FILECOPY Report No. 532a-PA Paraguay: Appraisalof a Public Disclosure Authorized FourthHighway Project

,November25, 1974 Latin America and CaribbeanProjects Pepartment

Not for PublicUse Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Document of the InternationalOank for Reconstructionand Development InternationalDeveloprent Association

Thisreport was preparedfor officialuse only by the BankGroup. It maynot be published,quoted or citedwithout BankGroup authorization. The Bank Group does not acceptresponsibility for the accuracyor completenessof the report. CurrencyEquivalents

CurrencyUnit = Guarani () US$1.00 = 126t ML = US$0.008 Vl,000,000 = US$7,936.50

Fiscal Year

January 1 - December 31

System of Weights and Measures

Metric

1 meter (m) -= 3.28 feet (ft) 1 kilometer (km) = 0.62 mile (mi) 1 square kilometer (sq km) = 0.386 square mile (sq mi) 1 metric ton (m ton) = 0.98 long ton (lg ton) = 1.1 US short ton (sh ton) Abbreviations and Acrortvms

ADT - Average Daily Traffic ANNP - AdministracionNacional de Navegaciony Puertos DGV - DireccionGeneral de Vialidad IDB - Inter-American Development Bank JV - Juntas Viales (Local Councils) MOPC - Ministerio de Obras Publicas y Comunicaciones OCIPT - Office of Coordination and Integral Planning of Transport PCAL - Presidente Carlos Antonio Lopez (railway) SAE - Sociedad Argentina de Estudios (consultants, Argentina) UNDP - United Nations Development Programme USAID - United States Agency for International Development PARAGUAY

APPRAISAL OF A FOURTHHIGHWJAY PROJECT

TABLE OF CONTENTS

Page No.

SUMMARY AND CONCLUSIONS ...... i - iii

1. INTRODUCTION ...... 1

2. BACKGROUND ...... 2

A. General ...... 2 B. The Transport Sector ...... 2 C. Transport Policy and Coordination ...... O..*. 5

3* HIGHWAYS ...... 6

A. The Highway Network ...... 6 B. Characteristics and Growth of Road Traffic ...... 7 C. Highway Planning and Financing ...... 8 D. Highway Administration ...... 9 E. Highway Engineering ...... 10 F. Highway Construction ...... 10

G. Highway Maintenance ...... 11

4. THE PROJECT ...... 13

A. General Description ...... 13 B. Cost Estimates, Financing and Disbursement ...... 15 C. Execution ...... 17

5. ECONOMIC EVALUATION ...... 18

A. General ...... 18 B. Description of the Roads and the Areas They Serve *...... 18...... C. Traffic ...... 19 D. Benefits from the Project ...... 20 E. Economic Evaluation ...... 21 F. Other Project Elements ...... 1

6. AGREEMENTS REACHED AND RECOMMENDATION ...... 21

This Appraisal Report has been prepared by Messrs. R. Paraud (Engineer) and R. Rafloski, A. Soto and Miss I.W. Pastor (Economists), assisted by Mr. George Aithnard (Economist) of the African Development Bank; it has been edited by Miss V. Foster. TABLES

1. PCAL Railway - Freight and Passenger Traffic - 1950-1973 2. Development of the Highway Network - 1950-1973 3. Vehicle Registration in the Country - 1970 4. Gasoline and Diesel Oil Consumption - 1965-1973 5. Highway Expenditures and Road User Contributions - 1965-1973 6. Road User Contributions - 1965-1973 7. Design Standards for Project Roads 8. Breakdown of Construction Cost Estimates 9. Average Daily Traffic Forecast on Project Roads - 1974-1997 10. Vehicle Operating Costs 11. Sensitivity Analyses of Economic Returns

ANNEXES

1. Bank/IDA Projects in the Transport Sector and other External Assistance for the Sector 2. Schedule of Disbursements

CHART

IBRD 6342(R) - Organization Chart of the Directorate of Highways

MAPS

IBRD 3770R1 - Paraguay Highway Network Southern Region IBRD 3769 - Paraguay Highway Network (overall) PARAGUAY

APPRAISAL OF A FOURTH HIGHWAY PROJECT

SUMMARY AND CONCLUSIONS i. Developmentof the transportsystem in Paraguay is being under- taken by the Governmentwith three primary objectivesin mind: (a) to foster output of productive areas through better transport facilities;(b) to dis- tribute the population more evenly in the country and to integratescattered centers of productioninto the national economy; and (c) to improve inter- national links with neighboringcountries. The transportsector, in recent years, has received the largest share of public investments,and the basic system now exists. With particularreference to roads, the Government's policy of upgrading and improvementover the last ten years -- a policy in which the Bank and IDA have played a role -- has resulted in reasonable standards and improved maintenance. As a consequence,road transporthas become increasinglyimportant, particularly in view of the decline in effi- ciency of the railway system over the last 20 years, and roads are now the principal mode for domestic freight and passengers. A wide domestic air service network complements the surface system. River transportis un- important domestically,but the bulk of Paraguay's foreign trade is carried by river craft and small freightersalong the Paraguay-Parana-Riode la Plata system (about 1,600 km). ii. Continuedimprovements in the transport sector will be a major factor in facilitatingfurther developmentof the economy, and, if there is to be internal colonizationas the Governmenthopes, better access will be needed to induce this development and to permit transportof agricultural products at reasonable cost. Apart from the Trans-Chacoroad, being financed by the Inter-AmericanDevelopment Bank (IDB), the main emphasis will be in the southeasternregion of the country where economic activity is centered, and where topographicaland soil conditionsand river communications are favorable for agriculturaldevelopment. The project roads are located in potentially rich areas within this region; their constructionwill ensure all-weather connectionsand will facilitate the developmentof this "Plan Triangulo" area. iii. There is continuing and active external assistance in the transport sector in Paraguay. Between 1961 and 1970, the World Bank Group provided four loans and one credit, totallingUS$16.3 million, for studies and con- struction and maintenanceof highways, and one loan, amounting to US$2.8 million, for improvementof port facilitiesin Asuncion. In 1956, the Export-ImportBank provided US$1.12 million for constructionof the runway of the internationalairport of Asuncion. Thereafter,in 1968, USAID pro- vided US$4.7 million for financinga new and larger runway. In 1960 and 1967, USAID provided two loans totallingabout US$10 million for the recon- struction and pavement of the Asuncion-PuertoPresidente Stroessner road (330 km). USAID provided a further loan of US$4.7 million in 1970 for the rehabilitationof a section of the same road. Between 1964 and 1972, UNDP also provided financial assistance totallingUS$1.0 million for highway - ii - studies, trainingprograms, and a transportsurvey; the Bank has been the executing agency for UNDP-financedstudies. Finally, in 1971, the IDB provided US$26.4 million for financingthe engineeringand constructionof the Trans-Chacohighway. The latter is the largest single road project ever undertaken in Paraguay.

iv. The proposed project will provide for (a) the constructionand reconstructionof two high priority roads (Encarnacion-Pirapo,about 76 km, includinga short spur and a bypass; and Mbocayaty-ColoniaIndependencia, about 26 km, including a short access road); (b) purchase of spare parts, tires and batteries as a followup of the current highway maintenanceproject (Loan 652-PA);and (c) consultingservices for supervisionof construction, for highway maintenanceservices and studies, and for assistancein transport planning and aid to the local constructionindustry. The two project roads under (a) precedingwere among 450 km of roads identified by a UNDP-financed feasibilitystudy carried out during 1964-1967which determined the agri- cultural potential and road requirementsof southeasternParaguay. Feasibility studies and detailed engineeringfor some of these roads (260 km) were later performedunder the Bank's Second Highway Project (Loan 443-PA, 1966, US$2.1 million). v. Execution of the project is expected to take about three and a half years and would be the responsibilityof the Ministry of Public Works and Communications(MOPC) through its Directorateof Highways. Consultants contractedunder terms and conditionsacceptable to the Bank will assist in prequalifyingbidders and in evaluatingbids and will supervise construction. Constructioncontracts will be awarded on a unit price basis after inter- national competitivebidding in accordancewith Bank Group "Guidelines". The purchase of tires and batterieswill be made through competitivebidding in accordancewith the Bank's "Guidelines";spare parts orders not in excess of US$50,000 may be awarded directly to the dealers of the equipment. For carrying out the highway maintenanceservices and studies, MOPC proposes to engage the same consultantsthat are currentlyassisting in maintenance operations.

vi. Constructionand improvementof the project roads are expected to provide benefits by reducingboth vehicle operating costs and maintenance costs, by meeting expected traffic demand (conservativeestimates forecast an annual growth of about 6%), and by facilitatingthe access to rich agri- cultural areas. The economic return from construction of the Encarnacion- Pirapo road is 24%, and that of the Mbocayaty-Colonia Independencia road is 13%, with a weighted average of 21% for the civil works as a whole.

vii. The total project cost is estimated at US$20.0 million equivalent, with a foreign exchange element of US$14.5 million (72%). The foreign exchange element has been determinedon the basis of analysis of unit prices for each type of work, and it assumes that constructionwill be carried out by foreign firms subcontractingpart of the works to, or associatedwith, local firms. The foreign cost of consultingservices for constructionsuper- vision is estimated at 80%, based on experiencewith similar services in Paraguay. - iii -

viii. It is proposed that the entire foreign exchange cost of the project be covered by a Bank loan of US$14.5 million equivalent. The Government has agreed to meet the local costs of the project in the amount of approximatelyUS$5.5 million equivalent. On the basis of the average economic life of road construction works, an appropriate loan tern would be 25 years, includinga five-year grace period.

PARAGUAY

APPRAISAL OF A FOURThIHIGHWAY PROJECT

1. INTRODUCTION

1.01 The Republic of Paraguay has requestedBank assistanceto help finance a highway project comprising (a) tne constructionand reconstruction of the Encarnacion-Piraporoad, including a short spur road and a bypass, and of the Nbocayaty-ColoniaIndependencia road, including a short access road (Map IBRD 3770R1); (b) the purchase of spare parts, tires and batteries for highway maintenanceequipment; and (c) consultingservices for supervision of constructionand assistancefor highway maintenance,for transport planning and for aid to the local constructionindustry. The cost of the project is estimated at about US$20.0 million equivalent; the foreign cost componentof US$14.5 million is proposed for financingby a loan, and the balance of US$5.5 million equivalentin local costs will be provided by the Government.

1.02 The project roads were identifiedduring a UNDP-financedfeasibility study carried out during 1964-1967,for which the Bank acted as executing agency (Annex 1, para 9); this study determined the agriculturalpotential and associated road requirementsfor southeasternParaguay (the "Plan Triangulo" area). Feasibilitystudies and detailed engineeringwere later done under the Second Highway Project (Loan 443-PA) by consultantsLouis Berger, Inc. (US) in associationwith Sociedad Argentina de Estudios (SAE, Argentina).

1.03 The proposed project will be the fourth Bank Group operation in highways. Previous lending in the mode was as follows:

(a) Credit 12-PA (US$6.0million, 1961), supplementedby Loan 396-PA (US$2.2 million, 1964), financed reconstructionand paving of about 300 km of road, as well as preparationof a maintenancemaster plan. All project works were success- fully completedby early 1970, about three years behind schedule. However, shortly after completionof the work, the contractor (Hochtief,Federal Republic of Germany) made a claim which has been rejected by the Government; legal remedies are under consideration(Annex 1, para 3);

(b) Loan 443-PA (US$2.1million, 1966) helped finance reconstruction and paving of a 43-km section of road, and technicaland economic studies of some sections identifiedby the UNDP study (para 1.02). Road works were satisfactorilycompleted in 1969, and the feasi- bility studies were completedin 1970; and

(c) Loan 652-PA (US$6.0million, 1970) is helping to purchase mainte- nance equipment and providing consulting services to implement a four-year maintenance program. The project is generally making good progress and should be completed by mid-1975, or about one and a half years behind schedule. -2-

Details of these projects and of other external assistance for the transport sector are provided in Annex 1.

1.04 The anpraisalof the present project is based on technicaland economic studies prepared by consultants,and on the findings of an appraisal mission comprisingMessrs. R. Paraud (Engineer)and A. Soto and Miss I. W. Pastor (Economists),which visited Paraguay in November 1971. Mr. Georae Aithnard (Economist)of the African DevelonmentBank, who was attached to the lWorld Bank Group for training purposes, also participated in the appraisal mission and in the preparationof this report. The Government'ssubsequent requests for revision of engineeringand cost estimates,and discussionswith Government regarding the financing terms, as well as the need to review the fiscal situation to ensure availabilityof local funds, delayed report prepar- ation. The above-mentionedproblems were recently resolved,and a mission comprisingMessrs. R. Paraud (Engineer)and R. Rafloski (Economist)visited Paraguay in March 1974 to update the appraisalinformation.

2. BACKGROUND

A. General

2.01 The Republic of Paraguay is landlocled in the middle of South America; its most important transportlink to the sea is provided by the river system formed by the unbridged Paraguay River which flows north-south across the country to join the Parana River at the border with Argentina (Map IBRD 3769). About 80% of the country's population of 2.4 million and most of the economic activity are located east of the Paraguay River in the "Triangulo" area, roughly defined by its corners at Asuncion (the capital), Encarnacion, and Puerto Presidente Stroessner. The country's economy is based mainly on primary and processed agricultural products. Paraguay's development prospects are generally good; transport improvements will, however, be a major factor in facilitating further development.

2.02 In order to develop Paraguay's agricultural potential, the Govern- ment is pursuing a policy of intensive internal colonization; roads have been provided to support these efforts and also to integratescattered centers of agriculturaland industrialproduction into the national economy. The trans- port sector has recently been receivingthe largest share of public invest- ments, and the basic transport system -- essentially roads -- now exists. However, continuedemphasis on extendin- and improvingthe road system to meet the growing demands of agricultural development is needed.

B. The Transport Sector

2.03 Road transport is the main mode used for domestic freight and passengers, particularly since the steady decline in the efficiencyof the railway system over the past 20 years (para 2.05). A wide domestic air service network complementssurface transport. River transportis unimpor- tant domesticallyexcept for timber rafting and some internal river shipping -3- on the Paraguay and Parana, but it does provide Paraguay with her most vital link to the sea, and some 85% of all foreign trade is carried by this mode. The river route, however, is facing competition following construction in the early 1960's of a bridge across the Parana River between Paraguay and Brazil, and the recent completion of a paved road from the Paraguayan border through Brazil to the Atlantic port of Paranagua; this bridge and road, together, provide an alternative link with the sea.

Highways

2.04 Details of the highway system and its administration are given in Chapter 3.

Railways

2.05 The state-owned Presidente Carlos Antonio Lopez (PCAL) railway is run by a semi-autonomous Government agency under the responsibility of the Ministry of Public Works and Communications (MIOPC). The railway crosses the "Triangulo" area from Asuncion to Encarnacion (376 kn) and is linked by ferry with the Argentine railway (General Urquiza system) at Encarnacion. There would, however, be no direct competition between the railway and the proposed project roads. The extremely poor condition of the track and rolling stock, partly caused by neglect on the part of the Government to modernize the rail- way at the time of its purchase in 1961, has made railway service inefficient, unattractive and uneconomical. Traffic on the railway has been generally declining since 1950, with passenger traffic dropDing frori over 2.0 million p.a. at that time to 0.2 million p.a. in 1973. Freight traffic has increased from a low of 74,000 tons in 1967 to 132,000 tons in 1973, which is still con- siderably below a viable traffic level (Table 1). Operating deficits reached a peak in 1969 (US$0.6 million) and, in 1972, had declined to approximately US$0.4 million.

2.06 Several studies have been undertaken to determine the future of the PCAL railway, but none were required to deal explicitly with the economic implications of discontinuing rail services altogether. Studies to investi- gate rehabilitation of the railway have also been carried out, but the sub- stantial investments required (US$6.1 to 7.5 million) and the expected relatively low transport demand have precluded the implementation of the studies' recommendations. In 1970, Louis Berger, Inc. and SAE, as part of the "Plan Triangulo" study (para 1.02), analyzed the prospects for the railway vis-a-vis potential road competition and recormended the gradual closing down of the railway.

2.07 Following this recommendation, the Bank reached agreement with the Government in May 1971 that the latter would provide no further financial support to the railway beyond the level of funds currently assigned to meet its deficit and would permit only those investments which could be financed within this limit. The UIDP study, completed in July 1973 (Annex 1, para 10), proposed either (a) closing the line or (b) partial rehabilitation of track, purchase of new equipment, closure of the Abai branch and abolition of -4- special passenger service. The consultantsrecommended the latter but felt that the differencebetween closing the line and following the latter recom- mendation was not very significantfinancially and that the Governmentshould make the choice. Thev did conclude,however, that the partial rehabilitation would not be economicallyprofitable. A study in earlv 1974, conducted by a technical mission sponsored by the Governmentof Janan, investigatedthe electrificationand rehabilitationof the railwaY and estimated the cost to be some US$75 million, includingequipment. Their final report is due in late 1974. Because the economic feasibilityof the railway has not changed significantl since the Bank's discussionswith the Government in 1971 and the contemplatedinvestment would seriously dilute funds needed for other modes, the Bank obtained reaffirmationfrom the Governmentin writing that the previouslyagreed limitationof financialsupport to PCAL will be maintained.

River Tr_anport

2.08 The Paraguay and the Parana are the principalnavigable rivers of Paraguay and, with Argentina'sRio de la Plata, constitutea 1,600-km system along which the bulk of Paraguay's foreign trade is carried; most of this trade is transshippedin Buenos Aires or Montevideo. Service on these river links suffers because of severe seasonal fluctuationsin the water level of the Paraguay River, and a study into the possibilityof improving its navigabilitybegan in January 1970, partly financed by a UNDP grant of about US$800,000equivalent. The draft final report of the first phase of the study, for which the AdministracionNacional de Navegacionv Puertos (ANNP, para 2.09) was the executing agency, was submitted in December 1973. The study recom- mends, inter alia, an investmentand maintenanceprogram for dredging the Paraguay and Parana Rivers below Asuncion. The conclusionsand recommenda- tions are currently under considerationby the Government of Paraguay and Argentina. The plan of operation for the second phase of the studv, an examinationof navigationrequirements north of Asuncion, also to be partially financed by the UNDP, is under considerationamong the Governmentsof Paraguav. Brazil and Argentina.

Ports

2.09 Ports handle about 85% of all internationaltraffic and are satis- factorilymanaged by the semi-autonomousANNP. The main port, at Asuncion, has recently been improvedwith Bank financing (Loan 437-PA, US$2.8 million, December 1965) (Annex 1, para 5). Traffic at Asuncion, includingprivate piers, amounted to about 490,000 tons p.a. during the past three years: this constitutesmore than 70% of Paraguay's total river imports and exports. In addition to Asuncion, there are a number of minor ports which handle small volumes of local and internationaltraffic.

State Merchant Fleet

2.10 The Flota Mercante del Estado (FME), a semi-autonomousGovernment agency, has a small but modern merchant fleet of 27 cargo ships with a total carrying capacity of about 20,000 tons (capacitYper vessel ranges from 280 - 5 - to 1,200 tons), and two passenger ships. Most of the fleet operates on the Paraguay-Parana-Riode la Plata river system. FHIE'straffic averagesmore than 150,000 tons annually,about 20% of the country's total import and export volume.

Air Transport

2.11 Air transport in Paraguay is provided by two airlines. The largest, TransportesAereos Mtilitares(TAM), is state owned, and is now, after several years of deficits,breaking even financially. With a fleet of nineteen DC-3s, TAM handles more than half the domestic passengerand freight traffic. The other, Lineas Aereas Paraguayas (LAP), which -s also operated by tileParaguay- an Air Force, provides services to Argentina, Bolivia, Brazil, Peru and Uruguay. LAP has a fleet of three Electras, one Convair 240 and one DC 3. Only two Electras and the DC-3 are in regular operation. Because LAP is operated by the military, actual operatingrevenues and expendituresare difficult to ascertain. The LAP administrationmaintains its revenues to meet recurringexpenses, but the Government is subsidizingits capital outlays of some US$600,000per year. Most of these capital ex enses are in payment for the three Electras,which will be paid off in 1977.

C. TransportPolicy and Coordination

2.12 Although the Government has no formallydefined transportpolicy, investmentsmade in the sector have generallymet the developmentneeds of productive areas through better transportfacilities; a policy needs to be defined, however, and the UNDP-financedtransport survey (para 2.15) recommendsmeasures for so doing. The present project is, nevertheless, consistentwith developmentneeds since it will provide better access to present and future agriculturaldevelopments.

2.13 Transport investmentplans are prepared by MOPC on the basis of project lists prepared by the agencies in charge of the various modes. The SecretariaTecnica de Planificacion(STP) reports directly to the President and is responsiblefor overall economic planning. This agency examines the economic viability of MOPC's investmentplans on the basis of expected economic and financial resourcesand social, economic and political goals. The transportplan is finally approved by the Government and included in the public investmentplan.

2.14 Planning coordinationamong the transportagencies is poor, and the decision-makingprocess is carried out independentlyby each of them. Internally,however, there are no major modal coordinationproblems since, at present, the only competitivemodes would be the PCAL railway and the existing roads.

2.15 To help the Government with its investmentplanning and with other problems in the transport sector, UNDP financed a transport survey, with the Bank acting as executing agency. The consultants,BCEOM (France)/ENECOM (Brazil),started field work in Februiary1972 and finished in July 1973. - 6 -

They made recommendationson policies for integratingthe transportsystem, priorities for investmentin all modes, steps for creating and operating an agency for transport planning and coordination,and training for local pro- fessional staff of the planning agency.

2.16 The major recommendationfor transportplanning and coordination was the creation, as a first step, of the Office of Coordinationand Integral Planning of Transport (OCIPT)within the MOPC to continue the transport survey effort. This office was legally created during the study phase but, in practice, did not operate because the Ministry of Finance did not make the necessary funds available. During negotiations, assurances were obtained from the Government that it will provide the financing for the operation and staffing of OCIPT with approximately 15 professionals and supporting staff. Agreementswere also reached during negotiationson the timetable for setting up and staffing the OCIPT to be in operation by mid-1976.

2.17 The second step proposed by the UNDP-financedtransport survey was the creation of a National Transport Council (Consejo Nacional de Trans- porte, CNT) whose role would be mainly technical and would consist in formu- lating and implementinga national transportationpolicy consistentwith economic development conditions. The CNT would also be responsiblefor planning and coordinating investments within the system and would act as a regulating authority for tariffs and user charges for transport. The con- sultants consideredthat the creation of the CNT in the future would be the intermediatestep necessary prior to the creation of a Ministry of Transport, whose power would include the authoritv to impose taxes.

2.18 The consultantsalso recommendedthat OCIPT would be the channel through which local personnel could be further trained on-the-jobby foreign technical assistanceand sent abroad for additional training. The proposed project provides for the financing of such technicalassistance, estimated to cost US$400,000 in total (US$300,000for consulting services for training on-the-joband US$100,000 for training abroad). During negotiations,agree- ment was reached with the Governmenton the timing and the method of selection of consultants to undertake the required technical assistance.

3. HIGHWAYS

A. The Highway Network

3.01 The highway network in Paraguay totals about 6,500 km, of which more than three-quarters are earth. Road development over the past 20 years has been concentrated on paving primary roads and on extending the system (Table 2). The network as a whole provides acceptable transport to most populated areas of the country. However, some of the existing paved and gravel roads need to be improved to meet growing traffic volumes and facili- tate the developmentof new agriculturalareas. For administrativepurposes, - 7 - the highway system is classifiedinto national or primary highways, depart- mental or secondaryhighways, and local or feeder roads; there are, in - addition, some other roads such as oil developmentroads.

B. Characteristicsand Growth of Road Traffic

3.02 As a result of recent Bank projects, traffic counts are now carried out more frequentlythan in the past, and traffic data are availableon some of the primary and secondary roads. There are also some traffic data on the "Plan Triangulo"area roads. The UNDP-financedtransport survey (para. 2.15) has also provided updated traffic counts, and the Second Road Maintenance Project, Loan 652-PA, provides for the setting up of a permanent traffic counting system. The UNDP-financedtransport survey shows that the weighted average daily traffic (ADT) for asphalt roads is 650 vehicles per day, for gravel and earth roads, 65 vehicles per day and for penetrationroads, 25 vehicles per day. Traffic on paved roads near Asuncion ranges from 2,600 to 6,000 vehicles per day.

3.03 Statisticson the vehicle fleet are not collectedon a regular basis. The last Governmentcensus was taken in 1963, and, under the auspices of the IJNDP-transportsurvey, a subsequentcensus was conducted in 1970. These counts show that the total vehicle park grew from 10,952 vehicles in 1963 to 23,022 in 1970 or 11.2% p.a. on average. The number of light vehicles grew from 7,150 to 17,450 from 1963 to 1970, or 13.5% p.a., whereas the truck fleet grew from 2,228 to 3,513 or 6.7% p.a. The 1970 figures (Table 3) indicate that the vehicle density for that year would be about 10 vehicles per 1,000 inhabitants,one of the lowest among the Latin American countries.1/ However, this fleet appears to be adequate to meet existing transportdemand (the average truck capacity is 7.5 m tons, and the average cargo load is 3.1 m tons).

3.04 The consultantshave indicated that the growth of the vehicle fleet is 11.2% p.a. Traffic counts on roads previouslyfinanced by the Bank show an annual growth rate ranging from 10%0to 15% over the 1965-1973 period. The gasoline consumptionincreased at an average rate of 6.4% p.a. between 1965 and 1973, while diesel consumptionincreased by 11% during the same period (Table 4). These figures indicate that the annual rate of growth for traffic may be taken to be between 8% and 15%.

3.05 Bus transportis highly competitiveand loosely regulated;companies are generally run by individualowners or cooperatives. Trucking for import and export traffic is provided largely by Argentine and Braziliancompanies; domestic trucking is unregulatedand is handled by small local firms or by individuals. The consultantsfor the transportsurvey recommend some regula- tion of the tariffs in the trucking industry as well as in other transport modes in order to reach financial equilibriumfor all modes. A law has been presented to the Congresswhich provides a basis for establishingtransport policies and pricing regulations;however, it does not contain specific policy

1/ Bolivia also has approximately10 vehicles per 1,000 population. - 8 - measures or regulations. Thus, to assist the trucking industry as well as the Government,a review of the industry should be undertakenin order to detqrmine the steps necessary to provide serviceswhich will adequatelymeet consumer demand at reasonableprices. For these tasks, the proposed project includes a trucking industry specialistand a transporteconomist in the technical assistanceelement.

C. Highway Planning and Financing

3.06 The "Plan Triangulo" study (Annex 1, para 9) was a first attempt to plan highway transport comprehensively on a regional basis. Feasibility and detailed engineering studies of priority roads thus identified were carried outt under Loan 443-PA (Annex 1, para 6), and have provided the basis for the present project as well as for a possible further project.

3.07 A five-yeartransport investment program (1971-1975),prepared by MOPC, was approved in February 1971, taking into account not only the overall development requirements of the country, but also some political criteria. Forecast highway expenditures were estimated to grow almost three- fold in the 1971-1975period to a total of approximately0 2.5 billion, or US$19.5 million equivalent,in 1975. However, the proposed investmentprogram appears to be too ambitious; actual expenditures for 1972 and 1973 were 46% and 20%, respectively, of those planned. It should be noted that the overall highway expenditures, including maintenance, have remained fairly constant, averaging about US$5.6 million per year from 1969 to 1973 (Table 5). The consultants for the transport survey (para. 2.15) now estimate that rhe investment budget for priority projects for the period 1974-1977 should be some US$6.6 million equivalent per year, including the Encarnacion-Pirapo road but excluding the Trans-Chaco road, which would cost about an additional US$8.0 million per year. It is unlikely that the complete recommended program can be carried out, particularly with the funds available to the transport sector, the lack of adequate institutional arrangements to carry out the pro- gram and the lack of detailed engineerin- for these projects (except the Trans-Chaco and the proposed Bank project). The proposed Bank project would average UIS$5.0million per year for the 1975-1978 period. The forecast yearly investment wqould then be about US$16.0 million per year, almost triple the previous five-year average.

3.08 Mfajorplanning obstacleshave been the absenceof a transportdata collectionsystem and of a suitable focus for collectingand evaluating these data. To remedy these deficiencies, the Government agreed under Loan 652-PA (Section 5.12) to establish and maintain an adequately staffed and equipped office to collect and analyze data required for the proper planning of main- tenance, improvementand expansionof national roads; also, the project itself provided for the preparation of a road inventory. The inventory is being completed,and the Government has set up a highway planning office within MOPC, but so far the responsibilities of this office have been limited to thieplanning for maintenance; the Government, therefore, did not comply in full with Section 5.12 of Loan Agreement 652-PA because it did not favor the creation of a new bureaucratic organization. Highway planning in the mean- time was carried out by the MOPC Planning Unit in coordination with DGV on - 9 - the basis of the limited available data. The Bank initiallyinsisted on full compliancewith the above-mentionedSection 5.12, but when it was known that the UNDP-financedtransport survey recommendedthe creation of OCIPT (para 2.16), the Bank decided instead to reach an agreementwith the Governme,ntunder the present project for the centralizationof all highway planning efforts under OCIPT. During negotiations,it was agreed that the 21OPC'soffice would be responsiblefor overall public works and OCIPT for transport planning and coordinationonly.

3.09 Over the 1965-1973period, about 40% of highway expenditureshave been financed by external borrowing,while most of the remainder, comprising local funds, have been provided from earmarked taxes from fuels and the 5% surchargeon imports. Total revenues from road users (Table 6) have, in recent years, substantiallyexceeded total expenditureson roads (Table 5).

D. Highway Administration

3.10 The DireccionGeneral de Vialidad (DGV) within MOPC is responsible for planning, constructingand maintainingall national and departmental roads in the country (about 807 of the total network). Responsibilityfor constructionand maintenanceof feeder and oil developmentroads is entrusted to two other departmentswithin MOPC (Direccionde Juntas Viales and Direccion de RectursosMinerales). Additionally,the Ministry of Defense constructs and maintains about 1,200 km of roads in the Chaco region through its Civil Action Program, and some minor road works are also carriedout by the Insti- tute of Rural Welfare of the Ministry of Agricultureand by the Paraguayan- BrazilianCommission.

3.11 I-henDGV was created in 1947, its primary concern was to be road trafficregulation; however, in the late 1960's, it was reorganizedand given responsibilityfor preparing and carrying out highway programs and highway administration,and separate departmentswere created within DGV for engineer- ing, maintenance,equipment and administration(see Chart). In spite of some institutionalimprovements, lines of responsibilityare still not well defined and salaries are relativelylow (para 3.22). Institutionalimprovements in DGV are continuingunder the most recent Bank-financedhighway project. To cope with the increasedworkload resultingfrom (a) the proposed project, (b) other constructionand rehabilitationworks and (c) the increasinghighway maintenanceeffort, DGV's technicaland administrativestaff would have to be increased. As shown in paragraph 3.07, the forecast vearly investments during the 1975-1978period would be about three times the average expendi- tures in the previous five-yearperiod, and the hiring of additionalengineers, accountants,administrators and secretarialhelp would be required. During negotiations,assurances were obtained that DGV's technicaland adminis- trative staff will be strengthenedto an adequate level, approximatelysix professionaland administrativestaff, to cope with the increasedworkload.

3.12 Regulationslimiting vehicle weights and dimensionsare generally satisfactory(legal axle load limit is 10 tons), but improvementsare needed in their enforcement. Three fixed weighing stationshave been established, - 10 - however, and the Bank has financed the purchase of portable scales; the consultants, Jorgensen (US)/Tecnipar (Paraguay) have recommended the measures needed for effective enforcement of the regulations. During loan negotiations, assurances were obtained from the Government that enforcement will be improved through the use of a reorganized highway patrol as well as of portable scales. A special committee will soon be appointed to review all existin, regulations and, taking into consideration the consultants' comments, will recommend measures to improve and expedite the enforcement of these regulations.

E. Highway Engineering

3.13 Staff limitations a&low DGV to undertake design only on a limited scale; major projects are designed by consultantF. There are two local consulting firms active in highways.

3.14 DGV has a set of geometric design standards, but they are not wirdely used. When major construction is to be done, as in the case of this proposed project, the consultants propose design standards to fit the circum- stances of the particular proJect, taking Into account physical conditions, traffic volumes, etc. The standards for this project (Table 7) have already been approved by the Government and are acceptable.

F. Highway Construction

3.15 Construction of the major highways started in 1960 with the improve- ment and paving of the Asuncion-Puerto Presidente Stroessner road under two USAID loans (Annex 1, para 11); other roads were also paved under Bank/IDA- financed projects (Annex 1, paras 2, 3 and 6). Since 1960, in many cases with USATD assistance through its PL-480 programs, low-standard earth roads have been constructed to serve new settlement areas. The Government is now using IDB financial assistance (USS26.4 million) to undertake its largest investment in highways, the paving of about 300 km of the 425 km of the Trans- Chaco road, at a total cost of about US$33 million; construction is expected to take about four years (mid-1973 to mid-1977).

3.16 Major highway construction work is normally carried out under unit price contracts awarded on the basis of competitive bidding. There are only three local construction firms capable of carrying out small-scale road works, and about 30 small firms which specialize in drainage structures, minor earthworks, and supplying of materials. Major construction works are carried out normally by foreign contractors with participation of local firms through subcontracts. The local construction industry is, however, poten- tially capable of further expansion but needs technical assistance for its development; this would be provided under the proposed project. An amount of US$100,000 has been included to engage consultants who would work with the contractors' association or with individual firms to assist them in (a) work planning, site management, equipment usage and personnel training; and (b) costing and bid preparation. During negotiations, agreement was reached with the Government that it will engage consultants, to be selected according to Bank procedures, for assisting the local construction industry, - 11 - and that due consideration will be given to the consultants' recommendations so that the local contractors could participate more actively in future highway construction and rehabilitation works.

3.17 DGV carries out some construction and reconstruction works by force account, frequentlv in conjunction with the army engineering brigade. The Juntas Viales (Local Boards) and other Government departments also undertake construction of local roads, generally in coordination with DGV. Government- financed highway work is normallv supervised by DGV staff. However, because of the expanded workload created by the proposed project, supervision of construction will be carried out by consultants.

G. Highway Maintenance

3.18 DGV performs all its highway maintenance commiitmentsby force account, through four district offices; supply of materials is usually by contract. Maintenance in the fifth district (the Chaco) is a military res- ponsibility (para 3.10), and there are no immediate plans for DCV to take over this task. The Juntas Viales maintain loc-alroads witlh equipment and financial assistance provided by DGV.

3.19 Initially, the organization of maintenance did not keep pace with the changes in the system, and, since most of the earth and gravel roads were originally only tracks with poor alignment and without adequate drainage, they are generally difficult to maintain. In addition, the continuing short- age of funds and equipment meant that DGV was not able to extend maintenance to the entire primary highway network on a permanent basis. The situation has improved substantially since 1970 when allocation of funds for highway maintenance was increased and the Bank-financed technical assistance provided a highway maintenance program which used the allocated funds and new equipment more efficiently.

3.20 A master plan for maintenance was prepared in 1967 by consultants (Brown & Root, US) under the Second Highway Project and, in January 1970, the Bank made a loan for implementing this plan (Loan 652-PA, US$6.0 million - see Annex 1, para 7) and for the purchase of maintenance equipment. Consul- tants, Roy Jorgensen (US), in association with Tecnipar (Paraguay), are assisting DGV in implementing the maintenance program, and equipment purchases and construction of workshops are well under way. However, the Highway Main- tenance Department within DGV is weak, and, as a result, the day-to-day opera- tions are carried out by the consultants; the Department needs to be strength- ened, and the project provides for an extension of the consultants' services (which have been very effective) for an interim period of about two years, during which period the Department would have to be strengthened with addit- ional engineers, technicians, etc. as well as transportation and other facilities needed for the proper operation of the Department; the consultants will assist in the setting up of an adequate Highway Maintenance Department. During negotiations, assurances were obtained from the Government (a) that during such period, the present Maintenance Department will be strengthened, increasing its professional staff by approximately three people and (b) that - 12 - it will take over all maintenanceoperations from the consultantswithin the two-year period according to a timetable agreed with the Bank.

3.21 In spite of the fart that highway maintenancehas substantially improved during recent years as a result of Bank projects, it is now necessary to undertake a study which would include an analysis of achievementsreached and the preparationof an advanced Highway MaintenanceProgram which could possibly provide the basis for a further maintenanceproject. The proposed project provides for the financingof consulting services to carry out suich a study, and, during negotiations,agreement was reached with the Government on the retention of consultantsto carry out the study.

3.22 A cost accounting svsten for maintenanceworks is now being implemented by the consultantsand DGV as part of the Second Road MaintenanceProject. The training program for mechanics -- part of the project -- is being carried out satisfactorily(so far, 27 mechanics and two engineers have been trained in Brazil and in Panama) and will continue until project completion. How.ever, because of low salary scales, many of the trainees may not remain long in DCV's service on completion of their training. The consultantsproposed a revised salary scale to make salaries more competitivewith those of private industry and to rationalizesalaries for similar positions. Accordingly,DGV granted some salary increases and succeeded in retaining some personnel in service. The problem is becoming more arute now that the preparatoryworks for the Itaipu and Yacireta-Apipedams over the Parana River have started. The Itaipu dam twillbe constructedwith Brazilian financing, and its preliminarycost estimate is US$4.0 billion equivalent;the Yacireta-Apipedam is to be built with Argentine financing, and its preliminarv cost estimate is about US$2.5 billion equivalent. The demand for skilled labor, techniciansand engineers created by these huge works is increasing. The Government considers that this nay become a major problem and has undertakenmeasures to avoid, as far as practicable,the drainage of its personnel. Additional salary increases, scholarshipsand other incentives are being considered. In order to permit the recruitmentof suitable qualified personnel and to keep the dropout rate to a minimum, assuranceswere obtained from the Government during negotiations that it wgillput into effect the additional incentives it deems necessary for recruiting and retaining DGV personnel.

3.23 A desirable level of maintenanceallocations for the 1970-1973 period was agreed in connectionwith the Third Highway Project. As a result, maintenance expendituresduring the 1970-1973period have been, on the average, much higher than in previous years. It is expected that, by mid- 1975, all the equipment financed under Loan 652-PA will have been purchased; an adequate allocationis being provided for its operation.

3.24 To ensure the continuityof this expanded maintenance program, the Bank agreed with the Government during negotiationson the minimum amounts to be allocated for maintenanceduring 1975-1978. DGV's maintenancebudget provides for some expendituresnot strictly for maintenance (e.g., general administrativeexpenditures) which should not be inappropriateas long as the - 13 - budget provides enouglh funds for the proper maintenance of the road network. During negotiations,an assurancewas obtained that the National and Depart- mental Highwav Systems will continue to be adequatelymaintained.

4. THE PROJECT

A. General Description

4.01 The project consists of:

(a) Road constructionand reconstructionas follows:

(i) Encarnacion-Hohenau-PirapoRoad - The reconstructionand paving of an existing gravel road between Encarnacionand Hohenau (37 km) and the constructionof a bypass around the city of Encarnacion (about 1.5 km) and of a spur road to the river port of Pacu-Cua (about 4.5 km); and the construction, includingpaving, of a new 33-km section between Hohenau and Pirano; 1/

(ii) Mbocayaty-ColoniaIndependencia Road - Reconstruction,including paving, of this 24-km road and of the access road to Melgarejo (about 2 km).

(b) Purchase of spare parts, tires and batteries for the equipment being financed under Loan 652-PA; and

(c) Consulting services for:

(i) Supervisionof constructionof the roads under (a) above;

(ii) Extension of the technical assistancecurrently being provided (under Loan 652-PA) for maintenance;

(iii) A study to determine further highway maintenance requirements, and

(iv) Technical assistance for transport planning and for aid to the local constructionindustry.

Road Constructionand Reconstruction

4.02 Out of 450 km of roads identifiedunder a UNDP study, a total of 260 km were studied by Louis Berger (US) and SAE (Argentina)under Loan 443-PA

1/ This new section would replace the existing 49-km section between Hohenau and Pirapo which crosses a network of small rivers; it has sharp curves and steep grades, which makes travel difficult,particularly during the rainy season. The proposed new route would substantiallyimprove the alignment and would shorten the present Encarnacion-Piraporoad by about 20 km. - 14 -

(nara 1.02 and Annex 1, para 6). The roads mentioned in paragraph 4.01 (a) achieved an acceptable economic priority, and detailed engineering for them was satisfactorily carried out by the same consultants. Subsequently, the 1973 UNDP-financed Transport Survey also identified the Encarnacion-l1ohenau-Pirapo road as a high priority road, although thie survey did not include the 'roocayaty- Colonia Tndependencia road. The latter has been includeclin the project at the Government's request in view of its satisfactory economic prospects. Details of the roads and the areas which they serve are given in Chapter 5. Tihepro- posed design standards are shlown in Table 7.

4.03 The existing gravel road between Encarnacion and 711ohenau crosses rolling terrain and can be classified as an improved track. The horizontal and vertical alignments are not satisfactory and tlauroad lacks an appropriate drainage system; during very heavy rains, DGV closes the road in order to avoid major maintenance expenditures. The present connection between idohenau and Pirapo is through i network of poor gravel surfaced tracks crossing num- erous farms and has thle same drainage problem as th1e first section. The urD- ject would provide a pavecl, all-weather road needed to cope with tne growing traffic demand.

4.04 The present earth road between Mbocayaty an,! Colonia Independeacia crosses rolling terrain tlhrough an important agricultural area, tiie develop- ment of whi-:h is iampered by the poor condition of thie road. Because of insufficient drainage, the road is floodeJ during heavy rains, with frequent traffic stoppages; its reconstruction, including paving, is urgent to provide a permanent connection to the outside markets.

4.05 Specific lbor-intensive teclhniqueshave not been used for the civil works design mainly because the Government does not favor substitution of labor for equipment, chiiefly because of possible higher financial costs and lower quiality work, but also because the average unenmploymentrate in Parag;ay is relatively low (6%). In light of the above, the designs and detailed en- gineering for the proposed project were prepared under the Government's super- vision on the basis of normal equipment usage and normal labor input by con- tractors. Further, it is now expected that the construction works at the two dams (para. 3.22) will absorb most of the unemployed able to work on civil works projects.

Purchase of Spare Parts, Tires and Batteries

4.06 The project includes the procurement of spare parts, tires and batteries for maintenance equipment for a period of about two years. This item was included to assure satisfactory progress under the ongoing maintenance project (Loan 652-PA). The increased maintenance activity, resulting largely from the maintenance project, necessitates an increase in the inventory of spares.

Consulting Services

4.07 The project provides for the financing of consulting services for supervision of construction and for assistance in highway maintenance. The present DGV Maintenance Department is weak, and the day-to-day operations are - 15 - carried out by the consultants; the project provides for the extension of the consultants' services for an interim period of about two years, during which period DGV should strengthen its maintenance department and take over all maintenance operations (para. 3.20).

4.08 Since the Bank feels that DGV needs furthterassistance for highway maintenance, the present project provides for the financing of an advanced Highway Maintenance Program which would furnish the basis for a furtlher maintenance loan (para. 3.21).

4.09 The proposed project additionally provides for technical assis- tance in two areas:

(a) Transportation planning and training abroad of local personael. The creation of OCIPT (para. 2.16) leads to the need for on-the- job training of planners, economists, etc., which will be carried out through a consulting firm, as well as the need to send local personnel abroad for training (para. 2.18); and

(b) Aid to the local construction industry (para. 3.16).

B. Cost Estimates, Financing and Disbursement

4.10 The total cost of the project is estimated at US$20.0 million, including contingency allowances; the proposed loan would finance the esti- mated foreign exchange component of US$14.5 million. 'Fable 8 shows a break- down of construction cost estimates by major items. A sunmary of total estimated project costs is shown on page 16 following.

4.11 A contingencv allowance of about 10%l has been included to cover possible quantity increases; since detailed engineering has been satisfactor- ily completed, this allowance should be adequate. A contingency of about 25"'for nrice escalation on civil works has also been included on the basis of the average annual increases indicated in recent bank sttudies (15% for 1975 and 12Z thereafter). The price escalation contingency of about 13'Yfor consulting services has been estim-ated on the basis of a yearly increase of 8/'. Thle price escalation contingencies have been estimated from tihe time of negotiations until completion of construction (late 1978).

4.12 Assuming that construction would be carried out by foreign firms subcontracting part of the works to local firms (para. 4.15), the foreign exchange component has been estimated by the consultants Louis i,erger-SAE at 70%; in view of the lack of construction resources, this is considered reason- able. The foreign cost of consulting services is estimated at 80%, based on experience with similar services in Paraguay.

4.13 Local costs will be met by the Government, and assurances were obtained during negotiations that adequate funds will be provided to meet the local costs. -16-

O Million US$ million equiv. For0ign Local Foreign Total Local Foreign Total zxchange

1. Construction and Reconstruction fr Roads

(a) incarnacion-Pirapo 340.2 793.8 1,134.0 2.70 6.30 9.00 70

(b) Mbocayaty-Col. Indep. 113.4 264 .6 378.0 0.90 2.10 3.00 70 Sub-Total 3 1,058.4 1,512.0 3.60 8 40_12.00

2. Rgt-of-Way 37.8 - 37.8 0.30 - 0.30

3. Purchase of Spare Parts, Tires and Batteries for Maintenance 1,quipm'nt - 144.9 144.9 - 1.15 1.15 100 h. Consulting Services

(a) For supervision of construction of roads under 1 above 25.2 126.0 151.2 0.20 1.00 1.20 80

(b) For extension of the present maintenance assistance 5.0 20.2 25.2 0.o4 0.16 0.20 80

(c) For a study of future maintenance needs 5.0 20.? 25.2 0.o4 0.16 0.20 80

(d) Technical assistance for: Transport Planning and Training abroad of local personnel 10.1 40.3 50.4 0.08 0.32 O.Lh() Bo

(e) Aid to local construction industry - 12.6 12.6 - 0.10 0.10 100 Sub-Total 1573 219.3 264. 0.36 -l.T 2.10

5. Cont.ingencies

Physical (10% of Item I) 45.4 105.8 151.2 0.36 0.84 1.20

Escalation:

25% of Item 1 108.3 269.7 378.0 0.86 2.14 3.00

13% of Item 4 2.9 29.0 31.5 0.02 0.23 0.25 Sub-Total 156.5 720 560.7 l 1 .24 3.21

Totals 692.9 1,8?7.1 2,520.0 5.50 14.50 20.00 72% - 17

4.14 For civil works, disbursements will be made on the basis of 100% of the actual foreign exchange costs and 33% of local costs (representing to- gether the foreign exchange component, which has been estimated at 70% of total civil works costs of the project). The schedule of estimated disbursements is given in Annex 2. For spare parts, tires and batteries, and for consulting services, disbursements will be made for the actual foreign exchange costs. Any funds remaining in the loan account after the project lhasbeen completed will either be used for additional consulting services, studies or items for high- way maintenance, or will be cancelled.

C. Execution

4.15 Execution of the project will be the responsibility of the MOPC through DGV. The possibility of breaking down project works into units attrac- tive to local contractors was considered; however, the limited capacity of the few local firms would make it necessary to subdivide the works into too many small units, leading to uneconomic and inefficient administration of project works. To enhance competition among foreign firms, it is proposed, therefore, that, for the Encarnacion-Hohenau-Pirapo road, works should be divided into two sections (Encarnacion-Hohenau and Hohenau-Pirapo). Prequalified bidders would submit bids for each of the two sections separately or as a package for both sections. Bids for the Mbocayaty-Colonia Independencia road would be submitted for the whole road. Local contractors are expected to participate through sub- contracting to larger foreign firms, as has been the case in previous Bank highway projects. The proposed highways cross some agricultural areas, but no delays are foreseen in acquiring the land. Works are expected to start by mid-1975 and be completed by late 1978. The bidding and construction schedule was agreed during negotiations.

4.16 Construction contracts will be awarded on a unit price basis after international competitive bidding in accordance with Bank's "Guidelines". These procedures were discussed and agreed during negotiations.

4.17 Contracts for the Durchase of groups of spare parts for the main- tenance equipment financed under Loan 652-PA, involving expenditures up to USS3O,OO0 for each group, may be awarded directly to the dealers of the equip- ment. The procurement of tires and batteries will be made after international competitive bidding in accordance with the Bank's "Guidelines".

4.18 Consultants selected in accordance with Bank procedures will assist GCV in prequalifying bidders and in evaluating bids, and will supervise con-. struction. Selection procedures were discussed and agreed during negotiations.

4.19 For the assistance in highway maintenance, MOPC proposes to engage the consultants Roy Jorgensen-Technipar who are satisfactorily carrying out such assistance for tile current maintenance program (Loan 652-PA, para. 3.20); for the study to he carried out to determine future highway maintenance require- ments (para 3.21), riOPCproposes to engage the same joint venture of Roy Jorgensen-Tecnipar, which is well acquainted with the country's needs. The tiankhas agreed in principle to MOPC's proposals. - 18 -

5. ECONOMIC EVALUATION

A. General

5.01 The project roads (Encarnacion-Hohenau-Pirapo, 76 km, and ?4bocayaty- Colonia Independencia, 26 km) are located in the "Triangulo" area of south- eastern Paraguay which, although it occupies only 8% of the total area of the country, has 80% of the population and provides a like proportion of GNP, mainly from agriculture. Improvement of the roads can be expected to produce benefits by:

(a) reducing operating costs to road users and providing all-weather service;

(b) reducing road maintenance costs; and

(c) facilitating the full development of, and access to, rich new agricultural and forested areas.

B. Description of the Roads and the Areas They Serve

Encarnacion-Hohenau-Pirapo Road

5.02 The proposed project road will improve and shorten a poor gravel road between an area of rich agricultural and forest resources and the Parana River port of Encarnacion, Paraguay's second largest city (population about 55,000) and a major transport center. The road will be the first section of the proposed link between Encarnacion and Puerto Presidente Stroessner; when this link is completed, the "Triangulo' area would have paved roads on all three sides.

5.03 The area along this project road is made up of small population ceniters and colonies witlh a total population of about 50,000 inhabitants. Some of these colonies were settled by German immigrants during the first half of this century, but there are also new colonies of Japanese immigrants in the area. These Japanese colonies are among the more prosperous in Paraguay: their level of technology is high, their organization into cooperatives is efficient, and financial assistance for agriculture and feeder road develop- ment is available through a fund provided by the Government of Japan. Dev- elopable land is now becoming scarce in the Encarnacion-Hohenau area of the road, but along the Hohenau-Pirapo section, which would be served by the project road, and even beyond Pirapo, some good land is still available to attract new settlers.

5.04 Aniong the wide range of crops grown in the area are cotton, corn, citrus, yucca, tung, and soybeans; the latter two are processed locally at in- dustrial plants located close to Hohenau, and in Pirapo and Encarnacion. Sur- plus production from the area is either marketed in Encarnacion or exported - 19 _

to Japan; the productiontransported over the project road to these outlets amounts to more than 100,000 tons annually. Livestockdevelopment in the area has been slow; the 1968 livestockpopulation in the entire area was only about 27,000 cows and 58,000 pigs.

5.05 In recent years, the economyhas benefittedappreciably from tourism, and the project road provides access to Jesuit ruins which are of tourist interest. The developmentof both tourismand agriculturehas been slowed down, however, partly because of the high vehicle operationcosts on the existing roads, which are generallyin very poor condition (the roads have to be closed for a total of about 50 days per year followingheavy rains).

Mbocavaty-ColoniaIndependencia Road

5.06 This project road will improvea very poor, frequentlyflooded earth road that connects an important agricultural area to a previously Bank- financed road (Loan 443-PA) linking Villarica (population about 42,000) and Coronel Oviedo (population about 68,000) to Asuncion.

5.07 This area is also made up of small population centers and colonies with a total population of about 32,000 inhabitants. Most of these colonies were settled by Germans in the early 1920's, but foreign immigration has ceased, and the settlers coming into the area at present are native-born Paraguayans. The settlement area has expanded beyond Colonia Independencia, and some land from timber holdings is now open for settlement. There is still virgin land available, thus allowing for increased growth and encouraging additional immigration into the zone. Because of these factors, the consul- tants (Louis Berger) have estimated that commodity tonnages could double in ten years from some 70,000 m tons to 140,000 m tons.

5.08 Grapes, verba mate and sugar cane are among the more important crops. Processing plants within the area produce processed sugar, alcohol, rum, syrup, mandioca flour and toasted yerba mate, and the wineries bottle more than 5,500,000 liters per year. Poultry farming is also important, and much of the local production of chicken and eggs is marketed in Asuncion and Villarica.

C. Traffic

5.09 In 1969, the consultants (Louis Berger, USA/SAE, Argentina) esta- blished an ADT of about 200 vehicles on the Encarnacion-Hohenau section (40.5 km) and 226 on the Hohenau-Pirapo section (48.8 km) of the road, of which about 35% were trucks. The Mbocayaty-Colonia Independencia road at that time had 74 ADT to Naville (the first 8.2 km) and 57 ADT after Naville to Colonia Independencia (15.8 km); about 48% of the vehicles were trucks. By 1973, traffic counts indicated that traffic had grown over 18% p.a. on the Encarnacion-Hohenau section; some 2% p.a. on the Hohenau-Pirapo section; over 22% p.a. on the Mbocayaty-Naville section; and 19% p.a. on the Naville-Colonia Independencia section (Table 9). Traffic growth on these sections (except Hohenau-Pirapo), compared to the overall country estimated average of 8%-15%, has been high (para. 3.04). - 20 -

5.10 However, ADT declined in 1974 on three road sections from the counts taken in 1973 (Table 9). Only the Encarnacion-Hohenausection showed an increase,some 9%. The traffic from Hohenau to Pirapo dropped 18% from the previousyear; from Mbocayaty to Naville, 4%; and from Naville to Colonia Independencia,5%. The large drop in trafficon the Hohenau-Piraposection is due to a combinationof a decrease in demand for tung oil (one of the area's major commodities)and an increase in fuel prices. All sections showed a rise in bus and truck traffic,which now representsover 65% of total traffic.; These percentage declines in traffic indicate a fairly inelasticdemand for transportwhen compared to increases in fuel prices in January 1974 of up to 92%. Because of the high price increasesin fuel and the uncertaintyof the need for short term price increases,traffic growth from 1974 to 1978, the year of the roads' openings, is conservativelyexpected to increase 25% less per annum than the previous trend data (1969-1973) for these sections show. After 1978, the annual rate of growth is conservatively estimated to grow, for cars, at 5.4%' p.a.: buses at 3.5% p.a.; and trucks at 6.0% p.a. This analysis includes also generated traffic estimated at 15% of normal traffic for trucks, 30% for buses, and 5% for passenger cars in the fourth year of opening of the new road on the basis of experience with new roads built in the country and the recent fuel price increases. These, again, are conservative values in view of the considerable improvement to be effected on the roads and the dev- elopmental effects that these improvements are likely to generate, particularly in agriculture and tourism. A sensitivity analysis has been carried out to measure the effect of generated traffic on the economic results (Table 11 and para 5.15). n. Benefits from the Project

5.11 The main and immediate source of readily quantifiable project bene- fits will he: (a) a substantial reduction in unit vehicle operating costs due to the provision of paved roads (Table 10) and a distance savings of 19.2 km on the Encarnacion-Pirapo road for normal and generated traffic; and (b) road maintenance savings. Since the public transport industries are competitive, benefits from the proposed project improvements would be passed to farmers, manufacturers, consumers and passengers.

5.12 Developmental effects of the proposed road have been considered in quantifying induced traffic. The new roads will stimulate the colonization and development of areas beyond the project roads by reducing the passenger and freight costs to and from those areas and by providing shorter, all-weather roads. However, additional highways as well as other investments will be required in these regions to open them up completely and to develop them fully. Other quantifiable benefits accruing to the project roads are the savings in maintenance costs for the proposed paved roads as compared to those for the existing ones.

5.13 Further benefits can be attributed to the project roads -- for example, time savings for passengers on business and other trips, the possibil- itv of using larger and heavier cargo vehicles as a result of better road conditions, reduced spoilage of agricultural products, and increased comfort to road users. These benefits have not been quantified, however, so that, to this extent, the economic returns are conservative. - 21 -

E. Economic Evaluation

5.14 The estimatednet benefits discountedover a 20-year economic life give a value for the economic return of 21% for the Encarnacion-Hohenauroad section, 29% for the Hohenau-Piraposection, 17% for the Mbocayaty section and 11% for the Naville-ColoniaIndependencia section (Table 11), with a weighted average of 21% for the project as a whole. All road sections, except Naville-ColoniaIndependencia, have first year returnsover 10% (using a dis- count rate of 10%). The economic return for the proposed Naville-Colonia Independenciaroad is marginal. This is caused in part by high construction costs due to the substantial earthworks required to build the road above flood level to ensure all-weather access to the region. In the past, the road has been closed to traffic over 70 days p.a. with duration of closures up to three days. Although quantifiablecosts for these closures with regard to vehicle costs and operators' time have been consideredin the analysis, it is not possible to quantify the adverse effects on the people in the region served nor the loss of productioncaused by them.

5.15 Sensitivitytests applied to the economic analysis assumed an increase in constructioncosts of 25%, variations in vehicle operating cost savings, and a reduction to zero for the amount of generated traffic. The economic returns using these variations range from 20% to 29% for the Encarnacion-Piraporoad and 10% to 16% for the Mbocayaty-ColoniaIndependencia road. These sensitivity tests indicate that the economic feasibilityof the proposed project roads re- mains within acceptablelimits.

F. Other Project Elements

5.16 Benefits were not quantifiedfor the purchase of spare parts. They are considered justified for the necessary improvementand maintenanceof the highway network.

6. AGREEMENTSREACHED AND RECOMMENDATION

6.01 During negotiations,agreement was reached with the Government on the followingprincipal points:

(a) Providing financing for the operationand staffing of OCIPT (nara 2.16);

(b) Strengthening DGV to cope with the increased workload (para 3.11);

(c) Strengtheningthe Highway MaintenanceDepartment to take over all maintenanceoperations within a two-year period (para 3.20); and - 22 -

(d) Increasingof salary scales and other incentivesfor DGV personnelin order to permit the recruitmentof suitably qualified staff and to reduce the dropout rate (para 3.22).

6.02 The project constitutesa suitablebasis for Bank lending in a total amount of US$14.5 million equivalent. An appropriateloan term would be 25 years, including a five-yearperiod of grace.

November 25, 1974 TABLE 1

PARAGUAY

FOURTH HIGHWAY PROJECT

PCAL Railway - Freight and Passenger Traffic - 1950-1973

Year Freight Passengers ('000tons) (tO00)

1950 175 2,028

1955 121 1,280

1960 86 817

1965 94 415 1966 78 176

1967 74 127

1968 95 219

1969 114 227

1970 127 195

1971 121 192

1972 161 201

1973 132 203

Note: Recent increasesin freight traffichave been caused mainly by tariff reductions.

Source: Central Planning Office and PCAL Railway, March 1974.

August 1974 TABLE 2

PARAGUAY

FOURTHHIGHWAY PROJECT

Development of the Highway Network - 1950-1973 (in kilometers)

Year Paved Gravel Earth Total

1950 88 474 288 850

1960 194 653 1,318 2,165

1965 470 963 3,234 4,667

1966 525 997 3,934 5,456

1967 577 834 4,371 5,782

1968 687 724 4,756 6,167

1969 810 601 4,898 6,309

1970 817 594 4,919 6,330

1971 832 583 4,970 6,385 1972 842 578 5,005 6,425

1973 851 601 5,050 6,502

Source: Ministry of Public Works and Communications (MOPC), March 1974.

August 1974 . .--..- .....*. . I.... ~~~~~PAR-AGUAY FOURTHHIGHWAY PROJECT Vehicle Registration in the Country 1970

R~MJLR-, SMALL DEPARTAMENT CARS JEEPS S4ALL TRUCKS REGULAR TRUCKS TOTAL - I ~~~~~~~~~~~~BUS5ES.BUSESRCS OA

Concepc1i6n 29'. 44 62 5 - 53 193 San Pedro 71 23 so50 5 2 52 139 Cordillera 108 24 1. 141 37 101 177 588 Guaira 101 26 159 19 45 165 515 Caaquazd 48, 24 145 23 62 149 451 Caazapg ,17 19 3 5 29 78 Itapu& , . 246 ' 82 489 8 62 467 1354 Misiones , 9 19 111 6 15 .' 43 233 Paraquart 81 36 139 19 103 93 471 Alto Paran& | 71 10 66 3 51 82 283 Central (&xcluding Asunci6n) 761 48 540 161 215 463 2188 Neembuct Ij 181 . 48 59. .9 10 58 202

Amambay 14 53 73 , - 112 252 Pdte. Hayes 18 29 69 11 7 70 204

e. Olimpo - 4 5 3 15

Total Interior 15461 487 2127 309 681 2016 7166

Capital 1 6852| 715 . 5724 443 625 1497 15856

TOTAL CUNTRY 8398 1202 7851 752 1306 3513 23022

.I. ', ! .NI Source: Integral Transport Survey 1973

June 1974 - TABLE4

PARAGUAY

FOURTHHIGHWAY PROJECT

Gasoline and Diesel Oil Consution - 1965-1973 (f000 liters)

Year Gasoline Diesel Oil Total

1965 51,780 49,220 101,OO

1966 53,625 57,140 110,765

1967 56,265 63,470 119,735 1968 60,020 74,900 134,920

1969 63,100 85,780 148,880 1970 66,423 88,370 154,793 1971 68,600 88,000 156,600 1972 75,700 97,370 173,070

1973 84,830 113,520 198,350

Annual Rate of Growth

1565-10/73 6.L% 11.0% 8.8%

1/ Decrease in diesel oil consumptionin 1971 is attributableto the effect on road transport services caused by f_oodsduringthe first quarter of the year and to the completion of important road works (Paraguari-Encarnacion).

Source: ESSO de Paraguay} March 1974

August 197h TABLJ 5

PARAGUAY

FOURTHHIGHWAY PROJECT

Highway Expendituresand Road User Contributions- 1965-1973 (in million Guaranis)

1965 1966 1967 1968 1969 1970 1971 1972 1973

Construction Total 486 402 537 720 667 278 466 258 254 Local 1/ 343 146 262 326 298 184 395 132 137 Foreign- 143 256 275 394 369 94 71 126 117

Maintenance Total 35 17 10 20 44 210 392 517 328 Local 2/ 35 17 10 20 44 197 216 215 246 Foreign------13 176 302 82

AdministrationŽ' 23 25 23 20 24 27 31 37 43

TOTAL $44 444 570 760 735 515 889 812 625 Local 401 158 295 366 366 40b 642 384 426 Foreign -143 256 275 394 369 107 247 428 199

ROAD USER CONTRIBUTIONS 686 950 1,070 1,236 1,352 1,419 1,502 1,474 1,891 (see details Table 6)

1/ Includes financing from IBRD, USAID and IDB.

2/ Includes financing from IBRD for purchase of equipment (Loan 652-PA).

3/ All these expenditures are locally financed.

Source: Ministry of Public Works and Communications

August 1974 TABLE6

PARAGUAY

FOURTHHICGHWAY PROJvCT

Road User Contributions 1965-1973 (in Iril3 iouns of guarani-3) 1965 1966 1967 1968 1969 1970 1972. 1972 1973

Fuel Taxes 198 315 1X55 552 619. 6h6 659 715 791

Road Tolls 28 36 37 47 55 59 63 67 74

Vehic1.e Licenses - - 10 23 19 23 27 24 26

Tax on Sales of Vehicles 11 12 10 23 22 22 22 24 26

Import Charges on Vehicles andl Parts 428 564 535 567 627 629 688 602 921i

Municipal Registration Fees 21 23 23 26 40 40 43 42 50

Totals .686 950 1,070 1,238 1,382 1,419 1,502 1,474 1,891

Source: Central Planning Office

August 1974 TABLE 7

PARAGUAY

FOURTHHIGHWAY PROJECT

Design Standards for Project Roads

Encarnacion Mbocayaty- Unit Pirapo Col. Independencia

1. Design Speed km/h 80 60

2. Width of Roadway m 9.00 9.00

3. Width of Surfacing -m 6.oo 5000

4. Width of Shoulders m 1.50 1.60

5. Minimum Radius of Curvature m 300.00 200.00

6. MaximumGCrade % 6 ' 7

7. Stopping Sight Distance m 145.00 110.00

8. Type of Surface Triple bituminous Double bituminous surfacetreatment surfacetreatment

9. Standard Axle Load Pavement Design m tons 10 LD

10. Bridge Design Loading H-20 H-_'

1/ There is a 7% grade at one location.

Source: Consultants'Report November 1974 T'ABLE :

PARAGUAY

FOURTH HIGHWAY PROJECT

Breakdown of Construction Cost Estimates (Excluding Contingencies)

(US$)

ROADS Encarnacion-Hohenau Mibocayaty-Coloni1a Pirapo Independenicia 2Oof cost of cost

1. Earthworke 3,026,000 33.6 1,378,000 45.9

2. Bridges and drainage structures 1,864,000 20.7 475,000 15.b

3. Sub-base; base and surfacing 3,406,000 37.8 808,000 26.9

4. Mobilization 345,000 3.8 141,000 .7

5. Miscellaneous (protection works, lane markings and other various works) 359,000 4.i 198.003 o.7

TOTALS 9,000,000 100.0 3.000,000 13 .0

Average Cost per km US$ 118,000 115,000

Source: Consultants' Report and Appraisal Mission

November 1974 PARAGUAY

FOURTHHIGHWAY PROJECT

Avergae Daily Traffic Forecaston Project Roads - 1974-1997

1/ 2/ 2/ 3/1 Road Section 1969 19737 197) 1978 198r 1987 1997

Normal Normal Normal Normal Normal Generated Total Normal Generated Total Normal GeneratedTotal

EncarnacionHohenau 197 387 421 620 728 97 825 1006 132 1138 1730 224 1954

Hohenau,-Pirapo 226 240 198 203 237 30 267 329 43 372 570 71 641

Mbocayaty-Naville 74 164 158 263 307 48 355 418 65 483 703 104 807 Naville-Colonia Indlependencia 57 126 120 198 232 34 266 318 45 363 543 76 619

Sources: 1/ Actual Traffic - Louis Berger, Inc. "Plan Tiangulo" Area

2/ Actual Traffic - Ministry of Public Works and Communications, Paraguay 3/ Mission Estimates

August 1974 PARAG^MUAY

FOURTHHIGHWAY PROJECT

Vehicle Operating Costs - Guaranis/km

Economic Costs (Without Taxes)

CARS TRUCKS BUSES

Paved Gravel &arth Paved Gravel £arth Paved Gravel Earth

75 kph 44 kph 42 kph 57 kph 44hkI 38 kph 64 kph 46 kph 45 kph

Running Costs

Fuel 4.92 5.36 6.20 3.68 5.26 6.69 2.72 3.87 4-97 Lubricants 0.25 0.25 0.25 0.47 0.47 0.47 0.36 0.36 0.36 Tires 0.13 0.25 0.L0 1.39 3.50 8.34 o.66 1.42 3.42 Washing and Gr. 0.04 0.08 0.09 0.09 0.12 0.16 0.09 0.12 0.16 Maintenance o.48 0.57 0.84 1.39 2.22 3.61 O.ff7 0.82 1.50 Depreciation 2.09 3.05 4.22 1.62 2.51 4.00 0.59 0.91 1.46

Sub-total 7.91 9.56 12.00 8.64 14.08 23.27 4.99 7.50 11.87

Time Costs

Wages -- __ __ 3.57 4.62 5.32 4.15 5.76 5.83 Interest 1.27 1.85 2.56 0.90 1.41 1.61 0.66 1.04 1.65 Insurance 0.62 0.92 1.28 0.45 0.70 1.11 0.32 0.51 0.82 Overhead -- -- 0-0.85 1.09 1.26 0.43 0.59 o.61 Sub-total 1.89 2.77 3.84 5.77 7.82 9.30 5.56 7.90 8.91 Total 9.80 12.33 15.84 14.41 21.90 32.57 ]0.55 15.40 20.78 =='= 55S======5==:= ==S=…-=='= ==Z=' = sC==== _=: = =

Sources: MOPC and Sociedad Argentina de Estudios (Argentina)

March 1974 o TABLE 11

PARAGUAY

FOURTHHIGHWAY PROJECT

Sensitivity Analyses of Economic Returns

Encarnacion-Pirapo Mbocayaty-Colonia Independencia Section I Section II Section I Section II Encarnacion- Hohenau- Mbocayaty Naville- Hohenau Pirapo Combined Naville Col.-Indep.Combined

1. Best estimate 21% 29% 24% 17% 11% 13%

2. Increase constructioncosts by 25% 18% 25% 21% 14% 9% 11%

3. Increasebenefits by 25% 25% 34% 29% 21% 1h% 16%

4t.Decrease benefits by 25% 17% 24% 20% 14% 8% 10%

5. Delete generated traffic 20% 28% 23% 16% 11% 13%

Source: Mission Estimates

July 1974 ANNEX 1 Page 1

PARAGUAY

FOURTH HIGHWAY PROJECT

Bank/IDA Projects in the Transport Sector and other External Assistance for the Sector

Bank/IDA Projects in the Transport Sector

1. 1951: Loan 55-PA, US$5 million. This was basically an agricul- tural project, but US$1 million of the loan amount was provided for equip- ment to construct feeder roads. The equipment was utilized well, and the project was satisfactorily completed.

2. 1961: Credit 12-PA, US$6 million. The project consisted of: (a) reconstruction and paving of the Paraguari-Encarnacion road (303 km), (b) construction of a major bridge, (c) purchase of maintenance equipment, and (d) preparation of a master plan for maintenance. Redesigning of the road and bridge -- to protect them from severe floods such as those which occurred during the final design stage in 1963 -- resulted in undue delays and higher costs. This, in turn, led to the need for supplementary financing which was provided by Loan 396-PA (referred to below).

3. 1964: Loan 396-PA, US$2.2 million. This loan was made to cover the cost overruns in the above project (para 2) and to finance its four-year ex- tension to December 31, 1969. Execution was hampered by poor management of work in the initial stages of the project, and by damages caused by further flooding in 1965 and 1966 which again increased project costs by almost 25%. Road works were carried out and completed by Hochtief (Germany) in early 1970. Hochtief then made a major claim on IIOPC for US$11.1 million (its original contract price was US$9.6 million). Supported by the project consultants, MOPC rejected the claim, and Hochtief has appointed his arbitrator. Since the Government does not intend to appoint an arbitrator, Hochtief may use other legal remedies to pursue his claim.

4. Work on the bridge was satisfactorily completed in 1968 by Chacofi- Albano (Argentina). Consulting services for the project works were provided by (eotecnica (Brazil) who also helped with the purchase of maintenance equip- ment for which US$1.1 million was allocated and disbursed from the loan and credit. Brown and Root (US) were engaged in 1966 to prepare a master mainte- nance plan which they made available the following year; it was only partially implemented by 1968, primarily because of lack of sufficient equipment, funds and personnel. The plan was updated, and a four-year program (1970-1973) drawn up to allow for the continued improvement of maintenance operations. bank financing for this program was provided under Highway Loan 652-PA (para 7). ANNEX 1 Page 2

5. 1965: Loan 437 PA, US$2.8 million. The project was generally to improve port facilitiesat Asuncion. Detailed engineeringand construction supervisionwere done initiallyby Thomas B. Bourne Assoc. (US), and later by Hlenningson,Durham and Richardson(US); executionwas by Empresa Brasilena EngenheriaComercio e Industria S.A. (ECISA, Brazil). Misunderstandingsbe- tween the Government, the contractorand the consultantslowed project execu- tion, but it was satisfactorilycompleted in mid-1971.

6. 1966: Loan 443-PA, US$2.1 million. The project provided for: (a) the reconstructionand paving of a 43-km road section (Coronel Oviedo- Villarica), and (b) feasibilitystudies of 450 km of roads in the "Plan TrianQulo"area identifiedunder a UNDP study (para 9), and detailed engineer- ing of about 260 Ianof those roads with the highest priority for construction. After considerabledelay by the Governmentin selecting a consultant,the studies were begun in January 1969 by Louis Berger (US) in associationwith SAT (Aroentina),and feasibilitystudies were completed in 1970. The road construction work was carried out by Chacofi (Argentina) and supervised by Brown and Root (US) who designed the project road; this work was satisfac- torily completed in October 1969. Mainly because of the unpredictable effect of the 1965/66 floods on subsurface soil conditions, and partly because of inadeauatedesign, additionalwork was required which increased total project costs by almost 25% above original estimates.

7. 1970: Loan 652-PA, US$6.0 million. -This loan helped finance a four year (1970-1973)highway maintenanceprogram which is being carried out witlh the assistance of consultants Roy Jorgenson Assoc. Inc. (US) and Tecnipar S.R.L. (Paraguay). Some delays in execution occurred when the project en- countered organizational and financialproblems, and completionis now expected by mid-1975. Correctivemeasures were taken.

8. 1974: Credit 509-PA- Small Farmer Credit and Rural Development Project, US$11.0 million. This credit will support a lending program to small farmers in three colonies located in the eastern region of Paraguay. The credit in- cludes a strong component of roads, totallingabout one-third of the total project cost of US$15.8 million, and involves the constructionof about 250 km of earth roads, includingbridges, and 60 km of all-weather roads.

Other External Assistance

(a) For MiLghEawys

9. A UNDP grant of approximatelyUS$600,000 equivalentfinanced a study of the agriculturalpotential and road requirementsof southeastern Paraguay ("Plan Triangulo"area). The Bank had acted as executing agency for this study (carried out during 1964-1967),and two US consultants (Aero Service, and Gannett, Flemming, Corddry and Carpenter) undertook the work. About 450 km of roads were identified as needing impDrovement,and feasibility studies and detailed engineeringfor some of these roads were done under the Bank's Second Highway Project (para. 6). ANNEX 1 Page 3

10. A TNDP training program begun in mid-1971 is providing technical assistanceto Paraguayanpersonnel working in Governmenttransport agencies. Also, a UNDP-financedtransport survey has recommendeda developmentprogram for transport and the establishmentand organizationof a transport coordi- nating agency. The transportsurvey also recommendsa training program which will provide local counterpartpersonnel to assist in its execution. The Bank has acted as executing agency for both these programs. Consultantsselected for the transportsurvey were BCEOMI-FNECOM,a French-Brazilianjoint venture. Field work on the first phase started in February 1972 and was completedin late 1972. The final report is dated July 1973, and the Governmentand the Bank have accepted its recommendations;in fact, under the present project, the first stage of the second phase will be implemented (para. 2.16).

11. The US Governmenthas provided financial assistanceto Paraguay througlhthe PL-480 programs of its Agency for InternationalDevelopment (USAID). These programs have been directed toward the constructionand improvementof feeder roads in agriculturalareas, and included the provision of construction equipment,as well as some local currency financing. Additionally,two loans totallingabout US$10 million were made in 1960 and 1967 for the reconstruction ana paving of the Asuncion-PuertoPresidente Stroessner road (about 330 km); base and pavement failures in early 1967 necessitateda further loan of US$4.7 million for rehabilitationof a 110-km section. Disagreementsbetween the Government and USAID on the award of contract have recently been resolved; work started in mid-1972 and is expected to be completedby early 1975.

12. The Canadian Governmenthas provided assistance for highway feasi- bility studies, with the Inter-AmericanDevelopment Bank (IDB) acting as executing agency. These studies comprised: (a) the Trans-Chacohighway (Villa liayes;- Filadelfia) - 425 km; (b) the access route from Asuncion to Villa hayes; (c) the Concepcion-PedroJuan Caballeroroad; and (d) constructionof a bridge over the Paraguay River. The most importantof these studies -- for th-e Trans-Chaco hiighway -- was carried out by De Leuw Cather and Co. (Canada) in 1968/1969,and the consultantsrecommended that the highway be paved. This is to be the largest road project ever undertakenin Paraguay; its original total cost was approximatelyUS$34.8 million, with IDB participationof USS26.4 million. Detailed engineeringhas been carried out by the consultant Ldwards & Kelcey (US) in a joint venture with Consultec (Paraguay). Bidding for this project took place in January 1972; constructionworks started in mid-1973, and are estimated to last about four years.

(b) For Other TransportMlodes

13. The Export-ImportBank provided US$1.12 million in 1956 to help finance the constructionof the runway of the internationalairport of Asuncion. Thereafter, in 1968, USAID made a loan of US$4.7 million to finance a new and larger runway.

14. The UNDP provided US$825,300for financing the Paraguay River NavigabilityStudy in 1970. The first phase of the study, which was completed in late 1973, aims at improving the navigabilityof shallow water sections between Asuncion and the junction of the Paraguay and Parana rivers. September 1974 ANNE'X2

PARAGUAY

FOURTHHIGHWAY PROJbCT

Schedule of Disbursements

IBRD/IDA Fiscal Year CiumulativeDisbursement and Semester ihding at End of Semester (US$ thousands)

1975

June 30, 1975 100

1976

December 31, 1975 1,500

,Tune30, 1976 3,000

1977

December 31, 1976 5,000

June 30, 1977 7,500

1978

December 31, 1977 9,500

June 30, 1978 11,500

1979

December 31, 1975 13,000

TUno 30, 1979 14,500

1;ource: MOPC and Appraisal Mission

Assumptions:(For constructionworks - the main project component) Invitationto bid: March 1975 Commencementof works: June 1975 Completion: late 1978

August 1974 PARAGUAY FOURTH ROAD PROJECT ORGANIZATION CHART OF 1WE DIRICTORATE OF HIGHWAYS

MINISTER OF PUBLIC WORKS AND COMMUNICATIONS I DIRECTOR GENERAL OF |HIGFHVAYS

|PROGRAMMINGM

D E P A R T M E N T S

EERING ~~~~~MAINTENANCE EUIPMEN ADMINISTRATION I I ~~~~~~~~~~~~~~~~~~~~~~~~~DISTRICTS | ~ ~~~DI V I S I O N S I

STUDIES CONSTRUCTION MANENC AND SUPERVISION SUERISIONTR DESIGNS AND CONTROL S E C T I ON S S E C T I O N S

4 SURVEY l vTECHNICAL | L RADIO l qTRANSPORTATION] ACCOUNTING DISTRICT 1

# DESIGN l iADMINISTRATIVE| 4 PERSONNEL BUDGET DISTRICT 2

BRIDGES WORKSHOPS PURCHASES DISTRTCT]

r ILFE WAREHOUSES PERSONNEL DISTRICT 4

World Bank 6342 (R) S

N Ni\

A '

N' N

!CNNA 7 N N N 0 Zr - (N; (

UNNI. >*Qfl 1 T 1'2

as

/7/ N / N N'

-I £

N(N 'F /

I -t NZ'

t N' N 5 N N-, NN7 N 1

I-

7 N / / ¾,

25 88 IstEA ! igrr| IbL ia I., |S y Esteros

Bae BRAZIL VILLAHAYES yd L t de Mrz BOLIVIA)

AREA - ASUNCIOt~~~~~~~ onBersardino sloP~~~araucty N

VillaEliso CAACUP ~~~~~~SantaElena

It IJAY~~~~~~~~L I"ninORNc

A~~~~~~~~~~~~~~ARc 1

I LA e t IrdSQerodeencjaGs

ARGENTINA Acahoy / A mi ,~~~~~~~~~~~~~~~~~~~~~~~~~~~CneE Garay C¶ l Neembucude SAN wIUAN BAUTIST9<_ S~~~~aurub ) 0 NANDARIAS

ARGENTINAIostic minenuciiop,nndr on

-26, D~~~~~~ bycui3 40 ~ ~~~~~~~rb Ocurndaoy Sat2dl ui ______Tav_i_- ds-c------ro

e3: S < J ) r J ^) Central maintenance sho ig A R G ~~~~~~~~ENeebc SAberdl JUAN BA *Dsrc one hp ~~~~~~~~~~~~~~~~~~~~~Mainyopot

580 570 560 550

( #~~~~~~~~~~~~~ ~~~~~~~~~~ t| Oumacu 1 .L_ s _ 1 _ -4- | t nPerodeParanRQf~~~~~~~~~~~~~~~~~~~8oluinOu rod / stu_o or to be constructed, located1s z~~~~~~~~A Ia lgn Ml .EPivrapOT HIGHWAY NOECTWORK5 GXrol.J.E~ ~ ~~ ~~ ~ ~t0) ~ 51t' ~ /'~ . ~IC! ~iL!}'C~~~~~~~~~~~~~~~~Sn ~DizG ~ F,~ .t.a'l Rosa ~a ~~~~____t C C-...... 1t1/.CI. .. veI/eat 2 MAinprtigs surface #red ProUTHeRN in theNotrthern ReinPaoare,REGscnscION {~~~~~~~~~~~~~~~~~~~~~~~~~-Trol Yb You ITacura roAnl gua~ry- Scner 4i-AECCHGHWYuO(ozan l>sl r, rcilvi-,lDelgado esusiEER-ohinsrorsz )~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~oiFro ConstructionQIbudre t AYOIQS F ) 0 $/r a~~~MItES Pivrs fiRILiAi•ŽYe SŽUisongneriE ealed ng } 1 58° r 57o 56° 55° s~~~~~~~~~~~~~~~~~~~~~sntgoT ro D .z