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WITH3N Report No. TO-492a ONE WEEK FILE COPY
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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. The retention of consulting engineers by the Borrower is not considered necessary for the successful execution and operation of the project, but provision has been made in the Loan Agreement for the retention of consultants to the extent deemed necessary by the Corporation and the Bank, should any specific need arise for outside expert advice.
B. Scope of Activities
6. As of May 1965 the Corporation was operating the 3½ km of express- way in Osaka, and a further 5 km of expressway was under construction in Osaka, and 4 km in Kobe. The future program of the Corporation provides for expansion of the network to approximately 52 km by 1969 (see Map 1), with further extensions later.
7. The Corporation itself conducts the preliminary stages of planning, investigation and engineering for any new expressway. Detailed site investi- gation and survey is then undertaken by consulting engineers (invariably Japanese) under supervision of the Corporation, after which the geometrical alignment, final design and documentation are completed by the Corporation. Basic designs for steelwork structures are made by the Corporation, but detailed designs and site connections are left to the steelwork contractor and checked by the Corporation.
8. The Corporation's procedures for procuring construction work are similar to those followed on other Bank-financed expressway projects in Japan. The work is executed by contract after competitive bidding by prequalified contractors. Contracts are awarded to the lowest bidder submitting a price lower than the Corporation's estimate; payments are made on a unit price basis. The work is supervised in the field by Corporation staff; operation and maintenance of the completed facilities are undertaken by the Corpora- tion's own forces. The proposals for patrolling and policing the express- way appear satisfactory but are still in the experimental stage on the short stretch now open to traffic.
C. Financial Structure and Policies
9. The Corporation is in form a public enterprise whose charter provides for a financial structure including equity capital, construction subsidies and funded debt. Its debt has to be serviced from, and its capital redeemed out of, the tolls charged the users of the expressway and parking facilities.
10. The Corporation is responsible for and directly finances the construction of its toll facilities, including right-of-way. It contributes one-third towards the cost of the required widening of existing city streets above which its expressways may run. Such street widening is undertaken by the local municipalities or prefectures concerned, who in turn obtain part -3-
of the necessary funds from the Government. The municipalities and prefectures are responsible themselves for improving streets and roads which give access to the Corporation's toll roads, but are usually entitled to recover part of the improvement costs from the Government.
11. The Corporation's construction funds, apart from small amounts of re-invested income, are obtained from:
a) capital subscribed by the Government and by the local authorities of the Osaka-Kobe metropolitan area;
b) construction subsidies paid by the local authorities out of tax revenues, Government grants, and borrowed funds; and
c) bond issues sold to Government trust funds, Japanese banks, insurance companies and private investors and loans from outside financing agencies such as the Bank.
12. The Government subscribes half the capital portion of the construc- tion cost of each toll road, the municipalities and prefectures of the Osaka-Kobe complex the other half. This capital is non-interest bearing but must be redeemed out of revenue once the debt incurred to finance the facility is fully repaid.
13. The construction subsidies paid by the local authorities are outright grants-in-aid; the Government compensates the local authorities for part of the amount paid, under arrangements whereby the Ministry of Construction assumes part of the cost of building and improving local roads and streets throughout Japan.
14. The bonds which the Corporation sells to Government trust funds and private investors are general mortgage obligations, repayable from the revenue of the toll roads and any future parking lots. The public issues are guaranteed as to interest and principal by the Government. All the bonds issued to date pay 7% interest, mature over a 7-year period including a 2-year period of grace, and are issued at a slight discount from face value which raises the effective interest cost to 7.02%. New bonds are issued and outstanding bonds redeemed from month to month in amounts which reflect the pace of constructing and completing new toll facilities and the age of faci- lities already in service or still being built.
15. It is the policy of Government that the proportions of equity capital, construction subsidies and internal and external loans shall be so arranged as to produce an average interest rate of 6% of the overall construction cost of each new facility. Subject to this 6% requirement, each toll road is expected to earn enough, over an assumed economic life of 30 years, to pay the interest charges of the debt incurred to finance it, to -4- retire all such debt in due course, and to redeem the Goverrment and municipal capital. If insufficient cash for interest payments, debt redemption, or both, is generated during the early life of a toll facility, the deficiency is made good by short-term loans. When a road comes to generate more cash than needed for the interest and amortization of its funded debt, the sur- plus is used to reduce the outstanding balance of short-term debt. Once the original construction debt and subsequent short-term debt incurred for a particular road is fully repaid, the surplus cash it generates is used to redeem the subscribed capital. Once the subscribed capital is redeemed, the road becomes toll free. In substance, these arrangements require the Corporation to seek a 6% financial return on the overall investment over a- 30-year economic life for each expressway it constructs.
16. Tolls are set at a level intended to recapture, in the form of revenue to the Corporation, a certain fraction (about a half to two-thirds) of the estimated savings in vehicle operating costs and time to the expressway users. W4ithin the limits so imposed, the Corporation's tolls are geared to produce sufficient revenue to pay working costs and administrative expenses on the expressway and ancillary works, and depreciation charges against the non-road facilities. As mentioned in the preceding paragraph, they must also provide, over the assumed economic life of the road, a surplus sufficient to service and retire the debt incurred for road construction and eventually redeem the Government and municipal capital.
17. No depreciation is charged against the investment in toll roads whether financed by loans, subscribed capital or construction subsidies; instead, the Corporation follows the practice (in common with analogous bodies in the U.S.A. and elsewhere) of charging income with the amortiza- tion of the construction debt. On the other hand, the Corporation writes off its investment in such assets as parking lots, vehicles, repair shop facilities, and administrative buildings by annual depreciation charges based on the expected economic life of each such asset.
18. The Corporation capitalizes interest-during-construction and borrowo the funds to pay such interest; only Y193 million of its interest payments to date have been charged against income, while Y500 million have been capit- alized as construction investment on which a 6% return has to be earned. Interest payments on funded and short-term debt will continue to be much larger than interest charges against income throughout the construction period due to end in 1968/69.
D. Financial Position and Earning Power
19. The assets, liabilities and net worth of the Corporation are sum- marized in Table 1. At the end of 1964 the Corporation had invested a total of Y7.3 billion in operative facilities and Y7.8 billion in facilities under construction. In order to enable it to do so, f12.3 billion had been financed by bond issues, Y2.0 billion by capital subscription in equal amounts by the Government and the Osaka-Kobe municipal authorities and J1.1 billion by construction subsidies from the municipal authorities. The Corporation had incurred a loss of Y196 million since it began active public operation in the latter half of 1964. -5- 20. Howvever, the Corporation's present finances and recent earnings are not a meaningful guide to future performance. It was only at the end of June 1964 that the first short section of the Osaka Expressway (Route Nio. 1) was opened for traffic, followed by a second equally short length in November 1964, the total route length in use at the end of the year being only about 3Vz km out of the total planned length of 52 km. It is therefore too early to draw any significant conclusion from the operating results which are presented in Table 2. The whole length of the Osaka Expressway No. 1 (171½ kn), which is the first of the Corporation's enterprises, is scheduled for completion in 1967, and on the basis of the present rate of traffic growth the Corporation expects that operations will then produce a profit. A financial forecast for the Kobe Expressway, the second of the roads to be started by the Corporation, indicates a profit by about 1974-75. 21. The Osaka (Route No. 1) and Kobe Expressways when completed will com- prise 30 route kilometers of the Corporation's total planned network of about 52 route kilometers. There is reason to believe that constructiOn of the remainder of the network will be soundly justified on both financial and economic grounds, and that the viability of the Hanshin Expressway Corporation will ultimately be assured, although losses will continue to be incurred on each new facility until such time as traffic develops to an adequate level. The future financing plans of the Corporation will be discussed later in this report, III. THE PROJECT
A. Description
22. The Kobe Expressway Project (see Map 2) is an elevated, four-lane divided, limited access, toll expressway, extending 12.5 Km from a point called Tsukimiyama Ramp in the western outskirts of Kobe City to a point called Iwayaminamimachi Ramp in the eastern sector of Kobe. The project works in- clude the acquisition of the necessary right-of-way, the relocation of exist- ing utilities in the city street above which the expressway will run, the construction of viaducts and bridges in reinforced concrete and steel, the interchange ramps and toll facilities, and the lighting and traffic control facilities. The widening of a short section of approach street which forms an integral part of Minatogawa Ramp, and which will be financed wholly by the Corporation, is also included in the project.
23. For about 67% of its length the project expressway will be built as an elevated viaduct above an existing city street; 14% will traverse land owned by Government and local public bodies, 13% privately-owned land, and 6% rivers or canals. 2k. Closely related to, but outside the project to be financed by the loan, is the widening of the city street mentioned above,over which the expressway will run. The widening is the responsibility of the Kobe City authority and was commenced before the expressway was contemplated, but the Corporation will contribute one-third of the cost of widening two short sections of such street where the widening is necessitated by the expressway. Most of the widening is already completed or in progress, and an undertaking has been given by the Corporation and the Government that the balance of the work will be completed satisfactorily in phase with, or prior to, the comple- tion of the project expressway. The Government has also indicated its inten- tion to improve access to the project expres way from the west by doubling the capacity of the 10 Km long Kobe-A?ashi road see Maps) before April 1971. -6-
B. Design Standards and Specifications
25. The design standards for the project, and for the Osaka-Kobe urban expressway system in general (see Table 3), are the same as those used by the Tokyo Expressway Public Corporporation for the Bank-financed Haneda- Yokohama expressway project, and are considered satisfactory.
26. The maximum traffic capacity of the expressway at any transverse section has been assessed by the Japanese at about 78,000 vehicles per day. Although high compared with accepted capacity ratings in other countries, it is quite possible that operating conditions in Japan would permit such traffic volumes to be carried; records indicate that sections of a recently completed four-lane urban expressway in Tokyo, similar in design to the project, are now carrying around 60,000 vehicles per day and the volumes are continuing to increase. For the purpose of estimating economic and financial returns of the project, it has been deemed prudent, however, to regard the limiting capacity of the expressway as 60,000 vehicles a day.
27. Conditions of contract and specifications are similar to those used for the construction of other Bank-financed expressway projects in Japan and are satisfactory.
C. Execution and Clperation
28. Construction work on a 3.8 km priority section of the project, from Kyobashi to Yanagihara, commenced early in 1964 and is expected to be completed and opened to traffic by mid-1966. As of April 1965, the project was about 101' complete. The existing construction contracts were awarded on a competitive basis; the average size of the major contracts, about 10 in number, is around US$850,000 equivalent, and the quality of the,work is good. At the request of the Borrower, expenditures on this section have been considered eligible for Bank participation from April 1, 1965.
29. For the balance of the work it has been agreed with the Borrower that appropriate parts of the superstructure (involving the fabrication and erection of about 16,500 tons of steelwork in viaducts, bridges, and steel piers) would be open to international competitive bidding. The average size of contract for international bidding will be Yen 1,100 million (US$3 million) in value; three such contracts are proposed with an estimated total value of about US$9.2 million or 37% of the proposed loan amount. The procurement procedures and the specific works for international bidding were confirmed during loan negotiations and are satisfactory. It is not practicable to arrange tne substructure worss invu eonvracts oI a bsze likely to attract international bidders because of difficulties with traffic diversion, reloca- tion of underground services, land acquisition, etc. As in the case of the Bank-financed Tokyo expressway, such works will be executed by experienced Japanese contractorso
30. Sections of the expressway between ramps will be opened to traffic as they are completed; the whole project is expected to be completed at the end of fiscal year 1968, that is, by April 1969. The Corporation will super- vise construction of the project through a branch office in Kobe, and will administer and operate the completed project from its main office in Osaka as part of the Hanshin urban expressway network. -7-
D. Cost Estimates and Financing
31. The overall cost of the project, including the cost of construction, right-of-way, administration, associated street improvements, and interest- during-construction, amounts to Y30.3 billion (US$84 million); a breakdown is given in Table 4. The cost estimates, which are considered realistic, are summarized below:
? Billion (US$ Million)
1, Construction & Land Acquisi- tion including 10% Contingencies 2h.0 (66.7)
2. Associated Costs a) Survey and Miscellaneous Costs 0.8 ( 2.2) b) Research and Administration 1.6 ( 4.4) c) Street Improvements 0.3 ( 0.8)
3. Interest during Construction 3.6 (10.0)
Total - 30.3 (84.1)
32. The cost per km. of the expressway, including construction, right- of-way and an allowance for contingencies, averages about US$5.3 million equivalent, which although high, is not out of line with the cost of similar elevated urban expressways in other countries, and is about the same as the Tokyo expressways. Right-of-way and compensation accounts for almost 15 of the cost. Including other associated costs and interest during construction, the total cost per km. is about US$6.7 million equivalent.
33. The Corporation plans to finance about 53% of the project expenditure from domestic loans, about 30% from the proposed Bank loan, and the balance from Government and municipal funds. In summary, the project costs would be met as follcws: Y Billion
Domestic loans 16.0 Proposed Bank loan (US$25 million) 9.0 Capital subscriptions a/ 2.9 Construction subsidies Tgrant) 2.0 Corporation revenue 0.4
Total - 30.3
a/ by Government and local authorities (interest free).
Satisfactory assurances' were obtained during loan negotiations concerning the financial contributions of the Government and the local public authorities towards the project, -8-
34. The Bank's loan disbursement policy on previous Japanese express- ways has been to reimburse a pre-determined percentage of expenditures on a prescribed list of goods. In conformity with this policy and assuming (i) a Bank loan of US$25 million equivalent disbursed at a uniform rate against the Corporation's expenditures on construction and land acquisition, including an allowance for contingencies, and (ii) that disbursements include retroactively expenditures from April 1, 1965, a withdrawal percentage of 42% is appropriate.
35. If disbursements were to begin in the latter half of 1965, and assuming (from past experience) an interval of about two months between project expenditures and related loan disbursements, then the annual expenditure and disbursement schedule would be approximately as follows:
Estimated eligible expenditure Probable Fiscal on construction and land loan year (including contingencies) disbursement (from April 1 US$ million to March 31) Y billion US$ Mill. Equiv. equivalent
1965/66 4.7 13.1 4.7 1966/67 5.0 13.9 5.8 1967/68 5.6 15.6 6.4 1968/69 6.2 17.2 7.0 1969/70 _ _ 1.1
Total- 21.5 59.8 25.0 36. The project is part of the expressway network, approved by Govern- ment and local authorities, which the Corporation plans to construct in the next four to five years at a total estimated cost of Y135 billion. The annual expenditure on the overall construction program is approximately as follows:
Fiscal: 196h/5 1965/6 1966/7 1967/8 1968/9 Total
Y billion 12 22 30 34 37 135
37. The sum which the Corporation wishes to borrow from the Bank -- equivalent to Y 9 billion -- is only about 6% of the Corporation's total need of construction funds during the five year planning period. The sources of funds will be proportionately as follows:
Domestic Bonds 70% Government and Local Authorities 16% Corporation Revenue 8% Proposed Bank Loan 6% 100% -9-
E. Toll Revenues and Earing Power 38. As explained earlier the Corporation was created to build and operate financially self-supporting facilities capable of eaming enough revenue from tolls to repay their construction debt and subscribed capital over a period of not more than 30 years while eaming 6% annually on the total construction cost. The proposed tolls on the project expressway are flat charges ranging from ?120 (US¢ 33) a trip for light passenger cars to Y240 a trip for heavy trucks and buses. Further details of toll charges are given in Table 5.
39. The Corporation expects the project expressway to carry an average of 22,600 toll-paying vehicles daily when it is open to traffic over its full length of 1235 km in 1969, which is reasonable. The volumes are forecast to increase steadily to a maximum of around 105,000 vehicles daily after 25 years, based upon an average trip length of 9.5 km per vehicle and a maximum capacity of about 78,000 vehicles per day for any section of the expressway. As mentioned in para. 26 it has been deemed prudent to assume a more conservative capacity limit of 60,000 vehicles per day, which would result in an upper limit of about 80,000 toll-paying vehicles daily.
40. On the basis of the proposed toll charges and a limit of 80,000 vehicles daily, the toll revenues generated would be sufficient to pay for working costs and administrative expenses and redeem all construction debt and subscribed capital at the required interest level of 6% within a period of 26-27 years (see Table 6), which is satisfactory. With the Corporation's projected ceiling of 105,000 toll-paying vehicles daily, the pay-back period waild be 22-23 years.
41. Confimation wjgas obtained during cL4n negotiations that the Corporation will increase the expressway tolls if traffic does not develop according to its forecasts, and the Government indicated that it would. - approve such higher tolls as the Corporation may need to propose, from time to time, in order to strengthen the earning power of particular routes.
IV. ECONOMIC JUSTIFICATION
A. The Importance of the Expressway
42. The expressway will serve as a vital channel for road traffic in the Hanshin region and specifically for the city of Kobe. It will also constitute an important link in the national highway system.
4s3. The Hanshin region is the most industrialized area of West Japan and its economic importance is second only to the Tokyo-Yokohama region. While the Hanshin region accounts for only 2.8% of Japan's total area, its population of about 10 million represents 10% of the total. The region also -10 - accounts for about 15% of Japan's national income, 20% of its industrial production, and about 14% of the country's motor vehicle population.
44. Kobe, with a population of 1.2 million, is the second largest city in the Hanshin region (after Osaka) and the fifth largest in Japan. Its population has been growing at more than 2% annually in the last decade, about twice the national average growth rate. Kobe is heavily industrialized and is Japan's second largest port, handling nearly 30 million tons, and its most important outlet for exports. The number of motor vehicles registered in Kobe exceeds 100,000; the number has increased more than sixfold in the last ten years, and the annual rate of increase has been as high as 12% over the past five years.
45. For reasons of topographical conditions as well as of the character of urban activities the transportation network in Kobe city is concentrated in a narrow stretch of flat terrain between the southerm side of the Rocco Mountains and the coast line. Three main streets and two subsidiaries traverse this highly urbanized area, following more or less parallel east-west routes (see Map 2). Together they constitute the backbone of the road system of the Kobe city, connecting with Osaka to the east and with the two Akashi routes to the west.
46. The importance of these roads is thus not limited to their serving the main stream of traffic generated within the city, but it is also related to an important volume of through-traffic that has to traverse the city in both easterly and westerly directions.
B. Transport and Traffic Facilities in Kobe
47. The public transport facilities in Kobe consist of train service by the National Railway and five private railways, municipal street cars and municipal and private buses. The daily traffic in 1963 averaged about 1.6 million passengers; it was distributed among the public transport modes as follows:
National Railway 480,000 Private Railways 420,000 Municipal Street Cars 350,000 Municipal Buses 290,000 Private Buses 70.000 Total 1,610,000
48. The daily traffic flow on the east-west system of highways amounted to 120,000 vehicles in-1962. The data available in connection with the three trunk routes of the system (Yamate, Central and Hamate, see Map 2), which between them carry 80% of this daily traffic flow, indicate that in 1962 they handled 100,000 vehicles which in turm carried 115,000 passengers and 50,000 tons of cargo. The proportion of trucks and buses in the total vehicle flow amounted to nearly 60%. The estimated joint capacity of about 200,000 vehicles daily for this east-west system of roads is expected to be almost fully utilized by 1966. -11-
C. Estimates of Future Traffic and Additional Capacity Requirements 49. The forecast of vehicular traffic in the Kobe corridor is based on detailed origin and destination studies made by Japanese authorities, and takes into account such factors as the growth in population (about 2 per cent per year), industrial production (9 per cent), and vehicle registration (8 per cent). It is expected that traffic will grow at the rate of 7% per annum between 1965-74 and at 4% thereafter, which is a reasonable assumption. By 1974, the east-west flow of traffic is estimated to reach a volume of 320,000 vehicles daily.
50. In order to cope with the increasing traffic demand the Japanese authorities have been constantly widening the three main streets section by section over the past ten years. The widening is expected to be com- pleted in 1968, by which time all three facilities will be six lane main streets bringing the total capacity of the longitudinal street system to 280,000 vehicles daily. This capacity, however, wouiA1d prove inadequate by 1971 unless additional facilities were constructed. Furthermore, the predominance of low powered motor vehicles, frequent crossings, traffic lights, the street car system, and the condition of pedestrian discipline is such that even with surplus capacity in the present road system the speed of vehicles cannot rise much above 20 kn per hour.
51. A limited-access expressway capable of handling traffic at more than double the present speeds would prove particularly attractive to traffic passing through, or with origin and destination in, the city. It is with such background that the project expressway has been conceived. In 1969, its first year of full operation, the expressway is estimated to carry 22,600 vehicles daily, or about 10% of the total east-west flow (see Table 7). This volume is expected to increase at the rate of 11% during the first four years. As the traffic flow in the parallel roads reaches saturation point by around 1974, the traffic volume growth on the expressway will accelerate. As mentioned in paras. 26 and 39 the limiting capacity of the expressway for financial and economic evaluation has been taken at 80,000 vehicles daily travelling an average distance of 9.5 km. Such volumes are expected to be reached by 1977/78 after which additional capacity may again be required to avoid traffic operation under congested conditions. D. Specific Economic Benefits
52. The most important economic benefits of the expressway are reduced transport costs and time savings. The benefits fran lower vehicle operating costs alone are estimated to bring a return on the investment of nearly 10% during its useful life of 30 years; an allowance for the time savings of passengers would increase this to 20%. These are reasonable returns and reflect the inadequacy of the present facilities in the area. -12-
a) Reduced Transport Costs
53. The expressway will reduce vehicle operating costs both for those who will use it as well as for those who continue to use existing highways on which congestion will be reduced substantially.
54. On the basis of Japanese studies which appear reasonable, it can be estimated that the expressway will reduce vehicle operating costs for those who transfer to the new expressway by about 40% (see Table 8). For example, the cost per km for a small passenger car on the congested roads in 1969 before the new expressway is opened is estimated at Y13.0 (excluding gasoline and other sales taxes); on the expressway it is estimated at only Y7.6. For a small truck, the reduction would be from about Y50 to Y30. These reductions reflect an increase in average speeds from about 19 km per hour on the congested parallel highways to 50 km per hour for passenger cars and 40 km for trucks on the expressway; this permits, for example, a lower consumption of gasoline, less wear and tear on tires and brakes, and lower truck driver costs relative to the distance driven. The reduction in operating costs in 1969 alone is estimated at about Y1.2 billion (US$ 3.3 million).
55. As is common for urban transport projects, the benefits of the new expressway accrue not only to the users of the expressway, but also to the users of existing highways where congestion will be reduced. Since nearly 23,000 cars per day in 1969 are estimated to divert to the new express- way from parallel highways, this is estimated to increase the average driving speed on the existing streets from about 19 to 22 km per hour. The resultant reduction in vehicle operating costs is about 8 per cent - for small passenger cars, for example, from Y13 to nearly Y12 per km and for small trucks from Y50 to Y46. Since these reductions apply to a very-large number of cars, the total reduction in transport costs for those remaining on the existing roads is relatively large and is estimated at Y1 billion (US$ 2.8 million), some- what less than the cost reduction for those diverting to the new expressway.
b) Time Savings
56. In a country like Japan, where the labor force is fully employed, time is indeed money. The new expressway will reduce transport time for passengers and freight very substantially. At the 1969 estimated traffic and congestion level, the travel time on the highway sections paralleling the new expressway will be about 30 minutes for 9 km; travel time on the ex- pressway-is estimated to be about 15 minutes, saving a quarter of an hour for the 23,000 persons (excluding truck and bus operators) estimated to use the expressway daily in 1969. Japanese studies relate the value of time for passengers to their earnings: about ?360 per hour for persons using passenger cars and Y72 for those in buses. (The validity of these data is discussed in detail in the appraisal report on the Tokyo-Shizuoka Expressway, TO-384a, September 12, 1963). The total annual benefit would thus amount to about Y700 million (US$ 2 million) in 1969. There will also be substantial time savings for the 7,000 tons of freight expected to be shipped by truck every day. -13-
57. For the 230,000 passengers per day remaining on the existing three main highways alone the reduced congestion means a saving of about 4 minutes each. The value of this would be more than Y 1.4 billion (US$ 3.9 million) in 1969. There will also be substantial savings for the more than 75,000 tons of freight being shipped on these highways daily.
c) Other Benefits
58. Other benefits include a possible reduction in accidents, an expansion of markets especially for such items as fresh foods, and con- siderable increase in comfort and convenience. These benefits are not included in the above rate of return calculations.
V. CONCLUSIONS AND RECOMMENDATIONS
59. The proposed project will help relieve the increasingly severe traffic congestion in Kobe City, and is expected to provide for a continuous flow of up to 80,000 vehicles daily in and through one of the most heavily industrialized and populated regions of Japan. The project is basically sound and adequately justified economically; it will be financially self-supporting at the proposed level of toll charges and with lower traffic volumes than forecast by the Japanese authorities.
60. Matters concerning consultants, competitive bidding, financing, and related works were discussed and agreed with the Borrower and the Government during loan negotiations.
61. The proposed project provides a suitable basis for a Bank loan of US$25 million equivalent to the Hanshin Expressway Public Corporation. An appropriate term, analogous to those already made for similar expressway projects in Japan, would be 24 years including a four-year period of grace.
Projects Department August 27, 1965 Table 1
JAPAN
KOBE TEPR1Ea= PRMOT Financial Position of Hanshin Expressway Corporation
at December 31, 1964
Y million
Current Assets 801 Less: Current liabilities 271 Net current assets 530
Fixed Assets: (a) In service: Toll roads, at original cost 7,071 Other assets, at present value 263 (b) Under construction: Toll roads 7,780 Other assets 22 Net fixed assets 15,136 Unamortized Bond Discount 82
Research Expenses Capitalized 30
Total net assets 15,778
Long-term Debt: Hanshin Expressway Corporation bonds 12,300 Other long-term debt 538 Total long-term debt 12,838
Capital and Reserves: Government investment 1,000 Investment by local authorities 1,000 Construction subsidies 1,084 Retirement reser-ve for employees 52 3,136 Less: Cumulative operating deficits 196 Total capital, and reserves 2,940 15,778 Table 2
JAPAN
KOBE EXPRESSWAY PROJECT
Operating Results of Hanshin Expressway Corporation
June 28, 196 - December 31, 1964
Y million
Operating Income: Road tolls 39.8 Other operating income a/ 3979
Operating Expenses: Toll road operation b/ 29.1 General management 21.2 50.3
Net Operating Deficit (10.5)
Other Income c/ 10.0
Interest charges d/ 192.8
Amortization of bond discount 2.4 195.2
Net Deficit (195.7)
a/ About Y8,000 only. bE/ Excludes depreciation or accruing liability for debt retirement in lieu thereof. c/ Predominantly interest on back deposits and short-term securities. d/ Excludes capitalized interest-during-construction to the amount of Y500 million. Table 3
JAPAN
KOBE EXPRESSIAY PROJECT
Design Standards
1) Number of Lanes Four (divided)
2) Width of: Lane 3.25 m. Shoulder (including side strip) 1.15 m. Median (including side strip) 1.80 m.
3) Design Speed 60 km. per hour
4) Radius of Curvature 110 m.
5) Maximum Expressway Gradient 3.55
6) Maximum Ramp Gradient 7.8%
7) Length of Acceleration & Deceleration Lanes 110 m. Table 4
JAPAN
KOBE EXPRESSWAY PROJECT
Estimate of Cost (for 12.5 Kin)
Amount (Y,OUO million)
1. Construction Cost a) Superstructure Steelwork 7.2 b) Superstructure Reinforced Concrete 2.7 c) Substructure Steelwork 0.8 d) Substructure Concrete 5.3 e) Paving Works 0.3 f) Lighting & Traffic Control Facilities 0.6 g) Underground Utilities 1.7
Subtotal - 18.6
2. Right-of-way and Compensation 3.2
Total for (1) & (2) - 21.8 10% Contingency Allowance - 2.2
TOTAL FOR CONSTRUCTION & LAND - 24.0
3. Associated Costs a) Survey & Miscellaneous Costs 0.8 b) Research & Administration 1.6 c) Directly Related Street Improvements 0.3
Subtotal - 2.7
4. Interest Charges during Construction 3.6
TOTAL - 30.3 Table 5
JAPAN
KOBE EXPRESSWAY PROJECT
Schedule of Proposed Toll Charges
A. Large size vehicles 240 Yen (i) Passenger bus with capacity for 30 or more persons
(ii) Truck, over 8 tons gross weight or 5 tons carrying capacity
(iii) Specially-equipped vehicles
B. Ordinary vehicles 120 Yen (i) All passenger vehicles with capacity for less than 30 persons
(ii) Trucks, other than in A (iii) Midget cars and motor cycles
C. Coupon Tickets: For 250 trips - 20% discount For 60 trips - 15% discount For 11 trips - 10% discount
Total length of expressway 12.5 kms. Assumed average length of trip on express- way per vehicle using expressway 9.63 kms.
Toll cost per vehicle per kilometer: Large size vehicles Y 24.92 Ordinary vehicles v 12.46 Equivalent cost per vehicle-mile in U.S. cents: Large size vehicles 11.14 us¢ Ordinary vehicles 5.57 US¢ JAPAN: KOBE EXPRESSWAY PROJECT
Application of Funds Source of Funds
Construction, Contribution Total Right o Wa Associated Interest Investment Total Capital from Subsidies Fiscal Project and Costs during Government by Local Road and Domestic I.B.R.D. Corporation from Years Cost Compensation (See Table 4) Construction Investment Public Bodies Bonds Loans Loan Revenue Local Bodies
( Yen million ) ( Yen million
1963/64 4179 427 40 12 80 80 348 508 - 2 42 l/ 1964/65 2,266 2,073 99 94 120 120 1,820 2,060 - 7 126 1965/66 5,665 4,739 612 3114 200 200 2,836 3,236 1,732 7 690 1966/67 6,418 5,o49 712 657 310 310 3,314 3,934 2,105 57 322 1967/68 7,154 5,574 541 1,039 340 340 3,677 4,357 2,304 103 390 1968/69 8,300 6 160 670 1,470 380 380 4,001 4,761 2,859 275 405 30,282 27,0622 3,586 1,430 1,430 15,996 18,856 9,000 451 1,975 .-, --
Income Account Forecast Cost of Estimated Operation, Balance, surplus or Total Number Maintenance Available Interest and Interest on (deficit) available Outstanding Balance of Vehicles and for Debt Amortization Domestic 2/ for redemption of of Domestic Loans per Day -Revenues Administration Service IBRD Loan Loan - Domestic Loans and Capital (Y e n b i 1 1 i o n
1969/70 22,600 0.99 0.27 0.72 0.81 1.13 (1.22) 20.08 1970/71 24,900 1.09 0.28 o.81 0.81 1.20 (1.20) 21.28 1971/72 27,400 1.20 0.37 0.83 0.81 1.28 (1.26) 22.54 1972/73 30,700 1.35 0.35 1.00 0.81 1.35 (1.16) 23.70 1973/74 35,000 1.54 0.50 1.04 0.82 1.42 (1.20) 24.90 1974/75 40,300 1.77 0.44 1.33 0.81 1.49 (0.97) 25.87 1975/76 57,400 2.52 0.45 2.07 0.81 1.55 (0.29) 26.16 1976/77 77,600 3.41 0.47 2.94 0.81 1.57 o.56 25.60 1977/78 80,000 3.51 o.47 3.o4 0.81 1.54 0.69 24.91 1978/79 80,000 3.51 0.60 2.91 0.82 1.50 0.59 24.32 1979/80 80,000 3.52 0.52 3.00 0.81 1.46 0.73 23.59 1980/81 80,000 3.51 0.50 3.01 0.81 1.42 0.78 22.81 1981/82 80,000 3.51 0.55 2.96 0.81 1.37 0.78 22.03 1982/83 80,000 3.52 0.51 3.01 0.81 1.32 0.88 21.15 1983/84 80,000 3.51 0.63 2.88 0.82 1.27 0.79 20.36 1984/85 80,000 3.51 0.55 2.96 0.81 1.22 0.93 19.43 1985/86 80,000 3.51 0.55 2.96 0.81 1.17 0.98 18.45 1986/87 80,000 3.52 o.60 2.92 0.81 1.11 1.00 17.45 1987/88 80,000 3.51 0.56 2.95 0.81 1.05 1.09 16.36 1988/89 80,000 3.51 o.65 2.86 0.76 0.98 1.12 15.24 1989/90 80,000 3.52 0.66 2.86 - 0.92 1.94 13.30 1990/91 80,000 3.51 0.55 2.96 - 0.80 2.16 11.14 1991/92 80,000 3.51 0.62 2.89 - o.67 2.22 8.92 1992/93 80,000 3.52 0.62 2.90 - 0.53 2.37 6.55 1993/94 80,000 3.51 o.61 2.90 - 0.39 2.51 1.04 1994/95 80,000 3.51 0.61 2.90 - 0.24 2.66 1.38 1995/96 80,000 1.73 0.31 1.42 - 0.04 1.38
1/ Unexpended balance of Y 73 million carried to 1964/65. 7/ Interest of 6% on balance at beginning of year. 5/ Outstanding balance is increased by deficit or reduced by surplus. Table 7
JAPAN
KOBE EXPRESSWAY PROJECT
Estimated Average Daily Traffic, East-West Road System and Kobe Expressway 1969-1976
(Number of Vehicles)
of which Expressway Total East Passenger Year West Flow Trucks Buses Cars Total
1969 229,200 11,100 150 11,400 22,650
1973 300,300 16,400 350 18,250 35,000
1976 357,600 42,100 550 3h,950 77,600
1977/78 (estimated saturation point of system) JAPAN KOBE EXPRESSWAY PROJECT Comparison of Operating Costs 'n the Existing Highways And Kobe Expressway No. 1, 1969 * (Yen per vehicle/km)
P A S S E N G E R C A R S B U S E S T R U C K S
Ordinary Small Ordinary Small
Type of Costs Exi,sting Express- Existing Express- Existing Express Existing Express- Existing Express- Highways way Highways way Highways way Highways way Highways way
Fuel and Oil 6,8 3.9 4.7 2.7 11.8 6.8 11.8 6.8 4.7 207 Tires 1.6 0.9 1.4 0.8 4.4 2.5 3.6 2.1 1.1 O.6 Maintenance 3.2 1.9 2.4 1.4 5.8 3.3 3.8 2.2 1.7 1.0 Depreciation 13.9 8.1 6.9 4.0 20.3 11.8 8.2 4.8 6.5 3.8 Overhead and Misc. 2.6 1.5 1.1 0.7 31.8 18.4 8.7 5.0 9.5 5.5 Wages - - - - 83.0 48.0 42.4 24.5 30.0 17.4
Subtotal, Operating Costs 28.1 16.3 16.5 9.6 157.1 90.8 78.5 45.4 53.5 31.0 Deduction for Taxes 7.6 4.4 3.5 2.0 14.8 2.8 541 3.0 2.4 1.4
Total, Operating 20.5 11.9 13.0 7.6 152.3 88.0 73.4 42.4 51.1 29.6 Costs Net of Taxes
Cost Reduction .-bsolute 8.6 5.4 64.3 31.0 21.5 % 42- 42 42 43 42
* For explanation see paragraph No. 54
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BANK PROJECT EXPRESSWAY SHOWN IN COLOR /
Expressways completed with interchanges / - - ……- Expressways under construction or planned I _ … _ _ _ /.for completion by 1969
======~Future-g Expressways under consideration
Trunk Roads completed
Trunk Roads under construction or planned for completion by 1969 0 5 10 15 20
National Highway numbers / KILOMETERS
AUGUST 1965 IBRD-1595R A... ~~~~JAPAN KOBE URBAN EXPRESSWAY AL (PROJECT SHOWNIN COLORI) Li= EXPRESSWAY COMPLETED WITH INTERCHANGES "(V,
--=EXPRESSWAYS UNDER CONSTRUCTIONOR PLANNED ,w1 ;sL FOR COMPLETION BY 1969. , r !' ,,,,-:
Z==== FUTURE EXPRESSVIAYSUNDER CONSIDERATION 7_ $ '$ NI . CITY : . TRUNK ROADS COMPLETED H I Y.CTI
MAIN RAILWAY
_ MOUNTAINOUSAREA
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500 A 055 2000BMETERS
AUGUST 1965 9RD O1596