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RESTRICTED Report No. AS-133 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 The report may not be published nor may it be quoted as representing their views.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 CURRENT ECONOMIC POSITION AND PROSPECTS OF KOREA (in four volumes) Public Disclosure Authorized VOLUME IV TRANSPORTATION January 23, 1968 Public Disclosure Authorized Asia Department CURRENCY EQUIVALENTS U.S. $1. 00 = Won 270 Won 1, 000 = U.S. $3. 70 Won 1, 000, 000 = U.S. $3, 703. 70 This Report is based on the findings of a Mission which visited Korea in September 1967. The Mission was composed of the folowing members: Cornelis J.A. Jansen Chief Shu-Chin Yang General Economist Guenter H. Reif General Economist M. Shafi Niaz (FAO) Agriculture W.F. Doucet (FAO) Fisheries Jacques M. Gruot (BCEOM) Transportation This Volume was prepared by Jacques M. Gruot) who was the director of the Bank-financed transportation survey in 1965/66. The present volume contains a revision of major conclusions of the survey in the light of subsequent developments. TABLE OF CONTENTS Volume IV Tran ortation Page No. LIST OF ABBREVIATIONS I. GENERAL FINDINGS AND RECOMMENDATIONS ............. 1 A. Introduction .................................. 1 B. The Outlook for Traffic ....................... 3 C. Tariff and Financial Results ..... ...... 5 D. Investments in Transportation During the SFYP.. 6 E. Investments by Mode of Transportation ........ 7 F. Recommendations ............................... 9 II. RAILWAYS ....................................... 13 A. KNR Passenger Transportation ............... 13 B. KNR Freight Transportation .................... 14 C. KNR Operating Results and Tariff Policy ....... 15 D. Passenger Stock Requirements .................. 16 E. Requirements of Freight Rolling Stock ......... 17 F. Requirements of Locomotives .. i................ 19 G. Railroad Investments ....................... 20 H. Need for Technical Assistance from Abroad 23 III. HIGHWAYS AND HIGHWAY TRANSPORTATION ............... 25 A. Highway Transportation ........................ 25 B. Motor Vehicle Fleet .......................... 27 C. Highway Expenditures .......................... 28 D. The MOC "Major Trunk Highway Construction Plan" and Need for Technical Assistance ............ 32 -2- Page No. IV. HARBORS AND SHIPPING ..... ,.... 35 A. Harbor Traffic ............................. 35 B. Harbor Investment and Dredging Programs ...... 37 C. Port Finances ................................. 41 D. Port Administration and Need for Technical Assistance ..................... .... 41 E. Ocean-Going Shipping ............ .. 42 F. Coastal Shipping . ........ ....... h V. CIVIL AVIATION ....... .................... 6 A. Air Traffic ................. .... ... 46 B. Infrastructure Investment Programs .......... 46 C. Maintenance and Operation Expenses ........ 47 D. Korean Airlines (KAL) ....... ....... 7 ANNEX: COAL, CEMERT AND POL TRANSPORTATION A. Coal Transportation ......................... 1 B. Cement Transportation ........................ 2 C. Transportation of Petroleum, Oil and Lubricants (POL) ............... ........... STATISTICAL ANNEX (Tables 1 - 35) MAP LIST OF ABBREVIATIONS 1. Ae of the Korean Government EFB Economic Planning Board MOT Ministry of Transportation MOC Ministry of Construction MCI Ministry of Commerce and Industry MOF Ministry of Finance MAF Ministry of Agriculture and Forestry KNR Korean National Railroad KAL Korean Airlines BOK Bank of Korea 2. Planning Documents FFYP First Five.-Year Plan SFYP Second Five-Year Plan ORB Overall Resources Budget KTS Korea Transportation Survey I. GENERAL FINDINGS AND RECOMIMENDATIONS A. Introduction 1. An integrated.transportation survey was carried.out in Korea from November 1965 to June 1966. It included the entire country and. all modes of transport. Its primary function was to recommend. a detailed transportation investment program for the Second. Five-Year Plan 1967-1971 (SFYP). According to the objectives established,for the progress of the economy during the SFYP by Korea's central planning agency, the Economic Planning Board(EPB), the survey was based.on the assumption of a GNP growth rate of 7%. The investment program recom- mended by the Korea Transportation Mission has been partly adopted by the Government. 2. In fact, the economy developed.in 1966 and 1967 much more rapidly than had besn Qxpected. A reassessment of the development of transport during the SFYP has become necessary. The primary function of this report is to review the traffic forecasts, the recommendations and the suggested.investment program made in the Korea Transportation Survey (KTS) report.!/ This report is based on the assumption of a GNP growth rate of 10.5% in 1967 and. 10% in the last three years of the SFYP. The assumption of a 10% GNP growth rate conforms to the present expectations of Korea's planners. An assessment of the feasi- bility of this rate is given in Volume I of this report. 3. One of the most striking features of land.transport in Korea is the disproportion between the roles played by the railroads and the highway transport system. At the end of 1966 the Korean National Rail- road network comprised more than 3,000 km of road.s, but there existed only 1,900 kcm of paved,public roads (including city streets). The total inventory of motor vehicles amounted. to only 50,000, i.e. one vehicle per 600 inhabitants. In the development phase which Korea has now entered., special attention should be given to road transport so as to achieve a balanced. utilization of both types of transportation con- sidered as mutually complementary. This was one of the main conclusions of the KTS. The subsequent acceleration of economic growth has further accentuated the need.for increased development of road transport. 4. Another feature is a generally insufficient capacity in the transportation sector resulting in the overcrowding of all types of inland transportation. The very high rate of economic growth in Korea in recent years has led.to bottlenecks in transportation. At least one example may'be found in the lack of transportation facilities for limestone transportation for use in agriculture. Complaints by the 1/ Although it has been attempted.to make this report self-sufficient, consultation of the KTS report may be useful. -2- business community about delays in shipping are general and appear founded in fact. The Mission was, however, not equipped to survey methodically the delay in the transportation of goods. 5. The fact that the share of the transportation sector in the national economy is still insufficient is also reflected by i) the low percentage of the value added of transportation in relation to GNP, and ii),the low percentage of the capital formation of transportation in relation to the total domestic fixed capital formation (Table 2). 6. Value added: The transportation share in GNP formation, although increasing steadily during the FFYP, was only 3.3% in 1966 This percentage generally ranges between 6% and 9% in other countries1- and although there is wide variation between countries due to different geographical dispersion of economic activity, a value under 5% almost always indicates underdevelopment in the transportation sector. The dispersion of activity factor not being particularly favorable in Korea, there is no doubt that the present relative contribution to GNP is below the optimum. Between 1961 and 1966 the value added of transportation, at 1965 constant prices, increased at an average rate of 15.3% per annum, which is comparable to the traffic increase rate.Z/ The situation, how- ever, was quite different for railroad and highway transportation. The value added of the former increased at an average rate of only 8.7%per annum, i.e. less than the related traffic increase which was about 11%. The value added of the latter increased by 22.1% per annum, which is more than the related traffic increase, taking into account the slow develop- ment of freight transportation. 7. This divergence is probably in part due to relative inflexibility of rates rather than to a change in the economic contribution of these transport modes. As far as railroads are concerned, an explanation can be partly found in the fact that, at constant prices, the fares decreased during the FFYP. But the low tariff level cannot account for the low percentage of value added of transportation, as the railroad tariffs allowed quite similar profits in each year of the considered period.2 The reason is to be found in the small traffic volume in relation to the requirements of the economic development of the country. 1/ The percentage tends to increase with per capita income. See H.B. Chenery, "Patterns of Industrial Growth", American Economic Review, September 1960. 2/ When adding the city passenger traffic to the intercity passenger traffic (Table 1), total passenger traffic figures are 9.94, and 21.12 billion pass-km in 1961 and 1966 respectively. Yearly increase rate is 16.3%,It is 13% for goods (Table 1), 1819 for harbor traffic. 3/ KNR lost money on freight, but the loss was made up for by profit on passengers. -3- 8. Capital formation: On an average, the share of capital forma- tion in the transportation sector! in relation to total capital forma- tion in the country was 16.64% during the FFYP, while a level between 20