Document of FILECOPY The World Bank

FOR OFFICIAL USE ONLY Public Disclosure Authorized

Report No. 1891a-PAN

STAFF APPRAISAL REPORT

HIGHWAYMAINTENANCE PROJECT

Public Disclosure Authorized PANAMA

April 20, 1978 Public Disclosure Authorized

Public Disclosure Authorized Projects Department Latin America and the Caribbean Regional Office

This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization. Currency Equivalents

C'urrencyUnit = Balboa US$1.00 = B 1.00

F'iscalyear

January 1 - December 31

System of Weights and Measures: Metric

1 meter (m) = 3.28 feet (ft) 1 kilometer (kmi) = 0.62 mile (mi) 1 square kilometer (km2) = 0.386 square mile (sq mi) 1 metric ton (ton) = 1.1 US short ton (sh ton)

Abbreviationsand Acronyms

AADT - Annual average daily traffic APN - National Port Authority CAkM - Department of Roads and Ports C]ENAFOR - National Training Center FNC - Chiriqui National Railway COFINA - CorporacionFinanciera Nacional CO(EC - CompanilaMexicana de Consultores DAC - Directorateof Civil Aviation D]ENE - Directorate of Equipment DTIC - Directorate of Construction D2UM - Directorate of Maintenance DTTT - Directorateof Transit and Land Transport IDB - Inter-AmericanDevelopment Bank IFARHU - Institute for Training and Improvementof Human Resources MOP - Ministry of Public Works MEPE - Ministry of Planning and Economic Policy NDP - National Development Plan NTS - National Transport Survey ORT - Price Regulation Office PAH - Pan-American Highway USAID - US Agency for InternationalDevelopment UNDP - United Nations DevelopmentProgram FOR Ov"CAL US ONLY

STAFF APPRAISAL REPORT

HIGHWAYMAINTENANCE PROJECT

PANAMA

TABLE OF CONTENTS

Page No.

I. THE TRANSPORT SECTOR ...... I

A. General ...... 1 B. The Transport System ...... 1 C. Planning, Coordination and Financing ...... 4 D. Recent Sector Improvements and Recommended Developments ...... 5

II. ROAD TRANSPORT * ...... 6

A. General ...... 6 B. Characteristics and Growth of Road Traffic ...... 7 C. The Vehicle Fleet ...... 7 D. Operations and Organization of the Industry ...... 8 E. Tariffs and Costs ...... 9 F. Government Role and Enforcement of Weight and Dimensions Regulations ...... 9

III. THE HIGHWAY SUBSECTOR ...... 10

A. The Highway Network ...... 10 B. Highway Administration ...... 11 C. Highway Planning ...... 11 D. Highway Financing ...... 12 E. Highway Engineering ...... 13 F. Highway Construction ...... 13 G. Highway Maintenance ...... 13

IV. PAST BANK ASSISTANCE TO THE HIGHWAY SUBSECTOR ...... 15

A. General ...... 15 B. Completed Highway Projects ...... 16 C. The National Transport Survey (1972-1975) ...... 16

This report is based on the findings of an appraisal mission which visited Panama during October-November 1977. The mission comprised Messrs. Enrique Pinilla (Engineer), Jose M. Veniard (Economist), and Carlos F. de Castro (Road Transport Industry Specialist). The report had been edited by Miss Virginia R. Foster.

This document has a restricteddistribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bankauthorization. TABLE OF CONTENTS (Continued) Page No.

V. THE PROPOSED HIGHWAY MAINTENANCE PROJECT ...... 16

A. Objectives and General Description ...... 16 B. Background and Preparation of the Highway Maintenance Program ...... 17 C. Project Components and Requirements ...... 19 D. Cost Estimates and Financing ...... 21 E. Execution, Procurement and Monitoring ...... 23 F. Project Risk ...... 25 G. Project Impact and Adequacy of Technology ...... 25

VrI. ECONOMIC EVALUATION ...... 25

A. Formulation of the Highway Maintenance Program ... 25 B. Traffic ...... 26 C. Benefits ...... 26 D. Overall Economic Return ...... 27 E. Benefit Distribution ...... 27

VII. AGREEMENTSREACHED AND RECOMMENDATION...... 28

TABLES

1.1 - Summary of Freight and Passenger Traffic by Modes 30 1.2 - CompaLrison of Highway and Motor Vehicle Densities 31 1.3 - Development of the Highway Network ...... 32 1.4 - Transport Infrastructure Investment, by Mode, in Comparison with Total Public Sector Infrastructure Investment ...... 33 1.5 - Estimate of Transport Sector Expenditures ...... 34 2.1 - Annual Average Daily Traffic by Type of Road Surface and Type of Vehicle ...... 35 2.2 - Vehicle Registration ...... 36 2.3 - Vehicle Fuel Consumption ...... 37 2.4 - Freight and Passenger Vehicle Fleet ...... 38 2.5 - Limits on Weights and Dimensions ...... 39 3.1 - Estimates of Highway Expenditures and Road Users' Contribution ...... 40 3.2 - Highway Sources of Funds 1970-1977 ...... 41 3.3 - MOP Highway Design Standards ...... 42 5.1 - Inventory of Roads ...... 43 5.2 - Summary of Maintenance Activities and Prescribed Standards ...... 44 5.3 - Estimated Annual Cost of Maintenance per Kilometer by Type of Road and Level of Traffic ...... 45 5.4 - Tentative List and Cost Estimate of Maintenance Equipment ...... 46 - iii -

TABLE OF CONTENTS (Continued) Page No.

TABLES (Continued)

5.5 - Estimated Highway Maintenance Budget Requirements and Financing ...... 47 5.6 - Estimated Schedule of Disbursements ...... 48 5.7 - Tentative Implementation Schedule ...... 49 6.1 - Summary of Formulated Highway Maintenance Program .. 50 6.2 - Summary of Vehicle Operating Costs ...... 51 6.3 - Summary of Maintenance Program Economic Evaluation 52

ANNEXES

5.1 - Outline of Equipment Fleet Manager Job Description ... 53 5.2 - Outline Terms of Reference for the Technical Assistance on Highway Maintenance ...... 54 5.3 - Outline Job Description for Senior Maintenance Engineer in Charge of Program Coordination ...... 59 5.4 - Example of Intended Maintenance Program Control Reports ...... 60 5.5 - Related Documents and Data Available in the Project File ...... 63

CHARTS

18231 - Ministry of Public Works Organizational Structure 18230 - National Directorate of Maintenance Organizational Structure

MAP

IBRD 13290 - Panama - Highway Maintenance Project

I. THE TRANSPORT SECTOR

A. General

1.01 Panama, a long, narrow country, is divided lengthwise by a mountain range and across by the Panama Canal. As a result, the country has developed on two main axes: one along the Panama Canal and the other along the lands on the Pacific Coast, particularly to the west of the Canal. To the east of the Canal lies the relatively unexplored region known as Darien. The Darien region, as well as the lands on the Caribbean coast, consists of dense rain forests, relatively undeveloped, unpopulated and without land transport facilities. Except for these regions, where air travel and coastal shipping are the only and scant means of transportation, highways and road transport are the country's basic movers of domestic freight and passengers. As shown in Table 1.1, highways carry about 95% of all domestic freight traffic and near 99% of passenger traffic.

1.02 On the international side, the most important transport facilities are the Tocumen International Airport, the Canal ports and the Pan-American Highway, not counting the Panama Canal itself. The Panama Canal, its ports and ancillary facilities, including a transisthmic railway and a small oil products pipeline, carry an important part of the international cargo traffic. Its ports, in particular, handle most of Panama's general imports. All ports combined handle some 95% of total international dry cargo traffic, while the Pan-American Highway, although handling only 5% of that traffic, is playing a growing role in the development of interregional commerce. Of the total international passenger traffic, airports, in turn, handle some 80% (Table 1.1).

1.03 The transport system in the developed regions of the country is broadly adequate. Some expansion, especially in secondary and feeder roads, would be necessary to meet specific growing transport requirements in these regions and to give access to new areas of the country, presently isolated and undeveloped. However, of paramount importance is the adequate maintenance of the present transport infrastructure -- basically highways -- as a major factor in facilitating further economic development, competitive interregional transportation and expansion of the agricultural sector.

B. The Transport System

(i) Highways and Road Transport

1.04 Distances between developed regions are relatively short in Panama. The longest one, along the Pan-American highway west of Panama City (to the Costa Rican border), is about 480 km. Because of the long and narrow shape of the country, the Pan-American Highway, a paved road connecting directly or through branch routes with most of the developed areas of the country, consti- tutes the backbone road of the system (Map IBRD 13290). The longest "feeder" to this road is about 110 km and is located in the widest part of the country, the Azuero peninsula. Given these short distances and the many scattered low volume production centers, road transport is, with very few exceptions, the - 2 - most adequate mode; it has been strongly stimulated by the country's overall economic development and by the upgrading and paving of the road system. Panama's vehicle fleet grew at 8.5% yearly over the period 1960-1976, but was slowing down its rate of growth in the last years (para 2.04) while Panama was reaching a reLatively high level of motorization (Table 1.2). The develop- ment and present

1.05 Panama's highway network totals some 7,800 km, of which about 2,500 km are paved, 2,600 km have gravel surfacing and 2,700 km are secondary and feeder earth roads. Road development has been concentrated, in the last decade, on paving and improving the more heavily trafficked roads and extend- ing the system. W4hilethe whole system grew by 17%.since 1967, the paved and gravel road networks grew by 80% and 21% respectively. Earth roads, in turn, decreased from a 62% share of the total network in 1967 to 35% at present (TabLe 1.3). Although Panama's road density is low compared to that of neiglhboring Costa Rica because of large unexplored areas and relatively high urban concentration, it is well above that of its neighbors to the south (TabLe 1.2). The present network is basically adequate in coverage and design, but its poor cond:[tion,due to insufficient maintenance, is becoming a major bott:Leneck in the continued expansion of economic activities. Issues in the highway sector are discussed in full in Chapter III.

(ii) Ports

1.06 In addition to the Canal ports of Cristobal and Balboa, three major ports -- Almirante, Puerto Armuelles and Bahia de las Minas -- and five minor ports serve the country. The three major ports handle the bulk of the country's exports. They move, in total, about 1.5 million tons per year excluding petroleum products, of which 4.2 million tons per average year pass through Bahia de las Minas (Table 1.1). Puerto Armuelles and Almirante are primarily banana ports, each of which handles over 400,000 tons per year originating irom its immediate hinterland. Bahia de las Minas, basically a petroleum terminal, has recently been adapted to serve the new and fast grow:ing roll-on/roll-off system originating from Miami but reaching over the Pan-American Highway as far as Costa Rica and Nicaragua. The ports of Crist:obal and Balboa have a duality of functions, i.e., as ports for vessels in transit through the Canal and, in practice, as ports of entry to Panama. They handle about 65% of the country's dry cargo imports, a total of about 700,000 tons per year. The five minor ports handle less than 100,000 tons of cargo each per year, but are important as cabotage ports. Port capacity is not a constraint for the economy. Panama is also developing a fishing port at Vacamonte with financial support from the Bank (Loan 1114-PAN, US$24.0 million, April 1975). This US$42.6 million port will be Panama's first deepwater fishiLngport, an important economic activity capable of accommodating large shrimp trawlers and providing transshipment facilities for the international tuna fishing fleets.

(iii) Air Transport

1.07 Before the expansion of the road network, domestic air transport played a key role in furthering national development and integration. The upgrading and paving of the road system and the relatively short distances -3- involved, however, 1/ have caused a shift from air to road transport. Over the last few years, air transport growth has been concentrated in a few major economic and tourist centers where it is competitive. Panama has inherited, from the pre-road era, a total of over 200 landing strips, of which only eight (seven managed by the Directorate of Civil Aviation 2/ and one, privately operated, on Contadora Island) handle a significant volume of commercial traffic. Domestic passenger traffic, concentrated mostly on these eight airports, has been growing steadily to a total present level of over 500,000 yearly arrivals and departures.

1.08 Tocumen, the only airport equipped to handle international traffic, now on the order of 720,000 passengers per year (Table 1.1), is completing a substantial expansion plan consisting of a new terminal and runway, total cost of about US$70 million, partly financed by the Bank (Loan 783-PAN, US$20 million, July 1971). This expansion will allow Panama to exploit fully its strategic location as the hub of both coastlines of North and South American air traffic. Twelve foreign carriers are presently operating combined passenger and cargo services in Tocumen, and six carriers offer all cargo services. There are two Panamanian carriers in the international business: Air Panama, origin- ally with participation by IBERIA, is the national carrier; and COPA, also a private corporation originally organized by Pan American Airlines, which operates in the domestic market as well, being the only medium-sized carrier in Panama. The rest of the industry -- which is very competitive -- is in the hands of light aircraft operators.

(iv) Railways

1.09 Unlike air transport, railways, with the exception of the short Panama-Colon line, were never an alternative to highways in Panama. Two of the three railway companies operating are specialized systems, one a banana plantation railway (Chiriqui Land Company) and the other a complement to the Canal (Panama Canal Railway); the third system is wholly within the western Chiriqui province (Chiriqui National Railway). The most important of the three is the Panama Canal Railway, which carries over one million passengers and one-quarter million tons per year on its 76-km, well-maintained transisthmic run between Panama and Colon. Traffic on this line (of which about one-third is generated by Panama) has been growing over the years at a rate of about 5% and 2% p.a. for passengers and freight respectively. The Chiriqui Land Company Railway (a division of Standard Brands), although nominally a common carrier for Panama, is completely integrated into the Standard Brands banana production system. Its combined northern and southern divisions, with 300 km of main line, carry an average of 750,000 tons p.a., of which nearly 90% are bananas.

1/ Puerto Armuelles, the furthest significant population center from Panama City, is less than 400 km air distance away.

2/ San Blas, Changuinola, David, Bocas del Toro Island, Chitre, and the Panama City airports of Paitilla and Tocumen. -4-

1.10 The Chiriqui National Railway (FNC) is a dying railway with vanishing traffic and with very little track left in operation. Of the original 165 km of main line, only 30 km remain in operation after successive branch closures, topped in 1974 by the loss of a large bridge on the main line near David. This severing of the main line resulted in a further decrease of traffic, now on the order of 15,000 tons p.a. Because an adequate highway ne:work exists as an alternative to the railway and, in view of the poor operating ratio (costs exceed revenues by over 400% in passenger services and 50'z in freight), the National Transport Survey (NTS) (para 1.17) recommended that the Government completely abandon FNC's operations. This, in fact, is what is happening; since 1970, the railway has not undertaken capital expenditures while subsidies for current deficits have remained at the modest level of about US$300,000 per year. The current National Development Plan (NDP) adopted the NTS recommenda- tion to abandon FNC.

C. Planning, Coordination and Financing

(i) Planning and Coordination

1.11 The creation of the Department of Planning in the Ministry of Public Works (MOP) in 1971, and of the Ministry of Planning and Economic Policy (MPPE) in 1973, strengthened the institutional basis for rational economic planning in the transport sector. Transport planning became the responsibility of the Department of Projects and Sectoral Planning within MPPE. The primary func- tions of this Department are the preparation of the integrated annual operating and investment budgets of the transport sector and the intermodaL coordination and control of sector activities. Since 1975, the NTS has provided an improved framework for investment planning. The NTS, and the subsequent preparation of the NDP, created an awareness of the need to plan in a more systematic manner. The main constraints for a continuous approach to the planning process are the shortage of qualified staff and, as discussed below, the modal fragmentation of functions and resources. This, however, has not resulted in costly misal- location of resources since intermodal competition is not significant and domestic transport is dominated by the highway mode, for which the recommen- dations of the NTS are an effective planning tool. Proper planning of highway maintenance and rehabilitation, an important task ahead, will be aided by the technical assistance included in the proposed project (para 5.13).

1.12 Highway planning responsibility lies with the Department of Planning of MOP, discussed in detail in paragraph 3.06, while planning and financing of urban streets are the responsibility of the Ministry of Housing. Road trans- port administration is in the hands of two Government agencies: the Directorate of Transit and Land Transport, under the National Guard, which controls regis- tration and licensing of vehicles; and the Price Regulation Office, under the Ministry of Commerce and Industry, which controls tariffs, as discussed in paragraphs 2.09 and 2.11.

1.13 The small Chiriqui National Railway is a semi-autonomoujs Government agency, but its investment plans, as well as tariffs, have to be approved by the Ministry of Planning and Economic Policy on the basis of previous analysis by MOP's Planning Department. No planning control is exerted by the Government over the other two railways. -5-

1.14 Port planning responsibility lies with the National Port Authority (APN), created in 1974, while the administration of the Merchant Marine is in the hands of the Ministry of Finance. APN is effectively administered but, because of the adequate capacity for general cargo in the Canal ports, the Government has not needed to play an important role in port administration and investments.

1.15 Air transport has been administered satisfactorily by the Directorate of Civil Aviation (DAC) since 1969. DAC is responsible for all aspects of planning and execution of airport facilities, traffic regulation and control.

(ii) Financing

1.16 Government investment in the transport sector is budgeted by the agencies involved, mainly MOP, DAC and APN, which submit their annual budget proposals to MPPE. There is an overall lack of appropriate information with regard to infrastructure investment. MOP's current and capital expenditures are not properly identified, and transport and non-transport activities are not always accounted for separately. An attempt has been made, however, to reconstruct total sector expenditures and investments. Transport investments are shown in comparison with those of other sectors in Table 1.4, and expendi- tures, by mode, are shown in Table 1.5. Compared with the total investment budget for the Government as a whole, transport allocations, reduced from about 25% of the total in 1970 to about 14% in 1977, absorb a relatively modest share of public and capital expenditures, half of which were in the highway sector and the rest in ports and airports. This reflects the comple- tion of large capital investments in the Tocumen airport and the main highway network. Sources of foreign financing for highways are presented in paragraph 3.07; some 40% of the transport sector investments were directly foreign- financed. For the period 1978-1981, it is estimated that, on the basis of the updated NDP, the transport sector share of public investments will fall even further to about 11% (Table 1.4). This estimated decline indicates the general adequacy of the transport system (para 1.03) and follows the Govern- ment Development Strategy, outlined in the NDP, that puts emphasis on the directly productive sectors, particularly agriculture, commerce, industry, tourism and mining.

D. Recent Sector Improvements and Recommended Developments

1.17 In 1973, MPPE undertook the National Transport Survey, carried out by consultants N.D. Lea Associates, Canada, under UNDP financing with the Bank as executing agency (para 4.05). The NTS, which was completed in 1974, identified high priority projects and effected important institutional improve- ments, particularly the creation of a National Port Authority and the estab- lishment of a separate Road Maintenance Department within MOP. With regard to highways, the NTS identified 76 road links warranting rehabilitation or con- struction. The NTS also recommended that much greater emphasis be placed on road maintenance and that a systematic program to prevent highway deterioration be developed and implemented. These recommendations became the basis for the proposed road maintenance project. The NTS recommendations also served as a basis for the transport investment plan contained in the NDP (1976-1980) prepared by MPPE over the period 1975-1976. 1.18 The NDP, with its current updating, recommends that the Government undertake the following priority projects:

(a) Highway Infrastructure - continuation and expansion of a program for improvement of feeder and rural roads, in particular with IDB assistance under the ongoing Third and Proposed Fourth Rural Roads Programs and under USAID's Rural Access Roads Project; the extension of the Pan-American Highway across the Darien region; the construc- tion of the Arraijan-Chorrera Highway (also an IDB loan); the staged upgrading of the Panama-Colon Highway; the strengthening of a road maintenance capacity; and the establishment of an adequate highway maintenance program.

(b) Ports - the completion of the Vacamonte fishing port project and the construction of a container port on the Atlantic at an estimated cost of US$40.0 million. A master plan was carried out for a location at Bahia de las Minas, but a more favorable place is being contemplated. There are also plans to build large installations at Puerto Armuelles for the transshipment of Alaska north slope oil destined for the US east coast. For the time being, supertankers transshi'pat the Panama Gulf to smaller tankers capable of maneuvering the canal. The Government of Panama, through COFINA, is having 25% participation, with foreign interests, in the proposed pipeline.

(c) Airports - completion of the new Tocumen international airport, with private construction of complementary participation, and improvement and upgrading of provincial airports of Bocas del Toro ancl Santiago.

The NDP, responsive to the needs of the economy, would allow Panama to pursue the cievelopment of its domestic agricultural potential while strengthening its posit:ion as a crossroad for international trade.

II. ROAD TRANSPORT

A. General

2.01 The development of road transport followed the improvement and extension of the highway network (para 1.05). The main traffic flows are found along the Pan-American Highway and consist of various types of commer- cial carriers plus private vehicles. Among the freight carriers, the interna- tional traffic between Central America and Panamanian ports using semitrailers, roll--on/roll-off services and containers represents the most modern and sophis- ticat:ed segment of the industry. This traffic is operated mostly by foreign transport companies. Petroleum products (about 1.2 million tons per year) constitute the largest single commodity moved by highway, followed by construc- tion materials and cement (about 1.0 million tons per year), usually carried by trucking companies. Beer and soft drinks also account for important flows, usually carried by single-vehicle operators. Finally, there is the large flow of agricultural products (grain, cereals, fruits and sugar) transported mostly -7- by single vehicle operators or farm-owned vehicles. Concerning passengers, two distinct services are offered: long distance and international services by the well-established companies and local services by owner-operators.

B. Characteristics and Growth of Road Traffic

2.02 Traffic counts have been carried out by MOP in a systematic way since 1966. In spite of the many changes in the locations of counting stations and in the criteria for vehicle classifications made over the years, the total number of survey stations and the general usefulness of the counts on primary roads, especially paved, have consistently improved. Traffic data on secondary, gravel and earth roads are still weak since counts on these roads have not been systematic. Some information is available from the 1974 National Transport Survey and a special survey carried out in 1977 by the Maintenance Directorate of MOP for the preparation of this project. The latest MOP surveys indicate that the Annual Average Daily Traffic (AADT) on the total system is about 510 vehicles, ranging from more than 4,000 on paved roads to about 20 on earth roads, at the lower end of the scale (Table 2.1). This relatively high traffic level indicates the degree of development of road transport in Panama.

2.03 The composition of traffic by vehicle type is fairly evenly distri- buted on the several types of roads, with light vehicles accounting for about 54% of the traffic, buses about 13% and trucks 33%. There are no reliable data on traffic growth over the network as a whole but, when congruent survey stations and years in the annual traffic counts carried by MOP are analyzed, an average growth rate on paved roads of about 4% p.a. is observed. On gravel and earth roads, information is scant and unreliable, but, based on the analysis of these data and general indicators, traffic appears to have been growing at an average of about 5% p.a. General indicators, such as annual growth of vehicle fuel consumption and vehicle registration, show rates that are consis- tent with the estimated traffic growth rates, in particular for the last five-year period.

C. The Vehicle Fleet

2.04 Vehicle registration, shown in Table 2.2, indicates that the fleet has been slowing down its rate of growth as Panama was reaching nearly 90,000 vehicles (52 vehicles per 1,000 population), a relatively high level of motor- ization. Growth rate for the fleet was 8.5% p.a. for the last 16 years and slowed down to 4.7% p.a. since 1971. The area of Panama City maintained a relatively higher growth rate (8%) for automobiles than the rest of the country, showing the effect of its rapid urban development. Average annual growth of diesel and gasoline fuel consumption, shown in Table 2.3, was, until the end of 1973, about 10%. In the last months of 1973, prices went up over 70% and a further 15% before the end of 1974. These price increases had the effect of lowering the growth rate of fuel consumption to a level of about 6% p.a. This small decrease in the growth of consumption shows that these substantial price increases had only a minor effect on traffic growth.

2.05 Trucks and buses account for 25% of the total vehicle fleet (Table 2.2) and are concentrated in Panama Province, which, having only about 17% of the highway network, accounts for 50% of all trucks and 75% of all buses. Three other provinces, Chiriqui, Herrera and Los Santos, with well developed agricultural sectors, while having 47% of the highway network, -8- account for 33% of the trucks. Together, these four provinces share nearly 85% of Panama's truck and bus fleet. The majority of this fleet (85% of trucks and 93% of buses) iisused to provide public transport services, while the rest are owned by commercial and industrial enterprises or farmers (Table 2.4). TruckiLng companies use larger and newer vehicles than the rest of the fleet with capacity of over 20 tons while the vast majority of the single-vehicle owners use much older and smaller vehicles (average 6-ton capacity). The estimated total stc1ticcapacity of the fleet is 73,000 tons, of which some 50,000 tons are held by the trucking companies. This total capacity seems adequate since there is no evidence of delays or shortage of equipment, even at times of peak demand. The bus fleet consists predominantly of small mini-buses (66%) as opposed to the larger highway type buses (34%). The small buses have an average seating capacity estimated at 12 passengers, while the large buses will seat about 45. The total static capacity of the fleet would therefore be about 100,000 passengers, which appears more than adequate to serve present demand.

D. Operations andl Organization of the Industry

2.06 The industry is partitioned into single-vehicle owners on one side and multi-vehicle companies on the other. Single-vehicle owners account for about 70% of the trucking fleet (but only 30% of the capacity). The markets served by the single-vehicle owners and the trucking companies are clearly divided, the first handling agricultural products and serving rural communities and the second dominating the more lucrative import-export markets and, espe- ciallv, the distribution of manufactured products.

2.07 There is a large discrepancy in managerial and financial resources between small domestic truckers and large international operators. National companiies have limited access to international traffic, which is controlled by foreign firms providing integrated intermodal services. Three of these provide container services and two more carry roll-on/roll-off operations through Panamanian ports with destinations in Panama and in transit to Central America. Such firms control, directly or through lease agreements with Panamanian companies, about 50% of the trucks in the Panama province. These trucks travel almost exclusively on two main corridors, between Panama and Colon, and along the Pan-American Highway, where it is estimated that they account for about 30% of the total freight traffic. The implications of this foreign ownership of freight transport on the distribution of benefits from the project are discussed in paragraph 6.08.

2.08 Single-vehicle owners are associated in cooperatives and syndicates. The o:Ldest cooperative was organized by the Government in 1972 to answer the need i-or improved passenger urban transport services. It operates in compe- titioniwith other cooperatives formed by operators. The syndicates, which include mostly urban passenger and freight transport operators, are grouped in the Central Panamena de Transportes. With the exception of services between cities, rural passenger transport is mostly covered by operators performing the dual function of transporting passengers and small loads, many still using old special-body vehicles called "chivas," which offer a low quality of service. They subsist mostly as a result of the limitations to modernization and renewal arising from: (a) the low economic capacity of the less developed rural areas they serve, substantially limiting the financial possibilities of -9- the bus owner; and (b) the poor maintenance of the rural road system, partic- ularly during the rainy season, which discourages the entry of more efficient vehicles on these routes.

E. Tariffs and Costs

2.09 Rates and tariffs for the road transport of freight are not regulated in Panama except for petroleum products. Rates for passenger traffic are controlled. The Price Regulation Office (ORP), under the Ministry of Commerce and Industry, is responsible for determination of the rates, which are generally enforced effectively. Single-vehicle freight operators provide basic undiffer- entiated services and competitive rates. Trucking companies operate at higher rates, offering more reliable and diversified services under more sophisticated contractual terms, particularly for complementary services such as warehousing, storage-in-transit handling and forwarding. Rates for passenger transport are relatively low. The Government, through ORP, has supported a policy of provid- ing cheap transport, especially to the urban dweller. In order to maintain low rates, the Government has exempted operators affiliated with cooperatives and syndicates (para 2.08) from paying vehicle import duties and other taxes.

2.10 Average financial vehicle operating costs are estimated, from a survey of several operators, at about USJ5.8/ton-km or an average of USJ47.0/km for an 8-ton vehicle. The same sources indicate that the recorded financial costs to single-vehicle owners are substantially lower than those of trucking companies. Single-vehicle owners' recorded costs are commonly 15% to 30% below company-recorded costs because they do not take salaries, insurance and depreciation fully into account. On the other hand, single-vehicle owners face higher fuel, tire and maintenance costs because they operate smaller and older trucks. Single-vehicle owners are generally ready to operate with a lower profit margin and, in fact, compete actively with one another and with trucking companies. They contribute toward keeping the industry competitive and responsive to the demand. Under these conditions, savings in vehicle operating costs due to improved road conditions would, within a relatively short time, be passed on to users. Better road conditions would also favor the use of more modern and more efficient trucks.

F. Government Role and Enforcement of Weight and Dimensions Regulations

2.11 Government intervention in the operation of road freight transport has been minimal. Truckers operate freely over routes that they select, but under the obligations of annual registration and vehicle inspection. Passenger road carriers, however, have to request a license to operate a route. These licenses are provided by the Directorate of Transit and Land Transport (DTTT), under the National Guard, and are based on the population of the areas to be served. Tariffs for passenger transport are established by ORP (para 2.09). Transit regulations are based on Decree 75 of July 1937 and its modifications of September 1941 (Decree 159). DTTT is currently studying a new regulation with the purpose of bringing the old law up to date.

2.12 Vehicle weights and dimensions are regulated by Law 23 of January 1967 which complements Decrees 75 and 159. This Law adequately regulates weight and size for all cargo vehicles (Table 2.5). However, in 1974, the Government, - 10 - in the midst of the recession that was affecting the industry, after discus- sions with the trucking unions, suspended enforcement of Law 23. Since then, overloading has become a practice among certain truckers. MOP is aware of this problem and has taken measures for the future re-introduction and enforce- ment of the Law. :[n fact, MOP is adequately equipped (it has four weighing stations) and stafiEed for the implementation of the Law, and crews at these stations continue to weigh trucks on a routine basis. In anticipation of the re-inl:roduction of the Law, MOP is preparing an educational campaign for road users, emphasizing the Law's advantages. MOP has not yet obtained authoriza- tion fEromthe Government to enforce the Law. The Government has been advised that enforcement oiEvehicle weight regulation is a necessary component of a sound road maintenance policy. At the time of negotiations, the Government confirmed that it would: (a) enforce the vehicle weight regulations on a per- manent and consistent basis, and in accordance with a timetable acceptable to the Bank; such timetable to provide for full enforcement on all paved roads by June 30, 1979 at the latest; and (b) exchange views with the Bank on any pro- posal to amend or supplement existing vehicle weight regulations. Agreement on the above timetable would be a condition for the effectiveness of the proposed loan.

III. THE HIGHWAY SUBSECTOR

A. The Highway Nietwork

3.01 Development of the highway network has been discussed in paragraphs 1.04 and 1.05. Thie present system, as a whole, provides acceptable transport to most populated areas of the country. Its backbone, the Pan-American Highway, some .550km in length at present, is being extended by 280 km through the Darien Gap to Yaviza, about 60 km from the Colombia border, while other network improvements, such as the upgrading of main highways and the extension of the feeder roads system, are under way (para 1.18).

3.02 However, the substantial efforts toward upgrading and improvement were not matched by a buildup of maintenance capacity. The general condition of the road network is not adequate to assure a satisfactory level of service. The inventory carried out in 1976 by MOP with assistance from Mexican consul- tants COMEC (Cia. Mexicana de Consultores, para 5.04), showed that some 5,100 km (66%) of the network are inadequately maintained. The proposed road mainte- nance program is designed to improve this situation substantially and to plan and prepare a countrywide highway rehabilitation and improvement program, including paved roads in particular.

3.03 The development of the highway network was, until recently, based upon an extensive program of construction of primary and secondary roads that now link most populated areas of the country. However, as these roads were constructed, feeder roads running to small rural communities were not developed, leaving each community to build primitive paths and roads to provide access. Over the last few years, the Government has undertaken a concerted effort to develop the rural sector and to raise the income levels of the rural popula- tion, and it is emphasizing its plans for the development of an adequate - 11 - feeder roads network. A number of programs are under way, or firmly planned, which would provide for the construction of about 1,600 km of various standards over the next five years. These programs include: (a) the IDB-MOP III Program, including construction of 255 km of new roads (total cost of B 43.0 million, of which B 30.0 million was financed by IDB); (b) a followup program, IDB-MOP IV, similar in scope (about 300 km) planned for 1980; (c) the USAID Integrated Rural Development Project I, including 80 km of feeder roads; and (d) a pro- posed Rural Access Roads Project for about 1,000 km of new improvements to be initiated in 1979 (total cost of B 15.0 million, of which B 10.0 million would be financed by USAID).

B. Highway Administration

3.04 MOP is responsible for practically all highway work in the country. It is also responsible for the construction and maintenance of city streets, national buildings and drainage works. In 1974, MOP was reorganized, following the recommendations of the National Transport Survey, into four directorates: Construction (DNC), Maintenance (DNM), Pan-American Highway (PAH) and National Geographic Institute (Chart 18231). In January 1978, as a result of preparation of this project, MOP established a Directorate of Equipment (DINE) in response to the need for improved control over equipment. Although the present organizational structure is rational, the functions and responsibi- lities of the directorates have not yet been enacted into an appropriate regulation. A law has been prepared to sanction the organization of MOP; the proposed law would define the division of responsibilities within the Departments of the Ministry and between the Ministry itself and other agencies; it has been submitted to the Legislative Assembly for consideration. The law would also be the starting point for future improvements in the organization and management of MOP, and is, as such, an important element in the achievement of the long-term objectives of the proposed project. At the time of negotiations, the Government provided a draft of the proposed law and confirmed that it would seek appropriate legislative action. Such legislative action would be a condition for loan effectiveness.

3.05 MOP is reasonably staffed, and its senior personnel are generally experienced and capable. Of its 5,800 employees, some 130 are professionals and 700 are technicians. The Ministry shows the typical problems of many Government organizations, where inadequate personnel policies regarding recruitment and assignment of new staff are coupled with limited advancement opportunities and wage scales generally lower than those of the private sector. As a first step toward improving this situation, the Ministry of Planning and Economic Policy (MPPE) is carrying out a census of human resources in MOP and the public sector to obtain reasonably accurate data on the number, category, education and experience of all personnel. This assessment will facilitate manpower planning, including the needs for reclassification, transfers, re- cruitment and training as well as appropriate compensation policy. MOP would adopt improved personnel development policies under the project (para 5.14).

C. Highway Planning

3.06 MOP's Department of Planning was created in 1971 to carry out overall planning for highway investments and to prepare feasibility studies, loan - 12 applications, and the Ministry's annual budget application. The Department was later put in chbarge of coordinating MOP investment programs within the . ar:ti-:nal economic plans of MPPE. The development of a ceritrali7-d planning function within MOP is still in the formative stage. The effective- ness cf the Planning Department has been limited by lack of coordination with other Divisions within MOP and shortage of qualified staff. Basic activities, such as maintaining; an up-to-date road inventory, improving and analyzing traffic surveys 1/ on all roads and preparing regular statistical reports on road E!xpenditures and other information are not carried out. As a result, highwa,y programs have been based only on very simplified and pragmatic criteria, centered around indiividualfeasibility studies. The highway investment program prepared by the NTS remains the main source for highway investment planning. Its recommendations served as a basis for the current NDP and became the basis for the proposed road maintenance project (para 1.17). The project would, in effect, provide technical assistance to MOP to improve planning of highway maintenance and rehabilitation (para 5.13).

D. FLighway Financing

3.07 Highway expenditures are financed through the general Government budget: under MOP allocations. Expenditures for the period 1970-1977 are shown in Table 3.1. The level of total annual expenditures in 1977 was US$41 million, somewhat lower tharn that of previous years when it averaged US$50 million. Of this amount, recurrent expenditures for highway maintenance, periodic improve- ments, administration and supervision absorb about 30%, a level that would ap- pear adequate if maLintenance operations were interpreted correctly (para 3.13). Over t:heperiod 1970-1977, some 37% of total highway expenditures, averaging about US$13 million per year, was financed by external sources, of which two- thirds were financed by IDB and the US Government in equal parts, and the rest by other sources. The balance was provided by Government funds (Table 3.2).

3.08 Estimated contributions from road user charges are shown in Table 3.1. On the average, road user revenues for the period 1970-1977 have been sufficient (US$26.5 million eq[uivalent p.a.) to cover all expenditures for highway admin- istrat:ion and maintenance as well as about 70% of other expenditures, mainly for construction. Only in 1976, expenditures were substantially out of line with revenues, in part due to large investments (close to US$20 million) on the Darien Pan-American Highway, two-thirds of which are financed through a US Government grant. It is estimated that, over the next four years, proceeds from road user charges would be adequate to support planned expenditures for maintenance as well as future outlays for construction, particularly since motor fuel taxes, the largest contributor, were increased again (by 15%) during 1977. The prices of locally consumed gasoline and diesel oil are high in com- parison with levels in the US and most Latin American countries. 2/

1/ I]n the past under DNM responsibility, but being reorganized under the Department of Planning.

2! Retail price f'or gasoline is B 1.10 per gallon and for diesel B 0.55 per gallon. - 13-

E. Highway Engineering

3.09 MOP's Directorate of Construction (DNC) is responsible for the technical preparation and supervision of all highway projects, with the excep- tion of the Pan-American Highway (PAH), which is in the hands of the PAH Directorate (para 3.04). DNC possesses adequate capacity and experience for project preparation; in fact, it prepares the major part of the detailed engineering of highway projects with its own personnel and carries out the supervision during construction. The US Federal Highway Administration has given engineering and project planning assistance to the PAH Directorate since 1945 and continues to provide it on the construction of the Darien Gap PAH.

3.10 The standards for most of the existing roads were adopted either as a function of local conditions or in accordance with the funds available for a given project. The PAH and the Transisthmian Highway, which were built in cooperation with the US Government, had design standards established by the US Federal Highway Administration and the US Army Corps of Engineers. For secondary and feeder roads, in turn, DNC has developed standards in conjunc- tion with USAID and IDB-financed highway projects. These standards (Table 3.3) establish minimum specifications for roadway width, horizontal and vertical alignments and bridges; they are adequate for flat-rolling terrain, where most of the network is located.

F. Highway Construction

3.11 Major highways such as the PAH have been built, and in some instances maintained, by foreign contractors, with the exception of the Panama City-Colon highway (about 70 km), which was built, and maintained until recently, by the US Government. Most of the network has been built by MOP either by force account or through negotiated contracts. MOP policy is changing, however, toward contracting all new highway construction on the basis of competitive bidding. Satisfactory bidding practices have been adopted following examples set under IDB-financed projects and reflecting the experience gained with construction of the PAH. The capability of the local contracting industry is expanding; there are currently some 14 domestic firms which have experience in roadwork; most of these firms recently prequalified for the IDB-financed Arraijan-Chorrera highway (24 km, US$23.0 million). This prequalification showed that four domestic firms had a capital of over US$40 million and at least six others had a capital of over US$10 million, suggesting that Panama should, in the future, be able to rely on domestic capacity for most of its requirements.

G. Highway Maintenance

3.12 Maintenance of the whole road network is the responsibility of DNM. As a result of Government decentralization policy, DNM is headquartered in David, some 400 km west of Panama City where the Ministry and its other Departments are located. DNM operates through eight provincial directorates, including one in charge of maintaining streets in the Panama City metropolitan area (Chart 18230). DNM is also responsible, through an extra directorate, for maintaining all public buildings. Highway maintenance planning and supervision are handled from headquarters while the provincial directorates - 14 -

carry out the actual field work, by force account in most cases. DNM employs about 4,800 persons (that is, more than 80% of the MOP payroll) including 36 professionals, 11 of whom work at headquarters. Each of the provincial directorates is headed by an engineer and has a small administrative staff. DNM supervisory and engineering staff appear generally capable and receptive.

3.13 The nature and scope of maintenance operations are interpreted differently throughout DNM; the provincial directorates carry out, under maintenance, a variety of ill-defined operations and have not established a clear dividing line between highway improvements, reconstruction and mainte- nance. Levels of expenditures, which ultimately control maintenance standards, are not determined on the basis of standard schedules of operations depending on rcad types, traffic volumes, etc., with the result that resources intended for maintenance are often diverted to other activities, mainly improvement and construction. The need to improve DNM's organization - from the ability to determine standard maintenance schedules to the planning of a full year's program of activities and to the introduction of reporting procedures suit- able for evaluation and control - has been recognized by MOP and is one of the main objectives of the project (para 5.13).

3.14 The MOP equipment fleet is managed by a committee composed of the five MOP Directors under the chairmanship of the Minister. The Director of DINE is executive secretary of this committee and controls MOP's equipment budget. The recent creation of DINE, a central unit responsible for equip- ment, is, in effect, to improve coordination among the users, the workshops and the stores. Road maintenance equipment is not always available when and where needed, and priorities set at headquarters are not always followed, particularly those concerning road maintenance works and improvements. Improvement of management initiated with the establishment of DINE would be pursued further under the project.

3.15 The existing fleet of nearly 1,900 units is aging and in a very poor condiLtion. Average age is eight years, and a preliminary assessment made by MOP indicates that: only 33% of the units are in good working condition while 45% are out of orcder or in need of a major overhaul, and the remaining 22% are not salvageable. The availability of the usable part of the fleet (made of the two first categories) is estimated at only 40%, and its average utilLzation at only 30%. In addition, the composition of the fleet is in- adequate; many of the units inherited from the former CAM and PAH Departments are heavy equipment suitable for construction. Spare parts are in short suppLy, necessitating that the equipment lie idle for months even for minor repairs. The lack of routine budgetary allocations for spare parts and of programmed preventive maintenance, together with the absence of a systematic replacement program for the fleet, explains its present critical condition. A substantial effort is required for the adequate maintenance of the road network; this effort would be based on the programmed renewal of equipment and on its adequate administration as the main objective of the proposed project. The proposed project would renew the fleet, adjust its composition and carry out overhaul of salvageable units and scrapping of obsolete ones (para 5.02).

3.16 Workshops at each provincial directorate are generally adequate for the fleet they serve. The provinces are assisted by the two main workshops in - 15 -

David and Aguadulce. In David, and to a lesser extent in Aguadulce, the workshops are reasonably adequate. However, workshop equipment in Aguadulce and in the provincial workshops is obsolete and in need of replacement. In general, workshops are set to repair units and carry out major overhauls rather than institute routine service and preventive maintenance of the most reliable units. Spare parts stockrooms are adequate, and their control systems are satisfactory. However, the spares are sometimes kept mixed with construction materials, and there is no control over the number of obsolete parts being kept. An essential updating of MOP's spare parts inventory and of its requirements is to be carried out under the proposed project (para 5.11).

3.17 A training school for heavy equipment operators is run by DNM. The school operates on an ad hoc basis, but its curriculum is not completely responsive to DNM needs. Since 1972, the school conducted 13 short-term courses and trained some 300 men as equipment operators and heavy duty mechanics. The program needs to be amplified and expanded to include middle- management functions; a review undertaken during appraisal showed that some additional 700 skilled workmen and foremen would need retraining or initial training. Other institutions outside MOP, such as the National Training Center (CENAFOR) and the Institute for Training and Improvement of Human Resources (IFARHU) also provide training in areas sometimes useful to DNM. The DNM training programs would be reinforced by the assessment of DNM manpower requirements on the basis of staff reclassification (para 3.05), which would provide a firm basis to plan the necessary strengthening of DNM's training unit and the preparation of a realistic training plan under the project (para 5.14).

IV. PAST BANK ASSISTANCE TO THE HIGHWAY SUBSECTOR

A. General

4.01 To date, the Bank's previous involvement in the highway subsector consisted of two projects and the provision of technical assistance as execut- ing agency under the UNDP-financed National Transport Survey. The First Highway Project (Loan 123-PAN, US$5.9 million, July 1955) was for highway rehabilitation, and the Second Highway Project (Loan 264-PAN, US$7.2 million, August 1960) was for feeder roads. Performance under these two projects was not fully satisfactory, primarily as a result of the weakness of CAM, the agency responsible for their execution. Not until 1972 was the Bank again able to assist the transport sector development in Panama. After helping to prepare terms of reference for the UNDP-financed NTS, the Bank acted as its executing agency. The survey was successfully completed in 1974.

4.02 Although the Bank did not actually finance any highway projects since 1960, it was well advanced in the appraisal of a proposed US$6.4 million highway construction and maintenance project in 1966, at which time the loan application was withdrawn by the Government. In 1975, after successful com- pletion of the NTS, a project to finance modernization of the Panama-Colon Highway and highway maintenance equipment was prepared to a point at which appraisal could have taken place. This project was not carried out because of financing constraints. The present project would re-establish the working relationship between MOP and the Bank in highways. Its objectives have been - 16 - kept well focused and simple, and the Bank has collaborated closely with MOP in its preparation.

B. Completed Highway Projects

4.03 The Bank's First Highway Project included: (a) organization of the Highway Department of MOP; and (b) reconstruction of approximately 650 km of primary roads and :380 km of secondary roads. The project provided five foreign experts to fill senior executive positions in the MOP directorate responsible for highways. This provision became a source of friction, and the experts were eventually replaced by local officials. In 1958, the Government elected to prepay the loan, and most of the project works were not carried out under the project but were later built with the Government's own resources.

4.04 The Second Highway Project included: (a) the engineering and construction of about 300 km of feeder roads serving agricultural areas of high potential; and (b) improvement and paving of 138 km of roads connecting some of the above feeder roads with the Pan-American Highway and the Divisa- Las Tablas road. As a result of cost overruns, two of the proposed feeder roads, totaling 78 km, were eliminated from the project. CAM's performance as executing agency was weak. The 138 km of roads requiring improvement and paving were not surveyed and designed in detail before execution of the work, and, as a result, they took nearly five years to complete.

C. The National Transport Survey (1972-1975)

4.05 The National Transport Survey (NTS), for which the Bank was executing agency, was supported by a UNDP grant of US$400,000. The Bank helped to pre- pare terms of reference for the NTS and supervised its execution. The Survey, carrited out by consultants N.D. Lea (Canada), had the following main objectives: (a) the formulation of a detailed transport investment program for the period 1974-1979; (b) the formulation of a tentative transport investment program for 1980-1990; (c) recommendations for the improvement of the organization, manage- ment, operations and planning of each transport mode; and (d) recommendations for the improvement of Government transport policy and coordination. The Survey was instrumental in improving transport sector organization and in helping the Government to focus attention on priority projects (para 1.17).

V. THE PROPOSED HIGHWAY MAINTENANCE PROJECT

A. Objectives and General Description

5.01 The objective of the proposed project is to provide MOP with the necessary capacity to carry out, during the four-year period 1979-1982, an agreedl program of maintenance operations over the national highway network. The project would provide technical assistance, equipment and organizational improvements: - 17 -

(a) to strengthen MOP's organization with relation to highway maintenance and to improve its methods and procedures to assure effective planning, scheduling, directing and control of maintenance operations;

(b) to ensure that road maintenance activities are supported by adequate vehicles and equipment; and

(c) to upgrade, through training, MOP manpower at all levels.

5.02 The project would provide the following:

(a) Equipment

- acquisition of new maintenance equipment and replacement of obsolete or unsalvageable equipment as required for MOP's Highway Maintenance Program;

- acquisition of spare parts for new units to build up an inventory and introduce preventive maintenance practices;

- acquisition of spare parts for overhauls of existing sal- vageable units; and

- acquisition of workshop tools and equipment for improvement of maintenance workshops.

(b) Technical Assistance

- consulting services to strengthen DNM's technical and managerial capabilities to plan, implement and supervise annual road maintenance programs; to upgrade the manage- ment of DNM's equipment fleet and assist in the overhaul and procurement programs; to assess MOP's personnel training needs and undertake complementary training; and to identify priority road rehabilitation and strengthen- ing works.

B. Background and Preparation of the Highway Maintenance Program

5.03 The need to develop an efficient highway maintenance program based on adequate management policies was felt by DNM since it took over highway maintenance in 1974. The Transport Sector Survey, in turn, found such a program of high priority (para 1.17). The present program, covering the Four-Year period 1979-1982, was finally formulated by MOP's Department of Planning and DNM with Bank assistance. MOP has confirmed, by letter dated March 15, 1978, adoption of the agreed maintenance program. Formulation of the program required the establishment of adequate and economically efficient levels of maintenance in accordance with road type and traffic levels, the determination of resource requirements, and the procedures for implementation and control. - 18 -

5.04 The basis of the maintenance program was a detailed road condition inventory carried -out in 1976 by DNM with the assistance of consultants COMEC (para 3.02). The inventory - classifying, by direct observation, for each surface type, the length of roads in good, fair and bad condition - covered each of the provinces in Panama. It shows that only 34% of the total road network. of Panama is presently in good condition, another 33% is fair and the remaining 33% is bad (Table 5.1).

5.05 Economic considerations were at the basis of the concept used for the design of the proposed highway maintenance program, i.e., for the determination of the desired level of maintenance for the various types of roads and various classes of traffic. This analysis is summarized in Chapter VI. As a first step tcoward a more efficient allocation of maintenance resources, a proper definition of highway maintenance activities, as distinct from betterment and upgrading of roads, was sought. With this purpose, a list of 19 specific maintenance activities, encompassing most of the operations for conditions in Panama, was developed (Table 5.2). For each maintenance activity, quantity standards were then established based on the frequency of the required opera- tion for three diffe!rent traffic levels. The quantity standards were later adjusted according to various alternative levels of maintenance efforts designe!d to optimize the total program within the constraints imposed by the Governmient budgetaryr limitations (para 5.16). Resource requirements for each maintenance activityt were then computed on the basis of the maintenance activ- ities and quantity standards adopted, taking into account work procedures and efficiencies acceptable for Panama. The resulting cost estimates for each maintenance activity by type of road and level of traffic are shown in Table 5.3. The resulting Highway Maintenance Program specifying scope and frequency of maintenance operations for the links making up the national highway network has been adopted by MOP.. It has been reviewed and found adequate.

5.06 The basic purpose of the proposed project would be to build up within MOP, over a four-year period, the necessary capacity to carry out annually the schedules of maintenance activities prescribed in the highway maintenance program. This program is well in line with the priorities established in the curreni: NDP. Improvement in maintenance would tackle one of the two major deficiencies of the current road system. The other deficiency, the need for feeder and rura:L roads, is being addressed under a number of programs supporlted by IDB and USAID (para 3.03).

5.07 The program has not addressed directly the important problem of rehabi'Litation. A number of roads have been allowed to deteriorate to a point where they would need rehabilitation before being amenable to normal mainte- nance. Others, incLuding paved roads, have pavement with insufficient struc- tural strength to sustain present traffic volumes and need strengthening. Rehabi'Litation and strengthening are large expenditures requiring detailed identification and preparation. MOP would, with technical assistance provided under the project, undertake to identify a five-year program for rehabilitation and strengthening. During negotiations, the Government confirmed that MOP would, through its ])epartments of Planning and Construction, identify and prepare a five-year program for the rehabilitation and strengthening of the national roads in accordance with the following schedule: identification by January 30, 1979; preliminary engineering by June 30, 1979; selection of technical alternatives by December 31, 1979, after which the Government would - 19 -

exchange views with the Bank on the extension and contents of the program and proceed, with-in the next six months, with appropriate engineering design for the road sections included in the first and second years of the program. The scope and schedule for the preparation of such program were discussed and agreed during negotiations.

C. Project Components and Requirements

(i) Equipment

5.08 A major component of the proposed project would be to replace and overhaul existing equipment and to incorporate new units as necessary to enable DNM to carry out the proposed road maintenance program (1979-1982). Total additional equipment needs were estimated by deducting from the resource requirements of the program (para 5.05) the available maintenance equipment in operating condition or suitable for rehabilitation. This net deficit was formulated in a tentative list of equipment needs and costs (Table 5.4). Dur- ing negotiations, the list of new equipment was reviewed and agreed. MOP is carrying out a survey of units presently out of order or in need of overhaul. The survey would identify, on one hand, the units that are obsolete or beyond repair, and, on the other hand, the units which are economically salvageable and those which can be quickly put back into service. A preliminary list of units to be overhauled under the project and the program to complete scrapping of existing wornout equipment was reviewed and agreed during negotiations.

5.09 As indicated in paragraph 3.14, the administration of the equipment fleet needs strengthening. MOP intends to establish the position of Fleet Manager and appoint to it an experienced engineer to be responsible for the coordination of all fleet-related activities such as equipment maintenance, spare parts, availability and utilization, procurement and the replacement program. A detailed job description for the Fleet Manager has been prepared (Annex 5.1); it was reviewed and agreed with MOP at the time of negotiations. Appointment of the Fleet Manager would be a condition for loan effectiveness (para 5.22). The Fleet Manager, who would be part of MOP's permanent organiza- tion, would be the counterpart to the equipment maintenance specialist included in the technical team of the consultants to be provided by the technical assistance under this project. As such, he would help DINE to improve and control the availability and utilization of equipment by implementing programs to evaluate utilization and plan renewals in a systematic way. At the time of negotiations, the Government confirmed that MOP would (a) prepare and put into effect, not later than December 31, 1979, a program of procedures accept- able to the Bank for the systematic renewal of maintenance equipment and disposal of obsolete units; and (b) develop data to monitor and evaluate, starting in fiscal year 1979, the availability of its equipment fleet.

(ii) Spare Parts and Workshops

5.10 The project would include introduction of systematic practices for preventive maintenance of equipment. In addition to parts necessary for overhaul of salvageable units, the project would also provide the necessary spare parts to set up stocks. It is estimated that some 420 new equipment units would be added to the fleet, while about 400 existing units would be - 20 - overhauled. On the basis of these incorporations, spare parts requirements and related budget allocations have been estimated for the project period p=r- 521'). Spare parts required for the proper maintenance and prompt repair of the fleet would be funded adequately under a specific allocation in MOP's budget.

5.11 Before undertaking purchase of spare parts for preventive main- tenance, it is essential to separate spares from other materials, maintain an up-to-date inventory of all spares held (para 3.16) and dispose of obsolete spares. Under the project, MOP, with consultants' assistance, would improve its practices for purchasing and warehousing of spare parts. At the time of negotiations, MOP undertook to complete by the end of 1978, in a manner satisfactory to the Bank: (a) the separation of stocks of spare parts from construction materials, (b) the updating of spare parts inventories, and (c) the disposition of obsolete stock of spare parts. Completion of these measures would be a condition for disbursement for spare parts for preventive maintenance.

5.12 As mentioned in paragraph 3.16, the two main equipment workshops are, in general, reasonably equipped. However, at the provincial directorates' level, workshops responsible for routine preventive maintenance are poorly equipped. Their tools and workshop equipment are old and in need of replace- ment. The proposed project includes the provision for replacement and modernization of workshop tools and equipment.

(iii) Technical Assistance

5.13 The need for strengthening of MOP, and particularly DNM, specific- ally in the areas of highway maintenance planning, organization and control (para 3.13) and equipment management (para 3.14), have been noted. The proj- ect would provide technical assistance in the following areas: (a) maintenance organization and management, (b) annual maintenance program, (c) equipment and workshops, (d) administration and accounting, (e) personnel training, and (f) identification of rehabilitation requirements. Terms of reference for the related consulting services were reviewed and agreed during project appraisal (Annex 5.2). Consulting services would be provided by a firm of consulting engineers specialized in road maintenance management and execution. Seven experts (two engineers, two equipment specialists, one accountant, one store specialist, and one training expert) would be required for a period of one to four years for a total of about 200 man-months.

5.14 The consultants to be provided under the technical assistance would have a substantial responsibility for the planning and implementation of highway maintenance training programs (Annex 5.2). To help set the institu- tional basis for the success of their effort, the Government confirmed, during negotiations, that MOP would undertake to prepare and put into effect not later than December 31, 1979, after consultation with the Bank, a phased program on personnel development policy, including training of personnel.

(iv) Budgetary Requirements and Practices

5.15 If the amounts allocated to maintenance in the MOP budget of the last few years had actually been spent on road maintenance, Panama would now have a reasonably maintained road system. However, in many instances, these - 21 -

maintenanceallocations were diverted to other activities, such as construction3 and maintenance requirementswere not fully met (para 3.13). At the time of negotiations, the Government confirmed that MOP would maintain the highway network adequately and that the funds necessary for the purpose would be made available to it through sufficient and timely allocations from the budget. Agreed estimates of annual requirementsfor this purpose through the project period were confirmed by the Government at the time of negotiations. There is also a need to improve budgeting practices and establish a more rigorous definition of maintenance activities as distinct from constructionand improvements. At the time of negotiations,the Government also confirmed that MOP would: (a) adopt, by December 31, 1978, operationalprocedures satisfactory to the Bank that would clearly differentiatemaintenance activities from improvementor rehabilitationactivities; (b) separate, starting in fiscal year 1979, the highway maintenancebudget from other DNM activities; and (c) subdivide its highway maintenancebudget into: (i) administrationand labor, (ii) materials, (iii) fuel and lubricants, (iv) equipment acquisition, and (v) spare parts acquisition.

5.16 Specific estimatesof requirementsfor current allocationsfor the duration of the proposed MaintenanceProgram (1979-1982)were prepared on the basis of the total annual maintenanceprogram. The resulting estimatesof requirementsfor the Operational and Investment Budgets, including provisions for equipment, spare parts, fuel and lubricants,construction materials, labor and overhead expenses were discussed during appraisal and confirmed during negotiations. These maintenancebudget requirements,which are in line with MOP's absorptive capacity, are shown in Table 5.5.

D. Cost Estimates and Financing

5.17 The proposed project is estimated to cost about US$12.9 million equivalent based on end-1977 costs, includingcontingency allowances as shown in the following table: - 22 -

PROJECT COST ESTIMATES (million of Balboas)-/ Estimated Foreign Exchange Bank Local Foreign Total Component Participation

Four-Year Highway Maintenance Program (1979-1982)

(a) Equipment and spare parts

(i) Road maintenance equipment 0.35 7.23 7.58 95 100% fec or 85% of total (ii) Initial st:ockof spares for-new units 0.04 0.85 0.89 95 100% fec or 85% of total (iii) Spare parts for overhauls 0.07 0.43 0.50 85 100% fec or 85% of total (iv) Workshop tools and equipment 0.01 0.10 0.11 95 100% fec or 85% of total Subtotal 0.47 8.61 9.08

(b) Technical Assistance 0.28 1.41 1.69 83 100% fec or 83% of total Base cost /2 0.75 10.02 10.77

(c) Contingencies

- Physical (10% of (iii) & (iv)) 0.01 0.05 0.06

- Price escalation (about 19% of base cost plus physical contingencies) 0.15 1.93 2.08

Total Project 0.91 12.00 12.91 93 93%

/1 Balboa 1.00 = US$1.00 /2 Estimates based on end 1977 values for consistency with MPPE agreed budget (para 5.16).

5.18 The proposed loan would finance the foreign exchange component of the project, amounting to US$12.0 million or 93% of capital expenditures. The Government would finance the local component of project costs as well as the recurrent expenditures necessary to carry out the maintenance program. Confirmation to this effect was obtained from the Government during negotia- tions (para 5.15). The recurrent expenditures would total about US$34 million - 23 -

(at end-1977 values) over the project period (1979-1982). The proposed loan would thus represent about 21% of the total cost of the program over the four-year period 1979-1982.

5.19 Cost estimates are well founded. The costs of the road maintenance and workshop equipment,including the initial stock of spares for new units, have been estimated on the basis of lists prepared by DNM, reflectingmanu- facturers' quotations and recent purchases. The cost estimate also includes US$500,000 of spare parts for overhaul of about 400 presently broken units which can be put back into service quickly. These costs include local prepa- ration and delivery charges, but exclude import taxes. The cost of the tech- nical assistanceto DNM has been estimated on the basis of about 200 man-months required for these services and includes the cost of five fellowshipsabroad for MOP professionals. The estimated average cost per man-month would range from US$5,500 to US$8,000, which is consistentwith current international rates for the level of expertise required. Estimates of price increases have been calculated at an average rate of 7.5% p.a. for equipment and consult- ing services during the 1978-1982period.

5.20 The foreign exchange component of the purchases of road maintenance and workshop equipment and of initial stock of spare parts for new units has been estimated on the basis of c.i.f. prices at port of entry and correspond to 95% of total costs. The foreign exchange component of the spare parts for overhauls has been estimated at 85% of total costs because it is likely that most of them would be procured through local dealers. The foreign exchange component of locally purchased goods was reviewed and agreed during negotia- tions. The technicalassistance would be provided by internationalconsul- tants; the foreign exchange component is estimated at 83% on the basis of an analysis of expenses in local and foreign currencies. The relativelyhigh percentage reflects the fact that most of the expendituresconsist of fees and salaries. MOP would provide offices, accommodationsand logistics support directly.

5.21 Disbursementsof the loan would be made as follows:

(a) 100% of the foreign expendituresfor direct imports, or 85% of the total expendituresfor imported but locally procured goods; and

(b) 100% of the foreign expenditures,or 83% of total expenditures for technical assistance.

E. Execution,Procurement and Monitoring

5.22 MOP would be responsible for the project through DNM and DINE, which would be assisted by consultants. To strengthen the management of maintenance operations,DNM plans to assign two Maintenance Engineers full time to perform the functions of reviewingand updating the highway maintenanceprogram; they would also assist DNM in the organization,supervision and control of the program and in the preparation of progress reports required for management purposes and budgetary control. The two Maintanance Engineerswould be the counterpartsto the Highway Maintenance Specialistsincluded in the technical - 24 - assistance team (para 5.13). A job description for a Senior Maintenance Engineer is given. in Annex 5.3; it was agreed during negotiations. Besides the two Maintenance Engineers, an Equipment Fleet Manager would be appointed by DINE to coordinate all aspects of administration and handling of the MOP equipment fleet (para 5.09). The two Maintenance Engineers and the Fleet Manager would be permanent positions established within the MOP structure to be filled by Panamanian engineers. The Government confirmed, at the time of negotiations, that MOP would employ, with functions agreed with the Bank, an Equipment Fleet Manager (para 5.09) and two Maintenance Engineers. The appointment of the Fleet Manager and of one of the Maintenance Engineers would be a. condition for effectiveness of the proposed loan.

5.23 Procurement under the project would be in accordance with the Bank's "Guidelines for Procurement" (March 1977). The procurement program for equip- ment and parts indicating lot sizes and estimated costs would be subject to prior approval by the Bank. Contracts of over US$50,000 would be awarded according to international competitive bidding. Lots with estimated costs of less than US$50,000 and within an overall ceiling of US$300,000 would be adver- tised locally in acordance with Government regulations contained in the Fiscal Code, Decree 170 of September 2, 1969 and Law 46 of August 8, 1975, which are satisfactory. Spare parts for specific makes of equipment would be procured directly from established dealers in accordance with the same Government regulations for individual orders of less than US$50,000 and within an overall ceiling of US$500,000. Terms and conditions for procurement were reviewed and agreed during, negotiations.

5.24 Terms of reference for consulting services under the technical assistance to be provided to MOP have been submitted by the Government and found acceptable by the Bank (para 5.13). At the time of negotiations, the schedule and procedures for contracting consultants were discussed and agreed. The Government also confirmed that the qualifications of the consul- tants selected for these assignments as well as proposed terms of contract would be submitted to the Bank for prior approval.

5.25 The implementation period of the project would be four years (1979- 1982). Equipment purchases would take place during 1979 while the technical assistance, starting in 1978, would last four years; the estimated schedule for disbursement of the loan is included in Table 5.6. The tentative schedule for project implementation covering all project elements and indicating Bank involvement is shown in Table 5.7; this schedule was discussed and agreed during negotiations.

5.26 Indicators by which the project would be monitored are given in Annex 5.4. They would follow (a) the scope and volume of maintenance oper- ations through detailed and aggregated information for key activities; and (b) the availability and utilization of the equipment fleet. In addition, MOP would monitor the use of current budget allocations, especially for spare parts. The purpose of project indicators and the specific indicators to be used for the project were reviewed and agreed during negotiations as well as the arrangements for collecting information during and after the implementation stage. - 25 -

F. Project Risk

5.27 The main reasons for the poor level of maintenance have been the lack of clear perception of road maintenance requirements and the derelict condition of the equipment fleet. Every effort has been made in the prepara- tion of the four-year maintenance program to develop a coherent framework for upgrading highway maintenance and restoring the fleet to an acceptable level of effectiveness. Direct responsibility of MOP and MPPE officials for project preparation built up institutional commitments. The adequate funding of operating expenditures, which would be essential for the success of the main- tenance program, has been thoroughly reviewed and agreed and would be the object of specific commitments. The magnitude of the proposed expenditures is well within the financial capacity of the Government. There is also full agreement on the need to retain international consultants to assist in project implementation. In view of the above, the risks attached to the proposed program have been reduced sufficiently to allow reasonable expectation of success in reaching the broad objectives of the program.

G. Project Impact and Adequacy of Technology

5.28 Aside from the major quantified benefits mentioned in the economic evaluation (Chapter VI), the program would provide further benefits by improving reliability, safety and comfort for road users (para 6.09). In addition, the project would assist DNM in improving its organization and, directly or indirectly, would increase the level of qualifications of 80% of MOP personnel currently employed in road maintenance. Current and proposed maintenance methods generally represent an adequate combination of labor and equipment, considering the prevailing wages, which, at B 128 per month minimum wage, are sufficiently high to make more labor intensive work inadvisable.

VI. ECONOMIC EVALUATION

A. Formulation of the Highway Maintenance Program

6.01 The formulation and economic justification of the highway maintenance program are based on the quantification of the direct benefits to be derived by highway users as follows:

(a) vehicle operating costs savings through the improvement of road condition; and

(b) passenger time savings through the reduction of average travel time.

6.02 The economic evaluation justifies the costs of the program and formu- lates the ranking of priority for maintenance works on all road sections for a designated average year (1980). Costs reflect the various activities shown in Table 5.3 for routine and periodic maintenance and include the equipment and spares purchased under this project as well as the continued use of - 26 - existing equipment.throughout its useful life; they also include the labor and mLaterialsrequired and the overhead costs directly associated with main- tenance.

6.03 The background and preparation of the maintenanceprogram was explained briefly in paragraphs 5.03 to 5.06. The formulation of the program resulted from an iterative optimizationprocess on which the economic feasi- bility and priority of various alternative levels of maintenance (para 5.05) on the 114 road sections of the country network identified by the road inven- tory (para 5.04) were established. The analysis was based on the benefit/cost ratic,(since benefits exceeded the annual cost), and the alternativeswere compa.redusing incrementalanalysis. Three basic maintenancealternatives defining decreasing levels of maintenance efforts ranging from deferred and normal maintenance!to only routine maintenance activities were used in the initial runs. However, the program so formulated included some road sections for which the three basic alternativeswere too expensive and for which only a bare minimum maintenanceeffort could be justified. This minimum was thus introduced in an additional iteration of the program optimization. Table 6.1 presents a summary of the formulated maintenance program.

B. Traffic

6.04 Existing traffic volumes on the inventoried road network were estab- lishetdon the basis of traffic counts routinely conductedby MOP since 1966, and by special surveys carried out by MOP in 1977 (para 2.02). Traffic pro- jections were based on historical trends of various growth indicators and their forecast trends. Indicators of traffic growth were trends in population growt:h,levels of motorizationand gasoline consumption and agricultural prodtLction.They resulted in estimates of traffic growth rates, combining all provi.nces,of 4% aLnnuallyfor concrete and asphalt roads and 5% for gravel and earth roads. A small amount of traffic generation was assumed to occur at a level.of 10% of normal traffic on some paved roads where the maintenance program would produce an improvement in the road condition resulting in a significantreduction of user costs. Traffic on each of the 114 road sections of the country network was then projected to the year 1980 adopted as average for t:hefour-year program (para 6.02).

C. Benefits

6.05 The quantifiablebenefits are measured by the direct savings to be derived by highway users: vehicle operating cost savings and passenger time savings. Vehicle operating cost savings were determined by comparing the operating costs of four types of vehicles (passengercars, buses, pickup trucks and trucks) traveling on the network before and after various road maint:enancealternatives were implemented. Estimates of vehicle operating costs were prepared for three basic types of surfaces -- paved, gravel and earth -- with the surface condition either good, fair or bad. These esti- mates were prepared by the appraisal mission on the basis of the work carried - 27 - out by consultants L. Berger Inc. 1/, Cia Mexicana Consultores (COMEC) 2/ and N.D. Lea and Associates. 3/ A summary of the vehicle operating costs is presented in Table 6.2.

6.06 Passenger time savings derived from reductions in travel time were computed on the basis of the average labor wage when traveling for business purposes. Traffic surveys indicated that some 50% of passenger trips were for business purposes and 50% for non-work reasons. Passenger time savings accounted for about 30% of the total quantifiable benefits of the maintenance program. A sensitivity analysis on the impact of time benefits on the economic return was carried out (para 6.07).

D. Overall Economic Return

6.07 The proposed road maintenance program is well justified with a benefit/cost ratio of about 5.1 considering only vehicle operating cost savings and a net present value estimated at B 130.0 million. Including passenger time savings, the benefit/cost ratio is estimated at 7.2. Benefit/ cost ratios on the individual road sections range from a high of over 50 to a low of I (Table 6.3). The economic rate of return (ER) for the project, including equipment and spare parts, technical assistance and physical contingencies, all of which account for 23% of the proposed road maintenance program cost, is estimated to be about 160%. This high ER is caused by the relatively low investment required to preserve the productive capacity of the large invest- ments made in highway construction. Further benefits, such as reduced spoilage of agricultural produce and increased comfort and safety to road users (para 6.09), have not been quantified. To this extent, the benefit/cost ratios are conservative estimates.

E. Benefit Distribution

6.08 The benefits resulting from savings in vehicle operating costs are ultimately expected to be transferred, in large part, to the producers and consumers of the goods which are transported. Producers and consumers, as well as passengers in public transport vehicles, would very likely benefit from gradual reductions, at constant prices, in the tariffs charged. This effect, resulting from the highly competitive nature of the transport indus- try in Panama, would less likely be seen in the not-so-competitive interna- tional freight market segment, currently controlled by foreign companies. It is estimated that foreign companies control some 30% of the total freight traffic on the two main thoroughfares of the country, the Panama-Colon Highway and the Pan-American Highway (para 2.07). Since these foreign truckers seldom utilize the rest of the highway network, their impact on the benefit distribu- tion effect would be felt only on some 570 km of concrete pavement roads in the country. A summary reappraisal of the maintenance program, excluding economic benefits accruing to these foreign truckers, would show the following results: (a) road sections on the two main thoroughfares would have a benefit/ cost ratio some 11% lower than if all benefits were accounted for, but the maintenance of these sections would still be among the highest priorities

1/ Tocumen-Chorrera Feasibility Study (1974). 2/ Vehicle Operating Costs Study (1977). 3/ National Transport Survey (1974). with an aggregate benefit/cost ratio of 21; and (b) the overall economic feasibility of the whole program would be reduced to a benefit/cost ratio of 6.8, still highly acceptable (Table 6.3). A comprehensive analysis of the impact of the project on this segment of the road transport industry has not been a.ttempted. Such analysis would have to consider the fact that improved road c.onditionwould enhance the role of Panama as a center of regional trade and transit--two activities which contribute to employment and economic produc- tion.

6.09 In addition to the benefits to be derived from reduced tariffs, farmers would benefit from the increased availability of transport, now suf- fering from the reluctance, on the part of vehicle owners, to travel over poorly,or not maintained rural roads, particularly during the rainy season. The quality of service, in turn, would also be substantially improved, bringing additional comfort, safety and punctuality, as well as important passenger time savings, to a large segment of the rural population.

VII. AGREEMENTSREACHED AND RECOMMENDATION

7.01 During negotiations, agreement was reached with the Government on the following:

a) enforcement of vehicle weight regulations on a permanent and consistent basis, and in accordance with a timetable acceptable to the Bank (para 2.12);

'b) MOP to icdentifyand prepare a five-year program for the rehabilitation and strengthening of the national roads (para 5.C)7);

(c) MOP (i) to prepare and put into effect, not later than December 31, 1979, procedures for the systematic renewal of maintenance equipment and disposal of obsolete units; and (ii) to develop data to monitor and evaluate, starting in fiscal year 1979, the availability of its equipment fleet (para 5.09);

(d) MOP to prepare and put into effect, not later than December 31, 1979, a phased program on personnel development policy, includ- ing training of personnel (para 5.14);

(e) MOP to maintain the highway network adequately and necessary funds to be made available. Agreed estimates of annual requirements for this purpose through the project period were confirmed by the Government (para 5.15);

(f) MOP to (:i)adopt, by December 31, 1978, operational procedures differentiating maintenance activities from improvement. or rehabilitation activities; (ii) separate, starting in fiscal year 1979, the highway maintenance budget from other DNM activities; and (iii) subdivide its highways maintenance budget into adequate categories (para 5.15); and - 29 -

(g) MOP to employ, with functions agreed with the Bank: (i) an Equipment Fleet Manager; and (ii) two Maintenance Engi- neers (para 5.22);

7.02 The following are conditions for effectiveness of the proposed loan:

(a) establishment of a timetable satisfactory to the Bank for the enforcement of vehicle weight regulations (para 2.12);

(b) enactment of legislation providing MOP with adequate organizational regulations (para 3.04); and

(c) appointment of the Fleet Manager and of one of the Maintenance Engineers (para 5.22).

7.03 Completion, in a manner satisfactory to the Bank, of: (a) the separation of stocks of spare parts from construction materials, (b) the updating of spare parts inventories, and (c) the disposition of obsolete stock of spare parts, would be a condition for disbursement for spare parts for preventive maintenance (para 5.11).

7.04 During negotiations, the following points were also reviewed and agreed with the Government:

(a) scope and schedule for preparation of the strengthening and rehabilitation program (para 5.07);

(b) the list of new equipment, the list of units to be overhauled under the project and the program to complete scrapping of existing wornout equipment (para 5.08);

(c) the job description for the Fleet Manager (para 5.09);

(d) the foreign exchange component of locally purchased goods (para 5.20);

(e) the job description for a Senior Maintenance Engineer (para 5.22);

(f) terms and conditions for procurement (para 5.23);

(g) the schedule and conditions for contracting consultants (para 5.24);

(h) the tentative schedule for project implementation (para 5.25); and

(i) the project indicators and the arrangements for collecting information during and after the implementation stage (para 5.26).

7.05 Subject to the above, the project constitutes a basis for Bank lending in a total amount of US$12 million equivalent to the Republic of Panama; the term would be 15 years, including a three-year grace period.

April 20, 1978 PANAMA

HIGHWAY MAINTENANCE PROJECT

Summary of Freight and Passenger Traffic by Modes I/

Freight Transport

Domestic (million tons- km) International (thousand tons)2 ' Year Highways Railways 31 Aviation Water 4/ TOTAL Highways Airports 5i Ports 61 TOTAL 1967 466.0 0.2 0.7 55.0 521.9 9.8 20.0 962.0 991.8 1970 590 0 0.3 0.9 55.0 646.2 15.0 27.4 1,256.7 1,299.1 1973 775.0 0.4 0.9 54.0 830.3 39.2 35.2 1,296.8 1,371.2 1976 805.0 0.2 0.7 50.0 855.9 56.3 39.7 1,476.0 1,572.0

Annual Ratc ef Growth 1`6-1976 .2% -- -- -2.17 5.7% 21.57 8.C7 A.Q5: Passenger Transport

Domestic (million pass. - km) International (thousand pass.)7/ Year Highways Railways Aviation Water TOTAL Highways Airports 8/ Ports TOTAL 1967 2,424.0 4.8 28.7 1.7 2,459.2 29.9 389.2 14.6 433.7 1 1970 2,956.0 7.6 32.5 1.7 2,997.8 42.1 478.7 14.8 535.6 C 1973 3,572.0 6.0 36.7 1.7 3,616.4 94.5 640.5 9.4 744.4 1976 4,284.0 4.4 50.1 2.0 4,340.5 185.9 722.5 5.1 913.5 Annual Rate of Growth 1967-1976 6.6% -1.0% 6.4% 1.8% 6.5% 22.5% 7.1% -10.0% 8.7%

1/ Excludes Canal Zone traffic 2/ Total Imports and Exports 3/ Only Chiriqui National Railway 4/ Of which 1/2 are petroleum products 5/ Includes in-transit cargo 6/ Excluding petroleum products (4.2 million tons/year average) 7/ Total Arrivals and Departures 8/ Excluding in-transit passengers

Sourre: Direcci6n de Estadistica y Censo, Departamento de Planificaci6n, MOP, Ministerio de Planificaci6n y Politica Econ6mica, National Transport Survey (N.D. Lea & Ass., 1974), National Port Authority and Mission Estimates

November 1977 - 31 -

TABLE 1.2

PANAMA

HIGHWAYMAINTENANCE PROJECT

Comparison of Highway and Motor Vehicle Densities (1976)

Km of Roads Motor Vehicles Km of Roads per 1,000 per 1,000 per 1,000 km2 Inhabitants Inhabitants

Panama 101 4.5 52.1

Costa Rica 488 12.6 52.2

Ecuador 98 3.8 17.9

Colombia 45 2.2 21.3

France 2,518 25.7 352.9

Source: IBRD Reports and International Road Federation

November 1977 - 32 - TABLE 1.3

PANAMA

HIGHWAY MAINTENANCE PROJECT

Development of the Highway Network (in kilometers)

1967 1969 1971 1973 1975 1977

National Highways Paved 878 878 879 879 879 879 Gravel 52 52 52 52 52 52

Regional Highways Paved 383 387 445 1,023 1,092 1,124 Gravel 204 213 123 160 162 142 Earth 288 290 274 ------

Secondary and Feeder Roads Paved 139 270 588 321 343 505 Gravel 930 872 868 1,632 1,872 2,421 Earth 3,841 3,755 3,628 3,036 2,920 2,732

Total (All Systems) Paved 1,400 1,535 1,912 2,223 2,314 2,508 Gravel 1,186 1,137 1,043 1,844 2,086 2,615 Earth 4,129 4,045 3,902 3,036 2,920 2,732

Grand Totals 6,715 6,717 6,857 7,103 7,320 7,855

Source: Departamento de Planificaci6n, MOP

November 1977 PANAMA

HIGHWAYMAINTENANCE PROJECT

Transport Infrastructure Investment, by Mode, in Comparison with Total Public Sector Infrastructure Investment

(Millions of Current Balboas) Summary of Four- Year National Development PllZn 1970 1971 1972 1973 1974 1975 1976 1977 (1978-1981)Pn I. Transport Sector Highways 2/ 14.2 10.4 17.6 12.6 22.6 31.6 36.7 26.0 (7%) 41.6 (7%) Railways ------Airports 0.6 1.4 Z.5 2.1 9.0 17.5 25.0 15.6 (4%) 3.3 (1%) Ports 0.1 - 0.2 - - 2.3 3.4 12.1 (3%) 16.5 (3%)

Total 14.9 11.8 20.3 14.7 31.6 51.4 65.1 53.7 (14%) 61.4 (11%)

II. Other Economic Infra- structure 3/ 6.5 8.3 8.2 42.6 41.3 81.1 77.7 75.3 (20%) 87.0 (15%) 7/~~~~~L III. Primary Sectors 4/ 8.0 13.4 26.9 31.4 41.5 104.3 167.8 139.1 (38%) 311.4 -/ (54%) W

IV. Social Service Infrastructure 5/ 17.8 26.6 28.9 43.3 51.5 73.4 74.6 92.0 (24%) 97.8 (17%)

V. Public Administration and Others 6/ 9.0 6.8 7.7 6.9 10.7 11.8 9.9 15.9 (4%) 20.6 (3%)

Total 56.2 66.9 92.0 138.9 176.6 322.0 395.1 376.0 (100%) 578.2 (100%)

1/ Annual average 2/ Includes Pan American Highway, interurban and rural roads, highway studies, and major urban arterials; it excludes urban streets 3/ Telecommunications and Power 4/ Agriculture, Commerce, Industry, Mining and Tourism 5/ Health, Education and Housing 6/ Includes investments in municipal areas and urban streets 71 Includes nearly $200.0 million per year Cerro Colorado Mine development

Source: Highways - MOP Planning Department Other Modes - Ministry of Planning and Economic Policy Public Sector Investments - Report on the Economy of Panama, IBRD, 1976 and Ministry of Planning and Economic Policy

November 1977 - 34 - TABLE 1.5 PANAMA

HIGHWAY MAINTENANCE PROJECT

Estimate of Transport Sector Expenditures1/

(Millionsof Current Balboas)

Ye_r Highwqys Railways 2/ Airports Ports Total

1970 28.8 0.4 2.6 0.5 32.3

1971 25.6 0.4 2.7 0.6 29.3

1972 28.1. 0.5 9.4 0.6 38.6

1973 18.7 0.5 3.8 0.7 23.7

1974 30.2 0.5 11.2 0.7 42.6

1975 36.2' 0.5 21.0 2.7 60.4

1976 52.7 0.5 30.7 3.9 87.8

1977 3/ 39.7 0.7 22.0 19.3 81.7

1/ Including operationalexpenditures, investments, and debt servicing. 2/ Only Chiriqui.National Railway 3/ Current Budget

Source: Highways - MOP Other Modes - Ministerio de Planificaciony Polltica Econ6mica

November 1977 - 35 - TABLE 2.1

PANAMA

HIGHWAY MAINTENANCE PROJECT

Annual Average Daily Traffic by Type of Road Surface and Type of Vehicle (1976) Light Vehicles Buses Trucks Total

Paved 2,155 550 1,350 4,055

Surface treatment 325 65 185 575

Gravel 40 10 20 70

Earth 9 2 6 17

Average for network 1/ 275 65 170 510

l/ Weighted average based on network length

Source: Departamentode Planificacion,MOP

November 1977 - 36 - PANAMA

HIGHWAY MAINTENANCE PROJECT

Vehicle Registration

(1960 - 1976)

Passenger Trucks Years Cars Light & Heavy Buses Total

1960 17,590 4,729 1,612 23,931

1961 20,371 5,590 1,651 27,581

1962 22,403 6,425 1,807 30,635

1963 24,992 6,755 1,862 33,609

1964 27,259 7,463 2,038 36,760

1965 30,065 8,290 2,162 40,517

1966 33,686 8,933 2,306 44,925

1967 34,969 9,275 2,361 46,605

1968 40,449 10,218 2,513 53,180

1969 42,055 10,478 2,495 55,028

1970 45,526 11,716 2,818 60,060

1971 52,545 14,081 3,096 69,722

1972 53,629 14,498 3,253 71,380

1973 58,067 15,446 3,255 76,768

1974 62,569 14,158 4,196 80,923

1975 66,193 15,844 3,806 85,843

1976A/ 68,100 16,500 4,500 89,100

Average rate of growth 1960-1976 8.8% 8.1% 6.6% 8.5%

Average rate of growth 1971-1976 5.3% 3.3% 7.7% 5.0%

1/ Estimated

Source: Direccion de Estadisticay Censo November 1977 - 37 - TABLE 2.3 PANAMA

HIGHWAY MAINTENANCEPROJECT

Vehicle Fuel Consumption (MillionEof US Gallons)

Year Gasoline Diesel Total

1968 46.5 24.0 70.5

1969 55.1 34.0 89.1

1970 65.0 33.1 98.1

1971 72.5 44.2 116.7

1972 75.7 51.1 126.8

1973 78.9 53.1 132.0

1974 76.0 64.4 140.4

1975 81.1 73.4 154.5

1976 85.0 76.7 161.7 Annual Rates of Growth (Total for gasoline and diesel)

1968-1976 = 11.0%

1972-1976 = 6.2%

Source: Ministerio de Planificaciony Pol!tica Econ6xmica

November 1977 38- - TABLE 2.4

PANAMA

HIGHWAYMAINTENANCE PROGRAM

Freight and Passenger Vehicle Fleet (1976)

Total For Hire Private Freight Veh. % Veh. % Veh.

Pickup 10,200 62 7,800 2,400

Truck 5,100 31 5,000 100

Tractor-TraiLler 1,200 7 1,200 --

Total 16,500 100 14,000 85 2,500 15

Passenger

Microbus 1,800 40 1,500 300

Bus 2,700 60 2,700 --

Total 4,500 100 4,200 93 300 7

Source: Contraloria de la Republica

December 1977 TABLE 2. 5 - 39 -

PANAMA

HIGHWAY MAINTENANCE PROGRAM

Limits on Weights and Dimensions (In tons and meters) Maximum Axle Load Maximum Vehicle Road Axle Total Maximum Size Type Type 1 2 3 4 5 Load Length Height idtn

A 4 10 - - - 14.0 11.00 4.10 2.50 A B 4 8 -7 - 12.0 1O.00 3.80 2.50

B - A - 4 8.2 8.2 -. - 24:0 12.00 4.1-0 2.50 B 4 8 8 - - 20.0 11.00 3.80 2.50

C A 4 10 10 - - 24.0 15.25 4.10 2.50 B 4 8 8 _ _- 20.0 14.00 3.80 2.50

A 4 10 8.2 8.2 - 32.0 15.25 4.10 2.50 D a 4 8 8 8 - 27.5 14.00 3.80 2.50 E A 4 8.2 8.2 10 - 32.0 15.25 4.10 2.50 B 4 8 8 8 - 27.5 14.00 3.80. 2.50 F A 4 8.2 8.2 8.2 8.2 32.0 15.25 4.10 2.50 B 4 8 8 8 8 27.5 '14.00 3.80 2.50 G A 10 10 - - - * B 8 8 - - - * . * f

HA 10 8.2 8.2 - - * * * * H B 8 8 8 - _ * *

Vehicle Type A: Single Axle Single Unit , B: Tandem Axle Single Unit - C: Single Axle Tractor Single Axle Semi-Trailer D: Single Axle Tractor Tandem Axle Semi-Trailer E: Tandem Axle Tractor Single Axle Semi-Trailer F: [andem Axle Tractor Tandem Axle Semi-Trailer G: Single Axle Trailer H: Tandem Axle Trailer

- Depends on vehicle pulling the trailer. If single unit maximum weight 27.5 tons if combination maximum weight 37.5 tons.

Source: Law 23 of January 30, 1967 Ministry of Public Works Directorate of Maintenance

December 1977 PANAMA

HIGHWAY MAINTENANCE PROJECT

Estimates of Highway Expenditures and Road Users' Contribution (1970-1976) (Millions of Current Balboas)

A. Highway Expenditures 1970 1971 1972 1973 1974 1975 1976 1977 -/

Highway Studies 3 2/ 2/ 2/ 0.7 0.4 0.4 0.6 0.6 Highway Construction - 14.2 10.4 17.6 12.6 22.6 31.6 36.7 26.0 Highway Maintenance and Improvements 3.5 5.2 6.7 6.1 6.2 9,3 10 1 10.0 Highway Administration and Supervision 0.8 0.9 1.1 1.2 1.4 1.5 1.8 1.9 Interest on Foreign Loans 3.0 3.1 2.4 2.1 2.5 2.2 2.3 2.3 Equipment - 6.0 6.0 0.4 - 0.3 4.8 - o,5 Total 27.5 25.6 28.2 27 3 51.5

B. Motor Vehicle Contributions

Vehicle Registration and Licenses 2.4 2.4 2.5 2.9 3.0 3.0 3.1 Import Duties on Vehicles 3.8 4.5 4.7 5.4 6.0 5.0 4.8 Import Duties on Parts 0.4 0.4 0.5 0.6 0.6 0.6 0.7 1 Motor Fuel Taxes 7.9 9.0 14.8 16.3 17.9 19.7 24.8 4 Tire Taxes 0.8 0.7 1.0 0.9 0.7 0.9 1.0 Total 15.3 17.0 23.5 26.1 28.2 29.2 34.4 38.0

1/ Preliminary figures

2/ Shown together with Highway Construction. After 1973 includes only foreign-financed studies

3/ Includes Panamerican Highway Construction at the Darien Gap for the following amounts:

(Millions of Current Balboas) 1970 1971 1972 1973 1974 1975 1976 1977 2.2 0.7 2.3 3.5 9.5 15.1 19.5 8.5 of which 1/3 paid by the Government of Panama and 2/3 paid by the U.S. Government

4/ B/18.0 million worth of equipment purchased in 1969 by National Government and given to MOP (of a total purchase of B/22.0 million), arrived in 1969, 70 and 71.

Source: Expenditures: Departamento de Planificaci6n, MOP Contributions: Contraloria General de la Repuiblica

November 1977 PANAMA

HIGHWAY MAINTENANCE PROJECT

Highway Sources of Funds 1970-1977 (Millions of Balboas)

Other Government UNDP Private USA External Year Funds Survey Foreign Banks2i Government Sources 3/ 4DB USAID Eximbank Total

1970 17.4 __ 6.0 -- -- 2.1 2.0 __ 27.5

1971 17.5 -- 6.0 -- -- 0.3 1.8 -- 25.6

1972 16.3 -- -- 1.1 0.4 10.1 0.1 0.4 28.2

1973 15.8 0.4 -- 2.3 -- 2.9 -- 1.3 22.7

1974 21.3 0.1 0.3 5.2 -- 3.9 -- 2.6 33.4

1975 29.4 -- -- 8.9 -- 4.0 -- 7.5 49.8

1976 26.9 -- -- 13.1 -- 8.0 -- 3.5 51.5

1977 -/ 31.0 -- -- 5.4 -- 3.8 -- 1.1 41.3

1/ Several banks (1970 and 1971) and Consolidated and Cleveland 2/ Federal Highway Administration 3/ Allis Chalmer 4/ Projects plus Pre-investment Fund 5/ Estimated

Source: Departamento de Planificacio'n,MOP and Contraloria General de la Republica

November 1977

U.) - 42 - TABLE 3.3 PANAMA

HIGHWAY MAINTENANCE PROJECT

MOP Highway Design Standards

Primary Roads l/ Secondary Roads Local Roads

Design Speed (Km/h) 80 50 40

Minimum Radius (m) 130 30 30

Stopping D:istance(m) 85 40 40

Maximum Gradient % 5 8 12

Width of Surfacing (m) 6.1 6.0 5.0

Width of One Shoulder (m) 1.5 0.6 _

Bridge Loading AASHTO HS15-44 AASHTO HS15-44 AASHTOHS15-44

1/ Basically for the Pan-American and Panama-Colon Highways.

Source: National Transport Survey; National Directorate of Construction

November 1977 PANAMA

HIGHWAY MAINTENANCEPROJECT

Inventory of Roads (1976) (Kilometers)

Type of Surface Cement or Pitumrinous Province Asphalt Concrete l/ Surface Treatment Gravel Earth TOTAL good fair bad good fair bad good fair bad good fair bad Bocas del Toro ------23 _- - 48 71

Cocle 93 15 - 36 162 37 60 43 - 86 220 300 1052

Col6n 42 6 - 7 3 75 7 42 - 35 84 134 435

Chiriqui 200 - - 288 78 22 139 370 23 25 83 401 1629

Darien - - - - - 45 - - - 48 93

Herrera 10 _ _ 151 8 - 213 43 - 16 41 297 779

Los Santos - - - 113 219 23 233 40 - 30 94 422 1174

Panama (West Highways) 32 52 25 15 131 46 46 73 - 42 189 203 854

Panama (East Highways) 49 32 - 9 90 31 19 47 - 16 40 - 333

Veraguas 122 - - 173 80 17 273 56 - 95 143 395 1354

TOTAL 548 105 25 792 771 251 990 782 23 345 894 2248 7774

678 1814 1795 3487 2/ 7774

1/ Includes some 30 Km of asphalt concrete surface layed over granular base course and 122 Km of Asphalt concrete over- laying cement concrete pavements.

2/ Includes 456 Km of roads officiallyclassified as gravel. H

Source: ConsultantCOMEC Road Inventory and National Directorateof Maintenance,MOP

November 1977 - 44 -

TABLE 5.2

PANAMA

HIGHWAY MAINTENANCEPROJECT

Summary of Maintenance Activities and Prescribed Standards

I ROUTINE MAINTENANCEACTIVITIES Frequency of Operations per Year

1.0 for all classes of roads Earth/Gravel Surface Treatment Cement/Asphalt Concrete

1.1 Grass Cutting 1 to 2 2 3

1.2 Ditch Cleaning 1 1.5 1.5

1.3 Cleaning Culverts and Drains 2.5 2.5 4

1.4 Minor Repairs to Structures 1 2 2

1.5 Repair signs and markers

2.0 for earth and gravel roads Frequency of Operations per Year

Traffic Low Medium High

2.1 Ilatching 3 6 9

2.2 1Reshaping of surfaces 1 1.5 2.0

2.3 Rleshaping of ditches 1 1 1

3.0 for paved roads 'Frequency of Operations per Year

Traffic Low Medium High

3.1 T.emporal patching of asphalt surfaces 2 3 5

3.2 Plermanent patching of asphalt surfaces 1 1 1

3.3 Replacement of Concrete slabs 1 1 1

3.4 Replenishing of shoulders 2 2 2

3.5 ]leshaping of shouldlers and ditches 1 1 1

II PERIODIC MkINTENANCEACTIVITIES Number of Years between Operations

Traffic Low Medium High

1. Replenishing of gravel surfaces 12 6 4

2. Sealing of asphalt surfaces 8 6 4

3. Sealing of cement ,:oncrete joints 3 3 3

4. Line painting 4 3 2

5. Painting of steel bridges 5 5 5

6. Repair of wood bridges 5 4 3

1/ Except for "earth" roadsthe suggested maintenance effort would keep a new road in a condition to afford an average good service. For earth roads the suggested effort will produce a "fair" condition on the average. Source: Mission estimates and W. Matthey, Consultant

N vember 1977 PANAMA

HIGHWAYMAINTENANCE PROJECT

Estimated Annual Cost of Maintenance per Kilometer by Type of Road and Level of Traffic!' (Balboas)

Cement/Asphalt Concrete Bituminous Surface Treatment Gravel Earth Traffic Level: 3000 < 350 350-750 7750 450 50-100 ;100 723T I. ROUTINE MAINTENANCEACTIVITIES A. Roadside 1.1 Grass Cutting 200 200 200 73 73 73 22 22 22 10

1.2 Ditch Cleaning 119 119 119 143 143 143 119 119 119 73

1.3 Cleaning Culverts and Drains 188 188 188 88 88 88 88 88 88 41

1.4 Minor Repairs to Structures 11 11 11 11 11 11 6 6 6 -

1.5 Repair Signs and Markers 22 22 22 8 8 8 5 5 5 - B. Roadway Surface 2.0 For Earth and Gravel Roads:

2.1 Patching - - - - - 99 198 297 -

2.2 Reshaping of Surfaces - - - - - 127 190 253 125

2.3 Reshaping of Ditches ------44 44 44 -

3.0 For Paved Roads:

3.1 Temporal Patching of asphalt surfaces - - - 75 131 236 - - - -

3.2 Permanent Patching of asphalt surfaces - - - 213 427 799 - - _ -

3.3 Replacement of Concrete Slabs 272 287 319 - - - - _ - - U

3.4 Replenishing of Shoulders 129 136 156 66 69 74 -

3.5 Reshaping of Shoulders and Ditches 411 486 611 205 230 270 - _ - -

Subtotal Routine Maintenance 1352 1449 1626 882 1180 1702 510 672 834 249

II. PERIODIC MAINTENANCEACTIVITIES

1. Replenishing of gravel surfaces ------330 660 990 -

2. Sealing of asphalt surfaces - - - 212 282 423 - - - -

3. Sealing of cement concrete joints 164 164 164 - - - -

4. Line painting 13 16 22 16 22 32 -

5. Painting of Steel Bridges 227 227 227 190 190 190 57 57 57 -

6. Repair of Wood Bridges ------16 20 26 -

Subtotal Periodic Maintenance 604 407 413 418 494 645 403 737 1073 -

III. OVERHEAD2/ 284 294 331 210 266 373 147 221 303 41

Grand Total 2040 2150 2370 1510 1940 2720 1060 1630 2210 290

l/ Prices at end 1977. Ti Estimated at 16% of direct cost.

Source: National Directorate of Maintenance, MOP. November 1977 - 46 - TABLE 5.4

PANAMA

HIGHWAY MAINTENANCE PROJECT

Tentative List and Cost Estimate of Maintenance Equipment (end-1977values)

Number of Cost per Total Units Unit Cost (Balboas) (Balboas) A. Vehicles

Pickup 3/4 ton 68 7,000 476,000 Water Tank Truck - 1500 gal. 14 30,000 420,000 Dump Trucks - 7 ton 90 26,000 2,340,000 Flat Trucks - 7 ton 3 26,000 78,000 Trucks with Painting Equipment 11 30,000 330,000 Bitumen Tanker - 5000 gal. 2 60,000 120,000 Buses 4 30,000 120,000 B. Equipment

Motorgraders - 120 hp 18 65,000 1,170,000 Rubber TirediRollers - 8-10 ton 17 40,000 680,000 Front-end Loaders - 2 cu.yd. 6 46,000 276,000 Back Hoe 2 29,000 58,000 Grass Cutter with Tractor 8 26,000 208,000 C. Plant

Motors for PlrimaryCrushers 20 17,000 340,000 Motors for Secondary Crushers 6 11,000 66,000 Tools and Equipment 50 2,000 100,000

D. Small Mobile Plant and Equipment

Water Trailers - 250 lt 17 2,700 45,900 Plate Vibratory Compactors 26 1,600 41,600 PedestrianRollers 25 2,400 60,000 Asphalt Kettles - 200 gal. 17 8,000 136,000 Lane-PaintingEquipment 1 22,000 22,000 Air Compressor- 250 c.f. 4 16,000 64,0U0 Air Compressor- 800 c.f. 3 38,000 114,000 Water Pump - 3 in. 5 2,000 10,000 Mechanic Brush 3 17,000 51,000

Cost Estimate CIF Panama 7,326,500 Local Delivery and before Operation Service 366,325

Total Cost 7,692,825

Source: National Directorate of Maintenance, MOP November 1977 TABLE 5.5 - 47 -

PANAMA

HIGHWAYMAINTENANCE PROJECT

Estimated Highway Maintenance Budget Requirementsand Financing (millionsof Balboas at end-1977 values)

Total I. OperationalBudget 1979 1980 1981 1982 1979-1982

Administrationand labor 4.93 5.04 5.15 5.26 20.38

Materials 0.86 0.87 0.89 0.91 3.53

Fuel, oil and lubricants 0.81 0.89 0.92 0.93 3.55

Spare parts (current requirements) 1.07 1.41 1.71 2.17 6.36

Miscellaneous 0.06 0.06 0.07 0.07 0.26 Sub-total: 7.73 8.27 8.74 9.34 34.08

II. InvestmentBudget 1978 1979 1980 1981 1982 1979-1982

Tech. assist.-total 0.25 0.36 0.36 0.36 0.36 1.69 (Bank financing) (0.21) (0.30) (0.30) (0.30) (0.30) (1.41)

Equipment acquisition -- 7.69 --. 70 11.39 (Bank financing) -- (7.33) ------(7.33)

Spare parts2/ total -- 1.33 ------1.33 (Bank financing) -- (1.33) ______(1.33) Sub-total: 0.25 9.38 0.36 4.06 0 14.41

Total maintenance budget: 0.25 17.11 8.63 12.80 9.70 48.49

1/ Tentative amount for a second tranche of equipment to be reassessed based on the fleet annual utilization actually achieved.

2/ Includes purchasing of initial stock of spares for new equipment and spares for correctivemaintenance and overhaul of existing equipment.

Source: Letter of Minister of Planning on Economic Policy dated December 15, 1977 and mission estimates.

December 1977 - 48 - PANAMA TABLE 5.6

HIGHWAYMAINTENANCE PROJECT

Estimated Schedule of Disbursements (US$ millions)

Quarterly Cumulative IBRD Fiscal Yaar Disbursements Disbursements

1979

September 1978 0.1 0.1

December 1978 0.1 0.2

March 1979 0.1 0.3

June 1979 5.0 5.3

1980

September 1979 2.7 8.0

December 1979 1.6 9.6

March 1980 0.7 10.3

June 1980 0.5 10.8

1981

September 1980 0.1 10.9

December 1980 0.1 11.0

March 1981 0.1 11.1

June 1981 0.1 11.2

1982

September 1981 0.1 11.3

December 1981 0.1 11.4

March 1982 0.2 11.6

June 1982 0.2 11.8

1983

September 1982 0.2 12.0

Assumptions: Loan Effectiveness - June 1978

Invitationto Bid-August 1978

Award of Contract- December 1978

Delivery of Equipment May 1979

Source: Mission Estimates

November 1977 49 - TABLE 5.7

0

o'z

a I

0 I f

a I - I

I I 1

a 0 4 0 0 0 40.0

a a a

0 0 04010aoS 0 0 a 000

000 4] >000 0 0 0 0 0 0 0 0 a o 0 0000 I 0 0 0 - = 4 0 0 0 0 0 - a a * a 0 0 -. 0 0 0 0 .- 00 0 O a a 0 0 - 50 -

TABLE 6.1

PANAMA

HIGHWAY MAINTENANCE PROJECT

Summary of Formulated Highway Maintenance Program 1/

Type of Surface and Length (km) Cement or Bituminous Altern. Maintenance Policy Asphalt Concrete Surface Treatment Gravel Earth

l.a Routine Maintenance 2/ 602 1,017 913 3,423 b Periodic Maintenance 602 1,017 650 -

2.a Routine Maintenance 130 1,022 189 - b Periodic Maintenance 105 771 166 - c Upgrading of actual 130 1,022 189 - condition from fair to good or bad to fair

3.a Routine Maintenance - 86 1,256 3/ - b Periodic Maintenance - 1,222 - deffering replenishing of gravel

4. Grass cutting, cleaning 542 - culverts and drains, re- shaping of road surface and ditches.

1/ The Highway Maintenance Program was formulated for the 1980 projected road network. 2/ Specific activities for Routine and periodic maintenance are given in Table 5.2. 3/ Reshaping of surface reduced from 1 per year to 1 every 2 years, for 34 km.

Source: Diepartamentode Planificacion, DNM, and Mission estimates.

November 1977 - 51 - TABLE 6.2

PANAMA

HIGHWAY HAINTENANCh PROJECT

Summary of Vehicle Operating Costs 1/ (Balboas/km)

Road Surface and Condition Passenger Cars Buses Pickup Trucks Trucks

Paved Good 0.03 0.13 0.05 0.17 Fair 0.04 0.17 0.06 0.22 Bad 0.05 0.22 0.07 0.31

Gravel Good 0.05 0.22 0.07 0.31 Fair 0.06 0.27 0.09 0.39 Bad 0.07 0.35 0.11 0.65

Earth Good 0.06 0.30 0.09 0.48 Fair 0.08 0.40 0.11 0.68 Bad 0.09 0.62 0.13 0.94

1/ At end-1977 values, economic costs including drivers' salaries for buses and trucks.

Source: Tocumen Chorrera Study, L. Berger Inc., Vehicle Operating Costs Study, COMEC Consultores, National Transport Survey, N.D. Lea and Associates, Dr. H. Steiner, Consultant and Mission Estimates

November 1977 PANAMA

HIGHWAYMAINTENANCE PROJBCT

Summary of Maintenance Program Economic Evaluation (1980) Economic Evaluation Economic Benefits (B/thousand) (Benefit/Cost Ratio) Link Length Road Surface Alternative Economic Cost Veh. Op. Cost Passenger With Time Without Time Program Component Rankitg Province (km) AADT- and Condition i/ Selected - (B/thousand) - Total Savings eitav s Benefitsf

Road Sections with the Highest Economic Return I Panama 25 5,800 Paved (bad) 2 59.1 10,995 7,572 3,423 50 50

Road Sections with the Lowest Economic Return 111 Los Santos 117 74 Gravel (good) 3 105.6 105 73 32 1.0 0.7

Total Maintenance Program I to 111 9,180 -- 11,559.8 83,410 58,387 25,023 7.2 5.1

Benefits Accruijg to 6.8 4.7 Panama only A' 1 to 111 -- 9,180 -_ __ __ 11,559.8 79,100 54,077 25,023

1/ Based on MOP traffic surveys, Consultant H. Steiner Study and Mission Estimates

2/ Based on Consultant GOMBCroad inventory and MOPNational Directorate of Maintenance

3/ Alternative levels of maintenance defined in Table 6.1

4/ Based on end-1977 cost estimates, including 16% overhead costs (see Table 5.3)

5/ Costs and benefits in end-1977 prices; benefits include savings in vehicle operating costs, including professional drivers' salaries and passenger time savings. Passenger time benefits accounted for about 30% of total quantifiable benefits. Time benefits were computed on the basis of average labor wage when travelling for business purposes

6/ Assuming 30% of trucks on paved roads are foreign-owned (see pars 6.08)

Source: Departamento de Planificacion, MOP, Consultant H. Steiner Study and Mission Estimates

Noveamber 1977

Io~ - 53 -

Annex 5.1

PANAMA

HIGHWAY MAINTENANCE PROJECT

Outline of Equipment Fleet Manager Job Description

1. Title Equipment Fleet Manager

2. Responsibleto Director of DINE

3. Qualifications ProfessionalMechanical Engineer with experience in the operation and management of equipment fleets including road construction/maintenance plant and vehicles, scaling, stocking and distributionof spares.

4. Main Responsibilities:

(a) coordinateall aspects of administrationand handling of MOP equip- ment fleet;

(b) supervise the updating of equipment inventory including its condi- tion and location, filing and informationof same as well;

(c) coordinate,with provincial engineers, programs for utilizing equipment;

(d) establish the needs of equipment and prepare annual programs for renewal, including systematic procedures for adequate scrapping of obsolete equipment;

(e) prepare bidding documents and participate in the evaluation of proposals for equipment and spares required;

(f) prepare and keep up-to-date informationabout location, availability and utilizationof equipment;

(g) establish the needs of spares and necessary supplies for appropriate functioningof equipment;

(h) administerworkshops emphasizingpreventive maintenance of equipment and cost control of repairs;

(i) establish adequate cost systems for equipment;and

(j) agree with the training officer for training of the workshops' per- sonnel and equipment operators, also arrange to send them to the courses.

April 1978 - 54 -

Annex 5.2

PANAMA

HIGHWAY MAINTENANCE PROJECT

Outline Terms of Reference for the Technical Assistance on Highway Maintenance

Objective

1. The purpose of the technical assistanceis to provide consultant services over a period of about four years to guide and assist MOP in develop- ing and implementingwork programs and management practices for more effective highway maintenance operations. The principal objectivesare:

(a) to review highway maintenanceneeds and define work programs and resource requirementsfor fulfilling those needs;

(b) to improve and expand the organizationand procedures related to highway maintenance and betterment operations;

(c) to introduce appropriatemanagement systems which will assure effective planning, budgeting, scheduling,directing and controllingof maintenanceand bettermentwork;

(d) to improve the overall managementof the equipment fleet by concentratingas much as possible on the achievementof effective availabilityand utilization of the fleet; and

(e) to determine current and future manpower requirementsand related training needs arising from the highway maintenance program, and to recommend,for the approval of the Govern- ment, a phased training plan for maintenance personnel at all levels to be implementedpartly under the project and partly at a later stage.

Scope of Consulting Services

2. The project shall be performed as a joint effort of the Ministry of Public Works and the Consultant. The Consultant shall advise and assist in the development and implementationof improved practices for organization and management of maintenance operations. This work shall include, but not necessarilybe limited to, the following functionalareas:

(i) MaintenanceOrganization and Management

3. Provide advice and assistance in: - 55 - Annex 5.2

(a) defining maintenance objectives, policies and operating procedures;

(b) establishing an organizational framework, in the office and in the field, for carrying out maintenance operations most effectively;

(c) implementing highway planning processes-- including roadway inventory, traffic studies and highway classification;

(d) developing and implementing management practices for scheduling, directing and controlling maintenance and betterment work.

(ii) Maintenance Program and Identification of Rehabilitation Requirements

4. Provide advice and assistance in:

(a) analyzing roadway inventory, evaluating adequacy of the existing highway network, and revising maintenance and improvement needs;

(b) conducting economic analyses to determine appropriate maintenance levels of service and to establish priorities for rehabilitation and betterment work;

(c) preparing annual programs of specific maintenance and betterment work and estimating program costs;

(d) identifying road rehabilitation needs;

(e) revising and updating the DNM maintenance manual.

(iii) Equipment and Workshops

5. Provide advice and assistance in:

(a) revising and updating the equipment fleet inventory, including a detailed survey of existing equipment requiring major overhaul; and improving the inventory, records and information on utilization and availability of the fleet;

(b) defining equipment needs to accomplish the work programs and assessing yearly the replacement program for the fleet, including the necessary scrapping;

(c) developing and implementing a comprehensive system for preventive maintenance of equipment based on utilization, including the improvement of facilities for preventive maintenance of equipment; - 56 Annex 5.2

(d) evaluatingworkshop facilitiesand implementingimproved workshop organizationand management practices for servicing and repair of equipment;and

6. Prepare technical recommendationswith relation to:

(e) bidding documents and proposal evaluationof required vehicles and equipment;and procurement and supply and spare parts including the required spares for units which have to be overhauled.

(iv) Administrationand Accounting

7. Provide advice and assistancein:

(a) developingand implementingpersonnel management practices-- including classificationand salary plans, terms of employment, recruiting,manpower planning, employee development and per- sonnel records;

(b) developingand implementingimproved practices for purchasing and warehousing--includingprocedures for acquisition,storage and distributionof spare parts, materials and supplies;

(c) developingand implementingimproved general accountingprac- tices and establishinga cost accountingsystem appropriate to support maintenancemanagement systems;

(d) developingand implementinga system for performance-based budgeting which clearly relates budgeted funds to specific accomplishments;and

(e) initiatingimproved procedures for the administrationand processing of management information.

(v) Personnel.Training

8. To assess the current and future manpower requirementsand related training needs, the consultant,among other things, shall:

(a) update the inventory of all maintenancepersonnel, divided between headquartersand provinces,skilled and unskilled, and broken down by categoriesand levels; and evaluate the capability and potential of personnel currently available to better assess training needs;

(b) develop a phased training plan, indicatinghow it will be implemented,and the instructors,courses and training equip- ment required, taking into considerationthe distribution of maintenance staff among eight provinces and existing physical facilities; - 57 - Annex 5.2

(c) assist with the strengtheningof a permanenttraining unit within the Ministry, including its structure,functions and relatedbudget, which would be responsiblefor the planning, implementationand supervisionof all training activities;

(d) formulateand implementspecial courses for instructors;

(e) develop and implementpriority courses on maintenancework methods and equipment servicingand repair for certain low and middle-levelsupervisors, as well as courses on main- tenance for high-levelstaff, taking into consideration techniquessuch as training through the use of training productionunits and audio-visualcourses;

(f) implementprocedures and training programs as agreed;and

(g) establish a monitoring and evaluation system within the plan both to monitor the results of training while it is being carried out and, later, to evaluate the effectiveness of completed programs.

Staffing

9. It is estimated that the following specialists would be required:

Specialist Man-Months

Highway MaintenanceEngineer to work with DNM 60 Equipment Fleet Specialist to work with DINE 54 Store Specialist to work with DINE and Purchasing Department 20 Accountant to work with DNM and the Accounting Division 30 Training Specialist to work with the Personnel Department and the Training School 36

Total 200

Schedule

10. The project shall be carried out over a period of 48 months in five phases of work including:

(a) review, evaluation of existing situation and detailed plan of operation;

(b) study of future highway maintenance needs;

(c) pilot testing and demonstration;

(d) nationwide implementation; and

(e) overall program monitoring. - 58 - Annex 5.2

Manuals and Reports

11. Because this is basically an implementationproject, all manuals shall be performance-orientedand most reports shall be directed toward documenting accomplishmentsand results. They include a report on future highway main- tenance needs and manuals on highway maintenance,equipment management, accounting and budgeting, administration,and training.

ExecutingGovernment Agency and CounterpartStaff

12. MOP will be the contractingGovernment agency. Counterpartper- sonnel will be provided from among permanent employees of MOP as a joint effort with the Consultant. It is expected that both professionaland sup- port staff will be required in the provincial directorates.

April 1978 _ 59 -

Annex 5.3

PANAMA

HIGHWAY MAINTENANCE PROJECT

Outline Job Description for Senior Maintenance Engineer in Charge of Program Coordination

1. Title : Senior Maintenance Engineer

2. Responsible to Director of National Directorateof Maintenance

3. Qualifications : Should be a qualified professionalCivil Engineer with experience in highway main- tenance of paved, gravel and earth roads; preferably with experience in operational and administrativeaspects of road main- tenance. Should have ability to commu- nicate and to apply logical and analytical approach to managerial duties.

4. Principal Responsibilities:

(a) The reviewing and updating of the highway maintenance program by coordinationof road inventory procedures and ascertainmentof needs and priorities in road maintenance taking into account the resources available;

(b) the coordination,supervision and control of provincialhighway maintenanceprograms to ensure efficient execution of the main- tenance program;

(c) the planning and progressing of work against program commitments and the preparation of progress reports required for management purposes and budgetary control;

(d) the developing,reviewing and updating of maintenance standards and the developmentof management and field operations manuals;

(e) the preparation of highway maintenance budgets;

(f) the provision of guidance and assistance to DNM management and provinces during the implementationof the program; and

(g) the coordinationof the consultant'swork which would provide the technicalassistance.

January 1978 HIGHWAY MAINTENANCE PROJECT

Example of Intended Maintenance Proram Control Reporta

ACCOMPLISHMENT REPORT

CURRENT MONTH CURRENT YEAR

Work Wor-k Work Work Units Units Unit Units Units 7. Total Total Accomplished Plan Total Type of Road Activity Hessr PerforUmane Labor Current Unit Measures Accomplished Plan Completed To Data *To Dat Completed M o urs PnI P r Coat Labr Ctn

MATERIAL UTILIZATION REPORT

CURRENT MONTd CURRENT YEAR

Quantity Quantity Material Quantity Qusntity % Used Plan Type of Road Class % Total Material Total Units Used Plan Utilized To Date Current Unit To Date Utilized Cost Accomplished to Date Material Cost

EQUIPMENT UTILIZATION REPORT

Equipment Out of . 7 7 Equipment Hours Service Assigned Use Type of Road Available Utilized Utilized Class Required Hours Hours Hours Month Month Year

Source: Appraisal Mission

N.ovember 1977 - 61 - ANNEX 5.4 PANAMA TABLE 2

HIGHWAYMAINTENANCE PROJECT

Project Indicators

1976 1980 1982 EQUIPMENT FLEET MANAGEMENT

Fleet availability % Forecast - 75 75 Actual 40*

Fleet utilization % Forecast - 65 70 Actual 30*

MAINTENANCE LEVEL

Grass cutting, Km Forecast - 10,200 10,300 (both road sides) Actual n.a.

Reshaping of ditches, Km Forecast - 9,200 9,400 (both road sides) Actual n.a.

Reshaping of gravel surfaces, Km Forecast - 3,700 3,700 Actual n.a.

Reshaping of earth roads, Km Forecast - 3,400 3,700 Actual n.a.

Replenishing of gravel surfaces, Km Forecast - 400 400 Actual n.a.

Sealing of asphalt surfaces, Km Forecast - 290 290 Actual n.a.

Highway network to be maintained, Km Forecast - 9,200 9,400 Actual 7,774

Highway maintenance expenditures Forecast - 8.7 9.7 B$ million at end-1977

* Estimated.

Source: Appraisal Mission.

November 1977 - 62 - ANNEX 5.4 TABLE 3 PANAMA

HIGHWAY MAINTENANCE PROJECT

Project Indicators

Highway Surface Condition 1976 1980 1982

Cement or Asphalt Concrete (km) 678 730 730

Good Actual 548

Forecast - 700 700

Fair Actual 105

Forecast - 30 30

Bad Actual 25

Forecast - - -

Bitum:inousSurface Treatment 1814 2100 2140

G3ood Actual 792

Forecast - 1850 1900

Fair Actual 771

Forecast - 250 240

]3ad Actual 251

Forecast - - -

Grave'l 1795 2900 2900

Good Actual 990

Forecast - 2400 2400

FPair Actual 782

Forecast - 500 500

P,ad Actual 23

Forecast - - -

Source: Appraisal Mission

November 1977 - 63 -

Annex 5.5

PANAMA

HIGHWAY MAINTENANCE PROJECT

Selected Documents and Data Available in the Project File

A. General Reports and Studies on the Sector or Subsector

1. Panama National Transport Survey. N.D. Lea and Associates. 1974.

2. Panama Transport Sector Brief. LCPD. 1973.

3. Transportesy Comunicaciones. EstadisticaPanamena. Direccion de Estadisticay Censo. 1974.

4. Highway Feasibility Study of Tocumen-Chorrera. Final Report. Louis Berger Inc. 1974.

5. Informe Anual a la Honorable Asamblea Nacional de Representantesde Corregimientos1976-1977. Autoridad Portuaria Nacional. 1977.

B. General Reports and Studies Relating to the Project

6. Resumen del Inventario de Caminos. Conclusionesy Recomendaciones Informe Final COMEC.

7. EspecificacionesGenerales sobre Soldadura, Pintura e Inspeccion de Obras. Gonzalo Cordoba. December 1976.

8. Anteproyectode Ley Organica del Ministerio de Obras Publicas MOP Departamentode Asesoria Legal. March 1975.

9. Ley 23 de 1967 por la cual se dictan medidas sobre dimensionesy peso de los vehiculos de carga en circulacionpor las vias publicas.

* 10. Lista de Precios de Materiales de Construccion. Camara Panamena de la Construccion. July 1977.

11. Proyecto de Administraciondel MantenimientoVial. Terminos de Referencia. November 1977.

12. Inventario de personal de las provincias. September 1977.

13. Carretera Panamericana,Informe del Proyecto Chepo-Bayano. August 1974. - 64 -

Annex 5.5

14. Departamento de la Carretera Panamericana. Su organizacion y funciones hasta 1974.

15. Desarrollo de un programa para el Mantenimiento de la red vial de Panama. Direccion Nacional de Mantenimiento. April 1977.

16. Beneficios y costos propuestos para la evaluacion economica de un program de mantenimiento. Departamento de Planificacion, MOP. 1977.

17. Project Identification Document. Access Roads AID. May 1977.

1B. Technical Analysis - Road Improvement (part of a project report), AID. 1977.

C. Selected Working Papers, Prepared by Bank Staff or Consultants

19. Project Brief Highway Maintenance Project. May 1977.

20. Management of MOP Maintenance Fleet. M. Mackie (Consultant). September 1977.

2l. Highway Maintenance Project, Back-to-Office Report. H.M Steiner (Consultant). August 1977.

22. Third Highway Project. Preparation Mission. Back-to-Office Report. W. Matthey (Consultant). April 1977.

March 1978 PANAMA HIGHWAY MAINTENANCE PROJECT MINISTRY OF PUBLIC WORKSORGANIZATIONAL STRUCTURE

CMinister| Top Management Vice Minister

Technical Committee ...... - fiProfessionalCommittee Special Committees Equipment Committee

Planning/Administrative

Auditing | Finnce I F Planning F Legal Administration Public Relations Deparments

PanAmerican National Directorates National Geographic Highway Maintenance Construction

- Design Secretariat Special Projects - Construction Supervision Equipment Control Design - Maintenance (Darien Prov., Shops and Space Requisition Force Account Construction Sections Cost Accounting Soils Laboratory Technical Department Supervision Highway Maintenance Planning Provincial Directorates

World Bank - 18231 - PANAMA HIGHWAY MAINTENANCE PROJECT NATIONAL DIRECTORATE OF MAINTENANCE ORGANIZATIONAL STRUCTURE

Director

AssistantDirector

Secretariat

Administration Prhasing Cautontrol

Equipment Control Shopsand Spare Cs conigcnclDprmniha aneac Iand School for Operatr Requisition CotAcutn ehia eatetPlanning

ProvincialDirectorate Porovincial eet ProvincialDirectorates for forProvincial NationalDirectorate Buildings |for City Streets l Cocie,Colon, Chiriqui, Herrera,Los Santos, Panama,and Veraguas

World Bank- 18230 IBRD 13290 b]; gt P A N A M A d . _ 7d' > \ REER0AWT971~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~lERAF W

v f> t 0etrn V ;AA F PROJECT t Y , g.qfv q>> ~~~~~~~~~~HIGHWAYMAINTENANCE

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