RETUJN To REPOR.TS DETS RE ST RI C T E D Wtri-nN FIE COPY ReportNo. WH-116 ONE: WEEK Public Disclosure Authorized This report was prepared for use within the Bank. It may not be published nor may it be quoted as representing the Bank's views. The Bank afcepts no responsibility for the accuracy or completeness of the contents of the report. INThRNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT Public Disclosure Authorized A REVIEW OF CHILE'S TEN-YEAR NATIONAL DEVELOPMENT PROGRAM Part II: Chapters 9-14 Tranportation Policy Railways Public Disclosure Authorized Roads and Highways Air Transport and Airports Ports Shipping April 9, 1962 Public Disclosure Authorized Department of Operations Western Hemisphere TABLE OF CONTENTS PART TWO (CHAPTERS 9-14) CH-APTERS PAGE (numbering is self- contained within each chapter) 9. TRANSPORTATION POLICY Abandonment of Railroad Lines .................... .. 2 The Principle of Self-Support ...... ................. 3 Criteria for Investments ... ......................... 4 Co-ordination and operational control ............... 6 Control over Investment Decisions ................. 9 Summary of Transport Investment ................... 11 10. RAIUThAYS The Government Program ........ ...................... 1 The Railroad System ......... ........................ 2 Evaluation of the System .. .......................... 3 Specific Lines ..................... , 6 Administrative Reforms . ....................., 9 Proposed Modification of the Program ............. ... 12 Sumniary ............................. l................1 Appendix 10-A: Specific Conclusions referred to in paragraphs 29 and 30 ....... .................... 16 11. ROADS AND HIGHWAYS The Program ........................................ 1 The Highway System ................................. 4 The Highway Department ........ ...................... 6 Appraisal of the Program ............................ 8 12. AIR TRANSPORT AND AIRPORTS The Program .................................... 1 Appraisal of the Program ............................ 2 Summary ........................................ 7 13. PORTS The Program ......................................... 1 Assessment of Port Authority Program ............... * 3 Assessment of the Public VWorks Program .............. 11 General Comments Related to the Mission's Recommendations ......................... 14 Organization for Port Development ............ .... 16 1. SHIPPING The Program ......... .............. ...... 1 Assessment of the Program ........................... 1 Summary . ................................ 6 -1- CHAPTE.t 9 THN-SPOKATATION POLICY 1. The present chapter discusses transportation policy in general. The chapters which followi on railroads, the road system, air transportation and ports and slhipping deal in detai'l with specific transportation facilities; in the present chapter we are concerned with the principles of a well co-ordinated, economnically and financially sound total system. 2. As the 10-year program recognizes, and as is true in most rapidly developing countries, transportation is a key factor in the Chilean economy. -ithout an adequate and well planned transportation system it will be difficult, if not impossible, to accomplish the objectives of the other sectors of the 10-year program. In our opinion, the amount of capital outlays programmed for transportation (excluding private auto- mobiles)-- 15% of all investment planned for the 10-year period -- is in balance with the rest of the program. 3. The major transportation problem facing Chile is to make a transition in an economic manner from primary reliance on railroads to increasing utilization of highwiays. This transition has been made in more fully developed countries -- though admittedly with painful readjustments by the railroads. The transition will also be painful for the railroads in Chile, but the present heavy financial burden that the railroads impose on the country must be eliminated. The achievement of an economnical railroad system will necessarily imply a much greater emphasis than hitherto on road transport wqhich, with present technology, should offer a superior means of transportation in Chile. 4. Roads are capable of handling large and small traffic and they are suitable for iTdividual as well as collective transport. Road trans- port satisfies a greater range of demands than any other, and has more flexibility in use. In rural areas, roads encourage short distance travelling and permit the growth of rural communities as an alternative to individual families living in relative isolation. In the transport sector of the economy, roads and road-transport investrmient should be of first priority. 5. In Chile, with its enormous distances from the far north to the far south, air transportation must also play an important role. Investments in airports, air security, and airplanes should be of high -2- 9. TitAHSPOHT.TATION I:OLICY priority. The principal object of air transport in Chile will remain the passenger service. Air freight service will also develop, but the complementary role will always be greater with air freight than with passenger service. 6. Coastwise shipping still has an important function in a country with the geographic peculiarity of Chile, where few areas are more than 100 miles and where most important centers of production are wvithin 50 miles of the ocean. This type of transport remains the cheapest for long distance hauls of bulk raw materials and general cargo. The coastal transport of general cargo by ship will probably only hold its present level, while transports of bulk rawg materials can be expected to increase. The investments in coastwise shipping, foreign trade shipping, and ports necessary to meet future demands are expected to be small. 7. With up-to-date roads and strongly expanding road transport, modern air transport facilities, and the specialized services of coastwise shipping, it follows that the operations of the railways must be confined to the areas of high traffic density. Railway management must adapt itself to that new role for railways, and make the necessary changes. Without these changes, the railways will con- tinue to be an enormous burden for the State and the taxpayers. Abandonment of Railroad Lines 8. Today in Chile the major transportation facilities are the longitudinal railroads with a very large number of branch lines serving limited economic demands. WiJithout doubt, most of these branch lines will soon be paralleled by usable roads. lvhen this happens, most of the branch lines will have to be abandoned. The major problem today is to anticipate this development and to begin abandonment of' branch lines which are or soon will become a liability to the economy. This will not be an easy task. The experience of a number of countries shows that strong pressures come from users of uneconomical rail facilities to prevent their abandonment. These pressures are often legitimate: the users may have located their dwellings or businesses along the rail line on the reasonable assumption that transportation would remain available. Under such circumstances, it can be argued that they should not be forced to bear the losses incurred if they were left without transportation, especially if the decision were made, or sanctioned, by an agency of their government. We believe that this situation exists on some branch lines and in such cases it wfill require a careful balancing of costs versus broader -3- 9. iJS?OstATI0:1 POLICY considerations to reach the right decision. In other words, it is not always possible to decide for or against the abandonment of a public facility on financial grounds alone. 9. At the same time, it is clear that continual maintenance of a transportation facility is undesirable if it is uneconomic, and if its beneficiaries can be offered satisfactory alternatives. It is our belief that a large number of branch lines and the Northern part of the longi- tudinal line can be abandoned now or in the near future by providing such alternatives. As a good guess, as much as 60% of the track length should disappear in the next 10 years. This would be on lines which now carry on the order of 20% to 25% of the traffic. 10. Chapter 10 contains specific recommendations for the abandonment of rail lines. The recommendations are made on the basis of pragmatic judgment, and require careful examination. In a large measure they go hand-in-hand with recomz;iendations concerning the nature of the highway program which we think is appropriate for Chile and which is outlined in Chapter 11. The Principle of Self-Support 11. The mission believes that the whole transportation system should be financially sound and that each major sector should pay its owqn way. This principle is a most important element of transportation policy. Of course, this does not mean that every mile of railroad, every mile of highways, every scheduled airplane flight, or every item of cargo handling at a port should pay its own way. But each major system should be self- supporting, and all major segments of each system should have a reasonably well balanced relationship between costs and benefits to the users. We found in the case of the railroads, for example, that finances were in a deplorable state, with the main systems covering barely 50%0 of costs. Other sectors, such as the airline and the national shipping line, are also financially unsound. There is no need for a precise exercise in cost accounting to reach these conclusions. They were as obvious to our contacts in Chile