RETURN TO REPORTS DESK T.0.-41a WITHIN USE WW RESTRICTED ONE WEEKI ECONOMICoEVLeoPr T ISTTUrE Public Disclosure Authorized

This report is restricted to use within the Bank.

INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT Public Disclosure Authorized

REPORT ON

HIGHWAY CONSTRUCTION PROGRAM

GUAYAS PROVINCE in Public Disclosure Authorized Public Disclosure Authorized January 15, 1954

TECHNICAL OPERATIONS DEPARTMENT Transportation Division TADLZOF COi'TIENTS

I. Scope of Raport ain Source of Ilaterial 1 II. Tho Dorrou;er 1

III. Description of the PWogrami 2

IV. Estimnatedt Cost of the Progrmrai 4

V. iEIeans OL 1 inancing 5

VI. Hi,-ghwayand Equi.alient !:aintenance 6

VII. Justification of the Projoct 6

VIII. Conclusions and Recaomendations 8

Appendix A - liap

AppenndUxB - Cash FIov Sheet HIGiWAY CO!'ST.CTION PROGRA14

CUAYAS PROVINCE

ECULTOR

I. Scope of Report and Source of hiaterial.

1. At the request of the Ecuadorian Government a hank Viission studied the Guayas Province Highway ConstructionProgram to determine the possibility of it being the basis of a bank loan equivalent to U. S. 38.5million. This report covers an analysis of the Program's technical, financial, economic and organizationalaspects and an appraisalof the personnelwhQ would be responsiblefor carrying it out.

2. The report is based on data obtained from the tcuadorian Minister of Public liorks, the hank illission'sinspection of existing roads and highways, conferences with business groups and Government officials, and data supplied by the Comite Ejecutivo de Vialidad (.YighwayExecutive Committee) of the Province of Guayas.

II. The Borrowqer.

3. The borrower would be the Comite Ejecutivo de Vialidad, hereinafter referred to as the Comite. The Comite was establishedby law in 1945 and has juridical personality. it has two distinct functions. One is concernedwith the building of a port at Guaycaquil,and the other is the constructionand maintenance of roads in GuayaquilFrovince. The Comite receives a small portion of certain taxes assessed on imports through t±iePort of aiayaquil which must be used for the building of a Port. This report, however, concerns itself only with the second function. For this purpose the Comite is authorized under special law to receive the proceeds of taxes on petroleumproducts purchased in Guayas Province and tolls on roads, ferries and bridges in the same area. The income from these sources must be used exclusively for the constructionand maintenance of highways in Cuayas Province.

4. Under the law establishing the Comite, certain functionaries of the Province of Guayas are ex-officio members of the Comite, such as the Uovernor of the Province, the Director of Public '"orks' and the President of the Chamber of Commerce. The Secretaries of some labor unions are also members tnd several prominent business men have been elected to the Comite. No members receive remuneration for their services.

5. Since the members of the Comite all hold other positions and since its size (20 members) makes it an ur,wieldy body, it would not be possible for the Comite to meet for the purpose of making day to day decisions. Accordingly,it has organized an Lxecutive Comamittee, consistingof the Comite's Vice President,Principal lirector, Sub-Director,Chief Lngineer and Secretary, and delegatedto this Executive Committeefull responsibilityfor carrying out the Comite'sbroad policies. -2-

6. l.henthe Comite was formed in l9!5 the Guayas Province had no paved highways. Today, the Province has about 150 kilometers of paved highway and another 80 kilometers is scheduledfor completion by the end of the year. lIanyof the seasonal roads have been improved and extended by the Comite.

7. The Comite has its headquartersand administrativeoffices in Ouayaquil, and its Highway Department today owns and operates approximately U.S. "?600o,000orth of constructionand maintenanceequipment. The Engineering and Planning Division of the Highway Lepartment is under the guidance of a qualifiedAmerican engineering consultant. The Uomite would retain his services or the services of an equally capable consultantduring the constructionperiod of the Program. Other AdministrativeDivisions are well run and are capable of undertaking the extra work involved in an expanded program, provided a.General Nianager is employed to coordinate and supervise the work of the Highway Department. This, the Comite is planning to do.

8. Construction work of the Comite has thus far been on a fairly minor scale and accordingly they have not been able to develop a sufficient number of key personnel to carry out a construction program in the field of the size now contemplated. he, therefore, believe that it is desirable for the Ibomite to engage the services of a qualified engineering or construction firm to supply such personnel to train additional Lcuadorian personnel and to be responsible f'orcompleting all construction work in accordancewith the plans and designs of the Comite for the proposed Program.

9. The Government of focuador has informed the bank that it would guarantee a loan for the Uuayas Province road program.

III. Description of the Program.

10. The program of road construction in Guayas Province, as can be seen from the attached map, i,ppendix 1h,is designed to tie in with main roads in neighboring provinces which are being planned by the National Government's Highway Department, Adequate connections between provinces on the coast and between the coastal provinces and the central plateau are entirely lacking at present. These so-called main highways now consist for the most part of rough roads which can be used only during the dry season and even then with difficulty.

11, The main objective, therefore, of the highway construction program of the Comite is to convert eight of these existing roads radiating from Uiuayaquil (Ecuador's largest city and its greatest port) to all-weather highways. The work to be carried out would consist primarily of reducing grade, raising fills, correcting areas of improper sub-grade, enlarging bridges and culverts and building new bridges where necessary, extending the right of way and paving. -3-

12. These highwayrs would be paved with three courses of asphalt to a width of 6.5 meters which would be laid on a 25 centimeter base of crushed stone or gravel. In general, the roads when completed would be very similar to the Lank-financed hi-hways in 1Nicaragua, and would follow very closely the specifications which have been developed by the U. S. bureau of Public Roads for areas having climatic conditions similar to those existing in Lcuador. The individual projects which make up the Frogram have a total length of about 590 kilometers and a total cost of about 179 million sucres. Briefly, these projects are as follows:

Summary of Projects and Lstimates

Estimated Total Cost Length (Kms.) in,Sucres (1,000's)

7: 1. -balzar-impalme 155.0 - 33,9951 <'-2, Wuran-Yaguachi-rabahoyo 58.0 / 21,521 3. Chicales-Eucay 38.0 l 13,500 V- -> lh. Nobol-Jipijapa-Portoviejo 144.0 v 4z8,700 7i5. Palestina to Los Rios Province 1h.0 V 1,5400 6. Ferry Installations-buayasi(io 3.0 5,500 - 7. aiayaquil-Progresso 66.o 1 13,449 V -~ - 8. Loliche-1.Oro Highway 100.0 V 3b,430v 9. Airport to iNm.8-Hii-hway NSo. 7 8.0V 2,h54 10. iiaintenanceshop 3,803 - ,86.0 178,892 / , -

13. All of the highways will extend into agriculturalarea devoted 2o.; ,, primarily to the growth of bananas, cacao, coffee and rice. As past experience in (uayas Province has shown, the construction of highways inmediatelyleads to the clearing of land in the vicinity for cultivation and as feeder roads are built more and more land should be developed.

14. The Program also calls for the constructionof a central maintenance shop and the acquisitionof car ferries for use between Guayaquil and Duran which is across the (uayas Xtiverfrom Guayaquil and is the terminus of the railroad and important roads. Ferry service for trucks and cars does not exist at the present time. It is also possible that the proposed ferry service might be expanded to include rail cars, but this is not provided for in the Prograa.

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IV. Estimated Cost of the Programi.

15. The Program, estimated to cost a total of about 179 million sucres, includes a foreign exchange component (not including interest during construction, which would be financed by the Comnite),equivalent to approximatelyU.S. `8.5 million, made up as follows:

Foreign exchange equivalent in thousands of U.S,4

1. ConstructionEquipment, Trucks and 2,960 hiachinery

2. Constructionand Paving Naterial, 2,639 including Bridge Steel

3, Spare Parts, includingTires 1,048

4. Diesel Fuel, Supplies and Hand Tools 664

5. ReconditionedFerryboats 264

6. Buildings and Shop Facilities, 125 includingiViachine Tools

7. EngineeringFee and uontingencies 800

Total 8,500

16. The Uomite, at the present time, is carrying out its construction work efficiently,and we found that their present constructioncosts are very nearly those which prevail in the building of similar highways in other Latin American countrieswhere the work is being carried out by competent firms. They also appear to have done a good job of their planning for their future constructionprogram.

17. The estimated cost of the ferryboats is based on using the two boats wThichwent out of service upon the opening of the Chesapeakebay Bridge. These boats have been offered on an " as is, where is"tbasis to which arbitrary costs have been added to place them in first class condition. Before purchase, firm prices should be received from repair yards and a qualified en-ineering firm should determine the suitability of the ChesapeakeBay type ferries for t'±e kind of operating conditions which would be encountered on the G$ayas River - current, tide, anchorage, debris, etc, If these prove unsuitable the procure~ment of other ferries wiould be explored.

18. The purchase of all equipment and material would be through com- petitive international bidding. lhe heavy earthmovin6 equipment would no doubt come from the United States (because of a virtual monopoly in this field). Preliminaryprices received by the Comite would indicate, however, that machine tools and steel would come from buropean suppliers. V. Ieansof Financing.

19. ihe Comitereceives funds from a tax on petroleumproducts, tolls, vehiclelicenses and othermiscellaneous income. The most importantsource of funds,however, is the petroleumtax _. The tax is collectedby the oil companiesand depositedmonthly in the treasuryof the Comite. It may be seen from the followingtable that incomefrom the petroleumtax has increasedat a rapid rate since the formationof the Uomite.

Year ActualIncome i PercentageIncrease

1946 u.,S 388,000 19417 120,0o0 8.25 19e8 4 86,ooo 15.70 19L9 539,000 10.90 1950 670,o000 24.30 1951 830,000 23.90 1952 937,000 12.90

Estimated Income

1953 1,010,000 8.00 1954 1,090,000 8.00 1955 1,180,000 8.00 1956 1,270,000 8.00 1957 1,375,000 8.00 1958 1,490,000 8.00 1959 1,610o,000 8.00 1960 1,7O, 000 8.00

a/ Exchangerate of 15.15 sucres3 U.S. ^1. / Averageincrease over the periodof 19L6 to 1952, inclusive, is approximately16%.

20. Wiith the income shown above for 1953 and succeedirng years, which has been estimated conservatively, the Comite will not only be ableto pay the serviceon a loan equivalentto U.S. $8.5 million,but also find the local expendituresrequired for the construction program (estimated at 50 millionsucres equivalent to U.S.' 3.2 million)and continue to maintain in a satisfactorycondition existing roads and the new roads as they are constructed.Details of the revenues and expendituresof the highwayDepart- ment of the Comiteare shown on the Cash Flow Sheet attachedas AppendixB.

l/ This tax is collected on oil products sold in the Province of Guayaquil and is made up on a per gallonbasis as follows: gasoline- 90 centavos, fuel oil - 20 centavos,benzine - 20 centavos,kerosene - 25 centavos, dieseloil - 30 centavos,and lubricatingoil - 40 centavos. - 6 -

Sincethe Cormitehas the power to borrowfunds without limit for road con- struction, it is thou-ht deshrable that the Comiteshould be restrainedfrom incurring loans in excess of the equivalent of US*!250,000 in addition to the Bank loan, without the approval of the Bank,

VI, Highway and Equipment Maintenance.

21. The Comite has included in the Program additional maintenance shops for equi ment, overhaul and repairs. Ample spares are also included which should permit all equipment to be utilized to the fullest extent. 22. The Comiterecognizes the need for properhighway maintenance and is at present maintaining existing roads in as satisfactory a manner as is possiblein the circuastances.The Comitewill, however, expand its Highway 1iaintenanceDepartment as new paved roads are completedso that they may be properly maintained at all times.

23. It is to be notedfrom the CashFlow Sheet that the equivalentof US: 100,000 is set aside each year duringthe periodof constructionto be expended on road maintenance. This, we believe, is sufficient to carry out regular maintenance on the paved roads and emergency maintenance on those seasonalroads which are to be pavedunder the proposedProgram. Once the Programhas been completed,it is proposedto step up the amountsallocated to maintenance.

VII, Justificationof the ProJect.

24. The importanceof the proposedroad programlies primarilyin the creationof increasedpossibilities for agriculturalproduction not only in Guayastrovince but also in the Provincesof i4anabi,Los idos and El Oro.

25. Ecuador'sexports consist mainly of agriculturalprocucts and amountedto roughly530,000 metric tons valued at USt 62 millionin 1952. Bananas represented 28% of the export value, coffee 26s%,cacao 2 and rice JLg.

26. Cultivation of expert crops takes place in the coastal plain (Litoral), where also the bulk of Ecuador's cotton and sugar crops are grown. Vleather conditions and geographical location put a completely different stamp on agricultural production in the mountainous region of the (Sierra), where subsistence agriculture is predominant in crops like wheat) maize, barley, beans and potatoes. In addition to these two distinct production areas, about half of the country's total area, located in the Eastern part (Oriente) is virtually unexplored and unexploited.

27. Lack of communication facilities not only hampers the interchange of goods between the two productive regions, but also delays the opening of new lands, especially in the coastal area. In this region of 6.8 million hectares, only 500,000 hectares are cultivated, the remainder of the area being for the largest part under natural forests, - 7 -

28. Due to the bad conditionof the roads, transportationcosts from the production centers to the ports are extremely high; in some instances 20Ua of the farm value o, the products. Lack of roads have completely isolated large areas, reported to be highly fertile, and suitablefor agriculturaldevelopment. If agriculturalproduction is to be increased, road building and road improvement is of the highest priority in the coastal area*

29. Guayas Province produces a large proportion of Lcuadorts total agriculturaloutput, as is shown in the following table:

Estimated Agricultural Production in 1952

Ecuador Guayas Province (1,000 metric tons)p n

Bananas 520 187 36 Cacao 24 8.5 35 Coffee 27 2.7 10 Rice 70 54 77 Sugar 55 52 95 i'iaize 98 9.7 10 30. The projectedroads presentabundant possibilities for openingof new land in GuayasProvince, and the neighboringprovinces of HIanabi,Los Rios and El Oro, and would stimulateproduction in areashitherto only linkedto populationcenters by trails. Requiredcapital investment (public and private), managementand labor are, however,more likelyto limitthe rate of expansion of cultivated area than the availability of land. 31. The effects of the proposed roads on agricultural production are difficult to forecast with any accuracy. Coffee and cacao production are not likelyto increaseduring the periodof constructionof the roads,because these crops,even if plantedsoon, would not yielcbefore 1958, An estimated increaseof totalproduction of other crops (bananas, rice, sugar and maize) of about 50%aover the 1952 productioncan be expectedat the time of completion of the project(1958). If realizedthis increasewould, in the year 1958, add a value of around USz 12 million to the 1952 production valuedat USb 34 million. 'After 1958 still greaterproduction would be addedwhen the new coffee and cacao treesbegin to yield. Agriculturalproduction in neighboring provinces (mostly coffee and cacao) will also benefit from the proposed road program.

32. Based on tle foregoingconsiderations, the proposedHighway Program is likely to contribute greatly to the economic development of '.uayas Province and to that of the country as a whole, - 8 -

VIII. Conclusionsand Recommendations.

33. The Comite's Program of highway constructioncalling for the constructionof approximately590 kilometersof all-weatherhighways is well planned and could be carried out within a period of about four years. Thb estimated costs of construction are reasonable and approximate those being realized in the efficient construction of similar roads in other Latin American countries.

3L. Detailed engineering,for the most part, has been completed. Con- structionwork, therefore, could start very soon after the granting of a loan.

35. The Ccmite should be able to carry out the proposed Program with dispatch and efficiency if it appoints a general manager to head its Highway Department and engages the services of a constructionor engineeringfirm to be responsiblefor the field work.

36. The Highway Program, when completed,would permit new land to be put under cultivation;would permit income from agricultureto increase about 5OXin 5 years; and woujA make year round highway transportation possible between Guayaquil and .uito once the remaining part is completed by the liational Highways Department.

37. The Comite's proposed Program calling for the construction of approximately 590 kilometers of paved roads in the Guayas Province could be considered as a basis for a loan equivalent to USI 8.5 million having a term of 10 years with a grace period of 32 years, provided:

(a) The Comite strengthens its hi-hway organization by the appointment of a General Nanager satisfactory to the bank;

(b) The Comite retains the services of their present consultantto their Engineeringand Planning Departmentor one equally qualifiedfor the duration of the constructionperiod;

(c) ihe '-omiteobtains the services of a firm experiencedin highway constructionto be responsiblefor all constructionwork and to furnish key personnel as required;

(d) Lisbursementsare withheld on the purchase of used ferryboats until the Llomiteobtains, firm prices for their reconditioning and assurancesfrom an enSineeringfirm, satisfactoryto the bank, that the ferryboats are suitable for operation on the ;

(e) The Coniitedoes not incur debt in addition to the bank loan in excess of the equivalent of US" 250,000, unless the bank concurs. N UNDERl O U !ANICHON-

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C..SH FLOW SHEET

COMITEEJ7CUTIVO DE VIALIDAD- FOUR YEAR HIGHNAY PROGRAM (u.s. $1,000)

Year Petroleum Road Use Vehicle Other Misc. International Total Program Main- Service & Retirement Total Accumulated Products Tolls, etc. Ticense Income Bank Loan Income Under tenance Retirement Local Expendi- Balance Funds Construction Interna- Debts ture tional Bank Loan

158

1954 1,090 107 47 498 4,000 5,742 4,685 100 195 260 5,240 660

1955 1,180 120 53 395 2,000 3,748 2,655 100 300 248 3,303 1,105

1956 1,270 135 60 395 2,000 3,860 2,655 100 380 177 3,312 1,653

1957 1,375 149 67 395 500 2,486 1,505 100 1,204 175 2,984 1,155

1958 1,490 168 75 204 - 1,937 - 100 1,558 102 1,760 1,332

1959 1,610 179 79 204 _ 2,072 - 150 1,558 97 1,805 1,599

1960 1,740 184 82 204 - 2,210 - 200 1,558 92 1,850 1,959

Notes: 1. Other income consists of contritutione from Vinces, Yaguachi, Jipljapa and Mantu, for construction -ork to bi done in those Dr'.es, 2. Based on the exchange rate of 15.15 sucres = U.S. $1. 3. A commitment fee of l1 and an interest rate of 5~ has been used for estimating aurposes. h Based on a loan of ten years with a grace oeriod of three and one-half years.