Document of The World Bank FOR OFFICIAL USE ONLY Public Disclosure Authorized Report No. 4464 Public Disclosure Authorized PROJECT COMPLETION REPORT ISRAEL: SECOND HIGHWAY PROJECT (LOAN 781-IS) Public Disclosure Authorized May 2, 1983 Public Disclosure Authorized Europe, Middle East and North Africa 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. FOR OFFICIAL USE ONLY PROJECT COMPLETION REPORT ISRAEL: SECOND HIGHWAY PROJECT (LOAN 781-IS) Table of Contents Page No. Preface. Key Project Data . .ii Highlights ................... iv I. INTRODUCTION . 1 II. SECTOR BACKGROUND. 2 III. PROJECT PREPARATION AND APPRAISAL . 3 IV. PROJECT IMPLEMENTATION AND COST A. General . 4 B. Execution of Civil Works . 4 C. Costs .. .. 7 D. Quality of Completed Works . 9 E. Equipment Procurement . 9 F. Consulting Services . 9 G. Loan Covenants .9 V. INSTITUTIONAL DEVELOPMENT . 11 VI. ECONOMIC JUSTIFICATION . A. General .12 B. Traffic 12 C. Economic Benefits/Costs . 13 D. Economic Return .14 VII. CONCLUSIONS .16 Annexes Borrower Comments. .17a Tables 1. SAR Estimates and Actual Construction Periods . 18 2. SAR Estimates and Actual Project Costs . 19 3. Actual Construction Costs . 20 4. Variations in Construction Costs from SAR Estimates . 21 5. Variations in Currency Exchange Rates . 22 6. Cumulative Expenditures for MAZ and Ayalon Components . 23 7. Expenditures for MAZ Components . 24 | 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. Tables of Contents continued Page No. 8. Expenditures for Ayalon Components . 25 9. Expenditures per Quarter for MAZ Components . 27 10. Cumulative Value of Civil Works in Current US$'ooo - Ayalon Component . 32 11. Cumulative Withdrawal Applications . 37 12. Withdrawal Applications 1-34 . 38 13. Average Annual Daily Traffic . 45 14. Vehicle Operating Costs . 46 15. Ex-Post and Appraisal Estimates of Economic Ratep of Return and First Year Benefit Ratios . 47 16. Variations in Consumer Price Indices . 48 17. Variations in Foreign Exchange Component . 49 Charts 1. Timings and Cumulative Expenditures for MAZ and Ayalon Components (under preparation) . 50 2. Comparison of SAR and Actual Disbursement Profiles . 51 Maps IBRD 3155R1(PCR) - Project Roads IBRD 3156R(PCR) - Tel Aviv - Ayalon Expressway NOTE: Israel currency was changed from Pounds to Shekels on September 30, 1980, with I£1O=Shl. Israeli Pounds are used throughout this report. PROJECT COMPLETrION REPORT ISRAEL: SECOND HIGHWAY PROJECT (LOAN 781-IS) PREFACE 1. The Second Highway Project, for which Loan 781-IS for US$30 million was approved in July 1971, had two main objectives: (i) the improvement of the inter-urban network; and (ii) the improvement of the intra-urban road network in Tel Aviv, particularly in the Central Business District (CBD) and to the international Ben Gurion airport. Both these objectives were consistent with the aims of Israel's 1971-75 highway development program. 2. The loan was closed in June 1981 after cancellation of US$80,000. 3. A copy of the Project Completion Report (PCR) was sent to the Borrower on January 24, 1983, for review. The Government deemed the PCR satisfactory and had no other comments to make (see Annex I to the PCR). - ii - KEY PROJECT DATA Appraisal Actual or Item Expectation Current estimate Total Project Cost (US$ Million) 91.3 81.4 Underrun (%) 11 Loan Amount (US$ Million) 30.0 Disbursed ) 29.9 Cancelled ) 0.1 Repaid to ) April 15, 1982 7.9 Outstanding to ) April 15, 1982 22.0 Date Physical Components Completed 12/75 06/81 Proportion of Time Overrun (%) - 66 mo. 125% Economic Rate of Return 14-33 13-23 * (incl. passenger time savings) (%) OTHER PROJECT DATA Item Original Plan Revisions Actual First Mention in Files - 12/17/64 Government's Application - 06/16/66 Negotiations - 04/29/71-05/06/71 Board Approval - 07/13/71 Loan Agreement - 07/14/71 Effectiveness Date - 08/16/71 Closing Date 06/30/76 06/30/77; 06/30/81 12/30/79 Borrower State of Israel Executing Agency Public Works Department & Ayalon Highways Co. Ltd. Fiscal Year of Borrower April 1 - March 31 Follow-on Project Name None * See Table 15 ** Truncated Project (see paras. 1.05, 4.01 and 4.11). The cost of the project envisaged at appraisal and negotiations would have been very much higher due to unusually high inflation. MISSION DATA Month/ No. of No. of Date of Item Year Weeks Persons Man-Weeks Report Preappraisal 11/69 1 3 - 3 12/24/69 Appraisal 12/70 2 3 6 06/28/71 Total 3 6 9 Supervision I 06/72 1 1 1 01/21/72 Supervision II 12/72 1 1 1 01/23/73 Supervision III 10/74 1 1 1 11/13/74 Supervision IV 02/75 1 1 1 03/21/75 Supervision V 06/75 1 3 3 07/14/75 Supervision VI 04/76 1 2 2 04/30/76 Supervision VII 11/76 1 1 1 12/20/76 Supervision VIII 11/77 1 1 1 12/16/77 Supervision IX 03/78 1 1 1 04/05/78 Supervision X 10/78 1 1 1 10/24/78 Supervision XI 10/79 1 1 1 11/12/79 Supervision XII 10/81 1 2 2 06/07/81 (PCR) Total 12 16 Country Exchange Rates** Name of Currency Pound (Israel) Shekel per US$ Year: 1971 3.5 - 1972 4.2 - 1973 4.2 - 1974 4.5 _ 1975 6.39 - 1976 7.98 - 1977 10.46 - 1978 17.47 - 1979 25.44 - 1980 51.24 5.12 1981 114.31 11.43 1982 174.53 17.45 * See Table 5 - iv - HIGHLIGHTS 1. The main highlight was the reduction of the project scope to counteract unexpected changes in Israel's economic situation, which brought about high inflation and compensatory continuous devaluation (see paras. 1.05, 4.01 and 4.11). 2. The main truncation of the project was the reduction of the scope of works on the Ayalon component in the CBD of Tel Aviv. The Government remains committed to the completion of the whole Ayalon project as envisaged at appraisal and negotiations, although the construction period will be extended to 1985/86, at which time a supplementary PCR is recommended (see para. 6.11). 3. Implementation was slower than expected due to budgetary constraints, delays in land acquisition and shortage of manpower and construction equip- ment during the 1973 hostilities and its aftermath (see para. 4.08). 4. Although the construction expenditures in Israeli pounds increased considerably, the US$ equivalent of the truncated project decreased, indicat- ing that the progressive devaluation of Israeli currency offset the effects of inflation (see paras. 4.13 and 7.04). 5. The quality of construction is of a high standard. The complex Ayalon component, involving highways, bridges, canals and railways within a very busy central business district, was commendably executed with the interference to existing traffic conditions minimized (see para. 4.18). I. Introduction 1.01 The first of three Bank loans for the transport sector involved US$27.5 million equivalent (265-IS) financial assistance beginning in 1960 for the construction of the port of Ashdod. 1.02 The second transport sector loan (Loan 323-IS--First Highway Project) of US$22 million equivalent was made in 1962 for the construction and improve- ment of 611 km of main and district roads and 460 km of feeder roads and also for the transport survey carried out by foreign consultants during 1964 and 1965 which became the starting point for national transportation planning in Israel, and which, in turn, generated the basis for the Second Highway Project, which is the subject of this report. 1.03 In 1969 the State of Israel requested the Bank to help finance the Israeli 1971-75 highway development program, which had been developed from the outputs of the 1964-65 consultants' transport survey undertaken in the First Highway Project. The Bank responded to this request by sending pre-appraisal and appraisal missions to Israel in 1969 and December 1970, the outcome of which resulted in the Second Highway Project being presented to the Board on July 14, 1971, signed on July 14, 1971 and becoming effective on August 16, 1971. 1.04 The 1971-75 highway development program was designed with two main objectives. The first was the widening and improvement of the main inter- urban network to support the development of new agricultural areas, the creation of new towns, the expansion of industry and its dispersal over the country and the increasing utilization of the port of Ashdod and Ben Gurion airport. The second was the improvement of the intra-urban road network in the large cities. The Second Highway Loan provided foreign exchange support for some of the key components (para. 3.02) of this program. 1.05 During the process of implementation very substantial cost overruns occurred due to major unexpected changes in Israel's economic situation, energy crises, 1973 war and its aftermath. The Israeli Government approached the Bank for a reduction in the project component. The reduction was mainly justified on the grounds of general savings measures applied by the Government to combat unusually high inflation. All public spending was reduced and restricted to what were considered highest priority projects. The Bank agreed with this policy from an overall economic point of view. Since the Second Highway Project consisted of several economically self-reliant subprojects, the project content could be reduced (paras.