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Railways 27 A RETURN TO REPORTS DESK RESTRICTED WITHIN Re ONE WEEK WH1 55 Vol. 2 This report was prepared for use Public Disclosure Authorized 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 The report may not be published nor may it be quoted as representing their views.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 AN APPRAISAL OF THE 1966-1967 PUBLIC ]NVESTMENT PROGRAM OF PERU (in seven volumes) VOLUME II Public Disclosure Authorized TRANSPORTATION December 28, 1965 Public Disclosure Authorized Western Hemisphere Department CURRENCY EQUIVALENTS 1 US $ = 26. 8Z Soles 1 Sol (S/.) = 3.7 US cents 1 million Soles = US $37, 286 TABLE OF CONTENTS Page No. IPrefatory Note I. INTRODUCTION 1 II. COORDINATION OF TRANSPORT INVESTMENT AND OPERATION 2 A. Regulation of Transport Industries 3 B. Competition Between Road and Rail 5 C. The Government's Road Costs and User Charges 8 III. ROADS 10 A. The Pattern of Investment in Roads 10 B. Road Traffic and Design Standards 13 C. Administration of Road Construction and Maintenance 14 D. The Road Program 16 E. Evaluation of the Program 17 F. Financing of the Program 26 IV. THE STATE RAILWAYS 27 A. The Railway Systems 27 B. The Investment Program and Its Evaluation 29 V. PORTS AND MERCHANT MARIIE 31 A. Main Problems of Port Investment 31 B. Administration of Ports 32 C. The Port Investment Program 35 D. Evaluation of the Program 37 E. Merchant Marine 40 VI. CIVIL AVIATION AND AIRPORTS 41 A. General h1 B. Government Organization and Regulation 41 C. The Physical and Operating Conditions of Airports and Air Navigational Aids 42 D. Operations of Commercial Airlines 43 E. The Government's Investment Program and an Evaluation of Investment Needs 44 ANNEX 1 Calculation of Comparative Road and Rail Transport Costs ANNEX 2 Estimates of Road Costs and Road-User Taxes for 1964 ANNEX 3 Detailed Description of Peruvian Ports Statistical Annex (with charts and maps) PREFATORY NOTE The focal point of reference in this report is the investment program prepared in early 1965 by the National Planning Institute (INP) as a proposed basis for the Government's investment outlays for 1966. Subsequently, the Government's Budget proposals of August 1965 introduced changes in the INP prepared program. WThile it has not been possible to revise this report to take account of these changes and comment on them, certain comments are made and some new information included in the main report (particularly Chapter II and supporting tables). The main aspects of the analysis and policy conclusions in the present report are still applicable in broad terms, and many of the details provide useful reference material. TILANSPORTATION SECTOR I. INTRODUCTION 1. Peru preemts a peculiar set of geographical, economic and domo- graphic conditions which affect the particularly vital function of trans- port in its economic development. First, the country is very large - Peru is nearly as large as Western Germany, France and Spain combined. Secondly, the country is divided into three regions of distinctly different terrain, economic patterns and potentials. Along the Pacific seaboard, there is a narrow coastal plain - mostly desert, but with fertile land in the river valleys and where irrigation exists - out of which the mountain chain of Andes rises abruptly. Despite the huge size of its territory, the nation's economic activities are concentrated mainly in this limited area along the sea. coast. The Sierra region, where there is a heavy concentration of population engaged in primitive agriculture, is faced with acute problems of over-population and under-employment. There are, however, rich mineral deposits in the Sierra. The Selva region, beginning from the eastern foothills of the Andes mountain range down to the river basins of the upstreams of the Amazon system, is very sparsely populated and the large areas of potentially productive land have as yet been scarcely scratched because of the difficulties of providing adequate transportation. 2. The Government considers that a major task of development is to build and improve road communications between the three paralleling regions. It believes that the investment in roads would bring about: a closer socio- politico-economic integration of the different parts of the country; a fuller exploitation of the mineral resources of the Sierra region and emingration of its surplus agricultural population to more productive low- lands in the eastern foothills of the Andes; and the development of food production in the new land in the Selva to alleviate the nation's food shortage. 3. These views of the Government are reflected in the proposals of the National Planning Institute (INP) for the 1966 public investment budget (formulated in May 1965). The INP, the Government's planning agency, envisaged an investment of a little over SI. 1 billion in the transportation sector in 1966, of which more than 80 percent was allocated to roads - and most of this for penetration roads into the relatively isolated areas in the Sierra and the Selva. Most of the remaining transport investment in 1966 was to be for completion of two existing port projects and a small amount (a little over two percent) for the State Railways. No investment was planned for airports and air navigational aid facilities. 4.. As a result of its review of the INP 1966 investment program, the mission concluded that several changes would be desirable. The mission believes that, in addition to completion of the current port projects, one or two new port projects should be undertaken during 1966, and also that, finances permitting, some of the airports for domestic flights and air navigational facilities should be improved. On the other hand, the - 2 - mission considers that the overall level of road investment should be brought down to a somewhat lower level and its composition, in terms of individual projects, changed to some extent. This last problem is more fully explained in the road section of this report. Finally, the mission believes that new railway construction by the Government should be elim- inated from the program, since the justification of these outlays cannot clearly be demonstrated. 5. In summary, the INP's program for 1966 and the mission's recom- mended program for 1966-67 are as follows: Transportation Investment Program (ST. million) INP Mission Recommendation 19 _1966 1967 Total Roads: Highway Department 751 664 783 1447 Other Agencies 87 44 52 96 U37 7-0 3 1533 State Railways 22 9 5 1 Ports 159 213 209 422 Merchant Marine 70 70 - 20 Airports and Air Navigational Aids - 76 100 176 1089 1076 1149 2225 6. In the mission's recommended program, the 1966 level of investment in roads represents over 65 percent of the total and for 1967 the proportion is increased to over 70 percent. Although the mission agrees with the Govern- ment that road investment could bring about many of the beneficial results the Government expects, it believes, however, that not all the expectations would be realized merely by building roads to virgin lands, and that the realizable results could be achieved with less investment than that planned by the Government. II. COORDINATION OF TRANSPORT INVESTMENT AND OPERATION 7., The Peruvian Government does not appear to have a well developed and fully consistent policy for transport investment and regulation. Investment decisions are made usually on an ad hoc basis. Individual projects are not given an adequate review in terms of relative priority, and there is inadequate consideration of the effects of investment in one mode of transportation on another. Due to inadequate communication and coordination between agencies responsible for transportation, invest- ment programming is often at cross purposes. Projects are frequently carried out to meet inadequately tested "needs" of the economy or merely to satisfy regional claimants on the central treasury's resources. In suim, far more needs to be done to identify the true national interests in transport planning. 8. The main problem of transport coordination concerns overland transport. Because of the urgent need for major improvement here, the discussion of coordination below is limited to this aspect of transport. The railways are severely, but not rationally regulated. Although a large part of the country's railways belong to private enterprise, they are expected by the Government to realize the conflicting objectives of providing both low cost transportation and maximum employment at high wages. In contrast, the road transport industry is almost completely un- regulated. IMoreover, it is greatly subsidized because fiscal charges on road users are far below what it costs to compensate the Government to provide road facilities; this drain not only contributes to the strains on the Government's budget but also puts in jeopardy a sound and economical operation of the railways. A. Regulation of Transport Industries 9. Responsibilities for transport regulation are diffused among several governmental agencies, principally the ILinistry of Finance, Ministry of Interior, Iiinistry of Development and Public Works, and the newTly created Economic Commission for Transport Regulation (CRET). Other agencies, such as the Niinistry of Labor and local municipal authorities, directly and indirectly affect transport policy and operation by means of arbitration of wage disputes or administration of licensing for transport services. Little coordination exists among these agencies in their action affecting transport. 10. For road transport, the Government in 1959 published interurban tariff schedules for both passenger and freight transport, but no adjust- ment has been made since. According to an estimate made by a relatively large trucking firm, the cost increase between 1959 and 1964 is no less than 75 percent (as compared with the increase of 45 percent in the cost of living during the same period).
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