grams 2,4o8 2,335 2,300 way and structures 3A 11 6 7,552 8 OCC Storage 121 569 400 Maintenance rolling stock 2,466 3,762 5.000 Rents 740 63? 6o0 Social Security 7,254 8,L842 9,000 Other revenue 2,057 4,187 2,000 Other expenditur-s 1>069 1,211 1,000 Sub-Total 105,871 119,576 1=0O300 Total 114,083 138 361 J43.000 Sale of scrap - 3,237 - Operating loss 8,212 18,785 32,700 Tax on insurance - 2,849 10,000 Net loss 8,212 12,699 22,700 premiums Plus payment for purchase Total 105,871 125,662 120 300 of railroad - - 7,000 Plus repayrient to Central _ _ 3,300 Bank loan of 043 million 33,000 Annex IV - 32 - Coronel Oviedo and Villarrica, in addition to new and inproved access roads, are completed. Priority shouild be gi-Ven to these highway rnvestments within the national road construction prograri. The railroad itself should be given adequate financial assistance ^rom thie natocnal goveriurert to peym-t it *o pay the wages and salaries of its worke2s. c) Railroad mar.agemont should orient its activities toward the eventual liquidation of the conpany, No new commitmlents for investnents other than those absolutely indispensible to permit the comltiitnation of service for a period of from three to five years should be undertaken0 d) Railroad users and railroad workers should be infonried of t'he decision to discont.inue service and should also be assured that the goveromnent wiill take adequate steps to protect their interes,s. Atte-npts should be made to find alterinative uses for railroad facilities, su-ch as the repair shons in Sawucai. A financial plan to per.nit adequate indemnization of ra-'lroad worker- from the sale of railroad properties and equipment should be prepared The international implications of discontinuing service should be considered. e) Extreme caution should be used in the inethods adopted to finance the railroad def-c-it wzhich is expected over the next fevw years, so as not to institutionalize the financing of these lcsses on a permanent bas-s.