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Report No. 668a-LA Some Findings Relative to the R Co Reconstruction and Economic Public Disclosure Authorized Development of Laos (In Four Volumes) Volume IIl: Transportation April 4, 1975 East Asia & Pacific Region Not for Public Use Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Document of the International Bank for Reconstruction and Development International Development Association This report was prepared for official use only by the Bank Group. It may not be published, quoted or cited without Bank Group authorization. The Bank Group does not accept responsibility for the accuracy or completeness of the report. C U R R E N C Y E Q U_I V A L E N T S Currency Unit - Kip Official rate applicable to exports, some commodity imports and most government transactions up to March 27, 1975 : US$ 1.00 = Kip 600 Kip 1 = US$ .0016 Kip 1 million = US$ 1,666 Tax inclusive official rate applicable to all other transactions until July 1974, and to limited transactions until March 27, 1975: US$ 1.00 = Kip 840 Kip 1 = US$ .0012 Kip 1 million = US$ 1,190 Betwjeen July 1974 - March 1975, many consumer goods imports, and services, and capital remittances were excluded from official market, but allowed on the parallel market. Parallel market rate as of February 15, 1975 US$ 1.00 = about Kip 1400 Kip 1 = US$ .0007 Kip 1 million = US$ 714 Since the devaluation of March 27 1975, the official exchange rate applicable to exports, some commodity imports, most government transactions and limited transfers US$ 1.00 = Kip 750 Kip 1 = US$ .0013 Kip 1 million = US$ 1,333 And the tax inclusive official rate applicable to merchandise exports and to all other commodity imports : US.$ 1.00 = Kip 1200 Kip 1 = US$ .0008 Kip 1 million = US$ 833 TABLE OF CONTENTS Page A. SUMMARY 1 B. GENERAL 2 C. PRESENT TRANSPORT ORIENTATION 2 D. REVISED TRANSPORT ORIENTATION 2 E. TRANSPORT FACILITIES 3 (i) River Transport 3 (ii) Roads and Road Transport 4 (iii) Road Construction and Maintenance 6 (iv) Railways 8 (v) Air Transport 9 F. GOVERNMENT PROPOSALS 9 G. CONCLUSIONS AND RECOMMENDATIONS 11 TABLE ANNEX TRANSPORTATION IN LAOS A. SITJ24ARY (i) The transport situation of Laos is complicated, because the country is landlocked, mountainous and only sparsely populated. Presently, due to the internal division and the unstable political conditions in some neighbouring countries, internal traffic is restricted and only a few access routes to the sea can be used. It is expected, however, that in the near future internal traffic will become more important. In time, access to sea ports should also become more diversified. Already, new agreements have been concluded with Thailand which will lower transit costs from the Port of Bangkok to Vientiane from their erstwhile level of $20 per ton. (ii) The Mlekong River plays an important role in Laos's transport system, but is still used for the transport of only small volumes of goods and passengers. Laos has no railways. Internal air transport is well developed and there are frequent flights between the most important centers of the Vientiane zone. (iii) The main highway system in both the NLHS and Vientiane zones is almost completed. Traffic volumes on rural highwavs are generally very low. Roads in the Vientiane zone are adequately maintained. The Highways Department has a shortage of engineers and there still is a considerable American technical assistance input. In addition, about 90 percent of the operating budget for road maintenance is American financed. Since the American input will be gradually reduced, it is of vital importance that more Lao engineers be engaged and that funds for road maintenance be allocated from the national budget. (iv) The mission concluded that in the Vientiane zone transport facilities are adequate for present needs. Although traffic charge seems to be fairly high (40 to 75 kipsper ton kilometer by road, 35 to 50 kips by river) this seems to be due more to the country's still unsettled conditions and low traffic volume than to road conditions. Increasing traffic can be accommodated, but additional trucks may be required for this. Once traffic starts to grow significantly, investments will be required to upgrade the transport infrastructure. A road improvement program may be consiclered for, say 1978. Such a program should concentrate on raising flood prone road sections, replacing war-weekened bridges, straightening and widening some roads, and paving selected sections. Some new bridges may be required. New roads should be built only in connection with agri- cultural projects. Road maintenance equipment is sufficient for present needs, but the situation should be reviewed once the organization starts to maintain roads in both zones. Any project preparation work should be kept -2- to a minimum and can only start when traffic has developed. In the longer term, some airport improvements will be needed. B. GENERAL 1. The transport situation of Laos is dominated by two major factors: (a) the country is landlocked; and (b) it is mountanous and only sparsely populated. The first problem is complicated by the fluid political situation, which makes it difficult to predict which transit routes to the sea will be used. The second problem is aggravated by the fact that production in excess of subsistence requirements is only very small, resulting in a feable demand for transport, and indirectly in difficulties in raising sufficient funds for the maintenance of the system. 2. The historical development of Laos' transport system has been fully described in the "Economic Report on the Kingdom of Laos" of June 1974, by the Asian Development Bank. Before the second World War the entire transport orientation of Laos was towards Vietnam, with most towns connected with the Vietnamese transport system, but internal connections between Provincial centres within Laos sometimes quite neglected. The transit route via Thailand, which before the war was not used, has become the only oulet for large parts of Laos during the last two decades. C. PRESENT TRANSPORT ORIENTATION 3. Practically all transport to and from the NLHS zone passes through China or North Vietnam, but no statistics are available on the volumes. Up to just recently almost all transport to and from the Vientiane zone went via Thailand. Some goods have been transported to and from ports in Cam- bodia and reportedly small volumes of rice are still exported to Cambodia. In February, 1975, shipments of goods from or through North Vietnam started to reach the Vientiane zone via Thakhek and Paksane. It is expected that imports via this route will amount to about 50,000 tons in 1975. Transit goods to the Vientiane zone transported via Thailand were estimated at about 400,000 tons per year, but this volume will probably decline once other routes are available. Transport to and from and possibly through Thailand is stimulated by the fact that in Laos the main highway passes through NLIS territory between Thakhek and Paksane and is presently closed for through traffic. Any transport between Vientiane and the Southern part of Laos therefore has to pass through Thailand or go by river or air. In addition it appears that the multiple exchange rates encourage the sale of surplus rice in southern Laos to Thailand at the free rate of + 1350 Kip per US$, while rice is imported for the Vientiane region at the official rate of 840 Kip per US$. D. REVISED TRANSPORT ORIENTATION 4. It is hoped that in the near future the free flow of goods and persons within Laos, and between Laos and its neighbouring countries, will be re-established. This will have consequences which are difficult to foresee. The opening of the section of road between Thakhek and Paksane will probably divert some traffic from water and air transport to road transport. If no special transit fees are charged it will continue to be cheaper, however, to transport goods and passengers between Southern Laos and the Vientiane area by road through Thailand, because it is at least 100 km shorter over much better roads. Some traffic will also start to flow between the NLH zone and the Vientiane zone. 5. As long as the unsettled political conditions in South Vietnam and the Khmer Republic pertain, international trade of Laos will have to be with or through Thailand, North Vietnam and China. The transit facilities through North Vietnam to the Vientiane zone are already in use. No information is available on the transport cost via this route, but the opening of a compet- ing route has contributed to the Government of Thailand agreeing on lower rates and more liberal arrangements for transit through Thailand. Up to now the transit of goods through Thailand has been very costly at almost US$20 per ton. 6. Once all hostilities have ceased in neighbouring countries it will become physically possible that various parts of Laos would orientate towards different sea ports: Southern Laos could use Vinh 1/ or Da Nang (about 500 km); the Paksane and Thakhek areas would use Vinh (about 300 km); the Vientiane plain area would use Bangkok (630 km) or Vinh (470 km); while the entire Northern part of the country would be closest to the port of Haiphong. The above mentioned possibilities for reorientation of external trade will create the need for repair and improvement of a number of roads leading to Laos' borders, while they may weaken the demand for internal transport. E. TRANSPORT FACILITIES 7. Internal transport in Laos takes place by river, road or air. (i) River transport 8. River transport is concentrated on the Mekong river, but certain tributaries are also used. During the dry season river transport :Ls handi- capped by rapids; there is also a restriction on draughts during that period.