RETURN TO RESTRICTED REPORTS DESK p"J ReportNo. TO-33Za

WITHIN 4 J JA ONE WEEK Public Disclosure Authorized This report was prepared for use within the Bank and its affiliated organizations. They do not accept responsibility for its accuracy or completeness. The report may not be published nor may it be quoted as representing their views.

INTERNATIONAL BANK FOR RECONSTRUCTIONAND DEVELOPMENT INTERNATIONAL DEVELOPMENTASSOCIATION Public Disclosure Authorized

APPRAISAL OF

A HIGHWAY PROJECT

URUGUAY Public Disclosure Authorized

October 9, 1962 Public Disclosure Authorized

Department of Technical Operations CURRENCY EQUIVALENTS

1 US dollar = 11 Pesos 1 Peso = 0. 091 US dollar 1, 000, 000 US dollars = 11,000,000 Pesos 1,000,000 Pesos = 91, 000 US dollars Uruguayan Fiscal Year January 1 - December 31 URUGAY -2-

3. Vehicle operating costs.

71. "On the basis of rather incompletecost data supplied by the Highway Department and some private companies,the average operating cost of a 5-6 ton truck (the representativesize of trucks in ) over in its present condition, with the exception of Pro- gresso-Florida section (75 km) is estimated to be in the order of 20 U.S. cents per km. After improvement of the highway to the pro- posed standards,the cost is estimatedto be reduced by about one third.

4. Maintenancecosts.

75. t',. The current levels of maintenancecost per kilometer for gravel roads and asphalt roads in good conditionin Uruguay are 6,000 pesos ($550) and 4,500 pesos (4400) respectively."

5. Economic basis of justification.

a) road user savings b) road maintenance savings c) reduction in accident and fatality rates (para. 76); opening up channels for an increased flow of products to marketing and export centers and a reverse flow of investment (para. 77), diversification of production (para. 78) etc. URUGUAY

APPRAISAL OF A HIGHUTAYPROJECT

Table of Contents

Page

SUPIaERY i

I. INTRODUCTION

II. BACKGROUND 1-6

A. General 1 B. Transport in Uruguay 2 C. Coordinationof Transport 3 D. Road Administration 14

Organization 4 Financing and Planning for Road Development and Improvement 4 Execution of Road Construction 5 Road \i4aintenance 6

III. THE PROJECT 7-12

A. Description 7

The Improvementof Route 5 7 Xaintenance Program 7 Highway Planning Survey 8

B. Status of Engineering; Role of Consultants 8 C. Cost of the Project 10 D. Financing of the Project 11 E. Execution of the Project 12

IV. ECONONIICJUSTIFICATION 13-17

A. Introduction 13 B. Competition between Road and Rail 13 C. Road-User and HIaintenance Benefits 14 D. Development Benefits 16

V. CONCLUSIONSAND RECOlN1IENDATIONTS 18

APPENDIX

Tables 1 - 10 Figure 1 HIap URUGUAY

APPRAISAL OF A HIGHIAY PROJECT

SURYfARY i. The proposed loan will finance the improvement of National Route 5, a first phase of a maintenance program and other related items. The total cost of the project is estimated at about US$31.4 million equivalent of which the foreign currency requirements would amount to about USt18.5 million equiva- lent; this would be the first Bank loan to Uruguay for transportation purposes. ii. Local flooding frequentlycauses sections of the important Route 5 to be closed to through traffic and isolates affected areas for varying periods. Traffic volumes are sizeable, but only less than one-fifth of the road is paved and maintenance is generally inadequate. iii. Extensive improvementworks are required to provide adequate facil- ities for present and future traffic. The proposed project provides for:

a) the improvementof about 485 km of National Route 5, including the widening and replacemlent of some bridges;

b) the preparationof a maintenance program, includingthe procurementof mechanicalequipment spare parts, labor- atory equipment,etc., and

c) a highway planning study of the country. iv. All the projectworks will be executed by unit-pricecontracts on the basis of intermationalcompetitive bidding. The total time required for design and constructionwill be about four years. Road maintenanceequip- ment would also be purchased after internationalcompetitive bidding. v. The responsibleexecutive agency is the Highway Departmentunder the hinistry of Public l'orks. The firm of consulting engineersthat prepared the preliminary feasibility report for the project,will be retained to pre- pare the final designs and supervise the construction of the improvement works, and carry out the preparation of a maintenance program. The Highway Planning Survey shall be carried out separatelyby a team of economic and technical experts under terms of reference satisfactoryto the Bank. vi. The projectwould provide a sound all-weatherroad traversing the main livestock and agriculturalproduction areas of central Uruguay, and as a consequence,may lead to the developmentof these and other industries. The savings arising from reduced vehicle operating costs would yield a satis- factory return on the investment. vii. The project is considered suitable for a Bank loan of US"'18.5million equivalentto the Government;an appropriateterm would be 15 years including a four-year period of grace. I. INTRODUCTION

1. The Uruguayan Government asked the Bank to finance the foreign ex- change costs of a highway project consistingof the construction of two roads: Route 5 from hontevideo to , and Route Inter-Balnearia (coastal route between ihontevideo and Ghuy on the Brazilian border).

2, in discussions with the Government in February, 1962, a Bank mission recommended that the project include a maintenance program. The Plission also recommended that a highway planning study be initiated.

3. The information furnished on Route Inter-Balnearia has not been sufficientto justify financingthis road.

4. The project, the foreign exchange cost of which is estimated at US1ol8.5million, therefore consists of:

(a) the improvementof about 485 km of R.oute 5 (Progreso-Rivera) including the replacement and widening of some bridges;

(b) the preparation of a maintenance program including the purchase of maintenance equipment, spare parts, engineering and laboratory equipment, weighing scales, etc,, and

(c) an overall highway planning study related to other means of transport.

5. The appraisal of the project is based upon findings of a Bank mission to Uruguay in February 1962, information obtained from the Uruguayan Government and other sources at that time and during loan negotiations, and a preliminary feasibility study prepared by a firm of foreign consultants engaged by the Government.

II. BACKGROUIDINFORI'ATION

A. General

6. Uruguay (IMap) is the smallest of the South American republics, covering an area of about 187,000 sq. km (almost twice the size of Cuba). The country is flat and is bordered on the north by Bragil; on the west by the navigable Rio Uruguay and Argentina; and on the south-east by the Rio de la Plata and the Atlantic Ocean, l4ore than half of its national boundary is navigable coastline. Uruguay lies in the temperate zone and has a mild climate devoid of snow or frost; yearly rainfall averages about hO", with occasional heavy rainfalls. The estimated population of 2.8 million is very unevenly distributed over the country. About 1.6 million people (almost 6050 of total) are concentrated in the most southerly part of the country (12% of total area) with 1ontevideo accounting for about 1.0 million. About hO of the population is engaged in animal husbandry and agriculture, the remainder being divided equally between manufacturing, private trade and services, and Gove rwn'ent. -2-

B. Transport in Uruguay

7. The countryjsmain domestic transportationsystems are rail and road (Map) which serve the countryts main domestic transportation needs, water and air transport playing a linited role.

Road System

8. Uruguay's road network comprises about 8,000 km of national highways (Map) and about 68,ooo ion of departmental highways. Although few statistical data are available, the highway system is the principal facility for trans- porting passengers and freight. Highway traffic has been increasing more rapidly than railroad traffic, as may be evidenced from the increase in both gasoline consumption and estimated number of vehicles for a recent five-year period. The country's short distances and low density of populationoutside of Ilontevideolends itself well to highway transport.

9. The highway system gradually developed as a series of radiationsout- wards from hontevideo,the traditionalcenter of political and economic activ- ity, major routes following in mmy cases the existing railway network. Over 90% of the national hlighways are all-weather. Occasionalflooding due to heavy rains, inundates a number of sections and bridges of many highways, preventingthe passage of through traffic and isolating the affected areas for periodlsof a few days up to many weeks. lOo Few roads, mostly located around I.-ontevideo,have asphalt or concrete paving. The total length of paving is about 1,500 km (Table 1), representing about 18% of the national system and 2% of all highways. Other unpaved nat- ional roads have some form of a base or surfacing constructed of so-called tosca (disintegrated granite). Departmental roads are usually earth roads. High speed travel on the highways,which is common because of their gentle alignmentand the countryts flat and open terrain, is destructiveto unpaved roads, calling for expensive, continuous maintenance. I'oreover, although maximum axle loads are establishedby law, there is no proper enforcement.

11. Some sections of the major routes are well maintained, but road maintenance is generallybelow standard due mainly to inadequatemaintenance organization and equipment.

12. Statistics on motor vehicles are poor. A 1960 national vehicle census (Table 2) indicates a total number of about 191,000 motor vehicles; many of them overage and in a bad state of repair. The bulk of the vehicle fleet is made up of passenger cars, taxis and light trucks of the "pick-up" type with a load capacity of about 3/h - 1 ton. Larger trucks probably comprise about 25do- 30/%of the total number of vehicles (excludingmotor- cycles), the average types of truck being one of around 5 - 6 ton capacity. Vehicle registrationin the municipalityof hontevideohas more than doubled in the ten-year period from 19h8-58, representing an annual growth rate of about 7>,J and is estimated that about half of all motor vehicles are registered here (Table 2); the overall national annual growth of highway traffic is probably in the order of 5%. -3-

Rail Transport

13. The present railroad network (Map) totals about 3,000 Ica and basic- ally consists of standard gauge single track; three lines meet Brazilian railroads at the border, but differencesin gauge require goods to be trans- shipped; there are no rail connections with Argentina. Short distances and concentrations of population in the area of lontevideoresults in a low traf- fic density for the railway system. The development of competing highways parallel to most of the lines, the lack of transport or rate regulations, and insufficientcapital investmentin the system, particularlysince its national- ization in 1948, have caused the gradual deteriorationof the railway. Oper- ating deficits have been increasing; probably only livestock traffic revenue has begn covering its costs. ih. There is not yet a clear Governmentpolicy as to the Railway's future. A survey of the railways, partially financed by the Bank, was made by consultantsin 1958. The consultantsmade reconrnendationsregarding transport policy and the future composition of the railway system. However, so far only part of the consultants' recommendations have been carried out.

C. Coordination of Transport

15. Coordination of transportis practicallynon-existent. In 1959 a "Junta Nacional de Coordinacion de Transportes" was established within the Ministry of Public '.'orks for the purpose of regulating rail and truck fares, as well as setting up tax rates for the trucling industry. However, so far very little, if anything, has been done by this committee and the situation as to transport coordination continues to be very unsatisfactory. Only bus rates are regulated, and it is not uncommon that bus rates are lower for sections paralleling the railways than on sections where no railway com- petition exists. Road freight transport is completely unregulated and any- one who wishes to operate a truck is free to do so without any control of routes or rates.

16. This policy results in a very unsatisfactory,and possibly unfair, competitionbetween the various means of transport. It is impossible for the railways, which the Goirernment considers to be indispensable for certain goods and lines, to pay their cost because of the unrestricted competition, whereas also the unlimited competition between truckers prevents the development of a sound and business-like trucking industry. Wasteful competition prevails between an excessivenumber of small truckers. The current freight charges do not cover reasonabledepreciation of vehicles, and there is a continuousflow of newcomers into the trucking business,many of whom go bankrupt after a few years.

17. The Government should endeavour to formulate a policy that would ensure satisfactory coordination of investment in, and utilization of, transport facilities (see Highway Planning Survey, paragraphs h2 and h3). D. Administration of Roads

Organization

18. The authority over national highways is vested in the National Governmentthrough the hinistry of Public Works and that over departmental roads in the respectivedepartments, Traffic and transportresponsibilities lie with the hjinistries of Public riorks and the Interior. The i.inistry of Public Works acts through its Highway Department wlhich is charged with the administration, design, construction and maintenance of the national highway network, the formulation of rules and instructions for vehicular traffic and axle loads. The Iiinistry of Interior acts through the Highway Police, rhich is charged with enforeement of traffic rules and regulations.

19. A comprehensive Civil Service Code governs the employment of Governmentpersonnel in the linistryof Public dforks;operational continuity is maintained independentlyof changes of Governmentwith only the post of Ihinisterof Public works being subject to change.

20. The Highway Department is composed of a main office and three zonal offices all located in iontevideo; the zone offices are divided into 10 regional offices located in the field; regional offices are divided into two to five districts. The main office includes, under a director, five divisions: construction and maintenance; studies of highways and bridges; administration; equipment and supplies;and technical investigations (Figure 1). Respon- sibility for the preparation and execution of construction and betterment works is divided between the main office and the field offices. In addition, the zon3s and regions are charged with maintenance under the construction division in the main office.

21. The technical ability of;the Highway Department'sstaff is generally good but much needs to be done to increase knowledge of the modern techniques of carrying out large road developmentprojects; the number of staff in both main and field offices is possibly not sufficient for the current level and types of works. Design and supervision of road construction works are ade- quate but have been limited so far to small projects as a result of the modest construction programs of the past. Design and execution of bridge works are -good. Technical assistance from qualified consultants will be required if greater volumes and sizes of highway work are undertaken.

Financinp and Planning for Road Development and Improvement

22. Road expenditures are primarily financed out of the "Public Works Tund". The Fund was established by law in 1953 and its annual receipt in 1961 wiasestimated to haveaeceeded Pesos 150 million (Table3 ). In 1961 a new law was passed by the Legislature by which the resourcesmade available to the Fund have been increased and the annual receipt from 1962 on is ex- pected to be arounr- Pesos 200 million. The taxes turned into the Fund are used to execute public works programs approved by the Congress, the main part of it being spent for highway works (see Tables 415 ). The Public Works Plan as submitted annually to the Legislature is usally larger than the resources available and they are executed on a "pay-as-you-got' basis, that is. works are done to the extent funds are available, the remainder being carried over to the following year's program. - 5 -

23e No well-founded, overall plan exists for the priority development and improveraent of highways in bruguay. While there is no doubt of the need and justification for improving R.oute 5 (the subject of the proposed Bank loan), as is discussed in paragraphs 70 to 8J. there is no clear picture which sectionsof the existing highway system have higher priorities than others. A few individual road projects and a number of developmentstudies in the fields of railroads, ports, agriculture, power and airports have been, are being, or will be carried out, but none of these studies have been coordinated. A long-range highway development program is considerednecessary for the orderly development of Uruguay's highway system and the preparation of such a program, for which competent assistance is required, should be included in a first highway project.

Execution of Road Construction

24. With the exception of the major improvement of the coastal (from to ), little major new construction has been executed in recent years. ]"st work has been confined to maintenance activi- ties, replacement of bridges, minor realignment and improvements of sections of the more important roads.

25. In the past, most road work was mainly carried out by force ac- count with the Highway Department's own forces; however, contract work has increased substantially in recent years.

26. Designs and specifications are adequate but there is consider- able room for improvement and modernization, particularly if large works are to be contracted.

27. Contract work is by contractor on a unit-price basis after public bidding. Foreign contractorsare not excluded from putting in tenders, but have shown no interest in the past because of the small value of construc- tion projects normally prepared, usually less than US'?500000. A small number of competent domestic contractors have been operating in Uruguay for a number of years, but with the exception of bridge work, few of them are equipped to undertake considerablylarger higIhwayworks tilanh. s been customary in the past. Therefore, if major works are to be undertaken, it is likely thAt foreign contractors will be needed and would be inter- ested, provided contracts are of substantial size.

28. The quality of work done by contractors and the Highway Department's oi,nforces is good. Considerableattention is paid to compac$ion,drainage and selection of materials, but testing is done primarily in the main laboratory located in ihlontevideo which is inadequately equipped and understaffed to handle the undertaking of larger works; field laboratories and expansion of the main laborator-y would be necessary to enable quality control to keep pace wlith construction. 29, In general, soil conditions and terrain- are favorable for road building. Roadway sub-base and base materials are abundant; stone chips for roadriay wearing surfaces can be obtained from numerous quarry sites. Little time is lost during constructionbecause of weather conditions. -6-

Road Maintenance

30. The maintenance of the national highway system is carried out through Zone, Region and District offices (Figure 1). The chief engineer in each of the zones or regional offices is responsible for maintenance and new works carried out in his zone. Such an arrangement should provide for efficient execution of work in areas remote from the main depots, but unfortunately efficiency is hampered by the shortage of maintenance equip- ment and repair facilities in the field.

31. 1iaintenance equipment is short in numbers and a serious need exists for replacing overage equipment, the bulk of which was acquired before 1951. Additional equipment is also needed because of the expan- sion of the highway network and the increase in road transport.

32. In recent years maintenancehas taken a relativelylarge share of road expenditure(Table 6), indicating that a high priority has been assigned to this function. Neverthelessthe annual budget allocatedfor maintenance still falls short of actual requirementswhich results in deferred maintenancefor a number of roads. Those road sections that are maintained show a high quality of work.

33. Equipment repairs are generally carried out in the main shop located in Kontevideo; workmanship is good. The main shop is well organized but understaffed and needs improvement and some refitting; it does not adequatelymeet the currentmaintenance needs nor can it meet the requirements of an improved highway system. The regional shops lack tools and equipment to take care of even minor repairs and buildings are in a poor state of re- pair. Yfuch time is lost by shipping equipment to the main shop for repair. A number of well equipped subsidiary shops should be established.

3h. Procurementof new maintenanceequipment is clearly required to step up maintenanceoperations. As the present organizationis not sufficientlyexperienced to handle this equipment without reforms, con- sultants are considerednecessary to assist the Highway Departmentalso in this matter. - 7 -

III. TMSTPPOJECT

A, Description

35 The proposed project covers the following items:

i) the improvementof about 485 im of Route 5 from Progresso to Rivera, includingwidening and re- placement of some bridges;

ii) a maintenance program, including the procurement of maintenance equipment, engineering and laboratory equipment, weighing scales, etc.; and

iii) a highway planning study of Uruguay.

36. The total estimated cost of the project is about US$314 million equivalent, of which the foreign exchange cost would be about US"'18.5 million equivalent.

Improvement of Route 5

37. The improvement of about 485 km of Route 5 comprises widening, paving, raising the grades of certain sections frequently inundated, re- placement of inadequate drainage structures, and replacement and widen- ing of a number of bridges, in order to provide an all-weather road from £4ontevideo to Rivera, on the Brazilian border. The route has in general a satisfactoryalignment and gradient,but it is too narrow. Less than 90 Ianof the projectts length is now paved, namely the section Progresso- Florida consisting primarily of concrete pavement in rather poor condition.

38. The proposed design standards to be applied for the improvement are satisfactory. Standards for pavement type and bridges for the section Progresso- will be higher than for the section Paso de los Toros-Rivera because of the heavier volumes of present and expected traffic. Pavement width and all other design elements will be the same and applied uniformly to both sections. Details are set forth in Table 7.

39. Eight bridges are to be widened and ten new bridges constructed. Six of the new structures are to replace bridges which are occasionally inundated; these bridges will have an 8.0 meter roadway width except for the recently aiwarded contract for a new bridge across the Rio Yi, which is being constructed to a 7.5 meter roadway width.

Naintenance Program h0. In order to secure a proper upkeep of the country's road network, a reorganizationof the present maintenance operations is required. Until a satisfactorymaintenance program is prepared,a modest equipment purcha se program of ;3 million has been agreed upon as e first step in the reorgani- zation of tnaintenance operations. - 8 -

41. Qualified maintenance specialists will be needed to assist the High- way Department for a period of about six to eight months, in the preparation of such a maintenance program. Thereafter, further assistance for a period of about eighteen months will be needed to help in the implementation of the pro- gram. The study would cover such topics as organization and operation, cost accounting, physical and financial requirements, organization of warehouses and a proper division of the servicing and repair of the maintenance equipment be- tween the main, regional and district workshops. The cost of the experts will be financed out of the proceeds of the Loan.

Highway Planning Study

42. The study is to be carried out by a group of qualified experts. Its purpose is to provide the Government with a long-term guide for develop- ment of the highway system. It should lead to the establishment of a planning office which would in future initiate studies or determine the feasibility, priority and cost of projects. The scope of the study will include a study of the following:

i) the priority of investment in improving and expanding the highway network (primary, secondary and feeder roads), the cost and benefits;

ii) the organizationand operationof the Highway Depart- ment, includingthe establishmentof a planning office; and

iii) the regulation of road transport.

43. The terms of referencefor such a study would emphasize the need to deter-ninepriorities of road investmenttaking into account other means of transportation, and previous studies, including in particular the already existing report on the rehabilitation of the railway.

B. Status of Engineering; Role of Consultants

44. In July 1961, the Government signed a contract with the consulting firm AMCOof Los Angeles, California, USA, to help the HighTwayDepartment in preparing a project for both Route 5 and the Interbalnearia Road. Since at that time it was not known whether the Bank would be asked to finance a project, the Rank was not given an opportunity to comment on the experience record of the firm and the composition of its team. In November 1961, the Bank was asked to comment on the terms of reference of the contract, which were considered satisfactory.

45. A preliminary report on the project was completed by the consultants in the middle of January 1962. The standards as initially recommended by the consultants for the less heavily traveled northern section of Route 5 were higher than seemed justifiedby the traffic density. - 9 -

46. The government agreed that, except for decreasing the 12 meter width of the road including shoulders, the star.dards should be reduced and new cost estimates prepared. This resulted in a reduction in the estimated total cost for Route 5 from about US!30 million equivalent to about US$26 million.

47. Regarding the road width which has now been agreed at 12 meters, the liinisterof Public ' brks has declared that this was the national standard established for the counttry's main highwfaysand since Route 5 is the main north-south highway of the couuntry, tthis widtn should apply to the northern as well as the southern section. The ILirister further stated that expected development in the service areas of the northern section which crosses the Tacuarembo-Paysandu road () that is scheduled for improveraent to a 12 meter width under an IDB loan, would lead to a substantial growth of traffic over this road within a few years. If this growth materializes in the next ten years, the cost of widening the road at that time would be substantially greater than the relatively small expenditures (US$1.5 million) that is estimated to be required if the work is done now as a part of the proposed project.

48. In addition to the preparation of final designs and tender documents, further preliminai'y engineering is required. The present consulting firm will be retaIned; its contract, the number and qualifications of the personnel to be assigned to the project will be submitted to the Bank for approval.

49. The consultants'task will be to carry out tiledesign and supervision of tne improvements works on Route 5 and the preparation of a mcaintenance pro- gram. - 10 -

C. Cost of the Project

50. The following cost estimates take into account the earlier state- Pients regarding the incomplete preliminary engineering for which an ample contingency allowance is made, and a lump sum allocation for a maintenance program yet to be prepared: Cost Estimates (in million') Pesos Total Cost Local Foreign I. Improvementof Route 51/ 233.0 101o0 1320i/ (USP21.2) (USa,12.0) 20% Contingencyallowance 46.o 20.0 26.0a/ for quantities (US3 4.2) (US,"2-4) Sub Total 279.0 121.0 158.0 (USeq25.4) (US14h.h) II. Ihaintenance Program: Purchase of maintenance equipment, spare parts, laboratory and engin- eering equipnent,weighing scales,33.0 - 33.0 etc. (USa 3.0) (USi 3.0)

III. Technical Services:

i) for design and supervision 12.0 5.5 665 of I (USa 1.1) (US; 0.6)

ii) for preparat-onand execution 2.0 0.5 1.5 of II (US$~0.2) (USA)0.1)

iii) by Vialidad_/ 1.0 14.0 _ (US$ 1.2)

Sub Total 28.0 20.0 8.0 (US$ 2.5) (US0 0.7) IV. HighwayPlanning Study 2.5 0.5 2.0 (US$ 0.2) (US$ 0.2)

V. Unallocated 3.5 1.5 2.0 (USM 0.3) (US: 0.2)

Grand Total 346.o 143.0 203.0 (US431.40 (US;18'.5)

1 excludingquantity contingencies. 2/ 57% foreign exchange component. I administrative expenses plus expenses of personnel assigned to assist in items I, II and IV. - 1 -

51. The unit Drices used by the Consultantsir, preparing the con- structioncost estimates are based upon items of work recently executed by contrclctbut adjusted for large quantities,and price increasesin the cost of labor and materials;these prices are acceptable.

52. The foreign exchange cost of the constructionwork has been es- timated by the Consultantsat 57% of constructioncost and is considered realistic.

D. Financing of the Project

53. It is proposed that the Bank finance the foreign exchange cost of the constructionwork and engineering services,and an amount of USO3 million as a first step for a maintenanceprogram.

54. The loan would be disbursed on the basis of the agreed foreign currency percentage of the constructionwjork, the direct import cost of equipmentand the actual foreign cost of consultingservices.

55. A tentative disbursenentschedule over the design and corstruc- tion period of four years is given in the table below:

Cash Flow Projection (in millions7 1962 1963 1964 1965 1966 Total

I. Improvementof Route 51/ Local (Ps) 1,,8 2.7 42.0 46.5 28.0 121.0 Foreign (US$) 0,2 0.3 5.1 5.5 3.3 14.4

II. MaintenanceProgram Local(PS) 3/ -( Foreign (US$) 3/ 1.2 1.8 - - 3.0 III. TechnicalServicesa! Local (Ps) 0.2 3.8 6.0 6.0 4.0 20.0 Foreign (US$) 3 0.2 0.2 0.2 0.1 0.7 IV. Highway Planning Study Local (Ps) 3/ 0.5 - - - 0.5 Foreign (US;O) 3/ 0.2 - _ - 0.2 V. Unallocated Local (Ps) - - - - - 1.5 Foreign (US'i) - - - - - 0.2

Total Local (Ps) 2.0 7.0 h8.o 52.5 32.0 1h3.0 Foreign (US$P) 0.2 1.9 7.1 5.7 3.4 18.5

1/ Excluding Technical Services. 2/ Consulting Services for I and II plus Vialidad administrative expenses. / Amourts to be spent are too small to be shown. - 12 -

56. The Government will have to allocate about Ur. Ps. 143 million for the local currency costs of the project, including consulting services. In addition, sufficient funds should be allocated in the Government t s budget to meet the expanded maintenance activity and to assure efficient operation of the equiprent to be purchased with the loan. It will be the Consultantst task, in cooperation with the Highway Department, to establish the amount of funds required for proper maintenance of all roads under the Department's jurisdiction, after the plans for expanded maintenance operationshave been finalized and agreed upon.

57. Assurances were obtained during the loan negotiations that the Governmentwould make availablepromptly sufficientfunds to cover the local currency cost.

E. Execution of the Project

58. The improvementof Route 5 would be carried out uncer unit-price contractsawarded on the basis of internationalcompetitive bidding. Road contractswould be of a size large enough to attract such bidding. Domestic bridge contractorshave the capacity and ability to undertake the proposed bridge works and consideringthe small size of these works, it is unlikely that foreign contractorswould be interested for bridge works unless they are included in the road contracts.

59. The lists of the proposed road maintenance and other equipmentto be purchased,will be agreed upon between the Borrower and the Bank. Orders for this equipmentwill be placed also after international competitive bidding.

6o. The project design and constructionis expected to take about four years. A minimum of about nine months would be required for studies, final designs, preparationof tender documents,award and signing of initial con- struction contracts,leaving a little over three years for actual construction.

61. For the Highway Planning Study, separate consultantswell qualified for this type of work will be employed. The team assigned to the survey should probably be composed of at least seven experts, namely a project director, a general economist, a transportation economist, an agricultural economist with livestock experience, two engineers and an advisor on transport regulation. The group would be assisted by personnel of the various govern- mental agencies concerned, including the Highway Department and the recently formed "Conru.ission for Economic Development'", in carrying out economic, agricultural-livestock and engineering studies, field surveys, preliminary plans and cost estimates. A number of studies have been carried out in the past in the areas of railroads,airports, agriculture,etc., and should be appraisedand utilized to the fullest extent possible. The study will probably require about six to eight months includingpreparation of the report. Detailed terms of referenceare to be agreed upon between the Governmentand the Bank. -13-

IV. ECONOMICJUSTIFICATION

A. Introduction

62. National Route 5, traversing the center of Uruguay betTween the capital city of Montevideo and the town of Rivera on the border of Brazil is the principal north-south trunk highway of the country. Its service area covers more than a quarter of the countryts land area which includes varying portions of 12 of the 19 departments of the Republic (see Map). Within this service area are about one-third of the nation's cattle and sheep stock as well as some agricultural land, which together account for more than one-thlirdof the country'slivestock and agriculturalproduction. While stock raising is the predominanteconomic activity, the regionts agri- culture is also of some importance,producing a considerableproportion of the country'stotal output of certain crops, such as oats, corn, malt and barley. Other important agricultural products are: sunflower seeds, citrus fruits, wheat, peanuts, rice and flax.

63. In addition this route is also an important international channel for Brazilian products such as timber, for Argentina, and other countries vria the port of' Montevideo.

6a. For the most part, the highway has no surfacingand the southern sec- tions of the road are too narrow for the existing traffic volume. Moreover, several sections are flooded during the rainy season for periods varying from a few days to several weeks each year, isolating the affected areas partly or comnletely from the rest of the country. The resulting high cost of transport and difficulty of access by road are regarded as the principal causes for the stagnation in the agricultureand livestockindustries of this area. The pro- posed improvement of Route 5 Twill assure year-round accessibility and substan- tially reduce transport costs, which should induce development of the service area, particularlythe under-develonednorth, through integrationof these re7ionswTith the more developedpart of the country in the south.

B. Competitionbetween Road and Rail

65. The Highway is paralleled by a rail line. The 250 km section of the railroad between M4ontevideo and Paso de los Toros, being a part of the ,Iontevideo-Paysandu-Salto line, is the most heavily trafficked rail line in Uruguay, to a large part, for transport of long haul commodities between the capital and the progressing northwestern region. The section branching out fron Paso de los Toros to Rivera, however, serves a region with little industry and stagnant agriculture. The question there-ore is whether the proposed im- provement of a highway parallel to tlhs rail section to Rivera could be justifi fied.

66. The physical conditions of both the railroad and highway between Paso de los Toros and Rivera are suchn that an improvement of either one of the trans- nort facilities is necessary for economic development of the region. The Govern- ment has chosen to invest in the highway while no improvementof the railroad other than routine maintenanceand some replacementsof rails is contemplated in the National Railway's (AFE) investmentprogram. This decision on the rail line representssome deviationfrom the recommendationof AFEts consultants (Sofrerail Report, 1958) which had called for a substantialinvestment for re- habilitationof this rail line apparentlywithout taking into consideration the possibilityof a highway improvement. - 71 -

67. The section of 'toute/ from Baso de los Toros to Rivera has in re- cent years, despite its poor conidition,become a more important route than the parallelingrail line, the latter having lost a substantial part of its freight to the former; this trend is expected to continue without regard to what improvementis made on the highway because of short haul distancesand faster door-to-doorshipments which the roads in the service area now afford, The average railroad traffic along this sectionwas about 75,000 net tons per year in 1957, three quarters of which was long distance haul of timber and livestcck. Although no road traffic data was available at that time, the number of trucks in use was sizable. Traffic is presently estimated at 150 vehicles per day and about 50% of these vehicles are trucks carrying an estimated60-80,000 tons of goods annually. The most important part of this traffic is imported commercial goods and fabricatedproducts, and goods locally produced in small quantities and on scatteredfarms (wool, fruits, vegetables).

68. The rail line, in the Government'sview, would be kept in service to carry long haul freight of heavy products and would require only a minimum investment. to keep it operable. Regarding the rail transport of other pro- ducts,an improved highway wculd probably accentuate the difficulty of the rail- road, at least in the short run. Howeve-, the benefits of highway improvement to the economr in the form of transport cost savings and a fuller exploitation of the resources of the relativelyundeveloped region in the north waald greatly outweigh the unfavorable effects on the railroad, The justification of the proposed improvement of Route 5 thereforeis not dependent on the traffic to be diverted from rail to highway; the savin&s on vehicle operating cost on the ba.siso.f the present traffic volume on this highway are estimated to be sufficient, to cover the cost of the Project with 6% annual interest, during the economic life of the investment of 30 years. ThM alternativechoice of rail rehabilitation is not expected to yield a comparable result. 69 The present economic condition of the highway's service area suggests that, as will be discussed more fully later, a sustained growth of its economiy is dependent on the provision of an efficient highway link between the northern interior and developed south. Highway transport,therefore, would continue to grow in its importance leaving only the long distance haul of heavy goods to the railroad, This, however, does not necessarilyimply a permanent decline of the railroad'sbusiness. As the highway improvementbegins to show its favorable eLfects of encouraging a growth and diversification of industries of the northern interior, the volume of railroad freight would also rise although its relative importance wqould certainly diminish.

C. Road-user and Maintenance Benefits

70. The proposed improvement.of Route 5 would reduce the costs of velhicleoperation, and without its improvementthe government's expenditure for maintenance o. the highway would increase considerably.

71. On the basis of rather incomplete cost data supplied by the Highway Department and some private ccmpanies,the average operating cost of a 5-6 ton truck (the representativesize of trucks in Uruguay) over Route 5 in its pre- sent condition, with the exception of Progresso-Floridasection (75 km) is estimated to be in the order of 20.U.S.cents per km. After improvementof the highway to the proposed standards,the cost is estimated to be reduced by about one third. - 15 -

72, The operating cost over the Progresso-Floridasection which already has asphalt pavement should be lower but, since the present condition of the road surface is far from being satisfactory,the improvementof this section would also produce savings in vehicle operatingcosts.

73, There are no consistenttraffic statisticsin Uruguay. The Highwtay Department attempted traffic counts in 1960 and 1961 and their results were used by the Consultant as the base of its traffic projection. But, since the traffic counts were made at points near town centers, the results seem to have been much influencedby city traffic and, consequently,cannot be consideredas indicative of the volumes of through traffic for different sections of the highway. An attempt was thereforemade by the Mission, independentlyto assess the existing traffic volume and its composition.resulting in a more conservativeestimate than either the Department'sor the Consultant'sassessments. For the purpose of projecting the traffic volume, an annual increase of five percent as esti- mated by the Consultant is accepted as representing a normal rate of traffic growth, not taki.np into account induced growth resulting from the improvement of the roads.

74, The 1961 average daily through traffic volumes thus established are: 1,000 vehicles for the Progresso-Floridasection, 300 for Florida-Pasode los Toros and 150 for Paso de los Toros-1Aivera. The proportionbetween passenger cars and commercialvehicles (trucks and buses) has been assumed to be 60 and 40 for the first two sections and 50-50 for the section between Paso de los Toros and Rivera. Howeirerit is expected that commercialtraffic will grow faster than passenger car traffic because of the expected growth in agriculturaland indust'rial activities in the highwayts service area and also because of the very high duty currently imposed by the Government on imports of passenger cars. It is therefore assumed that the growth of commercial traffic will account for about 80 percent of annual increments of the total volume of vehicle movements. The est,imatedvolumes and composition of traffic for years 1966 and 1971 are shown in Table 8.

75. On the basis of the estimatedunit saving and projected traffic volureR annual savingsin vehicle operatingcosts of milliond and $3.5 million would be obtained for the years 1966 and 1971 respectively (see Table 9). To these should be added the savings in maintenancecosts that will be realized after the improvementof Route 5. The current levels of maintenance cost per kilometer for gravel roads and asphalt roads in good conditionin Uruguay are 6,000 pesos (t55o) and 4,500 pesos ($400) respectively. This would yield an annual savings of about 475,000 on the government'shiF:hway maintenance expenditure after the highway is improved to the proposed standards. The total annual savings accru- ing from the improvement,of the highway would thereforebe in the order of $W`2.6million and t3.6 million for 1966 and 1971 respectively(see Table 10). Comparing these amounts of savingswith the annual capital cost, benefit-cost ratios of 1.3 and 1.8 are obtained for 1966 and 1971 respectively. This means a return of approximately9 percent and 13 percent for 1966 and 1971 respect- ively on the investmentafteramortization of the total cost of the Project during its estimated economic life of 30 years.

76. There are other additionalbenefits not included in this calculation but they are difficult to express in monetary terms. Examples are the ex- pected reductionsin accident and fatality rates on the highway. - 16 -

D. DevelopmentBenefits

77- The stagnant state of the economy in a large part of the service area of Route 5, particularly in the northern section, appears primarily due to its physical isolation from the populationcenters of the country. It not only makes it difficultto move products out to markets and people but also discouragesmigration into this area of capital and technical skills from the more developed areas in the southern and coastal zones of the country. The improvementof Route 5, therefore,is expected to open up channels for an in- creased flow of products to marketing and export centers and a reverse flow of investment.

78. 1fithlower cost of transport and improved access to markets, pro- duction of the agricultureand livestock industrieswould be stimulatedand encouragethe diversificationof activitiesfrom the present monocultureto other lines of production. The supply zone of vegetable and dairy products to the I4ontevideoarea would also be expanded beyond the present distance of approximately100 kilometers,which would mean both improved supply conditions of daily alimentation for the populationin the capital area and increased income for the farmers.

79.. A more profound effect for economic developmentof the highwayts service area would be brought about by the expected flow of investmentfunds and technical know-how into the less developed regions. The concentrated land ownership in the hands of a few individualsin the less developed parts of the country seems to indicate that there is room for such development. The latest (1956) census shows that one-third of the rural area is in holdings of larger than 2500 hectares; and the vast majority of small holdings are situated close to Montevideo and other cities and towns. The main part of land in the less developed regions therefore is owned by large land holders, the majority of whom live in the southern part of the country. They con- centrate efforts for improved productivityof their holdings in the south where access is easier and personal supervisionmore effectivebecause of better road facilities,leaving their propertiesin the north for traditional cattle grazingwith little physical improvement.

80. The improved Route 5 would encourage practice of intensiveutiliza- tion of pasture land in place of the extensive cattle grazing presently practiced, adoption of scientific methods of pasture improvement and stock breeding, and for the southern portions of the service area, a greater utilization of land for more profitable agricultural production. Such developmenthas already been experiencedin the southwesternpart of Uruguay along si;Ce the constructionof this road two decades ago. This area is also for a large part served by rail lines.

81. It is not possible to foretell at what rate the areats economy would grow as a consequenceof the road improvementand, therefore,a quantitive estimate of the developmentalbenefits is difficultto make. However, it appears certainthat the stimulus to be given to the economy of the service - 17 -

area would be sufficiently great to make thie proposed road improvement a sound economic proposition. Assuming thLt only 50 percent of the value of gross production represents net production, the required annual rate of growth of the area's livestock and agricultural production in order to pay the original investment cost during its assumed economic life of 30 years with 6 percent annual interest would be less than one half percent. Needless to say, it should be expected that. the actual rate of growth would be much larger. - 18 -

V. CONCLUSIONSAND RECOiThENDATIONS

82. The Project will greatly improve the conditions for road transporta- tion on the important Route 5 and provide for better organization and main- tenance of highways in Uruguay.

83. It is expected that the project will yield a good economic return on investmentfrom both savings on transportationcosts and stimulationof economic development.

84. The Project provides a suitable basis for a Bank loan of US$18.5 mil- lion equivalent to the Uruguayan Government;a suitable term would be 15 years including a four-year period of grace. Table 1

URUGU.AY:HIGIEAY PROJECT

NATIONiALHIGHWAY SYSTE.i

CLASSIFICATIONACCORDING TO SURFACE- 1961

PAVEDROADS (m

DoubleBituminous Surface Treatment: On Macadam 767 On DisintegratedGranite (Tosca) 414 On Gravel 55 1,236 ReinforcedConcrete: WithoutSurfacing 215 Surfaced with asphaltic concrete 50 265 Cobblepavement 9 CementedMacadam 1

1,511

UNPAVEDROADS

Disintegrated Granite (tosca) 5,786

Gravel 553 Nacadam 299

Improved roads 562 Sand-clay surface 52

Total Unpaved Roads 7,252

Total All Roads 8,763

Source: I'iinistry of Public Works Table 2

URUGUAY:HIGhEWA PROJECT

NrJM2EROF lvOTORVEHICLES

Department of Mbntevideo Nationa

Passenger cars 56,304 99,832

Taxis 1,465 3,900

Trucks and pick-ups 27,595 72,873

Buses 1,673 3,129

Sub-total 87,037 179,734

Motorcycles 6,175 11,586

Total 93,212 191,320

l/ Compiled by the Municipalityof Montevideo.

g/ Vehicle census prepared by Yinistry of the Interior - Highway Police Patrol Service; 160,000 estimated in circulation. / The average truck has a load capacity of 5-6 ton. Table 3 URUGUAY: HIGHWAYPROJECT

REVETItJESFOR PUBLIC WORKS-

Amounts Collected (million of Pesos) 2/ 2/ TAXES 1959 1960 19617 1962 Fuel and Lubricants Gasoline 21.97 20.93 x Gas - Oil h.52 5.18 x Diesel Fuel 1.22 .93 x Fuel Oil 1.15 .93 x Grease& Lubricants .45 .4o x Sub-Total 29.31 28.37 71.00

Land Taxes Contributionsfor Betterments 2.99 6.11 5.5o Additional contribut. from real estate .14 .36 .40 Revaluation 4.oo 4.o0 h.OO on rent of incorporatedagric. - .51 .60 enterprises Inheritancetax .90 1.34 1.30 Tax on Roadside Property .01 - Sub-Total 8.04 12.32 11,80

User Taxes

Customs - autos, chassis, spare .17 .84 - parts Tax on earnings of interdepartmental 1.25 1.92 k.00 buses Tires 3.89 4.93 4.50 Toll on Bridge over Rio Santa Lucia - 1.09 1.20 Truck - _ - Sub-Total 5.31 8.78 9.70

Various Import surcharge& export taxes - 49.09 50.oo Loans & Agriculturalsurplus - 11.72 9.93 Charges .20 .11 .4o Sub-Total .20 60.92 60.33

GRANDTOTAL 42.86 110.39 152.83 200

1/ No figures availablefor proportion to Highway Dept. Recent budgets indicate Highway Dept. gets 85% - 90% of total (See Table 6)- 2/ Estimated x Not known (Source: Ministry of Public Works) Table 4

URUGUAY: HIG.TIAYPROJIECT

MINISTRYOF PUBLIC WtORKS

EKPDI TUR-.S 3/1/59 - 12/31/61

% of Ps. Millions Total

Hiighway Department 221.5 89 (highway construction and maintenance)

Architectural Department 23.3 9 (construction, maintenance of schools, hospitals, etc,)

Hydrography Department 5.2 2 (construction and maintenance of ports, docks, etc.)

2O0.0 100

Source: ilinistry of Public W'orks Table 5

UIiUGUAY;HIGiMAY PIROJECT

PLAN OF PUBLIC 7ATORKSI/1961

P e s o s

Highways 223,800,000

Construction 133,800,000

Reconstructionand Improvement 30,000,000

Maintenance 4,5o50,000

Studies 6,000,000

Other 8,500,000 Water Works 31,420,000 Architecture 57,340,000

National Parks 1,000,000

OtherWorks-/ 9,500)000

Total 323,060,000

1/ As presented by the Ministry of Public IWorks to the national legislature. As of end February 1962, the Plan was still under con- siderationb'r the legislature.

2/ Works to be carried out by agreement ,-pithmunicipal and/or rural authorities !.rith funds contributed by the latter.

Source : Ministry of Public Works Plan de Obras Publicas 1961 URUGUAY: HIGH'AY PROJECT

ANNUALVIALIDAD E:XPENDITURES (in millions of Pesos)

AiDMINISTRiiTIVE LXr-i-NSE, MAINTr,NANCGE.CCNSTRUCTTON AND) PLTT:ERMNENT

Year Salaries Expenses Total Contract administration Maintenance Total Total

195 6 2.07 .45 2.52 6.79 7.48 16.40 30.67 33.19 1957 2.57 .64 3.21 2.85 3.36 21.00 27.21 30.42

1958 2.77 .56 3.33 2.40 2.74 21.61 26.75 30.08 1959 2.71 .63 3.34 1.92 1.31 22.65 25.88 29.22

1960 3.88 .77 4.65 16.27 4.63 34.13 55.03 59.68 1961 1/ 50.0

* Not known

1J Not yet available g/ Estimated

SOURCE: Ministry of Public W-forks Table7

URUGUAY: HIGHWAYPROJECT

DESIGNSTANDARDS

- - - - Road Section - - - -

DesignElement Progreso-Pasode los Toros/ Paso de los ToroslRivera (about 225 kn) (about 260 lan) Bridges: Width 8.o meters2/ 8.0 meters/ i Design Loading H20 3S16 H20 - s16 (AASHO) Pavement type Asphaltic concrete Double bituminous surface treatment

Base and subbase To be determined from To be determined from re- results of CBRtests sults of CBRtests

Both Sections Total Roadway width: 12.0 meters Pavement 7.0 n Shoulders 2 at 2.5 "

Maximumsuper elevation 8% Designspeed (km/hr) 901.00

Radius (meters) Desirable hoo5o00 Minimum 300 4OO

Gradient (%) Desirable 3 Maximum 3-5 Sight Distance (meters) Braking Passing: Desirable 65o-8oo Minimum 50G-650

South end of bridgeacross Rio Negro. 2/ Existing bridges subject to inundation or structually unsound for the proposed designloan are to be replaced to an 8.0 meter width. y Subject to 2/, bridges less than 7.0 meters wide are to be widened and bridges7.0 meterswide or greaterare to be retained. 4/ Subjectto 2/, bridgesless than 6.0 meters iideare to be widened and the remainingbridges retained, except for existingPaso de los Toros bridgewhich shallnot be widened. Table 8

URUGUAY: HIGDTAYPR0JrEcT

Present and ProjectedAverage Daily Through Traffic

Progresso- Florida- Paso de los Toros.; Florida Paso de los Toros Rivera

1961 Passengercars 600 180 75

Trucks and buses h00 120 75

Total 1,000 300 150

1966 Passenger cars 656 197 84

Trucks and buses 624 188 ill

Total 1,280 385 195

1971 Passenger cars 726 218 94

Trucks and buses 904 272 151

Total 1,630 490 245 URUGUAY HIGH..;Y PROJ2CT

Savings on Vehicle Operating Costs

1966 1971 (1) (2) (3) (4) (5) (6) Length of Estimated Average Annual average annual Road Savings Daily Savings Daily Savings Section per km Traffic (thousanddollars) Traffic (thousanddollars) LUg._cents) (I)x(2)x(3)x365 (1)x(2)x(5)x365

Progreso-Florida i/ 75 Cars 1.1 656 197.5 726 218.6 Trucks & Buses 323 624 563.7 904 816.6 1,280 761.2 1,630 1,035.2 Florida-Paso de los Toros 154 Cars 2.2 197 243.6 218 269.7 Trucks & Buses 6.6 188 697.4 272 1,086.7 385 941.0 490 1,356.4

Paso de los Toros-Rivera 256 Cars 2.2 84 172.7 94 193.3 Trucks & Buses 6.6 111 684.3 151 931.2 Total 485 195 857.0 245 1,124.5 2,559.2 3,516.1

S The reduction in vehicleoperating cost in this sectionwhich alreadyhas asphaltsurfacing is estimatedto be one-half of that in other sections. I Table 10

TJRUGUAY: HIGH1 fY PROJECT

Estimated Benefit-Cost Ratio of Route 5 (costs in US dollars equivalent)

Total Cost of ImprovementProject 27,600,0001/

Annual capital cost 2/ 2,000,000 1966 1971 (opening year)

Annual savings on vehicle oneratingcost 3/ 2,560,000 3,517,000

Plus annual savings on road maintenancecost b/ 75,000 75,000

Total annual savings 2,635,000 3,592,000

Benefit cost ratio 1.3 1.8

Equivalent investmentyield 5/ approx. 9% approx. 13%

1/ Constructioncost 233,000,000 Contingencies 46,000,000 Consulting services 12,000,000 Administration 12,000,000 303,000,000Pesos or 27,600,000 US dollars

2 At 6% interest for the duration of assumed economic life of 30 years of the investment.

3/ See Table 9 for calculation.

4 Estimated saving of $'150per km per year applied to the total length of the highway to be improved.

5/ Percentagereturn after amortization. URUGUAY: HIGHWAYPROJECT

ORGANIZATION- VIALIDAD

IMINSTRY OF PUBLIC,WORKS

VIALIDAD DIRECTORSOFFICE

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