FILE COPYDOCUMENT OF INTERNATIONAL BANK% FOR RECONSTRUCTION AND DEVELOPMENT

INTERNATIONAL DE3VELOPMENT ASSOCIATION

Not For Public Use

Reort No. 1O la-HO

HONDURAS

APPRAISAL OF A

SIXTH HIGHWAY PROJECT

May 4, 1973

Latin America and the CaribbeanProjects Department

This report was prepared for official use o:nly by the Bank Group. It may not be publshed, quotedor cited without Bank Group authorization. The Bank Group does not accept responsibility fortheaccuracy or completeness of the report.

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Currency Equivalents

Currency Unit = Lempira (L)US$l.00 = L2000Ll = US$.50L 1,000,000 = US.$500,000

Fiscal Year

January 1 - December 31

System of Weights and Measures: Metric

M4etric British/US Equivalent

1 meter (m) - 3.28 feet (ft)1 kilometer (km) - 0.62 mile (mi)1 square kilometer (km) - 0.386 square mile (sq mi)1 metric ton (m ton) - 2,204 pounds (lb)

Abbreviatiors and Acronyms

ADT - Average Daily TrafficBR - Brown and Root (Consultants)CABEI - Central American Bank for Economic IntegrationDGC - Direcci6n General de Caminos, General Directorate for

HighwaysDGM - Direccion General de Mantenimiento, General Directorate

for MaintenanceHHK - Howard Humphreys, Keeble and Partners (Consultants)TDB - Inter-American Development BankSCOPT - Secretarxa de Comunicaciones, Obras PTiblicas y

Transportes, Secretariat for Communications, PublicWorks and Transport

STP - Secretarfa Tecnica del Consejo Superior de PlanificacionEcon6mica, Technical Secretariat of the. High Council forEconomic Planning

USAID - United States Agency for International Development

HONDURAS

APPRAISAL OF A SIlXTH HIGHWAY PROJECT

TABLE OF CONTENTS

Page No.

SUMMARY AND CONCLUSIONS ............................. i

1. INTRODUCTION ........ ................................ 1

2. TAE TRANSPORT SECTOR ................................ 2

A. General ........................................ 2

B. The Transport Modes ..... ....................... 3

C. ''ransport Policy and Coordination .............. 4

3. TiE HIG11WAYS . ....................................... 5

A. 'The lligh-sway N4etwork ............................ 5

B. Characteristics and Growth of fload Traffic ..... 5

C. Hi-hway Planning and Financing .................. 6

D. Highway Administration ......................... 7EZ. Highway Engineerin.g ............................ 3

F. Jigaway Construction. 8

G. Nighway Maintenance. 9

4. THIE PROJECT .................... 9

A. General Description. 9

B. Cost Estimates, Financing and Disbursements 13

C. F,xecution ....................,.,.,.,.... 16

5. I]CONO'rIC EVALUATION . .... 17

A. General ........ ................................ 17P). Construction of the Tegucigalpa-Talanga Road.... 13

C. Improvement of Secondary and Feeder R'oads ...... 20

6. AGREEMENTS REACHED AND RECOMMENDATION ............. .. 20

'This Appraisal iReport has been prepared by ;lessrs. R. Paraucl (Engineer) aridB. Chatelin (Economist) and has been edited by 'liss V. Foster.

TABLE OF CONTENTS - Continued

TABLES

1. Public Investment (Transportation)2,. Development of the Highway Network 1960-19713. 'Vehicle Registration 1960-19714., 'Vehicle Fuel Consumption 1963-19725.. Higlhway Expenditures 1965-19 716. Road User Charges7. D)esign Standards for the Tegucigalpa-Talanga Road8. Civil Works other than the Tegucigalpa-Talanga Road9. Feeder Roads to the Tegucigalpa-Juticalpa Road to be Studied

10. Traffic Forecast (Tegucigalpa-Talanga Road)11. Velhicle Operating Costs (Tegucigalpa-Talanga Road)

AN1NEXES

1. External Financing by Agencies other than the Bank Group2. Details of IDB Loan 291/SF-HO for Highway Maintenance3. Schedule of Disbursements4. Probability Analysis

CHA:RTS

I. Organization Chart of the Secretariat for Communicationis, PublicWorks and Transport

II. Organization Chart of the General Directorate for HighwaysIII. Organization Chart of the General Directorate for Maintenance

MAP - 11.ndu':as - Main Hlighway Network, IBRD-10395

tiONDURAS

APPRAISAL OF A SIXTH HIGHWAY PROJECT

SUMMARY AND CONCLUSIONS

i. The major part of the economic activity of Honduras is centeredin the western half of the country and along the north coast where populationis dense. Transport facilities are concentrated mainly in these areas. Theprime traffic mode is road transport and the highway network, comprising about5,600 km, is basically well developed. The railway network, totaling about1,200 km, comprises 1,040 km of private lines along the Caribbean coast serv-ing private companies, primarily for shipping bananas. The national railwayline (about 160 km) is also located in the northern part of the country.Inland water transportation is negligible, and air transport, which played avital role in the development of the country, is still important; passengerair traffic is steadily increasing. Three ports on the Caribbean coast andone on the Pacific coast handle over 90% of the country's international trade;Puerto Cortes on the Caribbean coast is by far the most important seaport ofthe country.

ii. The recently published Six-Year Investment Program (1972-1977) ofthe Government, totaling about US$560 million equivalent, allocates aboutUS$145 million equivalent to the transport sector. This allocation was madeon the basis of the recommendations of a survey carried out by StanfordResearch Institute and completed in 1962; 1/ it is estimated that about 73%would be obtained from external financing. About 80% of the proposed invest-ment would be devoted to highway improvements or reconstructions, includingfeeder roads, which are needed to achieve full development of the areasserved by the main roads.

iii. The main element of the proposed project (construction of theTegucigalpa-Talanga road, 55 kmi) is a first stage of the Tegucigalpa-Juticalparoad (175 km) which serves forest areas where lumber exploitation is intensiveand agricultural development is; promising. The present Tegucigalpa-Talangaroad is not suitable for the present and future traffic needs and the Govern-ment has allocated the first priority for its construction. The secondsection of the road (Talanga-Juticalpa) crosses a more gentle topography andits reconstruction is envisage(d as a second stage. The feasibility study forthe Tegucigalpa-Juticalpa road was carried out by the UK consultants HowardHlumphreys, Keeble and Partners (HIIK) with financing provided under Loan 495-HO.Detailed engineering is being f-inanced by the Central Anerican Bank forEconomic Integration (CABEI) in cooperation with the UK Government.

iv. The proposed project provides also for the construction of asecondary road and improvement of about 80 km of feeder roads, as well as

1/ Ten-Year Highway Program for Honduras; Stanford Research Institute,1962.

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for economic and technical studies for about 375 km of feeder roads. Finan-cing of technical assistance for transport planning and for a training pro-gram is also proposed.

v. Execution of the project is expected to take about three years andwill be the responsibility of the Secretaria de Comunicaciones, Obras Publicasy Transportes (SCOPT) 1/ and the Secretaria Tecnica del Consejo Superior dePlanitficacion Economica (STP) 2/. Consultants contracted under terms andconditions acceptable to the Bank will carry out the studies, will assist inprequalifying bidders and evaluating bids, and will supervise construction.Construction contracts for the main road will be awarded on a unit price basisafter international competitive bidding following normal Bank Group procedures.The secondary and feeder road construction program will be advertised locallyonly.

vi. Major developmental benefits will accrue from the construction ofthe new Tegucigalpa-Talanga road by the facilitation of access to existingand potentially rich forest and agricultural areas. Expected benefitsresulting from the construction elements of the project would derive fromsavings in maintenance and vehicle operating costs. The economic returnfrom construction of the Tegucigalpa-Talanga road is 13%, and from thesecondary and feeder road construction program as a whole is 19%. Theeconomic return for the project as a whole is about 14%.

vii. Total project cost is estimated at US$25.8 million with an estimatedforeign exchange component of US$18.8 million (73%), to be financed by theproposed loan. It is possible that the foreign exchange component for consultingservices will be less than estimated, in which case the proposed loan wouldfinance some local costs. In addition to the normal contingencies for possibleincreases in quantities and prices, a special contingency of 15% of the con-struction cost of the Tegucigalpa-Talanga road has been included to cover therisk of high bid prices resulting from the uncertainty of the response of themarket to contracts of the size proposed for the above-mentioned road. Localcosts amounting to about US$7.0 million equivalent would be provided by theGovernment. The project includes an amount of US$50,000 for retroactive fi-nancing to cover services of consultants to be engaged prior to loan signaturefor assisting the Government in prequalification of contractors and bidevaluation.

viii. The project provides a suitable basis for a Bank loan of US.$18.8million: on country grounds, a term of 30 years, including a five-year periodof grace, is appropriate.

1/ Secretariat for Communications, Public Works and Transport.

2/ Technical Secretariat of the High Council for Economic Planning.

HONDURAS

APPRAISAL OF A SIXTH HIGHWAY PROJECT

1. INTRODUCTION

1.01 The Republic of Honduras has requested Bank assistance to help inthe financing of a highway project comprising (a) construction of a mainroad about 55 km long; (b) reconstruction of a secondary road about 45 Ianlong; (c) construction of a bridge about 200 m long; (d) improvement ofabout 80 km of feeder roads; (e) consulting services for supervision ofconstruction, for feasibility and engineering studies and for technicalassistance; and (f) a training program for highway staff. The total costof the proposed project is estimated at about US$25.8 million equivalent;the estimated foreign cost component of US$18.8 million equivalent is proposedfor financing by a Bank loan, and the balance of US$7.0 million equivalent inlocal costs would be provided by the Government.

1.02 This will be the sixth highway project for Ilonduras financed bythe Bank Group. In 1955, a loanL of US$4.2 million (135-HO) was made tofinance the establishment of a road maintenance organization. Three yearslater, a loan of US$5.5 million (195-HO) was made, primarily to reconstructthe main roads between San Pedro Sula and Puerto Cortes, and between Teguci-galpa and the Inter-American Highway. This project also included theconstruction of bridges on the Western Highway between Chamelecon and SantaRosa to make the highway passable during the rainy season. All work underthese projects has been successiFully completed.

1.03 The first IDA Credit of USS9 million (1-HO) was made in 1961 tofinance (a) improvements of sections of the Western Highway between Chamele-con and Santa Rosa to gravel standard and the construction of an extensionto the highway from Santa Rosa to the El Salvador border; (b) constructionof feeder road connections with the Western Highway; (c) strengthening of thehighway maintenance organization initiated under the first loan; and (d)a highway transportation survey to prepare a long-term road investment pro-gram. The survey was carried out by Stanford Research Institute and thereport 1/ was issued in 1962. The extension of the Western Highway wascompleted in 1964 and other construction works were completed in 1967.

1.04 In 1965, a credit of US$3.5 million (71-HO) and a loan of US$6million (400-HO) were made to finance reconstruction of the North road fromTegucigalpa to Potrerillos; works were completed in 1971. Finally, in 1967,a loan of US$8.6 million (495-HO) was made to finance (a) reconstruction ofthe remaining sections of the Western Highway and paving over its full length;and (b) feasibility studies for feeder roads and for the Tegucigalpa-Juticalparoad (the main road leading to the fertile Olancho region). Feasibility

1/ Ten-Year Highway Program for Honduras; Stanford Research Institute,1962.

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studLes were completed in 1970, and reconstruction and paving works werecompleted in 1972. The total amount of highway loans and credits providedby the Bank Group has thus totaled US$36.8 million equivalent.

1.05 The Bank has also made two port loans to Honduras: Loan 463-HO, in1966, financed the expansion of Puerto Cortes; and Loan 767-HO, in 1971,is fLnancing further improvement and expansion of Puerto Cortes as well asthe construction of a deepwater port at Henecan. Implementation of the latterproject is about 18 months behind schedule, mostly because of indecision onthe part of the previous Government regarding the best location for a deep-wate r port on the Pacific coast; the new Government has decided to carry outthe construction of the Henecan port project.

1.06 In addition to the above-mentioned financing by the Bank Group,Honduras has received external financing for highways from the Export-ImportBank and USAID (US$13.0 million), from the Inter-American Development Bank(IDB) (US$26.6 million) and from the Central American Bank for EconomicIntegration (CABEI) (US$35.1 million); details are presented in Annex 1.

1.07 The proposed project is a further step in the expansion and improve-ment of the highway and feeder road network; moreover, it will bring aboutaddiitional improvement in transport planning. The appraisal of the projectwas based on economic and technical studies prepared by consultants Brownand Root (BR), US, and Howard Humphreys, Keeble and Partners (HHK), UK; oninformation provided by the Government; and on the findings of an appraisalmiss:ion, comprising Messrs. R. Paraud (Engineer) and B. Chatelin (Economist),which visited Honduras in November/December 1972. The report has beenedited by Miss V. Foster.

2. THE TRANSPORT SECTOR

A. General

2.01 Honduras, with an area of 115,200 km , is the second largest of thefive Central American countries. Its population has been growing at anaverage of 3.4% per annum over the last 10 years, reaching 2.7 million in 1971.

2.02 The Gross National Product (GNP) has been increasing in real termsby 5.6% per annum over the last decade, but the per capita GNP (US$290equivalent in 1971) 1/ is still the lowest of the Central American countries;the growth rate of GNP for 1972 has been estimated to be about 3.5%. Honduraspresently faces some urgent economic problems because of a combination ofadverse factors, including hurricane damage to the banana plantations andthe consequences of the short war with El Salvador in mid-1969.

1/ Calculated using World Atlas methodology.

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B. The Transport Modes

2.03 Transport facilities are mainly concentrated in the western halfof the country and along the north coast where the population is dense. Thefour paved roads, San Lorenzo-Tegucigalpa-Puerto Cortes (the main north-southroad), San Pedro Sula-Ocotopeque (to the El Salvador border), San Pedro Sula-La Ceiba (along the north coast) and the Inter-American Highway (in theextreme south), constitute the main highway network. Railways run alongthe Atlantic coast between Puerto Cortes and Sonaguera. In general, therugged nature of the topography makes construction and maintenance of theland transport system difficult and expensive.

2.04 In 1971, more than 86% of all freight traffic (in tons) was carriedby road, 11% by rail and less than 3% by air. Highways clearly constitutethe most important transport mode, but the railways are the most specialized.The relative importance of roads is even greater when passenger traffic isconsidered (road, 96.6%; railway, 0.6%; and air, 2.8%).

Highways

2.05 The highway system is described in detail in Chapter 3.

Railways

2.06 Honduras has three railway lines totaling about 1,200 km, all locatedon the north coast near the ports and serving a very small area. Two of thelines (about 1,040 km) are owned by private companies and are used primarilyfor shipping bananas. The third (San Pedro Sula-Puerto Cortes, 160 km),owned and operated by the Government since 1958, carries about 500,000 tonsof freight and about 100,000 passengers annually. It is one of the fewrailways in the world that operates at a profit.

Air Transport

2.07 Until recently, air services played a vital role in the developmentof the country, providing transport for many remote areas. Three privatecompanies, owning 24 aircraft and providing national and international serv-ices, carried about 340,000 passengers and 15,000 tons of freight in 1971.As a result of the recent improvement of the highway system, however, domesticair service has been withdrawn in many areas (e.g., along the Western Highway);nevertheless, air traffic, especially for passengers, has been steadilyincreasing. The bulk of the traffic moves within the triangular area betweenTegucigalpa (the capital city), San Pedro Sula (the country's main industrialcenter) and La Ceiba.

Ports

2.08 Over 90% of the country's international trade is handled by theports, and the Government attaches high priority to their development. Puerto

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Cortes, on the north coast, is the principal port with a total traffic ex-ceeding 2 million tons per annum. It handles about half of the total bananaexports, while the two other specialized ports east of Cortes, Tela and LaCeiba (also on the north coast), handle the remainder. Amapala, on the is-land of El Tigre, and El Muerto are the only accessible anchorages on thePacific coast for ocean-going ships; they are lighterage ports and cargoesare hnauled by barges to and from San Lorenzo on the mainland. About 120,000tons of lumber, representing two-thirds of the total traffic through theport, are exported annually through Amapala-San Lorenzo-El Muerto.

C. Transport Policy and Coordination

2.09 The policy of the new Government (which came into power in December1972) is to attach top priority to agricultural development; it intends tofocus the highway program on feeder road construction to support that policy.The Government, nevertheless, proposes to proceed with reconstruction of theTegucigalpa-Juticalpa road (part of which is included in the project) sincethat iLs one of the few major road sections yet to be reconstructed, andsince it would have a significant impact on forestry development and landcolonization in the area east of Juticalpa.

2.10 Modal competition is not a serious problem in Honduras because therailway serves only a very small part of the country and neither coastal ship-ping nor inland water transportation is of any significance. As in other de-veloping countries with rugged terrain, air transport opened up some difficult-to-reach areas but these are now being economically served by roads and theair services have been withdrawn (para. 2.07). Internal air services stillserve cities and toxns which are also served by road (e.g., Tegucigalpa andSan Pedro Sula), but each mode caters to a different segment of the marketand there is no uneconomic competition.

2.11 Even where competition exists between modes, there is no regulationof traffi'c; users are free to select the mode of transport best suited fortheir needs. The importation of trucks and entry into the road transportindustry are unrestricted.

2.12 The transportation investment program is planned by the SecretariaTecnica del Consejo Superior de Planificacion Economica (STP) 1/ after dis-cussions with the Planning Unit 2/ of the Secretaria de Comunicaciones, ObrasPublicas y Transportes (SCOPT) 3/ and the Port Authority. A Six-Year Trans-port Investment Program (1972-1977) was prepared in 1972 and is now under

1/ Technical Secretariat of the High Council for Economic Planning.

2/ Created by the Government following agreements reached in connectionwith Loans 400-HO and 495-HO.

3/ Secretariat for Communications, Public Works and Transport.

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review by the new Government; it follows the recommendations of the StanfordResearch Institute study (para. 1.03). With a total of about L 290 million(US$145 million equivalent, Table 1), this Program will represent around26.5% of the total public investment. About 72.5% of the Program would needexternal financing. A major portion of the proposed investment will be de-voted to road improvement (about 80%).

2.13 This Six-Year Transport Investment Program is not supported by aneconomic evaluation, but it contains much information which could be usefulfor additional transport studies. Staff in both the Transport Department ofthe STP and the Planning Unit of the SCOPT lack planning experience and havelittle basic material with which to work. To remedy these shortcomings, theproposed project includes the financing of technical assistance to strengthentransport planning through the services of a traffic engineer and a transporteconomist for about one year; these specialists will assist the Government inthe establishment of an adequate transport data collection system and willtrain local counterparts.

3. THE HIGIWAYS

A. The Highway Network

3.01 Significant road development in Honduras started only in the mid-1950's; by 1960, there were about 3,230 km of roads, out of which only 110 kmwere paved. Major efforts were made during the last decade to extend and im-prove the highway network; however, while there are road connections betweenthe major population centers, some parts of the country, mainly in the eastand northeast, have no roads. The present road network comprises about 5,590km, about 1,170 of which are paved (Table 2).

B. Characteristics and Growth of Road Traffic

3.02 Road transport has expanded rapidly in the last 10 years, and thevehicle fleet has been increasing. by about 11% per annum, reaching some31,000 vehicles in 1971 (Table 3). The fleet is mainly concentrated aroundthe two main cities (Tegucigalpa - 48%, and San Pedro Sula - 12%). Vehicledensity, 11 vehicles per 1,000 inhabitants, is the lowest in Central America.Overall the fleet can absorb the transport demands, although locally theremay be surpluses and shortages of truck capacity, since many truckers arereluctant to work on itineraries which do not allow them to run to the maincities of Tegucigalpa and San Pedro Sula.

3.03 Road transport is largely in the hands of individual owner-driversand competition among them is keen. To reduce this competition, the Director-ate General for Transport, recently created within the SCOPT, has drafted alaw to regulate truckers. The main objectives of this law will be:

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(a) to regulate the highway transport industry; and

(b) to adjust the number of licenses to the prevailing needs, as-signing specific routes to each truck, in order to transfersome trucks from roads where the supply exceeds the demand toother roads where the demand is presently in excess.

This law was under discussion in Congress when the new Government took overin December 1972 and it is expected that it will be considered in the nearfuture. The proposed law includes desirable safety regulations, but itsintention to regulate traffic through road licenses is controversial. Duringnegotiations, it was emphasized to the Government that such a law might hamperthe development of a competitive transport system. The Government intends torequest the Bank's technical assistance with regard to this problem; such as-sistance would comprise, inter alia, the organization of a seminar in Tegucigalpaon the subject.

3.04 On the Inter-American Hlighway, average daily traffic (ADT) is cur-rently atbout 350, and on the other three major paved roads (para. 2.03), ADTis in the range of 1,000-3,000. On the Tegucigalpa-Juticalpa road, ADT is ofthe order of 500; elsewhere on the country's road network, ADTs are rarelyabove 15CI. Traffic counts in the past were infrequent and the results areof doubtful value (para. 3.05); hence, a rational determination of trafficgrowth on this basis is difficult. A more dependable basis can be establishedfrom the records for fuel consumption (Table 4), which show that consumptionof both gasoline and diesel oil over the period 1963-1972 has been increasingat about 5% per annum. The rate of growth of traffic can therefore be esti-mated at about 5% per annum.

C. Highway Planning and Financing

3.05 The highway investment program is prepared by STP, after discussionwith the planning unit of SCOPT, for approval by the Government; SCOPT is re-sponsible for its execution. '.lajor planning obstacles are still the absenceof a transport data collection system and a suitable basis for evaluatingthese data. I)espite the efforts made under previous Bank-financed highwayprojects, traffic data are not collected regularly by SCOPT: however, consul-tants have recently been carrying out traffic counts for feasibility studiesand other purposes. The location of the counting stations and the period whenthe counts are taken vary considerably from year to year so that the compari-son of traffic data over several years would not lead to meaningful conclu-sions. A road inventory carried out by the consultants BR in 1970 should beupdated. The technical assistance to be provided under the proposed projectfor transport planning (para. 2.13) would review the highway element of theSix-Year Transport Investment Program (para. 2.12) which envisages paving ofabout 460 km of roads and improvement of a further 1,500 km for a total amountof about US$115 million, without any obvious economic justification. The tech-nical assistance will also take part in data collection and evaluation, and inupdating the road inventory.

3.06 Highway expenditures are financed from budgetary sources; detailsof such expenditures over the period 1965-1971 are given in Table 5. About75% of highway investment has been financed from external sources and theBank has participated in about 30% of this external financing.

3.07 Highway revenues from road users currently total about L 15 million(US$7.5 million, Table 6). This iLs less than present total expenditure onhighways, but appreciably exceeds expenditure on administration and mainte-nance alone. Even allowing for a desirable increase in maintenance alloca-tions (para. 3.16) and for the fact that some of the revenue from road usersis utilized for urban purposes, the remainder would still cover the total ofhighway maintenance and administration expenditure for the rural network.

3.08 Revenues from road-user charges are not earmarked for roads, however,and the Governnient has some difficulty in finding funds for adequate road main-tenance (para. 3.17). Although tlhe level of road-user charges is consideredacceptable from the point of view of promoting efficient use of transportfacilities, further consideration needs to be given to increasing these charges,taking into account the country's fiscal problems.

D. Highway Administration

3.09 The Direccion General de Caminos (DGC) 1/ within the SCOPT (Chart I)is responsible for planning and constructing all roads in the country. DGC'sorganization (Chart II) comprises departments for planning, administration,engineering, materials and research, and construction. Until the recentchange in Government (December 1972), the responsibility for maintaining theroad network was entrusted to a seaparate department within SCOPT, reportingto the Under-Secretary of Public Works and to DGC as well. To define respon-sibilities more clearly than previously, the new Government created, withinthe same Secretariat, the Direccion General de Mantenimiento (DGM) 2/ (ChartIII). This clear division of responsibility is intended to increase effi-ciency in maintenance operations.

3.10 Under Loan 400-HO (Febrlary 1965), the Government agreed to carryout a number of important reforms in highway administration, such as improve-ment of road maintenance practices and cost accounting procedures, strengthen-ing of the planning unit, enforceiment of traffic regulations, and institutionof a civil service system of professional staff to ensure stability andcontinuity in highwav operations. Some progress has been made on most ofthese reforms, although the low salary scales and the established procedureof removing most of the high officials from office with every Governmentchange hamper the creation of a strong civil service.

1/ General Directorate for Highways.

2/ General Directorate for Maintenance.

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3.11 In June 1958, Honduras signed the Central American Agreement onHighway Traffic, which was intended to regulate traffic in all five CentralAmerican countries. The load limits and dimensions prescribed in this agree-ment were set according to the normal practice (legal axle limit, eight tons);discussions are currently being held among the Central American countries toupdate the agreement. Early in 1969, the Government issued a new law of LandCommurLications which, unfortunately, did not indicate limits for vehicleweights and dimensions; it stated only that a special transit permit wouldbe required when vehicle weights and dimensions exceeded highway specifica-tions, and established fines for infractions.

3.12 According to surveys carried out by the consultants BR and HHK,about 70% of the trucks are presently overloaded. The Government is awareof the problem and has obtained a loan from CABEI (No. FCIE-30) amountingto US$475i,000 which provides, inter alia, for the financin2 of a networkof weipht: control stations. The newly created Directorate General of Trans-port intends to enforce regulations starting in early 1974. The IDB mainte-nance loan (Annex 2) will also assist in establishing a network of weightcontrol stations. Assurances were obtained during negotiations that theregulations on vehicle axle limits will be enforced.

E. Highway Engineering

3.13 DGC undertakes design work on a limited scale for minor improve-ment works or for some feeder roads. Nevertheless, it is desirable to im-prove the technical expertise of its staff, and the proposed project providesfor training of highway engineers and technicians (para 4.09).

3.14 DGC has a set of geometric design standards for road constructionwhich takes terrain and traffic into account. The standards follow generallyaccepted engineering practices and can be applied to suit specific conditions.They have been coordinated with the standards agreed upon for the five CentralAmerican countries. INhen major construction is to be carried out, as in thecase of the present project, the consultants are asked to develop specificdesign standards.

F. Highway Construction

3.15 Construction of major modern highways started in 1957 with theInter-American Highway, financed by the Export-Import Bank, and continuedthereafter with external financial assistance. Construction is generallycarried out under unit price contracts awarded on the basis of competitivebidding. There are about six local firms capable of executing small ormedium scale construction works and, for recent bids, most of these firmshave been associated with foreign contractors. As a result, there are aboutfour foreign/local joint ventures with permanent offices in Honduras, whichnormaLly submit bids for major construction works. Recent uneven budgetaryallocations and the uneven flow of foreign financing for highway construc-tion have led to uncertainties and idle periods for the contracting firms,jeopardizing the possibilities of creating a stronger contracting industry.

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There are about 20 small firms specializing in drainage structures and minorearthworks which are periodically engaged by DGC. DGC also undertakes smallscale betterment works by force account. Government-financed highway work isnormally supervised by DGC staff whereas foreign-financed construction worksare supervised by consultants.

G. Highway Maintenance

3.16 Routine maintenance is carried out by force account through sevenmaintenance districts. The control of maintenance operations has been re-cently taken over by the DGM (para. 3.09). Each district has its own tech-nical and administrative staff, equipment, workshops and service facilities.The technical expertise and equipment of the highway maintenance organiza-tion have been materially strengthened with financial assistance from theBank/IDA (Loan 135-HO and Credit 1-HO) but, despite Government undertakingsin connection with previous Bank Group lending, maintenance has recentlydeteriorated because of a shortage of budgetary allocations for routineoperations and for replacement of wornout equipment. Budgetary allocationsfor maintenance have been rather erratic (Table 5) and, according to SCOPT'sestimates, future allocations should be substantially increased in order tocover deferred and routine maintenance.

3.17 In 1971, IDB made a loan to Honduras amounting to US$6.3 million,which included about US$2.6 million for the financing of (a) consulting serv-ices to study means for improvement in the maintenance operations at SCOPTand (b) the purchase of maintenance, workshop and weight control equipment(details are given in Annex 2). Consultants for (a) have been selected andit is expected that, if SCOPT allocates the necessary counterpart funds, thisIDB project will effect a substantial improvement of highway maintenance inHonduras. The consultants' study may take about three years, and then a fur-ther period would be required for implementation; during negotiations, there-fore, the Bank stressed to the Government the need for increases of the main-tenance budgetary allocations in the period pending implementation of theIDB study. The amounts to be allocated in 1974 and 1975 (L 5.5 and 6.0 mil-lion respectively), which were determined during negotiations, would cover onlypart of the needs for routine and deferred maintenance, but the Government hasindicated that it considers the agreed amounts as a minimum and intends toallocate additional funds for maintenance.

4. IHE PROJECT

A. General Description

4.01 The project consists of:

(i) construction of a new paved primary road between Tegucigalpa andTalanga (about 55 km);

(ii) reconstruction of a secondary road between Comayagua and LaLibertad (about 45 km);

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(iii) construction of a 200 m long bridge over the Ulua River;

(iv) improvement of about 80 km of feeder roads;

(v) consulting services for:

(a) supervision of (i) through (iv);

(b) engineering studies for items (ii), (iii) and 45 km of (iv);

(c) feasibility studies and, if practicable, detailed engineeringof about 330 km of feeder roads; and

(d) technical assistance for transport planning.

('i) a training program abroad for highway engineers, supervisorsand technicians.

The project is expected to take about three years.

Construction of the Tegucigalpa-Talanga Road

4.02 The existing Tegucigalpa-Talanga road (55 km), which is the firstsection of the main route between Tegucigalpa and Juticalpa (175 km), servingthe rich Olancho region, is located in difficult terrain on the south side ofthe Choluteca valley. It is poorly aligned, narrow and unpaved, and drivingis hazardous. The road is not suitable even for present traffic, and Govern-ment has allocated high priority within its highway investment program forreconstruction of this Tegucigalpa-Talanga section. The feasibility of re-constructing this section was considered in the whole Tegucigalpa-Juticalparoad feasibility study which was financed under Loan 495-HO. The study in-dicated inter alia that a new road between Tegucigalpa and Talanga on thenorth side of the Choluteca vallev was technically and economically feasible,and the detailed engineering for its construction, proposed for inclusion inthis project. was recently carried out by the consultants HHK, financed byCABEI and the UK Government. The new road (also about 55 km in length) isin equally difficult terrain (all the country east of Tegucigalpa is moun-tainous) but has the advantage of opening up the other side of the valley.The standards to which the new road has been designed are acceptable andare indicated in Table 7. The nature of the terrain -- much of the roadwill be in rock excavation - is such that labor-intensive techniques wouldnot be appronriate; therefore, for this road, in spite of an unemploymentrate of about 7%, the Government does not favor substitution of labor forequipment, because of a substantially longer construction period, higherfinancial costs and lower quality of work. The design has, therefore, beenbased on normal equipment usage.

4.03 The new Tegucigalpa-Talanga road starts from a suburban avenue,located on the outskirts of the city of Tegucigalpa, which has been paved toa point about 800 m distant from the starting point of the new road; the last

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stretch of this avenue is dangerous and should be improved and paved. Agree-ment was reached during negotiations that the Government will construct and

pave this 800 m section before completion of the new Tegucigalpa-Talanga road

and will connect it with the interchange to be provided under the proposed

project.

Reconstruction of the Comayagua-La Libertad Road (about 45 kIn) andConstruction of a 200 m :Long Bridge over the Ulua River

4.04 The Comayagua-La Libertad road serves a potentially rich area, ad-

jacent to the North road, but development is hampered because of high trans-

port costs resulting from the inadequacy of the alignment and the width ofthe road, as well as the lack of a drainage system adequate to ensure traffic

all year round (paras. 5.12 and 5.13). The upgraded gravel road will even-

tually become part of the secondary highway system. The bridge proposed for

construction is located on the La Ceibita-San Nicolas feeder road, which it-

self is to be reconstructed under the proposed project (Table 8). Its con-

struction will ensure year-round traffic between two important regions of

the country (para. 5.14).

4.05 The improvement of the road and the construction of the bridge wereproven technically and economicaLly feasible by the consultants BR, and the

proposed project includes both the detailed engineering and the construction.It is estimated that detailed engineering would be prepared in a six-monthperiod and construction could start immediately thereafter. The possibilityof including only the detailed engineering in the proposed project and post-poning the financing of construction until a possible further highway loanis made to Honduras (say, in about two years' time) was considered and found

to be inadequate, since only a few months would be required for detailed en-

gineering preparation and it would be unreasonable to postpone constructionfor a long period, thus delaying unnecessarily the development of potentiallyrich areas of the country. However, the feasibility of constructing the roadand the bridge will be reviewed in the light of final cost estimates, and the

corresponding loan amounts will be cancelled if the feasibility is not con-

firmed. During negotiations, assurances were obtained that the reconstructionof the secondary road and the construction of the bridge will be carried outonly after their economic feasibility has been confirmed.

Improvement of about 80 km of Feeder Roads

4.06 The few origin/destination surveys already performed in the countryshow that the traffic on the main roads is mwstly between the large cities,with very little local traffic feeding in. The Government is aware of theproblem and has asked that the proposed project include provision for improve-ment of about 80 km of feeder roads scattered in various regions of the coun-

try (Table 8). The feasibility of improving these roads has already beendemonstrated by the consultants BR. The project, therefore, includes thisimprovement work and provides for the engineering of 45 km (the remaining35 km are being engineered with SCOPT financing). Since the roads would beconstructed to relatively low standards, the normal level of detailed engineer-ing would be too expensive and inappropriate; following a Government request,

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the project provides for a "light" engineering preparation, which would pro-vide a. reasonable estimate of average cost per km and a suitable basis forpreparation of contract documents.

Consulting Services

4.07 The proposed project provides for the financing of feasibility andengineering studies for 14 feeder roads totaling about 330 km (Table 9). Allof these roads are along the Tegucigalpa-Juticalpa route and, when constructed,would contribute to the development of the region served by the main route.According to the importance of the areas to be served, and considering thatsome of the proposed roads may become a part of the secondary highway system,the engineering of the feeder roads will be carried out as follows:

(a) for nine roads totaling about 140 km, engineering would be"light", as explained in paragraph 4.06 preceding; and

(b) for five roads totaling about 190 km, normal detailed engineeringwould be prepared.

During negotiations, assurances were obtained that engineering for the feederroads will not be undertaken until their economic feasibility has beendemonstrated.

4.08 The proposed project also provides consulting services for supervi-sion of all construction and reconstruction works. The preparation of detailedengineering for the secondary road and for the bridge (paras. 4.04 and 4.05)is included. Since feasiblity studies have already been completed for the80 km of feeder roads to be improved (para. 4.06) and engineering for 35 kmis being financed by the SCOPT, the proposed project will provide only for theengineering of the remaining 45 km. Feasibility studies and, if practicable,engineering studies for about 330 km of feeder roads (the construction ofwhich could be financed by the Bank at a later date) are included. At Gov-ernment Ts request, the proposed project will include technical assistancefor transport planning because of the lack of a proper data collection sys-tem and the inexperience of the personnel (para. 2.13). This technical as-sistance is expected to consist of the services of two experts for about oneyear to aid the Government in improving its work. During negotiations, assur-ances were obtained from the Government that the terms of reference for theexperts and the schedule for implementation of the technical assistance willbe satisfactorv to the Bank.

Training of Highway Personnel

4.09 To improve the efficiency of the highway personnel (para. 3.13), itis proposed that a training program be established for highway supervisors andtechnicians (equipment operators, mechanics, and road foremen) and engineers.Such a program, for which US$150,000 is provided in the proposed project, wouldcover areas such as design, construction and maintenance of highways, soilsand materials testing, operations and maintenance of equipment. Accordingly,

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the SCOPT will prepare and send to the Bank, for its review and approval, atraining program, including: (a) program objectives; (b) number and typesof personnel to be trained; (c) training timetable and estimated man-monthsfor training experts required; and (d) estimated cost of training, showinga breakdown of costs for training locally and abroad (if any). Although theprogram envisages training for both technicians and engineers, the formerwill receive first priority. It is expected that training of all technicianswill be carried out in Honduras by a firm which is expert in the training ofhighway maintenance personnel. However, consideration will be given to thetraining of some technicians (eqluipment operators and mechanics) to be con-ducted in the Latin American region, e.g., the School of the Americas inPanama. The training of engineers by training experts may also take placein Honduras, or, alternatively, in other Latin American countries where ad-vanced techniques are applied. In the latter case, the engineers would beselected by SCOPT in agreement with the Bank and would be sent out in groupsof about five, so that the limited technical forces of the DGC and DGM wouldnot be seriously affected. The duration of training for each group is esti-mated at about four to six months, although the exact program duration foreach trainee will be assessed after the selection of candidates.

B. Cost Estimates, Financing and Disbursements

4.10 The total cost of the project is estimated at US$25.8 million, in-cluding contingency allowances; the proposed loan will finance the estimatedforeign exchange component of US$18.8 million equivalent. A summary ofproject costs is given on page 14 following.

4.11 The construction cost for the Tegucigalpa-Talanga road has been es-timated by the consultants HHK on the basis of completed detailed engineering.Construction costs for the Comayagua-La Libertad road, the bridge and the80 km of feeder roads have been prepared by the consultants BR on the basisof average costs per km of similar works, and are acceptable. Costs for con-sulting services have been estimated on the basis of costs for similar serv-ices being carried out in Honduras. The costs for technical assistance itemshave been estimated on the basis of man-months required for assistance to STPand SCOPT.

4.12 A contingency allowance of 10% of the construction costs has beenincluded to allow for increases :in quantities. A further contingency of 11%has been included for price esca]Lation of construction costs on the basis ofa 4% average annual increase for local expenses and 6% for foreign expenses,from the time of bidding until completion of construction. The same percent-age has been included for consulting services to cover possible cost increasesof these services during the project execution period. The above-mentionedcontingency allowances are considered adequate.

4.13 Although detailed engineering for the Tegucigalpa-Talanga roadhas been satisfactorily completed and the unit prices used for the calcula-tion of cost estimates appear reasonable, it is difficult to judge the re-sponse of the market to bidding, and hence to estimate the general level ofbidding for this road, since no .Large contracts have recently been awardedfor major highway work. Two courses of action have been considered:

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L Million US$ Million Equivalent % ForeignLocal Foreign Total Local Foreign Total Exchange

A. CiviL Works

(i) Construction of theTegucigalpa-TalangaRoad (55 km) 6.80 20,60 27.40 3.40 10.30 13.70 75

(ii) Riconstruction of theComaya ua-La LibertadRoad (45 km) 0.80 2060 3.40 o.40 1,30 1.70 75

(iii) Construction of a 200m bridge over theTLua River 0.40 1,20 1.60 0.20 0,60 0,80 75

(iv) Improvement of about80 km of Feeder Roads 100 100 2.00 0.50 0.50 1.00 50

Sub-Total 9.00 25.40 34.40 4.50 12.70 17,20 74

B. Consilting Services for

(i) Supervision of con-struction of worksunder A 1.28 1.92 3.20 o.64 o.96 1.60 60

(ii) Engineering studiesfor items A (ii),(iii) and 45 km of(iv) above 0.16 0.24 0.40 o.08 0.12 0.20 60

iii) Feasibility studiesarid, if feasible,de-tailed engineeringof about 330 km offeeder roads 0940 0,80 1.20 0,20 0.40 0,60 60

(iv) Tebchnical assistancefor transport - 0.20 0.20 - 0.10 010 100pLanning -

Sub-Total 1.84 3.16 5.00 0.92 1.58 2,50

C Trainiirg Programfor Xi gineers,_Supervisorsand Technricians - 0,30 0,30 _ 0115 0.15 100

D. Contingencies

(i) Physical (about 10 ofA'l 0,90 2.54 3.44 0.45 1.27 1,72

(ii) Price escalation (about11% of A and B) 1.20 3014 4,34 0.60 1,57 2.17

(iii) Special 1/ (about 15% .of A (i) 1.06 3.06 4.12 0.53 1.53 2.06

Sub-Total 3.16 8.74 11,90 1.58 4e37 5.95 74GRAND TOTAL 14.00 37.60 51.60 7.00 18*80 25.80 73

2/ See para, 4.13.

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(a) to await bids (early July 1973) before processing the project;

(b) to proceed with the project on the normal schedule (which wouldimply presentation of the project to the Board prior to receiptof bids), but to provide a specific contingency against unex-pectedly high bidding in order to avoid the possibility of anintolerable strain on the Government's financial resourcesduring the construction period.

The Government prefers the latter course, since it wishes to press ahead withconstruction of this road, which has important developmental Implications,and wishes to have finance assured. It was considered that the risk of thebids being very high was not so great as to warrant the course of action men-tioned in (a) above being adopted; hence, the course of action in (b) abovewas adopted by adding a special contingency of 15% to the estimated cost ofthe road. This bidding contingency will be cancelled if the lowest evaluatedbid is below the cost estimate (excluding quantity and price contingencies)and will be cancelled pro rata if the bid is in excess of that figure. Thisprocedure was discussed and agreed during negotiations.

4.14 The foreign exchange component for the construction of the Teguci-galpa-Talanga road has been estimated at 75%, based on the assumption thatconstruction would be carried out by foreign firms in joint venture withlocal firms or in subcontracting part of the works to local firms. Thehigh foreign exchange is an indication of the general lack of constructionresources within the country and the high proportion of equipment cost inthe works (particularly the heavy earthworks and rock excavation). For worksunder Loan 495-IO (1967), the foreign exchange component was estimated at70%; the proposed increase to 75% for the present project reflects the heavyinput of equipment required to excavate significant amounts of rock. For thefeeder road construction, the foreign exchange component has been estimatedat 50%, assuming that construction will be more labor-intensive and will becarried out by local firms. The foreign exchange component for consultingservices (supervision of construction, feasibility and engineering studies)has been estimated on the basis of past experience in Honduras when theseservices were provided by foreign firms, with some participation of localfirms. It is possible that, as a result of the recent development of thelocal consulting industrv, the foreign exchange component of these jointventures will be lower than the lestimated 60%. During negotiations, how-ever, the Government requested, and the Bank agreed, that the Bank wouldmaintain its 60% participation, even if this implied some local cost fi-nancing (estimated to be up to US$0.4 million). This arrangement would encour-age Honduras' infant consulting industry.

4.15 The Government has invited for prequalification of contractors andintends to issue the invitations to bid before loan signature. Since consul-tant services are required for assisting the Government in carrving out thesetasks as well as in analyzing the bids, retroactive financing will be requiredin an amount of about US$50,000.

4.16 The proposed loan will finance all foreign exchange costs of theproject and possibly a small amount of local currency for consulting ser-vices (para. 4.14). Local costs will be met by Government from budgetary

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allocations. The financial situation of the country has been strained re-cently, and payments to contractors have been delayed. However, the amountsof road user charges collected during the recent years are increasing (Table6). The local counterpart funds needed for the proposed project roads arehigh compared to past yearly expenditures for the transport sector (aboutL 14.0 million for three years). However, the Government considers thisproject of the highest priority and will allocate the needed resources tocarry it out. During negotiations, assurances were obtained from the Gov-ernment that adequate funds will be provided to meet local costs.

4.17 Disbursements will be made on the following basis: (a) 74% of ex-penditures for civil works contracts (which represents the estimated foreignexchange component); (b) 60% of total expenditures for consulting services;and (c) 100% of foreign expenditures for the technical assistance for trans-port planning and for the training program. Based on this and on the proposedproject execution schedule, an estimated schedule of disbursements has beenprepared (Annex 3). Surplus funds remaining in the loan account on comple-tion of the project would be cancelled.

C. Execution

4.18 Execution of the project will be the responsiblity of SCOPT throughDGC and DGM (for all construction, studies and training). Technical assis-tance for planning will be under the responsibility of STP and SCOPT.

4.19 Consulting services under the project will be provided by consul-tants on terms satisfactory to the Bank. The Government intends to retainthe consultants HHK for assistance in prequalification of contractors andevaluation of bids as well as for supervision of construction of theTegucigalpa-Talanga road; this will be acceptable. For the supervision ofthe secondary and feeder road works and the bridge construction, as well asfor the engineering studies for the remaining 45 km of feeder roads (para.4.06) and the feasibility and engineering studies for the additional 330 kmof feeder roads (para. 4.07), the Government intends to retain the servicesof at least two consulting firms, BR and another firm established in Honduras.The terms of reference for consulting services were agreed during negotiations,and SCOPT will submit proposals to the Bank detailing the services to be pro-vided by each firm.

4.20 For the Tegucigalpa-Talanga Road, there will be international com-petitive bidding. SCOPT proposes to divide the work into two unit-price con-tracts (about US$7.0 million and 27 km each) which would be attractive bothto joint ventures of local and foreign firms (para. 3.15) already establishedin the country and to foreign firms not yet established. The rough topographyand the difficult access from the existing road to the center line of the newroad make it impracticable to open many workfronts and, hence, to subdividethe work further. Prequalified bidders will submit bids for each of the twosections separately or as a package for both sections. The bidding and con-tracting procedures for this were discussed and agreed during negotiations.

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4.21 Bidding for reconstruction of the bridge and for improvement of thesecondary and feeder roads (both of which will also be on a competitive unitprice basis) will be advertised 'Locally only; this will not, of course, ex-clude participation by foreign firms. Bids for fieeder roads would also be"packaged" as far as practicable. The procurement procedures for carryingout the above-mentioned construction works were also agreed during negotia-tions.

4.22 No delays are foreseen in acquisition of right-of-way. Civil worksare expected to start by the fourth quarter of 1973 and to be completed bythe fourth quarter of 1976. Reporting requirements and the schedule forproject execution were discussed during negotiations.

5. ECONOMIC EVALUATION

A. General

5.01 Except for a few sections, the main highway network, if properlymaintained, would be able to absorb the present transport demand. Neverthe-less, SCOPT is faced with three major problems:

(a) Some gravel roads with very heavy traffic and in very poorcondition must be improved and eventually paved;

(b) the main highway network must be completed with an adequatefeeder road system to facilitate agricultural development;

(c) large parts of the country (mainly the northeast) are stillvirgin, and road construction should be included in the generaldevelopment program for these regions.

5.02 With more than 460 vehlicles per day, the Tegucigalpa-Juticalparoad has the highest priority among the gravel roads to be improved. Th.isroad crosses the richest wooded area in Honduras and links the capital,Tegucigalpa, to the very fertile Olancho region located near Juticalpa.Together with the Juticalpa-Puerto Castilla road (a feasibility study ofwhich is now under way), it will provide an additional link between thecapital and the north coast and will open up part of the virgin northeast.The construction of the first section of this Tegucigalpa-Talanga road con-stitutes the main element of the proposed project. The financing of thesecond section, up to Juticalpa, may be considered for a future Bank high-way loan.

5.03 SCOPT, aware of the problem created by the insufficiency of thefeeder road system, has carried out a study with the consultants BR, consid-ering about 2,000 km of secondary and feeder roads all over the country. Theproposed project will provide financing for improvement of about 45 km of sec-ondary roads and about 80 km of feeder roads and construction of a 200 mbridge. This program has been selected from the 2,000 km of roads recentlystudied on the basis of their traffic.

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5.04 Construction of the Tegucigalpa-Talanga road and construction andimprovement of the 125 km of secondary road and feeder roads and the bridgerepresent about 95% of the proposed project cost.

B. Construction of the Tegucigalpa-Talanga Road

5.05 With more than 600 curves in its 55 km, the Tegucigalpa-Talangaroad is very difficult. In 1971, the 26 sawmills in the area served by theroad produced about 35% of Hondurastlumber production, and the road, whichis not paved, is no longer adequate for neavy traffic. A traffic countcarried out by consultants HHK in 1971 on the Tegucigalpa-Talanga road showedan ADT of about 600 vehicles. Tlhis figure seems over-estimated; the trafficcount carried out by the SCOPT during appraisal showed an ADT of about 460vehicles, 54% being heavy vehicles. This last traffic count has been usedin the economic evaluation. No previous traffic counts are available forthis section. Since 85% of the heavy traffic is carrying lumber, it isestimated that the total traffic has been increasing at the same annualrate of growth as that of lumber production (about 5%).

5.06 The proposed construction of the Tegucigalpa-Talanga road will bea paved road, with a fully engineered alignment, but on the other side of theCholuteca valley from the existing road (para. 4.02). By reducing the vehicleoperating costs substantially, this new road will generate traffic which isestimated at 20% of the total traffic (assuming a low elasticity of about0.35 between generated traffic and reduction of vehicle operating costs).Since the new road will not follow the location of the present road, it hasbeen estimated that about 10%. of the total traffic will remain on the presentroad to serve existing villages. With normal maintenance, the present roadwill be able to bear the very limited local traffic.

5.07 The consultants, assuming that the two sections of the Tegucigalpa-Talanga-Juticalpa road would be opened at the same time, forecast an averagetraffic increase of 9% per year; however, this will not be the case. Afteropening of the first section (Tegucigalpa-Talanga), the traffic will not in-crease at such a rate, since no important agricultural development can be ex-pected along thnis section. It is estimated that the traffic will increase by7' per year during the first five years after opening of the project road, andby 10'% per annum during the following five years, assuming that the Talanga-Juticalpa section would then be open. 1/ The rate of growth is assumed tobe 7%0 for the last 10 years of the economic life of the project road. Theremaining local traffic on the existing road is expected to increase by 5%per year as in the past (Table 10).

5.08 The proposed project includes construction of the first section,Tegucigalpa-Talanga, of the road to Juticalpa; this road will play a major

1/ Assuming an annual traffic increase of only 7% per year during the 30years of the project (in the eventuality of any delay in the construc-tion of the Talanga-Juticalpa section), the economic return will bereduced by only about 0.5% (para. 5.10).

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role in the development of the country. On the highways financed by previousBank loans, the benefits resulting from savings in vehicle operating costshave been largely transferred to the users by means of a reduction in therates charged by truck and bus operators (by about 30% on the Western High-

way and 50% on the North road). The opening of the new road, by reducing

vehicle operating costs, would lead to substantial reductions in rates andwould increase the competitiveness of agricultural production in the area

traversed by the road.

5.09 The fact that agriculture is presently limited to relatively smallareas of mountainous terrain in various parts of the country is responsiblefor the low productivity in the agricultural sector. More intensive use ofthe potentially productive valley lands is a most urgent need in the develop-ing of Honduran agriculture, and the new Government is considering coloniza-tion schemes to help remedy this problem. There are numerous areas whereagricultural production could be increased. The Olancho region (adjacentto Juticalpa) is one of the most fertile; it is one of the nearest to thecapital city and the Government owns a large part of it. The agriculturaldevelopment of this region would largely satisfy the increasing demand forbasic products (such as maize, rice and sugar) in Tegucigalpa. There isconsiderable land suitable for cotton production and, if ginning and trans-portation facilities in the Olancho region could be improved, production andexports could rise substantially, given the stimulus of currently high worldprices. Land is also suitable for meat production. Cotton and meat areamong those products for which export can be substantially increased in orderto maintain the general economic growth of Honduras.

5.10 There will thus be major developmental benefits from the construc-tion of the new Tegucigalpa-Talanga road. For the economic evaluation, thereadily quantifiable benefits only - reduced vehicle operating costs (includ-ing time saving) and lower maintenance costs 1/ - have been considered. Thevehicle operating costs are abnormally high on the present road due to thevery bad riding conditions and poor geometry. The new road will reduce thesecosts substantially by improving the riding surface, reducing the number ofcurves and increasing the average speed. Details of the vehicle operatingcosts are shown in Table 11. From a probability analysis, taking intoconsideration factors having a significant degree of uncertainty (trafficcounts, traffic forecast, construction cost, vehicle operating costs andtime cost), it appears that the most likely economic return would be about13% (giving a first year benefit/cost ratio of about 10%). Even by measuring

only the readily quantifiable benefits, the probability analysis shows thatthe economic return will have a 75% probability of being higher than 10%.

Details of the probability profiles assumed in the calculations and the re-

sults are indicated graphically in Annex 4.

1/ Maintenance costs have been estimated by the consultant HHK at 2,000 +

0.67 (ADT) Lempiras per km on the new road and 600 + 8 (ADT) Lempirasper km on the old one; these figures are acceptable.

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5.11 The economic evaluation of the improved road does not take intoaccount (a) the possible eventual installation of a steel plant in Agaltecanear Talanga, which is now being considered by the Government; or (b) thepossible construction of an international airport near Talanga.

C. Improvement of Secondary and Feeder Roads

5.12 The project includes improvement of one secondary road (45 km) andfive feeder roads (80 km) and construction of one bridge located on one ofthe feeder roads (Table 8). Thle proposed investment will consist of upgrad-ing poor gravel or earth roads into all-weather roads by gravel surfacing andsmall drainage works. The present ADT on the roads selected ranges from 100to 273. By their developmental effect, these roads will generate importanttraffic; however, since very little information is available on the pasttraffic growth, the future traffic is assumed to increase at the same rateas the annual average increase of the total traffic in Honduras measured bythe increase in fuel consumption - about 5% per year (para. 3.04 and Table 4).

5.13 The improved roads will stimulate colonization and development inthe area by providing all-weather roads and by reducing transport costs. Thesmall farms along the roads will increase production, with the possibility ofenter:Lng the national market. The project will benefit about 150,000 inhab-itants (6% of the total population). Even measuring only readily quantifiablebenef:its based on vehicle operating costs (see detail in Table 3) resultingfrom the Droposed road work (these discounted over eight years for the feederroads and 15 years for the secondary road), the economic returns range from10% to 42% (19% for the program as a whole), and are high enough to justifythe proposed work.

5.14 The 200 m bridge to be built over the Ulua river on the La Ceibita-San INicolas road w4ill provide an all-year-round exit for agricultural productsin the areas between the Ulua river and the Atima mountains. Presently, theroad is closed about half of the year for lack of a bridge. The benefit fromthe bridge construction tias been computed by taking into consideration onlythe generated traffic and, by doing so, considering the developmental effectof the bridge for tne area to be opened (about 200 sq kmi). The generatedtraffic ihas been estimated by the consultants BR to be approximately 200vehicles per day. (Present traffic is about 120 vehicles per day.) Theeconomic return for the bridge construction is about 12% computed over 25years.

6. AGREEMENTS REACHED AND RECO0,MNDATION

6.01 During negotiations, agreement was reached with the Government onthe following:

(a) Enforcement of regulations on axle limits of vehicles(para. 3.12);

21 -

(b) Increase of budgetary allocations for highway maintenance(para. 3.17);

(c) Construction, including paving, of an 800 m section of roadwithin Tegucigalpa (para. 4.03);

(d) Reconstruction of the secondary road and construction of thebridge to be carried out only after their economic feasibility

has been confirmed (para. 4.05);

(e) Engineering for the feeder roads not to be undertaken untiltheir economic feasibility has been demonstrated (para. 4.07);

(f) Terms of reference for ithe planning experts and the schedulefor implementation of the technical assistance to be satis-factory to the Bank (para. 4.08);

(g) Procedure for dealing with the special contingency allowanceof 15% of construction costs of the Tegucigalpa-Talanga road(para. 4.13);

(h) Provision of local costs for the project (para. 4.16);

(i) Terms and procedures for retaining consultants (para. 4.19);

(j) Procurement arrangements for civil works (paras. 4.20 and4.21).

6.02 The proposed project provides a suitable basis for a Bank loan of

US$18.8 million for a term of 30 years, including a five-year grace period.

May 4, 1973

TABLE 1

HONDURAS

SIXTH HIGHWAY PRDJECT

Public Investment (Transportation)

(Leipiras-Millions)

ACTUAL:

Year Highways Ain2orts National Railways Ports Total

1965 9.0 0,3 0.1 - 9.4

1966 9.1 0,4 0.8 - 10.3

1967 10.0 1.D2 3.0 - 14,2

1968 21.1 1.3 0.5 2.5 25,4

1969 32.0 1.2 2.1 8.6 43.9

1970 44.9 1.7 1.3 2,1 50,0

1971 42.6 0.2 1i1 1.2 45.1

1972(Estimate) 25.8 3.5 0.7 3.4 33.4

FORECAST: /

1973 37.0 2.5 0,8 3.6 43.9

1974 38.3 4.0 10o 4.6 47.9

1975 41.6 14.1 1.1 7.3 54.1

1976 41.1 5.4 1.2 6.6 54.3

1977 43.6 15.3 1.3 5.0 55,2

i/ 1972-1977 Transport Investment Program (para. 2.13).

Source: Secretar'a Tecnica del Consejo Superior de Planificacion Econ6mica -December 1972.

January 1973

TABLE 2

HONDURAS

SIXTH HIGHWAY PROJECT

Development of the Highway Network 1960-1971(in kilometers)

YEAR PAVE GRAVEL EARTH TOTAL

196C' 110 3,118 3,229

1961 345 3,,040 3,385

1962 380 3,025 3,05

1963 380 3,057 3,437

1964 382 1,805 1,1408 3,595

1965 407 1,852 1,380 3s639

1966 407 1,928 1,713. 4,048

1967 416 1,978 1,955 4,349

1968 472 2,120 1,978 4,570

1969 622 2,102 2,004 4,728

1970 745 2,162 2,033 4,940

1971 1,168 2,988 1,433 5 ,589

Source: SCOPT, December 1972

January 1973

TABLE 3

HONDURAS

SIXTH HIGHWAY PROJECT

Vehicle Registration 1960-1971

1/YEARS TOTAL CARS BUSES TRUCKS- VARIOUS

1960 10,989 5,505 1,269 3,914 301

1961 11,338 5,680 1,334 4,001 323

1962 11,606 5,850 1,407 4,025 324

1963 14,329 7,476 1,661 4,881 311

1964 16,002 8,759 1,217 5,9o9 117

1965 18,797 10,273 1,526 6,682 316

1966 21,609 11,786 1,784 7,871 168

1967 22,570 12,042 1,704 8,784 30

1968 24,748 11,045 1,982 11,617 104

196° 27,526 12,25h 2,198 12,950 125

1970 28,706 12,630 2,296 13,492 288

1971 30,733 13,765 2,066 14,755 28

1/ Including small pick-ups widely used in Honduras which for statistical

purposes are classified as trucks.

Source: Direccion General de Estadisticas y Censos, December 1972.

January 1973

TABLE 4

HONDURAS

SIXTH HIGHWAY PROJECT

Vehicle Fuel Consumption 1963-1972

(Thousand cubic meters)

Year Gasoline Diesel Total

1963 15.6 9.8 25.4

1964 16.4 10,2 26.6

:1965 17,2 10.7 27.9

1L966 18.1 11.3 29.4

:L967 18.9 11l5 30.9

1L968 19.9 12.4 32.3

1969 209 13.1 34.0

J3970 21,9 13.7 3507

197:1 23.1 14. 4 37.5

1972 j 24.2 15.1 39.4

Annual Rate of Growth

1963-1972 - 5% (Both for gasoline and diesel).

!/ Estimated

Source: Consultants HHK and oil conpanies, December 1972.

January 1973

TABLE 5

HONDURAS

SIXTH HIGHWAY PROJECT

Highway Expenditures 1965-19711,Lempiras-Millions)

Year Studies Construiction Maintenance Administration Total

1965 1.3 7.7 4.3 3.6 16.9

1966 0.3 8.8 2.8 2.8 14.7

1967 1.3 8.'7 4.0 2.9 16.9

1968 2.1 19.( 3.1 2.9 27.1

1969 2.0 30.0 5.6 4.6 42.2

1970 1.7 43.2 3.8 2.3 51.0

1971 - 42.6 4.2 1.1 47.9

Source: SCOPT, December 1972

January 1973

TABLE 6

HONDURAS

SIXTH HIGHWAY PROJECT

Road User Charges (thousands of Lempiras)

1969 270 1971

Registration of new vehicles 51.1 62.3 60.1

New Vehicle Sala Taxes 1,569.7 1,844.9 1,84. 5

Die sel and Gasoline Taxes 4,657.7 8,744.6 9,700.0

Import Taxes 1,523.1 1,833.7 1,845.7

Driving Licence 57.6 82.6 88.3

AnnuLl Taxes on Vehicles 1,169.6 1,290.9 1,432.3

A=ium,a "Tags!! 188.3 208.5 240.6

Total 9,217.1 14,067.5 15,208.5

Source: SCOPT - December 1972

JanuELry 1973

TABLE 7

HONDURAS

SIXTI HIGHWAY PROJECT

Design Standards for the Te2!cigalpa-Talnga Road

Type of Terrain

Design_Elements !Mountainous Very Undulating Undulating Flat

Design Speed km.h 50 60 80 100

Min. passing sight distance m. 350 425 550 675

Min. radius of curvature m. 60 100 200 300

Maximum grade % 8% 6% 4% 4%

Platform width m. 10.10 10.10 10.10 10.10

Pavement width m. 7.30 7.30 7.30 7.30

Shoulder width m. 1.40 1.40 1.40 1.40

Design loading of bridges AASH0 HS 20-44

Width of rightŽ-of-way m. 50.00 50.00 50.00 50.00

Favement design Premix bituminous surfacing 5 cm. thick

Source: Consultants and SCOPT - Decenmber 1972

January 1973

TABLE 8

HONDURAS

SIXTH HIGHWAY PHOJECT

Civil Works other than the Tegucigalpa-Talanga Road

PreliminaryCost Internal

Length ADT Estimates Economickm 1972 (Lempiras) Heturn

A. Comayagua--La Libertad 45.0 125 1,700,000 14 %Secondary roa -'.o berecons tt ructed_/L

3. Feeder roads t2/bereconstructed -

1. Casa Quemada-Azacualpa 11.5 105 230,000 18 %

2. 9tisLern Highway-Quimistan- 7.0 269 150,000 42 %

Fina.La,j

3. La Ceibita-San Nicclas 14.0 130 300,000 29 %

Lt. Tholutsca-Crocuina-Apacilagua 28.0 120 730,000 10 %

5. 2romaYagy1aa-La Paz 19-5 273 570,000 29 %

Sab-Total 80.0 2,000,000

ZO0 m long, Bridge over the 800,000 12 %ulua River to be constryuted(along road B 3 above)

TOTALS 125.0 4,500,000

1/ Detailed engineering to be prepared.

2/ "Light"' engineering to be prepared (para. 4.06).

Vehicle Operating Cost on the Above Roads

Without improvement with Improvement

Average Cost in centavos Average Cost in centavosSpeed pa. -ehicle km Speed per vehicle kmper km per km

Private cars 48 14.0 56 9.0Buses 32 26.7 56 15.0Trucks 24 49.1 32 30.0

Source: Consultants BR, SCOPT and Mibssion Estimates, January 1973February 1,973

TABI&,9,

HONDURAS

SIXTH HIGHWAY PROJECT

Feeder Roads to the Tegucigalpa-Juticalpa

Road to be Studied

A. Roads that would require "light" engineering preparation:

Roads! Length (km)

1. Cedros-San Ignacio 13.7

2. Coyol Solo-El Porvenir 7.1

3. El Porvenir--El Terrero 5.2

4. San Francisco-San Luis 13.7

5. Access to arica 28.3

6. Access to Concordia 13.7

7. Access to Sialama 32.5

8. Salama-Silca 3.8

9. San Francisco de La Paz-Manto 25.0

SUBTOTAL = 143.0

B. Roads that would requ,ire full engineering studies:

10. Talanga*Ced,ros 24-5

11. Cedros-MinaLs de Oro 44.8

12. Juticalpa-Catacamas 40.7

13. Catacamas-Dulce Nombre de Culmi 58.9

14. Telica-San Francisco de La Paz 21.1

SUBTOTAL = 190.0

GRAND TOTAL = 333.0

Source: Consultants BR and SCOPT - December 1972

January 1973

HONDURAS

SIXTH HIGHWAY PROJECT

Traffic Forecast (Tegucigalpa-Talanga Road)

Annual Rate Annual Rate Annual Rateof Growth of Growth of Gr owth

1972 1976 1981 (1976-311) 1986 (1961-b6) 1991 1996 (1966-95)

Diverted Traffic 513 720 7 % 1159 10 %1/ 1626 2279 7 %

on New Road

Generated Traffic 114 160 7 % 258 10 %V 361 507 7 %on New Road

Total Trafific 627 880 7 % 1417 10 %/ 1987 2786 7 %on New Road

Local Traffic 57 73 5 % 93 5 % 118 151 5 %

(on existing roads) 460

T O T A L 460 684 953 1510 2105 2937

]/ Increase due to reconstruction of Talanga-Juticalpa Section (para. 5.07)

Source: Mission's estimates - January 1973

January 1973

TABLE 11

HONDURAS

SIXTCH HIGHWAY PROJECT

Vehicle Operating Costs (Tegucigalpa-Talanga Road)

Without improvement With improvement

Average Cost in 9 Average Cost inspieed centavos speed centavos

in i vokm. in kmVh v.km.

Private cars 29 18.2 64.4 9.3

Buses 26 51.5 57.9 23.5

Trucks II 18 54.9 51.0 18.6

Trucks III 17 76.2 43.6 28.3

j/ Including cost of time* The following values have been considered bycomputing the cost of time: private car driver, L 1.40; buses andpickup driver, L 0.75; and passenger, L 0.10. The cost of time willrepresent about 23% of the total cost for private cars, 30% for busesand 15% for trucks.

2/ Including private cars, all buses and pickup.

Source: Mission estimates - January 1973.

January 1973

ANNEX 1

HONDURAS

SIXTH HIGHWAY PROJECT

External Financing by Agencies other than the Bank Groun

A. BY THE EXPORT-IMPORT BANK AND USAID:

Dates of AmountAgreements US$ 000 Purpose

1. 1957 1.810- Construction of InterAmerican Highway2. 1958 5.000 Construction of Main Highways and Studies3. 1964 500 Construction of Forest Fire Access Roads4. 1965 5.200 Construction of Farm-to-Market Access Roads5. 1969 500 Studies of the Central Highway

13,010

B. BY THE INTERAMERICAN DEVELOPMENT BANK:

1. 1961 2,082 Construction of the Western Highway2. 1961 960 Pre-Investment Studies3. 1961 250 Pre-Investment Studies4. 1963 1,580 Construction of Access Roads5. 1965 10,130 Construction of the North Road6. 1967 5,275 Construction of the San Pedro Sula-Tela Road7. 1971 6,300 Construction of Access Roads; Purchase of

Maintenance Equipment26.,577

C. BY CABEI:~/Amount

From To US$ 000

1. 1964- 1970 2,026 Pre-Investment Studies2. 1965 1970 3,440 Construction Choluteca-Nicaragua Border Road3. 1968 1971 2.,900 Construction Danli-Las Manos Road4. 1968 1971 2,720 Construction Ocotepeque Guatemala Border Road5. 1967 1970 5,500 Construction Pto. Cortes-Guatemala Border Road6. 1965 1970 11,480 Construction of Tela-La Ceiba Road7. 1969 6,600 Construction Tegucigalpa-Danli Road8. 1970 475 Signalization and Traffic Control Equipment

35,14L

Sources: USAID; IDB and CABE]T Reports - December, 1972

I/ Export-Import Bank.2/ CABEI fiscal years - July 1 to June 30, same as Bank/IDA.2/ July 1, 1963 - June 30, 1L9640

January 1973

ANNEX 2

HONDURAS

SIXTH HIGHWAY PROJECT

Details of IDB Loan 291/SF-l10for Highway Maintenance

In 1.971 the IDB made a loan to Honduras (291/SF-HO) totaling US$6,300,000

which,among other items (construction of feeder roads and engineering services),

included an amount of US$2,623,C00 for maintenance purposes as follows:

(i) US$123,000 to finance consultants,or expert services, to assist

in improving SCOPT organization, accounting and audit systems,

road maintenance and equipment utilization; and

(ii) US$2,500,000 to finance (a) the purchase of maintenance and work-

shop equipment; (b) the improvement of' workshop or warehouse

installations; and (c) the construction and equipping of vehicle

weight control stations.

Consultants have been selected fortasks under (i) above and their services are

estimated to last for about three years.

Source: .DB Technical and Financial Report -

Feeder Road, Construction and Maintenance Project, August 1970.

February 2.973

ANNEX 3

HONDURAS

SIXTH HIGHWAY PROJECT

SchLedule of Disbursements

Cumulative DisbursementIBRD/IDA Fiscal Year at End of Quarter

and Quarter EnT_ng (US$ Thousands)

1973/74

September 30, 1973 50

December 31, 1973 1,800

March 31, 1974 2,600

June 30, 1974 3,600

1974/75

September 30, 1974 4, 600

December 31, 1974 5,600

March 31, 1975 7,000

June 30, 1975 9,000

1975/76

September 30, 1975 11,000

December 31, 1975 12,500

March 31, 1976 15,000

June 30, 1976 16,500

1976/77

September 30, 1976 17,800

December 31, 1976 18,800

Assunptions:/ Bids Evaluated: July 1973Contract Award: August 1973(Loan Effective: September 1973)Start of Conlstruction: October 1973Construction Completed: December 1976

For main comoonent of project (Tegucigalpa-Talanga Road).

Sou,rce: SCOPT and Appraisal M4ission - January 1973.

March 1973

HIONDURAS ANNEX 4J77~~~~~ -~ ~ ~ ~ ~ 77age1~~~~~ ag7\ j S]?r$JH HIGHWAY P R ag

Probability An

'~~~~~~I !-i ' I _ _ _ -- 1 - - - - , - .- .

Figure 1: CQnstruic1ion Qo6t| Figure 2% Traffic Counts

15 sg40 17 13~~~___ - - - rv- ---_ _I

-10% -5% 5% l% 15% 20% 25% 30% D -10% -5% 5% 1 15%

Figure 3: Traffic Growth Figure 4: Time Cost

25 50 25

19 15 40 115 10 -

-40% -30% -20%-10% 9 10% 20% i30% 40%3' -20% -10% 0 +10% +2 %

\ . | { . 1 E e~~~~~~~~igr, 6: Vehicle OpIerat'ing. Figure Vehicle Operatir,g Cos CostCs - Nic Road

|ld Road

81 10 Io Li

-4%.-30%N -Zo% -io% 0 10% 20% 3Q% I .20% -10% 0 10% 2 %

g . . l ; g . . > t , . i , -5%' 5%.DO V.riation in ,percenti arouod the best s#im,ate. , - ___, _

P: Probabilities.

+100 -%----- _________ ________ Annex 4%,-28-t'- 1 o o * I 8 t 11 ' ,2 2j Page 2

Fig4 e 7 Probabilities ..

8 9 -- F----1---- -------- /tt7 0 r ~~~~~~~- -- -- r---.- - - -. - -"-- - ---- - --- /f----- --

ProbabiliI4 that rate/Of raturn is less tha.the value shown.

60

50 °= _ Density ofProbability

40-~~~~~~~~1Probability of Ratof Return being niorthan- l0 is 7 3\%

30

/- i lRate of20 Return

3 7 I 15 19 23

1 25%

10 Most probable value about 13%

7 9 11 13 15 17 19 21%May 1973 Rate of Return

HONDURASSIXTH HIGHWAY PROJECT

ORGANIZATION CHART OF THE

SECRETARIAT FOR COMMUNICATIONS, PUBLIC WORKS AND TRANSPORT

SECTORAL PLANNING SECRETARY ADVISORY COUNCIL

OFFICE CAVARD AND REVIEW

UNDER SECRETARIES OF CONTRACTS

rSENIOR

| TECHNICAL | | ~~~~~~~~~LEGALADVISOR O~'''~' | ADVISOR

ADMINISTRATlO

COORDINATION BY THE COORDINATION BY THE

UNDER SECRETARY FOR UNDER SECRETARY FCR

COMMUNICATIONS _PUBLIC WCORKS

AND TRANSPORT

G E N JE R A LD I R E C TIO R A T E S

TENANC F F AIPSTOFIESAEONUTCSGEGRPHCAND PUBLIC TRANSPORT

Wol Id Bo.,k - 7367

HON DU RASSIXTH HIGHWAY PROJECT

ORGANIZATION CHART OF THEGENERAL DIRECTORATE FOR HIGHWAYS

GENERAL

DIRECTOR

PLANNING AMNSRTO

AND RESEARCH

l l l g | l l l r | r~~~~~~~~~~~~~~~~COORDINATION

COORDINATION SUPERVISION OFHIGHWAY STRUCTURAL OF DESIGN RIGHT OF WAY OF SUPERVISORY

DESIGN DESIGN CONSULTANTS CONSTRUCTION SUPERVISCONSULTANTS ~~~~~~~~~~~CONSULTANTS

CENTRAL SULA

LABORATORY LABORATORY

VVn,ti R.nk _ 7-1rq

HONDURASSIXTH HIGHWAY PROJECT

ORGANIZATION CHART OF THE

GENERAL DIRECTORATE FOR MAINTENANCE

GENERAL DIRECTOR

ADMINISTRATION PROGRAMMINGI l | AND SUPERVISION

SEVEN MAINTENANCE 1 AIRPORT MAINTENANCE OF

DISTRICTS [ ENGINEERING J AND

r EOUIPMENT AND l rTRANSPORTATION WAREHOUSE

DEPARTMENT DEPARTMENT

SIGNALIZATION

AND HIGHWAY

TRAFFIC CONTROL

World Bank - 7369

. 9* .A.

SARSAMETA GUMAN*U IAAC

ISLANLt ISLAND ,

C A f/ S EfA N ROATAN ISLAND SEA SEA

LIMA ISLAND HONDURAS ,, >

611UE OF OOO,UU.UOAS a 5*G0

PUERIO CUSTILLA

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