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RETURN TO REPO 9RTS D'ESK RESTRICTED WITH3N Report No. TO-492a ONE WEEK FILE COPY 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 The report may not be published nor may it be quoted as representing their views.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 RECONSTRUCTION AND DEVELOPMENT INTERNATIONAL DEVELOPMENT ASSOCIATION Public Disclosure Authorized APPRAISAL OF THE KOBE EXPRESSWAY PROJECT JAPAN Public Disclosure Authorized August 27, 1965 Public Disclosure Authorized Projects Department CURRENCY EQUIVALENTS U.S. $1 w 360 1 Yen U.S. ¢0. 28 Fiscal Year April 1 - March 31 JAPAN APPRAISAL OF THE KOBE EXPRESSIWAY PROJECT TABLE OF CONTENTS Page SUMMARY I. INTRODUCTION 1 II. THE BORROWER 1 A. Organization & Management 1 B. Scope of Activities 2 C. Financial Structure & Policies 2 D. Financial Position and Earning Power 4 III. THE PROJECT 5 A. Description 5 B. Design Standards and Specifications 6 C. Execution and Operation 6 D. Cost Estimates and Financing 7 E. Toll Revenues and Earning Power 9 IV. ECONOMIYC JUSTIFICATION 9 A. The Importance of the Expressway 9 B. Transport and Traffic Facilities in Kobe 10 C. Er'tiinths-of Future Traffic and Additional Capacity Requirements 11 D. Specific Economic Benefits 11 V. CONCLUSIONS AND RECCMMENDATIONS 13 TABLES (1) Financial Position of Hanshin Expressway Corporation at December 31, 1964 (2) Operating Results of Hanshin Expressway Corporation June 28, 1964 - December 31, 1964 (3) Design Standards (4) Estimate of Cost (for 12.5 Km) (5) Schedule of Proposed Toll Charges (6) Application of Funds - Source of Funds (7) Estimated Average Daily Traffic, East-West Road System and Kobe Expressway 1969-1976 (8) Comparison of Operating Costs on the Existing Highways And Kobe Expressway No. 1, 1969 MAP 1: Hanshin Expressways and Other Trunk Routes MAP 2: Kobe Urban Expressway JAPAN APPRAISAL OF KOBE EXPRESSUAY PROJECT SUMMARY i. The Government of Japan and the Hanshin Expressway Public Cor- poration, an agency of the Ministry of Construction, have requested a loan of US$ 25 million equivalent from the Bank to help finance the construction of 12.5 km of four-lane elevated viaduct-type toll express- way in Kobe City (see Maps 1 and 2). ii. The total cost of the project including the cost of construction, right-of-way, administration, associated street improvements, and interest during construction amounts to s 30.3 billion (USs 84 million equivalent). The Corporation plans to finance about a half of the project cost from domestic loans, about a third from the proposed Bank loan, and the balance from Government and municipal funds. iii. Construction commenced early in 1964 on a priority section of the project, and as of April 1965 the overall project was about 101 complete. Sections of expressway between ramps will be opened to traffic as they are completed and the whole project length is expected to be open by April 1969. iv. The project is part of a larger program to construct a com- prehensive system of elevated urban expressways in the Osaka-Kobe (Hanshin) metropolitan area; about Y3 km of the planned network of 52 km is already in service. From 1964 through April 1969, the Corporation is expected to invest a total of g 135 billion (us$375 million equivalent) in the construction of the expressway system as part of Japan's Five-Year (Revised) Highway Development Plan, 1964-1968. v. The Hanshin Expressway Public Corporation wfill be the borrower and will administer, operate and maintain the project. The Corporation, which is an autonomous agency of the Ministry of Construction, is almost identical in its organization and methods of operation to lhe Tokyo Expressway Corporation, to which the Bank has already made a loan of US$ 25 million equivalent to help finance the Haneda-Yokohama Expressway (see appraisal report No. TO-455a dated December 11, 1964). As in the case of the previous Japanese expressway projects, the proposed loan would be guaranteed by the Government of Japan. vi. The project works will be executed by contract and procurement arrangements will be similar to those used for the construction of other Bank-financed expressway projects in Japan. Opportunity will be given for in- ternational competitive bidding on about 16,500 tons of structural steel work with an estimated total value of US$ 9 to 10 million equivalent. - ii - vii. The Hanshin region, of which Kobe City is a part, is one of the most industrialized areas of Japan and its economic importance is second only to the Tokyo-Yokohama region. Road traffic is expected to increase at about 7% per annum. Topographical conditions cause the transportation facilities of Kobe City to be concentrated in a long narrow coastal strip, and notwithstanding current improvements to the existinig longitudinal street system, traffic will continue to operate under increasingly con- gested conditions unless new facilities are constructed. The limited access expressway to be built above one of the existing longitudinal streets will contribute towards providing a satisfactory solution to the trans- portation problem. viii. The most important economic benefits of the expressway are the savings in transport costs and time. The benefits from reduced vehicle operating costs alone are estimated to yield a return on investment of nearly 10% during the expressway's useful life of about 30 years; an allowance for the time savings of passengers would increase this rate to about 20%. ix. Upon opening, the project expressway is expected to carry about 23,000 toll-paying vehicles daily, with the volume increasing to about 80,000 vehicles ten years thereafter. At the proposed level of toll charges the revenues generated will be sufficient to cover working costs and redeem all debt within a period of about 26-27 years, which is consistent with Japanese policy for the financing of expressways as agreed to by the Bank in earlier loans. x. Although a relatively new organization, the Hanshin Corporation has a competent staff and sound management. Its present finances and earnings are not a meaningful guide to future performance since express- way construction in the region is still in its early stages. There is reason to believe, however, that the Corporation will be a financial self-supporting organization once the complete network is built and operative. xi. The proposed project provides a suitable basis for a Bank loan of US$ 25 million; an appropriate term would be 24 years including a four-year period of grace. -1- JAPAN APPRAISAL OF KOBE EXPRESSW4AY PROJECT I. INTRODUCTION 1. The Government of Japan and the Hanshin Expressway Public Corpora- tion, an agency of the Ministry of Construction, have requested assistance from the Bank in financing the construction of a 12.5 km length of urban expressway in Kobe City. Preliminary information on the project was submitted to the Bank towards the end of 1964; detailed information was received in May and June 1965. This report is based on a review of the material submitted and the findings of Bank appraisal missions in February and April 1965... 2. The Bank has already made five loans to the Japan Highway Public Corporation for inter-urban expressway construction between Tokyo and Kobe, and one to the Tokyo Expresswiay Public Corporation for an urban expressway in the Tokyo metropolitan area. The works under these earlier projects are proceeding extremely well. The proposed project, for which a loan of US$25 million equivalent has been requested, will form part of a network of elevated urban toll expressways intended to meet the traffic demand in the Osaka-Kobe metropolitan ccmplex (the Hanshin region). About h kn of a pro- posed total length of 52 km planned for 1969 is already open to traffic in Osaka City, and other sections are currently under construction in Osaka and Kobe. Responsibility for the Osaka-Kobe expressway network is vested in the Hanshin Expressway Public Corporation, which is described in succeeding paragraphs. 3. The proposed project expressway construction is part of Japan's 5-Year Highway Development Plan 1964-1968, which has been described previously in Report No. TO-474a dated May 13, 1965. Under the Plan, the sum of Yen 135 billion (US$375 million equivalent) has been allocated the Hanshin Corporation for the construction of the 52 km expressway network. II. THE BORROWER A. Organization and Management 4. The Borrower will be the Hanshin Expressway Public Corporation which was established in 1962 to construct, reconstruct, maintain and adminis- ter toll expressways with the object of facilitating the movement of traffic in the Hanshin region, a metropolitan complex comprising the cities of Osaka, Kobe, Amagasaki, Nishinomiya and Ashiya. Although the Corporation is autonomous in form, its policies, programs and budgets are subject to approval by the Minister of Construction, who appoints certain of the Corporation's senior members including the President, and approves the appointment of the Directors. The Corporation is almost identical in structure and operation to the Tokyo Expressway Public Corporation (described in detail in Report No. TO-455a dated December 11, 1964) to which the Bank has already made a loan of US$25 million to assist in financing the 12.8 km Haneda-Yokohama urban expressway in the Tokyo metropolitan area. The Japan Highway Public Corporation, although the Bank's Principal borrower for expressway construction in Aapan has a slifhtlv difterent ormnizational structure which reflects its role s an agency 10r JDng cistance iter-urDan expressways. -2- 5. Although a relatively new organization and young in experience, the Hanshin Corporation has a competent staff and sound management. It has benefitted from the experience gained by its sister corporation in construct- ing similar urban toll facilities in Tokyo, and also from the A½ km length of expressway which it recently completed and opened to traffic in Osaka.