World Bank Document

Y~~~~~ ~~RESTRICTED iijLwt11' ; fl,: Fiport No. TO454a

This report was prepared for use within the Bank and its offiliat2d organizations. Public Disclosure Authorized They do not accept responsibility for its accuracy or completeness. The report may not be published nor may it be quoted as representing their views.

INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT INTERNATIONAL DEVELOPMENT ASSOCIATION Public Disclosure Authorized

APPRAISAL OF

THE NORTH ROAD PROJECT

HONDURAS Public Disclosure Authorized

January 18, 1965 Public Disclosure Authorized

Projects Department CURRENCY EQ.UIVALEiNTr

U.S. $ 1. 00 = 2 Lempi:;fao HONDURAS

APPRAISAL OF THE NORTH ROAD PROJECT

Table of Contents

Page No.

SUmvIARY i

I. INI'RODUCTION 1

II. BACKGROUND 1

A. General 1-2 B. Transport in Honduras 2-3 C. The Highway System 4 D. Highway Administration and Maintenance -5 E. Highway Expenditures and Receipts 5 F. Transportation in the Development Plan 6

III. THE PROJECT 6

A. Description 6-7 B. Design Standards 7 C. Execution 8 D. Cost Estimate and Financing 8-9

IV. ECONOMIC JUSTIFICATION 9

A. Introduction 9 B. The Zone of Influence 9-10 C. Reduction in Transport Costs 10-11 D. Other Benefits 11-12

V. CONCLUSION AND RECOiTENDATIONS 12

List of Tables:

1. Motor Vehicles Registered, 1953-63; Forecast for 1967, 1972. 2. Expenditures on Highways, 1957-63. 3. Design Standards. 4. Estimated Cost of North Road.

Chart: Organization of the Highway Department.

Map: The Road Network. HONDURAS

APPRAISAL OF THE NORTH ROAD PROJECT

SUMMARY i. The Government of Honduras has asked the Bank and IDA to help finance completion of the North Road from Tegucigalpa, capital of Honduras, to San Pedro Sula, its most important commercial center. The Government has also asked the Inter-American Development Bank to participate in the financing of the road. ii. The project consists of the construction of a 202 km two-lane bituminous surfaced highway between the Rio del Hombre and iotrerillos. It would replace a narrow, winding gravel road, with sharp curves and steep grades. The sections between Tegucigalpa and Rio del Hombre and between San Pedro Sula and Potrerillos are already being improved to satisfactory standards. iii. The cost of the project is estimated at US$23.6 million equivalent, including contingencies. The estimate is based on final engineering of all but one small section of the road. The foreign exchange component is about 60 percent. The Government expects to finance about 20 percent of the project costs (US>h.7 million) and has asked the Bank, IDA, and IDB to share the remainder. It is proposed that the Bank and IDA contribute half of this remainder and the IDB the other half. iv. All contracts for construction will be awarded on the basis of international competitive bidding. 3xecution of the project will be the responsibility of the Ministry of Communications and Public Works. The project will impose a very heavy workload on the Ministry so that outside consultants will be retained to finalize plans and contract documents, to assist in the awarding of contracts and to supervise the execution of the project. v. The North Road was given the highest priority in the 1963-72 highwtay program developed in a study by Stanford Research Institute under a previous IDA credit. The traffic on the existing road already exceeds 400 vehicles and is growing rapidly. The new road will sharply reduce transport costs; this is particularly important to the economy of Honduras since a very large proportion of these costs are direct foreign exchange costs. The rate of return on the investment is about 20 percent, which is clearly satisfactory. vi. Agreement has been reached during negotiations on the use of consultants, design standards, the strengthening of highway administration practices and enforcement of traffic regulations, increased allocations fo.' road maintenance, and provision of local funds for the project. vii. Subject to the Government obtaining the necessary additional financing for the project from IDB, the project provides a suitable basis for a Bank loan and IDA credit totaling US`9.5 million equivalent. The Bank loan would be for US$6 million for 25 years including a grace period of 6 years, while the IDA credit would be for US&,3.5 million on the usual terms. HONDURAS

APPRAISAL OF THE NORTH ROAD PROJECT

I. INTRODUCTION

1. The Government of Honduras has asked the Bank and IDA to help finance completion of the North Road from Tegucigalpa to San Pedro Sula. The Govern- ment has also asked the Inter-American Bank to participate in the financing of the road.

2. This vould be the fourth highway loan or credit by the Bank and IDA to Honduras. A loan of US$4.2 million (No. 135-HO) was made in 1955 to finance the establishnent of a maintenance organization. A loan of US$5.5 million (No. 195-HO) was made in 1958 primarily to reconstruct the San Pedro Sula- Puerto Cortes and Southern roads and to build bridges on the Western Highway (see Map); all work has been successfully completed. The first IDA credit of US,9 million (No. 1-HO) was made in 1961 to finance (a) an extension of the lestern Highway to El Salvador; (b) feeder roads to connect with the Western Highway; (c) further strengthening of highway maintenance operations initiated under the first loan; and (d) a highway transportation survey to establish a long-term investment program. The Western Highway extension has been completed, and the feeder roads are being constructed. The survey, carried out by Stan- ford Research Institute, was finished in 1962.

3. The performance under all ofithese loans and the IDA credit has been satisfactory. All construction was carried out on schedule to proper standards and within the cost estimates. A maintenance organization has been estab- lished, maintenance has improved and further improvements are suggested in this report. The assistance of consultants, which has been required under all loans, has been most beneficial.

4. This report is based on (a) the Stanford study, (b) a feasibility and final engineering study of the North Road by Brown & Root Overseas, Inc., consultants to the Honduran Ministry of Communications and Public W,forks, (c) documents prepared by various Government agencies, (d) the findings of a Bank appraisal mission to Honduras in September, 1964, and (e) the results of negotiations held in Washington in January 1965.

II. BACKGROUND

A. General

5. Honduras is located in the center of the five Central Anerican republics. It is the second largest of these republics, with an area of 43,000 sq. miles (112,000 sq. km). It has a population of 2.1 million, which has been growing rapidly at slightly more than 3 percent annually.

6. Honduras' gross national product has been growing by 4-5 percent annually in recent years and is now-i approaching US$450 million equivalent; the per capita income is about US)210, which is the lowest in Central America. The transport and communications sector has accounted for about 7 percent of Honduras' national product in recent years; it has been increasing slowly but is still relatively low and reflects the fact that the transport network is relatively undeveloped.

7. Geographically, Honduras is the most mountainous country in Central America. The terrain is exceptionally rugged and crossed by many rivers and streams. This has made the construction and maintenance of a transport net- rork difficult and expensive and thus has hindered the country's economic development.

B. Transport in Honduras

8. Honduras has three railway lines extending nearly 1,200 km. Two of the lines are owned by two fruit companies and are used primarily to ship bananas from their plantations to Caribbean ports and to transport imported supplies for their own use. The National Railways, owned and operated by the Government, has only about 130 km of line. All three lines are located on the north coast in areas adjacent to the major port cities; they serve only a very small sector of Honduras. Nevertheless, they handle about one- half of the country' s inter-city freight traffic, reflecting the importance of the banana traffic.

9. The difficult terrain and the related lack of a good highway network have made air transport very important in Honduras. A number of communities rely largely on air service for their contact with the outside world. Airlines, using DC-3 and smaller planes, serve 28 communities, nearly all receiving regularly scheduled service. The most important routes are the triangle between Tegucigalpa, San Pedro Sula and La Ceiba. Total air traffic has declined somewhat in recent years, primarily because of improvements in the highway network.

10. There is no inland water traffic in Honduras because the rivers cannot be made navigable. Water transport serving Honduran ports on the Caribbean and Pacific coasts, and providing most of the foreign trade vital to Honduras, is complementary rather than competitive with internal road and rail transport. Completion of the Tegucigalpa-San Pedro Sula road will further enhance the importance of the port at Puerto Cortes, for which a Bank loan is currently under consideration.

11. The highway transport industry is the backbone of Honduras' domestic transportation system. It has expanded rapidly in the last 10 years. The motor vehicle fleet has tripled between 1953 and 1963 from about 5,500 to 16,700 vehicles, an annual increase of nearly 12 percent (see Table 1). Since vehicle capacity is also increasing, the freight carried has expanded even more rapidly. Of the fleet, nearly Lo percent are trucks and 13 percent buses. This high proportion of commercial vehicles reflects in part the Government's policy of promoting their use, rather than that of private cars, by lower license fees and import duties and lower taxes on diesel fuel than on gasoline. The average age of the fleet is high but seems to be decreasing. The capacity of an average truck is only about 2 tons, which is low. - 3 -

12. Honduras can still espect a very substantial growth of highway transport. In spite of the large increases in recent years, Honduras still has only about 8 vehicles per 1,000 population, which is the lowest in Central America.* The Stanford study estimates that the vehicle fleet will increase from about 16,000 in 1962 to about 26,000 by 1967 and 47,000 by 1972 (see Table 1). This increase of about 11 percent annually takes into account such factors as the rate of growth in the last 10 years (12 percent); the expected growth in national income (about 3.5 percent) and of individual sectors of the economry; the trend toward larger trucks and buses, which means a smaller rate of increase in the number of vehicles than in the volume of freight and passenger traffic; and developments in neighboring countries.

13. As in most developing countries, the trucking industry consists primarily of one-truck owner-operators; only about 1 percent of the operators have 5 or more trucks. This means that most enterprises are too small to provide efficient sernices. Also, the wide dispersion of vehicles among numerous small operators makes for extensive competition. There is no economic regulation of the industry; licenses are freely available at a small fee and rates are not prescribed. Safety regulation and restrictions on vehicle weights and dimensions exist but are not effectively enforced. This latter problem was discussed during loan negotiations, and agreement was reached on more effective enforcerment of regulations.

14. Total annual investments in transport more than doubled between 1952 and 1962 from L 8.0 to L 18e7 million. Highway transport accounted for about 95 percent of the total in 1962 and was split nearly equally between highways and highway vehicles; aviation accounted for most of the remainder,

15. The subject of transport coordination has been given little atten- tion so far in Honduras. However, impirovement of the highvay network will raise at least two major issues; the future of the railways, especially the National Railways, and the need to reduce air services in parts of Honduras. The Government is employing foreign consultants to study the scope of future air services. It has no specific plans for the National Railways anx no new, investinents are being made in it. The project road itseLf rill not affect the railways significantly since there is no railway in its zone of influence, but it will affect the scope of air services between Tegucigalpa and San Pedro.

* Comparison of Motor Vehicles per 1,000 population, by selected countries:

Panama 23 Japan 18 Nicaragua 11 France 138 Guatemala 9 U.S.A. 416 Brazil 16 -14-

C. The Highway System

16. Development of the Honduran highway network on any significant scale did not begin until the 1950's. As shown below, it now consists of about 3,h00 km of roads, which makes it the shortest in Central America; relating it to the are.a of the c.ountry, the density of the net,-xork is only one seventh of that of Costa Rica, which has the longest network. While the principal roads connect the major towns, the secondary roads connect remote towns and villages with the principal roads. Only about 400 km of roads, or about 12 percent of the network, are paved.

Length in km

1962 1973 (estimate) Paved Unpaved Paved Unpaved

Principal roads 329 479 1,412 189 Secondary roads 55 922 27 953

Tertiary roads - 1,1149 - 2,110

Penetration roads 1476 - e

Sub-total 384 3,026 1,439 3,252

Total 3, 410 ,691

17. Under the 10-year highway program prepared by Stanford and generally accepted by the Government as the basis for its highway plans, the highway network would be extended by about one-third (see above table). But even more important is the improvement of the network. Nearly one-third of the entire network would be paved compared to only 12 percent in 1962, nearly 90 perceilt of the principal roads would be paved compared to LO percent in 1962 and the standards for many unpaved roads would also be substantially improved. The program is generally well conceived but it will probably take more than 10 years to carry it out.

D. Highway Administration and Maintenance

18. The two Government organizations primarily responsible for the nation's highway system are the National Economic Council and the Highway Department, in the Ministry of Communications and Public Works. The Council, an interministerial planning body which reports directly to the President of the Republic, prepares long-term programs for the development of the highway system in relation to the economic needs and resources of the country. The Highway Department is responsible for the construction and maintenance of the road network. The Police is responsible for traffic control and enforcement of highway regulations and the Ministry of Economy and Finance for vehicle registration. - 5 -

19. The organization of the Highway Department is shown in the attached chart. The Department has central divisions for engineering, administration, accounting and auditing, but the responsibility for the construction and maintenance of roads was recently decentralized by establishing two divisions, one for the North and one for the South; this was intended to increase efficiency, but it is too early to appraise the effects. However, a number of other important reforms, some of which were previously recommended by consultants employed under IDA Credit No. 1 and in the Stanford study, should also be carried out. The most important of these include the strengthening of the Planning Unit within the Ministry of Public Works, the establishing of a professional career Civil Service system, elimination of red tape in financing procedures, better accounting for highway expenditures, improved highway maintenance practices, and better enforcement of road regulations. The Govern- mRent is aware of the need for these improvements. Their importance was stressed during negotiations, and agreemrent was reached with the Government on a program for carrying them out over time.

20. Maintenance of highways is the responsibility of seven Maintenance Districts. Each district is headed by an engineer and has its own technical and administrative staff, equipment, workshop and service facilities. As communications improve, the number of districts could be reduced, which would lead to savings in staff and overhead. In recent years, the training and equipment of the highway maintenance organization has been materially strength- ened with the financial assistance of the Bank and IDA. Maintenance expenditures have averaged about L 900 per km annually, which is barely adequate. During negotiations agreement was reached on increased allocations for road maintenance.

E. Highway Expenditures and Receipts

21. As shown in Table 2, annual expenditures on highways have fluctuated considerably in recent years, ranging from a low of L 9 million in 1957 to a high of L 17 million in 1959. New construction accounts for about three- quarters of total expenditures and fluctuates largely in accordance with the availability of funds from foreign loans. Highway expenditures have been equivalent recently to about 22 percent of the national budget.

22. Numerous duties, fees and taxes are placed on motor vehicle owner- ship and operations. These user charges are relatively light on commercial vehicles; they are not subject to customs duties and sales taxes, their license fees are much lower and the diesel tax is only 5.6 centavos per gallon compared with 38.1 centavos for gasoline. The Stanford survey estimated that the revenues from highway user charges covered about 55 percent of expenditures on highways in 1962. 1Jhile this is on the low side, it is not unreasonable considering the relatively small fleet and the fact that at this early stage annual highway investments exceed annual highway costs as measured by depreciation and interest on total highway investments. The percentage of highway expenditures covered by user charges has been rising rapidly; the Stanford study estimates that the revenues from present user charges will increase substantially with the growth in traffic and average nearly 80 percent of highway expenditures in the 1963-72 period, which appears a reasonable assumption. - 6 -

F. Transportation in the Development Plan

23. Honduras has recently prepared a 1965-69 Development Plan and a more detailed program for 1965-66. The former is very general and does not, for example, give public investments by individual sectors of the economy; the 1965-66 program, on the other hand, gives not only the sector investments, but also lists the individual projects in each sector. Both plans have been approved in principle by the Government.

24. Transportation is by far the largest sector in the 1965-66 plan, accounting for more than one-third of total investments; a similar proportion was invested in transport in the last five years. Highways account for about 90 percent of the transport sector. The plan assumes that 70 percent of highway investments will be financed from foreign loans, of which about one-half for 1965 but less than 10 percent for 1966 have so far been obtained.

25. The highway projects included in the plan are generally those recommended in the Stanford report, and include the North Road. However, it is virtually certain that the estimated expenditures of L 35 million in 1965 and L 41 million in 1966 cannot be realized, and in its conclusion the plan admits a possible slippage of 30 percent in its execution, which would reduce expenditures to about L 24 and L 28 million, respectively. While these amounts are generally consistent with the Stanford plan, they are still ambitious when it is realized that investments in recent years have averaged less than L 10 million. The North Road accounts for about one-half of estimated investments in 1965 and for more than one-third in 1966.

III. THE PROJECT

A. Description

26. The project consists of a 202 km long two-lane bituminous surfaced road to be constructed between the Rio del Hombre and Potrerillos, linking Tegucigalpa, the capital of Honduras, with San Pedro Sula, its largest commercial center. It will no doubt be the most important road in the country. The road would be part of the transcontinental route planned under the Regional Program of Central American Highways across the Central American Isthmus, from Puerto Cortes on the Atlantic Ocean to the Pan American Highway at the Golfo de Fonseca on the Pacific. The project has been studied inten- sively for many years.

27. The existing North Road between the Rio del Hombre and Potrerillos is a narrow, winding gravel road, with sharp curves and gradients up to 15 percent. It unuld be difficult and uneconomic to reconstruct this road to satisfactory standards since the mountainous terrain would involve many sections with long and steep grades and numerous sharp curves. After the construction of the new road, the above road will have to be maintained only for local traffic, and the Comayagua-La Libertad road can be abandoned. 28. Several improvements were made recently on sections of the road adjoining each end of the project. From Rio del Hombre south to Tegucigalpa, the Government is reconstructing the existing road (approximately 37 kms) with its own forces without external financing; and from Tegucigalpa south to the Inter-American Highway, the asphalt pavement has been improved under a Bank loan. From Potrerillos north to San Pedro, the Government is improving with its own funds the existing road (approximately 22 kms), and from there, north to Puerto Cortes, the road was also built under a Bank loan.

29. The project starts from the end of the government-improved Tegucigalpa-Rio del Hombre road and climbs toward the continental divide at San Francisco, at an elevation of 1,450 meters. It then descends, crosses the Comayagua Valley and proceeds to La Libertad in the Humuya Valley. After crossing the Rio Humuya, it turns into the Yure River Valley and emerges on a plateau at Santa Cruz de Yojoa. After descending to the Sula Valley, it joins the existing North Road. The project also includes a new two-lane concrete bridge over the Ulua River north of Potrerillos. At the present time, vehicular traffic uses the single-lane damaged railroad bridge.

B. Design Standards

30. The final design and specifications of the road from Zambrano to Potrerillos, and of the bridge over the Ulua River, were prepared by Brown & Root Overseas, Inc., consultants, and bids can be called for immediately. The design is generally satisfactory except for some mountainous sections where the standards will be somewhat reduced. The 10 km section between the Rio del Hombre and Zambrano has not yet been fully engineered and during loan negotiations it was agreed that the design of this section would be executed by consultants.

31. The design standards as agreed upon during negotiations are satisfactory and are an improvement over those previously used in Honduras (see Table 3). Design speeds range from 50 km/h in mountainous terrain to 100 km/h on level terrain. The maximum grades will be 7 percent. The pavement, a solid base with a double bituminous surface treatment, is designed for heavy trucks and the design provides for stage development so that it can be upgraded to an asphalt concrete carpet when the traffic grows sufficiently to justify it. On the basis of the traffic forecast discussed in paragraph 44, the road will have adequate capacity to accommodate future traffic for more than 25 years if certain relatively minor improvements are made.

32. Bridges and other structures were designed to American Association of State Highway Officials (AASHO) standard 15 ton loading (see Table 3), which is common in Central America. All bridges will be of concrete, thus utilizing to the maximum local materials and skills. The bridge over the Ulua River will be a multispan box structure, one of the biggest in the country. -8-

C. Execution

33. Execution of the project will be the responsibility of the Ministry of Communications and Public Works. The scale of the project will more than double highway construction in Honduras in the coming years. The Ministry t s professional staff and the construction industry cannot cope with such an expansion. Cutside consultants will therefore be employed to supervise and administer the construction, and the wArk will most certainly be carried out, as in the past, by foreign firms. The use of consultants satisfactory to the Bank is a condition of the loan. Construction will be carried out under unit price contracts and on the basis of international competitive bidding. In order to achieve the lowest costs, the project will be let in two or more contracts.

3h. Construction work will be mechanized to a large extent. This is justified since unemployment is not a major problem in Honduras, and the new road crosses areas where labor is relatively scarce. The tight construction time schedule for the new road, which is badly needed to cope with the growth of traffic, and the quality standards of the work which are imposed by the expected traffic volunes, also make mandatory the extensive use of mechanized equipment.

D. Cost Estimate and Financing

35. The estimated cost of the project is shown below (for details, see Table 4): US3 equivalent (millions) Construction 19.4 Right-of-way 0.5 Supervision (consultants) 1.6 Contingencies 2.1 Total 23..6 The estimate includes the cost of construction, right-of-way, supervision and administration of construction, design for the Rio del Hombre-Zambrano section and establishment of roadside camps. Import taxes and consular fees are ex- cluded from the estimates. Allowances of 10 percent are included in the construction costs for physical contingencies and of 10 percent on all costs for possible price increases. The estimates are based on detailed quantities calculated from final engineering for the Zambrano-Potrerillos section. For the 10 km Rio del Hombre-Zambrano section, the estimates are based on prelimin- ary engineering and the allowance for physical contingencies has therefore been raised to 17 percent. Unit prices were determined from cost analyses and also take into account prices for similar works recently carried out on the Western Highway extension in Honduras. The cost estimates appear reasonable.

36. The foreign exchange component is estimated at about 60 percent on the basis of information provided by consultants; this is consistent with previous experience in Honduras. It includes imported equipment, materials and personnel and the profits of contractors. 37. It is expected that the work cannot start until late in 1965 due to the time necessary to approve the loan and because the rainy season does not end until November; the work is estimated to be completed in 1970. The annual expenditures are estimated as follows:

1965 US$ million 1.0 L million 2.0 1966 4e3 8.6 1967 4.8 9.6 1968 5.6 11.2 1969 5.6 11.2 1970 2.3 4.6 TOTAL 23,6 47.2

38. The Honduran Government expects to finance about 20 percent of the project, or about L 9.4 million, and has asked the Bank, IDA and the Inter- American Development Bank to share the remaining L 37.8 million.* It is understood that IDB would like to participate in the financing with the same amount as the Bank and IDA combined. This is acceptable provided that the Bank carries out its customary procedures for the administration and supervision of the project. No difficulty is anticipated in this respect since experience on the lWesterm Highway Extension financed jointly by IDA and IDB has been satisfactory.

IV. ECONOMIC JUSTIFICATION

A. Introduction

39e The Stanford study on highway transport in Honduras found that "the most important of the projects considered is the North Road from Teguci- galpa to the north coast because it is the principal artery of Honduras and is the key route in the development of a highway network". Accordingly, the North Road was given the highest priority in the proposed highway investment plan and its immediate construction was recommended. Similarly, the road is among those given the highest priority in the Regional Program of Central American Highways adopted on September 1, 1963 by the Ministers of Econony and Public Works of the five Central American Republics.

B. The Zone of Influence

40. The North Road will pass through the middle of three of Honduras' most populated departments: Francisco Morazan, in which the capitiL, Tegucigalpa (population 150,000), is located; Comayagua, one of the most productive agricultural areas; and Cortes, in which the largest port,

* An additional amount of about L 4.5 million would.be added to the government share of financing if we consider the total project between Tegucigalpa and San Pedro Sula and take into account the improvements described in paragraph 28 and being carried out with the Government's owl funds on the extensions of the project road south to Tegucigalpa and north to San Pedro Sula. - 10 -

Puerto Cortes, and the country's largest industrial city, San Pedro Sula (population 90,000), are located. These departments have a population of about 650,000 or about one-third of Honduras' total; their population density is about twice the national average and the rate of growth is also greater.

41. The total farm area in the zone of influence is about 370,000 hectares, or nearly one-quarter of the country's total. The value of its agricultural production in 1962 amounted to nearly L 50 million; major items w7ere coffee (L 9 million), corn, bananas, and milic (about L 6 million each), and cattle, sugar cane, rice and beans. 1ore than half the farming is of a subsistence nature but the yields are generally better than in most other areas of' Honduras. The value of agricultural production is estimated by government officials to double betwzeen 1962 and 1972.

O2. ilost of the country's manufacturing and processing facilities are located in the zone of influence. There were in 1962 about 130 establish- ments in San Pedro, writh an output valued at about L 50 million; examples include clothing, metal workdng, chemicals, cement, rubber goods, automotive repair and food processing. In the Tegucigalpa area there were about 170 es- tablishments, with a total output valued at L 43 million. The two cities together account for more than 75 percent of the country's manufacturing output. Of the total number of motor vehicles registered in Honduras, about 75 percent are in the project's zone of influence

C. Reduction in Transport Costs

43. The project will sharply reduce transport costs on one of the most heavily travelled roads in Honduras. This is particularly important to the economy of Honduras since a very large proportion of highway transport costs are foreign exchange costs; the Stanford study found that imports to sustain a single vehicle per year, such as gasoline and spare parts, should decrease from L 1,300 to L 600 between 1962 and 1972, largely as a result of highway improvements. The rate of return on the investment, whose economic life for this purpose is conservatively assumed to be 20 years though the road will probably serve for a much longer period, is about 20 percent, which is satisfactory. There will be additional benefits which cannot readily be expressed in monetary terms, but which are substantial (see paragraph 46).

41h. Traffic counts made as part of the Stanford survey indicate that in 1962 the eauivalent of about 350 vehicles travelled the total length of the road daily between Tegucigalpa and San Pedro Sula. About two-thirds of these wiere trucks and only about 10-15 percent were passenger cars. The daily traffic consisted. of about 370 passengers and 900 tons of freight, including lumber, corn and other grains, coal and miscellaneous consumer goods. It is expected that about 85 percent of the traffic will be directed to the new road once it is completed.

45. The Stanford survey estimates that the average daily traffic in 1972 on the old road will be about 100 and on the new road about 800 vehicles,invo'- ving an annual increase in total traffic between 1962 and 1972 of about 10 per- - 11 -

cent. The freight tonnage is expected to increase by about 5.5 percent annually and the nunber of passengers by nearly 17 percent. The forecast is based on such factors as the growth of population in the area (nearly 4 percent), the probable increase in vehicle registrations of 11 percent (see paragraphs 11 and 12), and an analysis of the individual commodities carried. That the traffic forecast is reasonable is indicated by the fact that between 1962 and 1964 the traffic on the road increased by more than 40 percent. Nevertheless, taking into account the large margin of possible error because the samples of traffic counts were small, the calculation of benefits in tlhis report assumes a 1972 daily traffic of only 700 vehicles, or an annual increase of 7.5 percent. After 1972, it is assumed that the annual rate of increase would taper off to 3 percent by 1990.

46. Vehicle operating costs on a poor gravel road, such as the existing North Road, average about 18.0 centavos per ton/lm. and 3.6 centavos per passenger/km. For the type of vehicle now using the road this means a cost of 45 centavos per truck/lkm., 40 centavos per bus/km. and 15 centavos per passenger car/km. Because of h-igher design standards and a better pavement, it is estimated that on the new road these costs will be cut in half, in line with the experience from other similar road improvements both in EIonduras and other countries. If this saving is applied to the estimated traffic in 1972, the reduction in transport costs in that year would amount to nearly L 11 million.

D. Other Benefits

47. In addition there will be other benefits which are not included in the above rate of return calculation because they cannot readily be expressed in monetary terms. The most important ones include:

a) The present road is so narrow and winding that larger and more efficient vehicles cannot be used effectively, if at all. The new road, by permitting larger vehicles, iill thus reduce transport costs even beyond the cost reductions mentioned in paragraph 45.

b) There will be substantial savings in time for both passengers and freight. The present trip between Tegucigalpa and San Pedro takes about 7 hours for a passenger car; on the new road this will be reduced to 4 hours. For the 600,000 passengers estimated to use the road in 1972, this would be a saving of 1.8 million hours. The trip will also be much more comfortable for them. The travel time for trucks will be reduced from about 9 to 6 hours.

c) The road will provide access to the IHumuya Valley, which has some excellent agricultural land, and also serve other areas where exploitation of lumber is possible. However, the road merely provides the - 12 -

opportunity for these developments and whether they will in fact take place will depend largely on private initiative and investments.

d) The road would make an important contribution to better political and administrative integration of the country's northern and southern regions which now are virtually isolated from each other.

V. CONCLUSIONS AND RECO14MENDATIONS

48. The project will greatly improve the conditions for road transport on one of the most important highways of Honduras. It is well planned, technically sound and will yield a good economic return on the investment from lower transport costs alone. The Honduran Ministry of Communications and Public Works will be able to execute the project with the assistance of consultants.

49. The Honduran Government expects to finance about 20 percent of the project costs, and has asked the Bank, IDA and IDB to share the remainder. IDB is considering financing the same amount as the Bank and IDA combined.

5o. Subject to the Government obtaining the necessary additional financing for the project from IDB, the project provides a suitable basis for a Bank loan and IDA credit totaling US39n5 million equivalent. The Bank loan of US.t6 million would be for 25 years including a grace period of 6 years, while the IDA credit of US$3.5 million would be on the usual terms.

Department of Technical Operations

January 18, 1965 TABLE 1

HONDURAS

PIOTOR V1]ICLES REGISTERED, 1953-63; FORECAST FOR 1967, 1972

Year Total Passenger Buses Trucks Other Cars

1953 5,506 2,338 84 3,084 _

195)4 6,4L4o 2,907 75 3,)458 -

1955 7,722 3,737 788 3,174 23

1956 8,188 3,932 771 3,453 32

1957 8,563 4,240 750 3,554 24

1958 9,940 4,621 1,099 3,743 477

1959 11,656 5,374 1,229 4,564 489

1960 13,481 6,291 1,)420 5,266 504

1961 14,000 6,394 2,180 5,110 316

1962 16,255 7,706 2,122 6,366 61

1963 16,700 N.A. N.A. N.A. N.A.

1967 26,200 14,000 3,200 9,0OO

1972 47,000 27,000 4,OOO 16,000

Source: For 1953-63, report by Stanford Research Institute and Department of Highways. Forecast for 1967 and 1972 by Stan-ford Research Institute! for explanation see paragraph 12. Breakdown by velxicle type may not be fully consistent, e.g. bus-truck combinations may not always be classified consistently as either bus or truck. TABLE 2

T{otTJms

EZPE2DIrURES ON EIGINIAYS, 1957-63 (in L millions)

Year Construction 2Iaintenance Total

1957 5.1 4.1 9.2

1958 8.2 5.6 13.8

1959 12.9 4.3 17.2

1960 12.1 3.6 15.7

1961 10.2 2.9 13.1

1962 9.7 2.8 12.5

1963 NJ.A. 2.8 NJ.A.

Source: Central American Transportation Study, T.S.C. Consortium. The data are estimates since exact figures are not available. TABLE 3

HONDURAS

NORTH ROAD: DESIGN STANDARDS

Item Description Level Rolling Mountainous

Design Velocity 100 Kph 75 Kph 50 Kph

Minimum Curve Radius 1.5 metric, 381.97 mts. 30metric,190.98 mts. 80metric, 71.20mts.

Stopping Sight 150 mts. 100 mts. 65 mts. Distance, min. Vertical Grade, 3% 4% 6% 300 m Verttcal Grade, 5% 6% 7% 300 m Roadway Wi_th 10.30 mts. 10.30 mts. 9.00-1030 mts.*

Pavement Width 6.70 mts. 6.70 mts. 6.50-6.70 mts.*

Shoulder Width 1.80 mts. 1.80 mts. 1.25-1.80 mts9* Slope of Shoulder 3% 3% 3%

Type of pavement Double Bituminous Double Bituminous Double Bituminous Slope of pavement 2% 2% 2%

Type of Base Crushed Stone or Crushed Stone or Crushed Stone or Processed Gravel Processed Gravel Processed Gravel

Type of Subbase Free Draining, Free Draining, Free Draining, Granular Granular Granular Min. Right-of-Way 100 mts. 100 mts. 50 mts. Width

Structures Min. face-to-face curbs 7.92 mts. 7.92 mts. 7.92 mts. Min. face-to-face rails 9.20 mts. 9.2f mts. 9.20 mts.

Structures - Design Loan H15-S12 H15-S12 H15-S12

* Design in accordance with estimates, tables 12-A, 12-B, 12-C and 12-D of the Supplemental Report to the North Road in Honduras between Tegucigalpa and the Sula Valley, by Brown and Root Overseas, Inc., dated November 1964. IIONDURAS

ESTIMATED COST OF iNORTH ROAD (in L million)

Rio del Hombre- Zanbrano- Comayagua- Zambrano Comayagua Potrerillos 10 Kms. 50 Kms. 142 Kms. Ulua Bridge Total 1. Construction, including physical contingencies * 1.8 8.7 27.1 1.1 38.7

2. Right-of-way 0.1 0.2 0.7 - 1.0 3. Supervision of construction and administration :).2 i' 0.7 2.2 0.1 3.2

4. Contingency for price increases 0.2 1.0 3.0 0.1 4.3

Total 2.3 10.6 33.0 1.3 47.2

* Does not include 8 percent consular fees and import ta-es on materials and equipment.

-X* Includes engineering and design. HONDURAS ORGANIZATION OF THE HIGHWAY DEPARTMENT

MINISTRY OF COMMUNICATIONS AND PUBLIC WORKS

LGL ADIER -4 HIGHWA DEATMN CNSULTANTS

SOUTHERN ENGINEERING ACCOUNTING ADMINISTRATION AUDITING NORTHERN EXECUTIVE DIVISION DEPARTMENT DEPARTMENT DEPARTMENT A ITINGEXECUTIVE DIVISION

MAINTENANCE SURVEYING OF BUDGET PR GNRTNCONTROL MAINTENANCE DISTRICTS AUDITN DISTRICTS

CONSTRUCTION STORAGE NORTHERN DIVISION CONSTRUCTION SECTION LBRTRPAMNSSOGEAUDITING F SECTION

ADMINISTRATIVE DESIGN GOVERNMENT ASSETS TRANSACTIONS SOUTHERN DIVISION ADMINISTRATIVE SECTION 4AUDITING SECTION:

ACCOUNTING STRUCTURES TRANSITORY PERSONNEL A CSC TIN G SECTION ACCOUNTS SCECUTIITOEN

WORKSHOPSH l DRAFTING l CONSTRUCTION| REGISTRAR WORKSHOPS

INSPECTORS l PAYROLL | SOCIAL| SECURITY

INTERNATIONAL LOANS

DEPRECIATION7 |

IBRD - 2464 0*0

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HO DU AS | / @ OT _ HE NORTHERN HIGHWAY PROJECT

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SiPIiMJEO 1904 IBRD-14 19